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  1. Next week could be tough for low-yielding EUR, GBP and here is why May UK Retail sales came slightly worse than projections, following strong gains in April. However, like the United States, UK consumers boosted consumption of services that became available after economy reopening by cutting spending for retail goods. The data had little impact on the pound as FX markets appears to be pricing in implications of the June Fed meeting. “Instead of a thousand words” in the official communique or Jeremy Powell's speech to signal the move to a tightening cycle, the Fed revised its GDP and
  2. Medium-term uptrend in EUR, GBP under threat after Fed surprise The Fed left its policy unchanged yesterday, but the updated forecasts and dot plot showed that the Central Bank does not believe in its own story about temporary high inflation. The reaction of the markets was acute and should not surprise, given the fact that in the past few months, the Fed’s policymakers worked hard to convince investors that high inflation will not last long, and therefore will not impact rate hike outlook. It turned out that this is far from the case. Compared to the previous dot plot, there h
  3. Fed meeting impact will likely to be short-lived and here is why Greenback holds position on Monday after the short-squeeze last Friday. Gold resumed its plunge while nominal yield on long-dated US debt (Treasuries) remained subdued – in overall this suggests that expectations of inflation overheating somewhat retreated. This could happen for two reasons - either markets feel that US growth rate cools down or they expect some updates on the Fed credit tightening. Considering that the FOMC meeting is around the corner, the reason is most likely the second. The reaction in USD, gold an
  4. EIA data was a surprise for the market, casting doubts on US demand strength Oil prices came under pressure on Wednesday, WTI struggled to stay above the $70 mark. The catalyst for the decline was bearish EIA report on commercial oil and refined products inventories in the United States. The report is now having a bigger impact on the market than usual, as it presents one of the major uncertainties on supply side. OPEC pumps oil in accordance with established quotas, and therefore supply from the cartel is more or less predictable. The EIA report was a bit ambiguous as it contained b
  5. Taper or not to taper early? US May inflation report should help the Fed to make up its mind Oil prices rose on Tuesday continuing to develop modest upside momentum on Wednesday. WTI has broken the $70 per barrel mark for the first time since October 2018. The API data indicated a 2.11 million barrels cut in US oil inventories on the reporting week, raising the chances of a positive EIA report on inventories, which is slated for release today. Optimism about demand continues to drive price increases, which is partly justified by the fact that the pandemic is receding. The daily increase
  6. Only strong US inflation in May can save USD The dollar holds its ground on Tuesday counting on a strong positive surprise in the US May inflation report. The release is due on Thursday. Yellen's comments that high interest rates will be a plus for the economy went unnoticed by investors, since the rhetoric of the US Treasury head has no immediate consequences. The ZEW report on the business climate in Germany for June fell short of expectations, but assessment of the current conditions beat forecasts. The mixed report deprived EURUSD of the opportunity to re-break the 1.22 level, a
  7. US inflation report may cause a major move in USD. Here is why. Last week, the struggle between USD bulls and bears was unusually evident: the dollar index jumped from 90 to 90.50 points following release of the ADP labor market report, however bullish bets were dialed back completely as the NFP report came out: This unusual for FX move was caused by really contrasting assessments of labor market situation in the ADP and the NFP. The former reported that the US economy gained more than 900K jobs in May, while the latter failed to meet even modest forecast of 600K. The pr
  8. May NFP could fuel USD rally all next week The odds of the Fed departing from the policy of cheap money earlier than previously expected rose sharply on Thursday after release of the ADP report. The private research agency made highly upbeat assessment of labor market growth in May, estimating job growth at 978K which was significantly above the consensus (~600K). The dollar and long-dated US government bonds were apparently surprised by the labor market rebound: After the April NFP report, which was a big miss as jobs growth was three times lower than consensus, there was a
  9. Oil breakout sets the stage for the rally towards $75 mark Trading on FX was calm and uninteresting on Monday as UK and US markets were closed due to holidays. On Tuesday, we saw a weak attempt by the greenback to recover after the currency tumbled against majors yesterday. In the economic calendar, reports on the US economy stand out, the closest of which is the ISM index in the US manufacturing. Markets will look for confirmation that supply bottlenecks continue and costs are on the rise, particularly labor costs. The latter effect could hamper job creation, so it could negatively a
  10. Dollar outlook for the week: more sales ahead of the NFP On Monday, the dollar index struggles to maintain support at 90 points. The attempt to go up on the inflation report failed miserably on Friday: Annual inflation in the US in April was the highest in several decades - +3.1%. At the peak of the previous expansion, in 2006, it was 2.9%. Despite the fact that market forecasts underestimated inflation (2.9% consensus), the debt market received the news rather coolly. The yield of the 10-year Treasuries barely flickered on the report. It would seem that the risk of accele
  11. USD tactical retreat is probably over. What to expect on this week? No sooner had the US economy felt the effect of the two rounds of powerful fiscal spending, it is already being prepared for a new dose of steroids. However, this time, government support could last for a decade. On Thursday President Biden presented a federal budget plan for the next ten years. As part of the budget proposal, the state plans to boost spending to $6 trillion in 2022 and gradually bring it to $8.2 trillion in 2031. The budget deficit will grow by about $ 1.3 trillion/year while debt-to-GDP ratio will ballo
  12. Dollar rebound will likely to be short-lived. Here is why The dollar index has crept above 90 level after the failed bearish retest of support at 89.65 which we discussed yesterday. However, it will be tough to extend the move as the Fed is probably months ahead of the start of QE tapering, while other Central Banks are much more specific about the timeframe of policy tightening. A prime example was the Bank of New Zealand, which announced that it intends to start hiking interest rates at the end of next year. NZDUSD jumped 1% due to RBNZ surprise, but there is still room to grow give
  13. Fed participates to the growing chorus of hawkish Central Banks Fed officials are beginning to gradually acknowledge that they are getting closer to the point where they begin to discuss a reduction in massive monetary support for the economy. "We are talking about talking about tapering" said the head of the Federal Reserve Bank of San Francisco Daly, indicating that the policymakers are in the earliest phase of discussing an exit from the anti-crisis monetary policy as possible, so a reduction in QE should not be expected soon. Fed Vice President Richard Clarida made a simila
  14. Is it time to long oil? Declining US yields call for patience Oil prices stood offered on Tuesday after rising 3% on Monday, nevertheless swaying close to weekly highs as concerns that Iranian oil supply could quickly return to the market eased. This helped to shift market focus back to demand outlook. Brent jumped 3% on Monday while WTI gained 4% on reports that an outcome in the talks on Iranian nuclear deal remains highly uncertain. Oil market is sensitive to the reports regarding progress in the talks because the deal between US and Iran will almost certainly mean that oil selling r
  15. The risk of early Fed QE withdrawal fails to soothe USD bears There was a slight increase in bearish pressure on US currency on Monday as support from two key factors – rising long-term US yields and sell-off in risk assets (i.e., stock market, flagged. Equity markets posted weak upward bias, while long-term yields continue their decline that commenced last week. The attention of market participants and the bulk of volatility has been concentrated on the commodity and cryptocurrency market in the past few weeks. Both markets saw strong ups and downs of different intensity on claim
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