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Daily Pivots: (S1) 0.9040; (P) 0.9056; (R1) 0.9075; More...

Intraday bias in USD/CHF remains neutral for the moment. Further rally is in favor as long as 0.8939 support holds. On the upside, sustained trading above 55 D EMA (now at 0.9039) should confirm that current rally is at least correcting whole down trend from 1.0146. Further rise should then be seen to 38.2% retracement of 1.0146 to 0.8818 at 0.9325. On the downside, though, break of 0.8939 will bring retest of 0.8818 low instead.

In the bigger picture, fall from 1.1046 (2022 high) is seen as a leg in the long term range pattern from 1.0342 (2016 high). So, downside should be contained by 0.8756 to bring reversal. Sustained break of 0.9058 support turned resistance will be the first sign of medium term bottoming. However, decisive break of 0.8756 will carry larger bearish implications.

Daily Pivots: (S1) 1.2291; (P) 1.2339; (R1) 1.2370; More...

Intraday bias in GBP/USD is turned neutral first with current recovery. But further fall is expected as long as 1.2468 resistance holds. Decline from 1.2678 is seen as correcting whole up trend from 1.0351. Break of 1.2306 will target 1.1801 cluster support (38.2% retracement of 1.0351 to 1.2678 at 1.1789). On the upside, above 1.2468 minor resistance will turn bias back to the upside for stronger rebound.

In the bigger picture, as long as 1.1801 support holds, rise from 1.0351 medium term bottom (2022 low) is expected to extend further. Sustained break of 61.8% retracement of 1.4248 (2021 high) to 1.0351 at 1.2759 will add to the case of long term bullish trend reversal. However, firm break of 1.1801 will indicate rejection by 1.2759, and bring deeper decline, even as a correction.

Daily Pivots: (S1) 1.0703; (P) 1.0730; (R1) 1.0752; More...

Intraday bias in EUR/USD is turned neutral first with current recovery, and some consolidations could be seen. But further decline is expected as long as 1.0830 resistance holds. Current fall from 1.1094 is seen as correcting whole up trend from 0.9534. Below 1.0706 will target 1.0515 cluster support, 38.2% retracement of 0.9534 to 1.1094 at 1.0498. On the upside, however, above 1.0830 minor resistance will turn bias to the upside for stronger rebound.

In the bigger picture, as long as 1.0515 support holds, rise from 0.9534 (2022 low) would still extend higher. Sustained break of 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 will solidify the case of bullish trend reversal and target 1.2348 resistance next (2021 high).

While Dollar engaged in retreat for most of the day, some buying appears to emerge again in early US session. A surprising rise in both headline and core PCE inflation is considered to be a key factor driving this resurgence. While it's unsure whether that could result in sustainable rally, the sentiment should stabilize the greenback at least.

Meanwhile, selloff in Yen is taking off again, following rally in US and European benchmark yields, with US 10-year yield breaking 3.8% level in pre-market. The current tone in the markets will likely keep the greenback as the best performer for the week. New Zealand and Australian Dollars will end as the worst, with Yen a distant third. Euro, Sterling, and Swiss Franc are basically still bounded in range against each other.

Technically, CHF/JPY's rally resumes today and hits as high as 155.13 so far. Near term outlook will stay bullish as long as 153.20 support holds. Next target is 161.8% projection of 137.40 to 147.58 from 140.21 at 156.68. GBP/JPY is also extending recent up trend and breaks above 173 handle. It's a question now whether the development is enough to take EUR/JPY through 151.60 resistance.

In Europe, at the time of writing, FTSE is up 0.24%. DAX is up 0.33%. CAC is up 0.44%. Germany 10-year yield is up 0.005 at 2.529. Earlier in Asia, Nikkei rose 0.37%. Hong Kong HSI dropped -1.93%. China Shanghai SSE rose 0.35%. Singapore Strait Times dropped -0.01%. Japan 10-year JGB yield dropped -0.0078 to 0.422.

US PCE rose to 4.4% yoy, core PCE up to 4.7% yoy

US personal income rose 0.4% mom or USD 80.1B in April, matched expectations. Personal spending rose 0.8% mom or USD 151.7B, above expectation of 0.4% mom.

For the month, PCE price index rose 0.4% mom. Core PCE price index (excluding food and energy) rose 0.4% mom. Goods prices increased 0.3% mom while services prices increased 0.4% mom. Food prices decreased less than -0.1% mom. Energy prices rose 0.7% mom.

From the same month one year ago, headline PCE price index rose from 4.2% yoy to 4.4% yoy, above expectation of 3.9% yoy. Core PCE price index also ticked up from 4.6% yoy to 4.7% yoy, above expectation of 4.6% yoy. Prices for goods were up 2.1% yoy and prices for services were up 5.5% yoy. Foods prices increased 6.9% yoy. Energy prices decreased -6.3% yoy.

Also released, durable goods orders rose 1.1% mom in April versus expectation of -0.9% mom. Ex-transport orders dropped -0.2% mom versus expectation of 0.0%. Goods trade deficit widened to USD -96.8B, versus expectation of USD -85.6B.

ECB Lane: Reversal of energy prices will feed into lower core

ECB Chief Economist Philip Lane has asserted that falling energy prices could lead to lower core inflation due to reduced living costs and, consequently, restrained wage increases. However, he stressed the timeline and extent of this effect remain uncertain.

Speaking at a conference in Dubrovnik, Lane said, "I don't think it's symmetric... but when energy prices fall, core inflation does follow, because there is less pressure from an energy cost, there's less pressure on the cost of living, therefore on nominal wage increases

"So, we do think this spectacular reversal of energy prices will feed into lower core, but the timeline for that and the scale of it is uncertain," he added.

Lane further observed that wage growth is generally progressing at a moderate pace, with many people still bound to older contracts. "The latest deals are coming in at above 5%, but (this is in the) ballpark of what we expect," he noted.

Despite this, he expects nominal wage growth to peak this year and suggested it would take real wages until 2025 to recover back to their 2019 level.

UK retail sales volume up 0.5% mom in Apr, value up 1.1% mom

UK retail sales volumes rose 0.5% mom in April, well above expectation of 0.0% mom. Excluding automotive fuel, sales volume rose 0.8% mom. Sales value rose 1.1% mom in the month, with ex-automotive fuel sales value up 1.7% mom.

In the three months to April, sales volumes rose 0.8% 3mo3m, the highest rates since August 2021, which was at 1.3% 3mo3m.

RBNZ Silk warns against premature rate cut expectations

RBNZ Assistant Governor Karen Silk advised caution against pricing in rate cuts too prematurely. In her comments, Silk stressed that RBNZ has reached a juncture where it can "take a pause and watch how this evolves," ensuring that "you don't overdo things."

However, Silk emphasized that it's core inflation that the central bank is focused on bringing down, and this will require maintaining the current rate levels for an extended period. "We've said we need to hold for an extended period of time to ensure core inflation comes down; it's core inflation that we need to get down," she stated.

She explained the bank's holistic approach to assessing economic conditions, saying, "We look at economic data, but we also look at transmission," Silk explained. "If at a wholesale level and most importantly at a retail level we start to see those things come off faster, then that's one of the things we take into account when we think about where we set the OCR."

In terms of the inflationary impact of Cyclone Gabrielle, Silk indicated that its effect has been less severe than initially anticipated. RBNZ had initially projected the storm would add 0.3% to inflation in both the first and second quarters. Still, it has since revised this down to just 0.1%, citing that while the storm led to increased food costs, it didn't inflate the prices of other goods such as used cars.

Australia retail sales flat in Apr, cost-of-living pressures and rising interest rates

Australia retail sales turnover was flat at 0% mom in April, and up 4.2% yoy.

"Retail turnover has plateaued over the last six months as consumers spent less on discretionary goods in response to cost-of-living pressures and rising interest rates. Spending was again soft in April but was boosted by increased spending on winter clothing in response to cooler and wetter than average weather across the country," Ben Dorber, ABS head of retail statistics said.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0703; (P) 1.0730; (R1) 1.0752; More...

Intraday bias in EUR/USD is turned neutral first with current recovery, and some consolidations could be seen. But further decline is expected as long as 1.0830 resistance holds. Current fall from 1.1094 is seen as correcting whole up trend from 0.9534. Below 1.0706 will target 1.0515 cluster support, 38.2% retracement of 0.9534 to 1.1094 at 1.0498. On the upside, however, above 1.0830 minor resistance will turn bias to the upside for stronger rebound.

In the bigger picture, as long as 1.0515 support holds, rise from 0.9534 (2022 low) would still extend higher. Sustained break of 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 will solidify the case of bullish trend reversal and target 1.2348 resistance next (2021 high).

Economic Indicators Update

US personal income rose 0.4% mom or USD 80.1B in April, matched expectations. Personal spending rose 0.8% mom or USD 151.7B, above expectation of 0.4% mom.

For the month, PCE price index rose 0.4% mom. Core PCE price index (excluding food and energy) rose 0.4% mom. Goods prices increased 0.3% mom while services prices increased 0.4% mom. Food prices decreased less than -0.1% mom. Energy prices rose 0.7% mom.

From the same month one year ago, headline PCE price index rose from 4.2% yoy to 4.4% yoy, above expectation of 3.9% yoy. Core PCE price index also ticked up from 4.6% yoy to 4.7% yoy, above expectation of 4.6% yoy. Prices for goods were up 2.1% yoy and prices for services were up 5.5% yoy. Foods prices increased 6.9% yoy. Energy prices decreased -6.3% yoy.

Full US PCE release here.

USDCHF drifted down to 0.9017 after facing resistance around the familiar long-term constraining zone of 0.9070.

The negative slope in the RSI and the Stochastic oscillator on the four-hour chart suggests market sentiment may remain downbeat in the coming sessions. The MACD has slipped back below its red signal line, increasing the likelihood of another leg down too.

Still, with the pair trading within a bullish channel and having marked new higher highs above the 0.9000 level recently, which looks to be the neckline of an inverse head and shoulders pattern, the current downside move could be a corrective part of the upward pattern.

The 50-period simple moving averages (SMAs) could provide some footing at 0.9000 ahead of the channel’s lower boundary seen near 0.8980. Should the bears breach the latter point, the pair may have another opportunity for a rebound somewhere between the broken descending trendline from November 2022 at 0.8950 and the 200-period SMA. If the sell-off continues, the next floor could be around 0.8920 or lower at 0.8895.

On the upside, buyers will wait for an extension above 0.9070 before they target the channel’s upper band at 0.9120. Note that the price peaked around the same location on April 10th. Hence, a continuation higher could motivate fresh buying towards the 0.9180-0.9200 region. We will closely watch the key descending line from June 2022 as well at 0.9230.

Summing up, the ongoing bearish action in USDCHF could gain new legs in the short-term. That said, traders may not get upset unless the sell-off extends below the bullish channel and the 0.8950 level.

The dollar index price edges lower on Friday, as bulls take a breather after strong acceleration in past four days pushed the price to the highest in ten weeks.

The action was boosted by renewed expectations that the Fed may keep high interest rates for longer period, to curb stubbornly high inflation and uncertainty over debt ceiling talks.

Economic data from the US, released on Thursday, further brightened dollar’s outlook as first estimation of US Q1GDP was revised higher while the number of people applying for unemployment benefits fell below expectations last week.

Talks between the White House and Republicans on raising debt ceiling and avoiding catastrophic default scenario were so far unsuccessful, but overall tone is getting more optimistic and suggesting that two sides may reach the deal ahead of next Thursday’s deadline.

Eventual agreement would negatively impact dollar bulls on sidelining strong component of uncertainty, though other factors are expected to continue to fuel bulls and partially offset potential negative impact.

Friday’s price easing could be accelerated by profit-taking after four-day rally and ahead of extended weekend due to US bank holiday.

Overbought daily studies and 14-d momentum turning south contribute to such scenario.

Near-term action is holding above initial support at 103.79 (broken Fibo 61.8% of 105.85/100.45), with extended dips to find solid ground above the top of thick daily cloud, reinforced by daily Tenkan-sen (103.15) to keep bulls in play.

Res: 104.23; 104.70; 105.30; 105.55.
Sup: 103.79; 103.47; 103.15; 102.79.

Oil price regained traction and edged higher on Friday morning, after falling over 3% previous day, following comments from Russian member of OPEC+ that the cartel is unlikely to further cut production at their meeting on June 4.

Thursday’s strong fall (the biggest daily loss since May 3) confirmed a double rejection at the base of thick daily cloud and generated bearish signal on completion of reversal pattern on daily chart, though the signal is still to be justified on break of $70.65/47 pivots (May 22 spike low / Fibo 38.2% of $63.63/$74.70 upleg).

Daily studies are turning to full bearish mode as falling 14-d momentum broke into negative territory, moving averages are in bearish setup and thick daily cloud weighs, suggesting that bears may re-take control after limited consolidation (to be capped under 5DMA at $72.75).

Weekly studies are also bearishly aligned, though the action of this week is on track to end in the shape of Doji candle, which signals indecision and seeks for fresh direction signal.

Res: 72.09; 72.75; 73.27; 73.93.
Sup: 71.39; 70.98; 70.42; 70.00.

ECB Chief Economist Philip Lane has asserted that falling energy prices could lead to lower core inflation due to reduced living costs and, consequently, restrained wage increases. However, he stressed the timeline and extent of this effect remain uncertain.

Speaking at a conference in Dubrovnik, Lane said, "I don't think it's symmetric... but when energy prices fall, core inflation does follow, because there is less pressure from an energy cost, there's less pressure on the cost of living, therefore on nominal wage increases

"So, we do think this spectacular reversal of energy prices will feed into lower core, but the timeline for that and the scale of it is uncertain," he added.

Lane further observed that wage growth is generally progressing at a moderate pace, with many people still bound to older contracts. "The latest deals are coming in at above 5%, but (this is in the) ballpark of what we expect," he noted.

Despite this, he expects nominal wage growth to peak this year and suggested it would take real wages until 2025 to recover back to their 2019 level.

Daily Pivots: (S1) 171.92; (P) 172.35; (R1) 172.98; More...

While GBP/JPY continues to lose upside momentum,. there is no sign of topping yet. Further rally is expected with 171.26 minor support intact. Current rally should target 100% projection of 148.93 to 172.11 from 155.33 at 178.51. Nevertheless, break of 171.26 minor support will delay the bullish case, and turn bias to the downside for deeper retreat.

In the bigger picture, focus stays on 172.11 resistance (2022 high). Decisive break there will resume whole up trend from 123.94 (2020 low). Next target will be 161.8% projection of 122.75 (2016 low) to 156.59 (2018 high) from 123.94 at 178.69. Nevertheless, firm break of 165.40 support will indicate rejection by 172.11 and extend the corrective pattern from there with another falling leg.