tickmill-analytics

Dollar can extend pullback as markets price out 100 bp rate hike in July Last week was marked by highly volatile expectations regarding the FOMC July decision: after release of the CPI for June, which showed inflation accelerating to 9.1%, the chances of a 100 bp rate hike soared to 84%, but already on Friday, the retail sales report and inflation expectations from U. Michigan again made 75 bp a baseline scenario. The overbought dollar turned lower, while risk assets rebounded on optimism about the short-term inflation outlook. Despite a new inflation record in June (in the current business cycle), US retail sales rose 1% in June, beating the 0.8% forecast. More surprisingly, growth in core retail sales, which is less volatile from month to month, almost doubled the forecast - 1% vs. 0.6% expected. The growth of import and export prices sharply slowed down, the dynamics was also better than expected. The U. Michigan Sentiment Index moved up for the first time in several months, from 50 points in June to 51.1 points in July. The uptick is still minor, but what is more important is the fact of recovery as markets expected a fall to a new low. Inflation expectations of households for the next five years also brought some relief to market expectations, the figure fell from 3.1% to 2.8%. Easing gasoline prices in July have made a major contribution to the drop in household inflation expectations. Retail sales data and a report from U. Michigan formed a counterbalance to the inflation report for June, indicating, firstly, that consumers could still bear the burden of inflation and continue to spend at quite a solid pace, and secondly, that the upside inflation trend could finally reach a tipping point in June. With the market starting to price in extreme Fed tightening scenarios (a 100bp rate hike in July), Friday's data triggered a significant correction in those expectations, leading to a sharp pullback in the USD index from 109 to 107.50 points and rebound in Asian and European equities. US futures were also up more than 1% on Monday. Two Fed officials, Bullard and Waller, said last week that while all options for tightening policy in July, including extreme ones, are being considered, they would like to see clear signals in the data that more than a 75 bp is needed. It is clear that the data on retail sales and inflation expectations did not contain such signals. On Monday, the odds of a 100bp rate hike, according to interest rate futures, dropped from 84% to 35.6%. The "blackout period" of the Fed officials this week ahead of next week's meeting and the absence of key US economic reports this week make it unlikely that the market will make a 100bp rate hike as its base case. In this regard, consider extreme long positioning, the risks for the dollar appear to be skewed towards deeper pullback, the dollar index may test the previous consolidation area of 107-106.75: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Markets brace for 100 bp July rate hike and the room for dovish surprise grows EURUSD volatility around the round 1.00 level remains elevated which creates ripple waves in other USD cross-pairs. After yesterday's "shocking" CPI release, markets shifted expectations of the upcoming July rate hike from 75bp to 100bp. Earlier, the Bank of Canada surprised markets with a front-loaded 100 bp rate hike, highlighting seriousness of the inflation threat and the need for decisive response. European currencies are set to remain in the shadow of a strong dollar for a while as the factor of interest rate differential, until the Fed's policy stance is clarified on July 27, should keep these currencies under pressure. EURUSD consolidation near the 1.00 level with very weak attempts to rebound indicates a growing risk of a bearish breakout with a target of 0.98-0.99. At least one Fed official signaled that a 100 bp rate hike at the upcoming meeting is on the table. Speaking yesterday, Atlanta Fed chief Rafael Bostic said that “everything is at play”. Bank Nomura made a 100 bp outcome as a baseline scenario for the upcoming FOMC meeting. However, there is a risk that the market reaction to the upside surprise in the CPI report was excessive and may be prone to correction. Looking at the details, one can see a strong heterogeneity of inflation by components: prices in two categories, gasoline and utility gas, rose significantly more than others: In other categories, monthly price growth in most cases did not exceed 1%. The fact that gasoline prices jumped in June was known long before the release of the inflation report, so the surprise on the upside, in truth, does not look so unexpected. Due to the high dispersion in component price increases and the fact that the prices of goods known for their high volatility were the main contributors to the "shocking" June figure, a decline in inflation in subsequent months could be quite rapid. There is already information that gasoline price inflation began to slow down in July, so from this point of view, too sharp Fed tightening, and even more so a 100 bp step may be unreasonable and do more harm to the economy than good. It is also important to keep in mind that inflation generated by fuel prices growth is not the kind of inflation that can be effectively regulated by raising interest rate (via demand destruction), moreover, the pass-through effect of gasoline inflation into other categories, judging by the numbers, is not so strong. Considering that futures on the Fed rate price in the 100 bp outcome at the upcoming meeting with an 84% chance, the decision to raise the rate by 75 bp may be regarded as dovish surprise and eventually lead to an overdue downward correction of USD. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Minor upside surprise in US CPI is likely priced as fuel prices continued to rise in June Today is a special day for financial markets as the US Bureau of Labor Statistics releases CPI for June. It's no secret that the Fed tied monetary policy to developments in inflation, so its acceleration will mean that the Fed's lead in the policy tightening race will only increase, and vice versa, an inflation print below consensus should promote expectations that the gap in the pace of policy normalization between the Fed and other central banks will narrow somewhat. In fact, this will be the driver of price changes in almost all asset classes. Headline inflation is expected to hit a new high of this business cycle (8.8%) and core inflation to slow from 6% to 5.7%. The expected acceleration in headline inflation is due to the jump in US fuel prices in June from $1.17 to $1.3 per liter: Given this circumstance, a small positive inflation surprise will unlikely trigger sizeable shift in tightening expectations; much more unexpected will be inflation below the forecast of 8.8%, as well as a stronger slowdown in core inflation which is less volatile and characterizes key consumer trends. If headline inflation accelerates above 9.0%, a bearish breakout of the EURUSD level of 1.00 can be expected while inflation reading in line with the forecast will likely lead to a false breakout and there is a risk that “sell on the facts” scenario will happen in the US dollar, given the significant overbought dollar in the medium term (RSI on the daily timeframe above 74 points). Currencies showing high sensitivity to expectations of global business cycle - the Norwegian Krone, the Australian dollar, the New Zealand dollar, are rising today, the Japanese yen is consolidating near highs against the dollar (level 137). Futures for US indices show a slight increase, European stock indices are in the red. Oil prices are trying to recover, but reports that China may be facing a fresh outbreak of covid vases (400 new cases in Shanghai) and risk of tightening of sanitary measures increase concerns about demand from the key consumer. OPEC said yesterday that demand for oil will exceed supply by 1 million barrels this year, but events in China have likely overshadowed that message. There is a risk of further decline in prices, as the threat of a new lockdown in China's major industrial and financial center grows. Leading survey-based indicators of investor and business sentiment deteriorated in June. Shortly after the publication of investor confidence in Germany on Tuesday, which fell to the lowest level since the debt crisis in the EU in 2011 (-53 points), in the US, the index of small business optimism came out, the fall of which also markedly exceeded expectations as inflation climbed to the first the place of uncertainty factors among US small firm owners: The risk of a new wave of risk aversion is rising, and a policy tightening by central banks will only reduce risk appetite in equity markets and increase demand for safety plays. The RBNZ raised the rate by 50 bp, the Bank of Canada is expected to raise the rate by 75 bp today. If US inflation jumps above 9.0%, risk assets are likely to come under serious pressure, and the dollar will continue to rally. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Greenback may stay in the uptrend for a while as key drivers are set to remain intact The bullish momentum in the dollar remains intact at the start of the week with EURUSD testing the round 1.00 level followed by a technical rebound to 1.006. Given ongoing risks of an energy crisis in the EU (restart of the NordStream 1 pipeline after maintenance), as well as fresh round of escalation of the economic confrontation with the Russian Federation (seventh package of sanctions), the probability of falling below 1.00 remains high. The FX options market suggests that the next major support zone could be around 0.98. The overbought in the dollar is swelling and along with this extremely long bias in positioning, the odds and size of a potential bearish correction are increasing as well. However, for a long squeeze in the dollar, we may need to see weakening or the appearance of counter-signals in the key drivers of the recent rally of the US currency – slowdown in global growth momentum and aggressive policy of the Fed. However, in the near future, such a development of the situation is not to be expected - the Fed, based on incoming data, is increasingly inclined to raise the rate by 75 bp for the second time in a row while macro reports outside the US are full of negative surprises. Take the dismal report from ZEW today, which showed that German economic sentiment plummeted from -28 to -53.8 (forecast -38.3 points): In addition, a potential positive surprise in the US CPI report on Wednesday (e.g., annual inflation above 9%) could trigger speculation that there may not be a slowdown in the pace of Fed tightening at the September meeting. Reporting season in the US started this week, and short sellers in USD hope that positive surprises in the reports will draw investors into equities which should add to dollar supply and trigger some sell-off. However, given the current state of the global economy, the chances of actually seeing strong earnings figures seem low. Despite overstretched rally, the dollar is more likely to remain in an uptrend than a correction in the short term. From a technical standpoint, the dollar index (DXY) may find meaningful resistance at 110 level: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Strong NFP report will likely fuel EURUSD drop to parity The dollar continued to strengthen on Monday after release of US labor market report on Friday, which did not confirm market pessimism about the US economy, reinforcing the view that the US is now an "island of stability" for large capital. The key measures of the US labor market remained in June at the level, which give the Fed grounds to confidently hike interest rate by 0.75% in July. Ahead is the release of the June CPI, which should point to a new high in inflation in the current business cycle (forecast 8.8% YoY), leaving no doubt that the Fed will continue to tighten policy at a galloping pace. The US economy created 372K jobs in June, well above the consensus estimate of 265K. The number of jobs in the private sector increased by 381K against the forecast of 233K. The revised estimate for the previous two months was lower by 74K, however, the upside surprise in June Payrolls overshadowed that weak spot of the report. Along with upcoming June CPI release, the labor market report should lay the groundwork for a 75 bp Fed rate hike second time in a row. The total number of jobs in the US thus rose to a level that is only 524K below the pre-pandemic level. By sector, tourism and leisure lag behind the most in terms of job growth, with 1.3 million jobs below February 2020 levels. However, the problem is not the low demand for labor, but the shortage of labor supply. The second weakest sector in terms of hiring is the civil service sector, however, along with the growth of government tax collections, the situation in 2023 will change for the better. The level of employment in other sectors is close to historical highs. As for the rest of the report, the unemployment rate remained at 3.6%, wages rose by 0.3% m/m and 5.1% y/y, which was in line with consensus. Somewhat disappointing was the labor force participation rate, which dropped from 62.3% to 62.2%. Given quite low unemployment rate, LFPR recovery is necessary to ease the imbalance between strong demand and weak supply in the labor market, but so far this has not happened. There was hope that the decline in the stock market would hit wealth, primarily pension savings, and force some of the workers to start looking for work, but the market correction did not produce the desired effect, and this means that companies continued to experience difficulty in hiring and are likely to be forced to raise wages further, which speaks in favor of unfavorable inflation outlook. Some other employment reports, such as the JOLTS report or the NFIB Small Business Survey, have shown that there are nearly two jobs for every unemployed American, and that 50% of small businesses have jobs that cannot be filled yet: The NFP report turned out to be one of the few positive macro reports that came against other weak indicators of activity. Despite market pessimism, US companies' demand for labor remains strong. Against this background, the Fed is likely to raise rates by 75 bp in July, the odds of such an outcome according to rate futures is already 93% against 86.2% last week: Further pace of Fed rate hikes is likely to slow down to 50 bp in September and November and up to 25 bp in December. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

US labor market reports can extend relief rally in risk-assets as investors are desperate for positive growth signals The dollar remains close to fresh highs on Thursday, the minor retracement was also reflected in revived modest demand for risk, the key Asian and European markets gain more than 1%. Demand for safe assets came pressure, investors dump long-term bonds of matured economies. Yield on 10-year Treasuries is once again targeting the 3% mark. Commodity markets saw surplus of buyers as well, key proxies for market fears of a future recession – oil and copper prices are up 1% and 3.5% today, respectively. The rally of risk assets today was basically sponsored by the minutes of the FOMC meeting released yesterday. There were lots of mentions about the need to lower inflation and little about possible costs of an aggressive policy, which prompted investors to revise the odds of a recession to the downside and began to roll back the emotional reaction of recent days. The minutes showed that the Fed is ready to hike interest rate above the neutral level if inflation proves to be persistent and that the commitment to the idea of suppressing inflation outweighs fears that this could significantly harm the economy. Another important source of information about the state of the US economy was the PMI in the services sector from ISM released yesterday. The headline figure was better than expected thanks to rebound in business activity sub-index, but other components of the report pointed to a decrease in hiring compared to the previous month, a slowdown in the growth of new orders and some slowdown in inflation: Given these data, there is a growing risk of disappointment with tomorrow's NFP report, in particular, the payrolls figure could again miss estimates. As the Fed signaled it won’t be easily spooked with deterioration in the key macro data, worse than expected jobs growth will likely result in a new round of risk-off in the market, as this may rekindle worries about a policy mistake, i.e., policy tightening into economic slowdown. The strong dollar forces US trading partners to keep up with the hawkish Fed in order to contain further devaluation of their currencies, which is fraught with inflationary pressure coming from expensive imports. The European currency is moving towards parity against the dollar and it is likely that the ECB will soon have to hint at a more aggressive pace of rate hikes, as the risks of higher inflation figures in the coming months may begin to outweigh the risks of lack of monetary stimulus due to monetary tightening. However, EURUSD move towards 1.00 is likely to resume soon and the best candidates to trigger sales are this Friday's labor market report and next week's US inflation report. Today, the release of the ADP report is dye, to which the market is often very sensitive. Job growth is expected to be around 200K, an upside surprise will likely extend current rebound in risk-assets, while weaker-than-expected print may increase bearish sentiment in equities. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Fears of energy crisis may drive Euro to parity against USD Despite sharp strengthening of the dollar on Tuesday and growing pessimism on European equity markets, the S&P 500 managed to neutralize selling pressure closing in green, Nasdaq rose 1.68%, the Dow Industrial Index fell 0.42%. The strength of the US currency extended into Wednesday, DXY aims to probe 107 level. The collapse of EURUSD to 1.0250 saw little headwinds and the pair looks set to continue to explore fresh lows, a probe below 1.02 looks very likely. Investors await release of the US services PMI in June and the Minutes of the June Fed meeting to assess the possibility that the Fed will soften the rhetoric and choose a less hawkish pace of policy normalization in response to increased risks of a global economic recession. The term structure of US bond rates indicates rising expectations that a short period of rate increases will be followed by a cycle of rate cuts. Inversion of the yield curve deepened as both 10Y/2Y and 5Y/2Y bond yield spreads dipped below 0: Such behavior of the yield curve often precedes negative returns of Asian and European currencies, such as the pound sterling and the euro, and increase in the demand for the dollar, the Japanese yen and the Swiss franc. In the commodities market, the price of copper, a metal widely used in manufacturing and construction, is an indicator of concerns about a future slowdown in the economy. Its price has fallen by 28% since the beginning of June, reflecting fears that demand for it will decline rapidly in the second half of 2022: The key question for investors is the magnitude of economic slowdown (aka demand destruction) that the Fed expects in its forecasts for which current plans of policy tightening will remain unchanged. It should be noted that despite the surge of risk aversion in financial markets, money markets investors only slightly revised their expectations for policy tightening towards a slower pace: by only 6 bp for the Fed and by 12 bp for the Bank of England and the ECB. Underlying this difference are likely the risks of a larger economic blow to the EU due to a torn trade ties with Russia and the fact that the US economy approached the tightening cycle in a more "overheated" condition than opponents. Today, the Fed minutes are due, given significant strengthening of the dollar, the “sell on the facts” scenario is likely to materialize. EURUSD and GBPUSD are likely to experience a short bounce up. Also, market attention will be riveted to the ISM report in the service sector, which accounts for 70% of the US economy. The focus is on the hiring component, which should help to clarify expectations for Friday NFP report. The European currency continues to price in rapid growth of anxiety that the economy may face an energy crisis. German authorities are taking measures to stabilize the situation, including calls to ration gas consumption and preparing a plan to take a stake in the country's largest utility provider, Uniper. Earlier it was reported that the load on the NordStream 1 pipeline was significantly reduced, investors fear that the situation could worsen. The seriousness of the situation is also evidenced by the fact that the EU is going to hold a meeting of energy ministers of the countries included in the bloc on July 26. EURUSD will most likely continue to decline up to 1.00, while the dollar index may rise to 109-110. The reversal of the pair will have to be preceded by news about the restoration of gas supplies from Russia, which will reduce the risks of an energy crisis in the bloc. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Surging USD indicates investors’ search for a safe heaven is a key market driver Global economic growth optimism is fading rapidly, with major central banks vying to announce a "material" deterioration in real output forecasts and rising risks of stagflation. On Tuesday, the Bank of England made a worrying revelation with its Financial Stability Report, which said that economic outlook for the UK and globally had deteriorated markedly and that UK banks would need to double their counter-cyclical capital buffer to 2%. The requirement to increase the margin of safety for the banking sector means that the Central Bank expects an increase in credit risks in the economy. In a similar statement to the British Central Bank about the economic outlook, ECB centrist De Guindos made a statement on Monday. In the coming months, according to the official, the EU economy is likely to face shocks that will reduce growth and push inflation upward. The balance of risks for inflation in the Eurozone is shifted towards further acceleration. Powell said in his last speech last week that the US economy is in good shape. The continuing contrast of statements suggests that the margin of safety of the US economy before policy normalization may be higher than that of the developed world peers, so the consensus on where to best ride out the coming storm is rapidly leaning in favor of the cash dollar. On Tuesday, the index of the US currency grew by more than one percent, primarily due to the strong weakening of the Euro and GBP: EURUSD broke through the previous low of this year 1.0380 within two hours and went below 1.03. The nature of the movement suggests that the market took into account an important piece of information. GBPUSD fell below the key support level of 1.20, given the technical picture (bounce after the first break in June, consolidation, and then a retest), a breakdown of 1.19 is next in line. Bank Nomura, in its latest report, announced the risk of the euro falling to parity against the dollar. In August, according to the bank's analysts, EURUSD may drop to 0.95. Inflation reports for Asia's three key economies - South Korea, Thailand and the Philippines - showed that inflation accelerated faster than expected in all three countries, thus reinforcing fears of an impending period of stagflation in the world. Yields on long-term bonds in the US, Germany and the UK again turned into decline, indicating increased anxiety in the market: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Recession risks keep dollar bid, set to curb risk appetite further Major currency pairs struggle to choose direction on Monday, European indices move back into modest positive territory, US futures slip with S&P 500 futures trying to defend the 3800 level in order to prevent development of bearish momentum. Last week we saw a significant rally in key sovereign debt markets (US, EU), with long-term bond yields falling to their lowest level since early June. The market now considers the 325-350 bp range to be the most likely outcome of the series of Fed rate hikes by the end of this year against 350-375 bp a week ago. In other words, market expectations for cumulative Fed rate hikes this year have been cut by 25 bps: Growing risks of slowdown and even recession of the global economy is likely to continue to constrain the hunt for yield this week, based on this, a significant pullback of the dollar, which again rushed to multi-year highs, appears to be unlikely. An argument in favor of a slight correction in the dollar may be extreme positioning according to the CFTC data: the speculative long position on the dollar is now at a two-year high, which suggests a potential long squeeze. Two significant reports this week are the minutes of the Fed meeting and the report on the US labor market for June, which is traditionally released on Friday of the first week of each month. FOMC "minutes" may raise expectations that the Fed will raise the rate by 75 bp for the second time in July if the content of the report indicates a strengthening of consensus that such a move is warranted. Given the deteriorating growth forecasts for the US economy, the Fed's commitment "by all means" to reduce inflation, the US labor market report is likely to provoke a classic reaction in the event of a surprise: job growth below the forecast (270K) will strengthen expectations that the Fed will tighten policy aggressively in a slowdown and trigger risk-off, while higher-than-consensus job growth will support risk assets as fears that the economy will not bear the burden of policy normalization will likely subside. Only a very weak labor market report, such as contraction in the number of jobs, could lead to expectations of lower rate hikes, which will appeal to risk assets and could lead to a rebound. As for the European economy, the inflation report caused a minimal market reaction, as asset prices already factor in a fairly aggressive ECB rate hikes (140 bp for this year) and market participants' focus on data that will help to clarify recession risks. As for the Eurozone, the main factor of this risk is the reduction in energy trade with the Russian Federation, fears of an escalation in this direction significantly affect the markets. The risk of a bearish breakout and movement of EURUSD towards the previous local minimum (1.0380) is, in my opinion, higher than the risk of a correction to 1.05, given potential negative development of the sanctions war. Another significant event this week will be the RBA meeting on Tuesday, which will take place before the opening of European markets. The main question is whether there will be a 50 bp rate hike or the RBA will decide to go with modest 25 bp. The first outcome is not fully priced in by the money market, so 50 bp move will likely trigger upside in AUDUSD. Nevertheless, given negative sentiment of investors regarding currencies correlated with the phase of a business cycle of the global economy, AUDUSD recovery will probably be short-lived, with 0.70 level seen as the key resistance where a downside may resume: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Markets are worried about a recession and the trend will only gain momentum The toxic mix of hawkish central banks ready to tighten monetary policy "no matter what" and a series of weak macroeconomic data on the US and European economies has become a catalyst for sell-off in risk assets, rally of bond prices and dollar strength. A growing number of market participants believe that central banks are rushing to raise rates (aka "policy error"), which could, if not cause, then at least exacerbate the course of a possible recession. Looking at the two main asset classes - stocks and bonds, we see a flow from risk assets to safe havens (long-term bonds) - bond prices rise (yields decrease accordingly), and stock prices decline. For instance, the yields of 10-year US and German bonds returned to the level corresponding to the beginning of June: In the risk assets market, considering the key S&P 500 benchmark, the rebound after the correction to the low since December 2020 did not last long, bearish sentiment again prevailed this week. The sellers may target the 3550-3570 zone, which will correspond to the test of the main bearish trend line: Given these trends, the demand for the dollar, as a defensive asset, is set to remain high and it is very likely that we will see new highs in the dollar index in the near future: Consumer spending in the US for the first four months was revised down, and after release of the May report, which indicated a significant slowdown in growth, it became clear that the flywheel of the US economy is starting to slow down. The Fed's policy of raising rates, along with a slowdown in consumer spending, is likely to lead to the fact that economic growth forecasts will become less optimistic, while the risks of a recession will increase. The report, published on Thursday, contained important positive news for the Fed - the preferred inflation measure for the regulator - the core consumer spending index - eased from 4.9% to 4.7% (4.8% forecast). A decrease in the indicator means that the imbalance between supply and demand has somewhat eased, which means that inflation pressure in the economy is less than expected. The rest was less positive - the nominal monthly growth of expenditures amounted to 0.2% (forecast 0.4%), and in real terms it even decreased by 0.4% (forecast -0.3%). At the same time, the April figure was revised down - from 0.7% to just 0.3%. Along with deterioration of consumption data for the first quarter, the market is coming to the realization that the American consumer was not as resistant to inflation as it seemed. The details show that the indicator of consumption of durable goods behaved the weakest. It sank by 3.5%, while the consumption of non-consumer goods decreased by 0.6%. Service consumption rose by 0.3%, but this was not enough to compensate for the weak behavior of other components. The component-by-component dynamics of US consumer spending is as follows: The decline in core inflation is a very good sign, but at 4.7% it is still twice as high as the 2% target. The Fed has signaled that it is ready to sacrifice strong demand to regain control of inflation, so the prospect of high pace of rate hikes is not yet in doubt. After Powell's speech in Sintra, where the head of the Fed announced the good shape of the US economy and the need to reduce inflation, this prospect only became clearer. Other than a strong labor market, there really isn't much to brag about: consumer confidence is at multi-year lows, the housing boom is waning, and fuel prices are likely to remain high. It follows that in the second quarter, the picture of consumption in the US may not be so rosy, and therefore fears of a recession in the fourth quarter of 2022 are likely to only gain momentum. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Dollar resumes rally and stocks fall on hawkish Powell comments in Sintra The dollar remains near the highs of this year, a significant rally was observed on Wednesday after the speech of the Fed head Powell in Sintra. After the Powell testimonial in US Congress featured with marked dovish bias there were expectations that Powell would emphasize in his Sintra speech that too aggressive tightening could hurt the economy, but the Fed chief said the US economy is in good shape and that the Fed remains committed to contain inflation. In addition, the heads of the ECB and the Fed said that the low inflation regime is a thing of the past. Accordingly, the risk that the Fed may dial back some of its hawkish plans decreased, which led to rebound of the dollar and bearish equity reaction which is set to continue today. As a result of Powell statements, the dollar index rose to the level of 105, interrupting the movement in the correctional bearish triangle: Today, the release of the May US PCE is due - a key inflation measure for the Fed, which also gives insight into changes of consumer demand in the economy. The headline reading is expected at 4.8% YoY. In addition, there will be data on initial and continuing jobless claims, which should help to assess short-term trends in the US labor market and refine estimate for the June NFP, which will be released next Friday. Activity in the services and manufacturing sector of China rose in June compared to May showed PMI released on Thursday. However, index components showed that full recovery will take some time. The rebound of the non-manufacturing PMI index in June occurred primarily due to a sharp increase in activity in the construction sector, the corresponding component rose from 52.2 to 56.6 points. This indicates that the authorities are increasing investment in infrastructure, and developers with state support are increasing the pace of construction of housing and offices. The recovery of the manufacturing sector index from 49.6 to 50.2 did not come as a surprise, given the covid relief. At the same time, the index of new orders grew from 48.2 to 50.4 points. The hiring component showed that labor demand was lower than in May. This indicates a risk that June retail sales will fall short of expectations. The price component in both the services and manufacturing sectors recovered poorly despite the localization of lockdowns in the country, coupled with rising costs, this means that pressure on margins rose. In general, PMI reports showed that private demand in the economy recovered weakly in June and growth was stimulated by government purchases. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Inflation in Germany eases, taking off some pressure on the ECB to deliver faster rate hikes Signs of escalation in geopolitical tensions and fresh warnings of recession in top economies pushed stock markets off balance, with the S&P 500 closing down 2% and Nasdaq shedding 3% on Tuesday. European markets picked up the negative baton today, the main equity indices in Europe fall by 1-1.5%. Yesterday it became known that Turkey was able to resolve differences with Sweden and Finland, which means that the path for these two countries to join NATO is now open. The risks of Russian retaliatory measures and a possible new round of escalation boosted demand for defensive assets (bond yields of longer-maturity bonds declined) and dampened risk appetite. Apart from rising geopolitical tensions there were signs of deterioration on macroeconomic front - the Conference Board report on consumer confidence in the US missed expectations big time, the main indicator fell more than expected (from 103.2 to 98.7 points, forecast 100.4 points). The biggest part of disappointment came from the slack of leading component in the index – household expectations, the corresponding sub-index fell from 73.7 to 66.4 points, the lowest print since 2013: The reason for decline is the drop in the savings rate of American households to 4.4% in response to the rising cost of living and, accordingly, the growing concern about future consumption level: The Conference Board's index began to show co-directional dynamics with another popular U. Michigan consumer confidence index, which has been falling for several months in a row, which increases predictive power of these soft data points. However, pessimism increases not only among households, but also among US businesses, which was reflected in the fall of the Richmond Fed manufacturing activity index from -9 to -19 in June, with a forecast of -7: Concerns about European growth outlook intensified after release of Morgan Stanley report on Wednesday, which said that the Eurozone economy could fall into recession in the fourth quarter. The two main factors behind the recession, according to the bank's analysts, are a decline in energy supplies from Russia and sustained higher inflation rates, which are reflected in the negative dynamics of consumer expectation and business climate indices. Positive economic growth rates, according to the report, can be expected no earlier than the second quarter of next year on the back of increased firms’ investment. The report also says that the ECB will likely raise rates at each meeting this year bringing the rate to 0.75%, but in September, should economic conditions worsen, the bank may be forced to pause tightening. June inflation report in Germany reduced pressure on the ECB to expeditiously raise interest rate. Headline inflation was 7.6% against the forecast of 8%, monthly inflation slowed down to 0.1% against the forecast of 0.3%. EURUSD reacted positively to the news, however, the reaction was modest helping the pair to defend the level of 1.05. Markets will also be closely watching the speeches of the heads of US, EU and UK central banks at the forum in Sintra today. Key thing to watch is the balance between recession/inflation comments. Increased mentions of a recession will likely be interpreted as a signal that policymakers are concerned about costs and risks of aggressive tightening and should prompt market repricing of prospective tightening pace to a less aggressive one. At the same time, the emphasis in speeches on the threat of accelerating inflation or inflation expectations deanchoring will likely be taken as a hint that the pace of tightening will remain high and a negative reaction is likely to follow in risk assets. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Two reasons to sell the Dollar this week Stock markets posted solid gains on Friday delivering a crushing blow to seemingly dominating bearish sentiment in risk assets. The catalyst for the rally appears to have been speech of Fed Powell to the US Congress last week, in which he acknowledged that there is a risk that monetary tightening could lead to a recession. This could be seen as a signal that the Fed would execute more than expected caution in the process of rate hikes. In addition, the quarterly and semi-annual rebalancing of funds may create additional demand equity markets and increase pressure on the dollar. The S&P 500 is up almost 8% from the lows at the beginning of the month, with 3% of that done on Friday. The rally occurred, among other things, due to reassessment of the pace of tightening on a global scale - some money markets revised the pace of monetary policy tightening down, by 25-50 basis points. Powell's speech to Congress, which included remarks about a recession, could be the basis for those expectations, as such remarks were clearly inconsistent with the ultra-hawkish pace of rate hikes that the market priced in at the beginning of last week. This week, central banks will likely shed more light on those apprehensions, and Powell's speech at the ECB's symposium in Sintra on Wednesday could be the key event on this topic. The improvement in risk sentiment has weakened the dollar and there is a risk of the dollar index falling below the 104 level towards 103.40 support, given the consolidation near the level with little attempts to rally. Markets will be watching particularly closely this week for quarterly and semi-annual rebalancing by fund managers making buy decisions, which could support the market until Thursday. In the absence of negative shocks on the economic front, which is quite possible, given that this week is not rich in macroeconomic reports, stock markets may gain a little more this week. Commodity currencies showed the highest correlation with the stock market in the last three months in the foreign exchange market, which is why USDNOK and USDCAD have the potential for decline this week. Against the backdrop of the emergence of factors that could further weaken the dollar this week, the risk of strengthening EURUSD and GBPUSD is growing. The volatility of EURUSD is decreasing and the price dynamics is more and more reminiscent of movement in a range. This week, the pair may test the upper limit of the range (1.0630-1.0650), however, given that the week is not full of macroeconomic events, further rally is a big question: The main driver of the short-term rally of the GBPUSD may also be recovery in demand for risk. Growth potential in my opinion is limited by the level of 1.24, EURGBP may fall towards 0.8550. Last week, markets lowered their forecasts for cumulative BOE rate hikes this year by 30 basis points, but the pound held firm as the Fed's policy was similarly corrected. The technical breakdown for GBPUSD is as follows: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Another day of relief rally in equities keeps dollar under pressure A batch of latest estimates of PMIs in Eurozone released yesterday triggered a wave of mild risk-off and showed how the difference in expected growth rates between the EU and other economies is becoming an increasingly important driver in the foreign exchange market and, judging by the latest data, does not bode well for the European currency. Manufacturing PMI in France fell from 54.6 to 51 points (forecast 54), in Germany - from 54.8 to 52 (forecast 54), in the Eurozone - from 54.6 to 52 points (forecast 53.9). The slack of activity in services sector was less severe as rising share of services in consumption continues to support the sector, this trend emerged after covid and has not yet fully exhausted itself. Indices of activity in the service sector and manufacturing in the UK were generally in line with forecasts, which limited sell-off in the British currency. Downbeat vibes in equity markets on Thursday were replaced by another leg of relief rally on Friday as gains in US equities somewhat diverted attention from recession risks, S&P 500 at the close approached 3795 points, DOW breached 30600 points. Nasdaq showed the most significant gains among key indices - 1.47%. However, betting on a full-fledged rally is premature as incoming data gave only the first indications of a possible recession and investors will probably prefer to remain in a wait-and-see stance. The pound strengthened against the dollar despite a dismal retail sales report, buoyed by an overall uptick in risk asset markets. The annual decline in retail sales in May reached 4.7% (forecast -0.5%), retail sales excluding fuel decreased by 5.7%, reflecting the decline in the purchasing power of household income due to extremely high inflation. Heightened fears of a recession are fueling recovery of the government bond segment in the debt markets of developed countries. Thus, the yield on 10-year treasury bonds has decreased from the local peak value of 3.50% to 3.11% in the last 10 days: Demand for long-term bonds rises when investing in a long-term bond becomes more profitable than investing in a series of short-term bonds. At the same time, time spreads between bond yields also narrowed, suggesting growing expectations that after a short period of monetary tightening, an equally rapid reduction in interest rates will follow. Several FOMC members are already openly calling for a 75bp rate hike in July and then reduce the pace of tightening to 50 bp. In his speech yesterday, Fed Chairman Powell downplayed the threat of recession and focused on positives such as labor market gains. In addition, he said that the goal of quantitative tightening is to reduce assets on the balance sheet by $2.5-3 trillion. The Fed's current assets on the balance sheet is close to $9 trillion, with about half bought up in 2020-21: Bullard, speaking today, also said that there were no signs of a recession and that the rate hike would slow the economy down to a natural trend. The Fed official openly spoke in favor of raising the rate to 3.5% by the end of the year. The Fed's hawkish stance is likely to support the dollar in the short term, so a correction now looks unlikely. The dollar index has been consolidating in a narrow triangle for the last week, which usually precedes a breakout movement. Support for the index is at 103 (50-day SMA), in early June, the index rebounded from the level, confirming that bullish sentiment continues to dominate the US dollar: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

S&P 500 is again the red and more downside seems likely Risk assets traded in the red on Wednesday, with the dollar rebounding from its recent short-term downtrend as debates about impending recession successfully enters the mainstream. Several large investment banks have already estimated the chances of a recession starting from the 4th quarter of 2022 at more than 50%, which, against the backdrop of the central banks’ “no-tolerance” inflation policy, becomes an even more depressing forecast. Governments and central banks have practically no tools left to smooth out the recession: one way or another, their effect is reduced to creating positive demand shocks, which is unacceptable in conditions of high inflation and negative supply shocks. The dollar index is again approaching multi-year highs as bearish factors are at play in both two key asset classes – stocks and bonds. Slightly negative dynamics is also observed in the sovereign segment of the debt market - bonds with 10-year maturity in the US and Germany offer a slightly lower yield than yesterday. Of the latest economic updates, we can highlight the data on inflation in the UK. Headline monthly inflation was 0.7%, better than expected, consensus again underestimated producer price inflation, annual PPI of input prices reached 22.1% (forecast 19.4%), monthly PPI - 2.1%. UK inflation figures are the highest in 40 years: Investors have not yet received a clear explanation from the British Central Bank what it will do with high inflation, at the last meeting there was a modest increase in rate by 25 basis points, there wasn’t any clue in the policy statement that the Central Bank will throw all its efforts into fighting inflation (as stated Fed), that’s why the inflation report made a negative impression on the pound, which today is more actively losing ground against the dollar compared to the European currency. GBPUSD is testing from above 1.22, mainly bearish sentiment for the pair will remain until the price remains below the resistance zone of 1.2320 -1.2380: The oil market is showing a long-awaited positive momentum, with prices moving towards the $100 per barrel level, as fears of a subsidence in demand due to the threat of a recession seem to be beginning to outweigh the signals of a shortage on the global supply side. Lower prices allow us to expect a weakening of general inflation in the coming months and the markets will probably gradually begin to price in this important signal, however, in order to consolidate this optimism, it is necessary to see a softening stance on the side of central banks, primarily from the Fed. Classic recession indicators confirm that pessimism is slowly starting to dominate sentiment. The spread between 10-year and 2-year US Treasuries is approaching zero again: All in all, equity prices seem not have bottomed out, the dollar's medium-term rally has not run out of steam, and downward risk asset pressure will likely remain abound until the market begins to expect that the US Central Bank is ready to soften rhetoric in response to market participants' fears of a recession. Technically, the S&P 500 index is near the lower bound of the trend channel, which points to higher chance of a rebound, however, unlike previous movements towards the lower bound, market participants were less active in buying the dip intraday, so the price may try to test the level of 3600 and below in an attempt to elicit more powerful bullish response before we can talk about an upward correction: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

EURUSD is poised to break 1.06 but further upside looks limited After a turbulent past week, calm has finally returned to the markets. Demand for risk assets slowly recovers: European indices have been rising for the third day in a row, US futures rebounded by more than 1.5% on Tuesday. The dollar index (DXY) fell against the euro and the pound, rose against commodity currencies amid falling oil, and gained significantly against the Japanese yen on worries that BoJ can’t handle situation in the JGB market. The Fed appeared to be unconvincing last week with a 75bp rate hike as US debt market yields continue to rise. The yield on 10-year US bonds rose from 3.19% to 3.29% since last Friday: Optimism in the markets looks like an appropriate reaction to Biden's announcement that he is considering temporarily abolishing the federal fuel tax. However, this initiative must be approved by Congress, which will not be easy because the Republicans want the situation with high gas prices to cause maximum damage to the reputation of the US president and the Democratic Party. If the tax holiday can be passed through Congress, then on the monetary policy front, we may see more confident action from the central bank. In this case, we can expect a higher investment demand for the dollar. In general, the fiscal policy factor, which has receded into the background after the post-COVID stimulus, may again begin to play a significant role in the pricing of the dollar. The main events of the economic calendar today will be the release of statistics on existing US homes sales, as well as the speech of Fed policymakers Tom Barkin and Loretta Mester. Home sales are expected to slow down again, but investors are likely to be reluctant to see this as a signal to lower interest rates, having already been burned their fingers last month when they tried to price in "September pause" in the Fed tightening. The next important event for the dollar and for the bond market will be Powell's testimonial in the Senate on Wednesday, which, judging by the latest Fed meeting, will also be hawkish, and therefore the dollar downside will most likely be limited. The EURUSD consolidates around 1.055 searching for a new catalyst. News that the ECB has developed a new anti-fragmentation tool for the bond market seems to have been able to reassure investors as the yields of EU peripheral bonds turned into decline. The spread between the yields of 10-year Italian and German bonds, the main indicator of credit risk in the EU debt market, fell to 199 basis points from 242 bp last week: In the run-up to Powell testimonial, EURUSD will likely remain in the range of 1.05-1.06, however barring any ultra-hawkish hints, the dollar can be “sold on the facts” causing EURUSD to retest or even break 1.06. However, given that stagflation risks persist and are higher for energy import-dependent EU countries, a break above 1.06 could be a good opportunity to short the pair: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

FED goes all-in to fight inflation and markets are yet to grasp this shift in the policy stance The tectonic shift in the Federal Reserve’s policy, according to which the regulator no longer expects that inflation will naturally find its way to the target level and goes all in to suppress it, is still being digested by financial markets. Risk demand recovers slowly, despite the fact that last week's drop largely removed overbought, European and Asian equity indexes show mixed performance today with gains barely exceeding half a percent. Powell's testimonial is due this week, which will likely be used by the Fed chair to shape correct expectations for the July meeting and he will most likely pitch discussion to explain why another 75 bp move may be needed. Consequently, bullish surprises for the dollar seem to be not over, and any pullbacks in the Dollar index are not expected to linger. EURUSD is likely to find support at 1.04-1.0450, but the risk of a breakout below the near-term support zone is not negligible: Stock indices sluggishly rise on Monday, US markets are closed due to the national holiday. One gets the feeling that investors have not yet fully realized the large-scale changes in the policy of the Fed. Last Wednesday, the regulator hiked interest rate and did not rule out that in July it could raise the rate at the same pace, but by the beginning of this week it became clear that such a scenario became baseline, derivatives based on the Fed rate (overnight interest swap), priced in additional 70 bp tightening in July. Over the weekend, Fed official Waller spoke openly in favor of a 75bp move especially if there are no surprises in the macroeconomic data for June, also saying that inflation needs to be reduced no matter where it comes from. Waller is a known hawk and it's clear that his mindset probably isn't dominating most FOMC members, but the signs that the Fed is putting more, if not all, effort into fighting inflation have become clear enough that it will take time for the market to fully price it. At the same time, along with tightening of the Fed's policy, the chances are growing that the economy will fall into recession next year, which will force the Fed to move to cut rates and resume QE. According to BoFA, the probability that the US economy will fall into recession next year has risen to 40%, while high inflation will persist due to the resilience of pro-inflationary factors on the supply side. In other words, destroying consumer demand may not be enough. Bank analysts expect GDP growth to slow to near zero in the second half of next year as lagged tightening of financial conditions starts to cool demand in the economy. The rebound in 2024 will be moderate. This week the economic calendar is not particularly remarkable, the markets may pay attention to the real estate data in the US. Indeed, the US real estate market is now gaining attention, as rapidly rising mortgage rates and declining consumer confidence indicate that this week's reports could be disappointing, especially the existing sales numbers: The significance of this data should not be underestimated, as housing construction makes a significant contribution to GDP (about 2%), and home sales are positively correlated with retail sales data. Existing home sales are expected to rise by 5.4m from 5.61m in the previous month, the weaker figure could fuel risk aversion in the market. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Central banks of major economies fail to keep up with the Fed tightening pace Volatility in FX market remains stubbornly high, a series of upside surprises in inflation data for May apparently caused "tectonic shifts" in policy stances of many central banks, which rushed to drop hints about the need to speed up tightening process. And in overall, we can say that their words do not diverge from deeds. The dollar index plunged yesterday towards support at 104 level after the Swiss Central Bank surprised with a 50bp rate hike with additional bearish greenback pressure coming from expectations that the Bank of Japan and Bank of England will follow suit: However, BoE’s and BoJ decisions fell short of hawkish hopes as the Japanese Central Bank decided to leave the rate and QE settings unchanged while the Bank of England unanimously raised the rate by modest 25 bp (no votes for 50 bp which is quite dovish in the current setup). The Cable is losing moderately against the dollar on Friday while stubbornly dovish BoJ was apparently a big surprise for the markets, which expected a rate hike. Lack of the hawkish move sent USDJPY up by almost 2% and a retest of the 135 level seems to be around the corner. Given recent comments of the BoJ that it’s ready to dampen any irrational move in the exchange rate, an upside spike in USDJPY above 135 will likely to be a red line for the Bank of Japan. This has some serious implications as a powerful attempt to reestablish normal USDJPY exchange rate may require the BoJ to sell other reserves from the balance sheet, which could be US Treasuries. Upward pressure in long-term yields, such as a rally in 10-year Treasury rates to 3.4% or more, will likely allow the dollar to focus on a retest of recent highs. The recent significant gains of the dollar led to increased number of currency interventions from major central banks. For example, the Central Banks of Switzerland and the Czech Republic were selling reserves in order to contain the fall of their national currencies. The Bank of Japan, apparently soon, will also apply unconventional measures. The risk of intervention by a major player in the foreign exchange market and relatively high yields to maturity in bond markets are likely to maintain elevated volatility levels in FX space. The dollar, taking into account all these factors, is likely to continue to strengthen. The US economy, unlike many others, went into the inflation shock with economic output above potential which means risks of stagflation in the economy due to monetary tightening in the US are lower than in its major counterparts, which means that real yield outlook in the US is set to remain the most attractive. In addition, at the time of powerful risk asset sell-offs, liquidity in the market tends to decrease which creates additional demand for dollar as for the most liquid asset. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The Fed is ready to pay a high price to suppress inflation The Fed raised key interest rate by 75 basis points and signaled that a similar move could be expected in July. The announced pace of tightening means that the federal funds rate is likely to be above 3% by the end of the year, therefore the dollar will likely offer one of the best real yield prospects among G10 peers in the second half of the year. However, a decisive fight against inflation will have its costs, namely, mounting risks of a "hard landing" of the US economy, in which case the Fed may need to ease policy as quickly as it tightened it. After the first in 22 years rate hike by 50 bp in May, the Fed accelerated the pace of tightening and moved to a 75bp hike, confirming the trend of major central banks to step up the pace of policy normalization. Markets were preparing for such an outcome in advance, in particular, these expectations were based on US inflation data for May, which showed that inflation peak had not been passed, as well as household inflation expectations from U. of Michigan, which jumped in the previous month, threatening to deanchor from the Fed target. This, in turn, was fraught with a loss of credibility in the Fed, which is a major cost of conducting monetary policy, so yesterday the Fed showed determination and hinted that even 75 bp rate hike is not the limit. New Fed forecasts indicate that the pace of policy tightening will remain high for at least the next few months or even until the end of the year. The median interest rate forecast for the end of this year has changed from 1.9% to 3.4%, from 2.8% to 3.8% for the end of 2023, from 2.8% to 3.4% for the end of 2024 and from 2.4% to 2.5% for the long term. Even traditional FOMC doves expect federal funds rate to climb above 3% by the end of the year: In the accompanying statement, the Fed excluded the wording that the Central Bank “expects inflation to gradually decline to the target level”, instead using “committed to fighting inflation and is “highly attentive” to risks in this area. Such an aggressive stance in monetary policy was not without an increase in expected costs, which the Central Bank acknowledged in its GDP and inflation forecasts. According to the fresh economic staff projections, the Fed lowered its expected GDP growth rate in Q4 2022 from 2.8% to 1.7% and from 2.2% to 1.7% for Q4 2023: The risks to the Fed projections on the path of the interest rate are clearly on the upside. The natural movement of inflation towards the target level at the pace desired by the Fed implies that supply should adjust to strong demand. However, restrictions due to covid in Asia and a shortage of labor in the US suggest that this will not happen quickly. Therefore, inflation can remain sustainably at elevated levels, forcing the Fed to destroy consumer demand with monetary tightening in order to bring inflation back under control. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Preview of the Fed meeting: 75 bp move is fully priced and “sell the facts” scenario is likely in the Dollar The Fed will likely yield to the hawkish market expectations and hike interest rate by 75 bp today. Nevertheless, even with such an aggressive move, it cannot be ruled out that the dollar will go into decline following the meeting. Why? Since last Friday, when the May CPI was released, the dollar index has strengthened by a significant 2.4%, setting a new local extreme (105+). Such a move has likely already priced in a 75bp increase in the federal funds rate, so without additional surprises related to the pace of the timeframe of QT or a sharp revision in Dot Plot, a FOMC meeting broadly in line with expectations could become a profit taking signal. In other words, the classic “sell on the facts” scenario can be executed in the dollar market. Asset prices on the market, as well as expectations for the June meeting of the Fed, have changed significantly over the past week. Futures on the Fed rate have completely priced out an outcome where the Fed hikes rate by 50bp. This was supported by inflation data for May and inflation expectations from U. Michigan: headline inflation rose from 8.3% to 8.6% and 5-year inflation expectations of households jumped from 3% to 3.3%. Media reports, that the Fed policymakers were seriously discussing the possibility of raising rate by 75 bp, did their job as the market regarded them as an attempt by the Fed to prepare the markets for such a move during the blackout period - the week leading up to the meeting, when Fed officials are not allowed to make policy statements. In terms of market dynamics, key U.S. stock market indices are down nearly 9% and there is a chance the Fed may try to choose a softer path to limit correction or even boost stock market gains so that the welfare effect smooth out the negative impact of inflation on consumption propensity. The upcoming Fed meeting is especially important because it will feature an updated Dot Plot - a chart showing the distribution of FOMC participants' assessments of where the interest rate should be in the short, medium and long term. The latest Dot Plot was published in March and looked like this: It's been three months since then and inflation hasn't gone down, so markets now expect the Fed's rate to be in the 3.5-3.75% range by the end of the year. The Fed will most likely move the median forecast to this range, but officials’ expectations regarding the rate next year and 2024 will become more important for the market. If at least a few officials are in favor of raising the rate to 4% and above, then most likely we will see a new rally in DXY to 105.50 or even higher, as expectations for tightening from other major central banks are much more modest. US retail sales data for May came with a big downside surprise today pointing to increased risks of stagflation for the US economy: It is interesting that the negative reaction of the dollar to the report did not last long, as a weak consumption report could increase the chances that the Fed will fight hard against the main negative factor - high inflation and aggressively raise the rate today: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Despite expectations of 75 bp rate hike from the Fed tomorrow, Dot Plot is the key thing to watch US money markets appear to be confident that the Fed will deliver a 75 bp rate hike at the meeting tomorrow. With US inflation trending higher towards 40-year high, a 50bp move, while the target range of Fed interest rate is 0.75-1.00%, clearly presents a risk of losing central bank credibility: There is also a non-zero probability of a risky 100 bp move which will be shocking in the short term, but possibly more effective in the medium term. Against the backdrop of such expectations, the dollar will likely stay bid at the dips even if equities stage a relief rally today. The dollar index is likely to continue consolidating around 105. Fear of inflation was a dominating theme for bond and equity markets on Monday as evidenced by rare weakness both in stocks and bonds. Safety could only be found in dollar cash as the dollar is the most liquid currency, which makes it valuable during heavy equity sell-off and major risk-off moves. The SP500 index deepened into bearish territory, declining below 3750 points, the yield of 10-year bonds reached 3.4%, gold briefly strengthened to $1875 after release of US CPI data for May, however since yesterday it has erased almost 3.5% falling to $1820: The fact that gold did not work as a safe haven asset during the sell-off tells us about two things. First, fears of stagflation in the US appear to be still low. Secondly, bullish momentum in gold arises when opportunities to search for yield are greatly reduced or when uncertainty (the risks that can’t be measured) increases, hence neither of these concerns are gaining traction. Today, futures for US equity induces trade in green, indicating high chance of a relief rally during today NY session. The US producer price report helped equity sentiment to stabilize, indicating a slight slowdown in producer price inflation relative to forecast, which was a welcomed sign in the current rough global inflation picture: Based on money market expectations, the rate hike by 50 bp tomorrow is likely to elicit strong bullish response in equities that will last for some time. A 75 bp move is priced in by the market, so in the event of such an outcome, the markets will focus on dot plot and QT comments. 100bp shock rate hike unlikely, but in the event of such an outcome, it is quite possible to see the S&P 500 move towards 3700 and even lower. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Resilient US consumption helps stock to recover but May NFP could bring Fed tightening bets back into the market The macro data on the US economy released on Friday showed that high inflation in April failed to stifle consumer momentum in an economy that has a history dating back to post-COVID fiscal stimulus. Although household incomes did not grow as fast as expected (0.4% m/m, vs. 0.5% expected), consumers increased spending by 0.9% m/m, compared to 0.7% expected. The fact that spending has outstripped income growth suggests that consumers are willing to spend savings to maintain lifestyle, which means that consumer confidence may be not so low as depicted in U. of Michigan consumer sentiment data. Positive US consumer data countered fears that the Fed has taken to tightening policy when the consumer trend approached a tipping point, which could exacerbate the reversal trend, in other words, led to hard landing after the boom. The reassessment of fears led to the fact that the bullish momentum in the US market on Friday did not meet with any significant opposition, which allowed the S&P 500 to close in positive territory by 2.5%, rising to a three-week high: Core PCE, this time without surprises, retreated from 5.2% to 4.9% in April, which in itself was a very positive signal, given how many times the market has been wrong before, underestimating inflation rates. As the Core CPI and Core PCE went into decline, the market could begin to think that inflation had peaked and would now gradually decline towards the Fed's target level: On Monday, risk assets are trying to borrow the optimism of last Friday, the main European stock markets are rising, SPX futures added another 1%, approaching 4200. The dollar index is trying to hold support at 101.50, but is under pressure due to rising demand for risk assets. China continues to ease social restrictions and is preparing measures to support the economy. Shanghai allowed businesses to reopen starting June 1, and Beijing authorities said the epidemic was under control, prompting a reassessment of lockdown risks and economic costs in the Chinese stock market, while overseas markets, in turn, priced in lower risks of disruptions or delays in supplies. The EU continues to discuss the sixth package of sanctions against the Russian Federation, which includes a partial embargo on Russian oil, details should appear today. Brent has topped $120/bbl and time spreads are widening, reflecting market expectations that the near-term demand picture is getting more positive. Data in focus today: German inflation report. Consumer price growth is expected to accelerate from 7.4% to 7.6%. With the ECB signaling that it will act if the data warrants to do so, an inflation rate in line with expectations or higher could trigger a surge in EURUSD to 1.08 or slightly higher. However, with the release of the May NFP this week, which could dampen the chances of the now hotly-discussed "September pause" in rate hikes, buyers may prefer to wait out the release before adding to long positions, or may take profits. Actually, the execution of such a scenario on the market may lead to a correction towards 1.07 in the second half of the week: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Flight from risk gains momentum, setting stage for a rally in Gold The flight from risk assets becomes more apparent on growing concerns about global slowdown and even recession, in particular, markets appear to be pricing in that the US economy will not be able to carry out soft landing (lowering inflation while maintaining positive GDP growth) that the Fed pledged to deliver in spite of aggressive tightening cycle, which led to textbook reactions in various asset classes: stock prices fell, bonds, as safe-haven instruments, rose in price, and the dollar fell, as foreign investors apparently reduced their exposure in US papers. The magnitude of collapse in US equity markets on Wednesday (the worst in two years), which saw S&P 500 falling by 4% and Nasdaq erasing 5% from its market cap ensured proliferation of bearish momentum to Thursday trading. SPX futures broke below another key threshold of 3900, European indices suffered losses by an average of 2%. Further events are likely to unfold according to the classic scenario: the Fed will bend at some stage of equity sell-off, soften the rhetoric, which will become the main signal for a reversal. But given that most FOMC officials, including Powell, use the word "committed" in their comments regarding the short-term future of the policy, it may take quite a while for markets to see a welcomed policy shift. The speed and the magnitude of equity markets downside should also imply there are concerns about potential downbeat surprises in corporate earnings and firms’ forward guidance, which, in principle, have already started to materialize. For example, $200bn Cisco released “shocking” earnings report yesterday that fell short of expectations in many respects (including forecast of negative growth in revenue in 4Q against expectations of positive growth), which led to a price drop of 20%: The situation with covid in China remains controversial, while Shanghai gradually lifts lockdowns, an increase in the number of new cases in Beijing and Tianjin indicates a high risk of new social restrictions in these cities. In particular, a lockdown in Tianjin, a major port city in China, is a major risk for the markets, as it could exacerbate supply chain disruptions, which are well-known for their inflation effects in the countries which import China goods. As the positive trend in the reopening of Chinese economy started to show cracks oil prices were hit hard erasing 8.5% since Wednesday afternoon. The decline in oil prices and reduced investment demand for the dollar allowed EURUSD to reclaim 1.05 level. Minutes of the ECB meeting are due today, which may offer additional support to the battered Euro as based on the comments of ECB officials, the commitment to fight inflation is gaining broad support in the Governing Council, which is likely to be reflected in the Minutes today. EU money markets price in 100 bp rate hikes from the ECB this year, respectively, the ECB should soon begin to actively catch up with expectations, otherwise the Euro may quickly cede ground to the dollar as monetary policy gap will set to widen again. The rebound in demand for safe-heavens is not yet so clear, but is already visible in gold, given that we are at an early stage of factoring in recession expectations, the upside potential for gold prices, provided recession expectations take roots, is high. From the viewpoint of technical analysis, the price of gold has been in a well-formed bearish corridor since mid-April, while on May 16 we saw the first signs of a bull market. A breakout of the upper bound of the corridor (~1835-1840 dollars per ounce) could trigger extension of the rally: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Gloomy China data sows panic, but EURUSD still has a chance to rebound A glimmer of hope after equity markets’ rebound last Friday was dampened after release of China economic data on Monday. Industrial production in China contracted 2.9% YoY against the forecast of 0.4% growth, retail sales collapsed by 11.1% missing estimate of -6.1%: Unemployment also rose, from 5.8% to 6.1% in April. The data overshadowed the news that the government are beginning to gradually lift the lockdown in Shanghai, China's major industrial and financial center. S&P 500 futures were up at the beginning of the session, but after the release of the data, the price went down and found some balance around 4000 points. European markets are in the red ahead of release of the EU inflation data, which is likely to indicate resistance to fading, increasing chances that the ECB will begin to prepare markets for earlier action in policy normalization. In particular, the case with the July rate hike remains the main uncertainty for the markets in the ECB's action plan. Despite the fact that more and more officials are talking about the benefits of a rate hike in July, there is still no final clarity. Therefore, the inflation report has every chance to impress the market, in particular, there is a risk that the Euro may tactically strengthen against the dollar. Other important updates include an updated Goldman Sachs forecast for the growth rate of the US economy in 2022. The investment bank cut its forecast growth rate from 2.2% to 1.6%, likely reflecting the White House's austerity plan, under which the government intends to reduce the public debt by 1.5 trillion dollars. The dynamics in the foreign exchange market remains highly dependent on the mood of investors in the stock market, where there are desperate attempts to find a balance after seven consecutive weeks of decline. Local macroeconomic data continues to play a secondary role, especially in non-core economies. The role of the real rate differential has also decreased somewhat (capital flows to where there are expectations of a higher real rate), as anxiety and even panic about stagflation and recession due to the instability generated primarily by commodity markets come to the fore. As long as these factors continue to influence, demand for the dollar is likely to remain elevated. In particular, data on retail and existing home sales in the US may reinforce the view that the US economy is now one of the most resilient to the challenges of stagflation. If the S&P 500 manages to stay above 4000 today at the American session, which will allow us to consider the state of the market as stabilization, EURUSD will have a chance to grow to 1.05-1.055 (especially if inflation in the EU is higher than the forecast in tomorrow's report), and GBPUSD - to 1.2320, a previous support zone: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

US April CPI could be the key catalyst for S&P 500 rebound, deeper greenback sell-off An attempt by S&P 500 to decisively break below 4000 points on Tuesday was not successful, however, the subsequent rebound has not yet found wide support among buyers. Retail and institutional sentiment indicators are in an extremely bearish zone (13-year high), which increases the odds of a rebound in case of emergence of some bullish catalyst: Today's US CPI release for April appears to be a good potential bullish trigger. Headline inflation is expected at 8.1% (down 0.4% compared to March), core inflation at 6% (down 0.5% compared to March). Core monthly inflation is expected to come at 0.4% and this is where the market will look for a signal that price growth starts to fade as YoY inflation will likely be distorted due to base effects. If MoM inflation falls short of expectations, pressure on the Fed to fight inflation, as the market perceives it, will ease, and policy tightening will shift to a less aggressive pace than has been priced in. However, three Fed officials (Mester, Waller and Barkin) were quite open yesterday in favor of two consecutive 50bp rate hikes in June and July, after which the Fed will have to conduct an interim assessment of impact of the rate hikes on inflation in order to understand how to proceed further in the second half of the year. Lower-than-expected monthly core inflation will likely help market to rule out the case for 75 bp rate hike at the upcoming meeting, which in itself will already be a bullish signal for the market. At the same time, the ECB continues to ramp up its hawkish rhetoric. This can be seen from yesterday's speech by member of the Governing Council Nagel. In his opinion, the risk of “late action” has increased significantly, the ECB should curtail its bond buying program as early as July (the ECB spoke about September at the last meeting) and raise interest rate on deposits in the same month if incoming data reveals no signs of inflation easing. Inflation in the German economy was 7.4%, according to data released today. The continued consolidation of USDCNY around 6.73 at least means that there is one less reason to sell risk today. Tesla CEO Elon Musk described the lifting of the Shanghai lockdown yesterday as "rapid," which is also encouraging. Consumer inflation in China beat expectations accelerating to 2.1% YoY, once again emphasizing that the challenge posed by inflation is global. The dollar continued to snap back recent gains on Wednesday, the greenback index fell below 103.50 (a weekly low). If US equities bounce today, a stronger move down to 103 will likely follow. According to JP Morgan, the dollar's recent strength is due to a downward reassessment of growth forecasts outside the US rather than the hawkish Fed. Despite the fact that the Fed pushed back on 75 bp rate hike, long positions in USD, according to the bank's analysts, still make sense. In the stock market, JP Morgan sees the defensive sector (companies whose revenues are less correlated with the phases of the business cycle) as the favorite, which tend to outperform in the bear market and hence will draw increased attention from market players. In my opinion, in the event of a worse-than-expected CPI report today, EURUSD has a chance to make a tactical bounce, given that there is a necessary prerequisite for this – substantial decline in the last few months and range-bound movement, which is a classic technical analysis case for a reversal. The pair is also near the lower bound of the existing bearish channel, which could be also used by market players as an indication of support zone: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.