USD/JPY

• The pair is up by over 220 pips in trading this week after hitting highs of just above 131.00 at the end of April and early May, the pair has fallen back as bond yields have retreated in the last three weeks.
• It was a much-needed reprieve following the pair’s relentless push from 116.00 to 130.00. However, as bond yields rise this week amid a renewed focus on inflation, the USD/JPY is rising as well.
• The pair did test support near 126.94-02 last week, but buyers have stepped in strongly in recent sessions to validate the dip buying near the 127.00 level.
• From a technical standpoint, there is little chance of the pair returning to 130.00;
• the bond market continues to hold the cards here, so be wary of movement in that space. For the time being, Treasury yields are rising, with 10-year yields rising 2.5 basis points to 2.87 percent on the day.

Europe

Risk appetite remains favourable as the session begins, Eurostoxx +0.6%, Germany DAX +0.6% & CAC 40 +0.6% in France

The FTSE 100 in the United Kingdom is up 0.4%, while the IBEX in Spain is up 0.5%.

As we begin European morning trade, there is some cautious optimism. Despite the economic headwinds presented this week in terms of inflation and data from France and Germany. But, for the time being, value stocks are gaining ground, while bond yields are also rising this week.

US futures are also pointing to a positive performance for the time being, with the S&P 500 futures up 0.2 percent, the Nasdaq futures up 0.1 percent, and the Dow futures up 0.5 percent.

Oil

• Oil is expected to recoup yesterday’s losses to begin the new month.
• WTI crude is up more than $2 to $116.70.
• What appeared to be a breakout day for oil was met with some technical selling near $120 before being pressured lower by a report that OPEC+ is planning to increase oil output.
• The low yesterday was around $114.15, but it was defended by the 100-hour moving average, and the price is currently recovering to $116.70.
• While the report above appears to be a headwind for oil, the details are less concerning. Some OPEC+ members are said to be considering suspending Russia’s participation in order to increase output.
• However, even in the current environment, producers are struggling with spare capacity, and the bloc is unable to keep up with the recent increase in oil output. Unless OPEC+ threatens to really open up the taps, the tighter oil market will undoubtedly continue to be a tailwind for prices.
• Sentiment is important, but price backwardation does not lie. Returning to the charts, yesterday’s price action suggests that the $120 level will be critical for WTI to push for further gains.
• For the time being, the bullish momentum is being sustained, but buyers will need to do more to truly chase the highs seen during the peak of the Russia-Ukraine conflict.

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