[Market Review].
The dollar surged higher and retreated. The dollar index was largely flat in oscillating trade, rising to 90.26 during the session as speculation mounted that traders were trimming their short positions ahead of Friday’s U.S. non-farm payrolls report.
This followed the release of a much weaker-than-expected April nonfarm payrolls report, which led to a sharp drop in the dollar. Earlier this week, manufacturing data showed that labor shortages actually hampered the sector’s growth potential, despite a surge in manufacturing activity caused by pent-up demand as the economy reboots following the end of the new crown blockade. Commenting on the data, analysts said this essentially suggests that a large number of recovery deals have now been absorbed and that the overall recovery curve may be much slower than one might expect. If the non-farm payrolls report is weak again, it will put pressure on U.S. bond yields, which in turn will weigh on the dollar.
Until then, Fed officials are still keen to cut back on bond purchase discussions. Philadelphia Fed President Harker believes it may be time to at least “consider reducing” monthly bond purchases of $120 billion.
Gold returned to the nine-thousand mark. Next, let’s focus on gold. Gold prices maintained consolidation in Asian trading, European trading broke out and pulled up and recovered the $1,900 mark, finally closing up 0.41% to close at $1,908 per ounce, the highest level since January 7. U.S. bond yields retreated as investors awaited key economic data released this week for clues to the inflation outlook.
Silver oscillated higher. Similarly, silver oscillated upward during the day, climbing from $27.60 to above $28.
The euro fell before rising. In non-U.S. currencies, the euro fell and then rose against the dollar, eventually returning to early session levels around 1.2210. Data showed that the euro zone producer price index rose more than expected in April. However, the ECB said that although inflation may be temporarily above target this year, weak wage growth may keep inflation at manageable levels in the coming years. The ECB hopes to keep consumer price growth close to 2% in the medium term.
The British pound recovered lost ground. Another look at the pound. The pound fell to 1.4110 intraday as concerns about an increase in new crown cases intensified, but then recovered lost ground and rose to around 1.4160. The spread of the variant virus has raised doubts about the lifting of the embargo at the end of June. In addition, the ongoing dispute between the EU and the UK over the Northern Ireland deal also heightened the risk of sterling volatility.
U.S. oil broke strongly above the $69 mark. Finally, a look at the oil market. U.S. oil continues to shake to the upside and has now surpassed the $69 mark. Morning API data showed that US crude oil inventories plunged by 5.36 million barrels in the week ended May 28. In addition, OPEC+ has decided to stick to its plan to gradually restore supply and the nuclear talks between Iran and the U.S. are progressing slowly. Under the influence of a series of positive factors, some analysts say oil prices may go above the $70 mark.
[Risk Warning].
If the unblocked plan is delayed or briefly depress the pound
Nomura foreign exchange strategist released a report saying that if the UK postpones its plan to unblock the measures on June 21, it will cause the pound to fall, but only briefly, and will provide an opportunity to increase long positions. He said that the June 21 unblock is largely symbolic. Nomura’s current strategy is to go long GBPUSD with a target of 1.44 and a stop loss at 1.3450. The pound is expected to rise to 1.51 by the end of the year, and the euro will be at the 0.83 level against the pound during the same period.
Unless the non-farm payrolls are much higher than expected, Europe and the United States will continue to rise
Goldman Sachs Group pointed out that funds in the eurozone equity markets have increased, and this is likely due to stronger economic activity in Europe and expectations that the U.S. will raise corporate tax rates, according to the Golden 10 VIP FX Morning Report. Unless the U.S. May non-farm payrolls data is much higher than expected, the above positive factors will further support the rise in Europe and the United States. The bank remains bullish on Europe and the United States for 1-3 months, with a target of 1.25.
Despite rising inflation risks, the ECB fears maintaining easing
Reuters survey shows that as the economy is recovering, price pressures are rising, and calls to lift emergency bond purchases have followed in recent weeks. But several ECB members said it is unlikely to make a decision to cut bond purchases in the June 10 meeting. However, a Reuters survey believes that the ECB may begin to scale back purchases of the epidemic assistance program later this year.
[Key Forecast].
20:15 ADP employment figures or strong performance
First, to focus on the U.S. will be released in May ADP employment figures, which rose by 742,000 in April. Agencies commented that, driven by massive government assistance and the increasing number of new crown vaccinations, companies have increased production in the face of surging demand, and private sector employment increased sharply in April, indicating that the U.S. economic growth momentum at the beginning of the second quarter further strengthened.
Currently, some analysts predict that the U.S. ADP employment number may record 650,000 in May. If the data is less than expected, the dollar index may be under pressure to the downside; if it is better than expected, then the dollar index may strengthen.
It can be seen that the market is very optimistic about the U.S. labor market expectations, if the data is better than expected. The dollar index is expected to gain support.
20:30 U.S. Initial Claims expected to remain low
Next, let’s take a look at the initial jobless claims that will be released in the US. In recent weeks, the number of initial claims released in the US has continued to move lower, with last week’s release coming in at 406,000. Agency commentary says that
The job market is steadily recovering as vaccinations are accelerating and restrictions are being eased. Hiring is expected to continue to increase in the coming months as more Americans travel and socialize. Analysts at the financial website Forexlive expect initial jobless claims to fall sharply by the time unemployment assistance for the new crown epidemic expires in September, as people who currently choose to receive government assistance instead of going to work will return to their jobs.
Currently, the market expects that the U.S. initial jobless claims for the week to May 29 will be 390,000. If the published value is much higher than expected, the dollar index may come under pressure; conversely, if the published value is less than expected, the dollar index may strengthen.
The market is generally expected to further reduce the number of initial jobless claims, which will have some support for the dollar index.
23:00 EIA crude oil inventories may decrease significantly
Finally, come to focus on EIA crude oil inventories, which were released last week with a decrease of 1.662 million barrels, a larger-than-expected drop. The financial blog Zero Hedge commented that although inventories of crude oil, gasoline and distillates all decreased significantly. However, it is important to note that gasoline inventories increased in the Midwest as the peak of local outings is approaching, which in turn pushes up crude oil demand.
This morning, API crude inventories have been released, down 5.36 million barrels, well above expectations. Based on past experience, there is a relatively strong positive correlation between API inventory data and EIA inventory data, so EIA crude oil inventories could also decrease significantly.
Even so, it is still necessary to pay attention to the current market expectation that the EIA crude oil inventory in the U.S. to May 28th week may decrease by 2.114 million barrels. If the published data exceeds the expectation, oil prices may dip in the short term; if the inventory data is less than expected, oil prices are expected to strengthen.
This is because signs of demand recovery from the U.S. to Europe have inspired optimism among crude oil producers and analysts, which in turn continues to push up oil prices. Some data show that U.S. gasoline demand last week reached its highest level since the New Crown outbreak, while traffic on U.K. roads exceeded pre-epidemic levels for the first time.
But one needs to be wary of potentially positive news from Iran. On Wednesday, talks between Iran and various countries were temporarily adjourned and are scheduled to reopen next week. The U.S. and Iran remain at odds over a return to the 2015 nuclear deal, an impasse that has blocked the return of Iranian crude to international markets. But if good news comes out of the post-market talks gradually, expectations for the return of Iranian crude to the international market will rise, which in turn will hit oil prices to some extent.
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