US index is under pressure from weak data and foreign capital outflows, Europe and the United States are supported, ECB rate cut is imminent

Asian Market Review

On Wednesday, as weak U.S. economic data pushed up interest rate cut expectations, the US dollar index fell below the 99 mark and returned to a six-week low. As of now, the US dollar is quoted at 98.88.

The Bank of Canada keeps key interest rates unchanged, but may cut interest rates in the future. The Canadian dollar rose to a new high.

Source: The Bank of Japan will consider slowing down its debt contract next year.

Tariffs:

① It is rumored that the US-Canadian agreement may be reached next week. Canadian Prime Minister: If the negotiations fail to succeed, he will be prepared to take retaliatory measures against the United States; ② EU trade officials: Negotiations with the United States are progressing steadily in the right direction; ③ British Prime Minister: He is very confident that he can reduce US tariffs in a very short time; ④ US Secretary of www.avaforexcn.commerce: He will www.avaforexcn.complete the analysis and formulate tariff standards for aircraft parts by the end of the month; he will not cancel tariffs and barriers with Vietnam ⑤ Mexico will announce measures to deal with US steel and aluminum tariffs next week.

U.S. economic data:

① The number of ADP employment increased by 37,000 in May, far lower than the expected 110,000, and the previous value was 62,000. ② The US ISM non-manufacturing index fell to 49.9 in May, shrinking for the first time in nearly a year, with an expected rise from 51.6 to 52.

Trump:

①Trump www.avaforexcn.comments on ADP data: "Mr. Taichi" Federal Reserve Chairman Powell must cut interest rates now. ②Trump: Debt capIt should be www.avaforexcn.completely cancelled, and the bipartisan cooperation should be called on to achieve this. ③Trump and Putin were having a phone call for 75 minutes. Trump revealed that Putin "had a very firm attitude" and said he would respond to the attack at the Russian airport. He also said he was unaware of the attack in advance.

Russian Presidential Assistant Mezinski: Ukraine seeks an unconditional ceasefire of 30 to 60 days.

U.S. Congressional Budget Office: Trump's tax bill will increase the U.S. deficit by $2.4 trillion in 10 years.

Federal Beige Book: Six regions reported a slight decline in economic activity. www.avaforexcn.companies generally expect costs to accelerate in the future.

Iranian Supreme Leader Khamenei: Total abandonment of uranium enrichment is 100% against Iran's interests.

Summary of institutional views

Goldman Sachs looks forward to the ECB resolution: Will economic forecasts be made... The key is the key!

In view of the weak macroeconomic outlook, the market generally expects the ECB to cut interest rates by another 25 basis points at its meeting tonight, so the focus will be on the central bank's economic forecast. We expect the ECB to keep its growth forecast for this year unchanged, still at 0.9%, with growth forecasts for next year falling to 0.9%, while forecasts for 2027 will rise slightly to 1.4%. Inflation forecasts are also expected to be significantly lowered, with the overall and core inflation forecasts for next year likely to fall to 1.7% and 1.8% respectively, due to recent slowdown in wage growth in the euro zone, strengthening the euro and falling energy prices.

As policy guidance may be limited tonight, we believe that the ECB’s economic forecast correction will provide the most important signal for future trends, and we still expect the ECB to finally cut interest rates by 25 basis points to 1.75% in July. Nevertheless, we believe that the risk balance tends to cut further interest rates given the ongoing trade tensions, which could escalate again before the Trump-set July 9 deadline, reaching a U.S.-EU trade deal.

Facea Bank looks forward to the ECB resolution: The next rate cut may be postponed to X month

We expect the ECB to cut interest rates by 25 basis points this week, but given the ease of trade tensions, we expect the next rate cut by the ECB will be postponed to September (or later), thereby providing more time for collecting data. We believe that most www.avaforexcn.committee members will not support direct stimulus measures. New economic forecasts will show that overall inflation will be below target in 2026 due to falling energy prices and strengthening the euro. GDP forecasts from 2025 to 2026 should also be lowered, and the risk is biased downward.

We do not rule out the possibility of ending interest rate cuts after June or another in December, depending on the events and data. As overall inflation is only temporarily below target, the ECB faces "ignoring" bias or taking more aggressive measuresA choice to protect inflation expectations. Historical experience shows that the ECB may prefer the latter.

The internal ECB debate in June also provided reference for the upcoming strategic assessment, which calls for "stable" in the face of uncertainty, contrary to previous calls for "agile". This means that defining a clear response function can be challenging because there is uncertainty about the acceptable magnitude of deviation and the duration of achieving the target and target variables. We expect core inflation to remain the key to ECB policy.

Bank U.S. Securities: Under expectations of weakening the US dollar, it is optimistic about emerging market assets

Bank U.S. Securities said that as the market expects the US dollar to continue to weaken, emerging market assets are expected to bring several percentage points of return this year. "We have every reason to maintain the full-year double-digit returns of emerging markets. We believe the dollar is the most important driver and expect the U.S. long-term market to stabilize." Bank of America Securities is optimistic about Eastern European currencies and stocks. Brazil remains its preferred investment location in the fixed income market, as the country's interest rate levels are very high and may start cutting interest rates by the end of this year. Currently, the dollar is approaching its lowest level in two years. Wall Street banks, including Morgan Stanley and JPMorgan Chase, also believe that the dollar will further weaken due to the possible Fed rate cut, slowing economic growth and the continued uncertainty of fiscal and trade policies, which may accelerate the flow of funds from U.S. assets to developing countries.

Analyst David Scutt: One thing that is crucial for the Bank of Canada's June interest rate decision? The most suitable strategy for the United States and Canada is...

The unexpected acceleration of the Canadian core CPI recently announced has forced the market to significantly reduce the suppression of the Bank of Canada's interest rate cuts tonight. Although the annualized GDP growth rate in the first quarter rebounded beyond expectations, the median and cut-off averages of core CPI rose to a high in 13 months in April, with the average of the two indicators reaching 3.15%, far exceeding the target range of 1-3% set by the central bank. Currently, the interest rate market is expected to be decided to stay on track tonight, keeping the policy interest rate at 2.75%, and believes that the probability of a rate cut in July is about 67%, and the time for a certainty will be delayed until the September meeting.

I think the guidance of Bank of Canada Governor McClum after the resolution is released is crucial. At the April meeting, the central bank's policy statement emphasized three focus points, namely the transmission effect of US tariff policies on Canadian exports and economic growth, the impact of rising costs on consumer prices, and the evolution of inflation expectations. His policy position at that time was clearly "acting with caution" to balance growth support and inflation control.

In the long run, I still tend to sell the US and Canada at high prices. But there is indeed a possibility of unexpected rises in the short term. From a technical perspective, although the US dollar and Canadian dollar had previously hit the lowest level since October last year, it has quickly gained support after falling below 1.37 twice in recent days, and the price trend has formed a downward wedge.form. The 14th-day RSI formed a bullish divergence with the price trend, indicating that the current downward action energy was exhausted. On the upward trend, the key resistance is seen at 1.3750, which is also the boundary of long and short. After the breakthrough, there may be a possibility of testing the upper wedge 1.39 and 200-day moving average. However, during the rise, you should also pay attention to the resistance of 1.38 and 1.3850. On the downside, if 1.3675 falls, it may cause the interest of shorts entering the market, with the targets pointing to 1.3650, 1.3540 and 1.3419.

The above content is all about "[Ava Ava Foreign Exchange Market Analysis]: The US Index is under pressure from weak data and foreign capital outflows, Europe and the United States are supported, and ECB interest rate cut is imminent". It is carefully www.avaforexcn.compiled and edited by the Avatrade Foreign Exchange editor. I hope it will be helpful to your trading! Thanks for the support!

After doing something, there will always be experience and lessons. In order to facilitate future work, we must analyze, study, summarize and concentrate the experience and lessons of previous work, and raise it to the theoretical level to understand it.