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Daily Pivots: (S1) 1.0626; (P) 1.0653; (R1) 1.0700; More...

Intraday bias in EUR/USD stays neutral at this point as consolidation from 1.0601 is extending. While stronger recovery cannot be ruled out, upside should be limited by 1.0723 support turned resistance. On the downside, break of 1.0601 will resume the decline from 1.1138 to 100% projection of 1.1138 to 1.0694 from 1.0980 at 1.0536 next.

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) 154.11; (P) 154.43; (R1) 154.71; More...

Intraday bias in USD/JPY is turned neutral with current retreat. Considering bearish divergence condition in 4H MACD, in case of another rise, upside should be limited by 155.20 fibonacci projection level. On the downside, break of 153.89 minor support will turn bias back to the downside for 55 4H EMA (now at 153.33) and possibly below.

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 61.8% projection of 127.20 to 151.89 from 140.25 at 155.20. Outlook will now remain bullish as long as 146.47 support holds, even in case of deep pullback.

Daily Pivots: (S1) 1.2421; (P) 1.2451; (R1) 1.2486; More...

GBP/USD is staying in consolidation from 1.2404 and intraday bias remains neutral. Upside but upside of recovery should be limited by 1.2538 support turned resistance to bring another fall. On the downside, firm break of 1.2404 will resume the decline from 1.2892 to 100% projection of 1.2892 to 1.2538 from 1.2708 at 1.2354. Firm break there will target 161.8% projection at 1.2207 next.

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) 0.9088; (P) 0.9115; (R1) 0.9135; More....

USD/CHF is extending the consolidation pattern from 0.9151 and intraday bias remains neutral. Deeper pull back cannot be ruled out. But further rally is expected as long as 0.8996 support holds. Firm break of 0.9151 will target 0.9243 key resistance next.

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.

Daily Pivots: (S1) 1.3743; (P) 1.3790; (R1) 1.3821; More...

A temporary top was formed at 1.3845 in USD/CAD after hitting 100% projection of 1.3176 to 1.3540 from 1.3477 at 1.3841. Intraday bias is mildly on the downside for pull back to 55 4H EMA (now at 1.3711). But downside should be contained by 1.3660 support to bring another rally. 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.

The big story of yesterday was the disappointing results from the biggest European company, ASML, which sells equipment to chipmakers so that they could build their chips. ASML sales missed estimates and new orders came in way lower than expectations in Q1. They slumped by 60% compared to a quarter earlier. The key markets as US and Taiwan – which buy the most advanced machines - showed signs of weakness whereas China made nearly half of the revenues with less advanced products. ASML shares fell more than 6.5% in Amsterdam, and the results raised a few eyebrows regarding the sustainability of demand from chipmakers and the future of the AI rally. As such, Nvidia – which has become the icon of the AI rally – fell nearly 4% to its 50-DMA, AMD tanked nearly 6%, Intel fell more than 1.5% and TSM retreated 0.55%. TSM is due to report earnings today, and is expected to report a 10% growth in its revenue compared to the same time this year. The company announced better than expected sales last week, remember. There is a chance that the TSM earnings temper the negativity that the ASML results brought on the table yesterday, but if that’s not the case, the earnings season will be long until Nvidia reports in more than a month.

This being said, the most popular chipmakers will be comparing their results to a stellar 2023 and beating overly optimistic expectations could be challenging. Nevertheless, surprises could come from companies that massively invested in AI over the past year – like Google and Meta – and the latter could change the texture of the AI rally, and shift the attention from companies that provide the AI tools like semiconductors and cloud businesses to companies that invested in AI solutions and that should shortly start seeing return on their AI investments. In this context, the AI rally might not be over just yet, but the top two could change hands.

Zooming out, the S&P500 extended losses below the 50-DMA, the tech stocks led losses. Nasdaq 100 fell more than 1.20%. Besides TSM, Netflix is also due to release its own Q1 results today after the bell. Subscription growth in key markets – which saw a decent boost over the past two quarters following the password sharing ban – may have slowed. Netflix trades 12% lower than its historical high of November 2021 and under the pressure of rising US yields due to a more hawkish stance from the Federal Reserve (Fed). Soft earnings could accelerate the downside correction.

Not that strong?!

US treasuries rebounded yesterday, shrugging off a part of the hawkishness following Fed Chair Jerome Powell’s hawkish words the day before. The US 2-year yield fell after testing the 5% for the 3rd time in five sessions. Citi said that investors are wrong to cut their Fed rate cut expectations and that the surprisingly strong economic growth could stall. To support that, the Fed’s Beige Book noted that the US economy expanded ‘slightly’ since late February, and that ‘price increases were modest, on average’. Nonetheless, it’s hard to bet that there will be a rate cut from the Fed in a few weeks. Markets now anticipate just one or two rate cuts from the Fed, and the first rate cut is given more than 50% chance not before the September meeting.

The hawkish Fed expectations support a stronger US dollar, but the authorities around the world are not happy to see the US dollar rally. In a joint statement, US Treasury Secretary Janet Yellen, the Japanese and South Korean finance ministers highlighted the ‘serious concerns’ regarding the depreciation of the Japanese yen and the Korean won against the greenback. The Japanese reiterated their commitment to slow the yen selloff. But the yen bears need more than just words to let go off their bearish bets. The USDJPY is still above the 154 level this morning.

Elsewhere, the EURUSD and Cable rebounded yesterday on the back of a broad retreat in the US dollar. Inflation in the Eurozone fell in line with expectations while Cable benefited from a lower retreat in the British inflation figures released yesterday morning. But despite a slight disappointment, British CPI fell in March and fell below the US rate for the first time since 2022. Even though yesterday’s numbers put the idea that the Bank of England (BoE) would cut its rates before the Fed at jeopardy, inflation in Europe and Britain show evidence of easing, for now. Energy prices and the US dollar appreciation are the major risks to the inflation’s downward path in Europe but there is a chance that both central banks cut their rates before the Fed. This is especially true for the European Central Bank (ECB) which is giving clear signals that the first rate cut is coming in June. Therefore, traders will likely chase top selling opportunities in the EURUSD and Cable to trade the divergent stance from the Fed versus the ECB and the BoE as long as inflation in the latter continue to ease.

Oil falls but upside risks prevail

The US crude fell below $83pb yesterday as the US oil inventories increased more than expected last week. Oil is under pressure this morning but the bears are not in a comfortable setup. The Biden administration reimposed sanctions on Venezuelan oil after a six-month pause as they considered that Nicolas Maduro’s government didn’t keep its promise to have fairer elections in July. And in the Middle East, Hezbollah attacked a village in Northern Israel and injured 14 soldiers. Israel is also willing to respond to last weekend attacks. As such, the tense geopolitical landscape should throw a floor under the oil selloff. A solid support is seen near the $80pb psychological level, which also coincides with the major 38.2% Fibonacci retracement.

In focus today

Today, two Riksbank board members will give speeches on monetary policy and the economic outlook, Aino Bunge (8.30) and Per Jansson (16.00). It will be very interesting to hear their comments on the benign March inflation print and the recent global developments, in particular how they assess the perception of delayed rate cuts by the much-important Fed, the sharp weakening of the SEK over the last couple of weeks, and how these factors affect their view on near-term monetary policy where pricing is skewed for a cut in May.

Overnight, we get countrywide Japanese CPI data for March. February inflation spiked to 2.8% on a base effect. Tokyo data indicated that price pressures remain well in line with the 2% target.

Economic and market news

What happened overnight

The Finance chiefs of the US, South Korea and Japan said in a joint statement to "consult closely on foreign exchange market developments" and acknowledge "serious concerns of Japan and the Republic of Korea" on the recent depreciations of both the yen and the won which has prompted markets to speculate on FX interventions. USD/JPY edged slightly lower but remained above 154.

In the US, several Fed speakers echoed the recent commentary of Fed chairman Powell and others in downplaying the prospects of an imminent US rate cut, with Bowman noting that "progress on inflation has stalled" while Mester said the Fed can "hold rates steady for longer if inflation persists".

What happened yesterday

Considerable decline in oil prices, with Brent down more than 3% to 87.3 USD/bbl as of last night. Both supply and demand factors were at play, as it appears a direct Israeli counterattack on Iran is not imminent which has reduced the 'war premium', while a rise in US commercial oil inventories and slightly weak economic data from China suggest benevolent demand conditions.

Final euro area inflation for March confirmed the flash estimate, and furthermore suggested domestic price pressures were still too strong, with the "LIMI" indicator printing at 4.42% y/y. Lagarde has previously stressed not all indicators need to be at 2% to warrant a rate cut however, so we do not think this changes the ECB's view on inflation. It highlights the upside risks from still strong price pressures, however. The Easter component contributed positively which limits the risk of an upside surprise in April from Easter. Market impact was muted suggesting the expectations are still for a June rate cut.

We also got UK inflation which surprised slightly to the upside, with headline CPI at 3.2% y/y (cons: 3.1%) and core at 4.2% y/y (cons: 4.1%). On an m/m SA basis both headline and core were stable but a pick-up in services m/m SA at 0.53% will worry the BoE. Overall, a May cut seems unlikely as inflation is still too high and we will not get any new tier-1 data releases prior to meeting on 9 May. Yields initially rose slightly but ended the day flat.

Equities: Global equities were down yesterday, with US tech and growth stocks leading the decline, while banks and value stocks performed much better on both sides of the Atlantic. This makes a lot of sense given the macroeconomic factors, yields, monetary policy, combined with valuation and earnings evolution. However, we have long seen an extreme appetite for AI-related exposure overriding fundamentals. We argue that the AI frenzy-led dynamics are behind us and recommend more exposure to deep cyclicals and value. In the US yesterday, Dow -0.1%, S&P 500 -0.6%, Nasdaq -1.2% and Russell 2000 -1.0%.

FI: In the absence of a major catalyst, yesterday's market action led to some reversal of the rise in rates seen earlier this week. The stronger-than-expected UK inflation print for March took yields higher in the morning, but the move faded gradually through the session. 10Y Bund yields ended the day down by 2bp in line with the move in the 10Y US Treasury yield. Implied volatility in FI space, measured by the MOVE INDEX, fell markedly yesterday, while credit spreads tightened a bit. The ECB pricing was close to unchanged by the bell with -20bp still being discounted for the June meeting.

FX: After six sessions of consecutive gains, the dollar DXY index dropped yesterday. EUR/USD has continued to move higher overnight, trading at 1.068 vs yesterday's low close to 1.06. USD/JPY has edged lower as the G7 leaders expressed serious concerns about the depreciation of the JPY and KRW. The SEK struggled yesterday despite constructive risk sentiment and interest rates developments. However, both USD/SEK and EUR/SEK are off their highs as equities futures are in green. Brent oil has dropped from the USD 90/bbl handle to around USD 87.5/bbl.

Daily Pivots: (S1) 0.6407; (P) 0.6427; (R1) 0.6454; More...

A temporary low is formed at 0.6388 in AUD/USD with current recovery and some consolidations would be seen. But upside should be limited by 0.6492 minor resistance. Below 0.6388 should resume larger fall from 0.6870 through 61.8% projection of 0.6870 to 0.6442 from 0.6643 at 0.6378 to 100% projection 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.

The forex markets are rather subdued in today's Asian session, with major currency pairs and crosses largely trading within yesterday's ranges. Australian Dollar strengthened slightly, ignoring significantly weaker-than-anticipated job data. Instead, it's lifted by rebound in Asian stock markets and stabilizing risk sentiment. However, the momentum behind Aussie's rebound appears weak and limited, suggesting it may be merely in consolidation before another selloff.

Central bank commentary from both Fed and ECB has been plentiful but has yet to significantly influence market movements. ECB is widely expected to implement a rate cut in June, aligning with previous communications. In contrast, Fed would maintain its policy stance for longer, as the disinflation process in the US has shown signs of slowing down, or even stalling this year, which precludes any immediate policy loosening.

As the week progresses, the Swiss Franc leads as the strongest currency, followed by Euro and Sterling. In contrast, Yen, Kiwi, and Aussie rank as the weaker performers. Dollar and Canadian Dollar hold middle ground. A the greenback is consolidating recent strong gains, European majors are currently displaying slight advantages over their commodity-linked counterparts, reflecting ongoing vulnerabilities in global risk sentiment.

Technically, it's probably about time Bitcoin completes its three wave sideway consolidation from 73812. Break of 64515 minor resistance will bring stronger rebound back to retest 73812 high next. Nevertheless, sustained break of 38.2% retracement of 38496 to 73812 at 60321 will bring deeper fall to 61.8% retracement at 51986 instead.

In Asia, at the time of writing, Nikkei is up 0.63%. Hong Kong HSI is up 0.89%. China Shanghai SSE is up 0.14%. Singapore Strait Times is up 1.23%. Overnight, DOW fell -0.12%. S&P 500 fell -0.58%. NASDAQ fell -1.15%. 10-year yield fell -0.074 to 4.585.

BoE's Bailey anticipates sharp decline in inflation, stresses need for balance

BoE Governor Andrew Bailey, speaking at an International Institute of Finance conference, projected a "quite a strong drop" in next month's inflation figures. This expectation is largely due to the unique household energy pricing system in the UK, which is set to impact the overall inflation calculations differently compared to other sectors.

However, he was quick to temper this optimistic forecast with a note of caution regarding the broader inflationary landscape. According to Bailey, underlying components of the inflation measure continue to show disparities that could complicate monetary policy response.

The Governor pointed out that while energy price inflation is currently running at minus 20%, the inflation in services remains high, around 6%. This stark contrast in inflation rates across different sectors presents an "unbalanced" picture.

"We don't have to have every component actually at target, but you do have to have a better balance," Bailey remarked.

ECB officials signal growing likelihood of rate cut in Jun

ECB officials have indicated a growing likelihood of a rate cut as soon as June, though decisions hinge on forthcoming economic projections and persistent inflation concerns.

Bundesbank President and ECB Governing Council member Joachim Nagel voiced cautious optimism to CNBC about the possibility of easing monetary policy, noting, "the probability is increasing" for a rate reduction, albeit with "some caveats" due to still-high core and service inflation rates.

Nagel emphasized that ECB's upcoming projections in June will be crucial. "For the June meeting, we will get our projections, so we will get our new forecasts and if there is a confirmation that inflation is really going down and we will achieve our target in 2025," he explained.

In tandem, Mario Centeno, Governor of the Bank of Portugal and fellow ECB Governing Council member, described a rate cut in June as "very likely," asserting that even with a reduction of 25 or 50 basis the ECB's monetary policy would remain tight.

Slovenia's central bank governor Bostjan Vasle projected that interest rates should be "much closer to 3% towards the end of the year if everything goes according to plan." However, he also expressed concern over recent geopolitical tensions in the Middle East.

Fed's Bowman: Inflation progress has slowed, perhaps even stalled

Fed Governor Michelle Bowman, speaking at an International Institute of Finance conference, remarked that progress on inflation has "slowed" and may have "even stalled at this point".

Bowman elaborated that the existing levels of growth and market activity might indicate that the current policy stance may not be restrictive enough. "There is a lot of financial market activity and a lot of continued growth that we wouldn't have expected if policy was sufficiently tight," she commented, adding, "I think it is restrictive. I think time will tell whether it is sufficiently restrictive."

Separately, Cleveland Fed President Loretta Mester also echoed the need for caution before making further policy adjustments. While she remains hopeful that inflation will decrease, Mester emphasized the importance of further data analysis before proceeding with any monetary policy changes. "I still am expecting inflation to come down but I do think that we need to be watching and gathering more information before we take an action," Mester commented.

BoJ's Noguchi: Poicy rate adjustment expected to be slow

BoJ Board Member Asahi Noguchi highlighted in a speech today the unique economic conditions facing Japan compared to other major economies. He pointed out that any changes to the policy rate are expected to occur at a slower pace than those seen in recent actions by other major central banks.

"With regard to the pace of policy rate adjustment, it is expected to be slow, at a pace that cannot be compared to that of other major central banks in recent years," Noguchi stated. This approach reflects the central bank's assessment that it will take considerable time for Japan to consistently achieve its price stability target of 2% inflation.

Noguchi also noted the recent significant wage increases in Japan, describing them as unprecedented. However, he cautioned that these wage hikes alone are not yet sufficient to drive up prices to the level needed for trend inflation to stabilize at the 2% target.

"It is essential for the BoJ to maintain its ultra-loose monetary policy to seek an appropriate balance in the labour supply-demand," he added.

Australia's employment contracts -6.6k in Mar, labor market still relatively tight

Australia's employment figures for March revealed a slight contraction of -6.6k, worse than expectation of 7.2k growth. This downturn was primarily due to drop in part-time employment by -34.5k, partially offset by rise in full-time by 27.9k.

Unemployment rate rose from 3.7% to 3.8%, below expectation of 3.9%. Participation rate fell from 66.7% to 66.6%. Monthly hours worked rose 0.9% mom.

Bjorn Jarvis, Head of Labour Statistics at ABS, noted, "The labour market remained relatively tight in March, with an employment-to-population ratio and participation rate still close to their record highs in November 2023." He pointed out that although there has been a modest decline of 0.4 percentage points since the highs of last November, the metrics remain substantially above pre-pandemic levels.

Australia NAB business confidence rises to -2 in Q1, cost pressures ease slightly

Australia NAB Quarterly Business Confidence rose from -6 to -2 in Q1. Business Conditions was unchanged at 10. In terms of forward-looking expectations, businesses anticipate a slight downturn in conditions over the next three months, with expectations dipping from 14 to 12. However, the outlook for the next 12 months improved, rising from 16 to 17.

According to NAB Chief Economist Alan Oster, "Consistent with our monthly business survey, today's release shows business conditions remained resilient at above-average levels through the start of the year. Confidence remained weak but showed some improvement relative to the tail end of 2023."

The report also highlighted easing cost pressures, although the reduction was minimal. Labor costs grew at a slightly reduced rate of 1.2%, down from 1.3% in the previous quarter, and purchase costs increased by 1.1%, down from 1.2%. Meanwhile, final product price growth remained steady at 0.7%, and retail price growth decreased marginally to 0.8% from 0.9%.

Oster noted, "There continue to be some positive signs of easing cost pressures for businesses but progress was more incremental through Q1. Importantly, forward-looking indicators of firms' expectations for price growth suggest firms expect some further moderation."

Looking ahead

Swiss trade balance and Eurozone current account will be released in European session. Later in the day, US will release jobless claims, Philly Fed survey, existing home sales, and leading index.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6407; (P) 0.6427; (R1) 0.6454; More...

A temporary low is formed at 0.6388 in AUD/USD with current recovery and some consolidations would be seen. But upside should be limited by 0.6492 minor resistance. Below 0.6388 should resume larger fall from 0.6870 through 61.8% projection of 0.6870 to 0.6442 from 0.6643 at 0.6378 to 100% projection 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.

Economic Indicators Update

BoJ Board Member Asahi Noguchi highlighted in a speech today the unique economic conditions facing Japan compared to other major economies. He pointed out that any changes to the policy rate are expected to occur at a slower pace than those seen in recent actions by other major central banks.

"With regard to the pace of policy rate adjustment, it is expected to be slow, at a pace that cannot be compared to that of other major central banks in recent years," Noguchi stated. This approach reflects the central bank's assessment that it will take considerable time for Japan to consistently achieve its price stability target of 2% inflation.

Noguchi also noted the recent significant wage increases in Japan, describing them as unprecedented. However, he cautioned that these wage hikes alone are not yet sufficient to drive up prices to the level needed for trend inflation to stabilize at the 2% target.

"It is essential for the BoJ to maintain its ultra-loose monetary policy to seek an appropriate balance in the labour supply-demand," he added.