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USD/CHF edged higher to 0.9151 last week but turned sideway since then. Initial bias stays neutral this week for more consolidations. But further rally is expected as long as 0.8996 support holds. Break of 0.9151 will resume the larger rise from 0.8332 to 0.9243 resistance. However, firm break of 0.8996 will turn bias to the downside for 55 D EMA (now at 0.8932).

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 0.8728 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.

In the long term picture, price action from 0.7065 (2011 high) are seen as a corrective pattern to the multi-decade down trend from 1.8305 (2000 high). Strong rebound from 61.8% retracement of 0.7065 to 1.0342 (2016 high) will start the third leg as a medium term rally. But there will be no sign of long term reversal until firm break of 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

AUD/USD fell to as low as 0.6361 last week as down trend resumed, but recovered since then. Initial bias is turned neutral this week for consolidations first. Upside should be limited by 0.6480 support turned resistance to bring another decline. Break of 0.6361 will resume the fall from 0.6870 to 100% projection of 0.6870 to 0.6442 from 0.6643 at 0.6215.

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.

In the long term picture, the down trend from 1.1079 (2011 high) should have completed at 0.5506 (2020 low) already. It's unsure yet whether price actions from 0.5506 are developing into a corrective pattern, or trend reversal. But in either case, fall from 0.8006 is seen the second leg of the pattern. Hence, in case of deeper decline, strong support should emerge above 0.5506 to bring reversal.

USD/CAD edged higher to 1.3845 last week but retreated since then. Initial bias remains neutral this week and more consolidations could be seen. Downside should be contained by 1.3660 support to bring another rally. On the upside, firm break of 1.3845 will resume the whole rally from 1.3716 to 1.3976 key resistance.

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 the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern, which might have completed at 1.2005. That is, up trend from 0.9506 (2007 low) is expected to resume at a later stage. This will remain the favored case as long as 1.2947 resistance turned support holds.

Range trading continued in GBP/JPY last week and outlook is unchanged. Initial bias remains neutral this week and consolidations from 193.51 could extend. On the upside, firm break of 193.51 will resume larger up trend to 195.86 long term resistance. Nevertheless, decisive break of 190.02 will indicate that it's at least correcting the rise from 178.32, and target 38.2% retracement of 178.32 to 193.51 at 187.70.

In the bigger picture, current rally is part of the up trend from 123.94 (2020 low), and is in progress for 195.86 long term resistance (2015 high). Break of 187.94 support is needed to be the first sign of medium term topping. Otherwise, outlook will remain bullish in case of retreat.

In the longer term picture, rise from 122.75 (2016 low) is seen as the third leg of the pattern from 116.83 (2011 low). Further rally will remain in favor as long as 178.32 support holds. Break of 195.86 (2015 high) is possible. But strong resistance could be seen from 61.8% retracement of 251.09 (2007 high) to 116.83 at 199.80 to limit upside, at least on first attempt.

Range trading continued in EUR/JPY last week and overall outlook is unchanged. Initial bias remains neutral this week as consolidation pattern from 165.33 could still extend. . On the upside, firm break of 165.33 will resume larger up trend towards 169.96 key resistance next. However, decisive break of 162.59 will argue that it's at least correcting the rise from 153.15, and target 38.2% retracement of 153.15 to 165.33 at 160.67.

In the bigger picture, current rally is part of the up trend from 114.42 (2020 low), which is still in progress. Next target is 169.96 (2008 high). Break of 160.20 support is needed to be the first sign of medium term topping. Otherwise, outlook will stay bullish in case of retreat.

In the long term picture, rise from 114.42 (2020 low) is seen as the third leg of the whole up trend from 94.11 (2012 low). Next target is 100% projection of 94.11 to 149.76 from 114.42 at 170.07 which is close to 169.96 (2008 high). This will remain the favored case as long as 153.15 support holds.

EUR/GBP rose strongly late last week and broke through 0.8601 resistance. The development argues that fall from 0.8764 has probably completed. Initial bias is now on the upside this week for medium term trend line resistance (now at 0.8650). On the downside, below 0.8571 minor resistance will turn intraday bias neutral again first.

In the bigger picture, outlook is mixed up by current strong rebound. On the upside, sustained break of the trend medium term trend resistance will argue that the down trend from 0.9267 (2022 high) has completed as a triangle pattern. Further rise should then be seen through 0.8764 resistance next. However, rejection by the trend line will retain medium term bearishness for another fall through 0.8491 at a later stage.

In the long term picture, price action from 0.9499 (2020 high) is seen as part of the long term range pattern from 0.9799 (2008 high). Range trading should continue between 0.8201 and 0.9499, until there is clear signal of imminent breakout.

EUR/AUD's strong rebound from 1.6368 extended higher last week and the development argues that fall from 1.6742 has completed with three waves down to 1.6368. Initial bias stays on the upside this week for retesting 1.6742 next. On the downside, however, break of 1.6534 will turn bias back to the downside for retesting 1.6368 support instead.

In the bigger picture, fall from 1.7062 medium term top is seen as a correction to the up trend from 1.4281 (2022 low). In case of another fall, strong support is expected around 1.5846 and 38.2% retracement of 1.4281 to 1.7062 at 1.6000 to bring rebound. Break of 1.7062 is in favor as a later stage.

In the longer term picture, price actions from 1.9799 (2020 high) are seen as a long term decline at the same scale as the rise from 1.1602 (2012 low). Rebound from 1.4281 is seen as the second leg. As long as 55 M EMA (now at 1.5950) holds, this second leg could still extend higher. However, sustained trading below 55 M EMA will open up the bearish case for extending the decline through 1.4281 low.

EUR/CHF's correction from 0.9847 extended to as low as 0.9563 last week but quickly recovered. Initial bias is turned neutral this week first. On the upside, break of 0.9721 resistance will argue that the correction has completed already, and turn intraday bias back to the upside for retesting 0.9847. However, break of 0.9563 will bring deeper fall to 61.8% retracement of 0.9252 to 0.9847 at 0.9479.

In the bigger picture, while 55 D EMA (now at 0.9644) was breached, EUR/CHF rebounded strongly since then. Rise from 0.9252 medium term bottom should still be in progress. Break of 0.9847 will target 38.2% retracement of 1.2004 (2018 high) to 0.9252 (2023 low) at 1.0303, even as a correction to the down trend from 1.2004. however, sustained trading below 55 D EMA will argue that the rebound has completed.

In the long term picture, fall from 1.2004 (2018 high) is part of the multi-decade down trend. Firm break of 1.0095 resistance is needed to be the first sign of long term bottoming. Otherwise, outlook will remain bearish.

Monday, Apr 22, 2024

Tuesday, Apr 23, 2024

Wednesday, Apr 24, 2024

Thursday, Apr 25, 2024

Friday, Apr 26, 2024

U.S. Highlights

• U.S. headline retail sales beat expectations in March, advancing for a second consecutive month. The strong showing bolstered the case for a delayed start to the Fed’s interest rate cutting cycle.
• Comments from senior Federal Reserve officials has the timing of possible interest rate cuts in question amid signs of persistent strength in the U.S. economy and higher-than-anticipated inflation.
• In contrast, the housing market continues to feel the weight of higher interest rates as housing starts and home sales dipped in March.

Canadian Highlights

• The federal government took the stage this week as it presented a beefed-up budget, with a focus on addressing housing affordability.
• Canadian CPI inflation also made headlines with an encouraging print, which saw core inflation rates move further towards the Bank of Canada’s (BoC) target.
• Market expectations for the first BoC interest rate cut continued to solidify around June or July, increasing the probability that it will move ahead of the Fed.

U.S. – Dialing Back Expectations

This week featured releases on retail sales and the housing market in March. Also high on the market’s radar were comments made by the Federal Reserve Chair, which suggested the central bank may be changing its tune on the path and timing of interest rate cuts. Overall, markets responded strongly to the new information with stocks heading lower and treasury yields rising (10 year yields were up 9 basis points at time of writing) as investors recalibrated their expectations for rate cuts this year.

A stronger-than-expected gain in retail sales in March reinforced that the U.S. economy is still strong, and is expected to lead growth among developed countries this year, according to recent IMF projections. Headline retail sales rose for a second consecutive month in March, after a string of monthly declines, with sales in the key control group acting as a driver (Chart 1). Given the soft start to the year, March’s increase just managed to lift the quarter into positive territory (up 0.2% q/q annualized). The notable uptick also represents an upside risk to our own forecast for 2024 Q1 consumer spending, and doesn’t help the Fed in its goal of taming price growth.

On Tuesday, the Federal Reserve Chairman and the Vice Chair at two separate events both signaled that the central bank may be changing its tune. While policymakers started the year anticipating that they would commence the rate cutting cycle soon, hotter-than-expected inflation has shifted that calculus. In a prepared remark, Vice Chair Jefferson noted that interest rates could remain at their current restrictive level for longer if inflation persisted. Later, Fed Chair Powell echoed that sentiment. He noted that excluding a sudden economic slowdown, interest rates would need to stay restrictive for longer. The Fed Chair’s new tone is essentially one of dialing back expectations as markets had aggressively priced in numerous cuts this year. Investors on average are now expecting one and two cuts.

Higher rates are having a measurable effect on the housing market as data on existing home sales and housing starts and permits all declined in March. Both housing starts and building permits retrenched in March. In another release, existing home sales fell 4.3% m/m in March – the largest decline in over a year. While the measure managed to post a gain for the first quarter as a whole, relative to the subdued levels in 2023 Q4, the prospect of higher for longer interest rates are likely to see these gains pared back in the future. In fact, this week, the average rate on a 30-year fixed rate mortgage climbed above 7% for the first time this year and is likely to weigh on housing activity going forward (Chart 2).

Given recent readings on inflation and retail spending, and FOMC members comments acknowledging that rates will likely need to remain restrictive for longer, next week’s consumer spending and income data for March are highly anticipated. In particular, the Fed’s preferred inflation metric – the core PCE deflator – will be very closely watched to see how much of the recent hot CPI inflation carries over to PCE.

Canada – Another Big Budget for the Liberals

The federal government took the stage this week as it presented a beefed-up budget full of new spending promises. The government was applauded for making strides to address the country’s housing shortage but is also taking heat for hiking taxes via a new capital gains inclusion rate. Canadian CPI inflation made headlines too, with an encouraging print that reinforced bets the Bank of Canada (BoC) would initiate its first cut in June or July.

The Liberal government spent the better part of the last few weeks touring the country marketing its housing plan, which was fully unveiled in Budget 2024. This is one of the biggest pieces of housing policy Canada has ever seen, which aims to build nearly 4 million new homes by 2031. Encouragingly, there are also a host of policies to ramp-up rental supply, which has been stretched thin due to the government’s failure to control the rapid growth of Canada’s population. While the government is moving in the right direction, achieving its ambitious goals will be a challenge. Canada is currently on track to build just under 2 million homes over the next eight years, so doubling that will be a tall order for a construction sector that is already bumping up against capacity constraints.

The budget wasn’t just about building new homes. The government announced $53 billion in new spending, with just 16% of that dedicated to housing. Indeed, there were over two hundred new policy items in the budget. There was spending on defence, pharmacare, a disability benefit, money for AI investment, an EV supply chain investment credit, and money aimed towards indigenous reconciliation. This continues a trend where the Liberal government attempts to fill as many gaps as it can through increased spending. Recall that the BoC has previously called out the government’s spending ways for contributing to Canadian inflation.

Speaking of inflation, it is not often that a Canadian CPI inflation report takes a backseat, but that’s what happened this week. Importantly, the average of the BoC’s core inflation measures came in at 3.0% year-on-year (down a tenth). On a three-month basis these are averaging just above one percent – a signal that the annual numbers will continue to decelerate in the coming months. This goes to the argument that we have been making for quite some time. That the slowdown in the Canadian economy has set the foundation for lower inflation. We are seeing this play out.

Has the BoC seen enough to cut rates? While we think the inflation evidence is clear, the central bank is taking a patient approach. While economic growth has been weak, the bottom hasn’t fallen out of the economy. This has afforded the Bank extra time to wait-out inflation, ensuring that the recent move is more durable. Notably, markets believe the moment is quickly approaching, with bets narrowing in on the June/July announcement dates. Interestingly, this also means that the BoC is expected to make its move well ahead of the Fed. The loonie has consequently reached it’s lowest level since late 2023 against the greenback.