Forex News

ING analysts Warren Patterson and Ewa Manthey note that Oil prices remain closely linked to Middle East developments, with flows through the Strait of Hormuz still disrupted. They highlight continued draws in US crude inventories and thinning global stocks, arguing this leaves upside risk to Oil prices into the third quarter as any recovery in regional supply is expected to be slow and gradual.

Middle East risks and US draws

"Re-escalation in the Persian Gulf pushed oil prices higher yesterday, with fresh attacks once again casting doubt over a resumption of energy flows through the Strait of Hormuz. There also appear to be mixed messages about the progress in negotiations between the US and Iran."

"Every day that passes without a resumption of oil flows leaves the market increasingly vulnerable. This increases the pressure to strike a deal."

"However, even if we see an imminent restart of oil flows through the Strait of Hormuz, the recovery will be slow and gradual. This suggests inventories are likely to continue to tighten into the third quarter, leaving upside risk to prices."

"Weekly inventory numbers from the EIA show that US commercial crude oil inventories fell by 7.97m barrels over the last week. This leaves the total inventory draw over the last month and a half at 32m barrels."

"While inventories do fall seasonally as refiners ramp up operating rates, the pace of decline has been faster than usual. When taking into consideration releases from the strategic petroleum reserve, total crude inventories fell by 15.97m barrels over the last week."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• The Australian Dollar gains ground after Australia’s Trade Balance unexpectedly returns to surplus territory.
• Australian exports rebound strongly, supporting the country’s economic outlook.
• Persistent Middle East tensions continue to underpin demand for safe-haven assets.

AUD/USD trades around 0.7135 at the time of writing on Thursday, up a modest 0.08% on the day, as the Australian Dollar (AUD) benefits from the release of stronger Australian trade data.

Data released by the Australian Bureau of Statistics showed that the Trade Balance returned to a surplus of A$1,791M in April, following a revised deficit of A$1,024M in the previous month.

In detail, exports rose 7.2% MoM in April after declining 2.5% in March. Imports increased 0.8%, compared with a 12.2% rise in the previous month. The rebound in external trade is seen as a positive signal for the Australian economy and could reinforce expectations that the Reserve Bank of Australia (RBA) will maintain a restrictive monetary policy stance for an extended period.

However, the Aussie’s upside remains limited by a geopolitical environment that continues to be marked by elevated uncertainty. Investors remain focused on developments surrounding the conflict in the Middle East. Iranian Foreign Minister Abbas Araghchi said on Wednesday that no tangible progress had been made in negotiations aimed at ending the hostilities, despite ongoing contacts with Washington.

Meanwhile, Lebanese President Joseph Aoun stated that he is awaiting responses from all parties regarding an agreement reached with Israel to implement a ceasefire. While these developments have provided a modest boost to risk sentiment, markets remain cautious amid the lack of meaningful progress in regional negotiations.

Market participants are now turning their attention to upcoming US data releases, with Initial Jobless Claims due on Thursday ahead of Friday’s May Nonfarm Payrolls (NFP) report. Economists expect the US economy to have added 85K jobs while the Unemployment Rate is forecast to remain unchanged at 4.3%, figures that could influence expectations for the future policy path of the Federal Reserve (Fed).

• EUR/USD bounces up from 1.1600 and reaches 1.1630 to reverse Tuesday's losses.
• A ceasefire between Israel and Lebanon has hit the safe-haven US Dollar on Thursday.
• Eurozone Retail Sales declined beyond expectations in April.

The Euro (EUR) is rallying against a weaker US Dollar (USD) in Thursday’s European trading session, reversing Wednesday’s losses and returning to the 1.3630 area at the time of writing. A moderate improvement in market sentiment following news of a ceasefire in Lebanon has offset the weak Eurozone Retail Sales report released earlier in the day.

The safe-haven US Dollar is struggling on Thursday, following reports of an agreement between Israel and Lebanon to implement the ceasefire, which is pending confirmation by Hezbollah. This agreement is seen as the first step to disentangle the stalemate in Iran and advance towards a durable peace in the region.

A moderate market optimism is keeping the safe-haven US Dollar under pressure and buoying the Euro, which has been unfazed by a 0.4% decline in Eurozone Retail Sales in April. The final data overshoots market expectations of a 0.3% drop, although the upward revision of March’s figures –to a 0.8% increase from the 0.1% drop previously estimated– has contributed to cushioning the negative impact on the common currency.

Technical Analysis: The Euro keeps wavering within range

The broader technical picture, however, remains little changed. The EUR/USD trades at 1.1631, holding in a broadly neutral stance with price action trapped within the last two and a half weeks' trading range, between 1.1570 and 1.1660.

Technical indicators in 4-hour charts are mixed, endorsing the neutral view. The Relative Strength Index (RSI) is right above the 50 midline, while the Moving Average Convergence Divergence (MACD) remains slightly negative.

Upside attempts are likely to find significant resistance at the 1.1660 area, which has been capping bulls since mid-May. Above that level, the next targets are the May 14 high, at 1.1720, and May's peak, in the 1.1790 area.

On the downside, the 1.1600 round level has contained bears this week, guarding the path towards the range bottom, at the 1.1570 level (May 21 low). A confirmation below this level would put April's bottom at the 1.1505-1.1525 on the bears' focus.

(The technical analysis of this story was written with the help of an AI tool.)

The Eurozone Retail Sales data for April declines at a faster pace of 0.4% in April, compared to the 0.3% contraction expected. In March, the Retail Sales data, a key measure of consumer spending, rose by 0.8%, revised sharply higher from 0.1% decline. On an annualized basis, the consumer spending measure grew by 1%, faster than 0.3% estimates, but slower than the previous reading of 2.1%, revised higher from 1.2%.

Though Eurozone monthly Retail Sales have contracted sharply, there has been a sharp upside move in the Euro (EUR) during the European trade. As of writing, EUR/USD trades 0.25% higher to near 1.1630. This could be the outcome of a ceasefire announcement between the US-Iran alliance army and Iran-backed Hezbollah in Lebanon.

What do weak Eurozone Retail Sales data mean for EUR/USD?

The Eurozone Retail Sales data reflects the households’ spending power of the old continent. Soft Retail Sales exhibit weakness in the overall demand and prompt the need for loose monetary conditions by the European Central Bank (ECB), a scenario that is unfavorable for the Euro (EUR).

However, market participants expect the ECB to tighten monetary conditions in the near term, in an attempt to counter rising inflationary pressures due to elevated oil prices.

Technical Analysis: EUR/USD trades inside Descending Triangle pattern

EUR/USD trades higher at around 1.1630 at press time. The pair keeps a mild bearish tone as it holds below the 20-period exponential moving average (EMA) at 1.1648.

The pair is consolidating inside the Descending Triangle pattern, and the Relative Strength Index (RSI) at around 46 hints at soft downside bias rather than outright selling pressure.

On the topside, immediate resistance is seen at the 20-day EMA at 1.1648, followed by the descending trend-line barrier near 1.1656, and a daily close above this cluster would be needed to ease the current downside pressure and extend the upside towards 1.1700. On the downside, initial support is provided by the rising trend line coming in around 1.1575, where a break would open the door to a deeper pullback towards 1.1500.

(The technical analysis of this story was written with the help of an AI tool.)

Brown Brothers Harriman’s (BBH) Elias Haddad notes the US labor market is stabilizing and inflation is gaining traction, with ISM surveys and the Fed Beige Book reinforcing this view. Haddad highlights that a 25 bps Fed funds rate hike to 3.75-4.00% by year-end is now heavily priced and supportive for the Dollar, while upcoming Revelio Labs employment data will be watched for confirmation.

Fed pricing underpins stronger Dollar

"The Fed Beige Book reinforced the case that the US labor market is stabilizing and inflation is gaining traction. According to the Beige Book “Employment showed little to no change across eleven Districts, while one District experienced modest growth…Prices increased at a moderate to strong pace overall, with most Districts reporting higher inflation than the previous report.”"

"The ISM May surveys corroborated the Beige Book’s findings. The Prices Paid indices signaled inflation risks remain skewed to the upside while the Employment gauge was stable under the 50.0 boom/bust threshold."

"A Fed funds 25bps rate hike by year-end to a target range of 3.75-4.00% is increasingly likely (75% priced-in) and supportive of a firmer USD."

"Dallas Fed president Lorie Logan (FOMC voter) said yesterday, “I'm increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability.” Logan was one of the three regional Fed presidents (the other two are Beth Hammack and Neel Kashkari) that did not support the inclusion of an easing bias in the April 29 post-meeting statement."

"Fed speakers today include: Richmond Fed President Tom Barkin (2027 voter), Fed Vice Chair for Supervision Michelle Bowman, San Francisco Fed President Mary Daly (2027 voter), and Kansas City Fed President Jeff Schmid (non-voter)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• USD/CAD pulls back to 1.3900 from eight-week highs at 1.3925.
• A moderate optimism after the Israel-Lebanon ceasefire deal has hit the safe-haven USD on Thursday.
• The Canadian Dollar remains 0.8% down on the week with US and Canadian employment data on tap.

The Canadian Dollar (CAD) keeps losing ground against the US Dollar (USD) on Thursday, but it has reversed most of the daily losses, as news of a deal between Israel and Lebanon has boosted hopes of progress in the US-Iran peace plan. The USD/CAD pair is trading just above 1.3900 at the time of writing, down from eight-week highs of 1.3925 but still up 0.8% on the week.

Lebanon’s President Joseph Aoun said earlier on Thursday that he is awaiting responses from all parties to an agreement reached with Israel to implement the ceasefire. Investors have reacted with moderate optimism to the news, although risk appetite remains subdued amid a lack of progress in the US-Iran peace process.

US data feeds hopes of Fed tightening

In the macroeconomic domain, recent US data have been Dollar-supportive. On Wednesday, the ADP Employment Change report showed a stronger-than-expected increase in net jobs in May, while the US ISM Services Purchasing Managers’ Index (PMI) revealed healthy business activity and strong price pressures. These figures strengthen the case for a Federal Reserve (Fed) rate hike in the near-term, if inflationary pressures remain at high levels.

The focus on Thursday is on US initial Jobless Claims, although the highlight of the week is Friday’s Nonfarm Payrolls report, which is expected to show that the US economy created 85K new jobs in May and that the Unemployment rate remained steady at 4.3%.

At the same time, Statistics Canada will release May’s Canadian labour market numbers. In this case, net employment is seen increasing by 10K in May, following a 17.7K decline in April, while the Unemployment Rate is expected to remain unchanged at 6.9%.

• EUR/JPY rises toward 185.85, supported as the ECB is expected to raise interest rates this month.
• Eurozone Retail Sales decline in April, but markets continue to anticipate ECB monetary tightening.
• Prospects of a BoJ rate hike and FX intervention risks continue to limit the cross's upside potential.

EUR/JPY trades around 185.85 on Thursday at the time of writing, up 0.12% on the day. The cross is supported by the Euro (EUR) as investors expect the European Central Bank (ECB) to deliver another interest rate hike at its June meeting.

The latest Eurozone economic data presents a mixed picture. Services and Composite Purchasing Managers Index (PMI) figures for May were revised higher on Wednesday, although they remain in contraction territory. At the same time, April’s Producer Price Index (PPI) confirmed persistent inflationary pressures, reinforcing expectations that the ECB could continue its monetary tightening cycle after June’s hike.

Data released on Thursday, however, pointed to weaker consumer demand. Eurozone Retail Sales fell by 0.4% MoM in April, following a revised 0.8% increase in the previous month and compared with market expectations for a 0.3% decline. On an annual basis, Retail Sales growth slowed to 1% from 2.1% previously. Despite these mixed figures, investors continue to price in a 25-basis-point rate hike at the next ECB meeting.

A Reuters poll of economists showed that the European Central Bank is expected to raise its deposit rate to 2.25% in June, with another increase likely in September. However, analysts at BNY argue that a more hawkish ECB stance may not necessarily translate into sustained gains for the Euro.

On the Japanese side, the Japanese Yen (JPY) remains supported by growing expectations that the Bank of Japan (BoJ) will continue normalizing monetary policy. BoJ Governor Kazuo Ueda said on Wednesday that the central bank’s basic stance remains to continue raising interest rates in line with economic, inflation, and financial developments. Meanwhile, Japan’s Finance Minister Satsuki Katayama reiterated that authorities stand ready to intervene in the foreign exchange market if necessary.

These factors continue to cap EUR/JPY gains despite improving sentiment toward the Euro. Investors remain cautious about the possibility of intervention by Japanese authorities should the Japanese Yen weakness intensify further.

BNY’s Geoff Yu highlights that the ECB is heading into its blackout period with a rate hike effectively locked in, as Eurozone households’ 12‑month inflation expectations remain above 3%. However, he warns against treating this as a repeat of 2022, stressing that services PMIs show contracting demand and that households are already tightening via weaker consumption.

Households tighten as ECB prepares

"The ECB enters its pre-decision blackout period today."

"Given that anchoring inflation expectations is central to the Governing Council’s mandate, a hike on Thursday is all but confirmed."

"Nonetheless, we believe the Governing Council should not automatically see this as a repeat of 2022, and any attempt to draw immediate parallels risks further policy error."

"A key point of debate – which is already happening for the Bank of England – is whether the tightening already priced in has helped tighten financial conditions and “bought” central banks some time as household expectations shifted."

"The latest round of services PMIs confirms this view, with almost every single Eurozone economy showing a contraction, indicating a sharp decline in household demand as cost-of-living pressures weigh."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)