Новини ринків

• AUD/USD grinds higher after rising to the highest level in 11 weeks.
• Market sentiment remains mildly positive amid softer US inflation, China-linked mixed clues.
• Aussie, China data can entertain intraday traders, risk catalysts are more important for clear directions.

AUD/USD resumes run-up to prod the 0.6800 round figure for the fourth time since early March as markets turn cautiously optimistic after downbeat US inflation and positive vibes from China. However, anxiety ahead of the inflation clues from Australia and China, up for publishing around 01:00 and 01:30 AM GMT, can challenge the Aussie pair buyers during early Thursday.

That said, the US inflation per the Consumer Price Index (CPI) eased to 4.9% YoY for April versus market expectations of reprinting 5.0% inflation mark, marking the first below 5.0% print in two years. The MoM figures, however, matched the upbeat 0.4% forecasts compared to 0.1% previous readings. Further, the CPI ex Food & Energy, known as the core CPI, matched 5.5% and 0.4% market consensus on a yearly and monthly basis respectively versus 5.6% and 0.4% priors in that order.

Following the data, Fed funds futures traders are pricing in a pause before expected rate cuts in September, per Reuters.

Elsewhere, US policymakers failed to seal the debt-ceiling deal in their first attempt but let the ball rolling by allowing office members to discuss the details and try again on Friday, which in turn prod the market sentiment. “Detailed talks on raising the US government's $31.4 trillion debt ceiling kicked off on Wednesday with Republicans continuing to insist on spending cuts, the day after Democratic President Joe Biden and top congressional Republican Kevin McCarthy's first meeting in three months,” said Reuters.

On a different page, Australian Treasurer Jim Chalmers was quoted showing readiness to establish more cordial relations with China while praising Australia’s latest annual budget released the previous day.

Alternatively, China military was quoted as rejecting a meeting proposal by the US military officials, which in turn joins the banking woes and fears of debt ceiling expiration weighing on the market sentiment and the AUD/USD prices ahead of the key Aussie-China data.

Against this backdrop, S&P 500 Futures print mild gains after Wall Street’s mixed close whereas US Treasury bond yields struggle for clear directions.

Moving on, AUD/USD traders await Australia’s Consumer Inflation Expectations for May and China’s CPI, as well as the Producer Price Index (PPI), for April ahead of the US PPI for the said month. More importantly, risk catalysts and central bankers, like the Bank of England (BoE) may offer an active day moving forward.

Technical analysis

A two-month-old ascending resistance line, around 0.6820 by the press time, restricts the short-term AUD/USD upside. That said, repeated failures to cross the 100-DMA hurdle of around 0.6800 teases the Aussie pair sellers.

“British Prime Minister Rishi Sunak risks missing his goal of halving inflation this year as underlying inflation shows little sign of having peaked in Britain or abroad,” per UK think-tank National Institute of Economic and Social Research (NIESR) reported Reuters on early Thursday in Asia.

Extra details

Also read: GBP/USD Price Analysis: Cable turns defensive above 1.2600 on BoE “Super Thursday”

• GBP/USD seesaws around the highest levels since April 2022, prods two-day uptrend.
• Clear upside break of five-week-old hurdle, firmer RSI (14) line keeps buyers hopeful.
• Weekly descending resistance line, bearish MACD signals and pre-BoE caution challenge Cable buyers.
• Bulls seek 1.2700 breakout to keep the reins; downside break of 1.2600 can lure intraday sellers.

GBP/USD bulls take a breather around 1.2630 amid the early hours of the Bank of England (BoE) inspired “Super Thursday”. That said, the Cable pair rose to a 13-month high the previous day while bouncing off the resistance-turned-support line stretched from early April.

The Pound Sterling’s recovery from the previous resistance line also gained support from the firmer RSI (14) line, not overbought. However, the bearish MACD signals and a downward-sloping resistance line from Monday, close to 1.2635 by the press time, prod the Cable buyers.

Even if the GBP/USD bulls manage to cross the 1.2635 trend line resistance, the latest high of around 1.2680 and the 1.2700 round figure may challenge the quote’s further upside.

Following that, a run-up towards the early April 2022 low surrounding 1.2975 and then to the 1.3000 psychological magnet can’t be ruled out.

On the flip side, a clear downside break of the aforementioned resistance-turned-support near 1.2600 can trigger intraday selling of the GBP/USD pair.

In that case, a three-week-long ascending trend line and the 200-SMA, respectively near 1.2500 and 1.2460, can act as the final defense of the GBP/USD buyers.

Overall, GBP/USD buyers keep the reins despite the latest inaction. However, the upside momentum needs validation from the BoE.

Also read: Bank of England Preview: A risk event for the GBP/USD rally

GBP/USD: Four-hour chart

Trend: Further upside expected

New Zealand Finance Minister Grant Robertson said on Thursday that the government budget to be released next week would have a focus on fiscal sustainability as the government does its bit to keep inflation under control, reported Reuters.

“Inflation in New Zealand is tracking at 6.7%, well above the central bank's target range of 1% to 3%, and economists have warned that a boost in government spending could mean inflation stays higher for longer,” adds the news.

On a different page, New Zealand's Food Price Index for April eases to 0.5% MoM from 0.8% prior and 0.4% market forecasts.

More comments from NZ FinMin Robertson

NZD/USD remains sidelined

NZD/USD edges higher to 0.6365 amid early Thursday in Asia, after refreshing a five-week top the previous day.

Also read: NZD/USD bulls step back in as Wall Street rallies

Financial Times (FT) came out with news suggesting a standoff between the US and China while turning down the hopes of a meeting among the military officials of the world’s top two economies.

“China has told the US there is little chance of a meeting between the countries’ defense ministers at a security forum in Singapore due to a dispute over sanctions, the latest obstacle to top-level dialogue between the two powers,” said FT.

The news cites difficulties in arranging a meeting of US Defense Secretary Lloyd Austin and China’s new Defense Minister Li Shangfu at the Shangri-La Dialogue security forum in Singapore in June. The reason could be linked to China’s Li being sanctioned by the US in 2018 in relation to Chinese imports of Russian arms when he was serving as a general.

Additional quotes from FT

Market implications

The news challenges market sentiment and weighs on the risk-barometer pair like AUD/USD. That said, the quote remains pressured around 0.6775 after posting multiple failures to cross the 0.6800 mark.

Also read: AUD/USD bulls move in as US Dollar softens on US CPI

• EUR/JPY is down 0.45%, influenced by lackluster EUR/USD gains amidst the Japanese Yen strength.
• Technical outlook shows an evening-star pattern, suggesting potential for further downside.
• Key levels to watch: Downside support at 147.04, 145.99, and 145.67; upside resistance at 148.00 and 148.40.

The EUR/JPY weakened on Wednesday by 0.45%, dropped below the 20-day Exponential Moving Average (EMA), influenced by the EUR/USD pair, which finished up, but did not convincingly register solid gains aimed to extend the pair’s rally toward 1.1000. That and the Japanese Yen (JPY) strength were the perfect storms that weighed on the Euro (EUR). Hence, the EUR/JPY is trading at 147.49, down by 0.04% as the Asian session begins.

EUR/JPY Price Analysis: Technical outlook

The EUR/JPY printed back-to-back bearish sessions that cracked last year’s high of 148.40, extending its losses past the 20-day Exponential Moving Average (EMA). An evening-star three-candlestick pattern suggests that further downside is expected. But the Relative Strength Index (RSI) indicator remains bullish, while the 3-day Rate of Change (RoC) depicts sellers gathering momentum.

If EUR/JPY drops below the current week’s low of 147.04 and the RSI pierces the 50-midline, that will exacerbate a decline to the 50-day EMA at 145.99. A decisive break will expose the March 31 high-turned support at 145.67 before retracing to the 100-day EMA at 144.56.

Conversely, if EUR/JPY rallies and claims the 20-day EMA, it could climb above the 148.00 mark. Once cleared, the next stop would be the last year’s high of 148.40, followed by the 150.00 figure.

EUR/JPY Price Action – Daily chart

• EUR/USD bounces off three-week low amid broad US Dollar weakness, grinds higher of late.
• US inflation softens to 4.9% YoY in April, matches market forecasts and prod Fed hawks.
• ECB policymakers defend rate hikes, German inflation confirms initial estimations for April.
• More clues of US inflation, ECB policymakers’ comments and US debt ceiling updates eyed for intraday moves.

EUR/USD holds onto Wednesday’s recovery from the lowest levels in three weeks while picking up bids to 1.0985 during early Thursday morning in Asia. In doing so, the Euro pair cheers broadly softer US Dollar amid easy inflation numbers from the US, as well as the European Central Bank (ECB) officials’ hawkish comments. However, looming fears of the US default and the anxiety ahead of a few more clues of the US inflation, as well as banking woes, challenge the pair buyers amid generally inactive trading hours of the day.

On Wednesday, the US inflation per the Consumer Price Index (CPI) eased to 4.9% YoY for April versus market expectations of reprinting 5.0% inflation mark. The MoM figures, however, matched the upbeat 0.4% forecasts compared to 0.1% previous readings. Further, the CPI ex Food & Energy, known as the core CPI, matched 5.5% and 0.4% market consensus on a yearly and monthly basis respectively versus 5.6% and 0.4% priors in that order.

Considering the data, Analysts at the ANZ favored recently easing hawkish Fed bets while saying, “We think the combination of the April CPI and labor market report argue strongly against an early Fed pivot. Core monthly CPI has now been sticky at 0.4% m/m or a touch higher for the past five months and the 3m annualized pace is running in excess of 5.0%. Jobs growth is strong and the evident momentum contrasts with the much-needed slackening that is needed if the unemployment rate is to start moving towards the FOMC’s year-end forecast of 4.5%.”

On the other hand, European Central Bank (ECB) President Christine Lagarde said on Wednesday, “We still have more ground to cover in the fight against inflation.” However, ECB Governing Council member Yannis Stournaras told a Greek newspaper, “As things stand now, we can say that interest rate hikes will be over in 2023.” On the same line, ECB policymaker and Bundesbank Chief Joachim Nagel also said, “We might be approaching the final stretch of rate hikes.” Furthermore, ECB policymaker Mario Centeno was among the first to speak about rate cuts “at some point during 2024”.

Elsewhere, US policymakers failed to seal the debt-ceiling deal in their first attempt but let the ball rolling by allowing office members to discuss the details and try again on Friday, which in turn prod the market sentiment. “Detailed talks on raising the US government's $31.4 trillion debt ceiling kicked off on Wednesday with Republicans continuing to insist on spending cuts, the day after Democratic President Joe Biden and top congressional Republican Kevin McCarthy's first meeting in three months,” said Reuters.

Amid these plays, Wall Street benchmarks closed mixed while the US Treasury bond yields snapped a four-day uptrend. Further, the US Dollar Index (DXY) also printed the first daily loss in three, pressured of late.

Moving on, EUR/USD traders may seek more clues about the US inflation and hence the monthly Producer Price Index (PPI) for April, expected to ease to 2.4% YoY but the Core PPI may improve to 0.2% on MoM, will be important for intraday directions. Additionally, ECB talks and risk catalysts like US default woes and banking fallout fears can also direct the pair’s moves.

Technical analysis

Despite the latest rebound, a convergence of the 21-DMA and a one-week-old descending resistance line, around the 1.1000 round figure, restricts the short-term upside of the Euro pair.

• Gold price rallies on US CPI and soft US dollar, but bears are lurking.
• Gold price is eating into the support structure on the backside of the counter-trendline. 

Gold price rallied towards new all-time highs with there not being any surprise in the US Consumer Price Index. XAU/USD traveled from a low of $2,025 and reached a high of $2,048 on the day. 

The US Dollar ended the day lower amid lower US yields. The US Dollar Index (DXY), which measures the greenback vs. a basket of currencies, including the Aussie, ended around 101.40, as it remains above the key support of 101.00. The US 10-year Treasury yield settled at 3.43% and the 2-year at 3.90%, after reversing from near 4.10%.

Consumer inflation in the US measured by the Consumer Price Index (CPI) ticked lower in April to 4.9% from 5% in March. The Core CPI slowed down from 5.6% in March to 5.5% in April. Numbers came mostly in line with expectations. The Fed Funds rate at 5.00%-5.25% is now above the annual CPI.

´´The gravitational pull in gold markets should continue to support higher prices over the coming months,´´ analysts at TD Securities argued. 

´´While CTA trend followers remain 'max long', discretionary trader interest has just started to kick off. However, given positioning within this cohort tends to lag rates market expectations for Fed funds pricing, we expect discretionary traders to deploy their hoard of dry powder in support of new all-time highs.´´

With respect to the sentiment surrounding the Fed, analysts at Brown Brothers Harriman noted that the ´´easing expectations are starting to get pared back.´´

´´At the start of last week, swaps market was pricing in a Fed Funds range between 4.0-4.25% in 12 months.  Earlier, it was as low as 3.5-3.75% but now it's back in the 3.75-4.0% range in 12 months.  Three cuts by year-end were fully priced in at the start of this week but the odds of a third hike have fallen to around 60% currently,´´ the analysts explained. 

´´That said, market expectations of a Fed pivot are misguided and must be repriced.  Fed officials are likely to continue pushing back against this dovish take but it will really be up to the data.´´

Meanwhile, markets are also concerned over the ongoing banking stress and the debt ceiling debacle. Analysts at TD Securities argued that there ´´will remain in focus, and continue to generate headwinds for the USD, especially as the global growth outlook dusts off last year’s stagflationary conditions.´´

´´Overall,´´ the analysts explained, ´´ the data continue to support our view that a new bull market in gold may have just kicked off.´´

Gold technical analysis

The Gold price 4-hour chart´s tweezer top and placement below the prior micro trendline supports, on the backside of those trends, leaves the outlook bearish for a run towards the bullish trendline support:

The hourly chart, above, shows that the price is penetrating the structure around $2,025 and the correction is decelerating. This could lead to further commitments from the bears in the coming sessions.

• US inflation data disappoints, with CPI at 4.9% YoY, below 5% projections; USD/CHF slides towards 0.8890
• SNB Governor Thomas Jordan’s hawkish comments emphasize the need for tighter monetary policy
• Federal Reserve expected to hold rates unchanged in June, with a 93.6% probability, according to CME FedWatch Tool

USD/CHF extends its bearish downtrend, though it appears to consolidate around the year-to-date (YTD) lows at around the 0.8800 handle after US data showed that prices are edging lower. In addition, hawkish rhetoric from the Swiss National Bank (SNB) Governor was cheered by USD/CHF bears. The USD/CHF is trading at around the 0.8890s area.

Swiss National Bank’s Stance on Inflation Curbs USD/CHF Rally, Pair Consolidates Near YTD Lows

Inflation has been the main narrative of Wednesday’s session. The US Bureau of Labor Statistics (BLS) revealed the Consumer Price Index (CPI) in April expanded as expected by 0.4% MoM, while annually based, the data showed an improvement with prices edging below estimates—figures came at 4.9%, below projections of 5%.

The core CPI data, which the US Federal Reserve (Fed) monitors closely to assess inflation without the volatile items, jumped by 0.4% MoM. Year-over-year (YoY) core inflation rose by 5.5%, unchanged from the last reading and aligned with the market’s consensus.

Although inflation remains high, it hurt the USD/CHF prospects of higher prices, as the major dropped from the daily highs of 0.8927 back towards the 0.8890 area. On the upside, the USD/CHF rally was capped by the 20-day EMA at 0.8892 and the psychological 0.8900 figure.

Regarding news from Switzerland, SNB Governor Thomas Jordan commented that inflation remains above average for price stability and higher than the central bank wants. Jordan added that they don’t anticipate a wage-price spiral and emphasized that monetary policy “at the moment” is not restrictive enough. He said that the Swiss Franc (CHF) nominal appreciation was sparked by inflation abroad.

Given the backdrop, the Federal Reserve is expected to hold rates unchanged at their meeting in mid-June, as shown by the CME FedWatch Tool, with odds at 93.6%. A reflection of that is US Treasury bond yields, namely the 2-year note, the most sensitive to changes in monetary policy, dropping 11 bps to 3.910%.

The SNB’s hawkish rhetoric might refrain USD/CHF bulls from entering the market. The SNB is expected to continue tightening monetary conditions as inflation in Switzerland remains above the central bank’s target.

USD/CHF Technical Levels

• AUD/USD pops higher on Wednesday on the back of improved risk appetite.
• US CPI was welcomed by markets and helped to support AUD/USD higher on the day. 

AUD/USD is higher on the day by some 0.2% after traveling from a low of 0.6778 to reach a high of 0.6818 so far. Risk has bounced again in late Wall Street and that has taken the high beta currencies higher. 

´´Markets reacted positively to the April CPI report, as the continued moderation in shelter inflation left the market unconvinced the FOMC will raise rates again in June,´´ analysts at ANZ Bank explained.

Consumer inflation in the US measured by the Consumer Price Index (CPI) ticked lower in April to 4.9% from 5% in March. The Core CPI slowed down from 5.6% in March to 5.5% in April. Numbers came mostly in line with expectations. The Fed Funds rate at 5.00%-5.25% is now above the annual CPI.

The US Dollar ended the day lower amid lower US yields. The US Dollar Index (DXY), which measures the greenback vs. a basket of currencies, including the Aussie, ended around 101.40, as it remains above the key support of 101.00. The US 10-year Treasury yield settled at 3.43% and the 2-year at 3.90%, after reversing from near 4.10%.

Looking ahead, domestic inflation expectations and Consumer Confidence data are due on Thursday. Traders will also pay close attention to Chinese inflation numbers (Consumer Price Index and Producer Price Index for April).

In regard to the Reserve Bank of Australia, the central bank reversed its April pause, hiking by 25 bps in May and leaving the door open to further increases. This makes for uncertainty but markets are generally of the mind that the RBA will be on hold from here.

With respect to the expectations surrounding the Federal Reserve,  analysts at Brown Brothers Harriman noted that the ´´Federal Reserve easing expectations are starting to get pared back.´´

´´At the start of last week, swaps market was pricing in a Fed Funds range between 4.0-4.25% in 12 months.  Earlier, it was as low as 3.5-3.75% but now it's back in the 3.75-4.0% range in 12 months.  Three cuts by year-end were fully priced in at the start of this week but the odds of a third hike have fallen to around 60% currently,´´ the analysts said. 

´´That said, market expectations of a Fed pivot are misguided and must be repriced.  Fed officials are likely to continue pushing back against this dovish take but it will really be up to the data.´´

On Thursday, the Bank of Japan will release their summary of opinion from Ueda's first meeting. New Zealand will release the Food Price Index for April, in Australia attention would be on Melbourne Institute's Inflation Expectations survey and Westpac's Consumer Confidence. China will release April's inflation data. Markets will continue to digest US inflation data ahead of the PPI. The Bank of England will announce its decision on monetary policy.

Here is what you need to know on Thursday, May 11:

Consumer inflation in the US measured by the Consumer Price Index (CPI) ticked lower in April to 4.9% from 5% in March. The Core CPI slowed down from 5.6% in March to 5.5% in April. Numbers came mostly in line with expectations. The Fed Funds rate at 5.00%-5.25% is now above the annual CPI.

Analysts at RBC commented on US CPI: 

The US Dollar initially dropped but then trimmed losses, ending the day lower amid lower US yields. The US Dollar Index (DXY) closed around 101.40, as it remains above the key support of 101.00. The US 10-year Treasury yield settled at 3.43% and the 2-year at 3.90%, after reversing from near 4.10%.

More US inflation data is due on Thursday with the Producer Price Index (PPI). Also, the weekly Jobless Claims report is due. The debt ceiling impasse continues despite everybody warning about the situation and its unnecessary costs.

EUR/USD peaked above 1.1000 but then pulled back. It continues to move sideways, above the 1.0940 support area. European Central Bank (ECB) members continue to talk about the need to raise rates further. On Wednesday, Mario Centeno was among the first to speak about rate cuts “at some point during 2024”.

GBP/USD hit fresh multi-month highs and then retreated toward 1.2600. The Bank of England (BoE) will announce its decision on monetary policy on Thursday. A 25 basis points rate hike is priced in.

USD/JPY tumbled from above 105.00 to 104.05, following US inflation data. The Bank of Japan will release the Summary of Opinions, covering Kazuo Ueda's first meeting as governor.

AUD/USD tested levels above 0.6800 but failed to hold. It continues to move with an upside bias, but limited. Inflation expectations and Consumer Confidence data is due on Thursday in Australia. Market participants will also pay close attention to Chinese inflation numbers (Consumer Price Index and Producer Price Index for April).

USD/CAD finished flat around 1.3370, as it continues to consolidate last week's losses. In Canada, Building Permits jumped 11.3% in March. The Kiwi outperformed on Wednesday. NZD/USD posted its highest daily close since early February, above 0.6350. The Food Price Index is due in New Zealand.

Gold spiked after US CPI but then pulled back, stabilizing around $2,030. Silver reversed from five-day highs near $26.00, falling under $25.50. Crude oil prices dropped 1% amid a mixed market sentiment. In Wall Street, the Nasdaq rose 1.04% while the Dow Jones lost 0.09%.

• NZD/USD rallies as risk appetite picks up again.
• US CPI has been taken positively by the markets. 

NZD/USD is higher on the day by some 0.5% after traveling from a low of 0.6324 to reach a high of 0.6381 so far. Risk has bounced again in late Wall Street and that has taken the high beta currencies higher. 

´´Markets reacted positively to the April CPI report, as the continued moderation in shelter inflation left the market unconvinced the FOMC will raise rates again in June,´´ analysts at ANZ Bank explained.

´´The Kiwi put in another reasonable performance overnight, on crosses (see below) and against the USD, and according to Bloomberg, it remains the best-performing G10 currency week to date. As-expected US CPI data came as a relief to markets, and while it was enough to see US bond yields fall, the subsequent fall in equities and commodities dimmed the impact on risk currencies, with the USD DXY paring losses quickly´´ the analysts added and said further:

´´With global markets clearly in no mood to entertain the idea of more Fed hikes, the risk is we see more USD weakness, but with “Fedspeak” likely to have a hawkish bent, expect volatility. The Budget will be key for NZ next week, and today we have food prices, which might surprise some.´´

As for the Federal Reserve,  analysts at Brown Brothers Harriman noted that the ´´Federal Reserve easing expectations are starting to get pared back.´´

´´At the start of last week, swaps market was pricing in a Fed Funds range between 4.0-4.25% in 12 months.  Earlier, it was as low as 3.5-3.75% but now it's back in the 3.75-4.0% range in 12 months.  Three cuts by year-end were fully priced in at the start of this week but the odds of a third hike have fallen to around 60% currently,´´ the analysts said. 

´´That said, market expectations of a Fed pivot are misguided and must be repriced.  Fed officials are likely to continue pushing back against this dovish take but it will really be up to the data.´´

Meanwhile, the Reserve Bank of New Zealand, Chrisitan Hawkesby explained at the end of April that the full impact of tightening is yet to be fully seen.

Key notes

• Early signs growth starting to slow.
• Extent of moderation will determine policy.
• Inflation too high and persisten.

• WTI is in consolidation following a series of news events that have pressured crude prices.
• A combination of risk-off and industry data sees crude lower by over 1%.

West Texas Intermediate, WTI, crude oil is down on the day by some 1.28% after the United States reported inflation in April fell for a tenth straight month. A separate industry-related report also showed US inventories are on the rise. WTI has traveled between a high of $73.83 and a low of $71.86bbls.

Firstly, the US Consumer Price index climbed by 4.9% on an annualized basis in April, under the consensus forecast for a 5% rise, helping to lift spirits in financial markets initially. Core inflation, which excludes volatile food and fuel prices rose 5.5% from 5.6%, matching estimates. However, there was a bout of risk-off that came through late r in the day as the data shows that inflation is still well above the Federal Reserve's target.

´´Increasingly, we expect the Federal Reserve will have to balance risks between sticky inflation, and slowing growth momentum / tighter financial conditions. We continue to expect the move last week to be the last one this cycle, leaving the Fed on hold until later this year,´´ analysts at RBC Economics argued. 

In other news, the United States suspended further sales from its Strategic Petroleum Reserve, and Crude oil inventories for the current week showed a build of 2.951M versus -0.917M draw. 

• Following the US inflation data release, GBP/JPY sinks more than 100 pips to the 169.00 area.
• A bearish technical outlook emerges as RSI aims lower and the 3-day RoC turns negative.

The GBP/JPY slips after hitting a daily high of 171.17 after safe-haven peers advanced following the release of US inflation data. The GBP/JPY slumped more than 100 pips toward the 169.00 handle as traders anticipate another interest rate hike from the Bank of England (BoE) as it scrambles to curb inflation from around 10%.

GBP/JPY Price Analysis: Technical outlook

After snapping three days of gains, the GBP/JPY dropped toward the 169.50 region as the cross-currency pair formed a bearish-engulfing candle pattern. Although the Relative Strength Index (RSI) indicator remains in bullish territory, it continues to aim lower, suggesting buyers are losing steam ahead of the BoE’s decision. The 3-day Rate of Change (RoC) turned negative, allowing sellers to enter new positions.

If GBP/JPY drops below the 169.00 figure, the next support would be the 20-day Exponential Moving Average (EMA) at 168.33, followed by the April 19 high at 167.97. Once cleared, the GBP/JPY next demand area would be the December 20 high turned support at 167.01.

On the flip side, if GBP/JPY reclaimed the 170.00 figure, the next resistance would be May 9 daily high at 170.71. A breach of the latter will expose the May 10 daily high of 171.17, which once cleared, could pave the way to test the YTD high at 172.13.

GBP/JPY Price Action – Daily Chart

• EUR/USD sits in limbo as the US Dollar creeps higher. 
• ECB and Fed sentiment is the driving force. 

EUR/USD rallied on the back of the US Consumer Price Index and reached a high of 1.1006 on the day from a low of 1.0941. 

US CPI and Fed implications

Headline CPI growth in the US ended lower to 4.9% in April from 5% in March. 'Core' inflation excluding food and energy products also moderated, to 5.5% from 5.6% in March. ´´April core CPI prices suggest underlying inflation is likely to remain sticky as we head into the June Federal Open Market Committee meeting, supporting our view that a final 25bp rate increase to 5.25%-5.50% remains on the table,´´ analysts at  TD Securities argued. ´´However, we also acknowledge that the FOMC's decision has become especially data-dependent, with activity/banking related data gaining more prominence on the Fed's dashboard post-SVB.´´ 

´´Bottom line,´´ analysts at RBC Economics said, ´´inflation trends in the US continue to head the right direction, but still have a long way to go before they reach the Fed's 2% target.´´

´´Labour market conditions still look strong, but are showing cracks under the surface, and tension remains among regional banking credit markets.´´

´´Increasingly, we expect the Federal Reserve will have to balance risks between sticky inflation, and slowing growth momentum / tighter financial conditions. We continue to expect the move last week to be the last one this cycle, leaving the Fed on hold until later this year,´´ the analysts argued. 

In this regard, analysts at Brown Brothers Harriman noted that the ´´Federal Reserve easing expectations are starting to get pared back.´´

´´At the start of last week, swaps market was pricing in a Fed Funds range between 4.0-4.25% in 12 months.  Earlier, it was as low as 3.5-3.75% but now it's back in the 3.75-4.0% range in 12 months.  Three cuts by year-end were fully priced in at the start of this week but the odds of a third hike have fallen to around 60% currently,´´ the analysts explained. 

´´That said, market expectations of a Fed pivot are misguided and must be repriced.  Fed officials are likely to continue pushing back against this dovish take but it will really be up to the data.´´

ECB in view

Meanwhile, the European Central Bank was later to start hiking so there is the consensus that the ECB should be later to pause. The ECB dialed back to a 25 bp hike in May but suggested further rate increases should be expected. ´´We continue to look for two more 25 bp hikes with a terminal deposit rate of 3.75%,´´ the analysts at RBC Economics argued. 

´´A further slowdown in bank lending is expected to weigh on business investment in particular and we’ve lowered our euro area growth forecasts for the second half of this year and 2024,´´ the analysts said, adding:

´´But that isn’t expected to keep the ECB from delivering further rate increases in the near term. The central bank’s May policy statement implied multiple further rate hikes are needed to ensure monetary policy is sufficiently restrictive, consistent with our call for another 50 bps of tightening.´´

• USD/JPY slides 0.73% after three days of bullish action as US inflation cools down.
• The pair drops below key daily moving averages, signaling the potential for further downside.

The USD/JPY snaps three days of gains, slides below the 135.00 figure, and distanced from the 20 and 100-day Exponential Moving Average (EMA) at 134.53 and 134.24, respectively, after US inflation cooled down. The fall of the US 10-year Treasury bond yield weighed on the USD/JPY pair due to its close correlation. At the time of writing, the USD/JPY is trading at 134.22, down 0.73%.

USD/JPY Price Analysis: Technical outlook

Given that the USD/JPY dropped below crucial daily moving averages, the USD/JPY bias shifted neutral. On its way south, the USD/JPY pair fell below dynamic support levels, like the 20 and 100-day EMAs, opening the door to test the 134.00 psychological price level.

If USD/JPY breaks below the latter, the USD/JPY pair would challenge the 50-day EMA at 133.97 before testing the 200-day EMA at 133.87. A breach of the latter will expose the May 4 swing low of 133.49.

Conversely, if USD/JPY reclaims the 20-day EMA at 134.53, the next resistance would be the 135.00 figure, followed by the May 10 high of 135.47. Once cleared, the next demand area would be the May 2 high at 137.77.

Oscillators turned bearish, as the Relative Strength Index (RSI) indicator crossed below the 50-mid line, while the 3-day Rate of Change (RoC) records negative readings.

Trend: Below 135.00, further downside expected.

USD/JPY Price Chart – Daily chart

The US Treasury Department has announced that the government recorded a $178 billion surplus in April, which was below the expected $235 billion. Total receipts in April amounted $638 billion, while outlays were $426 billion.

In the same month last year, the surplus was $308 billion. So far during the fiscal year 2023, the fiscal deficit has reached $924 billion, which is $564 billion higher than the comparable period last year. The total deficit in fiscal year 2022 was $1.3 trillion.
 

• GBP/USD bulls are struggling in the wake of a US Dollar comeback. 
• All eyes now turn to the BoE after the US CPI event on Wednesday. 

GBP/USD is flat on the day after a turbulent time with the pair trading between a low of 1.2602 and a high of 1.2679. The volatility has been sparked by the US Consumer Price Index, CPI, in the New York open.

Headline CPI growth in the US ended lower to 4.9% in April from 5% in March. 'Core' inflation excluding food and energy products also moderated, to 5.5% from 5.6% in March.

´´Inflation trends in the US continue to head the right direction, but still have a long way to go before they reach the Fed's 2% target. Labour market conditions still look strong, but are showing cracks under the surface, and tension remains among regional banking credit markets,´´ analysts at RBC Economics said.

´´Increasingly, we expect the Federal Reserve will have to balance risks between sticky inflation, and slowing growth momentum / tighter financial conditions. We continue to expect the move last week to be the last one this cycle, leaving the Fed on hold until later this year.´´

Consequently, the US dollar has found a bid after the initial sell-off and this is weighing on GBP/USD in late trade in the New York session. Meanwhile, eyes will now turn to 

Meanwhile, we have the next key event for GBP with the Bank of England. ´´We expect another 25bps hike in Bank Rate to 4.50%, with guidance left unchanged, meaning that the MPC will hike rates again should data justify it,´´ analysts at TD Securities said. 

´´We think it will, and expect one final 25bps hike in June to a terminal of 4.75%.´´

´´Much will hinge on the US CPI report in the near-term, but keep in mind that GBP has a propensity sell-off on BoE meetings since they started to hike last year,´´ the analysts explained. 

• Gold slips 0.33% as US inflation data fuels uncertainty over Fed tightening cycle.
• US Treasury bond yields drop while Biden and lawmakers continue debt ceiling discussions.
• China’s expanding gold reserves cushion XAU/USD’s fall; the market awaits Thursday’s PPI release.

Gold price slumps following the release of April’s inflation in the United States (US), which initially sent the XAU/USD to its daily high of $2048.15, though it retraced even though the US Dollar (USD) weakened on the news. Hence, the XAU/USD is trading at $2027.54, down 0.33%.

Investors eye PPI data, fed speculations, and debt ceiling talks amid market volatility

US Treasury bond yields dropped, with 2s and 10s, down eight and seven and a half bps, each at 3.935% and 3.446%, respectively. The greenback, which has an inverse correlation with Gold prices, slips 0.14%, down to 101.514.

The US Labor Department revealed the Consumer Price Index (CPI) for April continued to decelerate, as the CPI rose 0.4% MoM, aligned with estimates, while the year-over-year (YoY) came at 4.9%, below forecasts of 5%. Excluding volatile items like food and energy, the core CPI advanced 0.4% MoM, while annually based stood at around the 5.5% threshold.

Meanwhile, speculations that the US Federal Reserve (Fed) will pause its tightening cycle have increased, as shown by the CME FedWatch Tool, with odds at 95%.

On Tuesday, President Biden met with House Speaker Kevin McCarthy and other congressional leaders to discuss a possible increase or temporary stopping of the US debt ceiling. Even though there was no agreement, discussions would be held on Friday. On Monday, the US Treasury Secretary, Janet Yellen, has warned that if the debt ceiling is not raised, the government could run out of money by June 1.

As May comes to a close and if no extension is agreed upon, there will likely be an increase in overall market unease.

In other data, news that China is expanding its Gold reserves and may be abandoning the US Dollar cushioned XAU/USD’s fall. Sources cited by Kitco commented that China’s reserves increased by 8.09 tons in April.

XAU/USD Price Forecast: Technical outlook

The XAU/USD is still upward biased, though price action is forming a spinning top around the week’s highs. If XAU/USD achieves a daily close below the May 9 close of $2034.15, that could exacerbate a fall toward the day’s low at $2021.67 before testing the $2000 psychological level.

Of note, albeit at bullish territory, the Relative Strength Index (RSI) indicator aims toward a neutral level, suggesting that profit-taking took place as investors eye the release of Thursday’s Producer Price Index (PPI) release. The 3-day Rate of Change (RoC) shifted above the neutral level. Therefore, mixed signals by oscillators could refrain traders from opening fresh bets.

Data from the US released on Wednesday showed a decline in the annual Consumer Price Index in April in line with expectations. Analysts at TD Securities point out that April core CPI still suggests underlying inflation is likely to remain sticky ahead of the June FOMC meeting; they are of the view that a final 25bp rate increase to 5.25%-5.50% remains on the table. 

Key Quotes: 

“Consumer price inflation matched consensus expectations in April, with headline CPI rebounding 0.4% m/m. Prices in the core segment stayed firm, also advancing at a firm 0.4% m/m pace for a second consecutive month. In our view, the path for core inflation over the next few months will continue to be determined by the tug-of-war between the newfound momentum in goods prices and slowing services inflation.”

“With April core CPI prices still suggesting underlying inflation is likely to remain sticky as we head into the June FOMC meeting, we are of the view that a final 25bp rate increase to 5.25%-5.50% remains on the table. However, we also acknowledge that the FOMC's decision has become especially data-dependent, with activity/banking related data gaining more prominence on the Fed's dashboard post-SVB.”
 

• Silver price slides from a daily high of nearly $26.00, down nearly 1%.
• Disinflationary trends in the US economy persist, but core readings hold at 5.5% YoY.
• XAG/USD technical outlook suggests the potential for further decline, testing key support levels.

Silver price slides after hitting a daily high of $25.91, following the release of US inflation figures continued to show that the economy is in a disinflationary process. Nevertheless, core readings are clinging to the 5.5% YoY barrier, which could warrant further tightening by the Fed. The XAG/USD is trading at around $25.30s, surprisingly down almost 1%, even though the US T-bond yields and the US Dollar (USD) remained down.

XAG/USD Price Analysis: Technical outlook

The XAG/USD daily chart suggests that sellers are gathering momentum, even though the uptrend remains intact. The Relative Strength Index (RSI) indicator flashes the previously mentioned, with the RSI edging towards its neutral level, while the 3-day Rate of Change (RoC) registers volatility in negative readings.

If XAG/USD continued to trend lower would test the 20-day Exponential Moving Average (EMA) at $25.17. In a decisive break, XAG/USD sellers will target the $25.00 figure, followed by the confluence of the 15-day upslope trendline and the February 2 high, turning support at around $24.60/70. A breach of the latter, XAG would slide toward the confluence of a five-month-old previous resistance trendline now support and the 50-day EMA at 24.29/40.

Conversely, the XAG/USD could resume its uptrend once buyers step in and reclaim the May 9 daily low of $25.33. In that outcome, the first resistance would be the May 9 high of $25.67, followed by the $26.00 figure.

XAG/USD Price Action – Daily Chart

European Central Bank (ECB) Governing Council member Mario Centeno said on Wednesday that the policy will remain tight for some more time but oted that rates should start to come down at some point during 2024, as reported by Reuters.

"Monetary policy in terms of fixing key rates is at the maximum of this cycle," Centeno added.

Market reaction

These comments don't seem to be having a significant impact on the Euro's performance against its rivals. As of writing, EUR/USD was up 0.15% on the day at 1.0975.

• US Dollar regains momentum after selling off following the US CPI.
• Data shows that inflation in the US continued to slow down in April.
• USD/CAD is back at 1.3380 after hitting two-day lows at 1.3333. 

The USD/CAD dropped to 1.3334 after the release of US inflation data and then bounced sharply, erasing all losses. The pair is hovering around 1.3370, flat for the day. 

Focus on US inflation 

In April, the Consumer Price Index (CPI) experienced a slight decline to 4.9% from its previous reading of 5% in March. Similarly, the Core rate exhibited a modest deceleration from 5.6% to 5.5%. These figures closely aligned with market expectations. Initially, the release of the US inflation data prompted a decline in the US Dollar Index, that then recovered notably, largely mitigating the post-CPI losses.

On Thursday more US inflation data is due with the Producer Price Index (PPI). Should there be further indications of inflationary pressures easing, the US Dollar could face additional downward pressure.

In Canada, Wednesday's data release revealed a remarkable surge in Building Permits for March, surpassing expectations of a 2.9% decline with a noteworthy increase of 11.3%; February's figures were revised from 8.6% to a more modest 5.5%.

Resistance at 1.3400

The USD/CAD peaked during the European session at 1.3397, but then started to move to the downside. After US data, the pair tumbled driven by the US Dollar's weakness. Later, it rebounded as the Greenback recovered ground.

Equity prices on Wall Street have receded from their recent highs, with the Dow Jones slipping by 0.39%, while the Nasdaq manages to secure a gain of 0.40%. The US 10-year Treasury yield stands at 3.45%, while the 2-year yield is falling 2% at 3.93%.

If the rebound continues, the USD/CAD will likely encounter resistance at the 1.3400 area. A successful breakthrough above this level would indicate further potential for gains. On the other hand, if it drops below 1.3350, the Loonie will likely strengthen, suggesting a test of the daily low at 1.3333 and then the May low at 1.3312.

Technical levels 

• USD/MXN nosedives to levels last seen in September 2017, printing a YTD low of 17.6017.
• US inflation data triggers speculations of a pause in the Fed’s tightening cycle.
• The Mexican economy is also showing disinflation, opening the door for Banxico to maintain interest rates.

USD/MXN dives to new six-year lows last seen in September 2017, after US inflation slowed down, as shown by data revealed, triggering speculations that the US Federal Reserve (Fed) can pause its tightening cycle. At the time of writing, the USD/MXN is trading at 17.6279, down 0.81%.

US Dollar weakens against Mexican Peso amid slowing inflation and expectations of unchanged interest rates

The USD/MXN fell below its previous year-to-date (YTD) low of 17.7392 on May 8, as the news hit the screens. The US Bureau of Labor Statistics (BLS) revealed April’s data with the Consumer Price Index (CPI) rising 0.4% MoM, and 4.9% YoY, the monthly figure aligned with estimates, while annually based, edged a tick lower. Excluding volatile items, the so-called core CPI rose by 0.4% MoM as expected, while annually based, it stood at 5.5%, unchanged.

US equities are climbing as investors have begun to price in a less aggressive Fed. The CME FedWatcth Tool shows odds of almost 87% chance that Powell and Co. will hold rates unchanged at the 5.00%-5.25% range.

Therefore, US Treasury bond yields are falling sharply, with 2s down eight bps at 3.941%, while the 10-year benchmark note rate sits at 3.458%, six bps lower than the open.

On the Mexican front, data revealed on Tuesday showed that the economy is also in a disinflation process, as INEGI reported that April’s CPI rose to 6.25% from 6.85% YoY. Headline inflation shrank 0.02% MoM, while core CPI advanced 0.39% MoM, and YoY remained at 7.67%.

That opens the door for the Bank of Mexico (Banxico) to keep rates unchanged after increasing 25 bps to the TIIE, which stands at 11.25%. A poll by the local branch of Citi in Mexico, the Citibanamex poll, showed that most analysts estimate Banxico’s to keep rates unchanged.

In the meantime, discussion around the debt ceiling in the US commenced on Tuesday. According to US Senate Majority Leader Schummer, he said that Staff-level talks on the ceiling are starting today, as of May 10.

USD/MXN Price Analysis: Technical outlook

From a weekly chart perspective, the USD/MXN is headed for a continuation to lower levels, as shown by the chart. The next support would be the psychological 17.50 figure, followed by the July 2017 low of 17.4498. On the other hand, USD/MXN buyers would need to reclaim the April 2018 swing low, which turned resistance at 17.9388, ahead of the psychological 18.00 figure. A decisive break would expose the 20-week EMA at 18.4021.

Upcoming events

Economists at UBS forecast further US Dollar weakness – which could lift Gold to $2,200 by March 2024.

Position for Dollar weakness

“With the Fed opening the door to pausing rate hikes, while other central banks-including the ECB-continue tightening, we expect the US Dollar to weaken further this year as the US interest rate and growth premium erodes. The Fed is likely to cut rates sooner than other major central banks.”

“We maintain a preference for the Australian Dollar and Japanese Yen, and we see relative value in the Euro, Swiss Franc, and British Pound.”

“A weakening Dollar should also support Gold, and we forecast the yellow metal’s price rising to $2,200 by March 2024.”

EUR/GBP is already below key support from its lows for the year and 200-Day Moving Average (DMA) to suggest a top is already in place here, analysts at Credit Suisse report.

Resistance at 0.8770 set to cap

“EUR/GBP has broken key support from the series of lows for the year at 0.8729/18 as well as its 200-DMA to mark a top. We look for this to act as the catalyst for a more concerted downturn with support seen initially at 0.8648/40 ahead of the uptrend from early 2022, now at 0.8603. Whilst we would look for this to hold initially, we look for a break in due course for the ‘measured top objective’ at 0.8455.”

“Resistance at 0.8770 now ideally caps.”

• Pound Sterling vs US Dollar surges after US CPI data. 
• US headline inflation numbers came out at a lower-than-expected 4.9% pace on a YoY basis. 
• The data gives the broader long-term GBP/USD uptrend impetus to extend. 

The Pound Sterling (GBP) rallies sharply versus the US Dollar (USD) after the release of US Consumer Price Index (CPI) data for April on Wednesday. At the time of writing, it has risen to new year-to-date highs in the 1.2670s. 

The post-release surge adds fuel to the bullish long-term technical uptrend, advantaging long over short holders. 

GBP/USD market movers

• US CPI inflation dips to 4.9% YoY in April, missing expectations of 5.0%. This reflects slowing inflationary pressures, and counter-intuitively weakens the US Dollar (strengthening the GBP/USD), as it makes it even more likely the Federal Reserve (Fed) will leave interest rates unchanged. 
• The Pound gains versus the US Dollar due to a widening monetary policy divergence since in the UK interest rates are still expected to rise substantially higher, and currencies that have higher interest rates to benefit from greater demand. 
• Apart from the headline YoY figure, the CPI release came out as expected: rising by a faster 0.4% rate MoM in April, and for Core CPI rising 0.4% MoM and 5.5% YoY. 
• The Pound Sterling will be impacted by 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, and the distribution of member votes. 
• 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 four 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. 

GBP/USD technical analysis: New leg in uptrend unfolds

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 shooting star Japanese candlestick reversal pattern on GBP/USD that formed on Monday at the new year-to-date (YTD) highs has failed to obtain confirmation. Tuesday’s bullish close shows a lack of bearish follow-through and severely reduces the validity of the reversal. The surge post-CPI has now almost reclaimed the YTD highs and further invalidated the pattern.

Given the overall trend is bullish, the exchange rate is likely to continue rallying. The May 2022 highs at 1.2665 provide the first resistance level, but once breached it opens the way to 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. 

Decisive bearish breaks are characterized by long daily candles that break through key resistance levels in question and close near their highs or lows of the day (depending on whether the break is bullish or bearish). Alternatively, three consecutive candles that break through the level can also be decisive. Such insignia provide confirmation that the break is not a ‘false break’ or bull/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.  

The Relative Strength Index (RSI) is in the mid 60s at the time of writing after peaking in the upper 60s on May 5. This suggests a mild bearish divergence may be developing. If RSI remains below 68 at Wednesday’s close it will confirm a bearish divergence and indicate some underlying weakness. This alone, however, would not be enough evidence to conclude a reversal was in the making.

Economists at TD Securities discuss the Bank of England interest rate decision and its implications for the GBP/USD pair.

Hawkish (10%)

“The MPC hikes 25 bps but in light of the notably strong wages and inflation data, the Committee reintroduces the guidance that it expects ‘further increases in Bank Rate’ will be required if the economy evolves as expected. While the forecasts will likely show inflation being revised down in the long-term, the MPC emphasizes that the upside skew has increased further – necessitating a more aggressive policy response. GBP/USD +0.30%”

Base Case (70%)

“The MPC hikes 25 bps and leaves guidance essentially unchanged, though the language around financial and banking sector instability might be a bit softer. In doing this, the MPC essentially leaves another 25 bps hike in June on the table. The vote is likely 6/3 for 25/0, with Cunliffe joining Dhingra and Tenreyro in voting for a hold. Inflation projections will probably be tweaked slightly, though this should have limited policy implications given the substantial uncertainty bands around the projections. GBP/USD -0.15%”

Dovish (20%)

“The MPC hikes 25bps but signals a BoC-style ‘conditional pause’. Forward guidance is softened to ‘If there were to be evidence of more persistent pressures, further tightening in monetary policy would may be required’. While the latest wages and inflation data came in notably hot, the Committee emphasizes lower inflation expectation, further declines in commodity prices, and uncertainty about financial and banking sector stability as reasons why further rate hikes probably are not required. GBP/USD -0.60%”

Ahead of highly consequential presidential and parliamentary elections coming up on 14 May, and possibly extending to 28 May, Commerzbank’s FX forecasts are only symbolic for now.

Lira to ultimately break out of its recent low-volatility state if Erdogan wins

“If Erdogan wins, we expect the Lira exchange rate to ultimately break out of its recent low-volatility state produced using regulations and numerous capital controls.”

“If the opposition Nation’s Alliance wins, the market reaction will likely be sharply positive initially. But the coalition is made up of smaller parties, which came together only to oust Erdogan. The market’s enthusiasm could fade if the coalition were to run into cooperation or policy implementation challenges, which would remind markets that Erdogan can return to power.”

“Ahead of this outcome and in view of potential market dislocation, our forecasts are symbolic for now.”

Source: Commerzbank Research

• The index comes under renewed pressure on softer CPI.
• US yields reverse the multi-day recovery across the curve.
• US headline, core inflation eased further in April.

The greenback sets aside two daily gains in a row and returns to the 101.40/30 band when tracked by the USD Index (DXY) on Wednesday.

USD Index appears offered post-CPI

The index rapidly gives away earlier gains and recedes to the negative territory soon after US inflation figures printed another soft readings in April.

Indeed, inflation measured by the headline CPI rose at annualized 4.9% in April and the Core CPI climbed 5.5% over the last twelve months. On a monthly basis, both gauges rose 0.4%.

The continuation of the disinflationary way in US consumer prices sabotages the new bounce back in the greenback and motivates the USD Index (DXY) to switch ongoing increases, as the probability of a respite in the Fed's standardization cycle accumulates further footing.

Earlier in the session, MBA Mortgage Applications expanded 6.3% in the week to May 5. Later in the NA session, April’s Monthly Budget Statement will close the daily calendar.

What to look for around USD

The index now loses momentum, as earlier gains evaporate on the back of softer-than-expected US inflation prints for the month of April.

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. Debt ceiling issue.

USD Index relevant levels

Now, the index is down 0.21% at 101.43 and faces initial contention at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level). On the other hand, the break above 101.83 (weekly high May 9) would open the door to 102.40 (monthly high May 2) and then 102.80 (weekly high April 10).

• NZD/USD gains strong positive traction on Wednesday and jumps to a nearly three-month top.
• The US CPI-inspired broad-based USD weakness turns out to be a key factor boosting the pair.
• A slightly overstretched RSI on hourly/daily charts is holding back bulls from placing fresh bets.

The NZD/USD pair catches fresh bids on Wednesday, following the previous day's modest downtick, and resumes its recent upward trajectory witnessed over the past two weeks or so. The momentum picks up pace following the release of the latest US consumer inflation figures and lifts spot prices to a nearly three-month high, around the 0.6380 region during the early North American session.

The US Dollar (USD) weakens across the board after the US Bureau of Labor Statistics reported that inflation in the US, as measured by the Consumer Price Index (CPI) rose 0.4% in April and the yearly rate eased to 4.9% from 5%. Meanwhile, the Core CPI, which excludes volatile food and energy prices, came in at 0.4% and 5.5% on monthly and yearly basis, respectively. In the absence of any upside surprise, the data reaffirms expectations for an imminent pause in the Federal Reserve's (Fed) year-long rate-hiking cycle, which, in turn, weighs heavily on the buck and provides a strong boost to the NZD/USD pair.

The markets, meanwhile, have also started pricing in the possibility that the US central bank will start cutting interest rates later this year, which, along with concerns about the US debt ceiling, leads to a fresh leg down in the US Treasury bond yields. It is worth recalling that US President Joe Biden and House of Representatives Speaker Kevin McCarthy remained divided over raising the $31.4 trillion US debt limit, though agreed to continue talks aimed at breaking the deadlock. Apart from this, a positive risk tone is seen undermining the safe-haven Greenback and benefitting the risk-sensitive Kiwi.

The New Zealand Dollar (NZD) draws additional support from expectations for further rate hikes by the Reserve Bank of New Zealand (RBNZ). This, in turn, suggests that the path of least resistance for the NZD/USD pair is to the upside. That said, the Relative Strength Index (RSI) on hourly and daily charts has moved on the verge of breaking into the overbought territory. This, in turn, prompts some profit-taking and leads to a modest pullback of around 30 pips in the last hour. Nevertheless, the aforementioned supportive fundamental backdrop should limit any meaningful corrective decline.

Technical levels to watch

• US Consumer Price Index rises 0.4% in April, in line with market estimates. 
• US Dollar tumbles across the board after the report.
• AUD/USD jumps to 0.6817 and then trims gains. 

The AUD/USD pair jumped to 0.6817 after US April inflation data. The pair then pulled back and after Wall Street’s opening bell, it is hovering around 0.6790, up almost 40 pips for the day. 

USD tumbles after US inflation

Data release in the US revealed that the US Consumer Price Index (CPI) rose 0.4% in April, in line with expectations, and 4.9% YoY, slightly below the 5% of market consensus. The Core CPI rose 0.4% and the annual rate edged lower from 5.6% to 5.5%, both matching market consensus. On Thursday, the April Producer Price Index (PPI) is due. More evidence of slowing inflation could weigh further on the US Dollar. 

The US Dollar Index dropped to 101.21 and then rebounded to 101.40 as US yields moved off lows. Commodity prices soared and then pulled back. In Wall Street, the Dow Jones is up by 0.29% and the Nasdaq gains 1.03%. 

The AUD/USD holds a bullish tone, however it is pulling back after being rejected again from above 0.6800. The Aussie needs to hold firm above that area to open the doors to more gains. On the flip side, support emerges at 0.6770 followed by 0.6745. 

Technical levels 

Economists at TD Securities expect Gold price to trend higher toward new all-time records after the US inflation report came in line with expectations.

No surprises from the inflation report

“With no surprises from the inflation report, the countdown towards new all-time highs in Gold markets continues.”

“The gravitational pull in Gold markets should continue to support higher prices over the coming months.”

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

• GBP/USD gains strong positive traction on Wednesday and spikes to a fresh one-year top.
• The USD weakens following the release of the US CPI report and provides a goodish boost.
• Traders now await the key BoE decision on Thursday before placing fresh directional bets.

The GBP/USD pair catches aggressive bids during the early North American session and rallies to a fresh one-year high, around the 1.2675 region following the release of the latest US consumer inflation figures.

The US Bureau of Labor Statistics reported that inflation in the US, as measured by the Consumer Price Index (CPI) rose 0.4% in April and the yearly rate eased from 5% to 4.9% - the smallest rise since April 2021. Meanwhile, the Core CPI, which excludes volatile food and energy prices, came in at 0.4% MoM and 5.5% YoY, down from 5.6% previous and matching expectations. This further points to signs of easing inflationary pressures and reaffirms market bets for an imminent pause in the Federal Reserve's (Fed) rate-hiking cycle, which, in turn, weighs on the US Dollar (USD) and provides a goodish lift to the GBP/USD pair.

The markets, meanwhile, have also started pricing in the possibility that the US central bank will start cutting interest rates later this year. This is evident from a fresh leg down in the US Treasury bond yields, which, along with a generally positive tone around the equity markets, undermines the safe-haven Greenback. The British Pound, on the other hand, continues to draw support from rising bets for another 25 bps lift-off by the Bank of England (BoE) on Thursday. This is seen as another factor that boosts the GBP/USD pair and contributes to the strong intraday rally to its highest level since April 2022.

It, however, remains to be seen if bulls can capitalize on the move or opt to take some profits off the table ahead of the central bank even risk - the highly-anticipated BoE monetary policy meeting scheduled on Thursday. Even from a technical perspective, any subsequent move is more likely to confront some resistance near the top boundary of over a one-month-old ascending trend channel, currently pegged just ahead of the 1.2700 round-figure mark. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the upside and supports prospects for further gains.

Technical levels to watch

Alvin Liew, Senior Economist at UOB Group, assesses the latest publication of US Nonfarm Payrolls.

Key Takeaways

“US job creation again exceeded expectations with 253,000 jobs added in Apr while the jobless rate receded to the multi-decade low of 3.4% (Mar: 3.5%), as the unemployed numbers fell by 182,000 to 5.7 million and participation rate held at 62.6%. Wage growth pace was also above forecast, and faster than the previous month, at 0.5% m/m, 4.4% y/y.”

“After the 25-bps hike in the May FOMC, we had assigned a high probability the Fed will pause thereafter. We continue to expect no rate cuts in 2023, with the FFTR terminal rate at 5.25% lasting through this year.”

“Admittedly, the US Apr job creation, unemployment rate and wage growth were stronger than expected, which highlight the resilience of US labor market despite the aggressive Fed rate hikes and put doubts on the call that the Fed have reached a pause.”

• EUR/USD regains upside traction and looks at 1.1000.
• Final CPI in Germany rose 7.2 YoY, 0.4% MoM in April.
• US headline CPI dropped more than expected in April.

Sellers now hit the Greenback and help EUR/USD regain upside traction and re-shift the focus to the key barrier at 1.1000 the figure on Wednesday.

EUR/USD picks up pace on soft US CPI

EUR/USD reclaims ground lost earlier in the European session and returns to the positive territory near the key 1.1000 barrier.

Indeed, the pair manages to gather extra steam on the back of the bout of selling pressure in the Buck after US inflation figures showed disinflationary pressures continue to build in the economy.

On the latter, inflation tracked by the headline CPI rose 4.9% in the year to April and held steady at 5.5% when it comes to the Core CPI, which excludes food and energy costs.

Earlier in the domestic calendar, final inflation figures in Germany saw the CPI rise 7.2% in the year to April and 0.4% vs. the previous month. In addition, Industrial Production in Italy contracted 0.6% MoM in March and 3.2% from a year earlier.

What to look for around EUR

EUR/USD looks to regain some fresh buying interest following CPI-led weakness in the US dollar on Wednesday.

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 gaining 0.28% at 1.0989 and faces the next up-barrier at 1.1095 (2023 high April 26) would target 1.1100 (round level) en route to 1.1184 (weekly high March 21 2022). On the other hand, the next contention level aligns at 1.0941 (monthly low May 2) followed by 1.0909 (weekly low April 17) and finally 1.0831 (monthly low April 10).

• US Consumer Price Index rises 0.4% in April, matching market consensus. 
• US Dollar Index tumbles after the report as US yields decline. 
• XAU/USD jumps to highest since Friday, looking at $2,050. 

Gold Price jumped following the release of US consumer inflation and the US Dollar dropped sharply across the board. XAU/USD rose from $2,030/oz to $2,045, reaching the highest level since Friday. Silver also soared, approaching $26.00. 

The US Consumer Price Index (CPI) showed inflation rate was 0.4% in April, in line with expectations, and 4.9% YoY, slightly below the 5% of market consensus. The Core CPI rose 0.4% and the annual rate edged lower from 5.6% to 5.5%, both matching market consensus. 

Following the numbers, the US Dollar Index turned negative, falling under 101.50. US Treasury bond yields also collapsed, with the 10-year falling to 3.45% from 3.50% and the 2-year to 3.94%. 

XAU/USD is trading near the highs, looking at the $2,050 area, boosted by the weaker Dollar and also lower US yields. Above $2,050, attention would turn to the record highs in the $2,075/80 area. The immediate resistance now stands at $2,035. 

Technical levels

• USD/JPY retreats sharply from a one-week high amid the emergence of fresh USD selling.
• The softer headline US CPI print reaffirms dovish Fed expectations and weighs on the USD.
• A positive risk tone could undermine the safe-haven JPY and help limit losses for the pair.

The USD/JPY pair attracts some sellers in the vicinity of mid-135.00s, or a one-week high touched this Wednesday and the intraday descent picks up pace following the release of the US consumer inflation figures. Spot prices drop to a fresh daily low during the early North American session and currently trade just above the mid-134.00s, down over 0.50% for the day.

The US Dollar (USD) weakens across the board after the US Bureau of Labor Statistics reported that inflation in the US, as measured by the Consumer Price Index (CPI) rose 0.4% in April and the yearly rate eased to 4.9% from 5%. Meanwhile, the Core CPI, which excludes volatile food and energy prices, matched expectations, coming in at 0.4% and 5.5%, respectively, Nevertheless, the data reaffirms market bets for an imminent pause in the Federal Reserve's (Fed) year-long rate-hiking cycle, which weighs heavily on the Greenback and exerts downward pressure on the USD/JPY pair.

That said, the Bank of Japan's (BoJ) dovish stance, along with a generally positive tone around the equity markets, could undermine the safe-haven Japanese Yen (JPY) and help limit losses for the USD/JPY pair. It is worth recalling that BoJ Governor Kazuo Ueda,  speaking in parliament earlier today, said that it was too early to discuss specific plans for an exit from the massive stimulus programme. This, in turn, might hold back bearish traders from placing aggressive bets and act as a tailwind for spot prices, making it prudent to wait for strong follow-through selling before positioning for further losses.

Technical levels to watch

Since there is a lot of good news already in the price, the Pound could struggle to hold its ground going forward, economists at Rabobank report.

Some support for the USD in the coming months as 2023 rate cuts are fully priced out

“In order for GBP to maintain its out-performance, UK fundamentals will have to keep on surprising to the upside. We consider this to be unlikely.” 

“It is our view that the BoE may be forced to push the economy into recession in order to push inflation back to its 2% target. This could take the wind out of GBP sails in the latter part of the year.”

“It is our view that there will be no easing in policy from the Fed until next year. We foresee some support for the USD in the coming months as 2023 rate cuts are fully priced out.”

“We see scope for GBP/USD to push back to 1.22 on a three-month view.”

Gold broke to new highs last week, before reversing sharply lower on Friday. Economists at Credit Suisse stay biased towards an eventual move to new record highs above $2,070/75.

Gold capped for now below resistance from its $2,070 and $2,075 record highs

“With a growing bearish divergence still in place, we look for the $2,070/2,075 highs to remain a formidable barrier for now for further sideways consolidation.”

“Support is seen at $1,969 initially, then $1,950/48, which includes the 55-DMA, which we would look to hold if reached.”

“Post the current ranging phase, we believe the market will eventually move to new record highs, supported by lower US Real Yields. Above $2,075 on a weekly closing basis would be seen to mark a significant break higher, opening up a move to our first core upside objective at $2,330/2360.”

• USD/CHF gains some positive traction on Wednesday amid a modest USD strength.
• A softer risk tone lends some support to the safe-haven CHF and caps the upside.
• Traders also seem reluctant and prefer to wait for the release of the US CPI report.

The USD/CHF pair attracts some dip-buying on Wednesday and climbs back above the 0.8900 mark, albeit lacks follow-through and remains well below the overnight swing high.

The recent rise in the US Treasury bond yields, bolstered by easing fears of a full-blown banking crisis in the US, pushes the US Dollar (USD) higher for the third straight day, which, in turn, acts as a tailwind for the USD/CHF pair. That said, the uncertainty over the US debt limit, along with the Federal Reserve's (Fed) less hawkish outlook, leads to a fresh leg down in the US bond yields and caps the Greenback.

It is worth recalling that US President Joe Biden and House of Representatives Speaker Kevin McCarthy remained divided over raising the $31.4 trillion US debt limit, though agreed to continue talks aimed at breaking the deadlock. The Fed, meanwhile, last week outlined a more stringent and data-driven approach to hiking rates further. Moreover, the markets have been pricing in the possibility of rate cuts later this year.

This, in turn, is holding back the USD bulls from placing aggressive bets. Apart from this, a generally weaker tone around the equity markets lends some support to the safe-haven Swiss Franc (CHF) and contributes to keeping a lid on the USD/CHF pair, at least for the time being. Traders also seem reluctant and prefer to wait for the latest US consumer inflation figures, due during the early North American session.

The crucial US CPI report will play a key role in influencing market expectations about the Fed's next policy move, which, in turn, should drive the USD demand. Apart from this, the broader market risk sentiment should provide some meaningful impetus to the USD/CHF pair and allow traders to grab short-term opportunities. This, in turn, warrants some caution for bulls and before positioning for further gains.

Technical levels to watch

The Dollar remains broadly unchanged in the FX markets with no obvious macro news to drive the markets ahead of the key US inflation data. As debt ceiling talks see no progress, economists at MUFG Bank expect the greenback to remain vulnerable.

Debt-to-GDP is trending higher and is unsustainable

“We see a short-term solution as the most plausible at this stage. A suspension of the debt ceiling until 30th September would allow discussions to take place over the debt ceiling and the budget simultaneously (but separately) and a budget agreement for next year could at least be viewed in the context of what is going to be required for longer-term fiscal policy to stabilise debt in GDP terms.”

“What remains clear and in need of addressing is that under current legislation, debt-to-GDP is trending higher and is therefore unsustainable. The problems are vast even beyond the resolution of the debt-ceiling standoff and reinforce our longer-term US dollar view that the Dollar last year reached a long-term high and has now begun a period of depreciation.” 

• DXY extends the weekly move higher and retests 101.80.
• The index appears well supported by the 101.00 region so far.

DXY picks up further pace and challenges once again the 101.80 region on, or weekly peaks, on Wednesday.

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 102.81 and 102.98, respectively.

On the downside, there is a formidable contention around the 101.00 neighbourhood for the time being.

Looking at the broader picture, while below the 200-day SMA, today at 105.89, the outlook for the index is expected to remain negative.

DXY daily chart

• USD/CAD attracts some buyers for the second straight day, albeit lacks bullish conviction.
• Retreating Oil prices undermines the Loonie and lends support amid a modest USD uptick.
• The Fed’s less hawkish outlook seems to cap the USD ahead of the crucial US CPI report.

The USD/CAD pair edges higher for the second straight day on Wednesday, albeit struggles to capitalize on the move and remains below the 1.3400 mark through the mid-European session.

Crude Oil prices come under some selling pressure and stall a four-day recovery from a 17-month low touched last week. This, in turn, is seen undermining the commodity-linked Loonie, which, along with a modest US Dollar (USD) strength, acts as a tailwind for the USD/CAD pair. The recent rise in the US Treasury bond yields, bolstered by easing fears of a full-blown banking crisis in the US, turns out to be a key factor lending some support to the Greenback. Apart from this, a generally weaker tone around the equity markets further seems to benefit the safe-haven buck.

That said, the uncertainty over the US debt limit, along with the Federal Reserve's (Fed) less hawkish outlook, keeps a lid on the US bond yields and the USD. It is worth recalling that US President Joe Biden and House of Representatives Speaker Kevin McCarthy remained divided over raising the $31.4 trillion US debt limit, though agreed to further talks aimed at breaking the deadlock. The Fed, meanwhile, last week outlined a more stringent and data-driven approach to hiking rates further. Moreover, the markets have been pricing in the possibility of rate cuts later this year.

This, in turn, is holding back the USD bulls from placing aggressive bets and capping gains for the USD/CAD pair as traders keenly await the release of the latest US consumer inflation figures during the early North American session. The crucial US CPI report will influence expectations about the Fed's next policy move, which, in turn, should drive the USD demand. Apart from this, Oil price dynamics should provide some impetus to the USD/CAD pair and further contribute to producing short-term trading opportunities.

Technical levels to watch

• EUR/JPY faces extra selling pressure and flirts with 148.00.
• Further decline could put the 146.30 region to the test in the near term

EUR/JPY adds to Tuesday’s bearish performance and puts 148.00 to the test on Wednesday.

It seems the bullish outlook now appears somewhat dented. Against that, the cross could initially revisit the weekly low at 147.12 (May 4), while the loss of this level could spark a deeper decline to the weekly low at 146.28 (April 25).

So far, further upside looks favoured while the cross trades above the 200-day SMA, today at 142.90.

EUR/JPY daily chart

Senior Economist at UOB Group Alvin Liew reviews the latest Retail Sales results in Singapore.

Key Takeaways

“Singapore’s retail sales rose more than expected, by 2.2% m/m, 4.5%  y/y in Mar, versus the Bloomberg median estimate for a -1.1% y/y contraction. Nonetheless, it was a marked easing from Feb’s 4.1% m/m, 12.6% y/y increase (which was the highest y/y print since Aug 2022). Excluding motor vehicle sales, the sequential increase was even stronger at +2.4% m/m, and it translated to 4.1% y/y increase in Mar (from 2.2% m/m, 11.6% y/y in Feb).  Despite the less robust headline growth in Mar (compared to Feb), retail sales value was higher at S$4.1bn in Mar, from S$3.6bn in Feb.”

“Factors supporting retail sales growth continued to be domestic demand and improving tourism numbers. As we highlighted previously, Singapore Tourism board reported 2.9 million inbound tourists in 1Q23 (62% of the 4.7 million recorded in 1Q 2019) but importantly, they had also stayed longer (3.97 days versus 3.34 days in 2019).”

“Outlook – We continue to expect domestic retailers to enjoy domestic and external supports, complemented by the return of major events such as various sports, concerts and BTMICE (Business Travel and Meetings, Incentive Travel, Conventions and Exhibitions) activities attracting tourist arrivals, while strong employment and wage growth conditions in Singapore will likely contribute further to domestic consumption demand. Downside risks to retail sales in 2023 include a more cautionary external environment (with rising risk of growth slowdown and banking sector uncertainty) and still-elevated inflation pressures that may increasingly curb discretionary spending of households. The low base effect is also likely to fade, rendering less uplift especially in 2H 2023.”

EUR/USD has been hovering around 1.10 for almost a month. In the current risk-on environment, economists at Société Générale think that investors should be mindful of a set of risks to our central scenarios that could revive volatility and trigger a transitory USD rebound.

Seasonals

“May has been by far the worst month for EUR/USD over the past 20 years, with 63% of the years seeing a lower Euro. The average spot return was -2.9% in the 12 bearish years.” 

Hawkish Fed repricing

“The current Fed narrative can be described as a ‘hawkish pause’, and the market is pricing in more than 50 bps of rate cuts this year. If the US CPI doesn’t fall fast enough, the Fed might be forced to rethink and possibly trigger a harder landing. A return to a hawkish path where the market no longer expect cuts would be painful and boost the Dollar.” 

ECB tightening pace

“The latest Bank Lending Survey shows a sharp contraction in credit, suggesting that higher rates may already be undermining euro area activity amid upside core inflation risks. The euro area manufacturing PMI is now at its lowest level since June 2020.” 

Weaker China

“The unexpected drop in China imports in April (especially in commodities) raises concerns about the country’s recovery from its zero-COVID policy and its potential to stimulate the global economy.”

US banking sector 

“Tighter credit conditions are putting US regional banks under pressure, especially those with elevated CRE (commercial real estate) concentration risk. This risk is more likely to involve FX volatility upside via global volatility than the Dollar itself.”

Today brings the top of the top-tier data from the US – the Consumer Price Index (CPI) report. An upside surprise could provide support to the Dollar, economists at MUFG Bank report.

Momentum favouring the US Dollar at the moment

“An upside surprise today may still not shift the dial too much. Certainly, if there are upside surprises in more volatile components today, the reaction may be more muted than in previous CPI overshoots. Nonetheless, there must be a risk of a further liquidation of stale EUR/USD long positions.”

“The upward momentum has faded and the compelling ECB/Fed divergence trade is well priced and not as compelling following recent data flow. Risks in that regard feel more to the downside. So with the momentum favouring the US Dollar at the moment an upside surprise will add further impetus for the Dollar over the short-term.” 

“With another CPI print before the FOMC meeting in June, it would probably take a large 0.2ppt upside surprise or more to see a rates and FX move that is sustained and meaningful in size.” 

See – US CPI: Banks Preview, hot inflation still the norm

• Gold price edges lower on Wednesday and snaps a two-day winning streak.
• A modest US Dollar uptick is seen exerting some pressure on the XAU/USD.
• The downside seems limited as traders keenly await the crucial US CPI data.

Gold price struggles to capitalize on its gains recorded over the past two trading sessions and comes under some selling pressure on Wednesday. The XAU/USD remains depressed through the first half of the European session and is currently placed around the $2,030 region, just above the daily low touched in the last hour.

Modest US Dollar strength weighs on Gold price

The US Dollar (USD) edges higher for the third straight day amid the recent rise in the US Treasury bond yields, led by easing fears of a full-blown banking crisis in the United States (US). This, in turn, is seen as a key factor exerting some pressure on the US Dollar-denominated Gold price. That said, the uncertainty over the US debt limit, along with expectations that the Federal Reserve (Fed) is nearing the end of its rate-hiking cycle, act as a headwind for the US bond yields.

Fed’s less hawkish outlook, US debt ceiling worries to limit losses

It is worth recalling that the Fed last week outlined a more stringent and data-driven approach to hiking rates further. Moreover, the markets have been pricing in the possibility of rate cuts later this year, which, in turn, is holding back the USD bulls from placing aggressive bets. Apart from this, worries about slowing economic growth and the US debt ceiling should help limit any meaningful downside for the traditional safe-haven Gold price, at least for the time being.

Traders now look to consumer inflation figures from United States

In fact, US President Joe Biden and House of Representatives Speaker Kevin McCarthy remained divided over raising the $31.4 trillion US debt limit following talks on Tuesday. The two, however, agreed to further talks aimed at breaking the deadlock. Traders also seem reluctant and might prefer to move to the sidelines ahead of the release of the latest US consumer inflation figures, due later during the early North American session, for a fresh directional impetus.

Any signs of a further easing of inflationary pressures will reaffirm expectations for a less hawkish Fed and prove negative for the Greenback. Nevertheless, the crucial Consumer Price Index (CPI) report should influence market expectations about the Fed's next policy move, which, in turn, will play a key role in driving the USD demand and help determine the near-term trajectory for Gold price. Nevertheless, the fundamental backdrop still seems tilted in favour of bullish traders.

Gold price technical outlook

From a technical perspective, any subsequent slide is likely to find some support near the $2,014 area, or the weekly low touched on Monday. This is closely followed by 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.

On the flip side, the $2,040-$2,050 region might continue to act as an immediate strong barrier. 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.

Key levels to watch

The BoE is broadly seen raising its key interest rate by 25 bps at its event on May 11, suggests Economist at UOB Group Lee Sue Ann.

Key Takeaways

“The most recent batch of UK data suggest the economy is holding up and inflation is proving extremely stubborn. We are expecting a 25bps hike in May. We bear in mind, though, that the rise in interest rates is taking place against a backdrop of difficult economic conditions in the UK.”

“This takes the form of low post-pandemic growth and the continued negative effects of Brexit, with the economic misery exacerbated by the impact of food and energy price inflation at the heart of the cost-of-living crisis, which is having a particularly harmful effect on lower-income households.”

The impasse over the US debt ceiling increase is emerging as an increasingly short-term supporting factor for the Dollar, economists at ING report.

Debt-limit impasse giving Dollar a lifeline

“A meeting between President Biden and Congress Republicans did not yield much progress on a potential agreement, and while Republican leader Mitch McConnell dismissed the risk of a US default, he admitted the negotiations were at a stalemate. For now, a short-term debt-limit extension, which would be the quickest solution, has been ruled out.”

“The current situation is inevitably weighing on risk sentiment and offering support to the Dollar. There is now growing concern that it might actually take a market sell-off (in the equity or money markets) to break the impasse. This would be a scenario where the Dollar would get a significant near-term boost, also considering USD speculative shorts have risen steadily in the past few months, and one of the reasons why we favour a delay in the start of the greenback’s downtrend to the third quarter.”

NZD/USD dipped back a touch but it looks comfortable in the mid-0.63s. Kiwi remains a preferred anti-USD trade, economists at ANZ Bank report.

US CPI data will be key

“Blong 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.” “Today’s US CPI data will be key as markets eye an end to the hiking cycle; if that thesis is refuted, there will be volatility.”

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

See – US CPI: Banks Preview, hot inflation still the norm

• GBP/USD oscillates in a narrow trading band for the second successive day on Wednesday.
• A softer risk tone lends support to the safe-haven USD and acts as a headwind for the pair.
• The downside seems limited ahead of the US CPI on Wednesday and the BoE on Thursday.

The GBP/USD pair extends its sideways consolidative price move for the second straight day and remains confined in a narrow trading band, above the 1.2600 mark through the first half of the European session on Wednesday.

A generally softer tone around the equity markets benefits the safe-haven US Dollar (USD), which, in turn, is seen as a key factor acting as a headwind for the GBP/USD pair. That said, growing acceptance that the Federal Reserve (Fed) is nearing the end of its year-long rate-hiking cycle is holding back the USD bulls from placing aggressive bets. Moreover, markets have started pricing in the possibility that the US central bank will start cutting rates later this year.

In contrast, the Bank of England (BoE) is widely anticipated to hike interest rates by 25 bps on Thursday, which continues to underpin the British Pound and contributes to limiting the downside for the GBP/USD pair, at least for the time being. Traders also seem reluctant to place aggressive bets and prefer to move to the sidelines ahead of the key data/event risks - the release of the US consumer inflation figures this Wednesday and the BoE meeting on Thursday.

The crucial US CPI report will play a key role in influencing market expectations about the Fed's next policy move, which, in turn, should drive the USD demand in the near term. Apart from this, the highly-anticipated BoE decision should help investors to determine the next leg of a directional move for the GBP/USD pair. In the meantime, the divergent BoE-Fed expectations might continue to act as a tailwind for the major and warrant some caution for bearish traders.

From a technical perspective, the GBP/USD pair has been trending higher along a one-month-old ascending channel. This points to a well-established short-term bullish trend and supports prospects for a further near-term appreciating move for the GBP/USD pair. Hence, any meaningful corrective decline might still be seen as a buying opportunity and is likely to remain cushioned in the absence of any relevant market-moving data, either from the UK or the US.

Technical levels to watch

Fed policy will be key for Gold over the medium term, strategist at ING report.

Fed’s rate path crucial to Gold trajectory

“We think the Fed will wait until the fourth quarter, but will end up cutting interest rates more aggressively, at least in the early stages, forecasting 50 bps rate cuts at both the November and December FOMC meetings with the Fed funds rate getting down to 3% by mid-2024.”

“We would expect real yields to follow policy rates lower later in the year, which should prove supportive for Gold prices.”

“We see prices moving higher over the second half of next year, given that the Fed should start cutting rates towards the end of this year.”

European Central Bank (ECB) President Christine Lagarde said on Wednesday, “we still have more ground to cover in the fight against inflation.”

Additional quotes

“There are factors that can induce significant upside risks to the inflation outlook.”

“ECB has to be extremely attentive to potential risks, in particular wage increases.”

“We have moved in a very deliberate, decisive way to fight inflation.”

“But we still have more ground to cover.”

“We do not forecast a recession in our baseline projection for this year.”

“We are in a better position now than where we were six months ago.”

Market reaction

Despite the hawkish comments from Lagarde, EUR/USD is holding lower near 1.0950, down 0.09% on the day.

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group note further downside in USD/CNH should meet a tough contention area around 6.8500.

Key Quotes

24-hour view: “We highlighted yesterday that ‘we continue to expect USD to trade sideways, likely between 6.9150 and 6.9350’. USD traded sideways as expected, albeit in a narrower range than expected (6.9218/6.9340). USD could continue to trade sideways, likely in a range of 6.9180/6.9350.”

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).”

• AUD/USD turns lower for the second successive day, albeit lacks follow-through selling.
• A softer risk tone lends some support to the USD and weighs on the risk-sensitive Aussie.
• The downside remains cushioned as traders keenly await the release of the crucial US CPI.

The AUD/USD pair attracts some sellers following an intraday uptick to the 0.6775 area on Wednesday and turns lower for the second successive day, though lacks follow-through. Spot prices trade with a mild negative bias, just above mid-0.6700s during the early part of the European session, down less than 0.10% for the day.

A generally softer tone around the equity markets lends some support to the safe-haven US Dollar (USD), which, along with concerns over Chinese economic growth, turn out to be a key factor undermining the risk-sensitive Aussie. The downside for the AUD/USD pair, however, remains cushioned, at least for the time being, warranting some caution for aggressive bearish traders and positioning for any meaningful slide.

The Australian Dollar (AUD) continues to draw support from the Reserve Bank of Australia's (RBA) hawkish outlook, indicating that some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time. The Federal Reserve (Fed), on the other hand, is expected to pause its year-long rate-hiking cycle, which acts as a headwind for the USD and lends support to the AUD/USD pair.

The markets, meanwhile, have also started pricing in the possibility that the US central bank will start cutting interest rates later this year. This, in turn, suggests that the path of least resistance for the buck is to the downside and supports prospects for the emergence of some dip-buying around the AUD/USD pair. Traders, however, might prefer to wait for the release of the latest US consumer inflation figures before placing fresh bets.

The crucial US CPI report will play a key role in influencing expectations about the Fed's next policy move and drive the USD demand in the near term. Apart from this, the broader risk sentiment should provide some meaningful impetus to the AUD/USD pair and allow traders to grab short-term opportunities ahead of Chinese inflation figures, due during the Asian session on Thursday.

Technical levels to watch

Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, discusses the vagaries of inflation momentum, the reaction function of the central banks and the EUR/USD outlook. 

The ECB disadvantage is less relevant

“What is more relevant is how endogenous inflation momentum develops (i.e. prior to the controlling intervention of the ECB). Because at present uncertainty about that is particularly high, that is decisive, not the ECB’s reaction function. And because that is the case the old difficulties of joint monetary policy for a heterogenous continent like Europe are less relevant at present. They are irrelevant compared with endogenous inflation momentum.”

“The fundamental disadvantage of the particular European monetary policy against that of the Fed plays a subordinate role and is therefore not a relevant factor putting pressure on EUR/USD. While that is the case, I am principally EUR-positive. However, we should not make the mistake of believing that this will always be the case.”

Considering advanced figures from CME Group for natural gas futures markets, open interest resumed the uptrend and went up by nearly 4K contracts on Tuesday. In the same direction, volume rose for the third session in a row, now by around 40.1K contracts.

Natural Gas looks stuck within $2.00-$2.50

Tuesday’s inconclusive price action in natural gas prices came along rising open interest and volume, which leaves practically unchanged the consolidation theme within $2.00-$2.50 per MMBtu in place since late March.

The probability that USD/JPY could slip back to the 133.00 region appears not favoured for the time being, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We noted yesterday ‘the price movements appear to be consolidative’ and we expected USD to ‘trade sideways in a range of 134.55/135.55’. USD traded sideways as expected albeit in a narrower range of 134.71/135.35. Further sideways trading appear likely, expected to be between 134.70 and 135.55.”

Next 1-3 weeks: “Our update from yesterday (09 May, spot at 135.10) still stands. As highlighted, after plummeting to a low of 133.49 last Friday, USD has not been able to make further headway on the downside. The odds for USD to weaken further to 133.00 have diminished. However, only a breach of 135.85 (no change in ‘strong resistance’ level from yesterday) would suggest that the weakness in USD has stabilized.”

The US will see the release of the April inflation report today. Economists at ING expect the figures to underpin the Dollar in the near term.

CPI figures come into focus

“Our economist’s call is aligned with consensus: a 0.4% MoM read in core CPI, translating into a marginal deceleration from 5.6% to 5.5%. Headline inflation may stabilise at 5.0% or slightly decelerate to 4.9%.”

“If these are the numbers we see in today’s print, we think the Fed will be allowed to leave the door open to a potential revamp of tightening (even though we think the peak has been reached) and most importantly have some support – also offered by strong jobs data – to keep pushing back against rate cut expectations.”

“All in all, today’s inflation may also contribute to putting a floor under the Dollar in the near term, even though we remain resolutely bearish on the greenback for the second half of the year.”

See – US CPI: Banks Preview, hot inflation still the norm

Open interest in crude oil futures left behind the previous daily drop and rose by around 6.4K contracts on Tuesday according to preliminary readings from CME Group. Volume followed suit and went up by around 64.6K contracts after three consecutive daily pullbacks.

WTI: Next relevant target comes at $80.00

Prices of the barrel of the WTI extended the march north on Tuesday on the back of increasing open interest and volume, leaving the door open to the continuation of the uptrend in the very near term. That said, the immediate resistance level of note for the commodity appears at the key $80.00 mark per barrel so far.

• EUR/USD trades without clear direction near 1.0960.
• Final CPI in Germany rose 7.2 YoY, 0.4% MoM in April.
• US inflation figures will be in the limelight later in the session.

 The European currency keeps the prudent stance well in place and motivates EUR/USD to gyrate around the 1.0960 region on Wednesday.

EUR/USD now looks at US inflation

EUR/USD maintains the vacillating mood well south of the 1.1000 mark amidst the generalized cautiousness ahead of the release of key US inflation figures gauged by the CPI for the month of April.

In the meantime, spot remains under pressure against the backdrop of the increased buying interest in the Greenback and the resumption of the risk-off mood in the first half of the week.

In the docket, final inflation figures in Germany saw the CPI rise 7.2% in the year to April and 0.4% vs. the previous month. In addition, Industrial Production in Italy contracted 0.6% MoM in March and 3.2% from a year earlier.

Across the pond, all the attention will be on the publication of April’s CPI. Further data will see weekly Mortgage Application and the Monthly Budget Statement.

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 0.03% at 1.0957 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/GBP bounces off a multi-month low touched on Wednesday, though lacks follow-through.
• The mixed comments by ECB policymakers fail to impress the Euro bulls or provide any impetus.
• Traders also seem reluctant to place fresh directional bets ahead of the BoE meeting on Thursday.

The EUR/GBP cross stages a modest bounce from a nearly five-month low, around the 0.8670 region touched this Wednesday and sticks to its modest gains through the early part of the European session. Spot prices, however, struggle to capitalize on the move and remain below the 0.8700 round-figure mark.

Against the backdrop of the recent sharp decline, the intraday uptick in the EUR/GBP cross could be attributed to some short-covering. The upside for the EUR/GBP cross, however, remains capped amid mixed comments from the European Central Bank (ECB) officials. In fact, Isabel Schnabel, a member of the ECB's Executive Board, stated that there is no doubt that the central bank will have to take additional measures to bring inflation back to target.

Separately, the ECB Governing Council member Yannis Stournaras told a Greek newspaper on Wednesday that we are close to the end of the tightening cycle and as things stand now, we can say that interest rate hikes will be over in 2023. This, in turn, might hold back traders from placing aggressive bullish bets around the shared currency and keep a lid on any meaningful appreciating move for the EUR/GBP cross, at least for the time being.

The British Pound, on the other hand, continues to draw support from rising bets for another 25 bps rate hike by the Bank of England (BoE) on Thursday. This might further contribute to capping the EUR/GBP cross in the absence of any relevant market-moving economic releases, either from the Eurozone or the UK. Traders also seem reluctant and might prefer to wait on the sidelines ahead of the highly-anticipated BoE policy meeting on Thursday.

Technical levels to watch

EUR/GBP has now broken below 0.8700, the lowest level since December. Economists at ING expect the pair to turn back higher.

EUR/GBP weakness not very sustainable

“A good part of Sterling’s outperformance over the Euro relies on the market’s hawkish expectations on the BoE, with 70 bps of tightening still priced in this year.”

“In our view, there are good chances this week will mark the last rate hike of this cycle, and the Pound will struggle to hold on to its strength against the Euro as its rate advantage gradually erodes.”

“We continue to target 0.90 by year-end.”

Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, previews US Consumer Price Index (CPI) report due out today.

The YoY data is of little interest for the current situation

“In view of the volatile development of inflation recently, the majority of market participants are likely to have found out one thing by now: What matters is the month-on-month comparison, not the year-on-year data. In April 2022 the US CPI rose by 0.4% for example. The year-on-year rate will fall if the CPI rose by less than 0.4% this March.”

“That means the year-on-year data constitutes the comparison with an inflation period long in the past, which means it is of little interest for the current situation. The majority of market participants have long since understood that. I think it is an old wives’ tale that the market would still be impressed by base effects like that.”

See – US CPI: Banks Preview, hot inflation still the norm

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

The US Dollar Index, which tracks the US Dollar's (USD) performance against a basket of six major currencies, seems to have gone into a consolidation phase after having closed the first two days of the week in positive territory. Although markets stay relatively quiet early Wednesday, April Consumer Price Index (CPI) data from the US should ramp up volatility in the second half of the day.

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

Wall Street's main indexes closed in negative territory on Tuesday amid a lack of progress in debt ceiling negotiations. US stock index futures trade modestly higher in the European morning on Wednesday and the benchmark 10-year US Treasury bond yield fluctuates slightly above 3.5%. 

CPI Data Expectations: Analyzing US inflation

EUR/USD extended its downward correction on Tuesday and closed well below 1.1000. With hawkish comments from European Central Bank (ECB) governors helping the Euro hold its ground, the pair edges higher early Wednesday but remains below 1.1000. The data from Germany showed earlier in the day that the annual CPI rose 7.2% in April, matching the flash estimate and the market expectation.

GBP/USD's losses remained limited despite risk aversion on Tuesday as markets refrain from betting Pound Sterling weakness ahead of the Bank of England's policy announcements on Thursday. The pair continues to fluctuate above 1.2600 early Wednesday.

Bank of England Preview: Bailey to break Pound's rally with reluctance to raise rates further.

USD/JPY registered small gains on Tuesday and trades above 135.00 in the European morning. The data from Japan revealed that the Leading Economic Index declined to 97.5 in March from 98 in February. Meanwhile, Bank of Japan (BoJ) Governor Kazuo Ueda said on Wednesday that the BoJ’s ETF buying was helping underpin consumption and capex by preventing volatile market moves from hurting public confidence.

Following a quiet European session, Gold price edged higher in the second half of the day on Tuesday and closed in positive territory, supported by safe-haven flows. XAU/USD stays relatively calm on Wednesday and moves up and down in a tight channel at around $2,030.

Bitcoin struggled to find direction on Tuesday and closed the day virtually unchanged above $27,500. BTC/USD stays under modest bearish pressure in the European morning. Ethereum registered small losses on Tuesday and continues to trade within a touching distance of $1,800 early Wednesday.

Economists at ING believe that the EUR/USD pair could see additional losses toward the 1.09 level.

News from the US will drive most EUR/USD moves

“The debate about headline versus core inflation, given the pronounced energy base effect and the resilience of core measures, looks set to be a key leverage point for the hawkish rhetoric within the ECB.”

“Today, we’ll hear from Madis Muller and Mario Centeno, while the Euro remains without a clear domestic driver and news from the US will drive most EUR/USD moves.”

“There are lingering downside risks for EUR/USD, which might extend the correction to 1.0900 today.”

• USD/JPY gains traction for the fourth straight day and touches a one-week top.
• Dovish remains by the BoJ Governor Ueda weigh on the JPY and lend support.
• A modest USD downtick acts as a headwind ahead of the crucial US CPI report.

The USD/JPY pair edges higher for the fourth successive day on Wednesday and climbs to a one-week high, around mid-135.00s during the early European session.

The Japanese Yen (JPY) weakens a bit in reaction to dovish-sounding comments by the Bank of Japan (BoJ) Governor Kazuo Ueda and turns out to be a key factor pushing the USD/JPY pair higher. Speaking in parliament, Ueda said it was too early to discuss specific plans for an exit from the BoJ's massive stimulus programme, including how it could unload its huge holdings of exchange-traded funds (ETF). He added that the central bank will debate an exit strategy from its ultra-loose monetary policy, and communicate it to the public, once prospects to achieve stable inflation are in place. That said, a modest US Dollar weakness keeps a lid on any further gains for the major, at least for the time being.

Investors now seem convinced that the Federal Reserve (Fed) is nearing the end of its year-long rate-hiking cycle. This is evident from a softer tone around the equity markets, which fails to assist the USD to capitalize on its gains recorded over the past two trading sessions. Apart from this, the cautious market mood lends some support to the safe-haven JPY and acts as a headwind for the USD/JPY pair. Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the release of the latest US consumer inflation figures, due later today.

The crucial US CPI report will play a key role in influencing market expectations about the Fed's next policy move. This, in turn, should drive the USD demand in the near term and help investors to determine the next leg of a directional move for the USD/JPY pair. Nevertheless, the aforementioned mixed fundamental backdrop warrants some caution for bullish traders and before positioning for any further intraday appreciating move.

Technical levels to watch

Gold inched higher yesterday ahead of key inflation data in the United States. Economists at ANZ Bank expect the yellow metal to hit a new all-time record high on a soft report.

Investors are watching for any clues on the Fed’s interest rate trajectory

“Investors are watching for any clues on the Federal Reserve’s interest rate trajectory.”

“The precious metal has been hovering around the $2,020/oz mark for several sessions, which is just below its all-time record high. Any signs of easing consumer prices should see this record under threat.”

See – US CPI: Banks Preview, hot inflation still the norm

• Silver price portrays pre-data anxiety inside weekly symmetrical triangle, 100-SMA, 200-SMA adds strength to the breakout points.
• Steady RSI suggests further grinding of XAG/USD price, highlighting the importance of US CPI for April.
• Multiple trading filters stand tall to challenge commodity prices while buyers keep the reins.

Silver price (XAG/USD) aptly depicts the market’s cautious mood as traders brace for the all-important US inflation data, namely Consumer Price Index (CPI) for April, amid the early European session on Wednesday. In doing so, the bright metal seesaws within a symmetrical triangle comprising multiple levels marked since Monday, making rounds to $25.60-50 by the press time.

Apart from the aforementioned weekly symmetrical triangle, the 100-SMA and the 200-SMA also restrict the short-term XAG/USD moves between $25.70 and $25.40 in that order. That said, the steady RSI (14) line and the commodity’s sustained trading near the multi-month top marked the last week keep the Silver buyers hopeful.

Also acting as a short-term upside filter is a one-week-old horizontal area near $25.90 and the $26.00 round figure, not to forget the tops marked in April, as well as in the last week, around $26.10-15.

On the contrary, a clear downside break of $25.40 isn’t a welcome sign for the Silver sellers as the 61.8% Fibonacci retracement level of April 25 to May 05 moves, near $25.10.

It’s worth mentioning that the previous monthly low joins multiple tops marked during early 2023 to highlight the $24.50 level as an important support for the Silver bears to watch for entries.

Overall, the Silver price remains on the bull’s radar despite the latest inaction.

Silver price: Hourly chart

Trend: Gradual upside expected

The US Bureau of Labor Statistics (BLS) will release the most important inflation measure, the US Consumer Price Index (CPI) figures, on Wednesday, May 10 at 12:30 GMT. As we get closer to the release time, here are the forecasts by the economists and researchers of 10 major banks regarding the upcoming United States inflation print for the month of April.

Annual CPI inflation in the US is forecast to stay unchanged at 5% in April. On a monthly basis, it is expected to rise 0.4% vs. 0.1% in March. The Core CPI, which excludes volatile food and energy prices, is expected to rise 0.3% month-on-month vs. 0.4% in March, while the year-on-year rate is expected to fall a tick to 5.5%.

ANZ

“We expect core CPI inflation to rise by 0.4% MoM and headline CPI by 0.5% in April. The Fed has opened the door to a pause. Henceforth, policy will be considered on a meeting-to-meeting basis. The  Fed remains concerned about inflation being too high and will raise rates further if appropriate.”

Danske Bank

“We look for a moderation in core CPI to 0.3% MoM from 0.4% MoM but focus will be on the development in the service ex-shelter component, which the Fed highlights as the key component.”

Commerzbank

“We forecast a 0.4% increase in the CPI from March. We expect the same increase for the index excluding energy and food. The headline YoY rate would then remain at 5.0% while the core rate would fall slightly from 5.6% to 5.5%.”

TDS

“We look for core-price inflation to stay firm again, with the index rising a strong 0.4% MoM for a second straight month, as goods inflation likely continued to gain momentum. In fact, we expect core goods prices to advance at their firmest MoM pace since June last year mostly on the back of surging used vehicle prices. On the other hand, we expect shelter prices to have rebounded after March's sharp slowing. The shelter category remains the key wildcard behind any surprises on the CPI report. Separately, rising gas prices (+2.6% MoM) will likely lift non-core inflation, also helping to support a rebound on headline CPI prices (TD: 0.4% MoM). Our MoM forecasts imply 5.0%/5.5% YoY for total/core prices, respectively.”

RBC Economics

“US inflation report is expected to show headline inflation unchanged at 5%, matching the annual rate in March. A 3% monthly increase in gasoline prices (on a seasonally adjust basis) likely pushed April energy prices up slightly, to -4.5% on a YoY basis. But with oil prices running well below year-ago levels, energy prices should continue to lose steam. And though food inflation is still high, it likely slowed again in April. We expect this measure to slip to ~8% from a year ago. Outside of food and energy products, ‘core’ CPI growth also likely slowed. We expect this measure to fall to 5.4% from 5.6% in March on a YoY basis or increase 0.3% from March.”

NBC

“The energy component likely rebounded in the month, helping the headline index to advance 0.5%. If we’re right, the YoY rate should move up one tick to 5.1%. The core index, meanwhile, may have continued to be supported by rising rent prices and advanced 0.3% on a monthly basis. This would translate into a two-tick decline of the 12-month rate to 5.4%.”

CIBC

“Core prices likely maintained a 0.4% monthly pace in April, in line with the strengthening in the labor market that will have supported demand. That will have offset any softness in the shelter sub-index, which would reflect the easing in new rental rates seen last year. The core services group outside of shelter will garner the most attention, given that it’s a better predictor of the underlying output gap and where inflation is headed. On that front, the acceleration in the labor market could portend firmer price pressures. Adding food and energy prices back into the mix likely showed faster price increases, at a 0.5% MoM pace, as the OPEC+ announcement to cut oil production fed through to higher prices at the pump.”

Citi

“We expect a 0.435% MoM increase in core CPI in April, technically rounding to 0.4%. After the start of long-awaited moderation in shelter prices in March, monthly CPI prints will be particularly sensitive to a more uncertain path for shelter prices over the coming months. Shelter prices should continue to slow on average over the coming months, although the MoM path is unlikely to be smooth. We pencil a 0.62% MoM increase in primary rents and a 0.57% increase in owners’ equivalent rent in April, still stronger increases than in March. Headline CPI should rise 0.5% MoM as energy prices rebound with rising retail gas prices.”

Wells Fargo

“We estimate that annual growth in the headline index held steady at 5.0% in April, as higher gas prices likely led the monthly CPI growth rate to pick up to 0.4%. We do not expect that consumers found much relief in core goods and services prices either. Our forecast suggests that core inflation remained elevated at 0.4% over the month, amounting to a 5.5% annual inflation rate. As we have been saying for some time now, we expect that slowing economic activity will trigger a material deceleration in inflation, but the path back to 2% will be long and bumpy.”

Deutsche Bank

“We expect headline and core to come in at +0.3% MoM (vs +0.1% and +0.4% in March, respectively).”

In an interview with Deutschlandfunk on Wednesday, European Central Bank (ECB) policymaker and Bundesbank Chief Joachim Nagel said that he is, “optimistic that monetary policy is having an impact.”

He said that he doesn’t share concerns over German banks.

Further comments

“We might be approaching the final stretch of rate hikes.”

“But we are not done hiking yet.”

“There is still work to be done on core inflation.”

“We are holding the course on monetary policy.”

“Very satisfied with ECB’s monetary policy.”

“Lagarde and I have identical understanding of policy.”

Market reaction

The above comments fail to move a needle around the Euro, as EUR/USD keeps its range to trade +0.09% at around 1.0970.

Economists at Commerzbank have adjusted their EUR/SEK forecasts.

The end of the interest rate cycle in Sweden is approaching

“The end of the interest rate cycle in Sweden is approaching, despite persistently high inflation rates. Moreover, the Riksbank no longer seems to be as concerned as before about the inflationary effect of a weak Krona. It is therefore difficult for the Krona to appreciate against the Euro in the short term, which benefits from a seemingly more restrictive ECB.” 

“Only later should EUR/SEK fall again, more slowly and from higher levels though. We adjusted our EUR/SEK forecasts accordingly.”

Source: Commerzbank Research

• Gold price pares weekly gains, snaps two-day winning streak ahead of US CPI.
• Mixed sentiment, sluggish US Dollar prods XAU/USD bulls amid light calendar elsewhere.
• Easing US inflation pressure can help the Gold price to cross $2,050 key hurdle.

Gold price (XAU/USD) struggles to defend its three-week uptrend as US inflation data looms. Also challenging the XAU/USD buyers are the mixed concerns about the US default and banking fallouts, as well as the market’s disbelief in the hawkish Fed talks and recently downbeat US data. Above all, the precious metal’s traditional risk-safety allure joins the US Dollar’s retreat to keep the Gold buyers despite the latest corrective move.

Apart from the US inflation data, progress on the US debt ceiling negotiations will also be crucial to watch for the Gold traders, especially amid the first failure to seal the deal and Moody’s concerns citing a “real” threat of default. Meanwhile, optimism surrounding Asia, one of the biggest customers of Gold, joins the mildly bid equities to underpin the XAU/USD run-up.

Also read: Gold Price Forecast: XAU/USD could retake $2,050 and beyond on soft United States inflation data

Gold Price: Key levels to watch

As per our Technical Confluence Indicator, the Gold price justifies the failure to cross the $2,050 hurdle while printing the first daily loss in three. That said, the upper band of the Bollinger on the daily chart joins Pivot Point one-day R2 and the previous monthly high to cite the aforementioned level as an important upside hurdle for the XAU/USD.

It’s worth noting that the latest Gold price retreat needs validation from the $2,025 support confluence including Fibonacci 23.6% on one month, Fibonacci 61.8% on one-day and the lower band of the Bollinger on hourly chart.

Should the Gold price drops below $2,025 key support, it can quickly drop to $2,010 level comprising the Fibonacci 38.2% on monthly, Pivot Point one-day S2 and 10-DMA, a break of which won’t hesitate to challenge the $2,000 round figure.

Alternatively, 5-DMA joins Fibonacci 23.6% on one-day to guard the immediate upside of the Gold price near $2,035, a break of which could direct the Gold price toward the s$2,045 hurdle including the Pivot Point one-month R1.

Following that, the all-important $2,050 resistance confluence, including upper band of the Bollinger on one-day, Pivot Point one-day R2 and previous monthly high, will be the key to watch for the Gold buyers.

In a case where the Gold price remains firmer past $2,050, the recently reported all-time high of around $2,080 will be in the spotlight.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

European Central Bank (ECB) Governing Council member Yannis Stournaras told a Greek newspaper on Wednesday, “as things stand now, we can say that interest rate hikes will be over in 2023.”

Additional takeaways

“We are close to the end of the tightening cycle.”

“But cannot say how many more rate hikes are still needed.”

“We may possibly return back to very low rates again but don't know that yet.”

EUR/USD reaction

EUR/USD is little moved by the above comment, keeping its range at around 1.0970, up 0.09% on the day.

• NZD/USD regains positive traction on Wednesday, albeit lacks follow-through buying.
• The cautious market mood lends some support to the USD and acts as a headwind.
• The downside seems cushioned as traders seem reluctant ahead of the key US CPI.

The NZD/USD pair attracts fresh buying following the previous day's downtick and sticks to a mildly positive tone heading into the European session on Tuesday. The pair is currently placed just below mid-0.6300s and remains well within the striking distance of over a one-month high touched earlier this week.

The US CPI report will play a key role in influencing the market expectations about the Federal Reserve's (Fed) next policy move, which, in turn, should drive the US Dollar (USD) demand and provide a fresh directional impetus to the NZD/USD pair. In the meantime, the cautious market mood is seen lending some support to the safe-haven Greenback amid easing fears of a full-blown banking crisis in the US and acting as a headwind for the risk-sensitive Kiwi.

The downside for the NZD/USD pair, however, remains cushioned, at least for the time being, as the USD bulls seem reluctant in the wake of growing acceptance that the Fed is nearing the end of its year-long rate-hiking cycle. Apart from this, expectations for further rate hikes by the Reserve Bank of New Zealand (RBNZ) should help limit losses for the major. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the upside.

Even from a technical perspective, this week's sustained breakout through a downward sloping trend line, extending from the YTD peak touched in February, favours bullish traders and adds credence to the positive outlook. Hence, a move back towards retesting April monthly swing high, around the 0.6380 region, looks like a distinct possibility. That said, concerns over China could act as a headwind for the NZD/USD pair ahead of the Chinese inflation figures on Thursday.

Technical levels to watch

• USD/CAD is aiming to recapture the round-level resistance of 1.3400 as oil corrects and the USD Index has rebounded.
• A bipartisan agreement is anticipated from US debt ceiling talks as a delay in the debt ceiling raise is not an option.
• An expression of consistently increasing inflation could compel the Federal Reserve to reconsider its neutral tone conveyed in the prior policy meeting.
• Oil prices are struggling to stretch recovery as investors are worried that persistence in the US inflation would deepen fears of recession.

USD/CAD is marching towards the round-level resistance of 1.3400 in the early European session. The Loonie asset has attracted significant bids after defending its crucial support of 1.3374. A decent recovery in the US Dollar Index (DXY) and a correction in the oil price have provided support to the Loonie asset.

S&P500 futures have trimmed some gains added in the Asian session as anxiety among investors ahead of the United States Consumer Price Index (CPI) data is soaring, portraying a risk-off market mood. US equities also faced selling pressure on Tuesday as investors were worried about the US debt ceiling crisis. While fears of a US debt ceiling crisis have been fueled further as negotiations between the White House and Republican leaders have adjourned till Friday.

The USD Index has rebounded firmly from the day’s low of 101.53. Investors are dodging US inflation-inspired uncertainty by diverging funds into the USD Index. Meanwhile, the yields offered on 10-year US government bonds are struggling for recovery. The 10-year US Treasury yields are trading below 3.52%.

US debt ceiling talks adjourned till Friday

White House officials and Republican leaders met late Tuesday for negotiations over US debt ceiling issues as a delay in the same is deepening fears of US Treasury default in addressing obligated payments. In the meeting, US President Joe Biden reiterated the requirement of raising the debt ceiling without compromising the spending budget. And US Biden is ready for a separate discussion about the budget.

On the other side, Republican House of Representatives Speaker Kevin McCarthy remained stuck to his intention of not approving debt ceiling raise without cutting the President’s spending initiatives to safeguard escalating budget deficit.

The street is anticipating a bipartisan agreement on Friday as US President Joe Biden made clear during the meeting that the US economy default is not an option.

Postponement of US debt ceiling talks put US inflation in spotlight

As negotiations for the US debt ceiling raise have adjourned till Friday, investors have shifted their focus towards the US Inflation data. As per the preliminary report, monthly headline and core CPI figures are expected to jump by 0.4%. While annual headline inflation is seen steady at 5.0% and the core CPI that excludes volatile food and oil prices is seen softening mildly to 5.5% from the former release of 5.6%.  An expression of consistently increasing inflation could compel the Federal Reserve (Fed) to reconsider its neutral tone conveyed in the previous monetary policy meeting.

Analysts at Goldman Sachs believe that softer United States CPI data is likely to be supportive of a rally in US stocks. They further added that CPI around or below the 5% consensus could spark an equity rally, with the S&P 500 rising at least 0.5%.” However, “A surprisingly strong reading would send stocks sharply lower, S&P 500 could drop at least 2% on a reading above 5.9%.”

Oil prices correct ahead of inventory data

West Texas Intermediate (WTI), futures on NYMEX, have corrected after failing to sustain above the critical resistance of $73.50. Oil prices are struggling to stretch recovery as investors are worried that an expression of persistence in US inflation would deepen fears of recession as the Federal Reserve will consider hiking interest rates further. Going forward, investors will keep an eye on the oil inventory data for the week ending May 05 to be released by US Energy Information Administration (EIA).

It is worth noting that Canada is the leading exporter of oil to the United States and a correction in the oil price is impacting the Canadian Dollar.

USD/CAD technical outlook

USD/CAD has shown a decent recovery after testing the demand zone placed in a narrow range of 1.3303-1.3315 on a four-hour scale. The Loonie asset is retracing toward the 20-period Exponential Moving Average (EMA), which is around 1.3410.

The Relative Strength Index (RSI) (14) is attempting a break into the 40.00-60.00 range from the bearish range of 20.00-40.00, which will trim downside bias for the Loonie asset.

• Annualized Consumer Price Index in the US is expected to rise 5.0% in April, holding steady from March numbers.
• Core CPI inflation is foreseen at 5.5% YoY in April, down from March’s 5.6% clip.
• US Dollar set to rock as US CPI could have a significant impact on the Fed’s rate outlook.

The Consumer Price Index (CPI) data release for April, published by the US Bureau of Labor Statistics (BLS), is scheduled for May 10 at 12:30 GMT. 

The United States Dollar (USD) has been attempting a tepid recovery after a strong April Nonfarm Payrolls report. The Loan Officer Survey, published by the Federal Reserve (Fed) on Monday, showed that US credit conditions were less gloomy than expected, which is also aiding the US Dollar rebound. 

Markets now eagerly look forward to the inflation data to gauge how the Fed might adjust its monetary policy at its next meeting in June, looking for fresh USD valuations.

What to expect in the next CPI data report?

The US Consumer Price Index data, on an annualized basis, is foreseen to rise 5.0% in April, the same pace as in March. The Core CPI number, which excludes volatile food and energy prices, is expected to rise 5.5%, a tad below the 5.6% print reported in March.

Over the month, the headline Consumer Price Index is foreseen to accelerate, with a 0.4% increase expected in April, up from the 0.1% increase registered in March. However, the Core CPI is expected to keep rising 0.4%, the same pace as the previous month.  

The US CPI data will hold the utmost relevance for the Federal Reserve, as the US central bank made it clear at its May 3 policy meeting that “it will take data a dependent approach to determine the extent of further rate hikes” as elevated inflation levels and the banking sector stress remain in focus. The Fed raised the target range for the federal funds rate by the expected 25 basis points (bps) to 5.0%-5.25%. Federal Reserve Chairman Jerome Powell, however, adopted a cautious tone during his press conference, noting that the Fed is prepared to adjust the stance of monetary policy as appropriate if risks emerge. 

US bank shares plunged last week, as a crisis of confidence in the country's banking sector continued. Shares in California-based PacWest plunged 50%, while Western Alliance stock also tumbled nearly 40%. The sell-off in bank shares gathered steam this week after First Republic was seized by regulators and sold to America's biggest bank, JPMorgan Chase.

Analysts at TD Securities provide a brief preview of the key macro data and explain: “Market attention this week will focus on April CPI data following a payrolls report that was less strong than the headline beat would suggest. We look for core-price inflation to stay firm again, with the index rising a strong 0.4% MoM for a second straight month, as goods inflation likely continued to gain momentum.”

When will be the Consumer Price Index report and how could it affect EUR/USD?

The CPI data report is scheduled for release at 12:30 GMT, on May 10. A softer-than-expected reading, especially in the monthly core inflation, could ramp expectations for a Fed rate cut in the second half of this year. According to the CME Group FedWatch Tool, markets are currently pricing roughly a 90% probability of a Federal Reserve pause in June while seeing a 33% chance of a rate cut as early as July.

Last week’s US Nonfarm Payrolls blowout and Jerome Powell’s commentary pushed back on market expectations of a rate cut this year but the overnight index swaps (OIS) only partially trimmed rate-cut expectations for July. The headline US Nonfarm Payrolls (NFP) jumped by 253K in April, better than both the 179K expected and the previous figure of 165K. The Unemployment Rate unexpectedly ticked lower to 3.4% in April while the annualized Average Hourly Earnings rose to 4.4% in the reported month vs. 4.2% expected.

The wage inflation unexpectedly accelerated in April and, therefore, the April CPI data will be closely examined to determine whether the Fed could stay on hold for longer before opting for rate cuts later this year.

A downbeat CPI print will reinforce market expectations of Fed rate cuts sooner (than later), re-fuelling the US Dollar downtrend. This, in turn, should allow the EUR/USD pair to resume its bullish momentum, targeting the 1.1100 level yet again. On the other hand, surprisingly stronger inflation data from the United States could lead to a re-pricing of the Fed's interest rates outlook, in turn, offering an additional leg to the ongoing recovery in the US Dollar.

The US Dollar is set to rock on immediate market reaction, as any meaningful divergence from the expected readings should infuse extreme volatility in the markets and allow traders to grab short-term opportunities around the EUR/USD pair.

Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “EUR/USD settled below the critical short-term 21-Day Moving Average (DMA) support at 1.0997 on Tuesday. With the 14-day Relative Strength Index (RSI), however, still defending the midline, Euro buyers remain hopeful. 

Dhwani also outlines important technical levels to trade the EUR/USD pair: “On the upside, EUR/USD buyers need to find a foothold above the bullish 21 DMA support-turned resistance, above which Monday’s high of 1.1053 could be challenged. A sustained break above the latter will re-open doors toward the yearly high of 1.1095.”

CPI data related content

• Markets tread water ahead of US CPI
• EUR/USD struggles to surpass 1.0980 as USD Index rebounds, US Inflation hogs spotlight
• US April CPI Preview: How will inflation data influence Fed rate outlook?

About the Consumer Price Index

The Consumer Price Index released by the US Bureau of Labor Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish).

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

- EUR/USD: EUR amounts        

• 1.1070 1.09b
• 1.1150 873m
• 1.1100 672m

- USD/JPY: USD amounts                     

• 136.00 821m
• 135.45 600m
• 148.00 412m

- AUD/USD: AUD amounts

• 0.6900 2.75b

- USD/CAD: USD amounts       

• 1.3600 785m
• 1.3450 711m

As long as AUD/USD trades above the 0.6700 level, another surpass of the 0.6800 barrier should remain on the cards, suggest Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that ‘upward momentum has waned and this combined with the still overbought conditions suggests AUD is unlikely to advance much further’ and we expected AUD to ‘trade sideways between 0.6755 and 0.6805’. Our view of sideways trading was not wrong even though AUD traded in a lower range than expected (0.6747/0.6787). The price actions offer no fresh clues and AUD could continue to trade sideways, likely between 0.6745 and 0.6790.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (09 May, spot at 0.6780). As highlighted, overbought short-term conditions could lead to a couple of days of consolidation first. As long as 0.6700 (no change in ‘strong support’ level from yesterday) is not breached, there is still chance for the AUD strength that started in the middle of last week to extend to 0.6810.”

• The index hovers around 101.60 amidst a tight range.
• US yields trade without direction ahead of key data.
• US inflation figures will take centre stage later in the NA session.

The USD Index (DXY), which tracks the Greenback vs. a bundle of its main rivals, navigates without a clear direction around the 101.60 area on Wednesday.

USD Index looks at US CPI

The index appears cautious and gyrates around 101.60 following Tuesday’s uptick to weekly highs in the 101.80/85 band.

The cautious tone around the greenback – and the rest of the FX universe – is expected to remain well in place at least until the release of the April’s US inflation figures due later in the NA session.

On the latter, consensus among investors expect US consumer prices to have risen 5% YoY in April (unchanged from the previous reading) and 5.5% when it comes to core prices (vs. 5.6% prev).

Further data releases will see usual weekly Mortgage Applications by MBA, the EIA weekly report on US crude oil inventories and April’s Monthly Budget Statement.

What to look for around USD

The index keeps the trade around the 101.60 zone against the backdrop of the broad-based absence of direction in the global markets.

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. Debt ceiling issue.

USD Index relevant levels

Now, the index is up 0.01% at 101.66 and the break above 101.83 (weekly high May 9) would open the door to 102.40 (monthly high May 2) and then 102.80 (weekly high April 10). 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).

• USD/CHF rebounds from intraday low but stays mildly offered amid pre-data inaction.
• Market sentiment remains fragile amid mixed concerns about US debt ceiling woes.
• Cautious mood ahead of data allows Swiss Franc (CHF) pair to edge lower.
• Positive surprise from US CPI for April can add to US Dollar’s strength.

USD/CHF remains mildly offered despite the latest rebound from the intraday low to 0.8900 heading into Wednesday’s European session. In doing so, the Swiss Franc (CHF) pair bears the burden of the market’s cautious mood ahead of the key US inflation data for April.

Apart from the pre-data anxiety, cautious optimism surrounding the US debt ceiling and bank issues also allow the USD/CHF pair to retreat.

Hopes that the US policymakers can avoid the likely “catastrophic” default, despite the first failed attempt, joins an absence of any fresh banking fallouts, as well as the recently upbeat earnings season, to exert downside pressure on the USD/CHF price, via downbeat US Dollar.

Also, the market’s disbelief in the hawkish Fed talks and recently downbeat US data adds strength to the incentives that lure the USD/CHF bears. On Tuesday, 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."

Elsewhere, a divergence between the Swiss National Bank (SNB) and the Federal Reserve (Fed) monetary policy bias among the policymakers, as well as the market plays, also keep the CHF firmer than the US Dollar.

Amid these plays, the S&P 500 Futures print mild gains while licking the previous day’s wounds whereas the US 10-year Treasury bond yields print the first daily loss in five around 3.51%. On the other hand, the US Dollar Index (DXY) also retreats to 101.50 after rising in the last two consecutive days.

Looking ahead, the US Consumer Price Index (CPI) data for April will be the key for immediate USD/CHF moves amid hawkish talks and easing data, as well as due to the mixed signals from the US Nonfarm Payrolls (NFP). If the data suggest escalating inflation pressure in the world’s biggest economy, the recently hawkish Fed bets may gain acceptance and can allow the US Dollar to pare intraday losses, the first in three.

Technical analysis

A one-month-old falling wedge bullish chart formation restricts short-term USD/CHF moves between 0.8810 and 0.8950.

• EUR/USD has faced selling pressure while extending its recovery above 1.0980 as the USD index has shown recovery.
• US monthly headline and core CPI figures are expected to jump by 0.4%.
• ECB Schnabel believes that rate cuts are unlikely for the foreseeable future.

The EUR/USD pair is facing barricades in extending its recovery above the immediate resistance of 1.0980 in the early European session. The shared currency pair has sensed pressure as the US Dollar Index (DXY) has shown some recovery. The upside bias in the major currency pair has not faded yet as the recovery in the USD Index is required to pass plenty of filters.

S&P500 futures are holding nominal gains added in Asia, portraying some ease in the risk-aversion theme. The USD index has shown some recovery after correcting to near 101.53 as investors have turned anxious ahead of the United States inflation data.

As per the US Consumer Price Index (CPI) preliminary report, annual headline inflation is seen steady at 5.0%. Core CPI that strips off the impact of volatile food and oil prices is seen softening mildly to 5.5% from the former release of 5.6%. Meanwhile, monthly headline and core CPI figures are expected to jump by 0.4%. An expression of consistently increasing inflation could compel the Federal Reserve (Fed) to reconsider its neutral tone conveyed in the previous monetary policy meeting.

The expectations for a neutral policy by the Fed have also been impacted after the hawkish commentary from New York Fed Bank President John Williams has also added to the overall uncertainty in the market. Fed policymaker 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.

On the Eurozone front, more interest rate hikes from the European Central Bank (ECB) are in the pipeline as Eurozone inflation is far from the desired rate. Isabel Schnabel, a member of the ECB's Executive Board, stated on Tuesday that there is no doubt that the ECB will have to take additional measures to bring inflation back to target. She further added that core inflation has not seen a turnaround like the headline CPI. According to her, rate cuts are unlikely for the foreseeable future.

The upside momentum in GBP/USD could lose some traction if 1.2540 is breached in the near term, according to Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the pullback in GBP could extend but any decline is viewed as a lower range of 1.2575/1.2655’. W added, ‘GBP is unlikely to drop below 1.2575 in a sustained manner’. While GBP declined as expected, it rebounded from a low of 1.2580. The price actions appear to be part of a consolidation and GBP is likely to trade in a range today, expected to be between 1.2585 and 1.2655.”

Next 1-3 weeks: “Our update from yesterday (09 May, spot at 1.2615) is still valid. As highlighted, overbought short-term conditions suggest GBP could stay below the recent high of 1.2668 for 1-2 days. Overall, only a breach of 1.2540 (no change in ‘strong support’ level from yesterday) would indicate that the GBP strength that started late last week is unlikely to reach 1.2720 this time around.”

CME Group’s flash data for gold futures markets noted traders added around 3.8K contracts to their open interest positions on Tuesday, adding to Monday’s build. Volume, in the same line, went up by around 20.8K contracts after two consecutive daily drops.

Gold continues to target the 2023 high

The continuation of the weekly recovery in gold appears likely on the back of Tuesday’s advance amidst rising open interest and volume. That said, the yellow metal remains focused on the 2023 peak near $2070 recorded earlier in the month.

• GBP/USD struggles to justify the previous day’s bullish Doji candlestick formation.
• Bearish RSI divergence, nearly overbought positioning prod Cable buyers ahead of the key US CPI for April.
• Buyers remain hopeful unless witnessing clear break of 1.2500 support confluence.

GBP/USD treads water around 1.2630-20 heading into Wednesday’s London open as candlesticks and chart formations print mixed signals as US inflation data looms. In doing so, the Cable pair seesaws around the highest levels since May 2022, marked during early weekdays.

Also read: GBP/USD bulls revisit close to the European highs ahead of US CPI

It should be observed that the higher low of prices joins the lower high of RSI to portray the bearish divergence.

That said, the Pound Sterling marked no change in prices the previous day, despite posting an 80-pip trading move, which in turn highlighted the Doji candlestick and raised bullish concerns about the GBP/USD pair’s rebound, following a pullback from a multi-month high.

Adding strength to the recovery hopes could be the Cable pair’s successful trading past the one-month-old ascending resistance line, now immediate support near 1.2580.

Even if the GBP/USD sellers manage to conquer the immediate resistance-turned-support of around 1.2580, a convergence of an upward-sloping trend line from April 21 and the 21-DMA, close to 1.2500, appears a tough nut to crack for the pair sellers before taking control.

On the contrary, tops marked during May 2022 and the latest peak highlight the 1.2665-70 region as the short-term key upside hurdle.

Following that, the GBP/USD bulls can quickly cross the 1.2700 hurdle ahead of targeting the early April 2022 low of near 1.2970.

GBP/USD: Daily chart

Trend: Further upside expected

In the view of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, further decline is likely in EUR/USD below the 1.0920 level.

Key Quotes

24-hour view: “While we expected EUR to weaken yesterday, we held the view that ‘it is unlikely to break 1.0970’. However, EUR weakened more than expected as it dropped to a low of 1.0939. While downward momentum has not increased much, there is scope for EUR to drop further to 1.0920 before stabilization is likely. Resistance is at 1.0980, followed by 1.1000.”

Next 1-3 weeks: “Yesterday, EUR dropped to a low of 1.0939. While our ‘strong support’ level of 1.0940 was only slightly breached, the price actions have invalidated our view for EUR to ‘trade with an upward bias’. Short-term downward momentum appears to be building but EUR has to break and stay below 1.0920 before a sustained decline is likely. The chance for EUR to break clearly below 1.0920 is not high for now but it will remain intact as long as EUR stays below 1.1035 in the next few days. Looking ahead, the next support below 1.0920 is at 1.0885.”

• Asian markets are demonstrating negative market sentiment as US Inflation has come into the picture.
• US President Joe Biden wants approval of the debt ceiling raise without compromising spending initiatives.
• Oil prices have witnessed some correction as investors are awaiting the oil inventory data for the week ending May 05.

Markets in the Asian domain are showing sheer volatility as investors are anxious ahead of the release of the United States inflation data. The bigger picture for the global market is the US Consumer Price Index (CPI) data as US debt ceiling negotiations have adjourned till Friday. Negotiations among White House officials and Republican leaders remained heated as the former wants approval of a debt ceiling raise without compromising spending initiatives while 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.

At the press time, Japan’s Nikkei225 dropped 0.50%, Shanghai plunged 1.40%, Hang Seng battered 0.64%, and Nifty50 slipped 0.18%.

As US Nonfarm Payrolls (NFP) report for April was extremely solid, investors are worried that a rebound in US inflation would renew fears of more interest rate hikes from the Federal Reserve (Fed). As per the estimates, monthly headline and core CPI are seen rising at a pace of 0.4% higher than the pace recorded in March. However, the Fed would be in more difficulty as tight credit conditions and consistently declining manufacturing activities are already putting pressure on the US economy.

Meanwhile, Chinese stocks have dropped significantly ahead of Thursday’s inflation data. Monthly inflation is seen as 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 the Chinese economy has been facing deflation due to bleak domestic demand.

Japanese equities are expected to show a power-pack action ahead of the release of the Bank of Japan (BoJ) Summary of Opinions. The BoJ Summary of Opinions will provide a detailed explanation behind keeping the monetary policy ultra-dovish in April.

On the oil front, oil prices have witnessed some correction after failing to extend recovery above $74.00 as investors are awaiting the oil inventory data for the week ending May 05 to be released by US Energy Information Administration (EIA).

Moody’s Analytics is out with a report, expressing its view on the ongoing US debt ceiling showdown.

Key takeaways

“We now assign a 10% probability to a breach.”

“If there is a breach, it is much more likely to be a short one than a prolonged one.”

“But even a lengthy standoff no longer has a zero probability.”

“What once seemed unimaginable now seems a real threat.”

“Spiking interest rates and plunging equity prices,” even if it’s just a brief breach of the debt limit.

Related reads

• US President Biden, House Speaker McCarthy divided over debt ceiling but still talking
• US CPI: The cooler the data the better for stocks right now – Goldman Sachs

• USD/INR reverses from 13-day high to pare the first weekly gains in three.
• US Dollar snaps two-day rebound amid mixed concerns about debt ceiling expiration, banking woes.
• Cautious optimism, hopes of easing inflation pressure favor Indian Rupee buyers.

USD/INR sellers return to the table, after a three-day absence, as the markets prepare for the US inflation data on early Wednesday. In doing so, the Indian Rupee (INR) pair reverses from the highest level since April 21 but lacks follow-through amid a cautious mood and a light calendar.

Markets slide into consolidation mode ahead of the key data amid hopes that the US policymakers can avoid the likely “catastrophic” default, despite the first failed attempt. Also, an absence of any fresh banking fallouts and recently upbeat earnings season allowed USD/INR bulls to take a breather, via the US Dollar’s retreat.

That said, the US Senate Majority Leader Chuck Schumer conveyed the absence of progress in the key debt-ceiling negotiations during the first round of talks in the White House. Even so, US President Joe Biden called the meeting “productive” and reported that House Speaker Kevin McCarthy said during the meeting that the US would not default on its debt, per Reuters. The news also quotes US House Speaker McCarthy saying that the two sides agreed for their staff to get together this week, and for the principals to meet again on Friday to continue talking.

Alternatively, the global rating giant Moody’s recently said (about the US default fears), “What once seemed unimaginable now seems a real threat.”

On the same line could be the hawkish comments from New York Fed President John Williams who said, per Reuters, "Fed has not said it's done raising rates."

Elsewhere, the recent retreat in the WTI crude oil price from a one-week high, down 0.45% intraday near $73.15 by the press time, also exerts downside pressure on the USD/INR price due to India’s reliance on energy imports.

At home, hopes of witnessing a softer inflation number from India, during its release on Friday, also seem to allow the USD/INR buyers to prepare for the key event, as well as for today’s US Consumer Price Index (CPI) data. India's consumer inflation likely cooled to an 18-month low in April as rises in food and fuel prices moderated, keeping it below the Reserve Bank of India's upper tolerance limit for the second consecutive month, a Reuters poll of economists found.

Against this backdrop, the S&P 500 Futures print mild gains while licking the previous day’s wounds whereas the US 10-year Treasury bond yields print the first daily loss in five around 3.51%. On the other hand, the US Dollar Index (DXY) also retreats to 101.50 after rising in the last two consecutive days.

Moving ahead, anxiety ahead of the key US inflation numbers may restrict immediate USD/INR moves, especially amid a light calendar elsewhere. That said, unimpressive expectations from the US inflation numbers keep the pair buyers hopeful as a surprisingly upbeat outcome can provide a much-needed rebound to the US Dollar.

Technical analysis

Failure to provide a daily closing beyond a two-month-old resistance line and the 100-DMA, respectively near 82.10 and 82.20, directs USD/INR sellers back to the 200-DMA support of around 81.65. However, the 21-DMA level of 81.90 restricts the immediate downside of the Indian Rupee pair.

Bank of Japan (BoJ) Governor Kazuo Ueda said on Wednesday, “the BoJ’s ETF buying is helping underpin consumption and capex by preventing volatile market moves from hurting public confidence.”

Additional quotes

Market reaction

At the time of writing, USD/JPY is trading modestly flat at around 135.25, unperturbed by the above comments.

• AUD/USD pair has resumed its upside journey amid a correction in the US Dollar Index.
• The USD Index has refreshed its day’s low at 101.54 as a delay in US debt ceiling issues is impacting US long-term outlook.
• AUD/USD is oscillating in an accumulation phase in which inventory is shifted from retail participants to institutional investors.

The AUD/USD pair has resumed its upside journey after a corrective move to near 0.6750 in the Tokyo session. A solid recovery in the Aussie asset is being supported by a further correction in the US Dollar Index (DXY). The USD Index has refreshed its day’s low at 101.54 as a delay in US debt ceiling issues is impacting the long-term outlook of the United States economy.

Meanwhile, headlines that US Trade Chief Tai will meet Chinese commerce minister Wang Wentao in Detroit later in May is expected to keep the Australian Dollar active. Positive developments in the meeting would bring prosperity to their trade relations. It is worth noting that Australia is the leading trading partner of China and healthy trade relations in Sino-US will also improve opportunities for Australia.

AUD/USD is oscillating broadly in Wyckoff’s Accumulation phase in which inventory is shifted from retail participants to institutional investors. A breakout of the same results in wider bullish ticks and heavy volume.

The 10-period Exponential Moving Average (EMA) at 0.6721 is providing support to the Australian Dollar bulls.

Also, the Relative Strength Index (RSI) (14) is making efforts for climbing into the 60.00-80.00 range as it would trigger the upside momentum.

An acceptance above the round-level resistance at 0.6800 confidently, Australian Dollar bulls will firmly drive the asset higher toward February 06 low at 0.6855 followed by February 21 high at 0.6920.

In an alternate scenario, US Dollar bulls will flex their muscles if the Aussie asset will drop below March 15 low at 0.6590. An occurrence of the same will expose the asset to March 08 low at 0.6568 followed by 02 November 2022 high around 0.6500.

AUD/USD daily chart

Analysts at Goldman Sachs believe that softer United States Consumer Price Index (CPI) data is likely to be supportive of a rally in US stocks.

Key quotes

“The cooler the data the better for stocks right now.”

“Pain trade for fast money community would be cyclical outperformance on a hot print.”

“CPI around or below the 5% consensus could spark an equity rally, with the S&P 500 rising at least 0.5%.”

“A surprisingly strong reading would send stocks sharply lower, S&P 500 could drop at least 2% on a reading above 5.9%.”

• Gold price has slipped back to near $2,030.00 as investors have shifted their focus back to US inflation.
• US CPI has regained the spotlight as US debt ceiling negotiations have adjourned till Friday.
• No raise in the debt ceiling is not an option as it would result in a default of obligated payments.

Gold price (XAU/USD) has sensed some pressure while attempting to surpass the immediate resistance of $2,040.00 in the Asian session. The precious metal is facing difficulties in attracting bids as investors are worried that an expression of persistence in the United States Consumer Price Index (CPI) will force the Federal Reserve (Fed) to return to a hawkish policy stance.

S&P500 futures are showing modest gains in Tokyo, portraying ease in the overall risk aversion theme. The US Dollar Index (DXY) has turned sideways around 101.55 as investors are shifting their focus toward the inflation data after knowing that US debt ceiling negotiations have adjourned till Friday.

Considering the current statements from US President Joe Biden and Speaker McCarthy, a bipartisan agreement is expected as the former wants to approve the debt-ceiling rate without sacrificing the scale of spending initiatives and the latter is not interested in approving the default. And, the important aspect is no raise in the debt ceiling is not an option as it would result in a default of obligated payments.

On the US economic data front, investors are anticipating that April’s monthly headline and core inflation accelerated by 0.4%. This could renew fears of a rebound in the inflationary pressures. It may create more troubles for the Fed as more rate hikes would push the economy into recession.

Gold technical analysis

Gold price is facing barricades from the intermediate resistance plotted around $2,040.00. On a broader note, the pre4cious metal 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 might continue to perform as a cushion for the Gold bulls.

Meanwhile, the Relative Strength Index (RSI) (14) has sensed pressure while shifting into the bullish range of 60.00-80.00.

Gold four-hour chart

• USD/JPY struggles to extend three-day uptrend within weekly bearish chart formation.
• Steady oscillators suggest further grinding of Yen prices.
• 100, 200 SMAs and monthly support line act as additional downside filters.
• Bulls may aim for 138.00 on defying rising wedge pattern.

USD/JPY retreats to 135.15 as it prods a three-day winning streak heading into Wednesday’s European session. In doing so, the Yen pair eases within a one-week-old rising wedge bearish chart pattern.

Sluggish MACD signals and a steady RSI (14) line hint at the USD/JPY pair’s further easing. However, a clear downside break of the stated wedge’s lower line, close to 135.00 by the press time, will confirm the wedge formation suggesting a theoretical fall toward the 133.00 round figure.

Though, the 100-bar Simple Moving Average (SMA) and an upward-sloping support line from April 13, respectively near 134.80 and 134.00, can prod the USD/JPY bears afterward.

It’s worth observing that the Yen pair’s run-up after crossing the 200-SMA level during mid-April highlights the stated key moving average, around 133.65 at the latest, as a major challenge for the bears.

Meanwhile, USD/JPY recovery may find multiple hurdles near 135.50, a break of which could direct the pair towards the stated wedge’s top line, near 135.90 as we write.

In a case where the Yen pair remains firmer past 135.90, the 136.00 round figure may act as an extra check for the bulls before pushing them for another battle with the 138.00 hurdle comprising tops marked in March and May 2023.

USD/JPY: Four-hour chart

Trend: Further downside expected

• EUR/USD seesaws around intraday high during the first positive day in three.
• Cautious optimism, comparatively more hawkish ECB talks than Fed underpin Euro pair’s recovery.
• Failure of US debt-ceiling talks, banking sector woes also weigh US Dollar.
• Final prints of Germany’s HICP, US CPI for April will be crucial for intraday directions.

EUR/USD clings to mild gains around 1.0970 as it prints the first daily upside in three amid early Wednesday morning in Europe.

That said, the Euro pair’s latest rebound could be linked to the broad US Dollar pullback ahead of the key US inflation data for April, as well as cautious optimism in the market despite mixed feelings about the US default fears and banking woes. Also keeping the quote on the bull’s radar could be comparatively more hawkish comments from the European Central Bank (ECB) Officials than those from the Federal Reserve (Fed) members.

On Tuesday, ECB’s Peter Kazimir said, “Based on current data, the ECB will have to keep raising interest rates for longer than anticipated.” On the same line was ECB policymaker Martins Kazaks who warned that the rate-hiking may not be finished in July.

Meanwhile, New York Fed President John Williams said, per Reuters, "Fed has not said it's done raising rates."

Elsewhere, US Senate Majority Leader Chuck Schumer conveyed the absence of progress in the key debt-ceiling negotiations during the first round of talks in the White House. Even so, US President Joe Biden called the meeting “productive” and reported that House Speaker Kevin McCarthy said during the meeting that the US would not default on its debt, per Reuters. The news also quotes US House Speaker McCarthy saying that the two sides agreed for their staff to get together this week, and for the principals to meet again on Friday to continue talking. With this, traders remain hopeful of avoiding the US default. Even so, the global rating giant Moody’s recently said, “What once seemed unimaginable now seems a real threat.”

On the other hand, International Monetary Fund’s (IMF) Chief Economist Pierre-Olivier Gourinchas cited banking fears on Tuesday. The same follows the Fed's quarterly survey of bank loan officers, released on Monday, which highlights the negative impact of higher rates on credit conditions.

It’s worth noting that the recently downbeat US NFIB Small Business Optimism index and Germany Industrial Production numbers fail to inspire EUR/USD traders amid mixed sentiment.

Amid these plays, the S&P 500 Futures print mild gains while licking the previous day’s losses whereas the US 10-year and two-year Treasury bond yields print the first daily loss in five around 3.50% and 4.02% at the latest. On the other hand, the US Dollar Index (DXY) also retreats to 101.50 after rising in the last two consecutive days.

Looking forward, the 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.

If the scheduled US CPI numbers confirm escalating inflation pressure in the world’s biggest economy, the recently hawkish Fed bets may gain momentum and can allow the US Dollar to pare intraday losses, which in turn can recall the EUR/USD bears.

Technical analysis

EUR/USD remains sidelined between triple tops around 1.0940 and the 21-DMA of near 1.1000. Even so, the buyers appear to have run out of steam of late.

US inflation expectations, as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data, justify the market’s indecision as the numbers fade the week-start recovery moves ahead of the all-important US Consumer Price Index (CPI) for April.

It’s worth noting that the 10-year and 5-year inflation precursors remained steady near 2.23% and 2.22% on Tuesday, repeating Monday’s figures at the highest levels in a week.

With this, the market’s expectations of softer prints of the CPI ex Food and Energy, also known as the Core inflation data, gain acceptance and weigh on the US Dollar Index (DXY) price. That said, the greenback’s gauge versus the six major currencies snap a two-day rebound near 101.50 by the press time.

Meanwhile, US CPI forecasts suggest mostly unchanged CPI YoY and an improvement in the monthly figure. Should the data suggest escalating inflation pressure in the world’s biggest economy, the recently hawkish Fed bets may gain momentum and can allow the US Dollar to pare intraday losses.

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

• Natural Gas price prints the first daily loss in four, retreats from one-week high.
• XNG/USD eases from three-week-old descending resistance line, 100-SMA.
• Weekly support line, 200-SMA prods Natural Gas sellers before giving them control.
• Easing bullish bias of MACD, RSI (14) line’s retreat keep XNG/USD bears hopeful.

Natural Gas (XNG/USD) Price remains pressured around $2.34 during the first loss-making day in four amid early Wednesday.

In doing so, the energy instrument marks a U-turn from a downward-sloping resistance line from April 19, 2023, as well as a decline below the 100-SMA.

That said, the receding bullish bias of the MACD and the RSI (14) retreat adds strength to the pullback moves of the Natural Gas price.

As a result, the XNG/USD is likely to break the weekly support line, around $2.34 by the press time.

Following that, the 200-SMA level of around $2.31 can act as the last defense of the Natural Gas buyers, a break of which won’t hesitate to challenge the monthly low of around $2.14.

Meanwhile, an upside clearance of the 100-SMA and the aforementioned resistance line, respectively near $2.37 and $2.40 can recall the Natural Gas buyers targeting the previous monthly high of around $2.58.

It’s worth noting that the XNG/USD price remains unconvincing to Natural Gas buyers unless the quote remains firmer past the mid-March swing high of around $2.75.

Overall, the Natural Gas Price is likely to remain depressed despite the latest sluggish moves.

Natural Gas Price: Four-hour chart

Trend: Further weakness expected

• Market sentiment remains divided as debt-ceiling talks fails ahead of the US inflation report.
• S&P500 Futures print mild gains, US 10-year Treasury bond yields snap four-day winning streak.
• Updates about US default, banking fallouts can entertain traders ahead of US CPI for April.

Risk profile stays sluggish during early Wednesday as market players take different clues from the latest White House updates, as well as the US banking news. Adding strength to the traders’ indecision is the cautious mood ahead of the key US inflation data, namely the Consumer Price Index (CPI) for April.

While portraying the mood, the S&P 500 Futures print mild losses for the second consecutive day while the US 10-year and two-year Treasury bond yields print the first daily loss in five around 3.50% and 4.02% at the latest. It should be noted that the US Dollar Index (DXY) also retreats to 101.50 after rising in the last two consecutive days whereas the Gold price fades upside momentum around $2,030 by the press time.

Among the key risk catalysts, failed debt ceiling talks in the White House recently prod the optimists as US Senate Majority Leader Chuck Schumer conveyed the absence of progress in the key debt-ceiling negotiations.

However, US President Joe Biden called the meeting “productive” and reported that House Speaker Kevin McCarthy said during the meeting that the US would not default on its debt, per Reuters. The news also quotes US House Speaker McCarthy saying that the two sides agreed for their staff to get together this week, and for the principals to meet again on Friday to continue talking. With this, traders remain hopeful of avoiding the US default. Even so, the global rating giant Moody’s recently said, “What once seemed unimaginable now seems a real threat.”

On a different page, International Monetary Fund’s (IMF) Chief Economist Pierre-Olivier Gourinchas cited banking fears on Tuesday. The same follows the Fed's quarterly survey of bank loan officers, released on Monday, which highlights the negative impact of higher rates on credit conditions.

Talking about the US data, 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."

Hence, the market remains on a dicey floor and portrays typical pre-data anxiety. The lackluster moves get support from the mixed feelings about the US default fears and banking fallouts amid a light calendar in Asia.

Moving on, the US CPI for April will be crucial as forecasts suggest an easing in the core inflation data while mostly unchanged CPI YoY and an improvement in the monthly figure. Should the data suggest escalating inflation pressure in the world’s biggest economy, the recently hawkish Fed bets may gain momentum and can allow the US Dollar to pare intraday losses, the first in three.

Also read: Forex Today: Dollar rises timidly ahead of US CPI

• USD/CAD has sensed selling pressure after a recovery move to near 1.3400 as oil prices eye more upside.
• US President Joe Biden is interested in a separate discussion for the budget.
• If US inflation remains persistent, the Fed would start preparing for hiking interest rates further.

The USD/CAD pair has sensed selling pressures after a rebound to near the round-level resistance of 1.3400 in the Asian session. The Loonie asset has faced selling interest as the US Dollar Index (DXY) has extended its correction further to 101.55 after US debt ceiling negotiations failed a decisive outcome.

S&P500 futures have added decent gains in Asia amid a decline in the USD Index’s appeal as a safe-haven. However, the overall market mood is risk averse as a delay in the US debt ceiling outcome could impact the long-term outlook of the US economy. This would have a significant impact on US equities.

US President Joe Biden is interested in a separate discussion of the budget but is not interested in spending cuts for the approval of a debt-ceiling increase. The street is anticipating a bipartisan agreement between the White House and Republicans as US default on obligated payments is not an option.

As delegates will meet again for US debt ceiling negotiations on Friday, investors are shifting their focus toward the release of the US Consumer Price Index (CPI) data. Monthly headline inflation is seen accelerating by 0.4% vs. the former pace of 0.1%. Annual headline inflation is expected to remain steady at 5.0% while core CPI that excludes oil and food prices is seen softening to 5.5% from the prior release of 5.6%.

If US inflation remains persistent, the Federal Reserve (Fed) would start preparing for hiking interest rates further as its major agenda is to achieve price stability.

On the oil front, oil prices are gathering strength for a fresh rally above the immediate resistance of $73.50 as investors have digested fresh interest rate hikes from the Fed and the European Central Bank (ECB). Going forward, investors will keep an eye on the oil inventories to be reported by US Energy Information Administration (EIA) for the week ending May 05.

It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices will support the Canadian Dollar.

• GBP/USD bulls come up for air ahead of the US CPI data on Wednesday. 
• The BoE is coming up this week also, making for a key week for Cable. 

GBP/USD is flat on the day but showing signs of resilience as it creeps towards the prior highs set in the European session on Tuesday near 1.2639. In the Toyo open, the price is making a high of 1.2634 so far and has risen from a low of 1.2608. 

The markets are jittery ahead of key events this week, including the Bank of England (BoE) policy decision. The pair is correcting higher since losing territory from where it touched 1.26680 at the start of this week. This was the strongest level since April 26 2022. 

The BoE has raised interest rates 11 times since December 2021 as it battles to bring down double-digit inflation. The markets are predicting a 98% chance of a 25 bps hike from the BoE.

Meanwhile, the Pound is also finding support on stronger-than-expected economic data in the UK of late and is leading investors to believe that the nation might just avoid a recession after all. Sterling has also benefitted from a softer US Dollar that has been pressured by the belief in markets that the Federal Reserve is coming towards the end of its rate hiking cycle.

´´Last week’s stronger than expected US labour market data underpinned the stickiness of wages and inflation pressures on the other side of the Atlantic,´´ analysts at Rabobank said. ´´As a result, the market withdrew some of the projected Fed easing that has been anticipated for the end of this year.´´

´´It is our view that there will be no easing in policy from the Fed until next year.  We foresee some support for the USD in the coming months as 2023 rate cuts are fully priced out.  We see scope for GBP/USD to push back to 1.22 on a 3-month view,´´ the analysts at Rabobank concluded.

For the immediate future, we have the US inflation figures coming out today which will provide more direction on the world's largest economy's battle against inflation. ´´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.´´

As for the Federal Reserve, with respect to this data release, the central bank has opened the door to a pause after hiking by 500bp. The Fed remains concerned about inflation being too high and will raise rates further if appropriate. The event is key as the Fed is highly data-dependent and going forward, the Fed has stated that policy will be considered on a meeting-to-meeting basis.

• NZD/USD reverses the previous day’s pullback form one-month high inside immediate rising channel.
• Bullish chart formation contrasts with oscillators suggesting pullback in Kiwi prices.
• Bears need to break 0.6300 for re-entry, 0.6385-90 appears a tough nut to crack for buyers.

NZD/USD clings to mild gains around 0.6340 as it seesaws within a weekly ascending trend channel during early Wednesday. In doing so, the Kiwi pair reverses the previous day’s corrective pullback from the one-month high while approaching the short-term key resistance confluence on the US Consumer Price Index (CPI) release day.

It’s worth noting, however, that the bearish MACD signals and nearly overbought RSI (14) hint at the NZD/USD pair’s pullback.

The same highlights the bottom line of an aforementioned bullish channel, close to 0.6325. Also acting as short-term key support is the mid-April swing high near 0.6315 and the 0.6300 round figure.

In a case where the NZD/USD bears keep the reins past 0.6300, the odds of witnessing the pair’s further downside towards the 50% and 61.8% Fibonacci retracement levels of March-April upside, near 0.6235 and 0.6200 in that order, can’t be ruled out.

On the flip side, the latest peak of around 0.6360 precedes the 0.6385-90 resistance confluence, comprising the stated channel’s top line and tops marked in April, to prod the NZD/USD buyers.

Even if the Kiwi pair manages to cross the 0.6390 hurdle, the 0.6400 psychological magnet may act as an extra check for the buyers.

NZD/USD: Four-hour chart

Trend: Limited upside expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 6.9299 vs. the last close of 6.9200 and the estimate of 6.9301.

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.

• GBP/JPY is expected to stretch rally further as BOE looks set to deliver one more rate hike.
• UK’s inflation has remained extremely stubborn amid labor shortages and historically high food inflation levels.
• GBP/JPY is building an inventory adjustment phase after refreshing the seven-year high at 172.33.

The GBP/JPY pair has stretched its recovery move to near 170.75 in the Asian session. The cross is aiming to refresh its weekly high above 171.00 as investors are anticipating one more interest rate hike from the Bank of England (BoE) to tame double-digit United Kingdom inflation.

This would be the 12^th consecutive interest rate hike from BoE Governor Andrew Bailey. As per the expectations, the BoE will hike interest rates by 25 basis points (bps) to 4.50%. UK’s inflation has remained extremely stubborn amid labor shortages and historically high food inflation levels. Also, UK businesses are looking to pass on the impact of higher wages to end consumers, which would create more trouble for the BoE.

On the Japanese Yen front, investors are awaiting the release of the Bank of Japan (BoJ) Summary of Opinions, which will provide a detailed explanation behind the continuation of the ultra-dovish monetary policy.

GBP/JPY is building an inventory adjustment phase after refreshing a seven-year high at 172.33 on a weekly scale. The cross is needed to gather strength for a fresh rally. Upward-sloping 10-period Exponential Moving Average (EMA) at 166.87 is providing a cushion to the Pound Sterling bulls.

The Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, indicating an activation of the upside momentum.

A confident move above the previous week's high at 172.33 will support the cross to print at a fresh seven-year high of 173.00 followed by 25 January 2016 high at 174.18.

On the flip side, a breakdown below May 09 low at 169.85 will further drag the asset toward May 03 low at 169.14. A slippage below the latter will further drag the asset toward May 05 low around 168.00.

GBP/JPY weekly chart

• AUD/USD struggle to consolidate the first daily loss in seven amid sluggish markets, eases from intraday top of late.
• Market sentiment dwindles as US policymakers fail to sold debt ceiling riddle on first attempt.
• Light calendar ahead of US CPI for April keeps Aussie traders on their toes.

AUD/USD seesaws around intraday high, making rounds to 0.6770-60 of late, as it bears the burden of the market’s cautious mood, as well as recently softer second-tier Aussie data, during early Wednesday.

Risk appetite remains sluggish as failed debt ceiling talks in the White House joined looming fears of the US banking sector fallouts. On the same line could be the market’s preparations for the US inflation data, namely the Consumer Price Index (CPI) for April.

US Senate Majority Leader Chuck Schumer conveyed the absence of progress in the key debt-ceiling talks at the White House. Following that, US President Joe Biden called the meeting “productive” and reported that House Speaker Kevin McCarthy said during the meeting that the US would not default on its debt, per Reuters. The news also quotes US House Speaker McCarthy saying that the two sides agreed for their staff to get together this week, and for the principals to meet again on Friday to continue talking.

Following a disappointment from the White House, the global rating giant Moody’s recently said, “What once seemed unimaginable now seems a real threat.”

It’s worth noting that International Monetary Fund’s (IMF) Chief Economist Pierre-Olivier Gourinchas cited banking fears on Tuesday, following the Fed's quarterly survey of bank loan officers, released on Monday, cited the negative impact of higher rates on credit conditions.

Talking about the data, Australia’s Roy Morgan Business Confidence for April dropped to 90.2, from 93.6 prior. On the other hand, the US sentiment gauges have also been downbeat while Aussie Retail Sales and China trade numbers disappointed AUD/USD bulls the previous day.

Amid these plays, the US Dollar Index (DXY) retreats to 101.55, pausing the two-day winning streak, whereas the US 10-year Treasury bond yields remain sidelined near 3.51% after rising in the last four consecutive days.

Given the hopes of softer US inflation and the US policymakers’ ability to tackle the debt-ceiling expiration, despite the latest failure, the AUD/USD prices may grind higher ahead of the key US CPI data.

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

Technical analysis

Although the 100-DMA prods AUD/USD buyers around 0.6790, the pair’s downside needs validation from an ascending support line from April 28, close to 0.6755 by the press time.

• EUR/USD bulls are correcting the recent bearish impulse.
• Bears are lurking in the Fibonacci scale ahead of US CPI. 

EUR/USD is correcting higher from support ahead of what is a highly anticipated event today in the release of the US inflation data on Wednesday. The Consumer Price Index is likely to set the tone for markets, after stronger-than-expected jobs data last week.

EUR/USD daily charts

The bulls are moving in but the correction is gradual, meaning that there are prospects of an onward continuation of the bears moving in again after picking up at a premium. 

EUR/USD H1 charts

EUR/USD bulls are running into what could be a firm resistance near a 38.2% ratio.

Alternatively, a bullish commitment would likely see a far deeper correction toward the 61.8% ratio through 1.1000.

• USD/JPY is aiming for a consolidation breakout ahead of the US inflation data release.
• US President Joe Biden made clear during the meeting that the US economy default is not an option.
• Fed Williams sees no reason for rate cuts this year and has advocated further rate hikes if needed.

The USD/JPY pair is making efforts for a consolidation breakout placed in a range of 134.69-135.36 in the past three trading sessions. The major is expected to remain in action ahead of the release of the United States inflation data (April).

S&P500 futures are showing mild gains after a bearish Tuesday, portraying a minor recovery in the risk appetite. However, the overall market mood is quite precautionary as investors are anxious ahead of US Consumer Price Index (CPI).

The US Dollar Index (DXY) has resumed its downside journey after a retreat from 101.70 as the US debt ceiling talks ended without a conclusion and the White House and Republican leaders will meet again on Friday. US President Joe Biden reiterated the requirement of raising the debt ceiling without compromising the spending budget but is ready for a separate discussion about the budget. He made clear during the meeting that the US economy default is not an option.

It is highly likely that a clear debt ceiling bill will not get passed and both parties would agree on a bipartisan agreement.

Meanwhile, New York Federal Reserve (Fed) Bank President John Williams 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.

On the Japanese Yen front, Bank of Japan (BoJ) Governor Kazuo Ueda cited 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.

• EUR/JPY picks up bids to pare the previous day’s losses inside bullish chart formation.
• Sluggish oscillators, 50-SMA challenge buyers but sustained trading beyond 200-SMA keeps bears off the table.
• Clear downside break of 50% Fibonacci retracement could convince sellers to retake control.

EUR/JPY remains mildly bid as it consolidates the previous day’s losses around 148.40 during early Wednesday. In doing so, the cross-currency pair portrays a bullish pennant chart formation on the four-hour play, poking the confirmation point of late.

It should, however, be noted that the sluggish MACD and RSI (14) line challenges the quote’s upside momentum, in addition to the immediate 148.50 hurdle.

Even if the EUR/JPY buyers confirm the bullish pennant breakout, the 50-SMA level of around 149.30 can act as an extra filter ahead of directing the pair towards the theoretical target of near 153.80.

During the likely run-up, the 150.00 psychological magnet and the multi-month high marked in April around 151.60 can act as additional checks for the EUR/JPY bulls.

On the contrary, a downside break of the stated pennant’s support line, close to 147.50, can defy the bullish chart pattern and can direct the pair towards the 200-SMA support level of near 146.40.

However, the 50% and 61.8% Fibonacci retracement levels of the EUR/JPY pair’s March-April upside, respectively near 145.20 and 143.70, can act as additional downside filters before giving control to the bears.

EUR/JPY: Four-hour chart

Trend: Further upside expected

• Gold price remains firmer for the third consecutive day, recently backed by US Dollar retreat.
• US Dollar bears the burden of growing fears of United States default, banking sector woes, ignore hawkish Federal Reserve talks.
• Strong US Consumer Price Index (CPI) can renew hawkish Fed bias and prod the XAU/USD bulls.

Gold price (XAU/USD) cheers the United States policymakers’ inability to offer any welcome signs about the debt ceiling as the yellow metal renews the weekly high to around $2,038 by the press time. In doing so, the XAU/USD also benefits from the softer US Dollar ahead of the all-important US Consumer Price Index (CPI) data for April.

Gold price benefits from pessimism over United States, softer US Dollar

Gold price gains from its haven appeal as markets rush for risk safety amid fears of the US default, especially after the first rounds of extensive debt ceiling talks among the United States policymakers reach a deadlock. US Senate Majority Leader Chuck Schumer conveyed the absence of progress in the key debt-ceiling talks at the White House. Following that, US President Joe Biden called the meeting “productive” and reported that House Speaker Kevin McCarthy said during the meeting that the US would not default on its debt, per Reuters. The news also quotes US House Speaker McCarthy saying that the two sides agreed for their staff to get together this week, and for the principals to meet again on Friday to continue talking.

In this regard, the global rating giant Moody’s recently said, “What once seemed unimaginable now seems a real threat.” The same added to the market’s fears and contributed to the Gold price upside.

Elsewhere, 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. The fears of banking fallouts are an additional burden on the US Dollar and an extra flavor to the XAU/USD.

It should be noted that the looming fears of the US default and banking crisis joined softer United States data to prod the US Dollar, despite firmer Treasury bond yields, which in turn allowed the Gold price to remain firmer. That said, the US NFIB Small Business Optimism index dropped to the lowest level since 2013, to 89 in April. However, Federal Reserve Bank of New York President John Williams said, per Reuters, "Fed has not said it's done raising rates."

Against this backdrop, the US Dollar Index (DXY) retreats to 101.60, pausing the two-day winning streak, whereas the US 10-year Treasury bond yields remain sidelined near 3.51% after rising in the last four consecutive days.

US Consumer Price Index can prod XAU/USD bulls

Given the Gold price upside amid a softer US Dollar and jittery markets, the XAU/USD traders will pay close attention to the United States Consumer Price Index (CPI) for April, expected to improve on a monthly basis but remain static on the YoY format. It’s worth noting that a likely softening in the CPI ex Food and Energy, also known as the Core inflation data, may help the Gold buyers to keep the reins.

Also read: Gold Price Forecast: XAU/USD grinds north in a risk-averse environment

Gold price technical analysis

Gold price justifies a firmer Relative Strength Index (RSI) line, placed at 14, and a looming bull cross on the Moving Average Convergence and Divergence (MACD) indicator while picking up bids for the third consecutive day.

That said, the XAU/USD currently aims for the mid-April swing high surrounding $2,048 before approaching the February 2023 peak of near $2,060.

However, the recently refreshed all-time high of around $2,080 and an upward-sloping resistance line from late March, close to $2,088, quickly followed by the $2,100 round figure, can challenge the Gold buyers afterward.

On the contrary, a one-week-old ascending trend line near $2,017 precedes the $2,000 psychological magnet to restrict short-term Gold price downside.

Following that, a convergence of the 200-bar Exponential Moving Average (EMA) and the previous resistance line from the last Wednesday, near $1,989, will be crucial to watch as it holds the key for the XAU/USD’s further downside.

Gold price: Four-hour chart

Trend: Further upside expected

• USD/CHF is struggling in keeping its auction well above 0.8900 amid a correction in the USD index.
• Speaker McCarthy has denied the approval of raising the debt ceiling without reducing the budget deficit.
• An expression of persistent US inflation would force the Fed to reconsider its neutral guidance.

The USD/CHF pair is struggling in maintaining its auction above the round-level support of 0.8900 in the Asian session. The Swiss Franc asset is expected to display more downside as uncertainty over the US debt ceiling crisis has carry-forwarded as meetings among White House and Republican leaders ended without any conclusion.

S&P500 futures have generated some gains in the Tokyo session despite a cautionary approach ahead of United States inflation data.

Republican House of Representatives Speaker Kevin McCarthy has denied the approval of the debt ceiling raise without reducing the budget deficit. However, US President Joe Biden believes that cuts in spending initiatives could hurt Americans ahead.

The US Dollar Index (DXY) has faced barricades while extending its recovery above the immediate resistance of 101.70. Investors are expected to remain anxious ahead of the release of the US Consumer Price Index (CPI) data. Monthly headline inflation is seen accelerating by 0.4% vs. the former pace of 0.1%. Annual headline inflation is expected to remain steady at 5.0% while core CPI that excludes oil and food prices is seen softening to 5.5% from the prior release of 5.6%. The 10-year US Treasury yields have declined marginally below 3.52%.

An expression of persistent US inflation would force the Federal Reserve (Fed) to reconsider its neutral guidance on interest rates.

On the Swiss Franc front, the Swiss National Bank (SNB) is expected to slow down the pace of hiking interest rates as the annual CPI (April) has softened to 2.6% from the former release of 2.9%. Monthly inflation remained stagnant while the street was anticipating an escalation by 0.5%.