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Daily Pivots: (S1) 1.0753; (P) 1.0772; (R1) 1.0789; More...

EUR/USD is staying in consolidation below 1.0810 temporary top and intraday bias stays neutral. While deeper retreat cannot be ruled out, further rally is expected as long as 55 4H EMA (now at 1.0725) holds. On the upside, above 1.0810 will resume the rebound from 1.0601 to 1.0884 resistance next. However, firm break of 55 4H EMA will turn bias to the downside for 1.0648 support instead.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern. Fall from 1.1138 is seen as the third leg and could have completed. Firm break of 1.1138 will argue that larger up trend from 0.9534 (2022 low) is ready to resume through 1.1274 high. On the downside, break of 1.0601 will extend the corrective pattern instead.

The forex markets are displaying some calmness today. While Dollar is trading as the strongest performer, it lacks clear upside momentum indicating a reversal of the decline started last week. With no significant economic data expected from the US for the remainder of the week, Dollar's next move hinges on shifts in risk sentiment and movements in other major currencies.

Meanwhile, New Zealand Dollar is standing as the second strongest, benefiting from Australian Dollar's selloff following RBA's decision to maintain a neutral stance without leaning towards a hawkish tone. Additionally, Euro garners support from better-than-expected Eurozone retail sales data, positioning it as the third strongest currency for the day.

In contrast, Japanese Yen underperforms, emerging as the worst performer, followed by Australian Dollar and Swiss Franc. Sterling and the Canadian Dollar hold intermediate positions.

Technically, AUD/USD's retreat from 0.6645 temporary top is so far rather shallow. As long as 55 4H EMA (now at 0.6554) holds, further rally will remain in favor. Break of 0.6645 will resume the whole rise from 0.6361 to 100% projection of 0.6361 to 0.6585 from 0.6464 at 0.6688. The next move will depend on how risk markets flare, in particular in Asia.

In Europe, at the time of writing, FTSE is up 1.10%. DAX is up 0.64%. CAC is up 0.33%. UK 10-year yield is down -0.0749 at 4.152. Germany 10-year yield is down -0.028 at 2.446. Earlier in Asia, Nikkei rose 1.57%. Hong Kong HSI fell -0.53%. China Shanghai SSE rose 0.22%. Singapore Strait Times fell -0.10%. Japan 10-year JGB yield fell -0.0337 to 0.872.

Eurozone retail sales rises 0.8% mom in Mar, EU up 1.2% mom

Eurozone retail sales volume grew 0.8% mom in March, above expectation of 0.6% mom. Volume of retail trade increased for food, drinks, tobacco by 1.2%, for automotive fuel in specialised stores by 2.0%. Volume was stable for non-food products (except automotive fuel).

EU retail sales grew 1.2% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were recorded in Poland (+7.3%), Cyprus (+4.8%) and Hungary (+2.0%). The largest decreases were observed in Sweden (-1.8%), Malta (-1.0%) and Austria (-0.8%).

UK PMI construction hits 14-month high but hiring trend subdued

UK PMI Construction surged from 50.2 to 53.0 in April, marking its most robust reading since February 2023. According to S&P Global, this growth was primarily driven by increased activity in commercial projects and civil engineering. However, house building experienced a decline, albeit amid improving supply conditions.

Tim Moore, Economics Director at S&P Global Market Intelligence, highlighted the sector's consolidation of its return to growth, with overall industry activity expanding at the fastest pace in 14 months. This growth was fueled by heightened confidence in the UK's economic outlook, leading to increased demand for construction services. Despite the uptick in workloads, hiring remained subdued, aligning with broader trends observed across the UK economy.

RBA stands pat, upgrades inflation forecasts, not ruling anything in or out

RBA left cash rate target unchanged at 4.35% as widely expected. The central bank maintained that it's "not ruling anything in or out" regarding the next move in monetary policy because of uncertainty surround inflation outlook.

In the new economic forecasts, both headline and core inflation forecasts for 2024 are upgraded substantially. Meanwhile, growth forecasts were downgraded slightly for both 2024 and 2025.

Year-average GDP growth:

• For 2024 downgraded from 1.5% to 1.3%
• For 2025 downgraded from 2.2% to 2.1%.

Year-ended CPI inflation:

• For Dec 2024 upgraded from 3.2% to 3.8%.
• For Dec 2025 unchanged at 2.8%.
• For June 2026 at 2.6% (new).

Year-ended trimmed mean inflation:

• For Dec 2024 upgraded from 3.1% to 3.4%.
• For Dec 2025 unchanged at 2.8%.
• For June 2026 at 2.6% (new)

Japan's PMI services finalized at 54.3, strong demand and rising costs

Japan's PMI Services for April finalized at 54.3, slightly up from March's 54.1. PMI Composite also saw an uptick, reaching 52.3, the highest level since August 2023.

According to Tim Moore, Economics Director at S&P Global Market Intelligence, April showcased "another strong month" for the service sector, driven by increasing business and consumer spending. This momentum resulted in the fastest upturn in business activity since August 2023. Despite challenges such as shortages of candidates hindering recruitment, positivity regarding the longer-term business outlook contributed to solid employment growth.

However, rising wage costs have emerged as a significant concern, leading to the sharpest increase in average cost burdens in eight months. Service providers are responding to elevated cost pressures by seeking higher prices from clients, with the latest survey indicating the fastest pace of price increases since the sales tax hike in April 2014.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0753; (P) 1.0772; (R1) 1.0789; More...

EUR/USD is staying in consolidation below 1.0810 temporary top and intraday bias stays neutral. While deeper retreat cannot be ruled out, further rally is expected as long as 55 4H EMA (now at 1.0725) holds. On the upside, above 1.0810 will resume the rebound from 1.0601 to 1.0884 resistance next. However, firm break of 55 4H EMA will turn bias to the downside for 1.0648 support instead.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern. Fall from 1.1138 is seen as the third leg and could have completed. Firm break of 1.1138 will argue that larger up trend from 0.9534 (2022 low) is ready to resume through 1.1274 high. On the downside, break of 1.0601 will extend the corrective pattern instead.

Economic Indicators Update

The Australian dollar has lost ground on Tuesday. AUD/USD has dropped by 0.31%, trading at 0.6604 in the European session at the time of writing.

RBA stays pat but wary of inflation

There was no surprise as the Reserve Bank of Australia maintained the cash rate at 4.35% for a sixth straight time. The RBA statement noted that inflation remained high and was falling more slowly than expected, adding that underlying inflation remained higher in large part due to services inflation.

RBA Governor Bullock said that inflation risks were tilted towards the upside and was quite candid about the possibility of raising rates, saying she hoped that the economy would not have to “stomach higher rates”.

Bullock said there was discussion at the meeting of raising rates but the Board decided that monetary policy was restrictive enough to bring inflation back down to the 2-3% target band by late 2025. Bullock said a rate hike can’t be ruled out, but doesn’t seem necessary. The markets may have been expecting a more hawkish message regarding rate hikes and the Australian dollar fell as much as 0.5% after the announcement.

The Federal Reserve has signaled that inflation remains too high for a rate cut just yet and on Monday two Fed members said that the Fed could afford to be patient. Richmond Fed President Barkin said that first-quarter inflation data was “disappointing” but he remained hopeful that the current restrictive policy would dampen demand and bring inflation back to the target of 2%. New York Fed President Williams said that policy was in “a very good place” and that a rate cut would depend on the data.

AUD/USD Technical

• AUD/USD faces resistance at 0.6683 and 0.6756
• 0.6574 and 0.6501 are providing support

Brent crude oil is seeing a slight increase on Tuesday, priced around $83.57 per barrel. The market remains close to two-month lows, caught between optimism for a peaceful resolution to the Middle East conflict and concerns over crude oil inventories in the United States.

The primary focus in the stock market currently revolves around the ongoing negotiations between Israel and Hamas, facilitated by Egypt. However, these talks have hit an impasse, and there are renewed signs of conflict from both parties. Israel has expressed dissatisfaction, stating that the terms offered do not meet its demands, thereby complicating diplomatic efforts.

Despite these challenges, the ongoing conflict in the Middle East contributes to supporting energy prices due to fears of potential disruptions in raw material supplies. On the demand side, Saudi Arabia has recently increased its oil selling prices to Asian buyers, indicating an expectation of robust demand, particularly during the upcoming summer. This adjustment is often seen when a producer is confident about expanding demand, with Saudi Arabia likely counting on strong consumption from China, the world's leading oil importer.

Brent technical analysis

On the H4 chart, Brent has achieved the local target of the growth wave at 91.50. The correction towards 82.70 is nearing completion, and we anticipate the formation of a consolidation range above this level. Should the price break upwards from this range, a new wave of growth towards $95.00 could be initiated. This bullish scenario is technically supported by the MACD indicator, which shows the signal line at the lows under the zero mark, indicating potential growth to new highs.

On the H1 chart, the structure of the fifth wave of correction to 82.70 has been formed. A consolidation range has developed above this level, and we expect a growth link to 84.44. Should this level be surpassed, it could open the potential for a growth wave to 85.70, which is the initial target. This technical outlook is corroborated by the Stochastic oscillator, with its signal line above 20 and prepared to ascend to 80.

Market picture

The crypto market capitalisation fell by 1.7% in 24 hours to $2.29 trillion, as Bitcoin lost 1.1% and Ethereum – 3%, but Solana has added 4%. However, the latter is noticeably out of step, with most of the other coins going down.

On Monday, Bitcoin failed for the second time in a fortnight to break above the 50-day moving average. The price very easily went from $64.5K to $65.5K, where it met with impressive selling volume that pushed the price back to $62.6K by the end of the day. The positive performance of Asian and European stock exchanges fuels the appetite for Bitcoin. It cannot be ruled out that we will see further attempts to climb above the 50-day.

News background

Hong Kong-registered bitcoin-ETFs could soon become available to mainland Chinese investors, leading to a surge in demand for the product, according to SyzCapital. Chinese citizens channel most of their savings into property, and there is an urgent need for more investment opportunities.

The Bitcoin blockchain has processed one billion transactions in the last 15 years of operation. In the 5603 days of the blockchain’s existence, there have been an average of 178,475 transactions per day. The total does not include transactions on second-tier networks like the Lightning Network.

According to blockchain.com, bitcoin miners’ post-halving revenue has collapsed to its lowest since October 2023. Earlier, 10x Research admitted that miners could start selling off $5bn worth of Bitcoin reserves to sustain their operations.

The US SEC has issued a warning to broker Robinhood about the possibility of filing a lawsuit. This is a Wells notice, in which the agency says it has found violations of securities laws, and the case could go to court.

According to Bloomberg, more than 90% of transactions involving stablecoins are made by bots and large traders, suggesting little use of cryptocurrencies as a means of payment. “In the US, people still use cheques for 40-60% of business payments, which indicates where the market really is in terms of technology adoption”, Airwallex noted.

On 6 May, an unknown whale moved 687.33 BTC (about $44 million) after ten years and three months of “hibernation”, Lookonchain pointed out. According to Chainalysis and Fortune, 1.75 million Bitcoin wallets have been inactive for more than ten years. They hold 1.8 million BTC (~$121bn) or 8.5% of total issuance.

We warned our members about limited weakness and recovery on Japanese yen right before intervention. As you can see, yen is already recovering because US 10Yr Yields are already turning down from resistance, while Japan 10Yr Yields are barely trying to follow due to holidays in Japan recently. If Yields will keep weakening then Japanese yen will most likely stay in the recovery mode, just be aware of short-term pullbacks.

The British pound is slightly lower on Tuesday. GBP/USD is down 0.21%, trading at 1.2535 in the European session at the time of writing.

The UK construction PMI jumped to 53.0 in April, up from 50.2 in March and above the forecast of 50.4. This is only the second reading showing growth after six straight months of contraction. Last week, the services PMI rose to 55.0, up from 53.1 in April. This was the strongest level since May 2023 and services has shown growth for six straight months, with readings above the 50 level. The PMI survey noted that business and consumer spending were higher in April and reflective of an improving UK economy.

Bank of England may provide clues for a June hike

The Bank of England meets on Thursday and is expected to maintain the cash rate at 5.25%. There is pressure on the central bank to ease the pain for households and businesses, which are groaning under high interest rates. With inflation falling to 3.2% in March, the BoE is closer to cutting rates, likely at the June 20th meeting. If this is indeed the plan, we should see some dovish signals at Thursday’s meeting, similar to the ECB, which signaled in April that it would lower rates at its next meeting on June 6.

Central banks aren’t working together but they are very aware of what’s on the plate of their counterparts and prefer not to act alone. The Fed has delayed lowering rates due to a rise in inflation but the anticipated ECB hike in June will make it a bit easier for BoE policy makers to follow with a rate cut two weeks later.

Fed members have sounded cautious about lowering rates and Richmond Fed President Barkin joined the chorus on Monday. Barkin said that first-quarter inflation data was “disappointing” but he remained hopeful that the current restrictive policy would dampen demand and bring inflation back to the target of 2%.

GBP/USD Technical

• GBP/USD tested support at 1.2535 earlier. Below, there is support at 1.2504
• 1.2565 and 1.2591 are the next resistance lines

Eurozone retail sales volume grew 0.8% mom in March, above expectation of 0.6% mom. Volume of retail trade increased for food, drinks, tobacco by 1.2%, for automotive fuel in specialised stores by 2.0%. Volume was stable for non-food products (except automotive fuel).

EU retail sales grew 1.2% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were recorded in Poland (+7.3%), Cyprus (+4.8%) and Hungary (+2.0%). The largest decreases were observed in Sweden (-1.8%), Malta (-1.0%) and Austria (-0.8%).

Full Eurozone retail sales release here.

• Gold stays trapped below 2,325 after Monday’s bounce
• Technical signals reflect persisting caution

Gold had a positive start to the week, bouncing back above its 20-day exponential moving average (EMA), but the bullish attempt was not strong enough to drive the precious metal successfully above the constraining zone of 2,325. This is where the 23.6% Fibonacci retracement of the February-April uptrend and a former restrictive line are placed.

The price seems to have reached a make-or-break point and the technical picture cannot guarantee a meaningful bullish breakout. While the positive trend in the stochastic oscillator is an encouraging sign, the RSI has yet to violate its almost one-month-old downward path despite showing signs of a recovery above its 50 neutral mark.

If the bears retake control below the 20-day EMA, the price might slide towards the 38.2% Fibonacci of 2,260 and perhaps test the 50-day EMA around the same region. If the falling support line from April proves fragile around 2,240 as well, the next stop could be somewhere between 2,220 and the 50% Fibonacci of 2,207. A step lower could aggressively push the price towards the 61.8% Fibonacci of 2,154.

In the case the bulls win the battle around 2,325, they might initially challenge the 2,350 area, where the price peaked on April 26. A continuation higher could then find resistance around the 2,400 psychological mark, while a steeper increase could head for the all-time high of 2,431. Should the market venture into uncharted territory, it could establish a new higher high around the longer-term ascending line at 2,467.

Summing up, gold needs to knock down the wall at 2,325 and preferably overcome the 2,350 territory to bolster buying appetite again. Otherwise, the short-term downleg could stretch towards the 2,260 area.

UK PMI Construction surged from 50.2 to 53.0 in April, marking its most robust reading since February 2023. According to S&P Global, this growth was primarily driven by increased activity in commercial projects and civil engineering. However, house building experienced a decline, albeit amid improving supply conditions.

Tim Moore, Economics Director at S&P Global Market Intelligence, highlighted the sector's consolidation of its return to growth, with overall industry activity expanding at the fastest pace in 14 months. This growth was fueled by heightened confidence in the UK's economic outlook, leading to increased demand for construction services. Despite the uptick in workloads, hiring remained subdued, aligning with broader trends observed across the UK economy.

Full UK PMI construction release here.