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Forex Today: US inflation comes to the fore… again
398820 June 28, 2024 03:33 FXStreet Market News
The US Dollar came under some renewed selling bias and left behind the area of recent multi-week highs amidst lower yields and ahead of the publication of US inflation tracked by the PCE on Friday.
Here is what you need to know on Friday, June 28:
The USD Index (DXY) retreated from tops beyond the 106.00 hurdle amidst steady prudence ahead of the release of US PCE data. Indeed, the release of US inflation figures tracked by the PCE will take centre stage on June 28, seconded by Personal Income, Personal Spending, the Chicago PMI, and the final Michigan Consumer Sentiment print. In addition, the FedÂ’s Barkin and Bowman are due to speak.
EUR/USD regained some traction and partially recouped ground lost in the last couple of sessions, managing to reclaim the area above the 1.0700 barrier. On June 28, the German docket will be in the limelight with the publication of Retail Sales and the labour market report for the month of June.
GBP/USD reversed WednesdayÂ’s strong pullback against the backdrop of some tepid improvement in the appetite for riskier assets. In the UK, the final Q1 GDP Growth Rate will be in the spotlight on June 28.
USD/JPY kept the trade around the area of multi-decade highs near 160.80 amidst rising cautiousness about the potential FX intervention by the BoJ. The Unemployment Rate, inflation figures in Tokyo, flash Industrial Production and Housing Starts are all due in Japan on June 28.
Another inconclusive session left AUD/USD hovering around the 0.6650 region, always immersed in the multi-week consolidative theme. Housing Credit figures are expected in the Australian calendar on June 28.
Reignited geopolitical concerns offset demand fears and lifted prices of WTI to new two-month highs just past the $82.00 mark per barrel.
Prices of Gold advanced markedly after two sessions in a row of losses, regaining the $2,330 zone per ounce troy ahead of the release of US PCE at the end of the week. Silver rose modestly, although it seems to have been enough to reverse four straight sessions in negative territory.
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US Dollar Index finds footing in Thursday backslide but still lower on the day
398817 June 28, 2024 03:17 FXStreet Market News
- DXY is softly lower on Thursday after US data comes in mixed.
- Losses remain limited as Greenback keeps downside contained.
- Investors pivot to FridayÂ’s key US inflation print.
The US Dollar Index (DXY) showed the Greenback giving a mixed performance on Thursday, testing into the low side after a mixed bag of US data figures but finding enough footing to limit losses. The US Dollar is mixed across the major currencies board, down a thin quarter of a percent against the Euro (EUR) and up a scant sixth of a percent against the Swiss Franc (CHF).
US Initial Jobless Claims for the week ended June 21 were better than expected, with 233K new jobless benefits seekers compared to the forecasted 236K, and slightly down from the previous weekÂ’s 238K. The four-week average for Initial Jobless Claims increased to 236K, but this still remains below the running average.
The US Gross Domestic Product (GDP) met expectations on Thursday, with a slight revision to 1.4% from the initial reading of 1.3%. Additionally, Core Personal Consumption Expenditures for the first quarter rose slightly to 3.7% quarter-on-quarter, versus the forecasted 3.6%. Following Thursday’s market close, the upcoming Presidential debate will attract attention as investors anticipate possible policy hints from the candidates.
On Friday, the US PCE Price Index inflation print will be the week’s focal data point, as investors hope for continued cooling in US inflation numbers to potentially influence the Federal Reserve’s (Fed) decisions on rate cuts. Currently, core PCE Price Index inflation is forecasted to decrease to 0.1% month-on-month in May from 0.2%.
DXY technical outlook
ThursdayÂ’s limited downside leaves the Dollar Index still holding onto a near-term bullish stance, with the DXY trading on the north side of the 200-hour Exponential Moving Average (EMA) at 105.58. The DXY hit a two-month peak this week, clipping above 106.10 as the Greenback basket follows a rough channel higher.
DXY hourly chart
DXY daily chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the FedÂ’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the FedÂ’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
There is only one thing to watch for in Friday’s PCE report
398816 June 28, 2024 03:09 Forexlive Latest News Market News
Friday’s May US PCE market has been circled on everyone’s economic calendar all week long but I tend to thing it’s overhyped. We got a blockbuster CPI report for May already and it certainly delivered with prices well-below the consensus.
The thing is, the market didn’t really run with it. US 2-year yields are down about 10 basis points since the report, the S&P 500 is up 2% and the Dollar Index is now higher after initially falling (that dip was bought fast).
To me, the message is that the market has moved on. There was a time not long ago when a miss on inflation of that magnitude would lead to a full-scale repricing and a massive bid in equities. That tells me that inflation is yesterday’s story and the market is more focused now on growth, interest rates, the Fed falling behind the curve and generative AI.
Five year breakevens are at 2.2%, down from 2.4% in March and there are abundant signs of softening in the labor market and some signs of cooling consumer demand, particularly in anything housing related.
Now, one market move doesn’t make a trend. If the market has really moved on the we’re going to need a few more data points to prove it. I’m hoping for a miss on consensus in one way or there the other to test the market but even if that happens the market may also be dealing with quarter-end considerations so we won’t get a ‘clean’ answer (and rarely ever do).
That said, here’s the consensus:
- Core PCE +2.6% y/y and +0.1% m/m
- Headline PCE +2.6% y/y and 0.0% m/m
US core PCE y/y
Within that, the market will be closely watching data on housing, rents, gasoline and insurance. If those are the sources of a hot report, the market could quickly discount it. If it’s from broader goods demand or services, then we should see more concern.
One thing that has the market a bit more on edge is the prospect for sticky inflation or yet-another setback. Canadian and Australian CPI reports were both surprisingly hot this week, enough to put an August RBA hike squarely back on the table. Combined those reports made enough waves to hurt Treasuries and could have served as a reminder that central banks will fight inflation to the bitter end, likely at the expense of growth.
That’s while I will also have an eye on the consumption number in the report, which is estimated up +0.3%. We have been getting indications from retailers about a softening consumer and that could show up here.
Overall though, the thing I will be watching is how the market reacts rather than the numbers themselves.
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Gold price rallies over 1% on soft USD, lower US yields
398814 June 28, 2024 03:09 FXStreet Market News
- Gold climbs as USD falls, Treasury yields dip.
- XAU/USD rebounds from two-week low following inflation data from Canada and Australia.
- DXY drops 0.12% to 105.91, off monthly high of 106.13.
- Anticipation for May PCE drops to 2.6% YoY, with Core PCE also expected at 2.6%.
Gold rallied more than 1% on Thursday after economic data. The softer Greenback, which is retreating after posting solid gains, undermined lower US Treasury bond yields. US economic data was slightly better than expected, though ebbs and flows toward the golden metal kept XAU/USD trading at $2,326.
Yesterday, XAU/USD dived to a two-week low, sponsored by the release of inflation figures in Canada and Australia that showcased a reacceleration of inflation. This sponsored a jump in most global bond yields, particularly US Treasury yields, and was capitalized by US Dollar bulls.
The US Dollar Index (DXY), which tracks the buckÂ’s performance against a basket of other currencies, hit a new monthly high of 106.13 before erasing some of those gains on Thursday as it tumbled 0.12% to 105.91.
The Gross Domestic Product (GDP) for the first quarter of 2024 in the United States was a tenth higher than forecasts, news already priced in by the markets. Besides that, the number of Americans filing for unemployment benefits dipped compared to last weekÂ’s data, while Durable Goods Orders exceeded projections.
This week, the Federal ReserveÂ’s (Fed) preferred gauge for inflation, the May PCE, is expected to decrease from 2.7% to 2.6% YoY. Core PCE is anticipated to decline from 2.8% to 2.6% YoY.
Daily digest market movers: Gold price advances, capitalizing on soft US Dollar
- US GDP for Q1 2024 came in at 1.4% QoQ, slightly higher than the 1.3% in the previous two readings but still trailing last year’s fourth-quarter expansion of 3.4%.
- US Durable Goods Orders in May rose by 0.1% MoM, surpassing forecasts of a -0.1% contraction. Meanwhile, Initial Jobless Claims dipped from 239K the previous week to 233K, below the forecast of 236K.
- Fed officials crossed the newswires during the week, and delivered mixed stances. Fed Governor Michelle Bowman was hawkish, saying that she would like to increase rates if the disinflation process stalls.
- Conversely, San Francisco Fed President Mary Daly was dovish: “At this point, inflation is not the only risk we face,” expressing worries about the labor market.
- Fed Governor Lisa Cook was neutral on Tuesday, saying that inflation was most likely to fall “sharply” next year, adding that it would be necessary to ease policy to keep the Fed’s dual mandate more balanced.
- According to the CME FedWatch Tool, odds for a 25-basis-point Fed rate cut in September are at 59.5%, up from 56.3% last Tuesday.
- December 2024 fed funds rate futures contract implies the Fed will ease policy by just 35 basis points (bps) toward the end of the year.
Technical analysis: Gold price edges higher but remains shy of testing Head-and-Shoulders neckline
Gold remains under pressure as the Head-and-Shoulders chart pattern remains intact, hinting that prices could fall further and clear key support levels. Although XAU/USD traded higher on Thursday, it remains shy of challenging the Head-and-shoulders neckline. If the latter is decisively broken, that could negate the pattern and pave the way to test the June 21 high of $2,368.
Momentum favors sellers as shown by the Relative Strength Index (RSI) standing below the 50-midline.
That said, the XAU/USD next support would be $2,300. Once cleared, the non-yielding metal would fall to $2,277, the May 3 low, followed by the March 21 high of $2,222. Further losses lie underneath, with sellers eyeing the Head-and-Shoulders chart pattern objective from $2,170 to $2,160.
Conversely, if Gold reclaims $2,350, that will expose additional key resistance levels like the June 7 cycle high of $2,387, ahead of challenging the $2,400 figure.
Gold FAQs
Gold has played a key role in humanÂ’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesnÂ’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a countryÂ’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Mexico Central Bank Interest Rate in line with forecasts (11%)
398812 June 28, 2024 03:02 FXStreet Market News
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WTI crude oil settles up 84-cents to $81.63
398811 June 28, 2024 02:46 Forexlive Latest News Market News
Oil daily
Oil has bounced back nicely from the post-OPEC dip. I think there was some short covering after shorts hit a record into the meeting.
In the bigger picture, US demand hasn’t been good to start the driving season and there is some global cyclical angst creeping into many markets. OPEC looks to be holding the line and export numbers have been soft.
Cracks have been improving but still don’t paint a good picture for demand while timespreads are more constructive.
Ultimately that looks like a market that’s unsure of what to do and that’s why it’s been stuck in a range from $80 to $82.40 for the past week. I’d be tempted to go with a break in either direction but I also fear that oil could get caught up in geopolitical worries with Israel/Lebanon war talk heating up.
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Ethereum on-chain metrics point to potential rally
398808 June 28, 2024 02:45 FXStreet Market News
- Ethereum’s decreasing exchange supply may be caused by increasing ETH staking.
- Galaxy Research predicts $5 billion in inflows in first five months of Ethereum ETF launch.
- Ethereum needs to overcome the $3,629 key resistance to validate bullish thesis.
Ethereum (ETH) is up nearly 3% on Thursday as upcoming spot ETH ETF launch and key on-chain metrics suggest an ETH rally might be around the corner.
Daily digest market movers: Why declining ETH exchange supply, staked ETH and spot ETH ETF launch primes Ethereum for new high
According to Glassnode data, Ethereum supply on exchanges has continued a downward trend despite recent price rises.
As earlier reported, this signifies that most ETH long-term holders (LTHs) have yet to begin profit-taking. LTHs may be anticipating higher price rises and a new all-time high before they begin locking in profits, especially with the launch of spot ETH ETFs on the horizon.
The increasing yield from ETH staking and restaking protocols could also be fuelling the declining exchange supply. Glassnode’s data also shows that the number of staked ETH has increased steadily, meaning most of the declining exchange supply may have flowed to staking protocols.
ETH Exchange Supply vs Staked ETH
With the growth of EigenLayer, Kaiko and Symbiotic and the increasing number of underlying restaking and liquid restaking protocols they power, the ETH exchange supply may continue decreasing. Combined with the potential launch of spot ETH ETFs, Ethereum may be poised for significant price growth in the future.
The Securities & Exchange Commission (SEC) approved issuersÂ’ spot ETH ETF 19b-4 applications on May 23 but have yet to greenlight their S-1 registration statements. Issuers filed amended S-1s last week after the SEC made “light” comments on them.
A recent Galaxy Research report on potential spot ETH ETF inflows also aligns with this prediction. The report stated that Ethereum ETFs could attract up to $5 billion within their first month of trading.
“We expect the net inflows into ETH ETFs to be 20-50% of the net inflows into BTC ETFs over the first five months, with 30% as our target, implying $1 billion/month of net inflows,” said Galaxy analyst Charles Yu.
The report said Ethereum’s price would be more sensitive to inflows than Bitcoin due to the ETH supply being locked in staking protocols, bridges, smart contracts, and the reduced exchange supply. However, Galaxy also highlighted that potential outflows from Grayscale’s Ethereum Trust conversion and the absence of staking could affect ETH ETF inflows.
This follows earlier predictions from Bitwise CIO Matt Hougan that spot ETH ETFs could attract $15 billion in net flows by the end of 2025.
The SEC may give the final approval for spot ETH ETFs on July 4, according to a Reuters report.
ETH technical analysis: Could Ethereum move past the $3,629 key resistance?
Ethereum is trading around $3,450, up nearly 3% on Thursday following a slight recovery in the crypto market. The move up has seen ETH short liquidations reach $18.31 million, with long only at $4.10 million in the past 24 hours.
ETH Chicago Mercantile Exchange (CME) open interest (OI) reached an all-time high this week. With ETH price also rising slightly, the increasing CME OI indicates US investors may be anticipating a rally. This also signifies potential good inflows in spot ETH ETFs when they launch, potentially causing a price rise in ETH.
ETH/USDT 4-hour chart
ETH could see a rally as the potential launch date for spot ETH ETF draws closer, but it faces resistance at the $3,629 price level. In the past three weeks, ETH bulls have failed on three different attempts to sustain a move above this level. A successful sustained move above the $3,629 price level could see ETH aiming to overcome the next resistance of $3,829.
A move below the $3,300 support could see ETH falling back to collect liquidity around the Fair Value Gap of May 20, extending from $3,110 to $3,457. The $3,203 key support could help prevent a further decline.
Ethereum FAQs
Ethereum is a decentralized open-source blockchain with smart contracts functionality. Serving as the basal network for the Ether (ETH) cryptocurrency, it is the second largest crypto and largest altcoin by market capitalization. The Ethereum network is tailored for scalability, programmability, security, and decentralization, attributes that make it popular among developers.
Ethereum uses decentralized blockchain technology, where developers can build and deploy applications that are independent of the central authority. To make this easier, the network has a programming language in place, which helps users create self-executing smart contracts. A smart contract is basically a code that can be verified and allows inter-user transactions.
Staking is a process where investors grow their portfolios by locking their assets for a specified duration instead of selling them. It is used by most blockchains, especially the ones that employ Proof-of-Stake (PoS) mechanism, with users earning rewards as an incentive for committing their tokens. For most long-term cryptocurrency holders, staking is a strategy to make passive income from your assets, putting them to work in exchange for reward generation.
Ethereum transitioned from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) mechanism in an event christened “The Merge.” The transformation came as the network wanted to achieve more security, cut down on energy consumption by 99.95%, and execute new scaling solutions with a possible threshold of 100,000 transactions per second. With PoS, there are less entry barriers for miners considering the reduced energy demands.
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Dow Jones Industrial Average cautiously higher on Thursday as markets await key inflation print
398805 June 28, 2024 02:02 FXStreet Market News
- Dow Jones continues to churn just above 39,000.00 after ThursdayÂ’s mixed data.
- US data came in mixed on Thursday, leaving the American market session in the lurch.
- Investors now pivot to face FridayÂ’s US PCE Price Index inflation print.
The Dow Jones Industrial Average (DJIA) went sideways on Thursday, finding tentative gains but battling the downside as traders grapple with a mixed print on the US data docket. US Initial Jobless Claims printed better than expected, but still on the higher end of recent figures, while US Personal Consumption Expenditures (PCE) rose faster than expected in Q1. Equities will now be on the lookout for FridayÂ’s US PCE Price Index inflation, which is still expected to show an overall easing in core price pressures in May.
US Initial Jobless Claims for the week ended Jun 21 came in better than expected, showing 233K net new jobless benefits seekers compared to the forecast 236K, and down slightly further from the previous weekÂ’s 238K. The four-week average for Initial Jobless Claims jumped to 236K, bringing the newest week-on-week figure back below the running average.
US Gross Domestic Product (GDP) met expectations on Thursday, with Q1 GDP slightly revised to 1.4% from the initial print of 1.3%. Core Personal Consumption Expenditures in the first quarter also rose slightly, ticking up to 3.7% QoQ versus the forecast hold at 3.6%. ThursdayÂ’s upcoming Presidential debate, due to start after the dayÂ’s market close, will draw some attention as investors keep an eye out for possible policy hints from candidates.
FridayÂ’s US PCE Price Index inflation print will be the weekÂ’s key data figure as investors hope for continued cooling in US inflation numbers to help push the Federal Reserve (Fed) closer toward rate cuts. At current cut, core PCE Price Index inflation is forecast to tick down to 0.1% MoM in May from 0.2%.Â
Dow Jones news
The Dow Jones is finding slim gains on Thursday after a firm surge in familiar favorites, but overall securities remain mixed. About half of the Dow JonesÂ’ constituent securities are in the red for the day, with losses led by Merck & Co Inc. (MRK), which fell 2.25% to $128.55 per share and shed around three points on Thursday.
On the high side, Salesforce Inc. (CRM) soared around 6% to $256.82 per share as the company gears up for its latest shareholder meeting on Thursday.
Dow Jones technical outlook
The Dow Jones index shrugged off an early decline on Thursday, rallying to a thin gain into the 39,250.00 region. Still, bullish momentum remains tepid, and the major equity index is settling into a soft churn pattern in intraday trading.
Daily candlesticks are holding onto chart paper just north of the 50-day Exponential Moving Average (EMA) at 38,889.40, but topside momentum remains limited and bidders are running out of steam as the index trades south of recent all-time highs around the 40,000.00 major price handle.
Dow Jones five minute chart
Dow Jones daily chart
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. DowÂ’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
BofA: Excess JPY supply this summer to drive USD/JPY toward 163
398804 June 28, 2024 01:45 Forexlive Latest News Market News
USDJPY daily
Bank of America anticipates that an imbalance in the demand and supply of the Japanese yen (JPY) this summer will contribute to USD/JPY reaching 163 by September 2024. Various factors, including increased investments in foreign equities, trade balance struggles, and political risks, are expected to exert downward pressure on the yen.
Key Points:
-
Imbalance in JPY Demand/Supply:
- Demand/Supply Imbalance: The supply of JPY is expected to outstrip demand, contributing to the yen’s underperformance relative to the US-Japan interest rate spread.
- Toshin Inflows: Inflows to foreign equity Toshin (Japanese investment trusts) are accelerating, driven by new investors utilizing NISA (Nippon Individual Savings Account).
-
Trade Balance Issues:
- Trade Balance Struggles: Japan’s trade balance may struggle to recover due to lower auto production and higher energy imports, putting additional pressure on the yen.
-
Political Risks:
- Political Pressure: Political risks could further add to the downward pressure on JPY, exacerbating the imbalance in demand and supply.
-
Revised Forecast:
- Upward Adjustment: Given these factors, BofA has adjusted its USD/JPY forecasts upward. The new forecast for September 2024 is 163, up from previous projections.
Conclusion:
BofA sees an excess supply of JPY this summer as a key driver for USD/JPY reaching 163 by September 2024. Accelerated investments in foreign equities, a struggling trade balance, and political risks are expected to contribute to the yen’s continued depreciation. The bank has adjusted its forecast to reflect these dynamics, anticipating further yen weakness in the coming months.
For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.
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Mexican Peso edges lower ahead of BanxicoÂ’s policy decision
398802 June 28, 2024 01:29 FXStreet Market News
- Mexican Peso remains weaker despite positive economic data.
- Banxico expected to keep rates unchanged with Citibanamex survey indicating most economists forecast no rate cut until Q3 2024.
- US data shows higher than expected Q1 GDP, lower unemployment claims, and stronger Durable Goods Orders, boosting USD.
The Mexican Peso prints minimal losses in early trading during the North American session as traders brace for the monetary policy decision of the Bank of Mexico (Banxico), scheduled for 19:00 GMT. At the time of writing, the USD/MXN trades at 18.39, up by 0.36%.
MexicoÂ’s economic data fared better than foreseen with the Unemployment Rate coming in below estimates, while the Balance of Trade printed a surprisingly surplus. Despite that, the Mexican currency remained slightly weaker against the US Dollar (USD).
Later, Banxico is expected to keep rates unchanged, based on the latest Citibanamex survey published on June 20. Of the 31 economists polled, just nine expect a rate cut to 10.75% later, while the other 22 market participants moved their projections to the third quarter of 2024.
Across the border, mixed data in the United States (US) boosted the Greenback against most emerging market currencies but dropping against most G7 currencies. The final reading of the Gross Domestic Product (GDP) for Q1 2024 was higher than expected, unemployment claims dipped, and Durable Goods Orders exceeded forecasts.
Therefore, the USD/MXN resumed to the upside, but it remains subject to BanxicoÂ’s decision. A hold could spark a U-turn and open the door to challenge the April 19 high turned support at 18.15. Further downside would be seen, once cleared.
Otherwise, if Banxico eases policy, the exotic pair might challenge the year-to-date (YTD) high of 18.99, with further gains seen once the level is cleared.
Daily digest market movers: Mexican Peso on the defensive ahead of Banxico
- Data from Mexico, revealed the Unemployment Rate in May was 2.6%, below estimates of 2.7%. The Balance of Trade printed a surplus of $1.99 billion, crushing the consensus projections for a $-2.04 billion deficit.
- Citibanamex survey showed economists priced out fewer rate cuts by the central bank, estimating rates will be lowered to 10.25% in 2024, up from 10.00%. Regarding the USD/MXN, the consensus year-end exchange rate estimate is 18.70, up from 18.00 in the previous report.
- Regarding economic growth, the consensus revised the Gross Domestic Product (GDP) for 2024 downward from 2.2% to 2.1% YoY.
- US GDP for Q1 2024 came at 1.4% higher than the 1.3% in the previous two readings, still trailing last yearÂ’s fourth quarter of a 3.4% expansion.
- US Durable Goods Orders in May rose by 0.1% MoM, exceeding forecasts for a -0.1% contraction. At the same time, Initial Jobless Claims dipped from 239K a week ago to 233K, beneath forecasts of 236K.
- CME FedWatch Tool shows odds for a 25-basis-point Fed rate cut at 59.5% up from WednesdayÂ’s 56.3%.
Technical analysis: Mexican Peso slides slightly as USD/MXN rallies back above 18.30
The USD/MXN is upwardly biased, yet the pair would likely remain volatile as BanxicoÂ’s decision looms. Despite that, momentum is in favor of buyers as the Relative Strength Index (RSI) suggests that bulls are in control.
For a bullish continuation, buyers need to push the USD/MXN exchange rate past the psychological 18.50 level. Once cleared, the next stop would be the year-to-date (YTD) high of 18.99, followed by the March 20, 2023, high of 19.23, followed by an uptick to 19.50.
On the flip side, if USD/MXN tumbles below the April 19 high turned support at 18.15, that will pave the way toward 18.00. Next key support level would be the 50-day Simple Moving Average (SMA) at 17.37 before testing the 200-day SMA at 17.23. Once those two levels are cleared, the next stop would be the 100-day SMA at 17.06.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of MexicoÂ’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
Gold Price Forecast: XAU/USD back to its comfort zone around $2,330
398800 June 28, 2024 01:21 FXStreet Market News
XAU/USD Current price: $2,326.08
- Generally encouraging United States data put pressure on the US Dollar.
- The US will release the Personal Consumption Expenditures Price Index on Friday.
- XAU/USD returned to its comfort zone at around $2,330Â but lacks bullish momentum.
Spot Gold rallied on Thursday, returning to its comfort zone at around $2,330, trading just below the level mid-American session. XAU/USD started grinding higher early in Europe, helped by decreased demand for the US Dollar and persistent risk aversion but added the most following the release of mostly encouraging United States (US) macroeconomic figures.
The country reported that  Durable Goods Orders were up 0.1% MoM, better than the -0.1% expected, and confirmed the Gross Domestic Product (GDP) at 1.4% as expected, slightly above the previous estimate of 1.3%. Also, the country reported that Initial Jobless Claims for the week ended June 21 at 233K, better than the 236K expected, while the June Kansas Fed Manufacturing Activity Index printed at -11, deteriorating from the previous -1.
The improvement in the market sentiment reached Wall Street. Following sharp slides in Asian and European indexes, US ones pushed higher, with the Dow Jones Industrial Average and Nasdaq Composite currently trading in the green and the S&P500 hovering around its opening level. Meanwhile, US government bond yields retreated, with the 10-year note currently offering 4.28%, down 3 basis points (bps) in the day.
The focus now shifts to the most relevant US macroeconomic report, the Personal Consumption Expenditures (PCE) Price Index. The Federal Reserve’s (Fed) favorite inflation gauge will be released on Friday and is expected to show inflation was up 2.6% YoY in May, slightly below the previous 2.7%. Easing inflationary pressures should boost hopes for a soon-to-come rate cut in the US and lead to a USD decline. Still, as markets may become optimistic, the chance of an XAU/USD rally is limited.
XAU/USD short-term technical outlook
XAU/USD hovers around $2,325, and the daily chart shows a limited bullish potential. The pair is meeting sellers at around a mildly bearish 20 Simple Moving Average (SMA), now at around $2,327.60. Technical indicators, in the meantime, turned higher, but remain within neutral levels, with the Relative Strength Index (RSI) indicator battling to overcome its 50 level. The 100 and 200 SMAs, in the meantime, maintain their bullish slopes below the current level, with the shorter one providing dynamic support at around $2,252.40.
According to the 4-hour chart, XAU/USD is neutral in the near term. Technical indicators bounced from their recent lows but turned flat around their midlines, reflecting decreased buying interest. At the same time, the intraday advance stalled around a flat 100 SMA, although the bright metal recovered above a now flat 20 SMA. Gold may find some upward strength in higher-than-anticipated US inflation figures, spurring risk-aversion.
Support levels: 2,308.30 2,293.50 2,279.60 Â
Resistance levels: 2,327.60 2,337.00 2,345.20Â
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