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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）

MONDAY’S MARKET RECAP – SENTIMENT ON THE MEND, OR AT LEAST IT WAS
Global risk appetite was on the mend to begin the new trading week. S&P 500, Dow Jones and Nasdaq 100 futures rallied 1.85%, 2.01% and 1.64% respectively. As a result, the sentiment-linked Australian and New Zealand Dollars outperformed. The haven-linked US Dollar weakened, especially as the Euro soared on news that the European Central Bank brought forward rate hike expectations for the third quarter.

Or at least that is what it seemed. Right after stocks closed for trading on Wall Street, Snapchat announced its latest earnings report. The social media company estimated that revenue and adjusted Ebitda (earnings before interest, tax, depreciation and amortization) will be below the low end of guidance. Snap also said that the macroeconomic environment has “deteriorated further and faster than anticipated”.

As a result, Snap Inc. saw its share price drop a whopping 30 percent in after-hours trade – see chart below. There was a domino-like impact on other corners of the market. Facebook/Meta shares declined about 7.5%. This also sent S&P 500 futures into the red, evaporating a decent chunk of gains seen from Monday’s trading session.

TUESDAY’S ASIA PACIFIC TRADING SESSION – AUSTRALIAN DOLLAR, ASX 200, CHINESE YUAN
The turnaround in risk appetite is leaving the Australian Dollar and New Zealand Dollar at risk for Tuesday’s Asia-Pacific trading session. Anti-risk currencies like the US Dollar and Japanese Yen could benefit. This is also for what is going to be a quiet day in terms of economic event risk, placing the focus for traders on general risk appetite.

This may also leave regional stock exchanges vulnerable, placing the ASX 200, Nikkei 225 and Hang Seng Index at risk. The Chinese Yuan has also been getting some attention lately. USD/CNH fell 1.47% in the worst drop since November 2020 last week. Overnight, US President Joe Biden announced that he would review Chinese tariffs imposed by the previous administration. The Yuan rallied some more. That could introduce more demand for Chinese goods, driving capital flows and boosting the local currency.

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

Global market sentiment continued deteriorating this past week. On Wall Street, futures tracking the S&P 500, Nasdaq 100 and Dow Jones weakened by 2.97%, 4.49% and 2.81% respectively. For the S&P 500, this meant a 7th consecutive weekly losing streak. That was the worst consistent performance since 2001.

Risk aversion did not mean another strong week for the haven-linked US Dollar, which weakened the most since late January. As a result, some of its major peers outperformed. These included the Euro and British Pound. In fact, GBP/USD rose over 1.9% in the strongest weekly return since the end of 2020. The Australian and New Zealand Dollars outperformed as well.

It seems there were growing concerns about a US recession down the road as the markets priced out some Federal Reserve tightening in 2023. Treasury yields continued to level off, with the 10-year seeing its worst 2-week performance since November. Weakness in the US Dollar and government bond yields meant gold prices shined, gaining 1.9%.

The economic docket notably picks up in the week ahead. FOMC minutes will be closely eyed, which could uphold the Federal Reserve’s hawkish stance. The central bank will also be eyeing its preferred gauge of inflation, PCE core. As such, these events could continue threatening general risk appetite.

The New Zealand Dollar will be awaiting the RBNZ rate decision. A 50-basis point rate hike is expected to 2.00% from 1.50% prior, with more to come in July. A federal election in Australia might do little to influence the Australian Dollar given the policies being prescribed by the two major parties. What else is in store for markets in the week ahead?
(From DailyFX)

AUD/USD REBOUND TAKES SHAPE AHEAD OF AUSTRALIA EMPLOYMENT REPORT
AUD/USD seems to have reversed course ahead of the June 2020 low (0.6648) amid recovery in global benchmark equity indices, with the exchange rate trading to a fresh weekly high (0.7041) as the Reserve Bank of Australia (RBA) Minutes reveals that “timely evidence from liaison and business surveys indicated that labour costs were rising in a tight labour market and a further pick-up was likely over the period ahead.”

As a result, the RBA insists that “that further increases in interest rates would likely be required to ensure that inflation in Australia returns to the target over time,” and the update to Australia’s Employment report may generate a bullish reaction in AUD/USD as the economy is anticipated to add 30.0K jobs in April.

Image of DailyFX Economic Calendar for Australia
At the same time, the Unemployment Rate is seen narrowing to 3.9% from 4.0% during the same period, and the ongoing improvement in the labor market may encourage the RBA to deliver a series of rate hikes over the coming months as the central bank acknowledges that “there is no contemporary experience as to how labour costs and prices in Australia would behave at an unemployment rate below 4 per cent.”

In turn, AUD/USD may stage a larger recovery ahead of the next RBA meeting on June 7 as Governor Philip Lowe and Co. prepare Australian households and businesses for higher interest rates, and a further advance in the exchange rate may alleviate the tilt in retail sentiment like the behavior seen earlier this year.
The IG Client Sentiment report shows 66.17% of traders are currently net-long AUD/USD, with the ratio of traders long to short standing at 1.96 to 1.

The number of traders net-long is 6.18% lower than yesterday and 15.62% lower from last week, while the number of traders net-short is 12.24% higher than yesterday and 26.92% higher from last week. The decline in net-long position comes as AUD/USD climbs to a fresh weekly high (0.7041), while the jump in net-short interest has helped to alleviate the crowding behavior as 74.02% of traders were net-long the pair last week.

With that said, another uptick in Australia Employment may fuel the recent series of higher highs and lows in AUD/USD as it fuels speculation for another RBA rate hike, but the rebound from the yearly low (0.6829) may turn out to be a correction in the broader trend with the Federal Reserve on track to normalize monetary policy at a faster pace.

Keep in mind, AUD/USD took out the July 2020 low (0.6877) after snapping the opening range for May, but the exchange rate appears to have reversed course June 2020 low (0.6648) as the recent rebound in price pulls the Relative Strength Index (RSI) out of oversold territory.
AUD/USD carves a series of higher highs and lows amid the lack of momentum to break/close below the Fibonacci overlap around 0.6770 (38.2% expansion) to 0.6820 (50% retracement), with the move above the 0.6940 (78.6% expansion) area bringing the 0.7070 (61.8% expansion) to 0.7090 (78.6% retracement) region on the radar.
Next area of interest comes in around 0.7130 (61.8% retracement) to 0.7180 (61.8% retracement) followed by the 0.7260 (38.2% expansion) region, which largely lines up with the 200-Day SMA (0.7265).
— Written by David Song, Currency Strategist

The IG Client Sentiment report shows only 26.83% of traders are currently net-long USD/JPY, with the ratio of traders short to long standing at 2.73 to 1.

The number of traders net-long is 0.73% lower than yesterday and 6.55% lower from last week, while the number of traders net-short is 8.44% higher than yesterday and 3.65% higher from last week. The decline in net-long position comes as USD/JPY extends the rebound from the monthly low (127.52), while the rise in net-short interest has fueled the crowding behavior as 27.86% of traders were net-long the pair last week.

With that said, the US Dollar may appreciate against its Japanese counterpart throughout 2022 as the FOMC normalizes monetary policy well ahead of the BoJ, but the RSI may continue to show the bullish momentum abating as it develops a downward trend even as USD/JPY traded to a fresh yearly high (131.35) earlier this month.
USD/JPY appeared to be on track to test the April 2002 high (133.82) as a bull flag formation materialized last month, but recent price action warns of a near-term correction in the exchange rate as it fails to defend the opening range for May.
At the same time, the Relative Strength Index (RSI) has established a downward trend as it continues to fall back from overbought territory, and lack of momentum to push back above the 129.40 (261.8% expansion) to 130.20 (100% expansion) region may lead to a break/close below the Fibonacci overlap around 126.20 (78.6% expansion) to 127.20 (23.6% retracement) if the recent series of higher highs and lows in the exchange rate unravels.
In turn, USD/JPY may look to test the 50-Day SMA (124.97) for the first time since March, with a move below the moving average bringing the 124.50 (38.2% retracement) area on the radar.

— Written by David Song, Currency Strategist