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• Morgan Stanley: USD to grind higher, JPY may lead G10 gains but USD/JPY shorts challenging
• EUR/USD struggles for direction amid eurozone recession and anticipated ECB hikes
• Baker Hughes US oil rig count 556 vs 555 prior
• European equity close: The FTSE 100 is down in 6 of the past 7 weeks
• SocGen foresees potential tweaks in Japan’s yield curve control policy in the near future
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• Canada capacity utilization Q1 81.9% versus 81.7% in the 4th quarter
• Canada May employment -17.3K vs +23.2K expected
• The NZD is the strongest and the JPY is the weakest as the North America session begins
• ForexLive European FX news wrap: Dollar steadies itself as markets take a breather
• How’s the Fed outlook shaping up to be right now?

This week, the US dollar, tracked within a 103.290-104.400 range in the DXY index. That index (heavily weighted to the EUR) for the week fell -0.49%. The decline was initially triggered this week by below-expectation US services ISM data. In that report, released on Monday, the index for May 2023 came in below expectations with a reading of 50.3 against the predicted 52.2. The figures mark a decline from the prior 51.9. Seeing the nonmanufacturing Index fall implies a potential weakening outside the goods sector.

Within the report:

• The employment index dropped to 49.2 from the previous month’s 50.8.
• The new orders index fell to 52.9, falling short of the expected 56.1.
• The prices paid index slid to 56.2, its lowest since May 2020, from the earlier 59.6.
• New export orders, imports, and the backlog of orders all saw declines compared to last month’s numbers, coming in at 59.0, 50.0, and 40.9, respectively.

The greenbacks fall deepened when the Reserve Bank of Australia (RBA) on Tuesday unexpectedly raised the cash rate to 4.10% and signaled further tightening to control inflation. The Australian dollar subsequently rebounded from a week low of 0.6578 on Monday to a Friday high of 0.6750. The price is closing the week near the pair’s key 100-day MA at 0.6740. Next week, moving above and away from that MA will be needed to increase the bullish bias. If there is a corrective move lower the 200-day MA at 0.66905 will be eyed for bullish clues. Stay above on a correction, will be indicative of bullish undertones remaining.

On Wednesday, the Bank of Canada (BoC) also increased its interest rate by 25 basis points due to insufficiently restrictive monetary policy and ended the pause that had been in place for 2 consecutive meetings. The USD/CAD moved to a low on Wednesday of 1.3320 (higher CAD). The market price for the USDCAD traded higher and lower on Thursday and again on Friday. The weaker-than-expected Canadian jobs data today took the USDCAD price up to a high of 1.33688 from a pre-employment low of 1.33157, but when the price couldn’t extend up to the falling 100-hour moving average (it currently is at 1.33813), the USD sellers reentered pushing the price back down to test the May low near 1.33132. Buyers leaned against the low level and the price bounced marginally higher into the close to 1.3340. Next week if the price of the USDCAD can’t get above the 100-hour moving average, the sellers will remain in control and a breach of the May low can be anticipated.

Despite the two central bank hikes this week, the market continues to anticipate no change in FOMC rates when they meet on Wednesday. That bias was reinforced on Thursday this week when the initial jobless claims surged to the highest level since October 2021. Jobless claims rose to 261K well above the 235K estimate.

Before the rate decision on Wednesday, the Federal Reserve will get the final key piece of economic data with the US CPI scheduled for release at 8:30 AM on Tuesday. The expectations are for a 0.2% gain MoM and the year-on-year measure to come down to 4.1% from 4.9%. The MoM gains from last year have been shedding the YoY inflationary numbers as they roll off. The YoY numbers have seen a fall from a high of 9.1% in June 2022 and have one more big MoM number to roll off when 1.3% drops out when the June CPI is announced in July. That should bring the YoY rate to the low 3% range, but still well above the Fed target of 2%. Going forward, it would take MoM numbers of 0.0% to 0.1% to reach the 2% target in 2023 which although possible, would be a stretch. Adam wrote about the math in his post HERE. Required reading over the weekend.

A look at the US dollar changes this week with the major currencies shows the USD was lower vs all the major currencies with the largest decline vs the AUD and the NZD.

• EUR, -0.38%
• AUD, -2.08%
• NZD -1.16%
• GBP, -1.06%
• CHF -0.62%
• CAD, -0.59%
• JPY, -0.36%

In other markets this week:

• Crude oil fell -2.19% as growth concerns in China weighed on the price
• Gold rose a modest 0.68% helped by the lower dollar
• Silver rose 2.77%
• Bitcoin fell $-651 which seems pretty good given the SEC suing Binance and Coinbase

In the US stock market, the NASDAQ rose for the 7th consecutive week and the S&P rose for the 4th consecutive week although gains were modest:

• Dow industrial average rose 0.34%
• S&P index rose 0.39%
• NASDAQ index rose 0.14%

US yields moved higher this week, despite the lower dollar and expectations of no change from the Fed. Investors are bracing for an estimated $1 trillion deluge of Treasury issuance as part of the latest debt-ceiling resolution, and that may have led to some backup in yields especially in the shorter end this week.

• 2-year yield up 9.5 basis points
• 5-year yield up 7 basis points acting like no key she didn’t know you go to far just in the cell the didn’t know when to see you will you mind my mind you find my my window
• 10-year yield up 4.7 basis points
• 30-year yield was unchanged

Thank you for your support this week. Hoping you have a good weekend.

This article was written by Greg Michalowski at www.forexlive.com.