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US ISM Manufacturing PMI rose from 46.3 to 47.1 in April, above expectation of 46.6. Looking at some details, new orders rose from 44.3 to 45.7. Production rose from 47.8 to 48.9. Employment rose from 46.9 to 50.2. Prices rose from 49.2 to 53.2.

ISM said: "This is the sixth month of contraction and continuation of a downward trend that began in June 2022. Of the five subindexes that directly factor into the Manufacturing PMI, only one (Employment) is in growth territory."

"The past relationship between the Manufacturing PMI and the overall economy indicates that the April reading (47.1 percent) corresponds to a change of minus-0.6 percent in real gross domestic product (GDP) on an annualized basis."

Full US ISM Manufacturing release here.

China’s PMIs released over the weekend were much weaker than expected, with the manufacturing index signalling a downturn.

The official manufacturing PMI fell to 49.2 in April from 51.9 the previous month and 51.4 expected. This sudden drop suggests that the economy has lost momentum much more quickly than analysts had expected, following a brief boom at the end of last year as the zero-coupon policy was rolled back. The publication’s commentary suggests a contraction in manufacturing demand after several months of rapid growth.

Historically, last month’s levels are nothing to write home about. This sets the mood that Chinese manufacturing activity is close to stagnating or even deteriorating, with a downtrend from 2018 despite a very bumpy road due to COVID-19.

The non-manufacturing sector feels much better, losing 1.8 percentage points over the month to 56.4. The long history clearly shows that the growth rate of the non-manufacturing sector has long been a drag on the economy.

Traditionally, market participants pay more attention to production dynamics as it sheds light on global trends and allows for assessing export and import potential, affecting the renminbi exchange rate. Moreover, production often acts as a leading indicator of economic trends.

In this context, it is unsurprising that the renminbi fell, and the USDCNH rose on Monday. Last week it broke above its 200-day MA at 6.95 but did not dare to break through. At the same time, the pullback level to 61.8% of the November and February declines is also in this area.

A decisive break of this long-term trend indicator is likely to be postponed by the outcome of the Fed meeting. A move lower in the USDCNH could be the prologue to a move lower to 6.30 in the coming months. A sharp move higher would reclassify the pair’s rise in recent weeks from a correction to a new advance and could lead to a significant increase in the pair’s volatility.

• Bank of Japan meeting weighing on yen
• JP Morgan buys First Republic assets

USD/JPY continues to rally and is trading at 136.84, up 0.40%.

BoJ signals change is coming

The Bank of Japan didn’t change any policy settings at Friday’s meeting, which was the first to be chaired by New Governor Kazuo Ueda. The yen took a tumble of 1.3% and the downward spiral has continued on Monday, with USD/JPY rising as high as 136.98. Investors may have been disappointed that the Ueda didn’t make any changes, but on closer examination, the BoJ provided some hints that change is coming which could explain the yen’s sharp fall.

The key signal was the removal of its forward guidance pledge to maintain rates at “current or lower levels”. Ueda stated last week that interest rates could rise if wages and inflation moved higher and at the meeting he announced a policy review. This shows that Ueda is open to change, although the review will take between a year and 18 months.  The new Governor didn’t do anything dramatic, but he showed flexibility to making changes if warranted by economic conditions. Similar to the case with the ECB and the Fed, forward guidance has been ditched in favor of policy decisions at each meeting, based on the data.

In the US, First Republic Bank is again in the headlines. After US regulators seized the ailing bank, they announced that JP Morgan had acquired all of First Republic’s deposits. An attempt to convince large US banks to throw First Republic a second lifeline failed, making it the third US bank to collapse since March. Interestingly, JP Morgan CEO said just one month ago that the current banking crisis would have repercussions for “years to come”.

USD/JPY Technical

• USD/JPY faces resistance at 137.57 and 138.84
• 135.30 and 134.03 are providing support

Daily Pivots: (S1) 1.0972; (P) 1.1009; (R1) 1.1054; More...

EUR/USD is extending the sideway consolidation from 1.1094 and intraday bias remains neutral. Further rally is expected as long as 1.0908 support holds. Break of 1.1094 will resume larger up trend to 1.1273 fibonacci level. Break there will target 61.8% projection of 0.9534 to 1.1032 from 1.0515 at 1.1441 However, considering bearish divergence condition in 4H MACD, break of 1.0908 support will indicate short term topping and turn bias back to the downside.

In the bigger picture, rise from 0.9534 (2022 low) is in progress for 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273. Sustained break there will solidify the case of bullish trend reversal and target 1.2348 resistance next (2021 high). This will now remain the favored case as long as 1.0515 support holds, even in case of deeper pull back.

Daily Pivots: (S1) 134.42; (P) 135.49; (R1) 137.38; More...

USD/JPY's rally continues today and intraday bias remains on the upside for 137.90 resistance. Break there will resume whole rebound from 127.20, and target 100% projection of 127.20 to 137.90 from 129.62 at 140.32. On the downside, below 135.13 support will turn intraday bias remains neutral first. But further rally will remain in favor as long as 133.00 support holds, in case of retreat.

In the bigger picture, price actions from 151.93 high are currently seen as a corrective pattern to the long term up trend. The first leg should have completed at 127.20. Rebound from there is seen as the second leg. Sustained break of 31.8% retracement of 151.93 to 127.20 at 136.34 will bring stronger rebound to 61.8% retracement at 142.48. Meanwhile, break of 129.62 will argue that the third leg is starting through 127.20 low.

Daily Pivots: (S1) 1.2481; (P) 1.2533; (R1) 1.2618; More...

Intraday bias in GBP/USD remains on the upside despite today's retreat. Current up trend should target 1.2759 fibonacci level first. Firm break there will target 61.8% projection of 1.0351 to 1.2445 from 1.1801 at 1.3095. For now, outlook will remain bullish as long as 1.2385 support holds, in case of retreat.

In the bigger picture, the rise from 1.0351 medium term term bottom (2022 low) is in progress for 61.8% retracement of 1.4248 (2021 high) to 1.0351 at 1.2759. Sustained break there will add to the case of long term bullish trend reversal. Further break of 61.8% projection of 1.0351 to 1.2445 from 1.1801 at 1.3095 could prompt upside acceleration to 100% projection at 1.3895. For now, this will remain the favored case as long as 1.1801 support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.8905; (P) 0.8941; (R1) 0.8978; More...

Intraday bias in USD/CHF stays neutral as range trading continues. On the upside, decisive break of 0.9001 resistance should confirm short term bottoming at 0.8850. Intraday bias will be back on the upside 55 D EMA (now at 0.9113). Sustained break there will be a strong sign of bullish reversal. On the downside, break of 0.8850 will resume larger fall from 1.0146, to 61.8% projection of 1.0146 to 0.9058 from 0.9439 at 0.8767, which is close to 0.8756 long term support. Strong support is expected there to bring rebound, at least on first attempt.

In the bigger picture, fall from 1.1046 (2022 high) is in progress for 0.8756 support (2021 low). But overall, this fall is still 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.

Daily Pivots: (S1) 0.6579; (P) 0.6611; (R1) 0.6647; More...

Further decline remains mildly on the downside with 0.6664 minor resistance intact, in spite of today's recovery. On the downside, firm break of 0.6563 will resume larger decline from 0.7156, and bring deeper decline through 0.6546 fibonacci level to 61.8% projection of 0.7156 to 0.6563 from 0.6804 at 0.6438 next. On the upside, break 0.6664 minor resistance will turn bias to the upside to extend the consolidation pattern with another rising leg.

In the bigger picture, as long as 61.8% retracement of 0.6169 to 0.7156 at 0.6546 holds, the decline from 0.7156 is seen as a correction to rally from 0.6169 (2022 low) only. Another rise should still be seen through 0.7156 at a later stage. However, sustained break of 0.6546 will raise the chance of long term down trend resumption through 0.6169 low.

Daily Pivots: (S1) 1.3501; (P) 1.3584; (R1) 1.3633; More....

Intraday bias in USD/CAD remains neutral at this point, and further rally is in favor as long as 1.3521 minor support holds. Corrective pattern from 1.3976 could have completed with three waves to 1.3299. On the upside, above 1.3668 will target 1.3860/3976 resistance zone. However, firm break of 1.3521 will dampen this bullish view and bring deeper fall back towards 1.3299 support instead.

In the bigger picture, the up trend from 1.2005 (2021 low) is still in progress. Break of 1.3976 will confirm resumption and target 61.8% projection of 1.2401 to 1.3976 from 1.3261 at 1.4234. Firm break there will pave the way to long term resistance zone at 1.4667/89 (2016, 2020 highs). On the downside, sustained break of 55 W EMA (now at 1.3302) is needed to confirm medium term topping. Otherwise, outlook will remain bullish even in case of deep pull back.

Daily Pivots: (S1) 168.23; (P) 169.71; (R1) 172.63; More...

Intraday bias in GBP/JPY remains on the upside for the moment. Current rally is in progress to retest 172.11 high. Firm break there will resume larger up trend and target 100% projection of 148.93 to 172.11 from 155.33 at 178.51. On the downside, below 167.95 support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, based on current momentum, up trend from 123.94 (2020 low) is likely ready to resume. Next target is 161.8% projection of 122.75 (2016 low) to 156.59 (2018 high) from 123.94 at 178.69. This will now remain the favored case as long as 165.40 support holds, in case of retreat.