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The Australian dollar is steady on Thursday. In the European session, AUD/USD is trading at 0.6442, up 0.12%.

Australia’s employment declines

Australia’s job growth hit the breaks in March and fell by 6,600. This missed the market estimate of a gain of 7,700 and follows a blowout gain of 116,500 in February. Still, the drop was not all that concerning as full time employment increased by 27,900 (part-time roles fell by 34,500). The unemployment rate ticked higher to 3.8%, up from 3.7% in March.

Although the job numbers were not flattering, the labor market remains tight. An unemployment level below 4% is close to capacity and the participation rate of 66.6% is indicative of a healthy labor market. The labour market is, however, expected to cool down as elevated interest rates continue to filter through the economy.

The Reserve Bank of Australia meets next month and will provide quarterly updates of its economic forecasts. The central bank will base its rate decision on the strength of the data and today’s employment report will support the RBA continuing to remain patient before cutting rates. Next week brings CPI for the first quarter, which is expected to fall to 3.4%, down from 4.1% in Q4 2023. If inflation does drop significantly, the RBA will be under increased pressure to lower rates.

In the US, the Federal Reserve is watching inflation move the wrong way, and that has alarm bells ringing. Fed Chair Powell said this week that higher-than-expected inflation readings meant that rate cuts would have to wait until the inflation picture improved.

The robust US economy and high inflation has put under question whether the Fed will be able to lower rates this year. The markets have slashed expectations for rate cuts but a September cut remains a strong possibility, with a 69% probability, according to the CME FedWatch tool.

AUD/USD Technical

• AUD/USD continues to test resistance at 0.6437. Above, there is resistance at 0.6472
• 0.6413 and 0.6378 are the next support levels

During a European Parliament hearing today, ECB Vice President Luis de Guindos stated that ECB has been "crystal clear" on its conditional guidance regarding interest rate cut.

"If things continue as they have been evolving lately, in June we'll be ready to reduce the restriction of our monetary policy stance," he said.

While financial markets anticipate a total of 75bps in rate cuts for the year, de Guindos remained non-committal about specific future rate levels.

He pointed out several risks to inflation outlook, including wage dynamics, productivity, unit labor costs, profit margins, and geopolitical tensions.

• WTI oil futures complete bearish triangle pattern after Wednesday’s drop
• Bullish pressures could still resurface as long as the price holds above 81.50

WTI oil futures tumbled by 2.8% to 82.84 on Wednesday, experiencing one of their biggest daily losses so far this year after a short-period of consolidation.

The price slid below the key support of 84.14 and the 20-day exponential moving average (EMA), dissolving a descending triangle to the downside. This is usually a bearish chart pattern, indicating a potential trend reversal. In other discouraging signals, the negative slope in the RSI and the falling MACD are backing the ongoing selling appetite in the market.

Yet, with the stochastic oscillator entering the oversold territory below 20, selling pressures could prove short-lived, particularly if the nearby constraining line from the pandemic lows and the 50-day EMA halt the decline within the 81.50-82.00 area.

In the event the bears dominate below 81.50, they could head for the previous low of 80.30. Falling lower, the price might initially take a breather around the 200-day EMA at 79.00 before stretching towards the critical support trendline seen at 77.00. A decisive close below the latter might attract greater attention, as such a correction would violate the 2024 upward pattern, bringing the 61.8% Fibonacci of 75.21 next into view.

In the bullish scenario, the price bounces back above the 23.6% Fibonacci of 82.45, it could initially retest triangle's boundaries within the 84.14-84.86 area. The resistance line drawn from December could be the next target near 86.60. If the bulls claim that bar this time, the rally could pick up steam towards the 89.20-90.00 zone.

In short, it appears that there is a resurgence of selling interest in WTI oil futures. Nevertheless, traders would like a confirmation below 81.50 to target lower levels.

WTI oil price dips further in early Thursday, in extension of previous day’s 3% drop (the second biggest daily loss in 2024) and hit new three-week low.

Stronger than expected rise in US crude inventories (EIA report) further raised concerns about oil demand, while fears about escalation of the conflict in the Middle East faded, pushing the price sharply lower.

Initial reversal signal is developing on daily chart, as price broke below daily Tenkan-sen and Kijun-sen lines, pressuring pivotal Fibo support at $81.42 (38.2% of $71.40/$87.61 upleg), violation of which to risk extension towards key supports at $80 zone (psychological / converged 55/200 DMA’s).

Weakening daily studies (10/20DMA’s turned to bearish setup and 14-d momentum broke into negative territory) support the action however, bears may face headwinds en-route to $81.42 target on oversold conditions.

Upticks should be capped under $84.00 resistance zone (broken Fibo 23.6% / 20DMA) to keep fresh bears in play for possible deeper correction.

Fundamentals are likely to remain oil’s key driver and markets will continue to focus on demand and the situation in the Middle East.

Res: 82.77; 83.10; 83.78; 84.15.
Sup: 81.42; 80.80; 80.80; 79.50.

Daily Pivots: (S1) 191.70; (P) 192.27; (R1) 192.86; More..

Range trading continues in GBP/JPY and intraday bias stays neutral. On the upside, break of 193.51 will resume larger up trend to 195.86 long term resistance. Nevertheless, decisive break of 189.97 support 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.

Daily Pivots: (S1) 164.20; (P) 164.51; (R1) 165.08; More...

Intraday bias in EUR/JPY stays neutral for the moment. On the upside, firm break of 165.33 will resume larger up trend towards 169.96 key resistance next. However, decisive break of 162.26 support 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.

Daily Pivots: (S1) 0.8536; (P) 0.8554; (R1) 0.8587; More...

EUR/GBP dipped to 0.8519 but quickly recovered. Intraday bias remains neutral first. On the downside, firm break of 0.8529 support will argue that the corrective recovery from 0.8497 has completed at 0.8601. Intraday bias will be back on the downside for retesting 0.8497 low next. On the upside, break of 0.8601 will resume the rebound instead.

In the bigger picture, there is no clear sign that down trend from 0.9267 has completed, despite loss of downside momentum as seen in D MACD. As long as 0.8601 resistance holds, the down trend will remain in favor to resume through 0.8491 low at la later stage.

Daily Pivots: (S1) 1.6548; (P) 1.6574; (R1) 1.6612; More...

Intraday bias in EUR/AUD is turned neutral with current retreat and some consolidations would be seen. Further rally is mildly in favor. Above 1.6616 will resume the rebound form 1.6368 to 1.6677 resistance next. Break there will confirm that correction from 1.6742 has completed, and bring further rally through this high. However, sustained break of 55 4H EMA (now at 1.6500) will bring turn bias back to the downside for 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). The correction is probably still in progress with fall from 1.6742 as the third leg. Strong support is expected around 1.5846 and 38.2% retracement of 1.4281 to 1.7062 at 1.6000 to bring rebound.

Daily Pivots: (S1) 0.9692; (P) 0.9706; (R1) 0.9736; More...

Intraday bias in EUR/CHF is turned neutral first with current recovery. While correction from 0.9847 could extend lower, downside should be contained by 38.2% retracement of 0.9252 to 0.9847 at 0.9620 to bring rebound. On the upside, above 0.9745 minor resistance will turn bias back to the upside for retesting 0.9847.

In the bigger picture, a medium term bottom should be in place at 0.9252 already, on bullish convergence condition in W MACD. Rise from there now 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. This will remain the favored case as long as 55 D EMA (now at 0.9639) holds.

Markets

In a session deprived of key data, yields and the USD yesterday faced a correction on recent rise. Markets concluded that, without new data evidence on strong US demand or sticky inflation, enough Fed rate cut delay is discounted. A decline in oil prices (high US stockpiles) also supported core bonds. US yields dropped between 5.5 bps (2-y) and 8.6 bps (5-y). The Fed Beige Book preparing the May Fed meeting reported slight or modest growth in most districts. Also job growth was labeled very slow to modest. Price increases were seen at a similar pace compared to March. Contacts still saw some upside risks to the near term inflation development. Bunds underperformed Treasuries. The 2-y yield rose slightly (+0.8 bp) while the 30y yield shed 2.8 bps. Several ECB members including Centeno, Cipollone, Lagarde and Holzmann commented on monetary policy. From Holzmann, we retain he admits that the inflation situation in Europe is different from the US. At the same time he suggested that ECB moving ahead of the Fed makes rate cuts less effective. Lagarde also stressed the different nature of EMU inflation compared to the US. She also indicated that the ECB will monitor the impact of FX on inflation. The correction in US yields annex decline in oil prices, wasn’t enough to propel equities (Nasdaq 1.15%). US and EMU indices are captured in a sell-on-upticks correction. The dollar also returned part of recent gains. EUR/USD jumped from the 1.061 area to close at 1.0673. UK inflation data (easing slightly less than expected) only had a temporary impact on UK markets. Later, BoE governor Bailey also assessed that the nature of inflation in Europe (and the UK) is different from demand driving inflation in the US. He expects headline inflation to return to 2.0% soon even as core/service inflation stays elevated. A different nature in inflation at some point might allow the BoE start cutting rates before the Fed. Sterling reversed a small gain post the CPI data. EUR/GBP closed at 0.857 (from 0.8645).

Asian markets this morning are trading in positive territory. Amongst other, regional markets apparently draw some comforted from a joint statement of the finance ministers of the US, Japan and Korea sharing concerns on the recent depreciation of the won and the yen. Even so, the direct advantage for the yen remains limited (USD/JPY 154.2). Later today, the eco calendar contains US jobless claims, the Philly Fed business outlook and existing home sales. Plenty of Fed and ECB policy makers are again scheduled to speak. Without high profile news, yesterday correction on bond markets and in the dollar might have some further to go.

News & Views

ECB executive board member Schnabel said the central bank should consider rethinking the way it forecasts growth and inflation with the ultimate goal of improving communication and to be able to respond to shocks rapidly. Relying on the current policy of publishing baseline projections only is risky, Schnabel said, warning they convey a false sense of precision. She advocates the regular and consistent use of alternative scenario’s to the baseline to highlight the inherent forecast uncertainty. And while the ECB already produces those, they are overlooked by investors. Her comments come after former Fed chair Bernanke advised the Bank of England on how to improve its projections, including publishing an outlook for rates with scenario’s showing the best path for reaching the 2% inflation target. Schnabel also saw benefits in using a Fed-like dot plot. It “can help convey uncertainty about the future path of the economy while providing greater clarity about where policymakers see rates moving in the future. At the same time, they may overly condition market pricing, thereby reducing its informational content.”

The IMF in its fiscal monitor warned the US’ massive deficits have stoked inflation and pose significant risks for the global economy. It expects a fiscal shortage of 7.1% next year. It has also concerns about China with a projected 7.6% in 2025 adding to already quickly piling up debt. The US and China, along with the UK and Italy are the four countries labeled as “critically need to take policy action to address fundamental imbalances between spending and revenues”. The fiscal position of the US raises short-term risks to the disinflation process, as well as longer-term fiscal and financial stability risks for the global economy, the IMF chief economist said. Rising US borrowing costs as a result typically have spillover effects across the world and create FX turbulence, the IMF noted. And while Chinese debt tends to be domestically held, its dynamics could still affect Chinese trading partners.