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The Week Ahead – Closing in

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EURUSD retreats as ECB may slow down

Chart of EURUSD

The euro edges lower as the ECB might be in the final approach of its tightening journey. Some policymakers have hinted at the terminal rate by the end of summer after a steep rise of 375 basis points over the past ten months. Mirroring the market’s reaction to the US Fed’s pivot, participants’ focus has shifted to how long interest rates will stay elevated. Upcoming inflation data may reveal the pass-through of all those hikes and tilt the balance. Meanwhile, slowing divergence between said central banks could dent the enthusiasm about the single currency. The pair is drifting towards 1.0540 and 1.1080 is a fresh resistance.

USDCHF rebounds on hawkish Fed comments

Chart of USDCHF

The US dollar recoups some losses as the Fed’s rate normalisation campaign is yet to end. Officials’ sporadic assertive comments that the central bank needed to go further in tightening monetary policy have kept the dollar bulls hopeful. Hawks like Minneapolis Fed President Neel Kashkari have argued that rates may have to go to 6% to force inflation back down to the 2% target. While the range is still debatable, a clear bias for higher rates could help the greenback recover as the market may have gone oversold when pricing in the policy pivot. 0.9100 is the closest resistance and 0.8820 the floor to keep the pair afloat.

UKOIL consolidates ahead of OPEC meeting

Chart of UKOIL

Brent crude steadies as the market awaits producers’ next move at the upcoming OPEC+ policy meeting. A warning against short-selling from Saudi Arabia’s energy minister was seen as a hint of further output cuts at a meeting on June 4, driving up bids in the process. On the demand side, the US debt ceiling negotiations may be a temporary roadblock and a potential deal soon would instil the much-needed optimism in a rather depressed market. Fundamentally speaking however, resilient US data would ease the fear of a deeper economic downturn. 80.50 is the first resistance to lift and the psychological level of 70.00 is a key support.

S&P 500 retreats as uncertainties compound

Chart of US500

The S&P 500 halts its advance as the sky remains clouded by a combination of economic and geopolitical uncertainties. Rate hike expectations are rather high with voices signalling that a pause may not mean the end of the hiking campaign, and the market is betting on one-third of a chance of a 25 basis point hike in June. In the meantime, as the 1 June debt ceiling deadline was not enough to keep investors on their toes, souring US-China trade relations added another layer of uncertainty to pricing risk assets and provided the bears with an excuse to sell the rebound. 4050 is the closest support and 4310 the resistance ahead.

 

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