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Daily Pivots: (S1) 1.0868; (P) 1.0898; (R1) 1.0943; More...

Intraday bias in EUR/USD is back on the upside as rise from 1.0525 resumes by breaking through 1.0972. Further rally should be seen to 1.1032 high. Decisive break there resume larger up trend from 0.9534 to 1.1273 fibonacci level. Nevertheless, break of 1.0830 support will now indicate rejection by 1.1032, and turn bias back to the downside for 1.0711 support and below.

In the bigger picture, rise from 0.9534 (2022 low) is in progress with 38.2% retracement of 0.9534 to 1.1032 at 1.0460 intact. The strong support from 55 week EMA (now at 1.0625) was also a medium term bullish sign. Next target is 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).

Daily Pivots: (S1) 1.2385; (P) 1.2420; (R1) 1.2461; More...

GBP/USD is still bounded in sideway consolidation from 1.2425. Intraday bias stays neutral for the moment. Further rally is expected with 1.2203 resistance turned support intact. On the upside, break of 1.2524 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.

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) 133.18; (P) 133.50; (R1) 134.01; More...

With break of 132.92 minor support, intraday bias in USD/JPY turned neutral again. On the upside, break of 134.04 will resume the rebound from 129.62 towards 137.90 resistance again. On the downside, further break of 130.62 should resume the fall from 137.90 through 129.62 to retest 127.20 low.

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.

Summary

For the inflation optimists out there, the March CPI report delivered good news with total prices rising by the smallest amount in nine months and hints that core services inflation is starting to moderate. However, for the inflation pessimists, the latest CPI report shows the recent underlying trend in price growth remains far too high, with the core CPI increasing at more than a 5% annualized pace the past three months.

Consumer prices increased just 0.1% in March. Falling prices for energy and flat prices for food helped restrain the increase in the headline index. Excluding food and energy, core consumer prices rose 0.4% in March and 5.6% over the past year.

Core consumer prices continue to grow much faster than the Federal Reserve's target, but we believe slower inflation is coming in the months ahead as the economy cools and finds better balance in a post-pandemic world. We do not think today's report materially changes the outlook for U.S. monetary policy. We still expect a 25 bps rate hike from the FOMC at the conclusion of its next meeting on May 3. Past May, the outlook is increasingly uncertain, but we think the most likely outcome is for the FOMC to keep the federal funds rate steady for an extended period of time.

CPI Posts a Modest Increase in March

The consumer price index increased just 0.1% (0.05% before rounding) in March, the smallest increase since last July. A reprieve in price growth for frequently purchased necessities—energy and food—held the headline CPI to a more palatable gain and provided consumers a little more wiggle-room in their March budgets. Prices for gasoline declined 4.6% while energy services fell 2.3% last month. With the initial surge in oil prices related to Russia's invasion of Ukraine a full year behind us, energy prices have turned to a drag on the year-over-year rate of inflation (chart). Food inflation also continued to moderate, with a flat reading in March pushing the year-ago rate down to a still burdensome 8.5%. Yet, while there is likely some further scope for energy services and food inflation to ease on a monthly basis in the near-term, the benefit to real incomes from lower gasoline prices is unlikely to carry over to April, as prices at the pump have rebounded in recent weeks. Declining inflation for food and energy have helped push the year-over-year rate of CPI inflation down to 5.0%, the lowest reading since May 2021.

Excluding food and energy, however, inflation remains stubbornly high. Core CPI rose 0.4% in March and ticked up to 5.6% on a year-over-year basis (chart). In a sign that the path to quelling inflation will have some bumps along the way, goods prices, which have been leading the charge on core CPI disinflation, rebounded to 0.2% in March—its largest monthly gain since August. The pop was traced to somewhat firmer vehicle pricing; new vehicles rose by the most in three months, while the 0.9% drop in used vehicle prices was the smallest decline in seven months. Prices for core goods excluding vehicles continued its recent string of strong 0.5% monthly increases.

Yet there is a whiff of relief coming on the services side of inflation. Core services prices advanced 0.4% in March, the smallest increase since last July. The much-awaited downward trend in shelter inflation has finally seemed to arrive. Both owners' equivalent rent (OER) and primary rent, which together account for 41% of the core, rose 0.5% after bouncing between monthly gains of 0.6%-0.8% for nearly a year. But softer services prices extended beyond shelter. The CPI equivalent of the Fed's now closely watched "super core", which we define as core services less OER and primary rent, rose 0.3% after 0.5% gains in January and February. Driving the softer print was another decline in medical services along with flat prices for recreational services. In contrast, prices for travel related services climbed 2.5% for a second straight month, fueled by strength in hotel prices (+2.7%) and airfares (+4.0%) in a sign that consumers are still willing to shell out for select discretionary purchases.

One More Rate Hike Coming

The bottom line is that inflation still remains too hot for the Fed's liking. The core CPI has been above 5% on a year-over-year basis for 16 consecutive months, and over the first three months of 2023, core consumer prices have risen at an equally hot 5.1% annualized rate. This is not to say there has been no progress towards taming inflation. Energy prices have outright fallen over the past year, food inflation is slowing and prices for certain goods that surged during the pandemic, such as used vehicles, have declined. But, directional progress should not be confused with mission accomplished. As a result, we expect another 25 bps rate hike from the FOMC at the conclusion of its next meeting on May 3.

That said, there are forward-looking signs that suggest inflation will slow further in the coming months. Inventories of goods continue to normalize, and the ongoing contraction in the manufacturing sector suggests further softening in goods inflation could be in the offing. Shelter inflation as measured by the CPI has now started to rollover following the sharp deceleration in home prices and rents over the past year. Consequently, shelter's contribution to CPI inflation should retreat as the year progresses. More generally, aggregate demand growth appears to be weakening, and wage growth has moved in a similar direction. Altogether, we think the May 3 rate hike will be the last of the tightening cycle. Our view is that the FOMC will hold the target range for the federal funds rate at 5.00%-5.25% for the foreseeable future in order to assess the effectiveness of their accumulated policy tightening.

Daily Pivots: (S1) 0.9006; (P) 0.9055; (R1) 0.9081; More...

USD/CHF's strong break of 0.9005 confirms resumption of whole down trend from 1.0146. Intraday bias is back on the downside. Next target is 61.8% projection of 1.0146 to 0.9058 from 0.9439 at 0.8767, which is close to 0.8756 long term support. On the upside, break of 0.9119 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, outlook will stay bearish as long as 0.9439 resistance holds, and fall from 1.1046 (2022 high) is still in progress. Prior rejection by 55 week EMA was a medium term bearish sign. Sustained of 0.9058 will resume such decline towards 0.8756 support (2021 low). But overall, this fall is still 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.

The overall set of US consumer inflation reports appears to have been well received by investors. DOW futures jumped over 200 points following the release and maintained most of the gains before open, while treasury yields tumbled at both short and long ends. Although Fed is still on track to deliver another rate hike in May as core inflation rebounds, there is hope that disinflation is progressing smoothly and may even accelerate, potentially opening the door for Fed to reverse tightening earlier.

In the currency markets, Dollar is clearly under pressure after CPI release, breaking out to the downside against both the Euro and Swiss Franc. However, the situation is not disastrous for the greenback yet, as it's still holding within range against Sterling, Loonie, and Aussie. Elsewhere, Gold has yet to break through the 2032 high, but WTI crude oil is making small progress in reaching 82 handle.

Technically, while the focus remains on Dollar, some attention is worth paying to the Swiss Franc as well. CHF/JPY broke through 147.58 resistance yesterday to resume the rise from 137.40. Further rally is now favored as long as the 146.06 resistance-turned-support holds. The next target is the 151.43 high. A decisive break there will resume the long-term uptrend and would signal more upside for the Swiss Franc or downside for the Yen elsewhere, or both.

In Europe, at the time of writing, FTSE is up 0.74%. DAX is up 0.54%. CAC is up 0.50%. Germany 10-year yield is down -0.0059 at 2.307. Earlier in Asia, Nikkei rose 0.57%. Hong Kong HSI dropped -0.86%. China Shanghai SSE rose 0.41%. Singapore Strait Times dropped -0.36%. Japan 10-year JGB yield rose 0.0111 to 0.466.

US CPI slowed to 5% yoy and missed expectations, core CPI ticked up to 5.6% yoy

US CPI rose 0.1% mom in March, below expectation of 0.3% mom. CPI core (all items less food and energy) rose 0.4% mom, matched expectations. Energy index decreased -3.5% mom while food index was unchanged.

Over the last 12 months, CPI slowed from 6.0% yoy to 5.0% yoy, below expectation of 5.2% yoy, marked the lowest level since June 2021. CPI core (all items less food and energy) accelerated from 5.5% yoy to 5.6% yoy, matched expectations. Energy index for down -6.4% yoy while food index rose 8.5% yoy.

EUR/USD upside breakout, to target this year's high

EUR/USD has broken out to the upside following a lower-than-expected headline inflation reading in the US. While the uptick in core CPI still supports another rate hike by Fed in May, the overall data set raises hopes that the disinflation process is ongoing and perhaps even gathering momentum. This development bolsters the confidence of those betting on a Fed rate cut later this year.

Technically, EUR/USD is expected to face resistance at 1.1032 shortly. A decisive break above this level would resume the overall uptrend from the 2022 low of 0.9534. Next target is the 61.8% retracement of 1.2348 (2021 high) to 0.9534, which stands at 1.1273.

Can gold ride on Dollar selloff to extend near term rally?

As Dollar is sold off broadly after CPI release, a focus is now on Gold, which also jumps higher. The first hurdle is 2032.05 near term resistance. Rejection by this level, followed by break of 2006.02 support, will extend the corrective pattern from 2032.05 with another falling leg. However, firm break of 2023.05 will resume whole rally from 2022 low at 1614.60 and target 2070.06/2073.84 key resistance zone. If realized, an upside break should confirm underlying downside momentum in Dollar elsewhere.

Meanwhile, next hurdle would be 2070.06/2073.84 key resistance zone. Sustained break there will confirm long term up trend resumption for new record highs.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9006; (P) 0.9055; (R1) 0.9081; More...

USD/CHF's strong break of 0.9005 confirms resumption of whole down trend from 1.0146. Intraday bias is back on the downside. Next target is 61.8% projection of 1.0146 to 0.9058 from 0.9439 at 0.8767, which is close to 0.8756 long term support. On the upside, break of 0.9119 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, outlook will stay bearish as long as 0.9439 resistance holds, and fall from 1.1046 (2022 high) is still in progress. Prior rejection by 55 week EMA was a medium term bearish sign. Sustained of 0.9058 will resume such decline towards 0.8756 support (2021 low). But overall, this fall is still 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.

Economic Indicators Update

As Dollar is sold off broadly after CPI release, a focus is now on Gold, which also jumps higher. The first hurdle is 2032.05 near term resistance. Rejection by this level, followed by break of 2006.02 support, will extend the corrective pattern from 2032.05 with another falling leg. However, firm break of 2023.05 will resume whole rally from 2022 low at 1614.60 and target 2070.06/2073.84 key resistance zone. If realized, an upside break should confirm underlying downside momentum in Dollar elsewhere.

Meanwhile, next hurdle would be 2070.06/2073.84 key resistance zone. Sustained break there will confirm long term up trend resumption for new record highs.

EUR/USD has broken out to the upside following a lower-than-expected headline inflation reading in the US. While the uptick in core CPI still supports another rate hike by Fed in May, the overall data set raises hopes that the disinflation process is ongoing and perhaps even gathering momentum. This development bolsters the confidence of those betting on a Fed rate cut later this year.

Technically, EUR/USD is expected to face resistance at 1.1032 shortly. A decisive break above this level would resume the overall uptrend from the 2022 low of 0.9534. Next target is the 61.8% retracement of 1.2348 (2021 high) to 0.9534, which stands at 1.1273.

US CPI rose 0.1% mom in March, below expectation of 0.3% mom.  CPI core (all items less food and energy) rose 0.4% mom, matched expectations. Energy index decreased -3.5% mom while food index was unchanged.

Over the last 12 months, CPI slowed from 6.0% yoy to 5.0% yoy, below expectation of 5.2% yoy, marked the lowest level since June 2021. CPI core (all items less food and energy) accelerated from 5.5% yoy to 5.6% yoy, matched expectations. Energy index for down -6.4% yoy while food index rose 8.5% yoy.

Full US CPI release here.

The currency market has moved little over the past week, waiting for significant drivers. The Easter lull is likely to end today, as inflation data and the Fed’s March meeting minutes are expected to be released.

US inflation reports have moved markets more than NFP in recent months and have often been a bellwether for the Dollar in the coming weeks as they have influenced interest rate expectations.

On average, market analysts are forecasting a 0.2% rise in prices for March and a slowdown in annual inflation to 5.1% from 6.0% the previous month and a peak of 9.1% in June last year.

However, economists expect core inflation to rise from 5.5% to 5.6% YoY, reversing the downward trend that has been in place since September.

In our view, a deeper slowdown in headline inflation, as we saw in China earlier this week, cannot be ruled out. Moreover, we should not be surprised if the rate of increase in prices, excluding energy and food, also falls short of expectations. A recovery in supply chains and a slowdown in wage growth are working against inflation.

A weaker-than-expected reading or other reliable signs of waning inflation could unleash a wave of pressure on the Dollar, reducing the chances of another Fed rate hike. Weaker inflation data is also good for demand for equities and commodities, as markets will reinforce expectations that inflation has peaked. The Dollar would then stand a good chance of rallying off this year’s lows.

On the other hand, if prices rise significantly more than expected, this will push the Dollar higher. Technically, the DXY could form a double bottom with lows in early February and April. Equities and commodities could go down.