Market Trading News and Research from 2 May 2024

• BoJ suspected of stepping into FX markets twice in one week.
• Market estimates suggest BoJ interventions have cost ¥9 trillion.
• Yen markets set for a quiet end to the week with Japan exchanges on holiday.

GBP/JPY has flattened back into recent lows after a second possible intervention on the Yen’s behalf from the Bank of Japan (BoJ). The pair is back down to the 192.00 handle after tumbling over 4% over two days from a 34-year peak of 200.60.

The back half of the first trading week of May sees Japanese markets largely dark for a slew of bank holidays, and markets are reeling after two possible BoJ “Yenterventions” this week, with market research suggesting the Japanese central bank spent around nine trillion Yen to support the battered Japanese Yen (JPY). BoJ market operations came in 5.5 trillion Yen above market expectations on May 1, with an additional 3.5 trillion Yen in excess BoJ financing operations expenses on May 2. No official statements are forthcoming from Japanese officials.

Pound Sterling (GBP) traders will be looking ahead to next week’s upcoming Bank of England (BoE) rate call, slated for Thursday. UK quarterly Gross Domestic Product (GDP) is also due next Friday, and there is little data of note on the Japanese economic calendar.

GBP/JPY technical outlook

The Guppy has been hammered by two possible BoJ interventions, dragging the pair from a three-decade-plus high of 200.60. The pair has tumbled back into a near-term supply zone around the 192.00 handle, with an immediate price floor baked in near 191.00.

Despite potential central bank operations, the GBP/JPY remains firmly in bullish territory in the medium-term, with the pair continuing to trade well above the 200-day Exponential Moving Average (EMA) at 185.58. The pair is still up 6.86% in 2024.

GBP/JPY hourly chart

GBP/JPY daily chart

• The daily RSI for EUR/JPY highlights a decline from overbought levels to negative territory, depicting seller dominance.
• Similar to the RSI, the daily MACD shows increasing negative momentum.
• On the hourly chart, low RSI values and a flat red MACD histogram point to a growing near-term bearishness.

The EUR/JPY pair trades at 164.65,  tallying sharp losses on Thursday. Despite the increasing selling pressure, the long-term optimism remains intact, but bears are making their case as they reclaimed the 20-day Simple Moving Average (SMA) which worsened the outlook for the short term.

On the daily chart, the Relative Strength Index (RSI) for EUR/JPY has descended from the overbought readings into negative territory. The data suggests a downward momentum, indicative of a current dominant presence of sellers. At the same time, the Moving Average Convergence Divergence (MACD) histogram recorded fresh red bars which confirms a growing negative momentum.

EUR/JPY daily chart

Moving to the hourly chart, the RSI values are persistently recording low readings, venturing deep into the oversold territory. Here, the hourly MACD aligns with the daily outlook, displaying red bars which points to further negative momentum over the shorter span.

EUR/JPY hourly chart

From a broader viewpoint, the EUR/JPY experienced a significant shift, falling below the 20-day Simple Moving Average (SMA). This suggests potential short-term bearishness but as long as the pair maintains positions above the more extended 100 and 200-day SMAs, the overall outlook will be positive.

The Greenback could not sustain the initial optimism and succumbed to further selling pressure amidst renewed strength in the Japanese yen and steady prudence ahead of the release of US Nonfarm Payrolls on Friday.

Here is what you need to know on Friday, May 3:

The USD Index (DXY) added to the post-FOMC sell-off and navigated the area of three-week lows around 105.50. An interesting calendar is expected on May 3, with the releases of the Nonfarm Payrolls, Unemployment Rate, the final S&P Global Services PMI and the ISM Services PMI.

EUR/USD traded with humble gains in the low 1.0700s amidst the late loss of momentum in the Greenback. The Unemployment Rate in the broader euro area is only due on May 3.

GBP/USD alternated gains with losses around 1.2520 following Wednesday’s decent advance in the wake of the FOMC event. On May 3, the relevant S&P Global Services PMI is due across the Channel.

USD/JPY flirted with recent peaks in levels close to the 153.00 neighbourhood, always around steady FX intervention chatter. The usual weekly Foreign Bond Investment figures are expected on May 3.

AUD/USD rose sharply and added to Wednesday’s uptick, managing at the same time to break above the key 200-day SMA around 0.65120. In Australia, the Balance of Trade and preliminary Building Permits are expected on May 2.

WTI prices bounced off multi-week lows near the $78.00 mark per barrel, trimming most of those losses in the latter part of the NA session.

Prices of Gold faded part of Wednesday’s uptick and remained on the defensive near the $2,300 mark per troy ounce. Silver reversed an earlier drop to fresh lows near the $26.00 support, eventually ending the session marginally up.

• Dow Jones recovers 38,000.00 in thin bullish momentum.
• Market expectations for Fed rate cuts are widening.
• Friday’s NFP labor figure to be a key print for rate watchers.

The Dow Jones Industrial Average (DJIA) is up around four-tenths of a percent on Thursday as equity markets grapple with a choppy recovery following a plunge earlier this week. Earnings season is helping to bolster securities that have efficiently bolstered their ratios, and investors are grappling with when to expect a first rate cut from the Federal Reserve (Fed), with a cut in 2024 assumed to be a foregone conclusion.

Wall Street expectations of when and how often the Fed will cut rates are beginning to widen out as investors grapple with a complicated US economic landscape. S&P Global has reduced their Fed outlook to a single quarter-point cut in December, while some investment banks are forecasting as many as four 25-basis-point cuts through the rest of the year beginning as soon as July.

At current cut, the CME’s FedWatch Tool shows rate markets are expecting a first cut from the Fed at the Federal Open Market Committee’s (FOMC) September meeting. Rate markets are giving 40% odds of no cut in September, with 70% odds of at least 25 basis points in cuts by November.

Dow Jones news

Around two-thirds of the securities that comprise the Dow Jones Industrial Average are underwater on Thursday, with 3M Co. (MMM) leading the charge lower, falling 1.4% to $97.08 per share. The topside leaders include megacap names Boeing Co. (BA), Amazon.com Inc (AMZN), and Apple Inc. (AAPL). Boeing rose 3.4% to $177.31 per share, with Amazon climbing 2.45% and Apple gaining around 2%.

Dow Jones technical outlook

The DJIA found a midday high of 38,158.83 on Thursday, with a quick tumble to 37,887.88 as investor risk appetite keeps one foot out of the door. Equities have recovered into the high end, but topside momentum remains thin as the Dow Jones churns in familiar territory close to the 38,000.00 handle.

The Dow Jones is recovering into near-term consolidation, but the index is struggling to develop bullish legs after a near-term decline below 37,600.00. The major equity index is trading well above the 200-day Exponential Moving Average (EMA) at 36,780.52, but the DJIA remains down 4.3% from record highs at the last peak of 39,887.49.

Dow Jones five-minute chart

Dow Jones daily chart

• Markets recovering from Wednesday’s Fed showing.
• Canada data prints low-tier on Thursday, but BoC’s Macklem makes second appearance.
• US NFP Friday looms ahead, economic calendar moderate until then.

The Canadian Dollar (CAD) is recovering ground alongside broader market risk appetite on Thursday after the US Federal Reserve (Fed) spiked investor tensions in the midweek market session. S&P Global has shifted their rate cut expectations for the year to a single quarter-point trim in December. Consensus on Fed rate cuts is increasingly inconsistent with the CME’s FedWatch Tool showing rate markets are now betting on only a 60% chance of a September rate cut.

Bank of Canada (BoC) Governor Tiff Macklem made his second appearance in as many days. The head of the Canadian central bank testified before the Canadian government’s House of Commons Standing Committee on Finance alongside BoC Senior Deputy Governor Carolyn Rodgers. Elsewhere on the data docket, Canadian International Merchandise Trade Balance figures in March unexpectedly fell but saw few ripples in broader markets.

Daily digest market movers: Canadian Dollar seeks recovery as BoC talks down rate cut expectations

• BoC Governor Macklem:
  • Canadian inflation likely to stick close to 2.9% for a few months, thanks to gas prices.
  • There’s a limit to how far Canadian and US rates can diverge.
  • Even when rates start to come down, likely to be a pretty gradual path.
  • Need to take into account any potential weakening of the CAD when considering interest rate cuts.
• Canadian International Merchandise Trade declined -2.28 billion in March versus the forecast improvement to 1.5 billion. The previous month was revised sharply lower to 480 million from 1.39 billion.
• US Q1 Unit Labor Costs rose to 4.7% QoQ versus the forecast 3.2%, yet another thorn in the side of inflation-fearing rate-cut hopefuls.
• Friday’s US Nonfarm Payrolls (NFP) labor report to be a key reading of US employment figures.
• Median market forecasts expecting a print of 243K compared to the previous month’s 12-month peak of 303K.

Technical outlook: Canadian Dollar finds slim technical recovery

At the time of writing, the Canadian Dollar (CAD) is up a quarter of a percent against the US Dopllar (USD) and the Euro (EUR), and four-tenths of a percent against the Pound Sterling. On the low side, the CAD backslid a full percent plus a fifth against the Japanese (JPY), and also shed a third of a percent against the Swiss Franc (CHF).

USD/CAD has fallen back below the 200-hour Exponential Moving Average (EMA) at 1.3709. The pair is testing chart territory below the 1.3700 handle, and is approaching a near-term demand zone between 1.3660 and 1.3630.

Despite closing bearish for eight of the last 11 trading days, and poised for another down day on Thursday, USD/CAD is only down a scant 1.08% from the last swing high into 1.3850. The pair is still trading well above the 200-day EMA at 1.3537.

USD/CAD hourly chart

USD/CAD daily chart

• Mexican Peso hits weekly high of 16.90 versus USD after Fed maintains current policy.
• The Mexican currency stays strong despite lower Mexico Business Confidence.
• US economic data showing a smaller trade deficit and stable job claims, failed to boost the Greenback.
• Powell states Fed's future policy decisions will be made “meeting by meeting”.

The Mexican Peso prolonged its rally for the second consecutive day on Thursday and hit a new weekly high of 16.90 against the Greenback following the US Federal Reserve's (Fed) decision to keep monetary policy unchanged on Wednesday. Data from the United States (US) revealed that the trade deficit narrowed, while the number of Americans filing for unemployment claims remained unchanged. The USD/MXN trades at 16.92, down by 0.42%.

Mexico’s economic docket revealed that April’s Business Confidence deteriorated. However, the Mexican currency remained strong against the US Dollar, following the Fed’s decision to keep rates unchanged due to the “lack of progress” on the disinflation process.

Fed Chair Jerome Powell added that it wouldn’t be appropriate to ease policy until they gather confidence that inflation is trending toward the 2% goal. He added they – the Fed – would remain data dependent and that the upcoming monetary policy decision would be decided “meeting by meeting.”

Powell said the Fed’s belief that monetary policy is sufficiently restrictive to curb inflation and disregarded the potential of hiking rates when he asked.

Daily digest market movers: Mexican Peso shrugs off Fed’s decision, mixed US data

• Mexico’s Business Confidence deteriorated from 54.4 to 54.2. The report showed that businesses remain confident in the current economic conditions in Mexico. Further data in the report added that businesses' current economic conditions had worsened.
• Although most analysts estimate Banxico will keep rates unchanged at 11.00%, new data could prompt heated discussions among Banxico’s Governing Council members on May 9.
• Last week, Banxico Governor Victoria Rodriguez Ceja said the central bank would be data dependent. However, weak GDP data could lead to a “live meeting” on May 9.
• Citibanamex Survey showed that most analysts expect Banxico to hold rates unchanged at the May meeting. The median foresees a rate cut in June, while they estimate the main reference rate to end the year at 10.00%, up from 9.63% previously.
• The US Trade Balance showed the deficit narrowed by -0.1%, from $-69.5 billion to $-69.4 billion, missing estimates of $-69.1 billion. Imports dived -1.6% to $327 billion, while exports contracted -2.0% to $257.6 billion.
• The US Bureau of Labor Statistics (BLS) revealed that US Initial Jobless Claims for the week ending April 27 rose by 208K, unchanged from the previous reading and lower than the 212K projected by the consensus.
• On Wednesday, the Fed decided to keep the federal funds rate unchanged at 5.25%-5.50 %. They acknowledged that risks to achieving the Fed’s dual mandate on employment and inflation “moved toward better balance over the past year.” Although they said there’s progress on inflation, recent data showed that it has stalled.
• Fed policymakers added that they would begin reducing their balance sheet holdings of US Treasury securities from $60 billion to $25 billion starting in June.
• Data from the Chicago Board of Trade (CBOT) suggests that traders expect the fed funds rate to finish 2024 at 5.045%, down from 5.100% on Wednesday.

USD/MXN technical analysis: Mexican Peso regains control as USD/MXN sellers eye 100-day SMA

The Mexican Peso remains strong after the USD/MXN dipped beneath the crucial 17.00 psychological level, exacerbating the Peso’s appreciation toward 16.90. However, key support levels remain on their way, to challenge lower levels last seen in 2015. Additionally, the Relative Strength Index (RSI) suggests that bulls are looming with the indicator standing in bullish territory despite trending to its 50 neutral level.

For a bearish continuation, USD/MXN sellers must crack the 100-day Simple Moving Average (SMA) at 16.94, followed by the 50-day SMA at 16.81, before challenging last year’s low of 16.62. On the other hand, buyers need to reclaim the 17.00 figure before they can test the 200-day SMA, followed by the weekly high of 17.24. The next key resistance levels would be the January 23 swing high of 17.38 and the year-to-date (YTD) high of 17.92, ahead of 18.00.

• Fed Chair Powell signals inflation still remains high despite significant easing, suggesting an uncertain path forward.
• Powell acknowledges that strict monetary policy has balanced both inflation and an overheated economy, leveling dual goal risks.
• Weekly Initial Jobless Claims came in steady.

The US Dollar Index (DXY) is trading mildly higher at 105.80. The Greenback's modest upward momentum comes despite Federal Reserve (Fed) Chair Jerome Powell's cautious remarks on inflation and its uncertain future trajectory. Ahead of Nonfarm Payrolls on Friday, weekly Jobless Claims figures seem to be benefiting the USD.

The US economy has seen substantial progress, according to the Fed, yet inflation remains worryingly high and its path uncertain. Although the Fed's restrictive measures have limited inflation and overheating, progress on inflation has slowed. Nonfarm Payrolls figures on Friday will provide additional guidance for markets on the state of the economy.

Daily digest market movers: DXY backed by stable job market and lowering rate cut odds

• Weekly Initial Jobless Claims came in at 208K, while no changes were reported in Continuing Claims, which continued to hold at 1.774 million, similar to the previous week.
• Fed rate cut expectations have slightly shifted, with July odds increasing to 33% and the September and November odds up to 70% and 95%.
• US Treasury bond yields are mixed. The 2-year yield is moving lower at 4.93%, while the 5-year and 10-year yields are slightly lower at 4.64% and 4.63%, respectively. 
• For Friday, markets expect a deceleration in April’s Nonfarm Payrolls, while the Average Hourly Earnings are forecasted to see a slight acceleration. The Unemployment Rate is seen coming in unchanged at 3.8%.

DXY technical analysis: DXY bulls continue to struggle, outlook still positive

The DXY's technical outlook reflects a buying momentum, primarily driven by its position in relation to its Simple Moving Averages (SMAs). Even though the pair has a short-term negative outlook from the bearish tug of war with the bulls, it continues to trade above the 20,100 and 200-day Simple Moving Averages, which suggests a growing strength among the bulls.

The Moving Average Convergence Divergence (MACD) shown by the rising red bars suggests that the bears are advancing. At the same time, the Relative Strength Index (RSI) is in a flat position within positive territory. This indicates that the buying force is weakening while bears push downwards.

• GBP/USD drops 0.30%, US Dollar rises on positive US trade and labor data.
• The GBP/USD struggles below 200-DMA at 1.2550, trending down.
• RSI indicates bearish momentum; sellers control the market.
• Recovery above 1.2500 could retest 200-DMA, with resistance at 1.2569 and 50-DMA at 1.2613.

The Pound Sterling tumbled in early trading during the North American session, dropping below the 1.2500 figure amid renewed US Dollar strength. Data from the United States showed that the Balance of Trade deficit tightened while the labor market remained tight, as revealed by the Initial Jobless Claims report. The GBP/USD trades at 1.2488, down 0.30%.

GBP/USD Price Analysis: Technical outlook

From a technical standpoint, the GBP/USD is showing a neutral to downward bias. This is a result of buyers failing to breach the significant resistance at the 200-day moving average (DMA) at 1.2550. This failure has further intensified the major’s drop below the 1.2500 figure, potentially paving the way for a test of the latest cycle low seen at 1.2299, the April 22 low.

Momentum points to a continuation of the downtrend, as the Relative Strength Index (RSI) turned bearish on April 30. As of writing, it aims downward, meaning sellers remain in charge.

On the other hand, if buyers reclaim 1.2500, they must reclaim the 200-DMA ahead of testing the April 29 high at 1.2569. Once cleared, the next stop would be the 1.2600 mark, followed by the 50-DMA at 1.2613. Further gains are seen above the 100-DMA at 1.2644.

GBP/USD Price Action – Daily Chart

• AUD/USD clings to gains above 0.6500 as the US Dollar struggles to recover the Fed’s policy-generated losses.
• The Fed remains hopeful for rate cuts despite progress in disinflation has stalled.
• Stubborn Australian inflation fuels prospects of RBA delaying rate cuts.

The AUD/USD pair holds gains above the psychological support of 0.6500 in Thursday’s early New York session. The Aussie asset strengthens as the US Dollar struggles to recover losses inspired by the Federal Reserve’s (Fed) less hawkish guidance on interest rates.

The US Dollar Index (DXY) turns sideways after declining to near the crucial support of 105.50. The indication from the Fed’s monetary policy statement and Chair Jerome Powell’s press conference that the central bank leaned towards eventual rate cuts this year despite no progress in inflation declining to the 2% target in the first quarter of this year, weighed on the US Dollar. While the market sentiment has turned positive, exhibited by the positive opening of the S&P 500.

10-year US Treasury yields rise to 6.4% on firm expectations that the Fed would be laggard in pivoting to interest rate cuts in comparison with other central banks from Group of Seven (G7) nations, which have faced high inflation issues.

Meanwhile, the Australian dollar has registered decent gains as a slower-than-expected decline in price pressures in the first quarter of this year has fuelled expectations for the Reserve Bank of Australia to keep key borrowing rates on a restrictive trajectory for a longer period. On an annual basis, the Q1 Australia inflation rose by 3.6% against the consensus of 3.4%. Amid persistent inflation fears, the RBA is expected to deliver hawkish guidance on interest rates on May 7.

Going forward, investors will focus on the US Nonfarm Payrolls (NFP) data for April, which will be published on Friday. US employers are anticipated to have recruited 243K jobs, lower than the prior reading of 303K.

While speaking before the House of Commons Finance Committee on Thursday, Bank of Canada (BoC) Governor Tiff Macklem said Canadian inflation rate will probably stay close to 2.9% for the next several months, citing rising gasoline prices, per Reuters.

"Here is a limit to how far US and Canadian interest rates can diverge, certainly we're not close to that limit," Macklem added and reiterated that the BoC is looking for reassurance that the recent fall in underlying inflation will be sustained, when asked about the timing of a policy pivot.

Market reaction

USD/CAD edged slightly lower following these comments and was last seen losing 0.2% on the day at 1.3710.

• Unit Labor Costs rose more than expected in the first quarter.
• US Dollar Index stays below 106.00 after the data.

Unit Labor Costs in the nonfarm business sector increased 4.7% in the first quarter of 2024, the US Bureau of Labor Statistics (BLS) reported on Thursday. This reading followed the no change in the previous quarter (revised from +0.4%) and came in above the market expectation of 3.2%.

"Nonfarm business sector labor productivity increased 0.3% in the first quarter of 2024, as output increased 1.3% and hours worked increased 1%" the BLS noted in its press release.

Market reaction

These data don't seem to be having a significant impact on the USD's valuation against its major rivals. At the time of press, the US Dollar Index was up 0.07% on the day at 105.70.

• Initial Jobless Claims in the US remained unchanged at 208,000.
• US Dollar Index clings to modest daily gains above 105.50.

There were 208,000 initial jobless claims in the week ending April 27, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 208,000 (revised from 207,000) and came in better than the market expectation of 212,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1.2% and the 4-week moving average stood at 210,000, a decrease of 3,500 from the previous week's unrevised average.

"The advance number for seasonally adjusted insured unemployment during the week ending April 20 was 1,774,000, unchanged from the previous week's revised level," the publication read.

Market reaction

The US Dollar Index clings to modest daily gains slightly below 105.50 after these data.

• Oil sinks more than 5.5% in just three trading days. 
• WTI Oil tries to recover back to $80 with 
• The US Dollar Index holds ground above 105.50 despite bearish forces from Fed’s decision. 

Oil prices recovered a touch on Thursday after athe three-day nosedive move triggered by a string of headlines which took the wind out of the Oil price. More diplomatic efforts are being pushed forward in Gaza to broker a ceasefire deal, which would ease tensions in the region. Next to that, the US Energy Information Administration (EIA) reported on Wednesday one of the biggest Crude sStockpile build ups seen in a long time. 

The US Dollar Index (DXY) sees pressure building on an intermediate level at 105.50, after several attempts over the past two weeks to break below it. The level still holds though, ahead of the US Jobs report for May, to be released on Friday. The overnight Federal Reserve rate decision did not hold any big changes and Fed Chairman Jerome Powell confirmed that the Fed wants to see inflation first coming down further before considering a cut. 

Crude Oil (WTI) trades at $79.26 and Brent Crude at $83.95 at the time of writing.

Oil news and market movers: Restocking

• The US EIA reported on Wednesday an increase in Oil stocks of 7.265 million barrels. This surprise and large buildup was against market expectations of a 2.3 million decline and followed a 6.37 million decrease a week ago.  
• India is filling up its gap of Venezuelan oil with Iraqi Ooil after US sanctions forbid India from importing, Bloomberg reports. 
• Citi’s commodity analyst Eric Lee said on Wednesday in a note that OPEC+ is expected to maintain its supply curbs for the second half of this year.
• Shell’s CFO, Sinead Gorman said on a conference call that the second half of this year will be tight in terms of supply, with OPEC+ policy being key. 

Oil Technical Analysis: Cooling down in an uptrend

Oil prices might be cooling down a touch, but the overall long-term uptrend is still very much in play, with the green ascending trend line from December last year still valid. The recent decline could be a welcomed entry level for traders that missed the boat earlier and did not want to head in above $80. Depending on a ceasefire deal and more stockpile buildup, some additional pressure could come for Oil before soaring back to $84.

After its attempt to edge higher, the recent decline makes $83.34 and the $90 handle again the first key levels on the upside. One small barrier in the way is $89.64, the peak from October 20. In case of further escalating tensions, expect even September’s peak at $94 to become a possibility. 

On the downside, the 100-day Simple Moving Average (SMA) near $77.88 is the first line of defence before the actual uptrend ascending trend line gets tested. Expect that to be around $77.00 for this week. A break of that trend line could result in a drop to $74.36.

US WTI Crude Oil: Daily Chart

• The US Dollar trades broadly sideways after Wednesday’s wild ride following the Fed decision to hold interest rates.
• Traders took the Fed's rate decision and rhetoric as less hawkish than feared. 
• The US Dollar Index holds ground above 105.50 despite several attempts from bears to break lower.

The US Dollar (USD) enters some calm waters on Thursday after a rollercoaster ride on Wednesday following the Federal Reserve’s (Fed) monetary policy decision. The big batch of economic data on Wednesday together with the Fed’s policy meeting and Chairman Jerome Powell’s speech was the dream scenario for an uptick in the US Dollar Index (DXY), but this scenario failed to materialize and the index fell to 105.43, near the low of this week. Although it looked for a moment that the US Dollar could weaken further, it still holds ground and is likely to stay there until the US Nonfarm Payrolls data on Friday as the next catalyst. 

On the economic data front, some appetisers ahead of the Nonfarm Payrolls print and the broader employment report on Friday. Traders can feast on the weekly Jobless Claims numbers and the Challenger Job Cuts number to look for clues if those announced layoffs during the recent earnings season are starting to weigh on the labor market. However, expectations are for traders to keep their powder dry for Friday.   

Daily digest market movers: Here come the layoffs

• A substantial move on the charts in USD/JPY and EUR/JPY on Wednesday, pointing to a possible intervention again from either the Bank of Japan (BoJ) or the Ministry of Finance, though no official confirmations were issued. 
• Kickoff this Thursday at 11:30 GMT with the April Challenger Job Cuts report. the previous number was at 90,309.
• At 12:30 GMT, the bigger part of the data for Thursday is to be released:
  • Weekly Initial Jobless Claims expected to head to 212,000 from 207,000.
  • Continuing Claims were at 1.781 million last week, with no forecast available.
  • The US Goods and Trade balance from March is to be released:
  • The Goods Trade Balance deficit was previously at $91.8 billion.
  • Goods and Services Trade Balance expected to head from a deficit of $68.9 billion to a deficit of $69.1 billion. 
  • Nonfarm Productivity growth for the first quarter of 2024 should slow down from 3.2% to 0.8%.
  • Unit Labor Costs are expected to accelerate substantially, from 0.4% to 3.2%.
• Near 14:00 GMT, the monthly factory orders for March are expected to increase by 1.6%, higher than the 1.4% advance seen a month earlier.
• Equities trade mixed on Thursday morning, with European equities mildly in the red while US Futures are mildly in the green. 
• The CME Fedwatch Tool suggests a 91.1% probability that June will still see no change to the Federal Reserve's fed fund rate. Odds of a rate cut in July are also out of the cards, while for September the tool shows a 56% chance that rates will be lower than current levels.
• The benchmark 10-year US Treasury Note trades around 4.61% and keeps lingering around this level.

US Dollar Index Technical Analysis: Burning through cash

The US Dollar Index (DXY) had a roller coaster ride on Wednesday while European markets were closed for Labor Day. Despite the moves and selling pressure in the DXY, the floor at 105.50 still holds despite three failed breaks in the past two weeks. Dollar bulls are buying at these levels clearly, as support is still there. This could result in a breakout soon, with either bulls stepping away and letting the DXY drop or sellers giving up, seeing DXY shooting higher. 

On the upside, 105.88 (a pivotal level since March 2023) needs to be recovered again with a daily close above it, before targeting the April 16 high at 106.52 for a third time. Further up and above the 107.00 round level, the DXY index could meet resistance at 107.35, the October 3 high. 

On the downside, 105.12 and 104.60 should act as support ahead of the 55-day and the 200-day Simple Moving Averages (SMAs) at 104.40 and 104.10, respectively. If those levels are unable to hold, the 100-day SMA near 103.75 is the next best candidate. 

• Silver price drops from $26.80 as US Dollar, bond yields rebound ahead of US Employment data.
• The US Employment data will influence speculation for Fed rate cuts in June.
• The Fed is still confident of rate cuts this year despite progress in disinflation has stalled.

Silver price (XAG/USD) falls back sharply to $26.20 while attempting to recapture the crucial resistance of $27.00 during the European session on Thursday. The white metal faces pressure as the US Dollar and bond yields attempt to recover amid uncertainty ahead of the United States Nonfarm Payrolls (NFP) and the ISM Services PMI data for April, which will be published on Friday.

The US NFP data would significantly influence market expectations for Federal Reserve (Fed) rate cuts from the June meeting. Economists have anticipated that US employers recruited 243K jobs, lower than 303K additions registered in March. The Unemployment Rate is forecasted to have remained steady at 3.8%.

Investors will keenly focus on the US Average Hourly Earnings data. The annual Average Hourly Earnings are expected to have grown at a slower pace of 4.0% from 4.1% in March, with steady 0.3% growth on a month-on-month basis. Average Hourly Earnings are a leading indicator of wage growth, which indicates the current status of households’ spending and eventually influences price pressures.

The US Dollar Index (DXY) rebounds to 105.75 and 10-year US Treasury yields edge up to 4.61. The US Dollar and bond yields tumbled on Wednesday after less hawkish interest rate guidance from the Federal Reserve (Fed) than feared. The Fed remains optimistic over eventual rate cuts this year despite risks of a slowdown in the disinflation process.

Silver technical analysis

Silver price declines to near the horizontal support plotted from 14 April 2023 high around $26.09 on a daily timeframe. The above-mentioned support was earlier a major resistance for the Silver price bulls. The uncertainty over Silver’s near-term outlook deepens as it has slipped below the 20-period Exponential Moving Average (EMA), which trades around $27.20.

The 14-period Relative Strength Index (RSI) slips into the 40.00-60.00 range, suggesting that the bullish momentum has faded. However, the long-term outlook is still stable.

Silver daily chart

• NZD/USD edges higher continuing the gains from Wednesday when the Fed adopted an easing bias in its May policy meeting. 
• A positive tilt to market sentiment leverages gains for NZD/USD on Thursday. 
• Longer-term negative factors and the worsening economic picture in NZ are likely to continue to weigh. 

NZD/USD edges higher, up by eight-hundredths of a percent in the 0.5930s, on Thursday, as an improvement in global market sentiment helps commodity currencies, of which the Kiwi is a prime example. 

Risk appetite is seen rebounding on the back of falling Oil prices which have reached a seven week low in the mid $79s as well as an overall market-positive outcome of the US Federal Reserve’s (Fed) policy meeting on Wednesday. 

Lower Oil prices reduce costs for business and alleviate headline inflation, and the takeaway from the Fed’s May policy meeting was that although US inflation was not falling swiftly enough for the central bank to seriously consider cutting interest rates, neither was it entertaining the notion of raising them either. The Fed also decided to slow the reduction in its holdings of US Treasury bonds, effectively unwinding the pace of quantitative tightening – a dovish move that weakened the US Dollar (USD) in most pairs. 

Despite the recovery over the past 48-hrs NZD/USD is likely to remain under pressure over the longer-term, however, due to the poor performance of the New Zealand economy, which increases the chances the Reserve Bank of New Zealand (RBNZ) will cut interest rates before the US Federal Reserve. Since relatively lower interest rates reduce capital inflows, this is likely to hurt NZD more than USD. 

New Zealand’s run of poor macroeconomic data continues

Recent data from Statistics New Zealand, showed the New Zealand Unemployment Rate rising to 4.3% in Q1, its highest level for three years. New Zealand is in a technical recession after two quarters of negative growth. Furthermore, headline inflation fell to 4.0% (Core 3.7%)  in Q1 from 4.7% previously. Even though inflation remains well above the Reserve Bank of New Zealand’s (RBNZ) target of 1.0% - 3.0%, the pressure is increasing for it to lower interest rates to help boost the stuttering economy. 

More negative data out on Wednesday showed Building Permits fell 0.2% in March on a monthly basis –  worse still, on an annual basis, the number of homes consented to is down 25.0% suggesting residential investment will remain a drag on New Zealand growth, according to analysts at Brown Brothers Harriman (BBH). 

Business Confidence also fell to 14.9 in April, from 22.9 a month earlier, pointing to the third straight month of drop and marking the lowest reading since last September, according to data out on Tuesday. 

The RBNZ appears to remain split between doves who want to cut rates and hawks who want to raise them, according to Westpac Chief Economist Kelly Eckhold. Whilst weak growth and high unemployment would be aided by lower interest rates, inflation is not seen as falling fast enough in key areas to warrant lower interest rates.

“Stickiness in core inflation is consistent with embedded inflation expectations..with the implication that inflation may bottom out above 2% without further tightening. The balance of risks does not favor relying on a 5.5% OCR,” says the Chief Economist in her note “Hawks, Doves and Kiwis,” published on Wednesday. 

For NZD/USD the key question is which central bank – the Fed or the RBNZ – will move to cut interest rates first. Given the worsening economic situation in New Zealand and the Fed’s increasingly neutral position, the RBNZ seems more likely to be the first to make the move.

• EUR/USD trades sideways above 1.0700 as firm ECB rate cut prospects for June offset the Fed’s less-hawkish guidance.
• The ECB is expected to pivot to interest rate cuts in June as Eurozone inflation is on course to the 2% path.
• Fed Powell remains hopeful of rate cuts later this year.

EUR/USD is stuck in a tight range above the round-level support of 1.0700 in Thursday’s European session. The upside in the major currency pair remains restricted around 1.0736 this week as the European Central Bank (ECB) is expected to start lowering its key borrowing rates from the June meeting, while the Federal Reserve’s (Fed) slightly less-hawkish guidance on interest rates has supported the downside.

April’s preliminary inflation readings for the Eurozone showed that annual headline inflation grew steadily by 2.4%. In the same period, the core Consumer Price Index (CPI), which excludes volatile food and energy prices, decelerated to 2.7% from 2.9% in March. Although investors forecasted a sharper decline to 2.6%, the data signalled that Eurozone inflation is on course to return to the desired rate of 2%. Therefore, ECB policymakers remain committed to reducing its Main Refinancing Operations Rate from June. 

Meanwhile, ECB policymakers are divided about whether the central bank should extend the rate-cut cycle to policy meetings beyond June. Currently, financial markets speculate that the ECB will cut interest rates three times this year.

On the other side of the Atlantic, the US Dollar is under pressure as the Fed remains optimistic about approaching quantitative easing this year despite acknowledging that progress in reducing inflation to 2% has stalled.

Daily digest market movers: EUR/USD consolidates while US Dollar strives for firm footing

• EUR/USD consolidates in a tight range above the crucial support of 1.0700. The major currency pair fell sharply on Wednesday amid caution before the Federal Reserve’s monetary policy announcement. However, it recovered strongly after the Fed’s guidance on interest rates turned out less hawkish than feared.
• Fed’s decision to hold interest rates steady in the range of 5.25%-5.50% for the sixth time in a row was no surprise for investors but its commentary showed that it is eager to shift to a neutral stance from a hawkish one. Fed Chair Jerome Powell said in his press conference after the Federal Open Market Committee (FOMC) meeting that he still sees interest rates lower this year even though stalling progress in the disinflation process has hit his confidence.
• A sharp decline in the scale of balance sheet tapering was another indication of the central bank’s intention to pivot to quantitative easing gradually. The Fed said that starting on June 1, it will reduce the cap on Treasury securities it allows to mature and not be replaced to $25 billion from its current cap of up to $60 billion per month, Reuters reported. 
• This announcement and wording put significant pressure on the US Dollar. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, is slightly up to 105.75 but has come down significantly from a two-week high of 106.50. The volatility in the US Dollar is expected to remain high as investors await the United States Nonfarm Payrolls (NFP) and the ISM Services PMI data for April, which will be published on Friday. The US NFP is estimated to have grown by 243K, lower than the 303K job additions registered in March. The ISM agency is expected to show a rise in the Services PMI to 52.0 from 51.4 in March.

Technical Analysis: EUR/USD exhibits volatile contraction above 1.0700

EUR/USD trades inside Wednesday’s trading range. The upside in the major currency pair is capped near 1.0735 as the ECB is expected to start lowering interest rates sooner than the Fed. The near-term outlook of the shared currency pair is uncertain as the 20-day Exponential Moving Average (EMA) at 1.0720 continues to be a major barrier for Euro bulls. 

On a daily time frame, EUR/USD exhibits a sharp volatility contraction as it forms a Symmetrical Triangle pattern. The upward-sloping border of the triangle pattern is plotted from October 3 low at 1.0448 and the downward-sloping border is placed from December 28 high around 1.1140.

The 14-period Relative Strength Index (RSI) shifts into the 40.00 to 60.00 range, suggesting indecisiveness among market participants.

• EUR/JPY edges higher due to the overall positive sentiment in the market post-Fed policy decision.
• The recent inflation data from the Eurozone have bolstered expectations for a potential rate cut by the ECB in June.
• The Japanese Yen saw a surge during the morning hours driven by possible intervention by Japanese authorities.

EUR/JPY edges higher on Thursday as the prevailing positive sentiment in the market provides support for risk-sensitive currencies like the Euro. The pair trades around 166.10 during the European session. This improved risk appetite could be attributed to dovish remarks from Federal Reserve Chairman Jerome Powell on Wednesday. Powell dismissed the likelihood of any further interest rate hikes.

The European Central Bank (ECB) is expected to be dovish as recent inflation data showed that Eurozone inflation held steady in April, as expected. Additionally, the core inflation fell, strengthening bets for a potential interest rate cut by the ECB in June. This could dampen the demand for the Euro, consequently, undermining the EUR/JPY cross.

The HCOB Eurozone Manufacturing Purchasing Managers' Index (PMI) for April posted a reading of 45.7, compared to the preliminary estimate of 45.6 and below March's final figure of 46.1. This latest reading indicates a slightly accelerated pace of decline in the manufacturing sector in the Euro area. The inflow of new orders decreased at a sharper rate, marking the most significant decline so far this year.

In Japan, the Japanese Yen (JPY) initially experienced an increase during the morning hours, driven by speculation of another potential government intervention, marking the second such occurrence this week. However, it later surrendered its gains following the release of insights from Bank of Japan (BoJ) Minutes from the March meeting.

According to Reuters, a member stated that the economy's reaction to a short-term rate increase to around 0.1% is anticipated to be minimal. Several members voiced the opinion that long-term rates should primarily be determined by market forces. Additionally, a few members suggested that the Bank of Japan should eventually contemplate reducing its bond purchasing and downsizing its bond holdings.

The Consumer Confidence Index fell to 38.3 in April from 39.5 in March and came below the market expectations of 39.7. This decline marks the lowest level in three months, reflecting weakened sentiment among households.

• Gold price pulls back on positive risk appetite, denting safe-haven demand. 
• Gold rose strongly on Wednesday after the Federal Reserve adopted an overall easing bias in its May meeting. 
• The precious metal was propelled higher after Federal Reserve Chairman Jerome Powell described more rate hikes as “unlikely”. 

The Gold price (XAU/USD) is trading in the $2,310s on Thursday after retracing about three-tenths of a percent on reduced safe-haven demand. Market sentiment is overall positive as Asian stocks on balance closed higher and Oil prices hover at seven-week lows. 

Gold price rallies after Federal Reserve meeting 

Gold price surged over $30 an ounce after the US Federal Reserve (Fed) adopted an overall easing bias at its May policy meeting on Wednesday. 

Gold bulls bid up the price after the Fed decided to leave interest rates unchanged and to slow the pace of reduction of its US Treasury holdings, a mildly dovish move as it unwinds quantitative tightening. 

Yet the Fed also added a hawkish phrase to its statement to reflect the continued stubbornness of US inflation, saying that, “in recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.”

Concerns, however, that the Fed might actually consider raising interest rates – something that would be detrimental to non-yielding Gold – were allayed after the Federal Reserve Chairman Jerome Powell described such a move as “unlikely”. 

In his prepared remarks, Powell dropped any reference to reducing interest rates this year, and sidestepped questions about whether the Fed would still be cutting rates in 2024, in the Q&A. Yet, although the overall take-away was that rates were not coming down any time soon, additional rate-hikes were not on the table either. 

Technical Analysis: Gold price possibly unfolding Measured Move

Gold price (XAU/USD) has fulfilled the minimum requirement for completing its bearish Measured Move price pattern after hitting the Fibonacci 0.681 price objective for the final C wave at $2,286. This could mean prices will now track higher. 

XAU/USD 4-hour Chart

Measured Move patterns are composed of three waves that trace out a zig-zag. The end of the final C wave can be estimated based on the length of wave A. It is usually either equal in length to A or a Fibonacci 0.681 ratio of A. 

Directionally, Gold is in a bit of a no-man’s land: a break below the 0.681 Fibonacci target lows at $2,285 would be needed to confirm more downside to a target at $2,245 (1.000 or where A=C). 

Alternatively, a break above the cluster of Moving Averages and the peak of wave B at around $2,350 would potentially usher in a new more bullish environment. This could then see a retest of the $2,400 highs.

Additionally, the trend for Gold price is up both in the medium and long-term, overall supporting the outlook. 

Silver prices (XAG/USD) fell on Thursday, according to FXStreet data. Silver trades at $26.43 per troy ounce, down 0.75% from the $26.63 it cost on Wednesday.

Silver prices have increased by 3.77% since the beginning of the year.

The Gold/Silver ratio, which shows the number of troy ounces of Silver needed to equal the value of one troy ounce of Gold, stood at 87.17 on Thursday, up from 87.09 on Wednesday.

Investors might use this ratio to determine the relative valuation of Gold and Silver. Some may consider a high ratio as an indicator that Silver is undervalued – or Gold is overvalued – and might buy Silver or sell Gold accordingly. Conversely, a low ratio might suggest that Gold is undervalued relative to Silver.

Gold prices fell in India on Thursday, according to data from India's Multi Commodity Exchange (MCX).

Gold price stood at 71,290 Indian Rupees (INR) per 10 grams, down INR 487 compared with the INR 71,777 it cost on Wednesday.

As for futures contracts, Gold prices increased to INR 70,758 per 10 gms from INR 70,725 per 10 gms.

Prices for Silver futures contracts decreased to INR 81,070 per kg from INR 81,227 per kg.

Global Market Movers: Comex Gold price reverses post-Fed rebound

• Federal Reserve Chair Jerome Powell warned on Wednesday that interest rates will remain high for longer as disinflation has slowed in recent months and acts as a headwind for the Comex Gold price. 
• The US Treasury bond yields reversed a part of the previous day's post-FOMC slide, helping revive the demand for the US Dollar and contributing to capping the upside for the non-yielding yellow metal. 
• Meanwhile, the global risk sentiment got a boost after Powell signaled that the next move from the Fed was still likely to be an interest rate cut, which further undermines the safe-haven XAU/USD.
• This, along with easing geopolitical tensions, suggests that the path of least resistance for the commodity is to the downside, though the lack of selling warrants caution for bearish traders. 
• Investors might also prefer to move to the sidelines ahead of the release of the closely watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday.
• In the meantime, Thursday's US economic docket – featuring Challenger Job Cuts, the usual Weekly Initial Jobless Claims, and Trade Balance data – will be looked upon for short-term trading impetus.

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• USD/CAD gained ground as the US Dollar struggled after Fed Powell dismissed the speculation of further rate hikes.
• The improved market sentiment supports risk-sensitive currencies like the Canadian Dollar.
• The uptick in the WTI price supported the CAD as Canada is the largest Oil exporter.

USD/CAD extends its losses for the second successive day, hovering around 1.3710 during the European session on Thursday. This improved risk appetite supports risk-sensitive currencies like the Canadian Dollar (CAD), consequently, undermining the USD/CAD pair.

On Wednesday, the Federal Reserve (Fed) decided to maintain interest rates at the range of 5.25%-5.50% in May’s meeting, as highly expected. Additionally, the US Dollar (USD) faced challenges after Federal Reserve Chairman Jerome Powell dismissed the likelihood of a further interest rate hike during the Federal Open Market Committee (FOMC) conference, as per a Reuters report.

Fed Chair Powell emphasized that progress on inflation has recently stalled, indicating that it would require more time than previously anticipated for the Fed to be confident in reaching its 2% target. Powell suggested that if strong hiring continues and inflation remains subdued, it would warrant delaying rate cuts.

In Canada, according to a Reuters report on Wednesday, Bank of Canada (BoC) Governor Tiff Macklem said that the BoC is reaching a point where it could begin reducing interest rates from their current 23-year highs. Speaking to the Senate Banking Committee, Macklem mentioned that inflation was declining and Canadians were eager to know when the central bank would initiate interest rate cuts.

Additionally, the uptick in crude Oil prices supported the Loonie Dollar as Canada is the largest oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price inches higher to near $79.30 per barrel, by the press time. The prices of crude Oil have rebounded on the anticipation that lower levels could encourage the United States, the world's largest crude consumer, to begin replenishing its strategic reserve.

• The Pound Sterling exhibits strength above 1.2500 as the Fed’s guidance on interest rates was slightly less hawkish than expected.
• Fed’s Chair Jerome Powell said he is still confident about a reduction in interest rates this year.
• The BoE is expected to hold interest rates steady at 5.25% for the straight sixth time at its May 9 meeting.

The Pound Sterling (GBP) capitalizes on cheerful market sentiment and holds gains above the crucial resistance of 1.2500 in Thursday’s London session. The GBP/USD pair is slightly down from its previous close of 1.2526, but clings to recent gains. This strength in the Cable is driven by a weaker US Dollar,   which was battered by the Federal Reserve’s (Fed) guidance on interest rates, which was less hawkish than feared, after keeping them unchanged for the sixth straight time.

The commentary from Fed Chair Jerome Powell in the press conference after the monetary policy meeting showed that he still sees the central bank pivoting to interest rate cuts this year even though he remains worried over stalling progress in inflation declining to the 2% target. When asked about the Fed’s stance on interest rate cuts, Jerome Powell said that he expects inflation to fall over the course of the year, but that "my confidence in that is lower than it was." 

About the inflation outlook, Fed Chair Jerome Powell said that price growth  “is still too high," adding that "further progress in bringing it down is not assured and the path forward is uncertain."

Apart from the Fed’s less-hawkish outlook, the sharp decline in the pace of balance sheet tapering suggested that the central bank is still leaning towards quantitative easing. 

Daily digest market movers: Pound sterling holds gains amid wobbling US Dollar

• The Pound Sterling climbs comfortably above the psychological resistance of 1.2500 against the US Dollar (USD) amid cheerful market sentiment. Significant gains posted by S&P 500 futures in the European session suggest an improvement in investors’ risk appetite. The appeal for risk-perceived assets improves as investors took the Fed’s monetary policy statement and interest rate guidance from the press conference of Fed Chair Jerome Powell as less hawkish than expected.
• The indication that the Fed remains tilted towards unwinding quantitative tightening weighed heavily on the US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near crucial support of 105.55 in the European session.
• Investors should brace for more volatility in the US Dollar as the United States Nonfarm Payrolls (NFP) and ISM Services PMI report for April are set to be released on Friday. Economists have forecasted that US employers hired 243K job-seekers in April, lower than the prior reading of 303K. The Services PMI is estimated to have increased to 52.0 from the prior reading of 51.4.
• In the United Kingdom, investors shifted focus to the Bank of England’s interest rate decision, which will be announced on May 9. The BoE is expected to hold interest rates steady at 5.25% for the sixth time in a row. Investors will keenly focus on the inflation outlook and cues about when the BoE will start reducing interest rates.

Technical Analysis: Pound Sterling trades sideways above 1.2500

The Pound Sterling trades in a narrow range above the crucial support of 1.2500. The GBP/USD pair continues to face pressure near the neckline of the Head and Shoulder pattern. On April 12, the Cable experienced an intense sell-off after breaking below the neckline of the H&S pattern plotted from December 8 low around 1.2500.

The long-term outlook of the Cable is uncertain as it struggles to sustain above the 200-day Exponential Moving Average (EMA), which trades around 1.2530.

The 14-period Relative Strength Index (RSI) oscillates within the 40.00 to 60.00 range, suggesting indecisiveness among market participants.

FX option expiries for May 2 NY cut at 10:00 Eastern Time, via DTCC, can be found below

- EUR/USD: EUR amounts

• 1.0600 990m
• 1.0670 1.2b
• 1.0675 881m
• 1.0700 1.5b
• 1.0745 969m
• 1.0750 1.9b
• 1.0785 1.5b

- GBP/USD: GBP amounts     

• 1.2425 340m
• 1.2575 322m

- USD/JPY: USD amounts                     

• 154.00 1.3b
• 154.50 570m
• 155.75 671m

- USD/CHF: USD amounts     

• 0.9225 1.3b

- AUD/USD: AUD amounts

• 0.6400 1b
• 0.6450 433m
• 0.6475 642m
• 0.6490 726m
• 0.6550 501m

- USD/CAD: USD amounts       

• 1.3740 409m
• 1.3850 1.2b    

- NZD/USD: NZD amounts

• 0.5960 781m

Here is what you need to know on Thursday, May 2:

The US Dollar (USD) suffered large losses against its major rivals in the late American session on Wednesday as the Federal Reserve's (Fed) statement language and Chairman Jerome Powell's comments turned out to be not as hawkish as feared. Final revisions to HCOB Manufaturing PMIs for Germany and the Eurozone will be featured in the European economic docket. Later in the day, weekly Initial Jobless Claims and Unit Labor Costs data for the first quarter from the US will be watched closely by market participants.

The Fed left the policy rate unchanged at 5.25%-5.5% as expected. In its policy statement, the Fed acknowledged that there has recently been a lack of further progress toward the 2% inflation target. Regarding the quantitative tightening strategy, the Fed noted that they will slow the decline of the balance sheet by cutting the Treasury redemption cap to $25 billion per month from $60 billion starting June 1. In the post-meeting press conference, Chairman Powell refrained from hinting at the timing of a policy pivot but said that it was unlikely that the next interest rate move would be a hike. "To hike, we'd need to see evidence policy is not sufficiently restrictive -- that's not what we see," he explained.

After fluctuating wildly during the press conference, the USD Index turned south and lost over 0.6% on a daily basis on Wednesday. Early Thursday, the index moves up and down in a tight channel above 105.50. Meanwhile, the benchmark 10-year US Treasury bond yield stays in negative territory slightly above 4.6% and US stock index futures trade modestly higher.

Toward the end of the American session on Wednesday, USD/JPY fell nearly 400 pips in less than an hour. Although there is no official word yet, market participants see that move as a result of another intervention. After falling all the way to 153.00, USD/JPY recovered during the Asian trading hours and was last seen trading at around 155.50.

EUR/USD staged a decisive rebound on Wednesday and erased all of Tuesday's losses. The pair holds steady slightly above 1.0700 in the early European morning on Thursday.

GBP/USD spent the majority of the day below 1.2500 on Wednesday but closed above that level, supported by the USD weakness. The pair stays in a consolidation phase at around 1.2520 in the European session.

Gold benefited from the selling pressure surrounding the USD and retreating T-bond yields on Wednesday and settled above $2,300. XAU/USD struggles to preserve its bullish momentum and trades in the red slightly below $2,310 early Thursday. 

• The Mexican Peso rises as market sentiment lifts following the Federal Reserve meeting on Wednesday. 
• Despite acknowledging inflation remained sticky, the Fed’s Chair Jerome Powell described the need for higher interest rates as “unlikely”. 
• The Fed’s decision to reduce its Treasury holdings at a slower pace was taken by markets as a mildly dovish move, possibly weakening the USD. 

The Mexican Peso (MXN) trades higher in its key pairs on Thursday as market sentiment gets a lift from a combination of factors, including the US Federal Reserve’s (Fed) decision to maintain an easing bias at its policy meeting on Wednesday, and Crude Oil prices hovering close to seven-week lows. 

USD/MXN is trading at 16.93, EUR/MXN at 18.16 and GBP/MXN at 21.24, at the time of publication during the European session. 

Mexican Peso gains on positive market sentiment

The Mexican Peso, which is sensitive to risk trends, is seeing gains across the board as market sentiment stays positive on Thursday. The Federal Reserve’s decision to keep interest rates at their current level despite persistently firm inflation in the US; the fact that Federal Reserve Chairman Jerome Powell considered a further rise in borrowing costs as “unlikely”, and the Fed’s decision to reduce its holdings of US Treasuries at a slower pace – a dovish move – were all factors supporting a positive outlook for markets. 

Lower Crude Oil prices, with WTI trading in the mid $79s, were a further positive factor for global risk sentiment as they reduce companies’ transportation and energy costs. 

Asian stocks markets traded mixed overnight, with the Nikkei closing down 0.19%, the Shanghai Composite Index closing down 0.26% but Hong Kong’s Hang Seng up by 2.44% and India’s Sensex 0.36% higher, at the time of writing. 

Mexican Peso traders now await S&P Global Mexican Manufacturing PMI data for April out at 15:00 GMT for further clues about how well the sector is bearing up under Banxico's restrictive interest-rate regime.

In March, Mexico’s Manufacturing PMI eased down to 52.2 from 52.3 in February but remained in expansive territory (above 50), as it has done since September 2023. 

A substantial decline in the metric could increase the chances of the Banxico reducing interest rates more rapidly than previously expected. This in turn would probably lead to a depreciation of the Mexican Peso, since lower interest rates reduce capital inflows. The opposite would be the case for a substantial rise in the PMI.

Business Confidence for Mexico is also scheduled for release at 12:00 GMT on Thursday. Previously, the metric stood at 54.3.  

Technical Analysis: USD/MXN in sideways short-term trend 

USD/MXN extends its short-term sideways trend, oscillating between the parameters of a range with a floor at 16.86 and a ceiling at 17.40. 

USD/MXN 4-hour Chart 

The pair is currently trading close to the range lows. 

Given the sideways trend is biased to continue, the next move will probably be an up leg back towards the range highs, however, there are no signs as yet of such a move evolving. 

A decisive breakout of the range – either below the floor at 16.86, or the ceiling at 17.40 – would change the directional bias of the pair. 

A break below the floor could see further downside to a target at 16.50, followed by the April 9 low at 16.26.

On the other side, a break above the top would activate an upside target first at 17.67, piercing a long-term trendline and then possibly reaching a further target at around 18.15. 

A decisive break would be one characterized by a longer-than-average green or red daily candlestick that pierces above or below the range high or low, and that closes near its high or low for the period; or three green/red candlesticks in a row that pierce above/below the respective levels.

• USD/CHF weakens to 0.9110 following Swiss inflation data on Thursday. 
• The Swiss CPI inflation climbed to 1.4% YoY in April from a rise of 1.0% in March.
• The Fed has kept its benchmark lending rate steady at a 23-year high since July 2023. 
• The US Nonfarm Payrolls (NFP) for April will be in the spotlight on Friday. 

The USD/CHF pair faces some selling pressure on Thursday, supported by the hotter-than-expected Swiss inflation data. The pair currently trades around 0.9110, down 0.48% on the day. Furthermore, the softer US Dollar (USD) came after the US Federal Reserve (Fed) held interest rates at their current levels, adding further downside to the pair. 

The inflation in Switzerland came in hotter than expected in April, according to the Federal Statistical Office of Switzerland on Thursday. The Swiss Consumer Price Index (CPI) inflation rose to 1.4% YoY in April from a rise of 1.0% in March. On a monthly basis, the Swiss CPI figure increased by 0.3% MoM in April, above the market consensus of 0.1%. In response to the data, the Swiss Franc (CHF) attracts some buyers and drags the USD/CHF pair to the 0.9100 support level. 

The US Fed on Wednesday decided to leave its interest rate unchanged as inflation has remained stubbornly high in recent months. The Fed Chair Jerome Powell noted that he doesn’t have a plan to cut interest rates until the Fed has “greater confidence” that price increases are slowing sustainably to its 2% target. During the press conference, Fed’s Powell said that “there has been a lack of further progress.”, adding that interest rates are “restrictive” enough and that it was “unlikely” that the Fed would raise rates again in this cycle. This, in turn, weighs on the Greenback and creates a headwind for the USD/CHF pair. 

Investors will closely monitor the US employment data on Friday. The Nonfarm Payrolls (NFP) for April is expected to show 243K job additions in the US economy, while the Unemployment Rate is projected to remain steady at 3.8% in the same period. 

• GBP/USD gains ground as technical indicators suggest a momentum shift for the pair.
• The momentum indicator could confirm a weakening of the bearish bias once it breaks above the centerline.
• The pair could meet the immediate barrier at the upper boundary of the descending channel around 1.2570 level.

GBP/USD extends its gains for the second successive session on Thursday, trading around 1.2530 during the Asian session. The pair consolidates within the descending channel on a daily chart, with the 14-day Relative Strength Index (RSI) positioning on the 50-level. A further increase will indicate the weakening of a bearish bias.

Additionally, the Moving Average Convergence Divergence (MACD) indicates a momentum shift as it is positioned above the signal line but below the centerline. This momentum indicator could confirm the weakening of the bearish bias once it breaks above the centerline.

The GBP/USD pair could test the immediate throwback support at the 1.2518 level, followed by the nine-day Exponential Moving Average (EMA) at 1.2504 and the psychological level of 1.2500. A break below this level could exert pressure on the pair to navigate the region around the six-month low of 1.2300, followed by the lower boundary of the descending channel around the level of 1.2240.

On the upside, the immediate resistance appears at the upper boundary of the descending channel around the level of 1.2570 followed by the 50% retracement level at 1.2597 level, plotting between the range of 1.2894 and 1.2300.

A breakthrough above the latter could support the GBP/USD pair to explore the area around the pullback resistance at the 1.2710 level.

GBP/USD: Daily Chart

• WTI prices loses momentum near seven-week lows of $79.20 on Thursday.
• A surprise build in US crude stocks weighs on black gold prices.
• WTI prices edge lower amid signs of easing Middle East geopolitical tensions.
• The US employment reports on Friday will be closely watched.

Western Texas Intermediate (WTI), the US crude oil benchmark, is trading around $79.20 on Thursday. The black gold edges lower to the lowest level in seven weeks due to a surprise build in crude inventories in the United States and easing geopolitical tensions in the Middle East. 

US crude inventories for the week ending April 26 rose by 7.256 million barrels to 460.9 million barrels, compared to a 6.368 million barrel draw in the previous week. The market consensus estimated that stocks would decrease by 2.3 million barrels, according to the US Energy Information Administration (EIA) on Wednesday. This figure registered the highest since June 2023, adding to concerns about a weakening oil demand.

Furthermore, the signs of easing geopolitical tensions in the Middle East drag WTI prices lower. According to Bloomberg, the United States and Saudi Arabia are discussing an agreement that would provide Riyadh security guarantees and possible diplomatic ties with Israel if its government ends the war in Gaza. Nonetheless, the rising geopolitical risks could raise the fear of oil supply disruption in the region and lift the black gold price. 

Oil traders will shift their attention to US employment data for April on Friday for fresh impetus, including Nonfarm Payrolls (NFP), Unemployment Rate, and Average Hourly Earnings. These events could significantly impact the USD-denominated WTI price. Oil traders will take cues from the data and find trading opportunities around WTI prices.
 

• EUR/USD appreciates on improved risk appetite after dovish remarks from Fed Chair Jerome Powell.
• Fed Chair Powell said that it would take longer than previously anticipated to bring inflation down to the 2% target.
• The Euro may struggle as the recent Eurozone inflation data have bolstered expectations for a potential rate cut by the ECB in June.

EUR/USD continues to gain ground on Thursday as the prevailing positive sentiment in the market provides support for risk-sensitive currencies like the Euro. This improved risk appetite could be attributed to dovish remarks from Federal Reserve Chairman Jerome Powell on Wednesday. Powell dismissed the likelihood of a further interest rate hike after the Fed decided to maintain interest rates at 5.25%-5.50% in May’s meeting held on Wednesday. The EUR/USD pair inches higher to near 1.0720 during the Asian trading session.

According to a Reuters report, Federal Reserve Chairman Jerome Powell said that progress on inflation has recently stalled, suggesting that it would take more time than previously anticipated to bring inflation down to the central bank’s 2% target. Powell also mentioned that if robust hiring persists and inflation remains stagnant, it would justify delaying rate cuts.

Traders are likely awaiting weekly Initial Jobless Claims, Nonfarm Productivity, and Factory Orders from the United States (US) on Thursday. These releases will likely provide further insights into the state of the United States (US) economy.

From the Eurozone, the Euro could struggle due to a more dovish stance from the European Central Bank compared to the US Federal Reserve. Recent inflation data showed that Eurozone inflation held steady in April, as expected. Additionally, the core inflation fell, strengthening bets for a potential interest rate cut by the ECB in June.

Thursday brings the final HCOB Manufacturing Purchasing Managers' Index (PMI) data, with market expectations aligned with the preliminary figures. This is a leading indicator gauging business activity in the Eurozone manufacturing sector.

• Gold price fails to lure buyers amid a fresh leg up in the US bond yields, modest USD uptick.
• A positive risk tone also contributes to capping the upside for the safe-haven precious metal.
• Traders, however, might prefer to wait for the US NFP report before placing aggressive bets.

Gold price (XAU/USD) struggles to capitalize on the previous day's goodish recovery from the $2,282-2,281 region or a nearly four-week low and oscillates in a narrow band during the Asian session on Thursday. As was widely anticipated, the Federal Reserve (Fed) kept its benchmark interest rate unchanged at the end of a two-day meeting on Wednesday, though it reiterated that it wants to gain greater confidence that inflation will continue to fall before cutting rates. This, in turn, triggers a fresh leg up in the US Treasury bond yields, which lends some support to the US Dollar (USD) and acts as a headwind for the non-yielding yellow metal. 

In the post-meeting press conference, Fed Chair Jerome Powell acknowledged that the progress towards the 2% annual inflation target had largely stalled, though dismissed the prospect of a rate hike. This, along with easing fears about a further escalation of geopolitical tensions in the Middle East, boosts investors' appetite for riskier assets and turns out to be another factor contributing to capping the upside for the safe haven Gold price. That said, the recent repeated failures to find acceptance below the $2,300 mark warrants caution for bearish traders and positioning for further losses ahead of the release of the US Nonfarm Payrolls (NFP) on Friday.

Daily Digest Market Movers: Gold price is undermined by a combination of factors, though the downside remains cushioned

• Federal Reserve Chair Jerome Powell warned on Wednesday that interest rates will remain high for longer as disinflation has slowed in recent months and acts as a headwind for the Gold price. 
• The US Treasury bond yields reversed a part of the previous day's post-FOMC slide, helping revive the demand for the US Dollar and contributing to capping the upside for the non-yielding yellow metal. 
• Meanwhile, the global risk sentiment got a boost after Powell signaled that the next move from the Fed was still likely to be an interest rate cut, which further undermines the safe-haven XAU/USD.
• This, along with easing geopolitical tensions, suggests that the path of least resistance for the commodity is to the downside, though the lack of selling warrants caution for bearish traders. 
• Investors might also prefer to move to the sidelines ahead of the release of the closely watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday.
• In the meantime, Thursday's US economic docket – featuring Challenger Job Cuts, the usual Weekly Initial Jobless Claims, and Trade Balance data – will be looked upon for short-term trading impetus.

Technical Analysis: Gold price could slide further once the 50% Fibo. level support near the $2,280 area is broken decisively

From a technical perspective, weakness back below the $2,300 mark now seems to find decent support near the $2,280 level. The latter coincides with the 50% Fibonacci retracement level of the March-April rally, which, if broken decisively, should pave the way for deeper losses. The Gold price might then accelerate the fall towards the next relevant support near the $2,268-2,265 area en route to the $2,230-2,225 region and the $2,200 round figure.

On the flip side, the immediate hurdle is pegged near the $2,335 supply zone ahead of the weekly top, around the $2,352-2,353 area. A sustained strength beyond could lift the Gold price to the $2,371-2,372 resistance en route to the $2,400 round figure and the all-time peak, around the $2,431-2,432 area touched on April 12.

• The Australian Dollar rises as positive market sentiment favors the risk-sensitive currencies.
• The Australian Dollar cheered the hawkish sentiment surrounding the RBA despite the weaker Aussie Trade Balance and Building Permits.
• The US Dollar faced a challenge as Fed Chair Powell dismissed the likelihood of a further rate hike.

The Australian Dollar (AUD) extends its gains on Thursday despite the weaker-than-expected Trade Balance and Building Permits data released by the Australian Bureau of Statistics. The AUD/USD pair receives support from the prevailing positive market sentiment after dovish remarks from the Federal Reserve Chairman Jerome Powell on Wednesday. 

The Australian Dollar advances due to the hawkish sentiment surrounding the Reserve Bank of Australia’s (RBA) maintaining higher interest rates in 2024. The higher-than-expected domestic inflation data released last week has raised expectations that the RBA may delay interest rate cuts.

The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, remains under pressure following the dovish remarks from Federal Reserve Chairman Jerome Powell after the interest rate decision on Wednesday. Powell dismissed the likelihood of a further rate hike, contributing to pressure for the US Dollar (USD). As expected, the US Federal Reserve (Fed) decided to maintain interest rates at 5.25%-5.50% in May’s meeting.

Traders are likely awaiting weekly Initial Jobless Claims, Nonfarm Productivity, and Factory Orders from the United States (US) on Thursday. These releases will likely provide further insights into the state of the United States (US) economy.

Daily Digest Market Movers: Australian Dollar appreciates due to improved risk appetite

• Australia’s Trade Balance (MoM) posted a surplus of 5,024 million in April, against the market anticipation of an increase to 7,370 million from the previous 7,370 million. Additionally, Australian Building Permits rose by 1.9%, falling short of the expected 3.0% in March. The February’s reading was -1.9%.
• The ASX 200 Index saw a modest increase on Thursday following the uptick in heavyweight financial firms, recovering some losses recorded Wednesday. This could be attributed to the positive market sentiment after Fed Chair Jerome Powell dismissed the chances of any further rate hike during the Federal Open Market Committee (FOMC) conference on Wednesday.
• Federal Reserve Chairman Jerome Powell highlighted that progress on inflation has recently stalled, suggesting that it would take more time than previously anticipated before the Fed could confidently expect inflation to approach its 2% target. Powell mentioned that if robust hiring persisted and inflation remained stagnant, it would justify delaying rate cuts.
• The ADP US Employment Change reported that private businesses added 192,000 workers to their payrolls in April, surpassing the expected increase of 175,000 and 208,000 prior.
• The ISM US Manufacturing PMI fell to 49.2 in April from March’s 50.3, against the market expectations of a stall. The data indicated a contraction in the US manufacturing sector, failing to sustain the momentum observed in the previous month, which marked the first expansion in 16 months.
• According to the Financial Review, ANZ predicts the Reserve Bank of Australia will start reducing interest rates in November, spurred by last week's inflation data surpassing expectations. Likewise, Commonwealth Bank, Australia's largest mortgage lender, has revised its forecast for the RBA's first interest rate cut timing, now projecting a single cut in November.
• According to the CME FedWatch Tool, the likelihood of the Federal Reserve maintaining interest rates at their current level during the June meeting has risen to 91.0%, climbing from 83.5% a week ago.

Technical Analysis: Australian Dollar moves above 0.6500 back into the triangle

The Australian Dollar trades around 0.6530 on Thursday. The pair has re-entered the symmetrical triangle pattern. Additionally, the 14-day Relative Strength Index (RSI) is above the 50-level, indicating a bullish bias.

The AUD/USD pair might challenge the upper boundary, situated around the level of 0.6580, followed by the psychological level of 0.6600. A breakthrough above this level could lead the pair to explore the region around March’s high of 0.6667.

On the downside, the AUD/USD pair could potentially move toward the lower boundary of the symmetrical triangle around the nine-day Exponential Moving Average (EMA) at 0.6509. A break below the latter could exert pressure on the pair to test the rebound support at the 0.6480 level.

AUD/USD: Daily Chart

• Indian Rupee rebounds on Thursday amid a softer USD. 
• The Fed Chair Powell pushed back against the possibility of rate hikes, exerting selling pressure on the USD. 
• Investors will monitor India’s HSBC Manufacturing PMI for April. 

Indian Rupee (INR) recovers some lost ground on Thursday amid the weaker US Dollar (USD). The Greenback failed to capitalize after the US Federal Reserve (Fed) decided to maintain the status quo on the rate late Wednesday. The Fed Chair Jerome Powell said during the press conference that it’s unlikely that the next policy rate move will be a hike. These comments spark a modest dovish reaction in the markets, which weighs on the Greenback. 

However, the Fed’s cautious stance over future interest rate cuts and higher-for-longer rate narrative might lift the USD. On the one hand, the weakening of the INR might be limited as the Reserve Bank of India (RBI) continues to stabilize its currency from the volatility. 

On Thursday, the usual US weekly Initial Jobless Claims and March’s Goods Trade Balance are due. On the Indian front, the HSBC Manufacturing Purchasing Managers Index (PMI) for April will be released, which is estimated to remain steady at 59.1. The spotlight will turn to the US employment data for April on Friday, including Nonfarm Payrolls (NFP), Unemployment Rate, and Average Hourly Earnings.  

Daily Digest Market Movers: Indian Rupee remains firm amid RBI’s Intervention

• Between January and March 2023, India's gold demand was 126.3 tonnes, which increased by 8% to 136.6 tonnes this year, according to a World Gold Council report.
• The Federal Reserve (Fed) kept its benchmark short-term borrowing rate in a targeted range between 5.25% and 5.50%, as widely expected. 
• Fed Chair Jerome Powell emphasized that progress on inflation has stalled recently, and it would take longer than previously thought before the Fed had confidence that inflation would move toward its 2% target.
• The US ISM Manufacturing PMI came in worse than expected, falling to 49.2 in April from March's expansionary reading of 50.3. 
• The ADP Employment Change showed an increase of 192,000 jobs in April from the upwardly revised March figure of 208,000, beating the 175,000 expected. 
• The JOLTS Job Openings dropped to 8.488 million in March from 8.813 million in the previous reading, marking the lowest level of job openings reported.

Technical analysis: USD/INR maintains a constructive outlook in the longer term

The Indian Rupee trades on a stronger note on the day. However, the bullish outlook of USD/INR remains in place as the pair is forming an ascending triangle and remains above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Additionally, the 14-day Relative Strength Index (RSI) holds in bullish territory around 55, supporting the buyers for the time being. 

The first upside barrier will emerge near a high of April 15 at 83.50. Further north, the next hurdle is located near the upper boundary of ascending triangles of 83.71, followed by the 84.00 psychological round mark. 

On the downside, the lower limit of the ascending triangle and the 100-day EMA at 83.15 act as an initial support level for USD/INR. A breach of this level will see a drop to a low of January 15 at 82.78 and finally a low of March 11 at 82.65. 

• The Japanese Yen rallied on Wednesday amid speculations of another intervention by authorities. 
• The momentum, however, runs out of steam on the back of the divergent BoJ-Fed policy outlooks.
• Traders now look to the second-tier US data for some impetus ahead of the NFP report on Friday.

The Japanese Yen (JPY) surged to over a two-week high against its American counterpart on Wednesday amid speculations that Japan's financial authorities intervened again, for a second time this week, to prop up the domestic currency. This came on the back of the post-FOMC US Dollar (USD) selling and dragged the USD/JPY pair to the 153.00 mark. The JPY, however, trimmed a part of its strong intraday gains and continued losing ground through the Asian session on Thursday, pushing the currency pair back above the 156.00 round figure. 

The Bank of Japan's (BoJ) decision to keep interest rates near zero and indication that it will continue buying government bonds in line with the guidance made in March marks a big divergence in comparison to the Federal Reserve's (Fed) hawkish signal. In fact, the US central bank said on Wednesday that it wants to gain greater confidence that inflation will continue to fall before cutting rates. This, along with the emergence of some USD buying, lends support to the USD/JPY pair amid a positive risk tone, which undermines the safe-haven JPY. 

Traders now look to the US economic docket, featuring the release of Challenger Job Cuts, the usual Weekly Initial Jobless Claims and Trade Balance data for some impetus later during the early North American session. The focus, however, will remain glued to the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. 

Daily Digest Market Movers: Japanese Yen fails to capitalize on Wednesday’s possible intervention-led strong move up

A likely Japanese Yen buying directed by Japan's Ministry of Finance triggered a steep USD/JPY decline to over a two-week low during the late US session on Wednesday, though the momentum falters near the 153.00 mark.
Japan's top currency diplomat Masato Kanda declined to confirm if authorities had stepped into the FX market to support the domestic currency and said that they will disclose intervention data at the end of this month. 
Minutes of the Bank of Japan March policy meeting revealed this Thursday that the central bank must continue to support the economy from a financial standpoint to achieve sustained, domestic demand-driven recovery. 
The lack of change in forward guidance by the Federal Reserve on Wednesday, signaling that it is leaning toward reductions in borrowing costs later this year, was perceived as dovish and led to the overnight US Dollar slump. 
In the post-meeting press conference, Fed Chair Jerome Powell noted that inflation has eased substantially over the past year but it's still too high and that further progress on inflation is not assured as the path is uncertain. 
Fed fund futures traders are now pricing in 35 basis points of easing this year, up from 29 bps before the statement, which is still less than three 25 bps cuts projected by the US central bank and helps revive the USD demand.
A positive tone around the US equity markets further contributes to driving flows away from the safe-haven JPY and provides an additional boost to the USD/JPY pair on Thursday ahead of the second-tier US economic releases.
The market attention, meanwhile, remains on the US jobs report on Friday, which will now play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the currency pair.

Technical Analysis: USD/JPY needs to break through the 50% Fibo. hurdle, around 156.50 for bulls to seize intraday control

From a technical perspective, the overnight bounce from the 200-period Simple Moving Average on the 4-hour chart and the subsequent move beyond the 38.2% Fibonacci retracement level of this week's sharp pullback from a multi-decade high favor bullish traders. That said, mixed oscillators on hourly/daily charts warrant some caution before positioning for any further intraday appreciating move, suggesting that the USD/JPY pair might confront some resistance near the 50% Fibo. level, around the 156.55 region. Some follow-through buying, however, will suggest that the recent corrective slide from the all-time peak has run its course and pave the way for additional gains.

On the flip side, weakness back below the 155.70 area could drag the USD/JPY pair back towards the 155.00 psychological mark en route to the 154.50-154.45 support zone. Failure to defend the latter might expose the Asian session low, around the 153.00 round figure, with some intermediate support near the 154.00 mark and the 153.60 region.

• AUD/JPY rebounded due to possible positive sentiment in the market after the Fed decided to maintain the current interest rate.
• The Japanese Yen experienced an increase during the morning hours in New Zealand driven by another possible government intervention.
• Australian Bureau of Statistics reported a Trade Balance (MoM) with a surplus lower than expected in April.

AUD/JPY edges higher on Thursday after paring daily losses. The Japanese Yen (JPY) saw an uptick during the morning in New Zealand driven by another possible government intervention, marking the second occurrence this week. However, it later relinquished its gains following the release of the Bank of Japan (BoJ) Board members' insights into the monetary policy outlook during Thursday's session, as documented in the BoJ Minutes from the March meeting.

According to Reuters, a member mentioned that the economy's response to a short-term rate increase to approximately 0.1% is expected to be minimal. Several members expressed the belief that long-term rates ought to be primarily determined by market forces. Additionally, a few members suggested that the Bank of Japan should eventually consider decreasing its bond purchasing and scaling down its bond holdings.

The Australian Dollar (AUD) receives support, potentially buoyed by the prevailing positive sentiment in the market following the US Federal Reserve's decision to maintain interest rates at 5.25%-5.50% during Wednesday's policy meeting. Furthermore, Fed Chair Jerome Powell dismissed the likelihood of a further rate hike, contributing to the positive outlook. Nevertheless, the anticipation of interest rate hikes in Australia later this year remains on the table.

Australia’s Trade Balance and Building Permits data showed weaker-than-expected readings, which could contribute to downward pressure on the Australian Dollar. These disappointing readings could dampen the hawkish sentiment surrounding the Reserve Bank of Australia's (RBA)'s stance on maintaining higher interest rates throughout 2024.

Daily Digest Market Movers: AUD/JPY gains ground due to positive market sentiment

• Australia’s Trade Balance (MoM) showed a surplus of 5,024 million in April. The market was expecting an increase to 7,370 million from the previous 7,370 million.
• The Building Permits released by the Australian Bureau of Statistics shows the number of permits for new construction projects rose by 1.9%, falling short of the expected 3.0% in March. The previous month’s reading was -1.9%.
• On Thursday, the ASX 200 Index saw a modest increase following the uptick were heavyweight financial firms. This benchmark index recovers some of the losses from the previous session, following the Federal Reserve's decision to maintain interest rates.
• On Wednesday, the AiG Australian Industry Index declined in April indicating prevailing contractionary conditions for the past twenty-four months. Additionally, the seasonally adjusted Australian Retail Sales released on Tuesday showed a drop in March, compared to the expected increase and the previous growth.
• As reported by the Financial Review, ANZ anticipates that the RBA will commence cutting interest rates in November, following last week’s stronger-than-expected inflation data. In a similar vein, Australia's largest mortgage lender, Commonwealth Bank, has adjusted its forecast for the timing of the first interest rate cut by the RBA. They are now projecting only one cut in November.
• Masato Kanda, Japan's top currency diplomat, refrained from confirming whether Japanese authorities had indeed intervened early Thursday in response to a significant strengthening of the JPY. Kanda mentioned that intervention data will be disclosed at the end of the month.
• Japan’s Retail Trade increased by 1.2% year-over-year in March, which was lower than the expected increase of 2.5% and the previous increase of 4.7%. The seasonally adjusted Retail Trade (MoM) decreased by 1.2%, against the expected rise of 0.6%.
• According to Reuters, the Sankei newspaper reported on Tuesday that Japan is considering implementing tax breaks for repatriation of corporate profits into the Yen. This measure may potentially be included in the annual mid-year policy blueprint.

Technical Analysis: AUD/JPY rises to near the psychological level of 102.00

The AUD/JPY traded around 102.00 on Thursday, remaining below the lower boundary of a rising wedge pattern on the daily chart. Traders may await clear direction from the 14-day Relative Strength Index (RSI), which is still above the 50-level.

The key support for the AUD/JPY pair is seen at the lower boundary of the ascending channel around the psychological level of 100.00. A break below this level could strengthen the bearish bias and put pressure on the currency cross to navigate the region around April’s low at 97.78.

Immediate resistance is observed at the lower boundary of the wedge around the psychological level of 103.00. A rebound back into the ascending wedge could potentially improve the bullish bias and push the AUD/JPY pair toward the psychological level of 105.00, followed by the upper boundary of the wedge.

AUD/JPY: Daily Chart

Australia’s trade surplus narrowed to 5,024M MoM in April versus 7,370M expected and 7,280M in the previous reading, according to the latest Aussie foreign trade data published by the Australian Bureau of Statistics on Thursday.

 Further details reveal that Australia's March Goods/Services Exports reprint 0.1% figures on a monthly basis versus -2.2 prior. The nation’s Goods/Services Imports grew 4.2% in April MoM versus 4.8% prior. 

Market reaction

At the press time, the AUD/USD pair is down 0.08% on the day to trade at 0.6518.

• USD/CAD loses ground near 1.3730 on the softer USD on Thursday. 
• The BoC Governor said the central bank is  “getting closer” to rate cuts.
• The Fed has not changed its key interest rates and expressed more caution than previously about possible interest rate cuts. 

The USD/CAD pair extends its downside around 1.3730 during the early Asian trading hours. The downtick of the pair is backed by the weaker US Dollar Index (DXY) to 105.75. The US Federal Reserve (Fed) kept its benchmark short-term borrowing rate in a targeted range between 5.25% and 5.50% and expressed more caution than before over future interest rate cuts. Later in the day, the usual US weekly Initial Jobless Claims and March’s Goods Trade Balance are due.

Late Wednesday, Bank of Canada (BoC) Governor Tiff Macklem reiterated that the Canadian central bank is confident that inflation will continue to decline, adding that the BoC is  “getting closer” to rate cuts. Macklem added that the BoC isn't beholden to following the Federal Reserve's (Fed) playbook as higher rates in Canada are having ‘more traction’ than in the US. 

Traders place more bets that the Bank of Canada (BoC) might cut interest rates in June as Canada's economy weakened in the first quarter of this year. Canada’s GDP grew at a slower pace of 0.2% MoM in February, compared to the previous reading of  0.5%, weaker than the market expectation of 0.3% expansion. Elsewhere, the Canadian Manufacturing PM dropped to 49.4 in April and 49.8 in March, below the market consensus of 50.2, according to S&P Global on Wednesday. 

On the USD’s front, the US Fed kept rates unchanged for a sixth consecutive meeting in the 5.25%–5.50% range, as widely expected by market participants. Fed Chair Powell sounded more cautious than the previous reading, arguing for more patience on the policy front. The USD failed to capitalize following the monetary policy meeting as the bar was pretty high for an uber-hawkish pivot. However, the higher-for-longer rate narrative in the US could provide some support to the USD and cap the downside for USD/CAD. 

 

• AUD/USD gains ground near 0.6525 in Thursday’s early Asian session. 
• The Fed kept its benchmark rate in a targeted range between 5.25%-5.50%, as widely expected.
• The recent Australia’s March retail sales dampened speculation that the RBA’s next move in interest rates might be up.

The AUD/USD pair extends recovery around 0.6525 during the early Asian session on Thursday. The Federal Reserve (Fed) held its interest rates steady at 5.25–5.50% at its meeting on Wednesday, citing a “lack of further progress” in getting inflation back down to its 2% target. The Greenback edges lower after the monetary policy meeting on the Fed's cautious stance on its future trajectory.

The US Fed kept its benchmark short-term borrowing rate in a targeted range between 5.25%-5.50%, as widely expected. During the press conference, Fed Chair Powell emphasized the progress on inflation has stalled recently and it would take longer than previously thought before the Fed had the confidence that inflation would move toward its 2% target. Powell stated that if hiring stayed strong and “inflation is moving sideways,” that “would be a case in which it would be appropriate to hold off on rate cuts.” This, in turn, might boost the US Dollar (USD) and cap the upside of AUD/USD. 

Elsewhere, the US ISM Manufacturing PMI came in worse than estimated, falling to 49.2 in April from March's expansionary reading of 50.3. Meanwhile, ADP Employment Change showed an increase of 192,000 jobs in April from the upwardly revised March figure of 208,000, beating the 175,000 expected. Finally, the JOLTS Job Openings dropped to 8.488 million in March from 8.813 million in the previous reading, marking the lowest level of job openings reported. 

On the Aussie front, Australia’s March retail sales were weaker than expected, dropping by 0.4% MoM in March from the previous reading of a 0.3% rise. This data dampened recent speculation that the Reserve Bank of Australia's (RBA) next move in interest rates might be up.

The Bank of Japan (BoJ) Board members shared their views on monetary policy outlook on Thursday, per the BoJ Minutes of the March meeting.

Key quotes

Market reaction

Following the BoJ Minutes, USD/JPY was up 0.81% on the day at 155.85.