Sample Category Title

• Silver falling minor impulse wave 3
• Likely to reach support level 24.10

Silver continues to fall inside the minor impulse wave 3, which started earlier from the resistance level 25.8 (previous reversal high from March) – strengthened by the upper daily Bollinger Band.

The active impulse wave 3 belongs to the higher-order impulse wave (C) from the start of last month.

Silver can be expected to fall further toward the next support level 24.10 (which stopped the previous waves 1 and (b)).

[php_everywhere instance="1"]

Forex traders have suddenly become woke to the possibility of an end to ECB QE and interest rate hikes this year. As a result, EUR/USD, after two consecutive weeks of declines, has found a bit of support as traders return from their Easter break this week. Considering that market participants glossed over more hawkish tones from last week’s April ECB meeting, this recent positive shift in sentiment toward EUR/USD looks abrupt and possibly only temporary.

Prior to today’s ECB speakers talking up the prospects of a quick end to asset purchases and interest rate hikes by year end, traders had not fully bought into such an assessment. The ECB must not only contend with high inflation, but also war in the Ukraine, signs of slowing activity in the euro area. Add in aggressive Fed hiking expectations and there are certainly enough reasons to still dissuade big EUR/USD long positions.

The bigger picture technical setup adds to the apprehension that the recent move in EUR/USD marks the begging of a reversal in the currency pair’s fortunes. Last week, the EUR/USD slipped below a symmetrical triangle pattern that has been long in the making. This week’s retest of the pattern, with support now turned resistance, isn’t out of character for the forex market. Likewise, a rising wedge pattern sits behind the last leg lower in EUR/USD, which points to downside continuation.

That said, these are undeniably testing times for the EUR/USD. Should EUR/USD resist dipping lower from recent levels, there is a possibility for the currency to stabilise at higher levels. A break above the 1.11849 last swing high, for instance, would be the first step in attracting EUR/USD buyers. Getting to that state, however, will most likely take more than just words from the ECB given the current market setup.

Markets

Kazaks from Latvia and Nagel from Germany yesterday, Wunsch (Belgium) and de Guindos (Spain) today. ECB hawks were sent to do the heavy lifting, ie prepare financial markets for imminent policy normalization. Before the European open, Wunsch said that policy rates could turn positive this year. ECB vice-governor de Guindos shortly after made the case for starting the upward rate cycle already in July. They both spoke in the conditional form (unless “really bad news”, “depending on the data”) but markets see right through this politically correct talk. The transcript of Lagarde’s speech at the IMF spring meetings tonight held a more balanced tone. The key takeaway though is that she sees further inflation pressure from supply bottlenecks. This implies an almost certain upgrade to the inflation outlook in the June forecasts. Certainly keep an eye at the panel discussion later tonight for some fireside comments as well as her keynote speech at the renowned Peterson Institute for International Economics tomorrow. German/European 2-y yields rise 9-12 bps, erasing in one day the minor correction lower of the past few days. The long end outperforms, adding less than 3 bps. A slightly weaker final EMU HICP outcome for March (headline 7.4% and core 2.9% instead of the preliminary 7.5% and 3%) only temporarily cut the upward intraday momentum short, thanks to an “unknown ECB source”. The source told financial media company Econostream that some policymakers including Holzmann will push for a 50 bps deposit rate hike accompanied by a 25 bps hike in the refinancing rate (now 0%) to narrow the corridor in one move. An ECB this bold would only fit the general central bank trend. US bond yields add 4.4-7 bps in a bear flattener. The euro benefited from increasingly concrete interest rate support. EUR/USD jumped beyond 1.09 but fell short of testing first intermediate resistance around 1.0954. The currency pair is currently trading in the high 1.08 area, up from 1.085. EUR/GBP extended gains beyond 0.83 but is off intraday highs. Bank of England’s Catherine Mann signaled more tightening is in the pipeline, citing evidence of inflation spreading to price strategies. UK Gilt yields surged more than 10 bps at the short end, shrugging off the idea of a cautious tightening to preserve fading economic growth. The BoE’s governor, Bailey, is due to speak later today. Low-yielding and safe haven currencies including the yen and Swiss franc face a double whammy having their aforementioned features playing out against them (stocks up 1.4% in Europe and 1.6% for the Nasdaq on WS). EUR/JPY tested 140 for the first time since 2015, EUR/CHF rose to well above 1.03(4).

News Headlines

Quite some Polish eco data were published today. Most data surprised on the upside and the global picture still gives a nihil obstat for the National bank of Poland to continue its tightening cycle. Consumer confidence improved slightly from -39.0 to -37.2, but stays near the post-corona-low. Indictors on current conditions remained very weak or even deteriorated further, but series measuring expectations for the 12 months ahead improved. Industrial output jumped a bigger than expected 18.2% M/M and 17.3% Y/Y, with all subsectors contributing to growth. March PPI inflation accelerated further to 4.9% M/M and 20.0% Y/Y (from 16.1% ), suggesting ongoing pipeline inflation. Labour market data were strong too. Employment rose 0.2% M/M and 2.4% Y/Y (from 2.2%). Average gross wages also beat market expectations rising 7.2% M/M and 12.4% Y/Y (from 11.7% Y/Y), an indication that inflationary pressures are further filtering through into the broader economy. The PLN 2-y swap rate rose 11 bps to 6.62%, with most of the move occurring after the data release. The zloty strengthened from a level of EUR/PLN 4.28+ to currently 4.2525, but most of this move already took place before the data release.

Belgian consumer confidence in April recovered somewhat after dropping sharply in March, rising from -16 to -14. Belgium consumers were less pessimistic on the economic situation and in their expectations regarding their personal financial situation even as it stays near an all-time low. Consumers also intend to save slightly more. On the negative side, consumers fear a further rise in unemployment over the next 12 months.

BoE MPC member Catherine Mann said in a speech that the key topics for her for the May meeting was on "how much and when the expected consumption drag (from high energy inflation) materialises". And, "whether we start to see any indication of price forecast revisions in the DMP survey".

"If they do, this potentially would short-circuit the expectations-formation process underpinning the domestic inflation ratchet, which has been my central concern", she added.

However, "should the impact on aggregate demand of the energy price shock end-up being more modest than currently foreseen, should wage and price expectations and outcomes remain as strong as they currently are, and should financial markets return to being copacetic on private credit and duration risk, a reassessment of the pace of tightening would be warranted.

"Monetary policy needs to keep inflation expectations anchored; by doing so now, less tightening will be required later, when demand may still be weak", she added.

Full speech here.

Daily Pivots: (S1) 127.09; (P) 128.24; (R1) 129.03; More...

USD/JPY is staying in consolidation from 129.39 and intraday bias remains neutral first. Deeper retreat cannot be ruled out but downside should be contained above 125.09 resistance turned support to bring another rally. On the upside, above 129.39 will resume larger up trend to 130.04 long term projection level next.

In the bigger picture, the break of 125.85 resistance (2015 high) suggests that whole up trend from 75.56 (2011 low) is resuming. Further rise should be seen to 61.8% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 130.04. Sustained break there wave the way to 147.68 (1998 high). For now, this will remain the favored case as long as 121.27 support holds.

Daily Pivots: (S1) 0.9447; (P) 0.9492; (R1) 0.9528; More....

USD/CHF is staying in consolidation from 0.9535 and intraday bias remains neutral. Deeper retreat could be seen but downside should be contained by 0.9372 resistance turned support to bring another rally. On the upside, above 0.9535 will turn bias back to the upside and target 0.9591 medium term projection level.

In the bigger picture, down trend from 1.0342 (2016 high) could have completed with three waves down to 0.8756 (2021 low) already. Rise from 0.8756 is likely a medium term up trend of its own. Next target is 61.8% projection of 0.8756 to 0.9471 from 0.9149 at 0.9591. Sustained break there will pave the way to 100% projection at 0.9864. This will now remain the favored case as long as 0.9149 support holds.

Daily Pivots: (S1) 1.3017; (P) 1.3044; (R1) 1.3096; More...

Intraday bias in GBP/USD remains neutral as consolidation from 1.2971 is still extending. Outlook is unchanged that further fall is expected with 1.3165 resistance intact. On the downside, break of 1.2971 will resume larger down trend from 1.4248. Next target is 61.8% projection of 1.3641 to 1.2999 from 1.3297 at 1.2900. On the upside, firm break of 1.3165 will confirm short term bottoming, and turn bias back to the upside for 1.3297 resistance and above.

In the bigger picture, rise from 1.1409 (2020 low) has completed at 1.4248. Decline from 1.4248 could still be a corrective move, or it could be the start of a long term down trend. In either case, deeper decline would be seen back to 61.8% retracement of 2.1161 to 1.1409 at 1.2493. In any case, break of 1.3748 resistance is needed confirm completion of the fall from 1.4248, or outlook will stay bearish.

Daily Pivots: (S1) 1.0804; (P) 1.0835 (R1) 1.0887; More...

EUR/USD breached 1.0922 earlier today but quickly retreated. Intraday bias remains neutral for the moment. On the upside, firm break of 1.0922 should confirm short term bottoming at 1.0756. Intraday bias will be back on the upside for 1.1184 structural resistance next. On the downside, though, break of 1.0756 will resume larger down trend.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1494 resistance holds. Firm break of 1.0635 (2020 low) will raise the chance of long term down trend resumption and target a retest on 1.0339 (2017 low) next. Nevertheless, break of 1.1494 will maintain medium term neutral outlook, and extending term range trading first.

Euro rebounds strongly today as some ECB policymakers continued to talk up the chance of a July rate hike. Canadian Dollar is following as second strongest, continuing to be supported by strong inflation data. Dollar is not performing too badly for now, as third strongest. On the other hand, New Zealand Dollar remains under pressured after CPI missed expectation. Yen is staying in consolidations in general despite decline attempt against some rivals. Sterling and Swiss Franc are mixed, with Aussie.

Technically, EUR/USD breached 1.0922 minor resistance but lacks follow through buying. Firm break of this level should confirm short term bottoming and bring stronger rebound back towards 1.1184 resistance. Similarly, firm break of 0.8379 minor resistance in EUR/GBP would bring further rebound back to 0.8511 structural resistance. Developments in these two pairs will be watched to gauge the underlying strength in Euro.

In Europe, at the time of writing, FTSE is up 0.32%. DAX is up 1.41%. CAC is up 1.88%. Germany 10-year yield is up 0.0197 at 0.875. Earlier in Asia, Nikkei rose 1.23%. Hong Kong HSI dropped -1.25%. China Shanghai SSE dropped -2.26%. Singapore Strait times rose 0.39%. Japan 10-year JGB yield dropped -0.0004 to 0.255.

US initial jobless claims dropped to 184k

US initial jobless claims dropped -2k to 184k in the week ending April 16, above expectation of 177k. Four-week moving average of initial claims rose 4.5k to 177k.

Continuing claims dropped -58k to 1417k in the week ending April 9, lowest since February 21, 1970. Four-week moving average of continuing claims dropped -31k to 1482k, lowest since March 21, 1970.

Also released, Philly Fed manufacturing survey dropped from 27.4 to 20.9 in April, below expectation of 20.9.

ECB Lagarde reiterates optionality, gradualism and flexibility in monetary policy

ECB President Christine Lagarde said in a speech, the impact of the factors driving up inflation currently "should fade over time". But for the near term, "inflationary risks are tilted to the upside". Over the medium-term, " risks to the inflation outlook could arise if wages rise by more than anticipated, longer-term inflation expectations move above target or supply conditions durably worsen".

But so far, "wage growth has remained muted – despite a strong labour market – and inflation expectations in the euro area stand around our target".

On monetary policy, Lagarde said it will "depend on the incoming data and our evolving assessment of the outlook". ECB would maintain "optionality, gradualism and flexibility" in the conduct of monetary policy.

ECB de Guindos: July is possible for first hike

ECB Vice President Luis de Guindos said in an interview, the consequences of invasion of Ukraine are "quite clear", as higher inflation and lower growth. That should be reflected in in June outlook.

He sees "no reason why we should not discontinue our APP programme in July". But the timing for the first rate hike will depend on the economic projections. "Nothing has been decided so far," he said.

"From today's perspective, July is possible and September, or later, is also possible. We will look at the data and only then decide," he added. Then, the rate hike cycle will "depend on the data" and the "evolution of inflation.

ECB Wunsch: July rate hike is a scenario to consider

ECB Governing Council member Pierre Wunsch said, "without any really bad news coming from that front, hiking by the end of this year to zero or slightly positive territory for me would be a no brainer."

Also, Wunsch doesn't rule out ending the asset purchases in June, and raise interest rate in July. "It's going to of course depend on data," he said. "If we have another inflation surprise, it's certainly a scenario that I would consider."

"There are of course situations where if the shock is very big on the real economy, we would feel more comfortable looking through the inflation development," he said. But "we're still in a situation where we're supportive in terms of monetary policy. Real rates are today very, very negative. So the beginning of the normalization process should be relatively independent of the real economy."

"We're still talking about normalization, but I wouldn't exclude that at some point, if we have second-round effects, wages going up, that monetary policy would have to become restrictive," he said. "What's priced in by the markets today to me is on the low side of what might be required to get inflation under control."

Eurozone CPI finalized at 7.4% yoy in Mar, EU at 7.8% yoy

Eurozone CPI was finalized at 7.4% yoy in March, up from February's 5.9% yoy. The highest contribution to the annual euro area inflation rate came from energy (+4.36%), followed by services (+1.12%), food, alcohol & tobacco (+1.07%) and non-energy industrial goods (+0.90%).

EU CPI was finalized at 7.8% yoy, up from February's 6.2% yoy. The lowest annual rates were registered in Malta (4.5%), France (5.1%) and Portugal (5.5%). The highest annual rates were recorded in Lithuania (15.6%), Estonia (14.8%) and Czechia (11.9%). Compared with February, annual inflation fell in two Member States and rose in twenty-five.

NZ CPI rose to 6.9% yoy in Q1, highest since 1990

New Zealand CPI rose 1.8% qoq in Q1, below expectation of 2.0% qoq. For the 12-month period, CPI accelerated from 5.9% yoy to 6.9% yoy, below expectation of 7.1% yoy. That's nonetheless still the highest annual rate since June 1990 quarter.

StatsNZ said: "The main driver for the 6.9 percent annual inflation to the March 2022 quarter was the housing and household utilities group, influenced by rising prices for construction and rentals for housing."

"Construction firms have been experiencing many supply-chain issues, higher labour costs, and also higher demand, which have pushed up the cost of building a new house," senior prices manager Aaron Beck said.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0804; (P) 1.0835 (R1) 1.0887; More...

EUR/USD breached 1.0922 earlier today but quickly retreated. Intraday bias remains neutral for the moment. On the upside, firm break of 1.0922 should confirm short term bottoming at 1.0756. Intraday bias will be back on the upside for 1.1184 structural resistance next. On the downside, though, break of 1.0756 will resume larger down trend.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1494 resistance holds. Firm break of 1.0635 (2020 low) will raise the chance of long term down trend resumption and target a retest on 1.0339 (2017 low) next. Nevertheless, break of 1.1494 will maintain medium term neutral outlook, and extending term range trading first.

Economic Indicators Update