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• Consumer price inflation increased to 6.8% year-on-year (y/y) in April, up from 6.7% in March.
• Food prices were a main driver, with prices rising 9.7% y/y. Statistics Canada noted that "this increase, which exceeded 5% for the fifth month in a row, was the largest increase since September 1981."
• Shelter also contributed significantly, up 7.4% y/y. It was referenced that "higher prices for energy sources used to heat homes, such as natural gas (+22.2%) and fuel oil and other fuels (+64.4%), contributed to the increase." Furthermore, "homeowners' replacement cost (+13.0%) which is related to the price of new homes, and other owned accommodation expenses (+17.2%) which includes commissions on the sale of real estate, both increased in April."
• Prices at the pump dropped a touch in April, down 0.7% month-on-month, after a double-digit gain in March. This follows a modest drop in global energy prices.
• Seasonally adjusted, month-on-month prices were up 0.7% following a 1% gain in March. Excluding food and energy, the index was up 0.5%, down from 0.7% in March.
• All three of the Bank of Canada's core inflation metrics picked up steam in April. CPI-trim rose 0.3 percentage points (pp) to 5.1%, CPI-common by 0.2pp to 3.2%, and CPI-median by 0.4pp to 4.4%.

Key Implications

• The cost of basic necessities continues to push higher in Canada, with food and shelter driving the price increases. We are not expecting much of a reprieve going forward, with food supplies likely remaining tight. On the shelter side, we are likely to see a continuation of rent price increases alongside rising mortgage interest costs. This will be balanced against the impact of declining house prices. Furthermore, energy prices at gas stations may have taken a breather in March, but anyone who has filled up their tank over the last couple of weeks knows that an acceleration of prices will show up in next month's CPI print.
• All of this re-enforces the view that the Bank of Canada will hike by another 50 basis points (bps) on June 1st, followed by another 50 bps in July. Bond yields in Canada increased following this morning's data release, with most of the curve converging around the 3% level.

Daily Pivots: (S1) 128.87; (P) 129.32; (R1) 129.82; More...

USD/JPY is staying in consolidation from 131.34 and intraday bias remains neutral for the moment. Another fall could be seen and break of 127.51 will target 125.09 cluster support (38.2% retracement of 114.40 to 131.34 at 124.86). On the upside, firm break of 131.34 will resume larger up trend.

In the bigger picture, current rally is seen as part of the long term up trend form 75.56 (2011 low). Sustained trading above 61.8% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 130.04 will pave the way to 100% projection at 149.26, which is close to 147.68 (1998 high). For now, this will remain the favored case as long as 121.27 support holds.

Daily Pivots: (S1) 0.9896; (P) 0.9963; (R1) 1.0006; More....

USD/CHF is staying in range below 1.0063 and intraday bias remains neutral. Considering bearish divergence condition in 4 hour MACD, break of 0.9871 support will indicate short term topping at 1.0063. Intraday bias will be turned to the downside for 38.2% retracement of 0.9193 to 1.0063 at 0.9731. On the upside, above 1.0063 will resume larger up trend.

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.

Daily Pivots: (S1) 1.0468; (P) 1.0512 (R1) 1.0594; More...

EUR/USD is still bounded in range above 1.0348 and intraday bias remains neutral first. 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) 1.2374; (P) 1.2436; (R1) 1.2557; More..

GBP/USD dips mildly today but overall, it's staying in consolidation from 1.2154. Intraday bias remains neutral at this point and 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 1.2816).

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.

Dollar and Yen are recovering mildly today but overall major pairs and crosses are stuck in very tight range. European majors are the weaker ones, with Sterling having a lower handle. Commodity currencies are mixed. Trading is also quiet in other markets with Gold continuing to hover slightly above 1800 handle. WTI crude oil is gyrating in tight range below 115. Bitcoin is flip-flopping around 30k. A surprise could be found in US 10-year yield ahead, which might reclaim 3% handle. That could help give Dollar a lift against Yen.

Technically, it looks like Sterling has already failed near term resistance level, after today's CPI data provided no fuel for further rally. GBP/USD retreated well ahead of 1.2637 resistance, and GBP/JPY ahead of 161.16 minor resistance. EUR/GBP also recovered ahead of 0.8365 support. There is slightly more prospect of more downside in the pound.

In Europe, at the time of writing, FTSE is down -0.47%. DAX is down -0.50%. CAC is down -0.51%. Germany 10-year yield is up 0.0235 at 1.076. Earlier in Asia, Nikkei rose 0.94%. Hong Kong HSI rose 0.20%. China Shanghai SSE dropped -0.25%. Singapore Strait Times rose 0.73%. Japan 10-year JGB yield rose 0.0016 to 0.246.

Canada CPI ticked up to 6.8% yoy in Apr, driven by food and shelter prices

Canada CPI ticked up further to 6.8% yoy in April, up from March's 6.7% yoy, above expectation of 6.7% yoy. CPI ex-gasoline accelerated to 5.8%, up from 5.5% yoy, fastest since the series was introduced in 1999. Statics Canada added that the year-over-year increase in April was largely driven by food and shelter prices. Gas prices increased at a slower pace.

Looking at the preferred measures of core inflation by BoC, CPI common rose from 3.0% yoy to 3.2% yoy, above expectation of 2.9% yoy. CPI median rose from 4.0% yoy to 4.4% yoy, above expectation of 3.9% yoy. CPI trimmed rose from 4.8% yoy to 5.1% yoy, above expectation of 4.7% yoy.

ECB de Cos: Further rate hikes could be made in coming quarters

ECB Governing Council member Pablo Hernandez de Cos said today, "in the coming quarters, further (rate) increases could be made to reach levels in line with the natural rate of interest if the medium-term inflation outlook remains around our target."

But de Cos also emphasized that the process of policy normalization would be gradual. "For this gradual approach to be adopted, it is essential that inflation expectations remain anchored and that no second-round and indirect effects of a magnitude that could jeopardise this anchoring materialise," he said.

Another Governing Council member Olli Rehn said, "It seems necessary that in our policy rates we move relatively quickly out of negative territory and continue our gradual process of monetary policy normalization."

Eurozone CPI finalized at 7.4% yoy in Apr, core CPI at 3.5% yoy

Eurozone CPI was finalized at 7.4% yoy in April, unchanged from March's reading. Core CPI was finalized at 3.5% yoy, up from March's 3.0% yoy. The highest contribution to the annual Eurozone inflation rate came from energy (+3.70%), followed by services (+1.38%), food, alcohol & tobacco (+1.35%) and non-energy industrial goods (+1.02%).

EU CPI was finalized at 8.1% yoy, up from March's 7.8% yoy. The lowest annual rates were registered in France, Malta (both 5.4%) and Finland (5.8%). The highest annual rates were recorded in Estonia (19.1%), Lithuania (16.6%) and Czechia (13.2%). Compared with March, annual inflation fell in three Member States, remained stable in two and rose in twenty-two.

UK CPI rose to 9% yoy in Apr, core CPI up to 6.2% yoy

UK CPI accelerated sharply from 7.0% yoy to 9.0% yoy in April, but missed expectation of 9.1% yoy. CPI core rose from 5.7% yoy to 6.2% yoy, matched expectations. RPI accelerated form 9.0% to 11.1% yoy, matched expectations.

Headline CPI was another record high since the National Statistics series began in 1997. It's also the highest record rate in the constructed historical series which began in 1989.

Based on the recently published modelled consumer price inflation data by the ONS, CPI was last higher sometime around 1982, where estimates range between approximately 6.5 % in December to nearly 11% in January.

In response to the release, Chancellor of the Exchequer Rishi Sunak said: "Today's inflation numbers are driven by the energy price cap rise in April, which in turn is driven by higher global energy prices.

"We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action."

Also released, PPI input came in at 1.1% mom, 18.6%, versus expectation of 2.6% mom, 20.7% yoy. PPI output was at 2.3% mom, 14.0% yoy, versus expectation of 1.6% mom, 12.5% yoy. PPI output core was at 1.6% mom, 13.0% yoy, versus expectation of 1.6% mom, 12.6% yoy.

Japan GDP contracted -0.2% qoq, -1.0% annualized in Q1

Japan GDP contracted -0.2% qoq in Q1, better than expectation of -0.4% qoq. In annualized term, GDP contracted -1.0%, first negative growth in two quarters, but better than expectation of -1.8%. GDP deflator dropped -0.4% yoy, also better than expectation of -1.2% yoy.

Economy minister Daishiro Yamagiwa said the economy has not returned to pre-pandemic levels but that further downside would likely be limited. He also expected the economy to pick up even though uncertainty remains due to Ukraine situation. Also, China's zero-covid policy is having a significant impact on supply chains.

Australia Westpac leading index dropped to 0.88%, expects 40bps RBA hike in Jun

Australia Westpac-MI leading index dropped from 1.69% to 0.88% in April. Westpac recently revised down growth forecast for 2022 from 5.5% to 4.5%, reflecting the sharp increase in cost of living, and an earlier and more rapid RBA tightening policy.

As for RBA meeting on June 7, Westpac expects the central bank to hike by a further 40bps to 0.75%, even though most analysts favored a cautious move of 25bps. Westpac said, "It is also much more prudent to front load the increases where at a stage in the cycle when rates are clearly below what might be considered a 'neutral' level.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2374; (P) 1.2436; (R1) 1.2557; More..

GBP/USD dips mildly today but overall, it's staying in consolidation from 1.2154. Intraday bias remains neutral at this point and 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 1.2816).

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.

Economic Indicators Update

Spot gold remains at the back foot on Wednesday and extends fresh weakness, after brief recovery from new 4 ½ month low ($1786) was capped by 200DMA ($1836).

Today’s reaction on strong rise of UK inflation in April was mild, despite the yellow metal is used as a hedge against inflation, with strong pressure on gold price being maintained by a robust dollar, supported by global geopolitical and economic uncertainty and expectations for further rate hikes, as the US central bank tries to bring raging inflation under control.

Technical studies on daily chart remain in full bearish setup, as bearish momentum continues to rise, moving averages are in full bearish setup and 10/200DMA’s are converging and on track to form a death cross pattern that would add to negative signals.

Bears face immediate support at psychological $1800 level (also the base of thin daily cloud), followed by Monday’s spike low at $1786, break of which would signal bearish continuation and expose supports at $1769 (Fibo 76.4% of $1676/$2070) and $1753 (15 Dec 2021 low).

Broken Fibo 61.8% of $1676/$2070 ($1826) marks solid resistance which should cap and maintain bearish bias.

Only sustained break above 200DMA would sideline bears.

Res: 1820; 1826; 1836; 1850
Sup: 1800; 1786; 1780; 1769

After three successive winning sessions, the Australian dollar has reversed directions on Wednesday. In the European session, AUD/USD is trading slightly above the symbolic 70 level.

Wage growth ticks higher

It wasn’t all that long ago that RBA Governor Lowe would reiterate that there would be no rate hikes until wage growth hit 3%. The rationale was that strong wage growth would indicate that higher inflation was not transient. Well, the “T” word has gone out of fashion, after being unceremoniously retired by Fed Chair Powell. The RBA finds itself facing spiralling inflation, and raised rates for the first time in a decade, even though wage growth remained below 3%. Lowe has been forced to adjust his stance and is now focusing on the fact that wage inflation is moving higher.

The wage price index release for Q1 ticked up to 2.4% YoY, up marginally from 2.3%. This is less than half of CPI, which stands at 5.1%. Still, this won’t stand in the way of an RBA hike at the June meeting, as the central bank is determined to stamp out soaring inflation. The RBA will likely deliver a 0.25% hike, barring spectacular employment data on Thursday. If that occurs, the likelihood of a 40-bps hike would increase.

The Australian dollar’s impressive upswing has paused after some hawkish rhetoric from the US Fed overnight. Jerome Powell said that interest rates could rise above the terminal rate of about 3.50% in order to contain inflation. Former Fed Chair Bernanke said in an interview that the Fed erred in waiting too long in responding to inflation. Bernanke warned that he expected to see stagflation in the next year or two, with lower growth, high inflation and an increase in unemployment.

AUD/USD Technical

• There is resistance at 0.7064 and 0.7189
• There is support at 0.6946 and 0.6821

Canada CPI ticked up further to 6.8% yoy in April, up from March's 6.7% yoy, above expectation of 6.7% yoy. CPI ex-gasoline accelerated to 5.8%, up from 5.5% yoy, fastest since the series was introduced in 1999. Statics Canada added that the year-over-year increase in April was largely driven by food and shelter prices. Gas prices increased at a slower pace.

Looking at the preferred measures of core inflation by BoC, CPI common rose from 3.0% yoy to 3.2% yoy, above expectation of 2.9% yoy. CPI median rose from 4.0% yoy to 4.4% yoy, above expectation of 3.9% yoy. CPI trimmed rose from 4.8% yoy to 5.1% yoy, above expectation of 4.7% yoy.

Full release here.

ECB Governing Council member Pablo Hernandez de Cos said today, "in the coming quarters, further (rate) increases could be made to reach levels in line with the natural rate of interest if the medium-term inflation outlook remains around our target."

But de Cos also emphasized that the process of policy normalization would be gradual. "For this gradual approach to be adopted, it is essential that inflation expectations remain anchored and that no second-round and indirect effects of a magnitude that could jeopardise this anchoring materialise," he said.

Another Governing Council member Olli Rehn said, "It seems necessary that in our policy rates we move relatively quickly out of negative territory and continue our gradual process of monetary policy normalization."