The European Central Bank (ECB) left interest rates unchanged but hinted at a potential rate cut in June, leading to speculation about further cuts in the near future. The EUR/USD pair remained steady ahead of the press conference, with markets pricing in a 25 basis point cut at the June meeting and an increased probability of an additional cut in July. The ECB's statement and market sentiment suggest a potential bearish outlook for the Euro, with support levels for the EUR/USD pair identified on the charts.
The Treasury's lower than expected borrowing numbers have led to stock and bond prices moving higher, with yields lower, and the USD weakening. The US stock market has seen gains, with the NASDAQ and S&P indices reaching record highs. In the debt market, yields have decreased across the board. In the forex market, the EURUSD is testing its 200-day moving average, while the USDJPY and GBPUSD are experiencing fluctuations. The USDCHF has fallen to retest a key downside target.
The Chinese yuan and Japanese yen are gaining strength against the previously dominant U.S. dollar, with the yuan trading at 7.116 renminbi USDCNY and the dollar trading below its 200-day moving average. This marks a comeback for the yuan, which had weakened significantly in recent months, and a resurgence for the yen.
The Euro has found some relief against the US Dollar, defending the psychological level of 1.0500 as the Greenback weakens. German inflation showed positive signs, but Eurozone economic sentiment continues to decline. US data, including jobless claims and GDP, remains resilient, but cracks are starting to show in the housing market. The focus now turns to the PCE data and EU inflation flash number, which could have a significant impact on the market. From a technical perspective, EUR/USD is showing mixed signals, with a potential bullish engulfing candle close but also a potential death cross forming. Retail traders are currently net-long on EUR/USD.
The US dollar is gaining strength as USD/JPY breaks above 147.00, with Treasury yields rebounding and contributing to significant moves in the forex market. The dollar has gained 20-40 pips against various currency crosses, while AUD/USD has seen a straight decline. Despite equities showing minimal risk aversion, the dollar is expected to continue its upward trend, with the USD/JPY chart indicating little resistance up to 150.00.
The Japanese yen breached the 145 mark against the US dollar, prompting expectations of intervention by the Bank of Japan (BOJ). HSBC predicts that the Japanese Ministry of Finance will push back in the 145-148 range, but if intervention does not occur, short positions on the yen may be rebuilt. The US dollar has also been on an uptrend, supported by high longer-end US yields and concerns about the US budget deficit and Treasury supply. Japan's upcoming GDP and inflation data may further impact the forex market.
