The dollar rebound has failed, and the risk of double deficit triggers a new round of depreciation cycle

Asian Market Review

On Monday, the dollar index continued to decline, falling below the 99 mark due to a major turn in Trump's policy and the www.avaforexcn.comprehensive spending and tax cuts he is currently promoting, which made investors deterred by US assets. The dollar index continued to decline, falling below the 99 mark. As of now, the dollar price is 99.10.

The South Korean election is approaching, and Lee Jae-ming's leading advantage has been greatly reduced, and conservatives are seeking to join forces.

Tariff-related:

The fourth round of tariff negotiations between Japan and the United States is scheduled to be held on the 30th. The Japanese government plans to use 900 billion yen of national funds to alleviate the impact of US tariffs.

EU spokesperson: In negotiations with the United States, the EU's proposal for "zero tariffs to zero tariffs" is still on the negotiating table; it is reported that the EU has planned to speed up negotiations with the United States.

Middle East Related:

According to AFP: The new Gaza ceasefire agreement will include Israel's "partial withdrawal of troops."

Iran: It is fully prepared to properly www.avaforexcn.combat Israel. There will be no acceptance of the practice of suspending uranium enrichment to ensure a nuclear deal with the United States.

Russia and Ukraine related:

German Chancellor Mertz: Western countries have lifted the range restrictions on weapons aid to Ukraine.

Summary of institutional views

HSBC: With the lack of central bank support, the Japanese bond yield curve may continue to steep

HSBC Global strategist Justin Heng said in a www.avaforexcn.comment article that the curve of Japanese bond yield may continue to steep in the absence of Bank of Japan's support. The Asia-Pacific interest rate strategist said recent downsides could keep the curve steep for a longer period of time. First, ahead of the July Japanese Senate election, the ruling coalition may announce fiscal measures such as cost of living allowance, which could worsen Japan's fiscal situation. Second, some Japanese life insurance www.avaforexcn.companies have recently stated that they plan to reduce their holdings of Japanese government bonds. He added that the clarity of Japan's fiscal policy trajectory and the Bank of Japan's bond buying plan will be crucial to restoring the stability of the long-term yield curve in the www.avaforexcn.coming weeks.

Mitsubishi UF: The US fiscal is worrying and the rating is down, and Asian currencies are taking advantage of the situation to rise?

Last week, the weak trend of the US dollar reappeared, causing the US dollar index to fall below the 100.00 level. The tentative recovery that the dollar had experienced in the previous four weeks was ended.

The market's confidence in the US dollar and U.S. policymaking has weakened, reflecting growing concerns about its fiscal outlook. The U.S. yield curve has continued to steeper in the past week, with the 30-year U.S. Treasury yield approaching the cyclical high of 5.18% set in October 2023. Previously, Moody's finally decided to deprive the United States of the last AAA credit rating. Although the direct impact of the downgrade on forcing investors to adjust their U.S. Treasury exposure may be limited, it once again promptly reminds people that the deteriorating fiscal outlook of the U.S. remains a structural resistance faced by the U.S. dollar. Moody's noted that they expect the U.S. budget deficit to expand from an already high of 6.4% last year to 9% in 2035, and the debt to GDP will rise from about 98% in 2024 to 134% in 2035.

At the same time, against the backdrop of the weakening of the US dollar, Asian currencies continue to gain support. Last Friday, Asian currencies generally rose, with the Korean won rising 1.2% against the US dollar, the Malaysian ringgit rising 1% and the Thai baht rising 0.8% leading the gains in Asia.

The U.S. trade and fiscal policy risks continue to pose a cyclical headwind for the US dollar. The market also seems to believe that President Trump is seeking a depreciation of the dollar against some Asian currencies as part of bilateral trade negotiations. Therefore, any sign of discussion with the United States on foreign exchange issues may still pose an upward risk to Asian currencies in the short term.

AnalystsSagarDua: Europe and the United States have fallen from their monthly highs, but the hidden worries about the US dollar's "credit" may continue to be good for the euro

On the US on Monday, Europe and the United States fell from the monthly high of 1.1425 that was hit earlier in the day, giving up most of the intraday gains, and once fell to around 1.1375. The reason why this currency pair gave up the gains was mainly due to the sharp recovery of the lost ground at the beginning of the market, pushing the US dollar index to trade around 99.00.

However, given that Washington's capricious statement on tariff policies has once again sparked market concerns about its credibility, the outlook for the dollar remains unclear. The market's growing doubts about the dollar's reputation have also increased the attractiveness of the euro accordingly. Dutch International Bank believes that the euro is continuing to benefit from the best alternative to US dollar liquidity.

At the beginning of this week, Europe and the United States once hit a recent month high to the 1.1420 area. As the pair is still firmly above the 20-day EMA (currently located around 1.1270), its near-term outlook remains bullish.

From the technical indicators, the 14-cycle RSI has risen to around 60. If RSI can successfully break through the 60 level, it may trigger a new round of entry for the bulls.

In the upward trend, the high of 1.1475 set on April 21 will constitute the main resistance level for the upward trend. On the contrary, if Europe and the United States decline, the high of 1.1215 on September 25 will provide key support for euro bulls.

Barclays: Under the disturbance of trade policy, the data to be released this week include the monthly personal income rate in April, international www.avaforexcn.commodity trade and initial value of durable goods orders, and the second estimate of the first quarter GDP was also available. We expect that the number of first-time unemployment claims to continue the pattern of recent weeks in the week ending May 24 without significant changes (Barclays forecasts of 230,000, while the market generally expects 229,000).

We expect the expected behavioral effects and other staggered effects of U.S. trade policy will blur the signals in hard data. Based on the already-known salary income estimates, we believe that personal income may achieve a steady monthly growth of 0.5% in April. Considering the recent pace of PCE (personal consumption expenditure) price inflation, this is enough to mean a further increase in purchasing power.

About GDP, we believe that the U.S. Bureau of Economic Analysis (BEA) is highly likely to lower its preliminary estimates to reflect signs of slowing consumer service spending in the initial value of the Quarterly Services Survey (QSS), and the unexpectedly strong boost to non-residential fixed investment can only partially offset this effect. In summary, we expect the second estimate of BEA will show a 0.6% seasonally adjusted annualized rate decline in real GDP in the first quarter, slightly larger than the 0.3% seasonally adjusted annualized rate decline in the initial estimate. These corrections should be accompanied by updated gross domestic revenue (GDI) estimates, including preliminary estimates for the first quarter and corrections for the fourth quarter, thus providing a no-no to assess the pace of economic activity in the two quartersSame perspective.

The above content is all about "[AvaTreade]: The rebound of the US dollar has failed, and the risk of double deficit triggers a new round of depreciation cycle". It was carefully www.avaforexcn.compiled and edited by the Avatrade Forex editor. I hope it will be helpful to your trading! Thanks for the support!

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