US debt ceiling troubling traders

The USD was on the rise across the board yesterday, despite market expectations solidifying somewhat regarding the Fed’s rate hike pause, as a number of financial data tended to weaken. It was characteristic how the US PPI rates for April tended to underscore the easing of inflationary pressures as they slowed down on a year-on-year level, while the tightness of the US employment market seems to be cracking given the unexpected wide rise of the weekly initial jobless claims figure. Overall, given USD’s strength, commodity currencies such as the Aussie and the Loonie tended to suffer the most, given their riskier nature and market worries for a possible slowdown of growth on a global level. The pound retreated against the USD despite BoE’s interest rate decision to hike rates of 25 basis points as was widely expected. In its accompanying statement the bank noted that “risks around the inflation forecast are skewed significantly to the upside” and given also BoE Governor Bailey’s hawkish comments that inflation remains too high the bank may imply that more rate hikes are to come. Please note that pound traders seemed to be confused early during today’s European session as the release of the GDP rates showed that Growth for the UK economy is easing on a year-on-year level, with the contraction suffered in March underscoring UK’s flat economic outlook. Also, gold was victimized by USD strengthening as its value dropped yesterday yet market worries may be still holding the precious metal’s price afloat, or at least limit its losses. On a fundamental level, market worries for the US defaulting seem to be on the rise as a meeting between US President Biden and top US lawmakers, which was scheduled for today was postponed, indicative of the lack of common ground between the two sides. The situation seems to have a negative effect on Biden’s fiscal expansionary plans given also the discussion for spending cuts. Overall we reiterate our view that the issue may drag on up until the last minute, as Republicans and the White House are flexing power and may weigh on US fundamentals.

AUD/USD tumbled yesterday from the highs of the 0.6790 (R2) resistance line, down below the 0.6700 (R1) support line, now turned to support. We given the steep drop of the pair we switch our bias for a sideways movement in favour of a bearish outlook given also that the RSI indicator is near the reading of 30 implying a rather bearish sentiment for the pair, on behalf of the market. On the other hand please note that the bears may want to take a breath allowing for the pair to stabilize somewhat, before proceeding lower. Should the bears actually maintain control, we may see AUD/USD aiming if not breaking the 0.6640 (S1) support line. On the other hand should the bulls take over, we may see the pair reversing course breaking the 0.6700 (R1) resistance line and aim for the 0.6790 (R2) resistance level.

EUR/USD edged lower yesterday yet remained well between the 1.1000 (R1) resistance line and the 1.0855 (S1) support line. We tend to maintain a bearish outlook for the pair given the consecutive lower peaks and troughs being formed by the pair’s price action since the 4 of May. Should the selling interest persist, we may see the pair breaking the 1.0855 (S1) support line and aim for the 1.0695 (S2) support level. Should the pair find fresh buying orders along its path, we may see EUR/USD, rising, breaking the 1.1000 (R1) resistance line and aim for the 1.1140 (R2) resistance level.

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During today’s European session we highlight the release of the UK GDP rates for Q1 and March, Norway’s GDP rate for Q1 and note France’s final HICP rates for April, while on the monetary front, BoE Chief Economist Pill is scheduled to speak. In the American session, we note the release of the US preliminary University of Michigan Consumer sentiment indicator for May. During Monday’s Asian session, we note from Japan, the release of April’s corporate goods price and chain store sales growth rates.