Forex Signals Brief June 12: Holding the Break Until the CPI and FOMC
This week markets have been quiet as we expect the US CPI inflation report and the FOMC meeting in the evening.
UK labor market data for April reflected challenges yesterday, including higher unemployment and a decline in employment. Persistent wage growth amid softening labor market conditions raises concerns about inflationary pressures. The April ILO unemployment rate came in higher than expected at 4.4%, compared to the consensus forecast of 4.3%.
This marks a slight increase from the previous month’s unemployment rate of 4.3%. Employment change for April showed a decrease of 140,000 jobs, missing expectations of a decline of 100,000. Average weekly earnings for April increased by 5.9% compared to the expected 5.7% year-on-year growth. Previous average weekly earnings data was revised upward from +5.7% to +5.9%.
The cautious mood in European markets, driven by political uncertainties, initially favored the dollar and pushed EUR/USD to a new low. Additionally, excluding Apple, tech firms experienced a downturn, contributing to the negative sentiment in European and US equities at the start of the day.
However, sentiment shifted midday following a surprisingly strong auction of $39 billion in 10-year notes. Despite expectations of a weaker outcome, the robust auction signaled to the markets that bonds were not overly concerned about inflation or the Federal Reserve’s actions. As a result, the US dollar experienced a slight dip, but much of the dollar selling was reversed, leaving the market in a more balanced state as investors awaited significant developments ahead.
Today’s Market Expectations
Today the day started with the May inflation figures from China. The May CPI and PPI figures provided mixed but overall positive signals. While consumer inflation remains stable at a low level, the significant improvement in PPI deflation suggests that government efforts to stimulate the economy are yielding results. The May CPI remained steady at 0.3% year-on-year, slightly below expectations of 0.4%. This indicates that consumer inflation is relatively stable but subdued, which suggests moderate demand in the economy. The slower pace of PPI deflation (-1.4% YoY) indicates that deflationary pressures are easing, which can be seen as a positive sign for the manufacturing sector and overall economic activity.
Later we have the US Consumer Price Index (CPI) numbers which are anticipated to have a year-on-year (Y/Y) reading of 3.4%, unchanged from the previous year, while the month-on-month (M/M) measure is expected to be 0.2%, down from 0.3% in the previous period. The Core CPI, which excludes volatile food and energy prices, is forecasted to have a Y/Y reading of 3.5%, down from 3.6% last year, and a M/M figure of 0.3%, unchanged from the previous period.
The anticipation surrounding the Fed’s decision is indeed significant, especially regarding interest rates. Market expectations often shape reactions, and your projection aligns with many analysts’ forecasts. If the Fed does adjust rates, it’s essential to watch for how closely it aligns with market expectations and how it communicates its reasoning. Powell’s tone during the press conference will be crucial in interpreting the Fed’s stance on inflation and the overall economic outlook. The Fed is projected to maintain interest rates at 5.25-5.50% with little (if any) change in the announcement. The Dot Plot and the Summary of Economic Projections (SEP) will be the primary focus. I believe the Fed will lower rates twice this year to align with market expectations. This manner, it wouldn’t be perceived as dovish or hawkish. Of course, if we observe a variation from this baseline, the market will react dovishly if three cuts are projected and hawkishly if only one cut is planned.
Yesterday the price action was slow again but picked up somewhat in the US session. Most assets traded in a range, so we tried both sides, long on safe havens first and short on risk assets, then we reversed in the US session. We opened 8 trading signals in total, but only 6 reached the targets, and we ended up with five winning forex signals and a losing one.
Gold Tries to Reclaim the Previous Range
Gold’s recent price action reflects its role as a hedge against economic uncertainty and inflationary pressures. While factors such as a stronger US dollar and positive economic data may temporarily dampen investor appetite for gold, the metal’s long-term value as a safe haven asset remains intact. The bounce off the 200 SMA indicates that buyers are still interested in accumulating gold near the $2,300 level, suggesting underlying support for the precious metal. As market dynamics continue to evolve, gold’s status as a reliable store of value and portfolio diversifier is likely to remain relevant for investors seeking stability in uncertain times.
XAU/USD – H4 chart
The 50 Daily SMA Keeps USD/JPY Bullish
The USD/JPY pair demonstrated resilience early last week, finding robust support near the 50-day Simple Moving Average (SMA). This moving average has consistently acted as a reliable cue for buyers to enter the market, with repeated bounces underscoring its significance as a long-term dynamic support level. The recovery off the 50-day SMA last week was notable, culminating in a substantial 200-pip surge on Friday. This surge propelled the price above the critical 157 level, signaling robust buying momentum and reaffirming the dominance of buyers in the market.
USD/JPY – Daily Chart
Cryptocurrency Update
Bitcoin Breaks Below the Daily 20 SMA
Bitcoin’s long-term uptrend remains intact, as indicated by its ability to stay above the 100-day Simple Moving Average (green), which is a key support indictor. Recent market activity has seen Bitcoin break over major resistance levels, however it has been trading below $70K this week and the 20-day SMA which was holding as support gave way yesterday, with the price falling below $67,000, so we’re holding the short trade here.
BTC/USD – Daily chart
Ethereum Continues to Consolidate Below $4,000
Ethereum (ETH) has likewise been trading in a range since the increase following the approval of the ETH ETF, reaching a high of $3,832.50. This price spike is attributable to increased confidence following the SEC’s more favourable position on spot Ether ETFs. Ethereum’s recent performance, which includes a spectacular 25% gain from its prior top, demonstrates robust market demand and investor interest. Despite Ethereum’s optimistic trend, its value has recently declined, with ETH/USD trading below $4,000 for the past two weeks.
ETH/USD – Daily chart
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