Volatility Month ahead
In May, US upbeat economic data did not surprise the market participant as many used to wait for them after a considerable stimulus. However, with April Non-farm payrolls, Retail Sales, and finally with May NFP data of yesterday, doubts back into the market and caused many analysts to reduce their estimate of economic growth for the second quarter.
On the other hand, improving the vaccination progress in both US and EU economic recovery seems to move forward. ECB increased its bond purchasing since mid-March, and now on June 10's meeting, we have to wait and see if they will reduce their purchasing amount or not.
Still, and especially after the latest labor market numbers, Federal Reserve Officials say it is still too early to taper the stimulus. They will need few more months to watch the data closely in the following months and market reactions. "A Bloomberg survey found a majority expect tapering to begin in Q4. The December 2022 Eurodollar futures contract has a 25 bp rate hike discounted more than a year before the majority of the Fed (11/18) thinks it will be appropriate." (Investing.com)
Let's look at the month ahead and see what we expect from different markets in June.
US Dollar: US dollar, for the same reasons, used to lose its value two months in a row (April and May), however with the beginning of June trend has been changed since the market as US ten years Bond Yields strongly rose over 1.60% with inflationary concerns. Despite the Friday loss, there are many reasons, as I mentioned above, that we are still waiting for DXY to rise. For the DXY movement in the month ahead, the most critical event's that we have to follow CPI (10th), Fed Interest Rate Decision and Monetary policy (16th), GDP (30th), and FOMC member's speeches during the month.
Euro: The Euro is trading relatively more robust comparing other developed currencies, thanks to vaccination progress and reopenings. By August, they expect to have more than 70% of the population vaccinated. It is helping to have more social activities, especially in tourism and entertainment industries, assisting Service PMI increase. Even though Euro is expecting to stay still stronger, things change when it comes to EURUSD, and it will depend on USD and FED policies. For Euro, the most important event to look at is the 10th June ECB meeting. However, we should not forget about GDP (8th), German CPI (16th), PMI data (23rd), and EU CPI on June 30. Generally, we are expecting movement between 1.21 and 1.22 for EURUSD in Jun.
Yen: Japanese investors are one of the biggest US Treasury fans; that's why the USDJPY rate always depends on US Bond Yields. Overall, faster recovery of global economy decreases the demand of Yen and fears of rising inflation the USA, will increase the Dollar. That's why the downside movement of USDJPY is not so much likely. Cheaper Yen with better recovery and higher inflation in the States is what is expecting in June. In the month ahead, Yen, more than any other event, must be looking at GDP (8th), BOJ interest rate decision and Statement (18th), and BoJ monetary meeting (23rd).
GBP: Pound gained 2.5% in May, more than any other major currencies against USD, and leading against USD in past four months. Also, May 2021 was the first May in 12-years that Sterling broke the tradition and gained against the Dollar, although it usually falls in this month. As the UK is one of the leading countries in vaccination, they started hiring and business openings a bit earlier than others, and it helped the domestic currency rise in 2021 so far. BoE also eased its Bond purchases and intended on completing them before year-end. For June, Sterling traders must follow the Employment data (15th), CPI (16th), Service PMI (23th), BoE monetary policy meeting and interest rate decision (24), and GDP numbers on the 30th June.
Loonie: Canadian Dollar (CAD) rose about 4.5% in May after the BoC decision. On the other hand, the WTI rally also helped the CAD fall under 1.20 against USD, while the Dollar by itself was also weak, and all held each other to send the CAD to the most vital position since 2015. The latest labor data was also weaker than estimates, and it will probably push the BoC to hold the current stimulus and do not take the next step in tapering the bond purchasing for now. Both technical and fundamental data tell us that correction to 1.23 area is June expectations for CAD. For CAD, BoC interest rate decision (9th), Retail Sales (23rd), and Oil price direction are the most important events and data to watch.
Aussie and Kiwi: Both currencies are moving in a precise side movement and with no specific direction. The Aussie has moved broadly sideways between $0.7675 and $0.7855, while Kiwi $0.7160 and $0.7270. After that, RBNZ, in its May meeting, had some signal of rate-raising in the second half of 2022; many investors were waiting that the reserve bank of Australia will also keep the same way. Still, RBA, in its meeting on the First day of Jun, showed that it is not in a hurry to start Hawkish policies. For Jun, both currencies are still expected to hold their current side movement or slow downtrend.
Wall Street: May was a choppy month for Stock Traders. Inflation concerns with different outlooks from FED decisions created a very volatile market; however, both S&P 500 and Dow Jones Industrial Average could print new all-time highs in the first week of May and, despite the free fall of mid-month, finish the month in the green area. The Nasdaq Composite, on the other hand, declined in May, breaking a six-month streak of higher highs. While FOMC meeting minutes from March had some note, stating that "if the economy continued to make rapid progress toward the committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.", FED speakers repeatedly emphasized during the month and the first week of June, especially after the second month in a row that NFP missing the expectations that it is still so early talking about tapering the bond purchasing or rate rising. For the month ahead, everything will be affected with Tuesday, June 10 CPI data. Increasing inflation will put the Wall Street leading indices under pressure; otherwise, higher numbers still can be seen since the Liquidity in the market is high.
Oil: WTI and the energy sector had a memorable month, as economic recovery needs more energy. With a 5% gain in May, US Oil ended the month with a new one-year high, and Brent Oil printed a new one-year high in the first days of June. Since summer means more demand and reopenings will have more summer tourists, and it means more demand for fuel, Oil is supposed to have a bright month ahead.
Gold: Nothing more than a weaker US dollar and market inflation worries could help the Gold get back on its feet again, especially after the free fall of the crypto market; for the first time in past years, many investors sold their BTC for Gold. A stronger Dollar in June can cause cheaper Gold; however, if Stock markets get less attention, cash flow will find Gold the best investment for the transition period.
