Daily Market Analysis from ForexMart

Pension funds and hedge funds opt for gold

Despite hopes for lower inflation, the world's pension funds are still not taking risks. They are increasing their interest in gold, expanding their positions. According to the latest risk management report by Ortec Finance, published on Thursday, the company's analysts stated that they are 90% confident in a decline in inflation. Worldwide, more than half of the managers of government pension funds with a total of over $3 trillion in assets under management assume that inflation will be 3.3% or even lower this year. This assumption is already much lower than last year's survey, which predicted inflation at around 6.4%. The survey also showed that only 10% of global asset managers believe inflation will exceed 6%.

A week after the U.S. Department of Labor published data on the Consumer Price Index, which grew less than expected over the last 12 months to 5%, the survey results appeared. However, despite the optimism of fund managers that inflation will continue to decline, they are still not taking risks, increasing their positions in gold and other commodities.

According to the study, about 70% of the surveyed fund managers said their plans include increasing their participation in commodities. Specifically, 40% decided to increase their investments in gold; 42% said they increased their bond holdings.

Analysts believe that hedge funds' interest in gold should continue to support the precious metal and push prices to historical highs. Nevertheless, analysts noted that their bullish positions in gold are currently low compared to last year.

According to the latest data from the Commodity Futures Trading Commission, asset managers have long positions in gold of 104,000 contracts, about 27% of the peak in 2022 when prices exceeded $2,000 an ounce. Also, holdings in gold-backed exchange-traded products show there are fewer investors compared to the previous period. In March, gold-backed ETFs received a net inflow for the first time in 10 months.

Now, the world's largest gold ETF, SPDR Gold Shares (NYSE: GLD), contains 926.57 tons of gold. This is less than in March 2022, when it contained 1,100 tons.

Hot forecast for GBP/USD on 26/04/2023

It was assumed that new home sales in the United States would decrease by -0.5%, but suddenly, they jumped as much as 9.6%. So, investors who were initially prepared to sell the dollar further had instead begun to open longs on the dollar. The results of the housing prices report didn't even stop them, the growth rate of which slowed from 5.3% to 4.0%. Especially since estimates were a slowdown to 3.9%. And so, US macro data turned out to be better than forecasts. And the sales data was simply delightful.

New home sales (United States):

And today, the dollar may continue rising. This time, the reason should be orders for durable goods. According to forecasts, they can grow by 0.6%. So, the dollar should continue to grow. But only if the actual data matches the forecasts. And not like yesterday, when they turned out to be completely opposite.

Orders for durable goods (United States):

The GBP/USD pair sharply switched to a decline, losing about 0.8% of its value. However, this movement did not lead to anything crucial. The quote still moves within the sideways range of 1.2350/1.2550.

During the downward cycle, on the four-hour chart, the RSI technical indicator crossed the midline 50 downwards. The RSI points to an increase in the volume of short positions for the British pound.

On the four-hour chart, the Alligator's MAs have multiple intersections with each other, which corresponds to a signal of stagnation. In the mid-term, it is directed upwards, which coincides with the trend direction.

Outlook

Traders can work within a flat because the range width is sufficient for speculative activity, as evidenced by the recent price jump. The main strategy is still focused on the outgoing momentum from the flat, which, in a technical perspective, may indicate the succeeding price movement.

In terms of the complex indicator analysis, we see that in the short-term and intraday periods, technical indicators are pointing towards different directions due to the stagnation. In this case, it points to a bearish sentiment due to the downward momentum. In the mid-term period, the indicators are reflecting an upward cycle.

Slowing global inflation called into question. RBA raises rates, possible revision of RBNZ rate forecast. Review of USD, NZD, AUD

The US Manufacturing ISM report showed an increase in positivity, with the index rising from 46.3 to 47.1. However, at the same time as the sector's recovery, we should take note that a number of sub-indices favor higher inflation – prices jumped from 49.2 to 53.2, employment increased by 3.3 points, to 50.2, and new orders are still in contraction territory.

After a pause, which optimists declared the end of the banking crisis, another bank went bankrupt - First Republic Bank. After the purchase of FRB, JPMorgan shares rose more than 2%, as JPMorgan acquired $30 billion in assets, while losses were shared with FDIC, i.e., the state. The rescue of another bank has led to the fact that FDIC has virtually exhausted all reserves, a number of small regional banks are in line for rescue, and as the crisis escalates, it will be increasingly difficult.

US Treasury Secretary Yellen warned Congress that, by optimistic estimates, the government will not be able to fulfill its financial obligations by June 1 if Congress does not raise the debt ceiling by then. Republicans have already prepared a bill providing for a $1.5 trillion increase in the debt ceiling, with a simultaneous reduction in spending of more than $4.5 trillion.

Markets will trade with low volatility until the outcome of the Federal Reserve meeting is announced. The main intrigue lies in whether the Fed will maintain the prospect of another rate hike, as there are clear signs that inflation is ready to resume growth after a pause. Q1 PCE data clearly confirms this.

Against this backdrop, oil prices have fallen again, as have commodity currencies, as the trend towards a slowdown in global inflation is called into question.

NZDUSD

The focus is on the Q1 labor market report overnight on Wednesday, with expectations moderately positive. In February, the Reserve Bank of New Zealand forecasted an increase in the unemployment rate from 3.5% in Q1 to 4.8% by the end of the year, but at the same time, a sharp increase in wages. The RBNZ expects annual growth from 4.3% at the end of 2022 to 4.9% in Q2, which will strengthen inflation expectations.

There is also another unexpected news - from June 1, the RBNZ plans to ease lending conditions. Such a decision may require a higher rate to curb inflation growth, but so far, the market has not reacted, expectations for the RBNZ's May meeting remain stable, the bank will raise the rate by 0.25%, this outcome is already priced in and will not have a significant impact on the Kiwi rate.

The net long position in NZD decreased by $43 million for the reporting week to -$200 million, with a slight bearish bias. The calculated price goes down, signaling a strengthening of bearish sentiment.

NZDUSD did not reach the support level of 0.6079, but the upward retracement is unlikely to be strong. The nearest resistance is at 0.6240/50, where we expect the growth to end and the downward reversal to follow. The next support is the mid-channel area, coinciding with the local low of 0.6105, followed by 0.6020.

AUDUSD

The Reserve Bank of Australia surprised the markets considerably, not only did it raise the rate by a quarter point to 3.85%, but it also significantly changed the tone of the accompanying statement compared to that of April's. The statement reiterates the thesis that "some further tightening of monetary policy may be required," but emphasizes that the RBA wants to achieve this in "a reasonable timeframe," this thesis is repeated twice, unlike the previous forecast of inflation normalization in 2025. It paid more attention to wage growth.

The results of the RBA meeting are undoubtedly a bullish factor for the Aussie. Futures reacted with an increase in the probability of another 25 bps hike, and the Australian dollar became the leader in daily growth, pulling the NZD along with it.

Apparently, the RBA sees a threat of higher inflation or at least a more prolonged one, and the threat is real.

The net short position in AUD decreased by $234 million to -$2.615 billion, with bearish positioning. The calculated price lost momentum and shows signs of turning south, the forecast is neutral.

AUDUSD continues to trade in a horizontal channel, the decline expected a week ago turned out to be slightly deeper, but the subsequent bullish momentum on the background of the unexpected RBA decision quickly lost momentum. We suppose that till the end of the Fed meeting, trading will be in a narrow range, and further direction will be chosen based on the presence or absence of hawkish wording in the final statement of the Fed. By the end of the week, I expect the pair to fall to the border of the range at 0.6565.

Markets cautious ahead of the US inflation report. Overview of USD, EUR, GBP

Markets were cautious on Wednesday morning as they await the results of talks between Biden and House Speaker McCarthy on the US debt ceiling. Both sides are not willing to consider short-term solutions that would allow raising the borrowing ceiling and are not ready for compromises. A quick solution should not be expected, and perhaps there will be a threat of a technical default while a solution is being worked out.

The US labor market report for April contained rather contradictory data. Overall, the data was stronger than forecasts - 253,000 new jobs were created (forecasted 179,000), however, the data for the past 2 months was revised downward by 185,000, which offset all the positive news. The average hourly income was 0.5% against the forecast of 0.3%, which completely nullifies expectations of a rapid decline in inflation.

The US NFIB Small Business Optimism Index fell to its lowest level since 2013, at 89 points.

The key event of Wednesday is the US Consumer Price Index. Forecasts do not imply changes - monthly inflation growth rates are expected at 0.4%, annual rates at 6%, and any deviation from the forecasts may cause a strong market reaction.

EUR/USD

The European Central Bank raised its rate by 25 basis points, which was lower than the expected 50 basis points, and decided to stop the reinvestment of the APP program from July 1, which matched the forecasts.

Inflation estimates have not changed overall, and the reasons why the ECB refrained from raising the rate by 50 basis points can be sought in recent events in the banking sector. Perhaps banks perceive the threat of a large-scale banking crisis more seriously than it seemed; the latest survey showed that lending rates have fallen sharply, and lending conditions have tightened.

Comments on the ECB's unexpected decision were numerous and often contradictory. In general, their tone boils down to the statement that "the battle with inflation is far from being won," and the slowdown in rate hikes will allow keeping rates high on a longer trajectory. Indeed, a decline in overall inflation due to falling energy prices is evident, but core inflation has a completely different trajectory.

ECB President Lagarde mentioned several times at the press conference that the tightening of credit conditions has begun to spread to the real economy. Overall, Lagarde tried to appear hawkish, but markets reacted neutrally to the ECB meeting's outcome.

The net long position in the euro increased by 0.6 billion during the reporting week, reaching 23.8 billion, with speculative positioning remaining confidently bullish. The calculated price, however, has decreased slightly, suggesting the development of a corrective bearish movement.

A week earlier, we assumed that EUR/USD would begin to decline towards support at 1.0910. There is no reason to abandon this scenario yet; support has not been reached, but the chances of a further decline remain high. In case of a confident breakthrough at 1.0910, we assume further movement towards support at 1.0875.

GBP/USD

The Bank of England will hold another monetary policy meeting on Thursday. Market expectations suggest an interest rate hike of 25 basis points to 4.5% and a cumulative increase of 50-75 basis points by the third quarter. Forecasts for inflation, the labor market, and GDP will also be published.

The UK is experiencing more robust inflationary pressure than the US or the Eurozone, with overall inflation above 10% YoY and core inflation consistently above 6% without signs of slowing down.

According to the CFTC report, the net long position in the pound decreased during the reporting week from 0.5 billion to 0.1 billion, with positioning being neutral. The calculated price, however, continues to stay above the long-term average, so chances for continued growth remain. Overall, the pound looks stronger than the euro at present.

The pound updated its local high, getting to 1.2668 the medium-term target of 1.2750 has not been reached, but it is still valid. Support at 1.2575, if GBP/USD stays above this level, restoring growth and updating the high is possible. In case the corrective decline develops, a decline to the support area 1.2430/50 is possible, where there will be an attempt to create a basis for renewal of growth. There are no grounds for stronger decrease yet.

Hot forecast for EURUSD on 12/05/2023

Yesterday, everything revolved exclusively around the Bank of England meeting. And its results were the reason why the euro got significantly weaker. More precisely, the pound was falling, and through the dollar index, it pulled other currencies with it. And it's not so much about the BoE hiking interest rates by 25 bps, but rather about the following comments. Despite another increase in inflation, the British central bank signaled that it may pause rate hikes. It turns out that the BoE is not so much engaged in the fight against rising consumer prices, but rather follows in the wake of the larger central banks. Even though this is not in line with the emerging economic situation in the UK itself. Which has spooked investors.

So the euro's fall was not only impressive, but it also had nothing to do with the economic dynamics directly in the eurozone itself. Moreover, the single currency has gone beyond the range in which it has been for almost a whole month. Based on this, we can assume that today we will see a kind of rebound, and a return to the usual limits from 1.0950 to 1.1050.

During an intensive downward movement, the EUR/USD pair reached the 1.0900 level, which points to a change in the volume of short positions. As a result, a slowdown-pullback occurred relative to this level.

On the four-hour chart, the RSI indicator is moving in the lower area of 30/50, which corresponds to the downward cycle, as well as the touch of the 1.0900 level.

On the daily chart, two out of three of the Alligator's MAs intertwined, which could be an initial sign of a slowdown in the medium-term trend. On the 4-hour chart, it reflects a bear cycle, which corresponds to the current movement.

Outlook

In this situation, traders are considering an option of forming a pullback, which will eventually return the euro to its previous price ranges. However, if the pullback turns out to be false and the quote remains below the 1.0900 level in the daily period, then in this case, a technical signal about forming a full-scale correction through an uptrend may emerge.

The comprehensive indicator analysis in the short-term points to a pullback. In the intraday period, the bearish sentiment is still in force.

Hot forecast for GBP/USD on 15/05/2023

The first estimate of the UK's GDP for the first quarter was supposed to show the danger of an approaching recession, as the economic growth rate could slow from 0.6% to 0.3%. But in fact, it dropped to 0.2%. So, the recession is getting closer. And naturally, this had a negative impact on the pound. Another thing is that a noticeable reaction only started at the opening of the US trading session. And the fall of the pound, and along with it the euro, largely coincided with rumors about a new package of sanctions against Russia.

Change in GDP (United Kingdom):

The discussion is about the possibility of introducing a complete ban on pipeline gas supplies. That is, a ban on gas supplies to Europe. It seems like the West has already abandoned energy supplies from Russia, when in fact, supplies are still being transported. And they are carried out precisely through pipelines. If such a ban is introduced, Europe will face an even greater energy deficit. It may well cope with this problem, as happened last year, but the cost of energy will become even higher, which will have an even more serious impact on European industry. This means that Europe will be the main victim. This is exactly what caused the fall of European currencies. Today's eurozone industrial production report, the growth rate of which is expected to slow from 2.0% to 1.1%, could confirm these fears. So, following the euro, the pound may fall even further.

The GBP/USD pair has lost about 200 points in value over the past week. This momentum has led to a full-scale correction, which is shown by the medium-term uptrend.

On the four-hour chart, the RSI indicator has fallen into the oversold zone during a sharp price change, which indicates an abundance of short positions in the English currency.

On the same time frame, the Alligator's MAs are headed downwards, which corresponds to the direction of the correctional movement.

Outlook

In this situation, a technical signal shows that the pair is oversold in the intraday period. This may indicate a slowdown and as a result, the end of the correction. However, we are dealing with a momentum and trend, in which speculators may simply ignore that technical signal. In this case, keeping the price below the value of 1.2440 may push the pair to fall towards the 1.2350 level.

The complex indicator analysis points to a downward cycle in the short-term and intraday periods. In the medium-term, the indicator is still providing a bullish signal.

Gold stumbles due to Fed rate hike expectations

Gold exhibited mixed performance this week, rising strongly and then pulling back from recent peaks. Analysts believe that gold's rally is currently on hiatus, and that the precious metal is ready to move in a different direction. Uncertainty surrounding the Federal Reserve's interest rate trajector is contributing to gold's slowed momentum.

At the start of the week, gold marginally increased, but gave up part of its gains and slipped by 0.80%. This was due to ambiguous macroeconomic data from the US, which nonetheless showed signs of resilience. US retail sales were also notably robust. According to current data, industrial production in America bounced back in April, while the manufacturing sector is facing difficulties.

Retail sales excluding autos went up by 0.4% m/m, which matched forecasts. Year-over-year, sales rose by 1.6%, below last month's 2.4%. Experts believe it indicates that the US economy is slowing down.

US industrial production grew by 0.5% m/m in April. Year-on-year, it rose to 0.2% from 0.1% in the previous months. According to the latest data, manufacturing production increased by 1% m/m. Furthermore, an uptick in automobile production was observed, bolstering the US dollar and dampening gold's upside prospects.

Macroeconomic factors and higher US government bond yields have weighted down on the precious metal. Consequently, gold has slightly declined. Its downward movement has accelerated by week's end. The precious metal has now bounced downwards from the key level of $2,000 per ounce. On Thursday morning, 18 May, XAU/USD was trading at $1,977, trying to recoup losses, but with limited success.

As the precious metal slides down, investors are now focused on new US data, which is set to be published later today. The next batch of data will help investors assess the state of the US economy and predict the Fed's next interest rate move. In addition, the US Department of Labor will release the initial unemployment claims report. Preliminary forecasts indicate that jobless claims fell by 10,000 in the first week of May after rising by 22,000 earlier, reaching its highest level since October 2021.

Uncertainty regarding the US debt ceiling is another important factor for gold. Continuing discussions on the issue has yet to find a solution. Earlier, US President Joe Biden met with Congress representatives to address the issue. Analysts estimate the current situation has pushed up the precious metal, which benefits from anxiety in the market. Gold is universally considered to be a traditional safe-haven asset that can protect the holder's capital.

Higher industrial production in the US has boosted the market. As a result, traders and investors are pricing in the possibility of another interest rate hike in mid-June. Analysts suggest that the change in market expectations has triggered another dollar movement, weighing down on gold.

Gold's noticeable decline has been attributed not only to the mixed US macroeconomic data, but also to the Federal Reserve's current decisions on interest rates. As a result, the precious metal is approaching its April lows. Analysts believe that due to increased expectations of another key rate hike, the gold correction will continue.

At the moment, Fed representatives maintain a hawkish stance, believing that this approach would make it easier to bring inflation under control and return it to the target of 2% in the future. This also affects possible upcoming rate moves. According to Fed officials, the rate has not yet reached a level that would allow a rollback of policy tightening.

In this situation, the precious metal is stalling, but some analysts are confident that it could increase. Currency strategists at Credit Suisse believe that gold will eventually reach new highs and rise above the $2,070-$2,075 levels achieved in 2020 and 2022.

According to Credit Suisse, the gold market will soar to new highs following the completion of the current range phase, facilitated by a decrease in real yields in the US. In this situation, exceeding $2,075 would indicate a bullish breakout, opening the way to a new target range of $2,330-$2,360.

Technical analysis indicates that gold is approaching the 50-day moving average. Experts say that stabilizing above this level solidified the gold rally at the end of 2022 and confirmed it in March 2023. At the same time, the 61.8% retracement level, which moved from March lows to early May highs, is located at $1,977 per ounce.

Experts estimate that gold should avoid a sharp drop below $1,980. Such a scenario would be an important signal of market sentiment change, pushing gold down to a critical level of $1,950 per ounce.

If gold stabilizes near current levels, then the next growth impulse will help it refresh historical highs. In this situation, the technical target for gold bulls will be $2,250, which was reached during the last two-month rally. The long-term target will be the ambitious level of $2,640, which may be reached within 12 months.

Experts believe the correction of the precious metal will continue if the likelihood of another Fed rate hike increases in June. The regulator's next meeting is scheduled for June 13-14. Most analysts (72%) expect the key rate to remain at 5%-5.25%, while some anticipate another increase by 25 basis points.

EUR/USD. Steep plunge: The pair has hit multi-week price lows

The EUR/USD pair is plunging across all pairs, developing a downtrend. The EUR/USD bears managed to overcome the support level of 1.0770 (the upper limit of the Kumo cloud on the daily chart) – this is a multi-week price low (since March 27). The next barrier is at the 1.0650 mark (Kijun-sen line on the weekly chart). The key fundamental factor, thanks to which the greenback is gaining momentum, is still in force, so the downtrend is unlikely to weaken by the end of the current week. This refers to the threat of default in the U.S. The threat is not diminishing, but on the contrary, it's becoming stronger and more tangible with each day.

The situation is contradictory. On the one hand, everyone understands that the parties will eventually come to an agreement, as has been the case year after year. On the other hand, the world press continues to escalate the situation, modeling catastrophic scenarios if the US were to default on the national debt for the first time in history. And although there is a low probability of this scenario, it cannot be completely ruled out. Therefore, the conditional probability of "0.0 (...) 1%" is taken quite seriously by the market, with all the ensuing consequences.

Threat of Default or Groundless Panic?

The dollar is a beneficiary of the current situation. Due to the rising panic in the markets, the greenback is in high demand, including in the EUR/USD pair. Recent events suggest that in the coming days, American politicians are unlikely to find common ground on the issue of raising the debt limit. At least because the main "negotiator" - Joe Biden - is currently at the G7 summit in Japan. And although the US president cut his schedule, canceling a visit to Australia, he won't return to the US until Saturday. Therefore, at least until the end of this week, the situation will remain in a state of limbo, allowing the dollar bulls to feel confident in all currency pairs. The EUR/USD pair will not be an exception here.

Before heading to Japan, Biden declared he is confident, saying talks with congressional Republicans have been productive. According to him, he will maintain close contact with them during the trip and will hold face-to-face negotiations upon arrival. The White House head also reassured journalists that the U.S. would not default on the national debt.

Judging by the dynamics of the greenback, market participants reacted skeptically to Biden's optimistic statements, partly because he voiced similar rhetoric last weekend, ahead of another failed negotiation round. The seriousness of the situation is also indicated by the fact that Biden unexpectedly canceled planned trips to Australia and Papua New Guinea.

Therefore, traders' skepticism, in my opinion, is quite justified, as the parties only declare their intentions to make a deal, but it is assumed that the corresponding conditions put forward will be met.

As we know, the Republicans claim that an increase in the spending limit can only take place on the condition of significant spending cuts. In particular, they propose cutting tax credits for the purchase of electric cars and the installation of solar panels, as well as reducing government spending on education loan repayment. Democrats, on the other hand, reject such proposals and insist on raising the debt limit without any preliminary conditions.

To date, the sides have not been able to find a compromise, and this fact is supporting the safe dollar.

Growth of Hawkish Expectations

It should be emphasized that the dollar is strengthening its positions not only due to growing risk-off sentiments. The recent statements by Fed officials, which had a "hawkish hue", also lent support to the greenback. Despite the slowdown in US inflation, many members of the Fed do not rule out further steps to tighten monetary policy. For instance, Dallas Fed's head Lorie Logan stated that the incoming data "supports a rate hike at the next meeting."

This position, in one interpretation or another, was voiced by other representatives of the US central bank – specifically, Loretta Mester, Thomas Barkin, Raphael Bostic, and John Williams.

The market reacted to the tightening of rhetoric accordingly: according to the CME FedWatch Tool, the probability of a 25-point rate hike at the June meeting is currently 32%. For comparison, it should be noted that at the beginning of May, the chances of realizing a 25-point scenario were estimated at 5-8%.

Conclusions

The US dollar continues to enjoy high demand – firstly, amid risk aversion, and secondly – due to the growth of hawkish expectations regarding the future actions of the Fed. Such fundamental conditions contribute to the development of a bearish trend. If the Republicans and Democrats do not surprise the markets with an unexpected compromise, then the EUR/USD pair will likely keep heading towards the base of the 7th figure, and further to the support level of 1.0650 (the Kijun-sen line on the weekly chart).

EUR/USD. Week Preview. Buckle up, price turbulence expected

The EUR/USD pair failed to consolidate within the 7th figure by the end of the past week: at the end of Friday, EUR/USD bulls organized a small but swift counter-attack, which led the price to rise to the level of 1.0804. The corrective pullback was due to a weakening of the US currency, which came under pressure against the backdrop of Federal Reserve Chairman Jerome Powell's cautious rhetoric.

Powell suggested that the May rate hike could be the last in the current monetary tightening cycle. This unexpected plot twist surprised dollar bulls, afterwards the greenback fell across the market. Under other circumstances, this fundamental factor would have had a strong impact on the dollar for a quite long time. But under current conditions, Powell's dovish comments may take a back seat. The focus is on the political confrontation between Republicans and Democrats, as its failure to reach an agreement could lead to a default on the US national debt.

There is no doubt that this topic will be the "number 1 issue" for all dollar pairs. All other fundamental factors will take a back seat - including Powell.

Biden raises the stakes

Exactly one week ago - May 14 - the President of the United States announced that negotiations with Congress on raising the debt limit are "progressing," and more about their progress will be known literally "in the next two days". At the same time, he emphasized that he is optimistic about the prospects of reaching a compromise. In anticipation of the next round of negotiations, assistants to the US president and the Speaker of the lower house of Congress, Kevin McCarthy, began to form a "road map" to curb federal spending in order to resume negotiations on raising the debt limit.

The negotiations did take place - but ended in failure. The parties just "agreed to agree", but no more. Now the situation is up in the air. Another round of negotiations should take place after Biden completes his visit to Japan, where the G7 summit is being held. At the same time, he canceled his planned visit to Australia, which speaks volumes on the seriousness of the situation.

Important point: if the US president was initially optimistic about the negotiation process, today he has changed the tone of his rhetoric. For example, he stated that declaring a default is "personally out of the question" for him, but at the same time, he cannot guarantee that Republicans will not push the country into default by "doing something outrageous" (originally by Reuters agency - "Biden said he still believed he could reach a deal with Republicans, but could not guarantee that Republicans would not force a default by "doing something outrageous").

In this context, Biden called on Congress to work on the issue of raising the debt limit. He also emphasized that he would not agree to a bipartisan debt ceiling deal "exclusively on the terms of the Republicans". The US president expressed readiness to cut spending, but stated that he does not intend to fulfill all the demands of Republican congressmen.

The terrifying word: "default"

Judging by the escalation of the situation, a default no longer seems unthinkable. One can assume that Biden has decided to raise the stakes with his rhetoric before decisive negotiations, shifting the responsibility for possible default consequences onto the Republican party. However, in the context of forex traders' reaction, it doesn't really matter - whether it's a bluff or a real threat. Such statements from the US president are capable of significantly shaking the markets. Considering that the aforementioned comments were made during the weekend, dollar pair traders should prepare for a significant gap (in the case of the EUR/USD pair - a downward gap).

Overall, the upcoming week is packed with events. For example, on Monday, three representatives of the Federal Reserve (Bullard, Barkin, Bostic) will speak; on Tuesday, PMI indices will be published in Europe, and data on the volume of new home sales will be released in the US; on Wednesday, the minutes of the Fed's May meeting will be published along with a speech by European Central Bank President Christine Lagarde; on Thursday, data on the volume of pending home sales will be disclosed in America; and finally, on Friday, the most important inflation indicator - the core personal consumption expenditures index - will be published in the US.

But all these reports, as well as the speeches of Fed and ECB representatives, will remain in the shadow of the key topic of the upcoming week. The fate of the US national debt is the number 1 issue for dollar pair traders, so everyone will focus on its corresponding negotiations. Especially since there is not much time left until the "X hour": as the US Treasury previously warned, on June 1, the country's government may declare a debt default if Congress cannot raise the debt limit.

Conclusions

Under such fundamental circumstances, it is extremely difficult to predict the possible trajectory of EUR/USD. We can only assume that at the start of the new trading week, risk-off sentiments in the markets will rise again, and this fact will provide significant support to the dollar. In this case, the pair will return to the area of the 7th figure with a target at 1.0700. But everything will depend on the negotiation between Republicans and Democrats. If they do find common ground and announce an increase in the debt limit, the spring will unwind in the opposite direction - against the dollar (especially in light of Powell's recent statements). If the negotiation saga drags on until next weekend, the dollar will continue to gain momentum, acting as a beneficiary of panic sentiments.

Considering the previous statements of Republicans, Democrats, and Biden himself, the negotiations will be very challenging - therefore, dollar pairs may once again find themselves in the area of price turbulence.

Hot forecast for GBP/USD on 23/05/2023

Throughout Monday, the pound was mostly stagnant, and this won't last for long, so the market will definitely come alive today. Especially since preliminary PMIs are scheduled for release. However, the forecasts for the UK are not optimistic. In particular, the services PMI is expected to fall from 55.9 to 55.3. However, the manufacturing PMI is likely to remain unchanged. Due to the services sector, the composite PMI is expected to fall from 54.9 to 54.7.

However, this will not lead to a significant decline in the pound. The situation in the United States is quite similar. Although the manufacturing PMI may increase from 50.2 to 50.3, the services PMI is likely to fall from 53.6 to 53.0. Therefore, the composite PMI will fall from 53.4 to 53.0. Considering the overbought condition of the dollar, weak US data will ultimately lead to an increase in the pound. Even If the UK releases weak reports.

The GBP/USD pair failed to enter a full-fledged recovery phase. The volume of long positions fell around the 1.2480 level, leading to a reversal.

On the four-hour chart, the RSI is moving in the lower area of the indicator, which may indicate a persistent bearish sentiment.

On the same time frame, the Alligator's MAs are headed downwards, confirming the corrective movement.

Outlook

The corrective cycle from the peak of the medium-term trend persists, as the downward cycle continues after a recent retracement. The volume of short positions will increase once the price stays below the 1.2390 level. Until then, the bearish sentiment may be replaced by a consolidation within the scope of the recent retracement.

The comprehensive indicator analysis in the short-term and intraday periods points to the downward cycle.