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Today is not a day rich in economic data. The most important is the Empire State manufacturing index, which came in well above expectations for April. The New York Fed’s index rose to 10.8 from -24.6 the previous month, although a slight increase to -17.7 was expected. A reading above 0 indicates increased activity; the current level is the highest since last July.

Although this indicator has been somewhat volatile in recent years, its sharp improvement against expectations in a quiet market supported expectations of another rate hike.

At the start of US trading, the interest rate futures market was pricing at an 87% chance of a 25bp hike, up from 78% last Friday to 72% the week before. This reassessment of the outlook supports the demand for the dollar, which benefits from higher interest rates.

The Dollar Index has rallied on the news to 101.55 (+0.9% from Friday’s lows), and EURUSD is trading near 1.0950, back below the important 1.10 ground level. GBPUSD has also pulled back 100 pips below 1.2500.

The resumption of dollar buying questions whether the DXY’s new lows and EURUSD and GBPUSD’s new highs were a false break. To say that the dollar has managed to defend a vital level will only be possible if it rises another 0.9%, which would take the DXY back above the previous highs and form a bullish trend. The EURUSD is at 1.0850, and the GBPUSD is at 1.2350.

New Zealand’s services sector saw expansion levels ease in March. The BusinessNZ PSI (Performance of Services Index) fell to 54.4, down from 55.8 in February but well above the 50.0 line which separates contraction from expansion. According to Business NZ, the drivers behind the decline were a weakening economy, price increases and an uncertain economic landscape.

This follows last week’s Manufacturing PMI, which slipped to 48.1, after a downwardly revised 51.7 in February. This trend conforms to the situation in other major economies, where the services sector has largely recovered from Covid, but manufacturing has been struggling due to weak global economic conditions and supply chain issues.

The key New Zealand release this week is first quarter CPI, which will be released on Thursday. Headline CPI is expected to ease to 6.7%, down from 7.2%. The Reserve Bank of New Zealand has been relentless in its battle to contain inflation, raising the benchmark cash rate to 5.25%. Governor Orr needs a substantial drop in the upcoming inflation report to defend high rates which have cooled the economy and hurt households and businesses.

The New Zealand dollar is down 0.58% today, after sliding 1.4% a day earlier. Although US retail sales underperformed, the UoM inflation expectations index for the next 12 months jumped to 4.6%, up from 3.6% prior. Hawkish comments from Fed members also boosted the US dollar on Friday. Fed member Waller said that inflation remained too high and the Fed would have to keep rates elevated for a longer period than the markets anticipated. Fed member Bostic called for one or two more rate hikes before the current rate-tightening cycle is completed.

Even with inflation falling and consumer spending in decline, the markets believe that the economy remains too hot and the current cycle isn’t quite over. The odds of a 25-basis point hike in May are 84% according to the CME Group, up from 72% a week ago. Higher expectations that the Fed will continue raising rates have boosted the US dollar.

NZD/USD Technical

• NZD/USD is putting pressure on support at 0.6156. Below, there is support at 0.6102
• 0.6235 and 0.6340 are the next resistance lines

The Euro accelerated lower on Monday after upside attempts in early European session were capped by 1.10, now reverted to resistance.

Pullback from new 2023 high (1.1075) extends into second consecutive day and gains pace, as dollar advances on rising bets on Fed rate hike next month, while upbeat US data on Monday added to positive signals for the US currency.

Bears broke through initial supports at 1.0943/39 (Fibo 23.6% of 1.0516/1.1075 / 10DMA) and pressure round-figure support at 1.0900, ahead of next pivots at 1.0886/62 (20DMA / Fibo 38.2%) loss of which would further weaken near-term structure.

Today’s close below broken supports at 1.0943/39 to add to growing reversal signals, which still require confirmation on sustained break below pivots at 1.0862/31 (Fibo 38.2% / Apr 10 higher low).

Res: 1.0943; 1.1000; 1.1032; 1.1075
Sup: 1.0886; 1.0862; 1.0831; 1.0796

Cable remains at the back foot on Monday, but with limited extension of Friday’s nearly 0.9% drop so far, though dollar keeps positive tone on growing expectations of another Fed rate hike in May.

Much better than expected release of US Empire State Manufacturing Index (Apr 10.8 vs -18.00 f/c) added support to the greenback.

Rising 20DMA (1.2375) and Fibo 23.6% of 1.0802/1.2545 (1.2370) offered temporary support, but near-term risk remains shifted to the downside and threatening break of pivotal supports at 1.2375/70 and 1.2343 (Apr 10 trough).

Sustained break here to generate fresh bearish signal on completion of a double-top pattern (1.2525/45) and risk deeper fall.

Weakening daily studies contribute to the outlook as falling 14-d momentum is approaching the borderline of negative territory and stochastic is heading south, while MA’s are in mixed setup.

Loss of 1.2343 pivot would risk acceleration towards 1.2262 (Fibo 38.2% of 1.0802/1.2545) and 1.2180 zone (50% retracement/converged 55/100DMA’s) in extension.

Near-term action is expected to remain biased lower while holding below 10DMA (1.2443), but extended range-trading can be expected if bears fail to clear supports at 1.2375/70.

Res: 1.2443; 1.2476; 1.2500; 1.2545.
Sup: 1.2343; 1.2262; 1.2190; 1.2174.

Cryptocurrencies are experiencing a slowdown as traders refocus their attention on earnings and economic fundamentals. Last week, Ethereum's Shapella Upgrade was successfully implemented, causing a surge past the 2000 level. While some feared the upgrade would lead to a selloff, investors chose to emphasize the long-term advantages of the update. As a result, Ethereum remains well-supported above the 2000 threshold despite the pullback.

In the short term, Ethereum's prospects appear bullish, provided the 1824.70 support level remains intact. An ongoing rally could propel Ethereum towards a long-term fibonacci retracement level of 38.2% retracement of 4863.75 to 878.50 at 2400.86. However, Rejection by this level will keep price actions from 878.50 as a corrective move only, and keep medium term outlook neutral at best.

Meanwhile, Bitcoin has slipped back under the 30k mark after a brief spike to 31011 last week. The near-term outlook for Bitcoin will stay bullish as long as the 27808 support level holds. The climb from 15452 has the potential to reach a 38.2% retracement of 68986 to 15452 at 35901. Similar to Ethereum, if Bitcoin is rejected by 35901, price action from 15452 would be viewed as corrective, leaving the medium-term outlook neutral at best.

Daily Pivots: (S1) 1.0952; (P) 1.1014; (R1) 1.1055; More...

EUR/USD's pull back from 1.1075 extends lower today but stays above 1.0830 support. Intraday bias remains neutral and outlook stays bullish. Above 1.1075 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, firm break of 1.0830 will confirm short term bottoming and bring deeper decline to 1.0711 support instead.

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) 1.2361; (P) 1.2454; (R1) 1.2508; More...

GBP/USD is still staying above 1.2343 support and intraday bias remains neutral. Another rise is in favor and above 1.2545 will 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. However, considering bearish divergence condition in 4H MACD, firm break of 1.2343 will confirm short term topping, and turn bias back to the downside for deeper pullback.

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) 0.8885; (P) 0.8922; (R1) 0.8977; More...

USD/CHF's recovery from 0.8858 extends higher today but stays below 0.9070 support turned resistance. Intraday bias remains neutral first. On the downside, below 0.8858 will resume the down trend 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. On the upside, break of 0.9070 support turned resistance will confirm short term bottoming and turn bias back to the upside.

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.

Markets

Europe took a slow start to the new week. Core bonds struggled to find direction in a session where news and data was scarce. As trading evolved, core bonds eventually extended Friday’s losses with US Treasuries underperforming German Bunds already before the release of a better-than-expected Empire Manufacturing. The April headline index rebounded sharply from -24.6 to 10.8 (vs -18 consensus), the highest since July and the first positive reading in five months. New orders surged by a record 46.8 points to 25.1. Actual shipments also shot up by a whopping 37.4 points. Headcount is still expected to shrink though less than in March. Prices paid eased from 41.9 to 33 signaling easing producer prices though prices received edged up to 23.9. Business conditions for the six month ahead period improved as well but remain low in a historical perspective. US yields add between 4 and 6.1 bps with the front end of the curve taking the lead higher. German yields advance 2 bps (2-y) to 4.1 bps (30-y). Core bond yields further bottoming out suggests markets are (getting) past the mid-March financial turmoil and instead embrace the idea of more central bank tightening to come. Current market pricing implies an >80% chance of a 25 bps Fed rate hike in May. Euro area money markets expect an additional 75 bps more tightening to come. There’s a 25% odd for a 50 bps move in May but it’s building after last week’s (orchestrated?) verbal intervention by the likes of ECB Wunsch. Equities in Europe have come a bit under pressure after an impressive rally over the past month. The EuroStoxx50 touched the 4K barrier mid-March and tested the 4400 level end of last week and again today. Failure in pushing through resulted in a muted technical countermove with the index losing 0.5% currently. WS opens mixed. Equities losing some steam and USTs underperforming are giving the dollar an edge. DXY rises from 101.57 to 101.83 and EUR/USD slips from 1.10 at the open to 1.0955 now. USD/JPY extends gains to 134.18 within a developing shallow upward sloping trend channel. EUR/JPY briefly hit the highest level since end-October before paring gains to just south of 147. Sterling strengthens despite the fragile risk mood and gilt outperformance (yields gain less than 2 bps). EUR/GBP loses half a big figure intraday, dropping from a 0.8872 high to 0.8825 currently.

News & Views

The Swedish government published its 2023 spring fiscal policy bill and the spring amending budget for 2023. The government assesses the Swedish economy to be in recession throughout 2023. It downwardly revised its 2023 growth forecast from -0.7% to -1.0%. At the same time, headline inflation/CPIF is expected at 8.8% and 5.9% respectively, marginally lower from the December forecasts with inflation driven primarily by higher prices of food and services, whereas the impact of energy prices is decreasing. Underlying inflation (ex. interest costs and energy) is expected at 6.6% this year. Public finances are to be impacted negatively by declining demand in the economy in the coming years but the fiscal situation stays robust with government debt at a historically low level (31.0% of GDP expected in 2023 & 2024). In this context, the government says it is exercising responsibility through continued restrain in its fiscal policy while ensuring support goes primarily to vulnerable households. The krone is strengthening modestly today. Still, at EUR/SEK 11.34, the Swedish currency is holding within reach of the post-pandemic lows (EUR/SEK 11.44/48) as the Riksbank takes a rather balanced anti-inflation approach.

According to data released by the National Bank of Poland today, core inflation in the country rose 1.3% M/M and 12.3% Y/Y (was 1.3% M/M and 12.0% Y/Y in February). CPI prices excluding food and energy prices and excluding administered prices still rose 1.3% M/M. Most volatile prices rose 1.5%. Earlier this month, the statistical office reported headline March inflation at 1.1% M/M and 16.1% Y/Y. The NBP has a 2.5% inflation target with a tolerance band of +/- 1.0%. In a written response to questions from Reuters, Polish MPC member Cezary Kochalski before today’s data release indicated that high inflation is leaving no scope for the NBP to discuss interest rate cuts. For that to happen it needs certainty ‘that inflation is moving quickly to the target over the monetary policy impact horizon’. The zloty YTD underperformed the forint and the Czech koruna. However, EUR/PLN (4.63) is now also closing in on 4.6270 support (December low).

Daily Pivots: (S1) 132.68; (P) 133.26; (R1) 134.35; More...

Intraday bias in USD/JPY remains mildly on the upside as rebound from 129.62 is in progress. Further rally could be seen back towards 137.90 resistance. For now, further rise will remain in favor as long as 132.03 support holds, in case of retreat.

In the bigger picture, corrective pattern from 127.20 might be extending. But after all, down trend from 151.93 is expected to resume at a later stage. Break of 127.20 will resume this down trend and target 61.8% projection of 151.93 to 127.20 from 137.90 at 122.61. This will now be the favored case as long as 137.90 resistance holds.