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NFIB's Small Business Optimism Index rose 1.2 points to 89.7 in April, beating market expectations for a 0.3-point decrease. This marked the first increase in the index in 2024.

Seven of the ten subcomponents improved on the month, two deteriorated and one remained unchanged. The improving categories included expectations for higher real sales in six months (up six points to -12%), higher reported earnings in the current quarter (up two points to -27%), and plans for capital expenditures in the next six months (up two points to 22%). The declining categories were expectations for credit conditions to ease and expectations for the economy to improve, both down one point to -9% and -37%, respectively.

The net share of businesses planning to increase employment rose for the first time in five months, up one point to 12%. The share of firms with unfilled job openings rose three points to 40%. Quality of labor concerns edged higher with 19% of business owners identifying this as their top business problem, but it continued to come second to inflation concerns which fell modestly in April.

The share of firms currently increasing or planning to increase compensation were unchanged relative to March at 38% and 21%, respectively. The share of businesses 'raising' average selling prices fell three points to 25% while the share of those 'planning’ to raise average selling prices fell by seven points to 26%.

Key Implications

After declining for the past three months, small business confidence improved in April. Most small businesses are planning to increase capital investments and headcounts over the coming months, with sales expectations improving gradually. However, high-level expectations for the economy were little changed on the month, with most small businesses continuing to expect the economy to weaken and credit conditions to remain tight moving forward.

Current wage and price increases on Main Street continue to ease gradually despite remaining above pre-pandemic trends. Moreover, plans for future increases in both have fallen after spiking late last year. Looking forward, easing labor market tightness and producer inflation pressures should help to gradually return consumer inflation closer to the Federal Reserve's 2% target.

Daily Pivots: (S1) 155.74; (P) 156.00; (R1) 156.47; More...

No change in USD/JPY's outlook and intraday bias stays mildly on the upside. Rebound from 151.86, as the second leg of the corrective pattern from 160.20, is in progress for 157.98 resistance. On the downside, break of 155.25 minor support will suggest that the third leg has started, and turn bias back to the downside for 151.86 support.

In the bigger picture, a medium term top might be formed at 160.20. But as long as 150.87 resistance turned support holds, fall from there is seen as correcting rise from 150.25 only. However, decisive break of 150.87 will argue that larger correction is possibly underway, and target 146.47 support next.

Daily Pivots: (S1) 0.9057; (P) 0.9072; (R1) 0.9099; More....

Intraday bias in USD/CHF stays neutral and further decline is in favor as long as 55 4H EMA (now at 0.9083) holds. On the downside, break of 0.9005 and sustained trading below 55 D EMA (now at 0.9010) will bring deeper fall to 38.2% retracement of 0.8332 to 0.9223 at 0.8883. However, firm break of 55 4H EMA will suggest that the pull back from 0.9223 has completed, and bring stronger rebound to retest 0.9223 high.

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.

Daily Pivots: (S1) 1.2526; (P) 1.2547; (R1) 1.2581; More...

GBP/USD is staying in range below 1.2633 and intraday bias remains neutral. Further rise is mildly in favor with 1.2445 support intact. On the upside, break of 1.2633 will resume the rally from 1.2298 to 1.2708 resistance next. However, firm break of 1.2445 will indicate that this rebound has completed, and revive near term bearishness. Retest of 1.2298 should then be seen in this case.

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) 1.0768; (P) 1.0788; (R1) 1.0809; More...

EUR/USD is still staying in range below 1.0810 and intraday bias remains neutral at this point. Further rally is in favor as long as 1.0723 minor support holds. On the upside, break of 1.0810 will resume the rebound from 1.0601 to 1.0884 resistance next. However, firm break of 1.0723 will argue that the rebound has completed, and turn bias to the downside for 1.0648 support instead.

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.

Dollar spiked higher after US PPI reported stronger-than-expected monthly rise. However, this upward movement was quickly reversed within minutes, indicating that bearish sentiment continues to dominate the greenback. The key question now is whether Dollar will see downside breakouts before tomorrow's crucial CPI release.

Sterling's movements have also been indecisive. The Pound initially recovered following stronger-than-expected UK wage growth data but upside was capped by a rise in unemployment rate. It softened again after BoE Chief Economist Huw Pill affirmed that a summer rate cut is "not unreasonable." Despite these fluctuations, Sterling remains within yesterday's range, except against Yen.

In the broader forex market, Euro is currently the strongest performer for the day, followed by Canadian Dollar and Aussie. Yen is the weakest, followed by Sterling and Swiss Franc, with Dollar and Kiwi position in the middle.

Technically, AUD/USD is staying bullish with 0.6557 support intact. Break of 0.6645 will resume rise from 0.6361. Further break of 0.6666 resistance should confirm the whole fall from 0.6870 has completed and target this resistance next. Australia's wage price index data in the upcoming Asian session is a potential trigger for the move.

In Europe, at the time of writing, FTSE is up 0.33%. DAX is down -0.21%. CAC is up 0.10%. UK 10-year yield is down -0.055 at 4.166. Germany 10-year yield is up 0.028 at 2.540. Earlier in Asia, Nikkei rose 0.46%. Hong Kong HSI fell -0.22%. China Shanghai SSE fell -0.07%. Singapore Strait Times rose 0.29%. Japan 10-year JGB yield rose 0.0246 to 0.966.

US PPI rises 0.5% mom, 2.2% yoy in Apr, highest since Apr 2022

US PPI for final demand rose 0.5% mom in April, above expectation of 0.2% mom. Nearly three-quarters of the April advance in final demand prices is attributable to a 0.6% mom increase in the index for final demand services. Prices for final demand goods moved up 0.4% mom. PPI less foods, energy and trade services rose 0.4% mom.

For the 12 months period, PPI rose 2.2% yoy, highest since April 2023. Prices for final demand less foods, energy, and trade services increased 3.1% yoy, the largest advance since April 2023.

German ZEW rises to 47.1, signs of recovery growing

German ZEW Economic Sentiment jumped from 42.9 to 47.1 in May, above expectation of 44.9. Current Situation Index also rose from -79.2 to -72.3, above expectation of -75.0.

Eurozone ZEW Economic Sentiment rose from 43.9 to 47.0, above expectation of 46.1. Current Situation Index jumped by 10.2 pts to -38.6.

ZEW President Professor Achim Wambach said: " Signs of an economic recovery are growing, bolstered by better assessments of the overall eurozone and of China as a key export market. The increased optimism is reflected in particular in the sharp rise in expectations for domestic consumption, followed by the construction and machinery sectors."

BoE's Pill: Summer rate cut not unreasonable

BoE's Chief Economist Huw Pill suggested today that it is "not unreasonable" for central bank to consider rate cuts over the summer. However, he emphasized the critical need for to maintain a "restrictive stance" on monetary policy to address persistent domestic inflation pressures.

Pill's comments come against the backdrop of newly released data, which he referenced in his remarks. "We actually got some additional data this morning that would be consistent with a small additional decline in the first quarter," he said, pointing to the latest figures on private sector regular pay growth.

This data indicates a slight cooling in the labor market, although Pill noted that it "still remains pretty tight by historical standards." He emphasized that "rates of pay growth remain quite well above what would be consistent for meeting the 2% inflation target sustainably."

UK payrolled employment down -85k in Apr, but wages growth steady in Mar

UK payrolled employment fell -85k or -0.3% mom in April. This is a rise of 129,000 people over the 12-month period. Median monthly pay growth was 6.9% yoy, accelerated from March's 6.4% yoy. Claimant count rose 8.9k, below expectation of 13.9k.

In the three months to March, unemployment rate rose from 4.2% to 4.3%, matched expectations. Average earnings including bonus rose 5.7% yoy. Average earnings excluding bonus rose 6.0% yoy. Both were unchanged from February's figures.

IMF recommends gradual approach for future BoJ rate hikes

IMF projects Japan's economic growth to continue, with a noticeable increase in consumption anticipated later this year. According to a report, Japan's growth rate is expected to decelerate to 0.9% in 2024, largely due to the fading impact of one-off factors that boosted growth in 2023.

The report highlights that consumption will pick up in the latter half of 2024 and into 2025, driven by rising nominal wages following a strong Shunto settlement in 2024 and a decrease in headline inflation that will boost real wages.

IMF foresees core inflation gradually declining as the impact of higher import prices diminishes. However, core inflation is expected to remain above BoJ's 2% target until the second half of 2025.

In light of these developments, IMF suggests that further increases in BoJ's short-term policy rate should "proceed at a gradual pace" and be "data­dependent", considering the balanced risks to inflation and the mixed signals from recent economic data.

IMF emphasizes the importance of Japan's adherence to a "flexible exchange rate regime", which will play a crucial role in absorbing economic shocks and supporting the central bank's focus on maintaining price stability.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0768; (P) 1.0788; (R1) 1.0809; More...

EUR/USD is still staying in range below 1.0810 and intraday bias remains neutral at this point. Further rally is in favor as long as 1.0723 minor support holds. On the upside, break of 1.0810 will resume the rebound from 1.0601 to 1.0884 resistance next. However, firm break of 1.0723 will argue that the rebound has completed, and turn bias to the downside for 1.0648 support instead.

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.

Economic Indicators Update

US PPI for final demand rose 0.5% mom in April, above expectation of 0.2% mom. Nearly three-quarters of the April advance in final demand prices is attributable to a 0.6% mom increase in the index for final demand services. Prices for final demand goods moved up 0.4% mom. PPI less foods, energy and trade services rose 0.4% mom.

For the 12 months period, PPI rose 2.2% yoy, highest since April 2023. Prices for final demand less foods, energy, and trade services increased 3.1% yoy, the largest advance since April 2023.

Full US PPI release here.

In this technical article we’re going to take a quick look at the Elliott Wave charts of Ethereum ETHUSD , published in members area of the website. As our members know, ETHUSD is showing incomplete sequences in the cycle from the March peak. Consequently we expect more weakness in short term. Ethereum is targeting 2700.3-2057.9 area , where we would like to be buyers again. Recently the crypto made 3 waves bounce and found sellers as expected. In further text we are going to explain Wave forecast.

ETHUSD H1 London Update 05.06.2024

ETHUSD is doing a ((iv)) recovery, which is correcting the cycle from the 3352.618 peak. Proposed recovery can be unfolding as a Elliott Wave Double Three pattern .The price has already reached extreme zone from the lows and we expect sellers to appear soon. We are aware that short term recovery can complete any moment. We advise members not to entry long positions at this stage, while still favoring the short side.

ETHUSD H1 London Update 05.06.2024

Ethereum found sellers as expected and made a nice decline after completing wave ((iv)) recovery. We consider the wave ((iv)) correction completed at the 3220 high. We expect short term bounces to keep finding sellers in 3,7,11 swings as far as the pivot at 3355.46 high holds. Right way to trade the crypto is waiting for extreme zone to be reached at 2700.3-2057.9 area, before buying the dips again.

The euro is drifting on Tuesday. EUR/USD is up 0.07% on Tuesday, trading at 1.0798 in the European session at the time of writing.

German inflation steady, confidence higher

Germany’s inflation rate remained unchanged in April at 2.2% y/y, matching the market consensus. Services inflation slowed but this was offset by higher food prices. Monthly, inflation rose by 0.5%, up from 0.4% in March and matched the market consensus of 0.4%. This marked the highest monthly gain in 14 months.

The German ZEW economic sentiment indicator climbed to 47.1 in May, up sharply from 42.9 in April and above the market consensus of 46.0. This was its highest level since February 2022 and marked a 10th straight rise in confidence among financial experts. The stronger German data helped push up eurozone ZEW economic sentiment, which rose from 43.9 to 47.0 in April, above the market estimate of 46.1.

Germany’s economy is showing signs of recovery, such as GDP in the first quarter which was stronger than expected. Domestic activity is expected to increase as is the demand for German exports, with the eurozone and China showing stronger growth.

Federal Reserve Chair Powell speaks at an event in Amsterdam later today and the markets will be looking for hints regarding a rate cut. The Fed has delayed plans to cut rates as the US economy remains resilient and inflation has unexpectedly accelerated. A drop in this week’s inflation releases would boost the likelihood of a rate cut in September. The US releases PPI is expected to remain unchanged at 2.4% in April while CPI is projected to ease to 3.6%, down from 3.8% in April.

EUR/USD Technical

• EUR/USD is putting pressure on resistance at 1.0809. Above, there is resistance at 1.0829
• There is support at 1.0788 and 1.0768

• Nikkei 225 has undergone a 4-week corrective decline of 10.6% since its 41,088 all-time high printed on 22 March.
• Nikkei 225 major uptrend phase in place since 4 January 2023 remains intact.
• BoJ’s recent announcement on its reduction of 5 to 10-year JGBs purchases has led to a spiked up in JGBs yields that implied BoJ may have loosened its grip on “yield control”.
• A further steepening on the JGBs yield curve may trigger a positive feedback loop back into the Nikkei 225.

The Japanese stock market has been on a multi-year bullish run since October 2022 with the benchmark Nikkei 225 hitting a fresh all-time high of 41,088 on 22 March, which surpassed its prior secular peak of 38,957 printed in December 1989 before the onset of multi-decades-long of deflationary spiral inflicted on the Japan economy triggered by the major burst of the Japanese property bubble.

A major feat that has taken almost 34 years to achieve which implies that the Japanese stock market is likely seeing a major shift unfolding in local investors’ risk appetite towards more risk-seeking behaviour aided by a push of stock market-friendly initiatives by the Japanese government such as corporate reforms that unlocked substantial shareholders’ value and a new tax exemption programme (Nippon Individual Savings Account) targeted on retail stock investors.

Since our last publication, the Nikkei 225 staged a decline in April with a monthly loss of -4.9% in line with the major US stock indices, but so far its performance has been lacklustre as it underperformed against several major global benchmark stock indices with a month-to-date loss of -0.13% in May versus recoveries seen in the S&P 500 (+3.7%), Hang Seng Index (+7.4%), and German’s DAX (+4.5%) over the same period at this time of the writing.

A deceleration in Tokyo’s inflation trend does not bode well for Japanese equities

The current underperformance of the Nikkei 225 is likely driven by the recent deceleration of Tokyo’s core-core inflation trend (excluding fresh food and energy) slowing to 1.8% y/y in April from 2.9% y/y in March, which is a dip below Bank of Japan (BoJ)’s inflation target of 2% set on national wide Japan’s core-core inflation rate, rising alarm of a resurgence of deflation risk in the Japan economy, in turn, may trigger a holdback of Japanese corporate fixed investment plans and consumer spending.

On 19 March, BoJ ended its short-term negative interest rate regime and scrapped its yield curve control (YCC) programme on the 10-year Japanese Government Bond (JGB) but maintained an indirect accommodative stance by continuing to purchase JGBs with broadly the same amount and with the option to increase its JGBs purchases to negate a rapid rise in long-term interest rates.

Hence BoJ’s actions have implied that it is still uncomfortable to allow market forces to dictate the movement of long-term JGBs yields which can dampen Japanese banks’ net profits via a lack of expansion in net interest income margins and slow down the repatriation of fixed income investments from abroad which had likely triggered a negative feedback loop back into the Nikkei 225.

2-year and 10-year JGB yields spiked to more than a decade high

Fig 1: JGBs yields medium-term trends as of 14 May 2024 (Source: TradingView, click to enlarge chart)

On Monday, 14 May, BoJ announced that it will reduce its long-term 5 to 10-year JGBs purchases at each of its funds-supplying operations; the purchase will be pegged at around 425 billion yen, downed from 475 billion yen.

This latest news flow has led the JGBs yields to continue their upward climb in place since early March with more gusto. The 2-year JGB yield (more sensitive to BoJ’s policy interest rate) inched higher to 0.33%, its highest level since May 2009. In addition, the 30-year JGB yield also rallied to 2.05%, the highest level since July 2011 (see Fig 1).

Longer-term JGB yields are rising at a faster rate versus the 2-year JGB yield

Fig 2: JGBs yield spreads (10-YR/2-YR & 30-YR/2-YR) major & medium-term trends as of 14 May 2024 (Source: TradingView, click to enlarge chart)

Interestingly, the current pace of the rally seen in the JGBs yields is more pronounced on the longer end of the curve where the yield spread of the 30-year over the 2-year has steepened further since early March. Based on a technical analysis perspective, the 30-year/2-year JGB yield spread is evolving within a medium-term uptrend phase reinforced by its major bullish breakout triggered in late June 2022 (see Fig 2).

The next medium-term resistance stands at 1.97% after its recent swing high of 1.78% printed in January 2024 which suggests that the 30-year/2-year JGB yield spread may steepen further; triggering a positive boost to the Nikkei 225.

Watch the 38,960 resistance on the Nikkei 225

Fig 3: Nikkei 225 major & medium-term trends as of 14 May 2024 (Source: TradingView, click to enlarge chart)

Since its 19 April low of 36,733, the price actions of the Nikkei 225 have been compressed to a narrowing range configuration (see Fig 3).

On the positive side, the medium-term momentum condition is slightly bullish as indicated by upward sloping daily RSI momentum indicator that continued to inch higher toward the 50 level from its oversold region.

Therefore, a clearance above the intermediate resistance of 38,960 (also the 50-day moving average) may trigger a medium-term bullish breakout condition on the Nikkei 225 that is likely to unleash another potential bullish impulsive upmove sequence with the next medium-term resistance zone coming in at 42,600/43,400 after its current all-time high of 41,088.

However, a break below the 36,570/35,690 key medium-term pivotal support invalidates the bullish tone to expose the 33,770 key long-term support.