For instant updates, follow FCI Markets on Twitter
Intermarket:
• SP Futures 4208 (+0.06%)
• EUSTXX 4090 (+0.15%)
• Crude Oil 69.23 (+0.58%)
• US 10YR 1.59% (-1.49%)
• EurUsd 1.2202 (-0.06%)
• UsdJpy 109.71(+0.18%)
• DAX 15612 (+0.19%)
Fed’s Harper opined that it may be time to at least think about thinking about tapering. The Fed’s Beige Book also flagged that the US economy expanded at a “somewhat faster rate” in early April to late May. The Fed also announced that it would start to sell down its US$137bn of corporate bonds and ETF portfolio in an orderly fashion by year-end. However, markets remain cautious. The S&P500 posted the 4th little changed close in a row; VIX slipped to 17.48; UST bonds reacted to the Fed’s Beige Book report and Harker’s comments, but the 10-year bond yield still closed down 2bps at 1.59%. USD is slightly stronger today but rangebound conditions remain and focus turns to volatility conditions (see charts).
Moreover, markets may be awaiting tomorrow’s NFP before making stronger commitments.
Looking ahead: we get US initial jobless claims, ADP employment change and services ISM. Traders will pay attention to the employment component of the ISM for clues on tomorrow’s NFP report. Fed’s Bostic, Harper and Quarles and BOE governor Bailey are also speaking.
Matters that Matter:
• Fed says will start unwinding its corporate bond holdings
• Half of U.S. states to end Biden-backed pandemic unemployment benefits early
• China’s services activity growth slows in May, Caixin PMI 55.1, 56.3 prev
• AU May Retail Sales Final MM, 1.1%, 1.1% f’cast and prev;
• ECB to keep policy loose this year despite high inflation risks- poll
• Israel’s opposition declares new government, set to unseat Netanyahu
Majors 1-Day View:
Comment: GBP and NZD remain the weaker pairs this week vs. AUD and CAD strength. Volatility contractions are becoming relevant.
USDJPY
Focus turns to volatility conditions. Prices have been contained within 108.50-109.70s range in May, and Bollinger Bandwidth is highlighting an unsustainable reduction in volatility. Breakouts are now expected, potentially to the topside as prices remain above Thursday’s Marabuzo and key supports at 109.17 (last Thursday’s Open) and 108.86 (last Tuesday’s Open). Intraday, signals remain slightly bullish. Resistance is at 109.78, but dips may be short lived. Preferred bias is to buy into dips towards 109.57 (today’s Low) or even 109.48 (yesterday’s Open). Main target is at 110.00.
EURUSD
Prices remain contained within the broad 1.2160-1.2240 range. After attracting sellers from close to the range top on Tuesday, prices posted the 2nd lower daily high & low in a row on Wednesday. Preferred bias is for a continued descent towards the bottom of the range again today, but directional signal are weak. Support is found at 1.2180 (62% of the Friday-Tuesday recovery) and 1.2160 (78.6% of the Friday-Tuesday Recovery). Resistance is initial at yesterday’s Top at 1.2227, then 1.2242.
AUDUSD
AUDUSD remains in a rangebound market type between .7674 and .7890. Inner boundaries are .7700/.7800. Attention should be paid to the contraction in ranges over the past 8 sessions, with Bollinger Bands narrowing decisively. A volatility breakout is becoming more probable. As such, signals for Wednesday are mixed and we suggest a neutral stance. A Daily close beyond the range boundaries will establish directionality.
GBPUSD
Tuesday’s bearish engulfing suggested further weakness on Wednesday, but buyers returned from 1.4115 support, prices closing little changed. With prices still contained within the broad 1.4100-1.4200 range, directional signals are weak. With prices still below Tuesday’s Marabuzo, a slight bearish bias remains. Selling towards today’s open at 1.4170 is the preferred strategy, but intraday support is close at 1.4140 (62% of yesterday’s recovery). Further support is down at 1.4061 (May 13 Open).
USDCAD
Downwards momentum has been stalling over the past 4 sessions, with consecutive little changed closes and buyers returning from close to 1.2000. Focus turns to the decisive contraction in volatility, highlighted by narrow Bollinger Bands. Directional signals are hence weak. Within this context, cautious shorts on rallies towards Tuesday’s top at 1.2077 are possible. With support at yesterday’s low at 1.2026. However, daily closes beyond 1.2000 or 1.2142 are required to initiate strong directional signals.
FX Relative ATR Grid
Comment: compared to yesterday, volatility is more even now, with some acceleration in USD pairs and some calmer moves in GBP and CHF. However, less movement is expected ahead of tomorrow’s NFP report.
FX Relative Strength Grid
Comment: the strongest trend is currently JPY (bearish. The strongest momentum was seen yesterday on JPY (bearish), CAD (bullish), NZD (bearish).