USDCAD is extending its retreat from the recorded 17½-month high of 1.3076, heading lower towards the converged simple moving averages (SMAs), which are not now endorsing any sturdy price trend. The pair has retracted within the region of a trading range that had lingered for a period of nearly ten months.   The short-term oscillators are reflecting the increase in negative momentum. The MACD, in the positive area, has distanced itself below its red trigger and is approaching the zero mark, while the RSI is falling in bearish territory. Moreover, the renewed negative charge of the stochastic oscillator is promoting additional downward price action in the pair. To the downside, an initial fortified support section from the 1.2718 barrier until the inside swing low of 1.2646 exists. This includes all the SMAs and the lower Bollinger band and could prove to be a difficult task for sellers to accomplish. However, if this upside defence fails to dismiss selling intentions, the price may then tumble towards the April 21 trough of 1.2457, simultaneously testing the 1.2450 support too. In the event bearish pressures continue to overwhelm, the 1.2402 low and the adjacent 1.2351-1.2386 support band could draw traders’ attention. On the flipside, if buyers unearth some positive traction somewhere within the 1.2646-1.2718 support zone, resistance could commence from the 1.2762 obstacle before the price jumps to test the resistance region linking the mid-Bollinger band at 1.2865 with the 1.2920 inside swing low. Breaching this, not too far above the 1.2981 high may come into play. Further hikes in the price may then encourage the bulls to aim for the upper Bollinger band at 1.3042 before challenging the 1.3076 peak and the 1.3112 high, where selling in the pair intensified back in November 2020.    Summarizing, USDCAD’s recently readopted bearish tone is weighing on the directionless SMAs. For positive developments to remain on the table, the price would need to hold north of the SMAs. A climb above the 1.2900 handle could boost buying interest, while a close below the SMAs may reinforce negative tendencies in the pair.

Global stocks continued their recovery as investors have rushed to buy the dip. Futures tied to the Dow Jones and S&P 500 have risen by more than 0.50%. If this trend continues, it will be the first weekly gain since March. The same situation happened in Europe, where the German DAX and CAC 40 rose by almost 1%. Some of the top movers in the pre-market session were Kraft Heinz, Medtronic, and Centene, which fell by over 5%. Dollar General, Dollar Tree, and DXC Technology rose by more than 15% after these firms reported strong results. Other top gainers were firms like Dell and Ulta Beauty. The price of crude oil jumped sharply as the EU continued to debate measures to ban Russia’s crude oil. While many countries support the measure, a small group of them have opposed the measure citing the vast amount that they buy from the country. Meanwhile, oil prices rose even after a sharp decline in China’s industrial output. According to the country’s statistics agency, industrial profits declined by 8.5% in April compared to the same period in 2021. The contraction piles pressure on the government after it has implemented Covid-zero strategies.  The Japanese yen moved sideways as investors reacted to the latest inflation data from Tokyo. According to the country’s statistics agency, the headline CPI declined from 2.5% in April to 2.4% in May. Excluding the volatile food and energy, core CPI remained unchanged at 1.9% during the month. These numbers show that the country’s inflation has topped. The other important economic numbers showed that Australia’s retail sales rose by 0.9% in April as people invested in food and personal effects.  USD/JPY The USDJPY pair remained in a tight range after the latest Japan inflation numbers. The pair is trading at 127, where it has been in the past few days. It has also moved slightly below the 25-day and 50-day moving averages. The pair has also formed a small symmetrical triangle pattern. At the same time, the Relative Strength Index (RSI) has moved to the neutral point at 50 while the momentum indicator has tilted upwards. Therefore, the pair will likely have a bearish breakout as sellers target the key support at 126. EUR/USD The EURUSD pair declined slightly as the US dollar crawled back. The pair is trading at 1.0700, which is along the 25-day moving average. The pair has formed a sliding double-top pattern whose chin is at 1.0646 while the pair has moved below the 61.8% Fibonacci retracement level. The Relative Strength Index (RSI) and the MACD have pointed downwards. Therefore, the pair will likely keep falling as bears target the support at 1.0650. NZD/USD The NZDUSD pair rose to a high of 0.6520, which was the highest level since May 9th. This price is significantly higher than this month’s low of 0.6220. On the four-hour chart, the pair rose above the 25-day and 50-day moving averages. The MACD has moved above the neutral level while the Relative Vigor Index (RVI) has moved upwards. Therefore, the pair will likely keep rising as bulls target the key resistance at 0.6600.

The Dow Jones Industrial Average cash index traded higher on Wednesday, breaking above the downside resistance line drawn from the high of April 21st. The index continued its recovery today as well, reaching the 32755 resistance zone, marked by the high of May 10th. Bearing in mind that the index broke the aforementioned downside line, we would see decent chances for some more advances. A clear and decisive break above the 32755 zone could encourage the bulls to climb to the 33350 zone, marked by the high of May 3rd, and if they are not willing to stop there, then we may see them pushing towards the 34120 zone, which acted as a key resistance between April 25th and May 5th, or the 34320 barrier, defined by the inside swing low of April 19th. Should neither of those two zones hold, then we could see a test at 34800, the high of April 22nd. Shifting attention to our short-term oscillators, we see that the RSI flattened near its 70 line, but the MACD remains above both its zero and trigger lines. Both indicators detect strong upside speed, which supports the idea of further advances, but the fact that the RSI has flattened near its 70 line make us careful over a possible setback before the next leg north. On the downside, we would like to see a clear break below 31315 before we start examining the bearish case again. This could confirm the index’s return back below the downside resistance line taken from the high of April 21st, and could pave the way towards the 30535 zone, which is slightly below the low of May 20th, and is marked by the low of March 4th.

In this week’s Live from the Vault, iconic financial commentator and life-long stockbroker, Bill Holter, joins Andrew Maguire to share his eye-opening examination of the West’s insurmountable debt. As the Fed’s money-printing tactics start to closely resemble a Ponzi scheme, the precious metals expert explains, with mathematical certainty, why the current system is destined for bankruptcy. Timestamps 00:00 - Start. 01:30 - Bill Holter - the introduction. 02:45 - Jim Sinclair’s “QE to infinity and beyond” going since 2008. 06:05 - 80% of all the dollars have been printed in the last 2 years! 09:05 - About Central Bank Digital Currency (CNBC). 10:50 - Bailing is already in place! How to get out of the system! 16:15 - Silver as the fuse to break the financial system! 20:00 - Silver short positions, nickel blowing up and the Rubicon line. 24:35 - What would Bill do if he came from Mars? 28:20 - Could silver and gold be confiscated? 32:00 - Silver’s Backwardation described. 35:40 - About Exchange of Futures for Physical (EFP). 38:30 - Final parting message From Bill Holter.

US non-farm payrolls (May) – 03/06 – there’s a great deal of uncertainty about how resilient the US economy is when it comes to some of the underlying numbers. A sharp contraction in economic output in Q1 doesn’t appear to be altering the dynamics around the labour market, which is struggling with weak participation levels. This weakness in the participation rate contrasts to over 11m job vacancies, although we are expecting to see this pick up in May to 62.3%. 428k new jobs were added in April, while the March figure was revised lower to 428k, so a nice bit of symmetry there. Average hourly earnings remained steady at 5.5% which again seems counterintuitive with so many unfilled vacancies, while unemployment remained steady at 3.6%. This trend isn’t expected to improve significantly in the May payrolls numbers, with job creation set to slow to 329k, while unemployment is expected to fall to 3.5%. Neither of these numbers is expected to move the dial that much, however wages growth might well offer clues to central banks tightening pace. If wages growth continues to remain lacklustre, with an expectation of a fall to 5.2%, then we could see more urgency go out of the central bank tightening timeline.     European Services PMIs (May) – 03/06 – recent PMI numbers, especially out of Europe have been rapidly losing credibility in terms of the headline numbers at least, when it comes to assessing the resilience or otherwise of the French, German and UK economies. In terms of the wider economy, it is quite apparent that economic growth is struggling across the bloc as well as here in the UK. Yet to look at the PMI numbers it would be tempting to think that all is well. Nothing could be further from the truth with rising energy prices and supply chain disruptions posing significant challenges to business, large and small. This week’s services PMIs are all expected to slow from the numbers we saw in April, all of which were in the mid 50’s for all three of the UK, Germany and France. PMIs in China look even worse with private surveys in the mid-30s.     UK lending data (Apr) – 30/05 – rather surprisingly we saw UK retail sales rebound strongly in April. House price growth has also remained resilient despite rising inflationary pressures and 4 rate rises in succession from the Bank of England. So far consumer credit and mortgage lending numbers have remained resilient throughout the first quarter of 2022, with net lending rising to £7bn in March and a six-month high. Net consumer credit has also recovered after a slow start to the year, coming in at £1.3bn. As we look apprehensively ahead to Q2 the mortgage approvals numbers might start to show signs of slowing, while consumer credit numbers could go either way, rising as struggling consumers borrow more to pay for everyday items, or slowing as consumers tighten their belts and dip into savings.      EU CPI flash (May) – 31/05 – with EU CPI currently at a record high of 7.5%, and core prices less than half of that at 3.5%, there has been some talk that inflation in the euro area is plateauing. This view seems dangerously misguided given what is happening with PPI with the latest German numbers posting a new recorded high earlier this month. We also have the ECB starting to prep the markets for a possible 25bps rate hike at the July meeting in response to this inflation surge, however it’s doubtful that such a small move when rates are already negative at -0.5% will do that much good. CPI is already much higher in other parts of the EU. While its lower in France, at 4.8%, due to the French government capping energy prices, in places like Estonia its 18.8%, and 16.8% in Lithuania. Expectations are for EU CPI to come in at a new record high of 7.6%.   Bank of Canada rate decision – 01/06 – after spending most of Q1 procrastinating about whether to raise interest rates, the Bank of Canada finally bit the bullet in April pushing its headline rate up to 1% from 0.5% against a backdrop of falling unemployment and surging inflation. The central bank also announced it would be ending its purchase of government bonds by 25th April. This was entirely predictable given that the Federal Reserve was going to be raising raise rates by a similar amount a few weeks later, and that there was little sign that inflation pressures were abating. In the most recent CPI numbers Canada inflation rose to 6.8% and its highest levels since 1990. With unemployment also low at 5.2% this week’s Bank of Canada decision is likely to see the central bank mulling a further...

Equities continue to move higher as the week draws to a close, with hopes that this rally might last longer than some of the recent failed bounces. Stocks make fresh gains “Investors have been more comfortable about buying into this rally thanks to the lack of any hints of 75 bps rate hikes in this week’s minutes. This has been enough to move the sentiment dial out of its trough, providing some space for at least a short-term bounce. Worries about inflation have been the big driver of declines of late, so the slowdown in the PCE price index on both the headline and core measures helped to shore up sentiment as well.” Recession not fully priced in “Stocks on both sides of the Atlantic seem content to push higher for the time being, but this isn’t a return to the old ways of steady gains. A gain of even 10% from here might look like an all-clear signal for investors, but growth and earnings forecasts probably need to come down a bit more, which in turn points towards fresh lows for the market in the months to come.”

Summary United States: Signs of a Slowdown Begin to Emerge April brought a steep 16.6% decline in new home sales and a 3.9% drop in pending home sales, the latest signs the housing market is cooling down amid sharply higher mortgage rates. Personal income rose 0.4% during April, while personal spending increased 0.9%. Inflation continues to run hot. The headline PCE deflator was up 6.3% year-to-year, while the core measure rose 4.9%. Next week: Consumer Confidence (Tue), ISM Manu. & Services (Wed/Fri), Nonfarm Payrolls (Fri) International: Mixed Fortunes for Europe's Economies This week's May PMI surveys offered the latest insight into how some of Europe's key economies are faring, and indicated varying fortunes across the region. The Eurozone PMIs reported a mild decline, suggesting a modest loss of momentum, though to levels that remain well within growth territory. For the United Kingdom however, the PMI surveys suggested the economy could suffer a sharper slowdown. Next week: China PMIs (Tue), Eurozone CPI (Tue), Canada GDP (Tue) Interest Rate Watch: FOMC Minutes Show Another 50 bps Rate Hike Is Probable The minutes from the May FOMC meeting were released this week and offered additional evidence that a second consecutive 50 bps rate hike is imminent. Credit Market Insights: Household Well-Being Strengthens in 2021 This week, the Federal Reserve Board issued its Economic Well-Being of U.S. Households in 2021, a report which surveys the financial health and sentiment of U.S. adults and their families. Financial well-being among respondents reached its highest level since 2013 when the survey first began. Topic of the Week: Biden Announces an Asia-Specific Strategy We unpack a few recent developments in terms of U.S. foreign relations this week, like the newly introduced Indo-Pacific Economic Framework, where things stand with trade policy more broadly and how there's a review under way of U.S. tariffs on China that likely won't lead to large changes to preexisting policy. Download the full report

The latest US employment report will be in the spotlight next week for any signs that recession worries have started to impact hiring. The dollar has lost some of its power lately and this dataset could determine whether we are in the early stages of a trend reversal. Inflation numbers from Europe will be another crucial variable for that equation. Elsewhere, the Bank of Canada is set to raise interest rates. 

EUR/USD - 1.0737 Euro's strong rebound from 1.0663 to 1.0731 in New York on broad-based usd's weakness due to rally in U.S. stocks suggests pullback form Tue's 1-month 1.0748 peak has possibly ended and above would extend upmove from May's 5-year bottom at 1.0350 to 1.0780/90, however, loss of momentum should cap price below 1.0807 and yield decline later. On the downside, only a daily close below 1.0690/95 would indicate a temporary top possibly made and yield weakness towards 1.0663, then 1.0643 Monday. Data to be released on Friday Japan Tokyo CPI, Australia retail sales, Italy trade balance. U.S. personal income, personal spending, PCE price index, goods trade balance, wholesale inventories, University of Michigan sentiment and Canada budget balance.

Equities are rallying again today as speculation around peak Fed hawkishness from Wednesday's FOMC minutes and the potential for China's zero-Covid policies easing keep sentiment afloat. But one must wonder whether we are back to 'bad news is good news" for the equity markets. Despite the disappointing US pending home sales number, Wall Street was hugely bid from the New York get-go.  The run of negative US economic news seems to be taking the sting out of fears the Federal Reserve will be forced to hike aggressively. Cleaner positioning, a return of "buy the dip" mentality from Retail and a reduction in bond market volatility with USD strength showing signs of peaking has investors tentatively back on the rally wagon, indicative that there was more at play than simply a "cover bid." And the icing on the cake was a surprisingly strong showing from US retailers Macy's and Dollar Tree, which helped calm recessionary fears last week as investors hit the reset button for the setup in consumer names. Peak Fed hawkishness and China reopening with a possible reset in consumer names make the short thesis more challenging now. OIL Momentum is flat-out bullish, with many factors pointing to a tighter market even more so with the EU on the precipice of a total ban on Russian energy.  Ahead of peak US driving season, refined products remain in alarmingly short supply in the West which should keep a high floor on oil prices through the summer, although US gasoline demand on a four-week rolling basis just tumbled to the lowest level for this time of year since 2013, not counting 2020 when consumption was shattered due to the pandemic( worth keeping an eye one)   But the windfall taxes are a massive boon for oil bulls as the duty will likely reduce CAPEX budgets at energy companies, which would lead to less supply in the future—indeed, deterring investment in expanding capacity amid tight markets is a recipe for higher oil.  Russia is still producing oil, but a record amount of output from the Urals is now on the high seas looking for a home. Though those barrels are fetid geopolitically, they may go to India and China, but it is a high-stakes game of Axis and Allies.  FOREX  Lower equity and rates vol is leaving USD longs struggling for any material upside traction. Since we have not taken out any major ranges, I suspect the USD downside reflects investors are pulling back long USD exposure rather than opening outright dollar shorts in meaningful size. However, increasing efforts from China's official institutions to loosen economic policy could spur a more long-lasting USD downside.

EUR/USD witnessed heavy intraday selling on Wednesday amid resurgent USD demand. The recent hawkish comments by the ECB policymakers helped limit any further losses. A move beyond the 1.0770 confluence is needed to support prospects for any further gains. The EUR/USD pair faced rejection near the 50-day SMA on Wednesday and retreated nearly 100 pips from its highest level since April 25 touched the previous day. The US dollar made a solid comeback and snapped a two-day losing streak to a nearly one-month low amid concerns about softening global economic growth. Investors remain worried that a more aggressive move by major central banks to constrain inflation and the Russia-Ukraine war could pose challenges to the global economy. The European Central Bank's (ECB) Financial Stability Review reinforced market fears and warned that further corrections in financial markets could be triggered by escalation of war, even weaker global growth or if the monetary policy needs to adjust faster than expected. This, in turn, was seen as a key factor that prompted fresh selling around the major. On the economic data front, the US Durable Goods Orders fell short of market expectations, though they did little to dent the intraday bullish sentiment surrounding the USD. Later during the US session, minutes from the May 3-4 FOMC meeting showed that most participants believed a 50 bps rate increase would likely be appropriate in June and July. The minutes, however, lacked any major surprises as the expected move is already priced in, reaffirming the idea that the Fed could pause the rate hike cycle later this year. This, along with a goodish recovery in the US equity markets, acted as a headwind for the safe-haven buck. Apart from this, the recent hawkish remarks by the ECB policymakers, hinting at an increase of at least 50 bps to the deposit rate, assisted the EUR/USD pair in finding decent support near the 1.0645-1.0640 region. The pair recovered around 50 pips from the daily low and gained some follow-through traction during the Asian session on Friday, though it struggled to capitalize on the move. The worsening global economic outlook continued weighing on investors' sentiment and drove some haven flows towards the greenback, which, in turn, capped the EUR/USD pair. Given that several European markets are closed in observance of Ascension Day, the USD price dynamics will play a key role in influencing the pair. Later during the early North American session, traders will take cues from the US economic docket - featuring the release of Prelim Q1 GDP, the usual Weekly Initial Jobless Claims and Pending Home Sales. Apart from this, the broader market risk sentiment will drive the USD demand and produce short-term trading opportunities around the pair. Technical outlook From a technical perspective, the recent strong recovery from the YTD low faltered ahead of a confluence resistance comprising of 50-day SMA and the 50% Fibonacci retracement level of the 1.1185-1.0350 fall. The said barrier, around the 1.0770 region, should now act as a pivotal point, which if cleared decisively will be seen as a fresh trigger for bullish traders. The EUR/USD pair might then surpass the 1.0800 mark and aim to test the next relevant hurdle near mid-1.0800s en route to the 1.0880 supply zone. The latter coincides with the 61.8% Fibo. level and cap any further upside, at least for the time being. On the flip side, the overnight swing low, around the 1.0645-1.0640 region, now seems to protect the immediate downside. Some follow-through selling would expose the 23.6% Fibo. level support, near mid-1.0500s, with intermediate support near the 1.0600 round-figure mark.

Minutes from the FOMC meeting on May 3-4 show concern about what the average person already knows. Image courtesy of Fed Board of Governors, Text by Mish from Latest Minutes Minutes of the Federal open market committee Please consider the Minutes of the FOMC May 2-3 Meeting.  Notably, the Fed is sticking with an over-optimistic economic outlook. The staff anticipates "GDP growth would rebound in the second quarter and advance at a solid pace over the remainder of the year." On retail sales, "participants indicated that they expected robust growth in consumption spending. They pointed to several elements supporting this outlook, including strong household balance sheets, wide availability of jobs, and the U.S. economy's resilience in the face of new waves of the virus." "All participants concurred that the U.S. economy was very strong, the labor market was extremely tight, and inflation was very high and well above the Committee's 2 percent inflation objective." The Fed is drinking Kool-Aid. A recession is baked in the cake, and obviously so.  But the Fed cannot admit that. Given the stated nonsense on a "strong economy" perhaps a clueless Fed does not even see a recession. At best, the Fed masks its outlook with a discussion of risks. Risk discussion Participants judged that the implications for the U.S. economy were highly uncertain.  Some participants noted that their business contacts had reported an easing of supply constraints, participants assessed that supply constraints overall were still significant and would likely take some time to be resolved. Participants observed that inflation continued to run well above the Committee's longer-run goal and that inflation pressures were evident in a broad array of goods and services.  Participants agreed that risks to inflation were skewed to the upside and cited several such risks, including those associated with ongoing supply bottlenecks and rising energy and commodity prices Several participants who commented on issues related to financial stability noted that the tightening of monetary policy could interact with vulnerabilities related to the liquidity of markets for Treasury securities and to the private sector's intermediation capacity. "Participants observed that developments associated with Russia's invasion of Ukraine and the COVID-related lockdowns in China posed heightened risks for both the United States and economies around the world." "In light of continuing inflation risks, members judged that it would be appropriate for the postmeeting statement to note that the Committee is highly attentive to the upside risks to inflation." "Regarding risks related to the balance sheet reduction, several participants noted the potential for unanticipated effects on financial market conditions." "With regard to funding risk, the staff highlighted structural vulnerabilities in some types of mutual funds as a continuing focus." "The staff noted that increased uncertainty and ongoing volatility had reduced risk appetite in financial markets and eased price pressures, although valuations of many assets remained elevated." "The staff continued to judge that the risks to the baseline projection for real activity were skewed to the downside and that the risks to the inflation projection were skewed to the upside."   On rate hikes and quantitative tightening (QT) "All participants reaffirmed their strong commitment and determination to take the measures necessary to restore price stability." Participants agreed that the Committee should expeditiously move the stance of monetary policy toward a neutral posture, through both increases in the target range for the federal funds rate and reductions in the size of the Federal Reserve's balance sheet." "Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings." "All participants supported the plans for reducing the size of the balance sheet. This reduction, starting on June 1, would work in parallel with increases in the target range for the policy rate in firming the stance of monetary policy.  "A number of participants remarked that, after balance sheet runoff was well under way, it would be appropriate for the Committee to consider sales of agency MBS to enable suitable progress toward a longer-run SOMA portfolio composed primarily of Treasury securities." Words of the day are risk and inflation The word "risk" appeared in the minutes 31 times. The word "inflation" appeared 66 times.  The text is a warning sign to the markets the Fed intends to hike until inflation is under control.  Sales of agency MBS (mortgage-backed securities) is a warning to the housing markets that the Fed is willing to sell its mortgage portfolio which would drive mortgage rates higher.  Given all the lovey-dovey projections, the Fed either does not see a recession or is warning that inflation, not recession, is its focus.  To repeat "Risks to the baseline projection for real activity were skewed to the downside and that the risks to the inflation projection were skewed to the upside." Finally, please note the warning "valuations of many assets remained elevated." No kidding, but guess who is largely...