Forex Signals Brief June 3: ECB and BOC Rate Cuts Coming This Week
This week the BOC and ECB are expected to cut interest rates by 25bps, while we have several employment reports from the US as well.
Last week the attention was on inflation figures, with Australian and Eurozone CPI (Consumer Price Index) showing an increase, which kept the AUD supported. However, the Euro didn’t benefit much from that, as the ECB brushed it under the carpet, preparing for a 25 basis point rate cut this week.
On Tuesday, the Conference Board Consumer Confidence showed a big jump for May, with inflation expectations also remaining elevated, which gave the USD a boost after some weak economic data during last month. But the core Personal Consumption Expenditures (PCE) index, which is the Federal Reserve’s preferred measure of inflation came at 0.2% rounded for April , which helped alleviate fears of escalating inflation., while it was expected to rise by 0.3%. However, the unrounded figure was 0.249%, just shy of the threshold for rounding to 0.3%. As a result, the core PCE increased by 2.8% year-over-year, matching the projected rate.
This slight cooling in the core PCE month-over-month rise provides some relief regarding inflation concerns, but the year-over-year increase remains at 2.8%. This indicates persistent inflationary pressures, though not exceeding expectations. Given that the core PCE aligns closely with forecasts, it supports the narrative that inflation is not accelerating uncontrollably, which might influence the Federal Reserve’s decisions on interest rates going forward. The market’s response to these figures, including the sustained support for the USD against the JPY, underscored the nuanced impact of inflation data on investor sentiment and monetary policy expectations.
This Week’s Market Expectations
This week we have two major central banks planning to cut interest rates, which will be the beginning of stabilization of the monetary policies by global central banks after the cray hike of the last two years. Bank of Canada will go first on Wednesday, with rates expected to go down to 4.75% from 5.00%, while the ECB will follow on Thursday will a rate reduction to 4.25% from 4.50%. Besides that, we have several employment report from the US as well, which will keep markets agitated.
Upcoming Economic Events:
Monday:
- China Caixin Manufacturing PMI: This index measures the activity level of purchasing managers in the manufacturing sector, providing insights into the health of the manufacturing industry in China.
- US ISM Manufacturing PMI: An important indicator of the economic health of the US manufacturing sector, showing the level of activity among purchasing managers.
Tuesday:
- Swiss CPI: The Consumer Price Index measures the change in prices of goods and services purchased by consumers in Switzerland, indicating inflation levels.
- US JOLTS Job Openings: This report provides data on job vacancies, helping assess the demand for labor and overall economic health.
Wednesday:
- Japan Average Cash Earnings: This measures the average income, including overtime and bonuses, providing insights into consumer spending capacity and economic health.
- Australia GDP: The Gross Domestic Product measures the economic performance of Australia, indicating the overall economic growth.
- China Caixin Services PMI: This index measures the activity level of purchasing managers in the services sector, reflecting the health of the services industry in China.
- US ADP Employment Report: This report provides an estimate of the private sector employment change, offering a preview of the official employment situation report.
- Canada Services PMI: This index evaluates the activity level in the services sector in Canada, helping gauge economic conditions.
- BoC Policy Decision: The Bank of Canada will announce its monetary policy decision, influencing interest rates and economic outlook.
- US ISM Services PMI: An important indicator of the economic health of the US services sector, showing the level of activity among purchasing managers.
Thursday:
- Swiss Unemployment Rate: This measures the percentage of the total workforce that is unemployed and actively seeking employment in Switzerland.
- Eurozone Retail Sales: This report measures the change in the total value of sales at the retail level, indicating consumer spending trends.
- ECB Policy Decision: The European Central Bank will announce its monetary policy decision, impacting interest rates and economic conditions in the Eurozone.
- US Jobless Claims: This report provides data on the number of individuals who filed for unemployment insurance for the first time, indicating labor market conditions.
Friday:
- US Non-Farm Payrolls (NFP): This report provides data on the number of jobs added or lost in the US economy, excluding the farming sector, indicating overall economic health.
- Canada Labour Market Report: This report provides data on employment changes, unemployment rate, and labor force participation in Canada, indicating the health of the labor market.
The economic calendar was light last week, but financial markets were very active, with the USD and bond yields surging upward before reversing all of their gains. Despite the ups and downs, it’s encouraging to learn that there were favourable outcomes for traders. The ability to negotiate volatility and react to shifting market conditions is a key talent, and we were able to capitalise on opportunities effectively. We had a net positive outcome, with 13 winning forex signals out of 21 trades in total.
Gold Keeps Consolidating in the Range
Overall, the fluctuations in gold prices highlight the market’s struggle to find a clear direction amid mixed signals. While the underlying fundamentals suggest support for higher prices, technical resistance and broader market uncertainty have kept gains in check, resulting in a period of consolidation for GOLD . Over the last two weeks, gold prices have struggled to regain their upward momentum. After reaching a record high of $2,450 on May 20th, the XAU/USD pair retreated and has since traded in the lower $2,300s. Earlier last week, gold prices found support near the 100-day Simple Moving Average, leading to gains. However, these gains were limited on Wednesday as the price encountered resistance, preventing further upward movement.
XAU/USD – H4 chart
AUD/USD Trades Between MAs
During the first four months of 2024, the USD to AUD exchange rate traded within a narrow range of 0.65 to 0.66. Recently, this range has shifted 100 pips higher, now fluctuating between 0.66 and 0.67. Since early May, the pair has been bouncing between moving averages, reflecting a period of consolidation despite notable economic data releases. Last week, the Australian inflation data came in higher than expected, yet the Australian dollar (AUD) did not see significant gains. This muted response is likely due to a generally low risk appetite in the markets, which has weighed on commodity-linked currencies like the AUD. The AUD/USD pair has been trading between the 200-day Simple Moving Average (SMA) (purple) at the top and the 100-day SMA (green) at the bottom, indicating technical boundaries that are preventing a breakout from the current range.
AUD/USD – Daily Chart
Cryptocurrency Update
Bitcoin Continues the Consolidation Close to $70K
Bitcoin’s long-term trend remains upward, with the 100-day Simple Moving Average (SMA) acting as a crucial support level. Historically, Bitcoin’s upward momentum has often been moderated by technical indicators such as the 20-day and 50-day SMAs. However, recent price action on the daily chart shows Bitcoin has successfully broken above both of these resistance levels, suggesting that the 50-day SMA is likely to serve as a new support level moving forward. Despite experiencing a three-day slump, Bitcoin continued its upward trajectory on Monday, surpassing the significant $70,000 mark. This resilience in breaking key resistance levels indicates strong bullish sentiment in the market. However, after this surge, Bitcoin’s price has fallen below the $70,000 level and is currently in a phase of consolidation.
BTC/USD – Daily chart
Ethereum Within Reach of $4,000
The recent boost in confidence caused by the SEC’s more favorable stance on spot Ether ETFs has propelled Ether (ETH) to a record high of $3,832.50. This substantial increase from its previous high of around $3,000 marks a remarkable 25% rise in Ethereum’s value. Capitalizing on this upward momentum, we profitably closed our Ethereum buy signal yesterday. The approval of the Ethereum ETF is seen as a significant milestone, likely to drive increased institutional investment and broader adoption of Ethereum. This development is expected to enhance market stability and liquidity, further pushing prices higher. The current upward trend in Ethereum, fueled by the ETF news, reflects high market confidence and strong investor demand.
ETH/USD – Daily chart
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