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Hello everyone, today Avatrade Aihua Foreign Exchange will bring you "【Aihua Official Website】: Collection of positive and negative news that affects the foreign exchange market". Hope it will be helpful to you! The original content is as follows:
Global macroeconomic trends: Economic differentiation and policy game intensified
Good news
U.S. non-farm employment exceeded expectations: The U.S. Department of Labor announced on June 2 that 321,000 new jobs were created in May, far exceeding the expected 200,000, and the unemployment rate remained at a low of 3.7%. Data strengthened the Fed's expectation of a rate hike, and the US dollar index soared 0.9% in the short term, hitting a high of 106.5.
Bank of Japan reduces bond purchases: The Bank of Japan announced that it will reduce the monthly Treasury bond purchase volume from 5.5 trillion yen to 5 trillion yen, the first adjustment since November 2024. The yen strengthened, and the US dollar/yen fell below 154.5.
German IFO business prosperity index rebounded: Germany's IFO index recorded 93.2 in June (previous value of 91.5), showing signs of recovery of European economic leaders, and the euro/dollar rebounded to 1.0820 at one point.
Bold news
Eurozone inflation cools down but political turmoil: Germany's CPI rose 2.3% year-on-year in May (previously 2.5%), but the Italian Five-Star Movement Party threatens to withdraw from the ruling coalition. Eurozone's currency market pricing shows that the rate cut may expand to 125 basis points this year, and the euro is under pressure.
China's manufacturing PMI shrinks: China's official manufacturing PMI fell to 49.0 in May (previous value of 49.5), and the offshore RMB fell below the 7.28 mark against the US dollar, hitting a new low this year.
UK retail sales plummeted: UK retail sales fell 2.1% month-on-month in April, the biggest drop since July 2023, with the pound/dollar losing 1.25 support.
Central Bank Policy Trends: Eagle and DoveThe Fed's "eagle voice" has risen again
Federal Chairman Powell said at a congressional hearing that "if inflation does not continue to fall, 25 basis points in interest rate hikes in June cannot be ruled out." The market's bet on the probability of interest rate hikes in June rose from 30% to 55%, and the US dollar index benefited and strengthened.
Badministrative emerging markets: Indian rupee and Indonesian rupiah fell to historical lows against the US dollar, and the Korean won fell below the 1400 psychological mark against the US dollar.
Disaster internal to the European Central Bank
Bernard Nagel advocates that "there is a need for further interest rate hikes to curb inflation", while Spanish Bank of China Governor De Cos warned that "excessive interest rate hikes may trigger an economic recession." Eurozone currency market pricing shows that the ECB may cut interest rates by 150 basis points this year, and the euro/dollar is under pressure in the medium term.
Bank of Japan's intervention expectations are heating up
Japanese Ministry of Finance officials have hinted that they are "ready to deal with excessive yen fluctuations". If the US dollar/yen breaks through 158, it may trigger foreign exchange intervention. However, the current market believes that the probability of intervention is low, and the yen arbitrage trading is active.
Bank of England remained unchanged
Bank of England maintained its benchmark interest rate of 5.25%, but lowered its GDP growth forecast for 2025 to 0.8%, and the pound/USD fell to 1.2450, a new low since November 2023.
Geopolitics and market risks: Risk aversion sentiment pushes up the US dollar
The situation in the Middle East escalates: Houthi attacks Saudi Aramco's oil facilities, Brent crude oil jumps 3%, safe-haven buying pours into the US dollar, and high-risk currencies such as the Australian dollar and New Zealand dollar fall.
The Russian-Ukrainian conflict is stalemate: NATO announced an additional 15 billion euros of military aid to Ukraine, the ruble fell to the 105 mark against the US dollar, and the Russian Central Bank urgently raised interest rates by 50 basis points to 16%.
U.S. primary election disturbance: Republican candidate Trump's poll approval rating rose to 48%, and his remarks on "imposing 60% tariffs on China and Canada" triggered expectations of RMB depreciation, and the offshore RMB volatility soared to 18%.
Technical and capital flow: US dollar bulls have an absolute advantage
United States dollar index: The daily line stands firm at the 106 mark, the MACD columnar line turns red. If it breaks through 107.5 (2024 high), it may hit the 110 psychological mark; support below 104.5 (200-day moving average).
Euro/USD: Fall below the 1.08 key level. If it effectively breaks below 1.0750, it may open up the space to fall to 1.06.
U.S./JPY: Blocked by 155 resistance, but if the breakthrough is made, it will accelerate to reach the 158-160 range.
Fund flow: CFTC data shows that as of the week ending May 28, net long positions in the US dollar increased to US$32 billion, hitting 20New highs since November 24.
www.avaforexcn.comprehensive outlook and operational strategy
Short-term positive factors: US economic resilience, Federal Reserve hawkish stance, and geopolitical safe-haven demand support the US dollar; the Bank of Japan's reduction in bond purchases is positive that the yen will rebound in a phased phase.
Short-term negative factors: China's weak economic recovery, European political risks, and pressure to sell currencies in emerging markets.
Institutional View
Goldman Sachs: Maintain the US dollar's "tactical long" rating, and recommends increasing holdings of USD/JPY at lows, with a target of 160.
UBS: Warning "the risk of recession in the euro zone is underestimated", bearish on the euro/dollar to 1.03.
Morgan Stanley: It is recommended to "go long USD/offshore RMB" to hedge the downward risks of China's economy.
Operation suggestions
Short-term trading:
The US dollar/Japanese yen breaks through 155 and chases long, target 158, stop loss 153.5.
If the euro/dollar falls below 1.0750, you can chase short to 1.0650 and stop loss of 1.08.
Mid-line opportunity:
Long USD/RMB, target 7.35, stop loss 7.20.
Layout AUD/JPY arbitrage to hedge geopolitical risk premiums.
Risk control tips:
Repeated Federal Reserve policies may cause fluctuations, and it is recommended to control unilateral positions within 8%.
Allocation of gold or US bond futures to hedge the risk of US dollar pullback.
Summary: The current foreign exchange market is in a pattern of "strong US dollar and non-US differentiation". The US dollar may continue to rise in the short term, but we need to be wary of profit rebates after the June Fed interest rate meeting and the US CPI data are implemented. Investors can prioritize trend opportunities in the US dollar/JPY and EUR/USD, and at the same time use RMB exchange rate fluctuations to hedge emerging market risks.
The above content is all about "【Aihua Official Website】: Collection of Positive and Negative News that Influences the Foreign Exchange Market". It was carefully www.avaforexcn.compiled and edited by Aihua Avatrade Forex editor. I hope it will be helpful to your trading! Thanks for the support!
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