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Market Wrap
The US initial jobless claims data came in above expectations, but last week’s figure was revised lower to 197K. This week’s number is the highest in the last 4-months and helped keep the sell-off in the US dollar going. The US dollar index had been falling since the London open with an acceleration at the release of the ECB Minutes.
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The EURUSD is currently 60 pips off the swing high that formed just after the FOMC meeting minutes on the 4th of May. If we see a close above the 1.0650 by the end of this week, I would be tempted to bet we then see the 1.0800 early into next week. The minutes of the ECB’s April meeting provided more evidence that most policymakers at the ECB have become increasingly concerned about the inflation outlook. The most important elements of the minutes are based on inflationary pressure. War in Ukraine and pandemic measures in China suggested that energy bottlenecks may intensify further, resulting in rising consumer prices over a long time. Some ECB members felt it was vital to act quickly to regain price stability. Boosting calls for a rate hike soon.
The US and German benchmark yields dropped from their recent highs which has affected the US dollar more than the euro. The US 10-year dropped to 2.837% is now making lower lows and lower highs.
There came no support for the US dollar from the rest of the economic data out this afternoon. Existing home sales dropped for the 3rd consecutive month. The rising mortgage rates are cooling off the overall housing market.
And the Philly Fed manufacturing index dropped to its lowest level since 2020.
The importance of the Philly Fed is that it is highly correlated to the US ISM manufacturing data, which itself is a leading indicator for when an economic contraction leads into a recession. What we do not want to see is the Philly Fed leading ISM manufacturing lower, and below the 50 level.
The forex heatmap is still showing no clear directional bias for risk assets. The US dollar is the weakest, and the Swiss franc is the strongest and that has stayed true all day. The yen is also weak, and with 2 out of 3 safe havens falling, the move into equities and some commodities have been a good trade over the last few hours. Whether it is sustainable I am not sure, so I am not holding overnight trades. We had a good bounce in the AUDJPY long idea that I detailed earlier today but it is stalling at the low from the 17th of May, so I am assuming this AUDJPY could have very little left on the upside. If we break above the 17th of May high, I’d gladly re-enter long on any pullback.
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The S&P500 has formed a double bottom at last week’s low. I don’t see this as a positive as I have been calling for a move to sweep the double top from the FOMC rate hike in May. The same logic would be applied to this supposed support level. There will be stops placed under there, which will act as a target for liquidity grabs, or which add fuel to bearish momentum later. For a bull to be happy with their trade, they would rather there not be a well-defined target to the downside that the bears will pile in on.
