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Intermarket:
- (+0.67%)
European equities are poised to open higher today, tracking gains on Wall Street that lifted the Nasdaq and the S&P 500 to record highs after President Biden embraced a bipartisan Senate infrastructure deal, with the smaller size tempering some of the tax implications to pay for it. The US yield curve continued to flatten as FOMC members continue to show little cohesion in views. Kashkari, Rosengren and Mester speak today – the former widely seen as the most dovish official while the latter two are acknowledged as hawks.
Oil prices are en-route to post the fifth straight week of gains, with demand growth seen outstripping supply on bets that OPEC+ producers will be cautious in returning more output to the market.
The Pound lost some ground yesterday as the Bank of England was less hawkish than the market expected.
Looking ahead: today’s main release is the US private consumption data for May. We do not expect PCE inflation to be a major market mover, but markets may look closely at the consumption data.
Matters that Matter:
• U.S. infrastructure deal includes $6 billion sale from oil reserve -document
• St. Louis Fed Bullard – Supply chains will be under pressure for quite a while
• Downtown Sydney, Bondi head for lockdown as Delta infections spike
Majors 1-Day View:
Comment: the US Dollar and risk assets are supported after President Biden’s infrastructure deal. Also, markets continue to discount Fed rate hikes in late 2022.
USDJPY
Prices posted the 3rd higher daily low in a row on Thursday, but buyers were unable to reverse the initial decline, posting a little changed close. With momentum signals still extended at multiple levels with bearish divergences appearing, the outlook for Friday remains unchanged and is a cautious bearish stance.
EURUSD
Prices posted the 2nd little changed close in a row on Thursday and despite the trend of higher daily lows remaining intact, caution is warranted as the corrective rally from last week’s lows is losing momentum. With sellers returning again from close to the Marabuzo line at 1.1957, the call for today remains cautiously bearish.
AUDUSD
Prices posted the 3rd higher daily low on Thursday, but sellers returned once again from close to the Marabuzo line at .7586, prices closing little changed. This loss of momentum suggests the corrective rally from prior week lows may be ending, but in the absence of any sign of reversal, signals remain neutral for today.
GBPUSD
Prices interrupted the trend of higher daily lows on Thursday with losses of ¾ Big Fig. As such, short-term signals are again pointing lower into Friday and the preferred bias is to sell into rallies towards 1.3955.
USDCAD
Prices interrupted the trend of lower daily highs on Thursday, posting a higher daily high & low with initial gains of over ½ Big Fig. However, sellers returned from the highs, prices closing the day little changed. As such, signals are not strong today and we prefer a neutral stance.
FX Relative ATR Grid
Comment: volatility levels have continued to decline this week and the market has posted multiple range contractions on Thursday. As such, trading conditions are less favourable now and caution is advised. At the same time, prepare for a range expansion especially on AUD and USD. GBP is the only pair to still be posting strong directional volatility and as such is the best candidate for today.
FX Relative Strength Grid
Comment: the strongest trends are currently USD (bullish), GBP (bullish), CHF (bearish). The strongest momentum was seen yesterday in GBP (bearish), CHF (bullish).