Markets trade in narrow ranges amid light holiday volumes

Headlines

* Dollar edges lower in quiet, holiday-thinned trade

* Stocks in the green with US and UK cash market closes

* German IFO Business morale stalls ahead of likely June ECB rate cut

* Gold gains 0.73% as markets brace for key US inflation data

FX: USD turned lower for a second straight day as prices headed towards the 200-day SMA at 104.39. Resistance was seen above at the 50-day SMA at 105.00. FX volatility has been relatively low recently with last week’s narrow range and inside candle on the DXY. Markets have one eye on Friday’s Core PCE data, the Fed’s favourite measure of inflation.

EUR eked out a gain in a quiet day of trading. Prices could be in bullish consolidation mode before they break 1.09. The German IFO Business index came in softer than expected. The stagnating data point to a bottoming out in the German economy not yet being followed by a strong recovery.

GBP advanced for a third day in a row as it broke to the upside above last week’s spike high. Cable seems headed towards 1.28 and beyond.

USD/JPY traded very marginally lower as bullish momentum faded in holiday trading. The Fib level (38.2) of the April high and May low sits just above at 157.01. The 10-year US Treasury yield is trading just below 4.50%. Governor Ueda highlighted the benefits of ending ultra-loose policy. But he also emphasised a cautious approach to inflation targeting amid economic challenges.

AUD found support just above 0.66 with bulls eyeing up recent cycle highs just above 0.67. Australia CPI will be in focus when it is released on Wednesday. USD/CAD dipped below the 50-day SMA at 1.3650. The loonie had recently been pressured by wider short-term rate differentials.

Asian Stocks: APAC futures are positive. Asian stocks were generally in the green as investors cheered robust China industrial figures. The ASX 200 rallied with all sectors higher apart from energy stocks. Real estate and communication services outperformed. The Nikkei 225 moved 0.7% higher to settle at 38,900. China stocks firmed with the major release for the week being surveys for manufacturing and services for May released on Friday.

Gold tried to build on Friday’s buying after last week’s roller coaster ride. Bullion hit a record high at $2450 before selling off aggressively last Wednesday and Thursday. Buying picked up on Friday after a US survey found consumers had lowered their inflation expectations.

Chart of the Day – GBP/USD breaks to the upside

Last week’s hotter than expected CPI data and the snap UK election call have effectively squashed the risk of a Bank of England June rate cut. Bets on that were 50:50 before the inflation data with an August move nailed on. There is now very little chance of a June move, while August chances have halved.

This has seen the pound bought on dips and the Bank of England is now seen as moderately more hawkish. But we still have another CPI report plus two more sets of wage growth data to be published before the June MPC gathering. Cable popped higher in thin trade to a minor Fib level at .12776. The next target after this is 1.2822 with the cycle high at 1.2894. Support sits around 1.27.

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