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Summary

• In a widely expected decision, the Bank of Japan (BoJ) held its policy rate at 0.50% at this week's meeting. Uncertainty around trade policy appears to be a key factor that kept BoJ policymakers on the sidelines this month, and dovish-leaning elements of the decision and updated economic forecasts suggest this rate pause may extend for a bit longer.
• In its updated projections, the BoJ downwardly revised its GDP growth and underlying inflation forecasts for fiscal years 2025 and 2026, and noted that risks for both economic activity and prices remain skewed to the downside. The central bank now sees the 2% inflation target being reached in FY2027 instead of FY2026. Comments from Governor Ueda were somewhat mixed, as he noted that a delay in the achievement of the price target does not necessarily mean a delay in rate hikes.
• Given this mix of a somewhat dovish-leaning policymaker stance, elevated uncertainty, but also recent encouraging wage and price growth data and our own more-optimistic view of GDP growth, we do forecast another BoJ rate hike, though expect it to now come later than we previously anticipated. We see the BoJ hiking its policy rate by 25 bps to 0.75% in October of this year. By that point, we suspect that policymakers will have more clarity around global trade policy and local economic growth and inflation developments.
• We see a gradual pace of yen appreciation against the dollar this year as the BoJ hikes while the Fed is cutting rates. However, around the turn of the year when the Fed concludes its easing cycle, U.S. growth improves and the BoJ is on hold, we expect to see renewed yen weakening against the dollar through late 2026.

Bank Of Japan Announcement Holds Steady Amid Uncertain Outlook

In a widely expected decision, the Bank of Japan (BoJ) held its policy rate at 0.50% at this week's meeting. Uncertainty around trade policy appears to be a key factor that kept BoJ policymakers on the sidelines this month, and dovish-leaning elements of the decision and updated economic forecasts suggest this rate pause may extend for a bit longer. In the Outlook for Economic Activity and Prices, policymakers highlighted that Japanese economic growth is likely to moderate in the nearer-term before rising again in the medium term. In turn, during the period while economic growth is somewhat modest, this should lead to sluggish underlying inflation as well, before it gradually rises again later in the forecast horizon. The central bank also noted that risks to both its economic and inflation outlook are skewed to the downside for fiscal years 2025 and 2026.

In terms of the updated forecasts, policymakers notched up their Fiscal Year 2024 (April 2024-March 2025) real GDP forecast to 0.7% from 0.5% previously, but downwardly revised their projections for FY2025 and FY2026, to 0.5% (1.1% previously) and 0.7% (1.0% previously), respectively, citing changes in trade policy. The BoJ also introduced fiscal year 2027 into its forecast horizon, for which it projects real GDP growth to pick up further, to 1.0%. As for underlying price pressures (CPI ex-fresh food inflation), the BoJ kept its fiscal year 2024 forecast unchanged at 2.7% and revised its FY2025 and FY2026 forecasts down to 2.2% and 1.7%, respectively. For FY2027, the central bank sees CPI ex-fresh food inflation at 1.9%. In the accompanying commentary, officials noted that they see inflation reaching a level consistent with the 2% inflation target in the second half of the projection period, around fiscal year 2027. This marks a delay in the achievement of the price target as compared to the forecasts from January; those projections saw the target being achieved in FY2026.

In Governor Ueda's press conference, he offered a somewhat more balanced tone in contrast to the policy statement. He began by acknowledging heightened uncertainties both concerning global trade policy and BoJ policymakers' confidence that their economic projections will be realized. Ueda framed the forward-looking path for domestic inflation as one that would see more of a stalling before the 2% inflation target is sustainably achieved, but in notable remark, stated that a delay in the achievement of the price target does not necessarily mean that rate hikes will be delayed. In our view, his press conference comments appeared to balance a somewhat dovish economic outlook while also maintaining a degree of policy flexibility.

It appears that market participants interpreted the statement and accompanying comments as somewhat dovish-leaning, as the yen weakened noticeably against the dollar, to around the 145 per dollar mark after hovering between 142.50-143.00 per dollar yesterday prior to the announcement.

As we will detail in the remainder of this report, while we do see some economic reasons that further BoJ tightening can be delivered, the dovish tilt of the commentary and forecasts has led us to see policymakers waiting until October of this year to raise the policy rate by 25 bps, in order to wait to gain more clarity on the developments of global trade policy and the domestic economic growth and inflation outlook.

Wage and Price Trends Still Supportive of Eventual Further Bank of Japan Tightening

Regarding recent economic news, both wage and price growth developments appear to be consistent with additional BoJ tightening, in our view. Inflation has been above the central bank's 2% target for quite some time now, and while readings from 2024 saw price growth slowing closer to the 2% mark, national CPI inflation popped again around the turn of the year. March CPI inflation came in at 3.6% year-over-year, and the underlying measure—which excludes fresh food—has been gradually accelerating in recent months and printed at 3.2% in March. We will see the release of the April national CPI report toward the end of May. In the meantime we received the Toyko CPI inflation figures for April, which surprised to the upside.

Given that Bank of Japan policymakers have long highlighted the desire for a “virtuous cycle” between wages and prices to take hold in order to help the economy to sustainably achieve on-target inflation, it is also important to consider recent trends in wage growth. Early results from this year's spring wage negotiations have generally been encouraging, with Rengo—Japan's largest group of labor unions—reporting their latest tally of an average wage increase of 5.4% year-over-year for its members, which is noticeably elevated by historical standards. The final tally from this year's negotiations has not yet been released, but it appears that the momentum seen last year—for which the final tally was 5.1%—remains. Last year's reading was the highest since the early 1990s. Looking into monthly labor earnings data, which are more backward-looking, the picture is somewhat mixed. Headline labor cash earnings growth has been reasonably solid, coming in at 2.7% year-over-year in February. Real earnings growth was negative in January and February, following two months of positive growth at the end of last year. Measures that examine the same sample base of workers from month-to-month also appear to be of interest to BoJ policymakers. Earnings growth for all workers in this group came in lower than expected in both January and February, though the readings are still elevated by historical standards. While within the details of the monthly wage growth data there may be some signs that the momentum is somewhat uneven, we believe that price and wage growth trends as of late are overall consistent with an additional BoJ rate hike.

Growth Trends Mildly Encouraging Overall, Though Risks Remain

Turning to the growth outlook, recent activity data and sentiment surveys have shown some mildly encouraging signs, suggesting Japan's economy was in a reasonable position ahead of the U.S. tariff announcements in early April. While we don't view these growth trends as providing a decisive argument for further Bank of Japan tightening, nor do we view recent trends as a significant impediment to further rate hikes. Looking first at GDP growth, Japan's economy grew 2.2% quarter-over-quarter annualized in Q4-2024, and, indeed, has shown steady growth over the past three quarters. During that time, both consumer spending and business capital spending have enjoyed perceptible gains. In another encouraging development, income trends have also firmed in recent quarters, reflecting wage gains as well as the government's tax cuts and income support measures. For Q4-2024, real household disposable income rose 4.4% year-over-year and real employee compensation rose 3.2%, both outpacing the 1.1% growth in consumer spending. Those firming income trends suggest that Japan's consumer can continue to support the economy in 2025.

We also see indications that Japan's economic growth held up through at least the first quarter of this year. Notably, the Q1 Tankan survey was relatively upbeat. The large non-manufacturers' diffusion index rose 2 points to +35, while (perhaps not surprisingly, given the threat of tariffs) the large manufacturers' diffusion index fell 2 points to +12. Both indices, however, remain at relatively elevated levels. In another promising development, Japan's April Purchasing Managers Indices—one of the first post-tariff-announcement indicators—also showed improvement. The April manufacturing PMI edged up to 48.7, while the services PMI rose more noticeably to 52.2. As a result, the composite, or economy-wide, PMI moved into expansion territory at 51.1. While we would seek to avoid over-interpreting the gains seen in the April PMIs, at a minimum we think it is something of a relief that sentiment did not slump sharply following the tariff announcements.

Of course, some question marks remain regarding Japan's economic prospects, in particular a weaker outlook for two of Japan's key trading partners, China and the United States. While exports to China have decreased a bit in importance in recent years, China still accounted for around 19½% of Japan's total merchandise exports in 2024. On the other hand, exports to the United States have increased in importance in recent years, accounting in 2024 for around 18½% of merchandise exports. With both U.S. and Chinese economic growth expected to be noticeably slower in 2025 and 2026 amid heightened global trade tensions, Japan's export sector appears likely to come under some pressure as this year progresses.

The increasing prominence of the United States as a trading partner for Japan also highlights the importance of Japan and the U.S. reaching some kind of agreement on trade in the months ahead. The United States announced a “reciprocal tariff” of 24% on imports from Japan in early April, although that rate has been temporarily been reduced to a 10% floor during a 90-day reciprocal tariff pause. To the extent that Japan and the United States can, during that time, reach a full trade agreement—or perhaps, more likely, a framework to continue trade negotiations—that allows for U.S. tariffs on imports from Japan to remain at 10% or lower, that would clearly be beneficial for the Japanese economic outlook. Finally, there have been mixed news reports on whether Prime Minister Ishiba is considering a new economic package at this time to help absorb the impact of tariffs. To the extent that any such package is pursued it would, at the margin, help Japan's growth outlook. Taking into account the growth momentum around the turn of the year, potential disruptions from tariffs, and the possibility of government support measures, our base case forecast envisages Japanese GDP growth of 1.2% in 2025 and 0.9% in 2026. While, similar to the Bank of Japan, we acknowledge there are some downside risks to the growth outlook, in our view the economy's momentum still appears solid enough to eventually elicit further Bank of Japan tightening.

Overall, taking into account the combination of a slightly dovish-leaning BoJ annoucement, along with what we view as overall encouraging wage and price trends, and our own outlook for Japan's economic growth to maintain a reasonably steady pace, we do expect another BoJ rate hike, but we also expect it will be some time before that tightening is delivered. In the interim, we antcipate policymakers will wait as they seek a bit more clarity on trade tensions and local economic conditions. To that point, we have pushed back our expected rate hike timing to October, from July previously. We forecast a 25 bps rate hike at their October meeting, to reach a rate of 0.75%, in what we expect will be the final rate hike for this year. Our view of a BoJ rate hike in contrast to several Fed rate cuts later this year should still translate to yen appreciation, albeit likely only at a gradual pace, against the dollar over the remainder of this year. Around the turn of the year, however, as the U.S economy likely recovers and Fed easing comes to an end, we expect the yen could show modest renewed weakening through much of 2026.

The euro has posted gains on Friday. In the European session, EUR/USD is trading at 1.1325, up 0.37% on the day. Today's gains follow a three-day slide. US nonfarm payrolls came in at 177 thousand, much stronger than the market estimate of 130 thousand.

Eurozone inflation higher than expected

Eurozone inflation for April was a surprise on the upside. Headline CPI remained steady at 2.2% y/y, edging above the market estimate of 2.1%. Lower energy prices were offset by a rise in service inflation and food prices. Monthly, CPI was also unchanged at 0.6%, above the forecast of 0.4%.

Core CPI, which excludes food and energy and is a better gauge of inflation trends, jumped to 2.7% y/y, up from 2.4% in March and above the market estimate of 2.5%. This was the first acceleration in the core rate since May 2024. Services inflation, a key component in Core CPI remains hot and jumped to 3.9% from 3.5% in March.

The rise in core CPI is a worrisome sign for the European Central Bank and could complicate plans to gradually lower interest rates. The ECB has been aggressive, cutting rates by 175 basis points in the current easing cycle. Still, more cuts are needed to boost the ailing eurozone economy.

US nonfarm payrolls beats forecast

US nonfarm payrolls came in at 177 thousand in April, slightly below the downwardly revised gain of 185 thousand in March. This easily beat the market estimate of 130 thousand and is a sign that the US labor market remains in decent shape. Wage growth was unchanged at 3.8% y/y, just below the market estimate of 3.9%. Monthly, wage growth dropped to 0.2% from 0.3%, shy of the market estimate of 0.3%.

EUR/USD Technical

• EURUSD pushed above resistance at 1.1299 and is testing resistance at 1.1332. Above, there is resistance at 1.1374
• There is support at 1.1257 and 1.1224

EURUSD 1-Day Chart, May 2, 2025

The U.S. economy added 177k jobs in April, slightly above the consensus forecast of 135k. Revisions for the prior two months subtracted a total of 58k jobs.

Smoothing through the volatility, non-farm payrolls averaged 155k over the last three-months.

Private payrolls rose 167k – nearly matching March's 170k – with the largest gains seen in health care & social assistance (+58.2k), transportation & warehousing (+29k) and leisure & hospitality (+24k). Federal hiring declined by 9k and has now shed 29k jobs since January.

In the household survey, both civilian employment (+436k) and the labor force (+518k) rose sharply, holding the unemployment rate steady at 4.2%. The labor force participation rate ticked higher by 0.1 percentage points to 62.6%.

Average hourly earnings (AHE) rose 0.2% month-on-month (m/m) – following a gain of 0.3% m/m in March. The twelve-month change held steady at 3.8%, while the three-month annualized rate of change dipped to 2.6% – suggesting further downward pressure on the year-ago measure over the coming months.

Aggregate weekly hours rose 0.1% m/m, following stronger gains of 0.3% m/m and 0.4% m/m in the two months prior.

Key Implications

Across the board, this was a healthy employment report. At 177k, job creation is nearly bang-on last month's gain and slightly higher than both the three-and-twelve-month averages of 155k, and 157k, respectively. The breadth of hiring across industries remained healthy. Also encouraging was the uptick in the labor force participation rate, which climbed to a three-month high. The jump in labor supply helped to put further downward pressure on average hourly earnings, with the three-month annualized rate of change slipping to a four-year low.

But it's important to not become complacent. The employment survey for April was conducted just a few weeks after the reciprocal tariff announcement on April 2nd, too soon to show a meaningful spike in layoffs. However, heightened trade uncertainty has already started to weigh on economic growth, and the impacts are likely to soon spillover to the labor market – as evidenced by this week's jump in initial jobless claims. With price increases from tariffs in the pipeline and the unemployment rate expected to drift higher, the Fed could soon find itself in a tricky position. Provided inflation expectations remain well anchored, policymakers are likely to look through the inflation shock and deliver a few "insurance cuts" this summer to better support the economy.

Daily Pivots: (S1) 143.60; (P) 144.67; (R1) 146.46; More...

USD/JPY retreated after hitting 145.90 and intraday bias is turned neutral. Overall near term outlook will stay bearish as long as 38.2% retracement of 158.86 to 139.87 at 147.12 holds. Break of 141.96 will argue that the rebound has completed as a corrective move. Retest of 139.87 should then be seen next in this case.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.8248; (P) 0.8290; (R1) 0.8339; More….

USD/CHF is staying in range below 0.8333 and intraday bias remains neutral. On the upside, above 0.8333 will resume the rebound from 0.8038 short term bottom. But upside should be limited by 38.2% retracement of 0.9200 to 0.8038 at 0.8482. On the downside, below 0.8196 minor support will bring retest of 0.8038. Firm break there will resume larger down trend.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8783) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.

Daily Pivots: (S1) 1.3244; (P) 1.3295; (R1) 1.3328; More...

GBP/USD is still bounded in range below 1.3442 and intraday bias stays neutral. On the downside, firm break of 1.3232 support will indicate short term topping and rejection by 1.3433 key resistance. Intraday bias will be back on the downside for deeper pullback to 55 D EMA (now at 1.3012) and possibly below. On the upside, firm break of 1.3433 key resistance confirm larger up trend resumption.

In the bigger picture, price actions from 1.3433 are seen as a corrective pattern to the up trend from 1.3051 (2022 low). Rise from 1.2099 could either be resuming the up trend, or the second leg of a consolidation pattern. Overall, GBP/USD should target 1.4248 key resistance (2021 high) on break of 1.3433 at a later stage.

Daily Pivots: (S1) 1.1257; (P) 1.1299; (R1) 1.1332; More...

Intraday bias in EUR/USD is turned neutral with current recovery. On the downside, below 1.1265 will resume the correction from 1.1572 short term top. But downside should be contained by 38.2% retracement of 1.0176 to 1.1572 at 1.1039 to complete the correction. On the upside, break of 1.1424 will bring retest of 1.1572 high next.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0792) holds.

Risk assets are rallying to end the week as investors take comfort in the stronger-than-expected US non-farm payroll report. The data helped to offset recession concerns after surprise Q1 GDP contraction. While the GDP miss raised alarms, it was largely attributed to a surge in imports ahead of the April tariff changes, rather than a fundamental decline in domestic activity. Supporting that narrative, both the ISM Manufacturing survey and today labor data suggest that the early effects of tariff uncertainty may be more muted than initially feared.

Adding to the relief, there are tentative signs that trade negotiations, even with China, are inching forward. Beijing has acknowledged the possibility of returning to the table, though it reiterated that all unilateral US tariffs must be lifted. This narrative of progress, however incremental, has helped support equities and risk-sensitive assets.

In the currency markets, pro-risk currencies like the Aussie and Kiwi are outperforming today on improved global sentiment. Meanwhile, Dollar is under mild while Sterling and Loonie are also lagging. Euro finds modest support after a surprising acceleration in core inflation.

In Europe, at the time of writing, FTSE is up 0.94%. DAX is up 2.06%. CAC is up 1.83%. UK 10-year yield is down -0.049 at 4.449. Germany 10-year yield is up 0.049 at 2.496. Earlier in Asia, Nikkei rose 1.04%. Hong Kong HSI rose 1.74%. Singapore Strait Times rose 0.33%. China was on holiday. Japan 10-year JGB yield fell -0.013 to 1.262.

US NFP grows 177k in April, wage gains losing momentum

The US labor market delivered another month of solid job creation in April, with non-farm payrolls rising by 177k, beating forecast of 130k. However, the initial blowout March figure was revised down from 228k to 185k, tempering some of the headline strength.

Still, both readings came in above the 12-month average monthly gain of 152k, signaling continued resilience.

Unemployment rate held steady at 4.2%, in line with expectations, while labor force participation ticked up slightly to 62.6%.

Yet, wage pressures appear to be softening. Average hourly earnings rose just 0.2% mom, below the 0.3% mom forecast, bringing the year-over-year growth rate to 3.8%.

Eurozone core CPI jumps to 2.7% as services inflation accelerates

Eurozone headline CPI held steady at 2.2% yoy in April, slightly above expectations of 2.1% yoy. CPI core, which excludes energy, food, alcohol & tobacco, surged sharply from 2.4% yoy to 2.7% yoy, surpassing the forecast of 2.5%.

The acceleration in services inflation to 3.9% from 3.5% drove much of the upside surprise, highlighting persistent domestic price pressures. Meanwhile, energy prices fell more steeply at -3.5%, and non-energy industrial goods inflation was stable at 0.6%.

Eurozone PMI manufacturing finalized at 49.0, at risk if Chinese exports divert toward Europe

Eurozone manufacturing sector showed further signs of stabilization in April, with PMI Manufacturing Index finalized at 49.0, its highest reading in 32 months. Output growth was a standout, reaching a 37-month high at 51.5, reflecting a modest but encouraging improvement in activity.

Country-level data revealed a mixed picture, with Greece (53.2) and Ireland (53.0) leading the expansion, while Spain (48.1) and Austria (46.6) lagged behind. Notably, Germany (48.4) and France (48.2), two core economies, continued to show.

According to Cyrus de la Rubia at Hamburg Commercial Bank, the stabilization is somewhat unexpected given recent shocks, but optimism is holding up, aided by prospects of ECB rate cuts and the announced increase in EU defense spending.

Still, challenges remain. While manufacturers expanded margins in April, thanks to falling input costs and faster price hikes, this may not be sustainable. The risk of Chinese goods being redirected to Europe due to US tariffs could intensify competitive pressures, particularly on price.

Australian retail sales grow 0.3% mom in March, but volumes flat in Q1

Australian retail sales rose by 0.3% mom in March to AUD 37.28 billion, slightly below expectations of 0.4% growth.

According to the ABS, food-related spending, particularly in supermarkets and grocery stores, was the main contributor to the uptick, with food and miscellaneous retailing both rising 0.7%. Clothing-related sales also edged higher, but household goods retailing was flat.

However, the broader trend is subdued, with retail sales volumes—adjusted for inflation—essentially flat over Q1. ABS Head of Business Statistics Robert Ewing noted that the lack of growth reflects weaker household appetite for discretionary goods, following a boost in spending late last year due to heavy promotions.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1257; (P) 1.1299; (R1) 1.1332; More...

Intraday bias in EUR/USD is turned neutral with current recovery. On the downside, below 1.1265 will resume the correction from 1.1572 short term top. But downside should be contained by 38.2% retracement of 1.0176 to 1.1572 at 1.1039 to complete the correction. On the upside, break of 1.1424 will bring retest of 1.1572 high next.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0792) holds.

The US labor market delivered another month of solid job creation in April, with non-farm payrolls rising by 177k, beating forecast of 130k. However, the initial blowout March figure was revised down from 228k to 185k, tempering some of the headline strength.

Still, both readings came in above the 12-month average monthly gain of 152k, signaling continued resilience.

Unemployment rate held steady at 4.2%, in line with expectations, while labor force participation ticked up slightly to 62.6%.

Yet, wage pressures appear to be softening. Average hourly earnings rose just 0.2% mom, below the 0.3% mom forecast, bringing the year-over-year growth rate to 3.8%.

Full US non-farm payrolls release here.

Hello fellow traders. In this technical article we’re going to look at the Elliott Wave charts of Dollar Index DXY published in members area of the website. As our members know, DXY is forming a correction against the 103.56 peak. In the following text, we’ll explain the Elliott Wave analysis and outline the target areas.

DXY Elliott Wave 1 Hour Chart 04.28.2025

The current view suggests that the US Dollar Index is correcting the cycle from the 103.56 peak.We count five waves in the rally from the low, indicating that we have completed only the first leg of a potential correction, labeled as wave ((a)) in black.

The market is currently forming wave ((b)), which could reach the 99.18–98.75 area.In this zone, we expect buyers to appear for a potential final push higher in wave ((c)), as proposed on the chart.

DXY Elliott Wave 1 Hour Chart 04.28.2025

Dollar found buyers at 99.18–98.75 area as expected. It made decent rally that broke the previous peak ((a)) , confirming that the next leg up is in progress – ((c)). Dollar can see 100.97-102.26 area before sellers appear again.