Headlines

*White House Press Secretary said US CPI expected to be “highly elevated”

*Focus on EUR/USD parity as dollar remains firm at best levels in two decades

*Crude pressured by strong greenback, negative risk tone, China Covid woes

*APAC stocks mostly negative after weak performance across the globe

USD moved higher against most of its peers with fresh multi-decade highs this morning at 108.50. All eyes are on EUR/USD as it came within a whisker of parity with lows at 1.0004. GBP remained weak with a new cycle low at 1.1845. USD/JPY reached 137.75 before correcting. USD/CAD rose steadily across yesterday’s session touching a high of 1.3052. AUD sunk and closed at 0.6737, its lowest daily closing since May 2020.

US equities declined as Wall Street anticipates the start of a volatile second quarter earnings season this week. The S&P500 fell 1.2% after rising last week. That followed its worst first half of the year for more than five decades. The tech-heavy Nasdaq was 2.2% lower. Sharp falls in China on new Covid restrictions and Europe’s energy concerns added to the headwinds. US futures extended losses overnight alongside the broad risk aversion in Asia.

Market Thoughts – EUR/USD at 1

Dollar bullish momentum continues apace. Recession fears are gripping markets, but the Fed is expected to hike by 75bp in July and at least 50bps in September. The decent NFP report confirmed this whilst not pricing in very much more tightening.

Some market watchers think most, if not all the “good news” is priced into the buck. But the proximity to parity is too obvious a target.  We are in overbought territory so the longer the rally carries on, the higher chances and size of a reversal. Tomorrow’s US CPI data will obviously be the driver for more volatility and potential profit taking. Earnings season too will drive equity market sentiment, which kicks off in earnest with US banks reporting later this week.  

Otherwise, watch out for more news around the Russia-Europe gas supply crisis with Nord Stream 1 maintenance having begun. The potential for a dovish re-pricing of ECB rate expectations could propel more downside for the euro.

Chart of the Day –Gold makes ten-month low

Gold is consolidating after last week’s brutal selloff.  The precious metal has been hit by a soaring dollar and a steadfastly hawkish Fed. Rising bond yields make the non-yielding precious metal less attractive. Broad commodity funds may be liquidating some of their long-held positions. Net longs in futures positions have been cut to a three-year low.

Prices are trading sideways above $1730. The break lower last week through $1786 has kick started bearish momentum. The next level of support is the September 2021 low at $1721. After this, there is only round numbers before the spike low at $1677.  Near-term resistance is the Fib level at $1761.