Market restarts its engines

As the market restarts its engines after a long weekend in the US and the UK, we note that the USD remained relatively unchanged in a rather quiet market characterised by low volatility and the positive market sentiment may kick in today, fuelled by the agreement reached over the weekend between the White House and House Republicans. Should that be the case we may see riskier assets getting some support. The acceleration of the Core PCE Price index for May though, may prompt Fed policymakers to adopt a harsher, stricter hawkish approach which in turn could limit the market’s positiveness. USD/JPY maintained a sideways motion yesterday remaining just above the 139.90 (S1) support line. We intend to maintain our bullish outlook as long as the upward trendline guiding the pair since the 11 of the month and the RSI indicator remains at rather high levels, implying the presence of a bullish residue in the market sentiment. Yet the USD/JPY’s price action seems to be in a make-or-break position as it threatens to break the prementioned upward trendline, a scenario that may force us to switch our bullish outlook in favour of a sideways movement bias initially. Should the bulls maintain control over the pair’s direction we may see USD/JPY, aiming if not breaking the 142.20 (R1) resistance line. For a bearish outlook we would require the pair to reverse course, break the prementioned upward trendline in a first signal that the upward movement was interrupted, break also the 139.90 (S1) support line and aim for the 137.55 (S2) support level. US equities on the other hand seem to be dominated by tech shares with NVIDIA’s earnings reports last week boosting the AI frenzy. NASDAQ seems to be rising fast and may have reached overbought levels while we maintain some worries over the market’s overexcitement regarding AI, which could create a bubble.

Back in the FX market, we highlight the weakening of TRY. Fundamentally Erdogan’s re-election, securing another five-year term, galvanizes the market’s expectations for a continuance of unorthodox economic policies. With inflation running at 43.68% yoy (officially), the country’s net FX reserves diving deep into the negatives and CBRT showing no willingness to raise rates, practically following Erdogan’s wishes there seems to be little supporting the Lira. On the other hand, we have to note that the industrial complex seems to be holding on and the touristic season has begun which could provide some FX income over the coming months.

USD/TRY broke clearly the 20.00 (S1) resistance line and even used to as a support yesterday validating the level’s role switch from resistance to support. We tend to maintain a bullish outlook as for the pair as long as it remains above the upward trendline and given that the RSI indicator is near the reading of 70. On the other hand, the price action is flirting with upper Bollinger band, which may slow down the bulls somewhat. Should the pair find fresh buying orders along its path, we may see USD/TRY aiming if not breaching the 20.50 (R1) resistance level. Should a selling interest be expressed by the market, we may see the pair reversing course, breaking the 20.00 (S1) support line, the prementioned upward trendline and the aim for the 19.6080 (S2).

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In today’s European session we note the release of Sweden’s, Switzerland’s and the Czech Republic’s GDP rates for Q1, while from Switzerland we also get the KOF indicator for May and from the Eurozone the Business climate, Economic sentiment and consumer confidence indicators all being for May. In the American session, we note the release of Canada’s current account balance for Q1 and the US consumer confidence for May and on the monetary front we note that Richmond Fed President Barkin is scheduled to speak. During tomorrow’s Asian session, we note the release of Japan’s preliminary industrial output growth rate for April, China’s NBS manufacturing PMI figure for May and Australia’s CPI rates for April, while RBA Governor Lowe is scheduled to speak.