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Euro rebounded notably today despite the absence of substantial news from Europe. Sterling followed suit, shrugging off poor UK retail sales data. Conversely, Dollar ignored upbeat durable goods data and weakened alongside Yen and Swiss Franc. Commodity currencies displayed mixed performance. It appears that traders are lightening up their positions ahead of the long weekend in the UK and the US.

Technically, EUR/AUD is a focus as Euro is trying to strengthen broadly. Sustained break of 55 D EMA (now at 1.6412) will argue that fall from 1.6742, as the third leg of the corrective pattern from 1.7062, has completed. In this case, stronger rally would be seen back towards 1.6742 resistance. This development if realized, might be accompanied by strengthen in EUR/USD and weakness in AUD/USD simultaneously.

In Europe, at the time of writing, FTSE is down -0.38%. DAX is down -0.39%. CAC is down -0.26%. UK 10-year yield is up 0.030 at 4.291. Germany 10-year yield is up 0.019 at 2.619. Earlier in Asia, Nikkei fell -1.17%. Hong Kong HSI fell -1.38%. China Shanghai SSE fell -0.88%. Singapore Strait Times fell -0.18%. Japan 10-year JGB yield rose 0.0071 to 1.010.

US durable goods orders rise 0.7% mom, ex-transport orders up 0.4% mom

US durable goods orders rose 0.7% mom to USD 284.1B in April, above expectation of 0.5% mom. Ex-transport orders rose 0.4% mom to USD 187.9B, above expectation of 0.1% mom. Ex-defense orders was flat at 268.0B. Transportation equipment rose 1.2% mom to USD 96.2B.

Canada's retail sales falls -0.2% mom in Mar, slightly worse than expectations

Canada's retail sales value fell -0.2% mom to CAD 66.4B in March, slightly worse than expectation of -0.1% mom. Sales were down in seven of nine subsectors and were led by decreases at furniture, home furnishings, electronics and appliances retailers.

Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—were down -0.6% om.

Advance estimate suggests that that sales increased 0.7% mom in April.

ECB's Schnabel warns against hasty moves following likely June cut

ECB Executive Board member Isabel Schnabel indicated in an interview that if inflation outlook and upcoming data support a sustainable convergence towards 2% target, "a rate cut in June will be likely."

However, Schnabel emphasized the need for caution regarding further rate cuts. She advised giving the situation "sufficient time" and warned against "moving too quickly", noting the risk of cutting interest rates too fast. Schnabel stressed that it is crucial to avoid such premature actions.

Regarding the broader economic context, Schnabel observed a "gradual recovery" in Eurozone economy, alongside a continuing decline in inflation. She expressed optimism, stating that these trends justify the hope of "returning to price stability without a recession."

UK retail sales falls -2.3% mom in Apr, vs exp -0.6% mom

UK retail sales volume fell sharply by -2.3% mom in April, much worse than expectation of -0.6% mom. Sales volumes fell across most sectors, with clothing retailers, sports equipment, games and toys stores, and furniture stores doing badly as poor weather reduced footfall. More broadly, sales volumes rose by 0.7% in the three months to April 2024 when compared with the previous three months

Japan's core CPI eases to 2.2% in Apr, marking second month of slowdown

Japan's CPI core, which excludes food, decelerated from 2.6% yoy to 2.2% yoy in April. This aligns with market expectations and marks the second consecutive month of decline from February's 2.8%. Despite the slowdown, core inflation has remained at or above BoJ's 2% target for the 25th straight month.

CPI core-core, which strips out both food and energy costs, also showed signs of easing, slowing from 2.9% yoy to 2.4% yoy. This is the slowest pace of increase since September 2022. Meanwhile, headline CPI, which includes all items, fell from 2.7% yoy to 2.5% yoy.

A closer look at the major components reveals varied trends. Food prices rose by 3.5% yoy, but this was a moderation from 4.6% yoy increase seen in March. The surge in accommodation fees, up 18.8% yoy, was driven by a revival in inbound tourism. Energy prices edged up slightly by 0.1% yoy, with increases in kerosene and gasoline prices leading the way. Service prices also showed a deceleration, rising by 1.7% yoy compared to 2.1% yoy increase in the previous month.

RBNZ stresses vigilance on inflation, prepared to raise rates if necessary

In an interview today, RBNZ Assistant Governor Karen Silk highlighted the central bank's readiness emphasized that there are "risks still to the upside in the near term" regarding inflation. She stated that RBNZ is "absolutely" prepared to raise interest rates if necessary, adding, "Right now we are saying that the level of restrictiveness is there, but we are awake at the wheel."

Silk pointed out that the central bank's primary concern is domestic inflation, particularly noting the significant miss last quarter when non-tradables inflation hit 5.8%, compared to RBNZ's forecast of 5.3%. "Our concern is in that near term, around what are we really seeing in terms of domestic aligned inflation," she explained.

Separately, Deputy Governor Christian Hawkesby reinforced the cautious stance, stating that "cutting interest rates is not part of near-term discussion." He acknowledged the near-term inflation risks are to the upside but expressed confidence that medium-term inflation is returning to target.

Hawkesby emphasized that no single data point will trigger a rate hike, but the bank is closely watching domestic inflation pressures and expectations. He also noted the significant uncertainty surrounding tradable inflation moving forward.

RBNZ's central projection is for headline inflation to fall back into its 1-3% target band by the fourth quarter of this year. However, the bank now projects that it won't achieve its 2% goal until mid-2026.

New Zealand's exports falls -2.6% yoy in Apr, imports down -0.7% yoy

In April, New Zealand's goods exports fell by -2.6% yoy to NZD 6.4B, while goods imports decreased by -0.7% yoy to NZD 6.3B. Contrary to expectations of a NZD -202m deficit, trade balance recorded a surplus of NZD 92m.

Examining the top monthly export movements by country, exports to China decreased by NZD -206m (-11% yoy), and exports to Australia fell by NZD -17m (2.4% yoy). In contrast, exports to the US increased by NZD 35m (4.9% yoy), exports to EU rose by NZD 62m (13% yoy), and exports to Japan surged by NZD 91m (26% yoy).

On the import side, imports from China increased by NZD 120m (10% yoy), and imports from South Korea soared by NZD 371m (119% yoy). However, imports from the EU decreased by NZD -79m (-8.1% yoy), and imports from the US dropped by NZD -154m (24% yoy). Imports from Australia grew modestly by NZD 9.8m (1.4% yoy).

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2674; (P) 1.2710; (R1) 1.2736; More...

Intraday bias in GBP/USD is turned neutral as it recovered ahead of 55 4H EMA (now at 1.2671). On the upside, break of 1.2760 will resume the rally fro 1.2290 towards 1.2892 resistance. On the downside, break of 1.2670 will resume the pull back from 1.2760 to near term channel support (now at 1.2573).

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 1.2298 support will extend the corrective pattern instead.

Economic Indicators Update

US durable goods orders rose 0.7% mom to USD 284.1B in April, above expectation of 0.5% mom. Ex-transport orders rose 0.4% mom to USD 187.9B, above expectation of 0.1% mom. Ex-defense orders was flat at 268.0B. Transportation equipment rose 1.2% mom to USD 96.2B.

Full US durable goods orders release here.

Canada's retail sales value fell -0.2% mom to CAD 66.4B in March, slightly worse than expectation of -0.1% mom. Sales were down in seven of nine subsectors and were led by decreases at furniture, home furnishings, electronics and appliances retailers.

Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—were down -0.6% om.

Advance estimate suggests that that sales increased 0.7% mom in April.

Full Canada release sales release here.

• Natural gas faces limits near January’s peak
• Technical signals flag some weakness
• Improved trend signals suggest bullish continuation

Lower-than-usual storage increases, improved demand forecasts, and a summer season ahead boosted natural gas prices above the key 200-day simple moving average (SMA) and more recently to a four-month high of 2.90.

The price, however, eased immediately to close again below January’s peak of 2.77, making investors wonder whether the upward pattern, which started from the well-known support region of 1.50, is nearing its peak.

Given the overbought signals coming from the RSI and the stochastic oscillator and the widened Bollinger bands, some softness is likely. Though a potential rebound within the nearby support region of 2.50-2.60, where the 200-day SMA is flattening, could resurface buying interest. Failure to pivot there might dampen sentiment, causing a quick decline into the 2.30-2.35 constraining zone, while lower, the 2.00-2.12 trendline territory could be more important to watch. A violation there and a step below the 50-day SMA would wipe out hopes for a bullish trend continuation, bringing the 1.89 base back into view.

Historically, the period from March onwards is flourishing for natural gas prices. Excluding the delayed rebound during the pandemic and the neutral spring phase in 2019, the market has been exhibiting significant upward tendencies every single year for more than a decade. The positive cross between the 20- and 50-day SMAs is in line with this narrative, though a golden cross between the longer-term 50-and 200-day SMA is not in sight yet.

Nevertheless, with geopolitical risks looming in the background, the bulls might seek to retain their advantage. In the short-term, an acceleration above the 2.77 border could stall near the resistance line at 2.93 which joins the April and May highs. If the bulls knock down that wall, they might run straight to the 3.07 barrier and then surge up to 3.21.

Summing up, natural gas could take a breather after its recent significant appreciation. Yet, considering the improved trend signals, a potential pullback or a sideways move could be just a temporary break in the upward trajectory. 

Market picture

The crypto market lost 2.9% in the last 24 hours, retreating to a market capitalisation of $2.5 trillion. The market came under pressure as active trading began in the US on a fresh batch of strong economic data. News of the approval of spot ETFs on Ethereum only added to the pressure.

Ethereum’s sell-off on positive news is a typical “buy the rumours, sell the facts” reaction of speculators. We saw the same in January after the approval of the Bitcoin ETF, which took 19% off its price in the following two weeks before there was a spectacular reversal.

Similarly, the market may let off steam regarding Ethereum. We shouldn’t be surprised if the price pulls back to the $3000 area again, returning to an important consolidation area. From these levels, large institutional investors can start building a position in ETFs.

As a result of another recalculation, the difficulty of mining the first cryptocurrency increased by 1.48% to 84.38 T. The average hash rate for the period since the previous value change was 705 EH/s. Despite the increase, the complexity did not recover the indicator’s collapse by almost 6%, which followed the halving.

News background

The US SEC has approved the launch of Ethereum spot ETFs, according to a document uploaded on the agency’s website. The document lists eight ETFs from VanEck, Fidelity, Franklin, Grayscale, Bitwise, ARK Invest & 21Shares, Invesco & Galaxy, and BlackRock’s iShares Ethereum Trust proposed for listing on the Nasdaq, NYSE Arca, and Cboe BZX Exchange. The Ethereum ETFs will face a week-long process to complete S-1 registration statements, a form required by the SEC for ETFs to list securities.

The move is expected to result in a significant influx of institutional capital into the Ethereum market. Standard Chartered predicts inflows of $15 billion to $45 billion in the first 12 months.

According to Nansen, the total market capitalisation of stablecoins has surpassed $160 billion, up $30 billion since the start of the year. The growth means “new money” is flowing into the segment, which is bullish.

A survey by the US Federal Reserve showed that 18 million US adults (7% of the population) have invested in cryptocurrencies over the past year.

From 12 June, messenger Telegram will introduce an internal currency called Telegram Stars to pay for digital goods and services in bots and mini apps. The initiative follows Apple’s notification of a violation of App Store policy prohibiting the acceptance of internal payments, including cryptocurrencies, from customers. Bot owners reacted sharply negatively to the news, recalling Apple’s 30 per cent commission.

AUDUSD edges higher on Friday as traders collected part of profits from the drop in past four days.

Today’s action marks the first gain this week, but the pair remains on track for a weekly loss of over 1% so far.

Technical studies on daily chart are mixed and lack clearer direction signal, with lift and close above 0.6650 zone (10DMA / 50% retracement of 0.6714/0.6591) seen as a minimum requirement to keep recovery in play for retest of upper pivots at 0.6676 (Fibo 61.8% of 0.6871/0.6362) and 0.6713 (weekly cloud top).

Otherwise, the downside will remain vulnerable, as limited upticks will likely signal positioning for fresh push lower.

Pivotal supports lay at 0.6580/60 zone (last week’s low/Fibo 38.2% of 0.6362/0.6714/converged 100/55DMA’s) and break here would risk deeper correction.

Res: 0.6644; 0.6667; 0.6676; 0.6750.
Sup: 0.6592 0; 6580; 0.6560; 0.6538.

• GBPJPY closing in to pre-intervention levels
• BoJ has the habit of intervening during bank holidays
• Momentum indicators remain bullish

GBPJPY is edging higher again today, trading very close to the levels that forced the BoJ to intervene twice in late April. This pair has been experiencing a non-stop rally from the early May lows, quickly erasing the post-intervention correction. With Monday, May 27 being a bank holiday in the US, there is an opportunity for the BoJ to intervene, if deemed necessary.

In the meantime, momentum indicators remain bullish. More specifically, the Average Directional Movement Index (ADX) is edging higher and signaling the presence of the strongest trend in GBPJPY since the March-June 2023 rally. Similarly, the stochastic oscillator has returned to its overbought territory (OB), confirming the current bullish move in GBPJPY. However, the RSI might be showing an early sign of exhaustion as it appears unable to record a higher high.

If the bulls remain confident, they could try to keep GBPJPY above the 198.59 level and then gradually retest the April 29, 2024 high at 200.50. However, if successful, they would be trading at levels that could provoke another intervention from the Japanese authorities and thus potentially suffer losses.

On the other hand, the bears are desperately trying to regain market control. They could attempt to push GBPJPY back below the 198.59 level and towards to the June 24, 2015 high at 195.87. Such a move could open the door to a gradual retest of the 192.57-193.60 area, which is populated by the July 21, 2005 and the 50-day simple moving average (SMA), as well as the January 2, 2024 trendline.

To sum up, GBPJPY continues to climb higher as the bulls appear determined to retest BoJ’s commitment to help the ailing yen.

The AUD/USD pair has fallen rapidly in the final week, reaching 0.6592. This decline is primarily driven by the US dollar's robust performance, following stronger-than-expected US economic data. Investors now speculate that the Federal Reserve may postpone any interest rate cuts.

The minutes from the Fed's recent meeting have revealed concerns among policymakers about the possibility of high and persistent inflation. This has led some monetary committee members to express a readiness to tighten policy further if inflation continues to rise.

Similarly, the minutes from the Reserve Bank of Australia's (RBA) recent meeting revealed doubts among local policymakers. Although the RBA considered raising interest rates in May, it ultimately decided to maintain the current policy stance. Meanwhile, domestic statistics showed that inflation expectations in Australia fell to 4.1% in May, the lowest level since October 2021.

Technical Analysis of AUD/USD

On the H4 chart of AUD/USD, a decline to 0.6663 was followed by a correction to 0.6780. Subsequently, a new wave of decline to 0.6580 has formed, serving as the local target. Upon reaching this target, a correction to 0.6630 (testing from below) is possible, followed by another decline to 0.6548. This target represents the initial objective of the downward trend wave. Technically, this scenario is confirmed by the MACD indicator, with its signal line above zero and pointing strictly downwards.

On the H1 chart, a consolidation range has formed around 0.6645. The downward exit from this range achieved the local target of 0.6607. The market has since corrected to 0.6646 (testing from below). Today, the decline wave to 0.6580 continues. After reaching this level, a consolidation range is expected to form around it. An upward exit from this range could lead to a correction to 0.6630. Conversely, a downward exit would open the potential for a further decline to 0.6540. This scenario is technically confirmed by the Stochastic oscillator, with its signal line below 20, indicating a potential beginning of a growth link to 50.

Summary

The Australian dollar's depreciation is largely influenced by the strong US dollar and the cautious outlook of the Federal Reserve and the Reserve Bank of Australia. Technical indicators suggest further potential declines with possible corrective rebounds. Market participants should closely monitor these levels as economic conditions and policy expectations evolve.

ECB Executive Board member Isabel Schnabel indicated in an interview that if inflation outlook and upcoming data support a sustainable convergence towards 2% target, "a rate cut in June will be likely."

However, Schnabel emphasized the need for caution regarding further rate cuts. She advised giving the situation "sufficient time" and warned against "moving too quickly", noting the risk of cutting interest rates too fast. Schnabel stressed that it is crucial to avoid such premature actions.

Regarding the broader economic context, Schnabel observed a "gradual recovery" in Eurozone economy, alongside a continuing decline in inflation. She expressed optimism, stating that these trends justify the hope of "returning to price stability without a recession."

Full interview of ECB's Schnabel here.

The Canadian dollar is unchanged on Friday. USD/CAD is trading at 1.3726 in the European session at the time of writing at the time. Canada releases retail sales later, which may trigger some volatility in the North American session. The US will release durable goods and consumer confidence data.

Canada’s retail sales expected to remain flat

Canadian consumers have tightened their belts, as retail sales have been flat so far in 2024. More of the same is expected in the March release, with a market estimate of 0%. Today’s report will be carefully watched by the Bank of Canada, which meets next on June 5th. The BoC has held rates at 5% for six straight times, and restless consumers are looking for some rate relief as they continue to feel the squeeze of elevated rates and the high cost of inflation.

Will the BoC make a move and lower rates at the June meeting? This week’s positive inflation release appears to provide the support that the central needs to trim rates, as CPI fell from 2.9% to 2.7% in April. Inflation is not quite at the 2% target but both the headline and core rates have dipped below 3%, which is within the BoC’s “comfort level” of 1-3%. The downtrend in inflation provides strong support for an initial rate cut in either June or July.

In the US, PMIs provided positive news. Services PMI jumped to 54.8 in May, up from 51.3 in April and above the market estimate of 51.3. This was the highest level in a year and pointed to improving business activity despite high interest rates. Manufacturing showed weak expansion, with the PMI rising from 50.0 to 50.9. The 50 level separates contraction from expansion.

USD/CAD Technical1.

• 1.3710 is a weak support level. Below, there is support at 1.3676
• 1.3763 and 1.3797 are the next resistance lines