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US dollar under pressure as risk appetite improves

 

Tuesday, May 31, 2022

The news shaping the markets today

Even as the war between Russia and Ukraine sees no end as of yet, the Russian President might have received a deadline from his doctors, according to reports revealed by Russian intelligence source. WTI crude oil futures rose with no end of the Ukraine war in sight.


Japan’s industrial production contracted by 1.3% in April, following 0.3% growth in the previous month. This being the first decline in industrial output since January exerted pressure on the JPY/USD forex pair.


South Korea’s industrial production fell 3.3% in April, down for the first time in seven months. The news sent the KRW/USD pair lower in forex trading this morning.


New Zealand’s ANZ Business Outlook Index declined to -55.6 in May, from -42.0 a month ago. The latest reading signalled the weakest level since April 2020, which exerting pressure on the NZD/USD forex pair.


Canada reported a current account surplus of CA$5.03 billion in the first quarter, compared to a gap of CA$0.14 billion in the prior quarter. Despite this being the largest surplus in around 14 years, the CAD/USD pair declined in forex trading this morning.

 

What’s happening: The US dollar moved lower on Monday, as investor risk appetite improved.

What happened: Encouraging economic data supported investor risk appetite across markets, sending the US dollar to around a one-month low.

Trading was light on Monday, with the US equity and bond markets remaining closed for the Memorial Day holiday.

Why it matters: The greenback lost steam as May progressed, after a strong start to the year with investors looking to the US Federal Reserve tightening its monetary policy.

Strong economic data released on Friday exerted some pressure on the US dollar, as investors moved away from safe-haven options. US consumer spending accelerated higher than projected for April, with some easing in inflation. The Fed-preferred core PCE index declined to 4.9% year-over-year in April, from 5.2% in the previous month.

Global stock markets moved higher on Monday, with the easing of covid-19 restrictions and the announcement of new stimulus measures in China. The offshore-traded yuan climbed as much as 1% against the US dollar due to a recovery in optimism around the prospects of the Chinese economy.

However, Germany and Spain released higher inflation data, amid surging energy prices. Germany’s consumer price inflation accelerated to 7.9% in May, from 7.4% in April, hitting the highest level since the winter of 1973/1974, while Spain’s annual inflation rate climbed to 8.7% in May, from 8.3% in the previous month.

The EUR/USD surged to a monthly high on Monday, with the forex pair adding around 0.5% in the session. The GBP/USD forex pair gained around 0.2%.

The US dollar index, which measures the greenback’s performance versus a basket of six major peers, is on course to recording its first monthly decline in the last five months. Although expectations are for the index to exit May around 1.5% lower, it would still add around 6% year to date.

What to watch: Investors await the release of economic reports, including US jobs data and China’s PMI, scheduled for latest this week. The release of US house price index, Chicago PMI and consumer confidence will be in focus today.

The markets today

Bitcoin will be in focus today after recording gains on Monday

Context: Prices for the world’s largest cryptocurrency rose on Monday, climbing above the major $31,000 resistance level.

Details: Traders have shorted cryptocurrencies so far this year, with accelerating inflation, central banks hiking interest rates and the ongoing Russia-Ukraine war weighed on investor risk appetite.

Bitcoin price has declined by about 32% year to date, with Ethereum losing around 46% during the same period. The total market capitalisation of all cryptocurrencies has declined sharply by approximately $1.3 trillion in May, compared to around $3 trillion in November.

With an improvement in overall market sentiment, Bitcoin spiked on Monday, after recording losses for nine consecutive weeks. This was the first time the world’s largest crypto has been on a losing streak for more than six straight weeks.

JPMorgan analysts projected a rise in Bitcoin prices, in a note to clients published last week. The analysts said Bitcoin’s fair price was 28% above the current level, which was close to $29,700 at that time.

Bitcoin prices breached the $31,000 mark on Monday, while Ethereum climbed more than 7%.

What to watch: Traders will keep an eye on accelerating inflation levels around the world, developments around China’s strict zero-covid policy and the ongoing conflict between Ukraine and Russia.

Other Markets: European trading indices closed higher on Monday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 up by 0.19%, 0.79%, 0.72% and 0.59%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/CHF – 0.9605 and 0.9613 Positive
USD/CAD – 1.2671 and 1.2679 Positive
Silver – 21.780 and 21.841 Negative
FTSE 100 – 7592.85 and 7598.50 Negative
Dow Jones – 33128.88 and 33253.91 Negative

Market snapshot

What else to watch today

Germany’s unemployment rate, number of unemployed persons and unemployment change, South Africa’s private sector credit, money supply M3, balance of trade, number of unemployed persons and unemployment rate, France’s inflation rate, GDP growth rate, household spending, and producer prices, Turkey’s GDP growth rate and balance of trade, Italy’s gross domestic product and inflation rate, Spain’s current account, UK’s mortgage lending, mortgage approvals, consumer credit and net lending to individuals, Eurozone’s inflation rate, Mexico’s unemployment rate, India’s infrastructure output, GDP growth rate and central government budget value, Brazil’s unemployment rate and government budget value, Canada’s GDP growth rate, Russia’s money supply M2, US Dallas Fed manufacturing index, as well as Saudi Arabia’s money supply M3 and bank lending growth.

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