ActionForex reports that analysts at Wells Fargo Securities do not expect the FOMC to make any major policy changes at its meeting on June 15-16.

"We think it is unlikely that the FOMC will make any major policy changes at its meeting on June 15-16. Although we do not believe the FOMC will make any changes to its current pace of asset purchases in June, the minutes of the April meeting showed that the topic was broached. The opening discussion regarding the eventual “tapering” of asset purchases likely will take place at this meeting."

"The Committee likely will upgrade its assessment of the current state of the economy relative to the statement that was released at the conclusion of the last FOMC meeting on April 18."

"The FOMC will release its quarterly Summary of Economic Projections (SEP). We look for the Committee to raise its forecasts for GDP growth and inflation in 2021. Of more importance to the outlook for future rate hikes will be the inflation forecast for 2022 and 2023. We expect these forecasts to show that the Fed still deems recent inflation strength as transitory, but the SEP is also likely to show FOMC members believing risks around inflation are increasingly tilted toward the upside."

"Accordingly, the “dot plot” could shift up a bit for 2023."

"Cash continues to pour into the financial system, putting downward pressure on short-term interest rates. To nudge short-term interest rates a bit higher, the FOMC could increase the rates paid on excess reserves (IOER) and on reverse repurchase agreements. But any increases in these rates, should they indeed occur, would be done for operational reasons. They should not be interpreted as a sign that monetary tightening is imminent."

Francesco Pesole, the FX Strategist at ING, notes that the CFTC speculative positioning data reveals that GBP continues to show the recurring weekly volatility in its net-long positions, suggesting some reporting “technicalities” may be behind the weekly moves. 

"Since mid-March, sterling’s speculative positions have followed a recurring pattern: an increase of 3-4% of open interest in net-longs in a week and the opposite move in the week after. As a result, GBP has remained in the net-long territory within a range of 13-19% of o.i." 

"We saw another instance of this dynamic in the week ending 1 June as GBP net positions dropped by more than 4% of open interest. However, this “roller-coaster” ride in GBP positioning has not been matched by similar moves in the spot market. This divergence might suggest that weekly swings in positioning may be related more to reporting technicalities than actual changes in the market’s market sentiment on the currency."

"But GBP investors are now mainly looking at two main themes: the increasingly hawkish tone by Bank of England officials - with Gertjan Vieghle suggesting that a first-rate hike might come in 1H22 - and doubts about the planned easing of Covid-19 restriction in the UK on 21 June will go ahead."

"We continue to see further upside room for sterling in the coming weeks, even if the full reopening of the economy is postponed. The slightly overstretched net-long positioning should not be enough to curb further GBP gains, in our view."

FXStreet reports that Friday’s release of the ‘good but not that good’ US May labour data showed a decent level of improvement in the US labour market, but not enough to boost fears that the Fed should start to taper its asset purchase programme imminently. While there may be no pressing need for the Fed to taper, the debate about the timing of any reduction in QE is set to remain a dominating market theme. Therefore, Jane Foley, Senior FX Strategist at Rabobank, expects the EUR/USD pair to plunge below 1.20 on a three-month view.

“It is inevitable that the debate over US inflation and Fed tapering will continue to dominate market sentiment in the months ahead.”

“Insofar as a lot of good news is already priced in, flows into the EUR could be vulnerable if the Fed does place more emphasis on tapering later on in the year and bond yields edge higher accordingly.”

“With the issue of Fed tapering likely to rise up the agenda at some point, we expect the USD to find it footing later in the year and for EUR/USD to move back below EUR/USD 1.20 on a three-month view.” 

FXStreet notes that S&P 500 spotlight turns back on the 4234/38 highs. With momentum turning higher and with volume and breadth measures improving, analysts at Credit Suisse stay biased higher for an eventual closing break higher and a resumption of the core uptrend to 4260, then 4350.

“With daily MACD momentum having already turned higher and with volume and breadth measures improving we continue to look for an eventual clear and closing break above the 4238 record high to resolve the consolidation range higher for a resumption of the core uptrend. We would then see resistance next at 4260, with trend resistance from mid-April now at 4325 and with 4350 our next core objective.” 

“Near-term support moves to 4217, with gap and 13-day average support at 4206/4192 now ideally holding to keep the immediate risk higher."

U.S. stock-index futures traded flat on Monday, as investors assessed the comments of the U.S Treasury Secretary Janet Yellen, who said that President Joe Biden should push for his $4 trillion spending plan even if it results in a spurt in inflation and slightly higher interest rates, while awaiting Thursday's report on the U.S. May consumer price index (CPI).

Global Stocks:

(company / ticker / price / change ($/%) / volume)

• Historic relief will restore full employment next year

Visa (V) upgraded to Overweight from Neutral at Piper Sandler; target raised to $260

FXStreet notes that EUR/CHF remains trapped in a very tight one-month range. However, with the pair now at the bottom of this range, economists at Credit Suisse look for a back higher from here. 

“We expect the range bottom at 1.0931/25 to prove a tough barrier once again to keep the market in its tight range and therefore look for a reversal back higher from here.”

“Whilst not our base case, a break below 1.0931/25 would complete a small bearish continuation pattern and open up the 200-day average at 1.0873, which we expect to be an equally tough barrier if reached.”

“Resistance is seen at the aforementioned 55 -day average at 1.1002/04, before 1.1029, then the channel top at 1.1039."

FXStreet reports that Axel Rudolph, Senior FICC Analyst at Commerzbank, suggests that the USD/MXN pair targets the May low at 19.7191 – a slip through which would eye the January trough at 19.5488.

“USD/MXN’s bearish reversal from its current June high at 20.2139 put the May low at 19.7191 back on the plate. Once slipped through, the December-to-January lows at 19.7002/19.5488 will be targeted but may well hold once more.” 

“Below the 19.7002/19.5488 area, the 2017-2021 support line can be found at 19.0759.” 

“We will retain our bearish medium-term forecast while the currency pair remains below the May high at 20.3300.” 

“Above the May high at 20.3300 meanders the 200-day moving average at 20.4801."

FXStreet notes that despite the recovery on Friday, GBP/USD maintains bearish “reversal and outside days” already in place. Therefore, economists at Credit Suisse continue to see scope for a fall back to retest the “neckline” to the March/May base at 1.4017/06.

“A clear break of 1.4082/77 see a small top confirmed to clear the way for a deeper setback to the ‘neckline’ to the March/May base at 1.4017/06.” 

“We now see scope for a move below 1.4017/06 to the uptrend from March 2020 at 1.3998, potentially even the 55 -day average at 1.3952 /42, but with this level expected to prove a better floor.” 

“Resistance moves to 1.4171/76 initially, with the immediate risk still seen lower whilst below 1.4201/03."

USD was flat against its major rivals in the European session on Monday as investors assessed the comments of the U.S Treasury Secretary Janet Yellen, who said in an interview with Bloomberg News on Sunday that President Biden should push for $4 trillion in spending even if it results in higher inflation and that slightly higher interest rates "would actually be a plus" for the U.S. “We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” she noted, adding that “we want them to go back to” a normal interest rate environment, “and if this helps a little bit to alleviate things then that’s not a bad thing - that’s a good thing.” Yellen also said that any “spurt” in prices resulting from the stimulus package is expected to fade away in 2022. 

Market participants are now looking for Thursday's report on the U.S. May consumer price index (CPI) for further signs of inflation risks. The Federal Reserve's policymakers have continued to reassure that any jumps in inflation as the U.S. economy rebounds from the COVID-19 pandemic will be transitory. Economists forecast the headline CPI rose 4.7% y/y in May, following a 4.2% climb in the previous month, which was the highest in nearly 13 years. It is believed that hot inflation data could cause the Fed to step back from its ultra-loose policies.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged up 0.02% to 90.15.

FXStreet reports that analysts at OCBC note that gold fell back below the $1900 last week and a weak U.S. CPI print this week may usher the yellow metal down further. 

“Unsurprisingly, gold recorded its best monthly price gain YTD in May, rising 7.8% last month to close above $1900 on 31 May. The first few days of June, however, has been less encouraging, with gold falling back below the $1900 level.” 

“Total known gold ETF holdings rose 1.58mil oz in May.”

“With breakeven yields staying stagnant, we continue to see gold as trading too rich and expect it to continue correcting this week.”

FXStreet notes that EUR/JPY is coming under pressure. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, stays focused on the 133.12 as a break below here would open the way for a slump towards the 131.51/40 neighborhood.

“EUR/JPY is starting to correct lower and attention is on the 20-day ma at 133.12. The 20-day ma guards the 6-month uptrend at 131.51 and this is reinforced by the 55-day ma at 131.40.” 

“Initial resistance is 134.12, the current June high.” 

“Our longer-term target is the 137.51 2018 high.”

• BoE has not made a decision on central bank digital currency (CBDC)
• Emerging propositions of CBDC have generated a host of issues
• Overall, impact of digital money scenario on lending rates, credit provision is modest

FXStreet reports that economists at MUFG Bank highlight continued positive GBP developments.

“Mobility is already surging before the 21st June decision, suggesting it is not an impediment to the pick-up in activity expected. We track the 3 Apple mobility measures on average and averaged over a 7-day period, and the latest readings show the UK has now surpassed our EZ measure and the US. UK activity is likely surging more than assumed.”

“While the BoE forecast for 2021 is robust at 7.25%, the Q2 GDP assumption of 4.3% QoQ is now looking quite cautious. There have been some clear signs of progress on trade. While the impact of Brexit on EU trade will certainly linger, trade deals to be shortly announced with Australia and Norway plus positive indication of progress on the UK joining CPTPP will reduce the negative sentiment in relation to the Brexit trade impact.” 

“GDP surpassing BoE expectations and a labour market looking tighter than expected will test the BoE’s resolve. The strength of the housing market is also raising concerns with Deputy Governor Ramsden stating the MPC was ‘looking carefully’ at market conditions. Gertjan Vlieghe’s reference under his base-case scenario of a rate increase ‘well into next year’ is ahead of the view in the MPR and is in our view a sign of where the risks lie.”

Reuters reports that the Organisation for Economic Co-operation and Development said that a landmark deal to reform corporate tax payments proposed by the Group of Seven will not unfairly benefit the United States.

"I wouldn't agree with your characterisation that this particularly benefits the U.S. I think you'll find that there are a number of very large multinational U.S. companies that will end up paying more tax in countries around the world, where perhaps at the moment that is not the case," OECD Secretary-General Mathias Cormann told.

Cormann said he expected Amazon would be among the companies covered under the new rules. The OECD has been instrumental in drawing up new international tax proposals.

FXStreet reports that economists at CIBC Capital Markets anticipate further CNY and CNH gains.

“To the degree that foreign demand for Chinese bonds can take up any slack from moderated credit expansion onshore, then Chinese activity levels can remain strong, and CNH appreciation will then be validated by another factor.” 

“There were some reports of ‘smoothing’ operations around the 6.4000 level, i.e. buying at the direction of monetary authorities in order to slow the market moves. But we note that the yuan sits only mid-table of gainers against the USD YTD, having gained around 2%. Our medium-term measured target for USD/CNH on the break below 6.4000 is 6.2131. We forecast USD/CNH at 6.2000 by end-4Q.”

Reuters reports that official data showed that China's foreign exchange reserves, the world's largest, rose more than expected in May.

The data showed China's foreign exchange reserves rose $23.62 billion to $3.22 trillion last month, compared with $3.198 trillion in April. Economists had expected an increase to $3.208 trillion.

Foreign inflows into Chinese stocks and bonds have been strong as China gallops ahead of other major economies in its recovery from the coronavirus pandemic.

The yuan rose 1.6% against the dollar in May, while the dollar fell 1.6% during that month against a basket of other major currencies.

According to the report from Sentix, the economic situation in the Eurozone continues to improve. The sentix situation index rises for the third time in a row to 6.3 points. The overall index reached its highest value since March 2018, meaning that the recession caused by the Corona crisis has been overcome.

In Germany, the situation assessment even rises for the twelfth time in a row to 15.3 points. This is the best value since May 2019. Economic expectations even rise to an all-time high.

The excellent economic performance is evident in all regions of the world. The overall index for the US reaches an all-time high and rises for the 13th consecutive month. The global economy is now beginning to show clear signs of overheating. This is likely to prompt central banks to slow down the momentum.

FXStreet reports that according to economists at MUFG Bank, diverging ECB and Fed QE policy discussions are set to weigh on EUR/USD in near-term.

“The improving growth outlook is unlikely to prove sufficient though to prompt the ECB to announce a slowdown in the pace of QE purchases. Recent dovish comments from ECB officials have pushed back against early QE taper expectations. The majority of economists now only expect the ECB to announce slower QE purchases in September. The ECB is also expected to release the conclusions from their monetary policy strategy review in September which is shaping up to be a bigger event risk”

“We expect the ECB to signal that ‘purchases will be maintained at around the current pace’. The market reaction should be limited as euro-zone yields have already adjusted lower in recent weeks. In the first hour following the last two ECB policy decisions the EUR has weakened marginally. We expect a similar reaction this time around.”

FXStreet reports that economists at ING discuss GBP/USD prospects.

“With the uninspiring May US employment figures giving the Fed an excuse to be patient, the subsequent soft USD dynamics (driven by the deeply negative front real rates – likely to be further underscored by the US May CPI) should keep upside pressure on GBP/USD.

We don’t think concerns whether the full restriction easing is delivered by the 21 June deadline should weigh too much on GBP. Even if the date is postponed the impact on the economic activity should be limited (as any postponement should be just a matter of weeks in our view). This suggests that GBP/USD should keep pushing to the 1.4300 level this week.”

According to the report from Halifax Bank of Scotland, UK house prices in May were 1.3% higher than in April, when they rose by 1.5%. 

In annual terms, housing prices rose by.9.5%, their biggest annual increase in more than seven years. Аverage UK property price was £261,743, and reached a new record high.

Russell Galley, Managing Director, Halifax, said: “House prices reached another record high in May, with the average property adding more than £3,000 (+1.3%) to its value in the last month alone. A year on from the first easing of national lockdown restrictions, and the gradual reopening of the housing market, annual growth surged to 9.5%, meaning the average UK home has increased in value by more than £22,000 over the past 12 months. Heading into the traditionally busy summer period, market activity continues to be boosted by the government’s stamp duty holiday, with prospective buyers racing to complete purchases in time to benefit from the maximum tax break ahead of June’s deadline, after which there will be a phased return to full rates. For some homebuyers, lockdown restrictions have also resulted in an unexpected build-up of savings, which can now be deployed to fund bigger deposits for bigger properties, potentially pushing property prices even higher".

During today's Asian trading, the US dollar rose against the euro and the pound, and was almost unchanged against the yen and the australian dollar.

Traders are evaluating the statements of US Treasury Secretary Janet Yellen and are waiting for the May data on consumer prices in the US, which the Ministry of Labor will release on Thursday. Yellen said on Sunday that U.S. President Joe Biden, in her opinion, should pursue the implementation of his proposed programs to support the economy totaling $4 trillion, even if it will increase inflationary pressures and increase interest rates in the country.

"If interest rates rise slightly, it will be a plus both from the point of view of society and from the point of view of the Federal Reserve (Fed)," Yellen said.

American experts differ in their forecasts regarding the future dynamics of inflation in the United States. A number of economists, including Yellen, believe that the increase in inflationary pressure is caused by the consequences of the pandemic and is temporary. Others fear that the large-scale stimulus proposed by Biden will create sustained inflationary pressures over the long term.

According to Yellen, Biden's programs will require an increase in government spending of about $400 billion a year, and this is not enough to cause a long-term increase in inflation.

The consensus forecast of experts provides for an acceleration of inflation in the United States in May to 4.7%. In April, consumer prices rose by 4.2%, the fastest pace in 12 years.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.11%.

Reuters reports that after the Group of Seven (G7) nations reached a deal to reduce the incentive of multinational companies to shift profits to low-tax offshore havens, the Swiss government said that Switzerland will make sure it remains attractive to business.

"For Switzerland, the focus is on the overall package of competitive framework conditions for its own business location. Either way, Switzerland will take the necessary measures to continue to be a highly attractive business location," finance ministry said.

G7 finance ministers agreed on Saturday to back a minimum global corporate tax rate of at least 15% to squeeze more money out of sprawling companies such as Amazon and Google.

According to the report from the Federal Statistical Office (FSO), the consumer price index (CPI) increased by 0.3% in May 2021 compared with the previous month, reaching 101.0 points (December 2020 = 100). Inflation was +0.6% compared with the same month of the previous year. 

The 0.3% increase compared with the previous month is due to several factors including rising prices for housing rentals. International package holidays also recorded a price increase, as did root vegetables. In contrast, prices for fruiting vegetables and medicines decreased.

In May 2021, the Swiss Harmonised Index of Consumer Prices (HICP) stood at 100.99 points (base 2015 = 100). This corresponds to a rate of change of +0.2% compared with the previous month and of +0.3% compared with the same month the previous year. Due to the effects of the pandemic, the same missing price imputation techniques used for the CPI were introduced for the HICP. The HICP is a supplementary indicator for inflation based on a harmonised method across EU member countries. It enables inflation in Switzerland to be compared with that of European countries.

According to provisional results of the Federal Statistical Office (Destatis), real (price adjusted) new orders decreased by a seasonally and calendar adjusted 0.2% in April 2021 compared with March 2021. Economists had expected a 1.0% increase. Excluding major orders, real new orders in manufacturing were 1.5% higher than in the previous month.

Compared with February 2020, which was the month before restrictions were imposed due to the corona pandemic in Germany, new orders in April 2021 were 9.9% higher in seasonally and calendar adjusted terms.

Domestic orders decreased by 4.3% and foreign orders went up by 2.7% in April 2021 on the previous month. New orders from the euro area increased 0.7%, and new orders from other countries rose by 3.8% compared with March 2021.

In April 2021, the manufacturers of intermediate goods saw new orders decrease by 1.0% compared with March 2021. The manufacturers of capital goods saw an increase of 0.2% on the previous month. Regarding consumer goods, new orders rose by 1.4%.

For March 2021, the revision of the preliminary outcome resulted in an increase of 3.9% compared with February 2021 (provisional: +3.0).

EUR/USD

Resistance levels (open interest**, contracts)

$1.2276 (789)

$1.2234 (359)

$1.2209 (379)

Price at time of writing this review: $1.2161

Support levels (open interest**, contracts):

$1.2112 (486)

$1.2055 (872)

$1.1979 (2196)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 4 is 35272 contracts (according to data from July, 9) with the maximum number of contracts with strike price $1,1650 (3881);

GBP/USD

$1.4292 (1281)

$1.4244 (255)

$1.4211 (141)

Price at time of writing this review: $1.4142

Support levels (open interest**, contracts):

$1.4047 (272)

$1.3987 (327)

$1.3952 (281)

Comments:

- Overall open interest on the CALL options with the expiration date July, 9 is 11963 contracts, with the maximum number of contracts with strike price $1,4500 (3527);

- Overall open interest on the PUT options with the expiration date July, 9 is 13544 contracts, with the maximum number of contracts with strike price $1,4000 (2974);

- The ratio of PUT/CALL was 1.13 versus 1.73 from the previous trading day according to data from June, 4

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.