US DOLLAR INDEX RETREATS AS INVESTORS EYE FOMC VERDICT

European stocks edged higher as the European Central Bank (ECB) held an emergency meeting to handle the turmoil in the bond market. The meeting comes a week after the bank decided to leave interest rates unchanged. It hinted that it will start hiking interest rates in July. Since then, government bonds of highly indebted countries like Italy have sold-off, with their yields reaching their highest level in eight years. At the same time, the spread between German and Italian bonds rose to the highest level in more than a year. In response to the meeting, the yields of Italian bonds declined to 3.98% as investors waited for potential intervention.

The Australian dollar rose slightly after relatively positive economic data from China. The numbers revealed that the country’s industrial production recovered b 0.7% in May after slumping by 2.9% in the previous year. This rebound was better than the median estimate of a 0.7% decline. The country’s unemployment rate dropped from 6.1% to 5.9% while fixed asset investment rose to 6.2%. These numbers show that the country’s economy is making progress despite the recent lockdowns. Data by Westpac showed that consumer sentiment improved slightly in May.

The US dollar retreated slightly as investors waited for the upcoming Fed decision. The bank is in a fix considering that bets of a recession are increasing. While the unemployment rate remains at a low level, some sectors of the economy like housing and retail are struggling. Therefore, it will struggle finding a balance between lowering inflation and avoiding a hard landing. Analysts expect that the bank will hike rates by 0.75% and signal that more rates are coming. The bank will also hint that it will continue with its quantitative tightening policy.

AUDUSD

The AUDUSD pair rose to a high of 0.6950, which was the highest point since Monday. On the four-hour chart, it moved above the dots of the Parabolic SAR indicator while the Relative Strength Index (RSI) rose above the oversold level. It remains below the 25-day and 50-day moving averages and the 23.6% Fibonacci retracement level. This recovery seems like a dead cat bounce, meaning that the pair will likely resume the bearish trend soon.

EURUSD

The EURUSD pair has formed a double-bottom pattern on the hourly chart. It rose to a high of 1.0490, which was the highest point since last week. As it rose, it briefly moved above the upper chin of the double-bottom pattern. The pair also rose above the 25-day moving average while the Relative Strength Index (RSI) has moved close to the overbought level. Therefore, the pair will likely keep rising ahead of the upcoming Fed decision.

USDCHF

The USDCHF pair retreated slightly after it moved to parity. It dropped to a low of 0.9978, which is slightly below the intraday high of 1.0030. It has formed a cup and handle pattern on the four-hour chart. It also remains above the 25-day and 50-day moving averages while the MACD is above the neutral point. The Relative Strength Index (RSI) has moved slightly below the overbought level. Therefore, the pair will likely resume the bullish trend.