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The Australian dollar has edged higher on Tuesday. AUD/USD is trading at 0.6667, up 0.25% on the day at the time of writing.

Australia’s retail sales rise 0.1%, CPI next

Australian consumers remain frugal and cautious, as retail sales rose just 0.1% m/m April. This was a rebound from the 0.4% decline in March and beat the market estimate of 0.2%. On a yearly basis, retail sales rose 1.3%, compared to 0.9% in March.

Retail activity has been flat and that could prod the Reserve Bank of Australia to lower interest rates later this year. The RBA has held the cash rate at 4.35% for four straight times and the markets are anticipating that the next move will be a cut. However, the RBA has sounded hawkish and the RBA minutes of the May 7th meeting indicated that policy makers discussed a rate hike at the May 7th meeting. This was due to concerns that inflation, particularly services prices has been stickier than expected and that the path to the RBA’s 2-3% target will not be smooth. Australia releases April CPI early on Wednesday, which is expected to tick lower to 3.4% y/y, down from 3.5% in March.

Fed members continue to send out a hawkish message about rate policy. Minneapolis Fed President Neel Kashkari said on Tuesday that he would want to see “many more months of positive inflation data” before the Fed lowers rates, adding that a rate hike should not be ruled out. Kashakri said earlier this month that rates need to stay in restrictive territory for “an extended period”. The markets are more dovish and have priced in a rate cut at 52%, according to the CME’s FedWatch.

AUD/USD Technical

0.6643 is a weak support level. Below, there is support at 0.6578
0.6695 and 0.6760 are the next resistance lines

US Conference Board Consumer Confidence rose from 97.5 to 102.0 in May, well above expectation of 96.1. Present Situation Index rose from 140.6 to 143.1. Expectations Index also rose from 68.8 to 74.6.

"Confidence improved in May after three consecutive months of decline," said Dana M. Peterson, Chief Economist at The Conference Board. "Consumers' assessment of current business conditions was slightly less positive than last month.

"However, the strong labor market continued to bolster consumers' overall assessment of the present situation. Views of current labor market conditions improved in May, as fewer respondents said jobs were 'hard to get,' which outweighed a slight decline in the number who said jobs were 'plentiful.'"

"Looking ahead, fewer consumers expected deterioration in future business conditions, job availability, and income, resulting in an increase in the Expectation Index. Nonetheless, the overall confidence gauge remained within the relatively narrow range it has been hovering in for more than two years."

Full US consumer confidence release here.

Swiss Franc is having a significant surge today, likely due to flight to safe-haven assets amid rising tensions in the Middle East. Reports have emerged that Israeli military tanks were seen in central Rafah for the first time since the Israel Defense Forces entered the city earlier this month. This movement follows a recent missile strike by Israel on a displacement camp near Rafah, contributing to the heightened geopolitical uncertainty.

In response to these developments, gold prices edges higher, reflecting increased investor caution. Concurrently, WTI crude oil prices are rebounding toward 80 per barrel, indicating a partial recovery amid the volatile geopolitical picture.

Overall in the forex markets, New Zealand Dollar and Australian Dollar are also showing strength, trailing Swiss Franc. On the other hand, Dollar is the weakest performer today, followed by Canadian Dollar and Euro. Japanese Yen and British Pound are trading in a more neutral position.

Technically, break of 0.9880 minor support will indicate short term topping in EUR/CHF at 0.9928. Deeper correction would be seen back to 38.2% retracement of 0.9563 to 0.9928 at 0.9789, which is inside 0.9728/9835 support zone.

In Europe, at the time of writing, FTSE is down -0.47%. DAX is down -0.39%. CAC is down -0.80%. UK 10-year yield is down -0.003 at 4.262. Germany 10-year yield is up 0.008 at 2.564. Earlier in Asia, Nikkei fell -0.11%. Hong Kong HSI fell -0.03%. China Shanghai SSE fell -0.46%. Singapore Strait Times rose 0.35%. Japan 10-year JGB yield rose 0.0148 to 1.040.

ECB: Consumer inflation expectations reach lowest level since Sep 2021

ECB Consumer Expectations Survey for April shows a slight decline in inflation expectations and a modestly improved economic outlook.

Median inflation expectations for the next 12 months have decreased to 2.9%, down from 3.0%, reaching their lowest point since September 2021. Similarly, expectations for inflation three years ahead have dropped to 2.4% from 2.5%.

Regarding economic growth, the survey highlights less pessimistic view for the coming year. Median expectation for economic growth over the next 12 months has improved to -0.8%, compared to -1.1% in March.

Fed's Kashkari: More positive inflation data needed before easing monetary policy

In an interview with CNBC today, Minneapolis Fed President Neel Kashkari emphasized the need for "many more months of positive inflation data" before considering a reduction in monetary policy restrictions.

Moreover, he noted that Fed might still need to hike rates if inflation does not decrease further, stating, "I don't think we should rule anything out at this point."

Kashkari expressed confidence that Fed would eventually achieve its 2% inflation target but cautioned against rushing into rate cuts. However, "I'm not seeing the need to hurry and do rate cuts. I think we should take our time and get it right," he added.

Japan's CSPI rises 2.8% yoy in Apr, highest annual increase since 2015

Japan's Corporate Service Price Index saw a notable increase of 2.8% yoy in April, surpassing the expected 2.3% yoy and accelerating from 2.4% yoy in the previous month. This marks the fastest annual rise since March 2015. On a monthly basis, service prices rose 0.7% mom from March, though this was a slight slowdown from the prior month's 0.9% mom increase.

The significant annual gains can be attributed to rising labor costs in labor-intensive service sectors, particularly in areas such as machine repair and industrial facility renovation. This surge in service prices highlights the growing cost pressures within Japan's service industry, driven by an tight labor market.

Australia's retail sales rises 0.1% mom in Apr, weak consumer spending continues

Australia's retail sales rose by 0.1% mom to AUD 35.7B in April, falling short of the expected 0.3% mom increase. This modest rise followed a -0.4% mom decline in March, indicating continued weakness in consumer spending.

Ben Dorber, ABS head of retail statistics, commented, "Underlying retail spending continues to be weak with a small rise in turnover in April not enough to make up for a fall in March."

He further noted that "since the start of 2024, trend retail turnover has been flat as cautious consumers reduce their discretionary spending."

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9128; (P) 0.9141; (R1) 0.9151; More....

USD/CHF's retreat from 0.9157 extends lower but stays above 0.9077 minor support. Intraday bias remains neutral and another rise is in favor. On the upside, above 0.9157 will bring retest of 0.9223. However, on the downside, break of 0.9077 will suggest that rebound from 0.8987 has completed. Intraday bias will be turned back to the downside for 0.8987 support. Further break there will resume the fall from 0.9223 to 38.2% retracement of 0.8332 to 0.9223 at 0.8883.

In the bigger picture, price actions from 0.8332 medium term bottom are tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Rejection by 0.9243 resistance, followed by sustained break of 38.2% retracement of 0.8332 to 0.9223 at 0.8883 will strengthen this case, and maintain medium term bearishness. However, decisive break of 0.9243 will argue that the trend has already reversed and turn medium term outlook bullish for 1.0146..

Economic Indicators Update

Daily Pivots: (S1) 1.0844; (P) 1.0856; (R1) 1.0871; More...

EUR/USD is staying in range below 1.0894 and intraday bias stays neutral. More consolidations could still be seen. On the upside, break of 1.0894 will resume the rally from 1.0601 to 1.0980 resistance next. However, break of 1.0804 will turn bias back to the downside for 1.0752 resistance turned support.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern. Fall from 1.1138 is seen as the third leg and could have completed. Firm break of 1.1138 will argue that larger up trend from 0.9534 (2022 low) is ready to resume through 1.1274 high. On the downside, break of 1.0601 will extend the corrective pattern instead.

Daily Pivots: (S1) 1.2744; (P) 1.2761; (R1) 1.2788; More...

GBP/USD's rally continues today and intraday bias stays on the upside. Rise from 1.2298 should target 1.2892 resistance next. For now, further rally is expected as long as 1.2670 support holds, in case of retreat.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern. Fall from 1.2892 is seen as the third leg which might have completed already. Break of 1.2892 resistance will argue that larger up trend from 1.0351(2022 low) is ready to resume through 1.3141. Meanwhile, break of 1.2445 support will extend the corrective pattern with another decline instead.

Daily Pivots: (S1) 0.9128; (P) 0.9141; (R1) 0.9151; More....

USD/CHF's retreat from 0.9157 extends lower but stays above 0.9077 minor support. Intraday bias remains neutral and another rise is in favor. On the upside, above 0.9157 will bring retest of 0.9223. However, on the downside, break of 0.9077 will suggest that rebound from 0.8987 has completed. Intraday bias will be turned back to the downside for 0.8987 support. Further break there will resume the fall from 0.9223 to 38.2% retracement of 0.8332 to 0.9223 at 0.8883.

In the bigger picture, price actions from 0.8332 medium term bottom are tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Rejection by 0.9243 resistance, followed by sustained break of 38.2% retracement of 0.8332 to 0.9223 at 0.8883 will strengthen this case, and maintain medium term bearishness. However, decisive break of 0.9243 will argue that the trend has already reversed and turn medium term outlook bullish for 1.0146.

Daily Pivots: (S1) 156.70; (P) 156.87; (R1) 157.06; More...

Intraday bias in USD/JPY remains neutral and outlook is unchanged. On the upside, above 157.78 will resume the rally from 151.86, as the second leg of the corrective pattern from 160.20, to 100% projection of 151.86 to 156.78 from 153.59 at 158.51. On the downside, below 155.83 will turn intraday bias to the downside for 153.59. Firm break there will target 151.86 and below as the third leg of the corrective pattern.

In the bigger picture, a medium term top might be formed at 160.20. But as long as 150.87 resistance turned support holds, fall from there is seen as correcting rise from 150.25 only. However, decisive break of 150.87 will argue that larger correction is possibly underway, and target 146.47 support next.

Gold prices are on an upward trajectory, moving towards 2351.00 USD per troy ounce on Tuesday. This marks a significant rise after days of sideways movement, highlighting the metal's renewed appeal among investors.

This surge in gold prices can be attributed to a localised weakness in the US dollar, which has investors keenly anticipating the release of critical US inflation data later this week. The focus is particularly on the Core PCE indicator set for release on Friday, which is expected to provide further insights into the Federal Reserve's potential interest rate adjustments.

The market's reaction to the upcoming data could be pivotal, as strong movements in gold prices are likely once the Fed's intentions on rates become clearer. To date, discussions on rate adjustments have been vague, leaving investors craving more definitive guidance.

Despite the Fed's recent minutes suggesting a possibility of rate hikes due to persistent inflation, the market sentiment is tilted towards an eventual easing of the Fed's stance, as indicated by the positive direction of short-term futures contracts on gold.

Technical analysis of XAU/USD

On the H4 chart of XAU/USD, a second downward impulse to the 2340.00 level has been formed. Today, a correction to 2358.50 has been executed. A downside movement to 2341.44 is expected, where a consolidation range may form. If the price breaks upwards from this range, a further correction towards 2384.80 could be considered. Conversely, a downward breakout could open the potential for a decline to 2318.80, the first target of the decline wave. This scenario is technically supported by the MACD indicator, with its signal line below zero and pointing strictly downwards towards new lows.

On the H1 chart, a decline to 2325.40 has been executed, followed by the formation of a growth structure to 2342.31. A consolidation range has formed around this level, with a correction wave to 2358.50, starting with an upward exit. Today, a decrease to 2342.31 (testing from above) has been executed. The new consolidation range is practically outlined. A downward breakout from this range could lead to another downward impulse to 2318.85. Further development towards 2384.50 is possible if the price breaks upwards, continuing the correction to 2384.85. Afterwards, a decline along the trend to 2318.85 is likely. This scenario is technically confirmed by the Stochastic oscillator, with its signal line having broken through 50 and continuing its decline to 20.

Summary

Gold prices are rising due to a weaker US dollar and anticipation of key US inflation data. Technical indicators suggest potential corrections and further declines, with significant support and resistance levels to monitor. Investors should closely follow the upcoming data and Fed communications for additional market direction.

The Japanese yen continues to drift and showing little movement on Tuesday. USD/JPY is trading at 156.92, up 0.01% on the day at the time of writing.

Corporate service prices jumps, BoJ core CPI dips

Japanese inflation indicators have been a mix this week. The Corporate Services Price index jumped 2.8% in April, up from 2.3% in March and easily beating the market estimate of 2.3%. This was the fastest pace of growth since September 1991.

At the same time, the Bank of Japan Core CPI index, which is a preferred inflation gauge for the central bank, eased to 1.8% in April, down from 2.2% in March and below the market estimate of 2.2%. This is significant because it marks the first time the index has fallen below 2% since August 2022.

How will the BoJ respond to this mixed bag of inflation releases? The BoJ has signaled that its plans to tighten policy, but Governor Ueda hasn’t given much guidance. The markets expect at least one rate hike before the end of the year and the BoJ could start to trim the size of its bond-buying, perhaps as early as July.

The BoJ’s hawkish signals have pushed long-term interest rates higher, with the 10-year bond yield climbing to a 12-year high of 1.035%, its highest level since April 2012. The yield has exceeded the 1% threshold that the BoJ zealously defended until its landmark interest hike in March.

It is looking increasingly likely that the BoJ will tighten policy in the second half of the year, but if the cautious central bank does little more than baby steps, these moves won’t give much of a boost to the ailing Japanese yen.

USD/JPY Technical

• There is resistance at 157.69 and 158.37
• 156.59 and 155.91 are the next support levels

ECB Consumer Expectations Survey for April shows a slight decline in inflation expectations and a modestly improved economic outlook.

Median inflation expectations for the next 12 months have decreased to 2.9%, down from 3.0%, reaching their lowest point since September 2021. Similarly, expectations for inflation three years ahead have dropped to 2.4% from 2.5%.

Regarding economic growth, the survey highlights less pessimistic view for the coming year. Median expectation for economic growth over the next 12 months has improved to -0.8%, compared to -1.1% in March.

Full ECB Consumer Expectations Survey results here.