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Key Highlights

• Gold started a fresh increase above the $2,420 resistance.
• A connecting bullish trend line is forming with support at $2,410 on the 4-hour chart.
• Oil prices are consolidating losses below $80.00.
• EUR/USD could aim for a steady increase above the 1.0885 resistance.

Gold Price Technical Analysis

Gold prices started a fresh increase above the $2,385 resistance against the US Dollar. It traded above the $2,400 zone to move into the green zone.

The 4-hour chart of XAU/USD indicates that the price settled nicely above the $2,400 level, the 100 Simple Moving Average (red, 4 hours), and the 200 Simple Moving Average (green, 4 hours).

It traded as high as $2,449 and recently there was a downside correction. The price dipped below the $2,420 support and tested the 50% Fib retracement level of the upward move from the $2,370 swing low to the $2,449 high.

There is also a major bullish trend line forming with support at $2,410 on the same chart. A downside break below the $2,410 support might call for more downsides. The next major support is near the $2,385 level. Any more losses might send Gold prices toward $2,350.

On the upside, immediate resistance is at $2,435. The first major resistance is now near $2,450, above which the price could accelerate higher toward the $2,462 level.

Looking at Oil, the bears are still in control, and they could aim for another decline unless there is a move above the $81.20 resistance in the near term.

Economic Releases to Watch Today

• UK Consumer Price Index for April 2024 (YoY) – Forecast +2.1%, versus +3.2% previous.
• UK Core Consumer Price Index for April 2024 (YoY) – Forecast +3.6%, versus +4.2% previous.
• US Existing Home Sales for April 2024 (MoM) - Forecast -1.2%, versus -4.3% previous.

Reserve Bank of New Zealand Consumer Price Index

New Zealand Dollar traders eagerly anticipate the Reserve Bank of New Zealand’s Official Cash Rate (OCR), a critical event that can significantly impact the market. Over the past two years, inflation in New Zealand has mirrored global trends. The CPI Y/Y, encompassing all items, has dropped from its 2022 peak of 7.30% and currently rests at 4.00%. Despite this decline, New Zealand’s CPI remains relatively high compared to other global economies, indicating a unique economic landscape. Traders will also pay attention to domestic (non-tradeable) inflation, which measures goods and services that do not face foreign competition. However, the inputs of these goods and services can be influenced by foreign competition.

According to Bloomberg’s World Interest Rate Projection Model, the probability of an RBNZ rate cut for the May 22^nd meeting stands at 1%; however, it increases as we approach year-end as more traders anticipate the cuts later in the year. The RBNZ Shadow Board members recommended that RBNZ keep the Official cash rate OCR at 5.5% and cut rates in 2025.

Weekly Chart Technical Analysis

• NZD has been trading within a widening formation as of January 2023, marked by red lines on the weekly chart, and is approaching the upper pattern borderline.
• A confluence of resistance lies within the range of 0.6170 – 0.6260, represented by the upper channel borderline, the standard monthly R2 and R3, and the annual pivot point at 0.6210.
• A potential inverted head and shoulder pattern is currently under formation, and its neckline aligns with the widening pattern of the upper borderline.
• Negative divergence between price action and tick volume; however, volume bars rose for the same duration. Tick volume does not represent real volume; however, it behaves similarly to standard volume indicators in certain cases.
• MACD line crossed above its signal line and aligned with price action.
• Price action broke and closed above multiple short and intermediate moving averages, the EMA9, SMA9, and the SMA20.

COT Report

• The latest COT report for the week ending on May 17^th, 2024 (Includes data up to the end of day Tuesday, May 14^th, 2024) shows that Large Speculator and Commercials positioning levels are in line with price action after remaining at their all-time extremes for few weeks, a sharp change in positioning towards long for large speculators and the opposite for commercials.

• ETHUSD set to notch up a second straight day of sharp gains
• Hopes of spot ether ETF trigger broad-based crypto rally
• But danger that upswing is becoming overstretched

ETHUSD (ether) has charged through its 50-day simple average (SMA) to make a fresh bid for the March peak of 4,093.70, which was a more than two-year high. The surge comes on renewed speculation that an approval by the US Securities and Exchange Commission for a spot ether ETF is imminent.

The momentum indicators point to a strong bullish bias in the near term, but there is a growing risk of a negative correction. Both the RSI and the stochastics have just entered their respective overbought territories.

If ETHUSD extends its rally, the March high of 4093.70 is the first point of call, after which attention would turn to the 4,400.00 zone, which was a frequently tested region from October to December 2021. Breaking above 4,400.00 could pave the way for the all-time high of 4,867.60.

However, should the price go into reverse, there could be some support at the 38.2% Fibonacci retracement of the January-March upleg at 3,356.86. Further down, the 50-day SMA could attempt to halt the decline around 3,161.50. But a more crucial support is the 61.8% Fibonacci of 2,901.64. A breach of this level would shift the risks to the downside.

In brief, there could be some further limited gains for ETHUSD in the short term before the rally pauses for breath. But the price needs to surpass the March top to put the uptrend on a more sustainable footing, whereas a drop below the 61.8% Fibo would invite the bears.

• Eurozone economy has been improving in 2024
• But investors still anticipate an ECB rate cut in June
• The flash PMIs could impact bets beyond that meeting
• The data comes out on Thursday at 08:00 GMT

ECB signals confidence in lowering rates

At their latest gathering, ECB officials decided to keep interest rates unchanged as expected but they sent clearer signals that they may start lowering them soon. At the press conference, President Lagarde said that the decline in inflation is comforting and that a few members felt sufficiently confident to cut rates.

Although she did not explicitly refer to a specific timing, a few hours after her speech, a report citing three sources close to the ECB discussion revealed that policymakers were expected to cut interest rates in June.

Economy improves, but June cut a done deal

Since then, the CPI figures for April revealed that the headline rate held steady at 2.4% y/y and the core one slowed by less than anticipated, to 2.7% y/y from 2.9%. On top of that, the GDP data for Q1 pointed to a larger-than-expected rebound in Eurozone economic activity, after the bloc fell into a mild recession during the second half of 2023. According to the PMIs, the improvement continued in April, but investors remained convinced that the ECB will deliver its first quarter-point cut in June. They are pricing 40 more basis points for the rest of the year.

On Thursday, the flash PMI surveys for May are due to be released and the forecasts point to more improvement. That said, with ECB policymakers themselves continuing to signal a strong likelihood for a first rate reduction in June, investors are unlikely to scale back their June cut bets even if there is an upside surprise. They could however take off the table some basis points worth of cuts expected for the rest of the year, which could still prove positive for the euro.

Euro/dollar seeks opportunity to break 1.0885

From a technical standpoint, euro/dollar pulled back after hitting resistance slightly above the 1.0885 zone, which stopped the bulls from drifting north on April 9. However, the pair remains above the downtrend line drawn from the high of December 28 and above the 200-day exponential moving average (EMA), which currently coincides with the 1.0800 key support.

Ergo, a better-than-expected set of PMIs on Thursday may encourage buyers to take the reins again and perhaps push the price above 1.0885. Such a move will confirm a higher high and perhaps pave the way towards the high of March 21 at 1.0930. A break higher could see scope for extensions towards the high of March 8 at 1.0980 or the psychological round figure of 1.1000, which offered resistance back on January 5 and 11.

On the downside, for the outlook to start looking bearish, the pair may need to drop below the key support area of 1.0725 as this will also take the action below the short-term uptrend line drawn from the low of April 16.

Markets:

Trading was again confined to rather tight ranges today. US yields created some breathing space end last week compared to important support levels (4.7% area US 2-y yield, 4.3/37% area 10-y yield), but for now follow-through gains look rather difficult. Eco were few today, but there were interesting comments from Fed governors. Fed’s Waller at least isn’t impressed by recent ‘softer’ data. He admitted that further rate hikes are probably unnecessary. Prices are not accelerating any further and progress toward to the 2% target has likely resumed. In the absence of a significant weakening of the labour market, Waller indicated he still needs several months of good inflation data before feeling comfortable on supporting an easing in the stance of monetary policy. More or less at the same time, Atlanta Fed Bostic also said he expects inflation to decline slowly which will probably allow the Fed only to start cutting rates in Q4. He also said that rates are restrictive, but efficacy could be lower as the Fed is making up its mind on the long term neutral rate. Both the comments of Waller and Bostic pushed US yields higher in a first reaction, but these didn’t last. On the contrary, US yields are ceding between 2.5 bps (2-y) and 4 bps (30-y). Admittedly at different levels, but graphs currently even suggest that the downside in EMU/German yields even might be a bit more solid, with the ECB Q1 negotiated wage data an PMI’s later this week potentially providing some further guidance. German yields decline 2-3 bps across the curve. A mild bond market climate this time doesn’t help any further equity gains. The Eurostoxx is falling prey to profit taking (-0.85%). US equities also show some hesitation after touching new record levels last week (S&P 500, -0.1%)) or yesterday (Nasdaq today-0.35%).

Today’s market set-up (lower yields but at the same time also softer equities) doesn’t really help the dollar. DXY gains marginally (104.6) as does USD/JPY (156.3). EUR/USD tried to regain some ground earlier this morning but couldn’t maintain the intraday momentum (unchanged near EUR/USD 1.0855). For now sterling easily keeps recent gains against the dollar (GBP 1.271) and the euro (EUR/GBP 0.8545). CBI May data on manufacturing were mixed at best. Expected production rebounded, but inventories are high, orders’ growth contracted at the fastest pace since November and expected growth of selling prices eased more than expected. CBI data often have only a limited impact on markets. However, comments from BoE governor Bailey later today and tomorrow’s April CPI data for sure are able to move the market. We see risks for UK interest rate markets to more toward a more ECB like scenario (first cut in June) if the April CPI drops close to 2%. This might also cap recent sterling outperformance.

News & Views

Canadian inflation slowed slightly in April, from 0.6% M/M to 0.5% M/M (in line with consensus). The Y/Y-pace decelerated from 2.9% to 2.7%, the lowest since March 2021. The broad-based slowdown was driven by food prices (-0.2% M/M & +2.3% Y/Y), services (+0.2% M/M & +4.2% Y/Y) and durable goods (-0.3% M/M & -0.8% Y/Y). Gasoline prices rose 7.9% M/M and 6.1% Y/Y. Shelter costs continued to contribute positively (+0.5% M/M & +6.4% Y/Y). The Bank of Canda’s preferred core inflation gauge (trimmed mean) slowed from 3.2% Y/Y to 2.9% Y/Y in April, but the 3-month annualized pace reaccelerated for the first time since December (1.64% from 1.35% according to Bloomberg calculations). It’s unclear whether today’s report is sufficient for the Bank of Canada to tick the box of further sustained easing in core inflation (key condition to shift to an easier policy) at its June policy meeting. The market implied probability of a rate cut is 60%, but we don’t see the BoC moving (way) in advance of the Fed. The Loonie loses some ground against the greenback today, trading at USD/CAD 1.3660 from 1.3620.

The National Bank of Hungary cut its policy rate as expected by 50 bps from 7.75% to 7.25%. The decision was unanimous. Looking ahead, risks surrounding global and domestic inflation and volatility in international investor sentiment warrant a careful and patient approach. The decline in Hungarian core inflation will stop in Q2 and it will fluctuate between 4.5% and 5% in the remainder of the year. Decisions on any further reductions in the base rate will be taken in a cautious and data-driven manner. MNB vice-governor Virag at the press conference suggested a final rate 25 bps or 50 bps rate cut at the June meeting but afterwards, the room for more rate cuts is very, very limited. The Hungarian forint rose to EUR/HUF 385 after the policy decision, the strongest HUF-level since early February

Graphs

USD/CAD: Loonie eases as Canadian inflation moderates further. The jury is still out on the timing of first BoC rate cut

EUR/HUF: forint holding strong as MNB will end rate cuts after June as core inflation is expected to hold near 4.5%-5%.

Dow Jones: US equity rally slows after touching record levels last week/yesterday.

US 2-y yield (for now) fails to extend rebound off key support levels touched last week.

Fed Governor Christopher Waller emphasized in a speech today that "several more months" of favorable inflation data are necessary before he would consider supporting interest rate cuts.

While the latest CPI data was a "reassuring signal" indicating that inflation is not accelerating, Waller noted that the progress shown was "small."

Waller highlighted that current data on spending and labor market suggest that monetary policy is at an "appropriate setting" to exert downward pressure on inflation.

However, "in the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy," he said.

Full speech of Fed's Waller here.

Daily Pivots: (S1) 1.0846; (P) 1.0865; (R1) 1.0877; More...

EUR/USD is still bounded in consolidations below 1.0894 and intraday bias stays neutral. Further rally is expected as long as 1.0810 resistance turned support holds. Break of 1.0894 will resume the rise to 1.0980 resistance. Decisive break there will confirm that whole fall from 1.1138 has completed at 1.0601 already.

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) 1.2687; (P) 1.2707; (R1) 1.2725; More...

Intraday bias in GBP/USD remains on the upside at this point. Rise from 1.2298 would target 100% projection of 1.2298 to 1.2633 from 1.2445 at 1.2780. On the downside, below 1.2642 minor support will turn intraday bias neutral again. But further rise will now remain in favor as long as 1.2445 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 1.2298 support will extend the corrective pattern instead.

Daily Pivots: (S1) 0.9087; (P) 0.9098; (R1) 0.9118; More....

Intraday bias in USD/CHF stays mildly on the upside at this point. Corrective fall from 0.9223 might have completed with three waves down to 0.8987 already. Further rally should be seen back to retest 0.9223. On the downside, below 0.9063 minor support is turned neutral first. Further break of 0.8987 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.