XtreamForex | Daily Technical Analysis

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Dollar rebounds from one/month low yen under pressure after BOJ meeting
The U.S. dollar edged higher in early European trade Friday, rebounding after hefty overnight losses following weak economic data, while the Japanese yen weakened as the Bank of Japan maintained its interest rates at very low levels.

At 01:45 ET (05:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 101.787, after sliding around 0.8% overnight to a new one-month low.

The dollar received a boost earlier in the week when the U.S. Federal Reserve forecast at least two more hikes this year, despite pausing its series of rate hikes, as inflation continued to trend above the central bank’s target range.

But a swathe of weak U.S. economic readings, including slowing industrial production and sluggish retail sales, raised questions over just how much higher the Fed can raise interest rates.

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US Dollar holds steady to start week, eyes on central bank speak
The US Dollar (USD) holds steady early Monday after having suffered large losses against its major rivals last week. Stock and bond markets in the US will be closed in observance of the Juneteenth holiday. The European economic docket will not be featuring any high-impact data releases and market participants will pay close attention to comments from central bank officials.

The US Dollar Index (DXY) fell more than 1% and closed the third straight week in negative territory before going into a consolidation phase above 102.00 in the European session. The benchmark 10-year US Treasury bond yield fluctuated wildly following the Federal Reserve’s (Fed) monetary policy announcements but ended the week little changed below 3.8%.

On Sunday, US Secretary of State Antony Blinken and Chinese Foreign Minister Qin Gang reportedly had “candid and constructive talks” on their differences from Taiwan to trade. Sides are said to have agreed on little beyond keeping the conversation going with an eventual meeting in Washington, reported Reuters.

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Dollar in demand as modest China rate cut hits sentiment
The U.S. dollar gained in early European trade Tuesday, with this safe haven in demand as a rate cut by China’s central bank failed to assuage investor concerns over slowing economic growth.

At 01:55 ET (05:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 102.118, rebounding from its recent one-month low.

China’s central bank, the People’s Bank of China, cut its benchmark loan prime rate by 10 basis points earlier Tuesday, a move that had been widely telegraphed as Beijing struggles to shore up a slowing economic recovery.

However, this size of the rate decrease disappointed some who fretted that this would not be enough to shore up confidence, with the Chinese property sector particularly hard hit.

USD/CNY rose 0.2% to 7.1769, with the yuan trading just shy of its lowest level since late November, with traders looking for a wider stimulus package from Chinese authorities but receiving a lack of concrete measures from a cabinet meeting on Friday.

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Dollar firm ahead of Powell testimony, sterling up on hot inflation

The dollar was firmer on Wednesday leading into Federal Reserve Chair Jerome Powell’s appearance before Congress where he is expected to strike a hawkish tone, while sterling firmed slightly after hotter-than-expected British inflation data.

The annual pace of British consumer price gains was steady at 8.7% in May, against hopes it had cooled since April. Sterling briefly rose as far as 0.3% against the dollar to $1.2803 before settling back to $1.2765.

It also rose slightly on the euro and yen, as traders were betting the Bank of England would need to take rates higher. Markets now price another 150 basis points of hiking for a peak at 6% in a year’s time.

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Trade Deficit in New Zealand Grows Despite Boost in China Exports
Despite a boost in exports to China, New Zealand’s trade deficit broadened in May. The deficit increased from NZ$17.02 billion to NZ$17.12 billion, falling just short of economists’ prediction of NZ$17.24 billion.

Concurrently, the monthly trade surplus shrank from NZ$236 million to NZ$46 million. A substantial rise in milk powder, butter, and cheese exports (+21%) contributed to the export growth, while crude oil (-52%) and logs, wood, and wood articles (-15%) exports experienced declines.

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German Economy Slows in June as Businesses Encounter Weakening Demand Conditions
The German economy experienced a marked loss of momentum during the latter part of the second quarter, according to the latest ‘flash’ PMI survey conducted by Hamburg Commercial Bank. Weakening demand conditions led to a significant slowdown in business activity growth, while company expectations hit a six-month low and job creation rates also dropped. Inflation pressures eased in June, with manufacturers recording the first decline in output prices in over two and a half years. Although service sector costs and selling prices continued to increase, driven partly by higher wages and rising interest rates, inflation rates showed signs of deceleration.

The HCOB Flash Germany Composite PMI Output Index exhibited a substantial decline in June, falling from May’s 53.9 to 50.8. Despite remaining above the 50.0 thresholds indicating growth, this reading pointed to a sharp deceleration in the expansion rate, reaching a four-month low. The decline resulted from both a slower increase in service sector business activity (index down from 57.2 in May to 54.1) and a deepening downturn in manufacturing output (index dropping from 47.4 to 44.2).

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Inflation and Recession Worries Take Center Stage This Week

US
The US Federal Reserve (Fed) is anticipated to end its rate-hiking campaign shortly. Attention will turn to Personal Consumption Expenditures (PCE) readings, hoping for a decline in inflation. A decrease in inflation may boost swap futures’ confidence in one more Fed rate hike. Wall Street will keep a close eye on the Conference Board’s consumer confidence reading and Friday’s Personal Income and Spending data release.

Key Fed events include Fed’s Williams speech at the Bank for International Settlements, Fed Chair Powell’s address at the ECB’s global banking forum in Portugal, and the announcement of annual banking stress test results.

Eurozone
ECB President Christine Lagarde’s early-week appearances will garner significant attention due to recent interest rate hikes amidst ongoing inflation. Investors will closely watch the flash Harmonized Index of Consumer Prices (HICP) data on Friday.

The ECB has cautioned that significant data improvement is required to prevent another rate hike next month. A minor shift in the opposite direction could prompt the ECB to increase rates again in July before reevaluating in September. Inflation data from individual countries earlier in the week may offer insights into Friday’s expectations.

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US Markets See Lower Close in Quiet Trading; Big Tech Pullback Impacts Nasdaq
US indices showed varied performance in a subdued trading session. The Nasdaq index experienced a decline of over 1% as Big Tech companies retreated, making it the poorest-performing index of the day. Tesla shares took a significant hit, falling by 6% following a downgrade from Goldman Sachs. Other major tech players, including Meta, Amazon, and Microsoft, also saw declines ranging from 2% to 3%.

Contrarily, the Russell 2000 index ended in positive territory, benefitting from a rebound in regional banking stocks. The Nasdaq 100/Russell 2000 ratio faced strong resistance at 8.2, historically signaling potential overvaluation of the tech sector compared to the broader market.

FX Market Update: Stable US Dollar in Calm Session
The US Dollar (USD) maintained stability during a calm trading session with limited news flow. The US Dollar Index traded within a narrow range, reaching a low of 102.610 and a high of 102.830. Traders awaited central bank speakers and upcoming US data releases, anticipating potential market volatility.

Among G10 currencies, the New Zealand Dollar (NZD) outperformed its counterparts, while the Australian Dollar (AUD) remained relatively steady against the USD. Positive discussions between New Zealand and China regarding participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) contributed to the NZD’s strength. As a result, the NZD/USD pair reached a high of 0.6177, causing the AUD/NZD pair to decline and approach the 1.08 level.

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Xi Jinping of China Eases Foreign Investor Concerns Over Policy Uncertainties

In a bid to alleviate concerns and uncertainties, Chinese President Xi Jinping has recently assured foreign investors of his government’s unwavering commitment to addressing economic issues and unpredictable policy-making. Amid a backdrop of global apprehension, Xi underscored China’s dedication to development, openness, and the protection of foreign investors’ rights during his recent visit to Beijing, as reported by Xinhua News Agency.

China’s economy has been grappling with a slower recovery pace, particularly post-Covid Zero policies. This has led to intensified efforts by the nation to attract foreign investors. Compounding this situation are the endeavors by Western powers, including the US and Europe, to reduce their reliance on China, thereby creating an air of uncertainty about the country’s future growth prospects.

During the “Summer Davos” dialogue in Tianjin, Chinese Premier Li Qiang spoke emphatically about China’s readiness to collaborate with global entrepreneurs. He cautioned against the politicization of economies, urging CEOs to ensure the security of their supply chains, a sentiment he echoed during his recent visit to Germany.

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Bank of Japan’s Chief Defends Monetary Easing Amid Yen’s Decline
Kazuo Ueda, the current head of the Bank of Japan, has publicly supported the institution’s continuous implementation of monetary easing policies, despite the ongoing depreciation of the yen. He justified this by pointing out that, although the headline inflation rate is above the set target of 2%, the core inflation rate remains below this benchmark.

Ueda made these comments while attending the ECB Forum on Central Banking in Portugal. This event was attended by officials from the central banks of the United States, Europe, and the United Kingdom. During his address, Ueda noted that the value of the Japanese currency is subject to a multitude of influences, including the policy decisions made by these international central banks.

Despite his defense of the current monetary policy, Ueda expressed some uncertainty about the stability of inflation rates in Japan over the forthcoming years. However, he did acknowledge that should the central bank gain substantial confidence in future inflation stability, they would consider adjusting their policy approach accordingly.

The stance of the Bank of Japan stands in stark contrast to the fiscal strategies employed by the central banks of the US, UK, and Europe. These institutions have chosen to hike interest rates as a means of battling inflation, whereas the Bank of Japan has opted for an approach centered around ultra-low rates and market liquidity enhancements.

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