Sample Category Title

Gold price remains in red for the third straight day and fell to the lowest since May 15 during early European session on Thursday, in extension of Wednesday’s 1.75% drop.

Fed minutes, released late Wednesday, showed that the US central bank believes that inflation will cool further over the time, but left the door open for possible further tightening, if conditions worsen.

Markets saw the latest message from the US policymakers as hawkish signal, which raised demand for dollar and deflated the yellow metal’s price.

Fresh dips weakened near-term structure, but overall picture remains overall bullish on daily chart and suggesting that pullback from new record high ($2450, posted on May 20) would mark a healthy correction before bulls regain full control.

Strong supports at $2343/32 (Fibo 61.8% of $2277/$2450 upleg / top of thick daily Ichimoku cloud) should contain dips and keep near-term action biased higher, though return above pivots at $2391/$2400 (daily Tenkan-sen / psychological) will be required to confirm.

Conversely, loss of $2343/32 handles would open way for deeper correction and expose next targets at $2318/$2300 (Fibo 76.4% / psychological) guarding key near-term supports at $2277/72 (May 3 low and floor of recent consolidation range (Fibo 38.2% of $1984/$2450 uptrend).

Only firm break here would sideline larger bulls and generate initial reversal signal on completion of a double-top pattern ($2431/50).

Res: 2391; 2400; 2413; 2433.
Sup: 2343; 2332; 2300; 2277.

The New Zealand dollar is in positive territory on Thursday. NZD/USD is up 0.38%, trading at 0.6120 in the European session at the time of writing. The New Zealand dollar showed some strength after the Reserve Bank of New Zealand rate decision on Wednesday, gaining as much as 1% and hitting a nine-week high. However, the New Zealand dollar couldn’t consolidate and gave up almost all of these gains.

NZ retail sales climb for first time in two years

New Zealand’s retail sales rose 0.5% q/q in the first quarter, which was itself an achievement after declining for eight straight quarters. This beat the market estimate of -0.3%. The turnaround was driven by a strong increase in the purchase of food and recreational goods. On a yearly basis, retail sales is still in a deep hole, with a 2.4% decline in Q1, following a 4.1% decline in the fourth quarter of 2023. This was a sixth consecutive quarter of a fall in retail spending.

The Reserve Bank of New Zealand held the cash rate at 5.5% for a seventh straight time, as it sticks with its “higher for longer” rate policy. At the follow-up press conference, Orr noted that inflation expectations were falling and said it would take time for inflation to decline. Orr said that Bank members had discussed raising rates at the meeting, reiterating the policy statement. The RBNZ is concerned about high inflation and a rate cut does not look likely in the near-term.

FOMC minutes reflect Fed’s hawkish stance

With inflation falling around the globe, major central banks have been under pressure to lower interest rates. The central banks remain cautious, however, and the Fed minutes indicated that there was a discussion to raise rates at the May 1st meeting. The Fed is not the only player with a hawkish stance; the central banks of Australia and New Zealand held rates at their May meetings but indicated that members looked at the option of raising rates.

The FOMC minutes noted that policy makers are not confident about lowering rates at this stage and want to see more evidence that inflation falls closer to the 2% target. This message is consistent with what we have been hearing from a host of Fed members, although the markets have priced in a September rate cut.

NZD/USD Technical

• NZD/USD is testing resistance at 0.6111. Above, there is resistance at 0.6139
• 0.6069 and 0.6041 are the next support levels

• USDJPY surpasses key resistance, but more steps needed
• Short-term risk tilted to the upside; 157.00 mark under examination
• US S&P Global PMIs, initial jobless claims, new home sales on the agenda

USDJPY closed Wednesday’s session with modest gains at 156.75 as the FOMC minutes highlighted worries about inflation and disagreements among policymakers on the timeline of monetary easing.

The soft bullish move was enough to drive the price above the short-term resistance line drawn from April and therefore boost optimism for a continuation higher, but there are a couple of obstacles which could still stop the rally.

Specifically, the 23.6% Fibonacci retracement of the latest upleg near 157.00 and April’s border of 157.83-158.40 are within breathing distance and overlap with the broken support trendline from March. The bulls must breach the latter in order to advance towards the 2024 resistance line seen near 160.00. Even higher, the pair could target the critical trendline area of 162.83.

In trend signals, the positive gap between the shorter- and longer-term simple moving averages (SMAs) is currently endorsing the ongoing upward wave. The momentum indicators are favouring the bulls too, with the RSI fluctuating comfortably above its 50 neutral mark , the stochastic oscillator bouncing up again, and the price itself hovering within the bullish upper Bollinger area.

However, if the price drops below its 20-day SMA and the descending line at 155.80, traders may start selling, pushing the price into the 153.00-153.60 range. This is where the 50-day SMA, the 50% Fibonacci level, and two critical constraining lines are placed. Hence, a close lower could confirm another leg down to the 61.8% Fibonacci of 151.70. In the event that the bears claim dominance over the floor, the short and medium-term outlook could deteriorate, resulting in a possible decline towards the 149.40-150.00 region, where the 200-day SMA and 78.6% Fibonacci number converge.

Overall, while USDJPY bulls appear to have the advantage, it would be intriguing to see if they can surpass the 158.40 level.

UK PMI Manufacturing rose from 49.1 to 51.3 in May, surpassing expectations of 49.2 and reaching a 22-month high. However, PMI Services fell from 55.0 to 52.9, below the anticipated 54.8 and marking a 6-month low. Consequently, PMI Composite dropped from 54.1 to 52.8.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated that the flash PMI indicates a "further expansion" of UK business activity, aligning with GDP growth of around 0.3% in Q2. He highlighted an "encouraging revival of manufacturing accompanied by sustained, but slower, service sector growth."

The survey also revealed positive news regarding service sector inflation, which is cooling. Companies reported the slowest price growth in over three years, with headline inflation falling close to BoE's target. Williamson noted that the PMI data support the view that BoE will start cutting interest rates in August, assuming the data continues to improve over the summer.

Full UK PMI release here.

In May, Eurozone's PMI Manufacturing rose from 45.7 to 47.4, surpassing expectations of 46.6 and marking a 15-month high. PMI Services remained unchanged at 53.3, slightly below the forecast of 53.5. PMI Composite increased from 51.7 to 52.3, reaching a 12-month high.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that Eurozone's economy is "gathering further strength." He highlighted that new orders are growing at a healthy rate, and companies' confidence is reflected in a steady hiring pace.

Additionally, de la Rubia pointed out some positive developments for ECB. Rates of inflation for input and output prices in the services sector have softened. This trend supports ECB's apparent stance to cut rates at the upcoming meeting on June 6.

Incorporating PMI numbers into their GDP nowcast, de la Rubia suggested that Eurozone will likely grow at a rate of 0.3% during Q2, effectively dispelling fears of a recession. He further indicated that GDP growth rate of nearly 1% could be achievable this year, with potential for even higher growth.

Full Eurozone PMI release here.

Also released, French PMI Manufacturing rose from 45.3 to 46.7 in May. PMI Services fell from 51.3 to 49.4. PMI Composite fell from 50.5 to 49.1, back in contraction.

Germany PMI Manufacturing rose from 42.5 to 45.4 in May, a 4-month high. PMI Services rose from 53.2 to 53.9, an 11-month high. PMI Composite rose from 50.6 to 52.2, a 12-month high.

Markets

Above-consensus April inflation figures in the UK triggered an obvious underperformance of gilts, resulting in yield gains between 7.2 (30-yr) and 14.2 bps (2-yr). A June rate cut by the BoE is just short of fully priced out. Steep gilt losses dragged core peers lower as well. German yields gapped higher at the open and traded sideways afterwards. Yields ended between 2.7 and 4 bps higher across the curve. US rates at the front rose up to 4.2 bps after receiving a second gentle push in the back by the FOMC May meeting minutes. They generally showed policymakers supporting a higher for longer message in the wake of “disappointing readings on inflation over the first quarter”. “Various” participants mentioned willingness to tighten further if needed, something chair Powell at the press conference more or less ruled out. While he said back then that policy was restrictive enough, the minutes revealed more uncertainty with officials pointing at the possibility of high interest rates having a smaller impact on the economy than in the past and a potentially higher neutral rate. The dollar gained the upper hand all day against most peers, supported by the minor risk-off on equity markets (WS between 0.2 and 0.5% lower). EUR/USD fell from 1.0854 to 1.0823 with a noticeable acceleration after the minutes’ release. DXY closed a tad below 105, up from 104.618 at the open. USD/JPY (156.8) closed at the highest level since the (alleged) intervention by Japanese officials. Sterling shared first place with the NZD (hawkish hold by the RBNZ). EUR/GBP tanked towards the lowest level since mid-March. With a close at 0.851 the pair seems to be reading a test for the YtD low of 0.8498. Cable (1.2717) eked out a small again despite an overall strong USD.

PMI business confidence and euro area Q1 negotiated wages are the next big thing on this week’s economic calendar. Markets are headed towards their release expecting an ongoing recovery of the former in Europe. Especially services (53.3 in April) surprised to the upside lately, with even final readings coming in better than the preliminary release. Manufacturing will remain in the doldrums, weighed down by Germany in particular. Last time around, though, the rate of decline in the actual output eased again to the slowest in 12 months. Price pressures have been intensifying in recent months with prices in services climbing at a strong pace by historical standards, driven by higher wage rates. This is where the Q1 wage negotiations outcome will offer an important glimpse for what to expect going forward. Member states data suggest only a marginal easing of the 4.5% pace in 2023Q4. Taken together, we believe today’s data will support core/European yields in their recent recovery. This should protect the euro’s downside against a dollar that did notice yesterday’s FOMC meeting minutes and Powell’s one-sided interpretation at the presser. A break above the recent highs (1.0895) requires a strong upside surprise in both the PMIs and the wage data.

News & Views

UK PM Rishi Sunak yesterday called a July 4 general election. The move came as a surprise as the Conservatives trail the opposition Labour party led by Keir Starmer by some 20 points in the polls (roughly 45% vs 25%), likely ending their 14-yr rule in power. There was no point in waiting until autumn though. After consulting with Chancellor Hunt, they agreed there won’t come any additional economic cheer, not least because public finances don’t allow for more tax gifts. It could help them campaigning on the swift recovery from recession and the fall in inflation (2.3% headline) given the bumpy path ahead. The Tories faced a hard January 2025 deadline nevertheless to hold new elections.

The Bank of Korea kept its policy rate unchanged at 3.5% this morning, the level in place since January 2023. The decision was unanimous. The central bank raised its growth forecast for this year from 2.1% to 2.5% and lowered it from 2.3% to 2.1% for next year. This year’s CPI forecast is unchanged at 2.6%, but more data is needed to be confident that inflation will converge to the target given increased upside inflation risks (stronger Q1 growth, heightened volatility in the exchange rate and persisting geopolitical risks). Governor Rhee Chang-yong at the press conference sounded less certain on the timing of a potential first rate cut than a month ago.

Graphs

GE 10y yield

ECB President Lagarde clearly hinted at a summer (June) rate cut which has broad backing. EMU disinflation continued in April and brought headline CPI closer to the 2% target. Together with weak growth momentum, this gives backing to deliver a first 25 bps rate cut. A more bumpy inflation path in H2 2024 and the Fed’s higher for longer strategy make follow-up moves difficult. Markets have come to terms with that.

US 10y yield

The Fed in May acknowledged the lack of progress towards the 2% inflation objective, but Fed’s Powell left the door open for rate cuts later this year. Soft US ISM’s and weaker than expected payrolls supported markets’ hope on a first cut post summer, triggering a correction off YTD peak levels. Sticky inflation suggests any rate cut will be a tough balancing act. 4.37% (38% retracement Dec/April) already might prove strong support for the US 10-y yield.

EUR/USD

Economic divergence, a likely desynchronized rate cut cycle with the ECB exceptionally taking the lead and higher than expected US CPI data pushed EUR/USD to the 1.06 area. From there, better EMU data gave the euro some breathing space. The dollar lost further momentum on softer than expected early May US data. Some further consolidation in the 1.07/1.09 are might be on the cards short-term.

EUR/GBP

Debate at the Bank of England is focused at the timing of rate cuts. Most BoE members align with the ECB rather than with Fed view but slower than expected April disinflation complicated matters. A June cut looks in line with the ECB looks improbable. Sterling extends a recent bull rally. A test of EUR/GBP’s 2024 YtD low (0.8489) is possible. We expect this important support level to hold.

Daily Pivots: (S1) 198.20; (P) 198.56; (R1) 198.84; More...

Intraday bias in GBP/JPY remains on the upside for the moment. Current rise from 191.34, as the second leg of the corrective pattern from 200.53, should target 100% projection of 191.34 to 180.07 from 195.02 at 200.75. But upside should be limited there. On the downside, below 198.25 minor support will turn intraday bias neutral first. Further break of 195.02 will argue that the third leg has started, and target 191.34 support and possibly below.

In the bigger picture, a medium term top could be in place at 200.53 after breaching 199.80 long term fibonacci level. As long as 55 W EMA (now at 184.47) holds, fall from there is seen as correcting the rise from 178.32 only. However, sustained break of 55 W EMA will argue that larger scale correction is underway and target 178.32 support.

Daily Pivots: (S1) 169.36; (P) 169.65; (R1) 169.97; More...

Further rise is mildly in favor in EUR/JPY despite loss of upside momentum. Rise from164.01, as the second leg of the corrective pattern from 171.58, would target 61.8% projection of 164.01 to 169.38 from 167.31 at 170.62. On the downside, break of 169.05 minor support will intraday bias neutral first. Further break of 167.31 should turn bias back to the downside to start the third leg towards 164.01.

In the bigger picture, a medium top could be formed at 171.58 after brief breach of 169.96 (2008 high). As long as 55 W EMA (now at 158.70) holds, fall from there is seen as correcting the rise from 153.15 only. However, sustained break of 55 W EMA will argue that larger scale correction is underway and target 153.15 support.

Daily Pivots: (S1) 0.8495; (P) 0.8519; (R1) 0.8535; More...

Intraday bias in EUR/GBP remains on the downside at this point. Firm break of 0.8491/7 support zone will confirm larger down trend resumption. Next target is 0.8376 projection level next. On the upside though, above 0.8540 minor resistance will delay the bearish case and turn intraday bias neutral first.

In the bigger picture, outlook remains bearish as EUR/GBP is capped below medium term falling trendline. That is, down trend from 0.9267 (2022 high) is still in progress. Firm break of 0.8491/7 will target 100% projection of 0.8764 to 0.8497 from 0.8643 at 0.8376.

Daily Pivots: (S1) 1.6275; (P) 1.6324; (R1) 1.6398; More...

Intraday bias in EUR/AUD remains neutral at this point. On the upside, firm break of 1.6381 resistance will confirm short term bottoming at 1.6211. Intraday bias will be back on the upside for 55 D EMA (now at 1.6411) and above. On the downside, break of 1.6211 will resume larger corrective decline from 1.7062 to 1.6127 support.

In the bigger picture, fall from 1.7062 medium term top is seen as a correction to the up trend from 1.4281 (2022 low). In case of deeper fall, strong support is expected around 1.5846 and 38.2% retracement of 1.4281 to 1.7062 at 1.6000 to bring rebound. Break of 1.7062 is in favor as a later stage.