[Market Review].
The US dollar index extended its declining trend. The dollar index was under slight pressure during the day and is currently trading near the 90 mark. The U.S. non-farm payrolls report released on Friday fell short of expectations, pouring cold water on market expectations that the Fed would start discussing a code cut, putting the dollar under pressure, a trend that continued on Monday.
Investors are now weighing the possibility of a Fed cut. The Fed’s overnight reverse repo usage hit another record high, topping $486 billion, indicating too much money in the financial system, or prompting the Fed to raise the excess reserve rate and reverse repo rate. Even so, investors are still waiting for the CPI data to be released in the near future to further determine the direction.
In addition, Russia’s accelerated “de-dollarization”, also brought negative to the dollar.
The gold price once broke through $1,900. Next, let’s focus on gold. The gold price shocked higher during the day and once broke through $1,900 upwards. The dollar index fell, enhancing the attractiveness of gold. However, another record Fed overnight reverse repo and a 5.83-ton decrease in the world’s largest gold ETF position from the previous session limited gold’s advance. Long entries are likely to be quite cautious ahead of Thursday’s CPI data.
Silver oscillated higher. Similar to gold, silver extended its gains, climbing from near $27.4 to above $27.9 during the day.
The euro rose slightly. As the dollar weakened, non-U.S. currencies were generally higher. Among them, the euro rose nearly 30 points against the dollar during the day and is now running above 1.2180, as investors await this week’s European Central Bank interest rate resolution.
The British pound continues to climb. Turning to the British pound, the pound also gained more than 20 points against the dollar during the day. The pair had previously slipped to around 1.4110 before seeing a rebound to touch a high of 1.4191.
Bitcoin suddenly dived below $34,000. Bitcoin, which had reversed its weekend trend on Monday to move slightly higher on news that MicroStrategy would issue $400 million in bonds to buy more bitcoin, took a sudden dive this morning, falling more than $2,000 in the short term and breaking below $34,000.
The Zero Hedge article analyzes that this may be related to the U.S. Department of Justice. The largest U.S. operator of refined oil pipelines was hacked into a cyber attack last month and ended up paying $4.4 million in cryptocurrency as ransom to a cybercrime group. The U.S. Department of Justice said Monday that authorities successfully recovered some of the cryptocurrency paid by the said company in a ransomware, worth about $2.3 million. There are suspicions that the U.S. Justice Department dumped the bitcoin they recently recovered, which led to the sudden drop in bitcoin.
The Zero Hedge article also points to an earlier announcement about former U.S. President Donald Trump as one of the reasons for the sudden dive in bitcoin. In an interview with Fox, Trump slammed bitcoin as a scam against the dollar and asked regulators to impose strict regulations on it.
U.S. oil was slightly under pressure. Finally, a look at the oil market. U.S. oil has come under slight intraday pressure and is currently running below $69. There is news that the OPEC+ production cut implementation rate reached 114% in April. This is positive for oil prices. However, Asian imports are down, limiting oil price gains. I’m afraid more fundamental goodness is needed for oil prices to break above the $70 mark. For the future market trend, we can continue to pay attention to the U.S.-Iraq negotiations.
[Risk Warning].
The ECB is expected to keep the easing unchanged, but will not overly suppress the euro
The Bank of Tokyo-Mitsubishi UFJ said that there has been a disagreement between the ECB and the Fed recently. The Fed has expressed its willingness to discuss tapering quantitative easing at the upcoming meeting. And recent moderate comments from ECB officials have dampened expectations of a premature reduction in the size of quantitative easing. This will help dampen the upside momentum of EURUSD, however not enough to change the bank’s short term bullish outlook for EURUSD.
At this week’s interest rate resolution, the ECB is expected to keep the size of its bond purchases unchanged. Market reaction should be limited as Eurozone yields have dipped in recent weeks and the euro weakened slightly in the first hour after the ECB’s last two policy decisions, and a similar reaction is expected this time.
Positive factors converge, GBPUSD up to 1.43
The Dutch International Group pointed out that the weak dollar should put upward pressure on the pound against the dollar after the U.S. non-farm payrolls report for May fell short of expectations. In addition, whether the UK will fully relax restrictions before the June 21 deadline probably won’t put too much pressure on the pound. Even if the date is postponed, the impact on economic activity should be limited.
On the UK data front, the focus will be on Friday’s UK GDP for April. unsurprisingly, the reopening of stores and outdoor hotels in April will bring another good month of growth. Reiterating a positive UK economic outlook will provide support for the pound. All things considered, GBPUSD should continue to push towards the 1.43 psychological barrier this week.
Australian dollar outlook remains positive with 0.8 up at the end of the second quarter
Canadian Imperial Bank of Commerce expects the U.S. to announce a reduction in the size of its bond purchases, with U.S. Treasury yields moving higher and a less pessimistic outlook for the dollar. Meanwhile, the prospect that the Australian Fed will extend easing is expected to be confirmed at the July meeting. The Australian Fed and the Federal Reserve are feared to be at odds over monetary policy, which could slow the Aussie’s gains against the dollar.
However, Australia’s strong economic recovery and the support from commodity prices are feared to continue to boost the Australian dollar. Therefore, the bank remains optimistic about the overall outlook for the Australian dollar against the U.S. dollar, which is expected to remain near 0.8 by the end of the second quarter.
[Key Forecast].
17:00 Eurozone Q1 GDP fears weak performance
In the fourth quarter of last year, the data recorded -4.9%. Financial website Forexlive commented that the data reiterates the possibility of a double-dip recession in the eurozone, as economic conditions are likely to contract in the first quarter as well. That said, the market’s focus remains more on the outlook for the second half of 2021. In the middle of last month, the eurozone reported a revised annualized GDP rate of -1.8% in the first quarter.
Currently, the market expects the final value of the eurozone’s first quarter GDP annual rate of -1.8%, if the published value is better than expected, or positive for the euro; conversely, or negative for the euro.
It can be seen that the economy of the eurozone still remains decadent at the beginning of this year, but as vaccines continue to be inoculated, the economy of Europe will gradually pick up, and the euro is also expected to be supported.
Wednesday 04:30 API crude oil inventories may decrease
Next, come to focus on API crude oil inventories. Last week, API reported a decrease of 5.36 million barrels in US crude oil inventories. Then the EIA crude oil inventories released decreased by 5.079 million barrels. Related agencies commented that crude oil inventories remain at their lowest level since February. Refineries on the West Coast continue to increase production before the U.S. economy restarts in California in mid-June. The commentary also said that there are good signs on the U.S. summer travel front. As of last week, the four-week rolling average of aviation fuel supplies rose for the third consecutive week.
By the end of the week, the market expects that U.S. API crude oil inventories may decrease by 3.576 million barrels for the week ending June 4. If the release is larger than expected, oil prices may come under pressure; conversely, oil prices may rise.
It is also important to keep an eye on developments in OPEC+. The organization will continue to limit supply in June and July, providing a boost to oil prices. On Monday, OPEC Secretary General Barkindo said OPEC+ expects oil inventories to fall further in the coming months.
Meanwhile, progress in the Iran nuclear talks will also need to be watched. The U.S. has indicated it may enter multiple rounds of talks on rejoining the 2015 nuclear deal, and the International Atomic Energy Agency said Monday that negotiations have entered a decisive phase. If a deal is reached in the multi-party negotiations, Iran will increase crude oil supply and oil prices will face downward pressure.
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