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• GBPAUD reversed from key support level 1.9135
• Likely to rise to resistance level 1.9400

GBPAUD currency pair recently reversed up from the key support level 1.9135, which reversed the price sharply in April.

The support level 1.9135 was strengthened by the lower daily Bollinger Band and by the 50% Fibonacci correction of the previous sharp upward impulse from January.

Given the strength of the support level 1.9135, GBPAUD pair can be expected to rise further to the next resistance level 1.9400 (which has been reversing the price from April).

Silver has lost 2.6% since the start of the day on Tuesday to $26.4 per ounce. After a failed attempt to climb above $30 per ounce on 7 April, the downside momentum in Silver has been replaced by sideways consolidation without significant bounces.

Tuesday’s decline has an important implication on the tech analysis side. The sharp dip from the $27 level marked an exit beyond the corrective pattern, as the price dipped under 61.8% of the rise since late February.

It will soon become clear whether the former local resistance in the 25.0-25.5 area has become support. If not, we are facing a whole range of negative scenarios.

On the daily timeframes, a reversal pattern “head and shoulders” is formed with the price decline under the “neckline”. The realisation of this pattern is setting up for a pullback to $24.4. But this will probably only encourage the bears.

It is not the first time since 2020 that Silver has tried to break above $30. A demonstration of resistance strength at this level is likely to discourage buyers, who have never managed to get the same breakout of the highs as we have seen in gold.

Through 2023 and into 2024, the 200-week moving average has acted as an important anchor for Silver, keeping the price from going significantly lower for extended periods. A continuation of the same pattern suggests that the intensity of the sell-off will subside at levels below $23. In 2022, however, Silver briefly dipped 10% below this curve, outlining the risk of a decline to $21.3.

An even more apocalyptic scenario is a massive liquidation of silver positions when it falls below the 200-week average, as we saw in 2020 and 2013 when the price dipped more than 30% below that curve.

Markets

What a difference some inflation prints make… Following the Fed’s pivot in November and December of last year, markets rapidly turned to expecting policy rate cuts. The language in official statements changed from assessing to whether any additional policy firming might be appropriate to considering when it would be appropriate to reduce the target policy range. The balance of risks similarly shifted from solely focused on (upward) inflation risks to a more balanced risk analysis in line with the Fed’s dual mandate (full employment & price stability). At the top of the dovish repositioning, around the turn of the year, markets discounted a cumulative 50 bps of Fed rate cuts for tomorrow’s FOMC meeting. On the eve of the meeting, the probability of a rate cut is virtually zero. Subsequent inflation misses, strong price momentum and base effects all suggest that US inflation is heading towards 4% rather than 2% in coming months. In combination with decent growth momentum and a still robust labour market, this suggests that the tone of tomorrow’s policy statement and Powell’s press conference will shift in a hawkish manner. At the recent IMF meetings, Powell already acknowledged that recent data have clearly not given the Fed greater confidence on disinflation. The onus could thus return to stressing the need of higher for longer, rather than searching for the appropriate settings to implement a first rate cut. We don’t expect Powell to bring (potential) rate hikes already back into play. US money markets have discounted a new hawkish pivot. They are split between one or two policy rate cuts this year. With the November presidential election “interfering”, that’s either September-December or just December. In absence of any major shocks, we tend to err to the second scenario. We see the current upleg in (US) yields continuing though admit that there’s more room for an underperformance of the long end of the curve. For the US 2-yr yield to break back above the psychologic 5% border, it takes at least part of the market contemplating rate hikes again. If a push in real rates drives the long end of the US yield curve, it could nevertheless still benefit the dollar especially since such scenario risks weighing on risk sentiment.

Ahead of tomorrow’s key Fed gathering, some EMU and US data were on tap today. EMU growth accelerated more than hoped in Q1 (+0.3% Q/Q), exiting a mild H2 2023 recession. Growth was broad-based amongst EMU countries. April EMU CPI inflation printed in line with forecasts at a speedy +0.6% M/M though with the Y/Y-figure stable at 2.4%. The disinflation process in core inflation occurred slightly slower than hoped (2.7% Y/Y from 2.9%). The combination of both was sufficient to exert some selling pressure on EU bonds with EUR/USD marginally profiting. The EUR/USD move was short-lived as US Treasuries joined the bond sell-off after US labour costs (employment cost index) accelerated more than expected in Q1 (1.2% Q/Q from 0.9%). US yields currently add 3.4 bps (2-yr) to 4.9 bps (7-yr). Changes on the German curve range between +6.6 bps (2-yr) and +3 bps (30-yr).

News & Views

Czech GDP grew by 0.5% q/q in the first quarter of the year, topping estimates for a slightly lower 0.4%. Compared to the same quarter of last year, the Czech economy has expanded 0.4%. Details are not yet available though the Czech Statistical Office noted increasing domestic demand, especially household consumption and gross capital formation, helped the economy grow. External demand had a negative influence. Sticking to the CE region, Hungarian growth easily met the bar as well, coming in at 0.8% q/q vs expectations for 0.5%. The Y/Y figure jumped from flat to 1.1%. The statistical office made a sectoral divide in which it highlighted market services as the main contributor to growth. Real estate activities, information and communication specifically helped the sector perform strongly enough to offset a drag coming from the large industrial sector. Both the Czech crown and the Hungarian forint trade relatively stoic. The former is going nowhere around EUR/CZK 25.14. EUR/HUF eases a few ticks to 390.70 in unrelated (to GDP) trading.

Graphs

EUR/USD seeks a return above 1.07 after better-than-expected Q1 GDP, but faces counter from rising US labour costs

US 2y yield hovers near symbolic 5% as markets head into tomorrow’s hawkish (but priced in) Fed meeting

EUR/CZK: stoic CZK as CNB meeting (May 2) looms. Will Prague hint at possibly smaller rate cuts going forward?

USD/JPY: BoJ accounts reveal Monday’s intervention totaled JPY 5.5tn or 60% of the three 2022 FX interventions combined

US Conference Board Consumer Confidence plunged from 103.1 to 97.0 in April, well below expectation of 104.0. Present Situation Index fell from 146.8 to 142.9. Expectations Index fell from 74.0 to 66.4.

"Confidence retreated further in April, reaching its lowest level since July 2022 as consumers became less positive about the current labor market situation, and more concerned about future business conditions, job availability, and income," said Dana M. Peterson, Chief Economist at The Conference Board

"Despite April's dip in the overall index, since mid-2022, optimism about the present situation continues to more than offset concerns about the future."

Full US consumer confidence release here.

• US 100 enters recovery mode, stays above uptrend line
• MACD and RSI suggest that momentum may turn positive
• A break above 18,350 will take the index into uncharted territory
• A break below 15,700 may turn the broader outlook bearish

The US 100 cash index entered a recovery mode last week, after hitting support near the 16,980 zone. Overall, the index is trading above a long-term uptrend line drawn from the low of January 6, 2023, as well as above its 200-day exponential moving average (EMA). These technical signs paint a positive broader outlook.

The MACD is rebounding, emerging above its trigger line, and now looks to be headed towards zero, while the RSI has recovered as well after hitting 30 and is now testing its 50 line. Both indicators suggest that the short-term momentum is likely to turn positive again soon, which means further recovery for US 100.

Nonetheless, for the prevailing long-term uptrend to resume, the price may need to clearly break and close above the 18,350 territory, which has been acting as a ceiling since the beginning of March. A move higher would take the index into uncharted territory and perhaps encourage the bulls to aim for the psychological round number of 20,000 or the 161.8% Fibonacci extension level of the November 2021 – October 2022 decline, at around 20,700.

For the bigger picture to darken, a break below the key support area of 15,700 may be needed. The price would be below the aforementioned uptrend line and below all three of the plotted moving averages, which may encourage the bears to dive all the way down to the 14,090 barrier, marked by the low of October 26.

To recap, US 100 has been recovering ground lately, but the move signaling the resumption of its prevailing long-term uptrend may be a decisive break and a daily close above 18,350.

The Canadian economy grew for a second straight month in February, up 0.2% on a month-on-month (m/m) basis. This print comes in slightly below Statistics Canada's advanced guidance and market expectations for a 0.4% and 0.3% m/m gain, respectively. The flash estimate for March points to flat growth.

February's reading was broad-based, with output expanding in 12 of 20 industries. The gain, similar to January, was services driven (0.2% m/m), while the goods sector remained essentially unchanged.

The services side gain was aided by a 1.4% m/m increase in the transportation and warehousing sector and a continuation of growth in the public sector (0.2% m/m) after January's surge. Wholesale trade and the finance and insurance sector saw modest growth of 0.3% m/m.

On the goods side, oil and gas sector output advanced by a healthy 3.3% m/m, reversing January's decline. Offsetting growth was a 2.6% m/m contraction in the utilities sector and a 0.4% m/m decline in manufacturing.

The advanced reading of flat growth in March is due to gains in utilities and real estate being offset by decreases in manufacturing and trade.

Key Implications

The Canadian economy continued to grow into February, but at a slightly slower speed after January's downwardly revised print and February's downside miss. Still, with today's print and next month's guidance, first quarter GDP is tracking a healthy 2.5% q/q annualized, in line with the Bank of Canada and our estimates.

While today's GDP report reinforces expectations that first quarter growth will post a decent print compared to the meager growth seen over 2023, the deceleration in February and March signal this rebound is unlikely to last. This should encourage the Bank of Canada, which needs to make sure inflation is on a sustainable path back to 2%. At this stage, market pricing is split down the middle between the first interest rate cut occurring in June or July. We lean towards the latter as it will give the Bank slightly more time to ensure that inflationary trends are durable.

Daily Pivots: (S1) 1.0695; (P) 1.0714; (R1) 1.0740; More...

Intraday bias in EUR/USD remains neutral for the moment. On the upside, above 1.0752 will resume the rebound to 55 D EMA (now at 1.0780). On the downside, break of 1.0673 minor support will turn intraday bias to the downside for retesting 1.0601 low.

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) 1.2504; (P) 1.2537; (R1) 1.2595; More...

Intraday bias in GBP/USD is turned neutral with current retreat. On the upside, above 1.2568 will resume the rebound from 1.2298 to 55 D EMA (now at 1.2580). 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 bring retest of 1.2298 low instead.

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) 153.91; (P) 156.95; (R1) 159.37; More...

USD/JPY is extending consolidation from 160.20 and intraday remains neutral. Strong support could be seen from 38.2% retracement of 146.47 to 160.20 at 154.95 to bring recovery. But break of 160.20 is not envisaged for now. However, firm break of 154.95 will turn bias to the downside for deeper correction to 55 D EMA (now at 152.00).

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.