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With the help from risk aversion and extended pull back in benchmark global treasury yields, Yen's rebound is making some progress. US 10-year yield is back below 2.9% handle in Asian session while Germany 10-year bund yield also broke 1% yesterday. Euro and Dollar are still relatively firm on risk-off sentiment. On the other hand, selloff continues to concentrate on Aussie and Kiwi, with Sterling picking up too.

Technically, AUD/JPY resumed the decline from 95.73 after rejection by 4 hour 55 EMA. Further fall is expected to 100% projection of 95.73 to 90.41 from 94.00 at 88.68. Strong support is expected there to contain downside to complete this "corrective" move, and bring rebound. However, firm break of 88.68, with downside acceleration, would raise the chance that AUD/JPY is already in trend reversal. Such development, if happens, could be a signal to broader risk market developments.

In Asia, at the time of writing, Nikkei is down -1.09%. Hong Kong HSI is down -1.05%. China Shanghai SSE is up 0.17%. Singapore Strait Times is down -0.76%. Japan 10-year JGB yield is up 0.0015 at 0.250. Overnight, DOW dropped -1.02%. S&P 500 dropped -1.65%. NASDAQ dropped -3.18%. 10-year yield dropped -0.072 to 2.921.

Fed Bullard: We can proceed on a plan of 50bps per meeting

In a Yahoo Finance interview, St. Louis Fed President James Bullard said that a 75bps rate hike is "not my base case", and he gave a nod to the 50bps per meeting plan.

"We've got a good plan in place and the committee is, based on public comments anyway from my colleagues, has coalesced around a plan of 50 basis points per meeting. So I think we can proceed on that," he said.

Bullard added that whether there would be 50bps hike at each of the upcoming meeting, to bring interest rate to 3.5% by year end, would be data-dependent. "It's possible inflation could moderate a lot. It's possible the real economy could take twists and turns. And so I don't think we want to be promising today what we're going to do in December," he said.

Fed Bostic: We are going to get our policy rate certainly to a neutral space

Atlanta Fed President Raphael Bostic said yesterday, "we are going to get our policy rate certainly to a neutral space where we are no longer providing accommodation. If inflation stays at high levels or levels that are too high -- by too high, it's really not moving back towards our 2% target -- then I am going to be supporting moving more."

"We moved our policy rate 25 basis points and the 30 year (mortgage) moved 2 percentage points. That is tremendous responsiveness," Bostic also noted. "The moves that we have seen in rates and in yields are a sign that the markets still believe the Fed has credibility. They have said what we are going to do and they have priced in us doing them … That is an important dimension in the marketplace."

BoJ: Necessary to continue with current powerful monetary easing

In the Summary of Opinions of the April 27-28 meeting, BoJ noted that "as Japan is a commodity importer, the rise in commodity prices leads to an outflow of income from Japan and thus exerts downward pressure on the economy." And, "it is necessary for the Bank to continue with the current powerful monetary easing and thereby firmly support the economy"

One opinion noted that "one reason for the yen's recent depreciation is that economic conditions in Japan have been different from those in the United States and Europe, and it is not appropriate that the Bank change its policy with the aim of controlling foreign exchange rates."

"With a view to clarifying the Bank's stance to date of not accepting the long-term interest rate exceeding 0.25 percent and to avoiding a situation where daily operations are unnecessarily factored in by the market, it is appropriate for the Bank to announce in advance that it will conduct fixed-rate purchase operations at 0.25 percent every business day, unless it is highly likely that no bids will be submitted."

Looking ahead

UK will release GDP, productions and trade balance in European session. Swiss will release PPI. Later in the day, US will publish PPI and jobless claims.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 158.25; (P) 159.79; (R1) 160.73; More...

GBP/JPY's fall from 168.50 resumed by breaking through 159.59 and intraday bias is back on the downside. Current fall should be seen to 61.8% retracement of 150.95 to 168.40 at 157.61. Strong support is expected there to complete the correction to bring rebound. On the upside, above 162.16 minor resistance will turn bias back to the upside for retesting 168.40 high. However, sustained break of 157.61 will bring deeper fall back to 150.95 key structural support.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress. Sustained break of 61.8% retracement of 195.86 (2015 high) to 122.75 (2016 low) at 167.93 will be a long term bullish signal, and could pave the way back to 195.86 high. This will now remain the favored case as long as 150.95 support holds, even in case of deep pull back.

Economic Indicators Update

DXY:

On the H4, with price expected to reverse off the stochastics indicator, we have a bearish bias that price will drop from our 1st resistance in line with the swing high resistance to our 1st support where the swing low support is. Alternatively, price may break 1st resistance structure and head for 2nd resistance where the 127.2% Fibonacci extension is.

Areas of consideration:

• H4 time frame, 1st resistance at 103.989
• H4 time frame, 1st support at 103.221

XAU/USD (GOLD):

On the H4, with price moving below the ichimoku, we have a bearish bias that price will drop from our 1st resistance at 1869 where the horizontal pullback resistance is to our 1st support at 1834 in line with the swing low support. Alternatively, price may break 1st resistance structure and head for 2nd resistance where the horizontal pullback resistance is.

Areas of consideration:

• H4 time frame, 1st Resistance at 1869
• H4 time frame, 1st Support at 1834

GBP/USD:

On the H4, with price moving below the ichimoku, we have a bearish bias that price will drop from our 1st resistance at 1.22689 where the 23.6% Fibonacci retracement and pullback resistance is to our 1st support at 1.21723 in line with the 161.8% Fibonacci extension. Alternatively, price may break 1st resistance structure and head for 2nd resistance where the horizontal pullback resistance is.

Areas of consideration:

• H4 1st resistance at 1.22689
• H4 1st support at 1.21723

USD/CHF:

On the H4, with price moving above the ichimoku cloud, we have a bullish bias that price will rise to our 1st resistance at 1.00568 where the61.8% Fibonacci projection is from our 1st support at 0.98412 in line with the horizontal swing low support. Alternatively, price may break 1st support structure and head for 2nd support where the horizontal swing low support is.

Areas of consideration

• 1st support level at 0.98412
• 1st resistance level at 1.00568

EUR/USD :

On the H4, with price expected to bounce off the stochastics indicator, we have a bullish bias that price will rise to our 1st resistance at 1.05791 where the swing high resistance is from our 1st support at 1.04994 in line with the horizontal swing low support. Alternatively, price may break 1st support structure and head for 2nd support where the 127.2% Fibonacci extension is.

Areas of consideration :

• H4 1st resistance at 1.05791
• H4 1st support at 1.04994

USD/JPY:

On the H4, with price moving above the ichimoku cloud, we have a bullish bias that price will rise to our 1st resistance at 131.240 where the swing high resistance is from our 1st support at 129.028 in line with the horizontal swing low support. Alternatively, price may break 1st support structure and head for 2nd support where the horizontal swing low support is.

Areas of consideration:

• H4 time frame, 1st resistance at 131.240
• H4 time frame, 1st support at 129.028

AUD/USD:

On the H4, with price moving below the ichimoku, we have a bearish bias that price will drop from our 1st resistance at 0.70354 where the pullback resistance is to our 1st support at 0.68805 in line with the 61.8% Fibonacci projection and 161.8% Fibonacci extension. Alternatively, price may break 1st resistance structure and head for 2nd resistance where the horizontal pullback resistance is.

Areas of consideration

• H4 1st resistance at 0.70354
• H4 1st support at 0.68805

NZD/USD:

On the H4, with price moving below the ichimoku cloud, we have a bearish bias that price will drop from our 1st resistance at 0.63986 where the 23.6% Fibonacci retracement is to our 1st support at 0.62579 in line with the 200% Fibonacci projection. Alternatively, price may break 1st resistance structure and head for 2nd resistance.

Areas of consideration:

• H4 time frame, 1st support at 0.62579
• H4 time frame, 1st resistance at 0.63986

USD/CAD:

On the H4, with price moving above the ichimoku cloud, we have a bullish bias that price will rise to our 1st resistance at 1.30780 where the 78.6% Fibonacci projection is from our 1st support at 1.29118 in line with the horizontal pullback support. Alternatively, price may break 1st support structure and head for 2nd support where the horizontal pullback support is.

Areas of consideration:

• H4 time frame, 1st resistance at 1.30780
• H4 time frame, 1st support at 1.29118

OIL:

On the H4, with price expected to reverse off the ichimoku cloud, we have a bearish bias that price will drop from our 1st resistance at 105.86 where the 61.8% Fibonacci retracement is to our 1st support at 103.01 in line with the 38.2% Fibonacci retracement. Alternatively, price may break 1st resistance structure and head for 2nd resistance where the horizontal pullback resistance.

Areas of consideration:

• H4 time frame, 1st resistance of 105.86
• H4 time frame, 1st support of 103.01

Dow Jones Industrial Average:

On the H4, with price expected to bounce off the stochastics indicator, we have a bullish bias that price will rise to our 1st resistance at 32553 where the swing high resistance is from our 1st support at 31753 in line with the horizontal swing low support. Alternatively, price may break 1st support structure and head for 2nd support where the 161.8% Fibonacci extension is.

Areas of consideration :

• H4 time frame, 1st resistance at 32553
• H4 time frame, 1st support at 31753

In the Summary of Opinions of the April 27-28 meeting, BoJ noted that "as Japan is a commodity importer, the rise in commodity prices leads to an outflow of income from Japan and thus exerts downward pressure on the economy." And, "it is necessary for the Bank to continue with the current powerful monetary easing and thereby firmly support the economy"

One opinion noted that "one reason for the yen's recent depreciation is that economic conditions in Japan have been different from those in the United States and Europe, and it is not appropriate that the Bank change its policy with the aim of controlling foreign exchange rates."

"With a view to clarifying the Bank's stance to date of not accepting the long-term interest rate exceeding 0.25 percent and to avoiding a situation where daily operations are unnecessarily factored in by the market, it is appropriate for the Bank to announce in advance that it will conduct fixed-rate purchase operations at 0.25 percent every business day, unless it is highly likely that no bids will be submitted. "

Full Summary of Opinions here.

In a Yahoo Finance interview, St. Louis Fed President James Bullard said that a 75bps rate hike is "not my base case", and he gave a nod to the 50bps per meeting plan.

"We've got a good plan in place and the committee is, based on public comments anyway from my colleagues, has coalesced around a plan of 50 basis points per meeting. So I think we can proceed on that," he said.

Bullard added that whether there would be 50bps hike at each of the upcoming meeting, to bring interest rate to 3.5% by year end, would be data-dependent. "It's possible inflation could moderate a lot. It's possible the real economy could take twists and turns. And so I don't think we want to be promising today what we're going to do in December," he said.

Full interview here.

Atlanta Fed President Raphael Bostic said yesterday, "we are going to get our policy rate certainly to a neutral space where we are no longer providing accommodation. If inflation stays at high levels or levels that are too high -- by too high, it's really not moving back towards our 2% target -- then I am going to be supporting moving more."

"We moved our policy rate 25 basis points and the 30 year (mortgage) moved 2 percentage points. That is tremendous responsiveness," Bostic also noted. "The moves that we have seen in rates and in yields are a sign that the markets still believe the Fed has credibility. They have said what we are going to do and they have priced in us doing them … That is an important dimension in the marketplace."

A bleak economic forecast from the Bank of England exacerbated the sell-off in the bruised pound last week, making Thursday’s preliminary Q1 GDP growth figures important to watch at 07:00 GMT. Despite a quarterly slowdown, the UK economy is expected to have picked up steam at the start of the year, vindicating the BoE’s monetary tightening strategy, though the data may not be enough to push the bears entirely out of the way.

The Bank of England hiked its main interest rate for the third time consecutive time to 1.0% this month in efforts to contain the rapid rise in inflation but acknowledged the hardship that its policy will cause to households alongside higher energy prices. It expects a double-digit rate of inflation of 10.2% at the end of 2022, which wages will not be able to offset, and an economic contraction despite a falling unemployment rate. For the first quarter of the year, it projects a softer quarterly growth of 0.9%, which is in line with analysts’ current estimates, though on a yearly basis the UK economy has probably accelerated. Initial forecasts suggest a stronger annual growth of 9.0% from 6.6% registered at the end of 2021. That would be the highest since Q2 2021.

The Russian invasion in Ukraine has extended the pandemic-led supply disruptions, causing more inflation and therefore squeezing households’ pockets further, though the external shocks have probably been less obvious in the Q1 GDP data, allowing for some expansion. Nevertheless, investors may retain some discomfort even if the stats beat forecasts as the dominant service sector notably lost momentum at the start of the second quarter, while consumer confidence sank to the lowest since 2008, making a growth deceleration almost inevitable in the coming quarters. Retail sales were on the back foot for the second consecutive month, revealing diminishing economic activity as well.

Apparently, the central bank will follow its guidance and deliver a couple of moderate rate increases in the coming months (June and August) to avoid cliff-edge effects from inflation as promised, though that strategy risks having a cosmetic effect if the economy shrinks in Q2, hinting at a late response to price spikes. Therefore, investors could become more sensitive to Q2 GDP and inflation readings in fear that any persisting slowdown may force the committee to push the pause button earlier than expected.

As regards the pound, the BoE’s careful policy approach and the dollar’s strength have been a toxic cocktail for the market, but the British currency managed to build a floor within the $1.2300 - $1.2259 zone. In the case of a positive surprise, pound/dollar may attempt to crawl above the $1.2400 resistance and the 50-period simple moving average (SMA) with scope to speed up to $1.2580, though given the cloudy outlook for the UK economy, any bullish corrections could be temporary.

Otherwise, a worse-than-expected GDP report could deliver the next punch to cable, likely motivating an aggressive decline towards May's 2020 low of 1.2074.

Short Term View in AUDJPY shows a bearish sequence from April 20, 2022 high favoring further downside. The decline from April 20 is unfolding as a zigzag Elliott Wave structure. Down from April 20, wave (A) ended at 90.41 and rally in wave (B) ended at 94.02. Internal of wave (B) unfolded as a double three Elliott Wave structure. Up from wave (A), wave W ended at 93.52 and pullback in wave X ended at 91.45. Pair then extended higher in wave Y towards 94.01 which completed wave (B).

Pair has resumed lower in wave (C). Internal of wave (C) is unfolding as a 5 waves impulse Elliott Wave structure. Down from wave (B), wave 1 ended at 89.72 and rally in wave 2 ended at 91.76. Near term, as far as rally fails below 91.76, and more importantly below 94.01, expect pair to extend lower. Potential target lower is 100% – 123.6% fibonacci extension from April 20 high at

Down from wave X, wave (i) ended at 106.45 and rally in wave (ii) ended at 111.18. Oil then extends lower in wave (iii) towards 100.44, and rally in wave (iv) ended at 104.16. Expect wave (v) of ((a)) to end soon, then Oil should rally in wave ((b)) to correct the decline from May 5, 2022 high before it resumes lower. Potential target lower is 100% – 161.8% Fibonacci extension from March 24, 2022 peak at 85.45 – 88.7 area.

AUDJPY 60 Minutes Elliott Wave Chart

A four-day lockdown turned out to be two months of complete isolation. Factories are frozen, supply chains are under heavy pressure, and the future is gloomy. Find out how to trade in times of crisis in this article!

Covid is the reason

China has chosen a zero-covid policy. This is a set of measures to eradicate the virus in China. To do so, the Chinese government restricted Beijing's citizens from exiting their homes. First, the restrictions were supposed to last four days. But growing infections caused stricter rules. Long story short, 25 million people in Beijing and Shanghai are now in their homes, without a single possibility to go out.

Although covid cases have started to ease from their April peak, authorities once again tightened lockdown measures today (May 11). Now some of Shanghai's districts aren't able to receive non-essential deliveries. Moreover, the lockdown became even stricter, and now about 373 million people are far away from grocery stores and pharmacies.

Now, China has around 8000 Covid-19 cases per day, which is much better than the peak of 50 000 daily cases in mid-April 2022. However, the lockdown may last for another month or even more, rising uncertainty for the economy.

Why is it important?

These restrictive measures have created widespread economic disruptions within China. But it's not rocket science that China is one of the world's biggest producers of almost everything. Food, drugs, clothes, cars, technologies – trillions of dollars worth of goods are produced here every year.

Placing hundreds of millions of workers under lockdown has hammered China's factories. Tesla factory stopped working, and the company will lose 60 000 cars due to the restrictions. The International Monetary Fund has cut its forecast for Chinese economic growth in 2022 from 4.8% to 4.4% because of the lockdowns—well below the government target of 5.5% and down nearly half from last year's 8.1%. Some (pessimistic) analysts suppose that China's lockdowns could push the country into a recession this year.

There are thousands of cargo vessels near China waiting for ports to open. How long will they have to wait? Estimations are unclear, but we can assume that the lockdown may last until daily cases reach near-zero levels. It can be a long way since the omicron strain (so far the latest Covid strain) is highly contagious.
Is it a "Sell" for HK50 and Chinese Yuan?

You already know the answer, and the chart also hints to you. The Chinese stock market has been moving lower for a year now, and the bearish waves will continue. As HK50 (China's stock index) is below the vital resistance of 21 000 – 21 500, we suggest looking for short trades with several targets. The first is a retest of the historic low at 18 000. Then, in case of a breakout, 17 000 is a decent target for your trades.

HK50 daily chart

• Resistance: 21.5K, 22.7K, 23.5K, 25.0K
• Support: 18.5K, 17.0K

As for the USDCHN chart, Yuan has lost an impressive 4000 points over the last month, so we expect a pullback from 200-weekly MA to 6.680. The USD is about to lose its power, so a further plunge of the pair to the 6.540 support level is possible. In case of a 200-weekly MA breakout and a consolidation above the moving average, technical patterns will signal the extreme weakness of the Chinese Yuan. Thus, the USDCHN pair may reach a robust resistance area of 6.950-7.000.

USDCHN weekly chart

• Resistance: 6.850, 6.950-7.000, 7.200
• Support: 6.680, 6.540, 6.430, 6.300

Those who awaited US April CPI data hoping for a summary execution of the inflation narrative walked away from Wednesday’s release disappointed. But the reality is that inflation, although falling, is not doing so quite at the rate most were expecting. For the time being, traders will need to balance both of those factors as they trade the US dollar.

What Wednesday’s CPI data did show is that inflation can at least fall on an annualised and monthly basis in one form or another. Headline CPI in April dropped to 8.3% from 8.5% even though it was above the 8.1% economists were predicting. Likewise, the core inflation rate, which excludes food and energy prices, fell to 6.2% from 6.5% prior, missing expectations of a 6.0 %drop.

That, alongside expectations of further disinflationary pressures, still point to a further drop in CPI as the year progresses. The unexpected degree of acceleration in both m/m figures, however, undermines those expectations. Headline CPI accelerated by 0.6% m/m versus an expected 0.4% (prev. 1.2%), while the core figure rose by 0.6% m/m versus 0.4% (prev 0.3%).

Analysts, moreover, have been quick to point out that several components of CPI still point to underlying inflation worries. For one, services ex-energy component, rather than fall, rose by 0.7% m/m. In addition, rents rose by 0.5% as did owner’s equivalent rents. In fact, rents were one key reason why April’s core CPI rose by more than many were expecting.

Still, high inflation has been the market narrative for some time. The initial move higher in the DXY to today’s inflation data were quick to respond to an above consensus print. Meanwhile, the subsequent retracement in gains means there is some capitulation to the idea that inflation is falling, and Fed rate hiking expectations may be close to their peak. The market is just waiting for the proof in the pudding.

• EURCAD reversed from resistance area
• Likely to fall to support level 1.3600

EURCAD recently reversed down from the resistance area located between the key resistance level 1.3750 (which has been reversing the pair from March) and the upper daily Bollinger Band.

This resistance area was further strengthened by the 50% Fibonacci correction of the previous downward impulse from March.

EURCAD can be expected to fall further toward the next support level 1.3600 (earlier top of wave a).