EUR/USD attracted some dip-buying on Monday amid recovered over 70 pips from the daily low. A positive risk tone undermined the safe-haven USD and remained supportive of the move up. ECB President Lagarde reaffirmed plans to hike rates and further extended support to the euro. Bets for a more aggressive Fed tightening helped limit the USD losses and acted as a headwind. The EUR/USD pair kicked off the new week on the backfoot in reaction to the risk of political gridlock in France after President Emmanuel Macron lost an absolute majority in a parliamentary election. The modest bearish gap down, however, was quickly bought into amid the emergence of fresh US dollar selling. Against the backdrop of the post-FOMC decline in the US Treasury bond yields, a generally positive tone around the equity markets turned out to be a key factor that undermined the safe-haven greenback. The shared currency drew additional support from the fact that the European Central Bank President Christine Lagarde reaffirmed plans to raise interest rates twice this summer. During her testimony before the European Parliament, Lagarde said that the ECB plans to raise the policy rate by 25 bps next month and also left the door open for another hike at the September meeting. Furthermore, Lagarde defended the ECB’s decision, made at an emergency meeting last week, to accelerate work on a new policy tool to counter the recent surge in the borrowing costs for more vulnerable countries. Lagarde added that the fight against fragmentation risk is a precondition to the success of the monetary policy. It is worth mentioning that bond yields of highly indebted nations in the bloc like Italy have soared faster than those for more stable countries like Germany. Adding to this, ECB Governing Council member Martins Kazaks said he would support a 25 bps rate hike in July and 50 bps in September. This further contributed to the EUR/USD pair's intraday bounce of over 70 pips from the daily low, through the uptick lacked bullish conviction amid relatively lighter trading volumes on the back of the US holiday. Meanwhile, expectations that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation and hike again by 75 bps at its next meeting acted as a tailwind for the USD. This was seen as another factor that kept a lid on any meaningful gains for the major, which finally settled in the neutral territory around the 1.0500 psychological mark. The EUR/USD pair held steady above the said handle through the Asian session on Tuesday and remains at the mercy of the USD price dynamics. There isn't any major market-moving macro data due for release from the Eurozone, while the US economic docket features Existing Home Sales. This, along with the US bond yields and the broader market risk sentiment, might influence the USD demand and provide some impetus to the major. The focus, however, will remain on Fed Chair Jerome Powell's testimony on Wednesday and Thursday. Apart from this, the release of the flash PMI prints from the Eurozone and the US on Thursday should assist traders to determine the near-term trajectory for the pair. Technical outlook From a technical perspective, the 1.0540-1.0545 region now seems to have emerged as an immediate strong hurdle. This is followed by last week's swing high, around the 1.0600 round-figure mark and the 50-day SMA, near the 1.0620 region. Sustained strength beyond the latter would validate the formation of a double-bottom near the 1.0360-1.0350 area. This, in turn, would set the stage for a further near-term appreciating move and lift the EUR/USD pair beyond the 1.0650 horizontal support breakpoint, now turned resistance. The momentum could further get extended and allow bulls to aim back to reclaim the 1.0700 mark. On the flip side, immediate support is pegged near the 1.0470 area, below which spot prices could slide back to the 1.0400 round figure en-route the YTD low, around mid-1.0300s set in May and retested last week. Some follow-through selling would be seen as a fresh trigger for bearish traders and make the EUR/USD pair vulnerable to challenging the 1.0300 mark.

Outlook: We have to wait for Friday to get any market mover days–Germany IFO, UK retail sales, Japanese CPI. We have very little fresh US data this week to impress anyone one way or the other, leaving room for Feds to try to dominate the narratives. This time it was Cleveland Fed Mester, who told us on TV yesterday that it will take a couple of years for inflation to return to 2%, the risk if recession is real but not imminent, and demand is easier to curb than getting the supply side back in line. This is so obvious and common-sense and drama-free that of course nobody wants to listen. More interesting is Fed Gov Waller backing another 75 bp in July if the data doesn’t behave itself. You can’t extrapolate from a sample of one but note that commodity prices are down pretty much across the board–see the chart on the last page. This is not so nice for CAD/AUD but if it keeps up, nice for inflation. Now to get those incompetent logistics guys to learn to read. The place where data could be a scale-tipper is the UK. So far we have Rightmove reporting UK house prices up 9.3% y/y to a record, if with a lesser monthly gain this time. A potential explosive is a railroad strike starting tomorrow, joined somewhat mysteriously by Underground workers. Shades of the 1970’s! Meanwhile, confidence in the FinMin and PM is somewhat shaky in part because the policy response has been ragged–nobody knows what to expect next. We feel the earth shaking under the UK’s feet. Now would be a good time for the EU to strike back against Boris’ hubris on shoving the deal (and the European Court of Justice) out the door. We can see no reason for the dollar to retreat except new positioning (because a ne0way street is just too boring). At risk are the commodity currencies if fear of recession keeps commodity prices on the defensive, and then the pound, The yen is at risk for a different reason–a stubborn MoF. Does anyone look at the dynamite in the box sitting right next to the C4–the JPY/CHF? We always say when in doubt, look at crosses but we wouldn’t touch that one with a bargepole. This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes. To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

Overview: Most equity markets in the Asia Pacific region lost ground today. China’s Shenzhen, Hong Kong, and India were notable exceptions. The MSCI Asia Pacific Index is at its lowest level since June 2020. Europe’s Stoxx 600 is forging a base ahead of 4000 and is trading quietly with a small upside bias. The French stock market lagging after Macron lost his parliamentary majority, is raising questions about his reform agenda. US equity futures are firm, but the cash market is closed today. European bond yields are narrowly mixed, though French bonds are underperforming, and the 10-year yield is around three basis points higher. The US dollar is trading with a lower bias against all the major currencies. Sterling is the weakest and is practically flat. The Norwegian krone’s 1.2% gain leads the majors followed by the Australian and New Zealand dollars. Most emerging market currencies are also firmer, led by central Europe. Gold is consolidating quietly around $1840. August WTI is in a narrow range below $110. US natgas is extending last week's 21.5% collapse. It is off another 2.3% today. Europe’s natgas benchmark exploded almost 48% last week and is up another 3.5% today. Iron ore's precipitous drop is also extending. It fell 14% last week and is off another 7.6% today, its eighth consecutive losing session. July copper is off for a third session. It is down about 1% today after falling nearly 10.5% over the past two weeks. Asia Pacific As widely expected, China's loan prime rates were held steady at 3.70% and 4.45% for the one-year and five-year rates, respectively. Meanwhile, China's recovery from the Covid lockdowns is spotty, but sufficient to embolden investors and helping Chinese stocks outperform lately. However, the first reported Covid cases in Macau in several months weighed on casino shares. Separately, reports suggest that around a third of China's oil refining capacity is off-line due to Covid restrictions. That said, some reports suggest a rebound in car sales, higher oil refinery run rates, and a rising in trucking transport suggest the nascent recovery remains intact.  The Bank of Japan bought a massive amount of Japanese government bonds last week to defend its 0.25% cap on the 10-year. The BOJ added almost $81 bln of bonds to its balance sheet. It disrupted both the cash and futures market last week. Reports suggest that a personnel shift has also bolstered its efforts and market contacts. For dollar-based investors, the paltry 10-year JGB yield of 0.24% can earn closer to 2.65% if the yen is hedged back into dollars. Still, foreigners have been sellers and year-to-date (through June 10) have sold about JPY2 trillion (~$14.8 bln) of Japanese bonds. The economic highlight of the week is the May CPI figures due first thing Friday in Tokyo. The Bloomberg survey shows a median forecast of no change, leaving the year-over-year rate at 2.5% and the core measure, excluding fresh food at 2.1%. Excluding fresh food and energy, a 0.8% gain is expected. April saw the first reading above zero since July 2020 as last year's cut in cell phone charges dropped out of the 12-month comparison. The dollar held below last week's high against the yen, seen around JPY135.60. It is in a tighter range than has been seen in recent sessions. It found support near JPY134.55. The consolidative tone may not persist as the divergence of monetary policy will likely intensify further next month. The Australian dollar is also consolidating. It is trading within the pre-weekend range (~$0.6900-$0.7050). It is firm but with the US holiday, the gains may be limited. The Chinese yuan reached seven-day's high today, extending its recovery that began last week. The dollar reached a high last week near CNY6.7610 and recorded a low today around CNY6.6735. The dollar's reference rate was set at CNY6.7120 compared with expectations (median from Bloomberg's survey) of CNY6.7126.  Europe French President Macron appears to have been denied a parliamentary majority in yesterday's election. It did not do the euro any favors initially, but the immediate policy implication is not clear. The center did not hold as the alliance on the left of Macron, Nupes, and the far-right National Rally gained ground. The left-green coalition may be the main opposition party, but Le Pen (National Right) is the big winner with around a 10-fold increase in the number of seats than five years ago. There is much speculation that Macron may reach out to the center-right Republicans and their allies, who appear to have secured around 80 seats. Alternatively, Macron could seek to govern as a minority government, cobbling together coalitions on an issue-by-issue basis (e.g., raising the retirement age. Still, it seems reasonable to expect the election results to be recognized with a cabinet reshuffle that may include a new prime minister. France's...

Despite attempts at a modest rebound on Friday, European markets still finished lower for the second week in succession, posting their lowest weekly closes since March. US markets also finished the week similarly mixed, but also sharply lower, with the S&P500 posting its worst week since March 2020, ahead of the Juneteenth long weekend. As we start a new week and the mixed finish last week, European markets look set to start the week on the back foot.   At the end of last month there had been some optimism that the US economy might be able to achieve some form of soft landing. This prompted a sharp decline in US treasury yields and a rebound in US markets from their lows, as markets started to price in the prospect of a rate pause in September. The May CPI numbers upended that mindset quite abruptly, sending yields sharply higher, and stock markets back down again, a trend that was exacerbated by a policy pivot by the Federal Reserve, as well as the Swiss National Bank last week. Not only did the US central bank hike rates by 75bps but more surprisingly the SNB hiked rates as well, choosing to hike by 50bps and move its headline rate from -0.75% to -0.25%. Last week’s events appear to have prompted a sharp re-evaluation by central banks that far from being a temporary phenomenon that inflation is becoming more entrenched, it is starting to be much more persistent than originally thought, and that radical action is needed to tackle it. It is clear from last week's Fed meeting, and with the shackles of the blackout period now lifted that many on the FOMC are in no mood to pare back their determination to send a message when it comes to rate guidance. At the weekend Fed governor Christopher Waller articulated his support for another 75bps rate move in July, saying that he doesn’t care what’s causing the current surge in inflation, it’s the Fed’s job to get it down, that the central bank is “all in” even if it means unemployment rises to 4.5%. He also said that the likely of going into a recession as “overblown” which probably means that a recession is coming. Even Atlanta Fed president Raphael Bostic, who had suggested a few weeks ago that he could have been persuaded about a September pause in rate rises, was unequivocal, saying that the Fed would do “whatever it takes” to bring inflation back to 2%. Later today St. Louis Fed President James Bullard will also be dropping his own two cents worth into the wider discussion. It is becoming even more clear now that the Federal Reserve was too slow in tapering its easing program, and the global economy is paying the price now in the form of runaway inflationary pressures. The risk now is that the Fed will need to be even more aggressive at its next few meetings to put the inflation genie back in its bottle. This in turn will have spill over effects as it becomes clear that in striving to rid its own economy of inflation the resultant rise in the US dollar will only exacerbate the inflationary impulse across the world. This in turn is likely to result in similar rate hiking measures from other central banks to support their own currencies.   With few signs that the Federal Reserve is likely to be done on the rate hiking front, it’s likely to be tough going for stock markets in the short to medium term, given the impact that will come from this tightening of monetary policy in terms of slowing the global economy. This fear also helps explain why crude oil prices suddenly experienced an air pocket on Friday, dropping sharply over concerns over weaker demand and a global slowdown, and posting its first week decline in four weeks. The European Central Bank is coming under increasing pressure to deal with its own inflation problem, with all the attendant risks that it has for countries like Italy whose borrowing costs have exploded higher since the beginning of June, with the 10-year yield briefly pushing above 4% before slipping back.   Today’s German PPI numbers for May are set to be a key case in point when it comes for more aggressive action from the ECB, with today’s numbers expected to edge higher again to a new record high of 33.8%. Later in the week, we also find out how much further UK inflation has risen in May against a backdrop of last week’s inexplicable decision by the Bank of England to only raise rates by 25bps, when it is becoming increasingly clear they are falling further behind the curve. By the time, the MPC next meets in August they could well be another...

Fundamentals in focus, but key risks remain US stock and bond markets are closed at the start of the week for the Juneteenth national holiday, which comes at a good time as markets have been on a rollercoaster ride in recent days. US equities finished mostly higher on Friday, however, that came after some steep losses post Wednesday’s Federal Reserve meeting, where the US central bank hiked interest rates by 75bps and revised down its growth forecasts for this year and next. The markets have been spooked ever since the May report for US inflation was released, which showed prices rising at a faster pace than expected. Combined with a Fed in an aggressive tightening mode and this has caused risk appetite to nose-dive. The bulk of the selling last week was in the growth and pro-cyclical sectors of the economy, such as tech and the travel sector, however, the move lower was broad-based as the Vix index, Wall Street’s fear gauge, rose to its highest level since early May. In a recent note, we pointed out that historically bear markets can last up to 9 months’, thus, since the current sell off started in January, we may still have 3-4 months’ left before the bulls regain control of the market narrative.  Why calm may pervade this week  We should caveat the above remark by saying that the market may not fall in a straight line, and we do not necessarily expect the ferocity of last week’s sell off to continue indefinitely. Instead, we expect further declines in risk assets, we predict the nadir for the S&P 500 to be around the 3,100 mark, punctuated by a few sharp sell offs in the coming months. The same drivers are likely to continue to weigh on the markets: stubbornly high inflation, recession concerns and fears that the Fed and other global central banks are not only behind the curve but are limited in what they can do when supply-side factors are driving price growth. These are the key fundamental factors that have the potential to drive markets lower, but what about this week? We think that the sell-off will stall somewhat this week for a few reasons, although any respite will be temporary.  1. The US markets are closed on Monday for a public holiday. This will give markets time to pause. A lot of selling took place last week, while there is still more out there in our view, we will need another major driver to push key risky asset prices below levels that are starting to look oversold.  2. A lot of recession risk has already been priced in, that is why stocks and other risky assets sold off so sharply last week. The US yield curve backed away from zero at the end of last week, however, it remains incredibly close to inversion territory at +8bps. This comes even though the US economy is not in an actual recession. Of course, the signs look bad: inventories are building up at a rapid rate and the consumer is pulling back, as evinced by the 0.3% dip in US retail sales last month. However, even if we get more negative economic data coming out of the US, this is now expected by the market. Thus, this week’s housing data, which is expected to moderate further for May, may not lead to a major sell off, and the market may also take the expected decline in US consumer sentiment in its stride. Likewise, even Fed President Jerome Powell’s two days of testimony to the US Congress on Wednesday and Thursday this week is unlikely to spook markets since we doubt that he will stray too far from his message at last week’s Fed meeting. Over the weekend, Fed Governor Waller said that he would support another 75bp rate hike at the July meeting, he also added that the Fed is “all-in” on re-establishing price stability. His most telling remarks came when he said that the Fed made a mistake by not hiking sooner after the pandemic as that made the Fed less flexible to adjust to the changing economic situation in 2021. If Chairman Powell hints that the Fed is basically impotent when it comes to tackling inflation when he addresses Congress this week, then it could trigger another market sell off. If Powell wants to lower market volatility, then his message should be that the Fed has everything under control, even if they started hiking rates a little late, and that the US economy remains resilient.  3. Technical factors could also prop up some risky asset prices this week. The S&P 500 is approaching a key level at 3,500, which many analysts are treating as key support. While we don’t think that this level will mark the end of the...

S&P 500 likely put in a short-term bottom, and the fresh long position is profitable from the get-go. Bonds offered the first promising signs, and so far only value has acted upon it – that provides more fuel to the upcoming relief rally. TLT performance was good, but seeing even higher volume would be more convincing regarding the rally‘s longevity. Especially since the dollar is rising again – the yen carry trade can go on. Even cryptos are having a good day today so far, meaning we have a bit more to run still. That bodes well for real assets too – both gold and silver caught a solid bid yesterday, and GDX lagging behind is balanced out by NEM outperforming. The precious metals skies are slowly brightening, and not even another 75bp hike looks being able to sink them. Deteriorating real economy data would underpin them more so than crude oil. All the demand destruction isn‘t yet in, and black gold would adjust to the arriving economy growth softpatch – but we haven‘t seen the spike yet. Anyway, it‘s worthwhile to tread cautiously with the whole portfolio because the tightening phase, the pressure on the Fed isn‘t relenting all that much. The greater shock would come from having to adjust the still overly rosy economic growth projections to the downside over the nearest months. That‘s keeping a lid on copper and base metals, which would have a chance of turning around only after gold truly obviously to everyone does. Let‘s get into the key charts. Stocks Bonds Crude oil

Europe After the big losses of yesterday, as well as this week, European markets have tried to muster a semblance of a rebound as we head into the weekend, but are struggling to gain any sort of foothold, with a slide in commodity prices weighing on the FTSE100, with copper prices sliding to their lowest levels this year, and oil prices on course for their first negative week since early May. Glencore shares are outperforming after reporting that it expects to make record profits from its commodity trading division, for the first half of this year. The mining company said it expects to see profits in excess of $3.2bn for H1, which is already on the top end of expectations, for the entire year. Even without a similarly strong H2 profits are set to exceed the levels seen over the whole of 2021 when the company saw profits of $3.7bn. The rest of the basic resource sector is under pressure on the weakness in copper prices, with Rio Tinto and Antofagasta under pressure, while the slide in crude oil prices is weighing on BP and Shell.   Today’s Q1 trading update from Tesco has elicited a fairly indifferent response, with the shares edging higher on the day. The UK’s number one food retailer kept its full year profits guidance unchanged, as UK like-for like sales fell sharply by -1.5%, much more than expected. Management was keen to stress that they were seeing early signs of changing customer behaviour, which suggests that customers are favouring lower margin own brand items over branded goods. On a broader level the performance from its Booker operation, as well as central Europe helped push total like for like sales up by 2% year to date to £13.57bn. US After a torrid week US markets are trying to rebound as we head into the weekend, although the upside progress is being tempered by concerns over a slowdown in the US economy against a backdrop of a more aggressive Federal Reserve. On the downside Adobe shares have slipped back despite the company beating expectations on both revenues and profits. Q2 revenues came in at $4.39bn, a rise of 14% year on year, while profits came in at $3.35c a share. The reason for the slide came with the forward guidance which saw Adobe cut its full year revenue view, with management citing a Q3 revenue forecast to $4.43bn below expectations of $4.52bn, and a full year forecast of $17.65bn, down from $17.9bn. The reason for the caution is an uncertain economic outlook combined with the withdrawal from Russia and Ukraine.   Energy shares are also lagging, on the back of a slide in oil prices with ConocoPhillips and Devon Energy under pressure.   FX The Japanese yen has seen a sharp decline after gaining sharply in the leadup to today’s Bank of Japan meeting after the central bank showed no inclination to deviate from its accommodative monetary policy. At his press conference Bank of Japan governor Kuroda said there was no plan to raise the ceiling on the 10-year yield range, keeping the central bank as a global outlier when it comes to monetary policy. The risk is that in keeping the yen weak, when the time comes to tighten policy, it may well take much longer than expected if inflation starts to run away. The Swiss franc has continued to gain as the fall out from yesterday’s surprise rate hike continues to reverberate through the FX markets, coming out as the best performer this week, second to the gain in the greenback, which is still up near to 20-year highs, and is having another move to the upside as we head into the weekend, up above 135.00 again against the yen. The Norwegian Krone has been the worst performer this week along with the Canadian dollar.     Commodities Crude oil prices look set to post their first weekly decline in over a month as weakness in equity markets weighs on the demand picture, against a backdrop of more aggressive central banks looking to tackle inflation by taking measures to slow demand. It’s been a bad week for gold prices, on course for its biggest weekly decline since early May, as a stronger US dollar and tighter monetary conditions push yields higher. The deterioration in equity markets is lending an element of late week support, however the rise in yields is also acting as a drag.  

While inflation continues to wreak havoc, gold is reluctant to respond. Will it finally change and the price of the yellow metal rise? The Fourth Horseman of the Apocalypse The end is nigh! There should be no doubt about it now, as more horsemen of the Apocalypse are coming (see the painting below). The first was Pestilence. Two years ago, the COVID-19 pandemic plunged the world into a Great Lockdown and the deepest recession since the Great Depression. At the end of February 2022, the Russian troops brought War and Death to the Ukraine. Also, say hello to Famine, another horseman. To be clear, I don’t mean ‘hunger’ in the United States or other developed countries (although people in besieged Mariupol are running out of drinking water and food), but rather dearth and dearness. In other words: inflation. It doesn’t look very optimistic, indeed. As you can see in the chart below, the annual CPI rate has accelerated from 0.2% in May 2020 to over 8.0% in March and April 2022. Importantly, the core CPI, which excludes food and energy prices, has also surged recently, rallying from 1.25% two years ago to above 6.0% now. That’s a really high increase in the cost of living that hit society, especially the poor. There are already reports that people are skipping meals or taking desperate measures to save on heating costs (e.g., they are making fires in houses or, in the UK, pensioners are riding buses to keep warm and save on heating). As the chart below shows, March’s reading was the largest since December 1981 for the overall CPI and since August 1982 for the core CPI, as the chart below shows. And inflation rates were already retreating then, while today they are still on a rise.. Inflation rates were already retreating then, while today they are still on the rise. Are they? Well, inflation numbers in April came in slightly lower than in March, so it’s possible that inflation has already peaked. However, the rate was still higher than the consensus estimate of 8.1%, and it may be just a temporary pullback, similar to the one we saw in the summer of 2021. Inflation was less red-hot because gasoline prices declined 6.1% in April, but they spiked again in May (see the chart below), which will contribute to the upcoming inflationary reading. Moreover, as the chart below shows, the shelter index, which is the largest component of the CPI, has been constantly rising (as well as the producer price index), so there is an ongoing upward pressure on prices. Additionally, widespread lockdowns and an economic slowdown in China would hit the global supply chains again, strengthening the inflationary forces. Last but not least, the private savings boosted by the pandemic are still elevated, so consumers have resources they can tap. Hence, high inflation is likely to stay with us for some time. For how long? This is a great question that everyone is asking right now. On the one hand, the pace of growth in the money supply has recently slowed down, as the chart below shows, which gives us some hope for normalization in inflation in the future. On the other hand, the pace still hasn’t returned to the pre-pandemic levels, so inflation won’t simply disappear. What’s more, there is still a huge overhang in the monetary ‘bathtub’ waiting to come out through the pipeline as inflation. You see, the broad money supply increased by about $6.4 trillion between February 2020 and March 2022, while the real GDP rose by just $2.5 trillion. In other words, the money supply surged far more that what could be absorbed by economic growth, and the rest of the newly created money must be accumulated by higher prices (and increased demand for money, but let’s not complicate things here). Hence, the decline in the inflation rate in April shouldn’t be viewed as the beginning of disinflation. Elevated inflation is likely to remain with us this year, and possibly also in 2023. Good News for Gold? What does it imply for the gold market? Theoretically, it should be great news, as gold usually shines during periods of high and accelerating inflation. However, “usually” does not mean “always”. As we all know, gold has failed to rise in tandem with the current inflation so far and has been unable to break free from the $2,000 level. As the chart below shows, the yellow metal has remained in a downward trend since March 2022, if not August 2020. One of the reasons for gold’s disappointing behavior is that rising inflation was accompanied by expectations of higher interest rates. Given the already hawkish stance of the Fed, prolonged inflation could only increase the Fed’s tightening cycle even more.. This is why the real interest rates have surged...

On the one-hour chart, GBP/USD is forming higher highs and higher lows after dropping to its two-year low at 1.19341. Moreover, buyers achieved gains above both the 50 and 200-exponential moving averages. Nonetheless, to ensure that the uptrend continues, it is imperative that the pair breaches Thursday's top at 1.24047. In the short term, the candlesticks' bodies are shortening, which implies positive momentum is waning as buying forces do not seem strong enough to end on a higher note. In light of that, we shouldn't be surprised if the price consolidates around the 200-EMA for some time until we get a better indication of the market's direction. A sustained rally for the pound should lead to the price going higher than its previous high, resulting in a larger candlestick body. If that is the case, the pair may go higher to test the 1.24047 resistance level. Assuming the price moves above this roadblock for a sustained period, the next hurdle would be 1.24700. Alternatively, suppose price consolidation leads to an increase in selling pressure. The price can then make its way back down towards the 1.22507 support, which coincides with the 50-EMA. When this confluence breaks, the short-term uptrend will reverse, and more sellers will enter the market, dragging the pair to the 1.22061 level. Momentum oscillators reflect a fading bullish bias. RSI is moving away from the buying region into the neutral zone, suggesting buyers are giving up. Moreover, momentum is receding from its recent peak, pointing down towards the 100-threshold. Similarly, the MACD bars are decreasing in positive territory below the falling signal line.

Summary United States: Recession Risks Rise Last week's stronger-than-expected CPI print laid the groundwork for this week, sending markets into a churn and raising the risks of recession. We now look for the U.S. economy to experience a mild contraction in mid-2023. Economic data released this week add to evidence that the chances of a soft landing are fading. Next week: Existing Home Sales (Tues), New Home Sales (Fri) International: Bank of England Raises Rates by 25 bps as Growth Unexpectedly Contracts The outlook for the U.K. economy may be starting to cloud, as the economy saw an unexpected contraction, with GDP falling 0.3% month-over-month in April. Against a backdrop of slowing growth and high inflation, the BoE delivered a 25 bps rate hike at its June monetary policy meeting, bringing the Bank Rate to 1.25%. Next week: Canada CPI (Wed), U.K. CPI & PMIs (Wed/Thurs), Eurozone PMIs (Thurs) Interest Rate Watch: Treasuries Tumble as Yields React to CPI, Fed New economic data and aggressive Federal Reserve actions sent Treasury yields up sharply this week.Monday, in particular, was one of the most volatile days of the year for bond markets as yields spiked roughly 30 bps across most parts of the Treasury curve. Topic of the Week: So What's Happening with Our Old Friend Supply Chains? There is still ample backlog to be chipping away at, but overall things tend to be gradually improving on the supply front. That doesn't mean we are out of the woods yet, as there are still mentions of supply chain disruptions among many industries, particularly in reference to lockdowns in China. Download the full report

I think we've all earned a weekend break in the sun after a quite extraordinary week in the markets that saw plenty of central bank action, even from those not scheduled to meet. Stock markets are ending the week on a positive note, not that anyone is getting carried away with today's price action after turbulent trading conditions in recent days. Triple witching may also be a factor in today's moves which is another reason not to get excited. Recessions are increasingly likely as central banks race to dramatically raise rates before inflation spirals out of control. It is better than the alternative though; stagflation. A term that's been thrown around way too much in recent months which perhaps highlights the trepidation around it. We are not in a stagflationary environment, nor will we be later this year. But the risk of one is rising which is why central banks are becoming increasingly accepting of their actions tipping the economy into recession. There are a few exceptions, obviously. The Bank of Japan doesn't have an inflation problem; in fact, it's just about hitting its target thanks to high energy costs and that won't last. Its issue is a result of everyone else's inflation problem, with the BoJ being forced to buy huge amounts of bonds on a daily basis as part of its yield curve control (YCC) tool. Although on Friday it received no bids which may bring some short-term reprieve. The central bank remains committed to its YCC despite the pressure its ceiling has come under in recent weeks and the impact it's had on the currency. Barring a sudden SNB-style u-turn, it would appear the BoJ is not even entertaining the idea of throwing in the towel. Pressure will continue to mount in the weeks and months ahead but FX market intervention is likely to come before the BoJ abandons its YCC policy. Oil steady as European gas prices surge Oil prices are relatively steady at the end of the week, just shy of $120. Despite the correction over the last week or so, the market remains extremely tight and the price risks still remain tilted to the upside. With OPEC+ now reportedly missing output targets by 2.7 million barrels per day and setting unachievable targets for the summer, that gap will widen. The pressure in the market isn't going to ease any time soon. Gas prices in Europe on the other hand have been surging as Russia once again appears to weaponise supplies to Germany and Italy, which remain heavily reliant on it. Both are complying with the rouble payment demands and yet seen their flows hit heavily, with Gazprom blaming repairs as being behind the drop-off. It comes as both countries attempt to fill up reserves ahead of the winter which some suggest is no coincidence. Gold struggles after a brief recovery Gold has had a good run over the last couple of days as central banks have played catchup with the Fed, lifting their currencies and weakening the dollar in the process. US yields easing off their highs have also contributed to the greenback paring gains. The dollar remains king though and we're very much seeing that today with it trading almost 1% higher which has forced gold back below $1,850. No doubt volatility is going nowhere with central banks now in panic mode and every piece of data being poured over for further signs of stubborn inflation and economic vulnerability. From bad to worse for Bitcoin Bitcoin is showing some resilience around $20,000 which is being touted as a massive level. A break of it could be disastrous for bitcoin and the broader cryptocurrency space which would likely track it lower. How much longer can it hold? The constant flow of negative headlines - Celsius, Binance - in the current environment has been devastating for cryptos and now reports of Three Arrows Capital failing to make margin calls could lead to others surfacing in the coming weeks, spreading further negativity. It could get much worse before it gets better.

S&P 500 finally enters official bear market territory. Equities swing wildly after Fed hikes by 75 basis points. Does the Bank of Japan open the door to H2's best trading opportunity? The weeks keep on racking up and so too do the nerves of investors who are kept on the rack by the latest developments. Let us just have a quick recap and see where we might go from here. We entered the week in nervous territory but for the most part, expecting a 50 basis point hike from the Fed. This had been well telegraphed and despite last Friday's shock CPI print most felt 50 was the way forward. However, we then got word via the WSJ that 75 basis points were the tonic required and the markets headed for the exit doors. The worst fears were confirmed on Wednesday when the Fed did indeed hike by 75 basis points, the first rise of such magnitude since 1994. Most of us were not in the market to remember the last time and so perhaps that explains our bizarre reaction to what patently is bad news. The main indices went on a relief rampage with the Nasdaq nearly up 5% at one stage and the other main indices all up over 3%. A relief rampage from what exactly? Well, the narrative was that the Fed was stepping up to the plate, finally and it would tame inflation and ensure a soft landing. Reality swiftly set in on Thursday and risk assets dumped sharply. We have pointed out numerous times now that the Fed has a truly terrible record in ever engineering a soft landing. This is the Fed of irrational exuberance and pandemic printing. Inflation was always going to uncork once the pandemic lockdowns ended and we had too many consumers chasing to make up for lost time and too few goods to sate them. The initial Fed response may have been appropriate but the gorging on bond markets and Fed printing has created the massive bubble that we are now in the middle of deflating. Debt issuance went through the roof and most of it was of the junk variety. Investors were encouraged to buy junk and if you buy junk then you should expect junk in return. That is what many bond investors will now be finding out, now that the Fed has pulled the rug out from the credit markets. High yield spreads are surging, mortgage-backed securities (MBS) had no bids last week at one stage and junk bond issuance has fallen off a cliff.  JNK ETF High Yield Junk Bond ETF Price. The macro environment continues to worsen. We have touched on this before but we have University of Michigan Sentiment at decade lows, falling retail sales, falling savings rates, and increasing credit card debt. Inflation remains out of control and so really risk assets have only had one option for 2022. The increasingly obvious question is how long does this last and when will we bottom out? Again a bit of repetition to readers from our daily SPY post but the last leg to go will be earnings. It always is the last leg to go as markets are forward-looking while earnings are historical. But next quarter's earnings are not too far away now and we expect a significantly bearish tone from CEO's and CFO's. CEO speech turned bearish last quarter and it appears they have been putting their money where their mouth was in the last quarter. Insider selling has picked up markedly this quarter.  But average EPS forecasts for 2023 remain way too high. Notice from below how 2022 and 2023 EPS estimates for the S&P 500 are still being upgraded. Upgraded I hear you scream incredulously. Indeed these Wall Street analysts are an optimistic bunch. This upcoming quarter will see reality set in and earnings estimates will be brought down. This naturally will bring the S&P 500 and other main indices down with it. The S&P 500 (SPX) is trading on 16 times forward earnings and 21 times trailing earnings. This is about the historical average but it tends to fall below its average in recessions and obviously above in periods of expansion or bubble such as 2021. At the end of 2021 the S&P 500 was trading on over 40 times earnings S&P 500 index (yellow) versus average EPS estimates (purple), source: Refinitiv. While EPS estimates appear way too high that is a function of analysts being uniformly optimistic and usually drinking the cool-aid from company executives. Thank you to Saxo for first bringing this to our attention but dividend futures on the other hand are not subject to analyst forecasts but are based on the investor community. Dividend futures for 2023 are already marking a decline in the expected future dividend...