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Daily Pivots: (S1) 156.64; (P) 157.25; (R1) 158.42; More...

Intraday bias in USD/JPY stays neutral at this point, as consolidation from 160.20 is extending. In case of another fall, downside should be contained by 38.2% retracement of 146.47 to 160.20 at 154.95 to bring recovery. For now, break of 160.20 is not envisaged in the near term. Meanwhile, firm break of 154.95 will turn bias to the downside for deeper correction to 55 D EMA (now at 152.04).

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.

Daily Pivots: (S1) 0.9128; (P) 0.9162; (R1) 0.9231; More....

USD/CHF's rally from 0.8332 resumed and hit as high as 0.9215 so far. Intraday bias is back on the upside for 0.9243 resistance next. Decisive break there will carry larger bullish implications. Next target will be 61.8% projection of 0.8728 to 0.9151 from 0.9009 at 0.9270. For now, near term outlook will stay bullish as long as 0.9087 support holds, in case of retreat.

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.

Dollar rebounded broadly overnight and stayed generally firm in Asian session. Stock investors were apparently adopting a cautious stance and lightening up positions ahead of Fed's rate decision and subsequent press conference today. With recent data pointing to persistent inflationary pressures, expectations are mounting that Fed would adopt a more hawkish tone. It's a minimum that Fed will indicate that rate cuts would only be considered once inflation consistently moves towards the target. The central question now is the extent of this hawkish shift.

For now, the selloff in the currency markets seemed to be concentrated most in Swiss Franc primarily due to diverging monetary path with other major central banks. While SNB has already begun policy easing, other central banks, including even ECB, may not ease as aggressively as previously anticipated. This disparity in central bank policies is contributing to Franc's weakness.

Elsewhere, New Zealand Dollar softened slightly following significantly weaker than expected employment data. Although this did not trigger extended selling, Kiwi remains one of the week's weaker performers, only outdone by Australian Dollar and followed closely by Canadian Dollar. Conversely, Yen stands out as the strongest performer, with Dollar and Sterling also showing resilience. Euro and Swiss Franc are positioned in the middle of the pack, with the Franc appearing particularly vulnerable.

Technically, EUR/CHF's rebound from 0.9563 resumed by breaking through 0.9800. Retest of 0.9847 should be seen next. Firm break there will resume whole rally from 0.9252 and target 61.8% projection of 0.9252 to 0.9847 from 0.9563 at 0.9931 next.

In Asia, at the time of writing, Nikkei is down -0.14%. Japan 10-year JGB yield is up 0.0195 at 0.893. Hong Kong, China, and Singapore are on holiday. Overnight, DOW fell -1.49%. S&P 500 fell -1.57%. NASDAQ fell -2.04%. 10-year yield rose 0.072 to 4.686.

US stocks plunge as market braces for hawkish Fed pivot

US stocks tumbled sharply overnight, concluding a turbulent April as traders anticipated a hawkish pivot from Fed Chair Jerome Powell in his upcoming post-FOMC meeting press conference today. DOW recorded -5% loss for the month, marking its worst monthly performance since September 2022. Similarly, S&P 500 and NASDAQ fell by -4.2% and -4.4%, respectively, ending their five-month streaks of gains.

Amidst this backdrop, Fed is widely expected to maintain federal funds rate at its current level of 5.25-5.50%. With no new economic projections or dot plot updates, all eyes are on Powell's statement and subsequent press conference. Market speculation suggests Powell might confirm that a rate cut in June is unlikely and could adjust expectations to reflect fewer than three rate cuts for the year.

Powell's comments will be crucial for investors, as any indication towards maintaining higher rates for longer, or even hinting at the possibility of a rate hike, could signal a more aggressive stance than previously anticipated. Currently, Fed fund futures reflect a 54% probability that rates will remain at the current level after the September meeting.

Technically, near term bias in DOW is kept on the downside after be rejected by 55 D EMA twice. Further decline is in favor through 37611.56 support. Nevertheless, fall from 39899.05 is currently seen as developing into a corrective pattern to rise from 32327.20 only. Hence, strong support would be seen from 38.2% retracement of 32327.20 to 39899.05 at 37000.42 to bring rebound. However, sustained break of 37000.42 will argue that larger scale correction could be underway.

Japan's PMI manufacturing finalized at 49.6, moving towards stabilization

Japan's PMI Manufacturing was finalized at 49.6 in April, marking an increase from March's 48.2 and reaching its highest level in eight months. While the index remains below the pivotal 50.0 mark, which distinguishes expansion from contraction, the latest data suggests that the sector is moving towards stabilization in the near term.

Paul Smith from S&P Global Market Intelligence noted that the April PMI "continued to paint a fairly subdued picture of the Japanese manufacturing sector," but also pointed out that "another rise in the headline PMI points to a sector heading towards at least stabilization in the near-term."

The report also highlighted concerns about inflation, with a broad-based increase in input prices contributing to heightened cost pressures for manufacturers. Notably, the strength of market demand is allowing firms to pass these increased costs onto consumers, with the extent of charge hikes reaching the steepest level in nearly a year.

New Zealand employment falls -0.2% qoq in Q1, unemployment rate jumps to 4.3%

New Zealand employment fell -0.2% qoq in Q1, much worse than expectation of 0.3% qoq growth. Unemployment rate rose from 4.0% to 4.3%, above expectation of 4.0%. Underutilization rate rose 0.5% to 11.2%. Employment rate fell -0.6% to 68.4%. Labor force participation rate fell -0.3% to 71.5%.

For wages, average ordinary time hourly earnings growth slowed from 6.9% yoy to 5.2% yoy. All sector unadjusted labor cost index slowed slightly from 4.3% yoy to 4.1% yoy.

"Although wage cost inflation eased and average hourly earnings growth started to slow this quarter, annual growth remained high for the two surveys," business employment insights manager Sue Chapman said.

RBNZ cautions on persistent inflation risks and financial market volatility

RBNZ the decline in global inflation from previously elevated levels. At the same time, financial markets are currently anticipating lower policy rates over the next year.

However, "there remains a risk that new or persistent inflation pressures could mean global interest rates remain restrictive for longer, placing continued pressure on households, businesses and the financial system," RBNZ warned in its semi-annual Financial Stability Report.

The report also observed that expectations for monetary policy easing have spurred rallies in equity markets across major economies. Yet, RBNZ cautioned that these gains could be vulnerable to a swift reversal.

"An abrupt reversal in sentiment arising from weaker-than-expected earnings or inflation remaining elevated could drag stock prices down, which would generate economic and financial risks from a market-driven tightening in financial conditions," it warned.

Looking ahead

UK PMI manufacturing final is the only feature in European session. Later in the day, Canada PMI manufacturing and US ISM manufacturing will be released. But main focus is on Fed rate decision and post-meeting press conference.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9128; (P) 0.9162; (R1) 0.9231; More....

USD/CHF's rally from 0.8332 resumed and hit as high as 0.9215 so far. Intraday bias is back on the upside for 0.9243 resistance next. Decisive break there will carry larger bullish implications. Next target will be 61.8% projection of 0.8728 to 0.9151 from 0.9009 at 0.9270. For now, near term outlook will stay bullish as long as 0.9087 support holds, in case of retreat.

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.

Economic Indicators Update

US stocks tumbled sharply overnight, concluding a turbulent April as traders anticipated a hawkish pivot from Fed Chair Jerome Powell in his upcoming post-FOMC meeting press conference today. DOW recorded -5% loss for the month, marking its worst monthly performance since September 2022. Similarly, S&P 500 and NASDAQ fell by -4.2% and -4.4%, respectively, ending their five-month streaks of gains.

Amidst this backdrop, Fed is widely expected to maintain federal funds rate at its current level of 5.25-5.50%. With no new economic projections or dot plot updates, all eyes are on Powell's statement and subsequent press conference. Market speculation suggests Powell might confirm that a rate cut in June is unlikely and could adjust expectations to reflect fewer than three rate cuts for the year.

Powell's comments will be crucial for investors, as any indication towards maintaining higher rates for longer, or even hinting at the possibility of a rate hike, could signal a more aggressive stance than previously anticipated. Currently, Fed fund futures reflect a 54% probability that rates will remain at the current level after the September meeting.

Technically, near term bias in DOW is kept on the downside after be rejected by 55 D EMA twice. Further decline is in favor through 37611.56 support. Nevertheless, fall from 39899.05 is currently seen as developing into a corrective pattern to rise from 32327.20 only. Hence, strong support would be seen from 38.2% retracement of 32327.20 to 39899.05 at 37000.42 to bring rebound. However, sustained break of 37000.42 will argue that larger scale correction could be underway.

Japan's PMI Manufacturing was finalized at 49.6 in April, marking an increase from March's 48.2 and reaching its highest level in eight months. While the index remains below the pivotal 50.0 mark, which distinguishes expansion from contraction, the latest data suggests that the sector is moving towards stabilization in the near term.

Paul Smith from S&P Global Market Intelligence noted that the April PMI "continued to paint a fairly subdued picture of the Japanese manufacturing sector," but also pointed out that "another rise in the headline PMI points to a sector heading towards at least stabilization in the near-term."

The report also highlighted concerns about inflation, with a broad-based increase in input prices contributing to heightened cost pressures for manufacturers. Notably, the strength of market demand is allowing firms to pass these increased costs onto consumers, with the extent of charge hikes reaching the steepest level in nearly a year.

Full Japan PMI Manufacturing final release here.

RBNZ the decline in global inflation from previously elevated levels. At the same time, financial markets are currently anticipating lower policy rates over the next year.

However, "there remains a risk that new or persistent inflation pressures could mean global interest rates remain restrictive for longer, placing continued pressure on households, businesses and the financial system," RBNZ warned in its semi-annual Financial Stability Report.

The report also observed that expectations for monetary policy easing have spurred rallies in equity markets across major economies. Yet, RBNZ cautioned that these gains could be vulnerable to a swift reversal.

"An abrupt reversal in sentiment arising from weaker-than-expected earnings or inflation remaining elevated could drag stock prices down, which would generate economic and financial risks from a market-driven tightening in financial conditions," it warned.

Full RBNZ Financial Stability Report May 2024.

New Zealand employment fell -0.2% qoq in Q1, much worse than expectation of 0.3% qoq growth. Unemployment rate rose from 4.0% to 4.3%, above expectation of 4.0%. Underutilization rate rose 0.5% to 11.2%. Employment rate fell -0.6% to 68.4%. Labor force participation rate fell -0.3% to 71.5%.

For wages, average ordinary time hourly earnings growth slowed from 6.9% yoy to 5.2% yoy. All sector unadjusted labor cost index slowed slightly from 4.3% yoy to 4.1% yoy.

"Although wage cost inflation eased and average hourly earnings growth started to slow this quarter, annual growth remained high for the two surveys," business employment insights manager Sue Chapman said.

Full New Zealand employment release here.

• Japan allegedly intervened for the first time in six months
• Most recent interventions did not produce concrete results
• A more hawkish BoJ is probably needed for a sustained yen rally

Japan has a long history of market interventions, to weaken or prop up its currency. Several times since the 1990s, Japan, unilaterally or with help from its main trading partners, tried to turn the tide for the yen. A quick look at the most recent market interventions, including yen’s post-intervention performance, could offer valuable insight to what can be expected in the short-term for the yen after Monday’s activity.

Before delving into the analysis, it is important to explain how Japan intervenes. The Japanese finance ministry is responsible for such a move. It then instructs the BoJ, due to its established links with the main banks and investment houses, to buy/sell the yen.

The US dollar/yen pair appears to be the decisive factor in Japan’s reaction function. If the yen is deemed to be very expensive against the dollar and not reflecting the underlying economic disparities, then the BoJ sells yen (buys dollar) in the market aiming to weaken its currency. Alternatively, when the yen is deemed to be too weak against the dollar, the BoJ buys yen (sells dollars) in the market.

The three most recent market interventions in 2010, 2011 and 2022 respectively were analysed; table 1 below presents some key findings.

September 2010 – first unilateral intervention since the 2003-2004 programme

Almost six years after the massive 2003-2004 program that lasted for more than 15 months, Japan decided that the consistent yen appreciation was a hindrance to its effort to return to solid growth. Since mid-2007 and mostly due to the US subprime crisis and the subsequent quantitative easing programme (QE1) implemented by the Fed, the yen appreciated aggressively against the dollar. From hovering around the ¥120 area, dollar/yen dropped below ¥90 during the first half of 2010.

The BoJ intervened once on September 15, 2010 spending around $26bn to weaken the yen. It stopped short from intervening again as a different approach was chosen. A QE programme was announced by the BoJ in early October 2010 with the visible target being not only to create inflationary pressures but also to cause a sizeable yen weakness.

August-November 2011 – More aggressive approach

With the September/October 2010 effort proving insufficient and a coordinated one-off intervention in March 2011 not producing the expected results, the BoJ was once again forced to return to the market. In the August-November 2011 period, the BoJ sold the yen six times and expanded again its QE program. The intervention notched up a gear in early November 2011 with the total amount spent reaching $120bn.

Similar to the 2010 episode, the yen did not significantly underperform. Dollar/yen continued to hover around the ¥80 mark until 2013 when Abenomics and another massive QE programme in the US (QE3) pushed this pair close to the ¥100 level.

October 2022 – Yen reaches multi-decade low against the dollar

Almost 11 years after the last intervention and the yen was significantly underperforming against the dollar. Despite the revived BoJ under new Governor Ueda, developments elsewhere, and in particularly the aggressive Fed tightening cycle to control runaway inflation, drove the dollar/yen pair to reach a new 32-year high.

Three daily interventions in the period of one month totaling $62bn were implemented with dollar/yen correcting aggressively. However, the main reason for this move was the change in expectations for next Fed rate rises and the associated drop in US Treasury yields. In addition, another stimulus package from the Japanese government and the December BoJ yield curve control tweak also contributed to the renewed yen strength.

Putting everything together and two conclusions could be reached: (1) market interventions as a stand-alone reaction have proven to be an insufficient measure. Only a combination of domestic and foreign developments could sustainably change the direction of the yen. Having said that market intervention has its remits as it could simply be seen as a very short-term move to stop the consistent strengthening/weaknening of the yen until other forces come to play.

And (2) the BoJ tends to intervene multiple times, unless there is another plan in the works like the various QE programmes seen in 2010 and 2011. Such an outcome looks unlikely at the current juncture though.

Moving to the current situation and the yen is not expected to stage a sustainable rally against the dollar, most likely forcing the BoJ to intervene again in the market in low liquidity sessions. Unless the Fed surprises with dovishness in the near future and a rate cut follows at the June meeting, the BoJ will need to adopt a much more hawkish monetary policy stance in order to stabilize the yen.

The New Zealand labour market is softening, but government pay agreements have continued to hold up overall wage growth.

• Unemployment rate: 4.3% (prev: 4.0%, Westpac f/c: 4.2%, RBNZ f/c 4.2%)
• Employment change (quarterly): -0.2% (prev: +0.4%, Westpac f/c: +0.4%, RBNZ f/c +0.1%)
• Labour costs (private sector, quarterly): +0.8% (prev: +1.0%, Westpac f/c: +0.7%, RBNZ f/c +0.8%)
• Average hourly earnings (private sector, ordinary time quarterly): +0.3% (prev: +0.5%)

The March quarter labour market surveys were something of a mixed bag, not easily lending themselves to a single interpretation. The bottom line remains that the jobs market continues to soften as the economy cools, but it’s less clear whether wage pressures are easing to the degree that the Reserve Bank would like to see.

The unemployment rate rose from 4.0% to 4.3% in the March quarter. That was close to what we expected, although the composition was different. The number of people employed fell by 0.2%, against our forecast of a 0.4% rise. But this was accompanied by a fall in the labour force participation rate from 71.9% to 71.5%, the lowest in almost two years.

This result contrasts with the already-released Monthly Employment Indicator (MEI), which showed steady growth in jobs over the quarter. It also differs from the Quarterly Employment Survey (QES), which showed a 0.7% rise in filled jobs and a 0.6% rise in full-time equivalent employees. Overall, we’re more inclined to believe the MEI result – since it’s drawn from tax data, it is close to a complete record, as opposed to the relatively small sample sizes used in today’s surveys. Even so, the message from the MEI has been that jobs are no longer rising fast enough to match population growth.

Returning to the HLFS, despite the fall in employment, the number of hours worked rose by 0.4% for the quarter, and was up 2.2% on a year ago. (The QES showed an even stronger increase in hours paid.) At a time when GDP growth has been much weaker than that, this points to an ongoing poor performance in New Zealand’s labour productivity.

The Labour Cost Index (LCI) rose by 0.8% for the private sector and 0.9% for all sectors, slightly more than what we had estimated. Government pay agreements continue to filter through into these measures (and this is also captured in the private sector measure, since large parts of the health and education sectors are privately-run but publicly-funded).

Notably, the unadjusted analytical LCI was much softer than in previous quarters, rising by 0.9% for the private sector (the annual rate slowed from 5.7% to 5.2%). This measure does not adjust for pay increases related to productivity improvements, and is perhaps a better gauge of what workers are actually receiving in hand. Similarly, the QES average hourly earnings measure, which does not account for changes in the composition jobs, rose by just 0.3% for the quarter.

To the extent that the legacy of government pay agreements is continuing to boost the overall figures, we can reasonably expect a more meaningful slowdown in wage growth over the course of this year. What remains to be seen is whether this will go far enough to be consistent with the 2% inflation rate that the Reserve Bank is ultimately aiming for.

Bottom line implications for the RBNZ

Overall, we suspect this doesn’t change the picture that much for the RBNZ. There will be relief that the broad path for the labour market seems intact, which will be required to reduce the ongoing domestic inflation pressures that remained clearly evident in the March quarter CPI report.

In this technical blog, we will look at the past performance of the 1-hour Elliott Wave Charts of Nikkei. We presented to members at the elliottwave-forecast. In which, the rally from the 08 March 2022 low unfolded as an impulse structure and showed a bullish sequence. Suggested that the index should see more upside extension to complete the impulse sequence. Therefore, we advised members not to sell the index & buy the dips in 3, 7, or 11 swings at the blue box areas. We will explain the structure & forecast below:

Nikkei 1-Hour Elliott Wave Chart From 4.19.2024

Here’s the 1-hour Elliott wave chart from the 4/19/2024 Asia update. In which, the cycle from the 10/04/2023 low ended in wave (3) as impulse at 40960 high. Down from there, the index made a pullback in wave (4) to correct that cycle. The internals of that pullback unfolded as Elliott wave zigzag structure where wave A ended at $38815 low. Wave B bounce ended at 39998 high and wave C managed to reach the blue box area at 37815- 36456. From there, buyers were expected to appear looking for the next leg higher or for a 3 wave bounce minimum.

Nikkei Latest 1-Hour Elliott Wave Chart From 4.30.2024

This is the latest 1-hour Elliott wave Chart from the 4/30/2024 NY update. In which the index is showing a reaction higher taking place, right after ending the zigzag correction within the blue box area. Allowed members to create a risk-free position shortly after taking the long position at the blue box area. However, a break above 40960 high is still needed to confirm the next extension higher towards 41954- 43564 area higher minimum and avoid double correction lower.