Dow Jones, US Dollar, USD/CAD, Euro, ECB, Inflation, Canada Employment Report

Investors pressed the sell button at the start of the weekend after a positive US nonfarm payrolls report saw the US add 390,000 jobs in May. That was above the 325,000 economists expected, according to a Bloomberg survey. The report fueled already strong bets on the Federal Reserve’s rate hike. Overnight index swaps predict 50 basis point hikes at the Fed’s next two meetings and an 84% chance of a 50 basis point hike at its September meeting. The US dollar ended its two-week losing streak, rising nearly half a percent on the week. Stocks responded in kind to these hardened bets, with the Dow Jones Industrial Average losing about 1%.

The Canadian dollar gained ground for a third week against the greenback, inspired by high oil prices and the Bank of Canada’s aggressive outlook on rate hikes. Analysts have become largely bullish on the Loonie – according to a recent Reuters poll, the CAD is expected to gain 0.4% against the USD over the next three months. Canada is expected to release April trade data and May employment numbers in the coming week, which could lead to volatile USD/CAD price swings.

Oil prices – across WTI and Brent benchmarks – rose despite the decision by OPEC and its allies to increase production by 648,000 barrels per day in July and August. This, however, did not allay supply fears in the energy market. These supply concerns were heightened after the US reported a bigger than expected inventory draw. The EIA said crude inventories fell 5.07 million barrels for the week ending May 27, well above analysts’ expectations of around -1 million barrels.

Elsewhere, copper prices in New York posted the biggest increases since February. Reports of Dour production from Chile (a major copper exporter) drove prices higher, further supported by China rolling back Covid restrictions. While Shanghai’s restrictions have indeed been eased, the situation remains precarious, given the political context around China’s “zero-Covid” policy. A National Bureau of Statistics (NBS) manufacturing report found that the country’s manufacturing sector continued to contract in May, albeit at a slower pace than the previous month. Inflation data for May is set to be released on June 10, an event that could prove to inject price swings into the market as traders gauge global inflationary pressures.

The euro is set to experience a pivotal moment this week through the policy decision of the European Central Bank, which is expected to cross the wires on June 09. EUR/USD slipped slightly after two weeks of gains despite inflation in the bloc reaching its highest levels in over 20 years. As calls for a more aggressive 50 basis point hike in July have grown, Ms. Lagarde is likely to lay out plans for a modest round of 25 basis point hikes going forward. That said, if the head of the ECB signals a more hawkish narrative, it could send the euro higher. Rising inflation targets could also support the European currency.

PERFORMANCE IN US DOLLARS VS. CURRENCIES AND GOLD

Fundamental forecasts:

Pound fundamental forecast: UK government support provides room for BoE hikes

The British government ££15bn support for low-income households bolsters the Bank of England’s rate hike path as it strives to tame inflation.

Aussie Dollar Ready to Move on RBA, Tipping Risk Appetite

The Australian dollar looks poised for volatility. An optimistic mood ahead of the next RBA policy update could heighten sensitivity to see-saw trends in risk appetite.

Weekly Crude Oil Forecast: OPEC+ Supply, US Dollar and Economic Data in Brief

Crude Oil managed to end the week higher, leaving next week open to fundamental forces from supply and demand factors and a resurgence in the USD.

US Dollar Fundamental Forecast: USD Could Rebound Despite Expected CPI Cooling

The US dollar moderated after several weeks of losses. Traders focus on US CPI data, but a weaker-than-expected print is unlikely to dampen Fed rate hike bets. This may keep the US dollar firmly supported.

S&P 500 Forecast for the Week Ahead: Inflation Data to Make or Break the Market

May’s US inflation report will be key for the S&P 500 next week. For sentiment to improve significantly, the data will need to show that inflationary pressures are easing at a rapid pace.

Gold Price Outlook: XAU/USD Could Fall as Markets Return to Inflation Woes

Gold prices remain vulnerable after a strong US nonfarm payrolls report underscored the Fed’s confidence in the economic outlook. All eyes are on the upcoming US inflation report.

Technical forecasts:

Euro technical forecast: EUR/USD avoids collapse – but for how long?

The euro jumped more than 4.2% from yearly lows against the dollar, with EUR/USD now eyeing downside technical resistance. The levels that matter on the weekly chart.

S&P 500, Nasdaq 100, Dow Jones Predictions for the week ahead

Stocks still appear to have upside potential in what is considered a rebound phase in a bear market.

AUD/USD breaches May high to test 50-day SMA for first time since March

The break above the May high (0.7266) raises the possibility of further advance for AUD/USD as it tests the 50-day SMA (0.7227) for the first time since March .

US Dollar Technical Forecast: EUR/USD, GBP/USD, AUD/USD, USD/JPY

The US Dollar finally found support after a two-week selloff, but next week brings inflation data and the following week the Fed. Buckle up for a busy economic calendar ahead.

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

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