Author: forexstra

US Dollar, DXY Index, USD, OPEC+, WTI, Brent, Crude Oil, Debt Ceiling – Talking Points

The US Dollar held onto Friday’s gains to start the week on lofty Treasury yieldsOPEC+ cut production with Saudi Arabia playing a key role to hoist oil pricesWith the debt dilemma out of the way, perceptions of Fed rates could be the USD driver

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The US Dollar added modest gains to Friday’s rally on Monday as markets digest the OPEC+ production cut agenda that was announced over the weekend.

USD had been assisted by a mixed jobs report on Friday that was overall seen as more positive than negative. Currency markets have had a quiet start to the week so far.

339k jobs were added in May according to the non-farm payrolls data. This beat the 195k anticipated and there was also an upward revision to the April figure to 295k from 253k.

However, the unemployment rate ticked up to 3.7% from 3.4% previously and above the 3.5% anticipated.

APAC equity indices have generally had a positive day after Wall Street notched up decent gains in their cash session to end last week after the resolution of the debt ceiling deal lifted the mood. Futures are pointing toward a subdued start to Monday.

The mood was buoyed by China’s Caixin services PMI May reading of 57.1 instead of the 55.2 expected and 56.4 prior.

The OPEC+ announcement of a reduction in oil production output among the cartel saw Saudi Arabia bearing the brunt of cutbacks. They will be reducing their contribution to global supply by 1 million barrels per day.

The UAE received an increase in its production target while Russia’s remains unchanged.

Crude spiked higher on the open today but has since given up a chunk of the gains although prices are still above where they closed the Friday session.

The WTI futures contract is near US$ 72.50 bbl while the Brent contract is a touch below US$ 77 bbl. Live prices can be viewed here.

Treasury yields have remained elevated to start the week with the 1-year bond remaining near the 23-year high above 5.30%.

June 14th is the next Federal Open Market Committee (FOMC) meeting, and the blackout period began over the weekend. This means that committee members will not be making any public comments about policy until after the gathering.

Looking ahead, after the Swiss CPI and Eurozone PPI, the US will see factory and durable goods orders data. Tomorrow the RBA will decide on monetary policy followed by the Bank of Canada on Wednesday.

Check the calendar for more events.

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How to Trade EUR/USD

DXY (USD) INDEX TECHNICAL ANALYSIS

The DXY index appears to be in a short-term sideways pattern for now. Resistance might be in the 104.70 – 104.80 area where last week’s high was as well as the 76.4% Fibonacci Retracement.

On the downside, support may lie at the recent low of 103.38 or the breakpoint of 102.80.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter

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BRENT CRUDE OIL ANALYSIS & TALKING POINTS

Russia finding it tough to cut production the rest of OPEC+ seeks higher prices.Light economic week ahead gives places more emphasis on OPEC+.Weekly Brent crude chart may point to higher prices.

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Get Your Free Oil Forecast

BRENT CRUDE OIL FUNDAMENTAL BACKDROP

For crude oil prices (WTI and Brent), the OPEC+ meeting on June 4th, 2023 will be a critical juncture for oil markets. Of recent, friction between two of the most influential nation within the cartel, Russia and Saudi Arabia; have been growing. The problem stems from OPEC+’s pledge to limit supply while Russia continues to flood the market with cheap Russian oil. In summary, Russia has been contradicting the efforts by Saudi Arabia to elevate the price of crude oil.

From a Russian perspective, demand for their oil by major nations such as India have been keeping the cash strapped Russia afloat in an environment where international sanctions have left Russia with no choice but to extend this important economic lifeline.

Foundational Trading Knowledge

Commodities Trading

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Another worrying sign for OPEC+ is the lack of optimism around the Chinese economy with last week’s NBS manufacturing PMI remaining in contractionary territory reaching yearly lows at 48.8. If this trend continues OPEC+ will likely further production cuts in future meetings. The uncertainty around today’s makes for a heightened sense of anticipation. Many are expecting another cut but OPEC+ may use this meeting to signal to markets that they have the capacity to disrupt supply/demand dynamics should they need to but adopt a wait and see approach. This may be the most likely scenario considering the U.S. dollar’s recent rally may be fading after dovish Fed speak alongside a higher unemployment rate and clarity around the US debt ceiling. Although the recent Non-Farm Payroll (NFP) headline figure exceeded estimates, a decline in average earnings may help support crude oil prices as upside pressure in inflation may be declining.

The economic calendar (see below) is rather light this week barring the OPEC+ meeting but both the weekly API and EIA crude oil stock change figures will be in focus as recent numbers have shown a growing crude inventory build.

U.S. ECONOMIC CALENDAR (GMT +02:00)

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

Introduction to Technical Analysis

Candlestick Patterns

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BRENT CRUDE OIL PRICE CHART (WEEKLY)

Chart prepared by Warren Venketas, IG

Weekly Brent crude oil price action shows rejection of the 200-day moving average (blue) with the recent candlestick forming a lower long wick. Traditionally, this points to impending upside to come but will ultimately be decided by OPEC+ guidance.

BRENT CRUDE OIL PRICE CHART (DAILY)

Chart prepared by Warren Venketas, IG

The short-term term daily chart above reflects the hesitancy in oil markets as the Relative Strength Index (RSI) hovers around the midpoint level indicating markets favoring neither bullish nor bearish momentum.

Key resistance levels:

80.0050-day MA (yellow)77.23

Key support levels:

IG CLIENT SENTIMENT: MIXED

IGCS shows retail traders are NET LONG on crude oil, with 81% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, due to recent changes in long and short positioning we arrive at a short-term cautious disposition.

Contact and followWarrenon Twitter:@WVenketas

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GBP/USD Prices, Charts, and Analysis

Little domestic economic data or events next to guide Sterling.GBP/USD clients have turned net short.

Recommended by Nick Cawley

How to Trade GBP/USD

The British Pound has had a strong week, making multi-week gains against a range of other currencies. The British Pound is up over 2 big figures against the US dollar on the week, over one big figure against the Euro, and by around one-and-a-half big figures against the Japanese Yen. The recent UK inflation report, showing price pressures easing but at a slow rate, has increased expectations that the Bank of England will have to continue hiking interest rates in the short term to help bring inflation back to target. Against this, current market thinking is that the Federal Reserve will likely pause its recent rate hike program this month and that the ECB may temper is program after recent Euro Area data showed inflation easing at a better-than-expected pace. In Japan, the new BoJ governor recently said that monetary policy conditions will remain loose until inflation meets the central bank’s target on a sustainable basis.

Next week’s economic calendar is light of any domestic, market-moving economic data or events, while the global calendar is also relatively thin of high-impact events.

For all market-moving events and data releases see the real-time DailyFX Calendar

Cable is back above 1.2500 after briefly flirting with 1.2300 at the end of last week and the technical setup looks positive. While this week’s rally has pushed the pair into overbought territory, GBP/USD is currently above all three simple moving averages for the first time since mid-May. The overbought signal may slow down any move higher, but a pushback through 1.2547 may see cable testing May’s multi-month high in the coming weeks.

GBP/USD Daily Price Chart – June 2, 2023

The move lower in EUR/GBP is slightly more striking than cable’s move with the recent sell-off showing an unbroken series of red candles. The pair trade below all three simple moving averages with both the 20- and 50-dmas crossing below the longer-dated 200-dma. Support may come into play shortly at 0.8549.

EUR/GBP Daily Price Chart – June 2, 2023

GBP/JPY has been in a fairly unbroken uptrend since late March and today traded at its highest level since February 2016. With the Bank of Japan continuing to keep monetary policy loose, further gains in the pair may be seen in the weeks ahead. The chart is positive with 175 and 177 attainable levels. Care should be taken over commentary from the BoJ as they have a track record of verbal intervention when the Yen weakens excessively.

GBP/JPY Daily Price Chart – June 2, 2023

All Charts via TradingView

of clients are net long.



of clients are net short.

Change in

Longs

Shorts

OI

Daily
14%
-25%
-9%

Weekly
-11%
12%
-1%

GBP/USD Retail Traders are Now Net-Short

Retail trader data show 41.24% of traders are net-long with the ratio of traders short to long at 1.42 to 1.The number of traders net-long is 15.91% lower than yesterday and 27.59% lower from last week, while the number of traders net-short is 23.13% higher than yesterday and 41.47% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bullish contrarian trading bias.

What is your view on the British Pound – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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Crude Oil, OPEC+, WTI, US Dollar, Economic Data, Treasury Yields – Talking Points

Crude oil found firmer footing going into the Friday session after dippingThe June OPEC+ meeting could see some action with conflicting views among membersThe technical picture might be saying something. Will WTI resume rallying?

Recommended by Daniel McCarthy

How to Trade Oil

The crude oil price went to a three-week low yesterday before staging a solid recovery with markets taking onboard some positive economic news and the US Dollar facing some headwinds. The market is now focusing on the OPEC+ meeting that kicks off this weekend.

China’s better-than-expected Caixin PMI got the ball rolling, compensating for Wednesday’s weak official PMI reading. Japan’s private capital expenditure was a beat, as was the US ADP jobs data. Eurozone CPI eased as well, further buoying the mood.

Not every piece of data was rosy, and all the statistics can be found on the economic calendar here. Markets also appear to be optimistic that the US debt ceiling deal will pass through the Senate late Friday.

It seems that Treasury yields slid lower on the prospect of a resolution and might continue to do so should the vote pass without incident. The benchmark 2-year note is around 30 basis points lower from the peak seen at this time last week of 4.64%.

The US Dollar weakness was broad-based with the global growth-orientated Australian Dollar seen as the largest beneficiary. Industrial metals have also notched up notable gains in the last 24 hours.

For the oil market, the focus will be on the OPEC+ meeting that will begin this Sunday in Vienna. A number of top officials from the oil-producing nations have been making ructions around production targets.

Of intrigue is the lack of coherency between the commentary and this places significant focus on this gathering. The cut to production announced by the cartel in early April saw a price gap higher in oil.

Headlines emanating from this assembly may trigger volatility to start next week.

Updated crude oil prices can be found here.

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WTI CRUDE OIL TECHNICAL ANALYSIS

The WTI crude oil front month futures contract made a low at 67.03 yesterday which was just above a breakpoint at 66.82. These levels may provide support, as well as the breakpoints and prior lows of 66.12, 64.36, 63.64, 62,43, 61,74 and 61.56.

After making that low, it rallied and the price action has now created a Bullish Engulfing Candlestick formation and could indicate that a bullish reversal could unfold.

On the topside, resistance might be at the previous peaks at 74.73, 76.92 and 79.18 ahead of the cluster zone in the 82.50 – 83.50 area.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter

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US Dollar, Japanese Yen, USD/JPY – Price Action:

Earlier this month, USD/JPY rose above the key 138.00 resistance.However, it might be premature to assume the start of renewed period of USD/JPY strength.What is the outlook for USD/JPY and what are the signposts to watch?

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There are a couple of things that stand out on the charts of the Japanese yen against the US dollar and the closely correlated US Treasury yields recently that could have implications for the trend in the coming weeks.

On the monthly charts of USD/JPY, despite the near 10% rally from February, there is hardly any noticeable improvement in momentum (14-month Relative Strength Index). The last time a similar development took place, the spot subsequently went sideways for months. Such conditions typically signify an ‘unwinding’ of bullish conditions, instead of a renewed leg higher. Eventually, momentum normalized to a level that created the foundations in 2021 for a big rally.

USD/JPY Monthly Chart

Chart Created Using TradingView

This time around, USD/JPY has achieved its measured target of 50.00 – equal to the 2012-2015 bullish move. So, in a sense, it has ‘done its part’ for now (the risk is that the extension turns out to be more than 100% of the move).

US Treasury 10-year Yield Weekly Chart

Chart Created Using TradingView

Similarly, momentum (14-month RSI) on the US Treasury 10-year yield monthly chart hasn’t improved materially, even as the yield has most recently broken above key resistance at the April high of 3.64%. The yield continues to be in a well-established downward-sloping range (see the weekly chart).

USD/JPY Quarterly Chart

Chart Created Using TradingView

From a longer-term perspective, as highlighted at the end of 2022 (see “Japanese Yen Q1 Technical Forecast: USD/JPY to Consolidate Further”, USD/JPY posted a bearish reversal candle on the quarterly charts in December at significant converged resistance. Similarly, the US Treasury 10-year yield has struggled to clear the stiff converged barrier on the 89-quarter moving average, near the upper edge of the Ichimoku channel on the quarterly charts.

US Treasury 10-year Yield Quarterly Chart

Chart Created Using TradingView

The upshot of the above is that the break above 138.00 barrier may not be a sign of renewed strength in USD/JPY. Indeed, it could be part of a broader sideway range developing. If past is any guide, there needs to be a significant build-up in momentum or the bullish conditions would need to be unwound enough to set the stage for a renewed bullish cycle.

USD/JPY Daily Chart

Chart Created Using TradingView

Having said that, there are no imminent signs of a reversal even as USD/JPY has encountered some hurdles, including the upper edge of a rising channel from January (see the daily chart). As the colour-coded 240-minute candlestick charts show, based on trending/momentum indicators, USD/JPY remains in a broad bullish phase from a short-term perspective. Unless it falls below immediate converged support at 137.75-138.50 (including the 89-period moving average and the early-May high), the path of least resistance remains sideways to up for now.

USD/JPY 240-minute Chart

Chart Created by Manish Jaradi Using TradingView

Note: In the above colour-coded charts, Blue candles represent a Bullish phase. Red candles represent a Bearish phase. Grey candles serve as Consolidation phases (within a Bullish or a Bearish phase), but sometimes they tend to form at the end of a trend. Note: Candle colors are not predictive – they merely state what the current trend is. Indeed, the candle color can change in the next bar. False patterns can occur around the 200-period moving average, or around a support/resistance and/or in sideways/choppy market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.

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— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish

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Gold, XAU/USD, XAU/EUR – Price Action:

XAU/USD is holding above crucial support, thanks to the retreat in US Treasury yields.XAU/EUR has struggled at key resistance area.What is the outlook and key levels to watch in XAU/USD and XAU/EUR?

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Gold rose on Tuesday, tracking the decline in US Treasury yields after a deal in Washington to raise the government’s debt ceiling, potentially averting a catastrophic government default. But is the short-term downtrend in the yellow metal over?

Yields on near-end US Treasury bills fell sharply even as the deal needs to secure blessings from Congress before June 5, when the Treasury Department could run out of funds to pay its debts. A vote on this is expected to occur in the House on Wednesday which gives the Senate time to consider it before June 5.

XAU/USD 240-minute Chart

Chart Created by Manish Jaradi Using TradingView; Notes at the bottom of the page.

However, the upside in gold could be capped by growing odds of another rate hike by the US Federal Reserve at its next meeting. Markets are pricing in a 60% chance of a 25 bps Fed rate hike at the June meeting up from 25% about a week ago, according to the CME FedWatch tool.

XAU/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView; Notes at the bottom of the page.

XAU/USD: Short-term trend remains down

On technical charts, XAU/USD remains within a well-defined downtrend channel since early May on the 240-minute charts, a point reinforced by colour-coded candlestick charts, based on trending / momentum indicators. For the immediate downward pressure to fade, the yellow metal needs to break above the 1985-2000 area (including the 200-period moving average and the late-March high on the 240-minute charts).

XAU/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView

On the daily charts, as the colour-coded candlestick charts show, the trend has moved to a consolidation phase within the overall bullish structure. If history is any guide, consolidations can extend from a few days to a few weeks. So far, gold is holding above quite a strong cushion around 1930, including an uptrend line from the end of 2022, the 89-day moving average, and the lower edge of the Ichimoku cloud on the daily charts. This support is crucial, and any break below could open the door toward the 200-day moving average (now at about 1835).

XAU/USD 240-minute Chart

Chart Created by Manish Jaradi Using TradingView

Beyond the daily charts, in recent months, the momentum on higher timeframe charts has been a concern – see previous updateson March 28,April 16,April 24,May 10, May 17, and the most recent “Is the Downward Correction in Gold Over?”, published May 22.

XAU/EUR Monthly Chart

Chart Created by Manish Jaradi Using TradingView

XAU/EUR: Slowing momentum on higher timeframe charts

Like in the case of XAU/USD, the momentum on higher timeframe charts has slowed even as XAU/EUR has made new highs in recent months. Most recently, gold has failed to cross above the March highs of 1865-1885 against the euro. Any break below an uptrend line from early 2021 (at about 1725) would indicate that the upward pressure had faded in XAU/EUR.

Note: In the above colour-coded charts, Blue candles represent a Bullish phase. Red candles represent a Bearish phase. Grey candles serve as Consolidation phases (within a Bullish or a Bearish phase), but sometimes they tend to form at the end of a trend. Note: Candle colors are not predictive – they merely state what the current trend is. Indeed, the candle color can change in the next bar. False patterns can occur around the 200-period moving average, or around a support/resistance and/or in sideways/choppy market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.

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— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish

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US Dollar, Euro, EUR/USD, EUR/GBP, EUR/AUD – Outlook:

EUR/USD is beginning to look a bit oversold within the short-term downtrend.EUR/GBP and EUR/AUD are looking heavy.What is the trend and the key levels to watch in key Euro crosses?

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The euro is beginning to look a bit oversold at least against the US dollar ahead of key Euro area inflation data, opening the door for a minor rebound. However, the pace and the extent of the fall this month have raised the bar for a sustained move higher in the single currency.

Overbought conditions, stretched positioning, and hawkish repricing in US rates triggered a pause in the euro’s two-month rally against the US dollar. See “To What Extent Euro Could Fall? EUR/USD, EUR/GBP, EUR/JPY Price Setups”, published May 16.

Economic Surprise Index and FX Positioning

Source Data: Bloomberg; chart prepared in Microsoft Excel.

While overbought conditions have reversed, positioning remains unchanged. Despite the recent slide, long speculative EUR positioning is running around the highest since 2020 and within the major currency space (see chart), suggesting continued overcrowded conditions for the single currency.

EUR/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView; Notes at the bottom of the page.

From a macro perspective, Euro area macro data have been underwhelming, further weighing on EUR. The Economic Surprise Index (ESI) for the Euro area continues to slide, even as the ESI for the US appears to have stabilized recently (see chart). Key focus is now on German inflation data due on Wednesday and Euro area figures on Thursday, and US jobs data on Friday.

EUR/USD Weekly Chart

Chart Created by Manish Jaradi Using TradingView

Money markets are pricing in more than two rate hikes while pushing back a peak in rates to December. In this regard, Irish central bank chief Gabriel Makhlouf said last week that more than two ECB rate hikes this year are possible given stubborn inflation. In contrast, markets are pricing in a 63% chance of a 25 bps Fed rate hike at the June meeting up from 25% a week ago, according to the CME FedWatch tool.

EUR/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView

EUR/USD: Short-term trend is down

As the colour-coded candlestick 240-minute charts show, based on trending/momentum indicators, EUR/USD is in a bearish phase. However, on the daily charts, EUR/USD has moved to a consolidation phase within the bullish structure that started in late 2022 – a risk highlighted in early May. See “Did ECB Just Put Brakes on Euro’s Rally? EUR/USD, EUR/AUD, EUR/JPY”, published May 5.

EUR/USD’s drop below the lower edge of the Ichimoku cloud on the daily chart is a signal that the upward pressure has faded slightly in the short term. A stronger cushion is at the March low of 1.0510, near the 200-day moving average, which could contain the current downtrend.On the upside, the mid-May high of 1.0900 could pose stiff resistance.

EUR/GBP Daily Chart

Chart Created by Manish Jaradi Using TradingView

EUR/GBP: Bias remains down

The stall in the downtrend could be a sign of delayed decline, rather than a reversal inEUR/GBP’s fortunes. The cross would need to rise above immediate resistance at 0.8750 for the bearishness to fade. Until then, the bias remains for a move toward the December low of 0.8545.

EUR/AUD Daily Chart

Chart Created by Manish Jaradi Using TradingView

EUR/AUD: Upside could be capped for now

EUR/AUD risks a retest of the 1.5950-1.6050 area (including the December high and the 89-day moving average). This follows a retreat last month from a tough barrier at the October 2020 high of 1.6825. For more discussion see “Australian Dollar Ahead of Budget: AUD/USD, AUD/JPY, EUR/AUD Price Setups”, published May 9.

Note: In the above colour-coded candlestick charts, Blue candles represent a Bullish phase. Red candles represent a Bearish phase. Grey candles serve as Consolidation phases (within a Bullish or a Bearish phase), but sometimes they tend to form at the end of a trend. Note: Candle colors are not predictive – they merely state what the current trend is. Indeed, the candle color can change in the next bar. False patterns can occur around the 200-period moving average, or around a support/resistance and/or in sideways/choppy market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.

Recommended by Manish Jaradi

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— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish

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US Dollar, Euro, British Pound Vs Japanese Yen – Price Action:

USD/JPY has risen above key resistance.EUR/JPY and GBP/JPY are flirting with major hurdles.What is the outlook for the key yen crosses?

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The Japanese yen is maintaining a weak bias against the US dollar following the sentiment boost after the tentative US debt deal, just as expectations of another US Federal Reserve rate hike grow. Against its peers, however, the outlook differs.

US President Joe Biden and House Speaker Kevin McCarthy on Sunday reached an agreement to raise the government’s debt ceiling, potentially averting a catastrophic default. The agreement was ready to move to Congress for a vote.

Strong US data last week, including inflation, consumer spending, durable goods orders, and hawkish rhetoric by Fed officials recently have raised the odds of a Fed rate hike at next month’s meeting. The market is pricing in a 60% chance of a 25-basis-point rate hike on June 14 Vs a 17% chance a week ago and see no rate cuts until the end of the year.

Meanwhile, inflation in Tokyo slowed in May, in line with the Bank of Japan’s expectations – last week BOJ Governor Kazuo Ueda said he expected prices to first slow and then pick up, supporting the case for the status quo on policy. The BOJ last month kept the ultra-loose policy settings unchanged, but with Japan’s inflation well above BOJ’s target, it could be a matter of time before the Japanese central bank tweaks policy.

USD/JPY Daily Chart

Chart Created by Manish Jaradi Using TradingView

USD/JPY: Surges above resistance

USD/JPY’s break above crucial converged resistance at the March and May highs of 138.00 has opened the way toward the late-November high of 142.25. Interim resistance is on the median line of a pitchfork channel from January (at about 141.30), roughly coinciding with the upper edge of a rising channel also from the start of the year. For the short-term upward pressure to reverse, USD/JPY would need to drop below the mid-May low of 133.75.

GBP/JPY Daily Chart

Chart Created by Manish Jaradi Using TradingView

GBP/JPY: Testing key barrier

GBP/JPY is testing a key hurdle at the October high of 172.10. Notwithstanding minor signs of fatigue on smaller timeframe charts, the momentum on higher timeframe charts continues to be up. The cross would need to drop below last week’s low of 171.20 for the short-term upward pressure to ease. Subsequent resistance is at 180.50 (the 78.6% retracement of the 2015-2016 slide).

EUR/JPY Weekly Chart

Chart Created by Manish Jaradi Using TradingView

EUR/JPY: Rally fatigue?

EUR/JPY is looking overbought on higher timeframe charts as it tests once again a tough barrier at the 2014 high of 149.75. Looking at the Directional Movement Index (DMI), the rebound from mid-May appears to be a consolidation, rather than the start of a new leg higher. The Plus DMI and Minus DMI are under 25, suggesting non-trending/range conditions. However, unless the cross breaks below 145.50-146.50 (including the 200-period moving average on the 240-minute charts) the bullish pressure is unlikely to fade away.

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— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish

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EUR/USD PRICE, CHARTS AND ANALYSIS:

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Most Read: Debt Ceiling Blues, Part 79. What Happens if the US Defaults?

The Euro did not enjoy its most productive week as losses against the greenback continued while fluctuating between losses and gains against the Pound. EUR/USD however remained the pair of interest, putting in a fourth week of losses against the US Dollar in succession.

The European Central Bank (ECB) policymakers have maintained a hawkish rhetoric for much of the week yet failing to offer the Euro any significant support. This may lie in the fact that markets are already viewing the ECB as the most hawkish Central Bank moving forward. Markets appear to have already priced in the hawkishness spouted by ECB policymakers of late with a significant change required for bulls to return.

The rally in the US dollar meanwhile continues as a deal on the US debt ceiling remains elusive as we head toward the new week. US Treasury Secretary Yellen did however adjust the date she believes the US could default as early as June 5 without a debt ceiling hike, previous date was June 1. The Treasury will make more than $130 bln of scheduled payments in first two days of June, including payments to veterans, social security and Medicare recipients. The new date does buy negotiators more time yet the longer this rumbles on the more volatility we may see in Markets.

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How to Trade EUR/USD

Fridays US PCE data came in better than expected resulting in further support for the US dollar as we saw a hawkish repricing of Federal Reserve (FED) Rate hike probabilities for June. Markets are now pricing in a 71% chance of a 25bps hike from the Fed in June, up from 17% a week ago.

Source: CME FedWatch Tool

EURO CPI, NFP AND US DEBT CEILING

Heading into the new week, and we do have some Euro Area data with the flash CPI release of particular importance. However, even with a surprise from the CPI release I do not expect any material change to the Euros outlook.

The week ahead promises to be dominated once more by the US dollar narrative around the debt ceiling. This will be coupled with Fridays NFP jobs report with which will no doubt be of significance following the strong PCE data. A deal on the debt ceiling however could see the dollar continue on its longer-term downtrend since peaking in September 2022.

ECONOMIC CALENDAR FOR THE WEEK AHEAD

The week ahead on the calendar remains busy with a couple of ‘high’ rated data releases, and a host of ‘medium’ rated data releases expected.

Here are some of the key high ‘rated’ risk events for the week ahead on the economic calendar:

For all market-moving economic releases and events, see the DailyFX Calendar

TECHNICAL OUTLOOK

The weekly chart for EUR/USD above and we can see that price has pushed down to a key support level. The 1.0700 level is where the previous breakout occurred in early March before EUR/USD rallied to its YTD High.

EUR/USD Weekly Chart – May 26, 2023

Source: TradingView

Dropping down to a daily timeframe and we can see that indecision around the 1.0700 mark has already begun. Friday’s daily candle closing as a doji candlestick hinting at the potential for recovery heading into the new week. Monday is of course a bank holiday with liquidity and volatility expected to be low barring any surprises on a debt ceiling deal.

A break of the key 1.0700 level could open up retest of the 1.0600 mark before focus shifts toward the psychological 1.0500 mark. A push higher from here has the tough task of breaking back above resistance and the 100-day MA at around 1.0800. The 100-day MA could prove stubborn as EURUSD had been stuck above the MA since November 2022.A break of the 1.0800 handle brings 1.0900 into focus and potentially the psychological 1.1000 level. No doubt an interesting week ahead for the Euro and EURUSD in particular.

EUR/USD Daily Chart – May 26, 2023

Source: TradingView

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

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GBP/USD Prices, Charts, and Analysis

Gilt yields push sharply higher on renewed UK rate hike expectations.IMF does a 180 on UK growth prospects.Little in the way of UK data next week.

Recommended by Nick Cawley

How to Trade GBP/USD

UK headline inflation fell back into single digits, figures showed this week but failed to meet analyst expectations, while the core reading rose to levels last seen over three decades ago. While elevated energy prices started to fall out of the reading, food prices, in particular, continued to rise, putting the squeeze on consumers. The financial markets are forecasting that the Bank Rate will rise from its current level of 4.5% to at least 5% over the next couple of meetings with some hawkish forecasters suggesting that the UK central bank will have to go to 5.5% to dampen down sticky price pressures.

The UK gilt market took its cue from the inflation report and the subsequent elevated rate hike expectations. Yields across the curve rose to multi-month highs as market participants demanded more risk premiums for their money. The UK 2-10 gilt curve inverted further, a warning that the UK is likely heading towards a recession, in contrast to the IMF’s latest update. The International Monetary Fund (IMF) this week upgraded the UK’s growth prospects and said that a recession was now unlikely. Staff forecasts now see the UK economy expanding by 0.4% in Q2 compared to a contraction of 0.6% predicted by the Fund back in January. The latest S&P UK PMIs also predict that the UK economy will expand by 0.4% in Q2.

British Pound (GBP/USD) Latest: IMF U-Turn, UK PMIs, US Debt Talks

UK 2-Year Gilt Yield Daily Chart

Next week’s economic calendar shows little in the way of any meaningful UK data or events. The US docket however shows a handful of high important releases with next Friday’s US Jobs Report the pick of the bunch. The US labor market remains robust and is one of the reasons why inflation in the US is refusing to make any meaningful move lower.

For all market-moving events and data releases see the real-time DailyFX Calendar

To round off next week’s events, the US debt ceiling negotiations enter what is likely to be the home stretch as the X-date, June 1 nears. The latest chatter from the US is that the two sides are now much closer to reaching an agreement, although it remains to be seen if they can get any deal over the line in time.

Debt Ceiling Blues, Part 79. What Happens if the US Defaults?

Cable (GBP/USD) will remain under the influence of a strong US dollar and heightened UK rate expectations next week. The four-day week will likely see increased GBP/USD volatility around US data releases and debt ceiling talks. The pair tested and rejected the 1.2300 handle yesterday and today and while this big figure remains in view it is reasonable to expect that it will be tested again. Adding to the negative outlook, GBP/USD now trades below both the 20- and 50-day moving averages, although the pair look oversold using the CCI indicator. Volatility in cable remains low and this looks set to change with all the data releases and macro events out next week.

GBP/USD Daily Price Chart – May 26, 2023

Chart via TradingView

of clients are net long.



of clients are net short.

Change in

Longs

Shorts

OI

Daily
-7%
-2%
-5%

Weekly
9%
-17%
-3%

Retail Trader Signals are Mixed

Retail trader data show 57.83% of traders are net-long with the ratio of traders long to short at 1.37 to 1.The number of traders net-long is 2.04% lower than yesterday and 1.43% lower from last week, while the number of traders net-short is 1.79% lower than yesterday and 7.38% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

What is your view on the GBP/USD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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