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ECB Rate Cut and U.S. Unemployment: Watch on Asia Impact

ECB Rate Cut and U.S. Unemployment: Watch on Asia Impact

Asia market outlook: The ECB rate cut, rising U.S. unemployment claims, and cautious trading are expected ahead of key reports.

What Happened in the U.S. Session?

Despite the European Central Bank (ECB) cutting its primary refinancing rate by 25 basis points from 4.5% to 4.25%, the Euro spiked from 1.0865 to 1.0900 within 15 minutes. This reaction followed the ECB’s raised inflation forecasts for headline and core CPI in 2024 and 2025. Elevated domestic price pressures continue to challenge the inflationary landscape. ECB President Christine Lagarde adopted a hawkish stance, emphasizing the need for additional data to confirm a disinflationary trend, noting that wages remain high despite recent declines. Lagarde also highlighted that the ECB needs to reach a neutral rate, a key objective for the bank.

In the U.S., unemployment claims rose above expectations for the second consecutive week, indicating potential fragility in the labor market. The latest figures showed 229K claims, surpassing the forecast of 220K and the previous week’s revised 221K claims. The dollar index (DXY) fluctuated sharply, initially dropping from 104.35 to 104.10 before stabilizing between these levels for the rest of the session.

What Does it Mean for the Asia Session?

As Asian markets absorb the ECB’s rate decision and higher U.S. unemployment claims, the DXY remains above 104.10. Spot gold prices have retreated from the $2,380/oz mark. With the Bureau of Labor Statistics (BLS) set to release its employment report, markets may proceed cautiously during the Asian and European trading hours.

Currency and Commodity Insights

The Dollar Index (DXY)

  • Key Event: BLS Employment Report (12:30 pm GMT)
  • Expectation: Non-farm payrolls (NFPs) could rise by 186K, with the unemployment rate at 3.9%. Should the report indicate slower job growth for the second consecutive month, the dollar may experience a strong sell-off.

Central Bank Notes:

  • The Federal Funds Rate target range remains at 5.25% to 5.50%.
  • The Committee seeks maximum employment and 2% inflation over the long run, with recent indicators showing solid economic activity and substantial job gains.
  • The next meeting is on June 11-12, 2024.

Next 24 Hours Bias: Weak, Bullish

Gold (XAU)

  • Key Event: BLS Employment Report (12:30 pm GMT)
  • Expectation: If the NFPs indicate slower job growth, the dollar may weaken, potentially boosting gold prices.

Next 24 Hours Bias: Weak, Bullish

The Australian Dollar (AUD)

  • Key Event: None
  • Current Levels: Support at 0.6630, resistance at 0.6700.
  • Central Bank Notes: The RBA’s cash rate target remains at 4.35%, with inflation expected to return to the target range by late 2025.

Next 24 Hours Bias: Weak Bearish

The Kiwi Dollar (NZD)

  • Key Event: None
  • Current Levels: Support at 0.6170, resistance at 0.6220.
  • Central Bank Notes: The OCR is unchanged at 5.50%, with inflation pressures easing but remaining high.

Next 24 Hours Bias: Weak Bearish

The Japanese Yen (JPY)

  • Key Event: None
  • Current Levels: Support at 154.70, resistance at 156.60.
  • Central Bank Notes: The Bank of Japan maintains its QQE with Yield Curve Control and aims for a 2% inflation target.

Next 24 Hours Bias: Weak, Bullish

ECB Rate Cut and U.S. Unemployment: Watch on Asia Impact

The Euro (EUR)

  • Key Event: None
  • Current Levels: The Euro reacted positively to the ECB’s inflation forecast adjustments despite a rate cut.
  • Central Bank Notes: The ECB cut rates by 25 basis points, with inflation projected to average 2.5% in 2024 and 2.2% in 2025.

Next 24 Hours Bias: Weak Bearish

The Swiss Franc (CHF)

  • Key Event: None
  • Current Levels: Support at 0.8880, resistance at 0.8950.
  • Central Bank Notes: The SNB reduced its key policy rate to 1.50%, with inflation expected to remain within the target range.

Next 24 Hours Bias: Weak, Bullish

The Pound (GBP)

  • Key Event: None
  • Current Levels: Support at 1.2700, resistance at 1.2820.
  • Central Bank Notes: The Bank of England held its rate at 5.25%, with inflation expected to remain close to target.

Next 24 Hours Bias: Weak Bearish

The Canadian Dollar (CAD)

  • Key Event: Labour Force Report (12:30 pm GMT)
  • Expectation: Employment change hopes to increase by 27.8K, with the unemployment rate rising to 6.2%.

Central Bank Notes:

  • The Bank of Canada reduced its rate to 4.75%, with inflation moving towards the 2% target.

Next 24 Hours Bias: Weak, Bullish

Oil

  • Key Event: None
  • Expectation: Oil prices rose as OPEC+ reassured markets of potential output adjustments.

Next 24 Hours Bias: Weak, Bullish

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