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The US 100 stock index (cash) was smashed by worrying earnings from US retailers on Wednesday, but the big-fat sell-off was not strong enough to close below 11,874 for the second time this month.

Sellers are expected to dictate the short-term trading in the four-hour chart as the momentum indicators are dipped in the bearish area, though with the Stochastics and the RSI hovering near their oversold levels, an upside correction cannot be ruled out. In other encouraging signals, the red Tenkan-sen line hasn't confirmed a bearish cross with the blue Kijun-sen yet, while the positive intersection between the 20- and 50-period simple moving averages (SMAs) is intact despite the negative slope in the lines.

Hence, traders will keep a close eye on the 11,874 floor as the market exhibits its seventh straight week of losses. Failure to bounce here may see further weakness towards the 11,310 – 11,510 territory last active during the fourth quarter of 2020. If downside pressures persist, the next stop could be around the 11,000 psychological mark, while a steeper freefall may touch the crucial base of 10,765 from September 2020.

In the positive scenario, where the index sustains the foothold at 11,874, the constraining surface of the Ichimoku cloud currently around 12,050 may immediately deter any improvement towards the 20- and 50-period SMAs at 12,250. Should buyers drive higher, the focus will turn to the 23.6% Fibonacci retracement of the 15,265 – 11,689 downleg at 12,535. Yet, the descending trendline drawn from the 15,190 mark might be a more important obstacle at 12,740.

Summarizing, although the tech-led US 100 stock index managed to stay above May’s trough, increasing speculation that selling interest is fading, a drop below 11,874 could pour cold water to that hope.

American shares declined sharply as investors focused on the rising risks of inflation on corporate profits. The main catalyst for the sell-off was the latest earnings by Walmart and Target, two of the biggest retailers in the US. On Tuesday, Walmart published strong results but warned about the impact of rising prices. On Wednesday, Target said that fuel and freight costs would be $1 billion higher than where it expected. It blamed the rising fuel prices and wages. As a result, its stock crashed by more than 25%. Other retailers like Home Depot, Lowe’s, and Kroger all declined sharply. Retailers also expressed concerns that they had over hired. The Dow Jones declined by more than 700 points.

The price of crude oil declined sharply as fears of a recession continued. Investors are worried about the slowing Chinese economy. Data published this week revealed that the country’s retail sales and industrial production declined sharply in April. Oil also declined after the latest data by the EIA. The numbers revealed that oil inventories declined by more than 3.3 million barrels last week. This was a big surprise considering that investors were expecting the data to show that inventories rose by more than 1.38 million barrels. Oil also declined because of the overall weak sentiment in the market after Nikkei reported that China was considering cutting industrial production.

Concerns about inflation continued during the American session. On Wednesday, data by the UK showed that the country’s inflation jumped to the highest level in over 40 years. Additional data from Canada revealed that the headline CPI rose by a multi-decade high of 6.8% while core CPI rose by 5.7%. Meanwhile, the economic calendar will have several important events today. Earlier on, the Japanese government published the latest trade numbers while Australia delivered the latest jobs numbers. In Europe, the ECB will publish the latest minutes while in the US, the key data to watch will be the Philadelphia Fed manufacturing index.

XBRUSD

The XBRUSD pair declined sharply over concerns about the China slowdown. The pair declined to a low of 108, which was the lowest it has been since Friday. The pair moved below the 25-day moving average while the Stochastic Oscillator has moved below the overbought level. Further, the pair has formed a triple-top pattern. Therefore, there is a likelihood that the pair will keep falling as bears target the key support at 102.

EURUSD

The EURUSD pair declined to a low of 1.0487, which is slightly above the middle line of the Bollinger Bands. The Relative Strength Index (RSI) has moved below the overbought level. The volume indicator has continued dropping. The pair has also declined below the 25-day moving average. The pair will likely keep falling as bears target the key support at 1.0400.

USDCHF

The USDCHF pair declined sharply after it tested its parity level last week. On the daily chart, the pair has moved between the middle and upper lines of the Bollinger Bands. It remains above the 25-day moving average while the MACD and Relative Strength Index have started pointing downwards. Therefore, the pair will likely keep falling in the near term.

Unemployment falls to record low

The Australian dollar has rebounded on Thursday. AUD/USD is trading at 0.6980 in the European session, up 0.38% on the day.

Australia’s April employment report was a further confirmation that the labour market remains tight. The economy created 4,000 new jobs, which is a marginal gain. However, there was an impressive gain in the number of full-time jobs (92.4 thousand), as part-time jobs declined (88.4 thousand). This move towards more full-time jobs should translate into stronger consumer spending. Even more importantly, the unemployment rate fell to a record low of 3.9%, down from 4.0%.

The employment data was solid but not spectacular, which means that the RBA will most likely deliver a modest 0.25% rate hike at the June meeting. Wage growth ticked higher to 2.4% in Q1, up from 2.3% prior. At one time, RBA Governor Lowe insisted that he would not raise rates until wage growth hit 3%, but he was forced to abandon this position as inflation has continued to accelerate. The Federal Reserve has adopted a front-load approach to tightening, which means higher rates earlier on in the tightening cycle. The RBA hasn’t given any signals that it will follow suit. Still, the RBA minutes indicated that a supersize 40-bps rate hike was considered at the May meeting, although policy makers ended up delivering a 25-bps increase. We’ll probably see another 25-bps hike in June, although a 40-bps move shouldn’t be completely discounted.

Australians will vote in a federal election on Saturday. Prime Minister Scott Morrison is in a tight race against Labour leader Anthony Albanese. Morrison can be expected to maintain fiscal and monetary policy, and if he wins this could give the Australian dollar a slight boost. A Labour government could raise taxes and spending, which would be bearish for the Australian dollar.

AUD/USD Technical

• AUD/USD faces resistance at 0.7064 and 0.7189
• There is support at 0.6946 and 0.6821

EUR/USD

The bullish momentum faded and the euro lost some ground against the dollar during yesterday's session. The pair tested the support zone at 1.0482, and during the early hours of today`s trading, the EUR/USDis hovering under the mentioned zone. If the bearish attack continues and the breach is confirmed, then we will most likely see a test of the lower target at 1.0440, a violation of which could easily deepen the decline towards the support at 1.0389. If the bulls re-enter the market, then a successful test of the resistance zone at 1.0576 could continue the recovery for the EUR/USD and strengthen the positive expectations for the future path of the currency pair. An increase in market volatility can be expected around the announcement of the data on the Initial Jobless Claims for the U.S. (today; 12:30 GMT).

USD/JPY

The bulls did not manage to gain enough momentum to successfully violate the resistance zone at 129.59 and the dollar depreciated against the yen. The pair breached the support at 128.70, and at the time of writing the analysis, trading is still limited below the aforementioned level.. If the bears prevail, then the expectations would be for a test of the support zone at 127.48. A successful breach here could easily lead to future losses and a move towards the levels from April at around 127.00. The first target for the bulls is the mentioned zone at 128.70, which is now acting as resistance, followed by the level at 129.59. A violation of the upper target at 130.45 could lead to a change in the current sentiment of the market participants and could incite an attack on the high at 131.22.

GBP/USD

After the unsuccessful attack on the important zone at 1.2464, the sterling erased some of its recent gains against the dollar and the pair is trading below the support level at 1.2397.. If trading remains limited under the aforementioned zone, then the expectations would be for the depreciation of the sterling against the greenback to continue towards 1.2276, a breach of which would make a move towards 1.2172 highly probable.. If the bulls re-enter the market and breach the mentioned zone at 1.2397, then a follow-up breach of the major resistance at 1.2464 could mark the current move as corrective and could easily head the pair for a test of the upper target at 1.2599.

EUGERMANY40

After the rally was limited to around the zone at 14250, the German index underwent a massive sell-off and tested the support at 13870. A confirmation of the breach here could continue the sell-off and could easily head the price for an attack on the next target at 13542. A violation of the lower zone at 13279 could lead to new losses and could strengthen the negative expectations for the future path of the index. The first resistance for the bulls is now the level of 14109, followed by the upper zone at 14307. Keeping in mind the extreme drop from yesterday, however, a corrective movement towards the mentioned resistances is quite likely.

US30

The inflation fears among market participants and the weak earnings of some American companies helped the bears prevail and the index erased most of its recent gains from the previous trading sessions. The drop was limited to the support zone at 31326, and at the time of writing, the price is hovering above the mentioned level. Worse-than-expected data in the U.S. for the Initial Jobless Claims (today; 12:30 GMT) could encourage the sellers to launch another attack on the level at 31326, while a successful breach could easily lead to new losses and could strengthen the negative expectations for the future path of the US30. If the bulls take control, then a breach of the first resistance at 31855, followed by a violation of the upper target at 32188, could continue the recovery and head the price for the important zone at 32707.

On Wednesday, Bitcoin was down 3%, ending the day around $29,200, remaining near that mark on Thursday morning. Ethereum lost 4.3%. Other altcoins in the top 10 fell from 1.8% (BNB) to 9.8% (Cardano).

The total capitalisation of the crypto market, according to CoinMarketCap, fell 3.6% overnight to $1.24 trillion. The Bitcoin Dominance Index rose 0.4% to 44.7%. The Cryptocurrency Fear and Greed Index was up 1 point to 13 by Thursday and remains in ‘extreme fear’ territory.

Bitcoin resumed its decline on Wednesday amid a sharp weakening of US stock indices, which fell even more than BTC. The Nasdaq and S&P 500 lost more than 4% on Wednesday. The impressive oversold strength accumulated by the crypto market after it collapsed 40% from late March levels (versus 16% for the S&P500) temporarily limits the declining scale.

Nevertheless, the overall negative market sentiment has prevented the bulls from turning out in full force. So far, it isn’t easy to see reliable signs of oversold or rebound formation. We should be prepared for the cryptocurrency market to test support at last week’s lows again in the near term. We consider the area near 20K the final target for a potential selloff, which corresponds to Bitcoin’s long-term support line.

Among the news that caught our eye were:

Former US Federal Reserve chief Ben Bernanke called Bitcoin a harmful currency. He lashed out at cryptocurrencies, calling them “a great tool for extortionists”.

Binance lost $1.6 billion due to the collapse of Terra tokens on the exchange’s balance sheet.

Billionaire Bill Ackman said one of the main reasons for Terra’s collapse was a pyramid scheme of business. Investors were promised a 20% yield backed by a token whose value was determined by demand from new investors.

South Korea’s Financial Services Commission, amid tensions in the Stablecoin market, is proposing to register cryptocurrencies based on their level of risk to investors.

Microsoft has warned crypto investors of an increase in the activity of a new type of malware called Cryware, which allows the theft of assets from hot cryptocurrency wallets.

Birgit Rodolph, executive director of the German BaFin, called for universal regulation of the DeFi industry across the EU.

AUDUSD could not find enough buyers to overcome the 0.7050 resistance level, with the spotlight remaining to the downside as the steep negative bias is still holding.

Encouragingly, however, the RSI and the MACD continue to hold above their recent lows, while the latter has also managed to crawl back above its red signal line, providing some optimism that the bulls may not give up the battle yet.

The 0.7050 number, which overlaps with the 20-day simple moving average (SMA), could challenge any bullish attempts towards the bearish crossover within the 40- and 200-day SMAs near the 0.7265 barrier. The bottom of the Ichimoku cloud is also in the neighbourhood near the 0.7340 resistance. Hence, any breakout at this point may gather extra interest, with the price likely speeding up to 0.7457 in the aftermath.

Alternatively, an extension lower again will strengthen the case for a down-trending market, likely activating a fresh bearish wave below the almost two-year low of 0.6827. Failure to hold above that floor could cause another negative extension towards the 0.6770 restrictive region, registered in June 2020. Even lower, the market could meet the inside swing high of April 2020 at 0.6570.

In brief, AUDUSD has been developing in a descending movement since the beginning of the previous month; however, upside corrections cannot be ruled out in the near term according to the technical indicators.

Markets

A heavy selling wave on US stock markets eventually reversed intraday weakness on core bond markets while granting the dollar a push in the back. Main US indices ceded 3.6% (Dow) to 4.7% (Nasdaq). Retailers underperformed after weaker-than-expected earnings by amongst others Target. The CFO warned that fuel and freight costs will be $1bn higher than forecast this year, but that the company would absorb the costs rather than raise prices on shoppers. Walmart raised a more or less similar concern thought they already passed some of the price increases to consumers. Home improvement companies like Lowe’s and Home Depot posted small profits, but warned that the amount of shoppers is drying up. All of these clues suggest that Joe Sixpack will start being impacted by the higher cost-of-living as well.

We can now firmly label this week’s earlier action as a bear market rally or a dead cat bounce. Action on European and US stock markets this year morphed into a sell-on-upticks pattern. Fast policy normalization (plans), the high inflation environment and feeble growth prospects are responsible.

The heavy sell-off generated a safe haven bid into core bonds. US Treasuries outperformed. The US yield curve bull flattened with yields dropping 3.2 bps (2-yr) to 11.4 bps (30-yr). Daily changes on the German curve varied between +1.9 bps (3-yr) and -2.8 bps (30-yr).

There will be some catching-up action this morning, though Bunds were underperforming US Treasuries during European dealings as more ECB governors shed their light on the upcoming normalization cycle. ECB Rehn mentioned broad consensus to get rid of negative interest rates relatively quickly, suggesting no pauses once the rate hikes begin.

The dollar ended a three-day correction yesterday with the trade-weighted greenback bouncing from an open at 103.34 to a close of 103.81. EUR/USD slid from 1.055 to 1.0464. Only the yen managed to outpace the greenback yesterday with USD/JPY closing at 128.23 from an open at 129.38.
 
Risk sentiment on stock markets will remain the dominant trading theme today. Main Asian benchmarks lose 1% to 2% despite rumours that Chinese banks may cut their benchmark lending rates for a second time this year.

Today’s eco calendar contains US weekly jobless claims and Philly Fed Business Outlook. The latter might show similar warning signals as the Empire Manufacturing Survey earlier this week. Minutes of the ECB meeting could be interesting, put probably outdated and no longer influential following the past week’s “coming out” in favour of a July rate hike. Risk aversion favours bonds and the dollar..

News Headlines

The Australian labour market added 4k jobs in April. That was below expectations for 30k. A surge in full time employment (92.4k) was partially offset by a decline in part time jobs. The unemployment rate stabilized at the lowest since 1974 (3.9%), despite the meagre jobs growth. A slight decline in the participation rate to 66.3% helped realize that. Hours worked jumped by 1.3% m/m but reflected a bounce back from a flood-affected March. There is still double the amount of people working no or reduced hours due to Covid illness compared to before the pandemic. The outcome eyes mixed but should be seen against an economy near full capacity. It comes after slightly less-than-expected Q1 wage growth and is the last important data ahead of Saturday’s general elections. The Aussie dollar was largely unaffected. AUD/USD recaptures 0.70 but that strengthening move came one hour later.
 
The Russian economy slowed from 5% to 3.5% y/y (vs. 3.7% expected) in Q1 this year, data showed yesterday. Mining, the sector that includes oil and gas, helped spur growth by an 8.5% increase. Economic growth in the country is expected to shrink significantly in the coming quarters following a series of sanctions by the western countries. The Russian central bank has penciled in a contraction of 10% this year. Russian CPI eased to 0.05% week-over-week. That’s the slowest pace since September last year, driven in part by dampened consumer demand. In the aftermath of the Russian invasion on February 24, weekly CPI shot up to more than 2%. USD/RUB marginally weakened 64.36 yesterday and extends losses to 63.66 this morning. It’s the strongest RUB level since early 2020.

Daily Pivots: (S1) 1.0425; (P) 1.0495 (R1) 1.0529; More...

Intraday bias in EUR/USD stays neutral at this point. Considering bullish convergence condition in 4 hour MACD, break of 1.0641 resistance will confirm short term bottoming at 1.0348, ahead of 1.0339 long term support. Intraday bias will be turned back to the upside for 1.0805 support turned resistance. On the downside, however, decisive break of 1.0339 will carry larger bearish implication and target 161.8% projection of 1.1494 to 1.0805 from 1.1184 at 1.0069.

In the bigger picture, break of medium term channel support suggests downside acceleration. Current decline from 1.2348 (2021 high) is probably resuming long term down trend from 1.6039 (2008 high). Decisive break of 1.0339 will confirm this bearish case. Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. This will now remain the favored case as long as 1.0805 support turned resistance holds.

Daily Pivots: (S1) 1.2284; (P) 1.2392; (R1) 1.2455; More..

Intraday bias in GBP/USD remains neutral for consolidation above 1.2154. Further decline will remain in favor as long as 1.2637 resistance holds. On the downside, break of 1.2154 will resume the down trend from 1.4248 to 200% projection of 1.3641 to 1.2999 from 1.3297 at 1.2013. However, considering bullish convergence condition in 4 hour MACD, break of 1.2637 will confirm short term bottoming at 1.2154. Intraday bias will be turned back to the upside for 55 day EMA (now at 1.2796).

In the bigger picture, based on current momentum, fall from 1.4248 (2018 high) at least at the same degree as the rise from 1.1409 (2020 low). That is, fall from 1.4248 could be a leg inside the pattern from 1.1409, or resuming the longer term down trend. In either case, deeper decline is expected as long as 1.2999 support turned resistance holds. Next target is 1.1409 low.

Daily Pivots: (S1) 0.9835; (P) 0.9910; (R1) 0.9959; More...

A short term top is in place at 1.0063 on bearish divergence condition in 4 hour MACD. Intraday bias in USD/CHF is now mildly on the downside for 38.2% retracement of 0.9193 to 1.0063 at 0.9731. For now, risk will stay mildly on the downside as long as 1.0063 resistance holds, in case of recovery.

In the bigger picture, down trend from 1.0342 (2016 high) should have completed with three waves down to 0.8756 (2021 low) already. Rise from 0.8756 is likely a medium term up trend of its own. Next target is 161.8% projection of 0.8756 to 0.9471 from 0.9149 at 1.0306, which is close to 1.0342 (2016 high). This will remain the favored case as long as 0.9459 resistance turned support holds.