Date Tuesday June 1, 2021
Drivers
US PCE Core Deflator came in strong at 3.1% YoY vs 2.9% exp on Friday. Another data that tends to support the US inflation hawks. Nevertheless, any breakout seems to quickly reverse in this choppy FX market.

USDJPY is pulling back despite breaking the key 110 level last week. But we expect dips to continue to be bought going forward and for USDJPY to eventually continue higher as the US economy marches ahead.

NZDUSD firmly back in the range as well, following a breakout above 0.7315. EURUSD chopping around in a range.

The US Dollar on Friday was likely driven by month-end adjustments. We have plenty of data this week to add to narratives but overall, it seems wise to keep trading ranges for now.

Lean towards fading EURUSD strength, 1.2240 is resistance. Given the dovish tones from Lagarde and Panetta, we do not expect the ECB to taper PEPP purchases at the June 10th meeting which may trigger further declines in German yields and pull EURUSD back towards 1.2040 100-day MA and 1.2025 50-day MA.

The break lower in USDCNH likely to be driving USD selling in G10. With PBOC supporting the downside they are likely to recycle those USDs in the afternoon when London comes in which could weigh on USD short term.

BOE’s Vlieghe’s hawkish comments last week and the hawkish RBNZ had GBPUSD and NZDUSD bid before month end USD demand dragged both lower into the end of the week. Given these two seem to be front runners in the hiking cycle expect GBPUSD and NZDUSD to continue to be bought on dips.

Lower USDCNH now weighing on USD and GBPUSD is back up to the top of the range. Next resistance at 1.4240 which is the February high. Short EURGBP and EURNZD also make sense to us given that we expect ECB to remain dovish, and that the yield divergence to continue to drive outperformance of GBP and NZD against EUR.

Market Updates

EURUSD The Euro remains flat against the US Dollar as traders await PMI numbers for Italy, Spain, France, Germany, and the Eurozone. Unemployment numbers for Germany and inflation figures for the Eurozone are also due out and may trigger some volatility, therefore it seems wise to trade ranges between support at 1.2170 and the strong resistance area between 1.2240/1.2280.

GBPUSDThe British Pound reached the key resistance level at 1.4240, the highest level since April 2018. If we break above it, the GBPUSD currency pair will likely keep rising as bulls target the next resistance at 1.43. On the monetary policy front, BoE governor Bailey is scheduled to speak late in the day, and this might well be the catalyst needed for the breakout. But wait for the breakout! Because if traders already priced in the full reopening of the UK economy, scheduled for next week, then expect a quick reversal in this choppy market.

FTSE 100 Stock prices in London are seen opening slightly lower this morning following a long holiday weekend in the UK and ahead of a series of manufacturing PMI releases from Europe. The FTSE100 index is still, however strongly supported by 200-SMA on the 4-hour chart around the key 7000 level, despite inflation concerns, and therefore the main trend remains up, with the RSI pointing higher signaling strong upside momentum at least for the short term.

DAX 30 Bullish momentum is building up on the German index in early trade today, after an uneventful trading session yesterday as major markets were closed due to holidays, holding above 15460 support level, opening the door to further upside with 15540 and 15606 as next resistance targets, ahead of highly anticipated German unemployment and Markit Manufacturing PMI.

GOLDConcerns about rising prices and inflation is keeping the yellow metal supported, breaching $1912 resistance in early trade today, with technicals favoring further upside with $1920 and $1930 as next resistance targets. Busy week ahead with ISM manufacturing data expected today, an array of Fed Presidents (Philadelphia/Chicago/Atlanta/Dallas) tomorrow, and May employment report on Friday.

USOIL WTI Crude ended yesterday’s session in the green, topping $67 pbl in early trade today, after comments out of the OPEC+ coalition eased concerns over any supply glut, with expectations of stockpiles shrinking rapidly in the second half of the year. OPEC+ meeting continues today, with technicals favoring further upside after $67.47 resistance level now turned into support, with $68 and $68.50 as next resistance targets.

 

 

Rony Nehme

Rony Nehme

Chief Market Analyst at SquaredFinancial

Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.

 

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