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Daily Pivots: (S1) 111.09; (P) 111.35; (R1) 111.65; More...

USD/JPY recovered ahead of 110.84 support and intraday bias is turned neutral again. Considering bearish divergence condition in daily MACD, risks remain on the downside as long as 112.40 resistance holds. On the downside, decisive break of 110.84 support will add to the case of bearish reversal and target 109.71 support and below. On the upside, firm break of 112.40 resistance will resume the rise from 104.69 instead.

In the bigger picture, medium term outlook in USD/JPY remains a bit mixed as it's staying inside falling channel from 118.65, but there are signs of bullish reversal. On the upside, break of 114.54 resistance will revive the case the corrective fall from 118.65 has completed with three waves down to 104.69. And whole rise from 98.97 (2016 low) is resuming for 118.65 and above. But before that, outlook stays neutral first.

At a time when central banks around the world are moving away from pursuing tightening policies and instead adopting a more patient approach, the Bank of England may go against the trend which makes Thursday's meeting all the more interesting.

The UK central bank has been on pause since August, with the uncertainty of Brexit casting considerable doubt over the economic outlook and therefore the bank's response to what is an otherwise healthy economy and labour market. Policy makers will probably be among the most frustrated at the Brexit extension as not only does it not provide clarity, it prolongs the period of economic uncertainty which could weigh on the outlook.

Other central banks have very much been leaning towards a more accommodative stance in light of the global slowdown and growing risks but the BoE may not fall in line. Of course, it would be easy to do so but it could be argued that the central bank has delayed for long enough and the data simply does not justify such low interest rates.

Unemployment below 4%, average earnings rising by 3.5% and inflation printing around the BoE's target doesn't exactly warrant crisis era stimulus. But then these aren't normal times and the outlook is undoubtedly foggy, to borrow a term from Governor Carney. This is what makes Thursday's meeting so interesting, no one really knows what to expect.

Price action in the pound in recent weeks doesn't suggest a rate hike has been priced in this year, or that traders see it as likely. The delay triggered some profit taking in the pound as this is the bare minimum that was priced in and broadly speaking, the positives and negatives of it probably cancel each other out.

All of this makes Super Thursday all the more interesting. Not only should we get clarity on the outlook for interest rates in the uncertain Brexit world we now live in, but there is the potential for the central bank to be more hawkish or dovish than we currently perceive. This is quite unusual and could trigger a lot of volatility in the currency.

The fact that we have a rate announcement, minutes, new economic projections and a press conference with Carney and his colleagues is an added bonus that should ensure we have a much better idea of what to expect this year than we currently do. This could very well be the most interesting BoE event that we've had in a very long time.

General Trend:

• Financials weigh on equities in Australia, AMP drops on Q1 outflows
• National Australia Bank (NAB) cut dividend and reported flat H1 profits
• Australian lithium company Kidman Resources rises over 40% on takeover offer
• Apple suppliers rise in Hong Kong after the company’s recent earnings report
• Gaming shares trade mixed in Hong Kong, April Macau Gaming Rev missed ests
• SJM Holdings rises over 10% in Hong post earnings
• Hong-Kong listed China auto companies decline amid broker commentary
• Little impact seen on Korean Won (KRW) from better CPI data, market remains focused on rate outlook
• Taiwan Manufacturing PMI contracts for 7th straight month, selling prices fall further
• Markets in China and Japan will remain closed on Friday
• Traders continue to await US Treasury’s semi-annual currency report amid ongoing trade talks
• US companies expected to report results on Thursday morning include AmerisourceBergen, Arrow Electronics, Avon, Cigna, Generac, Kellogg, Netscout Systems, PG&E Corp, Parker Hannifin, Stratasys, Teva, Tempur Sealy, Under Armour
• Bank of England (BOE) due to meet later today

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.2%
• NAB.AU Reports H1 (A$) Cash profit ex-restructuring costs 3.3B v 3.3B y/y; Net interest income 6.77B v 6.75B y/y
• KDR.AU Receives offer to be acquired by Wesfarmers at A$1.90/shr for A$776M
• WOW.AU Reports Q3 (A$) Rev 14.9B v 14.3B y/y
• (NZ) New Zealand Mar Building Permits m/m: -6.9% v +1.9% prior

Japan

• Nikkei 225 closed remainder of week for holiday
• (JP) Japan PM Abe: Open to holding talks with North Korea Kim without conditions - Japan press
• 6752.JP Execs have noted that they do not want to invest more money into Tesla gigafactory until they are sure Tesla can sell Model 3 at $35K without losing money - Nikkei

Korea

• Kospi opened -0.5%
• (KR) SOUTH KOREA APR CPI M/M: 0.4% V 0.3%E; Y/Y: 0.6% V 0.4%E, Core CPI y/y: 0.9% v 0.8%e
• (KR) South Korea Apr PMI Manufacturing: 50.2 v 48.8 prior, New export orders contract for 9th consecutive month (longest decline since 2015)

China/Hong Kong

• Hang Seng opened -0.2%; Shanghai Composite closed for remainder of week for holiday
• (US) Reportedly US/China trade deal is "possible" by next Friday - CNBC's Tausche
• (US) Reportedly US and China nearing deal to roll back certain tariffs - Politico
• (CA) Canada Agricultural Minister: Has heard China has suspended export permits of two pork exporters in Canada
• (HK) Macau Apr Gaming Rev (MOP) 23.6B v 23.8Be v 25.8B prior; Y/Y: -8.3% v -7.6%e (largest decline in ~3 years)
• (HK) Hong Kong Monetary Authority (HKMA): Closely watching market development, to maintain HK$ exchange rate stability

Other Asia

• (TW) Taiwan Apr PMI Manufacturing: 48.2 v 49.0 prior
• (PH) S&P raises Philippines sovereign rating to BBB+; outlook stable

North America

• (US) FOMC LEAVES TARGET RANGE UNCHANGED BETWEEN 2.25-2.50%; CUTS IOER TO 2.35% FROM 2.40%; TO STAY PATIENT ON RATES AS ECONOMY IS SOLID AND INFLATION IS MUTED
• (US) Fed Chair Powell: inflation weakness likely due to "transient" factors; some asset prices are elevated; don't see any evidence at all of overheating economy
• (US) APR ISM MANUFACTURING: 52.8 V 55.0E; PRICES PAID: 50.0 V 55.0E (lowest Manufacturing PMI since Oct 2016)
• CAKE Reports Q1 $0.62 v $0.60e, Rev $600M v $602Me
• PRU Reports Q1 $3.00 v $3.15e
• ALL Reports Q1 $2.30 v $2.29e, Rev $11.0B v $9.78B y/y

Europe

• (UK) PM May reportedly mulls staying in the EU customs union in order to secure a deal with Labour - FT
• World Gold Council (WGC): Q1 global gold demand was ~1.05K tons, +7% y/y; notes continued growth in buying by central banks

Levels as of 1:20 ET

• Nikkei 225, closed, ASX 200 -0.7%, Hang Seng +0.5%; Shanghai Composite closed; Kospi +0.3%
• Equity Futures: S&P500 flat; Nasdaq100 +0.1%, Dax -0.6%; FTSE100 -0.3%
• EUR 1.1210-1.1193 ; JPY 111.66-111.32 ; AUD 0.7029-0.7010 ;NZD 0.6640-0.6617
• Gold -0.7% at $1,275/oz; Crude Oil -0.3% at $63.44/brl; Copper +0.4% at $2.802/lb

Market movers today

Today, we get Danish foreign exchange reserve figures for April, which may well attract some attention, as the Danish krone has been trading relatively weak in April and not far from where Danmarks Nationalbank intervened in December.

In the UK, we monitor the Bank of England meeting, but we do not think the BoE will change its policy. Besides the Bank of England meeting, we also have local elections in the UK today. While this is normally not something we follow closely, it is interesting in the light of the Brexit extension and the upcoming European elections. Most polls suggest the Conservatives may suffer a heavy defeat, losing many seats, which would likely put further pressure on May to resign as party leader. We should know more about the results tomorrow morning.

In Scandi, we get Swedish and Norwegian PMI manufacturing (see page 2).

Selected market news

Most of Europe was off yesterday due to Labour Day and therefore markets centred on key events taking place in the US.

As expected, the Fed left the target range unchanged at 2.25-2.50% and overall there were no major changes to the policy signals (Powell said the IOER rate cut was a technical adjustment and not an expression of an easing bias, see more below). On one hand, the Fed said economic growth and the labour market remain strong but on the other, hand inflation is running below the 2% target

The Fed caught the market by surprise by cutting the Interest on Excess Reserves (IOER) by 5bp to 2.35% from 2.45% but Powell stressed during the press conference that this should not be interpreted as the beginning of an easing cycle. The Effective Fed Funds rate (EFFR) has risen to 2.45% since Easter due to a decline in the supply of bank reserves and was thus only 5bp below the top end of the Fed's target range. The quickest way for the Fed to return the EFFR closer to the mid-point is to cut the IOER. There had been speculation in the market that the Fed could make this move at the June meeting, but the market was not priced for a cut to come at the May meeting - the May Fed Funds futures have traded around 2.42%.

ISM manufacturing dropped sharply to 52.8 from 55.3 in April. All the important subcomponents fell as well (employment, new orders, etc.). The ISM has been quite high for some time and, as we have highlighted, the US manufacturing sector is not immune to what happens overseas. So it is natural that the ISM had to go down eventually, although the decline is bigger than we had anticipated. That said, remember the service sector is more important for the overall economy.

Key takeaways

As expected, the Fed left the target range unchanged at 2.25-2.50% and overall there were no major changes to the policy signals (Powell said the IOER rate cut was a technical adjustment and not an expression of an easing bias, see more below). On one hand, the Fed said economic growth and the labour market remain strong but on the other hand, inflation is running below the 2% target

The Fed caught market by surprise by cutting the Interest on Excess Reserves (IOER) by 5bp to 2.35% from 2.45% but Powell stressed during the press conference that this should not be interpreted as the beginning of an easing cycle. The Effective Fed Funds rate (EFFR) has risen to 2.45% since Easter due to a decline in the supply of bank reserves and was thus only 5bp below the top end of the Fed's target range. The quickest way for the Fed to return the EFFR closer to the mid-point is to cut the IOER. There had been speculation in the market that the Fed could make this move at the June meeting, but the market was not priced for a cut to come at the May meeting - the May Fed Funds futures have traded around 2.42%.

The Fed made two similar adjustments last year and could be forced to make one more adjustment later this year, as the supply of bank reserves is set to continue to decline due to the Fed's quantitative tightening, which will go on until the end of September. With the IOER firmly below the Fed's mid-point target for the Fed funds rate now, the Fed has effectively implemented an interest rate corridor system, as seen, e.g., among European central banks. A second step in this transformation could be the introduction of a new repo facility. Powell mentioned that the Fed is looking at this option and will return to it at an upcoming meeting.

Initially, markets interpreted the IOER rate cut as a dovish twist but US yields ended higher and the USD stronger after Powell's comment that the Fed is firmly on hold and not about to cut rates near term. We maintain our view that the Fed is on hold for the rest of this year and next.

For the 24 hours to 23:00 GMT, the EUR declined 0.11% against the USD and closed at 1.1202.

The US dollar gained ground against major currencies, after the Fed, at its latest monetary policy meeting, decided to leave its key interest rate at 2.5%, as widely expected, amid hopes for better inflation as well as citing ongoing positive jobs data and economic growth. The central bank Chairman, Jerome Powell, expressed confidence in the decision of the policymakers and reiterated that they are in no rush for a near-term change in monetary policy. Additionally, the Fed slashed its excess reserves interest to 2.35% from 2.40% with a view to assure that the federal funds rate remains in the current target band.

In the US, data indicated that the final Markit manufacturing PMI unexpectedly advanced to a level of 52.60 in April, compared to a level of 52.4 in the preceding month. The preliminary figures and markets had anticipated the PMI to record a steady reading. Further, the nation’s ADP private sector employment climbed 275.0K in April, following a revised gain of 151.0K in the prior month. Market participants had anticipated the private sector employment to record a gain of 180.0K.

On the flipside, the US ISM manufacturing activity index declined to a level of 50.0 in April, compared to market expectations for a fall to a level of 55.0. In the prior month, the ISM manufacturing activity index had recorded a reading of 55.3. Moreover, the nation’s mortgage applications dropped to a six-week low level by 4.3% on a weekly basis in the week ended 26 April 2019, following a decline of 7.3% in the prior week.

In the Asian session, at GMT0300, the pair is trading at 1.1203, with the EUR trading a tad higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1172, and a fall through could take it to the next support level of 1.1140. The pair is expected to find its first resistance at 1.1250, and a rise through could take it to the next resistance level of 1.1296.

Moving ahead, traders would keep an eye on the Markit manufacturing PMI for April, set to release across the euro bloc in a few hours. Also, German retail sales for March, set to release in a few hours, will be on investors’ radar. Later in the day, the US nonfarm productivity for the first quarter, durable goods orders and factory orders for March along with initial jobless claims, will keep traders on their toes.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP rose 0.15% against the USD and closed at 1.3055.

On the data front, UK's seasonally adjusted Nationwide house price index rose 0.4% on a monthly basis in April, surpassing market expectations for a gain of 0.1%. In the prior month, house prices had advanced 0.2%. Moreover, Britain's net consumer credit advanced at its weakest pace since November 2013 by £0.5 billion in March, undershooting market consensus for a climb of £1.0 billion. In the prior month, net consumer credit had registered a revised rise of £1.2 billion.

On the other hand, UK's Markit manufacturing PMI slid to a level of 53.1 in April, meeting market expectations and marking its lowest level in two months. The PMI had recorded a level of 55.1 in the previous month. Also, the nation's mortgage approvals for house purchases dropped to a level of 62.3K in March, compared to a revised level of 65.3K in the previous month. Market participants had envisaged the mortgage approvals for house purchases to fall to a level of 64.5K.

In the Asian session, at GMT0300, the pair is trading at 1.3053, with the GBP trading marginally lower against the USD from yesterday's close.

The pair is expected to find support at 1.3024, and a fall through could take it to the next support level of 1.2995. The pair is expected to find its first resistance at 1.3092, and a rise through could take it to the next resistance level of 1.3131.

Going forward, investors would closely monitor the Bank of England's May interest rate decision, scheduled to release in a few hours.

The currency pair is trading between its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD slightly declined against the JPY and closed at 111.41.

In the Asian session, at GMT0300, the pair is trading at 111.66, with the USD trading 0.22% higher against the JPY from yesterday’s close.

The pair is expected to find support at 111.25, and a fall through could take it to the next support level of 110.84. The pair is expected to find its first resistance at 111.87, and a rise through could take it to the next resistance level of 112.08.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

Daily Pivots: (S1) 1.0136; (P) 1.0168; (R1) 1.0209; More...

USD/CHF dipped to 1.0126 but draw support from 1.0130 minor support and recovered quickly. Intraday bias remains neutral first and outlook is unchanged. USD/CHF is staying in medium term rise from 0.9186 and further rally is expected. On the upside, break of 1.0237 will resume larger up trend to 1.0342 key resistance. However, sustained break of 1.0130 will confirm short term topping. In that case, deeper pull back would be seen back to 55 day EMA (now at 1.0058) and below.

In the bigger picture, medium term up trend from 0.9186 is extending. Current rise should target 1.0342 resistance next. For now, we'd be cautious on strong resistance from there to limit upside, until we see medium term upside acceleration. On the downside, break of 0.9879 support is needed to indicate reversal. Otherwise, outlook will stay bullish in case of deep pull back.

The forex markets are generally quiet in Asian session today. Major pairs and crosses are bounded inside yesterday's range. Australian and New Zealand Dollars are mildly firmer while Yen and Canadian are the weakest. Dollar rebound overnight after Fed Chair Jerome Powell talked down the chance of a rate cut. But there is no follow through buying for now. Focus will turn to BoE Super Thursday first. But traders could have to wait for Friday's non-farm payroll for the bigger moves.

Technically, USD/CHF recovered after drawing support from 1.0130 minor support, and maintained near term bullishness. USD/JPY's decline also slowed ahead of 110.84 near term support and recovered, providing no indication of bearish reversal. EUR/USD was held well below 1.1324 near term resistance, maintaining bearishness. For now, Dollar appears to be safe and more upside is in favor, subject to solid job data tomorrow. AUD/USD could be a pair to watch today. Deterioration in risk sentiment could drag it through 0.6988 support to resume recent decline from 0.7295.

In Asia, Hong Kong HSI is up 0.62%. China Shanghai SSE is up 0.52%. Singapore Strait Times is down -0.56%. Japan is in ultra-long 10-days holidays. Overnight, DOW closed down -0.61%, S&P 500 lost -0.75% and NASDAQ dropped -0.57%. 10-year yield rose 0.002 to 2.511 after hitting 2.455.

Dollar and yield rebounded as Fed Powell talked down rate cuts

Dollar and treasury yields rebounded overnight after Fed Chair Jerome Powell talked down the chance of a rate cut after Fed kept interest rate unchanged at 2.25-2.50% as widely expected. In particular, 10-year yield hit as low as 2.455 earlier in the day but closed up 0.002 at 2.511, regained 2.5 handle.

In the post meeting press conference, Powell noted that "our policy stance is appropriate at the moment" and emphasized "we don't see a strong case for moving it in either direction. Fed acknowledged that both headline and core inflation were running below targets. But Powell said that's mostly due to transient factors. He predicted inflation to pick rise back to 2% target ahead.

Here are some suggested readings on FOMC:

• Fed Judges Weak Inflation as Transitory, Dismissing Rate Cut Chance
• Northern Exposure: FOMC Hold to Sanguine View of Outlook
• Fed Holds Rate Target and Guidance Steady, Onboarding Mixed Economic Data
• Fed Leaves Rates Unchanged in May, Notes Deceleration in Inflation  
• FOMC Recap: Technical Tweaks Do Little To Dissuade Doves
• Fed chair Jerome Powell press conference live stream
• Fed stands pat, acknowledges below target inflation, but maintains patient stance

Sterling maintain gains as focus turns to BoE Super Thursday

Sterling is trading as the strongest one for the week and is maintain gains. Focus turns to BoE "Super Thursday". Bank Rate is widely expected to be kept at 0.75%. Asset purchase target should be held at GBP 435B. Decisions should be made by unanimous 9-0 votes.

Economic development appeared to be positive in Q1, both domestically in UK and globally. But the resilience in UK GDP appeared to be boosted by pre-Brexit stockpiling. Momentum could dissipate easily in Q2, which was seen in the fall in April PMI manufacturing already. Headline CPI steadied at 1.9% yoy in March, which was within BoE's target range. Such developments shouldn't prompt any change in BoE's policy. Adding to that, Brexit uncertainty is prolonged after UK was granted flexible extension until October 31.

The more interest things to note would be in the new economic projections in the quarterly inflation report. But for now, the figures are rather academic given that the form of Brexit is yet to be known.

Here are some suggested readings on BoE:

• BOE Preview: Looking Through Strong First Quarter, with Focus on Softer Inflation and Prolonged Brexit Uncertainty
• Cable Rallies on Expectations for BOE to Deliver a Hawkish Hold

On the data front

New Zealand building permits dropped -6.9% mom in March. German retail sales, Swiss retail sales and PMI manufacturing, Eurozone PMI manufacturing final and UK PMI construction will be featured in European session.

Later in the day, US will release Challenger job cuts, jobless claims, non-farm productivity and factory orders.

USD/CHF Daily Outlook

Daily Pivots: (S1) 1.0136; (P) 1.0168; (R1) 1.0209; More...

USD/CHF dipped to 1.0126 but draw support from 1.0130 minor support and recovered quickly. Intraday bias remains neutral first and outlook is unchanged. USD/CHF is staying in medium term rise from 0.9186 and further rally is expected. On the upside, break of 1.0237 will resume larger up trend to 1.0342 key resistance. However, sustained break of 1.0130 will confirm short term topping. In that case, deeper pull back would be seen back to 55 day EMA (now at 1.0058) and below.

In the bigger picture, medium term up trend from 0.9186 is extending. Current rise should target 1.0342 resistance next. For now, we'd be cautious on strong resistance from there to limit upside, until we see medium term upside acceleration. On the downside, break of 0.9879 support is needed to indicate reversal. Otherwise, outlook will stay bullish in case of deep pull back.

Economic Indicators Update