[Market Review].
The dollar index held steady. The dollar index was largely stable around 91.3, rising to 91.44 earlier in the session, the highest since April 19. U.S. April ADP recorded an increase of 742,000, slightly weaker than expected. After the release of the data, the dollar index was short term volatile. Traders await the non-farm payrolls report to be released on Friday. In addition, rising commodity prices are strengthening inflation expectations, with the U.S. 5-year break-even inflation rate touching a new high since 2008. Nevertheless, a number of Fed officials still believe that rising inflation this year is unlikely to trigger a rate hike, and it is not the time to discuss tapering the size of bond purchases.
Gold shocks higher. The dollar and medium- to long-term U.S. bond yields remained low, and Fed officials continued to downplay the risk of rising inflation, supporting gold, which rose nearly $8.
Silver moved sideways. Silver, on the other hand, oscillated sideways. Silver prices oscillated narrowly during the day mainly in the $26-$26.6 range and are currently trading near $26.4 per ounce.
The euro is under slight pressure. In non-US currencies, the euro is under slight pressure against the dollar. However, Nomura analysts expect the euro to rebound against the dollar to 1.22 by the end of May or June as the number of vaccinations increases, with a target of 1.25 by the end of the year.
The British pound is seeing a rebound. Not quite the same as the euro under pressure, the pound rebounded slightly. In the near term, the volatility of the pound may be more dramatic. Data show that the sterling one-cycle volatility rose to 8.32%, the highest since late March. The Bank of England interest rate resolution, as well as the Scottish independence vote, pushed up the volatility of the pound.
U.S. oil was under pressure to the downside. Finally, to look at the oil market, U.S. oil is under pressure to the downside. Earlier in the day, U.S. oil touched upward at $66.73 a barrel. EIA crude oil inventories recorded a decline of 7.99 million barrels, a much higher drop than expected and previous values, supporting oil prices. In addition, commodity prices rose to new highs, driving oil prices to a strong performance. However, India has a high level of new coronavirus transmission. The epidemic still limits the rise of oil prices. Currently, Biden has expressed support for an intellectual property exemption for the new crown vaccine. Once realized, this U.S. move will expand the global supply of New Crown pneumonia vaccine and narrow the vaccination gap between rich and poor countries.
[Risk Warning
U.S. dollar: Fed expected to maintain easing U.S. index fears a dip to 87.5
Analysts at Bank of Tokyo Mitsubishi UFJ pointed out that the dollar index recorded another 2.1% decline in the past April, reversing the rebound trend recorded in the first quarter of this year. The bank pointed out that the prevailing view from all walks of life is that the Fed will keep its current policy as unchanged as possible until the start of the new term early next year. This means that the downward trend of the dollar index will not stop and is expected to dip to the 87.5-88 range in the first quarter of 2022.
GBP: If it breaks above the resistance level of 1.4001, GBPUSD will end the consolidation
Credit Suisse noted that the GBPUSD has been in a neutral sideways range for the past two months and the consolidation will only end if it breaks above the March high of 1.4001-1.4017. If it succeeds in breaking through the position, it will first look back at this year’s high of 1.4238, with subsequent targets at 1.4302-1.4377. If it loses that level, it could fall to 1.3717 and drop further back to 1.3670-1.3669.
Canadian dollar: a combination of positive factors Canadian dollar is expected to continue to gain support
Analysts at BMO Bank of Canada point out that the USD/CAD still has huge room to continue to fall in the aftermarket. On the one hand, the Bank of Canada is the first to enter the easing intensity reduction cycle, which is expected to make the Canadian dollar outperform the market as a long-term trend; on the other hand, the arrival of the commodity bull cycle, as the currency of resource exporters, the Canadian dollar will also be strongly supported.
USD/CAD will again go down to last Friday’s low of 1.2267, followed by 1.2250, and the support range will move down to the 1.2060 line after the loss. The analyst also pointed out that a further drop through the 1.20 handle during the year is not the end of the current round, and that it could fall to 1.1750 by the end of 2022.
[Key Forecast].
19:00 Bank of England interest rate resolution: expected to release signals of QE tapering
First to focus on the Bank of England’s interest rate resolution. The current British economy is recovering from the epidemic. Data show that the UK’s purchasing activity in April is the strongest in the past seven years. In addition, the UK retail sales rose sharply in March. The speed of economic recovery, faster than the Bank of England’s expectations in February, which boosted the possibility of the Bank of England to scale back stimulus measures.
Many market participants speculate that the Bank of England session began to discuss when to withdraw stimulus measures. A survey of economists showed that the Bank of England’s Monetary Policy Committee this year will maintain 150 billion pounds of bond purchase program. However, some investors expect that government officials will slow down the pace of bond purchases, so that the bond-buying program will continue until the end of the year, rather than abruptly ending in November.
DailyFX website analysis pointed out that the Bank of England is currently facing two options on QE, one is to announce a slowdown in the pace of bond purchases on the resolution; the second is only to signal the reduction of QE, wait until June and then officially announced and implemented action. It should be noted that in June the Bank of England announced the time of the interest rate resolution, just three days after the completion of the UK unblocked roadmap. The market currently seems to be split 50/50 between the two options, but if the BoE tapers QE today, the pound is likely to subconsciously move higher.
Judging from recent statements by BoE members, policymakers appear to be remaining cautious despite an improved general environment in the U.K., increasing the likelihood that the BoE may not start tapering QE until June.
Market participants are equally confident that the BoE will raise its economic growth and inflation expectations. Moreover, given that the central bank’s policy rate is currently at a record low of 0.1%, outside bets on a rate hike are increasing. Traders expect the BoE to raise rates by 13 basis points in August 2022.
However, analysts also point out that the central bank has said that it will not tighten monetary policy unless there are signs that inflation will remain above the 2% target. For now, UK CPI has not yet reached that target.
20:30 U.S. initial jobless claims for the week to May 1: or lower than the previous value
Next, let’s take a look at the initial jobless claims that will be released in the US. In the last 4 weeks, the number of initial claims released in the US has remained below 600,000, with last week’s release coming in at 553,000. There are comments that in recent weeks, the number of U.S. initial jobless claims has been steadily declining, which indicates that the economic recovery is strengthening and the labor market is gradually recovering.
Currently, the market expects that the number of initial jobless claims in the U.S. to the week of May 1 is 540,000. If the published value is much higher than expected, the dollar index may be under pressure; conversely, if the published value is less than expected, the dollar index may be stronger.
As vaccinations continue to advance rapidly, the U.S. labor market is expected to recover further and initial claims may continue to decrease.
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