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US markets will come back online today to set a clearer backdrop for the risk environment, with US stock futures slightly in the red at the time of writing as a reflection of some continued caution. Overnight, European indices largely showed a weak showing (DAX -0.96%, FTSE -0.71%, CAC -1.01%), while European bond yields saw a broad move higher. Ahead of the Bank of England’s (BoE) interest rate decision, a quick hawkish decision could push UK 10-year government bond yields to an eight-month high, rising 8 basis points overnight.
A meeting between US Secretary of State Antony Blinken and Chinese President Xi Jinping could mark a small step in the right direction toward a warmer relationship between the US and China, though the lack of any concrete developments and China’s tone remains steady suggest clarity may be justified. , apart from just exchanging words. The optimism is that the meeting at least opens the door to more bilateral meetings or even hopes for a Biden-Xi summit later this year.
Aside from that, it was a relatively quiet start to the week. The US dollar is trying to stabilize after the post Fed sell-off, but will now have to move back above the 103.12 support-turned-resistance level to provide some convincing to the bulls. Moving Average Convergence Divergence (MACD) and Relative Strength Index (RSI) divergence below 50 continues to reveal bearish momentum, with any downside leaving the 2023 low in check at 100.50.
Source: IG Charts
Asian Open Championship
Asian stocks appear poised for a mixed open, with Nikkei -0.07%, ASX +0.23% and KOSPI -0.38% at the time of writing. The sustained rally in the ASX 200 over the past week has seen it break above the near-term descending channel pattern and the 100-day moving average (MA), taking it less than 1% off its April 2023 high. A recovery above 50 on the RSI and a bullish cross on the MACD indicates building bullish momentum, although it will have to face a test of resistance ahead at 7,380. Beating this level could be key in paving the way for a retest of the 2023 high at 7600.
Source: IG Charts
The focus of today’s economic docket will be the Reserve Bank of Australia (RBA) meeting minutes and China’s key interest rate (LPR) decision.
With Australia cash rate futures leaning towards a final rate of 4.6%, suggesting a further 50bps worth of rally over the coming months, further validation of policymakers’ views will be sought in the coming minutes. Recently, policy makers have been concerned about slow progress in fighting inflation, as the consumer price index (CPI) saw pricing pressures rise to 6.8% in April from 6.3% in the previous month. A higher stance against a longer term or opposition to any upcoming rate pause from the central bank may be seen as optimism, which could continue to support the Australian dollar.
The People’s Bank of China (PBoC) will take a different direction on monetary policies, with expectations of a 10 basis point cut in both the one-year and five-year LPR today, tracking a similar move for seven days of reverse repo. Rate and MLF rate for one year last week. Recent easing moves suggest that reopening efforts are losing their luster, setting the stage for more political intervention to follow in the months ahead.
On the watch list: US dollar / Swiss franc Watched ahead of the Swiss National Bank meeting
The SNB’s monetary policy meeting takes place on Thursday, and recent upbeat comments about continued inflation from its chief, Thomas Jordan, have left expectations well anchored for further tightening. He stated that “the fight against inflation is far from over” and “he cannot rule out further monetary tightening”.
However, it would be a close call on how much tightening is needed, with interest rate futures split proportionally between a 25bp (42% probability) and a 50bp (58% probability) move. The tone and guidance on its rate path will also be in focus, with any higher versus longer stance likely to boost policy divergence with the Fed, at a time when there is general expectation that the Fed will end its tightening process next month. .
USD/CHF has struggled to cross above the confluence of key resistance (horizontal support-turned-resistance, 100-day moving average, and Ichimoku cloud) at 0.910 recently, as the formation of long bearish candles seems to reflect strong selling pressure. Its RSI is below the 50 mark while the MACD is also crossing below zero, as signs of bearish momentum. Further downside may leave May 2023 low of 0.881 in check. On the other hand, the bulls could be more convinced by a move above 0.910.
Source: IG Charts
Monday: US markets closed for the June holiday, DAX -0.96%, FTSE -0.71%
