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

Outlook in EUR/USD is unchanged and intraday bias stays neutral. 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 stays mildly on the upside for the moment. Rebound from 1.2298 short term bottom would target 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) 0.9079; (P) 0.9116; (R1) 0.9143; More....

USD/CHF is staying in sideway consolidations and intraday bias remains neutral. On the upside, firm break of 0.9151 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.

Daily Pivots: (S1) 153.91; (P) 156.95; (R1) 159.37; More...

Intraday bias in USD/JPY stays neutral for the moment. Consolidation from 160.20 short term top is extending. 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) 1.3636; (P) 1.3657; (R1) 1.3683; More...

Intraday bias in USD/CAD is turned neutral with current recovery. On the downside, below 1.3631 will resume the fall from 1.3845 short term top to 55 D EMA (now at 1.3600). On the upside, above 1.3730 minor resistance will turn bias back to the upside for retesting 1.3845 instead.

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.

In focus today

Today, focus is on euro area inflation for April. Inflation has declined significantly in recent months but the underlying momentum in service inflation has picked up. We expect inflation will remain unchanged at 2.4% y/y due to food inflation and rising energy inflation while core inflation should decline to 2.6% y/y. This call is further supported by the fact German and Spanish inflation both came in aligned with expectations yesterday (read more on this below).

The most important thing to look out for is service inflation which has gained momentum recently and remains sticky on the back of recent wage increases. We expect to still see strong momentum in service prices for April, but given how Easter spanned both March and April, we will now be able to see the momentum more clearly without the influence of Easter in the seasonal adjustments. This will be very important for the rates outlook for the ECB as recent communication has suggested that the ECB is worried about the strong domestic inflation.

Today, we also get the first GDP release for the euro area for Q1 2024. We expect that the economy grew 0.2% q/q driven by the service sector while the manufacturing sector declined slightly as indicated by industrial production data and PMIs. The German Bundesbank estimated GDP grew 0.1% q/q in the first quarter so the aggregate euro area print will likely be higher than that.

From the US, Q1 Employment Cost Index is due for release. The recent annual growth pace of around 4% remains uncomfortably high for the Fed, but recent declines in hiring and job openings indicators could point towards some moderation in today's release.

Economic and market news

What happened overnight

In Japan, markets reopened after a bank holiday on Monday. As of this morning the yen has been trading around 156.80, after reaching a 34-year low yesterday morning crossing 160 against the dollar (USDJPY). The yen rose sharply in the early hours of the Asian afternoon, with the USDJPY cross suddenly reverting to around 155 in less than one hour, fuelling suspicion Japanese authorities had intervened. Sources had told the Financial Times that Japanese Ministry of Finance officials had been told to stand by yesterday, and not take the day off. The Wall Street Journal later said sources had said Japanese authorities had intervened. Speaking to Reuters, the top foreign exchange diplomat in Japan, Masato Kanda, refused to comment on whether authorities had intervened. He merely stated that they were always ready to deal with foreign exchange matters.

In China, the Caixin PMI rose to 51.4 in April up from 51.1 in March. The numbers thus indicate that the Chinese manufacturing activity expanded at the fastest pace seen in 14 months. The expansion was driven especially by new export orders as they expanded at the fastest rate seen in three and a half year. The PMI reading is thus in alignment with the Q1 GDP growth numbers which earlier this month beat forecasts coming in at 5.3% y/y.

The official PMIs out of China showed a somewhat muddier picture dropping to 51.7 from 52.7 in March. This drop was mainly driven by the services PMIs which fell to 51.2 in April compared to 53.0 in March, undershooting expectations of 52.3. This reflects continued weak private demand. As for the manufacturing PMI it came out above at 50.4 above consensus expectations, albeit falling from 50.8 in March.
What happened yesterday

In Germany and Spain, inflation numbers came in as expected. German headline CPI stood at 2.2% y/y, whereas core CPI came in at 3.0% y/y (prior 3.3% y/y). As for Spanish inflation, CPI stood at 3.2% y/y, and core CPI came to 2.9% (prior 3.2% y/y). With both German and Spanish core inflation declining 0.3pp we are on track for the same decline today in euro area core inflation to 2.6% y/y from 2.9% y/y as we and consensus both expected. The same goes for the expectation of an unchanged headline inflation at 2.4% y/y in April.

In Sweden, GDP figures for the first quarter came in below expectations, as monthly activity figures for January and February both saw large downward revisions. The Q1 GDP figure thus stood at -0.1% q/q (-1.1% y/y). This is roughly aligned with the Riksbank forecast of -0.2% q/q.

In the Middle East, the US and the UK both encouraged Hamas to accept a truce proposal from Israel. US Secretary of State Anthony Blinken said that it was now only Hamas who stood in the way of peace, as well as the release of the remaining Israeli hostages.

Market Movements

Equities: Global equities rose yesterday, despite a marginal downturn in Europe. The positive tone was primarily driven by mega-cap news and earnings. Notably, in the U.S, consumer discretionary outperformed communication services by nearly 5%. The VIX index declined further below the 15 level, and various volatility measures have also lowered over the past week, reducing the risk of volatility-driven funds, such as risk parity, being forced to sell risky assets, particularly equities. Yesterday in the U.S., the Dow was up by 0.4%, S&P 500 by 0.3%, Nasdaq by 0.4%, and Russell 2000 by 0.7%. Asian markets are generally higher this morning, with Japan improving after yesterday's close and China's mainland shares lagging. Futures in Europe and the U.S. are mixed this morning.

FI: Global yields retraced, reversing part of the sell-off on Friday. Initially French bonds caught a bid as it was not put on negative watch on Friday, which lead to a spread tightening of 2bp to Germany in the 10y point by the end of the day. The lack of outlook change supported semi-core European bonds in general. 10y German bund yields dropped 4bp to 2.53% yesterday. European inflation data was overall balanced and do not seem to change the outlook for the June rate cut. We are looking for an EA flash inflation at 2.4% (unchanged from March) and core at 2.6% (from 2.9% in March) when released today. We also get the advance GDP figure.

FX: Extreme fluctuations in USD/JPY persisted as a central focus in the FX market yesterday. FX intervention appeared to successfully arrest the rally that initiated last week. EUR/USD, EUR/SEK, and EUR/NOK remained stable, reflecting the general market's cautious stance ahead of tomorrow's FOMC meeting.

Tesla stole the light with a 15% jump on Monday after Elon Musk’s surprise visit to China resulted in a partnership with Baidu’s maps and navigation futures that cleared the way for Tesla’s full-self driving cars in China. In just a week, Tesla went from the least Magnificent of the Magnificent 7 companies to one that gives hope, again. The stock is up by 40% since last Monday’s dip, and the moves are based on new plans and projects that look to be exciting investors again. Cherry on top: the Chinese company BYD, which had recently claimed the title of the world's largest car seller, also missed profit estimates in Q1 as aggressive price cuts weighed on revenue growth. Aggressive EV price war could soon slow and push companies to seek new ways to differentiate themselves, and that’s what Elon Musk is busy doing right now.

Fed starts 2-day meeting

The S&P500 advanced 0.32% while Nasdaq 100 gained 0.36% as the US 2-year yield remained a touch below the 5% level. The Federal Reserve (Fed) starts its two-day policy meeting today and deliver its latest policy verdict tomorrow. We are preparing to hear Jerome Powell ask for more patience and for more time to abate inflation. If that’s the case, we could see a further meltdown in Fed rate cut expectations. The next stop is no rate cut in 2024, which would be a cold shower for the bulls.

Earnings season goes well

Happily, the earnings season is going well. The latest stats suggest that over 80% of the S&P500 companies that have reported earnings so far beat expectations. Magnificent 7 companies have mostly lived up to high expectations as well. A part from Tesla, all the Big Tech companies announced better-than-expected results – although not all of them saw their stock prices react positively to the earnings.

All in all, the Q1 earnings are set to print a 4.7% EPS growth versus 3.8% estimated at the start of the earnings season, and the second quarter earnings are projected to grow 9.7% - up from 9.5% projected earlier. And more importantly, the expectations don’t only improve for the Big Tech, but across many sectors hinting that the Big Tech rally could eventually broaden to the rest of the S&P500 sectors and keep the rally going. One major risk to that positive outlook is the Fed. If the Fed expectations turn undesirably hawkish, we could see the equity rally stall. That’s why the better-than-expected earnings see muted or unexpected market reaction.

Speaking of earnings, NXP jumped 6% in the afterhours trading after announcing better-than-expected Q1 earnings and strong Q2 guidance. Amazon is due to report its results today. AWS is certainly continued to fuel profits, but strong results may not satisfy tech investors if not accompanied by stock buybacks & dividends to prop up short-term appetite in the present high-yield environment.

Intervention talk

Monday’s session was spiced up with a rapid surge in the USDJPY – that hit the 160 before rebounding as strongly back – fueling speculation that the Japanese officials certainly intervened to stop the bleeding. The officials didn’t confirm an intervention because it doesn’t matter as long as intervention or the fear of it pushes the yen shorts out of the market. What matters is how the BoJ will prevent the yen shorts from staying away from the market, given that their relatively accommodative policy stance justifies further depreciation of the yen. The USD/JPY pair is now trading near the 156-157 area.

The euro bulls are struggling near the 1.07 level against the US dollar as Spanish and German inflation figures came in – mostly – softer than expected but with the fear of seeing the slowdown fade as governments remove support that had slowed rises in energy prices over the past year. Due today, core inflation in the Eurozone is expected to print a further retreat from 2.9% to 2.6% in April along with a slight improvement in GDP growth. If we don’t see a major surprise in data, the expectation that the European Central Bank (ECB) will opt for the first rate cut in June will remain intact, yet what will happen after the June meeting remains uncertain and will depend on whether inflation in Europe shows signs of heating up, and if yes, how badly.

This week, though , the Fed sentiment will likely outweigh the ECB expectations, and given the recent developments on the US inflation front, a dollar appreciation wouldn’t be a surprise.

Elsewhere, the Chinese manufacturing PMI hit a 14-month high while services PMI dropped to a 3-month low. US crude fell below $83pb on hope of ceasefire in Gaza, and cocoa futures tanked 15% on higher margin calls and forced liquidations in the continuation of a selloff that started last Thursday on news that Nigeria, which is the world’s fifth biggest cocoa producer, said that its exports rose nearly 20% in March. Hallelujah!

Daily Pivots: (S1) 0.6532; (P) 0.6559; (R1) 0.6594; More...

Intraday bias in AUD/USD is turned neutral first with current retreat. Another rise is mildly in favor as long as 0.6482 support holds. Fall from 0.6870 might have completed at 0.6361 already Above 0.6585 will target 0.6643 resistance next. However, firm break of 0.6482 will dampen this view and bring retest of 0.6361 low instead.

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.

Australian Dollar weakened across the board in Asian session, dragged down by unexpectedly poor retail sales data for March. The contraction in sales is a reminder to RBA about the ongoing impact of cost of living pressures exacerbated by higher interest rates and inflation. This challenging economic backdrop is likely to make RBA more cautious about any further rate hikes, which would place additional financial strains on consumers.

Concurrently, the economic outlook from China presents a mixed picture. While manufacturing data showed some resilience, disappointing services sector performance is casting doubts on the momentum of China's economic recovery. This uncertainty in China's economic conditions is holding back Aussie bulls from adding to their long positions.

Meanwhile, Japanese Yen also weakened slightly as yesterday's rebound faded. Japan's chief currency diplomat, Masato Kanda, has yet to confirm any official intervention in the currency markets. Though he noted the authorities' readiness to address foreign exchange issues around the clock, whether it's London, New York or Wellington hours. At same time, Nikkei index is having a robust rebound as it resumed trading post-holiday, arguing that investors are embracing stabilization in Yen's selloff.

On the other hand, Dollar is recovering broadly, while Swiss Franc is strengthening slightly too. Euro is also mildly on the firmer side while Sterling and Canadian are positioning in the middle. Lots of market moving economic data are featured today, with most focuses on Eurozone GDP and CPI flash, Canada's GDP, and US consumer confidence.

Technically, Gold's recovery lost momentum after meeting resistance from 55 4H EMA. Immediate focus is now on 2319.74 minor support. Firm break there will argue that the corrective fall from 2431.27 is ready to resume through 2291.15, and target 38.2% retracement of 1984.05 to 2431.27 at 2260.43.

In Asia, at the time o f writing, Nikkei is up 1.05%. Hong Kong HSI is down -0.03%. China Shanghai SSE is down -0.23%. Singapore Strait Times is up 0.25%. Japan 10-year JGB yield is down -0.054 at 0.874. Overnight, DOW rose 0.38%. S&P 500 rose 0.32%. NASDAQ rose 0.35%. 10-year yield fell -0.055 to 4.614.

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."

Looking ahead

Eurozone CPI flash and GDP preliminary are the mian focuses in Europeansession. France conumser spending and GDP, Germany import prices, retail sales, unemployment and GDP will also be featured. Swiss will publish KOF economic barometer.

Later in the day, Canada GDP is the main focus. US wil release employment cost index, house price index, Chicago PMI and consumer confidence.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6532; (P) 0.6559; (R1) 0.6594; More...

Intraday bias in AUD/USD is turned neutral first with current retreat. Another rise is mildly in favor as long as 0.6482 support holds. Fall from 0.6870 might have completed at 0.6361 already Above 0.6585 will target 0.6643 resistance next. However, firm break of 0.6482 will dampen this view and bring retest of 0.6361 low instead.

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.

Economic Indicators Update

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."

Full China Caixin PMI manufacturing release here.