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Market picture

Crypto market capitalisation rose 5.2% over the past seven days to $2.41 trillion. Over the weekend, it reached $2.44 trillion, its highest level in nearly four weeks.

Bitcoin is treading near local highs, remaining just below $67K. That’s a gain of 8.4% in seven days and a retest of the previous peak area in late April. Despite the burgeoning risk appetite in global markets, demand for Bitcoin, Ethereum and many altcoins is rather subdued. However, BTCUSD remains firmly above the 50-day moving average, indicating an upward trend.

Investors are more optimistic about Solana, whose price rose to its highest since early April at $177 (+1.5% in 24h). It may well reach the March highs before Bitcoin, acting as a more sensitive indicator of risk appetite in cryptocurrencies.

News background

According to Arbelos Markets, the correlation between bitcoin and the Nasdaq-100 index has returned to its highest levels since late summer 2023. Investors now view BTC as an asset identical to tech stocks.

According to JPMorgan, the cost of mining Bitcoin has reached $45,000, up $3,000 from its previous estimate. The bank kept its medium-term forecast for BTC at $42,000 due to limited inflows into spot bitcoin-ETFs.

CoinGecko compared blockchains in terms of speed records. The fastest network was Solana—on 6 April, the daily average number of transactions per second (TPS) reached a record high of 1,504 against the backdrop of the meme-coin boom. This makes Solana 46 times faster than Ethereum and more than five times faster than Polygon, which has the highest TPS among scaling solutions. Sui, BNB Chain, Polygon, and TON are next in line.

MN Trading founder Michael van de Poppe sold all bitcoins and bet on altcoins but promised to return to BTC later. The community noted the riskiness of this strategy; some believe the time for altcoins is not yet ripe.

Venezuela has banned cryptocurrency mining to stabilise the national energy grid. Authorities say the country’s energy security is more important than the digital asset mining industry.

According to BitRiver, miners from the Russian Federation mined 54,000 BTC ($3.5bn at current exchange rates) last year. At the end of the year, the Russian Federation ranked second in terms of cryptocurrency mining, second only to the United States.

• The Japanese Government Bond (JGB) market is now anticipating a potential Q2 recovery in the Japanese economy as the 2-year and 10-year JGB yields have rallied to more than a decade high.
• The 10-year and 20-year yield premiums of US Treasuries over JGBs have shrunk in the past two weeks which in turn supports a potential bearish reversal in USD/JPY.
• However, technical analysis suggests an ongoing potential medium-term uptrend in USD/JPY.
• In the short term, watch these two key levels of 157.00 and 155.30 on the USD/JPY

Since our last publication, the price actions of the USD/JPY have staged a decline of -5.2% (837 pips) to print a recent low of 151.85 on 3 May after it hit its long-term pivotal resistance of 159.30/160.20 on 29 April.

The swift decline of USD/JPY has been attributed to a yet-to-be-confirmed Bank of Japan (BoJ) direct FX intervention on 29 April and 2 May under the instructions of the Ministry of Finance (MoF) to sell the US dollar against the yen.

Since its 3 May low of 151.85, the USD/JPY has traded sideways around a flat 20-day moving average as both bulls and bears are bombarded by conflictive factors.

Fundamentals suggest a potential revival of JPY bulls

Fig 1: JGB yields medium-term & major trends as of 20 May 2024 (Source: TradingView, click to enlarge chart)

Fig 2: 2-YR & 10-YR US Treasury/JGB yield spread medium-term & major trends as of 20 May 2024 (Source: TradingView, click to enlarge chart)

Despite the weaker-than-expected preliminary Japan Q1 2024 GDP data released last Thursday, 16 May that came in at -0.5% q/q, below consensus of -0.4% q/q. The Japanese Government Bond (JGB) market has looked past this set of lagging data as both the short and long-end of the JGB curve traded higher.

The 30-year JGB yield is considered a gauge for long-term growth and inflationary trends have rallied above its prior week level to 2.09% at this time of the writing, its highest level since April 2011.

Also, the 2-year JGB yield that is more sensitive to anticipating BoJ’s monetary policy stance on its short-term overnight interest rate has inched higher concurrently to 0.35%, its highest level since June 2009 (see Fig1).

The current bullish backdrop on both the 2-year and 10-year JGB yields suggests that market participants in the JGB market have likely shrugged off the weak Q1 GDP growth data and expect the Japanese economy to potentially recover in Q2 due to the recent Shunto wage rise and tax cuts that should lift consumption spending for households.

Interestingly, the recent pace of increase in JGB yields seen in the past two weeks is much steeper than yields of the US Treasury notes. The premium on the yield spread between 10-year US Treasury/JGB and 2-year US Treasury/JGB have narrowed since the bearish breakdown below their former key medium-term supports at 3.61% and 4.57% respectively (see Fig 2).

The narrowing of the 10-year yield spread premium between US Treasury notes over JGBs has made US Treasury notes a less attractive fixed-income investment for Japanese insurance companies that in turn may reduce their US Treasuries exposure and overweight their fixed-income portfolio towards JGBs due to higher odds that the long-term JGBs yields are likely to trend higher.

These potential upcoming fixed-income portfolio adjustments from Japanese insurance companies may offer some support to stall the major yen’s weakness against the US dollar.

Medium-term momentum factor suggests potential JPY weakness

Fig 3: USD/JPY medium-term & major trends as of 20 May 2024 (Source: TradingView, click to enlarge chart)

Fig 4: USD/JPY short-term trend as of 20 May 2024 (Source: TradingView, click to enlarge chart)

Based on the lens of technical analysis, the medium-term uptrend phase of the USD/JPY in place since the 28 December 2023 low of 140.25 remains intact as its price actions continued to oscillate within an ascending channel (see Fig 3).

In addition, its daily RSI momentum indicator is still being supported by a parallel ascending trendline at the 50 level which suggests no clear signs of bearish momentum at this juncture.

Short-term key technical elements are mixed as seen on the 1-hour chart of USD/JPY where the hourly RSI momentum indicator has printed a series of “lower highs” (see Fig 4).

Neutral between 157.00 and 155.30. Only a clearance above 157.00 may see the next near-term resistance coming in at 158.00 and above it exposes the 159.60/160.30 long-term pivotal resistance in the first step.

On the other hand, a break below 155.30 may see a slide towards the next near-term supports at 154.30 and 153.30 (also the upward-sloping 50-day moving average).

• The Australian dollar is unchanged at the time of writing, trading at 0.6692 in the European session.
• There are no economic releases out of the US or Australia today, which should translate into a quiet day for AUD/USD.

The Aussie is coming off an excellent week, gaining 1.36% and hitting its highest level since January. In the month of May, AUD/USD has surged 3.4%.

Tuesday will be busier, with the Reserve Bank of Australia releasing the minutes of the policy meeting earlier this month. At that meeting, there were no surprises as the RBA held the cash rate at 4.35% for a fourth straight time.

Notably, the central bank discussed the possibility of a rate hike at the meeting, which was not the case at the March meeting. This was likely a response to first-quarter CPI, which was slightly higher than expected. CPI fell from 4.1% to 3.6%, missing the forecast of 3.5%. Service inflation remains sticky, which means that CPI is expected to continue to ease, but slowly.

RBA policy makers are concerned that the path to the 2% inflation target will be bumpy and are hesitant to start lowering rates until they see evidence of sustainable price stability. The fact that a rate hike is on the table, albeit an unlikely scenario, indicates that the RBA remains cautious and somewhat hawkish, and a rate cut will have to wait until inflation shows a substantial decline.

Australia will also release Westpac Consumer Sentiment on Tuesday. The index has declined two straight times and remains in negative territory as consumers remain surly about high interest rates and the high cost of living. The May release is expected to show an improvement, with a market estimate of a 0.9% gain.

AUD/USD Technical

• AUD/USD has support at 0.6681 and 0.6662
• 0.6714 and 0.6733 are the next resistance lines

• The British pound is almost unchanged on Monday. GBP/USD is trading at 1.2704 in the European session at the time of writing.
• The pound is coming off a strong week, with gains of 1.4%. GBP/USD touched a high last week of 1.2711, its highest point since March 21.

The markets are keeping a close eye on Wednesday’s UK inflation report. April CPI is expected to fall all the way to 2.1%, down from 3.2% in March. This would be a significant achievement for the Bank of England, which has slashed inflation from double digits and has made a priority of bringing inflation back down to the 2% target.

Broadbent hints at summer rate cut

Taking a page from the European Central Bank which has signaled a rate cut in June, Bank of England Deputy Governor Broadbent said today that a rate cut in the summer was possible. Broadbent said that rates would have to come down “at some point” but that would depend on wage growth and services inflation cooling as the BoE has projected. Wednesday’s inflation report will certainly be a key factor in the central bank’s rate path.

BoE Governor Bailey will speak at event on Tuesday and the markets will be listening closely. If Bailey also signals that a summer rate hike is a strong possibility, the British pound could lose ground.
There are no economic releases out of the US today, which leaves the focus on a host of FOMC members, who will make public remarks today and Tuesday. The markets will be looking for some hints about future rate policy. The Federal Reserve is widely expected to hold rates at the June meeting, with a 65% probability of a cut in September, according the CME’s FedWatch.

GBP/USD Technical

• GBP/USD is putting pressure on support at 1.2686. Below, there is support at 1.2660
• 1.2727 and 1.2753 are the next resistance lines

On Monday, a troy ounce of gold set a new price peak of 3438.00 USD. This surge was fuelled by renewed speculation about potential interest rate cuts by the US Federal Reserve, vigorous gold purchases by banks globally, and strong investor demand for safe-haven assets.

Recent statistics indicating a slowdown in consumer inflation in the US and a decline in retail sales have given the Fed more flexibility for potential ease of monetary policy this year. Although the Fed's official stance has not changed, investors are already speculating on a rate cut. A lower interest rate would enhance the appeal of non-interest-bearing assets such as gold.

Additionally, escalating geopolitical tensions in the Middle East contribute to the rise in gold prices. Furthermore, global central banks, including China, continue to buy gold to diversify their reserves and reduce dependency on the US dollar.

XAU/USD technical analysis

On the H4 chart of XAU/USD, a consolidation range has formed above the level of 2374.00, with the growth wave continuing towards 2550.00. The local target of 2450.00 has been achieved. Today, a corrective move to at least 2410.00 is expected. If this level breaks, the correction could extend to 2374.00. Following this correction, growth towards 2550.00 is anticipated. This bullish scenario is supported by the MACD indicator, with its signal line above zero and pointing upwards towards new highs.

On the H1 chart, a growth wave to 2450.00 was completed. Today, a correction to 2410.00 (testing from above) is anticipated. After this correction, another growth wave to 2450.00 is expected, potentially extending to 2550.00. This scenario is technically supported by the Stochastic oscillator, with its signal line currently above 80 and expected to decline to 20 before resuming its upward trend.

Summary

Gold hits a new record high, driven by speculation about potential US interest rate cuts by the US Federal Reserve, strong demand from central banks, and increased geopolitical tensions in the Middle East. Technical analysis indicates short-term correction before continuing the upward trend towards higher targets. Investors should monitor these developments closely, as the market remains highly responsive to economic and geopolitical signals.

In a speech today, BoE Deputy Governor Ben Broadbent indicated that if current forecasts hold, which suggest that monetary policy will need to become "less restrictive at some point", a rate cut could occur "over the summer".

Broadbent noted that the direct impact of the pandemic and the war on inflation has now diminished. What remains are the "more persistent second-round effects" on domestic inflation stemming from these earlier shocks.

He emphasized the uncertainty surrounding how long these effects will persist. While a symmetrical process might suggest a quick unwinding within the next year, the Committee has consistently judged that the process is likely to be "asymmetric". As stated in recent Monetary Policy Reports, "second-round effects in domestic prices and wages will take longer to unwind than they did to emerge."

Full speech of BoE's Broadbent here.

• RBNZ meets on Wednesday, no rate change expected
• Quarterly forecasts and press statement will be closely scrutinized
• Press conference to gain interest if RBNZ turns dovish
• Kiwi’s recent run against the dollar could be under threat

Third RBNZ meeting in 2024

The Reserve Bank of New Zealand will announce its interest rate decision on Wednesday at 02:00 GMT with the press conference following one hour later. The market is overwhelmingly expecting no change in the cash rate as it is currently assigning just a 2% probability of a 25bps rate cut.

Similarly to the RBA, the RBNZ remains one of the most hawkish central banks at the current juncture. In the last two meetings, Governor Orr et al repeated the need for maintaining the official cash rate (OCR) at a restrictive level for a sustained period of time to ensure the return of inflation to the 1-3% target range.

Softer data recently...

However, since the April 10 meeting, data has been on the weak side. Business sentiment has been dropping, consumer confidence has taken a turn for the worse, and the unemployment rate reached a 3-year high at 4.3% in the first quarter (Q1) of 2024.

... but inflation remains elevated 

Amidst this soft patch, the inflationary pressures are not abating as much as the RBNZ might have hoped for. The Q1 CPI print came below expectations, but remained north of 4%, while both the quarterly labour costs and producer prices indices confirmed the ongoing stickiness in inflation. But the RBNZ might be finally seeing the light at the end of the tunnel as the quarterly survey of forecasters and business leaders has the 2-year inflation rate dropping to 2.33%, not far from the RBNZ’s inflation target midpoint.

Quarterly projections matter 

The RBNZ’s overall stance at this meeting might also depend on its quarterly projections. The previous Monetary Policy Statement in February had annual inflation dropping to 2% in the fourth quarter of 2025, and causing a 60bps decrease in the official cash rate, with the first rate cut penciled in for the second quarter of 2025.

A significant revision in the 2025-2026 inflation figures and the watering down of the key statement phrase referring to “the need to keep the OCR at restrictive levels” is necessary in order to add credibility to the market’s expectations. The market is currently pricing in 40bps of easing in 2024 with the first rate cut set for the October 9, 2024 meeting.

Putting everything together...

All-in-all, the RBNZ is expected to remain satisfied with the progression of the domestic economy and its current monetary policy stance. Considering the recent data flow, it looks somewhat difficult for Wednesday’s Monetary Policy Report to confirm the markets’ expectations for considerable easing during 2024, despite some possible downward revisions in the quarterly projections.

Could kiwi/dollar continue to climb?

With the market still digesting the recent mixed US data releases, which are potentially opening the door to a Fed rate cut during the summer, the kiwi has been strengthening against the US dollar.

Interestingly, in the last two RBNZ meetings the kiwi/dollar pair ended the session in the red. In February, there was a buildup of hawkish RBNZ expectations ahead of the meeting, which were not met, while in April the stronger US CPI print helped the dollar outperform its counterparts across the board.

Should the RBNZ decide to moderate its current stance, the kiwi could be on the back foot against the dollar with the pair possibly enjoying higher volatility and retesting the lower boundary of the 0.6060-0.6092 range. On the flip side, an uneventful meeting with the RBNZ maintaining its current balanced stance might cause a more muted market reaction. The next resistance appears to be at the 0.6198 level.

• Gold advances above sideways channel
• 20- and 50-day SMAs tick up
• MACD and RSI suggest more upside pressure
• Next target at 261.8% Fibo extension of 2,515

Gold prices skyrocketed to another fresh high of 2,450 earlier in the day, currently holding above the previous peak of 2,431.48.

This movement may be a sign of further increases during the next couple of days, with the technical oscillators suggesting more gains in the market. The MACD is strengthening its positive momentum above its trigger and zero lines, while the RSI is flirting with the 70 level, holding above the ascending trend line.

In the positive scenario, traders might pay attention to the 261.8% Fibonacci extension level of the downward wave from 2,079 to 1,810 at 2,515. A bounce higher could take a breather around the next round number of 2,600.

If the intraday’s high stands firm, though, the precious metal could plummet towards the 2,400-2,431.48 support area. The 20- and the 50-day simple moving averages (SMAs) at 2,342 and 2,326 might tackle selling pressures slightly lower at 2,277, which was the lower boundary of the consolidation area. Then, if the bears breach the latter level, the bearish move might pick up pace towards the 161.8% Fibonacci extension at 2,245.

All in all, the technical signals leave the door open to another upturn and if there is a closing day above 2,431.48, it could endorse gold’s buying interest. 

Daily Pivots: (S1) 197.03; (P) 197.45; (R1) 198.10; More...

Intraday bias in GBP/JPY stays on the upside at this point. Rise from 191.34, as the second leg of the corrective pattern from 200.53, should target this high next. On the downside, firm 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 183.41) 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) 168.87; (P) 169.10; (R1) 169.42; More...

EUR/JPY's rise from 1.6401 resumed by breaking 169.38 and intraday bias is back on the upside. This rally, as the second leg of the corrective pattern from 171.58, should target this high next. On the downside, break of 167.31 support 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 158.30) 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.