Forexlive Americas FX news wrap 12 May: USD moves higher as flight to safety dominates

The US dollar is the strongest among the major currencies, while the New Zealand dollar is the weakest.

The rise in the dollar can be attributed to:

• Higher inflation expectations from the University of Michigan Consumer Survey
• Concerns about the debt ceiling leading to a flight to safety are spilling over into the dollar
• Technical breakouts in some major currency pairs.

In May 2023, the University of Michigan Consumer Sentiment Index fell 9.1% MoM to 57.7 (from 63.5 last month), which is a 1.2% YoY drop from May 2022. The Current Economic Conditions Index saw a -5.4% decline on monthly basis to 64.5%. (from 68.2), but up 1.9% year over year. Meanwhile, the Consumer Expectations Index saw a significant drop of 11.7% month-on-month to 53.4 from 60.5 last month, accompanied by a decline of 3.3% year-on-year.

The decline was attributed to renewed concerns about the path of the economy, which erased more than half of the gains since the historic low last June. Despite the lack of signs of recession in the macroeconomic data, consumer concerns escalated in response to negative economic news, including the debt crisis. It was the inflation outlook that got the most attention. 1-year inflation expectations fell slightly to 4.5% in May from 4.6% in April, but the 5-year long-term inflation expectations, after two years of stabilization, reached their highest level since 2011, rising from 3.0% to 3.2%. This month.

Regarding the debt ceiling extension, the Congressional Budget Office (or CBO) has issued cash flow projections in the absence of debt ceiling extension legislation. According to the forecast, they see the US Treasury running out of money in the first and second weeks of June (depending on the inflows and outflows and the timing of this). If all goes well and is passed in the middle of the month when additional tax inflows are expected, the government could be stuck until July. However, there is also the possibility that they may run out of money more at the beginning of the month.

This week, congressional leaders met with Brees. Biden with little progress. They were expected to meet again today, but that meeting was postponed in favor of the staff continuing to work on a solution. The leaders are not expected to meet again until Monday or Tuesday next week.

Full details triggered additional dollar buying as default fears began to enter the markets.

Finally, technical breakouts and some major currency pairs are helping push the US dollar higher.

• NZDUSD: NZDUSD was the biggest driver, down 1.71%. New Zealand inflation expectations fell to 2.79% from 3.3% in the last quarter, sending the pair lower. The decline took the price below the 200 hourly moving average at 0.8287, the 100 day moving average at 0.62776, 50% and 61.8% retracement of the move up from the April 26 low at 0.62475 and 0.62155. The price fell to 0.6181 before stopping and trading in a narrow range as low as 0.6194. The 200-day moving average is losing below the level of 0.6159. The price moved above that 200 day EMA again on April 28 near the same level.

• EURUSD: EURUSD has seen the price drop this week below the 100 bar MA on the 4 hours chart, initially finding support against the 200 bar MA and lower swing zone (see green number circles ), but then just below and used the consolidation area below near 1.0935 and resistance. The inability to move above the lower swing zone in the “red box” below gave the sellers the green light to push to the downside. The 38.2% retracement of the move higher from March low at 1.08735 has been breached. The next major target area comes against the 50% retracement level, the swing zone between 1.0798 and 1.0805, and the bullish 100-day moving average in roughly the same area around 1.0800. A break outside the red box has put the sellers in firm control at least for the short term.

• GBPUSD: GBPUSD hit a new high dating back to April 2022 this week at 1.26793. The rally breached the May 2022 high of 1.2665 in the process, but was unable to sustain the upward momentum. Buyers turned sellers. On Thursday, the swing area between 1.2536 and 1.2547 was broken, and it maintained the corrective rising price resistance in Friday’s trading. The 100-bar MA on the 4-hour chart at 1.25227, and the 200-bar MA on the same chart at 1.24701 were broken during today’s training with the pair stopping inside the swing zone between 1.2435 and 1.2445 (see red number circles). Staying below the 200-bar moving average at 1.24701 keeps the sellers playing with short-term control in the new trading week.

During the current week, the US dollar rose against all of the major currencies. Given the US currency changes:

• Euro, up 1.53%
• Sterling, up 1.46%
• Japanese Yen, up 0.68%
• The Swiss Franc rose 0.85%.
• Canadian dollar, up 1.366%
• Australian dollar, up 1.644%
• New Zealand dollar, up 1.657%

The biggest gain against the Australian and New Zealand dollars came from risk aversion flows. These currencies are also falling after China’s weak data this week.

In the US stock market today, all major indices moved slightly lower with the Nasdaq leading the way down -0.36%. The Dow Jones Industrial Average was close and volatile but still fell for the fifth consecutive day this week and for the ninth time in 10 trading days since the beginning of May. The Dow Jones Industrial Average fell -0.03%. The S&P fell -0.16%.

During the trading week, the Dow Jones Industrial Average fell -1.11%, the S&P fell -0.29%, but the Nasdaq posted a small gain of 0.4%.

Yields rose in the US bond market today after the release of stronger data on inflation expectations. Returns were slightly higher for the week:

• The two-year yield rose 8.5 basis points to 3.99%. For the week, the two years were up 7.4 basis points
• The 5-year yield rose 8.9 basis points, to 3.46%. The 5-year yield rose for the week by 3.8 basis points
• The 10-year yield rose 6.6 basis points to 3.462%. For the week, this 10-year is up 2.9 basis points
• The 30-year yield rose 3.9 basis points to 3.782%. For the week, the 30-year-old rose 3.6 basis points

In other markets:

• Crude Oil fell for the fourth consecutive week. On the day, the price fell $0.83, or -1.17%, to $70.04. For the week, the price is down $1.30, or -1.82%
• Gold is down $4 today, or -0.20%, at $2,110.90. For the trading week, gold is down -$5.04, or -0.25%.
• Bitcoin is trading at $26,724 after hitting an intraday low of $25,800. The price is currently down $1,748 this week, or -6%.

Thanks for all the support. Hope you have a good weekend.