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Bitcoin rose 0.6% on Monday, ending the day near $38.4K, cruising at arm’s length from the $38K level for the past five days. Ethereum has settled near $2800, losing 0.5% over the past 24 hours. Other altcoins in the top 10 have shown mixed dynamics, ranging from a decline of 1.9% (Solana) to a rise of 1.5% (Terra).

Total crypto market capitalisation, according to CoinMarketCap, declined 0.7% overnight to $1.74 trillion. Bitcoin’s dominance index added 0.2% to 42.1%.

The cryptocurrency Fear and Greed Index was down 1 point to 27 by Tuesday and remains in “fear” mode.

Since late March, the bears have been intensifying from $39K, forming a sequence of lower highs. At the same time, the basis in the form of support at $38K generally remains untouched.

The crypto market seems to have laid at the bottom, missing the momentum of the US indices growth at the close of trading, indicating a high supply of coins for sale and reluctance to take active actions in anticipation of the Fed’s decision on Wednesday. But there may be another lower bottom if the FOMC reaction to the Fed leads to a stock market sell-off.

According to Santiment, large investors have been aggressively buying Ethereum and Binance Coin over the past two weeks, which could signify an impending trend reversal.

JPMorgan Chase CEO Jamie Dimon said that cryptocurrencies offer advantages over fiat currencies in some respects, such as fast transaction times for payments. However, Dimon still recommends caution when investing in crypto assets.

According to Coin ATM Radar, the global bitcoin ATM installation rate declined for the fourth consecutive month in April.

Meanwhile, Solana’s blockchain went down for seven hours to carry out transactions due to a surge in operations that the network could not cope with.

Billionaire Mark Cuban suggested using DOGE to fight spam on Twitter, which Elon Musk recently bought out.

Market movers today

On an otherwise quiet day on the data front, markets will keep an eye on Russia headlines, after discussions about a phased-in EU embargo on Russian oil are intensifying.

In the euro area, the unemployment figures for April will reveal whether there have been any adverse spill-overs to the labour markets since Russia's invasion of Ukraine.

Ahead of the FOMC decision tomorrow, JOLTS jobs openings and quits will give more insights about the tightness of the US labour market during March.

The 60 second overview

Flash crash: According to Bloomberg a trading error at a London trading desk at Citigroup was behind the sudden drop in Swedish stocks of 8% that immediately spread to the other Nordic and European bourses yesterday. Note that markets very quickly normalised and the OMC Stockholm 30 Index closed down by 1.9% in line with other European indices.

10Y UST reach 3%: Yesterday, the psychologically important 3%-level was breached for the first time since 2018 as 10Y UST yields rose as much as 7.5bp. The move comes ahead of the FOMC meeting tomorrow where the Fed is widely expected to hike rates by 50bp and to officially announce that the balance sheet reduction (QT) will start next month with a USD 95bn cap every month. For more see Fed Research: Preview - 50bp rate hike published 28 April. The rise in nominal yields was driven by a 17bp jump in real yields to above zero (0.15%) for the first time since the pandemic started. Hence, 10Y break-evens fell more than 10bp during the session now standing at 2.83%. It was trading as high as 3.04% Friday afternoon. The big market moves yesterday shows that the market is slowly starting to price that the Fed will be able to keep inflation and inflation expectations in control through a higher real-yield. The latter is a clear tightening of financial conditions. We still see upside for UST yields from the current level. For more see Yield Outlook published 26 April.

US ISM fall back: The ISM manufacturing index declined more than anticipated in April falling 1.7 points to 55.4. New orders remained broadly unchanged (53.5 vs 53.8) but a sharp fall in the employment index from 56.3 to 50.9 was seen. Price pressure remains very high though "prices paid" eases slightly to 84.6 from 87.1. All in all the ISM index supported the market-unfriendly notion of "stagflation" - that is high inflation and weaker growth.

RBA: The Reserve Bank of Australia hiked rates by 25bp to 0.35% in its meeting this morning, a slightly larger hike compared to consensus expectation of 15bp. It also confirmed further rate hikes over the coming meetings, but did not yet specify plans for faster hiking pace. Tight labor market conditions are expected to lead to clear uptick in wages, and underlying inflation is projected to moderate towards RBA's target range of 2-3% only by mid-2024. RBA noted that it does not plan to reinvest maturing bond holdings from the QE program, which ended in February, but so far it refrains from actively selling bond holdings. AUD/USD rose moderately following the decision, but AUD is unlikely to gain much long-lasting support in an environment where global and not least Chinese growth risks are rising.

Equities: Equities in different directions, as US rebounded from Friday's markets and Europe was in catch-up. Sector performance reversed, with tech rebounding and defensives like consumer staples underperforming. However, overall sector performance is becoming less thematic with sectors such as real estate (bond sensitive) and materials (inflation winner) underperforming at the same time. S&P500 0.6%, Nasdaq 1.6%, Dow 0.3% and Russell 2000 1%. Futures point to another green opening today.

FI: A choppy Monday trading session without particular news driven events (and UK out) ended with a continuation of the recent trends in the past weeks, namely yields higher and spreads wider. 10Y Germany ended 3bp higher at 0.97% thereby approaching the 1% mark. Italy was yet again under pressure as spreads widened 5bp in the 10y point vs Germany. It is a rather quiet day on the data front today, as we await tomorrows Fed decision.

FX: EUR/GBP continues to range-trade around 0.84 as expected - we expect the BoE to stick to its more cautious language, which, if we are right, is likely to support EUR/GBP. Looking ahead we maintain a negative stance on the NOK.

Credit: With UK out there was no trading in CDS indices yesterday. Cash bonds, however, followed equities in red, with HY bonds closing the day 4bp wider and IG 1bp wider.

The Dow Jones 30 recoups losses as traders take profit ahead of the FOMC. A break below 33300 forced bulls to bail out and suggests that the liquidation phase is yet to end.

The demand zone around 32700 from March’s rebound is a critical level to test buyers’ resolve. An oversold RSI has attracted bargain hunters, but the rebound will need to clear 33900 before a bullish reversal could materialize.

Failing that, February’s lows around 32300 would be the support of last resort before a deeper correction towards 31000.

The US dollar rallies ahead of an expected Fed rate hike this week. The pair is grinding a rising trendline and is about to reach a two-year high at 0.9800.

The RSI has ventured into the overbought area on the daily time frame. Meanwhile, the indicator’s bearish divergence suggests a loss of momentum in the parabolic ascent. The pair could be due for a pullback for the bulls to catch their breath.

The demand zone between the trendline and 0.9670 from the latest consolidation is a key area to gauge short-term buying interest.

The euro continues to weaken over growth concerns in the eurozone amid the war in Ukraine. A tentative break below 1.0500 further put the euro under pressure.

A lack of rebound suggests that the bears are confident enough to hold onto their chips, while the bulls stay on the sidelines. A bullish RSI divergence shows a slowdown in the sell-off.

However, only a rally above 1.0650 could ease the selling pressure and help turn sentiment around. Otherwise, 1.0400 from January 2017 would be the next stop.

Daily Pivots: (S1) 0.7027; (P) 0.7055; (R1) 0.7079; More...

Intraday bias in AUD/USD is turned neutral first with current recovery. But further decline is expected as long as 0.7228 minor resistance holds. As noted before, fall from 0.7660 is seen as the third leg of the larger correction from 0.8006. Below 0.7029 will target 0.6966 low first. Firm break there will confirm this bearish case and target 0.6756 medium term fibonacci level next. Nevertheless, considering bullish convergence condition in 4 hour MACD, break of 0.7228 should indicate short term bottoming, and turn bias back to the upside for stronger rebound.

In the bigger picture, price actions from 0.8006 are seen as a corrective pattern to rise from 0.5506 (2020 low). Fall from 0.7660 should be the third leg of this pattern. Break of 0.6966 will target 50% retracement of 0.5506 to 0.8006 at 0.6756. On the upside, break of 0.7660 will revive that case that the correction has already completed at 0.6966.

Australian Dollar rebounds broadly after the larger than expected rate hike by RBA, and takes up New Zealand Dollar too. But there is no clear follow through buying yet. Swiss Franc is currently the weakest one for the day, followed by Dollar and Yen. Apparently, overall development suggests steady risk sentiment, but that may not last long. Euro and Sterling are mixed, together with Canadian.

Technically, for Aussie to confirm its underlying strength, some levels need to be taken out with conviction. The levels include 0.7228 minor resistance in AUD/USD, and 1.4682 minor support in EUR/AUD. Otherwise, overall tone in Aussie will remain bearish and selloff could come back any time soon. In particular, Aussie would be back in disadvantage if US 10-year yield could break through 3% decisively, and Germany 10-year yield could power through 1%.

In Asia, at the time of writing, Hong Kong HSI is up 0.12%. Singapore Strait Times is up 0.65%. Japan and China are on holiday. Overnight, DOW rose 0.26%. S&P 500 rose 0.57%. NASDAQ rose 1.63%. 10-year yield rose 0.109 to close at 2.996, after breaching 3% to 3.002.

RBA hikes by 25bps to 0.35%, more to come

RBA raises cash rate target by 25bps to 0.35% today, larger than expectation of 15bps to 0.25%. The interest rate on Exchange Settlement balances is also lifted by 25bps to 0.25%. In the forward guidance, RBA said it's committed to "ensure that inflation in Australia returns to target over time". That will "require a further lift in interest rates over the period ahead".

In the accompanying statement, RBA said the economy has "proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected" while "wages growth is picking up". It's appropriate to start the process of normalizing monetary conditions."

Unemployment rate is expected to decline to around 3.5% by early 2023, hitting the lowest level in almost 50 years. GDP is projected to grow by 4.25% over 2022 and 2% over 2023. Headline expected to rise further from current 5.1% to 5% this year. Underlying inflation is also expected to rise from current 3.7% to 4.75%. By mid-2024, headlines and underlying inflation are projected to have moderated back to around 3%, with assumption of further rate hikes.

AUD/NZD breaches 2020 high after RBA rate hike

AUD/NZD rises sharply after the larger than expected rate hike by RBA, and breach a key resistance level at 1.1042 (2020 high). Decisive break of this level would be a significant medium term development and should confirm resumption of whole up trend from 0.9992 (2020 low). That should set the stage for further rise to 100% projection of 0.9992 to 1.1042 from 1.0278 at 1.1328, which is slightly above 1.1289 (2017 high). In any case, outlook will stay bullish as long as 1.0822 support holds.

Gold resume decline, heading to 1817 first

Gold dropped notably this week on the back of strong Dollar. Rising treasury yield, with 10-year yield breaching 3% handle for the first time since 2018, also weigh on the precious metals.

Gold's fall from 1998.23 resumed after slightly stronger than expected recovery last week. Such fall is seen as the third leg of the decline from 2070.06, and should target 100% projection of 2070.06 to 1889.79 from 1998.23 at 1817.86 next. In any case, more downside is expected for the near term as long as 1919.63 resistance holds.

Also, such decline is seen as the third leg of the corrective pattern from 2074.84 (2020 high). Sustained trading below 55 week EMA (now at 1843.71) would pave the way back to 1682.60 support, where is should finish the pattern and bring long term up trend resumption.

Looking ahead

Germany unemployment, Eurozone unemployment and PPI, UK PMI manufacturing final will be featured in European session. US will release factory orders later in the day.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7027; (P) 0.7055; (R1) 0.7079; More...

Intraday bias in AUD/USD is turned neutral first with current recovery. But further decline is expected as long as 0.7228 minor resistance holds. As noted before, fall from 0.7660 is seen as the third leg of the larger correction from 0.8006. Below 0.7029 will target 0.6966 low first. Firm break there will confirm this bearish case and target 0.6756 medium term fibonacci level next. Nevertheless, considering bullish convergence condition in 4 hour MACD, break of 0.7228 should indicate short term bottoming, and turn bias back to the upside for stronger rebound.

In the bigger picture, price actions from 0.8006 are seen as a corrective pattern to rise from 0.5506 (2020 low). Fall from 0.7660 should be the third leg of this pattern. Break of 0.6966 will target 50% retracement of 0.5506 to 0.8006 at 0.6756. On the upside, break of 0.7660 will revive that case that the correction has already completed at 0.6966.

Economic Indicators Update

AUD/NZD rises sharply after the larger than expected rate hike by RBA, and breach a key resistance level at 1.1042 (2020 high). Decisive break of this level would be a significant medium term development and should confirm resumption of whole up trend from 0.9992 (2020 low). That should set the stage for further rise to 100% projection of 0.9992 to 1.1042 from 1.0278 at 1.1328, which is slightly above 1.1289 (2017 high). In any case, outlook will stay bullish as long as 1.0822 support holds.

RBA raises cash rate target by 25bps to 0.35% today, larger than expectation of 15bps to 0.25%. The interest rate on Exchange Settlement balances is also lifted by 25bps to 0.25%. In the forward guidance, RBA said it's committed to "ensure that inflation in Australia returns to target over time". That will "require a further lift in interest rates over the period ahead".

In the accompanying statement, RBA said the economy has "proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected" while "wages growth is picking up". It's appropriate to start the process of normalizing monetary conditions."

Unemployment rate is expected to decline to around 3.5% by early 2023, hitting the lowest level in almost 50 years. GDP is projected to grow by 4.25% over 2022 and 2% over 2023. Headline expected to rise further from current 5.1% to 5% this year. Underlying inflation is also expected to rise from current 3.7% to 4.75%. By mid-2024, headlines and underlying inflation are projected to have moderated back to around 3%, with assumption of further rate hikes.

Full statement here.

At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 35 basis points. It also increased the interest rate on Exchange Settlement balances from zero per cent to 25 basis points.

The Board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic. The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.

The resilience of the Australian economy is particularly evident in the labour market, with the unemployment rate declining over recent months to 4 per cent and labour force participation increasing to a record high. Both job vacancies and job ads are also at high levels. The central forecast is for the unemployment rate to decline to around 3½ per cent by early 2023 and remain around this level thereafter. This would be the lowest rate of unemployment in almost 50 years.

The outlook for economic growth in Australia also remains positive, although there are ongoing uncertainties about the global economy arising from: the ongoing disruptions from COVID-19, especially in China; the war in Ukraine; and declining consumer purchasing power from higher inflation. The central forecast is for Australian GDP to grow by 4¼ per cent over 2022 and 2 per cent over 2023. Household and business balance sheets are generally in good shape, an upswing in business investment is underway and there is a large pipeline of construction work to be completed. Macroeconomic policy settings remain supportive of growth and national income is being boosted by higher commodity prices.

Inflation has picked up significantly and by more than expected, although it remains lower than in most other advanced economies. Over the year to the March quarter, headline inflation was 5.1 per cent and in underlying terms inflation was 3.7 per cent. This rise in inflation largely reflects global factors. But domestic capacity constraints are increasingly playing a role and inflation pressures have broadened, with firms more prepared to pass through cost increases to consumer prices. A further rise in inflation is expected in the near term, but as supply-side disruptions are resolved, inflation is expected to decline back towards the target range of 2 to 3 per cent. The central forecast for 2022 is for headline inflation of around 6 per cent and underlying inflation of around 4¾ per cent; by mid 2024, headline and underlying inflation are forecast to have moderated to around 3 per cent. These forecasts are based on an assumption of further increases in interest rates.

The Bank's business liaison suggests that wages growth has been picking up. In a tight labour market, an increasing number of firms are paying higher wages to attract and retain staff, especially in an environment where the cost of living is rising. While aggregate wages growth was subdued during 2021 and no higher than it was prior to the pandemic, the more timely evidence from liaison and business surveys is that larger wage increases are now occurring in many private-sector firms.

Given both the progress towards full employment and the evidence on prices and wages, some withdrawal of the extraordinary monetary support provided through the pandemic is appropriate. Consistent with this, the Board does not plan to reinvest the proceeds of maturing government bonds and expects the Bank's balance sheet to decline significantly over the next couple of years as the Term Funding Facility comes to an end. The Board is not currently planning to sell the government bonds that the Bank purchased during the pandemic.

The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead. The Board will continue to closely monitor the incoming information and evolving balance of risks as it determines the timing and extent of future interest rate increases.