GOLD Analysis
XAUUSD Gold price is moving in an Ascending channel and the market has reached the higher low area of the channel.
Due to positive US domestic data news published yesterday, gold prices have fallen from their recent highs. If more optimism persists in the US, the US debt ceiling limit may increase. Debt ceiling discussions are winding down by the hour, but they gave rise to expectations that the cap might be raised. The official announcement of raising the debt ceiling limit is anticipated to be made next week in order to prevent a US default on June 1.
After breaching the major short-term support lines during Tuesday’s decline, the price of gold is now holding lower at a two-week low near $1,990 early on Wednesday. However, despite the strong US Dollar and encouraging US economic data, the yellow metal struggles to live up to the expectations surrounding the extension of the US debt ceiling. In spite of the recent relief in the risk markets brought on by waning concerns about a US default, the gold price broke through key supports and experienced its biggest daily loss in almost a fortnight. Strong US data and hawkish Federal Reserve commentary may have contributed to the DXY run-up. According to a recent Reuters report, Democratic President Joe Biden and top congressional Republican Kevin McCarthy’s talks to raise the US debt ceiling on Tuesday ended after less than an hour because Biden was forced to cancel an upcoming trip to Asia due to the threat of an unprecedented American debt default. The meeting ended on an unexpectedly positive note, according to the news, as McCarthy predicted that a deal could be reached by the end of the week after his meeting with Biden and other congressional leaders.
Tuesday saw an increase in US retail sales for April from -0.7% to 0.4% MoM, beating the 0.7% forecast. More significantly, Retail Sales Control Group for the aforementioned month exceeded expectations of 0.0% and -0.4% prior with a 0.7% actual figure, while Retail Sales ex-Autos matched expectations of 0.4% MoM for April and outperformed expectations of -0.5% prior. Furthermore, despite expectations for a 0.0% reading, the US Industrial Production MoM increased to 0.5% for April. It should be noted that Richmond Fed Thomas Barkin stated in an interview with the Financial Times that there is no barrier in my mind to further increases in rates if inflation persists or, God forbid, accelerates. In a similar vein, Loretta Mester, president of the Cleveland Fed, said, “I do not think we are at that hold rate yet.” In the midst of these manoeuvres, the US Treasury bond yields continued to rise, and Tuesday saw losses on Wall Street, which in turn allowed the US Dollar to profit from the demand for haven assets. The Gold price continued to be under pressure as a result.
In addition to what has already been stated, negative data from China, one of the biggest consumers of gold worldwide, weighs heavily on the XAUUSD price. Additionally, worries about escalating West-Russian conflict and the dispute between the US and China put additional downward pressure on the price of gold. It should be noted that the effects of the recession are adding to the pressure on gold prices. Moving on, Wednesday’s light schedule might enable the price of gold to consolidate recent losses in the event that sentiments turn around. As a result, the risk catalysts will be watched for clues about the XAUUSD’s future direction.
USDJPY Analysis
USDJPY is moving in an Ascending channel and the market has rebounded from the higher low area of the channel.
Positive results for the JPY Q1 GDP, 0.4% versus 0.10% anticipated, are reported. The Bank of Japan’s dovish policy stance is supported by the fact that Japan’s inflation rate has decreased from 3.2% to 2.5% since the previous reading. Despite this, JPY did not rise more after today’s positive data release.
After a small correction below 136.50 during the Asian session, the USDJPY pair has started to move higher again. The major is attempting to retake Tuesday’s high at 136.68 as the Japanese Yen has struggled to gain strength despite encouraging Q1 GDP figures. Compared to estimates of 0.1% growth, preliminary Q1 GDP increased by 0.4%. The GDP growth was flat in the most recent quarter. Despite the lack of approval for an extension in the US borrowing cap to protect the US Treasury from defaulting on obligated payments, the US Dollar Index has turned sideways after failing to extend recovery above 102.70. The National Consumer Price Index data for Japan will be closely watched later this week. From the previous release of 3.2%, headline CPI is seen easing to 2.5%. Additionally, the core inflation rate is predicted to slow down from the previous 3.8% to 3.4%.
USDCAD Analysis
USDCAD is moving in the Descending triangle pattern and the market has reached the lower high area of the triangle pattern.
Canadian CPI data for April came in higher than anticipated, strengthening the CAD against other currency pairs. The Canadian CPI for April came in at 4.4% compared to 4.1%. The Bank of Canada reevaluates its cycle of rate increases in light of this reading and plans to use it in upcoming meetings.
Tuesday saw a rise in domestic inflation that was hotter than anticipated as a result of higher rent prices and mortgage interest rates, which helped the Canadian dollar gain ground against the US dollar. The annual rate of the Canadian headline CPI increased from 4.3% to 4.4% in April, a significant increase that exceeded consensus expectations in both cases by three-tenths of a percent. In light of this, the USDCAD declined 0.4% to 1.3407 in early morning trading, retreating for the second straight session, possibly signalling the return of sellers to the market.
Crude Oil Analysis
Crude Oil price is moving in the Descending channel and the market has rebounded from the lower low area of the channel.
After raising interest rates by 425 basis points since March 2022, the Bank of Canada recently announced the end of its tightening campaign, but noted that this was a conditional pause pending the evolution of the inflation outlook in line with forecasts. The CPI data from last month most likely satisfies this requirement. In this regard, BoC may soon indicate that it is prepared to resume raising borrowing costs or that, if consumer prices do not decline more quickly, it will maintain an aggressive stance for a longer period of time than the market discounts. The Canadian dollar should appreciate in response to a hawkish message.
USDCHF Analysis
USDCHF is moving in the Box pattern and the market has reached the resistance area of the pattern.
The European Commission is anticipated to give UBS permission to purchase Credit Suisse starting on June 7 of next month. Already, UBS agreed to purchase 3 billion Swiss francs’ worth of Credit Suisse stock, and in the month of March, 5 billion francs were lost. In the near future, the merger will help UBS take over and reduce financial stress in the Swiss region, which is good for SNB.
According to people familiar with the situation, UBS expects to receive unequivocal European Union antitrust approval for its proposed acquisition of struggling Credit Suisse, bringing the Swiss bank closer to closing the deal. In a shotgun merger arranged by Swiss authorities to prevent further market-rattling turmoil in the global banking sector, UBS and Credit Suisse agreed to merge in March for a price of 3 billion Swiss francs ($3.4 billion) in stock and to take on up to 5 billion francs in losses. The European Commission, whose preliminary review of the transaction is due to be completed by June 7th, and Credit Suisse declined to comment. UBS, which has twice the assets of Credit Suisse, did not respond to a request for comment right away. Both UBS and Credit Suisse are among the 30 globally significant banks that are closely supervised by regulators, and the failure of Credit Suisse would have an impact on the entire financial system.
USD Index Analysis
USD index has broken the Box pattern in upside.
In April, US retail sales were at 0.40% MoM, up from the previous reading of -0.70%. In April, US industrial production increased by 0.50% as opposed to the predicted 0.0%.
The hour-long meeting between US President Joe Biden and White House Speaker Kevin McCarthy came to an end, Congress anticipated an increase in the debt ceiling, and optimism remains. Nevertheless, a deal could still be reached by the end of next week.
Following a run-up to reverse the early week pullback from the highest levels in five weeks, the US Dollar Index oscillates around 102.60 in the early hours of Wednesday. This justifies optimistic US data and hawkish Federal Reserve (Fed) comments while also noting the most recent encouraging development regarding the US debt ceiling issue, according to the greenback’s gauge against six major currencies. The one-hour meeting between US President Joe Biden and top congressional Republican Kevin McCarthy raised hopes for a favourable outcome because congressional leaders said it was possible to reach a deal by the end of the week. The S&P Global Market Intelligence data is cited by Reuters after the news, noting a decrease in the one-year US Credit Default Swap spreads from 164 basis points to 155 bps. According to the news, spreads on five-year CDS dropped from 72 bps on Monday to 69 bps.
Austan Goolsbee, president of the Federal Reserve Bank of Chicago, and Raphael Bostic, president of the Atlanta Federal Reserve, recently defended the hawkish actions of the US central bank by pointing to inflation problems while speaking at a conference organised by the Federal Reserve Bank of Atlanta. In a previous interview with the Financial Times, Richmond Fed Thomas Barkin stated that there is no barrier in my mind to further rate increases if inflation persists or, God forbid, accelerates. President of the Cleveland Fed Loretta Mester concurred, saying, “I do not think we are at that hold rate yet. It is important to note that US Retail Sales increased in April from -0.7% in March (revised) to 0.4% MoM, beating the 0.7% forecast. More significantly, Retail Sales Control Group for the aforementioned month exceeded expectations of 0.0% and -0.4% prior with a 0.7% actual figure, while Retail Sales ex-Autos matched expectations of 0.4% MoM for April and outperformed expectations of -0.5% prior. Furthermore, despite expectations for a 0.0% reading, the US Industrial Production MoM increased to 0.5% for April.
In the midst of these manoeuvres, US Treasury bond yields continued to rise, and Tuesday saw losses on Wall Street. The S&P500 Futures, however, show modest gains by press time. Moving on, April’s US Building Permits and Housing Starts will adorn the calendar today and can amuse DXY traders. However, the US debt ceiling and Fed talks will receive the majority of attention in order to establish clear guidelines.
EURUSD Analysis
EURUSD is moving in the Descending channel and the market has reached the lower low area of the channel.
German ZEW and Euro Area Q1 GDP both increased by 0.10%. Economic optimism dropped from 6.4 to -9.4 from the previous reading. As a result of mixed-bag and weaker than anticipated data, the euro has lost value.
According to the second estimate released by Eurostat today, seasonally adjusted Q1 GDP increased by 0.1% in the Euro Area and by 0.2% in the EU compared to the prior quarter. The q/q and y/y data for the Euro Area matched the initial estimate from Eurostat. The most recent German ZEW economic sentiment indicator fell short of market expectations and reached -10.7, its lowest level since December 2022. Financial market experts predict that in the coming six months, the already unfavourable economic situation will get worse, according to data provider ZEW. As a result, even a slight recession could hit Germany’s economy. Expectations of additional interest rate increases by the ECB have contributed to the decline in the sentiment indicator.
GBPUSD Analysis
GBPUSD is moving in an Ascending channel and the market has reached the higher low area of the channel.
The MPC in the UK was expected to forecast 0.25% GDP in 2023 and 0.75% GDP in 2024, according to economists at UOB. The Bank of England decided to postpone raising interest rates at its June 22 meeting as the UK unemployment rate increased to 3.9% this week from 3.8% in the three-month average. The UK may maintain double-digit inflation at 10.0% and avoid a recession in the second half of the year.
The Bank of England will soon stop tightening its monetary policy. Investors should be aware that Andrew Bailey, the governor of the Bank of England, increased interest rates in May by 25 basis points to 4.50% in order to combat the double-digit inflation in the United Kingdom. The MPC no longer anticipates the UK economy going into recession this year; instead, they now anticipate GDP to grow by 0.25% in 2023 and by 0.75% in 2024. Before abruptly declining over the upcoming months, inflation is predicted to remain above 10%, largely due to declining energy prices. The MPC’s comfort level with pausing by the time of the next meeting on June 22 will heavily depend on new information and developments, they continued. We continue to believe that the BOE could pause as early as next month, though.
The UK’s employment data for Tuesday were also below expectations. In contrast to expectations and the previous release, the three-month unemployment rate increased to 3.9% from 3.8%. When compared to the street’s prediction of a 10.8K decline, the claimant count change for April soared to 46.7K. Additionally, Average Earnings without Bonuses came in at 6.7%, falling short of expectations of 6.8%. This strengthens the arguments in favour of the BoE pausing its policy-tightening phase. As the European Central Bank (ECB) is anticipated to raise interest rates further, the Euro is anticipated to perform relatively better in the interim. More than one interest rate hike is planned, according to ECB President Christine Lagarde.
GBPNZD Analysis
GBPNZD is moving in the Descending channel and the market has fallen from the lower high area of the channel.
Grant Robertson, the New Zealand finance minister, stated that the annual budget demonstrates fiscal sustainability and inflation control. Tomorrow sees the long-awaited release of the New Zealand budget. Positive expectations for this budget aid Kiwi in maintaining its competitive edge over counter pairs.
The stress surrounding Thursday’s annual budget announcements in New Zealand is another obstacle for the Kiwi pair buyers, the expectation of a positive New Zealand budget and likely increased Chinese investment, as indicated by early comments from Grant Robertson, the finance minister of New Zealand, and the State Planner of China, the National Development and Reform Commission of the People’s Republic of China, allows the NZD pair to remain firmer. As the government does its part to keep inflation in check, Robertson previously said that the government budget would place a focus on fiscal sustainability. Nevertheless, China’s NDRC recently stated that it would take steps to maximise consumer spending and would continue to work towards stabilising and increasing manufacturing investment.
Prior to the New Zealand budget, ANZ stated that local participants are starting to assess the Budget, with the bond markets anxious about bond supply and FX markets concerned about how credit rating agencies will perceive the Budget, hoping for a tick but fearing the opposite.
AUDCAD Analysis
AUDCAD is moving in the Box pattern and the market has reached the horizontal support area of the Box pattern.
Due to the conflicting data of the wage price index released today, the Australian dollar declines. The People’s Bank of China announced that they would add stimulus to encourage manufacturing investments and help the economy recover from the effects of COVID-19 before tomorrow’s AUD employment change data is scheduled.
The Australian Dollar is under downward pressure domestically due to headlines indicating the cancellation of the quadrennial meeting in Australia and the mixed Aussie wage price index. According to Reuters, Australia’s Prime Minister Anthony Albanese stated, After Biden postponed a trip to Sydney on the second leg of his upcoming Asia trip, which also included a visit to Papua New Guinea, the leaders of Australia, the United States, India, and Japan would instead meet at the G7 in Japan this weekend.It is important to note that Australia’s Wage Price Index for the first quarter of 2023 repeated 0.8% QoQ results, which were below the 0.9% market consensus. However, the YoY numbers improved to 3.7% versus 3.6% expected and 3.3% previous readings. Additionally, the AUD prices should have benefited from expectations of increased Chinese investment, but this did not happen given the most recent shift in sentiment. The People’s Republic of China’s National Development and Reform Commission (NDRC), China’s state planner, recently announced that it would take steps to maximise consumption potential and keep working to stabilise and increase manufacturing investment. If the anticipated Australian jobs report shows positive results, the Reserve Bank of Australia’s (RBA) hawks may be able to defend their most recent rate increases and permit the pair to consolidate its recent losses.
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