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Daily Pivots: (S1) 0.8960; (P) 0.9010; (R1) 0.9044; More...

USD/CHF's retreat from 0.9061 extends lower today but stays above 0.8918 support. Intraday bias remains neutral first and outlook is unchanged. Rebound from 0.8818 short term bottom is expected to continue as long as 0.8918 minor support holds. On the upside, sustained trading above 55 D EMA (now at 0.9039) should confirm that current rally is at least correcting whole down trend from 1.0146. Further rise should then be seen to 38.2% retracement of 1.0146 to 0.8818 at 0.9325. On the downside, though, break of 0.8918 will bring retest of 0.8818 low instead.

In the bigger picture, fall from 1.1046 (2022 high) is seen as a leg in the long term range pattern from 1.0342 (2016 high). So, downside should be contained by 0.8756 to bring reversal. Sustained break of 0.9058 support turned resistance will be the first sign of medium term bottoming. However, decisive break of 0.8756 will carry larger bearish implications.

Yen is once again back under selling pressure today, with the selloff mainly concentrated against Swiss Franc, and to a lesser extent Euro. Risk-on sentiment, rising benchmark treasury yields, and the expectation of BoJ keeping policy ultra-loose will likely keep Yen weak for the time being. The only question is whether selling would intensify again. That might depend on market reactions to the development regarding US debt ceiling negotiations. Meanwhile, Australian and Canadian Dollar are following Yen as the next weakest. On the other hand, New Zealand Dollar is following Swiss Franc and Euro as the next strongest. Dollar and Sterling are mixed in the middle.

Technically, AUD/USD might be ready to breakout from established range of 0.6563/6817 this week. The direction could very much depend on the next move in Copper. While Copper stabilized just ahead of 100% projection of 4.3556 to 3.8229 from 4.1743 at 3.6416, there is no sign for a sustainable bounce yet. Indeed, decisive break of 3.6416 could prompt downside acceleration towards 161.8% projection at 3.3124. That should most likely drag AUD/USD through 0.6563. However, firm break of 3.8229 would indicate near term bullish reversal, and help lift AUD/USD for a test on 0.6817 resistance at least.

In Europe, at the time of writing, FTSE is up 0.03%. DAX is down -0.38%. CAC is down -0.32%. Germany 10-year yield is up 0.0270 at 2.452. Earlier in Asia, Nikkei rose 0.90%. Hong Kong HSI rose 1.17%. China Shanghai SSE rose 0.39%. Singapore Strait Times rose 0.27%. Japan 10-year JGB yield dropped -0.0197 to 0.387.

CHF/JPY resumes up trend, heading to 156 next

CHF/JPY resumes recent up trend today by breaking through 153.93 resistance, and reaches as high as 154.38 so far. The move is firstly driven but return to weakness in Yen, following extended rally in US and European benchmark treasury yields. Nikkei also ended up for another day and closed above 31k handle, extending the run for the highest level in more than 30 years. Secondly, Swiss Franc is also rising against European majors, even though it's starting to hesitate.

Near term outlook in CHF/JPY will now stay bullish as long as 149.77 support holds even in case of retreat. Next target is 161.8% projection of 137.40 to 147.58 from 140.21 at 156.68.

The momentum of CHF/JPY will very much depend on the performance of Swiss Franc elsewhere. In particular, if EUR/CHF could break through 61.8% retracement of 0.9407 to 1.0095 at 0.9670 decisively towards 0.9407 low, CHF/JPY could accelerate up in tandem. However, bottoming and rebound in EUR/CHF from current level could cap CHF/JPY's upside momentum.

Fed Kashkari: It's a close call for June, but we're not done

In an interview with CNBC, Minneapolis Fed President Neel Kashkari acknowledged the uncertainty surrounding the decision whether to raise rates further in June. He highlighted, "I think right now it's a close call, either way, versus raising another time in June or skipping. What's important to me is not signaling that we're done."

Kashkari clarified that even if the Federal Reserve opted not to hike rates in June, it wouldn't signal the end of the current tightening cycle. Instead, it would be a strategic move to gather more information and potentially reinitiate the raise in July.

Considering his tenure on the committee, which spans "seven or eight years", Kashkari conceded that this period marks the highest degree of uncertainty they've faced in terms of comprehending the underlying inflationary dynamics. Consequently, he is placing a greater emphasis on inflation to guide his decisions.

He speculated, "It may be that we need to go north of 6%, let's see what happens in the underlying services economy." Yet, Kashkari is mindful of the potential impact of banking stress on inflation rates.

"But if the banking stresses start to bring inflation down for us, then maybe we're getting closer to being done. I just don't know right now," he added.

RBNZ shadow board divided on rate hike this week

NZIER disclosed that its RBNZ Shadow Board is in disagreement over whether RBNZ should raise OCR the Official Cash Rate (OCR) this week. A "large number" of the Shadow Board members viewed a 25bps to 5.50% as "warranted". But "the rest" recommended to hold at 5.25%.

This discord was extended to future projections, as NZIER noted a divergence of opinion regarding where OCR should stand in twelve months.

The Shadow Board acknowledged several recent economic developments that indicated a slowing pace in New Zealand economy, including weaker government tax revenue, decreased consumer spending, and ongoing declines in business profitability.

However, members also recognized potential inflation risks from rising net migration inflows and any new fiscal stimulus in the new Budget.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.8960; (P) 0.9010; (R1) 0.9044; More...

USD/CHF's retreat from 0.9061 extends lower today but stays above 0.8918 support. Intraday bias remains neutral first and outlook is unchanged. Rebound from 0.8818 short term bottom is expected to continue as long as 0.8918 minor support holds. On the upside, sustained trading above 55 D EMA (now at 0.9039) should confirm that current rally is at least correcting whole down trend from 1.0146. Further rise should then be seen to 38.2% retracement of 1.0146 to 0.8818 at 0.9325. On the downside, though, break of 0.8918 will bring retest of 0.8818 low instead.

In the bigger picture, fall from 1.1046 (2022 high) is seen as a leg in the long term range pattern from 1.0342 (2016 high). So, downside should be contained by 0.8756 to bring reversal. Sustained break of 0.9058 support turned resistance will be the first sign of medium term bottoming. However, decisive break of 0.8756 will carry larger bearish implications.

Economic Indicators Update

The EURCHF pair fell to the lowest in over seven month on Monday, in fresh acceleration of larger downtrend from double- rejection at parity level in late March, during past two sessions.

Growing uncertainty over US debt ceiling talks prompted investors into safe-haven Swiss franc, which gained across the board.

Fresh bearish acceleration cracked 0.9700 round-figure level but faced strong headwinds on approach to more significant support at 0.9670 (Fibo 61.8% of 0.9406/1.0097 rally.

Bears are likely to take a breather on partial profit-taking of 0.7% fall in past two days, with upticks to face solid resistance at 0.9740/50 zone (falling 10DMA / broken 50% retracement of 0.9406/1.0097).

Consolidation should be ideally capped here to keep bears intact and offer better levels to re-enter larger downtrend for probe through 0.9670 pivot which would unmask targets at 0.9569/52 (Fibo 76.4%/low of 23 Aug 2022).

Res: 0.9705; 0.9750; 0.9776; 0.9799.
Sup: 0.9670; 0.9600; 0.9570; 0.9550.

CHF/JPY resumes recent up trend today by breaking through 153.93 resistance, and reaches as high as 154.38 so far. The move is firstly driven but return to weakness in Yen, following extended rally in US and European benchmark treasury yields. Nikkei also ended up for another day and closed above 31k handle, extending the run for the highest level in more than 30 years. Secondly, Swiss Franc is also rising against European majors, even though it's starting to hesitate.

Near term outlook in CHF/JPY will now stay bullish as long as 149.77 support holds even in case of retreat. Next target is 161.8% projection of 137.40 to 147.58 from 140.21 at 156.68.

The momentum of CHF/JPY will very much depend on the performance of Swiss Franc elsewhere. In particular, if EUR/CHF could break through 61.8% retracement of 0.9407 to 1.0095 at 0.9670 decisively towards 0.9407 low, CHF/JPY could accelerate up in tandem. However, bottoming and rebound in EUR/CHF from current level could cap CHF/JPY's upside momentum.

In an interview with CNBC, Minneapolis Fed President Neel Kashkari acknowledged the uncertainty surrounding the decision whether to raise rates further in June. He highlighted, "I think right now it's a close call, either way, versus raising another time in June or skipping. What's important to me is not signaling that we're done."

Kashkari clarified that even if the Federal Reserve opted not to hike rates in June, it wouldn't signal the end of the current tightening cycle. Instead, it would be a strategic move to gather more information and potentially reinitiate the raise in July.

Considering his tenure on the committee, which spans "seven or eight years", Kashkari conceded that this period marks the highest degree of uncertainty they've faced in terms of comprehending the underlying inflationary dynamics. Consequently, he is placing a greater emphasis on inflation to guide his decisions.

He speculated, "It may be that we need to go north of 6%, let's see what happens in the underlying services economy." Yet, Kashkari is mindful of the potential impact of banking stress on inflation rates.

"But if the banking stresses start to bring inflation down for us, then maybe we're getting closer to being done. I just don't know right now," he added.

• BoJ Core CPI expected to ease
• USD/JPY steadies after extended slide

In Monday’s European session, USD/JPY is steady, trading at 137.90. The yen gained 0.53% on Friday, after a nasty slide last week in which it fell 440 points and hit a six-month low.

BoJ Core CPI expected to inch lower

Inflation has become a hot topic for Japanese policy makers, which marks a sea-change after years of deflation. Japan is dealing with inflation of around 3%, which is much lower than in other major economies but nevertheless higher than the Bank of Japan’s 2% target.

The new inflationary era has forced central banks to raise interest rates, but the BoJ remains an outlier as it has continued its ultra-loose monetary policy. Still, it appears that change is coming. There is a new sheriff in town, with Kazuo Ueda now at the helm of the BoJ. Ueda has said he would tighten policy if inflation remains sustainable at 2%, which makes every inflation reading a potential market-mover. Last week, core CPI rose to 3.4% in April, up from 3.1% a month earlier. The rise in inflation, together with a stronger-than-expected GDP report for the first quarter, has fuelled speculation that the BoJ could tighten policy in the near future.

The markets will be closely watching BoJ Core CPI, the BoJ’s preferred inflation gauge, which will be released early on Tuesday. The estimate for March stands at 2.8%, a drop lower than the 2.9% reading in February.

We’re unlikely to see interest rates rise anytime soon, but Ueda has hinted at phasing out the Bank’s yield curve control (YCC) policy. Such a move would likely send the yen sharply higher, and unsurprisingly, the possibility that the BoJ will tighten policy has attracted the attention of speculators, who are betting on a shift in policy that will boost the yen.

USD/JPY Technical

• In the Asian session, USD/JPY put strong pressure on support at 137.45. Below, there is support at 1.3615
• There is resistance at 138.37 and 139.25

• Gold (XAU/USD) has dropped by -5.6% from its recent 52-week high of US$2,067.
• Factors that caused the recent drop could be the bounce seen in the US dollar and the unwinding of long hedges linked to the US debt ceiling negotiations.
• 50-day moving average is now acting as a key intermediate resistance at US$1,991.

The bullish momentum of the shiny metal, Gold (XAU/USD) seems to have dissipated in recent weeks after it printed a fresh 52-week high of US$2,067 on 4 May 2023 and staged a decline of -5.6% to hit a low of US$1,952 on last Thursday, 18 May.

Even though on Friday, 19 May, the price actions of Gold managed to stage a rebound of +1% to close the US session at US$1,977.90 but it is still below its 20 and 50-day moving averages that are acting as resistances at around US$2,008 and USS$1,991 respectively at this time of the writing.

The recent price weakness of Gold is indirectly related to the recent rebound seen in the US dollar where the US Dollar Index has managed to stage a weekly rebound of +1.40% for the week of 8 May, its highest weekly gain since the week of 19 September 2022.

Also, there were news reports that stated there were potential breakthroughs in the US debt ceiling limit extension negotiation talks between the Biden Administration and the House Republicans that could trigger some form of hedges positions unwinding on Gold that was taken earlier as long hedges if the US government fails to extend its debt ceiling limit on 1 June.

Let’s now decipher the latest price movement of Gold from a technical analysis perspective.

Gold (XAU/USD) Technical Analysis – Short-term corrective decline within a major uptrend

Fig 1:  Gold (XAU/USD) trend as of 22 May 2023 (Source: TradingView, click to enlarge chart)

Since its 4 May 2023 swing high of US$2,067, Gold (XAU/USD), a whisker away from its current all-time high of US$2,075 printed on 7 August 2020, has reversed down from its major ascending channel upper limit/resistance and traded below the 50-day moving average since 18 May 2023.

These observations suggest that a short-term corrective decline is likely to be in play for Gold within a major uptrend phase that is still intact since the 3 November 2022 low of US$1,616.

As depicted on the 1-hour chart, the price actions of Gold have evolved into a minor descending channel since its 10 May 2023 minor swing high of US$2,048 with its channel resistance coincides with the 50-day moving average resistance at around US$1,991.

In addition, the 1-hour RSI has retreated from a corresponding resistance at the 68% level (close to the overbought region of 70% & above) which indicates that short-term downside momentum remains intact.

The near-term supports rest at US$1,950, the former swing high area of 01/02 February 2023, and US$1,940, defined by the lower limit of the minor descending channel and a cluster of Fibonacci extension levels.

On the flip side, a clearance with an hourly close above US$1,991 short-term pivotal resistance negates the bearish tone for the next intermediate resistance that is coming in at US$2,021 (minor congestion zone of 12/15 May 2023 & the 61.8% Fibonacci retracement of the recent slide from 4 May 2023 high to 18 May 2023 low).

The Euro extends bounce from temporary base at 1.0760 into second straight day, after failing to register a clear break below daily cloud (spanned between 1.0796 and 1.0875). Fresh strength was sparked by weaker dollar and oversold conditions on daily chart, which prompted a partial profit-taking.

Recovery is likely to be limited while holding below 1.0870/80 zone (converged 10/55DMA’s/daily cloud top/broken Fibo 38.2% of 1.0516/1.1095, reverted to resistance) as overall structure on daily chart is bearish (rising negative momentum/daily Tenkan/Kijun-sen in bearish configuration).

Last week’s bearish close marked the second consecutive week in red and weighs on near-term action, supporting scenario of limited correction before bears regain control.

Caution on sustained break above daily cloud top and daily Tenkan-sen (1.0875/83) which would generate initial signal of reversal and shift near-term focus to the upside, with lift above daily Kijun-sen (1.0927) needed to confirm.

Res: 1.0848; 1.0875; 1.0883; 1.0927.
Sup: 1.0805; 1.0760; 1.0737; 1.0700.

With the euro experiencing a rather difficult month and confirming the various seasonality studies, this week’s data calendar has the potential to offer even more excitement. In particular, the preliminary PMI prints and the German IFO survey are expected to be closely scrutinized as certain market participants are trying to counter the elevated ECB rate hiking expectations. The euro would definitely enjoy a boost following its recent performance against both the US dollar and the pound.

ECB is on a preset course

ECB members’ intentions remain clear. They want to continue raising rates as inflation remains unchecked, despite the cumulative 375 bps of hikes since July 2022. The market appears to believe them as it is currently pricing in an 84% probability for a 25 bps rate hike at the June 15 meeting. Similarly, professional forecasts are overwhelmingly on board with this rate move as, at a recent poll, 62 out of 62 analysts endorsed this outcome. Having said that, are this week’s data releases really important for the ECB outlook?

Considering that the next meeting’s decision is almost a done deal, this week's data figures could affect the 2023 monetary policy outlook only if they hold sizeable surprises. In more detail, an impressive set of data would cement the rate expectations for the remainder of the year and could potentially raise the possibility of a stronger rate hike at the June meeting. The ECB does not like to surprise the markets, but the hawks would probably increase their pressure in order to get a 50 bps rate decision next month.

On the other hand, a significant downside surprise at the data prints would allow the ECB doves to become more vocal. They are clearly not happy with the continuously restrictive monetary policy and could try to win over the support from the more balanced members of the governing council. However, they seem to be far from achieving their target of stopping the repeated rate hikes, especially as the labour market continues to tighten. Consequently, the market could pare back some of its rate expectations. At the moment, a total of 58 bps of rate hikes are priced in for 2023.

All eyes on the PMIs

Amidst this environment, the preliminary PMIs for May for Germany and the euro area aggregates will be published on Tuesday. This is the last set of PMIs to be released ahead of the June 15 ECB meeting; the final May PMI figures will come on June 5, but they are usually not market moving. With the Services sector expected to confirm its healthy status, the focus is once again on the manufacturing component of the survey.

Both the German and French indicators are in the 45-level region signaling a shrinking sector. While in France the recent demonstrations for the pension system amendments could offer some justification for the lower figure, the German print is troubling. It adds to concerns that have been building up since the preliminary GDP growth for the first quarter of 2023 surprised on the downside in late April.

IFO survey and final first quarter GDP for 2023 on the menu as well

Further zooming into Germany, this week we get our favourite IFO survey.  The May print of the Business climate survey is seen edging lower with the Expectations component offering again a glimpse of hope. The survey figures have been on an upward trend since the September 2022 lows, but they are still far from pointing to a strong growth outlook.

In this context, professional forecasts continue to paint a mixed picture for the German GDP. Both the IMF and the IFO centre have penciled in a -0.1% annual change for 2023 with the government and the EU Commission appearing more optimistic with their +0.3% and +0.2% forecasts respectively. It is evident that China’s economic underperformance is affecting Germany, troubling the market and politicians, contrary to strong expectations for a significant positive impact.

Euro remains under pressure

The recent weakness of the euro is evident against the pound. Since the February 3, 2023 high, this pair has been on a downward path. We highlighted the formation of a descending triangle that tends to favour bearish moves. On May 9, 2023 the pair broke below the 0.8721 level, the lower boundary of the triangle, but is struggling to record a significant move lower.

The euro would really enjoy a boost and a move back inside the identified pattern. However, unless we get exceptional data and the market starts to think about a 50 bps rate hike, the impact is expected to be rather muted. On the other hand, the euro bears are keen on recording another correction and to try breaking the 0.8635-0.8670 area.

EURUSD - H4 Timeframe

Last week, during the PPI live market trading session in the telegram group, I mentioned that the US Dollar was gradually nearing a resistance level and could soon get weaker. This exactly played out and led to the price rejection from the pivot zone as seen in the chart above. However, I still uphold the overall bearish sentiment in the EURUSD market, and I have thus marked the likely supply zone price would react from. The highlighted supply zone has confluences from twin resistance trendlines, bearish moving averages array, as well as the 50-period moving average resistance.

Analyst’s Expectations:

• Direction: Bearish
• Target: 1.07766
• Invalidation: 1.08752

EURCAD - Daily Timeframe

Whenever I see the moving averages arrayed in either an increasing or decreasing order as we have on the EURCAD chart above, I tend to simply look for trades in the direction of that order. Another notable confluence is the fact that price has made an initial reaction to the pivot zone just slightly below the 100-Day moving average. Based on these criteria, I would expect price to rise slightly higher, towards the 50-Day moving average, even higher.

Analyst’s Expectations:

• Direction: Bullish
• Target: 1.47064
• Invalidation: 1.45239

EURJPY - H4 Timeframe

When I noticed that the 50-period moving average had crossed below the 100-period moving average on the EURJPY chart, my initial deduction was that price might be preparing for a reversal. The candlestick pattern formed by the reaction from the highlighted supply zone gave me the confirmation I needed. The candlestick pattern indicates that the buyers may have been overpowered at that supply zone by a new influx of sellers. Hence, my sentiment on EURJPY would remain bearish unless by some unexpected market stroke, price rises above the supply zone.

Analyst’s Expectations:

• Direction: Bearish
• Target: 147.402
• Invalidation: 149.851

EURNZD - Daily Timeframe

If you’ve followed and digested my analysis up until this point, then you likely already guessed my sentiment on this one - Bullish! As you can see, the moving averages are arrayed in an increasing order which readily suggests a rising price action. Then, having a pivot zone that aligns perfectly with the 100-Day moving average and a support trendline adds the final piece of the puzzle. My initial target on this EURNZD trade is the 50-Day moving average.

Analyst’s Expectations:

• Direction: Bullish
• Target: 1.74317
• Invalidation: 1.71437

CONCLUSION

The trading of CFDs comes at a risk. Thus, to succeed, you have to manage risks properly. To avoid costly mistakes while you look to trade these opportunities, be sure to do your due diligence and manage your risk appropriately.