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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.

Daily Pivots: (S1) 0.9079; (P) 0.9116; (R1) 0.9143; More....

Intraday bias in USD/CHF remains neutral for the moment. On the upside, firm break of 0.9155 will resume the rally from 0.8332 and should target 0.9243 key resistance next. On the downside, break of 0.9085 will turn bias to the downside for deeper pullback.

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.

Dollar's rebound is picking up momentum in early US session, bolstered by latest Employment Cost Index which rose by 1.2% in Q3, marking the fastest pace since Q3 2022. This unexpected acceleration in employment costs adds to a series of economic data that suggests the US economy remains hotter than preferred. Especially, persistently elevated services inflation and tight labor market are holding back Fed's plan for interest rate cuts. With this economic backdrop, Fed Chair Jerome Powell is expected to temper market expectations tomorrow about the feasibility of three rate cuts this year, reinforcing the notion that Fed would maintain a more cautious approach to monetary policy easing.

Meanwhile, Euro also recovers slightly today, spurred by stronger than anticipated Q1 GDP growth combined with slower-than-expected decline in April's CPI core. While these developments are unlikely to disrupt ECB's tentative plans for June rate cut. The scenario of continued economic momentum and slowing disinflation would diminish the urgency for aggressive rate cuts by ECB, supporting a strategy of two rate reductions by the end of Q3 and Q4, respectively.

In the broader currency markets, New Zealand Dollar and Australian Dollar are underperforming today. Yen is also weak, reversing gains from yesterday's rebound. Dollar leads as the strongest, followed by Euro and the Sterling. Swiss Franc and Canadian Dollar are in the middle. Though, Canadian Dollar shows signs of further weakness following disappointing GDP data, and could slide further in the currency rankings.

Technically, NZD/USD's recovery from 0.5851 could have completed at 0.5983 already. Break of 0.5919 minor support will affirm this case, and argue that larger fall from 06368 is ready to resume through 0.5851 low. Employment data from New Zealand in the upcoming Asian session could be a key catalyst in determining whether a downward breakout occurs

In Europe, at the time of writing, FTSE is up 0.44%. DAX is down -0.65%. CAC is down -0.34%. UK 10-year yield is up 0.047 at 4.349. Germany 10-year yield is up 0.055 at 2.589. Earlier in Asian, Nikkei rose 1.24%. Hong Kong HSI rose 0.09%. China Shanghai SSE fell -0.26%. Singapore Strait Times rose 0.32%. Japan 10-year JGB yield closed flat at 0.874.

Canada's GDP grows 0.2% mom in Feb, vs exp. 0.3% mom

Canada's GDP grew 0.2% mom in February, below expectation of 0.3% mom. Services-producing industries (+0.2%) led the growth for a second month in a row. Goods-producing industries aggregate was essentially unchanged. Overall, 12 of 20 sectors increased in the month.

Advance information indicates that real GDP was essentially unchanged in March. That suggests the economy expanded 0.6% in the first quarter of 2024.

Eurozone GDP rises 0.3% qoq in Q1, above exp 0.1% qoq

Eurozone GDP grew 0.3% qoq, 0.4% yoy in Q1, better than expectation of 0.1% qoq, 0.2% yoy. EU GDP grew 0.3% qoq, 0.5% yoy.

Among the Member States for which data are available, Ireland (+1.1%) recorded the highest increase compared to the previous quarter, followed by Latvia, Lithuania and Hungary (all +0.8%). Sweden (-0.1%) was the only Member State that recorded a decrease. The year on year growth rates were positive for nine countries and negative for four.

Eurozone CPI unchanged at 2.4% in Apr, core CPI down to 2.7%

Eurozone CPI was unchanged at 2.4% yoy in April, matched expectations. CPI core (energy, food, alcohol & tobacco) slowed from 2.9% yoy to 2.7% yoy, above expectation of 2.6% yoy.

Looking at the main components of euro area inflation, services is expected to have the highest annual rate in April (3.7%, compared with 4.0% in March), followed by food, alcohol & tobacco (2.8%, compared with 2.6% in March), non-energy industrial goods (0.9%, compared with 1.1% in March) and energy (-0.6%, compared with -1.8% in March).

ECB's de Cos: Rate cut appropriate in June if inflation outlook maintained

ECB Governing Council member Pablo Hernandez de Cos highlighted that despite the positive trend in declining inflation rates, outlook is clouded by rising energy costs, persistent high inflation in the services sector, and ongoing geopolitical tensions.

He expected that inflation would continue to decrease in the upcoming quarters, albeit at a slower pace than previously observed due to certain upward base effects.

"The ECB's governing council considers that if this inflation outlook is maintained, it would be appropriate to start reducing the current level of monetary policy tightening in June."

Swiss KOF rises to 101.8, stable economy, no strong boost in sight

Swiss KOF Economic Barometer rose from 100.4 to 101.8 in April, slightly above expectation of 101.7. This rise positions the barometer in a range that is slightly above average, suggesting a stable yet unspectacular outlook for Switzerland's economy.

According to the KOF Economic Institute, "The Swiss economic development is robust, but there is currently no strong boost in sight."

Overall economic outlook appears to be improving across several key sectors including financial and insurance services, manufacturing, and private consumption. Conversely, outlook for construction and hospitality industries presents a less optimistic picture.

Japan's industrial production rises 3.8% mom in Mar, more growth ahead

Japan's industrial sector showed a robust rebound in March, with production rising by 3.8% mom, surpassing expectations of a 3.4% increase. This significant uptick represents a strong recovery from the previous month's -0.6% yoy decline.

Production of machinery, including semiconductor manufacturing equipment, jumped by 11.6% mom, while output in electronic parts and devices saw 9.2% mom increase.

According to manufacturers surveyed by Japan's Ministry of Industry, the up trend in industrial output is expected to continue, with projections of a 4.1% rise in April and a further 4.4% expansion in May.

Contrastingly, the retail sector did not fare as well. Retail sales in March increased by only 1.2% yoy, falling short of 2.2% yoy growth anticipated and marking a deceleration from February's robust 4.7% yoy increase. On a month-on-month basis, retail sales contracted -1.2%, reversing the 1.7% gain observed in February.

Australia's retail sales falls -0.4% mom in Mar amid cost of living pressures

Australia's retail sales fell -0.4% mom in March, well below expectation of 0.2% mom.

Ben Dorber, ABS head of retail statistics, highlighted the impact of cost of living pressures on consumer behavior.

He further noted the stagnation in the sector, stating, "Underlying retail turnover has been flat for the past six months and was up only 0.8 percent compared to March 2023."

This represents one of the weakest growth rates on record for this period, excluding the unique economic circumstances induced by the pandemic and the introduction of GST.

New Zealand ANZ business confidence plunges to 14.9 amid rising costs and weak demand

ANZ Business Confidence dropped notably from 22.9 to 14.9 in April. Own Activity Outlook similarly decreased from 22.5 to 14.3.

The survey highlighted escalating cost pressures as a primary concern for businesses. Cost expectations rose from 74.6 to 76.7, marking the highest level since last September. Conversely, wage expectations decreased from 80.5 to 75.5. Profit expectations also worsened, deepening from -3.8 to -9.8.

Pricing intentions, which indicate how businesses plan to adjust their selling prices, increased slightly from 45.1 to 46.9. Inflation expectations showed a marginal decrease from 3.80% to 3.76%.

ANZ analysts pointed to several factors contributing to this environment of cost-push inflation amidst weak demand. Rising oil prices due to escalating tensions in the Middle East, coupled with recent decline in New Zealand Dollar have increased the cost of imports significantly. Additionally, the recent increase in the minimum wage, effective from April 1, although smaller than previous years, has added another layer of cost for businesses.

China's NBS PMI manufacturing falls to 50.4, Caixin rises to 51.4

China's NBS PMI Manufacturing fell from 50.8 to 50.4 in April, matched expectations. NBS PMI Non-Manufacturing fell from 53.0 to 51.2, below expectation of 52.2. PMI Composite fell from 52.7 to 51.7.

The breakdown of the manufacturing PMI reveals challenges in solidifying demand, as the new orders subindex dropped to 51.1 from 53, and the new export orders fell to 50.6 from 51.3. Conversely, the production subindex showed modest improvement, rising to 52.9 from 52.2.

Senior NBS statistician Zhao Qinghe noted, "Though economic activities continued to expand, more manufacturers are facing higher costs." He highlighted specific industries such as automobiles and electrical machinery, where domestic and foreign market demands are reportedly strengthening.

In contrast, Caixin PMI, which focuses more on smaller, private manufacturing firms, presented a more optimistic view. Caixin Manufacturing PMI rose to 51.4 from 51.1, surpassing expectations of 51.0.

According to Wang Zhe, senior economist at Caixin Insight Group, "the manufacturing sector continued to improve, with accelerated expansion in supply and demand, sweetened by exceptional performance in overseas demand."

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9079; (P) 0.9116; (R1) 0.9143; More....

Intraday bias in USD/CHF remains neutral for the moment. On the upside, firm break of 0.9155 will resume the rally from 0.8332 and should target 0.9243 key resistance next. On the downside, break of 0.9085 will turn bias to the downside for deeper pullback.

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.

Economic Indicators Update

Canada's GDP grew 0.2% mom in February, below expectation of 0.3% mom. Services-producing industries (+0.2%) led the growth for a second month in a row. Goods-producing industries aggregate was essentially unchanged. Overall, 12 of 20 sectors increased in the month.

Advance information indicates that real GDP was essentially unchanged in March. That suggests the economy expanded 0.6% in the first quarter of 2024.

Full Canada GDP release here.

ECB Governing Council member Pablo Hernandez de Cos highlighted that despite the positive trend in declining inflation rates, outlook is clouded by rising energy costs, persistent high inflation in the services sector, and ongoing geopolitical tensions.

He expected that inflation would continue to decrease in the upcoming quarters, albeit at a slower pace than previously observed due to certain upward base effects.

"The ECB's governing council considers that if this inflation outlook is maintained, it would be appropriate to start reducing the current level of monetary policy tightening in June."

• Eurozone preliminary core CPI rate for April continued to inch lower at 2.7% y/y, its slowest pace of inflationary pressure since February 2022.
• 2-year and 10-year Eurozone sovereign bonds/US Treasuries yield spread discounts have continued to widen which supports a potential medium to long-term bearish trend on the EUR/USD.
• Watch the 1.0740 key short-term resistance on the EUR/USD ahead of the Fed’s monetary policy decision on 1 May.

Since its December 2023 high of 1.1140, the EUR/USD has traded lower in the past four months with an accumulated decline of -4.8% (-538 pips) and looks set to end this month of April with a negative footing, potentially a lower monthly closing level (traded at 1.0697 at this time of the writing below last month, March monthly closed level of 1.0790).

The key primary fundamental factor that is likely to determine the directional bias of the EUR/USD in the medium to long-term horizons is the path of inflationary trends in the Eurozone and the US which in turn dictates the monetary policy decisions and guidance of the two major developed nations central banks, the European Central Bank, and the US Federal Reserve.

Fundamentals are supporting a weaker EUR/USD in the medium to long-term horizon

Fig 1: Eurozone, US inflationary trends with yield spreads of Eurozone sovereign bonds /US Treasuries as of 30 Apr 2024 (Source: TradingView, click to enlarge chart)

In comparing inflationary trends, the pace of change is more important than the absolute change levels. In March, the Eurozone core CPI rate (excluding food and energy) stood at 2.9% y/y which is higher in absolute terms versus the US core CPI rate of 2.6% y/y recorded in March.

On closer inspection, the trend of the US core CPI rate has inched higher from its prior month of February from 2.4% y/y to 2.6% y/y. In contrast, the trend of the Eurozone core CPI continued to decelerate in the past three months; January (3.3% y/y), February (3.1% y/y), March (2.9% y/y), and it continued to inch lower in April with a preliminary reading of 2.7% y/y, Eurozone’s slowest pace of inflationary pressure since February 2022.

Therefore, the odds of the first ECB interest rate to come in June or July have been rising whereas else the highly anticipated Fed dovish pivot narrative at the start of the year has evaporated with the expected first Fed funds rate being pushed back continuously from March (at the start of the year) to now September (based in latest data from CME FedWatch tool as of 29 April 2024) due to a sticky and elevated inflationary trend in the US.

A less potentially less dovish Fed over its ECB counterpart can be expressed via the sentiment inferred from market-based transacted financial instruments through the yield spread of the Eurozone sovereign bonds and US Treasuries.

Both the 2-year and 10-year Eurozone sovereign bond/US Treasury yield spread discount has widened over the past year since April 2023; more pronounced on the 10-year where its discount spread has widened more by around 100 bps versus 70 bps seen on the 2-year discount spread.

The further widening trend of the 10-year Eurozone sovereign bond/US Treasury yield spread discount suggests the long-term inflationary and economic growth trends in the Eurozone are likely to be in a softer tone versus the US which in turn supports a weaker EUR over the US dollar.

EUR/USD continued to trade sideways in the short-term

Fig 2: EUR/USD minor trend as of 30 Apr 2024 (Source: TradingView, click to enlarge chart)

Since its recent bounce of +1.4% (152 pips) from its 17 April 2024 low of 1.0601, the EUR/USD has been trading in a minor sideways range configuration near its 20-day moving average acting as a first roadblock against the bulls in the past four sessions as market participants wait for the upcoming US Fed’s monetary policy decision on 1 May with the main focus on Fed Chair Powell’s press conference.

In the lens of technical analysis, watch the key short-term pivotal resistance at 1.0740 (close to the 20-day moving average) and a break below 1.0680 near-term support may trigger renewed weakness on the EUR/USD to expose the next intermediate supports at 1.0640 and 1.0600 in the first step.

On the flip side, a clearance above 1.0740 sees the potential continuation of the short-term corrective countertrend rebound for the next intermediate resistances to come in at 1.0800 (the 50-day & 200-day moving averages) and 1.0850 (also the upper boundary of the medium-term descending channel from 28 December 2023 swing high).

Market picture

The crypto market capitalisation decreased by another 1.5% to $2.27 trillion, getting closer and closer to the April lows just above $2.22 trillion. Contrary to expectations, after the halving, the pressure on the market increased, in full accordance with the adage “buy the rumour, sell the news”.

It seems that the strongest altcoins started to give up. Ethereum and Solana are both losing about 4% each in the last 24 hours – higher than most of the top altcoins.

Bitcoin is losing 1.5% to $61.6K, reversing sharply to the downside as active Asian trading begins. This reversal also coincides with downside resistance that has been in place since 8 April.

According to CoinShares data, crypto fund investments decreased $435M last week after outflows of $206M the week before; this is the third consecutive week of outflows. Bitcoin investments were down $423M, Ethereum investments were down $38M, and Solana investments were up $4M.

The bulk of the outflows (totalling $440M) came from Grayscale’s Bitcoin fund. At the same time, the inflow of funds to other bitcoin-ETFs fell sharply, while a wide range of altcoins saw an inflow of investments, CoinShares noted.

News background

The slowdown in inflows into bitcoin-ETFs may be short-lived before BTC resumes its rally toward $150,000, Bernstein expects. It’s a short-term pause before ETFs become more integrated with the platforms of private banks, wealth advisers and brokers.

A crypto analyst under the pseudonym TechDev said bitcoin, despite a temporary decline, is poised to repeat the parabolic rally of November 2020 and soar nearly 120 per cent.

Bloomberg reported on the possible approval of a spot bitcoin-ETF in Australia by the end of 2024. Australian pension funds with $2.3 trillion in assets may be interested in the product.

According to Visa, the USDC stablecoin has overtaken the segment leader, Tether’s USDT, in terms of the number of transactions per month. At the same time, USDT capitalisation is more than three times ahead of USDC.

The Japanese yen is lower on Tuesday. In the European session, USD/JPY is trading at 156.88, up 0.34%.

It has been a relatively quiet day for the yen after massive movement over the past two days. On Friday dollar-yen jumped 1.7% and broke above 158, but the real drama unfolded on Monday, when the yen went on a wild ride that saw it swing more than 550 basis points. The yen fell as low as 160.23 but then recovered and closed at 156.30, gaining 1.25% on the day.

Yen slips below 160 – was it invention?

What caused the huge spike? Japanese markets were closed on Monday and trading algorithms in thin liquidity could have accounted for the swing. Still, in the current environment of the yen losing ground fast, intervention by Tokyo was also suspected. Adding to the intrigue was the refusal of the Ministry of Finance (MoF) to comment whether it had intervened in the market. We won’t know for sure if the MoF did step in until next month, when details of any intervention will be released.

The MoF intervened in September and October 2022 in the order to prop up the yen, but the moves didn’t have a long-lasting effect and it’s questionable whether another intervention would be any different. Still, Tokyo doesn’t want to stand idly by as a plunging yen complicates its goal to achieve sustainable inflation.

The US/Japan rate differential remains wide and with the Fed signaling that it will delay rate hikes, the yen is unlikely to show much improvement without intervention. Investors will be on the alert for an intervention if the yen continues to lose ground.

USD/JPY Technical

• USD/JPY has pushed above resistance at 156.62 and 156.80. Above, there is resistance at 157.30
• There is support at 156.30 and 156.12

• AUDUSD comes under selling interest this week
• But stays within sideways range
• A break below 0.6485 may turn the outlook bearish
• For the picture to brighten, a move above 0.6615 may be needed

AUDUSD was sold this week, after the bulls struggled to overcome the 0.6575 barrier.  In the bigger picture, the pair is trading back within the sideways range that has been containing most of the price action since mid-January and thus, the outlook remains neutral.

The MACD lies well above zero, but it has already crossed below its trigger line and is pointing down, while the RSI has slid and seems ready to challenge its equilibrium barrier of 50. Both indicators detect weakening upside momentum, which means that more bears may jump into the action soon.

That said, for the outlook to turn back bearish, AUDUSD may need to clearly break below 0.6485, the lower boundary of the aforementioned sideways range. Such a dip may initially pave the way towards the 0.6440 zone, marked by the low of April 23, the break of which could carry extensions towards the 0.6390 territory, defined as support by the low of April 16.

On the upside, a break above 0.6615, the upper end of the range, is likely to be needed for the picture to brighten. If the bulls are strong enough to accomplish that, they may find immediate resistance at 0.6645, where another break could open the path towards the 0.6780 zone, which acted as a ceiling between January 4 and 12.

To sum up, AUDUSD came under pressure lately, but it remains within the neutral sideways range between 0.6485 and 0.6615. For the outlook to change, traders may need to take the pair out of that range.

Eurozone GDP grew 0.3% qoq, 0.4% yoy in Q1, better than expectation of 0.1% qoq, 0.2% yoy. EU GDP grew 0.3% qoq, 0.5% yoy.

Among the Member States for which data are available, Ireland (+1.1%) recorded the highest increase compared to the previous quarter, followed by Latvia, Lithuania and Hungary (all +0.8%). Sweden (-0.1%) was the only Member State that recorded a decrease. The year on year growth rates were positive for nine countries and negative for four.

Full Eurozone GDP release here.