The GBP/USD pair built on the previous day's bounce from the vicinity of the weekly low, around the 1.2170-1.2160 area and gained some positive traction on Friday. The pair maintained its bid tone through the early North American session, though seemed to struggle to capitalize on the move or find acceptance above the 1.2300 round-figure mark.
The UK Office for National Statistics reported this Friday that the headlines Retail Sales contracted by 0.5% MoM in May as against the 1.4% growth recorded in the previous month. The core retail sales, stripping the auto motor fuel also decelerated sharply and fell 0.7% MoM from the 1.4% in April, raising concerns over the British economic growth.
The incoming softer UK economic data further fueled recession fears and reaffirmed market bets that the Bank of England would opt for a more gradual approach toward raising interest rates. In contrast, the Federal Reserve is expected to stick to its aggressive policy tightening path and deliver another 75 bps rate hike at its next policy meeting in July. It will be prudent to wait for strong follow-through buying beyond the weekly high, around the 1.2325 region, before positioning for any further appreciating move.
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The Bank of Canada remains hawkish in its narrative but has not deterred a Canadian Dollar (CAD) selloff as crude oil prices tumbled. This has given currencies like the euro a chance for a reprieve and potential reversal after years off downside. Lower crude prices are not a certainty as the Russia/Ukraine impact brings uncertainty but should the current trajectory hold, EUR/CAD could be in for more upside. Another major change could be from the ECB and its openness to more aggressive tightening measures as several officials and analysts forecast 50bps hike by September to tackle inflationary pressures in the eurozone after periphery bond fears have somewhat eased.
The daily EUR/CAD chart above shows price action consolidating in a rectangle pattern since April but a breakout is looming. A push above rectangle resistance could bring into consideration the 1.4000 psychological zone once again but a move below rectangle support would negate that move.
The EMA levels (20 and 50-day respectively) in purple and blue, are converging and 20-day crossover with the 50-day may signal the impending bullish move.
President Joe Biden has announced that he may be considering a federal gas tax holiday to ease inflationary pressures on the U.S. consumer. This looser fiscal policy could aid in the tight monetary policy stance and afford the Federal Reserve greater optionality and flexibility in its battle against inflation. Theoretically, loose fiscal policy attracts more foreign investment and therefore a higher demand for dollars. Coupled with a hawkish central bank, this may give an additional boost to the greenback if the tax cut is approved.
This does not bode well for the euro however, European Central Bank (ECB) President Christine Lagarde managed to ease fears via her statement yesterday around its proactive fight against fragmentation.
Price action on the daily EUR/USD chart above shows a strong start to the European session for bulls who currently test the 20-day EMA resistance level.
The Dax struggled in European trade this morning as stock markets hit the skids. This week’s brief rally fizzled out after soaring UK inflation numbers and declining commodity prices added to palpitations around monetary policy tightening. The Dax slumped along with European stocks, while haven assets including the US dollar, Treasuries and the Yen rose.
Earlier today we had comments from European Central Bank vice president, Luis de Guindos who once again reiterated the ECB’s position. The ECB VP stated that the size of the September rate hike will depend on inflation expectations, while he hopes inflation will start easing after the Summer. As DAX struggled this morning it’s no surprise that all sectors are in the red, led by healthcare and basic materials with losses of 2.65% and 2.36%.
From a technical perspective, we had a bearish candlestick close last week which closed below key support that turned resistance at the 13270 area. Following on two days of bullish price action, we had a shooting star candle close on the daily timeframe, retesting and closing below the 13270 area.
We have seen a push down today which currently looks like a bearish engulfing candle stick pattern is forming. We will need a daily candle close below previous monthly lows at the 12960 area. A break below could open up a retest of year-to-date lows of around 12450.
It seems as though developments coming out of the US will sway the price of oil as crude stockpiles increase for the second week, with inventories climbing 1.956M in the week ending June 10 versus forecasts for a 1.314M decline.
Signs of easing demand may encourage the Organization of Petroleum Exporting Countries (OPEC) to retain the current output schedule after deciding that “July production will be adjusted upward by 0.648 mb/d,” and it remains to be seen if the group will follow a preset path over the coming as US output climbs to its highest level since April 2020.
A deeper look at the figures from the Energy Information Administration (EIA) show weekly field production climbing to 12,000K from 11,900K in the week ending June 3, and data prints coming out the US may influence oil prices ahead of the next OPEC Ministerial Meeting on June 30 as the recent rise in supply is met with indicating of slowing demand.
With that said, the failed attempt to test the yearly high $130.50 may lead to a larger pullback in the price of oil, and crude may face a further decline over the coming days if it fails to defend the monthly low $111.20.
The recent rally in the price of oil appears to have stalled ahead of the yearly high $130.50 as the rise in price failed to push the Relative Strength Index (RSI) into overbought territory, and crude may face a larger correction if it fails to defend the opening range for June.
A close below the $115.00 handle brings the $112.80 to $113.70 region back on the radar, with a move below the monthly low $111.20 opening up the $108.10 area.
In turn, the price of oil may work its way towards $108.76 and it remains to be seen if crude will react to the positive slope in the moving average like the behavior seen earlier this year.
Nevertheless, the price of oil may face range bound conditions if it defends the opening range for June, but need a break/close above the $120.90 area bringing the yearly high $130.50 back on the radar.