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The Federal Reserve (Fed) decision yesterday was… interesting. As expected, the Fed kept its rates unchanged and said that they are not confident to cut the interest rates as inflation has started to show signs of heating up. Jerome Powell reassured that the Fed’s next move will unlikely be a rate hike. That was a relief. Then, the Fed said that it will start tapering QT. It sounded like ‘the rates must stay longer in the oven but taste this – in the meantime’.

The market reaction to the decision was mixed. The stocks first gained then erased losses. The S&P500 closed the session down by 0.34%. The treasury yields fell. The 2-10year portion of the yield curve remains inverted, mind you, since summer 2022. Maybe – but just maybe – we will finally see recession arrive to the US? Note that the latest GDP print in the US surprised by a sharp slowdown to 1.6%, from above 3% printed a quarter earlier, and down from 5% printed the quarter before that. Interest rate swaps still price in one rate cut for 2024, sometime by the year end.

Data-wise, the ADP report came in stronger than expected yesterday with 192K new private job additions in April compared to around 180K expected by analysts, but job openings further fell and the ISM manufacturing PMI fell into the contraction zone while price pressures continued to rise. US oil inventories on the other hand jumped more than 7-mio barrels according to yesterday’s EIA data. All eyes are on the official jobs data due tomorrow.

The cocktail of no-rate-cut-in-horizon from the Fed, soft economic data, rising price pressures and rising US oil inventories sent the barrel of US crude below the $80pb level. News that the US and Saudi Arabia are working on a new pact to help ease tensions in the Middle East strengthens the bears’ hands as well. Note that yesterday’s decline pushed the barrel of crude into the medium-term bearish consolidation zone and paves the way for deeper losses. Next support is seen at $78pb – the 100-DMA.

In the FX, the US dollar eased yesterday, but a part of the move was explained by the sharp fall in the USDJPY which tanked from 157.50 to 153 within minutes, fueling speculation that the Bank of Japan (BoJ) certainly has its fingers behind the move. The USDJPY is back above 155 this morning, but this time, the downside correction was certainly big enough to clear speculative longs and give the holders of short yen positions cold feet. The BoJ has drawn the red line at the 160 level this week, saying no one goes above. Let’s see if enough traders are willing to challenge that view.

Elsewhere, the EURUSD rebounded past the 1.07 level, while Cable settled above 1.25. The USDCHF continues its steady ascent on the back of the growing divergence between the Fed – unable to cut rates because of rising inflation and the SNB – well positioned to cut rates again thanks to subdued price pressures. Gold sees support at $2284 – the minor 23.6% Fibonacci retracement on October to April rebound. Softer US yields, rising inflation, ambiguous direction for equities and uncertain geopolitical landscape should keep appetite robust near the $2300 support.

Chips and cannabis

Amazon gained more than 2% yesterday as its cloud business grew more than expected in Q1 thanks to AI. AMD fell more than 9%, as the company gave a weak outlook for game chip demand and Super Micro Computer tumbled 14% as earnings missed lofty expectations. Fears regarding a slowdown in chip demand pulled Nvidia nearly 4% down, while Micron Technology fell almost 3%. Happily, Qualcomm rebounded 4% in the afterhours trading on solid forecast for the current period.

Cannabis stocks, which were flying high on Tuesday following the US decision to reclassify marijuana as a less dangerous drug, fell yesterday. Beyond the short-term volatility, the reclassification will have a concrete positive impact on pot companies’ profit margins through tax breaks, hence the sector could see a sustainable growth following the decision. I don’t think that we will see another bubble in pot stocks – similar to the one we saw in 2018 and again in 2021, but having exposure to a Marijuana ETF – like YOLO – wouldn’t hurt.

Apple day

Apple is due to report Q1 results today after the bell. Expectations are soft given that Apple’s Chinese business got a major hit in Q1 as competitors increased their market share against the giant Apple. The chances are that, the actual results won’t blow anybody’s mind.

What investors now expect is plans and projects regarding how Apple will integrate AI into its devices and catch up with its AI delay. Good news is, because Apple is not seen as a cutting-edge technology company – but also a luxury brand – any promising step in AI could get a decent leverage from the company’s high brand value. Therefore, if investors are convinced that Apple’s got a robust AI plan, we could see a positive reaction to otherwise weak quarterly results. Pricewise, Apple is down by 15% since the December peak, and near the major 38.2% Fibonacci retracement on ytd selloff. Either it will stay in the positive trend and attempt a rebound, or it will sink into the medium-term bearish consolidation zone.

Swiss CPI rose 0.3% mom in April, above expectation of 0.2% mom. CPI core (excluding fresh and seasonal products, energy and fuel) rose 0.4% mom. Domestic products prices rose 0.1% mom. Import products prices rose 1.1% mom.

Over the 12 month period, CPI accelerated from 1.0% yoy to 1.4% yoy, above expectation of 1.1% yoy. CPI core increased from 1.0% yoy to 1.2% yoy. Domestic products price growth rises from 1.7% yoy to 2.0% yoy. Imported products prices contraction lessened from -1.3% yoy to -0.4% yoy.

Full Swiss CPI release here.

Daily Pivots: (S1) 1.3700; (P) 1.3742; (R1) 1.3779; More...

Intraday bias in USD/CAD is turned neutral again with current retreat. On the upside above 1.3782 will target 1.3845 resistance first. Firm break there will resume larger rise from 1.3176 towards 1.3976 key resistance next. On the downside, break of 1.3631 will extend the fall from 1.3845. Sustained trading below 55 D EMA (now at 1.3615) will argue that whole rise from 1.3176 has completed already.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern only. In case of another fall, strong support should emerge above 1.2947 resistance turned support to bring rebound. Firm break of 1.3976 will confirm up resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149.

Daily Pivots: (S1) 0.6479; (P) 0.6509; (R1) 0.6554; More...

Intraday bias in AUD/USD is turned neutral again with current recovery. On the upside, break of 0.6585 resistance will resume the rebound from 0.6361. That would also affirm the case that fall from 0.6870 has completed. Further rally would be seen to 0.6643 resistance next. Nevertheless, break of 0.6464 will bring deeper fall back to retest 0.6361 low.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which is still in progress. Overall, sideway trading could continue in range of 0.6169/7156 for some more time. But as long as 0.7156 holds, an eventual downside breakout would be mildly in favor.

Daily Pivots: (S1) 1.0664; (P) 1.0699; (R1) 1.0748; More...

Intraday bias in EUR/USD is turned neutral against with current recovery. On the upside, break of 1.0752 will resume the rebound from 1.0601. Sustained trading above 55 D EMA (now at 1.0770) will argue that fall from 1.0980 has completed. On the downside, though, break of 1.0648 will retain near term bearishness and bring retest of 1.0601 low first.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern to rise from 0.9534 (2022 low). Current fall from 1.1138 is seen as the third leg. While deeper decline is would be seen to 1.0447 and possibly below, strong support should emerge from 61.8% retracement of 0.9534 to 1.1274 at 1.0199 to complete the correction.

Daily Pivots: (S1) 1.2481; (P) 1.2516; (R1) 1.2564; More...

Range trading continues in GBP/USD and intraday bias remains neutral. On the upside, above 1.2568 will resume the rebound from 1.2298 to 55 D EMA (now at 1.2578). Sustained break there will argue that fall from 1.2892 has completed already, and bring further rise to this resistance. Nevertheless, on the downside, break of 1.2448 minor support will indicate that rebound from 1.2298 has completed, and turn bias back to the downside for this low.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to up trend from 1.0351 (2022 low). Fall from 1.2892 is seen as the third leg. Deeper decline would be seen to 1.2036 support and possibly below. But strong support should emerge from 61.8% retracement of 1.0351 to 1.2452 at 1.1417 to complete the correction.

Daily Pivots: (S1) 0.9128; (P) 0.9176; (R1) 0.9207; More....

USD/CHF retreated after rising to 0.9223 and intraday bias is turned neutral first. Further rally is in favor as long as 0.9087 support holds. On the upside, above 0.9223 will resume larger rally to 0.9243 resistance, and 61.8% projection of 0.8728 to 0.9151 from 0.9009 at 0.9270. However, firm break of 0.9087 will indicate rejection by 0.9243 and turn bias back to the downside 0.9009 support instead.

In the bigger picture, price actions from 0.8332 medium term bottom as tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Further rise would be seen as long as 0.8884 resistance turned support holds. But upside should be limited by 0.9243 resistance, at least on first attempt. 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) 152.27; (P) 155.13; (R1) 157.26; More...

USD/JPY's correction from 160.20 short term top extended with another dip to 152.99, but quickly recovered again. For now, risk will be mildly on the downside as long as 157.98 resistance holds. Deeper pullback would be seen to 55 D EMA (now at 152.25), and possibly further to 61.8% retracement of 146.47 to 160.20 at 151.71. But strong support should be seen from 150.87 to bring rebound.

In the bigger picture, current rise from 140.25 is seen as the third leg of the up trend from 127.20 (2023 low). Next target is 100% projection of 127.20 to 151.89 from 140.25 at 164.94. Outlook will remain bullish as long as 150.87 resistance turned support holds, even in case of deep pullback.

Markets sentiment in the US stabilized overnight, responding positively to Fed Chair Jerome Powell's less hawkish-than-anticipated remarks in the post-FOMC press conference. DOW closed slightly up, while S&P 500 and NASDAQ saw mild losses only. Treasury yields and Dollar both fell in response to these developments. Key takeaways from Powell's address include a clear stance against further policy tightening, soothing market fears of another rate hike. The focus remains firmly set on the timing and pace of rate cuts, which would be heavily dependent on incoming economic data.

Japanese Yen surged dramatically again, purportedly due to intervention by Japanese authorities. This move was strategically timed to capitalize on Dollar's weakness post-FOMC, during a period of low liquidity. Japan's chief currency diplomat, Masato Kanda, remained tight-lipped about the intervention, stating that details would be released at the end of the month. While this intervention has not reversed Yen's downtrend, it seems to be setting the stage for prolonged range trading, with 160 against Dollar acting as a strong psychological floor.

Overall in the forex markets, Canadian Dollar is currently the week's weakest performer, followed by New Zealand Dollar and Swiss Franc. In contrast, Yen leads as the strongest, followed by Sterling and the Euro. Dollar is mixed, caught between post-FOMC sell-off pressures and market readjustments, while Australian Dollar has shown recovery, buoyed by the broader risk sentiment improvement.

Technically, Gold's corrective fall from 2431.27 extended to 2281.44 but quickly recovered. It's possible that this correction has completed as a five-wave descending triangle pattern. Also, considering bullish convergence condition in 4H MACD, break of 2352.33 resistance will strengthen this case, and bring stronger rally through 2431.27 high to resume the larger up trend.

In Asia, at the time of writing, Nikkei is down -0.09%. Hong Kong HSI is up 2.21%. China is on holiday. Singapore Strait Times is up 0.27%. Japan 10-year JGB yield is down -0.0003 at 0.896. Overnight, DOW rose 0.23%. S&P 500 fell -0.34%. NASDAQ fell -0.33%. 10-year yield fell -0.091 to 4.595.

10-year yield dips as Fed Powell rules out rate hike

US markets expressed a sign of relief overnight followed as Fed Chair Jerome Powell's less hawkish than feared stance at the post-FOMC press conference. Major stock indexes closed mixed while treasury yields dipped with Dollar.

Most importantly, Powell characterized the current interest rate level as "sufficiently restrictive," and indicated that it is "unlikely that the next rate move will be a hike." Instead, Powell delineated the future monetary policy path as a decision between "cutting" and "not cutting" interest rates, depending on economic data.

This stance comes in the wake of stronger-than-expected inflation data since the beginning of the year, leading Powell to acknowledge that it would "take longer than previously expected" for Fed to be confident that inflation is on a steady decline toward the 2% target. policymakers to become comfortable that inflation will resume the decline towards 2%."

"If we did have a path where inflation proves more persistent than expected, and where the labor market remains strong but inflation is moving sideways and we're not gaining greater confidence, well, that would be a case in which it could be appropriate to hold off on rate cuts," Powell said. "There are paths to not cutting and there are paths to cutting. It's really going to depend on the data."

More on FOMC:

• First Cut by Fed is September at the Earliest
• May FOMC: Stalling in Inflation Leaves FOMC Stalling for Time

10-year yield closed down -0.0910 at 4.595 in reaction to FOMC. Technically, another rise could still be seen as long as 4.568 support holds. But even in this case, TNX should continue to lose upside momentum ahead of 4.997 high. Meanwhile, break of 4.568 will indicate that it's at least in a near term pullback towards 55 D EMA (now at 4.408.

BoC nears interest rate cuts as inflation eases, says Macklem

BoC Governor Tiff Macklem, at a Senate committee testimony, indicated that Canada is edging closer to conditions that would allow for easing monetary policy. "The short answer is we are getting closer," he affirmed.

Inflation in Canada has moderated effectively, remaining under 3% since January and aligning with the central bank's forecasts. This stabilization is expected to persist through the first half of 2024, with key core measures of consumer prices showing a consistent downward trend.

"We are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained," Macklem explained.

Furthermore, Macklem addressed the impact of fiscal policy on the economic outlook, noting that recent governmental fiscal plans are unlikely to significantly alter the Bank's projections for the economy or inflation.

Looking ahead

Swiss CPI, retail sales, and PMI manufacturing will be released in European session. Eurozone will release PMI manufacturing final. Later in the day, US will release trade balance, jobless claims, non-farm productivity, and factor orders. Canada will also publish trade balance.

USD/JPY Daily Outlook

Daily Pivots: (S1) 152.27; (P) 155.13; (R1) 157.26; More...

USD/JPY's correction from 160.20 short term top extended with another dip to 152.99, but quickly recovered again. For now, risk will be mildly on the downside as long as 157.98 resistance holds. Deeper pullback would be seen to 55 D EMA (now at 152.25), and possibly further to 61.8% retracement of 146.47 to 160.20 at 151.71. But strong support should be seen from 150.87 to bring rebound.

In the bigger picture, current rise from 140.25 is seen as the third leg of the up trend from 127.20 (2023 low). Next target is 100% projection of 127.20 to 151.89 from 140.25 at 164.94. Outlook will remain bullish as long as 150.87 resistance turned support holds, even in case of deep pullback.

Economic Indicators Update

Short Term Elliott Wave View on Gold (XAUUSD) suggests that rally from 11.13.2023 low is unfolding as a 5 waves impulse. Up from 11.13.2023 low, wave 1 ended at 2146.79 and dips in wave 2 ended at 1973.13. The metal extended higher in wave 3 towards 2431.78. Pullback in wave 4 is unfolding in a double three Elliott Wave structure. Down from wave 3, wave (a) ended at 2323.86 and wave (b) ended at 2417.89.

Wave (c) lower ended at 2291.26 which completed wave ((w)) in higher degree. The metal then bounced in wave ((x)) with internal subdivision as a zigzag. Up from wave ((w)), wave (a) ended at 2337.31 and wave (b) ended at 2304.90. Wave (c) higher ended at 2352.76 which completed wave ((x)) in higher degree. The metal has turned lower in wave ((y)) with internal subdivision as a zigzag. Down from wave ((x)), wave (a) ended at 2281.3 and wave (b) ended at 2328.29. Near term, as far as pivot at 2352.76 high stays intact, expect the metal to extend lower. Potential target lower is 100% – 161.8% Fibonacci extension of wave ((w)). This area comes at 2124.1 – 2211 where buyers can appear.

Gold (XAUUSD) 60 Minutes Elliott Wave Chart

XAUUSD Elliott Wave Video

https://www.youtube.com/watch?v=2z3DY_oHHg4