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EUR/USD flat-lines around mid-1.0700s, traders await US CPI and FOMC decision this week


The EUR/USD pair recovers a few pips from the Asian session low and for now, seems to have stalled its retracement slide from over a two-week high touched on Friday. Spot prices currently trade just below mid-1.0700s, nearly unchanged for the day, as traders seem reluctant to place aggressive bets on the first day of a crucial week.

The latest US consumer inflation figures are due for release on Tuesday and will be followed by the highly anticipated FOMC monetary policy decision on Wednesday. The key data/event will provide more cues on the Federal Reserve’s near-term policy outlook, which, in turn, will determine the next leg of a directional move for the US Dollar (USD) and provide some meaningful impetus to the EUR/USD pair. 

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US May CPI Inflation The Main Dish Today

US stock markets retained positive momentum yesterday with the three main indices rising by 0.55% (Dow) to 1.5% (Nasdaq). The S&P 500 rose by almost 1%, closing above the August 2022 top. Tech bell weather Nasdaq cleared that same technical hurdle earlier this month. Stock markets embrace the Fed’s “skip” idea while data simultaneously suggest that the economy and labour market aren’t cooling as rapidly as feared.

The latest NY Fed Survey of Consumer Expectations yesterday provided evidence for both Team Skip and Team Hike within the Fed. Inflation expectations declined at the short term horizon to their lowest level in two years (1y; 4.4% to 4.1%), while they increased slightly at the medium- (3y; 2.9% to 3%) and longer-term (5y; 2.6% to 2.7%) horizons. Labor market expectations were mixed as well with expected earnings growth declining (2.8% from 3%), and unemployment expectations and perceived job loss risk improving. Households’ perceptions and expectations for credit conditions and their own financial situations all deteriorated slightly.

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XAU/USD defends 100-day SMA ahead of the crucial FOMC decision

Gold price once again attracts some buyers near the 100-day Simple Moving Average (SMA) on Wednesday and recovers a part of the previous day’s slide to the weekly low. The XAU/USD sticks to its modest intraday gains heading into the European session and currently trades just above the $1,945 level, though remains well within a familiar range held over the past three weeks or so.

Federal Reserve’s rate-hike pause expectations lend support to Gold price

Soft consumer inflation figures released from the United States on Tuesday reaffirmed market bets for an imminent pause in the Federal Reserve’s (Fed) rate-hiking cycle, which, in turn, is seen lending some support to the Gold price. In fact, the US Labor Department reported that inflation, as measured by Consumer Price Index (CPI) barely rose in May and the year-on-year rate decelerated to the slowest pace since March 2021. The annual inflation print of 4.0%, meanwhile, is still twice the Fed’s 2% target and kept hopes alive for further policy tightening by the Fed.

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Dollar surges after Fed signals more rate hikes ahead

The U.S. dollar rallied in early European trade Thursday, boosted by the Federal Reserve’s hawkish projection of more tightening this year, while the euro weakened ahead of the latest European Central Bank policy meeting.

At 02:05 ET (06:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 102.835, recovering from the previous session’s four-week low.

The U.S. currency bounced after recent losses following the conclusion of the latest policy-setting meeting of the Federal Reserve on Wednesday, with the central bank deciding to pause its year-long policy tightening cycle, as widely expected.

However, the Fed also signaled in new economic projections that rates will likely rise by another half of a percentage point, i.e. two more hikes of 25 basis points, by the end of this year.

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Dollar rebounds from one/month low yen under pressure after BOJ meeting

The U.S. dollar edged higher in early European trade Friday, rebounding after hefty overnight losses following weak economic data, while the Japanese yen weakened as the Bank of Japan maintained its interest rates at very low levels.

At 01:45 ET (05:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 101.787, after sliding around 0.8% overnight to a new one-month low.

The dollar received a boost earlier in the week when the U.S. Federal Reserve forecast at least two more hikes this year, despite pausing its series of rate hikes, as inflation continued to trend above the central bank’s target range.

But a swathe of weak U.S. economic readings, including slowing industrial production and sluggish retail sales, raised questions over just how much higher the Fed can raise interest rates.

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US Dollar holds steady to start week, eyes on central bank speak

The US Dollar (USD) holds steady early Monday after having suffered large losses against its major rivals last week. Stock and bond markets in the US will be closed in observance of the Juneteenth holiday. The European economic docket will not be featuring any high-impact data releases and market participants will pay close attention to comments from central bank officials.

The US Dollar Index (DXY) fell more than 1% and closed the third straight week in negative territory before going into a consolidation phase above 102.00 in the European session. The benchmark 10-year US Treasury bond yield fluctuated wildly following the Federal Reserve’s (Fed) monetary policy announcements but ended the week little changed below 3.8%.

On Sunday, US Secretary of State Antony Blinken and Chinese Foreign Minister Qin Gang reportedly had “candid and constructive talks” on their differences from Taiwan to trade. Sides are said to have agreed on little beyond keeping the conversation going with an eventual meeting in Washington, reported Reuters.

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Dollar in demand as modest China rate cut hits sentiment

The U.S. dollar gained in early European trade Tuesday, with this safe haven in demand as a rate cut by China’s central bank failed to assuage investor concerns over slowing economic growth.

At 01:55 ET (05:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 102.118, rebounding from its recent one-month low.

China’s central bank, the People’s Bank of China, cut its benchmark loan prime rate by 10 basis points earlier Tuesday, a move that had been widely telegraphed as Beijing struggles to shore up a slowing economic recovery.

However, this size of the rate decrease disappointed some who fretted that this would not be enough to shore up confidence, with the Chinese property sector particularly hard hit.

USD/CNY rose 0.2% to 7.1769, with the yuan trading just shy of its lowest level since late November, with traders looking for a wider stimulus package from Chinese authorities but receiving a lack of concrete measures from a cabinet meeting on Friday.

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On 6/20/2023 at 2:16 PM, xtreamforex26 said:

Dollar firm ahead of Powell testimony, sterling up on hot inflation


The dollar was firmer on Wednesday leading into Federal Reserve Chair Jerome Powell’s appearance before Congress where he is expected to strike a hawkish tone, while sterling firmed slightly after hotter-than-expected British inflation data.

The annual pace of British consumer price gains was steady at 8.7% in May, against hopes it had cooled since April. Sterling briefly rose as far as 0.3% against the dollar to $1.2803 before settling back to $1.2765.

It also rose slightly on the euro and yen, as traders were betting the Bank of England would need to take rates higher. Markets now price another 150 basis points of hiking for a peak at 6% in a year’s time.                                                                           
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Trade Deficit in New Zealand Grows Despite Boost in China Exports

Despite a boost in exports to China, New Zealand’s trade deficit broadened in May. The deficit increased from NZ$17.02 billion to NZ$17.12 billion, falling just short of economists’ prediction of NZ$17.24 billion.

Concurrently, the monthly trade surplus shrank from NZ$236 million to NZ$46 million. A substantial rise in milk powder, butter, and cheese exports (+21%) contributed to the export growth, while crude oil (-52%) and logs, wood, and wood articles (-15%) exports experienced declines.

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German Economy Slows in June as Businesses Encounter Weakening Demand Conditions

The German economy experienced a marked loss of momentum during the latter part of the second quarter, according to the latest ‘flash’ PMI survey conducted by Hamburg Commercial Bank. Weakening demand conditions led to a significant slowdown in business activity growth, while company expectations hit a six-month low and job creation rates also dropped. Inflation pressures eased in June, with manufacturers recording the first decline in output prices in over two and a half years. Although service sector costs and selling prices continued to increase, driven partly by higher wages and rising interest rates, inflation rates showed signs of deceleration.

The HCOB Flash Germany Composite PMI Output Index exhibited a substantial decline in June, falling from May’s 53.9 to 50.8. Despite remaining above the 50.0 thresholds indicating growth, this reading pointed to a sharp deceleration in the expansion rate, reaching a four-month low. The decline resulted from both a slower increase in service sector business activity (index down from 57.2 in May to 54.1) and a deepening downturn in manufacturing output (index dropping from 47.4 to 44.2).

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Inflation and Recession Worries Take Center Stage This Week

US
The US Federal Reserve (Fed) is anticipated to end its rate-hiking campaign shortly. Attention will turn to Personal Consumption Expenditures (PCE) readings, hoping for a decline in inflation. A decrease in inflation may boost swap futures’ confidence in one more Fed rate hike. Wall Street will keep a close eye on the Conference Board’s consumer confidence reading and Friday’s Personal Income and Spending data release.

Key Fed events include Fed’s Williams speech at the Bank for International Settlements, Fed Chair Powell’s address at the ECB’s global banking forum in Portugal, and the announcement of annual banking stress test results.

Eurozone
ECB President Christine Lagarde’s early-week appearances will garner significant attention due to recent interest rate hikes amidst ongoing inflation. Investors will closely watch the flash Harmonized Index of Consumer Prices (HICP) data on Friday.

The ECB has cautioned that significant data improvement is required to prevent another rate hike next month. A minor shift in the opposite direction could prompt the ECB to increase rates again in July before reevaluating in September. Inflation data from individual countries earlier in the week may offer insights into Friday’s expectations.


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US Markets See Lower Close in Quiet Trading; Big Tech Pullback Impacts Nasdaq

US indices showed varied performance in a subdued trading session. The Nasdaq index experienced a decline of over 1% as Big Tech companies retreated, making it the poorest-performing index of the day. Tesla shares took a significant hit, falling by 6% following a downgrade from Goldman Sachs. Other major tech players, including Meta, Amazon, and Microsoft, also saw declines ranging from 2% to 3%.

Contrarily, the Russell 2000 index ended in positive territory, benefitting from a rebound in regional banking stocks. The Nasdaq 100/Russell 2000 ratio faced strong resistance at 8.2, historically signaling potential overvaluation of the tech sector compared to the broader market.

FX Market Update: Stable US Dollar in Calm Session

The US Dollar (USD) maintained stability during a calm trading session with limited news flow. The US Dollar Index traded within a narrow range, reaching a low of 102.610 and a high of 102.830. Traders awaited central bank speakers and upcoming US data releases, anticipating potential market volatility.

Among G10 currencies, the New Zealand Dollar (NZD) outperformed its counterparts, while the Australian Dollar (AUD) remained relatively steady against the USD. Positive discussions between New Zealand and China regarding participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) contributed to the NZD’s strength. As a result, the NZD/USD pair reached a high of 0.6177, causing the AUD/NZD pair to decline and approach the 1.08 level.

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Xi Jinping of China Eases Foreign Investor Concerns Over Policy Uncertainties

In a bid to alleviate concerns and uncertainties, Chinese President Xi Jinping has recently assured foreign investors of his government’s unwavering commitment to addressing economic issues and unpredictable policy-making. Amid a backdrop of global apprehension, Xi underscored China’s dedication to development, openness, and the protection of foreign investors’ rights during his recent visit to Beijing, as reported by Xinhua News Agency. 

China’s economy has been grappling with a slower recovery pace, particularly post-Covid Zero policies. This has led to intensified efforts by the nation to attract foreign investors. Compounding this situation are the endeavours by Western powers, including the US and Europe, to reduce their reliance on China, thereby creating an air of uncertainty about the country’s future growth prospects.

During the “Summer Davos” dialogue in Tianjin, Chinese Premier Li Qiang spoke emphatically about China’s readiness to collaborate with global entrepreneurs. He cautioned against the politicization of economies, urging CEOs to ensure the security of their supply chains, a sentiment he echoed during his recent visit to Germany.

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Bank of Japan’s Chief Defends Monetary Easing Amid Yen’s Decline

Kazuo Ueda, the current head of the Bank of Japan, has publicly supported the institution’s continuous implementation of monetary easing policies, despite the ongoing depreciation of the yen. He justified this by pointing out that, although the headline inflation rate is above the set target of 2%, the core inflation rate remains below this benchmark.

Ueda made these comments while attending the ECB Forum on Central Banking in Portugal. This event was attended by officials from the central banks of the United States, Europe, and the United Kingdom. During his address, Ueda noted that the value of the Japanese currency is subject to a multitude of influences, including the policy decisions made by these international central banks.

Despite his defense of the current monetary policy, Ueda expressed some uncertainty about the stability of inflation rates in Japan over the forthcoming years. However, he did acknowledge that should the central bank gain substantial confidence in future inflation stability, they would consider adjusting their policy approach accordingly.

The stance of the Bank of Japan stands in stark contrast to the fiscal strategies employed by the central banks of the US, UK, and Europe. These institutions have chosen to hike interest rates as a means of battling inflation, whereas the Bank of Japan has opted for an approach centered around ultra-low rates and market liquidity enhancements.

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USD/JPY steadies near YTD peak below 145.00 ahead of US PCE Index

The USD/JPY currency pair is currently holding steady near its year-to-date (YTD) peak, hovering just below the 145.00 level. This comes as the pair trades comfortably in the 144.55-144.60 region, a clear sign of its recent upward momentum. The pair’s movement has been closely monitored by investors and traders alike, especially given its performance in the past few weeks.

The surge of the USD/JPY beyond the 145.00 mark has led to speculation about a potential intervention from Japanese authorities. These speculations have caused a shift in investor sentiment, leading them to temper their bullish positions on the pair. Adding to this, the Japanese Finance Minister issued a warning about potential government actions if the Yen weakens excessively. This, coupled with a generally cautious market atmosphere, has provided some support for the JPY.

Investors are also grappling with concerns about the economic challenges that could arise due to increasing borrowing costs. These concerns have been further amplified by less than impressive macroeconomic data coming out of China. This, combined with a somewhat subdued action in the US Dollar, has put a cap on the USD/JPY pair’s movement.


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The GBP/USD pair is fluctuating within a limited range, hovering around the 1.2700 mark

As the new week unfolds, the GBP/USD pair is navigating within a tight range, lingering around the 1.2700 mark. This limited fluctuation indicates a lack of significant momentum for the currency pair, which could be indicative of market participants’ cautious approach in the face of uncertain market conditions.

Simultaneously, the GBP/JPY cross is displaying an impressive performance, enticing fresh buyers and making steady progress towards its highest point since December 2015. The pair is currently trading within the region of 183.70-183.65, marking a daily increase of over 0.20%. The pair seems ready to extend the strong upward trend it has exhibited over the previous quarter.

This positive trajectory can be partially attributed to the Japanese Yen’s (JPY) relative underperformance. The Bank of Japan’s (BoJ) dovish stance has triggered a fresh wave of JPY selling. Market players appear convinced that BoJ’s negative interest rate policy will stay in place until at least next year. Further supporting this sentiment, BoJ Governor Kazuo Ueda recently dismissed the possibility of any immediate changes to the ultra-loose monetary policy settings and indicated no plans to adjust the yield curve control measures.

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With recovering oil prices and a struggling US Dollar, USD/CAD is declining towards 1.3200 before Canada’s PMI

Amid the recovery in oil prices and ongoing struggles of the US Dollar, the USD/CAD pair is experiencing a downward trend, moving towards the 1.3200 mark ahead of the release of Canada’s PMI. The USD/CAD has slid to 1.3235 as traders of the Loonie pair show determination to break through the stagnation that has lasted for three days. This movement was observed during the early European trading hours on Tuesday, following a period of inactivity during the Asian trading hours.

The recent losses experienced by the Loonie pair can be attributed to a surge in Canada’s principal export commodity, coupled with a pullback in the US Dollar Index (DXY). WTI crude oil, for instance, recorded slight gains at around $70.30, reflecting the impact of recent announcements from Saudi Arabia and Russia hinting at further supply cuts. These gains in the energy benchmark are also fueled by the anticipated increase in oil demand from the US and China, as these two economic powerhouses strive to resolve their differences.

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USD/CAD Sees Modest Gains Near 1.3230-35, Awaits FOMC Minutes


The USD/CAD pair has been a focal point for investors during Wednesday’s Asian session. This currency pair saw an uptick in buying, allowing it to recover from its weekly low of approximately 1.3200 achieved on Tuesday. At present, spot prices are hovering around the 1.3230-1.3235 range, reflecting a modest rise of nearly 0.10% for the day. Various factors on the global stage contribute to this mild gain.

A key worry influencing the market is the potential for a worldwide economic downturn, which could drastically affect fuel demand. This concern is currently overshadowing the anticipated supply squeeze due to production reductions announced by major exporters, specifically Saudi Arabia and Russia. These declarations have put Crude Oil prices under pressure, which directly impacts the USD/CAD pair.

Domestic issues also play a role in the performance of the pair. Last week’s Canadian data showed a weakening economy, with consumer inflation reaching a near-two-year low in May. This development is seen as a blow to the commodity-linked loonie and has influenced the pair’s movement. These elements, combined with a minor surge in the US Dollar (USD), have helped the USD/CAD pair gain traction.


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US Dollar Index: DXY surpasses 103.00 amid Fed forecasts and China Concerns pre-US data

The US Dollar Index (DXY) oscillates near a weekly high of around 103.40, as market participants anticipate key US data and risk factors that could sustain the bullish trend of the DXY during Thursday’s early Asian session.

The index maintains its momentum after a three-day winning streak, primarily driven by concerns surrounding a hawkish Federal Reserve (Fed) and fears induced by China while downplaying weaker US data. According to recent Federal Open Market Committee (FOMC) minutes, nearly all members agreed on halting the rate hike trajectory, with some policymakers leaning towards a July rate increase of approximately 0.25%. This suggests a hawkish tilt at the US central bank, fueling the US Dollar Index.

Meanwhile, China’s disappointing Caixin Services PMI for June, which fell to 53.9 from 57.1, adds to escalating US-China tensions. Beijing’s fresh warnings of additional trade restrictions dampen sentiment and boost the DXY. Recent announcements from China about sudden controls on exports of certain gallium and germanium products, effective from August 1, represent the latest response to US restrictions on AI chip shipments to Beijing.

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