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• It has been a rollercoaster period for Fed rate cut expectations
• Sticky US inflation is keeping the market on its toes
• Numerous Fed speakers this week; market sensitive to hawkish comments
• Dollar’s 2024 gains dented despite divergent monetary policy outlooks

The year started with the market firmly believing that the Fed would deliver six rate cuts during 2024 on the back of an aggressive slowdown in inflation, which has not materialized up to now. Developments elsewhere, in particular the numerous geopolitical events, have greatly affected market sentiment during 2024, but US inflation remains a dominant force of market movements, causing a rethinking of the Fed’s outlook every time there is a surprise in store.

The last CPI report showed a small easing in price pressures

US headline inflation for April printed at 3.4% yoy, slightly below the March figure, but remains in the middle of its recent 3.0-3.7% range. The stickiness in CPI prints during 2024 has thrown a spanner in the works for the Fed doves, despite the continued easing seen in the core index that excludes food and energy prices, albeit at a very gradual pace. Potent consumer spending appears to be one of the key reasons for these elevated inflation prints, despite the relatively high Fed rates.

The most recent inflation reports indicate that both food and energy prices have eased considerably over the past few months. However, services, and in particular shelter, continue to generate strong price increases. The April report showed an annual growth of 5.5% in shelter costs, below the 2022 high of an 8.2% increase, but still far above the Fed’s inflation target.

Market looks for almost two rate cuts

The market is acknowledging the stickier inflation as it is currently pricing in only 42bps of easing for 2024 - one full 25bps rate cut and a 68% probability for a second rate move of equal size. Interestingly, the key investment houses are split between September and December for the timing of the first Fed cut.

Until the next set of key US data releases, rate cut expectations could be affected by Fed members’ rhetoric. A minimum of 15 Fed members are scheduled to speak this week, including most of the 2024 voters.

An analysis of almost 30 public appearances by Fed speakers since May 1 reveals an overwhelming support for patience as both the hawks and the doves accept the lack of progress on the inflation front. The recent economic growth moderation has been welcomed but the main message is that more time is needed to measure the domestic demand’s strength, via the retail sales data, and hence evaluate the firms’ ability to keep raising their prices.

Hawks more aggressive; minutes could confirm their stance

Importantly, the hawks have become more concerned lately about the restrictiveness of the current Fed rates forcing Chairman Powell to denounce any thoughts of rate hikes at this juncture. Repeated hawkish commentary this week could prompt a market reaction, although chances for a rate hike are currently perceived as extremely low.

Interestingly, on Wednesday the minutes from the May 1 Fed meeting will be published. This release is slightly out-of-date considering the newsflow since then, but it will be an interesting read to further understand the Fed's reaction function and how high the bar was set for a rate hike.

A true test of both the market’s understanding and the hawks’ determination could come on Thursday with the preliminary PMI manufacturing and services surveys for the month of May. With both the ISM surveys dropping below 50 in April, but their prices paid sub-indicators recording decent jumps, it would be extremely interesting to judge if the current US soft patch has legs or if the hawks could be justified to maintain their recent rhetoric.

Dollar remains dominant despite the recent pullback

The US dollar has been outperforming its main counterparts in 2024. It is currently 1.5% higher against the euro and a massive 10% versus the ailing yen. Despite the aggressive scaling back of Fed rate cut expectations, the US economy remains the strongest one among the developed nations, which along with certain geopolitically-induced risk-off episodes, is keeping the demand strong for the greenback.

Until the June 12 meeting, the numerous Fed speakers, the US labour market data and the June CPI report are bound to keep the market on its toes. Barring a considerable worsening in US data, the dollar could remain supported especially as the ECB is ready to commence its easing spree and the Bank of England could enjoy a rare drop in inflation.

• Fed’s cautious stance drives WTI crude oil lower
• Commodity capped by bearish cross and 80.00 level in daily chart
• Prices consolidate in 4-hour timeframe

Oil prices continued to decrease on Tuesday due to the cautious stance of Fed officials despite the recent softening of inflation. This has raised concerns that US interest rates may remain elevated for an extended period. The prices of Brent crude and WTI futures have both decreased by almost 2% from yesterday, with Brent crude trading at $83.11 per barrel and WTI trading at $78.45 per barrel. Federal Reserve officials are still hesitant to declare that they have successfully controlled inflation. This indicates that they believe it is necessary to maintain a policy of restricting economic activity for some time.

Federal Reserve Vice Chair Philip Jefferson stated on Monday that it is currently premature to determine whether the deceleration in inflation will have a lasting impact. Meanwhile, Vice Chair Michael Barr expressed the view that a more cautious approach to policy implementation requires additional time. Raphael Bostic, the President of the Atlanta Federal Reserve, stated that it will require a significant amount of time for the central bank to have a high level of certainty over the durability of a deceleration in price growth.

Overall, the statements made by the Federal Reserve officials indicated that interest rates are likely to remain elevated for a longer duration than what is anticipated by the financial markets. This has consequences for the oil market, as increased borrowing costs restrict the availability of cash, thus impacting economic growth and the demand for crude oil.

WTI crude oil – 4-hour chart

From a technical perspective, in the 4-hour chart, oil prices are consolidating within a three-week trading range, with upper boundary the 80.10 resistance and lower boundary the 76.60 support.

Currently, the price is moving slightly lower of the 20- and the 50-period simple moving averages (SMAs) with the next support level coming from the 77.70 barricade. Even lower, the 77.25 mark and the lower boundary of the channel at 76.60 could come next, before retreating below the range, testing the three-month low of 76.34 and the 75.60 support, taken from the lows on February 15. A dive towards the latter level could switch the outlook to a strongly bearish one.  

The oscillators are confirming the recent descending movement with the RSI slipping below the neutral threshold of 50 and the stochastic oscillator easing in the oversold area, indicating more losses.

On the other hand, a successful jump above the SMAs could take the commodity towards the upper boundary of the range at 80.10. Surpassing this line, the 80.90 level and more importantly the 200-period SMA at 81.60 could act as strong resistance barriers. The outlook may turn to a more positive one only if there is a rise above the 82.00 round number.

Bigger outlook on oil prices

Turning to the longer-term timeframe and the daily chart, oil prices are still developing above the ascending trend line, which has been drawn from December 13, but it is currently capped by a death crossover within the 20- and the 200-day SMAs around the 80.00 psychological number.

These obstacles may send the market for another challenge with the uptrend line before trying again to jump above the SMAs. A successful attempt above 80.00 could raise the positive scenario for a retest of the 50-day SMA at 81.50. If there’s more upside pressure, it could hit the 84.45 bar.

However, if the bears take the upper hand, the immediate support region could be at 75.80-76.90 before tumbling to 71.80, achieved on February 5.

The technical oscillators are suggesting a bearish retracement, with the RSI pointing down beneath the 50 level and the stochastic posted a negative crossover within its %K and %D lines in the oversold area.

To sum up, WTI crude oil is looking neutral in the 4-hour chart, while in the daily timeframe, it is remaining above the uptrend line. But the obstacle of the 80.00 level may prove to be tough for traders to surpass it anytime soon. 

• USDCAD pivots gently higher but still constrained between trendlines
• A decisive bounce above 1.3745 needed for fresh buying
• Canadian CPI scheduled for release at 12:30 GMT; Fed speakers on the agenda too

USDCAD has been tip-toeing higher since its downward pattern that started after April’s peak stalled near the 1.3588 level last week.

Traders remain skeptical near the 1.3630 barrier and the 50-day SMA, as reflected by the soft price momentum. Interestingly, the 61.8% Fibonacci retracement of the November-December 2023 downleg is in the neighborhood too.

Additionally, the recent upturn in the RSI hasn’t stretched above the 50 neutral mark, and the MACD remains in the negative region, signaling that selling interest hasn’t completely diminished. Yet, the rebound in the stochastic oscillator that took place near the 20 oversold level suggests that an increase towards the 20-day SMA at 1.3668 and the nearby resistance line at 1.3690 cannot be excluded, especially as long as the support trendline from December's low holds firm around 1.3622.

In the bullish scenario, where the price closes above 1.3690, the bulls could gain fresh impetus towards the 1.3740 constraining zone and the 78.6% Fibonacci. The upper band of the 2024 bullish channel is located in the same region. Therefore, a break higher may improve the outlook, prompting a new rally towards the 1.3800-1.3844 level. Additional gains from there might attempt to violate the long-term neutral territory above the 1.3900 number.

On the downside, a step beneath 1.3622 could initially retest last week's low of 1.3588 ahead of the important 1.3530-1.3550 trendline territory. Should the sell-off continue, the bears might next pause within the 1.3450-1.3475 region and near the 38.2% Fibonacci.

To sum up, USDCAD may encounter a challenging session in the short term. For the pair to attract new buyers, it must run sustainably above the 1.3745 bar. Conversely, should the pair fall below 1.3530, traders might engage in new selling activities.

Note that Canada will release its latest CPI report today at 12:30 GMT, while Fed speakers Williams and Bostic are scheduled to speak later in the day.

Hello fellow traders.

In this technical article, we’re going to take a look into the Elliott Wave charts of USDJPY, exclusively presented in the members’ area of our website. As our members know USDJPY has recently made pull back that made clear 3 waves down from the April 29th peak . The pair completed correction right at the Equal Legs zone ( Blue Box Area) . In further text we’re going to explain the Elliott Wave pattern and trading setup.

USDJPY Elliott Wave 4 Hour Chart 05.01.2024

The pair is correcting cycle from the 146.352 low. The pull back is showing lower low sequences from April 29th peak. Current view suggests that the correction is still incomplete at the moment. Our analysis forecasts further downside in USDJPY toward the 152.295-148.75 area ( blue box).

Despite the expected extension lower, we advise against selling USDJPY. Once the pair reaches this blue box area, we expect it to attract buyers. We can see either rally towards new highs or a corrective bounce in three waves at least. Once the bounce reaches the 50% Fibonacci retracement level against the connector high -((b)) black, we’ll secure our position by moving the stop-loss to breakeven. To safeguard our trade, we’ll closely monitor for any break below the marked invalidation level :148.75

A quick reminder:

Our charts are designed for simplicity and ease of trading:

Red bearish stamp + blue box = Selling Setup
Green bullish stamp + blue box = Buying Setup
Charts with Black stamps are deemed non-tradable. 🚫

USDJPY Elliott Wave 4 Hour Chart 05.20.2024

The pair found buyers within the Blue Box area as expected. We got a nice rally from our buying zone, counting wave 4 correction completed at the 151.89 low. As a result, traders who entered long positions are now enjoying risk-free profits. The bounce has exceeded the 50% Fibonacci retracement level against the connector peak. With the price holding above the 151.89 low, we believe the next leg up can be in progress. For confirmation on the next leg up, we’re looking for a break above the 3 red peak.

The Australian dollar edged lower but recovered in the Asian session. AUD/USD is showing little movement in the European session, trading at 0.6660.

RBA minutes: members discussed rate hike

The minutes of the Reserve Bank of Australia’s meeting earlier this month indicated that members discussed the possibility of a rate hike before deciding to hold the cash rate at 4.35% for a fourth consecutive time. This was old news which already known after the meeting and the Australian dollar’s reaction has been muted.

The minutes noted that the risks around the RBA’s forecasts were “balanced”, which would indicate that members will continue the “higher for longer” stance. The RBA doesn’t expect inflation to fall back to the 2-3% target until late 2025, which would likely mean that rate cuts won’t be on the table before mid-2025. This could change, however, if inflation hits the target earlier than expected.

Governor Bullock has pushed back against speculation of near-term easing but some analysts expect an initial rate cut before the end of the year. The RBA has refrained from providing forward guidance and has stressed that its rate path will be determined by data.

Australia’s Westpac Consumer Sentiment was a disappointment, declining by 0.3% in May to 82.4, following a 2.4% slide in April. This missed the markets estimate of a 0.9% gain and marked a third straight decline. Consumers are being squeezed by high interest rates and stubborn inflation and are pessimistic about the economy. Consumer confidence remains well below 100, which separates optimism from pessimism.

The Federal Reserve continues to pump out a message of caution about rate cuts. On Monday, Fed Vice Chair Philip Jefferson said that it was too early to tell if the downtrend in inflation would be “long lasting”. Fed Vice Chair of Supervision Michael Barr said that first-quarter inflation data was disappointing and was not supportive of easing monetary policy.

AUD/USD Technical

• AUD/USD has support at 0.6633 and 0.6611
• 0.6745 and 0.6797 are the next resistance lines

The EUR/USD pair is gently declining towards 1.0858 on Tuesday but remains within a medium-term range.

This week sees few significant US statistics releases, which could provide investors with insights into future interest rate movements. However, numerous speeches from US Federal Reserve members are expected. Investors will be keenly listening for any indications about the Fed's monetary policy.

On Monday, several Fed officials advocated for maintaining a cautious monetary policy strategy, despite last week's data showing a reduction in inflationary pressures in April.

It is likely that all forthcoming comments from Fed officials will echo a similar sentiment—that the Fed remains patient and consistent. The Fed requires time to gather more data on easing price pressures. While there are indications of such easing, they are not yet systemic. This cautious approach has done little to alter investor expectations significantly. The market now anticipates that the Fed will lower rates twice before the end of the year, with the first cut expected in September.

EUR/USD technical analysis

On the H4 chart, EUR/USD has formed a consolidation range below the level of 1.0890. A downward exit from this range could lead to a continuation of the downward wave to 1.0784. Breaking this level might further extend the trend to 1.0683, which is the first target of the decline wave. This scenario is technically supported by the MACD indicator, with its signal line at the maximums while the histograms are below the zero mark and continue to decline.

On the H1 chart, the correction to 1.0883 has been completed. Currently, the structure of a downside wave to 1.0833 is forming. After reaching this level, a narrow consolidation range around it is expected. A downward exit from this range could open the potential for a further decline to 1.0785, which is the local target of the downward wave. This scenario is technically confirmed by the Stochastic oscillator, with its signal line below 80 and expected to decline to 20.

Summary

The EUR/USD pair remains in a consolidation phase with a gentle downward movement. Technical indicators suggest potential for further declines, but market participants will be closely watching Fed communications for any hints on future monetary policy, which could influence the pair's direction.

Eurozone goods exports fell -9.2% yoy to EUR 245.5B in March. Goods imports fell -12.0% yoy to EUR 221.3B. Trade balance recorded EUR 24.1B surplus. Intra-Eurozone trade fell -12.4% yoy to EUR 222.1B.

In seasonally adjusted term, goods exports rose 0.1% mom to EUR 237.7B. Goods imports fell -0.1% mom to EUR 220.4B. Trade surplus widened slightly from EUR 16.7B to 17.3B. Intra-Eurozone trade fell -0.5% mom to EUR 213.7B.

Full Eurozone trade balance release here.

According to confirmed information, Iranian President Ebrahim Raisi, considered a potential successor to the country's supreme leader, Ayatollah Ali Khamenei, died in a helicopter crash in a mountainous area near the border with Azerbaijan. The helicopter also carried Foreign Minister Hossein Amir-Abdollahian and other officials, all of whom perished.

As news of the helicopter search in the inaccessible mountainous region spread, the price of gold rose significantly. Yahoo Finance reports that the gold rally was driven by uncertainty about the situation in Iran.

The XAU/USD chart indicates that yesterday, at the peak of the day, the price of gold reached $2450, an all-time high. Can the rally continue?

On 16 April, we wrote that the $2400 level could be a significant resistance – after which the price corrected to the $2380 level. In this context, today's gold price can be seen as a second attempt to break through the $2400 level.

Let's conduct a technical analysis of the gold price considering the new data:

→ The long-term ascending blue channel remains relevant. The price is near its upper boundary.

→ The price is near the median of the ascending black channel, which shows signs of resistance.

→ A bearish divergence is forming on the RSI indicator.

→ Having set a historical peak, the gold price started to decline. This was influenced by an official statement from Israel denying involvement in the crash.

It is possible that a reduction in geopolitical tension will deter bulls from pushing for new historical highs. Notably, the XBR/USD oil price did not show a similarly sharp rise, which would be expected if fears of Middle East escalation were truly strong.

Given the above, a new correction on the XAU/USD chart can be expected – possibly to the lower boundary of the short-term channel (shown in black). If this scenario unfolds, bears might find that the $2400 level now acts as significant support.

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Despite the cooling labour market in the US and declining inflation, the American currency continues to move towards new highs. For instance, the USD/JPY currency pair might update the current month's high at 156.70, the NZD/USD sharply declines after retesting 0.6140, and buyers of the USD/CAD pair have confidently secured a position above 1.3600.

USD/CAD

The corrective pullback in the USD/CAD pair ended just below 1.3600. According to technical analysis, on May 16th, a bullish "piercing line" pattern formed on the daily timeframe for USD/CAD. The completion of this pattern could lead to a retest of the key range 1.3690-1.3660. If the price remains above these levels in the coming weeks, the pair’s rise could resume towards 1.3850-1.3820. A drop below 1.3600 could contribute to a more extensive downward correction towards 1.3530-1.3470. Important indicators that may affect USD/CAD pricing in the coming trading sessions:

• Today at 15:30 (GMT +3:00) - Canada’s Core Consumer Price Index (CPI) for April
• Tomorrow at 17:00 (GMT +3:00) - US Existing Home Sales

NZD/USD

The NZD/USD currency pair, after a sharp rise in early May, retreated from the resistance at 0.6140. Over several daily sessions, a "tower" pattern was formed according to technical analysis of NZD/USD, the completion of which could facilitate the resumption of the downward movement towards 0.6040-0.5980. If the pair’s buyers manage to break above the base of the indicated pattern, the price could rise to 0.6220-0.6200. This five-day period is crucial for NZD/USD pricing:

• Tomorrow at 05:00 (GMT +3:00) - Reserve Bank of New Zealand interest rate decision
• Tomorrow at 21:00 (GMT +3:00) - Publication of FOMC minutes

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

• EURJPY holds well above uptrend line
• RSI stands near 70 level
• Next target at multi-year peak

EURJPY is rallying sharply higher after the strong bounce off the 164.00 support level and the medium-term ascending trend line. The pair is heading towards the previous 40-year high of 171.56 with the technical oscillators confirming the buying interest.

The RSI is approaching the 70 level with strong momentum, holding above its uptrend line, while the MACD is strengthening its climb above its trigger and zero lines.

Further increases could send the market towards the multi-year high of 171.56 ahead of the next psychological number of 172.00.

On the flip side, a downside retracement could open the way for a retest of the latest bottom at 167.30 ahead of the uptrend line and the 50-day SMA at 165.40. A break below this line could drive traders towards the 164.00 handle, switching the outlook to neutral.

Summarizing, as long as EURJPY remains well above the rising trend line and more importantly above the 200-day SMA, the outlook is bullish.