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Key Highlights

• GBP/USD found support near 1.3250 and started a fresh increase.
• It cleared a key bearish trend line with resistance at 1.3300 on the 4-hour chart.
• EUR/USD is consolidating above the 1.1250 support zone.
• The Fed will announce interest rates later today (forecast 4.5%, versus 4.5% previous).

GBP/USD Technical Analysis

The British Pound corrected gains from 1.3445 and tested 1.3250 against the US Dollar. GBP/USD is again rising and aims for a move to a new multi-month high.

Looking at the 4-hour chart, the pair remained well bid above the 1.3250 level, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). There was a clear move above the 50% Fib retracement level of the downward move from the 1.3443 swing high to the 1.3251 low.

Besides, it cleared a key bearish trend line with resistance at 1.3300 on the same chart. The pair is now facing resistance near the 1.3420 level. The next major resistance is near the 1.3450 zone.

A close above the 1.3450 level could set the tone for another increase. In the stated case, the pair could even clear the 1.3500 resistance. The next major stop for the bulls could be near the 1.3620 level.

On the downside, immediate support sits near the 1.3300 level and the 100 simple moving average (red, 4-hour). The next key support sits near the 1.3250 level. Any more losses could send the pair toward the 1.3120 level.

Looking at EUR/USD, the pair started a consolidation phase above 1.1250 and might struggle to clear the 1.1420 resistance.

Upcoming Economic Events:

• Fed Interest Rate Decision - Forecast 4.5%, versus 4.5% previous.

China’s central bank has announced a sweeping set of monetary policy measures to support its economy, starting with a 10bps cut in the seven-day reverse repo rate to 1.40%, effective May 8. In a more aggressive move, the PBoC will also slash the reserve requirement ratio by 50bps, releasing approximately CNY 1T into the banking system.

The new package is structured into three categories: quantitative, price-based, and structural tools. The quantitative arm focuses on long-term liquidity via the RRR cut. The price-based measures involve lowering benchmark and structural policy rates. The structural component aims to channel credit into strategic areas such as technological innovation, consumption, and inclusive finance.

New Zealand’s employment grew just 0.1% qoq as expected, while the unemployment rate held steady at 5.1%, better than forecast of 5.3%.

However, the quality of employment deteriorated, with a notable shift from full-time to part-time roles. Over the year, full-time employment dropped by -45k while part-time roles increased by 25k.

Participation rate edged down to 70.8% and the employment rate slipped to 67.2%, both suggesting a gradual loss in labor market momentum.

Wage growth also moderated, with the labour cost index rising 2.9% annually, down from 3.3% in the previous quarter.

Full NZ employment release here.

Japan’s private sector returned to expansion in April, as the final PMI Composite rose to 51.2 from March’s 48.9. The improvement was driven entirely by the services sector, with its PMI climbing to 52.4, while manufacturing remained in contraction.

According to S&P Global’s Annabel Fiddes, stronger services activity helped offset the drag from factories, where new orders fell sharply in response to the global tariff environment.

While services firms reported stronger demand, confidence among both services and manufacturing sectors deteriorated. Businesses expressed concern about the broader global outlook and the negative implications of recent US tariff moves on growth potential.

Adding to the pressure, input price inflation accelerated to a two-year high, prompting firms to raise selling prices to protect margins.

Full Japan PMI services final release here.

The unemployment rate was steady at 5.1% in the March quarter, better than market expectations. Wage growth continues to slow.

• Unemployment rate: 5.1% (prev: 5.1%, Westpac f/c: 5.3%, RBNZ f/c 5.2%)
• Employment change: +0.1% (prev: -0.2%, Westpac f/c: +0.1%, RBNZ f/c 0.0%)
• Labour costs (private sector): +0.4% (prev: +0.6%, Westpac f/c: +0.4%, RBNZ f/c +0.6%)

The March quarter surveys confirmed that the New Zealand labour market remains subdued, although they weren’t quite as soft in the details as we were expecting. The implications for the Reserve Bank are mixed, with slightly better employment figures but a greater slowdown in wage growth than they had assumed in their February Monetary Policy Statement.

The unemployment rate held steady at 5.1% in the March quarter, against market forecasts for another small rise. The number of people employed rose by 0.1%, much in line with what had been signalled by the Monthly Employment Indicator (MEI). That followed a 0.2% fall in the December quarter (revised down from an initial reading of -0.1%), and leaves employment down 0.7% on a year earlier.

The small rise in employment was almost in line with the 0.2% rise in the working-age population (less than the 0.3% that we had assumed). A further drop in the labour force participation rate accounted for the remainder, leaving the unemployment rate unchanged. While this was only a partial factor in the March quarter results, we’ve seen a marked drop in youth participation in particular in recent quarters, with the tougher jobs market seeing young people returning to or spending longer in study rather than actively looking for work.

The Labour Cost Index (LCI) rose by 0.4% for the private sector, in line with our forecast but below the RBNZ’s expectation of 0.6%. The public sector LCI rose by 0.9%, led by a collective pay agreement for teachers. On an annual basis, the private sector LCI slowed from 2.9% to 2.5%.

The analytical unadjusted LCI, which includes pay increases that are related to higher productivity, rose by 0.7% for the private sector, the smallest quarterly rise since December 2020. Fewer roles have seen pay increases over the last year, and the average size of those increases has moderated.

Gold: ⬆️ Buy

• Gold reversed from support level 3270,00
• Likely to rise to resistance level 3500.00

Gold recently reversed up the support area between the support level 3270,00 (low of the previous correction a), 20–day moving average and the 50% Fibonacci correction of the upward impulse 5 from April.

The upward reversal from this support area created the daily Japanese candlesticks reversal pattern, Morning Star, which stopped the previous minor ABC correction A.

Given the clear uptrend on the daily charts, Gold can be expected to rise to the next resistance level 3500.00 (which stopped the previous impulse wave (3)).

USDJPY: ⬇️ Sell

•  USDJPY reversed from resistance zone
•  Likely to fall to support level 140.00

USDJPY currency pair recently reversed from the resistance zone between the resistance level 146.00 (former strong support from March) and the 50% Fibonacci correction of the previous downward impulse from March.

The downward reversal from this resistance zone stopped the previous minor ABC correction 2.

Given the strongly bullish yen sentiment seen today, USDJPY currency pair can be expected to fall to the next support level 142.00 – the breakout of which can lead to further losses toward support level 140.00.

DAX: ⬇️ Sell

• DAX reversed from key resistance level 23435,00
• Likely to fall to support level 22700.00

DAX index recently reversed down from the key resistance level 23435,00 (which stopped the previous impulse wave (1) in the middle of March).

The resistance level 23435,00 was further strengthened by the upper daily Bollinger Band.

Given the strength of the resistance level 23435,00 and the overbought daily Stochastic, DAX index can be expected to fall to the next support level 22700.00.

Summary

After an unexpected slide in March, the monthly change in the CPI in April is likely to rebound to its six-month trend. We look for the headline CPI to rise 0.2% in April, leading the year-ago rate to dip to a four-year low of 2.3%. We would not be shocked to see a 0.3% rise if some volatile components bounce back more than expected. Excluding food and energy, we forecast the core CPI to rise 0.25%, keeping the annual rate unchanged at 2.8%. Preemptive inventory building and fears of consumer pushback should keep the anticipated acceleration in consumer prices at bay until at least May. Yet beneath the surface, the subsiding trend in core services inflation will be juxtaposed with core goods inflation that is incrementally strengthening.

Sticker Shock on Hold

The March CPI report delivered the best of both worlds. There were few signs of tariffs igniting a widespread pickup in goods prices, while the downward trend in services inflation intensified. A repeat of March's quiescent figures will be hard to come by in April. After slipping 0.1% in March, we estimate headline CPI rebounded 0.23% last month. Core CPI similarly looks set to bounce back from what was the smallest gain in four years (0.06%) with a 0.25% increase in April.

Our expectation for a rebound in April can be traced to the drivers of March's tame reading, which centered on some of the more dynamic components of the CPI. Amid the flurry of federal government cost-cutting efforts and looming "Liberation Day" announcement of tariffs, concerns about the economy sent oil prices, airline fares and hotel prices sharply lower (Figure 1). Seasonal factors exacerbated the weakness, but seasonals will not be so friendly in April. We look for energy goods prices to be flat on the month and for travel-related services prices to decline less sharply (-0.4% in April versus -3.8% in March). Vehicle and insurance prices also look set for a rebound. Auto tariffs likely led auto dealers to hold a firmer line on pricing, while March's 0.8% decline in motor vehicle insurance prices overstated the underlying trend (Figure 2).

At the same time, give-back in pricing of categories that saw outsized increases in March should keep a lid on services inflation in April. We anticipate primary shelter inflation to have eased in April after an above-trend reading in March, and we also look for a smaller increase in medical care services after hospital prices saw the largest gain in more than a year in the last report.

In contrast to the subsiding trend in core services, core goods inflation continues to strengthen. The announcement of sweeping increases to import duties at the start of the month stands to send the pickup in goods inflation into overdrive, although we do not expect April to be a light-switch moment. The pull-forward of imports, efforts not to alienate customers and general confusion over policy changes are likely to result in a more incremental strengthening in goods prices. We have penciled in a 0.24% increase in core goods prices for April (including the largest monthly gain in non-vehicle goods prices in more than two years) but expect the monthly pace to be double that by the summer if current trade policy remains in place. The gap between core goods and services inflation should continue to narrow as result (Figure 3).

Stepping back, April's monthly gain in headline CPI should push the year-over-rate rate down to a four-year low of 2.3%. The downward trend in core inflation is also likely to appear intact, with the year-ago rate unchanged at 2.8%. But with tariffs no longer merely a threat but a reality, we view it as only a matter of time before higher import costs filter through to consumer prices. We expect the inflationary impulse of tariffs to ramp up in the coming months, leading the core CPI back up to 3.6% by the fourth quarter (Table). Unlike the most recent price shock of the pandemic, trade changes are not occurring in combination with a positive shock to consumer demand and a historic scramble for workers. The less-flush position of households, slower growth in labor compensation costs and lower energy and transportation costs amid the weaker growth backdrop should help to mitigate the tariff-related rise in inflation (Figure 4). But that may be cold comfort to consumers, businesses and the Fed, as ground is lost in the nearly five-year battle to quell inflation.