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Intermarket:
• SP Futures 4237 (+0.02%)
• EUSTXX 4146 (+0.02%)
• Crude Oil 72.63 (+0.69%)
• US 10YR 1.50% (-0.13%)
• EurUsd 1.2128 (+0.02%)
• UsdJpy 110.07 (+0.05%)
• DAX 15733 (+0.01%)
Low volatility. This seems to be the recurring theme in stocks and FX recently, while larger moves remain in commodity space as Crude Oil continues it’s ascent and Copper takes a plunge. Still, European stocks look poised for a positive start today, while US stocks are less bullish ahead of today’s key FOMC meeting. Price action in Asia was largely muted.
The pullback in the US10YR yield from 1.77% to 1.50% suggests that markets have scaled back inflation fears in conjunction with the pullbacks in commodities. However, this also suggests that any sign of hawkishness on behalf of the FED could spur a strong reaction.
Elsewhere, Bitcoin has been recovering after testing the 50% retracement of the 2020 rally, supported by Elon Musk’s tweets.
Looking ahead: FOMC meeting will be the highlight. No new policy signals expected, but updated projections will possibly show a first rate hike in 2023 (no hike in 2023 in current ‘dots’) and we might see the first cautious Fed comments on possible tapering in 2022. This less dovish stance could further spur USD short-covering.
Matters that Matter:
• Telegraph reported shortages of Pfizer vaccines, slowing japs in the UK. Joint Committee on Vaccination and Immunisation are expected to make recommendation against the vaccination of under-18s in the immediate future.
• Biden to meet Putin at 1.35 pm in Geneva; Biden to hold press conference after US/Russia summit
• RBNZ: Debt serviceability restrictions added to policy toolkit.
Majors 1-Day View:
Comment: the main dynamic in FX at the moment is the lack of volatility. DB FX Vol levels are still contracting. Our normal volatility measurements are also showing this lack of movement, so be ready for the vol expansion when it happens. In the meantime, rangebound conditions continue, especially ahead of today’s FOMC meeting.
USDJPY
After the false break of April highs, prices initially declined to 109.20 but have since been recovering, with the 3rd consecutive higher daily high & low posted on Tuesday. Trend readings remain weak but have improved. Little movement expected ahead of FOMC. Preferred bias is to buy into dips towards Monday’s low zone at 109.65-75. Resistance expected towards 110.20s then 110.55.
EURUSD
After Friday’s 1 Big Fig decline, prices stalled ahead of 1.2100 and are attempting a recovery. However, positive momentum remains weak and sellers returned yesterday from close to Friday’s Marabuzo line at 1.2240, prices closing little changed. As such, signals are initially neutral for today and we prefer instead to stay square at the open and sell any rally towards 1.2172. Support is seen at 1.2100 and then the May 13 open at 1.2077.
AUDUSD
Prices remain rangebound and after the recovery from close to the Apr 13 close, prices have gradually been declining. Tuesday posted the 3rd lower daily low in a row. However, ahead of FOMC, little movement is expected. As such, with caution, there remains just a slight bearish bias in the short-term, and selling into rallies towards Monday’s open at .7706 is the preferred bias. Supports are at the Jun 3 close/Jun 4 open at .7660, then the Apr 13 close at .7642 and Apr 12 close at .7622.
GBPUSD
Prices posted fresh 4-week lows on Tuesday at 1.4033, with initial losses of ¾ Big Fig. However, buyers returned from close to the 13 May open, prices recovering to close just marginally lower. As such, there remains just a slight bearish bias for Wednesday and selling on rallies towards 1.4108 is the preferred bias ahead of FOMC. Supports are yesterday’s low at 1.4033 and the May 13 low at 1.4007 in proximity to the round number 1.4000.
USDCAD
Buyers returned from close to 1.2000 over the past weeks, prices recovering to post fresh 4-week highs on Tuesday at 1.2204. As such, immediate signals have improved ahead of FOMC later today. Buying into dips towards yesterday’s open at 1.2140 is the preferred play. Resistance is at the 55 DMA/6 May Marabuzo at 1.2213, then the April low at 1.2273.
FX Relative ATR Grid
Comment: average volatility levels have been dropping recently, but yesterday some expansions were posted on key CHF, EUR and GBP pairs. That’s where the focus should be today, ahead of FOMC.