What you need to know on Friday, June 11:

Majors showed no reaction to first-tier events, and continue to trade within familiar levels.

The US reported May inflation figures, which were upwardly revised, with the annual CPI hitting 5%, accelerating at its fastest pace since 2008. The core reading resulted at 3.8%, also suffering a sharp upward revision. However, the numbers failed to spur concerns. Stocks edged higher while US Treasury yields returned to weekly lows after a short-lived spike.

Also, the European Central Bank announced its monetary policy decision. As widely anticipated, policymakers left rates and easing unchanged and reiterated that they would continue supporting the economy through their different programs. President Christine Lagarde offered a mixed speech, as she said price pressures remain subdued and that it is too early to discuss tapering. At the same time, the ECB upwardly revised the growth forecast to 4.6% for this year and to 4.7% for the next one.

Brexit and UK coronavirus-related headlines were also hot. Regarding the first, talks between UK Brexit Minister David Frost and European Commission vice-president Maros Sefcovic to resolve differences over the Brexit deal broke up without a breakthrough on Wednesday. At the same time, speculation mounts that the kingdom will have to delay its planned reopening on June 21 amid the continued increase of new coronavirus cases.  The country reported roughly 7,400 new cases, although the number of people in ICU is stable at 157.

The EUR/USD pair trades around 1.2170, still unable to advance beyond the 1.2200 figure. The GBP/USD pair recovered some 100 pips from a daily low of 1.4071.

Commodity-linked currencies advanced against the greenback amid the better tone of oil and gold. Crude oil prices plunged in the American afternoon amid market talks indicating that the US lifted sanction Iranian individuals, a step toward a nuclear deal. Nevertheless, prices recovered ahead of the close with WTI ending the day above $ 70 a barrel. Gold trades at daily highs in the 1,896 price zone, maintaining a positive stance.

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  • Gold is testing the bearish commitments at critical resistance.
  • Ther FOMC is the next major event for the gold market following Thursday’s US CPI.
  • The bond markets are priced for dovish outcome and gold is enjoying some potentially short-term dollar weakness. 

At the time of writing, gold is trading at $1,899, higher by some 0.56% and up from a low of $1,869 near to the highs of the day at $1,899.41.

Risk sentiment is subdued on Thursday as investors remained cautious ahead of the US Consumer Price Index print. 

The fear was that another strong inflation print could once again spark talk of taper talks that could weigh on gold as the transitory or not debate rages on.

However, instead, gold collected a bid as the US dollar sank in a market priced for a dovish Federal Open Market Committee next week. 

The greenback had been building on its modest gains ahead of theUS CPI data, edging higher for a third straight day the highest level since Monday at around 90.30. 

However, the index drifted lower into what was a relatively disappointing reaction to the data considering the anticipation leading into the event and a strong outcome.

The CPI rose 0.6%, with core up 0.7%, stronger than expected. Also, the US CPI rose 5.0% YoY which was the largest annual gain in more than a decade

However, the outcome was not entirely a surprise given the potential changes as the economy re-opens.  

”All in all, strong core data again, but the strength can probably still be viewed as “transitory” to a large extent, due to post-COVID reopening as well as fallout from the semiconductor shortage,” analysts at TD Securities said.

”We don’t think this report materially changes the Fed’s thinking as much of the strength remains confined to reopening-related sectors.”

”… it would take a string of strong CPI reports later this year for the Fed to get concerned about an earlier overshoot.”

Moreover, forex volatility is at its lowest since the turn of 2020 and one report was unlikely to kick-up a huge storm:

The CPI appeared to add little new direction to currency markets and the greenback is stuck in familiar ranges:

DXY hourly chart

”A clean break above 90.325 is needed to set up a test of last week’s pre-NFP high near 90.627,” analysts at Brown Brothers Harriman argued. 

Instead, traders are treading water ahead of the Fed next week and gold is enjoying some renewed softness in the greenback. 

FOMC will be important for gold

The upside US CPI print may trigger calls to challenge the Fed on taper and rate hike pricing. However, the Fed is in no hurry to exit, at least according to the bond market and gold’s performance today. 

On the other hand, analysts at TD Securities argue that the tone will probably be slightly less dovish than in April.

”We expect the chair to say that the committee has started discussing a progress-dependent tapering plan while also emphasizing that action will require much more progress,” the analysts argued. 

”A less dovish Fed tone next week would help to stabilize the USD in the very short run,” the analysts forecasted. 

”Of course, it may not reverse all of Q2’s weakness, but positioning has turned short once again, real rates might be bottoming, and global growth shows signs of pausing. All signs to expect some USD stability as we enter the summer months.”

A surge in the greenback would equate to a pullback in gold which is increasingly vulnerable as speculative flows are now slowing alongside physical flows.

Gold technical analysis

The price is range bound and trapped between critical daily support and resistance, resting against the newly formed dynamic supporting trendline since breaking the prior. 

A break above the 1,900 level would be just as significant as a break below the 1,870 support. 

 

  • GBP/USD staged a decisive rebound after dropping below 1.4100.
  • US Dollar Index remains on track to close little changed above 90.00.
  • Focus shifts to mid-tier macroeconomic data releases from the UK.

After rising toward 1.4200 on the back of Bank of England (BOE) Chief Economist Andy Haldane’s hawkish comments on Wednesday, the pair lost its traction and closed in the negative territory for the second straight day. The lack of progress in the UK-EU talks on the Northern Ireland Protocol made it difficult for the GBP to preserve its strength.

Although the pair extended its slide and dropped below 1.4100 on Thursday, it managed to stage a decisive rebound and was last seen gaining 0.35% on a daily basis at 1.4170.

USD fails to capitalize on May inflation data

Earlier in the day, the data from the US showed that the Consumer Price Index (CPI) in May rose to 5% on a yearly basis from 4.2% in April. This reading surpassed the market expectation of 4.7% and allowed the greenback to gather strength in the early American session.

However, the improving market sentiment forced the USD to lose interest and provided a boost to GBP/USD. Currently, the US Dollar Index is down 0.1% on the day at 90.04 and the S&P 500 Index looks to register its highest daily close above 4,240.

Meanwhile, the sharp drop witnessed in the EUR/GBP pair following the European Central Bank’s policy announcements seems to be helping the GBP preserve its strength on Thursday.

On Friday, the UK’s Office for National Statistics (ONS) will release Industrial Production, Manufacturing Production and Gross Domestic Product (GDP) data for April.

Technical levels to watch for

 

  • El EUR/USD sigue en camino de cerrar con pocos cambios el jueves.
  • El BCE dejó su configuración de política sin cambios como se esperaba.
  • El índice del dólar estadounidense se mantiene por encima de 90.00.

Después de mantener la calma por debajo de 1.2100 durante la primera mitad del día, el par EUR/USD fluctuó bruscamente a medida que los inversores evaluaban los anuncios de política del Banco Central Europeo (BCE). Luego de una fuerte caída a un mínimo de seis días de 1.2144, el par realizó un rebote pero perdió su impulso antes de recuperar 1.2200. Al momento de escribir, el EUR/USD se mantuvo prácticamente sin cambios en el día en 1.2175.

El BCE mantiene el statu quo

Tras su reunión de política de junio, el BCE decidió dejar los tipos de interés de las operaciones principales de financiación, la facilidad de crédito y la facilidad de depósito sin cambios en 0.00%, 0.25% y -0.50%, respectivamente, como se esperaba. El BCE también señaló que mantendrá la dotación total del Programa de Compras de Emergencia Pandémica (PEPP) en 1.850.000 millones de euros hasta al menos finales de marzo de 2022.

Durante la conferencia de prensa, la presidenta del BCE, Christine Lagarde, dijo que era demasiado pronto para hablar de una ‘salida del PEPP’ y agregó que había un amplio acuerdo sobre las decisiones de política monetaria.

Citando fuentes familiarizadas con el asunto, Reuters informó que tres políticos del BCE querían reducir el ritmo del PEPP para mejorar las perspectivas económicas.

Por otro lado, los datos publicados por la Oficina de Estadísticas Laborales de EE. UU. Revelaron el jueves que la inflación, medida por el Índice de Precios al Consumidor (IPC), subió al 5% anual en mayo desde el 4.2% en abril. Esta lectura superó la expectativa del mercado de 4.7% y ayudó al USD a ganar fuerza.

Sin embargo, el dólar perdió su fuerza con los principales índices de Wall Street abriendo bruscamente al alza y el índice S&P 500 alcanzando un nuevo máximo. Por el momento, el índice del dólar estadounidense registra pequeñas pérdidas diarias en 90.07.

Niveles técnicos

                    

  • AUD/USD DXY correlation very high, so focus is on the US dollar.
  • The FOMC is the next major event for AUD/USD.
  • Domestically, jobs, RBA Lowe in focus ahead of July RBA.

AUD/USD is a touch higher in North American trade rising 0.34% at the time of writing to 0.7754 from a low of 0.7717 and slightly below the high of the day at 0.7763.

The focus has been on the US dollar this week while investors moved to the sidelines in anticipation of critical events in the US.

US Consumer Price Index and the European Central Bank were occurring earlier today ahead of the Federal Reserve next week. 

The dollar index was down slightly on Thursday in a choppy session in which it alternated between losses and gains.

The greenback had been building on its modest gains ahead of the ECB decision and US CPI data and was up for a third straight day, trading at the highest level since Monday at around 90.30. 

However, the index drifted lower into what was a relatively disappointing reaction in forex markets considering the anticipation leading into the events today. 

Forex volatility is at its lowest since the turn of 2020 and markets were hoping for a boost out of the US dollar today and some direction:

Instead, volatility remains low and traders are sat on their hands awaiting the Fed next week. 

Thursday’s news appeared to add little new direction to currency markets and the greenback is stuck in familiar ranges:

DXY hourly chart

”A clean break above 90.325 is needed to set up a test of last week’s pre-NFP high near 90.627,” analysts at Brown Brothers Harriman argued. 

As for the data, the CPI rose 0.6%, with core up 0.7%, stronger than expected. Also, the US CPI rose 5.0% from a year ago – the largest annual gain in more than a decade

Underlying inflation pressures are firming as the economy reopens but while the surge in year-over-year CPI growth to a 5.0% rate in May was stronger-than-expected, it was not entirely a surprise given the potential changes as the economy re-opens.  

”All in all, strong core data again, but the strength can probably still be viewed as “transitory” to a large extent, due to post-COVID reopening as well as fallout from the semiconductor shortage,” analysts at TD Securities argued.

”We don’t think this report materially changes the Fed’s thinking as much of the strength remains confined to reopening-related sectors.”

”… it would take a string of strong CPI reports later this year for the Fed to get concerned about an earlier overshoot.”

However, looking to the Fed, there could be a hawkish surprise that would be expected to underpin the US dollar for the medium term.

FOMC priced too dovish

Low volatility in the forex and rates space suggests that the market is already priced for a fairly dovish tone from the FOMC next week.

However, analysts at TD Securities argue that the tone will probably be slightly less dovish than in April.

”We expect the chair to say that the committee has started discussing a progress-dependent tapering plan while also emphasizing that action will require much more progress.”

”Median projections for core inflation in 2022/2023 will probably rise slightly, consistent with a sizable revision to 2021 being viewed as “largely reflecting transitory factors.” The median dot will probably show a rate hike by end-23.”

”A less dovish Fed tone next week would help to stabilize the USD in the very short run.”

”Of course, it may not reverse all of Q2’s weakness, but positioning has turned short once again, real rates might be bottoming, and global growth shows signs of pausing. All signs to expect some USD stability as we enter the summer months.”

RBA and domestic factors in focus

Meanwhile, from a domestic front, tension is rising over the Reserve Bank of Australia’s policy decision in July.

The RBA is edging towards a key policy shakeup in July.

In the lead-in, we will hear from the RBA’s Governor Phillip Lowespeech next week, shortly before Australia’s May jobs data.

We will also have RBA’s June minutes next week that will also be read closely.  

Meanwhile, the correlation of changes in DXY and AUD/USD is very high even in historical context.

(Hourly/daily charts)

”We suspect AUD/USD sees choppy price action postFOMC but with fair value 0.84+, are happy to remain long from 0.7680, adding on dips to 0.7580,” analysts at Westpac said.

”If Lowe gives clear support to those calling for QE tapering and May jobs rebound, the gap to fair value should shrink.”

 

El Reino Unido ha concluido el acuerdo de 2021 con la UE sobre pesca, informó Reuters el jueves.

El Reino Unido señaló que el acuerdo cubre límites de captura para 70 poblaciones de peces compartidas por un valor de aproximadamente 333 millones de libras en oportunidades de pesca para la flota del Reino Unido.

Reacción del mercado

Este desarrollo no parece tener un impacto notable en el desempeño de la libra esterlina frente a sus principales rivales. Al momento de escribir, el par GBP/USD subió un 0.3% en el día a 1.4159 y el par EUR/GBP perdió un 0.35% en 0.8593.

  • El yen japonés gana impulso en medio de rendimientos más bajos y mientras las acciones se alejan de máximos.
  • USD/JPY lateralizado durante el día, rondando los 109.50/55.

El USD/JPY alcanzó su punto máximo después del comienzo de la sesión estadounidense y tras los datos económicos de EE.UU. en 109.79, alcanzando el nivel más alto desde el viernes pasado. Luego giró a la baja cuando los rendimientos estadounidenses retrocedieron y las acciones estadounidenses recortaron ganancias.

Recientemente, el USD/JPY hizo suelo en 109.41, y se está moviendo alrededor de 109.50 modestamente más bajo para el día. El dólar estadounidense es mixto en todos los ámbitos, con el DXY plano en 90.10/15.

El dólar se mueve sin una tendencia clara incluso después de los datos económicos de EE.UU. El IPC (anual) alcanzó el 5%, el nivel más alto desde 2008, y las solicitudes iniciales de desempleo cayeron menos de lo esperado, aunque alcanzaron un nuevo mínimo de un año.

Los rendimientos inicialmente se recuperaron con el rendimiento a 10 años alcanzando el 1.53% y rápidamente giraron a la baja, acercándose al mínimo reciente. La caída hacia el 1.48% en el rendimiento a 10 años debilitó al dólar.

Niveles técnicos

                        

Inflation over the next few months is likely to be higher than projected in April’s Monetary Policy Report, mostly due to strong commodities and base-year effect, Bank of Canada (BoC) Deputy Governor Timothy Lane said on Thursday, per Reuters.

Additional takeaways

“There is a good chance that productivity growth will be stronger than expected, giving the economy more room to grow before inflation becomes a worry.”

“Inflation expected to fade later in the year as economic slack exerts downward pressure.”

“Risks to inflation outlook identified in April remain relevant; these include stronger C$ hitting exports, the potential for more persistent cost pressures to push up inflation.”

“Given unusually high uncertainty around potential and future growth we need to rely on a wider range of data than usual to assess how much slack exists in the economy.”

“That assessment is key to deciding when to start scaling back monetary policy stimulus.”

“Recent economic data show signs of increasing resilience that bode well for the underlying recovery.”

“Economic setback from the third wave of COVID-19 should be temporary; bank still expects Q2 annualized growth to be close to the 3.5% predicted in April.”

“Signs of moderation in the housing market have appeared in recent weeks but the level of activity remains very high.”

Market reaction

The USD/CAD pair showed no immediate reaction to these comments and was last seen losing 0.2% on the day at 1.2087.