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• WTI bulls take a breather after four-day uptrend, sidelined of late.
• US SPI refill concerns, geopolitical woes join sluggish US Dollar to favor Oil buyers.
• Mixed sentiment, recession fears and US debt-ceiling jitters weigh on commodity price.
• US CPI, EIA inventories will be eyed for clear directions.

WTI crude oil remains static around mid-$73.00s amid the early hours of Wednesday’s Asian session, after portraying a four-day rebound from the lowest levels since December 2021.

In doing so, the black gold price portrays the market’s cautious mood ahead of the key US inflation data,  as well as mixed clues from the ongoing US debt-ceiling talks in the White House. However, talks of the US readiness to refill the US Strategic Petroleum Reserves (SPR) allow the WTI buyers to remain hopeful.

Reuters quotes a report by Bloomberg released on Tuesday afternoon that said that US President Joe Biden's administration plans to begin purchasing crude oil to fill strategic crude oil reserves after completing maintenance later this year. The news also added, “The start of summer season in the Northern Hemisphere and voluntary production cuts by members of the Organization of the Petroleum Exporting Countries (OPEC) are expected to bolster oil prices.”

Alternatively, the weekly prints of the American Petroleum Institute’s (API) Crude Oil Stock data and firmer US Dollar prod the energy benchmark prices as the key lure buyers. That said, the weekly API inventories for the period ended on May 05 rose to 3.618M versus -3.939M prior.

Elsewhere, US Senate Majority Leader Chuck Schumer conveyed the absence of progress in the key debt-ceiling talks at the White House while International Monetary Fund (IMF) Chief Economist Pierre-Olivier Gourinchas said on Tuesday, “We are a bit concerned about recent banking sector turbulence.” The same could be heard from the Fed's quarterly survey of bank loan officers, released on Monday.

While portraying the mood, the S&P 500 Futures remain sluggish whereas US Treasury bond yields grind higher and the US Dollar Index (DXY) struggles to extend the two-day rebound near 101.50.

Moving on, the US Consumer Price Index (CPI) for April and the official Weekly Crude Oil Stocks Change data from the US Energy Information Administration (EIA) will be crucial for clear directions.

Technical analysis

A daily closing beyond the three-week-old descending resistance line, now immediate support near $72.65, keeps WTI buyers hopeful.

• DXY faces resistance at the 20-day EMA, with bulls needing to reclaim this level and the 102.000 mark to break the sideways trend.
• DXY support lies at a weekly low of 101.041, with further levels under 101.000, including the YTD low of 100.788.

The US Dollar Index (DXY), a gauge of the greenback’s value against a basket of six currencies, registers minuscule gains of 0.26% as the Asian session begins. The DXY exchanges hands at around 101.654 after hitting a daily low of 101.359.

Must read: US Dollar Index: Could a double bottom at the weekly chart drive the DXY to 111.000?

US Dollar Index Price Analysis: Technical outlook

The US Dollar continues to overextend nearby yearly lows, unable to drop to fresh year-to-date (YTD) lows, and capped on the upside by the 20-day Exponential Moving Average (EMA) at 101.728. The DXY is set to remain trading sideways, unable to break below/above the range.

Even though the double-bottom in the weekly chart remains in play, US Dollar bulls must reclaim the 20-day EMA, followed by the 102.000 mark. If that scenario plays out, the DXY will test the confluence of a six-month-old resistance trendline and the 50-day EMA at around 102.300-400. A decisive break could trigger an acceleration toward the 103.000 area, with the 100 and 200-day EMAs resting at 103.290 and 103.843, respectively.

Conversely, DXY’s first support would be the weekly low of 101.041. Support levels lie underneath the 101.000 figure, with the February 2 swing low of 100.820, followed by the year-to-date (YTD) low of 100.788.

US Dollar Index Price Chart – Daily Chart

• USD/CAD fades the week-start bounce off the lowest levels since mid-April.
• Failure to cross five-week-old horizontal hurdle, downbeat oscillators keep sellers hopeful.
• Loonie pair buyers need to takeout 1.3620 to regain powers.

USD/CAD retreats to 1.3380 during early Wednesday in Asia, fading the previous two-day rebound from a monthly low, as traders await the key US inflation numbers for April. Also allowing the Loonie pair traders to consolidate recent gains can be the latest US debt-ceiling jitters are policymakers failed to solve the riddle in the first trial.

Also read: US President Biden, House Speaker McCarthy divided over debt ceiling but still talking

Apart from the risk catalysts, the quote’s failure to cross a horizontal resistance area comprising multiple levels marked since early April, around 1.3405-10, also weigh on the USD/CAD prices.

Furthermore, RSI (14) rebound from the oversold territory and sluggish MACD signals also prod the USD/CAD buyers

With this, the Loonie pair appears all set to challenge a one-month-old horizontal support zone surrounding 1.3315-3300.

Following that, lows marked in February and late 2022, near 1.3260 and 1.3225 in that order, will be in the spotlight.

Alternatively, the USD/CAD pair’s recovery moves past the 1.3410 immediate hurdle isn’t an open welcome to the Loonie pair buyers as the 200-SMA and five-week-old horizontal area, near 1.3510 and 1.3530 respectively, can check the upside moves.

It’s worth noting that a downward-sloping resistance line from March 10, close to 1.3620 by the press time, appears the last defense of the USD/CAD bears.

USD/CAD: Four-hour chart

Trend: Further downside expected

• NZD/USD is looking to reclaim 0.6360 as US debt ceiling talks are scheduled for Friday for further negotiations.
• US debt ceiling talks ended without a conclusion as Speaker McCarthy denied agreeing on default off the table.
• As per the consensus, China’s monthly inflation remained stagnant while annual inflation accelerated by 0.3%.

The NZD/USD pair has stretched its recovery to near 0.6336 in the early Asian session. The Kiwi asset is expected to remain on the tenterhooks as negotiations for US debt ceiling issues between US President Joe Biden and Speaker Kevin McCarthy are heating as the latter is not ready to agree to support debt ceiling raise without cutting spending initiatives.

At the White House official, US President Joe Biden has cited that McCarthy's spending cuts will hurt Americans. However, for a major development, investors have to wait till Friday as agreed but volatility will remain at elevated levels until both parties reach a conclusion.

Meanwhile, S&P500 futures have added minimal gains in the Asian session after a bearish Tuesday. Synergic uncertainty due to US debt ceiling talks and inflation figures capped the upside for US equities. The US Dollar Index (DXY) has recovered to near 101.65 and further action will be directed by inflation data. The overall market mood portrays caution as April’s US Consumer Price Index (CPI) data carries significant importance.

The Federal Reserve (Fed) has already conveyed that it will be more data-centric onwards. April’s Employment report has signaled that Fed chair Jerome Powell would keep interest rates higher for a longer period and now persistent inflationary pressures could fuel the need for more rate hikes ahead.

On Tuesday, New York Federal Reserve (Fed) Bank President John Williams cited that the central bank has not said that it’s done with raising rates. Fed policymaker doesn’t see any reason of rate cuts this year as tight credit conditions by commercial banks are not expected to knock out the economy.

On the New Zealand Dollar front, after recording slower growth in Chinese exports and weakness in domestic demand, investors are shifting their focus toward the inflation data (April). As per the preliminary report, monthly inflation is seen stagnant against March’s deceleration of 0.3%. Annual inflation is expected to accelerate by 0.3% at a slower pace vs. the prior release of 0.7%.

It is worth noting that New Zealand is one of the leading trading partners of China and higher inflation in China would signal strong domestic recovery, which might support the New Zealand Dollar.

President Joe Biden and top lawmakers failed to break a deadlock on Tuesday in face-to-face talks over raising the $31.4 trillion U.S. debt limit but vowed to meet again with just three weeks before the country may be forced into an unprecedented default.

More to come

• GBP/USD is looking to extend its recovery above 1.2630 as US debt ceiling negotiations ended without outcome.
• The Pound Sterling will remain in action ahead of the interest rate decision by the BoE.
• GBP/USD has rebounded after testing the breakout region near 1.2600 of the Rising Channel pattern.

The GBP/USD pair is looking to extend its recovery above the immediate resistance of 1.2630 in the early Tokyo session. The Cable is getting some traction as the ending of the US debt ceiling talks without any conclusion has increased uncertainty.

US President Joe Biden cited that Speaker Kevin McCarthy was not ready to approve default off the table. Further discussions will take place on Friday, which gets US inflation back into a major highlight. The US Dollar Index (DXY) extended its recovery to near 101.65 on expectations that the US inflation would remain stubborn further.

Meanwhile, the Pound Sterling will remain in action ahead of the interest rate decision by the Bank of England (BoE), which is scheduled for Thursday. BoE Governor Andrew Bailey is expected to raise interest rates further by 25 basis points (bps) to 4.50%.

GBP/USD has rebounded after testing the breakout region near 1.2600 of the Rising Channel chart pattern formed on a two-hour scale. A confident test of the Rising Channel breakout has stemmed confidence over the strength in the breakout.

The 50-period Exponential Moving Average (EMA) at 1.2600 is providing cushion to the Pound Sterling bulls.

Meanwhile, the Relative Strength Index (RSI) (14) has slipped into the 40.00-60.00 range after a mild correction. An upside break into the 60.00-80.00 range will activate the bullish momentum.

Further recovery above May 09 high at 1.2640 will drive the major toward the round-level resistance at 1.2700 followed by 26 April 2022 high at 1.2772.

On the flip side, a reversal move below May 05 low at 1.2561 will drag the Cable toward April 26 high at 1.2515 and May 02 low at 1.2436.

GBP/USD two-hour chart

• AUD/USD remains sidelined during early trading hours of the key day, after reversing from one-month high.
• Downbeat Aussie, China data and hawkish Fed talks joined risk-off mood to weigh on the Aussie pair.
• US CPI for April, debt-ceiling talks will be crucial, Australia’s Westpac Consumer Confidence for May eyed for immediate direction.

AUD/USD seesaws around 0.6760 while fading the late Tuesday’s corrective bounce off 0.6745 around the monthly high, following the first daily loss in seven. In doing so, the Aussie pair portrays the market’s anxiety ahead of the all-important US Consumer Price Index (CPI) data for April. Also keeping traders on their toes is a dramatic start of the US debt-ceiling talks and fears of tighter credit conditions in the US banks.

It’s worth noting that the downbeat statistics from Australia and China joined hawkish comments from the Federal Reserve (Fed) officials, as well as the risk-off mood, to supersede the Pacific major’s upbeat annual budget and weigh on the AUD/USD prices the previous day.

Australia’s first quarter (Q1) Retail Sales shrank 0.6% versus -0.4% market forecasts and -0.2% prior readings. Further, China’s headlines Trade Balance rose to $90.21B in April versus $71.6B expected and $88.19B prior while the CNY figures eased to 618.44B compared to 637.16B market forecasts and 601.01B prior. It’s worth noting, however, that the Exports and Imports declined in the said month on both the USD and Chinese Yuan (CNY) terms.

On the other hand, the US NFIB Small Business Optimism index dropped to the lowest level since 2013, to 89 in April. Following the data, Federal Reserve Bank of New York President John Williams said, per Reuters, "Fed has not said it's done raising rates."

Elsewhere, the Australian government forecasts a 2022/23 budget surplus of A$4.2 billion, 0.2% of GDP, making it the first balanced budget in many years.

Talking about the risks, International Monetary Fund (IMF) Chief Economist Pierre-Olivier Gourinchas said on Tuesday, “We are a bit concerned about recent banking sector turbulence.” The same could be heard from the Fed's quarterly survey of bank loan officers, released on Monday.

Recently, US Senate Majority Leader Chuck Schumer conveyed the absence of progress in the key debt-ceiling talks at the White House.

Against this backdrop, Wall Street closed with mild losses whereas the US Treasury bond yields remained firmer by the end of Tuesday’s North American session.

Looking ahead, Australia’s Westpac Consumer Confidence for May, expected to drop to -1.7% versus 9.4% prior, can offer immediate directions but major attention will be given to the US CPI for April, expected to print a minor MoM increase in the headline CPI and a softening in the Core CPI.

Also read: US April CPI Preview: How will inflation data influence Fed rate outlook?

Technical analysis

Failure to cross the 100-DMA hurdle, around 0.6790 by the press time, keeps AUD/USD bears hopeful.

• Silver price bounced off the weekly low after sliding below the $25.10 area, around last Friday’s low.
• Mixed signals keep traders cautious; bullish continuation requires a break above $25.73, while downside risks remain below $25.33.

Silver price prints minuscule gains as the Asian session begins after registering solid gains of 0.23% on Tuesday. Risk aversion is the game’s name; even though the US Dollar (USD) reported gains, so did the white metal. At the time of writing, the XAG/USD is trading at $25.60 per troy ounce.

XAG/USD Price Forecast

The XAG/USD last week’s pullback nearby the 20-day Exponential Moving Average (EMA) at $25.06 resumed since the beginning of the current week. Monday’s price action was dull, as the white metal traded within a $0.20 rally before dropping toward the weekly low of $25.33.

It should be said the XAG/USD recovery had shown no sign of buyers gathering momentum, as shown by the Relative Strength Index (RSI) indicator, which remains in bullish territory, but is almost flat. The 3-day Rate of Change (RoC) indicated that sellers are moving in. Mixed signals could refrain XAG/USD traders from opening new positions as the US Consumer Price Index (CPI) data looms.

For a bullish continuation, XAG/USD buyers need a clear break above $25.73. Once cleared, the next supply zone that would be tested is the year-to-date (YTD) high at $26.12. A breach of the latter will expose the April 18, 2022, daily high of $26.21.

On the other hand, the XAG/USD needs to drop below the weekly low of $25.33. A break below this support area and the next stop would be the 20-day EMA at $25.19 before falling to the $25.00 figure.

XAG/USD Price Chart – Daily Chart

After US Senate Majority Leader Chuck Schumer conveyed the absence of progress in the key debt-ceiling talks at the White House, the US Chamber of Commerce Officials also unveiled their disappointment with no movement. However, the diplomats also said, per Reuters, “Pleased US President Joe Biden, Congressional Leaders will meet again.”

“Clean bill cannot become law,” added US Chamber of Commerce Officials per the news while also saying that both parties should focus on areas where agreement is possible, like permitting and limits on future spending.

Also read: US Senate Democratic Leader Schumer: McCarthy refused to take default off the table

Market implications

The news exerts downside pressure on the sentiment and allows the US Dollar to remain firmer, especially ahead of the key US Consumer Price Index (CPI) data for April.

Also read: EUR/USD stays defensive near 1.0950 amid US default woes, hawkish Fed talks ahead of US inflation

• EUR/USD licks its wounds at the lowest levels in 13 days, prods two-day losing streak as the US inflation day begins.
• Fed’s Williams sounds hawkish despite downbeat US NFIB data.
• US debt-ceiling drama, banking woes keep weighing on sentiment.
• ECB hawks stay active but were mostly ignored as US Dollar defends recovery ahead of US CPI for April.

EUR/USD holds lower grounds near 1.0960 as the key Wednesday’s trading begins in Asia, following a two-day downtrend. That said, the Euro pair dropped to the fresh low in two weeks the previous day amid broad US Dollar strength as markets prepare for today’s US Consumer Price Index (CPI) for April.

US Dollar Index (DXY) rose in the last two consecutive days despite unimpressive data and looming fears from the US banking sector, as well as the debt ceiling expiration. On Monday, the Fed Bank Loan Survey showed the uninspiring findings while US Senate Democratic leader Schumer recently said that House Speaker Kevin McCarthy, a Republican, refused to take default off the table.

Further, the US NFIB Small Business Optimism index dropped to the lowest level since 2013, to 89 in April. Even so, Federal Reserve Bank of New York President John Williams said, per Reuters, "Fed has not said it's done raising rates."

On the other hand, European Central Bank (ECB) policymaker Peter Kazimir said on Tuesday, “Based on current data, the ECB will have to keep raising interest rates for longer than anticipated.” On the same line, ECB policymaker Martins Kazaks warned on Tuesday, “Rate-hiking may not be finished in July.

It’s worth noting that a dearth of major data/events joined pre-inflation anxiety and hawkish Fed talks, as well as fears emanating from the US debt ceiling expiration and banking sector, to weigh on the sentiment, which in turn favored the US Dollar and lured EUR/USD sellers.

That said, Wall Street closed with mild losses whereas the US Treasury bond yields remained firmer by the end of Tuesday’s North American session.

Moving on, final readings of Germany’s inflation gauge, per the
Harmonized Index of Consumer Prices  (HICP) for April, expected to confirm 7.6% YoY forecasts, may entertain EUR/USD pair traders ahead of the all-important US CPI for the said month. Forecasts suggest a minor MoM increase in the headlines CPI and a softening in the Core CPI. However, any positive surprise or matching of the figures with the market consensus can allow the Fed to remain hawkish and the same can exert downside pressure on the major currency pair.

Also read: US April CPI Preview: How will inflation data influence Fed rate outlook?

Technical analysis

Although a triple bottom around 1.0940 highlights the levels as the key support, a daily close below the 21-DMA level of near 1.1000 keeps EUR/USD bears hopeful.

• Gold price has surpassed comfortably above $2,030.00 amid uncertainty over the outcome of US debt ceiling talks.
• The US Dollar Index has rebounded to near 101.64 ahead of the US Inflation data.
• Fed Williams is of the view that the central banks have not said it’s done with raising rates.

Gold price (XAU/USD) has climbed above the $2,030.00 resistance and has shifted its auction above the same in the early Asian session. The upside move in the precious metal is being supported by uncertainty over US debt ceiling talks between US President Joe Biden and some Republican leaders.

S&P500 went through some sell-off on Monday as investors were worried that the absence of any decisive outcome in the debt-ceiling negotiations would impact the outlook of the United States economy, portraying a risk-off mood. The US Dollar Index (DXY) has rebounded to near 101.64 as the downside seems defended ahead of the US inflation data.

At one place where US President Joe Biden was not interested in raising the debt ceiling at the cost of the President’s spending initiatives, Republican House of Representatives Speaker Kevin McCarthy already made clear that he won’t approve debt ceiling raise without cutting President’s spending initiative to safeguard escalating budget deficit.

Meanwhile, hawkish commentary from New York Federal Reserve (Fed) Bank President John Williams has also added to the overall uncertainty in the market. Fed policymakers cited that the central bank needs to be data-dependent with monetary policy and reminded that the Fed will raise rates again if needed. He further added that the Fed has not said it’s done with raising rates and see no reason for rate cuts this year.

Gold technical analysis

Gold price is auctioning in a Rising Channel chart pattern on a four-hour scale. The upper portion of the aforementioned chart pattern is placed from March 20 high at $2,009.88 while the lower portion is plotted from March 22 low at $1,934.34.

The 20-period Exponential Moving Average (EMA) at $2,027.58 is acting as a cushion for the Gold bulls.

Meanwhile, the Relative Strength Index (RSI) (14) is making efforts for shifting into the bullish range of 60.00-80.00. An occurrence of the same will result in the activation of the upside momentum.

Gold four-hour chart

President Joe Biden and top lawmakers met face-to-face on Tuesday as a deadlock over raising the $31.4 trillion U.S. debt limit threatened to push the country into an unprecedented default in as soon as three weeks if Congress does not act, Reuters reported.

´´The Oval Office meeting between Biden, a Democrat, and House of Representatives Speaker Kevin McCarthy, a Republican, ended after just over an hour with no immediate sign progress was made, after both sides suggested earlier they would not agree to concessions to head off a default as early as June 1.´´

McCarthy refused to take default off the table, US Senate Democratic leader Schumer said.

Key notes

• EUR/GBP bears are in the market but bulls could be lurking. 
• Bulls eye a move towards 0.8750. 

EUR/GBP is in freefall to fresh lows on the bearish cycle. The bears are moving in on 0.8670 with eyes on 0.8650. The following illustrates the price action and market structure over the daily and 4-hour time frame and argues the case for a deceleration in the suppl. In such a scenario, there will be the potential for a correction before further moves towards a key long-term trendline support area. 

EUR/GBP daily charts

EUR/GBP H4 chart

The price is entering what could be a demand area considering the structure looking left as illustrated above. 0.8750/30 is a resistance area, potentially, where the bulls might have their eyes set. If the bears turn up again at that juncture, then there will be prospects of a deeper move toward the trendline support near 0.8600/20. 

• GBP/JPY rebounds to 170.65, fueled by Yen’s weakness and the upcoming BoE decision.
• GBP/JPY targets 171.00, eyeing a year-to-date high of 172.33 if momentum holds.

The GBP/JPY recovered some ground after falling to weekly lows of 169.85, climbing sharply above the 170.00 figure, as overall Japanese Yen (JPY) weakness, as the main reason, alongside the Bank of England (BoE) monetary policy decision lurking. The GBP/JPY is trading at 170.65, above its opening price by 0.14%.

GBP/JPY Price Analysis

The GBP/JPY appears to have bounced from its weekly lows below the 170.00 figure but remains shy of testing the weekly high of 171.07. Given that a golden cross was witnessed in early April, the GBP/JPY bias is upward. Oscillators like the Relative Strength Index (RSI) indicator show buyers are gathering momentum. The 3-day Rate of Change (RoC) portrays its largest jump to the upside, suggesting that the GBP/JPY could re-test the year-to-date (YTD) high at 172.33.

But firstly, the GBP/JPY must reclaim the 171.00 mark. A breach of the latter would expose the 172.00 figure, followed by the YTD high.

However, further downside is warranted if GBP/JPY drops below 170.00. GBP/JPY’s first support would be the December 13 swing high-turned-support at 169.27. Once cleared, the next demand area would be the confluence of the 20-day EMA and the April 19 high, at around 168.20/167.97, respectively, immediately followed by the December 20 daily high at 167.01.

GBP/JPY Daily Chart

The Asian session will have a light economic calendar, with the highlight being the Australian Westpac Consumer Confidence for May, which is expected to decline from 9.4% to -1.7%. Japan will release the preliminary Leading Economic Index for March. Later in Europe, Germany will release the final reading of April inflation. The crucial report of the day will be the US Consumer Price Index for April, which will be closely watched by investors.

Here is what you need to know on Wednesday, May 10:

Wall Street dropped on a quiet session as market participants awaited US consumer inflation data. The Dow Jones fell by 0.17%, while the Nasdaq slid 0.63%. The ongoing debt ceiling impasse is weighing on market sentiment. Meanwhile, the US dollar rose against its main rivals, with the US Dollar Index (DXY) rising by 0.25% and posting gains for the second day in a row. However, the index still remains near the key support level of 101.00.

Data released on Tuesday showed the US NFIB Small Business Optimism index dropped to 89 in April, the lowest reading since 2013. On Wednesday, the US will release the Consumer Price Index (CPI) data for April, which is expected to have a significant impact. Market consensus see the CPI rising by 0.4% in April, which would be an acceleration from 0.1% in March. The annual rate is expected to stay at 5%. The Core CPI is forecast to match the 0.4% increase of April, with the annual rate dropping from 5.6% in March to 5.5% in April. 

If the US inflation numbers come in line with expectations, it would indicate a modest slowdown, which is likely to maintain the Federal Reserve's (Fed) tightening bias. In the afternoon, the April fiscal numbers will be reported, and a significant surplus is anticipated for April. On Tuesday, US bond yields experienced a slight increase, with the 2-year yield remaining above 4.0% and the 10-year yield climbing above 3.50%.

EUR/USD  experienced a decline for the third time in the past four days, dropping below the 20-day Simple Moving Average (SMA), for the first time since mid-March. The pair found support at 1.0940. Despite hawkish comments from European Central Bank (ECB) officials, the Euro lagged behind. Germany is set to release the final reading of April CPI, which is not expected to bring any surprises.

On Tuesday, GBP/USD managed to recover from its earlier losses and closed unchanged around 1.2620. The British Pound continues to exhibit strength ahead of Thursday's Bank of England decision. Meanwhile, EUR/GBP fell below 0.8700, reaching its lowest level since December.

USD/JPY has recorded a modest increase for the third consecutive day, benefiting from higher US yields, and ultimately closing above 135.00. In Japan, the release of the Leading Economic Index (March preliminary) is expected.

USD/CAD advanced further but it was unable to reclaim the 1.3400 level. On Wednesday, Canada is scheduled to release the Building Permits data for March. AUD/USD declined after a five-day streak, but managed to hold above 0.6750, while the critical resistance level at 0.6800 remains near. NZD/USD recorded modest losses, correcting from its monthly highs. Overall, the commodity currencies block maintains a positive bias.

Gold maintained its gradual ascent, nearing the $2,040 mark, as market participants eagerly await US data. Silver, on the other hand, remained relatively stable, hovering around the $25.50 level. Crude oil prices managed to recover from earlier losses and recorded slight gains, with WTI (West Texas Intermediate) experiencing a 0.45% increase.

• NZD/USD bulls burst to life in US session. 
• All eyes will be on the US CPI data for next clues. 

NZD/USD is on the backside of the prior bearish trend and is breaking higher from the double-bottom lows put in on the 15-minute chart in the US session on Tuesday. The pair have traveled from those lows of 0.6318 to a US session high of 0.6337 as the day draws to a close. 

´´Being long the Kiwi remains one of the market’s preferred ways to fade USD strength as the US rate hike cycle matures, markets press for cuts and the USD loses some of its erstwhile richness to fair value,´´ analysts at ANZ Bank argued.

´´Tonight’s US Consumer Price Index data will be key as markets eye an end to the hiking cycle; if that thesis is refuted, there will be volatility.´´

US CPI in focus

´´Core prices likely stayed firm in April, with the index rising a strong 0.4% MoM for a second straight month, as goods inflation likely continued to strengthen,´´ analysts at TD Securities said.

´´Shelter prices likely remained the key wildcard (we look for a rebound), while rising gas prices (+2.6% MoM) will likely lift non-core inflation. Our MoM forecasts imply 5.0%/5.5% YoY for total/core prices,´´ the analysts explained. 

• Bulls are on the backside of teh prior bearish trend.
• USD/CHF offers the prospects of a final push that could see a test of the 0.8970s.

USD/CHF is holding in and around the 0.8900 area following a series of tests of the trendline dynamic resistance that has been forming on the 4-hour chart in a series of lower highs. 

There is, however, a bullish bias while the price accumulates on the backside of the prior bearish trendline as the following will illustrate. 

USD/CHF weekly charts

Zooming in on the weekly chart,m we can see that the bulls are moving in. A weekly break of the bearish trendline will be encouraging for a move toward a 50% mean reversion of the bear trend near 0.91000.

USD/CHF H4 chart

The 4-hour chart shows the bulls rejected each time they try to take control but we have prospects of a final push that could see a test of the 0.8970s as follows:

• Mexico’s inflation slows for the third consecutive month, prompting expectations of a pause in rate hikes.
• US debt ceiling issues and Federal Reserve speakers take the spotlight, impacting market sentiment.
• USD/MXN’s future direction may hinge on upcoming US inflation data, with a breach of key levels possible.

USD/MXN slides towards the 17.7000 area after a better-than-expected inflation report in Mexico could open the door for a pause on Mexico’s central bank. Although it’s usually a sign that should weaken the currency, falling US bond yields underpinned the USD/MXN pair, albeit the overall US Dollar (USD) strength. The USD/MXN is trading at 17.7687, down 0.17%.

Mexican Peso stays resilient despite inflation decline, warranting a pause for Mexico’s central bank

USD/MXN resumed its downtrend after INEGI reported that inflation in Mexico slowed for the third straight month in April to 6.25% from 6.85% YoY. The Consumer Price Index (CPI) in Mexico plunged 0.02% MoM, while the core CPI rose 0.39% MoM, while annually based stood at 7.67%.

The Bank of Mexico (Banxico’s) hiked rates 25 bps in the March meeting to 11.25% while opening the door for a pause. Today’s inflation report could pave the way for a pause in the May 18 meeting, as shown by a poll by Citibanmes, which showed that most market participants estimate Banxico to keep rates unchanged.

Aside from this, the US debt ceiling theme in the United States (US) is taking all the headlines. On Monday, the US Secretary of Treasury Janet Yellen said that the government would run out of cash by June 1, adding that it would be a “huge hit” adding that a default would have “tremendously adverse effects” on the financial markets.

Meanwhile, Federal Reserve speakers Jefferson and the New York (NY) Fed President Williams crossed newswires. Jefferson commented about the banking system and added that inflation is slowing down in an “orderly fashion” but omitted to speak regarding his posture for the next meeting. Contrarily, John Williams of the NY Fed said, “We haven’t said we are done,” increasing interest rates, emphasizing that the only change is that the US central bank would be data dependent.

Given the backdrop, further upside in the USD/MXN was warranted, but the release of inflation data in the United States (US) would determine the fate of the USD/MXN. If April’s US CPI exceeds estimates to the upside, the USD/MXN would be bolstered by expectations for further tightening by the Fed. Otherwise, the USD/MXN could print another leg down and challenge the current year-to-date (YTD) low of 17.7392, on its way toward the July 2017 low of 17.45.

USD/MXN Technical Analysis

USD/MXN bounced off the YTD lows, printing a weekly high of 17.8404 before reversing its course. If USD/MXN buyers want to reclaim control, they must crack the 20-day EMA at 17.9722. A breach of the latter will expose the 18.00 handle, followed by the 50-day EMA at 18.1850, before posing a threat of the 100-day EMA At 18.5142. Conversely, USD/MXN could print a new six-year low beneath 17.7392, at around 17.50, followed by the July 2017 low.

• WTI bulls eye a break of $73.90 to the upside.
• Bears need a break of the $71.70s to the downside in order to resume the broader downtrend. 

As per the prior analysis, WTI bears are lurking in what could be a peak formation on the charts, the oil price has taken on resistance and is now at a critical juncture as the bulls flex their muscles. WTI is sandwiched between $73.90 on the backside of a longer-term bearish trend and the backside of a micro counter trend as the following illustrates:

WTI H4 chart, prior analysis

It was argued that the resistance of the trendline and horizontal $73.90 could play a role in a subsequent sell-off in the coming sessions. A break of $73.90, however, opened the risk of a move towards the $76.70s.

WTI updates

The structure sees the price needing a break of $73.90 to the upside of a break of the $71.70s to the downside in order to resume the broader downtrend. 

• AUD/USD unmoved by Australia’s projected A$4.2 billion surplus for 2022/2023.
• US Treasury Secretary Janet Yellen warns of “tremendously adverse effects” if the government runs out of cash by June 1.
• Upcoming US CPI data may impact AUD/USD; further evidence of high inflation could lead to more losses in the pair.

AUD/USD reverses its Monday course after testing crucial technical indicators alongside the release of the Australian budget, which AUD/USD buyers ignored despite foreseeing a surplus. Contrarily worries about raising or suspending the US debt ceiling took center stage ahead of April’s US Consumer Price Index (CPI) report. At the time of writing, the AUD/USD is trading at 0.6765 after hitting a high of 0.6786.

AUD/USD creeps lower on US uncertainty, despite Australian budget surplus

AUD/USD buyers seem to be unimpressed by the Australian budget for 2023-2024. The Australian Federal Treasurer Jim Chaimers projects the first balanced annual budget in 15 years, anticipating a surplus of A$4.2 billion for 2022/2023. The AUD/USD hit a weekly high at 0.6803 but retraced as sellers stepped in around the 200-day EMA at 0.6788, which dragged the exchange rate toward the current price levels.

In the meantime, the US Secretary of Treasury Janet Yellen commented that the government would run out of cash by June 1, adding that it would be a “huge git” to the US economy. She said a default would have “tremendously adverse effects” on the financial markets.

Aside from this, Federal Reserve speakers led by Fed Governor Philip Jefferson and the New York Fed President John Williams crossed newswires. Jefferson spoke on the banking system, saying it was sound and resilient and that most banks raised their lending standards. He added that inflation is slowing down in an “orderly fashion,” adding that it would come down as the economy grows.

Later, NY Fed President Williams said, “We haven’t said we are done,” regarding hiking rates, and added that the Fed would be data dependent and could raise rates if needed.

Even though Williams sounded hawkish, the AUD/USD remained unfazed and has bounced off the day’s lows

Upcoming events

AUD/USD traders would get some cues on the release of April’s US Consumer Price Index (CPI), which is expected to trigger volatility in the financial markets. The CPI is estimated to remain unchanged at 5% on its annual readings, while core CPI is projected to dip from 5.6% to 5.5%. Further evidence that inflation remains higher could pave the way for further losses in the AUD/USD pair.

AUD/USD Technical Analysis

The AUD/USD is still downward biased, as the 50-day EMA crossed below the 200-day EMA since March 2023, which suggests that further downside is warranted. The aforementioned was confirmed by Tuesday’s price action, with the AUD/USD struggling to hurdle the 200-day EMA, which opened the door for a test of the 100-day EMA at 0.6736. If AUD/USD breaches the latter, its next demand area exposed would be the 50 and the 20-day EMA, each at 0.6712 and 0.6696. On the other hand, if AUD/USD surpasses the 200-day EMA, it would expose the 0.6800 handle.

Isabel Schnabel, a member of the European Central Bank's Executive Board, stated that there is no doubt that the ECB will have to take additional measures to bring inflation back to target. She made this statement on Tuesday during a lecture at Hessischer Kreis. 

Schnabel mentioned that slower interest rate hikes allow the ECB to assess the impact of the measures they are taking. She clarified that core inflation has not seen a turnaround like the headline. According to her, rate cuts are unlikely for the foreseeable future.

Market reaction 

The EUR/USD currency pair is falling on Tuesday, but it has moved off lows, rising back above 1.0960 as the US dollar loses momentum. However, the euro remains one of the worst-performing currencies in the G10 space.

• USD/JPY bears eye a break of 134.95.
• 134.70 guards the longer-term trendline support area.
• A break of 135.32 and then 135.70 would be a bullish development. 

USD/JPY was last seen trading at 135.17 with Bank of Japan (BOJ) Governor Kazuo Ueda signaling that the central bank may end its yield curve control policy and start shrinking its balance sheet.

The dollar remained rangebound as traders awaited U.S. debt ceiling talks and a closely-watched US inflation data due on Wednesday.

Technically, this leaves the pair range bound as the following illustrates:

USD/JPY H4 chart

The bulls are running into a potential resistance area on the chart and if the bears commit, then there could be a freefall into the lows of the broadening range. 134.95 could be key in this regard. A break of there opens the risk of a move into 134.70 and the longer-term trendline support area that guards 134.25 mand 133.88 to the downside. A break of 135.32 and then 135.70 would be a bullish development. 

• XAU/USD rallies, benefiting from concerns over the US debt ceiling and slowing Chinese manufacturing activity.
• Falling US Treasury bond yields support gold prices despite strong US Dollar.
• Eyes on upcoming US CPI data, which has the potential to impact gold prices.

Gold price is printing back-to-back bullish days as the XAU/USD meanders nearby Monday’s high of $2029.40, bolstered by falling US Treasury bond yields despite a strong US Dollar (USD). The XAU/USD is underpinned by uncertainty around the US debt ceiling and a US inflation report looming. At the time of writing, the XAU/USD is trading at $2030.68, above its opening price by 0.48%.

XAU/USD bolstered by risk aversion, lower US bond yields

The negative tone is being reflected by Wall Street registering losses. Worries about politics, namely the debt ceiling, weighed on market sentiment. Credit conditions in the United States (US) began to tighten, as shown by the Fed’s Senior Loan Officer Opinion Survey (SLOOS), though “not as disastrous as many doomsayers had feared,” Analysts at Brown Brothers Harriman noted.

Another reason that bolstered appetite for XAU/USD was that China’s revealed that manufacturing activity slowed down. At the same time, its Trade Balance showed that Exports and Imports dropped from 14.8% to 8.5% in April and from -1.4% to -7.9%, respectively.

On Tuesday, US President Joe Biden will host US Congress officials to lay the ground around getting a consensus on the US debt ceiling.

In the meantime, the US Dollar Index (DXY), a gauge that tracks the performance of six currencies against the US Dollar, climbs 0.29%, up at 101.680, capping XAU/USD’s rally. US Treasury bond yields are mixed, though the short term, the most sensitive to interest rates, the 2-year note gains one bps, at 4.024%.

In the meantime, the Fed parade has begun, led by Fed Governor Philip Jefferson, who said the banking system was sound and resilient and that institutions had begun to raise lending standards. Regarding inflation, it has started to slow in an “orderly fashion” and will come down as the economy continues to grow.

Of late, the New York Fed President John Williams stated, “We haven’t said we are done,” adding that it would be data dependent and could raise rates if needed.

Upcoming events in the US economic calendar

On the US front, the Consumer Price Index (CPI) for April is expected at 5% YoY, while the core reading is at 5.5%.

XAU/USD Technical Analysis

The XAU/USD recovered some ground after testing the 20-day EMA at $2006.62, which also intersected with a one-month-old upslope support trendline. However, it’s facing solid resistance at around the April 5 high of $2032.13, which, if broken, would clear the way for XAU/USD to challenge the April 13 high at $2048.79.

On the flip side, the XAU/USD first support would be the 20-day EMA at $2006.83, followed by the $2000 figure. Once broken, it would expose the April 19 swing lows at $1969.34.

Federal Reserve Bank of New York President John Williams told the Economic Club of New York on Tuesday that the Fed needs to be data-dependent with monetary policy and reminded that the Fed will raise rates again if needed, as reported by Reuters.

Additional takeaways

"Fed has not said it's done raising rates."

"Fed has made incredible progress on monetary policy."

"I don't see any reason to cut rates this year."

"Generally speaking supply is still out of balance with economy."

"Fully confident Fed can get inflation back to 2%."

"Structural shifts will not impair Fed work to hit inflation target."

"I don't have recession in baseline forecast."

"Economy has risks to both up and downside."

"Expecting credit to be tighter, more expensive."

"Tighter credit may blunt how far Fed goes with rate hikes."

"I don't see tighter credit knocking economy totally off course."

Market reaction

The US Dollar preserves its strength following these comments and the US Dollar Index was last seen gaining 0.3% on the day at 101.70.

In a report prepared by National Bank Financial (National Bank of Canada) analysts forecast the USD/CAD pair will remain in the 1.33 to 1.38 range over the next quarter. 

Key quotes: 

“The Canadian dollar has strengthened in recent weeks, gaining nearly 5 cents against the U.S. dollar. The resilience of the Canadian economy and a less dovish BoC have led to a significant reduction in Canada-U.S. interest rate differentials since the fall of the SVB.”

“Looking ahead, we do not believe that the loonie will benefit from a continued narrowing of interest rate spreads. In light of the recent drop in commodity prices, we expect the USD/CAD to remain in the 1.33 to 1.38 range over the next few quarters.”
 

• EUR/USD struggles to gain ground as concerns on the debt ceiling turned sentiment sour.
• Fed and ECB officials crossed newswires, though EUR/USD traders are focused on the US dynamics.
• Upcoming data: Germany’s inflation and Italy’s industrial production for Eurozone, US CPI for April.

The EUR/USD extends its losses on Tuesday past the 1.10 handle, briefly testing last week’s low of 1.0942, but bounced off that price level, above the 1.0950 area. Worries about the United States (US) debt ceiling, and a strong US Dollar (USD), weakened the prospects for a higher Euro (EUR). At the time of writing, the EUR/USD is trading at 1.0955, down 0.44%.

EUR/USD falls ahead of US CPI release

Wall Street is posting losses after the Fed’s Senior Loan Officer Opinion Survey (SLOOS) showed that credit conditions are tightening, thought “not as disastrous as many doomsayers had feared,” wrote analysts at Brown Brothers Harriman. Discussions around the US debt ceiling could heat on Tuesday, as US President Joe Biden will meet with Republicans and Democrats to lay the ground around the theme. Hence, as sentiment shifted sour, the EUR/USD surrendered the 1.1000 figure.

In the meantime, the US Dollar Index (DXY), a gauge that tracks the performance of six currencies against the US Dollar, climbs 0.29%, up at 101.680, a headwind for the EUR/USD. US Treasury bond yields are mixed, though the short term, the most sensitive to interest rates, the 2-year note gains one bps, at 4.024%.

The lack of data in the US agenda left EUR/USD traders leaning on words from the Federal Reserve (Fed) Governor Philip Jefferson. Jefferson commented that the banking system was sound and resilient and that institutions had begun to raise lending standards. Regarding inflation, it has started to slow in an “orderly fashion” and will come down as the economy continues to grow.

On the European front, the latest economic data from Germany had increased worries about a recession in the bloc. Meanwhile, European Central Bank (ECB) speakers continued their hawkish remarks, as ECB Joachim Nagel said that the central bank has not finished raising rates. Echoing some of his comments was Martins Kazaks, who commented: “We still have quite some ground to cover.”

Upcoming events.

The Eurozone economic calendar will feature Germany’s inflation data and industrial production in Italy. On the US front, the Consumer Price Index (CPI) for April is expected at 5% YoY, while the core reading at 5.5%.

EUR/USD Technical Levels

The Euro is running uphill into a headwind, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

The wind is in the Euro’s face

“The equity market’s calling the bond market disparaging names, accusing the yield curve of sending false recession signals because of QE distortions. Against this backdrop, the Euro is running up a steep hill into a strong wind.” 

“Market pricing looks for the ECB to continue raising rates in the second half of the year, and for the Fed to cut rates, resulting in the policy rate gap narrowing to under 1% by year-end from 2% now. Given the contrast between Friday’s payrolls and yesterday’s weak German industrial production data has been hard to narrow the gap further.”

Economists at TD Securities like BRL, CNH, and JPY as debt ceiling event risk hedges.

BRL provides a carry cushion

“Barring a red-hot CPI report this week, we think the rising US risks will probably reinforce a broad-based pullback in the USD.”

“For hedging the debt ceiling event risk, we like BRL, CNH, and JPY, where the first two provide the right beta to equities. While BRL provides a carry cushion, it is a bit more overvalued in some of our short-term models than CNH. The upside for CNH is likely viewed as reserve diversification hedge to the USD, especially if policymakers take the negotiations down to the wire.”

The conflict between the Brazilian government and the central bank is going into the next round. Thus, economists at Commerzbank expect the USD/BRL pair to stay above the 5.00 level.

The government is making the central bank’s task more difficult

“In the past, the Brazilian central bank contributed to the stability of the Brazilian real due to its determined fight against high rates of inflation, despite the fact that the government’s fiscal policy was often a thorn in the side of the financial markets. The course the government has recently taken is concerning in this context.”

“In effect, the government is making the central bank’s task more difficult. The significant fall in inflation could justify rate cuts, but the government’s demands make it almost impossible for the central bank to cut rates as it will not want to look as if it is giving in to the government’s demands. If the government had kept quiet that might have been a more successful strategy.”

“As long as the conflict between the two parties is brewing, BRL might struggle to ease below the 5.00 mark against USD on a sustainable basis.”

Economists at TD Securities expect Gold price to reach higher levels.

A new bull market in Gold may have just kicked off

“XAU/USD's drift higher after the strong US payrolls report underscores a rise in participation for the yellow metal.” 

“Ongoing banking stress and the debt ceiling debacle continue to generate headwinds for the USD, especially as the global growth outlook dusts off last year’s stagflationary conditions.” 

“Overall, the data continue to support our view that a new bull market in Gold may have just kicked off.”

• GBP/USD loses further ground and breaks below 1.2600.
• The better tone in the Greenback weighs on the risk complex.
• The UK BRC Retail Sales Monitor rose 5.2% YoY in April.

The British pound, along with the rest of the risk-associated universe, comes under pressure and motivates GBP/USD to dispute the 1.2600 region on Tuesday.

GBP/USD down on stronger Dollar, looks at BoE

GBP/USD retreats for the second consecutive session and pierces the key support at 1.2600 the figure amidst the generalized bearish note Cable in the first half of the week.

In fact, the Greenback extends the promising start of the week and keeps the risk complex under pressure against the backdrop of easing concerns over the US banking sector, particularly following the Fed’s Senior Loan Officer Survey late on Monday.

Moving forward, the Quid is expected to remain under the microscope in light of the upcoming BoE gathering on May 11, where consensus largely anticipates another 25 bps rate hike.

In the UK calendar, April releases saw the BRC Retail Sales Monitor increase 5.2% from a year earlier, while the House Price Index measured by Halifax contracted 0.3% MoM and rose 0.1% over the last twelve months. Finally, BBA Mortgage Rate ticked higher to 7.41% (from 7.22%).

GBP/USD levels to consider

As of writing, the pair is losing 0.09% at 1.2605 and faces the next support at 1.2435 (monthly low May 2) followed by 1.2344 (weekly low Aprl 10) and finally 1.2295 (55-day SMA). On the other hand, the surpass of 1.2668 (2023 high May 8) would open the door to 1.2865 (200-week SMA) nad then 1.3000 (psychological level).

• Silver remains on the defensive for the third straight day, albeit lacks follow-through selling.
• The technical setup still favours bulls and supports the prospects for further near-term gains.
• A convincing break below the $24.50-40 area is needed to negate the constructive outlook.

Silver recovers a part of its modest intraday losses, albeit struggles to capitalize on the move and trades with a mild negative bias for the third successive day on Tuesday, around mid-$25.00s.

From a technical perspective, the lack of any follow-through selling warrants some caution before confirming that the XAG/USD has formed a near-term top and positioning for any meaningful pullback from over a one-year high touched last Friday. Moreover, the recent repeated rebounds from the $24.50-$24.40 strong horizontal resistance breakpoint, now turned support, favours bullish traders.

This, along with positive oscillators on the daily chart, suggest that the path of least resistance for the white metal is to the upside. That said, the XAG/USD has been struggling to find acceptance above the $26.00 mark, warranting caution for bulls. The XAG/USD, nevertheless, seems poised to surpass the $26.25-$26.30 hurdle and climb to the $27.00 neighbourhood, or the March 2022 high.

On the flip side, Friday's swing low, around the $25.15 region, might now act as a support and protect the immediate downside. This is closely followed by the $25.00 psychological mark, below which the XAG/USD could extend the corrective slide towards testing the $24.50-$24.40 resistance-turned-support. A convincing break below the latter is needed to negate the near-term positive outlook.

The XAG/USD might then turn vulnerable to weaken further below the $24.00 mark and drop to the next relevant support near the $23.50-$23.30 confluence. The latter comprises the 50-day and the 100-day SMAs and is followed by support near the $23.00 round-figure mark.

Silver daily chart

Key levels to watch

Economists at OCBC Bank preview the Bank of England (BoE) and its implications for the Pound.

Buy rumour, sell rally

“Consensus and ourselves are looking for 25 bps hike. Potentially, it could be shaping up to be a buy rumour, sell on fact for GBP. Positive UK story is probably in the price of GBP for now.”

“Markets are pricing in about +65 bps hike for this year, especially after the double-digit inflation print for 7 straight months and the much better than expected labour market report. We opined that market pricing here may be too hawkish.”

“Any hawkish expectations not met could lead to profit-taking on GBP gains this week.”

• NZD/USD edges lower on Tuesday and snaps a five-day winning streak to over a one-month top.
• A combination of factors assists the USD to gain some follow-through traction and exerts pressure.
• The technical setup still favours bullish traders and supports prospects for further near-term gains.

The NZD/USD pair attracts some sellers on Tuesday and snaps a five-day winning streak to over a one-month high, around the 0.6355-0.6360 area touched the previous day. The pair maintains its offered tone through the early North American session and is currently placed near the daily low, still comfortably above the 0.6300 round-figure mark.

The US Dollar (USD) gains some positive traction for the second successive day and turns out to be a key factor exerting some downward pressure on the NZD/USD pair. The Federal Reserve's (Fed) Senior Loan Officer Opinion Survey (SLOOS) released on Monday eased fears of a full-blown banking crisis in the US. Apart from this, a generally weaker tone around the equity markets further benefits the safe-haven Greenback and contributes to the offered tone surrounding the risk-sensitive Kiwi.

That said, growing acceptance of an imminent pause in the Federal Reserve's (Fed) year-long rate-hiking cycle might hold back the USD bulls from placing aggressive bets. This, along with expectations for further rate hikes by the Reserve Bank of New Zealand (RBNZ), should limit losses for the NZD/USD pair. Market participants might also prefer to wait on the sidelines ahead of the release of the latest US consumer inflation figures, due on Wednesday, before positioning for the next directional move.

Even from a technical perspective, the overnight sustained break through a downward sloping trend line, extending from the YTD peak touched in February, favours bullish traders. Moreover, oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone. This, in turn, supports prospects for an extension of the recent appreciating move witnessed over the past two weeks or so. Hence, the ongoing corrective slide is likely to get bought into.

The NZD/USD pair seems poised to climb back towards retesting the April monthly swing low, around the 0.6380 region, en route to the 0.6400 mark. Some follow-through buying should pave the way for additional gains and has the potential to lift spot prices towards the next relevant hurdle near the 0.6435-0.6440 region, above which bulls might aim to reclaim the 0.6500 psychological mark.

On the flip side, the aforementioned trend-line resistance breakpoint, currently around the 0.6300 round-figure mark, now seems to protect the immediate downside. Any further decline is likely to attract fresh buyers and remains limited near the 100-day Simple Moving Average (SMA), around the 0.6255 zone. The latter should act as a strong base for the NZD/USD pair, which if broken decisively will set the stage for a deeper corrective decline.

NZD/USD daily chart

Key levels to watch

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comment on the latest release of inflation figures in the Philippines.

Key Takeaways

“The Philippines’ headline inflation decelerated further to an eight-month low of 6.6% y/y in Apr (from +7.6% in Mar). The pace of the easing came in faster than our estimate and Bloomberg consensus (both at 7.0%), largely credited to a persistent slowdown in prices of selected food items and fuels as well as lower electricity tariffs during the month. The ebbing of year-ago high base effects also played an essential role in pulling down the headline inflation in Apr.”

“Nevertheless, services related price inflation continued to edge higher last month while core inflation just showed a small blip to 7.9% (Mar: +8.0%). The return of El Niño could reverse the food price inflation downtrend over the next couple of months. Recognising this and other lingering upside risks to the inflation outlook (i.e. higher electricity rates, above-average wage adjustments, and impact of African Swine Fever infections), we maintain our 2023 full-year average inflation projection of 6.0% for now (BSP est: 6.0%, 2022: 5.8%).”

“Although headline inflation has come off faster than our expectations for two straight months in Mar-Apr, demand price pressures remain stubbornly high as revealed by both services and core inflation prints. The soon-to-be-released 1Q23 GDP outturn is also crucial to affirm the robustness of domestic demand. It will raise the risk of further broadening of price pressures and the emergence of additional second order effects should the BSP surrender its inflation fight too soon. With this and the US Fed’s 25bps rate hike yesterday (4 May), we expect BSP to press ahead with its interest rate hike of 25bps on 18 May.”

• Pound Sterling vs US Dollar drops to around the 1.26 handle ahead of key macroeconomic events for the week. 
• The Pound Sterling is likely to be impacted by the Bank of England meeting on “Super Thursday”.
• The US Dollar will look for impetus from the US Consumer Price Index data for April on Wednesday. 

The Pound Sterling (GBP) recovers back above the 1.2600 handle versus the US Dollar (USD)  on Tuesday, as the Greenback slips on the back of slightly softer US Treasury bond yields.

Traders are gearing up for two big releases that will impact GBP/USD over the next two days – US Consumer Price Index (CPI) inflation data on Wednesday and the Bank of England (BoE) policy meeting on Thursday. 

From a technical perspective, GBP/USD is in a broadly bullish long-term uptrend. Given the old adage that “the trend is your friend” this advantages long over short holders. 

GBP/USD market movers

• The Pound Sterling will probably take direction from the outcome of the Bank of England (BoE) policy meeting on Thursday. A 25 bps interest rate hike is now expected with almost 100% certainty. What is less certain is the bank’s forward guidance, BoE Chairman Andrew Bailey’s comments in the press conference afterwards, and the distribution of member votes. 
• Some observers see possible 60 bps of further rate hikes required to get inflation under control. If true, that would widen the monetary policy divergence between the Bank of England and the Federal Reserve (Fed) – which is widely expected not to raise rates any higher. This would favor the Pound Sterling, as higher interest rate expectations give currencies a ‘carry’ advantage. Carry is the difference between the interest rates of two currencies and measures the benefit of holding the one with the higher interest rate. It is also used in the pricing of many derivatives, such as futures and options. 
• The distribution of voting at the BoE’s last meeting was 7-2, with seven policymakers voting for a 25 bps rate hike and two voting for no change. If the distribution changes either way that will impact GBP with a decrease in the ‘no-change’ camp lifting GBP/USD and vice versa for an increase.
• US Treasury bond yields have risen for three consecutive days, providing the US Dollar with some support, but yields are pulling back slightly on Tuesday, which could be a slight headwind for the USD. 
• The Federal Reserve’s bank Lending Officer Survey (Q1), released on Monday, was broadly negative and suggested credit conditions had tightened due in part to the fallout from the banking crisis. Although the impact on the US Dollar at the time of release was minimal, it may be a factor impacting on yields.
• The release of US Consumer Price Index (CPI) data for April on Wednesday, May 10, at 12:30 GMT, will provide further data for the Federal Reserve to base its future policy trajectory on. Currently expectations are for CPI to increase by 0.4% MoM and 5% YoY. Core CPI is forecast to rise by 0.4% MoM and 5.5% YoY, and is the metric that has the greater impact. A higher-than-expected result would be negative for GBP/USD and vice versa for a lower-than-forecast print. 

GBP/USD technical analysis: Shooting star hints at correction

GBP/USD broadly keeps extending its established uptrend making progressively higher highs and higher lows, and this is likely to continue favoring Pound Sterling longs over shorts. 

GBP/USD: Daily Chart

The GBP/USD peaked at 1.2669 on Monday, printing new year-to-date highs for the pair. It then declined on the same day and closed lower, forming what is known as a shooting star – a Japanese candlestick reversal pattern. If the shooting star is followed by a bearish day on Tuesday it could be a sign the pair is about to correct down. If the close of the day is below last Friday’s low of 1.2561 that would add further bearishness to the short-term outlook.  

The GBP/USD pair is, at the time of writing, resting right on top of support from an upper channel line at 1.2600-05. A decisive break below the level would suggest further weakness on the horizon, possibly down to the lower channel line at around 1.2440. 

Decisive bearish breaks are characterized by either a long red daily candle that breaks below the key resistance level in question, and closes near the day’s lows. Or alternatively, three consecutive red bars that break below the level. Such insignia provide confirmation that the break is not a ‘false break’ or bear trap. 

It would require a decisive break below the 1.2435 May 2 lows to challenge the dominance of the uptrend and suggest the chance of a bear reversal.  

Given this is not yet the case, there is still every chance the exchange rate could turn around at any time and start going up again. The May 2022 highs at 1.2665 provide the first target and resistance level, then at the 100-week Simple Moving Average (SMA) situated at 1.2713, and finally at the 61.8% Fibonacci retracement of the 2021-22 bear market, at 1.2758. All provide potential upside targets for the pair. Each level will need to be decisively breached to open the door to the next. 

The Relative Strength Index (RSI) has fallen to 60 at the time of writing after peaking in the upper 60s close to overbought. RSI is more or less moving in tandem with price, therefore, providing little indication of underlying strength or weakness.

Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes last week’s CFTC positioning data.

The wind is in the Euro’s face, but it’s kinder to Sterling

“Last week’s CFTC positioning data suggest the Euro will find further gains hard work. The net USD short against the EUR has increased again and remains bigger than the overall USD short. That means the market is long USD against the balance other currencies.”

“This morning’s soft Chinese export and import data haven’t done AUD any favours, but USD/CAD should continue to benefit from belief that the Fed has finished raising rates, as long as that doesn’t come into question.”

“The market remains (marginally) long GBP for a third week. If the Euro faces headwinds from what’s priced into the rate curve and from positions, then the Pound benefits from tailwinds for now.”

Economists at Commerzbank see the USD/RUB pair at 80 by year-end and at 90 by December 2024.

Not convertible

“Russia’s capital account is closed for major hard currencies. The absence of capital flows means that the exchange rate does not perform its forward-looking role based on expectations – it only reflects day to day trade flows, most of which is energy trade.”

“Due to the sanctions, the RUB exchange rate now only reflects current account flows. Hence, the Ruble is likely to depreciate medium-term due to the declining current account surplus.”

“We expect the USD/RUB fixing to reach around 90.00 by the end of 2024.”

Source: Commerzbank Research

• EUR/USD remains on the defensive so far this week.
• There is a tough resistance area near the 1.1100 mark.

EUR/USD faces increased selling pressure and breaks below the key support at 1.1000 the figure on Tuesday.

The inability of the pair to challenge/surpass the so far 2023 high at 1.1095 (April 26) carries the potential to spark a deeper corrective decline in the short-term horizon with the immediate targets at the monthly low at 1.0941 (may 2) and the weekly low at 1.0909 (April 17).

Looking at the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0440.

EUR/USD daily chart

• USD/CAD draws support from a combination of factors and climbs back closer to the 1.3400 mark.
• Retreating Oil prices undermines the Loonie and acts as a tailwind amid a modest USD strength.
• The Fed’s less hawkish outlook could cap the USD ahead of the key US CPI report on Wednesday.

The USD/CAD pair builds on the previous day's late rebound from the 1.3315 region, or over a three-week low and gains some follow-through traction on Tuesday. The steady intraday uptick lifts spot prices back closer to the 1.3400 mark during the mid-European session and is sponsored by a combination of factors.

Crude Oil prices edge lower amid some profit-taking following the recent strong recovery from a 17-month low, which, in turn, is seen undermining the commodity-linked Loonie. The US Dollar, on the other hand, scales higher for the second successive day amid hopes that the US banking sector is not headed for a wider crisis and provides an additional boost to the USD/CAD pair. In fact, the Federal Reserve's (Fed) Senior Loan Officer Opinion Survey (SLOOS) released on Monday showed that tightening credit conditions was due to the aggressive rate hikes rather than severe banking sector stress.

Apart from this, a softer risk tone - as depicted by a fresh leg down in the equity markets - further benefits the safe-haven buck and contributes to the bid tone surrounding the USD/CAD pair. That said, growing acceptance that the Fed is nearing the end of its year-long rate-hiking cycle might keep a lid on any meaningful upside for the Greenback. Apart from this, the latest optimism over a fuel demand recovery, led by easing concerns about an imminent recession, should act as a tailwind for Oil prices. This, in turn, should cap gains for the major and warrants caution before positioning for a further intraday move up.

Traders might also refrain from placing aggressive bets in the absence of any relevant market-moving economic releases, either from the US or Canada, and ahead of the latest US consumer inflation figures on Wednesday. The crucial US CPI report will play a key role in influencing expectations about the Fed's next policy move. This, in turn, should drive the USD demand in the near term and help determine the next leg of a directional move for the USD/CAD pair. This makes it prudent to wait for strong follow-through buying before confirming the spot prices have formed a bottom near the 1.3300 mark.

Technical levels to watch

Gold price is holding its own at $2,020-2,030 of the US inflation data. Economists at Commerzbank expect the yellow metal to remain elevated. 

No scope for the Fed to implement rate cuts this year

“According to the Fed Fund Futures, the key rate expected at the end of the year is approx. 4.4%. It is doubtful whether the inflation figures will be able to shake this view.”

“We expect that the headline rate will have remained at 5% in April and that the core rate will have fallen slightly to 5.5%. This would still leave inflation well above the US Fed’s target level. This confirms our view that there is no scope for the Fed to implement rate cuts this year. It will probably take some time before the market likewise adopts this view, however. Gold is therefore likely to remain above the $2,000 mark.”

Sterling was able to stand up well against USD and EUR over the past weeks. You-Na Park-Heger, FX Analyst at Commerzbank, expects the GBP to correct lower following the Bank of England (BoE) meeting.

Rate expectations support Sterling ahead of BoE meeting

“An important positive driver is likely to have been market rate expectations. The market is now expecting at least two further rate hikes by the BoE.”

“It is almost certain that the BoE will hike its key rate by a further 25 bps to 4.5% this Thursday; it seems just an aside. What will be much more interesting will be how the individual members of the monetary policy committee will vote and what they have to say about recent economic data, as the market is likely to hope for indications on the future course of its monetary policy.”

“As the BoE has been quite hesitant and cautious as regards the fight against inflation it is difficult to believe that it will surprise with a hawkish stance on Thursday. I, therefore, see a certain potential for disappointment and thus the risk of a downside correction in Sterling as the market’s rate expectations seem quite ambitious. However, I am happy to be proven wrong.”

• DXY adds to the promising start of the week and revisits 101.60.
• Next on the upside comes the monthly high near 102.50.

DXY extends the upside bias seen on Monday and reclaims the 101.50/60 band, or 2-day highs, on Tuesday.

A more serious bullish attempt should clear the monthly high at 102.40 (May 2) to mitigate the downside pressure and allow for a potential advance to the provisional 55- and 100-day SMAs at 102.86 and 103.00, respectively.

Looking at the broader picture, while below the 200-day SMA, today at 105.91, the outlook for the index is expected to remain negative.

DXY daily chart

Economist at UOB Group Lee Sue Ann assesses the last ECB event on May 4.

Key Takeaways

“The European Central Bank (ECB) decided to raise its three key interest rates by 25bps. This is the smallest rate increase since the ECB started its current tightening cycle in Jul 2022. It also expects to discontinue the reinvestments under the Asset Purchase Programme (APP) as of Jul 2023. As for the Pandemic Emergency Purchase Programme (PEPP), guidance was left unchanged (reinvestments intended until at least end-2024).”

“The justification for hiking was clear, with the ECB stating that ‘the inflation outlook continues to be too high for too long’, and adding that while ‘headline inflation has declined over recent months, underlying price pressures remain strong’. The downshift from 50bps to 25bps was also justified by the ECB acknowledging that “past rate increases are being transmitted forcefully to euro area financing and monetary conditions”.

“In all, the ECB did not provide further guidance about upcoming rate decisions. At this juncture, we are penciling in one more 25bps hike at the next meeting on 15 Jun, since Lagarde highlighted that there is still ‘more ground to cover’.  But the ECB clearly has every reason to stick to a data dependent approach. Whether Jun or Jul will be the last will depend crucially on inflation data scheduled for late-May.”

• EUR/JPY reverses two daily gains and challenges 148.00.
• The resumption of the buying pressure should target 150.00.

EUR/JPY comes under pressure and puts the 148.00 neighbourhood to the test on Tuesday.

It seems the bullish outlook now appears somewhat dented. Against that, the cross could move into a consolidative phase before resuming the uptrend and always with the immediate target at the key round level at 150.00 ahead of the 2023 peak at 151.61 (May 2).

So far, further upside looks favoured while the cross trades above the 200-day SMA, today at 142.84.

EUR/JPY daily chart

Economists at ING note that the US Dollar Index (DXY) could challenge the 100.00 level. 

Downside risks are non-negligible

“While the short-term outlook for the Dollar remains neutral in our view, thanks to positioning skewed to the short-side (more in the Euro section) and unstable risk sentiment, markets remain ready to price in more Fed rate cuts, so downside risks are non-negligible.”

“We favour a stabilisation around 101.50, but a drop below 101.00 and a test of 100.00 in DXY are tangible possibilities in the near term.”

• US Dollar manages to stay resilient against its major rivals on Tuesday.
• US Dollar Index clings to modest daily gains following Monday's rebound.
• April inflation data from the US could trigger the next big reaction in USD.

The US Dollar (USD) shook off the selling pressure at the beginning of the week with the US Dollar Index (DXY) closing in positive territory on Monday. Early Tuesday, the USD holds its ground as market participants refrain from taking large positions ahead of the highly-anticipated April inflation data from the United States (US), which will be released on Wednesday.

Later in the session, Federal Reserve (Fed) Governor Philip Jefferson and NY Fed President John Williams will be delivering speeches. The IBD/TIPP Economic Optimism Index will also be featured in the US economic docket. The USD's valuation, however, is likely to continue to be driven by risk perception, at least in the near term.

Daily digest market movers: US Dollar clings to modest recovery gains

• The NFIB Business Optimism Index declined to 89 in April from 90.1 in March. This reading came in slightly below the market expectation of 89.6.
• The Fed noted in its Loan Officer Survey for the first quarter that respondents reported tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms. "Banks reported tighter standards and weaker demand for all commercial real estate loan categories," the publication further read.
• In an interview with Yahoo Finance on Monday, Chicago Fed President Austan Goolsbee repeated that it was too early to say what the next policy move will be, explaining that there were a lot of uncertainties regarding the impact of credit tightening on the economy.
• The benchmark 10-year US Treasury bond yield extended its rebound into a third straight day on Monday and gained nearly 2%. The 10-year yield corrects lower early Tuesday and stays slightly below 3.5%.
• Wall Street's main indexes closed mixed on Monday with the Dow Jones Industrial Average losing 0.17% and the Nasdaq Composite rising 0.25%.
• US stock index futures trade in negative territory early Tuesday and were last seen losing between 0.3% and 0.4%.
• According to the CME Group FedWatch Tool, markets are pricing in an 88% probability that the Fed will leave the policy rate unchanged in June.
• The US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls rose 253,000 in April, surpassing the market expectation of 179,000 by a wide margin. On a negative note, March's 236,000 increase got revised lower to 165,000.

Technical analysis: US Dollar Index closes in on key resistance

The US Dollar Index (DXY) continues to edge higher toward 101.60, where the 20-day Simple Moving Average (SMA) is located. A daily close above that level could attracts buyers and open the door for an extended recovery toward 102.00 (psychological level), 102.40 (May 2 high) and 103.00 (100-day SMA).

On the downside, 101.00 (static level, psychological level) aligns as first support ahead of 100.00 (psychological level, static level) and 99.50 (static level from March 2022).

It's also worth mentioning that the Relative Strength Index (RSI) indicator on the daily chart is still below 50, suggesting that the bullish momentum is not yet strong enough for a steady rebound. 

How does Fed’s policy impact US Dollar?

The US Federal Reserve (Fed) has two mandates: maximum employment and price stability. The Fed uses interest rates as the primary tool to reach its goals but has to find the right balance. If the Fed is concerned about inflation, it tightens its policy by raising the interest rate to increase the cost of borrowing and encourage saving. In that scenario, the US Dollar (USD) is likely to gain value due to decreasing money supply. On the other hand, the Fed could decide to loosen its policy via rate cuts if it’s concerned about a rising unemployment rate due to a slowdown in economic activity. Lower interest rates are likely to lead to a growth in investment and allow companies to hire more people. In that case, the USD is expected to lose value.

The Fed also uses quantitative tightening (QT) or quantitative easing (QE) to adjust the size of its balance sheet and steer the economy in the desired direction. QE refers to the Fed buying assets, such as government bonds, in the open market to spur growth and QT is exactly the opposite. QE is widely seen as a USD-negative central bank policy action and vice versa.

Bearish attempts in USD/CNH are unlikely to breach the key 6.8500 region for the time being, comment UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday that ‘momentum indicators are mostly flat’ and expected USD ‘trade sideways in a range of 6.9100/6.9350’. Our view for USD to trade sideways was not wrong even though it traded in a narrower range than expected (6.9162/6.9250). The quiet price actions offer no fresh clues and we continue to expect USD to trade sideways, likely between 6.9150 and 6.9350.”

Next 1-3 weeks: “There is no change in our view from last Friday (05 May, spot at 6.9150). As highlighted, USD could continue to weaken but short-term conditions are deeply oversold and the chance of it breaking the formidable support at 6.8500 is low for now. Overall, USD is likely to trade under pressure for now unless it can break above the ‘strong resistance’ at 6.9400 (no change in level from last Friday).”

The Lira has been on a weakening trend since December 2021, slipping past 19.50/USD. Economists at Société Générale analyze where the USD/TRY could go depending on the results of the Turkish elections.

If Erdogan is defeated by Kilicdaroglu, Lira assets should rally

“Intervention by the authorities has depleted FX reserves to record lows, exposing the currency to potentially more turmoil in the event of a status quo scenario and no major changes to the political landscape.”

“Any selling is likely to be countered by the authorities and means a controlled rather than abrupt depreciation is more likely.”

“Unconventional monetary policy tactics of liraization may then endure and result in additional Lira selling. In this scenario, we pencil in 20.00/USD by the end of this quarter and 24.50/USD by 1Q24. If on the other hand Erdogan is defeated by Kilicdaroglu, and the opposition block Nation Alliance can form a majority in the Grand Assembly, Lira assets should rally on the basis that policy orthodoxy will be restored.”

• GBP/USD oscillates in a narrow trading band below the one-year high touched on Monday.
• The ascending trend channel points to a well-established uptrend and favours bullish traders.
• Traders now seem reluctant ahead of the US CPI on Wednesday and the BoE on Thursday.

The GBP/USD pair struggles to gain any meaningful traction and seesaws between tepid gains/minor losses through the early European session on Tuesday. The pair is currently placed around the 1.2620 region and remains well within the striking distance of a one-year high touched the previous day.

The US Dollar (USD) gains some positive traction for the second successive day amid easing fears of a full-blown banking crisis in the US and turns out to be a key factor acting as a headwind for the GBP/USD pair. Apart from this, a generally weaker tone around the equity markets further benefits the safe-haven buck, though speculations that the Federal Reserve (Fed) is nearing the end of its rate-hiking cycle caps the upside.

This, along with bets that the Bank of England (BoE) will hike interest rates by another 25 bps later this week, underpins the British Pound and acts as a tailwind for the GBP/USD pair. Traders also seem reluctant to place aggressive bets ahead of the release of the latest US consumer inflation figures on Wednesday and the key central bank event risk, the highly-anticipated BoE monetary policy meeting on Thursday.

From a technical perspective, the GBP/USD pair on Monday faced rejection near a resistance marked by the top end of an upward-sloping channel. That said, the subsequent slides show some resilience below the 1.2600 mark. This, in turn, reaffirms a well-established short-term uptrend. The constructive setup is reinforced by bullish oscillators on the daily chart, which are still far from being in the overbought territory.

The aforementioned technical setup supports prospects for a further near-term appreciating move. Traders, however, might wait for a breakout through the trend-channel resistance, currently around the 1.2670-1.2675 region, before placing fresh bets. The GBP/USD pair might then aim to surpass the 1.2700 mark and accelerate the momentum towards the next relevant hurdle near the 1.2775-1.2780 region en route to the 1.2800 round figure.

On the flip side, weakness below the 1.2600 mark is likely to attract some buyers near the 1.2565-1.2560 horizontal support. However, some follow-through selling could make the GBP/USD pair vulnerable to sliding towards the 1.2500 psychological mark, which coincides with the 100-period Simple Moving Average (SMA) on the 4-hour chart. Spot prices could eventually drop to the ascending channel support, currently around the 1.2465 area.

GBP/USD 4-hour chart

Key levels to watch

Economists at ING analyze EUR/USD outlook for this week. 

EUR/USD faces some stretched positioning in the near term

“Net long positions are now worth 22% of open interest, the highest since January 2021 and not far from 27% five-year highs. This mostly has implications for the near term, so, while we remain resolutely bullish on EUR/USD in the longer run on the back of US-Eurozone (and Fed-ECB) divergence and pronounced undervaluation, we flag positioning as one reason to be cautious on the short-term outlook.k.”

“We expect 1.10 to keep being the anchor for EUR/USD this week.”

Australian Treasurer Jim Chalmers presents the country’s 2023/24 (July-June) budget released on Tuesday, with key highlights noted below.

• AUD/USD flirts with daily low, above mid-0.6700s amid softer risk tone/modest USD strength

• AUD/USD faces rejection near the 100-day SMA and retreats from a multi-week high.
• The risk-off impulse weighs on the risk-sensitive Aussie amid a modest USD strength.
• The Fed’s less hawkish outlook could cap the USD and help limit losses for the major.

The AUD/USD pair continues with its struggle to make it through the 100-day Simple Moving Average (SMA) and attracts some sellers on Tuesday, snapping a six-day winning streak to over a three-week high touched the previous day. The pair maintains its offered tone through the first half of the European session and is currently placed near the daily low, just above mid-0.6700s.

The mixed Chinese Trade Balance data, showing a decline in imports by 1.4% and a slower growth of 8.5% in exports, fuel scepticism over a faster recovery in the world's second-largest economy. This, in turn, tempers investors' appetite for riskier assets, which is evident from a generally weaker tone around the equity markets, and undermines the risk-sensitive Aussie. Apart from this, some follow-through US Dollar (USD) buying for the second straight day exerts some downward pressure on the AUD/USD pair.

The Federal Reserve's (Fed) Senior Loan Officer Opinion Survey (SLOOS) released on Monday showed that tightening credit conditions was due to the aggressive rate hikes rather than severe banking sector stress. This, in turn, eased fears about a full-blown banking crisis in the US and led to the overnight sharp rally in the US Treasury bond yields. Furthermore, the risk-off impulse is seen as another factor benefitting the safe-haven Greenback, though the Federal Reserve's (Fed) less hawkish stance might cap gains.

In fact, the US central bank last week opened the door for an imminent pause in its year-long rate-hiking cycle and outlined a more stringent, data-driven approach to raising rates further. Moreover, Fed Chair Jerome Powell signalled that the central bank was close to hitting the terminal rate of the current tightening cycle. This, along with the fact that markets have been pricing in the possibility of potential rate cuts during the second half of this year, keeps a lid on the US bond yields and acts as a headwind for the Greenback.

The Australian Dollar (AUD), on the other hand, might continue to draw support from the Reserve Bank of Australia's (RBA) surprise 25-basis-points interest-rate hike last week. Adding to this, the Australian central bank indicated that some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe. This, in turn, might hold back traders from placing aggressive bearish bets around the AUD/USD pair and help limit any further losses, at least for the time being.

Market participants might also prefer to wait on the sidelines ahead of the release of the latest US consumer inflation figures on Wednesday. The crucial US CPI report will play a key role in influencing expectations about the Fed's next policy move, which, in turn, will drive the USD demand and provide a fresh directional impetus to the AUD/USD pair. This further makes it prudent to wait for strong follow-through selling before confirming that spot prices have topped out and positioning for a meaningful corrective slide.

Technical levels to watch

Today's Mexican inflation data for April is unlikely to have a negative impact on the Peso, economists at Commerzbank report.

MXN depreciation risks likely limited

“We see little downside risk for the MXN after today's data, as any negative surprise on inflation should be offset by Banxico's credibly hawkish stance. At the same time, inflation risks remain so high that even if inflation turns out to be weaker than expected, hardly any analyst or market participant is likely to assume that Banxico would diverge from the Fed and consider easing monetary policy much sooner.”

“We continue to expect the MXN to hold up well against the USD for the time being, even if the start of monetary easing in the US and Mexico is envisaged towards the end of the year.”

Bipartisan Policy Center said in a statement on Tuesday that the “US debt limit default will be between early June and early August, depending on revenue strength.”

Markets are cautiously awaiting an update on a debt ceiling meeting, as US President Joe Biden meets Republican House Speaker Kevin McCarthy and other congressional leaders at the White House.

The meeting is scheduled at 20:00 GMT but it is not expected to produce a final agreement on raising the debt limit.

Market reaction

At the time of writing, the US Dollar Index is adding 0.12% on the day at 101.50.

USD/JPY now sees the likelihood of a decline to the 133.00 region somewhat dwindled, noted UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: “Our expectations for the ‘rebound in USD to extend’ did not materialize as it traded between 134.62 and 135.29 before closing slightly higher at 135.08 (+0.19%). The price movements appear to be consolidative and we expect USD to trade sideways today, likely in a range of 134.55/135.55.”

Next 1-3 weeks: “After USD plummeted to a low of 133.49, we highlighted last Friday (05 May, spot at 134.05) that ‘while USD could continue to decline, short-term conditions are severely oversold and it remains to be seen if USD has enough momentum to break the solid support level near 133.00’. USD has not been able to make further headway on the downside as it rebounded the last couple of days. The odds for USD to weaken further to 133.00 have diminished. However, only a breach of 135.85 (‘strong resistance’ level was at 136.05 yesterday) would suggest that the weakness in USD has stabilized.”

Open interest in natural gas futures markets dropped by around 2.3K contracts for the first time since April 26 on Monday according to preliminary readings from CME Group. Volume, on the other hand, went up for the second session in a row, this time by nearly 21K contracts.

Natural Gas looks well supported around $2.00

The auspicious start of the week of natural gas prices came amidst shrinking open interest and increasing volume, which is suggestive that the current multi-week consolidative theme has still further legs to go. In the meantime, solid contention remains around the $2.00 mark per MMBtu.

Economists at Standard Chartered update their Chinese inflation and growth forecasts. 

Low inflation unlikely to prompt a policy rate cut 

“We expect China’s core inflation to rise to above 2% YoY by end-2023 on continued economic recovery, less than we originally expected due to the slack in the economy amid the global slowdown.”

“While growth may rebound to 5.8% or higher in 2023, our estimate suggests GDP will stay below trend at end-2023, although the negative output gap may narrow. Under our revised forecasts, headline CPI inflation will rise to 1.8% YoY at end-2023, averaging 1.0% for the full year. We keep our 2024 average CPI inflation forecast at 2.5%.” 

“CPI inflation may approach zero in the next few months as the crude price spike in H1- 2022 created a high base.”

“We think the People’s Bank of China (PBoC) will also pay close attention to the core inflation trajectory, which should show an uptrend and mitigate concerns over deflation. With interest rates already at historical lows and growth likely to comfortably beat the 5% target, we do not expect the PBoC to cut policy rates in the foreseeable future.”

UAE Energy Minister Suhail Mohamed Al Mazrouei said on Tuesday, “We're not concerned about the very short term, we can balance supply and demand.”

Additional quotes

“We're more worried about investments long term.”

“That is why UAE is investing in increasing its capacity for the future.”

Market reaction

WTI seems to be weighed down by the latest comments from the UAE Energy Minister. The US oil is retreating from intraday highs of $73, trading modestly flat at $72.50, at the press time.

• USD/JPY edges lower on Tuesday in reaction to BoJ Governor Ueda’s hawkish remarks.
• A modest USD strength lends some support to the major and helps limit the downside.
• Traders also seem reluctant to place aggressive bets ahead of the US CPI on Wednesday.

The USD/JPY pair retreats from a four-day high, around the 135.30-135.35 region touched earlier this Tuesday and extends its steady intraday descent through the first half of the European session. Spot prices, however, rebound a few pips and now trade with only mild intraday losses, just below the 135.00 psychological mark.

The Japanese Yen (JPY) gets a minor lift in reaction to hawkish-sounding remarks by the Bank of Japan (BoJ) Governor Kazuo Ueda, which, in turn, exerts some downward pressure on the USD/JPY pair. Speaking in parliament, Ueda said Japan's economy was picking up and inflation expectations remain at high levels. He added that the central bank will end its yield curve control policy and then start shrinking its balance sheet, once prospects heighten for inflation to sustainably hit its 2% target.

The US Dollar (USD), on the other hand, continues to draw support from the overnight rally in the US Treasury bond yields, led by easing fears of a full-blown banking crisis. In fact, the Federal Reserve's (Fed) Senior Loan Officer Opinion Survey (SLOOS) showed on Monday that tightening credit conditions was due to the aggressive rate hikes rather than severe banking sector stress. This holds back traders from placing aggressive bearish bets around the USD/JPY pair and helps limit losses.

The upside for the USD, meanwhile, seems limited in the wake of a less hawkish stance adopted by the Fed. In fact, the US central bank last week outlined a more stringent, data-driven approach to raising rates further, opening the door for an imminent pause in its year-long rate-hiking cycle. Moreover, the markets have been pricing in potential rate cuts during the second half of this year. This might continue to act as a headwind for the USD/JPY pair ahead of the crucial US CPI report.

The latest US consumer inflation figures, due on Wednesday, will play a key role in influencing expectations about the Fed's next policy move. This, in turn, will drive the USD demand and help determine the near-term trajectory for the USD/JPY pair. Heading into the key data risk, the buck remains at the mercy of the US bond yields in the absence of any relevant market-moving economic releases from the US and ahead of a scheduled speech by New York Fed President John Williams.

Technical levels to watch

European Central Bank (ECB) policymaker Peter Kazimir said on Tuesday, “based on current data, the ECB will have to keep raising interest rates for longer than anticipated.“

Additional quotes

“September projections earliest time to judge the effectiveness of measures and if inflation is moving towards target.”

“Core inflation, wage pressures, high-profit margins call for vigilance.”

“Slowing hikes lets the ECB to go higher for longer.”

“There’s plenty of ground left to cover.”

Market reaction

EUR/USD was last seen trading at 1.0975, down 0.25% on the day, uninspired by the hawkish ECB commentary.

• Further selling bias forces EUR/USD to breach 1.1000.
• The greenback appears supported by rising risk-off mood.
• ECB’s Kazaks, Kazimir favoured extra rate raises in the next months.

Sellers remain in control of the sentiment in the risk complex and force EUR/USD to retreat further south of the 1.1000 support on turnaround Tuesday.

EUR/USD weaker, as risk aversion picks up

EUR/USD keeps the pessimism unchanged in the first half of the week and returns to the sub-1.1000 region on Tuesday on the back of the steady resumption of the risk aversion in the global markets.

The move lower in the pair came despite hawkish comments from ECB Board members Kazimir and Kazaks, who suggested that the ECB might go higher for longer thanks to slower rate hikes and the bank’s hiking cycle might not be finished in July, respectively.

There are no scheduled data releases in the euro area on Tuesday, while the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism index are due across the pond along with speeches by FOMC’s P. Jefferson and J. Williams.

What to look for around EUR

EUR/USD faces renewed downside pressure in response to the resurgence of the risk aversion and the consequent investors’ move towards the greenback.

The movement of the euro's value is expected to closely mirror the behaviour of the US Dollar and will likely be impacted by any differences in approach between the Fed and the ECB with regards to their plans for adjusting interest rates.

Moving forward, hawkish ECB-speak continue to favour further rate hikes, although this view appears in contrast to some loss of momentum in economic fundamentals in the region.

Key events in the euro area this week: Germany Final Inflation Rate (Wednesday).

Eminent issues on the back boiler: Continuation (or not) of the ECB hiking cycle. Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is losing 0.23% at 1.0977 and faces the next contention level at 1.0941 (monthly low May 2) followed by 1.0909 (weekly low April 17) and finally 1.0831 (monthly low April 10). On the flip side, the surpass of 1.1095 (2023 high April 26) would target 1.1100 (round level) en route to 1.1184 (weekly high March 21 2022).

EUR/USD is set to face downsidre pressure, in the view of economists at OCBC Bank.

Downside risk

“Markets appear to price in slightly lower certainty of a rate hike in June and slightly lower peak rate.”

“We reiterate that a downshift in pace of hike does not represent a downshift in ECB’s hawkish rhetoric as officials are still looking for further tightening (vs. Fed potentially on pause) while ECB is expected to quicken its QT pace.” 

“Daily momentum is mild bearish while RSI fell. Risks skewed to the downside.”

“Support at 1.0990 (21 DMA), 1.0850 levels (50 DMA). Resistance at 1.1080/95 levels (2023 high), 1.12 levels.”

Economists at Goldman Sachs preview the Reserve Bank of New Zealand (RBNZ) meeting in May and see AUD/NZD on a higher trajectory through the end of the year. 

RBNZ to hike 25 bps in May

“While it is a close call, we now expect the RBNZ to hike the Official Cash Rate (OCR) by 25 bps at its May meeting (previously on hold) before leaving rates on hold for the remainder of this year at 5.5%.”

“We continue to think that policy convergence should eventually benefit AUD/NZD, as we expect an additional hike from the RBA in July, while pricing for the upcoming RBNZ meeting seems less likely to be realized.”

According to UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, NZD/USD could extend the advance to the 0.6385 region in the near tem.

Key Quotes

24-hour view: “Yesterday, we held the view that ‘there is scope for NZD to edge above 0.6315 again before the risk of a more sustained pullback increases’. We indicated, ‘The next major resistance at 0.6385 is not expected to come under threat’. Our view was not wrong as NZD rose to 0.6359 and then pulled back. The pullback in overbought conditions suggests NZD is unlikely to much advance further. Today, NZD is more likely to trade sideways in a range of 0.6315/0.6360.”

Next 1-3 weeks: “We highlighted yesterday (08 May, spot at 0.6295) that NZD ‘is likely to advance further but it remains to be seen if it can break 0.6385 this time around’. NZD rose to a high of 0.6359 in NY trade before easing. Overbought short-term conditions suggests NZD could consolidate for 1-2 days. Overall, as long as 0.6265 (‘strong support’ level was at 0.6240 yesterday) is not breached, there is scope for NZD to rise to 0.6385. A breach of the ‘strong support’ would indicate that the NZD strength last Wednesday (03 May, spot at 0.6215) has come to an end.”

• Gold price gains some positive traction for the second straight session, though lacks follow-through.
• A modest US Dollar strength, along with easing fears of a full-blown banking crisis, act as a headwind.
• The Federal Reserve’s less hawkish outlook to limit the downside ahead of the US CPI on Wednesday.

Gold price edges higher for the second successive day on Tuesday, albeit lacks bullish conviction and remains below the $2,030 level through the early European session.

Modest US Dollar strength caps gains for Gold price

The Federal Reserve's (Fed) Senior Loan Officer Opinion Survey (SLOOS) showed on Monday that tightening credit conditions was due to the aggressive rate hikes rather than severe banking sector stress. This, in turn, fueled hopes that the banking sector in the United States (US) is not headed for a wider crisis and turns out to be a key factor capping the safe-haven Gold price. Meanwhile, the latest optimism led to the overnight sharp rally in the US Treasury bond yields and lends support to the US Dollar (USD), which contributes to capping the US Dollar-denominated commodity.

Federal Reserve’s less hawkish outlook lends support to XAU/USD

That said, the Fed's less hawkish outlook keeps a lid on any meaningful upside for the US bond yields and the USD, which, in turn, should continue to benefit the non-yielding Gold price. It is worth recalling that the US central bank last week outlined a more stringent, data-driven approach to raising rates further and opened the door for an imminent pause in its year-long rate-hiking cycle. Moreover, the markets have been pricing in potential rate cuts during the second half of this year, though the upbeat US jobs report released on Friday suggests that the Fed might remain hawkish for longer.

Focus remains on consumer inflation figures from United States

Nevertheless, the aforementioned fundamental backdrop seems tilted in favour of bearish traders and supports prospects for some downside for Gold price. That said, market participants seem reluctant to place aggressive bets and prefer to wait for the release of the latest US consumer inflation figures on Wednesday. The crucial US Consumer Price Index (CPI) report will play a key role in influencing market expectations about the Fed's next policy move. This, in turn, will drive the USD demand in the near term and provide a fresh directional impetus to the XAU/USD.

Gold price technical outlook

From a technical perspective, any subsequent move up is likely to confront some resistance near the $2,040 region ahead of the $2,050 supply zone. Some follow-through buying has the potential to lift Gold price back towards the all-time high, around the $2,078-$2,079 region touched last Thursday. The momentum could get extended further and allow bulls to conquer the $2,100 round-figure mark.

On the flip side, the $2,015 area might now protect the immediate downside ahead of the $2,000 psychological mark, which if broken might prompt some technical selling. The Gold price might then turn vulnerable to accelerate the fall towards the $1,980 zone en route to the $1,970 strong horizontal support. Some follow-through selling will negate any near-term positive outlook and shift the bias in favour of bearish traders.

Key levels to watch

A Swedish real estate firm's trouble may cause fresh issues for SEK, economists at ING report.

Real estate troubles

“SBB, one of Sweden’s largest landlords, postponed the payment of dividends and revoked rights issue yesterday. This is sending shockwaves to the real estate sector in Sweden and once again raising questions about the path of monetary policy in Sweden in light of the large slumps in house prices.”

“Negative news on the SBB story, signs of growing dissent within the Riksbank Board, and the speech by a dove suggest downside risks for SEK today.”

“A rebound to 11.25-11.30 in EUR/SEK seems plausible this week.”

CME Group’s flash data for crude oil futures markets noted traders trimmed their open interest positions by more than 5K contracts after two consecutive daily builds on Monday. Volume followed suit and shrank for the third straight session, now by nearly 90K contracts.

WTI: Bulls lack conviction so far

Prices of the barrel of the WTI rose for the third session in a row at the beginning of the week. The daily uptick, however, was amidst dwindling open interest and volume and hints at the idea that the continuation of the upside might face some headwinds in the very near term. So far, there are provisional barriers at the 55- and 100-day SMAs at $75.43 and $76.54, respectively.

Here is what you need to know on Tuesday, May 9:

The US Dollar manages to hold its ground on the second trading day of the week with the US Dollar Index edging higher after having closed modestly higher on Tuesday. The US economic docket will feature the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism Index later in the day. Market participants will continue to pay close attention to comments from central bank officials in the absence of high-tier data releases.

The cautious market stance, as reflected by the mixed performance in Wall Street's main indexes, and the rebound seen in the US Treasury bond yields helped the US Dollar stay resilient against its major rivals on Monday. In the late American session, the US Federal Reserve's (Fed) Senior Loan Officer Opinion Survey showed that  survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms, as well as small firms, over the first quarter.

In the Asian trading hours on Tuesday, the data from China revealed that the trade surplus widened to $90.2 billion in April from $88.19 billion in March. This reading surpassed the market expectation of $71.6 billion by a wide margin. Meanwhile, Retail Sales in Australia contracted by 0.6% in the first quarter, compared to analysts' estimate for a decrease of 0.4%. Following these data releases, AUD/USD stays on the back foot and trades in negative territory at around 0.6750 after having reached its highest since mid-April above 0.6800.

Following a consolidation phase near 1.1000 in the Asian session, EUR/USD started to edge lower in the European morning. European Central Bank (ECB) policymaker Martins Kazaks said on Tuesday that the rate-hiking may not be finished in July but this comment failed to help the Euro gather strength. 

GBP/USD registered small losses on Monday and retreated to the 1.2600 area early Tuesday. Following a three-day weekend, the UK's FTSE 100 Index opened marginally lower.

Gold price struggled to gather bullish momentum amid rising US T-bond yields and finished the day virtually unchanged on Monday. Early Tuesday, XAU/USD continues to fluctuate in a tight range at around $2,020.

USD/JPY extends its sideways grind near 135.00 on Tuesday. Bank of Japan (BoJ) Governor Kazuo Ueda said earlier in the day that the impact of recent US and European bank failures on Japan's financial system was likely limited.

Bitcoin lost nearly 3% and broke below $28,000 on Monday. BTC/USD stays relatively quiet early Tuesday and trades above $27,500. Ethereum closed in negative territory for the third straight day and came within a touching distance of $1,800 before going into a consolidation phase on Tuesday.

NZD/USD is back in the mid-0.63s. Economists at ANZ Bank expect the pair to remain elevated.

Markets look to fade USD strength

“Enthusiasm for the AUD (and NZD) is high as markets look to fade USD strength, with the prospect of an unwind of last year’s extraordinary gains in the USD (which we see as around 10% rich to fair value in DXY terms) high on investors’ minds.”

“Data will again be key this week if it is to be a USD fade that helps the Kiwi along, with US CPI data out in the wee hours of Thursday morning NZ time.”

“Support 0.5750/0.5900/0.6085 Resistance 0.6365/0.6540”

European Central Bank (ECB) policymaker Martins Kazaks warned on Tuesday, “rate-hiking may not be finished in July.

Additional quotes

“Bets on spring 2024 ECB 'significantly premature'.”

“It's not impossible for the ECB to hike or pause as the fed cuts.”

Market reaction

The hawkish comments from Kazaks fail to impress Euro bulls, as EUR/USD is falling 0.17% on the day to trade at 1.0985, as of writing.

Difficult environment for the US Dollar, in the view of economists at Commerzbank.

Quiet start to the week

“In the run-up to the US inflation data, due for publication tomorrow, trade at the start of the week was rather quiet, today too is unlikely to provide any momentum on the data front.”

“Generally speaking, the environment for USD remains tricky. The market continues to expect imminent rate cuts and the inflation data tomorrow is unlikely to change this expectation.”

“As the data side of things has little to offer today, focus is likely to be on the news flow. Tomorrow at the latest the FX market is likely to become a little livelier again.”

• GBP/USD picks up bids to reverse the previous day’s pullback from the highest levels since April 2022.
• UK inflation woes, Brexit optimism supersede Britain’s political disappointment to allow Cable buyers to retake control.
• US Dollar fails to cheer upbeat yields amid debt-ceiling woes, banking turmoil.
• White House talks on US debt ceiling expiration will be the key ahead of US, UK data, BoE.

GBP/USD renews its intraday high near 1.2635 as it reverses the previous day’s corrective pullback from the multi-month top heading into Tuesday’s London open.

The Cable pair buyers took a breather amid the UK holiday on Monday, which in turn portrayed the quote’s retreat from the highest levels since April 2022. However, fresh optimism surrounding the Bank of England’s (BoE) optimism, coupled with the US Dollar’s failure to defend the latest gains, recall the Pound Sterling buyers.

In doing so, the quote ignores recently printed downbeat prints of the UK Halifax House Prices for April, down to -0.3% versus 0.2% market forecasts and 0.8% previous readings.

Elsewhere, The Guardian reports upbeat Brexit news and allows the GBP/USD to remain firmer. “EU leaders have signaled their desire to reset relations with the UK, seven turbulent years on from the seismic Brexit vote.”

On the same line is the Financial Times (FT) news saying, “The Bank of England (BoE) is set to raise interest rates to their highest level since 2008 on Thursday in the wake of official data last month that showed inflation remained stubbornly high.”

It should be noted that the political disappointment for the ruling Conservative Party in the UK’s local elections and the US Dollar’s corrective bounce amid firmer US Treasury bond yields challenge the GBP/USD bulls ahead of the key BoE and the US inflation numbers.

Before that, US President Joe Biden can propel the market moves as he braces to confront Republican House Speaker Kevin McCarthy, Republican Senate Minority Leader Mitch McConnell and top congressional Democrats at the White House on Tuesday for a debt-ceiling extension.

Should the US policymakers surprise markets with the positive outcome and a deal to avoid the US default, the recently upbeat US inflation expectations may help the GBP/USD pair to pare its latest gains near the multi-month high.

Technical analysis

GBP/USD retreats from the 78.6% Fibonacci Expansion (FE) of its moves from April 03 to May 02 amid the overbought RSI (14) conditions. The same joins the quote’s inability to provide a daily closing beyond May 2022 peak surrounding 1.2665 to prod the Cable buyers.

International Monetary Fund (IMF) Chief Economist Pierre-Olivier Gourinchas said on Tuesday, “we are a bit concerned about recent banking sector turbulence.”

“So far authorities have been able to react quickly to banking sector turbulence, but we are not at the end of the story,” Gourinchas added.

Market reaction

The US Dollar Index is little changed on the above comments, keeping its range play intact at around 101.50 so far this Tuesday.

• NZD/USD pulls back from over a one-month high touched on Monday, though lacks follow-through.
• The overnight rise in the US bond yields underpins the USD and acts as a headwind for the major.
• The Fed’s less hawkish outlook could cap the USD and lend support to the pair ahead of the US CPI.

The NZD/USD pair edges lower on Tuesday and for now, seems to have snapped a five-day winning streak to over a one-month high touched the previous day. The pair remains on the defensive through the early European session and is currently placed around the 0.6335-0.6330 region, though any meaningful downfall still seems elusive.

The overnight sharp rally in the US Treasury bond yields continues to lend some support to the US Dollar (USD), which, in turn, is seen as a key factor acting as a headwind for the NZD/USD pair. The Federal Reserve's (Fed) quarterly Senior Loan Officer Opinion Survey (SLOOS) released on Monday showed that tightening credit conditions for US businesses and households was due to the aggressive rate hikes rather than severe banking sector stress. This, in turn, fueled hopes that the US banking sector is not headed for a wider crisis and pushed the US bond yields higher.

The upside for the USD, however, remains capped in the wake of a less hawkish stance adopted by the Fed. It is worth recalling that the US central bank last week outlined a more stringent, data-driven approach to raising rates further and opened the door for an imminent pause in its year-long rate-hiking cycle. Moreover, the markets have also started pricing in the possibility that the Fed will begin cutting rates in the second half of this year. This, along with expectations for further rate hikes by the Reserve Bank of New Zealand (RBNZ), should limit losses for the NZD/USD pair.

Traders might also refrain from placing aggressive bets and prefer to wait for the release of the latest US consumer inflation figures on Wednesday. The crucial US CPI report will influence market expectations about the Fed's next policy move, which, in turn, will play a key role in driving the near-term USD demand and help determine the next leg of a directional move for the NZD/USD pair. In the meantime, traders on Tuesday will take cues from a scheduled speech by New York Fed President John Williams in the absence of any relevant macroeconomic releases from the US.

Technical levels to watch

FX option expiries for May 9 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.1025 628m
• 1.1115 581m
• 1.1200 550m

- GBP/USD: GBP amounts     

• 1.2550 404m

- USD/JPY: USD amounts                     

• 133.00 1.12b
• 135.00 684m

- AUD/USD: AUD amounts

• 0.6750 422m
• 0.6695 329m

- USD/CAD: USD amounts       

• 1.3430 507m
• 1.3500 400m

- NZD/USD: NZD amounts

• 0.6200 533m

- EUR/GBP: EUR amounts        

• 0.8850 453m

• USD/CHF stays pressured after reversing from one-week high the previous day.
• Failure to cross 100-EMA, easing bullish bias of MACD lures Swiss Franc buyers inside bearish megaphone formation.
• Two-month-old previous resistance line lures intraday sellers; bulls need 200-EMA breakout to convince markets.

USD/CHF remains depressed below 0.8900, down for the second consecutive day, as it retreats from the 200-EMA hurdle heading into Tuesday’s European session.

Apart from taking a U-turn from the 200-Exponential Moving Average (EMA), the easing bullish bias of the MACD and the pair’s sustained trading within a three-week-old bearish megaphone trend-widening chart pattern also keeps the USD/CHF sellers hopeful.

That said, the Swiss Franc (CHF) pair bears may initially aim for the previous resistance line from March 08, now immediate support near 0.8840.

Following that, the stated megaphone’s bottom line, around 0.8810 at the latest, quickly followed by the 0.8800 round figure, can test the USD/CHF bears.

On the flip side, USD/CHF pair’s rebound can challenge the 100-EMA hurdle of surrounding 0.8930.

In a case where the Swiss Franc (CHF) sellers manage to keep the reins past 0.8930, the stated megaphone’s top line and the 200-EMA, respectively near 0.8980 and the 0.9000 round figure, can act as the last defense of the USD/CHF bears.

Should the USD/CHF buyers manage to hold the line after 0.9000, the mid-March low and the previous monthly high, around 0.9070 and 0.9200 in that order, should gain their attention.

Overall, USD/CHF is likely to remain pressured but the downside room appears limited.

USD/CHF: Four-hour chart

Trend: Further downside expected

Economists at Commerzbank expect CNY to appreciate modestly against USD in the second half given the expected softening of the Dollar, but the outlook is highly uncertain.

CNY will likely depreciate against EUR

“We expect CNY to appreciate modestly against USD in H2 given the expected softening of the Dollar. This is largely based on the assumption that China’s economic recovery will remain at a decent pace and in line with what market expects, especially for H2.”

“However, the outlook for USD/CNY is largely uncertain. In contrast to our baseline forecast which sees it moving lower, it could instead rise towards 7 or beyond in H2.”

“EUR/CNY will likely move upward. The currency pair should benefit from the further tightening of ECB monetary policy for the time being.”

Source: Commerzbank Research

In the opinion of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, a potential test of 1.2720 in GBP/USD could run out of steam if 1.2540 is breached.

Key Quotes

24-hour view: “We highlighted yesterday that ‘while upward momentum has waned somewhat, there is room for GBP to test 1.2665 before the risk of a pullback increases’. We added, ‘The next resistance at 1.2720 is not expected to come under threat’. Our view turned out to be correct as GBP rose to 1.2668 and then pulled back. The pullback could extend but we view any decline as a lower range of 1.2575/1.2655. In other words, GBP is unlikely drop below 1.2575 in a sustained manner.”

Next 1-3 weeks: “Last Friday (05 May, spot at 1.2575), we highlighted that GBP ‘is likely to ratchet higher towards the major resistance at 1.2665’. Yesterday (08 May, spot at 1.2630), we indicated that ‘upward momentum is improving and GBP could break above 1.2665’ and ‘the next resistance above 1.2665 is at 1.2720’. GBP rose to a high of 1.2668 in London trade before pulling back. Overbought short-term conditions suggest GBP could stay below 1.2668 for 1-2 days. Overall, only a breach of 1.2540 (no change in ‘strong support’ level from yesterday) would indicate that 1.2720 is out of reach this time around.”

• USD/JPY is eyeing an immediate support near 135.00 as uncertainty over US inflation data would keep USD Index underpinned.
•  US President Joe Biden has invited some top Republican leaders to approve higher relocation for the debt ceiling.
• BoJ Ueda believes that the impact of recent US and European bank failures on Japan's financial system is likely limited.

The USD/JPY pair is looking for a cushion after dropping below the crucial support of 135.00 in the early European session. The major is aiming for a recovery as uncertainty over the United States inflation is accelerating. The US Dollar Index (DXY) has remained sideways in the Asian session and is entering on the same course in Europe ahead of US Consumer Price Index (CPI) data and debt ceiling negotiations.

S&P500 futures have continued their choppy performance in early London as investors have sidelined, portraying a quiet market mood. The outcome of the US debt ceiling talks is expected to bring a power-pack action for US equities.

US President Joe Biden has invited some top Republican leaders and other congressional diplomats to approve higher relocation for the debt ceiling to avoid further delay as it could severely damage the US economy. US Treasury Secretary has already warned that a delay in the debt ceiling raise approval approval Republican House of Representatives Speaker Kevin McCarthy is expected to negotiate heavily on spending initiatives to cut the deepening Budget deficit.

Meanwhile, the US yields have dropped as unfavorable debt ceiling deal would impact the long-term outlook of the US economy. The 10-year US Treasury yields have dropped below 3.5% amid a rebound in demand for government bonds.

On the Japanese Yen front, new Bank of Japan (BoJ) Governor Kazuo Ueda said on Tuesday, “The impact of recent US and European bank failures on Japan's financial system is likely limited.” About inflation guidance, BoJ Ueda cited Japan's inflation expectations have heightened, and remain at elevated levels.

• USD/MXN struggles to defend the previous day’s rebound from the lowest levels since September 2017.
• Cautious markets ahead of the key debt-ceiling talks, US and Mexican inflation prod pair buyers.
• Fears of US, unimpressive Fed bank survey keeps Mexican Peso bulls hopeful.

USD/MXN remains sluggish around 17.80 as it barely defends the previous day’s corrective bounce off the lowest levels since September 2017 amid mixed sentiment during early Tuesday in Europe.

Global markets have been dicey of late as uninspiring details of the Fed bank loan survey details joined looming fears of the US default. The US Dollar, however, fails to benefit from the downbeat sentiment as yields dribble after the three-day uptrend whereas the US data has been mixed of late.

Above all, the divergence in monetary policy bias between the US Federal Reserve (Fed) and Banxico keeps the USD/MXN bears hopeful. Recently, Chicago Federal Reserve Bank President Austan Goolsbee appeared less hawkish while highlighting the data dependency. The same prods the US Dollar bulls after Friday’s mixed US NFP details even as the US inflation expectations have been firmer of late.

That said, US Treasury Secretary Janet Yellen raised fears of the US defaults "catastrophic" impact and exerted more pressure on the policymakers as US President Joe Biden braces to confront Republican House Speaker Kevin McCarthy, Republican Senate Minority Leader Mitch McConnell and top congressional Democrats at the White House on Tuesday.

Against this backdrop, S&P 500 Futures remain indecisive near 4,150 while the US Treasury bond yields prod a three-day winning streak.

Looking forward, Mexico’s 12-month Inflation, Core Inflation and Headline Inflation for April can offer immediate directions to the USD/MXN pair. That said, downbeat expectations may allow the Mexican Peso (MXN) pair to extend Monday’s recovery. However, major attention will be given to the US debt-ceiling talks ahead of Wednesday’s Consumer Price Index (CPI).

Given the wide differences among the US policymakers on the issue, as well as disappointment from the US NFP, the likely indecision and burden on the US Dollar can’t be ruled out.

Technical analysis

Unless providing a daily close beyond a two-month-old previous support line, now resistance around 17.95, the USD/MXN bulls remain off the table.

• The index adds to Monday’s gains and approaches 101.50.
• Fed’s report warned that an economic slowdown is not ruled out.
• NFIB Index, IBD/TIPP Index, Fedspeak next on tap in the docket.

The greenback, in terms of the USD Index (DXY), extends the optimism seen at the beginning of the week and revisits the 101.50 region on Tuesday.

USD Index looks bid ahead of US CPI

The index keeps the upbeat mood well in place in the first half of the week and hovers around the mid-101.00s ahead of the opening bell in the old continent on turnaround Tuesday.

The dollar, in the meantime, appears somewhat firmer on the back of steady cautiousness ahead of the release of key US inflation figures on May 10, while US yields appear marginally on the defensive.

In the meantime, the US Dollar seems to have found some support after a Federal Reserve’s report published late on Monday on the banking sector warned that lenders could reduce loans in response to rising concerns about slower growth, which could eventually underpin the idea that an economic slowdown could be in the offing.

In the docket, secondary tier data will see the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism index as well as speeches by FOMC’s P. Jefferson (permanent voter, centrist) and NY Fed J. Williams (permanent voter, centrist).

What to look for around USD

The index probes the 101.50 area amidst a small pick-up in the risk-off sentiment in the first half of the week.

The index seems to be facing downward pressure in light of the recent indication that the Fed will probably pause its normalization process in the near future. That said, the future direction of monetary policy will be determined by the performance of key fundamentals (employment and prices mainly).

Favouring an impasse by the Fed appears the persevering disinflation – despite consumer prices remain well above the target – incipient cracks in the labour market, the loss of momentum in the economy and rising uncertainty surrounding the US banking sector.

Key events in the US this week: MBA Mortgage Applications, Inflation Rate, Monthly Budget Statement (Wednesday) – Producer Prices, Jobless Claims (Thursday) – Flash Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is up 0.04% at 101.42 and the break above 102.40 (monthly high May 2) would open the door to 102.80 (weekly high April 10) and then 103.05 (monthly high April 3). On the other hand, initial contention emerges at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level).

• Asian stocks have shown strength as uncertainty over the US debt ceiling has improved appeal for Asian markets.
• Chinese equities are accelerating after the release of better-than-anticipated Trade Balance data.
• Fears of bleak oil demand outlook could renew if US inflation continues to remain persistent.

Markets in the Asian domain are showing immense strength as uncertainty over the United States' economic outlook due to the debt ceiling crisis has improved the outlook for the largest continent’s appeal. Uncertainty over the US debt-ceiling issues kept S&P500 choppy on Monday.

The US Dollar Index (DXY) has sensed capped upside after a sharp recovery to near 101.52. The USD Index could add more gains as the Federal Reserve (Fed) is expected to keep interest rates higher for a longer period as labor market conditions are showing resilience amid solid demand for manpower.

At the press time, Japan’s Nikkei225 jumped almost 1%, China50 climbed 0.77%, Nifty50 gained 0.43% and Hang Seng dropped 0.40%.

Japanese stocks are outperforming other Asian markets as annual Labor Cash Earnings (March) have soared sharply. The economic data landed at 0.8%, matched expectations but remained below the former pace of 1.1%. A slower earnings growth indicates that domestic demand will get spurted as households won’t shy from increasing spending for core goods.

Chinese equities are accelerating after the release of better-than-anticipated Trade Balance data. The Trade Balance report indicates that domestic demand is still shy of recovery despite monetary and fiscal support from the administration. Also, export figures have beaten expectations but a slower growth against the prior pace is indicating a challenging outlook for the economy.

On the oil front, oil prices have turned sideways below $73.00 ahead of the US inflation data. Fears of bleak oil demand outlook could renew if US inflation continues to remain persistent.

• WTI crude oil struggles to defend latest gains around one-week high.
• Two-week-old descending resistance line, bearish MACD signals favor Oil sellers.
• Buyers need validation from $77.00 to retake control.

WTI crude oil retreats to $72.80, easing from a one-week high, as the short-term key resistance line teases the commodity sellers early Tuesday. Apart from the failure to cross an immediate trend line resistance, bearish MACD signals also weigh on the WTI crude oil price.

However, the 200-Hour Moving Average (HMA) surrounding $72.60 appears a tough nut to crack for the Oil sellers to take fresh entries.

Following that, the 50% Fibonacci retracement level of April 24 to May 03 downside, near $71.70 at the latest, could restrict the quote’s further downside.

It’s worth noting that, the $70.00, $69.40 and $67.30 are additional downside filters before directing the WTI bears towards the multi-month low marked the last week around $64.30.

Meanwhile, an upside clearance of the aforementioned resistance line, close to $73.10 by the press time, isn’t an open welcome to the Oil buyers as the previous support line from the last Thursday, near $73.70, acts as an extra check for the bulls.

Even if the energy benchmark remains firmer past $73.70, a horizontal area comprising levels marked since April 24, near $76.80-90, quickly followed by the $77.00 round figure, can challenge the black gold’s further upside.

Overall, Oil price fades the previous day’s recovery but the bears have a long and bumpy road ahead.

WTI: Hourly chart

Trend: Bearish

Considering advanced prints from CME Group for gold futures markets, open interest resumed the upside and went up by around 6.2K contracts on Monday, this time by around 6.2K contracts. Volume, instead, shrank for the second session in a row, now by around 90.7K contracts.

Gold: The hunt for $2070

Gold prices started the week on a positive foot and revisited the $2020 region. The uptick was amidst rising open interest, which suggests that extra gains appear favourable in the very near term. Against that, the next target of note for bulls remains at the 2023 high at $2067 (May 4).

• USD/INR has added significant gains amid a strong recovery in the USD Index ahead of US inflation.
• The Fed is expected to keep interest rates higher for a longer period to continue to weigh on stubborn US inflation.
• USD/INR has attempted a confident breakout of the consolidation formed in an 81.64-81.95 range.

The USD/INR pair has shown a perpendicular run after opening towards the critical resistance of 82.00 in the Asian session. The major has witnessed a significant buying interest as investors have discounted overnight gains in the US Dollar Index (DXY) propelled amid uncertainty over the release of the United States inflation data, which will release on Wednesday.

The USD Index has shown a mild correction after a firmer recovery to near 101.50. Investors have pumped funds into the USD Index as the Federal Reserve (Fed) is expected to keep interest rates higher for a longer period as US inflation is critically stubborn.

On the Indian Rupee front, global credit rating firm Fitch has affirmed India's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB-' with a stable outlook. Global rating firm is confident about the resilient outlook, being an attractive destination for FDIs and FIIs.

USD/INR has attempted a confident breakout of the consolidation formed in an 81.64-81.95 range on a two-hour scale. A breakout of the Darvas Box results in wider ticks and heavy volume due to an expansion in volatility.

The 20-period Exponential Moving Average (EMA) at 81.78 is providing a cushion to the US Dollar bulls.

Meanwhile, the Relative Strength Index (RSI) (14) has climbed into the bullish range of 60.00-80.00, solidifying more upside ahead.

USD/INR can be bought at the current price for an upside toward April 26 high at 82.12. A breach of April 26 high will result in more upside toward April 21 high at 82.30.

On the contrary, a breakdown of the consolidation range below 81.60 will expose the asset to April 14 low at 81.50 followed by 26 January low at 81.36.

USD/INR two-hour chart

UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang suggest the upside momentum in EUR/USD is expected to lose traction below 1.0940.

Key Quotes

24-hour view: “EUR traded between 1.0998 and 1.1053 yesterday, narrower than our expected range of 1.0980/1.1060. The underlying tone has softened somewhat and EUR is likely to edge lower today. However, any decline is unlikely to break 1.0970. Resistance is at 1.1025, a breach of 1.1045 would indicate that the current mild downward pressure has eased.”

Next 1-3 weeks: “Our update from last Friday (05 May, spot at 1.1025) still stands. As highlighted, the bias for EUR appears to be tilted to the upside but unless there is a clear improvement in momentum, any advance might find it difficult to break above the major resistance at 1.1120. Note that there is another rather strong resistance level near 1.1095. If EUR were to break below 1.0940 (‘strong support’ level was at 1.0920 last Friday), it would suggest that it is not ready to move towards 1.1120.”

• USD/CAD fades bounce off three-week low amid sluggish markets.
• US Dollar struggles to defend recent gains, Oil price remains sidelined.
• Mixed sentiment about US debt-ceiling accord, banking turmoil prod Loonie pair traders.

USD/CAD renews intraday low near 1.3365 as it fails to defend the week-start rebound amid sluggish markets during early Tuesday. Adding strength to the Loonie pair’s pullback moves could be the US Dollar’s struggle to defend the previous gains amid a cautious mood ahead of the key US debt-ceiling talks in the White House. It’s worth observing that mildly bid WTI crude oil, Canada’s key exports, also allows the quote to lure bears.

That said, the US Dollar Index (DXY) retreats to 101.42 while consolidating intraday gains amid unimpressive details of the Federal Reserve’s (Fed) quarterly bank loan survey. Even so, upbeat US inflation expectations, per 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data, join fears of gloomy conditions if the US fails to extend the debt ceiling to put a floor under the greenback.

WTI crude oil clings to mild gains near $73.00, up for the fourth consecutive day, as fears of recession jostle with cautious optimism as major Asian nations open international borders. Furthermore, the easing fears of the bank crisis and the US Dollar’s inability to regain upside traction also allow the Oil price to grind higher.

Amid these plays, S&P 500 Futures remain indecisive near 4,150 while the US Treasury bond yields prod a three-day winning streak.

Moving on, a light calendar and cautious mood ahead of the top-tier data/events can keep restricting the USD/CAD moves. That said, today’s White House talks on altering the debt ceiling expiration, currently looming around June, will be crucial to determine short-term market moves. Given the wide differences among the US policymakers on the issue, the likely indecision and burden on the US Dollar can’t be ruled out. However, Wednesday’s likely upbeat US inflation numbers for April may defend the Loonie buyers, unless the dovish Fed concerns weigh on the quote while other things remain the same.

Technical analysis

Despite the latest retreat in the USD/CAD prices, Monday’s bullish candlestick formation and a corrective bounce off an upward-sloping support line from November 2022 keep the buyers hopeful.

Also read: USD/CAD Price Analysis: Justifies Dragonfly Doji candlestick to bounce off key support line towards 1.3400

• USD/CNH has dropped from 6.9300 amid the release of the better-than-projected Chinese Trade Balance data.
• China’s Trade Balance report indicated that domestic demand is not showing signs of recovery.
• Credit distribution figures by US banks have started declining due to weaker demand and tight credit conditions.

The USD/CNH has dropped from 6.9300 after the release of the better-than-anticipated China Trade Balance data. China’s National Bureau of Statistics (NBS) has reported a bigger-than-expected growth in the trade surplus as imports slump in the reported period.

Trade Balance (in $ terms) came in at +90.21B versus +71.6B as expected and +88.19B recorded previously. The exports jumped by another 8.5% in the reported period vs. the 8.0% expected but lower than the prior acceleration pace of 14.8%. However, the country’s imports fell by 7.9% while the street was anticipating a stagnant performance. In the prior period, imports dropped by 1.4%.

Scrutiny of China’s Trade Balance report indicates that domestic demand is not showing signs of recovery despite monetary and fiscal support from the administration. No doubt, export figures have beaten expectations but a slower growth against the prior pace is indicating a challenging outlook for the economy. This week, Financial Times reported that the European Union is planning sanctions on Chinese firms for supporting Russia's war on Ukraine. An occurrence of the same could weigh some burden on China’s exports ahead.

Upside pressure in the USD/CNH pair has also been fueled by a mild correction in the US Dollar Index (DXY). The USD Index is struggling in extending its recovery above 101.50 amid soaring uncertainty over US Consumer Price Index (CPI) data, which will release on Wednesday.

A steady US inflation report is expected to keep expectations of a pause by the Federal Reserve (Fed) intact as credit disbursement figures by US commercial banks have started declining due to weaker demand and tight credit conditions.

• EUR/USD has tested waters below 1.1000 as the USD Index is eyeing more upside.
• The Eurozone economy is swiftly approaching recession as retail demand is consistently declining.
• EUR/USD is showing signs of a significant loss in the upside momentum after refreshing its annual high at 1.1096.

The EUR/USD pair has checked territory below the psychological support of 1.1000 in the Tokyo session. The major currency pair is expected to display more weakness as the US Dollar Index (DXY) is eyeing more upside above the immediate resistance of 101.50 ahead of the US inflation data.

As per the preliminary report, the US inflation is expected to remain steady. It seems that lower credit from commercial banks due to weak demand and tight credit conditions has been offset by higher households' earnings.

Meanwhile, the Eurozone economy is swiftly approaching recession as retail demand is consistently declining and the growth rate has been squeezed sharply led by higher interest rates from the European Central Bank (ECB).

EUR/USD is showing signs of a significant loss in the upside momentum after refreshing its annual high at 1.1096. The shared currency pair is struggling to maintain an auction above the horizontal resistance plotted from February 02 high at 1.1033. The 20-period Exponential Moving Average (EMA) at 1.0983 is providing a cushion to the Euro.

An oscillation in the 40.00-60.00 range by the Relative Strength Index (RSI) (14) in indicating a lackluster performance ahead.

Should the asset break below May 02 low at 1.0942, a downside move by the US Dollar will drag the asset towards April 12 low at 1.0915 and April 10 low at 1.0837.

Alternatively, a recovery move above April 26 high at 1.1095 will drive the asset toward a fresh 13-month high at 1.1185 followed by the round-level resistance at 1.1200.

EUR/USD daily chart

• Gold price prints mild gains to pare Friday’s heavy losses during two-day rebound.
• Market sentiment remains dicey amid unimpressive Fed bank survey details.
• Cautious mood ahead of US debt ceiling talks, mixed Fed talks keep XAU/USD traders on their toes.

Gold price (XAU/USD) edges higher past $2,000 round figure as it consolidates Friday’s heavy losses during a two-day uptrend to early Tuesday, up 0.12% intraday near $2,023 by the press time.

In doing so, the yellow metal benefits from the market’s cautious mood ahead of the US negotiations on avoiding the default. However, the recent rebound in the US Dollar and the Treasury bond yields, as well as inflation expectations, prod the XAU/USD buyers amid a sluggish session.

US Dollar Index (DXY) defends the previous day’s rebound near 101.50 amid firmer signals from the US inflation expectations per 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data. Also favoring the greenback’s gauge could be the market’s fears fuelled by comments from US Treasury Secretary Janet Yellen’s actions. Reuters shares news suggesting US Treasury Secretary Janet Yellen’s personal reaching out to business and financial leaders to explain the "catastrophic" impact a US default on its debt would have on the U.S. and global economies, two sources familiar with the matter said on Monday.

On the contrary, unimpressive details of the Federal Reserve’s (Fed) quarterly bank loan survey, showed tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms, as well as small firms, over the first quarter, seem to prod the XAU/USD traders.

As a result, S&P 500 Futures struggle for clear directions despite posting mild losses around 4,150 whereas the US 10-year and two-year Treasury bond yields struggle to extend the three-day uptrend during early Tuesday.

Looking forward, a light calendar may allow the Gold price to grind higher ahead of the key debt-ceiling talks in the White House. Any negative outcome, which is more likely, can weigh on the US Dollar and propel the XAU/USD.

Gold Price technical analysis

Gold price grinds higher within a $20 trading range comprising the 100-Hour Moving Average (HMA) and the 200-HMA, respectively near $2,030 and $2,010.

Adding strength to the upside filter is a one-week-old horizontal resistance zone while an upward-sloping trend line from the last Tuesday increases the strength of the $2,010 support confluence.

That said, sluggish MACD signals and steady RSI (14) suggest the continuation of the XAU/USD’s slower grind towards the north.

It’s worth noting that $2,060 holds the key for the Gold price rally towards refreshing the all-time high, currently around $2,080, whereas the $2,000 psychological magnet acts as an additional downside filter to watch for the XAU/USD bears before taking control.

Gold Price: Hourly chart

Trend: Gradual upside expected

• AUD/USD remains pressured around intraday low during the first loss-making day in seven.
• China Trade Balance improves in USD terms, eases per CNY rates while Exports, Imports both drop in April.
• Sour sentiment, firmer yields underpin US Dollar’s corrective bounce ahead of the key debt ceiling talks.
• Australia’s annual budget, up for publishing around 09:30 AM GMT, eyed for immediate directions.

AUD/USD holds lower grounds near 0.6775, extending pullback from intraday high during the first daily loss in seven amid early Tuesday. In doing so, the Aussie pair justifies mostly downbeat China trade numbers for April, as well as softer Aussie Retail Sales figures, amid sour sentiment.

China’s headlines Trade Balance rose to $90.21B in April versus $71.6B expected and $88.19B prior while the CNY figures eased to 618.44B compared to 637.16B market forecasts and 601.01B prior. It’s worth noting, however, that the Exports and Imports declined in the said month on both the USD and Chinese Yuan (CNY) terms.

Also read: China’s April Trade Balance: Surplus expands amid another exports surge

Earlier in the day, Australia’s first quarter (Q1) Retail Sales shrank 0.6% versus -0.4% market forecasts and -0.2% prior readings while Westpac Consumer Confidence for May slumps to -1.7% versus 9.4% prior and weighed n the AUD/USD prices.

Apart from the downbeat data from Australia and its biggest customer, AUD/USD also bears the burden of the cautious mood ahead of the key Australia annual budget and the debt ceiling talks.

That said, US President Joe Biden braces to confront Republican House Speaker Kevin McCarthy, Republican Senate Minority Leader Mitch McConnell and top congressional Democrats at the White House on Tuesday. Ahead of the meeting, Reuters shares news suggesting US Treasury Secretary Janet Yellen’s personal reaching out to business and financial leaders to explain the "catastrophic" impact a US default on its debt would have on the U.S. and global economies, two sources familiar with the matter said on Monday.

On a different page, the Federal Reserve’s (Fed) quarterly bank loan survey showed tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms, as well as small firms, over the first quarter.

While portraying the mood, S&P 500 Futures print mild losses around 4,150, the first in three, whereas the US 10-year and two-year Treasury bond yields struggle to extend the three-day uptrend during early Tuesday.

Additionally weighing on the AUD/USD price could be an improvement in the US inflation expectations as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data.

Against this backdrop, S&P 500 Futures print mild losses around 4,150, the first in three, whereas the US 10-year and two-year Treasury bond yields struggle to extend the three-day uptrend during early Tuesday.

Looking forward, hopes of witnessing the first Aussie budget surplus in many years and upbeat measures to favor the taxpayers seem to put a floor under the AUD/USD prices. However, any disappointment won’t be taken lightly amid downbeat market sentiment ahead of the US debt ceiling talks and the US inflation data.

Technical analysis

The 100-DMA hurdle of around 0.6790 joins the nearly overbought RSI (14) line on the daily chart to challenge the AUD/USD bulls. Adding strength to the upside filters is the horizontal area comprising levels marked since mid-February, around 0.6800.

• GBP/USD is building a base for a recovery move after correction to near 1.2600.
• The risk profile is cautionary ahead of US debt ceiling negotiations between the White House and top Republican leaders.
• As the Fed is expected to hit a pause ahead, an interest rate hike by the BoE will trim the Fed-BoE policy divergence.

The GBP/USD pair is building a cushion near the round-level support of 1.2600 in the Asian session after a steep correction. The Cable has defended further downside as the US Dollar Index (DXY) is failing to stretch its upside journey after a north-side move to near 101.50.

S&P500 futures are showing nominal losses in Asia, portraying a cautionary risk profile ahead of negotiations for the US debt ceiling by the White House with top Republican leaders. The US Dollar index (DXY) is showing signs of volatility contraction as negotiations for a debt ceiling raise are expected to be heated as Republicans are expected not to approve the deal unless big cuts in President’s spending initiatives are promised by US President Joe Biden.

Apart from that, the US Dollar will remain in action ahead of the release of Wednesday’s Consumer Price Index (CPI) data (April). The street is anticipating a steady inflation report. Meanwhile, Senior Loan Officer Opinion Survey on Bank Lending Practices for April reported that credit demand has weakened and commercial banks have tightened their standards, as reported by the Federal Reserve (Fed). The context is expected to soften inflation further and would cool down tight labor market conditions.

On the Pound Sterling front, the Bank of England (BoE) is expected to continue its policy-tightening regime further as labor shortages and higher food inflation are keeping the United Kingdom’s inflation steadily in double-digit territory. The 12^th consecutive interest rate hike by BoE Governor Andrew Bailey, which is expected by 25 basis points (bps), will push interest rates to 4.50%. As the Fed is expected to hit a pause ahead, an interest rate hike by the BoE will trim the Fed-BoE policy divergence.

China's Trade Balance for April, in Chinese Yuan terms, came in at CNY618.44 billion versus CNY637.16 billion expected and CNY601.01 billion last.

The exports jumped by another 16.8% in the reported period vs. 10.5% expected and 23.4% previous.

The country’s imports fell by 0.8% vs. 6.1% prior. The market forecast was for a 4.2% increase.

In US Dollar terms,

China reported a bigger-than-expected growth in the trade surplus as imports slump in the reported period.

Trade Balance came in at +90.21B versus +71.6B expected and +88.19B previous.

Exports (YoY): 8.5% vs. 8.0% exp. and 14.8% prior.

Imports (YoY): -7.9% vs. 0% exp. and -1.4% last.

FX implications

AUD/USD is holding the lower ground on mixed Chinese trade figures. The spot is down 0.05% on the day, trading at 0.6778 as of writing.

• USD/JPY fails to defend two-day uptrend as 200-HMA prods buyers.
• Convergence of 100-HMA, two-week-old ascending trend line restricts short-term Yen downside.
• Steady RSI suggests continuation of slower grind towards the north.
• Bears have a bumpy road towards the south with 133.50 acting as immediate key support.

USD/JPY pares intraday gains around 135.10-05 during early Tuesday, pausing a two-day winning streak. In doing so, the Yen pair retreats from the 200-Hour Moving Average (HMA).

Also read: USD/JPY bulls cross 135.00 as BoJ’s Ueda defends monetary policy inaction, yields rise

In addition to a pullback from the 200-HMA, the steady RSI (14) line also favors the short-term weakness in the Yen pair prices. However, a convergence of the 100-HMA and a fortnight-old ascending trend line, close to 134.75 by the press time.

In a case where the USD/JPY bears manage to conquer the 137.75 key support, the previous weekly low of around 133.50 holds the key to the Yen pair’s slump toward the April month’s bottom of around 130.65.

Alternatively, a clear upside break of the 200-HMA, around 135.35 at the latest, has fewer hurdles toward the north unless the quote hits the 136.00 round figure.

Following that, multiple tops around the 137.90-138.00 area will be crucial to watch for the USD/JPY pair buyers as a sustained break of the same won’t hesitate to prod the 140.00 psychological magnet.

Overall, USD/JPY remains on the buyer’s radar even if a short-term pullback appears more likely.

USD/JPY: Hourly chart

Trend: Further recovery expected

• Market sentiment remains dicey as traders await key data/events after witnessing unimpressive Fed bank survey details.
• S&P500 Futures print mild loss to snap two-day uptrend, yields struggle to defend latest run-up.
• Upbeat US inflation expectations, US Treasury Secretary Yellen’s fears of defaulting prod market optimists.
• Return of full markets can entertain traders ahead of US debt-ceiling talks, inflation data.

The risk profile dwindles during early Tuesday as market players await the key US debt-ceiling talks amid recently escalating fears of the US default. Additionally challenging the market optimism are unimpressive comments from Chicago Federal Reserve Bank President Austan Goolsbee and the Federal Reserve’s (Fed) quarterly bank loan survey. It’s worth noting, however, US Treasury Secretary Janet Yellen's fears of the US missing the bond payments on June 01 and the US-China tension also spoil the mood.

Amid these plays, S&P 500 Futures print mild losses around 4,150, the first in three, whereas the US 10-year and two-year Treasury bond yields struggle to extend the three-day uptrend during early Tuesday.

US President Joe Biden braces to confront Republican House Speaker Kevin McCarthy, Republican Senate Minority Leader Mitch McConnell and top congressional Democrats at the White House on Tuesday. Ahead of the meeting, Reuters shares news suggesting US Treasury Secretary Janet Yellen’s personal reaching out to business and financial leaders to explain the "catastrophic" impact a US default on its debt would have on the U.S. and global economies, two sources familiar with the matter said on Monday.

Elsewhere, the Federal Reserve’s (Fed) quarterly bank loan survey showed tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms, as well as small firms, over the first quarter.

It should be noted that Fed’s Goolsbee said, “It is too early to say what the next policy move will be,” while explaining that there were a lot of uncertainties regarding the impact of credit tightening on the economy.

Additionally weighing on the market sentiment could be an improvement in the US inflation expectations as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data.

Amid these plays, markets remain dicey but the US Dollar Index (DXY) grinds higher. Even so, prices of the Gold and WTI crude oil remain mildly bid by the press time.

Moving on, debt ceiling talks and central bankers’ comments may entertain traders amid a light calendar ahead of Wednesday’s US Consumer Price Index (CPI) for April.

Also read: Forex Today: AUD and NZD continue to outperform, while USD gets support from Treasury yields

• Natural Gas price drops for the first time in three days, retreats from one-week high.
• 21-DMA prods XNG/USD bulls but steady RSI (14), clear break of 10-DMA favor energy buyers.
• Multi-day-old resistance lines stand tall to challenge Natural Gas buyers; five-week-old descending trend line is the key support.

Natural Gas (XNG/USD) price struggles to extend the latest rebound, printing mild losses near $2.34 amid early Tuesday.

With this, the 21-DMA seems to cap the energy instrument’s immediate upside amid a steady RSI (14). However, a daily closing beyond the 10-DMA, the first in seven days, keeps the XNG/USD buyers hopeful.

Hence, the Natural Gas buyers may wait for a daily close beyond the 21-DMA hurdle of around $2.35 to initiate fresh long positions.

Even so, downward-sloping resistance lines from early March, around $2.42 and $2.54, can challenge the quote’s further upside.

Also acting as an upside filter for the XNG/USD price is the previous monthly high of around $2.58.

Should the Natural Gas price remains firmer past $2.58, the odds of witnessing a run-up toward the mid-March swing high of around $2.75 can’t be ruled out.

On the flip side, a daily closing below the 10-DMA support of $2.32 will prod the latest bullish bias about the XNG/USD price.

Following that, the $2.30 round figure and the latest swing low of around $2.14 can entertain the Natural Gas sellers. However, a five-week-old descending support line close to $2.07 and the $2.00 psychological magnet can challenge the XNG/USD bears afterward.

Overall, the Natural Gas price lures the buyers but the upside remains doubtful below $2.58.

Natural Gas Price: Daily chart

Trend: Limited upside expected

• NZD/USD starting to sink on the backside of the trend.
• 0.6320-00 eyed as a key support structure.

As per the prior analysis, NZD/USD Price Analysis: Bird flies into a critical juncture ahead of potentially high volatility, the Bird took flight as forecasted and reached a high of 0.6359 as the following will illustrate.

NZD/USD prior analysis

NZD/USD was testing a critical area of resistance ahead of the high volatility event in the Nonfarm Payrolls 0.6270s  and the 38.2% Fibonacci ratio and structural support were key in this regard:

NZD/USD updates

NZD/USD rallied as forecasted and took out the resistance.,

There are prospects of a move lower considering the price is breaking to the backside of the trend. 

NZD/USD H1 chart

Bank of Japan (BoJ) Governor Kazuo Ueda said on Tuesday, “the impact of recent US and European bank failures on Japan's financial system is likely limited.”

Additional quotes

Market reaction

At the time of writing, USD/JPY is trading modestly flat at around 135.15, as investors digest the above comments.

• AUD/USD has shown no action despite the release of the weaker-than-anticipated Australian Retail Sales data.
• Aussie Retail Sales have further contracted by 0.6% due to higher interest rates by the RBA.
• The overall ground for the USD index seems not supportive as the FOMC has confirmed that it will be more data-dependent.

The AUD/USD pair has continued its sideways auction around 0.6770 despite the Australian Bureau of Statistics having reported downbeat Retail Sales data for the first quarter of CY2023. The economic data has landed at -0.6% than the estimates of 0.4% and the former contraction of 0.2%.

A weaker-than-anticipated Retail demand would provide support to the Reserve Bank of Australia (RBA) for keeping interest rates steady ahead. Investors should be aware of the fact that RBA Governor Philip Lowe announced an unexpected interest rate hike by 25 basis points (bps) last week, which pushed the Official Cash Rate (OCR) to 3.85%.

Going forward, more volatility is anticipated from the Australian Dollar ahead of Australia’s budget release. Despite a projection of $78bln the 2022-23 bottom line reached surplus as announced by Australian Treasurer Jim Chalmers. Bloomberg reported that Chalmers has been preparing the ground for the surprise return to surplus by noting significant improvement in revenue from higher commodity prices, and lower unemployment.

Meanwhile, S&P500 futures have trimmed some losses, portraying a quiet market mood ahead of the US debt ceiling negotiations and Consumer Price Index (CPI) data. The US Dollar Index (DXY) has faced barricades while attempting to climb above the immediate resistance of 101.50.

The overall ground for the USD index seems not supportive as Federal Open Market Committee (FOMC) has confirmed that it will be more data-dependent. “The Fed made a significant change in the forward guidance as the prior tone, “the Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time” is replaced by “In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time.

• AUD/JPY retreats from one-week high, prods four-day winning streak after downbeat Aussie data.
• Australia’s Q1 Retail Sales drop to -0.6% QoQ versus -0.4% market forecasts and -0.2% prior.
• Japan’s Household Spending drops the most since March 2022, real wages also ease in March.
• BoJ Governor Ueda’s defense of easy money policy, upbeat yields also favor risk-barometer pair.

AUD/JPY bulls take a breather at the highest levels in a week, pausing a four-day uptrend around 91.60 by the press time, as downbeat Australia data weigh on the cross-currency pair during early Tuesday.

That said, Australia’s first quarter (Q1) Retail Sales shrank 0.6% versus -0.4% market forecasts and -0.2% prior readings. Earlier in the day, Westpac Consumer Confidence for May slumps to -1.7% versus 9.4% prior and weighed n the AUD/JPY prices.

However, downbeat Japan data and dovish commentary from Bank of Japan (BoJ) Governor Kazuo Ueda, as well as risk-positive statements from Japan’s Finance Minister (FinMin) Shunichi Suzuki, puts a floor under the prices of the cross-currency pair.

BoJ’s Ueda said, “Our scheduled review won't have any pre-set idea in mind on specific monetary policy move.” The policymaker also added that the BoJ will take necessary policy action at each meeting, with an eye on financial and price developments, even while conducting the review. On the other hand, Japan FinMin Suzuki confirmed that the nation’s financial system is stable.

Not only statements from Japanese policymakers but downbeat data from the Asian major also weighed on the Japanese Yen (JPY). That said, Japan’s Household Spending marked the biggest fall since March 2022 with -1.9% YoY figure for March, versus the expected +0.4% and prior +1.6%. Further, the nation’s Inflation Adjusted (Real) Wages for the said month also eased to -2.9% YoY during the said month compared to -2.4% market forecasts and -2.9% previous readings.

Additionally favoring the bulls could be the upbeat US Treasury bond yields and the Reserve Bank of Australia’s (RBA) hawkish bias, versus the BoJ’s defense of easy-money policy.

Having witnessed the initial market reaction to the downbeat Aussie data, the AUD/JPY pair traders should pay attention to the risk catalysts and Australia budget statement, up for publishing at 09:00 AM GMT, for clear directions.

Technical analysis

A clear upside break of a downward-sloping resistance line from late October 2022, now immediate support near 91.15, keeps AUD/JPY buyers hopeful of crossing the 200-DMA hurdle, close to 92.10 by the press time.

The Retail Sales, QoQ Q1, released by the Australian Bureau of Statistics is out as follows:

• -0.6% vs -0.4% expected and -0.2% prior. 

AUD/USD update

AUD/USD is resting in a support structure and could be headed higher while on the front side of the bullish trendline on the hourly chart.

A break of 0.6770 on the backside of the trendline, however, would be a bearish development. 

About Retail Sales

The Retail Sales released by the Australian Bureau of Statistics is a survey of goods sold by retailers based on a sampling of retail stores of different types and sizes and it is considered an indicator of the pace of the Australian economy. The quarterly release shows the performance of the retail sector over the mid-term. Positive economic growth anticipates bullish trends for the AUD, while a low reading is seen as negative or bearish.

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 6.9255 vs. the last close of 6.9155.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.

• USD/CAD grinds higher after recovering from six-month-old ascending support line.
• Bullish candlestick formation, nearly oversold RSI (14) add strength to recovery moves.
• 200-DMA prods Loonie pair buyers; bears need validation from 1.3300 to keep the reins.

USD/CAD seesaws around 1.3370-80 as it struggles to defend the previous day’s corrective bounce off the short-term key support line during early Tuesday. In doing so, the Loonie pair justifies the bullish candlestick, marked on Monday, as well as the nearly oversold RSI (14) conditions.

Even if the USD/CAD pair’s latest inaction, the Loonie pair remains off the bear’s radar, especially after posting the Dragonfly bullish Doji candlestick the previous day while recovering from an upward-sloping support line from November 2022.

As a result, the quote’s retreat remains elusive unless breaking the aforementioned support line, currently around 1.3315. Also acting as a downside filter is the 1.3300 round figure.

It’s worth noting that February’s bottom is around 1.3265 and the late 2022 trough surrounding 1.3240 can also challenge the USD/CAD bears before giving them control.

On the contrary, the Loonie pair’s latest rebound can aim for the 200-DMA hurdle of around 1.3450. However, the buyers will need validation from the 100-DMA level surrounding 1.3520 to aim for the previous monthly high of around 1.3670.

In a case where the USD/CAD remains firmer past 1.3670, the odds of witnessing a rally toward the yearly high of near 1.3860 can’t be ruled out.

USD/CAD: Daily chart

Trend: Limited recovery expected

• Gold price has checked in below the $2,020.00 support amid a recovery in the USD Index.
• A rise in US debt ceiling will flush significant liquidity into the economy and would improve appeal for the Gold as safe-haven.
• Gold price is declining towards the lower portion of the Rising Channel pattern plotted from $1,934.34.

Gold price (XAU/USD) sensed selling pressure while attempting to surpass the critical resistance of $2,030.00 in the Asian session. The precious metal has corrected to near $2,020.00 and is expected to display more weakness as the US Dollar Index (DXY) has shown a stellar recovery.

The USD Index has climbed above 101.50 on expectations that more stubborn inflation data after incremental Nonfarm Payrolls (NFP) report could force the Federal Reserve (Fed) to keep interest rates higher for a longer period. According to the preliminary report, headline inflation is seen steady at 5.0% while the core Consumer Price Index (CPI) that excludes oil and food prices is seen softening to 5.5% vs. the prior release of 5.6%.

Meanwhile, S&P500 futures have added more losses in Asia. The 500-US stocks basket remained lackluster on Monday as investors demand clarity over US debt ceiling discussions. US President Joe Biden has invited some top Republican leaders for approving a debt ceiling raise to avoid further delay as it could severely damage the US economy. Republican House of Representatives Speaker Kevin McCarthy is expected to negotiate heavily on spending initiatives to cut the deepening Budget deficit.

A rise in the US debt ceiling will flush significant liquidity into the economy and would improve the appeal of the Gold price as safe-haven.

Gold technical analysis

Gold price is declining towards the lower portion of the Rising Channel chart pattern plotted from March 22 low at $1,934.34 on a four-hour scale. The 20-period Exponential Moving Average (EMA) at $2,024.26 has acted as a barricade of the Gold bulls.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range from the bullish range of 60.00-80.00, indicating exhaustion in the upside momentum.

Gold four-hour chart

• EUR/USD takes offers to refresh intraday low, extends the previous day’s losses.
• US Dollar Index picks up bids amid mixed sentiment, upbeat yields.
• Fears of US debt default, hawkish Fed speak supersede indecisive quarterly bank survey outcome to propel US Dollar.
• Risk catalysts eyed amid light calendar ahead of Wednesday’s US CPI.

EUR/USD holds onto the week-start losses as Euro bears prod a 1.1000 round figure, down 0.17% intraday near 1.0990 during early Tuesday. In doing so, the major currency pair takes clues from the market’s mixed sentiment and the US Dollar rebound, as well as recently softer Eurozone data.

That said, the US Dollar Index (DXY) extends the previous day’s rebound amid firmer yields and mixed signals surrounding inflation and banking conditions. The benchmark US 10-year Treasury bond yields rose in the last three consecutive days to 3.51% at the latest whereas the US inflation expectations as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data jumped to a one-week high the previous day.

Elsewhere, the Federal Reserve’s (Fed) quarterly bank loan survey showed tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms, as well as small firms, over the first quarter.

Furthermore, unimpressive comments from Chicago Federal Reserve Bank President Austan Goolsbee and US Treasury Secretary Janet Yellen's fears of US default weigh on the EUR/USD price, especially amid recently downbeat EU data.

On Monday, German Industrial Production for March slumped to -3.4% MoM versus -1.0% expected 2.1% prior. Further, the Eurozone Sentix Investor Confidence also deteriorated to -13.1 for May from -8.7 prior and -8.0 market forecasts.

It’s worth noting that European Central Bank chief economist Philip Lane said that there was "a lot of disinflation" coming later this year but added that there was still "a lot of momentum" in inflation. His comments also exert downside pressure on the EUR/USD price amid mildly offered S&P 500 Futures.

Moving on, a light calendar emphasizes the need to look out for risk catalysts while forecasting the EUR/USD moves.

Technical analysis

Given the higher low of the EUR/USD price joining higher RSI (14), the major currency pair is likely to regain upside momentum. The same highlights a three-week-old bullish channel, currently between 1.0960 and 1.1180, as the key challenge for the Euro bears to conquer before taking control.

Retail Sales Overview

Early Tuesday, the market sees preliminary readings of Australia's Retail Sales for the first quarter (Q1) of 2023 at 01:30 GMT. Market consensus suggests a softer print of -0.4% QoQ versus -0.2% prior, suggesting a challenge for the Reserve Bank of Australia (RBA) hawks after a surprise rate hike.

Given the Reserve Bank of Australia's (RBA) latest hawkish surprise despite softer Aussie inflation data and challenges to sentiment, today’s Aussie Retail Sales data appears crucial for the AUD/USD traders.

How could it affect AUD/USD?

AUD/USD retreats from a three-week high while snapping a six-day uptrend ahead of the data. With this, the Aussie pair aptly portrays the market’s cautious mood, as well as the doubts about the RBA’s hawkish action, ahead of the key data. Also exerting downside pressure on the quote is the US Dollar rebound while tracing firmer yields amid mixed sentiment in the markets.

That said, the recent chatters surrounding the Aussie recession, amid fears of comparatively higher rates in Australia than the US and likely easing in economic activities, keeps AUD/USD bears hopeful ahead of the key Aussie Q1 Retail Sales figures. It’s worth noting that the Westpac Consumer Confidence for May slumps to -1.7% versus 9.4% and signals the quote’s further downside in case the scheduled Retail Sales figures offer negative surprise, or match downbeat forecasts.

Technically, the 100-DMA hurdle of around 0.6790 joins the nearly overbought RSI (14) line on the daily chart to challenge the AUD/USD bulls. Adding strength to the upside filters is the horizontal area comprising levels marked since mid-February, around 0.6800.

Key Notes

AUD/USD drops to near 0.6780 ahead of Australian Retail Sales and US debt-ceiling talks 

AUD/USD Price Analysis: Bears take on bulls at key support 

AUD/USD Forecast: Aussie challenges 0.6800, a key area

About Australian Retail Sales

The Retail Sales released by the Australian Bureau of Statistics is a survey of goods sold by retailers based on a sampling of retail stores of different types and sizes and it's considered an indicator of the pace of the Australian economy. It shows the performance of the retail sector over the short and mid-term. Positive economic growth anticipates bullish trends for the AUD, while a low reading is seen as negative or bearish.

• EUR/GBP is eyeing further sell-off below 0.8700 as BoE to raise rates further to bring down double-digit inflation.
• Investors have been gung-ho for the Pound Sterling amid an absence of a confident roadmap for bringing down the UK’s inflation.
• Global interest rate hikes have heavily impacted German Industrial Production.

The EUR/GBP pair looks vulnerable above the round-level support of 0.8700 in the Asian session. The cross is expected to display more weakness as investors are anticipating more interest rate hikes from the Bank of England (BoE) to soften double-digit United Kingdom inflation.

Investors have been gung-ho for the Pound Sterling amid the absence of a confident roadmap for bringing down the UK’s inflation to a 2% target. Economists at MUFG Bank do not expect the Bank of England meeting to weigh on the Pound Sterling. The Pound has remained the top-performing G10 currency in 2023, and the second-best performing in Q2 to date

BoE Governor Andrew Bailey has already pushed interest rates to 4.25% in the last 11 monetary policy meetings and now one more interest rate hike is widely anticipated. However, it is still difficult to agree that inflationary pressures will cover the huge gap between current inflation and the desired one.

Historic high food inflation, labor shortages due to earning retirements, and higher wage offerings have been major catalysts, which have been fueling inflationary pressures.

On the Eurozone front, higher interest rates by the European Central Bank (ECB), declining credit from Europe commercial banks, and weak Industrial output are claiming for a recession ahead. On Monday, monthly German Industrial Production contracted sharply by 3.4% vs. the expectations of a 1.0% contraction and the former release of a 2.1% decline. Global interest rate hikes have heavily impacted German Industrial Production due to the bleak demand for automobiles.

Over the interest rate guidance, ECB chief economist Philip Lane said that there was "a lot of disinflation" coming later this year but added that there was still "a lot of momentum" in inflation.

• USD/JPY picks up bids to portray three-day winning streak.
• Japan’s household spending drops the most since March 2022, real wages ease too.
• BoJ Governor Ueda said to defy any pre-set mind while setting monetary policy.
• Yields improve amid mixed US signals, focus on banking, US CPI.

USD/JPY takes the bids to refresh intraday high near 135.30, up for the third consecutive day, as Bank of Japan (BoJ) Governor Kazuo Ueda defends easy money policy as markets in Tokyo open for Tuesday. Adding strength to the risk-barometer pair could be the comments from Japan’s Finance Minister (FinMin) Shunichi Suzuki, as well as broadly firmer US Treasury bond yields and the US Dollar.

BoJ’s Ueda said, “Our scheduled review won't have any pre-set idea in mind on specific monetary policy move.” The policymaker also added that the BoJ will take necessary policy action at each meeting, with an eye on financial and price developments, even while conducting the review. On the other hand, Japan FinMin Suzuki confirmed that the nation’s financial system is stable.

Elsewhere, Japan’s Household Spending marked the biggest fall since March 2022 with -1.9% YoY figure for March, versus the expected +0.4% and prior +1.6%. Further, the nation’s Inflation Adjusted (Real) Wages for the said month also eased to -2.9% YoY during the said month compared to -2.4% market forecasts and -2.9% previous readings.

On the other hand, the US Dollar Index (DXY) extends the previous day’s rebound amid firmer yields and mixed signals surrounding inflation and banking conditions. That said, the benchmark US 10-year Treasury bond yields rose in the last three consecutive days to 3.51% at the latest whereas the US inflation expectations as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data jumped to one-week high the previous day. Elsewhere, the Federal Reserve’s (Fed) quarterly bank loan survey showed tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms, as well as small firms, over the first quarter.

It’s worth noting that Chicago Federal Reserve Bank President Austan Goolsbee said, “It is too early to say what the next policy move will be,” while explaining that there were a lot of uncertainties regarding the impact of credit tightening on the economy. However, Reuters came out with news suggesting US Treasury Secretary Janet Yellen’s personal reaching out to business and financial leaders to explain the "catastrophic" impact a US default on its debt would have on the U.S. and global economies, two sources familiar with the matter said on Monday.

Amid these plays, markets remain divided but defend the latest US Dollar rebound ahead of the key Consumer Price Index (CPI) data for April, up for publishing on Wednesday.

Technical analysis

A clear rebound from the 21-DMA and a six-week-old ascending support line, respectively near 134.50 and 133.90, redirects USD/JPY buyers toward the 200-DMA resistance of around 137.00 by the press time.

“Our scheduled review won't have any pre-set idea in mind on specific monetary policy move,” said new Bank of Japan Governor Kazuo Ueda on early Tuesday.

More comments

USD/JPY marches forward

USD/JPY picks up bids to renew intraday high near 135.30, up for the third consecutive day, as BoJ’s Ueda defends current monetary policy inaction. Earlier in the day, Japan’s Finance Minister Shunichi Suzuki also allowed the Yen pair to remain firmer.

Also read: Japan FinMin Suzuki: Japan's financial system is stable

“Japan's financial system stable, said Japan’s Finance Minister (FinMin) Shunichi Suzuki said on early Tuesday.

Additional comments

USD/JPY remains firmer

The news allows USD/JPY to extend the latest gains past 135.00, around 135.20 by the press time as it prints three-day uptrend. Adding strength to the Yen pair’s latest run-up could be the upbeat yields and softer Japan data.

Also read: USD/JPY Price Analysis: Gains momentum above 135.00 on dovish BoJ minutes