Overnight Headlines

*USD trading around 90 after it gained against all its peers on Friday

*US equities pared early gains to finish mostly lower

*Bitcoin is trading just above $35,000 after last week’s 25% loss

US equities finished mixed with the tech-focused Nasdaq closing the week 0.5% lower while the broader S&P500 ended 0.1% on the day and 0.4% down on the week. That meant the index’s first back-to-back weekly losses since February. The US purchasing managers’ index (PMI) hit its highest ever reading of 68.2 for May, a reading of 50 separates growth from contraction. Futures are modestly in the green.

USD again clawed back losses after a volatile week but mostly traded below the key 90 level on the DXY. Still, it closed at its lowest since the start of January. Major bond markets are broadly stronger which means yields are essentially back to the lows that preceded last Wednesday’s jump from the 1.62% area on the FOMC minutes. Markets are quiet today with European holidays and the greenback a touch softer.

Market Thoughts – The week’s events

After last week’s fireworks in the digital asset space, which threatened to seep into the broader, major markets, traders will still be wary of any further selloff in bitcoin which has lost around 45% of its value in two weeks. Global regulators appear to be tightening their grip on this lightly supervised market with tax authorities also hinting that they want a piece of the pie. Coin maximalists will be on the look out for any Elon Musk tweets who last week declared that Tesla did not intend to sell its holdings.

In more mainstream events, there’s an RBNZ meeting Tuesday to watch for any signals that the bank may start to lean in favour of slower asset purchases, which would support the kiwi and help the stretched longs. Elsewhere, the calendar is fairly light with a variety of (mostly dovish) Fed speakers and the Fed’s preferred inflation gauge released Friday expected to rise to 2.8% y/y from 1.8%. The US Core PCE deflator has been below its target roughly 90% of the time since January 2012.

Chart of the Day – EUR/USD holding up

A quiet week in Europe, with holidays in Germany and France today, sees the may readings for consumer and business confidence after tomorrow’s important German business survey which will be closely watched to see if it follows the path of the recent soft manufacturing PMIs. Confidence in the European recovery is solid and with price pressures rising, the familiar battle between the hawks and doves at the ECB will grab the attention as we approach the meeting on June 10.

Having made multi-week highs last Wednesday, EUR/USD ran out of bullish momentum with good support in the mid-1.20s. Resistance above at last week’s highs around 1.2230/45 is also the February high which we’ve highlighted previously. The trend is still bullish with the patient Fed in no rush to withdraw stimulus while the world recovers.