CENTRAL BANK WATCH OVERVIEW:
Bank of England rate hike odds keep rising: the 2022 terminal rate is up to 2.827%, from 2.099% in mid-May.
The European Central Bank is expected to raise rates by 150-bps through 2022.
Retail trader positioning suggests both EUR/USD and GBP/USD rates have a mixed bias.
EVEN MORE RATE HIKES
In this edition of Central Bank Watch, we’ll cover the two major central banks in Europe: the Bank of England and the European Central Bank. While both the Eurozone and the UK are struggling with diminishing growth rates, policymakers remain squarely focused on taming multi-decade highs in inflation rates. Rate hike odds have jumped significantly for both the BOE and the ECB, with at least 150-bps worth of hikes discounted through the end of 2022.

For more information on central banks, please visit the DailyFX Central Bank Release Calendar.

BOE HIKE ODDS KEEP CLIMBING
The British Pound has proved resilient in recent weeks, no doubt fueled by the continued climb in BOE rate hike odds. UK inflation rates continue to edge higher, and with few signs that the rises in food and energy prices will halt anytime soon, rates markets are now their most aggressive they’ve been all year in terms of BOE hike odds.
— Written by Christopher Vecchio, CFA, Senior Strategist

Global financial markets moved diligently to price in the latest action from the Federal Reserve last week when Mr. Powell’s FOMC raised the US benchmark rate by 75-basis-points. The jumbo rate hike tempered inflation expectations, and perhaps returned some credibility to the institution. However, the impact on equity markets was undeniably bearish. The Dow Jones Industrial Average (DJIA) fell over 4% to its lowest level since November 2020.

The US Dollar benefited from the safe-haven flows despite an immediate reaction to the downside. The DXY index was up around 0.50% going into the weekend. However, there are technical signs across major crosses, such as EUR/USD, GBP/USD, AUD/USD and USD/CAD, that show the Dollar’s ascent is perhaps at or near a critical juncture. The Bank of England remained in a relatively dovish stance, hiking its benchmark rate by 0.25%. The Dollar advanced against the Pound, but trimmed some of those gains in the second halve of the week.

Oil prices plummeted on Friday as traders baked in growing fears over a Fed-induced recession. That comes amid the summer driving season, which typically sees higher demand for fuels persist into the fall months. Natural gas prices found relief in the United States after an LNG terminal suffered a catastrophic failure, likely to take months to repair. European prices, however, skyrocketed. The development is likely to keep prices in Europe elevated, further complicating Europe’s inflation outlook.

Speaking of energy prices, Canada is set to report inflation data for May on Wednesday. The country’s consumer price index (CPI) is expected to cross the wires at 7.5% on a year-over-year basis. That would be up from April’s 6.8% y/y increase. A hotter-than-expected print would likely inspire already-aggressive Bank of Canada rate hike bets, potentially bolster the Canadian Dollar.

Japan is also slated to release inflation data for May. The Bank of Japan held firm in its dovish stance last week against a market that appeared to be trying to force the BoJ’s policy stance. That didn’t happen. The mantra of “don’t fight the Fed’ seems to be just as appropriate for the Bank of Japan. The Yen fell versus the Dollar last week, although the pace of losses started to cool. A hotter-than-expected CPI print out of Japan may actually see USD/JPY fall.
（From DailyFX）

The Australian Dollar surged more than 3% off the weekly lows on the heels of the Fed with Aussie snapping back above a key support pivot. The reversal hinges on a weekly close above this threshold and may fuel a larger recovery in the days ahead if achieved. These are the updated targets and invalidation levels that matter on the AUD/USD weekly price charts into the close. Review my latest Weekly Strategy Webinar for an in-depth breakdown of this Aussie technical setup and more.

Notes: In my last AUD/USD Weekly Technical Forecast we warned that, “a rebound off downtrend support takes the Australian Dollar into downtrend resistance early in the month- risk for topside exhaustion into 7288.” Aussie registered a high at 7283 later that week before reversing sharply lower with price plummeting nearly 6% off the highs. The post-FOMC rally has now recovered back above a critical pivot zone we’ve been tracking at 6991-7016 – a region defined by the November 2020 swing low, the objective 2020 yearly open, the 2021 lows and the January low-week close. Was that a near-term exhaustion low?

Initial weekly resistance now eyed at the recent high-week close at 7206 backed by the yearly open / 38.2% Fibonacci retracement of the 2021 decline / 52-week moving average at 7270/78. Ultimately a breach / weekly close above the 61.8% retracement / 2017 low-week close at 7343/85 would be needed to suggest a more significant low was register this week. A close below 6991 this week would keep the focus on subsequent support objectives into the 2016 low at 6827, the lower parallel and the 2008 low-week close / 2019 low at 6660/70.

Bottom line: This could be a near-term exhaustion low in Aussie and the focus is on the weekly close with respect to 6991-7016. From a trading standpoint, a close above this threshold would risk a larger recovery towards downtrend resistance near the 72-handle. On the other-side of 6991, and things could fall apart rather quickly- stay nimble here. The economic docket is light next week so we’ll continue to track price action closely into the open on Sunday. I’ll publish an updated Australian Dollar Price Outlook once we get further clarity on the near-term AUD/USD technical trade levels.
— Written by Michael Boutros, Technical Strategist with DailyFX

AUD/USD quickly retraces the decline following the Federal Open Market Committee (FOMC) interest rate decision as Chairman Jerome Powell tames speculation for a 100bp rate hike, with the central bank head indicating that a 50bp or a 75bp increase could be appropriate at its next meeting in July.

The comments suggest the FOMC will moderately adjust its approach in combating inflation as the majority forecast the Fed Funds rate to climb above 3.00% by the end of the year, and it seems as though the central bank will continue to utilize the benchmark interest rate to address the risks surrounding the US economy amid the preset approach in reducing the balance sheet.

Looking ahead, it remains to be seen if Chairman Powell and Co. will continue to adjust the forward guidance for monetary policy as the FOMC shows a greater willingness to carry out a restrictive policy, but the market reaction raises the scope for a larger rebound in AUD/USD as it snaps the series of lower highs and lows carried over from the previous week.

In turn, the update to Australia’s Employment report may fuel the rebound from the monthly low (0.6850) as the economy is projected to add 25K jobs in May, and a further advance in the exchange rate may help to alleviate the tilt in retail sentiment like the behavior seen earlier this year.

The IG Client Sentiment report shows 70.46% of traders are currently net-long AUD/USD, with the ratio of traders long to short standing at 2.39 to 1.

The number of traders net-long is 4.02% higher than yesterday and 22.58% higher from last week, while the number of traders net-short is 15.57% lower than yesterday and 28.65% lower from last week. The rise in net-long interest has fueled the crowding behavior as traders were net-short AUD/USD at the start of the month, while the decline in net-short position comes as the exchange rate snaps the series of lower highs and lows from last week.

With that said, AUD/USD may continue to reverse course ahead of the yearly low (0.6829) as the Fed rate decision fuels the rebound from the monthly low (0.6850), and the bearish momentum may continue to abate over the coming days as the Relative Strength Index (RSI) bounces back ahead of oversold territory.
— Written by David Song, Currency Strategist

Dear customers, due to the Queen’s Birthday, all Supay branches of Melbourne, Sydney and Adelaide will be closed on Monday, June 13, 2022, and will resume business on June 14, 2022. Please adjust your transaction time. We apologise for any inconvenience caused. If you have any enquiries during the holiday, please contact Brisbane Branch, Tel: 07 3344 1818 ，wish you a happy holiday, thank you.

WEDNESDAY’S ASIA-PACIFIC OUTLOOK
The Australian Dollar paced higher against the US Dollar through the New York trading session overnight, benefiting from Tuesday’s Reserve Bank of Australia (RBA) rate decision. A rosy session on Wall Street helped support the risk-sensitive currency as the Dollar fell against most of its peers. The Japanese Yen, however, continued to deteriorate, with USD/JPY hitting a fresh multi-decade high.

Australian bond yields rose following the RBA’s surprise decision as traders ditched bond holdings in preparation for further rate hikes this year. Analysts moved quickly to price in more aggressive rate hike bets for the July RBA meeting. The higher trajectory has some economists concerned that it may trigger a recession as households grapple with high debt levels.

Spot uranium prices rose on news that the United States may see a government-led initiative to bolster the country’s uranium supply and industry. Australia, being a large exporter of uranium, may benefit from the higher prices. If the US follows through and creates a stockpile of uranium, it would likely tighten global supply. Brazil recently loosened restrictions around uranium mining, also responding to the impacts of the war in Ukraine.

A global recession remains a notable question mark hanging over markets, something that is likely to temper sentiment through the remainder of the year as central banks tighten down on prices. A report released by the World Bank signaled a worrying concern over a global recession. The report showed that world growth is expected to cool this year to 2.9%. That is well below what the IMF forecasted earlier this year. Growth-sensitive oil prices rose despite the grim report. The American Petroleum Institute (API) reported a build in US crude inventory levels, which also failed to cool WTI prices.

This morning, Japan’s final first-quarter GDP growth numbers will cross the wires. Japan’s monetary policymakers have been hesitant to join its peer institutions in normalizing policy amid lagging inflation and wages. Later today, Australia will see a business confidence update for May from the NAB, along with the RBA chart pack. The Reserve Bank of India (RBI) is expected to increase its benchmark rate by 40-basis points. USD/INR may fall on the decision’s delivery, especially if the RBI takes a cue from the RBA and delivers a jumbo hike.

AUD/USDTECHNICAL FORECAST
AUD/USD is attempting to break above the pseudo-50% Fibonacci retracement level, which sits directly below the May swing high. If prices break above those levels of resistance, more upside may follow. The MACD oscillator crossed above its centerline, aiding the case for higher prices. Alternatively, a drop would put the 38.2% Fib level on the defense.
— Written by Thomas Westwater, Analyst for DailyFX.com

FX WEEK AHEAD OVERVIEW:
The RBA rate decision on Tuesday will produce another rate hike, while the ECB rate decision on Thursday will pave the path to one.
The May Canada jobs report is likely to produce another strong reading, giving the BOC more ammunition for further rate increases.
Incoming US inflation data are likely to only show modest signs of disinflation, potentially revitalizing Fed rate hike odds and thus helping the US Dollar.
— Written by Christopher Vecchio, CFA, Senior Strategist

The Australian Dollar surged more than 5.8% off the yearly low with AUD/USD testing downtrend resistance early in the month. The rally may be vulnerable here but losses should be limited IF Aussie is making a larger push higher. These are the updated targets and invalidation levels that matter on the AUD/USD weekly price charts into the June open.

Notes: In last month’s Australian Dollar Technical Forecast we warned that AUD/USD had, “plummeted into a critical support pivot and the immediate focus is on a reaction off this mark. From a trading standpoint, a good zone to reduce portions of short-exposure / lower protective stops – rallies should be limited to the median-line IF price is heading lower on this stretch…” The zone in question was 6991-7016 – a region defined by the November 2020 swing low, the objective 2020 yearly open, the 2021 lows and the January low-week close. Aussie plunged through this threshold before rebounding off the lower parallel with the rally faltering today back at the median-line. Was that a false break of the yearly opening-range lows?

Weekly support into the start of the month now back at 6991-7016 backed by the yearly low-week close at 6936- a break / close below this threshold is now needed to mark resumption of the broader downtrend towards the lower parallel (currently near ~6800) and a more significant technical confluence at the 2008 low-week close / 2019 low at 6660/70. Weekly resistance now stands at the objective yearly open / 38.2% Fibonacci retracement of the 2021 decline / 52-week moving average at 7270/88. Ultimately a breach / weekly close above the 61.8% retracement / 2017 May low-week close at 7343/85 would be needed to suggest a more significant low was registered last month.

Bottom line: A rebound off downtrend support takes the Australian Dollar into downtrend resistance early in the month- risk for topside exhaustion into 7288. From a trading standpoint, a good region to reduce portions of long-exposure / raise protective stops- losses should be limited to the 70-handle IF price is heading higher on this stretch. I’ll publish an updated Australian Dollar Price Outlook once we get further clarity on the near-term AUD/USD technical trade levels.Stay tuned!
— Written by Michael Boutros, Technical Strategist with DailyFX

Market sentiment roared higher this past week. On Wall Street, futures tracking the Nasdaq 100 soared 7.28%, the best 5-day performance since March. This is as S&P 500 and Dow Jones futures gained 6.76% and 6.39% respectively, the most since November 2020. Things were also looking good in Europe where the DAX 40 climbed 3.44%. The Hang Seng Index pushed up 2.89%.

Virtually all G10 currencies outperformed against the US Dollar, including the New Zealand Dollar, Australian Dollar, Euro, British Pound, Canadian Dollar and Japanese Yen. The DXY Dollar Index is down 1.32% over the past two weeks, the most since April 2021. What could explain this dynamic? Look no further than the Federal Reserve.

In recent weeks, we have seen the markets materially pull back 2023 Fed rate hike expectations. Cautious commentary from the central bank has been cooling chances of a 50-basis point rate hike in September. It seems traders have been shifting their focus from concerns about inflation to recession. Data since early May hints that markets are seeing the Fed increasingly fall behind on tackling CPI one year out.

This has been resulting in a broad decline in Treasury yields. The combination of this and a weaker US Dollar has also been benefiting gold prices. Now, in the week ahead, all eyes will be on non-farm payrolls on Friday. Could the markets be getting ahead of themselves? Jobs creation is expected to slow, but the unemployment rate and wages are seen to remain robust.

Outside of the world’s largest economy, the Bank of Canada is expected to deliver a 50-basis point rate hike on Wednesday. Australia releases its first-quarter GDP figures. China will also be closely watched for its May manufacturing PMI data. Softer data could amplify concerns about a slowing global economy, perhaps pressuring the Yuan.
(From DailyFX)

The Australian dollar has rallied significantly during the trading session on Monday to show signs of strength again. At this point, the market has broken above the 0.71 level, and now it looks like we are going to threaten the 0.72 level. The 0.72 level above is what I would consider a short-term ceiling that could determine where the trend is going next. In this scenario, I like the idea of fading some type of exhaustion in this pair, as we continue to favor the US dollar.

The 0.70 level underneath should be a bit of a support level, and if we can break down below that level it is likely that we could go reaching the bottom. All things being equal, this is a market that will eventually go looking to figure out what it wants to do next, but it is a long-term downtrend that is still very strong, and it is obvious that the US dollar is desired. In general, the market will continue to see a line of noise, and you should keep in mind that the Australian dollar is highly sensitive to risk appetite in general, right along with commodities. Furthermore, the Australian dollar is going to have to deal with any knock-on effect from China, as China is by far Australia’s biggest customer.

Pay close attention to interest rates coming out of the United States, because that has been a major driver of where we have been going for a while. With this, I am looking for signs of exhaustion that I can jump upon, and therefore it is a simple waiting game at this point.
（From Yahoo Finance）