Crude Oil

Weekend meeting of OPEC+ group was watched closely but was not expected to result in any changes to the level of agreed output cuts. This turned out to be partially true. While OPEC+ decided not to deepen output cuts, it has agreed to extend the current output cut agreement through 2024. However, Saudi Arabia announced that it will make a voluntary output cut of 1 million barrels per day. The cut was announced for July only but Saudi officials already warned that it may be extended if the situation requires it.

Baseline production levels were adjusted for 2024 and it could be seen as somewhat bearish. This is because production quotas were redistributed from countries that struggled to meet production targets to countries that have spare production capacity. As a result, it may lead to better compliance with production targets across the group and, in turn, to higher combined production.

Taking a look at WTI chart (OIL.WTI) at D1 interval, we can see that the price launched a new week with a big bullish price gap. While Brent (OIL) jumped around 1.7% at the beginning of a new week, WTI opened with an around-4% price gap. OIL.WTI jumped above the $73-74 per barrel resistance zone and tested 50-session moving average (green line). However, bulls failed to break above it and gains started to be erased as the Asian session progressed. Price has almost completely filled the bullish price gap but has bounced off the daily lows since.

USDCNH

The USDCNH pair and the CHNComp contract reacted with rises in the face of the announcement of the Chinese authorities' order to cut deposit interest rates to stimulate the economy. Yields on Chinese debt securities lost following the above announcement.

State-owned banks, including Bank of China Ltd, Industrial & Commercial Bank of China Ltd and Bank of Communications Co, were ordered to cut interest rates on a range of products, including by 5 basis points on demand deposits and by at least 10 basis points on three-year and five-year time deposits, anonymous sources said.

Russel 2000 rallies 2.5% as banks outperform

Wall Street indices managed to recover from early losses and are posting small gains at press time. Russell 2000 is an exception as the index is not posting a small gain but a massive one. The index is trading 2.5% higher at press time with all 11 sector groups trading higher. Biggest gains, however, can be spotted on Financials subindex. The move high in financials is driven by banks, with regional banking shares rallying today. The move is somewhat puzzling as there was no news that could justify outperformance of the sector. It looks like a relief rally following struggles of regional banks in recent months.

However, it should be said that banks have been underperformers on Wall Street yesterday and this underperformance was a result of WSJ report suggesting that US regulators are considering raising capital requirements for banks by 20%. This story has been neither confirmed, nor denied by US authorities but it looks like shares in regional banks are trying to erase part of recent weakness today.

Russell 2000 futures (US2000) rally today and has managed to climb above 1,845 pts resistance zone earlier during the session. The index is trading at a 3-month high. The next resistance zone to watch can be found in the 1,885 pts area.

US500 - Trade of the day

Facts:
US500 has broken out of the downward trend channel
Currently, there is consolidation around the resistance zone
The end of the hike cycle is near

Recommendation:
Position: long on US500
Target Price: 4384, 4437
Stop Loss: 4230

Justification:

The US500 index has broken out of the downward trend that has been ongoing since the end of 2021. The index's breakout occurred at a price of 4200 points. After overcoming resistance, the index price gained up to the level of 4250 points, after which it retested support at the level of 4200 points. The following days brought a decisive rebound, and the previous week the US500 index ended on a solid plus. The price clearly broke above the support line, indicating a strong move. It is currently in consolidation around 4300 points, increasing the chances of a possible further breakout.

Next week, investors are awaiting key inflation data and the FED's decision on interest rates. Currently, the market estimates no hikes and hopes for a signal of the end of the cycle. The lack of a hike at this meeting may lead to euphoria on the indices in the hope of ending the cycle and a "soft landing". Although such a scenario is rather unlikely, it may lead to increases in the valuations of risky assets in the short term. This may be a sufficient reason for the US500 to continue the strong upward trend and break above 4300 points in the short term. However, if the price does not break above 4300 points, we recommend setting a stop loss close enough to minimize losses.

USDCAD

The Bank of Canada (BoC) has raised its target for the overnight rate to 4.75%, in line with its ongoing policy of quantitative tightening. This decision comes amid global economic shifts, with major central banks signaling potential further rate hikes to maintain price stability.

Canada's economy showed stronger than expected performance in Q1 2023, with a GDP growth of 3.1%. Despite lower energy costs, goods price inflation increased, and CPI inflation rose to 4.4% in April. The BoC anticipates a decrease in CPI inflation to around 3% in the summer, but concerns persist about it remaining above the 2% target.

BoC note: "In response to these factors, the BoC increased the policy interest rate, reflecting the need for a more restrictive monetary policy to balance supply and demand and return inflation sustainably to the 2% target. The Bank remains committed to restoring price stability for Canadians."

US2000

The Russell 2000 Index of U.S. smaller-cap companies (US2000) has been on an upward surge for several days. In yesterday's session, it rose nearly 1.8% against a 1.7% decline in the Nasdaq, weakness in the S&P500 and the Dow index. Driven by oversold regional bank stocks in recent weeks, the benchmark has risen less than 7% since the beginning of the year, a weak performance against the major indexes. By comparison, it has gained nearly 8% in the past five days alone. Today's claims reading at 2:30 pm could mean additional volatility for the index.

For now, the market is reassuring itself that the US economy remains quite strong (although industry is sending signals of weakness) with a strong labor market, and in view of consumer strength, revenues of listed companies are not in danger of collapsing at least in the foreseeable period. The increases in the major indexes are thus 'spilling over' slowly to smaller companies that have been bypassed for months, which is also helped by the Fed's rate hike cycle coming to an end. The Russell sub-index, which includes energy companies and banks, has recently lagged behind the sub-index linked to growth stocks (the largest disparity in more than 20 years) - primarily due to the frenzy related to AI and the strength of the largest BigTech companies (a situation reversed in comparison to 2022). In recent days, value companies from the Russell especially bank shares, have closed the gap somewhat by driving the benchmark.

US2000 broke out above the 38.2 Fibonacci retracement of the March 2020 upward wave and a rise above 1900 points could open the way for the bulls to reach the psychological resistance of 2000 and 2100 points, where the 23.6 Fibonacci retracement is visible. The index has formed a strong base near 1750 points, the strength of which has been 'tested' by the price several times - each time the bulls have managed to bounce higher. In the bearish scenario 1750 - 1800 points zone may be tested again.

EURUSD

US indices finished yesterday's trading higher. S&P 500 gained 0.62% to 4,294 points, Dow Jones moved 0.50% higher to 33,833 points and Nasdaq 100 added 1.27% to 14,484 points. The Russell 2000 dropped 0.41%, as investors were taking profits after a good session the day before.

Asian stock markets are poised for their second consecutive week of gains, buoyed by the prospect of economic stimulus in China and the S&P 500's transition into a bull market.

Japanese markets bounced back from a two-day downturn - Nikkei climbed 1.66% to 32,174 points and Australian stocks also rebounded after a three-day decline - S&P/ASX 200 dropped 0.11%.

South Korean stocks have hit their highest point since June of the previous year - Kospi gained 1.25%.

Indices from China decreased by around 0.25%

European futures point to a flat opening of the European cash session today, DAX futures are traded 0.06% lower at 16,014 points.

The Chinese Consumer Price Index (CPI) Year on Year (YoY) remained as expected at 0.2%, while the Producer Price Index (PPI) YoY fell to -4.6%, lower than the forecasted -4.3%.

The Bank of Japan's Governor Ueda stated that the bank is implementing policies to achieve a stable 2% inflation rate.

A spike in US unemployment claims to the highest level since October 2021 indicates a softening labor market, which lowered the expectations that the Federal Reserve would keep interest rates elevated for a prolonged period.

Despite the S&P 500's return to a bull market, an analyst from Bank of America has stated that the overall market sentiment remains pessimistic.

Analysts at Bank of America believe that as long as inflation remains high globally and particularly in the US, the EURUSD is likely to remain weak. Currently, the carry trade is also applying downward pressure on the euro.

Saudi Arabia reportedly threatened the US with economic repercussions last fall due to oil price reductions, according to the Washington Post.

Precious metals trade mixed - gold trades flat, silver gains 0.15%, platinum gains 1.25% and palladium jumps 0.18%

Binance.US has halted USD deposits and warned of a potential pause in fiat withdrawals in response to the "extremely aggressive and intimidating tactics" employed by the SEC and intended to safeguard customers and the platform.

EURUSD chart -  according to BoA a sustained rally in EURUSD would necessitate a change in the Federal Reserve's stance, Interval H1.

Palladium

Palladium prices have been falling for quite some time - the main reason being an expected oversupply of the metal next year. One of the world's largest producers of the metal, Russian giant Nornickel estimates that the palladium market will reach a surplus of up to 300,000 ounces in 2024 against an estimated 200,000 ounce deficit in 2023. The company accounts for 40% of global palladium production. Among other things, palladium is used to reduce exhaust fumes in automobiles.

According to Nornickel, 80% of the world's palladium supply is absorbed by the automotive industry, where demand for palladium is expected to grow by 1% y/y in 2023.  On the other hand, however, electric cars where palladium is not used because they do not emit exhaust fumes are growing in popularity. In addition, manufacturers are increasingly replacing palladium with cheaper substitutes. Increased consumption of palladium in 2022 and 2023 has resulted in the sale of accumulated stocks by automotive companies, but these sales are expected to end in the second half of the year as companies potentially empty their inventories. Nornickel also expects 180,000 tons of surplus nickel in 2024.

PALLADIUM is slipping towards $1,300 per ounce and has fallen below the 71.6 Fibonacci retracement of the upward wave from January 2016. From this level, declines may deepen even to $1100 per ounce where previous price reactions are located.

Quadruple Bottom on Oil?

Crude oil continues its declines in another week of June. In addition, new Goldman Sachs forecasts for crude have emerged. GS is now pointing to a level of $86 per barrel for Brent at the end of 2023, against a previous forecast of $95 per barrel. Why the forecast cut?

> Higher production from Russia and Iran offsets the impact of an additional cut from Saudi Arabia
> The market should be balanced after the AS cut, but there will not be a deficit
> GS expects higher production growth this year and next year from countries outside of key OPEC members
> Uncertainty about China

Technically, however, there is a potential signal of a quadruple bottom. The price would still have to fall a few tens of cents, but this is a very important test for oil. Usually the fourth test of support leads to a breakout, so the emergence of very negative news on, for example, demand from China or the continuation of hikes by the Fed could lead to a breakout from the consolidation. On the other hand, if oil survives this test, it seems that the trend should eventually reverse and lead to a breakout to price ranges, probably to levels of $80-90 per barrel.

The recent lows associated with the triple/quadruple bottom formation are near $71.5 per barrel. If a rebound from this area were successful, then, with a breakout of the neckline near $78 per barrel, the range of the formation would point to around $85 per barrel, where the retracement of 23.6 currently holds.

BTCUSD

Bitcoin is currently consolidating within a range of 25,300 to 26,000. The key support level is at 25,300, which has shown significant reactions in the past few months. If the bullish momentum fails to sustain this level, a potential further decline may be expected.

Ripple

Cryptocurrency RIPPLE gains 5% as fintech lawyers await to get access to internal SEC correspondence in court later today. Ripple has been fighting the SEC for nearly 2 years according to which the cryptocurrency is a security, and the company behind it has committed illegal sales. The cryptocurrency has proved surprisingly resilient to the crypto crisis of recent days.

The dossier due to arrive in court today is expected to include messages exchanged by SEC members after former director Hinman's speech. The one contrary to Gensler's position indicated that cryptocurrencies could be commodities. Potentially inconsistent comments could undermine the SEC's authority and increase Ripple's chances of winning in court.

The Federal Trade Commission (CFTC) has long been in dispute with the U.S. Securities and Exchange Commission (SEC) over whether cryptocurrencies should be considered commodities or securities. Over the years, there has still been no consistent position on the issue. This regulatory mess could be exploited by lawyers;

A look at the chart

In recent weeks, which have been very weak for crypto, the price of Ripple has managed to rise unexpectedly. The chart below shows the divergence between Binancecoin (yellow chart) testing the December minima, and Ripple - this one has been gaining since late May. In contrast to Bitcoin and most cryptocurrencies. The market is taking a positive view of the chances of winning in court, with the judge allowing evidence of the Commission's internal correspondences into the case despite the SEC's protest.

RIPPLE is climbing in the vicinity of 0.56 USD, and potentially breaking the psychological resistance of previous peaks at 0.57 USD may open the way to 0.68USD where the price may encounter the first significant resistance (past price action).

USDJPY

USDJPY is on the move today with Japanese yen being the worst performing G10 currency while US dollar is one of the top performers. USDJPY is up almost 1% on the day. USD strengthening is driven by yesterday's FOMC meeting, which in spite of a pause in rate hikes, turned out to be very hawkish. This is because the new dot-plot showed a median rate expectation at 5.6% for end-2023, an increase from 5.1% in March dot-plot. This also means that FOMC members see two more 25 basis point rate hikes this year while market expectations prior to the meeting were for one more hike yesterday or at the July meeting before ending the cycle. Hawkish message sent by Fed led to a major repricing in market expectations with swap market no longer pricing in Fed rate cuts this year.

This hawkish turn from Fed is not only supporting USD but also putting pressure on JPY. This is because it signals that divergence between Fed and BoJ policies will continue to grow. Bank of Japan will announce its next monetary policy decision on Friday but no change to the level of rates or other monetary policy settings is expected.

Taking a look at the USDJPY chart at D1 interval, we can see that the pair is trading in an upward channel. Pair broke above a local high from late-May 2023 and is now trading at the highest level since late-November 2022. USDJPY is approaching a mid-term resistance zone in the 142.00 area. Note that the upper limit of the channel can be found slightly above this resistance.