Articles

Mexican Peso recovers despite dovish Banxico meeting

399144   June 28, 2024 23:21   FXStreet   Market News  

• The Mexican Peso recovers despite a dovish tilt to the Banxico policy meeting on Thursday. 
• A change in the distribution of voting and language of the statement suggests a higher change of interest-rate cuts. 
• USD/MXN trades in volatile ups and downs with no clear trend in the short-term.

The Mexican Peso (MXN) recovers roughly three quarters of a percent in its most traded pairs on Friday despite a dovish tilt to the Bank of Mexico (Banxico) policy meeting on Thursday. Banxico decided to leave interest rates unchanged at 11.00% and although the decision was widely expected, the change in the language of the statement and the division of voting were not. 

These changes suggest Banxico is more likely to cut interest rates in the future than was previously supposed (dovishness). This, in turn, had a moderately weakening effect on the Mexican Peso, since lower interest rates are generally bearish for currencies because they attract lower foreign capital inflows. 

At the time of writing, one US Dollar (USD) buys 18.30 Mexican Pesos, EUR/MXN is trading at 19.58, and GBP/MXN at 23.14.

Mexican Peso weakens after changes to voting and Banxico language

The Mexican Peso recovers the losses incurred following the Banxico policy meeting. Several changes to the language of the accompanying statement and the inclusion of a single vote to cut interest rates – by Omar Mejia – were new developments that gave the meeting a dovish slant. 

The key changes to the statement were as follows: 

• At the previous meeting one member had voted to raise interest rates by 0.25%, in contrast at the June meeting a member voted to cut interest rates by 0.25%. 
   
• Overall it gave little weight to the PesoÂ’s devaluation, according to analysts at Rabobank.
   
• “Of note was the seemingly little weight the Bank placed on recent MXN depreciation filtering through to higher inflation. Overall, we would argue there is a dovish tilt that leaves the door wide open to further rate cuts this year,” Rabobank said in its note.
   
• Nevertheless, near-term inflation forecasts were revised up due to pass-through from the weaker Mexican Peso, however, longer-term forecasts were left unchanged.
   
• New language was added about economic activity slowing down, including “the balance of risks to growth of economic activity is biased to the downside”.
   
• The same mention of slowing activity preceded the interest-rate cut in March, according to economists at advisory service Capital Economics.
   
• Further, Banxico added that it saw scope for, “discussing reference rate adjustments”.
   
• “Our sense is that policymakers have opened the door to a 25bp cut at the August meeting,” said Capital Economics, adding “Even so, once the easing cycle is resumed, we expect that rates will be lowered more gradually than most anticipate.”
   
• Rabobank expects two 0.25% rate cuts from Banxico in 2024, with a policy rate of 10.50% to end the year.
   
• Capital Economics are more dovish, expecting four rate cuts and an end-of-year policy rate of 10.00%. 

Technical Analysis: USD/MXN displays volatility 

USD/MXN rose after the Banxico meeting to touch a weekly high of 18.60, however, it has since fallen back down to the 18.30s. 

The pair moved up after the formation of a three-wave ABC correction. This suggests the possibility the pair might not be correcting the short-term downtrend but instead has entered a short-term uptrend. 

USD/MXN 4-hour Chart 

However, the evidence is not strong either way and ultimately the direction of the short-term trend is unclear at the moment.  

A move below 18.06 (June 26 low) would suggest the downtrend was resuming and probably see a continuation down to 17.87 (June 24 low).

Alternatively, if USD/MXN rallies and breaks above 18.60 (June 28 high), it is likely to continue up to 18.68 (June 14 high), followed by 19.00 (June 12 high). A break above 19.00 would provide strong confirmation of a resumption of the short-and-intermediate term uptrend.

The direction of the long-term trend remains in doubt. 

US Dollar gears up for French elections risk over the weekend

399142   June 28, 2024 23:18   FXStreet   Market News  

• The US Dollar has Trump and Suzuki to thank for its early recovery on Friday. 
• PCE fully falls in line of expectations.
• The US Dollar index hovers around 106.00, back to WednesdayÂ’s levels. 

The US Dollar (USD) is having difficulties in pricing in all events and elements that are moving in the markets. Traders are still digesting the Trump-Biden debate where nearly everyone saw former US President Donald Trump as the victor.While intervention risk from the Japanese government hangs over the US Dollar, French voters will go to the polls on Sunday. Recent results show the Far Right leading by 36.2%, followed by the Far Left with 28.3% and President Emmanual Macron’s party lagging by 20.4%.

On the US economic calendar front, Personal Consumption Expenditures (PCE) came in fully in line of expecations. The disinflationary trajectory is in tact and is not facing any hiccups for now. Traders will now be on the lookout for the University of Michigan, ahead of the first round in the French elections over the weekend. 

Daily digest market movers: France heading to first round of elections

• One Sunday night markets will know who will be heading to the second and final round of the French political elections on the week therefter. For now the Far Right movement is in the lead, followed by the Far Left and the party from current rulling President Emmanuel Macron.  
• At 12:30 GMT, The Personal Consumption Expenditures for May was released:
  • Core Monthly PCE went from 0.2% to 0.1%.
  • Headline Monthly PCE headed from 0.3% to 0.0%.
  • Yearly Headline PCE faded a touch from 2.7% to 2.6%.
  • Yearly Core PCE eased from 2.8% to 2.6%.
• The Chicago Purchase Managers Index (PMI) was an upbeat surprise, though remains in contraction from 35.4 to 47.4.
• At 14:00 GMT, the University of Michigan will release its final reading for June:
  • Consumer Sentiment jumped to 68.2, coming from 65.6.
  • Inflation expectations eased a touch to 3%, from 2.1%.
• Equities are trying to close this week off on a high note, with already several green closures in Asia, while European and US equities are in the green. 
• The CME Fedwatch Tool is broadly backing a rate cut in September despite recent comments from Federal Reserve (Fed) officials. The odds now stand at 57.9% for a 25-basis-point cut. A rate pause stands at a 35.9% chance, while a 50-basis-point rate cut has a slim 6.2% possibility. 
• The US 10-year benchmark rate trades near the weekly high at 4.28%.

US Dollar Index Technical Analysis: Several risks ahead

The US Dollar Index (DXY) may go where it wants to go in the coming days, though a sword of Damocles is hanging above its performance. The Japanese Ministry of Finance has repeated its state of emergency on the exchange rate and might intervene at any given moment as of now. That means a substantial move could unfold, which would knock out the Greenback for a moment. 

On the upside, the biggest challenge remains 106.52, the year-to-date high from April 16. A rally to 107.35, a level not seen since October 2023, would need to be driven by a surprise uptick in US inflation or a further hawkish shift from the Fed. 

On the downside, 105.53 is the first support ahead of a trifecta of Simple Moving Averages (SMA). First is the 55-day SMA at 105.27, safeguarding the 105.00 round figure. A touch lower, near 104.72 and 104.46, both the 100-day and the 200-day SMA form a double layer of protection to support any declines. Should this area be broken, look for 104.00 to salvage the situation. 

US Dollar Index: Daily Chart

Japanese Yen looks to be fading out this week without any interventions

399140   June 28, 2024 23:17   FXStreet   Market News  

• The Japanese Yen started Friday with a fresh multi-decade low print.
• Some quick profit taking is happening ahead of the US session and before the weekend. 
• The US Dollar Index hovers around 106.00 again ahead of PCE inflation release. 

The Japanese Yen (JPY) sees traders taunting the Japanese government yet again, with another new historic low printed in the Yen’s performance. This Friday 161.27 was briefly hit before falling back to below 161.00. The move comes with Japanese Finance Minister Shun’ichi Suzuki repeated the same message  from Thursday that the Japanese cabinet is “watching the FX moves with a high sense of urgency”, which now has lost its impact and sees markets defying the Ministry in order to take action. 

Meanwhile, the US Dollar Index (DXY) – which gauges the value of the US Dollar against a basket of six foreign currencies – is of course in positive territory on the back of this action. Even if US data on Thursday did not allow the US Dollar to outperform, with Durable Goods flatlining and Pending Home Sales shrinking again for a second month in a row. The Personal Consumption Expenditures numbers falling in line, and in their disinflationary trajectory and are not creating any big waves. 

Daily digest market movers: Nothing done

• At 02:30 GMT, Japanese Finance Minister ShunÂ’ichi Suzuki commented he is watching FX moves with a high sense of urgency. Though this time the impact resulted in a pickup in devaluation for the Japanese Yen. Markets expected to see action this Friday, not more words and same messages. 
• At 12:30 GMT, the Personal Consumption Expenditures (PCE) for May got released:
  • Headline PCE eased from 0.3% to 0.0%.
  • Core PCE faded a touch from 0.2% to 0.1%.
• At 13:45 GMT, Chicago Purchase Managers Index jumped higher, to 47.4, coming from 35.4.
• At 14:00 GMT the University of Michigan will release JuneÂ’s final reading:
  • Sentiment Index rose from 65.6 to 68.2.
  • Inflation expectations moves away from 3.1% to 3.0%.
• Equities have chosen to go out with a bang, and are printing green numbers across the globe. 
• The CME Fedwatch Tool is broadly backing a rate cut in September despite recent comments from Federal Reserve (Fed) officials. The odds now stand at 57.9% for a 25-basis-point cut. A rate pause stands at a 35.9% chance, while a 50-basis-point rate cut has a slim 6.2% possibility. 
• The Overnight indexed Swap curve for Japan shows a 57.9% chance of a rate hike on July 31, and a smaller 19.8% chance for a hike on September 20. 
• The US 10-year benchmark rate trades around the middle of this weekÂ’s range near 4.27%.
• The benchmark 10-year Japan Treasury Note (JGB) trades around 1.05%, and is easing a touch for this week.

USD/JPY Technical Analysis: Intervention risk moved to next week

The USD/JPY has just printed a fresh multi-decade high this Friday. The catalyst for the move was the same as the one that triggered a bit of a recovery on Thursday: the words from Japanese Finance Minister Shun’ichi Suzuki. It becomes clear that markets have bought one time into these comments, and now want to see action, which is pushing the Japanese government into a corner and interventions are really looking inevitable. 

Although the Relative Strength Index (RSI) is overbought in the daily chart, a correction could still take a few more days. Should PCE data come out further disinflationary, that would not be enough to drive USD/JPY down to 151.91. Instead, look at the 55-day Simple Moving Average (SMA) at 156.53 and the 100-day SMA at 153.81 for traders to quickly build a pivot on and try to test highs again, testing the Japanese deep pockets again. 

USD/JPY Daily Chart

XRP hovers around $0.47 with Ripple PresidentÂ’s statement on RLUSD stablecoin

399138   June 28, 2024 23:13   FXStreet   Market News  

• Ripple President Monica Long commented on the upcoming stablecoin Real USD and its impact on XRP. 
• Long said stablecoin and XRP are complementary and additive, addressing the concerns over the RLUSD launch. 
• XRP edges higher and holds above $0.47 on Friday. 

Ripple (XRP) President Monica Long recently appeared on The Block Podcasts and addressed XRP trader concerns about the stablecoin’s launch. The payment remittance firm’s stablecoin is called Real USD (RLUSD) and is slated for launch in 2024. 

Long shared her views on the stablecoin, its role in the ecosystem, the Real World Asset (RWA) narrative, and the institutional pivot on crypto. 

Daily digest market movers: Ripple President answers burning questions on Real USD and XRP

• Ripple President Monica Long spoke about the firmÂ’s upcoming stablecoin, Real USD, and its relationship with XRP. 
• In the podcast interview, Long answered questions on the nature of the stablecoin and discussed the RWA narrative and shift in institutional investors and their stance on crypto. 

• When asked about RLUSD and its impact on XRP, Long said that the stablecoin “complements” Ripple and it is “additive.” 
• Therefore, RippleÂ’s stablecoin is designed to enhance the cross-border payment remittance narrative and seamless transfers rather than hamper XRPÂ’s utility. 
• Long explained that XRP will continue to play central in RippleÂ’s payment solutions, RLUSD will be introduced to complement the use of the altcoin. 
• The last update in the SEC vs. Ripple lawsuit is that the regulator is asking for $102.6 million in fines against RippleÂ’s proposed $10 million. 

Technical analysis: XRP could extend losses over the weekend

Ripple has been in a state of decline since March 11. The altcoin is struggling to break past resistance at $0.50 and could extend losses by 5%, dipping to support at $0.4508, the June 7 low. 

The red histogram bars on the Moving Average Convergence Divergence (MACD) momentum indicator supports this bearish narrative. 

XRP/USDT daily chart 

If Ripple begins recovery, XRP could climb toward the nearest Fair Value Gap between $0.4825 and $0.4841. Further up, in its rally towards the psychological barrier at $0.50, Ripple faces resistance at $0.4955, the 23.6% Fibonacci retracement of the drop from the March 11 top of $0.7440 to the April 13 low of $0.4188. 

Breaking: US core PCE inflation retreats to 2.6% as forecast

399137   June 28, 2024 23:12   FXStreet   Market News  

Inflation in the US, as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, edged lower to 2.6% on a yearly basis in May from 2.7% in April, the US Bureau of Economic Analysis reported on Friday. This reading came in line with the market expectation. On a monthly basis, the PCE Price Index was unchanged in May.

The core PCE Price Index, which excludes volatile food and energy prices, rose 2.6% in the same period, down from the 2.8% increase recorded in April. Monthly core PCE Price Index rose 0.1%.

Other details of the report showed that Personal Income grew 0.5% on a monthly basis in May, while Personal Spending rose 0.2%.

Follow our live coverage of the US PCE inflation data and the market reaction.

Market reaction to US PCE inflation data

The US Dollar Index, which tracks the US Dollar’s valuation against a basket of six major currencies, edged lower with the immediate reaction. At the time of press, the index was down 0.1% on the day at 105.80.

This section below was published as a preview of the US PCE inflation report at 06:00 GMT.

• The core Personal Consumption Expenditures Price Index is set to rise 0.1% MoM and 2.6% YoY in May.
• Markets see a nearly 40% probability that the Federal Reserve will leave the policy rate unchanged in September.
• A hot PCE inflation report could provide a boost to the US Dollar heading into the weekend.

The core Personal Consumption Expenditures (PCE) Price Index, the US Federal ReserveÂ’s (Fed) preferred inflation measure, will be published on Friday by the US Bureau of Economic Analysis (BEA) at 12:30 GMT.

PCE index: What to expect in the Federal ReserveÂ’s preferred inflation measure

The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.1% on a monthly basis in May, at a softer pace than the 0.2% increase recorded in April. May core PCE is projected to grow at an annual pace of 2.6%, while the headline annual PCE inflation is also forecast to edge lower to 2.6%.

The US Bureau of Labor Statistics (BLS) reported earlier in the month that the Consumer Price Index (CPI) rose 3.3% on a yearly basis in May, while the core CPI increased 3.4% in the same period, down from 3.6% in April.

Previewing the PCE inflation report, “CPI and PPI data suggest core PCE inflation lost further momentum in May, with the series advancing 0.13% m/m — its lowest monthly gain of the year and following a 0.25% April expansion,” TD Securities analysts said. “We also look for the headline PCE and the supercore to print 0.0% each in May. Separately, personal spending likely advanced 0.3% m/m, with income rising 0.4%”, they added.

When will the PCE inflation report be released, and how could it affect EUR/USD?

The PCE inflation data is slated for release at 12:30 GMT. The monthly core PCE Price Index gauge is the most-preferred inflation reading by the Fed, as itÂ’s not distorted by base effects and provides a clear view of underlying inflation by excluding volatile items. Investors, therefore, pay close attention to the monthly core PCE figure.

The CME Group FedWatch Tool shows that markets currently price in a 37.7% probability of the Federal Reserve (Fed) leaving the policy rate unchanged in September. This market positioning suggests that the US Dollar (USD) faces a two-way risk heading into the event.

In case the monthly core PCE rises 0.2%, or more, in May, the immediate market reaction could cause investors to refrain from pricing in a rate reduction in September and help the USD outperform its rivals. On the other hand, a reading of 0.1%, or lower, could trigger a USD selloff ahead of the weekend and open the door for a leg higher in EUR/USD. 

Investors, however, could remain reluctant to bet on a steady recovery in the Euro ahead of the first round of French elections on Sunday, even if the PCE inflation figures make it difficult for the USD to find demand. In addition, the data will be released on the last trading day of the second quarter. Hence, quarter-end flows and position adjustments could ramp up market volatility and cause the USD to move irregularly.

FXStreet Analyst Eren Sengezer offers a brief technical outlook for EUR/USD and explains:

“Despite several recovery attempts seen in the last couple of weeks, the Relative Strength Index (RSI) indicator on the daily chart stays below 50, reflecting buyer’s hesitancy. Furthermore, EUR/USD remains within the descending regression channel coming from early June.”

“1.0740 (upper limit of the descending channel) aligns as first resistance. Once EUR/USD rises above this level and stabilizes there, 1.0790-1.0800 (100-day Simple Moving Average (SMA), 200-day SMA, psychological level) could be seen as the next resistance before 1.0900. On the downside, 1.0660 (mid-point of the descending channel) aligns as first support before 1.0600 (lower limit of the descending channel).”

Colombia National Jobless Rate: 10.3% (May) vs previous 10.6%

399136   June 28, 2024 23:10   FXStreet   Market News  

Gold rallies after PCE inflation data

399134   June 28, 2024 23:09   FXStreet   Market News  

• Gold rises after the release US PCE inflation data on Friday, despite readings falling in line with estimates. 
• The steady decline in inflation as well as lower-than-expected Personal Spending increases chance the Fed will cut interest rates. 
• XAU/USD has broken above a key trendline, further invalidating the bearish H&S topping pattern that had been forming.  

Gold (XAU/USD) rises to trade in the $2,330s on Friday after the release of the US Personal Consumption Expenditures (PCE) Price Index for May. 

The PCE is the US Federal ReserveÂ’s (Fed) preferred inflation gauge and it showed a cooling down in price rises to 2.6% year-over-year in May from 2.7% previously. The result was in line with expectations. Core PCE also slowed to 2.6% from 2.8% previously as expected. The data indicates inflation is steadily dropping towards the Fed’s 2.0% target. 

Personal Spending data rose 0.2% in May when a higher 0.3% had been forecast from 0.1% in April, the data from the US Bureau of Economic Analysis showed.

The Fed is in charge of setting interest rates, to which Gold is sensitive given it is a non-interest-bearing asset. The data indicates the Fed will likely cut interest rates sooner than previously thought, which is bullish for Gold price. 

Fed speakers sounding more optimistic

Commentary from Fed speakers regarding the outlook for interest rates also influences Gold prices.

Atlanta Fed President Raphael Bostic said the Fed had started penciling in future rate cuts, which suggests more concrete plans rather than the vague data dependency of previous Fed-speaker comments. 

Bostic expected an interest-rate cut in the fourth quarter as likely followed by four quarter-point cuts in 2025, adding that when the Fed starts cutting rates, it will be the “first in a series; that is a reason for the patience.” 

Bostic also dismissed concerns flagged regarding the weakening labor market, saying, “businesses say they see no cliff ahead for the job market.”

Another bugbear for the Fed has been high services-sector inflation. However, there are signs this is also cooling, according to the Atlanta Fed President. 

His colleague, Fed Board of Governors member Michelle Bowman, however, was more cautious on Thursday, saying, “The Fed is not at a point yet where it can consider making a rate cut.”

Market-based gauges of what the Fed will do next are more optimistic, seeing a relatively high circa 66% probability of the Fed cutting interest rates at (or before) the Fed’s September meeting, just after the release of the May PCE data. The estimate is from the CME FedWatch tool, which calculates chances using 30-day Fed Funds futures prices. 

GoldÂ’s longer-term prospects look bright

Gold’s long-term prospects remain positive according to most analysts. Geopolitical uncertainty in the Middle East, Ukraine, from climate change and tech-driven economic challenges, are all risk factors that feed the demand for Gold as a safe haven.    

Gold also has a complex relationship with the US Dollar (USD). Whilst a strong US Dollar is negative for Gold because it is priced in USD, it has also lifted demand from mainly Asian central banks as a hedge against their own currencies’ devaluation against the US Dollar. 

The BRICS trade confederation is also using Gold as a replacement for the US Dollar as the primary medium for global trade. Given its position as a stable, safe store of value, Gold is the most reliable alternative as a means of exchange between nations with different, often volatile domestic currencies. 

“The rest of the world is trying to make sure they’re not as dependent on the US Dollar. For them, gold offers another opportunity to hold an asset that is still a pretty significant store of value,” said Joy Yang, Head of Index Product Management & Marketing at MarketVector Indexes, in a recent interview with Kitco News. 

Yang thinks these “global trends” will push Gold higher in the future – back up to  $2,400, although the kicker will be the Fed’s decision to finally begin cutting interest rates. 

Technical Analysis: Gold breaks above trendline, further invalidating H&S

Gold makes another breach of the downsloping trendline that connects the “Head” and “Right Shoulder” of the now invalidated bearish Head and Shoulders (H&S) pattern that formed on the precious metal during April, May and June.

XAU/USD Daily Chart

 

Although the breaches have invalidated the case for an orthodox H&S reversal pattern forming, it is still possible a more complex “multi-shouldered” topping pattern may have formed that might still prove bearish. Overall, the probabilities are lower, however. 

If the upside trendline break holds, Gold will likely rise to the $2,369 level (high of June 21). A break above that would be an even more bullish sign, with the next target at $2,388, the June 7 high. 

Alternatively, assuming the compromised topping pattern’s neckline at $2,279 is broken, a reversal lower may still follow, with a conservative target at $2,171 and a second target at $2,105 – the 0.618 ratio of the high of the pattern and the full ratio of the high of the pattern extrapolated lower. 

There is a risk that the trend is now sideways in both the short and medium term. In the long term, Gold remains in an uptrend. 

Macron’s camp trails far behind in the latest French poll

399133   June 28, 2024 23:06   Forexlive Latest News   Market News  

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French Snap Elections: What to expect on Sunday and beyond?

399132   June 28, 2024 23:05   FXStreet   Market News  

The legislative snap election will take place in two rounds with the first round scheduled on the 30th of June and second round on the 7th of July.

Macron’s decision to hold snap elections surprised markets and created serious political uncertainty in the eurozone. And, as we get closer to Sunday, here are the forecasts of economists and researchers of seven major banks.

Danske Bank

We can look forward to several significant events and data releases throughout the summer. The upcoming French elections on the next two Sundays could likely result in a “hung parliament,” easing market concerns about significant spending increases. Should the National Rally (RN) win an absolute majority, we anticipate a rise in spending. However, RN’s recent scaling back of expensive initiatives and softer EU rhetoric suggest that the yield spread to Germany will decrease in either scenario.

ING

If a candidate does not secure 50% of the vote in the first round, only the top two candidates go forward to the second-round vote on 7 July. Given the polls point toward Marine Le Pen’s faction at 35% of the vote, the Leftist coalition at 28% of the vote, and the centre at 20%, President Macron’s party looks set for a wipeout in parliament. The question for the market is whether a Le Pen government looks at the French bond market and starts dropping some of its plans for seemingly unfunded tax cuts – or pushes ahead. Our eurozone team suspects it will be too early for a new government to substantially water down its pre-election pledges and that it may well be a rocky few months into September – when France needs to deliver to Brussels its plans on how it will fix its 5%+ budget deficit.

OCBC

FranceÂ’s National Assembly has 577 seats. For an absolute majority, a party needs 289. Anyone who scores >50% of the vote with a turnout of at least a quarter of the local electorate automatically wins a seat. Candidates who fail to garner at least 12.5% of the vote will be eliminated. Those who won >12.5% of the votes will go into the second-round face-off on 7 Jul. As of 27 Jun, polling firm Harris Interactive Toluna predicted 250 to 305 seats for far right Rassemblement National (RN) party and its allies while IfopFiducial suggested 260 seats. Other polls suggest that turnout this year could be higher at around 60%. Polls continue to show consistency in the order: RN most popular followed by left wing party and then MacronÂ’s party is far behind. Polls are pointing to a big defeat for Macron and is suggesting a hung parliament at the moment.

ABN AMRO

Various polls clearly suggest a win for the radical parties over the centrist government, which might lead to three different scenarios in our view. Scenario 1 (Far-right in power – Base case): The far-right gains a (relative) majority but most of its political program would not be possible to implement in those three years. Although we expect fiscal deterioration under this government, this should remain limited assuming the party does not want to trigger a debt crisis, which would scupper its chances to gain full power in the 2027 election. Scenario 2 (Far-left in power – Negative): The most worrying scenario in terms of the economic and fiscal outlook would be a government led by the left coalition. Their political and economic program appears more radical than any other party and would create significant distrust in the market. Scenario 3: (Hung parliament – Benign): None of the three political blocs obtain a clear majority, putting the government on hold for at least a year. This would not be a positive outcome, but it would at least mean no further deterioration in government finances, in contrast to the two scenarios above. One thing is clear: in any of the possible scenarios described, France’s fiscal deficit is unlikely to go back to the 3% deficit target by 2027 as promised by the current government.

Rabobank

MacronÂ’s centrist party was dealt a painful blow in the European elections. Consequently, Macron dismissed parliament and called new parliamentary elections. If MacronÂ’s party wins a majority, we expect an emboldened Macron to pursue more ambitious reforms with improved debt sustainability as a result. A relatively small change in seats could work out well for Macron if some of the left-wing parties donÂ’t unite and are willing to work with him. A right-wing government (cohabitation) would lead to more policy inertia and worse debt metrics.

Although Macron’s announcement came as a surprise, there is a possibility that new elections could work in his favour. However, the likelihood of this scenario is quite low. It is more probable that Macron’s political standing will diminish, albeit not to the extent of preventing him from establishing a new government. Nevertheless, it is crucial to recognize that this course of action carries inherent risks. Macron’s party suffered a substantial setback in the European elections, and unfavourable results in the upcoming elections could exacerbate concerns regarding the sustainability of the country’s debt.

MUFG

On Monday we will know exactly how squeezed out the centrists candidates were in round one and the greater that squeeze is the greater the chance of an outright majority in round two for RN or perhaps the New Popular Front. Based on the polling we believe there are perhaps four plausible scenarios: 1) RN wins the most seats but falls short of an outright majority (45%); 2) RN wins an outright majority (25%); 3) NPF wins the largest number of seats but falls short of an outright majority (20%); 4) there is no clear winner and we have complete paralysis with no obvious root to a working government (10%). These are initial scenarios evident in the immediate aftermath of the second round election on 7th July. In other words, scenario 4) could eventually shift and a government is formed but initially it is not obvious.

We have also raised the probability of an RN outright majority based on the interviews from Marine Le Pen and Jordan Bardella that certainly point to a willingness of RN to be pragmatic and possibly park some of their initial more contentious policies for a period of time. The tone from RN certainly suggests the flippant spending and large fiscal deficits touted in 2022 are unlikely which would potentially contain the market fallout in scenario 2). Based on RN communications it seems the worst scenario would be scenario 3) and certainly from a bond market perspective this would fuel the widest OAT/Bund spread move. Scenario 4) is not particularly positive either but the market move might be contained on the hope of an eventual path to a governing coalition can be found.

Deutsche Bank

Staying on politics, itÂ’s going to be an important weekend for markets ahead, as the first round of the French legislative election is taking place on Sunday. Clearly, we wonÂ’t know the full results until the second round on July 7, but it will offer a better sense of the likely outcomes in terms of who can reach a majority, if anyone. As it stands, the latest Ifop poll yesterday showed Marine Le PenÂ’s National Rally on 36%, ahead of the left-wing alliance on 29%, and President MacronÂ’s centrist group on 21%. In terms of seats projected in the National Assembly, that poll suggests the National Rally and its allies would end up with 220-260 seats, falling short of the 289 necessary for a majority. Alongside that, the left-wing alliance would get 180-210 seats, and President MacronÂ’s group would be on 75-110. As a reminder, my team published a two-part guide to the French elections running through the situation and the implications for Europe.

USD/CAD even after release of Canadian GDP and US PCE data

399130   June 28, 2024 22:51   FXStreet   Market News  

• USD/CAD trades flat at around 1.3700 after a big data day for the pair. 
• Canadian GDP showed a 0.3% rise in April suggesting a strong economy. 
• US PCE inflation data, the FedÂ’s preferred gauge, meanwhile, showed progress towards the FedÂ’s 2.0% target.

USD/CAD trades flat at around 1.3700 on Friday after the release of Canadian economic growth data and US inflation data updated analysts evaluations of the currency pair. 

After starting the Asian sessions in the 1.3730s the pair declined during the day as the Canadian Dollar (CAD) steadily appreciated against its south-of-the-border counterpart. A late-stage rally by the US Dollar (USD), however, brought the pair even as the west coast began to rise.

USD/CAD pulls back following Canadian GDP 

The release of Canadian Gross Domestic Product (GDP) data for April at 12:30 GMT strengthened the CAD, speeding up USD/CAD’s descent. 

GDP rose 0.3% in April in line with analysts expectations after showing a 0.0% rise in March, according to Statistics Canada. The preliminary estimate for May GDP was also released and showed a 0.1% rise. 

Markets took the 0.3% growth rate in April as a positive sign for the economy, however, it is not likely to change the widely held expectation that the Bank Of Canada (BoC) will lower interest rates in July. This is likely to put a floor under downside for USD/CAD.  Currencies tend to depreciate when central banks lower interest rates because they reduce foreign capital inflows. 

“The solid rise in GDP in April and preliminary estimate of a small increase in May leave the economy on track to perform better than the Bank of Canada expected this quarter, but not by enough to have any real impact on the probability of another interest rate cut in July,” said Stephen Brown, Deputy Chief North America Economist for Capital Economics. 

His views were echoed by Robert Both, Senior Macro Strategist at TD Securities, who said, “The April (GDP) strength was widely expected following the flash estimate last month, but we believe new projections for softer growth in May should give the Bank of Canada some added conviction that this strength will not be sustained. A 0.1% print in May would leave Q2 GDP tracking slightly above projections from the April MPR, but we do not think that’s enough to derail another cut in July.”

US Inflation steadily declines towards FedÂ’s target

US inflation data, in the form of the Fed’s preferred inflation gauge, the Personal Consumption Expenditures Price Index, meanwhile, showed price rises cooling in May, as analysts had estimated. The data weighed on the US Dollar (USD) adding further downside to USD/CAD. 

PCE fell to 2.6% from 2.7% in April, on a year-on-year basis, whilst Core PCE fell to 2.6% from 2.8% respectively. 

The steady decline in PCE inflation towards the Fed’s 2.0% target slightly increased the probability of the Fed making a September interest-rate cut to 66%, from 64% before the release, according to the CME FedWatch Tool, which uses the price of Fed Fund Futures for its estimates. 

Speaking after the release, Fed Bank of San Francisco President Mary Daly told CNBC  that the cooling inflation data was “good news” but that the “Fed is not done yet”. It suggested the Fed’s monetary policy was working.

The US Dollar also gained a small election-related bump from the overall perception  that Donald Trump came out of the Presidential debate on Thursday night looking better than President Joe Biden. 

Technical Analysis: USD/CAD stuck in a range

From a technical perspective USD/CAD remains trapped in a range after a failed attempt to break out of a Symmetrical Triangle (ST) price pattern back on June 7. 

USD/CAD Daily Chart

Price action has been bearish since the breakout but the odds continue to favor a resumption of the initial move higher. A break above 1.3791 (June 11 high) would provide bullish confirmation, and lead to a move up to a potential target at 1.3850. 

Alternatively a break below 1.3624 would indicate a downside breakout instead with an initial target at 1.3590.

GBP/USD Weekly Forecast: Pound Sterling looks to UK election for some saving grace

399127   June 28, 2024 22:46   FXStreet   Market News  

• The Pound Sterling hit six-week lows near 1.2600 against the US Dollar.
• GBP/USDÂ’s fate hinges on the UK election results and US Nonfarm Payrolls data.
• Any Pound Sterling recovery is set to be limited so long as the daily RSI stays below 50.

The Pound Sterling (GBP) continued to weaken against the US Dollar (USD) for the fourth week in a row, dragging the GBP/USD pair to a six-week low just above 1.2600. All eyes turn to the much-awaited UK general elections on July 4 and the US Nonfarm Payrolls data on July 5 for a fresh directional impetus to GBP/USD.

Pound Sterling extended its losing streak

The US Dollar extended its previous weekÂ’s strength and exacerbated GBP/USDÂ’s pain. Greenback buyers flexed their muscles on fresh pushback by US Federal Reserve (Fed) policymakers against interest rate cuts this year, especially after the S&P Global preliminary US business activity jumped to a 26-month high on Friday. Data indicated fresh signs of US economic resilience, suggesting that the Fed could hold rates higher for longer.

Moreover, Fed Governor Michele BowmanÂ’s hawkish commentary on Tuesday backed the US Dollar upside. Bowman said, “we are still not yet at the point where it is appropriate to lower the policy rate.” Governor Lisa Cook argued that the timing of the rate cut is unclear even though “Inflation has slowed, and the labor market tightness has eased.”

Renewed hawkish Fed expectations boosted the US Treasury bond yields, fuelling a fresh US Dollar advance at the expense of the Pound Sterling. Markets’ pricing of a 25 basis points (bps) Fed rate cut in September stayed almost unchanged at 57% during the week, according to CME FedWatch Tool. 

The US Dollar also found demand from the half-year-end flows, as traders adjusted their positions heading into a likely first interest rate cut by the Fed this year. Further, the continued decline in the Japanese Yen to a 38-year low, propelled USD/JPY beyond 161.00, providing extra legs to the buckÂ’s upsurge to two-month highs against its major currency rivals. This mainly contributed to the ongoing downtrend in the GBP/USD pair, as it touched its lowest since May 15 at 1.2613.

Meanwhile, ThursdayÂ’s mixed US final Gross Domestic Product (GDP) estimate, Durable Goods Orders and Pending Home Sales data briefly caused a retreat in the US Dollar, in part due to profit-taking ahead of FridayÂ’s US Personal Consumption Expenditures (PCE) inflation data. The first US presidential election debate between President Joe Biden and Republican Presidential Nominee Donald Trump failed to have any meaningful market impact.

The Pound Sterling’s recovery attempts got sold into the market’s anxiety ahead of next week’s UK general elections, in the face of limited market-moving events from the UK. Data showed on Friday, the UK economy grew 0.7% QoQ in the first quarter of 2024, revised upward from the preliminary reading of 0.6%. 

On the last trading day of the second quarter, the data from the US showed that the PCE Price Index remained unchanged on a monthly basis in May. The core PCE Price Index, the FedÂ’s preferred gauge of inflation, rose 2.6% on a yearly basis. This reading followed the 2.8% increase recorded in April and came in line with the market expectation. As the USD struggled to gather strength after this data, GBP/USD held comfortably above 1.2600 heading into the weekend.

UK election and US Nonfarm Payrolls in the spotlight

GBP/USD traders witnessed a calm before the upcoming weekÂ’s storm, with a raft of high-impact events from both sides of the Atlantic lined up.

Monday kicks off with risk sentiment likely to be driven by SundayÂ’s French Parliamentary elections and ChinaÂ’s official Manufacturing and Services PMI data.

Later that day, the US docket will feature the ISM Manufacturing PMI report. On Tuesday, the US Job Openings survey will be published. However, the main focus will be on Fed Chair Jerome Powell’s words, as he participates in a policy panel at the annual European Central Bank’s  (ECB) Forum on Central Banking in Sintra, Portugal.

GBP/USDÂ’s reaction to PowellÂ’s remarks could be temporary, as it is ahead of WednesdayÂ’s Automatic Data Processing (ADP) Employment Change report, ISM Services PMI, and Minutes of the FedÂ’s June meeting.

The UK election will grab the eyeballs on Thursday, as Labour holds a 23-point lead over the Conservatives, according to the second and penultimate Ipsos voting intention poll of the election campaign. But, Rishi Sunak emerged as the most unpopular Prime Minister with Ipsos ever at this stage of the campaign. The outcome of the UK election is likely to have a significant impact on the Bank of EnglandÂ’s policy actions and the Pound SterlingÂ’s medium-term outlook.

ItÂ’s a US market holiday on Thursday, and therefore, thin trading could exaggerate the UK election-led moves in the pair.

The US labor market report, including the Nonfarm Payrolls and Average Hourly Earnings, will be published on Friday alongside the weekly Jobless Claims data, drawing an end to an eventful week.

Traders will closely scrutinize speeches from the Fed policymakers for fresh insights on the rate-cut timing, affecting the value of the US Dollar and the performance of the major.

GBP/USD: Technical Outlook

Pound Sterling extended its bearish momentum, following a downside break of the rising trendline support two weeks ago.

The 14-day Relative Strength Index (RSI) points south below 50, currently near 42, adding credence to further downside moves.

Further, the pair has also breached the key support at 1.2645, the confluence of the 50-day Simple Moving Average (SMA) and the 100-day SMA, in another bearish signal.  

However, a fresh bullish crossover, represented by the 50-day SMA crossing above the 100-day SMA on Thursday, warrants caution for sellers.

GBP/USD needs a decisive break below the May 15 low of 1.2584 for the downtrend to regain traction.

The 200-day SMA at 1.2564 will be the next line of defense for Pound Sterling buyers, below which a fresh decline toward the May 9 low of 1.2446 will be on the cards.

On the flip side, buyers must yield a weekly candlestick close above the aforesaid key confluence support-turned-resistance at 1.2645. The next upside target is aligned at the 21-day SMA at 1.2715.

Acceptance above the latter would open the door for a test of the 1.2800 static resistance, followed by the March 8 high of 1.2894. 

Crypto Today: Bitcoin bull run is around the corner, says analyst, altcoins extend gains

399125   June 28, 2024 22:45   FXStreet   Market News  

• Bitcoin bull run is likely close as VanEck Head of Digital Assets says recent indicators show bullish signs in BTC. 
• In an interview, VanEckÂ’s Matthew Sigel said short-term holdersÂ’ realized losses and Bitcoin volatility are bullish for BTC. 
• Altcoins ranked in the top 30 assets by market capitalization are recovering from corrections earlier this week. 

Bitcoin (BTC) and Ethereum (ETH), the two largest assets by market capitalization, sustained above key support levels early on Friday. 

Crypto update:

• BTC/USDT trades at $61,100, early on Friday, the asset has wiped out over 5% of its value in the past week, per TradingView data. According to VanEckÂ’s Head of Digital Assets, Matthew Sigel, there is a likelihood of a bull run in Bitcoin as observed by recent indicators. 

Bitcoin Weekly Forecast: BTC price correction could end in July, according to seasonal data

• ETH/USDT trades at $3,438, on June 28, wiping out 2% value in the week, per TradingView. The optimism surrounding Spot Ethereum ETF has failed to push prices higher in the past week. ReuterÂ’s report suggests that a Spot Ethereum ETF approval is likely by July 4. 

Three key factors that could propel Ethereum to new heights

• XRP/USDT trades at $0.4801, hovering under key resistance at $0.50. With no new development in the US Securities and Exchange Commission (SEC) vs. Ripple lawsuit, Ripple President Monica LongÂ’s statement is a market mover for the altcoin, early on Friday. 

XRP holds steady above $0.47 as Ripple President breaks silence on Real USD stablecoin

Among top crypto token categories in Q2 2024, meme-coins offered the highest returns to traders while Gaming Finance tokens ranked lowest as worst performing assets. 

Chart of the day:

AVAX/USDT daily chart 

Avalanche (AVAX) is trading at $28.49 at the time of writing. The Moving Average Convergence Divergence (MACD) momentum indicator shows bullish signs, with the MACD line crossing over above the signal line and the green histogram bars above the neutral line. 

AVAX could extend gains to resistance at $31, an 8.77% rally for the asset. AVAX could find support at the Fair Value Gap between $26.66 and $27.66, as seen in the chart. 

Market update:

• Exchange Traded Fund (ETF) issuer VanEck filed an application for a Solana ETF on Thursday. The news catalyzed gains in SOL and its ecosystem tokens, including meme coins. 

• Colin Wu, an Asian journalist, noted that a wallet address identified as the US government made a transfer of 11.84 Bitcoin, worth $726,000, to another address late on Thursday. It is likely that this is a small test before a large transfer. 
• The wallet in question holds seized funds of Estonian crypto entrepreneurs Potapenko and Turogin. Previously, Sergei Potapenko and Ivan Turõgin were accused of operating a $575 million crypto Ponzi scheme involving the fraudulent crypto mining service Hashflare.
• Matthew Sigel, VanEck Head of Digital Assets, said that he got renewed bullish on Tuesday noting capitulation indicators like realized losses by short-term holders. The metric is used to identify when traders sell their BTC at a loss. 
• Another key metric, Bitcoin volatility, dipped to a relatively low level at this point in the ongoing cycle. The metrics turned Sigel bullish and the executive predicts a bull run in Bitcoin, in his recent interview. 

Industry update:

• The US Supreme Court ruled in a 6-3 vote that when the Securities and Exchange Commission seeks penalties for fraud, the defendant is entitled to a jury trial in a court, as opposed to the “in-house” legal proceedings. 

• Coinbase partnered with Stripe to add USD Coin (USDC) on Base to their crypto payouts product. Stripe transactions are now relatively faster and cheaper and users can send USDC to over 150 countries, post the partnership. 

• Nine Spot Bitcoin ETFs decreased 548 Bitcoin worth $33.86 million on June 27, outflows pick up pace as Bitcoin hovers around $61,000, per Lookonchain data. 

Crypto market capitalization surged 1.5%, crossing $2.413 trillion, as seen on CoinGecko.