Dollar is paring some gains today as markets digest near term moves. But the greenback remains the strongest for the week, as markets are adding bets to more aggressive rate hikes by Fed this week, and at next month’s meeting. Yen is so far the next strongest, as supported by risk aversion. Aussie is so far the worst performing one, followed by Sterling and Kiwi. Euro and Swiss Franc are mixed. While the greenback should continue to be strong, the dynamics between other currencies would be depend on the outcome of other central bank meetings including BoE, SNB and BoJ.

Technically, GBP/USD’s break of 1.2154 support confirmed down trend resumption. But EUR/GBP is holding below 0.8617 resistance. So the Pound’s weakness is not too overwhelming yet. On the other hand, EUR/USD is holding above 1.0348 support. USD/CHF is staying below 1.0063 resistance. Thus, Dollar’s strength is also not too decisive yet. Let’s see how things go.

In Asia, Nikkei dropped -1.32%. Hong Kong HSI is down -0.23%. China Shanghai SSE is up 1.02%. Singapore Strait Times is down -0.83%. Japan 10-year JGB yield rose 0.0073 to 0.262. Overnight, DOW dropped -2.79%. S&P 500 dropped -3.88%. NASDAQ dropped -4.68%. 10-year yield rose 0.21 to 3.366, and broke through 2018 high at 3.248.

Markets expecting 75bps Fed hikes this week and in Jul

US stocks closed sharply lower overnight with DOW, S&P 500 and NASDAQ making new lows of the year. As continued aftermath of last week’s CPI data, markets are now adding bets to more aggressive tightening by Fed. The original plan of 50bps hike per meeting seems out of favor.

Fed fund futures are now pricing in 99.4% chance of a 75bps hike this week (Wed) to 1.50-1.75%. Further, there is 79.9 chance of another 75bps hike in July to 2.25-2.50%. A pause in September is now a definite no, as markets are expecting another 50bps hike.

Still, the overall expectations would be reshaped by the updated economic projections and the dot plot to be published along with the rate decision.

UK payrolled employees rose 90k in May, unemployment rate unchanged at 3.8% in Apr

UK payrolled employees rose 90k, or 0.3% mom in May. Claimant count dropped -19.7k, versus expectations of -42.5k. Median monthly pay rose 5.4% yoy to GBP 2076.

In the three months to April, unemployment rate was unchanged at 3.8%. Economic inactivity rate dropped -0.1% to 21.3%. Average earnings including bonus rose 6.8% over the year, below expectation of 7.6%. Average earnings excluding bonus rose 4.2% over the year, above expectation of 4.0%.

Australia NAB business confidence dropped to 6 in May, conditions dropped to 16

Australia NAB business confidence dropped from 10 to 6 in May. Business conditions dropped from 19 to 16. Looking at some details, trading conditions dropped from 27 to 24. Profitability conditions dropped from 21 to 17. Employment conditions rose from 11 to 12.

“Lower confidence in May likely reflects a range of risks on the horizon,” said NAB Group Chief Economist Alan Oster. “Businesses are facing a new environment of higher inflation, rising interest rates, and risks to global growth. However, confidence is still at a fairly robust level all things considered.”

Looking ahead

Germany ZEW is a major focus in European session. US will release PPI while Canada will release manufacturing sales.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0366; (P) 1.0443 (R1) 1.0486; More…

Intraday bias in EUR/USD stays on the downside for retesting 1.0348 and 1.0339 long term support. Decisive break there will resume larger down trend. Next target is long term projection level at 1.0090. On the upside, above 1.0532 minor resistance will delay the bearish case, and turn intraday bias neutral first.

In the bigger picture, focus stays on 1.0339 long term support (2017 low). Decisive break there will resume whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. However, firm break of 1.0805 support turned resistance will delay this bearish case, and bring stronger rebound first.

Economic Indicators Update