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US CPI rose 0.3% mom in April, matched expectations. CPI core (ex food and energy) rose 0.3% mom, matched expectations. Energy index rose 1.1% mom while food index was unchanged.

Over the 12-months, CPI slowed from 3.5% yoy to 3.4% yoy , matched expectations. CPI core slowed from 3.8% yoy to 3.6% yoy, matched expectations. Energy index rose 2.6% yoy while good index rose 2.2% yoy.

Full US CPI release here.

• Forecasts suggest higher unemployment rate
• Employment change expected to tick higher
• Aussie holds within trading range, data due on Thursday at 01:30 GMT

Upon being dissatisfied with the RBA's choice to adopt a neutral position, Australian dollar traders will now redirect their attention towards Thursday's employment report.

While the Bank officials maintained their stance at their decision last week, further increases in wage growth, which has been ascending since the third quarter of 2020, and a robust employment recovery could significantly increase the likelihood of a rate hike in September. This comes at a time when other central banks are contemplating when to begin reducing interest rates. This could be helpful for the Australian dollar, which could also profit from a further improvement in risk appetite if investors are encouraged to increase their Fed rate cut wagers by the US inflation data.

RBA keeps rates unchanged; focus on employment report

Following its March meeting, the RBA Board maintained the cash rate goal at 4.35% while escalating the language about inflation concerns. Forward-looking press statements emphasize that the Board is not dictating future policies. Inflation is dropping, although at a slower rate than anticipated. While services inflation is progressively decreasing, the RBA now predicts a tighter labour market than originally expected. Leading measures of labour demand have altered more than lagging indicators like unemployment, indicating an expected relaxation in the employment picture.

To understand recent inflation and labour market surprises, it is crucial to consider weak domestic demand and falling inflation. The RBA Board should avoid overreacting to monthly or quarterly economic statistics due to its noise. Recall that inflation unexpectedly rose in September, leading to a rate hike in November. However, the December quarter data was disappointing, and projected upgrades were reversed for February 2024. In May, the Board did not need to purchase additional insurance against inflation surprises, as it had previously done so. The Governor stated in a media conference that they wish to avoid raising rates but will act if necessary.

March's labor force participation rate dropped from 66.7% to 66.6%. That meant a minor increase in the labor force, while a drop in employment raised the unemployment rate from 3.7% to 3.8%. After a year of cooling, labor demand still remains strong, as job growth was mildly positive in the first quarter. The RBA still considers the labor market “tighter than full employment and easing only gradually”. With participation flat at 66.6%, the unemployment rate could round up to 3.9% in April, after printing 3.8% March.

AUDUSD battles with upper boundary of the range

In the charts, AUDUSD has been developing within a consolidation area since January 16 with upper boundary the 0.6635 resistance and lower boundary the 0.6390 support. Currently, the market is flirting with the 0.6635 obstacle, a region that the market failed several times in the past two months to surpass. If the price successfully breaks this level, then it may challenge the 0.6635 barrier. Even higher, the 0.6730 mark may add some optimism for more increases.

On the other side, a disappointment in the employment data could open the way for a test of the 0.6555 support ahead of the bullish crossover within the 20- and the 50-day simple moving averages (SMAs) at 0.6540. Below that, the 200-day SMA at 0.6520 may act as a turning point for traders.

US Consumer Price Index – US CPI

The core CPI, which excludes Energy and food products, came in at 3.8% in March, slightly higher than 3.75% in February 2004. The uptick was mainly driven again by a rise in the cost of services. The increase in the cost of the transportation services sector was mainly driven by an increase in Motor Vehicle Insurance, Public transportation costs, and Motor vehicle Maintenance and Repairs. Medical Services rose due to increased Health Insurance, Hospitals, and Related Services. The FED’s preferred inflation gauge, the Core PCE Price Index, for the same duration, reflects a similar picture as the CPI; therefore, there may not be much change in CPI numbers expected for this week compared to last month.

US Retail Sales

The US Retail Sales trend remains healthy; removing the pandemic era with its outliers, it remains within its 10-year average, and the components with the most index weight remained healthy over the past three years. Non-store Retailers and general merchandise stores continued to improve over the same duration. The more volatile contributors, motor vehicle and parts dealers, food services, and drinking places, remained within their 10-year average ranges.

According to Bloomberg Analysts surveys, April’s US Retail Sales MoM is expected to increase by 0.4% compared to 0.7% prior and less than February by 0.9%. (Revised from 0.6%). Core Retail Sales M/M are expected to increase by just 0.2% compared to 1.1% prior and less than February’s 0.6%. (Revised from 0.3%) A review of the March 2024 Retail Sales figures revealed that while consumer spending grew by 0.7% compared to 0.9% prior, consumers have scaled back on long-term purchases, a behavior possibly influenced by the specter of high interest rates. Looking ahead, the April 2024 Retail Sales figures are of significant interest. These figures, which are expected to show a slight decrease in the M/M change and steady Y/Y growth, will provide crucial insights into the trajectory of consumer spending and its potential impact on economic performance.

The latest CPI readings for March rose by 3.47% compared to 3.15% for February 2024, primarily driven by the “Cost of services” inflation category. Higher oil prices and a slight uptick in energy prices were the main culprits behind the higher CPI number for March 2024.

EUR/USD Daily Chart – Technical Analysis

• Price action has been trading within a narrowing range, as marked by the green lines on the chart. It is currently attempting a break above the upper border of the formation. Weekly and monthly resistance lies just above price action within the range of 1.0830 – 1.0836.
• The price broke above its fast EMA9, MA9, and intermediate MA20. The moving averages’ intersection below price action has become a confluence of support near the weekly pivot of 1.0760.
• Non-smoothed RSI7 is in line with price action and is currently overbought.

Weekly Chart Update

• Price action broke and remained below the lower border of an ascending channel; the pullback discussed last time has returned to the previously broken trendline.

USD/JPY Daily Chart – Technical Analysis

• The USD/JPY price has demonstrated remarkable resilience, maintaining an extended uptrend for over ten years. The blue lines on the chart mark the latter part of the uptrend, which was influenced by the USA’s and Japan’s fundamental economies.
• Price action was trading within an ascending channel; it broke below the channel’s lower border during late 2023. However, it has been attempting to re-enter the channel since the breakout.
• Following the latest Bank of Japan meeting, price action was able to break above the channel’s lower border and reenter. However, the break was met by fierce resistance represented by a strong bearish engulfing candle, which closed below the lower border by the end of the trading day.
• Price action is in a pullback mode. It is currently attempting to rent the channel; however, it finds resistance at the intersection of the channel’s lower border and R1 near 156.87.
• As marked on the chart, multiple standard calculation resistance levels exist within the channel.
• Price continues to trade above its fast and intermediate moving averages, EMA9, MA9, and MA21; the three averages intersect below the price action, forming a confluence of support near the 154.80 – 155.50 range.
• Fast RSI7 aligns with price action and is approaching overbought territory.

USD/CAD Weekly Chart – Technical Analysis

• Price action broke out above the upper border for the narrowing range marked by letter A on the weekly chart; price action has been attempting to break above this line for many weeks, and it did after the Bank of Canada kept interest rates on hold two weeks ago and as the US inflation data continued to come in higher.
• Price appreciation was met by resistance at its monthly R3 of 1.3830, forming a potential shortfall ahead of significant resistance marked by the blue line dating back to 2022.
• The throwback previously discussed has materialized, and the price currently finds support at the breakout level. Price action continues to trade above the breakout level.
• Price action is still trading above its EMA9 and MA50.
• The RSI is in line with price action and is currently near a neutral level.

• Stagflation risk has led to a softer US 10-year Treasury real yield below 2.38%.
• The 6% decline of Gold (XAU/USD) from its recent all-time high in April may have reached an inflection point to kickstart another potential medium-term impulsive bullish sequence.
• Watch the key short-term support of US$2,327 on Gold (XAU/USD).

Since our last publication, Gold (XAU/USD) has rallied by 2.5% and staged a bullish breakout above its 20-day moving average last Thursday, 9 May, and a positive follow-through at the start of this week as it inched higher today, 15 May with a current intraday high of $2,374 at this time of the writing.

Right now, it is just a whisker of 2.5% away from its current all-time high of US$2,431 printed recently on 12 April as market participants await another set of crucial economic data; US CPI and retail sales for April to gauge whether the odds have increase on the stagflation risk narrative that has been unfolding in the past three weeks.

Forward-looking survey-based economic data supports the risk of a stagflation

Fig 1: US University of Michigan Consumer Sentiment & Inflation Expectations data as of May 2024 (Source: TradingView, click to enlarge chart)

The latest preliminary US University of Michigan Consumer Survey for May released last Friday, 10 May has indicated a potential slowdown in consumer spending in the next few months as its consumer sentiment component has plunged to a six-month low of 67.4 from 77.2 recorded in April (see Fig 1).

Concurrently, the components of the 1-year and 5-year inflation expectations for May have risen to six-month highs of 3.5% y/y and 3.1% y/y respectively, lowering the chances of the consumer inflationary trend in the US to hit the Fed’s target of 2% in 2024.

This set of forward-looking survey-based economic data seems to foretell a potentially deadly concoction of stagflation.

A potential slow-down in consumer spending led to softness in longer-term US Treasury real yields

Fig 2: US 10-YR Treasury real yield major & medium-term trends as of 15 May 2024 (Source: TradingView, click to enlarge chart)

Since the release of the stagflation-liked University of Michigan Consumer Survey data, the US 10-year Treasury real yield has dropped lower; right now at this time of the writing, it is “dangerously” hoveringly above a key immediate support of 2.03% (the 200-day moving average & the lower boundary of a major ascending channel in place since 8 March 2022) (see Fig 2).

Also, its daily RSI momentum indicator has reflected a bearish momentum condition as it has just staged a breakdown below a parallel ascending support at the 50 level which suggests the odds are skewed towards a further fall in the US Treasury 10-year real yield rather than a recovery at this juncture.

Overall, a further softening of the US Treasury real yield implies a lower opportunity cost of holding non-interest-bearing assets such as Gold (XAU/USD) which in turn supports a potential positive feedback loop into its price actions.

Watch the US$ 2,327 key support on Gold (XAU/USD)

Fig 3: Gold (XAU/USD) major & medium-term trends as of 15 May 2024 (Source: TradingView, click to enlarge chart)

Fig 4: Gold (XAU/USD) short-term trend as of 15 May 2024 (Source: TradingView, click to enlarge chart)

Based on a technical analysis perspective, the recent bullish breakout above its 20-day moving average and the upper boundary of the minor “Descending Wedge” from its current all-time high of 12 April 2024 suggests the recent decline of 6.3% from 12 April to 3 May is likely a short-term corrective decline within a major uptrend phase that is still intact since 28 September 2022 (see Fig 3).

As seen on the hourly chart, Gold (XAU/USD) is now evolving in a short-term uptrend phase supported by its price actions that have oscillated within an ascending channel since the 3 May 2024 low (see Fig 4).

The key short-term pivotal support rests at US$2,327 and a break above US$2,378 sees the next intermediate resistances coming in at US$2,420 and US$2,450 in the first step.

However, a break below US$2,327 negates the bullish tone to expose the next support at US$2,300 with the key medium-term support zone coming right below it at US$2,265/260.

The Australian dollar has extended its gains on Wednesday. AUD/USD is up 0.24%, trading at 0.6642 in the European session at the time of writing.

Has Australia’s wage growth peaked?

Australian wages rose less than expected in the first quarter, a sign that inflationary pressures may be easing.

The wage price index rose 0.8% q/q in the first quarter, down from a revised 1% in Q4 2023 and below the market estimate of 0.9%. This is the lowest gain since Q4 2022. On an annualized basis, wages ticked lower to 4.1%, down from 4.2% in the fourth quarter and the market estimate of 4.2%.

The drop in wage growth could be a sign that wage demands have peaked, which would suggest that inflation will ease over the course of the year. The Reserve Bank of Australia has projected that inflation, currently at 3.6%, won’t fall within the 2-3% target band until 2025 and the markets don’t expect a rate cut before this November. Still, these forecasts are sure to change if inflation falls faster than anticipated.

US CPI next

All eyes are on today’s US CPI report, which could shake up the US dollar. Headline CPI is expected to drop to 3.4% y/y in April, down from 3.5% in March. Monthly, headline CPI is forecast to remain unchanged at 0.4%. Core CPI, which is a better indicator of inflation trends, is expected to ease from 3.8% y/y to 3.6%, and monthly from 0.4% to 0.3%.

Federal Chair Powell said on Tuesday at inflation is falling more slowly than expected and the Fed will remain patient and “let restrictive policy do its work”. Powell’s comments were likely made with the CPI release in mind, as an attempt to quell any market exuberance if CPI is lower than the estimate. The money markets widely expect the Fed to hold rates at the June meeting, with a rate cut priced at 32% in July and 67% in September, according to the CME FedWatch tool.

AUD/USD Technical

• AUD/USD is testing resistance at 0.6445. Above, there is resistance at 0.6688
• 0.6607 and 0.6559 are the next support levels

Market Picture

Neither the meme mania in equities, the overall positivity in stock indices, nor the weakening dollar seems to be helping cryptocurrencies right now. Crypto market capitalisation is down 0.1% and has been moving around the current $2.29 trillion level for the past seven days.

Bitcoin is trading near $61.9K, forming a sequence of higher intraday lows on the daily timeframes. Meanwhile, a month-old downside resistance is still in place. Bitcoin is approaching the top of this triangle, which could lead to a sharp increase in volatility. The trigger in the near term promises to be the US inflation report, which has had a strong impact on markets, including cryptocurrencies, in recent months.

The medium-term picture also indicates that some old altcoins are having a tough time. In addition to Ethereum, Cardano has been consolidating near the lower end of its range in recent months, having already given up more than half of its gains since the lows of October. It pulled back under the 200-day average and formed a “death cross.” Litecoin has also not recovered from the powerful blow in April, testing its 200-day average.

XRP is trading around the $0.5 level, a historically important level that has seen prolonged consolidation since September 2022. An upward support line can be drawn through the area of the lows of the last two years, but XRP fell below it on 12-13 April. This line worked as resistance for the next two local peaks at the end of April and the beginning of May. All this sets up a bearish scenario with a pullback to the long-term support at $0.25-30.

News background

Onchain indicators indicate that Bitcoin is experiencing a phase of consolidation and potential correction. Glassnode warned that market participants should exercise caution and consider the possibility of panic selloffs.

According to Bernstein, Bitcoin’s lateral consolidation post-halving is great for public miners in their competition for hashrate. However, Kaiko believes risks of a large-scale sell-off of BTC by miners because of a sharp drop in post-halving revenues may be growing in the market. According to Blockchain.com, the average daily revenue of Bitcoin miners has rolled back to 2023 levels.

Solana could rise to $400 by November 2024, and the catalyst for the rally will be a wave of meme coins dedicated to the US election campaign, Merkle Tree Capital suggested. Jeo Boden (BODEN) and Doland Tremp (TREMP) meme-coins helped Solana surpass Ethereum in trading volume.

According to Wublockchain, spot trading volume on major crypto exchanges fell nearly 38 per cent in April. Against this background, traffic on the largest exchanges fell by an average of 22%.

According to Deribit, the options market has increased bets on Ethereum, rising above $3600 in June.

The Euro keeps firm tone and hits new five-week high in early European trading on Wednesday. Fresh bull-leg extends into third consecutive day and cracked pivotal barriers at 1.0830 zone, consisting of 100DMA (1.0823) / Fibo 61.8% of 1.0981/1.0601 downtrend (1.0836) and thin daily cloud (spanned between 1.0820 and 1.0838).

Technical picture on daily chart is bullish (strong positive momentum / daily Tenkan/Kijun-sen bull cross) and continues to underpin the action, though increased headwinds should be anticipated, as bulls challenge very strong resistance zone and stochastic is overbought.

Bullish scenario requires firm break higher to signal continuation of larger uptrend towards targets at 1.0885 / 1.0916 (Apr 9 high / Fibo 76.4%).

Conversely, failure to register a clear break higher would ease the upside pressure, but near-term action to remain biased higher while holding above broken 200DMA / 50 retracement (1.0790) reverted to solid support.

Caution of break and close below 200DMA which would sideline bulls and risk deeper pullback.

The single currency was inflated by the data released on Tuesday (German annualized inflation ticked higher in April and German / Eurozone economic sentiment improved well above expectations).

Markets shift focus to key economic event today – release of US inflation report for April, which is expected to give fresh hints to the Fed and likely accelerate the price action upon release.

Inflation in the US is expected to ease in April (CPI y/y Apr 3.4% f/c vs Mar 3.5%; Core CPI y/y Apr 3.6% vs Mar 3.8%) with April figures in line or below expectations to fuel expectations for Fed rate cut in coming months and increase pressure on dollar, while higher than expected readings would sour the sentiment about policy easing and inflate the greenback.

Res: 1.0838; 1.0885; 1.0891; 1.0942.
Sup: 1.0812; 1.0790; 1.0774; 1.0746.

ECB Governing Council member Olli Rehn reiterated that a June interest rate cut is on the table, depending on the progress of inflation.

Rehn referred to the April meeting where the ECB gave a "conditional signal" about rate reductions. He elaborated, "If we gain more confidence that inflation is moving sustainably towards our target, we can reduce the restrictiveness of our monetary policy - in other words, we can lower interest rates."

Eurozone industrial production rose 0.6% mom in March, above expectation of 0.5% mom. Industrial production decreased by -0.5% mom for intermediate goods, -0.9% mom for energy, -1.1% mom for durable consumer goods, and -2.7% mom for non-durable consumer goods. Production increased by 1.0% mom for capital goods.

EU industrial production rose 0.2% mom. The highest monthly increases were recorded in Ireland (+12.8%), Belgium (+6.8%) and Luxembourg (+4.5%). The largest decreases were observed in Slovenia (-5.9%), Poland (-5.1%) and Denmark (-4.3%).

Full Eurozone industrial production release here.

• USDJPY bulls face limitations ahead of the US CPI inflation figures
• Short-term risk tilted to the upside, but confirmation required above 156.60

USDJPY recouped more than half of its sharp losses that occurred at the start of the month thanks to the bounce off the 50-day simple moving average (SMA) near 151.84.

But the bulls seem to be struggling to jump back into the broken bullish channel, which is currently capping upside movements near 156.60. Given the pair’s rise above the 20-day SMA and positive RSI trajectory, there is potential for further improvement. Nevertheless, traders could approach the situation cautiously as the stochastic oscillator has charted a negative cross above the overbought level of 80.

Once the pair surpasses 156.60 and the crucial 157.00 round level, attention will quickly turn to the significant resistance zone between 157.83 and 158.70. A victory there is expected to boost the price towards the constraining ascending line at 159.10 and then up to the 34-year high of 160.20. Should the latter option be easily breached, the rally could gain momentum towards the upper band of the channel at 161.53 or slightly higher to 162.50, where the crucial resistance line from June 2023 is situated.

Alternatively, the pair could slip below 156.00 to seek support near the 20-day SMA at 155.38. Should sellers prevail there, the downfall might reach the resistance-turned-support trendline at 153.35 and the 50-day SMA, while the ascending trendline from December’s lows could resume its protective role slightly lower at 152.17. Another failure there might trigger a sharp decline towards the 200-day SMA at 148.96.

In summary, there is potential for USDJPY to continue its upward movement, but traders may want confirmation of a close above 156.35 before placing additional buying orders. 

Keep in mind that the US CPI inflation figures for April will be announced today at 13:30 GMT, and analysts predict a bit of a slowdown.