What are we looking at today:
- USD gains amid cautious markets: A sense of caution across major markets is helping the USD performance today. Only the JPY is gaining against the USD.
- EUR consolidates but volatility is expected later: The EUR is all but flat ahead of the ECB. Traders are waiting for the ECB decision. We expect direction to be taken from how hawkish the forward guidance on future rate hikes will be.
- Indices look cautious: European indices are lower on catch up to the selling pressure into the Wall Street close, but US futures are cautious today, flat to a shade lower. Once more, expect a reaction to the ECB later.
- Data trading: Big focus on the ECB today. No rate hike is expected but traders will be looking to see how hawkish the forward guidance will be.
Overview
Broad market sentiment is looking cautious ahead of a key meeting of the European Central Bank today. Drawing asset purchases to a close is pretty much a given today, but just how hawkish will the ECB go with inflation running at over 8%? The extent to which the Governing Council signals for future rate hikes, in what size, and perhaps even for how long will gauge market reaction today.
Markets are trading with a slight edge of risk aversion today. Although the EUR is consolidating, the USD is gaining elsewhere, whilst the Japanese yen is the main outperformer. However, given how much the yen has fallen in recent days, this may be a case of a snap-back rally in an isolated move. Elsewhere, European indices are playing catch up on late Wall Street selling last night, whilst US futures oscillate around the flat line.
The massive focus of the economic calendar will be on the European Central Bank. The ECB is not expected to hike rates quite yet (highly anticipated to be July) but it is likely to announce the winding down of the Asset Purchase Programme and also use forward guidance in the press conference to steer for a July rate hike. Whether a +50bps hike is being discussed could be the hawkish surprise in the press conference. Also look out for US Weekly Jobless Claims, although the market impact of this may be lost amidst the ECB presser.
Today's news
Market sentiment looks cautious: There is little real decisive across major markets ahead of the ECB. The USD is marginally stronger, and this is weighing slightly on precious metals. European indices are playing catch up whilst US futures are a hair’s breadth lower.
Treasury yields consolidate: Yields are the slightest bit lower, with the 2-year and 10-year yields both less than one basis point down.
China Trade Balance improves: The surplus has improved to +$78.8bn in May (from $51.1bn in April) which was higher than the $58bn expected. This was driven by a larger than expected increase in both exports (16.9%) and imports (+4.1%)
RBNZ will sell NZ government bonds from July: The Reserve Bank of New Zealand will start to unwind its balance sheet with NZD 5bn per fiscal year. There has been a positive NZD reaction to this morning.
Cryptocurrency steady: After a choppy few days, cryptocurrencies are looking relatively steady this morning. Despite several days of fluctuation, Bitcoin remains supported above $30,000 and is +0.5% higher this morning.
Economic Data:
- European Central Bank monetary policy (1245BST) – The consensus is not expecting any change to the interest rates with the main Refinancing Rate at zero and the Deposit Rate at -0.50%.
- US Weekly Jobless Claims (1330BST) – Claims are expected to be 210,000 (up slightly on 200,000 last week)
Major market outlook
Broad outlook: Cautious moves across major markets. This is equating to mild gains for the USD (although slightly more as the European session cranks up) which are weighing slightly on precious metals. European indices are lower in early moves and US futures are also threatening to fall away, adding further pressure on European markets.
Forex: USD is strengthening, but the JPY has clawed back some of its recent losses and is stronger this morning.
- EUR/USD continues to consolidate around the middle of what is now a near 3-week trading range between 1.0625/1.0780. With momentum settling into a neutral configuration (RSI hovering around 50) closing breaks of this range will likely be the next key move. Massive risk events in the next two sessions (the ECB meeting today and US inflation tomorrow will be key).
- GBP/USD remains choppy with intraday swings within what is still broadly a trading range of the past 3 weeks between support at 1.2430 and resistance at 1.2665. This also remains under the backdrop of resistance from a near 4-month downtrend. Initial resistance is growing around 1.2600 but until the 1.2430 support is breached, this is a consolidation. Despite this, longer-term technical favour selling near-term rallies still.
- AUD/USD is beginning to fall over as the 3-week uptrend has been broken in recent days. However, the first important support at 0.7140 will be an important gauge now. A decisive break of support would complete a small top pattern and imply a fall to 0.7000. Resistance is growing at 0.7225/0.7245.
Commodities: Precious metals are increasingly rangebound, with oil consolidating the breakout to multi-month highs.
- Gold has settled down into a near-term range play. Resistance at $1874 caps the upside of a 3-week range above $1828 support. RSI momentum is also reflecting this uncertainty, but given the struggle under 50 this leaves a mild negative bias and an edge towards testing the support. Breakouts either above $1874 or below $1828 are needed for direction.
- Silver also remains stuck in a near-term trading range. Support is holding around $21.28/$21.43 whilst moves into the $22.25/$22.50 area continue to falter. With RSI momentum unwinding and hovering a shade below 50 this is still at risk of simply being a near-term rebound from $20.45 that will be sold into. We look for a break of either $21.28 for the renewed downside. The bulls will be pushing for a move above $22.50 for the upside direction.
- Brent Crude oil has broken decisively above the $124.40 resistance of the key March high. This has opened a continuation of an uptrend channel which suggests that moves above $130 could be seen now. With a run of higher lows in place, weakness remains a chance to buy. The initial support band is at $120.50/$123.90.gauge today whilst a move below $118.25 would see positive momentum lost and the channel broken.
Indices: Wall Street is increasingly in a consolidation range, whilst European markets have also lost upside momentum and are developing ranges.
- S&P 500 futures continue to use the support of the pivot at 4100 as a basis of support in recent sessions. However, the positive momentum of the recovery has waned and the market is now in a trading range between 4071/4201. This is a market waiting for a catalyst and with the ECB meeting today and US inflation tomorrow, it may be about to find one.
- German DAX has lost its 4-week uptrend and positive momentum has fallen over. A retreat is now testing the 14,220/14,320 old breakout support. Losing this support would be disappointing, but the market would only turn corrective again under the higher low at 13,860. However, resistance has now been left at 14,706 and adds to the massive resistance band at 14,800/15,000.
- FTSE 100 lost the upside momentum of the recovery as the resistance band of several old key highs from 2022 between 7624/7695 has been a barrier over the past week or so. A “bearish engulfing” candle yesterday adds growing downside pressure on the initial support band at 7495/7518. A decisive breach would imply a swing back lower again.
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