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In yet another dull trading day the weak SEK (cf. below) and JPY stand out. The yen is not impressed by Ueda ramping up warnings. It began in Asian dealings, where the BoJ governor said that a policy response (i.e. rate hike) could be needed depending on the currency’s moves. Ueda said a weak JPY affects inflation and is therefore a key variable in the analysis. Finance minister Suzuki around the same time aired the usuals: that they are watching the market closely and will take all possible measures as needed. Well into European trading hours, Ueda said he’s seeing signs of a virtuous wage-price cycle strengthening. He also noted that should risks to the inflation outlook grow, it would be appropriate for the BoJ to increase rates at a faster pace. Ignoring all that, USD/JPY for a third day straight rises and pierces through the 155 barrier again with ease. This compared with a close last Friday at 153.05. Monday last week the pair hit 160 for the first time in 34 years, prompting an intervention by Japanese authorities. They returned to the market two days later. Moves this week once again show that unilateral interventions rarely have a lasting market impact. The dollar is overall better bid today, recovering some of the losses incurred in the wake of Friday’s sub-consensus payrolls and services ISM. The trade-weighted index rises towards 105.58, EUR/USD eases slightly to 1.0748. Sterling remains under pressure going into tomorrow’s potentially market-moving Bank of England meeting. EUR/GBP breaks above 0.86, a move we expected to happen in case the likes of governor Bailey indicate some decoupling from the Fed to walk a rate path more akin to the ECB. Leaping (and closing the week) beyond 0.8644 would be a technical sign of the pair looking to break loose from the monthslong stalemate.

Core bonds lost ground in a sign the recent rally is running out of steam. Technical charts are coming to the rescue here and there as well (e.g. the upward sloping trendline in the US and German 10-yr yield). Yields in the US add between 0.8 (2-yr) and 3.7 bps (30-yr). Bunds underperform, rising 3.4 (2-yr) to 5.3 bps (30-yr). Belgian ECB policymaker Wunsch said there’s room to cut this year but did not want to pre-commit to anything beyond June. Wunsch warned that risks to the inflation outlook remain, in particular around the trajectory of wage growth and inflation in wage-sensitive services. He also singled out the euro, which could weaken significantly amid diverging economic conditions and monetary policy between the euro area and US. Austrian member Holzmann hinted that follow-up action to a June cut, if any, is likely for September or December rather than July.

News & Views

The Swedish Riksbank cut its policy rate by 25 bps to 3.75% today. Inflation is approaching the target while economic activity is weak, allowing the central bank to make monetary policy less restrictive. If the outlook for inflation still holds, the policy rate is expected to be cut two more times during the second half of the year. Gradual cuts are warranted given uncertainty around the outlook. Risks that may cause inflation to rise again are primarily linked to the strong US economy, the geopolitical tension and the krona exchange rate. The Swedish krona lost marginally ground after the decision with EUR/SEK approaching the 11.77 YTD high. Money markets discount the next 25 bps rate cut by the August meeting.

A new report by the Semiconductor Industry Association (SIA) and the Boston Consulting Group on the semiconductor supply chain forecasts significant improvements in the resilience of the supply chain in both the US and globally in coming years. US fab capacity is projected to increase by 203% by 2032, a tripling of US capacity. That will take the US share of the industry from currently 10% to 14%. The US will secure more than one-quarter (28%) of global capital expenditures between 2024-2032 – an estimated $646bn – an amount second only to Taiwan.

Graphs

USD/JPY: yen loses for a third day straight, ignoring Ueda warnings

EUR/SEK: Swedish crown loses ground in the wake of the Riksbank’s first rate cut since 2016

EUR/GBP breaks above 0.86 going into tomorrow’s Bank of England meeting

European 10y swap yield is close in finding a bottom after the recent retreat

Daily Pivots: (S1) 154.11; (P) 154.43; (R1) 155.01; More...

Intraday bias in USD/JPY remains mildly on the upside at this point. Rebound from 151.86 is seen as the second leg of the corrective pattern from 160.20 high. Further rise would be seen to 157.98 resistance. On the downside, below 154.23 minor support will turn intraday bias neutral.

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) 0.9061; (P) 0.9078; (R1) 0.9100; More....

No change in USD/CHF's outlook as intraday bias stays neutral. Further decline is in favor as long as 55 4H EMA (now at 0.9099) holds. On the downside, break of 0.9005 and sustained trading below 55 D EMA (now at 0.9000) 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 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) 1.2481; (P) 1.2528; (R1) 1.2554; More...

Intraday bias in GBP/USD stays neutral at this point. Further rally is in favor with 1.2471 support intact. On the upside, above 1.2633 will resume the rebound from 1.2298 to 1.2708 resistance next. However, firm break of firm break of 1.2471 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) 1.0739; (P) 1.0764; (R1) 1.0779; More...

Intraday bias in EUR/USD stays neutral for the moment. More consolidations could be seen below 1.0810. Further rally is expected as long as 55 4H EMA (now at 1.0731) holds. On the upside, above 1.0810 will resume the rebound from 1.0601 to 1.0884 resistance next. However, firm break of 55 4H EMA 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.

The financial markets are relatively quiet entering into US session. Despite a significant downturn in Japanese equities earlier, European markets have remained resilient, with major indices post modest gains. In the commodities sector, oil prices continue their near term decline, driven by expectations of increased supply coupled with dampened demand projections. Conversely, gold is e confined to a narrow range as its recovery efforts are thwarted by strengthening Dollar. Meanwhile, Bitcoin, too, is facing challenges, failing to make a significant rally to conclude its consolidation that started after reaching record highs in March.

In the currency markets, Dollar is the strongest one for the day, making some progress in reversing its near term pullback. Swiss Franc is the second strongest followed by Euro. Aussie is the worst performer so far, followed by Yen , and then Kiwi. Canadian Dollar and Sterling are positioning in the middle.

Yen would be a focus in the upcoming Asian session with Japan's wage data and BoJ summary of opinions featured. From a technical point of view, the break of 55 4H EMA suggests that pull back from 160.20 has completed at 151.86 already. Further rise is now in favor back to 157.98 resistance. The question is on whether Japan would intervene again around this level.

In Europe, at the time of writing, FTSE is up 0.21%. DAX is up 0.09%. CAC is up 0.66%. UK 10-year yield is up 0.0159 at 4.149. Germany 10-year yield is up 0.048 at 2.471. Earlier in Asia, Nikkei fell -1.63%. Hong Kong HSI fell -0.90%. China Shanghai SSE fell -0.61%. Singapore Strait Times fell -1.08%. Japan 10-year JGB yield rose 0.0108 to 0.883.

WTI crude trends downward amid revised EIA supply and demand forecasts

WTI crude oil is extending its near term decline today on expectation of higher production and lower demand ahead. If WTI cannot reclaim 80 mark in short term, there is prospect of downside acceleration through 70 next.

In its latest report, the US Energy Information Administration revised its expectations for this year's global oil and liquid fuels output upwards while reducing its demand forecasts.

Notably, it now anticipates that global oil and liquid fuels consumption will increase by 920k bpd to 102.84m bpd, a slight reduction from the previously forecasted growth of 950k bpd.

On the production side, total world crude oil and liquid fuels production is expected to rise by 970k bpd to 102.76m bpd, up from the earlier estimate of 850k bpd increase.

Technically, the break of 100% projection of 87.84 to 81.20 from 84.88 at 78.24 suggests WTI is probably ready for downside acceleration. Near term outlook will stay bearish as long as 80.20 resistance holds. Next target is 161.8% projection at 74.13.

More importantly, the fall from 87.84 is seen as the third leg of the pattern from 95.50. There is prospects of deeper decline through 67.79 towards 63.67 (2023 low) in the medium term.

BoJ Ueda signals shift in focus to exchange rate impacts

In comments made to the parliament today, BoJ Governor Kazuo Ueda underlined growing focus on the effects of currency movements rather than solely on wages, signaling a broadening perspective on economic influences.

Ueda pointed out that as recent behavior in wage- and price-setting has become "somewhat more active," BoJ has to be "mindful of the risk that the impact of currency volatility on inflation is becoming bigger than in the past.".

"Foreign exchange rates make a significant impact on the economy and inflation. Depending on those moves, a monetary policy response might be needed," Ueda said.

Similarly, Finance Minister Suzuki expressed significant concern about the negative aspects of a weaker yen, particularly the pressure it places on import prices.

"Since Japan relies on overseas markets for food and energy, and a large portion of its transactions are denominated in dollars, a weaker yen could raise prices of imported goods," Suzuki said.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0739; (P) 1.0764; (R1) 1.0779; More...

Intraday bias in EUR/USD stays neutral for the moment. More consolidations could be seen below 1.0810. Further rally is expected as long as 55 4H EMA (now at 1.0731) holds. On the upside, above 1.0810 will resume the rebound from 1.0601 to 1.0884 resistance next. However, firm break of 55 4H EMA 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

USD/CAD has edged higher on Wednesday and is up 0.25%, trading at 1.3760 at the time of writing.

Canada’s Ivey PMI climbed sharply in April to 63.0, up from 57.5 in March and beating the forecast of 58.1. This marked the highest level since May 2022, indicating that purchasing managers have seen an improvement in business activity. The employment and inflation components of the PMI both rose, which points to a healthy labor market and stronger inflationary pressures.

The Bank of Canada is under pressure to provide some relief and lower interest rates, but the road to bringing inflation back down to the 2% target has not been smooth. Inflation accelerated in March, rising from 2.8% to 2.9%. BoC policy makers are hesitant to lower rates until there is evidence of price stability around 2% and that will take more time.

US nonfarm payrolls were weaker than expected last week, raising the likelihood of a rate cut from the Federal Reserve. That in turn has increased the chances of a BoC rate cut since the two economies are intertwined. The BoC would like to avoid a rate cut well before the Fed, since it would likely weaken the Canadian dollar and lead to higher inflation. The markets have priced in a June cut from the BoC but the decision will depend largely on inflation data.

Canada will release the April employment report on Friday. The economy shed 2200 jobs in March, a shocking figure as the market forecast stood at a gain of 25,900. Job growth is expected to get back on track, with an estimate of 18,000. The unemployment rate is expected to creep up to 6.2%, compared to 6.1% in March.

USD/CAD Technical

• USD/CAD is testing resistance at 1.3757. Above, there is resistance at 1.3790
• 1.3709 and 1.3676 are providing support

WTI crude oil is extending its near term decline today on expectation of higher production and lower demand ahead. If WTI cannot reclaim 80 mark in short term, there is prospect of downside acceleration through 70 next.

In its latest report, the US Energy Information Administration revised its expectations for this year's global oil and liquid fuels output upwards while reducing its demand forecasts.

Notably, it now anticipates that global oil and liquid fuels consumption will increase by 920k bpd to 102.84m bpd, a slight reduction from the previously forecasted growth of 950k bpd.

On the production side, total world crude oil and liquid fuels production is expected to rise by 970k bpd to 102.76m bpd, up from the earlier estimate of 850k bpd increase.

Technically, the break of 100% projection of 87.84 to 81.20 from 84.88 at 78.24 suggests WTI is probably ready for downside acceleration. Near term outlook will stay bearish as long as 80.20 resistance holds. Next target is 161.8% projection at 74.13.

More importantly, the fall from 87.84 is seen as the third leg of the pattern from 95.50. There is prospects of deeper decline through 67.79 towards 63.67 (2023 low) in the medium term.

• EURJPY recoups previous losses
• Rebounds off ascending trend line
• Surpasses short-term SMAs
• Oscillators gain momentum

EURJPY is flirting with the 167.00 round number after the bounce off the long-term rising trend line and the 164.00 handle. The pair has been developing within an upward tendency since the beginning of December with no violations of the uptrend line.

Technically, the RSI is ticking higher above the neutral threshold of 50 and the MACD is strengthening its upside momentum above the zero level but is still slightly beneath its trigger line.

The pair has some room to rise until the previous 40-year peak of 171.56, so the next psychological levels such as 168.00, 169.00 and 170.00 should be closely watched.

On the other hand, a successful drop beneath the 20-day simple moving average (SMA) of 165.65 and the 50-day SMA, which stands near the uptrend line and the 164.00 mark, may switch the outlook to a neutral one. Even lower, the 161.90-162.60 support zone may halt downside pressures.

All in all, EURJPY is currently recovering some ground, adding optimism for further gains in the near future.

• WTI oil futures fall to two-month low on rising US stockpiles
• Short-term risk bearish, but market could be oversold
• A clear close below 77.44 could activate fresh selling

WTI oil futures slid to a two-month low of 76.99 on Wednesday after their continuous attempts to climb above the 200-day exponential moving average (EMA) at 79.10 proved fruitless.

Breaking below an important support trendline, the price might experience additional losses, but there’s a chance for a rebound around 77.44 at the 50% Fibonacci retracement of the December-April upleg before a strong sell-off towards the 38.2% Fibonacci mark of 75.21. Even lower, the bears could rest near the constraining zone of 73.60 and then around the 78.6% Fibonacci of 72.00.

Note that the RSI and the stochastic oscillator are hovering near their oversold levels and around a previous pivot area. Hence, an upside reversal or some stabilization cannot be excluded.

However, to reach the 20- and 50-day EMAs at 80.88, a clear move above the 200-day EMA might be a prerequisite. The ongoing downleg could come into question if the recovery continues above the descending trendline at 81.45 and the 38.2% Fibonacci of 82.45. Should the bar around 84.00 give way too, then the bulls might advance towards the 86.92 peak, unless the 85.30 former barrier blocks the way up.

In brief, WTI oil futures are expected to come under renewed downside pressure in the short-term if the bears achieve a close below 77.44.