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• Mexican Peso strengthens against US Dollar, buoyed by positive market mood, mixed economic reports.
• US inflation remains hot as core PCE Price Index increases above March expectations.
• Mexico shows a deficit, yet Unemployment Rate drops, presenting mixed economic scenario.

The Mexican Peso counterattacks registered solid gains versus the US Dollar on Friday as economic data from the United States (US) showed that inflation edged slightly up, while Mexico’s Trade Balance registered a trade deficit in March. The USD/MXN trades at 17.13, down 0.42%.

The US Department of Commerce revealed that the Federal Reserve's (Fed) preferred gauge for inflation, the core Personal Consumption Expenditure Price Index (PCE), increased above expectations in March. However, annual readings exceeded estimates but were unchanged compared to February.

The National Statistics Agency (INEGI) revealed that Mexico printed a deficit in March when adjusted for seasonal adjustments. At the same time INEGI revealed the Unemployment Rate for the same period was lower than the consensus.

Market mood is another reason the Mexican currency is underpinned as major Wall Street indices clock gains between 1.1% and 2.2%.

Daily digest market movers: Mexican Peso shrugs off hot US inflation data

• As expected, March US core PCE figures came in at 0.3% compared to the previous month's reading. Annually-based inflation increased by 2.8%, unchanged from February but exceeding estimates.
• PCE Price Index revealed headline inflation of 0.3% MoM, which was aligned with the consensus and unchanged. On a yearly basis, prices increased by 2.7%, up from 2.5%, exceeding forecasts of 2.6%.
• Consumer Sentiment in the United States (US) deteriorated in April, blamed on higher expected prices as inflation expectations rose. The University of Michigan sentiment index fell to 77.2 from 79.4 in March, below estimates of 77.9. Inflation expectations for one year rose by 3.2% over the next twelve months, its highest level since November, up from the 2.9% expected in March.
• In March, Mexico registered a $1,583 million trade deficit when adjusted for seasonal figures, revealing INEGI on Friday. At the same time, the Unemployment Rate was 2.3% for the same period, non-seasonally adjusted.
• Mexican Peso is also supported by the latest inflation report, which revealed that core prices edged lower, but headline inflation is up from 4.48% to 4.63%. This would deter the Bank of Mexico (Banxico) from easing policy at the May meeting.
• Citibanamex Survey showed that most analysts expect Banxico to hold rates unchanged at the May meeting. The median foresees a rate cut in June, while they estimate the main reference rate to end at 10.00%, up from 9.63% previously.
• Banxico Governor Victoria Rodriguez Ceja said that service inflation is not slowing as expected. She added that the Peso’s strength has helped to temper inflationary pressure and lower imported goods. She emphasized that Banxico would remain data dependent.
• Data from the Chicago Board of Trade (CBOT) suggests that traders expect the fed funds rate to finish 2024 at 5.050%, up from 5.035%, on Thursday.

Technical analysis: Mexican Peso appreciates, yet is on thin ice as USD/MXN approaches key level

The Mexican Peso remains on the defensive despite the fact the USD/MXN edged below the 200-day Simple Moving Average (SMA) at 17.16. If the exotic pair achieved a daily close below the latter, that would expose the April 25 low 17.01, followed by the 17.00 mark. A breach of the latter will expose the 50-day SMA at 16.81 before challenging last year’s low of 16.62.

On the other hand, if USD/MXN clears the 200-day (SMA) at 17.16, that would extend the uptrend. The next resistance would be the January 23 swing high of 17.38, followed by the year-to-date (YTD) high of 17.92, ahead of 18.00.

• GBP/JPY continues to grind into multi-year highs.
• Japanese Yen continues to erode across the board.
• BoJ reaffirms monetary policy stance, markets pummel JPY.

GBP/JPY touched chart territory above 197.00 for the first time since September of 2008 as markets meet the Bank of Japan (BoJ) head-on and batter the Yen into decades-long lows. 

The BoJ maintained its hyper-easy monetary policy, prompting a broad-market Yen selloff. The Japanese central bank will resume large-scale Japanese government bond purchasing, and BoJ Governor Kazuo Ueda paid lip service with little action on Yen exchange rates, inflation, and interest rate forward guidance in a broadly disappointing BoJ showing.

Coming up next week, a light economic calendar from the UK, and an update on Japan’s Retail Sales figures slated for early Tuesday. Retail Trade in Japan is expected to ease to 2.2% growth for the year ended in March, down from the previous period’s 4.6%.

GBP/JPY technical outlook

With the pair trading into 16-year highs, the Guppy is breaking into extremely bullish chart territory above the 197.00 handle. The GBP/JPY is up 10.2% from 2024’s early bounce from the 200-day Exponential Moving Average (EMA) near 180.00.

The Guppy is set for a fourth consecutive month-on-month gain, and the pair is up over 50% from 2020 lows set near 130.00. 

GBP/JPY daily chart

• Dow Jones determined to wrap up Friday in the green despite stubborn inflation.
• US PCE inflation remained higher than expected.
• Hopes for rate cuts now lean heavily on next week’s US NFP print.

The Dow Jones Industrial Average (DJIA) churned on Friday before pushing into the high end for the day as investors shake off still-high US Personal Consumption Expenditure (PCE) Price Index inflation. Markets are still pricing in a 44% chance of at least two rate cuts from the US Federal Reserve (Fed) this year, with 60% odds of a first rate trim in September according to the CME’s FedWatch Tool.

Read more: US Core PCE inflation holds steady at 2.8% vs. 2.6% expected

US Core PCE Price Index inflation held steady at 2.8% for the year ended in March, holding above the forecast decline to 2.6%. Headline PCE Price Index inflation also rose to 2.7% over the same period, climbing from 2.5% and accelerating above the forecast 2.6%.

Despite the uptick in a key inflation metric, market risk appetite remains high and rate markets are leaning into current rate cut expectations. Despite still-high inflation, price growth is still lower than many investors feared, and market participants will be increasingly focused on next Friday’s US Nonfarm Payrolls (NFP) report. A still-tight US labor market will have investors looking for slack in US labor figures to help push the Fed towards a first rate cut by September.

Dow Jones news

With earnings season in full swing, equities remain bullish overall as the trading week draws to a close. Two-thirds of the 30 securities that comprise the Dow Jones are in the green on Friday, with Amazon.com Inc. (AMZN) up around 3.7% at the time of writing and trading near $180.10 per share. Microsoft Corp. (MSFT) follows closely behind, gaining about 2.75% on the day to trade around $410.00 per share.

On the downside, Intel Corp. (INTC) is leading the Dow Jones board into the red, declining 9.7% to trade at $31.70 per share after the tech company released a weaker-than-expected forecast for the current quarter. Intel is expecting quarterly revenue between $12.5 and $13.5 billion, whereas market forecasts were hoping for at least $13.6 billion. Intel also expects adjusted earnings per share to fall below Wall Street forecasts.

Dow Jones technical outlook

The Dow Jones is trading well within the week’s price range, setting Friday’s low bids at 38,048.33 before recovering into an intraday high of 38,335.71. The major equity index is still down slightly from the week’s peak prices at 38,556.80, but is recovering firmly after setting the week’s lows at 37,745.54 on Thursday’s pullback.

The Dow Jones is set to snap a three-week losing streak, and on pace to close just north of the 38,300.00 handle after a 5.8% decline top-to-bottom from 39,887.49 that began in mid-March.

Dow Jones five-minute chart

Dow Jones hourly chart

• Silver falls pulling back from a daily high of $27.73.
• Technical analysis indicates the uptrend is intact with key support at the $27.05 level, marked by the 50% Fibonacci retracement.
• If silver surpasses the $28.00 resistance, potential targets are $28.48 and possibly year highs near $29.76.
• Conversely, breaking below $27.05 could lead to $26.41 and further declines.

Silver's price dropped 0.79% after hitting a daily high of $27.73, as another inflation report in the United States showed warmer-than-expected inflation. The grey metal failed to capitalize on the fall in US Treasury yields, courtesy of a stronger US Dollar. At the time of writing, the XAG/USD trades at $27.21.

XAG/USD Price Analysis: Technical outlook

Despite retracing, the XAG/USD uptrend is intact, with dips viewed as opportunities for buyers to keep Silver's bid. During the last four trading days, Silver sellers had remained unable to push prices below the 50% Fibonacci retracement at $27.05, of the Fib drawn from the swing low at $24.34 to the latest high at $29.76.

For a bullish resumption, once traders surpass the $28.00 figure, that would pave the way for further upside. The first resistance would be the 23.6% Fib retracement at $28.48, followed by the $29.00 mark. The next supply area would be the year-to-date (YTD) high at $29.76.

On the flip side, bears could find some relief if XAG/USD slides below the 50% Fib retracement at $27.05, followed by the 61.8% retracement at $26.41. A subsequent dip is seen below that level, exposing the confluence of the 50-day moving average (DMA) and the 78.6% Fib retracement at $25.50.

XAG/USD Price Action – Daily Chart

• GBP/USD registers a decline of 0.27%, influenced by US inflation data that suggests the Federal Reserve may delay rate cuts.
• The pair's recent inability to break the 200-day moving average at 1.2557 highlights its downward bias, with support levels now in focus.
• Potential for further losses if the 'dark cloud cover' candlestick pattern forms, targeting 1.2400 and possibly extending to the YTD low of 1.2300.

During the mid-North American session, the Pound Sterling retreats and registers losses against the US Dollar, slumping below 1.2500. Data from the United States showed that inflation is picking up, which would deter Fed intentions from cutting interest rates. The GBP/USD trades at 1.2481, down 027%.

GBP/USD Price Analysis: Technical outlook

Although the GBP/USD closed three days of consecutive gains, it remains downward biased, as buyers failed to crack stir resistance at the 200-day moving average (DMA) at 1.2557. That exposed the 1.2500 figure, which was surrendered by fundamental news.

If the GBP/USD finishes Friday’s session at around the 1.2480, that will form a ‘dark cloud cover,’ opening the door for further losses. The next support would be 1.2400, followed by the year-to-date (YTD) at 1.2300.

On the other hand, if buyers lift the spot price above 1.2500, that would open the door to challenge the 200-DMA.

GBP/USD Price Action – Daily Chart

The Greenback transited another week where data releases and expectations of interest rate cuts by the Federal Reserve remained at the centre of the debate. On this, the USD Index (DXY) seems to have embarked on a gradual decline after hitting new yearly peaks earlier in the month. This retraction, however, should be deemed temporary.  

It was a negative week for the Greenback, which extended further the rejection from yearly peaks despite the move higher in US yields in response to investors’ re-adjustment of the potential timing of the first interest rate cut by the Fed. The always relevant Consumer Confidence tracked by the Conference Board is due on April 30, along with the FHFA’s House Price Index and the Employment Cost index. On May 1, all the attention will be on the Fed’s interest rate decision, seconded by the ADP Employment Change, the ISM Manufacturing PMI, Construction Spending, and the final S&P Global Manufacturing PMI. In addition, Initial Jobless Claims are due on May 2, ahead of Factory Orders and Balance of Trade results. Closing the week, markets’ focus should shift to non-farm Payrolls, the Unemployment Rate, the final S&P Global Services PMI, and the ISM Services PMI.

EUR/USD clinched its second consecutive week of gains and finally managed to break above the key 1.0700 barrier on the back of improved sentiment in the risk-linked galaxy. The preliminary Inflation Rate in Germany is due on April 29, along with the final Consumer Confidence print in the euro area. On April 30, Retail Sales in Germany, the advanced Q1 GDP Growth Rate, and the labour market report are due, followed by the flash Inflation Rate in the euro bloc. The final HCOB Manufacturing PMI in Germany and the euro region is expected on May 2, seconded by the EMU’s Unemployment Rate on May 3.

Following its risky peers, GBP/USD sharply reversed two consecutive weeks in negative territory, managing to reclaim the area beyond 1.2500. In the UK, Mortgage Approvals and Mortgage Lending are due on April 30, prior to the release of the final S&P Global Manufacturing PMI on May 1. On May 2, the Nationwide Housing Prices will be announced ahead of the final S&P Global Services PMI on May 3.

There seems to have been no respite for the selling pressure in the Japanese yen, which eventually sent USD/JPY to fresh highs at levels just shy of the 157.00 barrier. The Japanese calendar will show the Unemployment Rate on April 30, followed by Industrial Production and Retail Sales. On May 1, comes the Consumer Confidence gauge, while the BoJ Minutes and Foreign Bond Investment are due on May 2.

The better tone in the commodity complex, in combination with the renewed selling stance in the Greenback sponsored a multi-session positive streak in AUD/USD. Data-wise, in Australia, Housing Credit is due on April 30 along with advanced Retail Sales. The final Judo Bank Manufacturing PMI and the Ai Group Industry Index come on May 1, prior to the release of Balance of Trade results and flash Building Permits on May 2. Finally, Home Loans figures, Investment Lending for Homes, and the final Judo Bank Services PMI are due on May 3.

Of note, in addition, will be the publication of Chinese Manufacturing and Non-Manufacturing PMIs tracked by NBS on April 30, ahead of the Caixin gauges on May 6.

Anticipating Economic Perspectives: Voices on the Horizon

• BoC’s Macklem, RBNZ Orr speak on May 1.
• BoC’s Macklem speaks on May 2.
• Fed’s Goolsbee and Williams are due to speak on May 4.

Central Banks: Upcoming Meetings to Shape Monetary Policies

• The FOMC meets on May 1 and is expected to leave rates unchanged.

• Canadian Dollar gets pushed around as investors focus elsewhere.
• Canada absent from economic calendar until next week.
• US PCE inflation remains higher than expected, weighing on rate cut hopes.

The Canadian Dollar (CAD) is taking a back seat to broader market flows on Friday as investor focus remains pinned on decaying hopes for a rate cut from the Federal Reserve (Fed). US Personal Consumption Expenditure (PCE) Price Index figures came in above expectations on Friday, weighing further on rate trim expectations.

Canada will not release meaningful data until next Tuesday’s Gross Domestic Product (GDP) print, but all eyes will be on the Fed’s upcoming rate call next Wednesday. Markets will also be gearing up for another Nonfarm Payrolls (NFP) next week as investors look further out for signs of a slowdown in the US economy that could spark rate cuts.

Daily digest market movers: US PCE inflation remains stubbornly hot

• Core US PCE Price Index inflation held steady in March, printing at the expected steady 0.3%.
• YoY Core PCE Price Index also held steady at 2.8%, flaunting the forecast of 2.6%.
• Annualized headline PCE Price Index for the year ended March ticked higher to 2.7% versus the expected 2.6%, accelerating from the previous 2.5%.
• With inflation stubbornly high, hopes for a September rate cut are eroding.
• According to the CME’s FedWatch Tool, rate markets only see 60% odds of a September Fed rate trim.
• Read more: US Core PCE inflation holds steady at 2.8% vs. 2.6% expected

Technical analysis: Canadian Dollar plays second fiddle to US Dollar flows

The Canadian Dollar (CAD) is mixed on Friday, playing a quiet counterparty to broader market focus. The CAD has gained 1.2% on the day against the Japanese Yen as markets short the Yen wholesale. The CAD is up around a quarter of a percent against the Euro (EUR), and down a quarter of a percent against the Australian Dollar (AUD).

USD/CAD continues to churn between 1.3700 and 1.3660, but downside swings are reaching further into bearish territory. The pair still trades on the north side of the 200-day Exponential Moving Average (EMA) at 1.3527, but USD/CAD remains down 1.2% from the last swing high near 1.3850.

USD/CAD hourly chart

USD/CAD daily chart

• Silver price consolidates around $27.60 as traders reprice Fed rate cut hopes.
• Sticky US inflation will feed expectations for Fed delaying rate cuts.
• Investors see the Fed keeping interest rates steady next week.

Silver price (XAG/USD) remains stuck in a tight range around $27.60 in Friday’s American session. Traders reassess expectations for the Federal Reserve (Fed) rate cuts as the United States core Personal Consumption Expenditure Price Index (PCE) for March remain higher than the consensus.

The annual underlying inflation data rose by 2.7% from the estimates of 2.6% but decelerated from the prior reading of 2.8%. On a month-on-month basis, price pressures grew in line with expectations and the prior reading of 0.3%. Price pressures remaining higher fuel expectations for Federal Reserve (Fed) maintaining a hawkish monetary policy framework.

The scenario is favorable for the US Dollar and bond yields but weighs on non-yielding assets, such as Silver. The US Dollar Index (DXY) rebounds from 105.40 amid expectations that the Fed will keep interest rates higher for a longer period. The Fed sees rate cuts appropriate only when they get evidence that inflation will return to the desired rate of 2%. 10-year US Treasury yields are down 1.15% to 4.65%.

Meanwhile, investors shift focus to the Fed’s interest rate decision, which will be announced on May 1. The Fed is anticipated to keep interest rates unchanged in the range of 5.25%-5.50%. Though the Fed is expected to maintain the status quo, investors will focus on guidance on interest rates.

Silver technical analysis

Silver price corrects to near March 2022 high near $27.00 after failing to extend upside above the crucial resistance of $30.00. The near-term appeal for Silver seems uncertain as it struggles to sustain near the 20-day Exponential Moving Average (EMA), which trades around $27.20.

The 14-period Relative Strength Index (RSI) shifts into the 40.00-60.00 range from the bullish range of 60.00-80.00, suggesting that the bullish momentum has faded for now.

Silver daily chart

• AUD/USD extends rally after US core PCE beats estimates 
• The lack of a reaction may be as a result of the US Dollar already pricing in inflationary GDP data on Thursday. 
• Higher Australian factory gate inflation data overnight added a tailwind to AUD/USD.  

AUD/USD trades in the 0.6540s as it continues rallying after the release of US core Personal Consumption Expenditures Price (PCE) Index data for March. Despite the data showing a higher than expected rate of inflation, the US Dollar (USD) shows little reaction in most pairs, including AUD/USD, which looks like it will clock up its fifth daily gain in a row assuming a bullish close on Friday. 

US core PCE came in at 2.8% YoY in March – higher than the 2.6% expected and the same as the 2.8% previous, whilst headline PCE rose 2.7%, which was higher than the 2.6% expected and 2.5% previous. On month, the PCE data came out in line with expectations. 

The US Dollar’s lack of reaction could be put down to its already pricing in inflationary GDP data for the first quarter on Thursday, which pre-empted the inflationary core PCE data. 

Although the rate of US GDP growth slowed in Q1, the GDP Price Index component, which measures goods inflation, rose much higher than previously. As a result of the data the US Dollar strengthened in most pairs and AUD/USD pared its earlier gains, falling to a low 0.6486 after the release. 

Australian factory price inflation data out overnight, however, gave fresh impetus to the pair, after it showed a rise 4.3% YoY in Q1 from 4.1% in the previous quarter. The Producer Price Index (PPI) data added further evidence of price pressures in the Australian economy after Q1 CPI data beat expectations on Thursday giving a lift to AUD/USD in the process. 

Persistent inflation means the Reserve Bank of Australia (RBA) is seen as the last G10 bank likely to cut interest rates, with some analysts now delaying calls for an RBA rate cut until February 2025. The expectation that Aussie interest rates will fall more slowly than in other countries is supportive for the AUD as relatively higher interest rates attract greater capital inflows.

• Natural Gas price holds ground above $2.00 on Friday.
• Gas prices are likely to tick up as European traders start to prepare for the next winter season.
• The US Dollar Index falls back to the 105.50 region ahead of the US PCE release.

Natural Gas (XNG/USD) prices are holding ground above $2.00 on Friday after a brief dip earlier this week. Gas prices are quickly recovering as mainland Europe is gearing up for the next heating season, with traders starting to negotiate contracts in order to refuel ahead of next winter. Even though European Gas reserves are still at 61%, traders are issuing concerns that the volume of pre-agreed contracts is too little to get strategic reserves back to their near-full levels seen last September, which means more short-term and more expensive handling could occur. 

Meanwhile, the US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, falls further to the 105.50 region. The devaluation of the Greenback comes after the preliminary US Purchasing Managers Index (PMI) for April, for both manufacturing and services sectors, did not support US exceptionalism further. Thursday’s US Gross Domestic Product for the first quarter release even looks to show the US economy is in stagflation, although that still needs to be confirmed by more numbers and data like the Personal Consumption Expenditure (PCE) release on Friday.

Natural Gas is trading at $2.06 per MMBtu at the time of writing.  

Natural Gas news and market movers: Europe gets ready

• The UK is building Europe’s biggest Liquified Natural Gas (LNG) storage, which will be operational in 2025.
• Bloomberg data shows that Qatar is the main deliverer for European Gas, filling in the gap from Russia.
• TotalEnergies SE has reported a smaller-than-expected drop in its first-quarter profit, with elevated Oil prices offsetting the recent crash in Gas prices.

Natural Gas Technical Analysis: Supply questionable

Natural Gas could be entering in a rather steady uptrend, with the demand side from mainland Europe and the UK starting to take in deliveries for restocking ahead of this year’s fall and winter. Subsequently, continuous demand will be present during the spring and summer periods. Meanwhile, on the supply side, Norway and the US have had substantial delivery issues due to unforeseen maintenance and outages in certain LNG facilities. Any further disruptions could trigger a shot higher, with Gas prices heading to $2.50 over the summer. 

On the upside, the blue line at $2.11, the 2023 low, and the 100-day Simple Moving Average (SMA) at $2.10 are acting as a resistance. Further up, the next level to watch is the January 25 high at $2.33.

On the other side, the $2.00 handle has worked as nearby support for now. Further down, a trifecta of support is formed at $1.88, with the ascending and descending trend lines crossing and the 55-day SMA. Should that level break, expect a quick downward movement to the year-to-date low at $1.60.

Natural Gas: Daily Chart

• USD/CAD trades sideways ahead of the US core PCE Inflation that will influence Fed rate cut expectations.
• The US Dollar remains on backfoot as weak US Q1 GDP raise concerns over the economic outlook.
• Investors see the BoC pivoting to interest rate cuts from June.

The USD/CAD pair is stuck in a tight range near 1.3650 in Friday’s European session. The Loonie asset struggles for a direction as the US Dollar consolidates ahead of the United States core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published at 12:30 GMT.

On a monthly basis, the underlying inflation data is estimated to have increased steadily by 0.3%. Annually, the inflation measure is seen decelerating to 2.6% from the prior reading of 2.8%. The core PCE Price Index is the Federal Reserve’s (Fed) preferred inflation gauge, which is expected to influence speculation about when the central bank pivots to interest rate cuts, which financial markets are currently anticipating from the September meeting.

The US Dollar Index (DXY) is slightly up at 105.70 in the London session but fell sharply on Thursday after the US Q1 Gross Domestic Product (GDP) report showed that the economy expanded at a slower rate of 1.6% from the consensus of 2.5% and the prior reading of 3.4%. This has triggered doubts over the US economic outlook.

Meanwhile, the Canadian Dollar has remained underpinned against the US Dollar this week despite firm expectations that the Bank of Canada (BoC) will start reducing interest rates from the June meeting. Easing inflation, weak Retail Sales and loosening labor market conditions have boosted BoC rate cut bets for June.

USD/CAD corrects to near the breakout region of the Ascending Triangle chart pattern formed on a daily timeframe. The retest of the breakout region is keenly tracked by investors to build fresh longs as it is considered a discounted price. The 50-day Exponential Moving Average (EMA) near 1.3620 will provide support to the US Dollar bulls.

The 14-period Relative Strength Index (RSI) falls into the 40.00-60.00. The RSI is expected to rebound from 40.00 as the upside bias remains intact. However, a breakdown below the same will increase the odds of a bearish reversal.

Fresh buying opportunity would emerge if the asset falls further to near April 8 high at 1.3617. This would drive the asset towards April 11 low at 1.3661, followed by the round-level resistance of 1.3700.

In an alternate scenario, a breakdown below April 9 low around 1.3547 will expose the asset to the psychological support of 1.3500 and March 21 low around 1.3456.

USD/CAD daily chart

• Gold price jumps to $2,350 as US Dollar drops after weak US Q1 GDP growth data.
• Investors look for US core PCE inflation data for more cues about the Fed’s rate cut timing.
• Market expectations for the Fed delaying rate cuts remain firm.

Gold price (XAU/USD) rises to $2,350 in Friday’s European session, showing strength ahead of the United States core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published at 12:30 GMT.

US core PCE inflation is estimated to steady at 0.3% on month. The annual underlying inflation data is forecasted to have softened to 2.6% from 2.8% in February. Higher-than-expected figures would weaken Gold’s appeal as they would increase the opportunity cost of investing in it. On the contrary, signs of easing price pressures would provide some further support to the Gold price as they could increase expectations of early cuts from the Federal Reserve (Fed).

The US Dollar trades slightly up on Friday, but it fell on Thursday after weak US Q1 GDP growth raised doubts over the economy’s ability to maintain its strength in upcoming quarters. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, hovers around 105.60.

Meanwhile, 10-year US bond yields are slightly down at 4.69% but are still close to a five-month high. Yields remain firm as investors see the Fed delaying rate cuts to later this year as progress in inflation declining to the 2% target seems to have stalled. 

Daily digest market movers: Gold price likely set for bearish weekly close

• Gold price moves higher to the crucial resistance of $2,350. The precious metal got some relief from a weakening US Dollar, which suffered from a weaker-than-expected US economic growth rate for Q1. The US economy grew at an annualized pace of 1.6%, lower than the consensus of 2.5% and the former reading of 3.4%. This has raised concerns over the US economic outlook.
• Generally, a sharp decline in GDP growth could be the consequence of one or more factors such as weak household spending, limited monetary stimulus or less government spending. In theory, weaker-than-expected GDP growth should have boosted expectations for the Federal Reserve (Fed) to roll back its restrictive monetary policy stance, which it is maintaining since the strong stimulus due to the Covid-19 pandemic prompted inflationary pressures to historic levels.
• However, traders continued to pare back Fed rate cut bets due to stubbornly higher GDP Price Index data, which is a lagging inflation indicator. The inflation measure rose to 3.1% from the prior reading of 1.7%. The CME Fedwatch tool shows there is a 59% chance of a rate cut in September, down from the 69% recorded a week ago.
• Meanwhile, investors shift focus to the US core PCE Price Index data for March, which could provide more cues about when the Fed could start reducing interest rates. The underlying inflation data will also influence the Fed’s interest rate outlook ahead of the monetary policy meeting on May 1, in which the US central bank is widely anticipated to keep interest rates unchanged in the range of 5.25%-5.50%.

Technical Analysis: Gold price jumps to $2,350

Gold price rebounds after discovering buying interest near the 20-day Exponential Moving Average (EMA), which trades around $2,315. The near-to-long-term appeal remains strong as Exponential Moving Averages (EMAs) for short to longer terms are sloping higher.

On the downside, a three-week low near $2,265 and March 21 high at $2,223 will be major support zones for the Gold price.

The 14-period Relative Strength Index (RSI) falls below 60.00, suggesting that bullish momentum has come to an end at least for now. However, the long-term upside bias is intact as long as the RSI sustains above 40.00.

• The US Dollar continues its retreat against most major pairs on Friday. 
• Traders are having it difficult to value the next directional move for the US Dollar. 
• The US Dollar Index continues its downtrend pattern and could face 105.00 should US PCE inflation data come in below expectations. 

The US Dollar (USD) was all over the place on Thursday after the release of the preliminary US Gross Domestic Product (GDP) for the first quarter. The USD first jumped on the high Personal Consumption Expenditure (PCE) numbers in that release with the idea that initial interest-rate cuts will take even longer to occur, with probabilities for December briefly overtaking September. As the dust settled, markets took all figures into account and saw it as a stagflationary play, with equities shooting higher and weighting on the USD as rate cuts could still be on the table for 2024 and discarding earlier rumours of a possible rate hike. 

On the economic data front, all eyes are now on the US Federal Reserve’s (Fed) preferred inflation gauge. The Personal Consumption Expenditure (PCE) Price Index will be released, together with the Personal Income and Spending numbers. With the markets already having priced in higher inflation, the question is if today’s data can still trigger a substantial move or will rather become a “ buy the rumour, sell the fact” textbook example. 

Daily digest market movers: PCE expectations hyped up

• Overnight, the Bank of Japan (BoJ) kept its interest rates unchanged, triggering USD/JPY to hit 156.80.
• At 12:30 GMT, the Personal Consumption Expenditures (PCE) data for March is set to be released:
  • Both monthly headline and core PCE are expected to rise at the same pace of 0.3% registered in February.
  • Yearly headline PCE is expected to tick up slightly to 2.6% from 2.5%.
  • Yearly core PCE is expected to slide lower to 2.6% from 2.8%.
  • Monthly Personal Income should rise to 0.5% from 0.3%.
  • Monthly Personal Spending should weaken to 0.6% from 0.8%.
• At 14:00 GMT, the last data element to close off this week will be the University of Michigan final data for April:
  • Consumer Sentiment is expected to remain quite stable from its preliminary reading, ticking to 77.8 from 77.9.
  • Five-year consumer inflation expectations are expected to remain cemented at 3%.
• Equities are overall in the green on the back of that Bank of Japan rate decision. Across the board from Asia, over Europe to the US futures, all major indices are trading with gains.
• The CME Fedwatch Tool suggests there is an 88.5% probability that June will still see no change to the Federal Reserve's feds fund rate. Odds of a rate cut in July are out of the cards, while for September the tool shows a 44.6% chance that rates will be lower than current levels.
• The benchmark 10-year US Treasury Note trades around 4.67% and keeps lingering around this level.

US Dollar Index Technical Analysis: Stagflation? Disinflation?

The US Dollar Index (DXY) continues its bearish pattern and looks almost inevitable to close the week in the red. The big question is which cycle the US economy is in, as clearly that exceptionalism label is coming off. Stagflation would be the worst possible scenario for the Fed, being unable to cut interest rates with elevated inflation while US performance is deteriorating. 

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

On the downside, 105.12 and 104.60 should act as support ahead of the 55-day and the 200-day Simple Moving Averages (SMAs) at 104.40 and 104.10, respectively. If those levels are unable to hold, the 100-day SMA near 103.70 is the next best candidate. 

• The Mexican Peso falls against major peers as inflation outlook in US, Europe and UK remains stickier than expected. 
• This will probably lead to interest rates remaining higher for longer providing support to MXN’s counterparts. 
• USD/MXN’s short-term trend looks increasingly sideways as it yo-yos in a range.  

The Mexican Peso (MXN) trades lower in most pairs on Friday as signs of entrenched inflation in most developed economies push back expectations for interest-rate cuts with bullish implications for their currencies.

USD/MXN is trading up almost two-tenths of a percent at 17.24, EUR/MXN is up over three-tenths at 18.53 and GBP/MXN is up a similar amount at 21.60, at the time of publication during the European session. 

Mexican Peso falls versus peers 

The Mexican Peso plummeted over half a percentage point against the US Dollar (USD) on Thursday after US first quarter GDP data showed an unexpected rise in inflation despite below-par growth. 

US Gross Domestic Product (GDP) annualized slowed to 1.6% in Q1, missing expectations of 2.5% and below the previous quarter’s 3.6%, however, the US Dollar gained after the Personal Consumption Expenditures Prices component, which measures the change in prices of goods, came in a lot higher compared with previous quarter.

The data led markets to dial back their expectation of when the Federal Reserve (Fed) will start cutting interest rates, with the probability of a cut at the July meeting falling from 50% on the previous day to 34% afterwards, according to analysts at Deutsche Bank.  

The expectation of interest rates staying higher for longer appreciated the Greenback and USD/MXN spiked up to 17.39 following the GDP data, because higher interest rates attract more foreign capital inflows.

USD/MXN traders now await the US March core Personal Consumption Expenditures Price Index (PCE) out at 12:30 GMT, which is the US Federal Reserve’s (Fed) preferred gauge of inflation, for more detail on inflationary pressures. 

In Europe, rising Bund yields, which are above 2.60%, help the Single Currency rebound in most pairs. The move comes on the back of more hawkish rhetoric from the President of the Bundesbank and European Central Bank (ECB) governing council member Joachim Nagel, who suggested the ECB’s promised June rate cut may be a “one and done”.  

Commentary from ECB policymaker Isabel Schnabel further endorsed the view as she highlighted services sector wage inflation as a sticking point.   

In the UK, despite an underforming economy, inflation remains high and Bank of England (BoE) officials continue to strike a hawkish tone, supporting the Pound Sterling. 

The Banxico, meanwhile, adopts a data-dependent approach in its outlook for interest rates, and whilst the central bank cut rates by 0.25% in March, a further cut is not seen coming in May. 

The mid-month Mexican inflation data for March released earlier this week failed to clarify the situation, coming out mixed and showing a rise in headline but downtick in core. 

According to the Citibanamex Survey, most analysts expect Banxico to hold rates unchanged at the May meeting. The median foresees a rate cut in June, while they estimate the main reference rate to end at 10.00%, up from 9.63% previously.

Technical Analysis: USD/MXN enters sideways trend

USD/MXN shows increased volatility and may be entering a sideways trend over the short-term horizon.  

USD/MXN 4-hour Chart 

USD/MXN appears to be rising up towards the top of the range at 17.40. If it reaches that level it will probably pivot and start falling back down within the range to the floor in the 16.80s.

A decisive break below 16.86 would be required to confirm a breakout of the range and further downside to the next target at 16.50 and then the April 9 low at 16.26.

On the other side, a decisive break above the major trendline for the long-term downtrend at roughly 17.40 would be required to change the trend back to bullish, and activate an upside target at around 18.15. 

A decisive break would be one characterized by a longer-than-average green daily candlestick that pierces above the trendline and closes near its high, or three green candlesticks in a row that pierce above the level. 

Silver prices (XAG/USD) rose on Friday, according to FXStreet data. Silver trades at $27.66 per troy ounce, up 0.85% from the $27.43 it cost on Thursday.

Silver prices have increased by 8.60% since the beginning of the year.

The Gold/Silver ratio, which shows the number of troy ounces of Silver needed to equal the value of one troy ounce of Gold, stood at 85.03 on Friday, down from 85.03 on Thursday.

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

(An automation tool was used in creating this post.)

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

Gold price stood at 72,116 Indian Rupees (INR) per 10 grams, up INR 205 compared with the INR 71,911 it cost on Thursday.

As for futures contracts, Gold prices increased to INR 71,620 per 10 gms from INR 71,214 per 10 gms.

Prices for Silver futures contracts increased to INR 82,924 per kg from INR 82,417 per kg.

Global Market Movers: Comex Gold price holds gains ahead of key US inflation data

• The US GDP report released on Thursday showed a sharp deceleration in economic growth and stubborn inflation, which, in turn, is seen as a key factor lending support to the Comex Gold price.
• According to the data published by the US Commerce Department, the world’s largest economy grew by 1.6% at an annualized rate in the first quarter, marking the weakest reading since mid-2022.
• Additional details of the report revealed that underlying inflation rose more than expected, by 3.7%, in the first quarter, reaffirming bets that the Federal Reserve will keep rates higher for longer.
• The yield on the benchmark 10-year US government bond shot to the highest level in more than five months in reaction to the mixed data and acts as a headwind for the non-yielding yellow metal.
• This, along with easing fears about a further escalation of geopolitical tensions in the Middle East, undermines the safe-haven precious metal and should contribute to capping the upside.
• The US Dollar bulls, meanwhile, prefer to wait for more cues about the Fed’s rate cut path, putting the focus squarely on the release of the Personal Consumption Expenditures (PCE) Price Index.
• The crucial inflation data will play a key role in influencing the Fed’s future policy decisions and driving the USD demand, which should help in determining the near-term trajectory for the commodity. 

(An automation tool was used in creating this post.)

• GBP/JPY advances to 196.00 amid uncertainty over BoJ’s interest rate outlook.
• The BoJ sees inflation rising in the coming years but has projected weak economic growth.
• UK’s firm Services PMI has deepened fears of persistent inflationary pressures.

The GBP/JPY pair extends its winning streak for the fourth trading session on Friday and rises to a historic high of 196.00. The cross strengthens after the interest rate decision from the Bank of Japan (BoJ) came in-line with market expectations.

The BoJ kept interest rates steady in the range of 0%- 0.01%. The monetary policy statement indicated that the central bank remains on track for policy normalization. The BoJ said, “It will adjust the degree of monetary easing if the underlying inflation rate rises,” instead of currently buying about 6 trillion JPY worth of Japanese Government Bonds per month.

For the economic and inflation outlook, the BoJ has forecasted weak growth and sees inflation rising in coming years. This has raised doubts among investors, as higher inflation could not be achieved by weak growth. It has also deepened uncertainty over the scope of policy tightening.

Meanwhile, softer than expected, Tokyo’s annual Consumer Price Index (CPI) data for April has deepened doubts over Japan’s inflation, which remains above the 2% target. The annual CPI rose at a slower pace of 1.8% from expectations and the prior reading of 2.6%. Tokyo CPI excluding Fresh Food softened to 1.6% from the consensus of 2.2% and the former reading of 2.4%.

On the United Kingdom front, the Pound Sterling performs strongly as strong Services PMI figures have deepened fears of persistent inflation. Higher Services PMI boosts employment and wage growth, which could stall progress in price pressures easing to the desired rate of 2%. This will prompt fears of UK interest rates remaining higher.

• The WTI price depreciates on a weaker demand outlook following US GDP data released on Thursday.
• US Treasury Secretary Janet Yellen said that US GDP growth for Q1 could be revised higher as more data becomes available.
• Israel intensifies air strikes on Rafah, disregarding cautions from allies regarding the risk of significant civilian casualties.

West Texas Intermediate (WTI) crude Oil price trades near $83.40 per barrel, showing a slight decrease of 0.10% during the European hours on Friday. The US Gross Domestic Product Annualized (Q1) expanded at a slower pace of 1.6% compared to the previous reading of 3.4%, falling short of market expectations of 2.5%. This slowdown suggests potential headwinds or slowdowns in various sectors of the US economy, which could lead to reduced demand for Oil as economic activity moderates.

In contrast, US consumer prices have shown resilience, with the Personal Consumption Expenditures (QoQ) Price Index for Q1 increasing at a 3.7% annual rate. This exceeded both market expectations of 3.4% and the previous reading of 2.0%.

The WTI Oil price received support from remarks made by US Treasury Secretary Janet Yellen. Yellen stated in an interview with Reuters on Thursday that US GDP growth for the first quarter could potentially be revised higher as more data becomes available. Additionally, Yellen mentioned that inflation is expected to return to more normal levels after certain "peculiar" factors disrupt the economy.

However, the price of black Gold was supported by potential supply risks related to the conflict in the Middle East, particularly stemming from the possibility of an Israeli invasion of the southern Gaza city of Rafah.

As per a Reuters report, recent developments indicate heightened tensions in the region, with Israel intensifying air strikes on Rafah following its announcement to evacuate civilians from the southern Gazan city and proceed with an all-out assault, despite warnings from allies about the potential for mass casualties.

Swiss National Bank (SNB) Chairman Thomas J. Jordan speaks at the SNB’s General Meeting of Shareholders.

Key Quotes

SNB has been successful in fight against inflation.

Uncertainty remains elevated, shocks can occur at any time.

We should not be sidetracked from focus on price stability.

Demands of critics for SNB to broaden mandate are dangerous.

Market Reaction

USD/CHF falls to 0.9100, weighed down by subdued US Dollar. The US Dollar remains under pressure as weaker US Q1 Gross Domestic Product (GDP) growth has raised doubts for the economic outlook. The pair is expected to face sheer volatility after the release of the US core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published at 12:30 GMT.

• EUR/USD steadily climbs back above 1.0700 again despite weakness following inflationary US GDP data. 
• Further volatility is possible once the core Personal Expenditures Price Index for March is released on Friday. 
• The report could further tone the outlook for US interest rates, impacting the value of USD. 

EUR/USD trades in the 1.0740s on Friday, ahead of key data out of the US in the form of the March core Personal Consumption Expenditures Price Index (PCE), the US Federal Reserve’s (Fed) preferred gauge of inflation. 

The pair lost ground on Thursday after the release of the Q1 US GDP report but has since recovered and resumed its short-term uptrend.

The core PCE data, which is released by the US Bureau of Economic Analysis (BEA) at 12:30 GMT, could alter market perceptions about the timing of Fed interest-rate cuts with implications for EUR/USD. 

EUR/USD recovers from post-GDP data decline

EUR/USD has recovered back up to the 1.0730s after declining sharply to a low of 1.0678 on Thursday following the release of US first-quarter GDP data. Although annualized GDP growth missed consensus expectations and fell below the previous quarter’s growth rate, the Personal Consumption Expenditures Prices component, which measures the change in prices of goods, came in way higher compared with previous quarter and supported the US Dollar (USD).  

The inflationary data meant that markets dialed back their expectation of when the Federal Reserve (Fed) will start cutting interest rates, with the chance of a rate cut by the July meeting falling from 50% on the previous day to 34% afterwards, according to analysts at Deutsche Bank. 

The expectation of interest rates staying higher for longer temporarily strengthened the Greenback – but weighed on EUR/USD – because higher interest rates attract more foreign capital inflows.

EUR/USD at risk of more volatility 

EUR/USD may now be vulnerable to more volatility when the monthly core PCE is released at 12:30 GMT. Although the market has already been alerted to a likely upside surprise by the data in the GDP report for the quarter, the core PCE for March out on Friday will provide more detail. 

EUR/USD is likely to decline if core PCE shows a reading that is higher than the 2.6% expected by economists (0.3% MoM), particularly if it is above the 2.8% reading from the previous month. A higher-than-forecast reading would indicate persistent price pressures and encourage the Fed to maintain interest rates at their current level for longer. 

A lower-than-forecast reading would bring forward the time the Fed is expected to make its first interest-rate cut, weakening USD and lifting the EUR/USD exchange rate. 

The CME FedWatch Tool, a market-based gauge of when the Fed is likely to alter interest rates, places the first rate cut as happening in September, with a 59% probability.  

Beyond the US PCE data, the calendar shows little in the way of hard data that is likely to impact the Euro (EUR) side of the pair, although commentary from European Central Bank (ECB) officials could still cause some turbulence. 

Technical Analysis: EUR/USD continues slowly correcting higher

EUR/USD continues correcting higher despite experiencing a pullback down below the 1.0700 level after the release of US GDP data on Thursday. 

It has broken out of the rectangular range it was trading in on the 4-hour chart after piercing above the rectangle’s ceiling at 1.0700. 

The Bear Flag price pattern which was unfolding between April 16-22 looks deformed by the persistent price action above 1.0700 and is less credible. 

EUR/USD 4-hour Chart

The establishment of a rising sequence of peaks and troughs on the 4-hour chart strengthens the argument that the short-term trend has turned bullish and therefore suggestive of more gains. 

If it continues marching higher, resistance from a previous lower high on April 11 gives an initial target at 1.0757. Then the 50-day and 200-day Simple Moving Averages (SMA) on the daily chart (not shown) are likely to resist at 1.0807.

On the other hand, a break below the 1.0601 April 16 low would revive the Bear Flag hypothesis. 

According to technical lore, the expected move down from a Bear Flag equals the length of the preceding “pole” or a Fibonacci ratio of the pole. 

The Fibonacci 0.618 ratio of the pole extrapolated lower gives a conservative target at 1.0503. The next concrete target is at 1.0448 – the October 2023 low. A fall of equal length to the pole would take EUR/USD to 1.0403.

• The Pound Sterling remains upbeat against the US Dollar ahead of the US core PCE Price Index data.
• Weak US Q1 GDP data has kept the US Dollar on the back foot.
• The UK service sector’s upbeat outlook has increased fears of persistent inflation.

The Pound Sterling (GBP) clings to gains near 1.2500 against US Dollar (USD) in Friday’s London session. The GBP/USD pair shows strength as recent survey data has shown an improved economic outlook for the United Kingdom even though the Bank of England (BoE) is maintaining interest rates higher. 

The preliminary PMI report from S&P Global/CIPS for April released on Tuesday showed that activity in the services sector remains robust, pushing overall activity higher despite a lagging Manufacturing PMI. The data also showed that new business inflows in the service sector remain strong. 

Higher demand for services tends to boost employment and wages in the sector, contributing to inflation pressures. This could stall progress in inflation easing to the desired rate of 2%. Also, BoE policymakers have remained worried about high service inflation. Currently, the UK annual service inflation is at 6%, higher than what is required to be consistent for bringing down inflation to the 2% target.

A few BoE policymakers see inflation receding sharply in upcoming months but still refrain from providing a concrete time frame for interest-rate cuts. In the press conference after the last monetary policy meeting, BoE Governor Andrew Bailey said market expectations for two or three rate cuts this year are not “unreasonable”. 

Daily digest market movers: Pound Sterling trades close to 10-day high of 1.2500

• The Pound Sterling holds strength near a ten-day high at around the psychological figure of 1.2500 against the US Dollar. The Cable remains upbeat as the US Dollar has come under pressure after the preliminary United States Gross Domestic Product (GDP) growth in the first quarter turned out weaker than expected. 
• The US Bureau of Economic Analysis (BEA) reported on Thursday that the economy expanded at a slower pace of 1.6% in Q1, below expectations of 2.5% and the prior reading of 3.4%. Despite the data miss, traders maintain strong bets for the Federal Reserve to start reducing interest rates from September or in the fourth quarter as the GDP Price Index was significantly higher. The inflation measure rose to 3.1% from the prior reading of 1.7%.
• Meanwhile, investors shift focus to the core Personal Consumption Expenditures (PCE) Price Index data for March, which will be published at 12:30 GMT. Core PCE inflation is expected to have grown steadily by 0.3% on a month-on-month basis, with annual figures softening to 2.6% from the 2.8% recorded in February.
• Stubborn inflation data could allow the Fed to maintain a hawkish rhetoric. Fed policymakers have been reiterating that interest-rate cuts are only appropriate when they are convinced that inflation will return sustainably to the 2% target. 
• After the underlying inflation data, investors will focus on the Fed’s monetary policy decision, which will be announced on Wednesday. The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25%-5.50%. Investors will keenly focus on the Fed’s guidance for interest rates.

Technical Analysis: Pound Sterling hovers near 1.2500

The Pound Sterling trades near Thursday’s high at around 1.2500 against the US Dollar. The GBP/USD pair struggles to extend the upside above the 20-day Exponential Moving Average (EMA), which trades around 1.2510.

The 14-period Relative Strength Index (RSI) rebounds above 40.00, suggesting that a bearish momentum might have concluded for now. However, the long-term bearish bias remains intact.

A sustainable move above the psychological resistance of 1.2500 will drive the pair towards the 200-day EMA, which hovers around 1.2550. On the other side, a downside move below Wednesday’s low at around 1.2430 will expose GBP/USD to a five-month low at around 1.2300.

Here is what you need to know on Friday, April 26:

The Japanese Yen (JPY) stays under bearish pressure and trades at its weakest level in over three decades against the US Dollar following the Bank of Japan's (BoJ) decision to leave the monetary policy settings unchanged. Later in the day, the US Bureau of Economic Analysis will release the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's (Fed) preferred gauge of inflation, for March.

US core PCE inflation set to signal firm price pressures as markets delay Federal Reserve rate cut bets.

The BoJ announced early Friday that board members decided to maintain the key interest rate target range steady at 0%-0.1%. The BoJ removed from its policy statement the reference to currently buying about 6 trillion JPY worth of Japanese Government Bonds per month and reiterated that they will adjust the degree of monetary easing if trend inflation were to rise further. In the post-meeting press conference, BoJ Governor Kazuo Ueda said the change of a prolonged JPY weakness was "not zero" and added that the impact of exchange rates on the economy include positive ones. At the time of press, USD/JPY was trading at since May 1990 above 156.50, rising more than 0.7% on the day.

Ueda Speech: BoJ Governor discusses interest rate outlook.

Japanese Yen remains heavily offered near multi-decade low after BoJ Governor Ueda's comments.

The USD Index (DXY) closed in negative territory on Thursday after the data showed that the US economy expanded at a softer pace than expected in the first quarter. The details of the Gross Domestic Product report, however, showed a significant increase in the GDP price deflator and helped the DXY limit its losses. Early Friday, DXY fluctuates in a tight channel above 105.50 and the 10-year US Treasury bond yield stays near 4.7% after rising more than 1% on Thursday. Meanwhile, US stock index futures register strong gains in the European morning, reflecting an improvement in risk mood.

EUR/USD continued to push higher in the American session on Thursday and registered its highest daily close in over two weeks. The pair stays in a consolidation phase below 1.0750 in the European session.

GBP/USD extended its weekly rebound into a third consecutive day on Thursday and gained 0.4% on the day. The pair holds steady at around 1.2500 to start the last trading day of the week.

Gold edged higher on Thursday but struggled to gather bullish momentum as US yields stretched higher. XAU/USD keeps its footing early Friday and trades in the green above $2,340.

FX option expiries for Apr 26 NY cut at 10:00 Eastern Time, via DTCC, can be found below

EUR/USD: EUR amounts

• 1.0600 1.6b
• 1.0610 800m
• 1.0645 2.2b
• 1.0680 814m
• 1.0700 987m
• 1.0750 1.6b
• 1.0780 1.1b

GBP/USD: GBP amounts     

• 1.2365 685m
• 1.2430 1.1b
• 1.2500 726m

USD/JPY: USD amounts                     

• 153.50 672m
• 154.00 712m
• 155.00 1.5b
• 156.50 531m

USD/CHF: USD amounts     

• 0.9100 565m

AUD/USD: AUD amounts

• 0.6400 469m
• 0.6500 462m

USD/CAD: USD amounts       

• 1.3560 400m
• 1.3775 396m

NZD/USD: NZD amounts

• 0.5940 386m
• 0.6100 605m

• USD/CHF trades in positive territory near 0.9130 on Friday. 
• The US economy expanded at the slowest pace in two years, below the consensus. 
• The escalating Middle East tensions might boost the safe-haven CHF. 

The USD/CHF pair trades on a stronger note around 0.9130 during the early European session on Friday. The modest rebound of the US Dollar (USD) provides some support to the pair. Traders prefer to wait on the sideline ahead of the Swiss National Bank’s (SNB) Chairman Jordan speech, followed by the final reading of the US March Personal Consumption Expenditures Price Index (PCE) on Friday. 

The US advance estimate of Gross Domestic Product (GDP) number grew far less than estimated in the first quarter of 2024, according to the Bureau of Economic Analysis on Thursday. The US economy grew at an annualized pace of 1.6% during the period, missing the expectation of 2.5% growth and coming in lower than fourth quarter GDP, which was revised up to 3.4%. The Greenback attracted some sellers after the data was released. 

Nonetheless, a surprising upside in the quarterly Personal Consumption Expenditure (PCE) inflation measure suggested that the US Federal Reserve (Fed) would not cut interest rates before September. The PCE figure rose at an annualized rate of 3.4% in Q1, compared to the 1.8% pace recorded in Q4 2023. The recent inflation data dampened the hope for June rate cuts, and investors forecast one cut this year, down from three cuts just a few weeks ago. This, in turn, might cap the downside for the Greenback in the near term. 

On the Swiss front, Switzerland’s ZEW Survey Expectations rose to 17.6 in April from the previous reading of 11.5, the Centre for European Economic Research revealed on Wednesday. Furthermore, the rising geopolitical tensions in the Middle East, particularly in Israel and Iran, might boost safe-haven asset flows, benefiting the Swiss Franc (CHF). 

Speaking at the post-policy meeting press conference on Friday, Bank of Japan (BoJ) Governor Kazuo Ueda said that the Bank “will adjust the degree of monetary easing if underlying inflation rate rises,” adding that “easy financial conditions will be maintained for the time being.”

The BoJ kept the interest rate on hold at 0% following the April meeting.

Additional quotes

more to come ....

Market reaction

USD/JPY rises back to test 156.00 following these comments. The pair was last seen 0.25% higher on the day at 156.03.

• USD/CAD loses ground due to higher crude Oil prices on Friday.
• WTI Oil price appreciates due to geopolitical risks associated with a potential Israeli invasion of the Rafah city.
• The lower US labor data has offset concerns regarding the sluggish GDP (Q1).

USD/CAD extends its losses for the second consecutive day, trading around 1.3640 during the Asian session on Friday. The Canadian Dollar (CAD) receives support from higher US crude Oil prices, contributing to the weakening of the USD/CAD pair.

West Texas Intermediate (WTI) crude Oil price edges higher to near $83.80 per barrel, supported by potential geopolitical risks stemming from a possible Israeli invasion of the southern Gaza city of Rafah.

On the data front, recent Canadian Retail Sales data for February highlighted economic deceleration. Additionally, domestic annual inflation in Canada stood at 2.9% in March, below expectations, indicating the potential for lower underlying inflation. This scenario may lead the Bank of Canada to consider interest rate cuts, which could limit the gains of the Canadian Dollar.

In contrast, US labor data offset sluggish GDP growth, dampening expectations for Federal Reserve interest rate cuts. The US Gross Domestic Product Annualized (Q1) expanded at a slower pace of 1.6% compared to the previous reading of 3.4%, falling short of market expectations of 2.5%. The slowdown in the US economy suggests potential challenges or deceleration in various sectors. Looking ahead, market attention is now focused on the US Personal Consumption Expenditures (PCE) Price Index data for March, scheduled for release on Friday.

Additionally, the US Initial Jobless Claims for the week ending on April 19 saw a significant decrease, dropping by 5,000 to 207,000. This figure marks the lowest level seen in two months and exceeds both market expectations of 214,000 and the previous reading of 212,000. The unexpected decline in jobless claims indicates a strengthening labor market, implying reduced layoffs and potentially increased hiring activity.

• The core Personal Consumption Expenditures Price Index is set to rise 0.3% MoM and 2.6% YoY in March.
• Markets see a strong chance of the Federal Reserve keeping the policy rate unchanged in June.
• The market reaction to the data could remain short-lived.

The core Personal Consumption Expenditures (PCE) Price Index, the US Federal Reserve’s (Fed) preferred inflation measure, will be published on Friday by the US Bureau of Economic Analysis (BEA) at 12:30 GMT.

What to expect in the Federal Reserve’s preferred PCE inflation report?

The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in March, matching February’s increase. March core PCE is also projected to grow at an annual pace of 2.6%, while the headline PCE inflation is forecast to tick up to 2.6% (YoY) from 2.5%.

The Federal Reserve’s revised Summary of Economic Projections (SEP), also known as the dot plot – published alongside the policy statement after the March meeting – showed that policymakers expect the annual core PCE inflation to be at 2.6% at the end of 2024, up from the 2.4% forecast seen in the December’s SEP. 

On Thursday, the BEA reported that the core PCE Price Index rose 3.4% on a quarterly basis in the first quarter, at a much stronger pace than the 1.8% increase seen in the last quarter of 2023. The initial market reaction to this data helped the US Dollar (USD) gather strength against its rivals. Since the quarterly figures were already unveiled, markets are likely to pay little to no attention to the monthly PCE inflation numbers.

Previewing the PCE Price Index data, “another firm increase in March CPI inflation will likely result in a still firm 0.25% m/m gain for the core PCE — though we flag that the risk to our forecast is to the upside,” said TD Securities analysts in a weekly report and added:
“The PCE's supercore likely rebounded to 0.30% m/m after a modest 0.18% gain in February. Separately, personal spending likely ended the quarter on a strong note, expanding again at a solid pace in March.”

When will the PCE inflation report be released, and how could it affect EUR/USD?

The PCE inflation data is slated for release at 12:30 GMT. The monthly core PCE Price Index gauge is the most-preferred inflation reading by the Fed, as it’s not distorted by base effects and provides a clear view of underlying inflation by excluding volatile items. Investors, therefore, pay close attention to the monthly core PCE figure.

The CME Group FedWatch Tool shows that markets are currently pricing in a higher-than-80% probability that the Fed will leave the policy rate unchanged at 5.25%-5.5% in June. Monthly PCE data for March, however, are unlikely to influence the market expectation in a significant way, especially following the release of the quarterly data. Nevertheless, in case the monthly core PCE Price Index rises less than forecast, the immediate reaction could trigger a short-lasting USD weakness. On the other hand, the market positioning suggests that there isn’t a lot of room left for further USD strength if the data surprise to the upside.

FXStreet Analyst Eren Sengezer offers a brief technical outlook for EUR/USD and explains:

“The 200-day Simple Moving Average (SMA) and the 50-day SMA form a strong resistance for EUR/USD at 1.0800. As long as this level stays intact as resistance, technical sellers could look to retain control. On the downside, 1.0650 (static level) aligns as interim support before next support at 1.0600 (2024 low set on April 16). In case EUR/USD manages to stabilize above 1.0800, buyers could remain interested and open the door for an extended rebound toward 1.0900 (psychological level, static level) and 1.0950 (static level from March).

• NZD/USD remains steady due to risk appetite improvements for risk-sensitive currencies.
• The gains of the US Dollar could be limited due to the lower US Treasury yields.
• New Zealand’s ANZ-Roy Morgan Consumer Confidence decreased to 82.1 in April, reaching its lowest level since 2008.

The NZD/USD pair showed positive movement, trading around 0.5960 during the Asian session on Friday. The New Zealand Dollar (NZD), known for its sensitivity to risk sentiment, gained momentum as risk appetite improved, supporting the NZD/USD pair. However, the pair trimmed some of its intraday gains due to a rebound in the US Dollar (USD).

The US Dollar Index (DXY), which measures the USD against six major currencies, edges up to near 105.70, although its gains may be limited by a downward correction in US Treasury yields, contributing to the USD's weakness.

On Thursday, mixed preliminary data from the United States (US) put pressure on the Greenback. The US Gross Domestic Product Annualized (Q1) expanded at a slower pace of 1.6% compared to the previous reading of 3.4%, falling short of market expectations of 2.5%. This slowdown suggests potential headwinds or slowdowns in various sectors of the economy.

However, US consumer prices have shown resilience, with the Personal Consumption Expenditures (QoQ) Price Index for Q1 increasing at a 3.7% annual rate. This exceeded both market expectations of 3.4% and the previous reading of 2.0%, indicating prevailing inflationary pressures that could influence Federal Reserve (Fed) monetary policy decisions.

On the Kiwi's side, Friday's ANZ-Roy Morgan Consumer Confidence slipped to 82.1 in April, from the previous reading of 86.4. This has marked its lowest level since 2008. Despite this decline, New Zealand's consumer confidence remains relatively elevated. Additionally, Stats NZ reported a trade surplus in March, driven by exports reaching a 10-month high while imports fell to a 2-month low. The decrease in imports reflects a sluggish economy, as both households and businesses grapple with the impact of high interest rates.

Looking ahead, market attention is now focused on the US Personal Consumption Expenditures (PCE) Price Index data for March, slated for release on Friday. This data is expected to garner significant interest from investors as they assess its implications for inflationary pressures and potential effects on US monetary policy.

• EUR/USD meets with some supply amid the emergence of some USD buying on Friday.
• Bets that the Fed will keep rates higher for longer amid sticky inflation underpin the USD.
• Traders, however, seem reluctant and look to the US PCE Price Index for a fresh impetus.

The EUR/USD pair edges lower during the Asian session on Friday and moves away from a two-week high, around the 1.0740 area touched the previous day. Spot prices currently trade around the 1.0725-1.0720 region and remain at the mercy of the US Dollar (USD) price dynamics ahead of the crucial US data.

The US Personal Consumption Expenditures (PCE) Price Index data is due for release later during the North American session and will be looked upon for cues about the Federal Reserve's (Fed) rate cut path. This, in turn, will play a key role in influencing the near-term USD price dynamics. In the meantime, growing acceptance that the US central bank will keep interest rates higher for longer lends some support to the Greenback and exerts some downward pressure on the EUR/USD pair.

Investors have pushed back their expectations about the timing of the first rate cut by the Fed to September. The bets were reaffirmed by data released on Thursday, which showed that the underlying inflation rose more than expected in the first quarter. This helps offset a deceleration in the economic growth to a 1.6% annualized rate during the January-March quarter – marking the weakest reading since mid-2022 – and keeps the US Treasury bond yields elevated, underpinning the USD.

Apart from this, bets that the European Central Bank (ECB) will start cutting interest rates in June, amid a faster-than-anticipated fall in the Eurozone inflation, suggests that the path of least resistance for the EUR/USD pair is to the downside. That said, it will still be prudent to wait for strong follow-through selling before confirming that the recent recovery from the 1.0600 mark, or the YTD low has run its course traders await the key US inflation data.

• EUR/JPY gains ground near 167.20 amid the weaker JPY on Friday. 
• The BoJ kept interest rates steady around zero on Friday. 
• ECB’s Nagel said he would be in favor of a rate cut in June. 

The EUR/JPY cross drifts higher to 167.20, its highest level since 2008, during the Asian trading hours on Friday. The uptick of the cross is supported by the weaker Japanese Yen (JPY) after the Bank of Japan (BoJ) announced its policy decision. 

The Bank of Japan (BoJ) board members decided to leave the key interest rate unchanged at 0% at its April policy meeting on Friday, as widely expected. The Japanese central bank hiked rates for the first time since 2007 in its March meeting, ending Japan’s negative interest rate era that began in 2016. 

Furthermore, the BoJ provided new forecasts predicting that inflation would remain close to its 2% target over the next three years, indicating that it is prepared to raise borrowing rates later this year. The central bank added it would continue to purchase government bonds in accordance with guidance decided in March to acquire around 6 trillion yen ($38.45 billion) per month. Following the meeting, the Japanese Yen (JPY) attracts some sellers against the Euro (EUR). 

The recent consumer inflation in Tokyo declined sharply in April. The Statistics Bureau of Japan reported on Friday that the headline Tokyo Consumer Price Index (CPI) for April rose 1.8% YoY, compared to the previous reading of a 2.6% rise. Meanwhile, the Tokyo CPI ex Fresh Food, Energy increased 1.8% YoY versus 2.7% expected and the previous reading of 2.9% rise. The softer inflation in Tokyo also weighs on the safe-haven JPY. 

On the Euro front, European Central Bank (ECB) policymaker Joachim Nagel said on Wednesday that he would be in favor of a rate cut in June, adding that such a step would not necessarily be followed by a series of rate cuts. The ECB’s Fabio Panetta said small interest rate cuts will stem the risk of prolonged economic stagnation in the euro area.

• Gold price lacks any firm intraday direction and is influenced by a combination of diverging forces.
• The weaker US GDP print and a rise in US inflation benefit the metal amid subdued USD demand.
• Hawkish Fed expectations cap the upside as traders await the release of the US PCE Price Index.

Gold price (XAU/USD) struggles to capitalize on the previous day's modest gains and oscillates in a narrow range during the Asian session on Friday amid mixed fundamental cues. The US GDP report released on Thursday pointed to a significant loss of growth momentum at the start of 2024 and an unwelcome pickup in inflation. This, along with the subdued US Dollar (USD) price action, acts as a tailwind for the precious metal, which is considered as a hedge against inflation. The upside, however, remains capped in the wake of hawkish Federal Reserve (Fed) expectations. 

Investors seem convinced that the US central bank will keep interest rates higher for longer amid sticky inflation. This remains supportive of elevated US Treasury bond yields and lends support to the Greenback. Apart from this, a positive tone around the equity markets further contributes to keeping a lid on the safe-haven Gold price. Traders also seem reluctant and prefer to wait for the release of the US Personal Consumption Expenditures (PCE) Price Index for cues about the Fed's rate-cut path, which should determine the next leg of a directional move for the XAU/USD. 

Daily Digest Market Movers: Gold price traders await more cues about the Fed’s rate-cut path before placing directional bets 

• The US GDP report released on Thursday showed a sharp deceleration in economic growth and stubborn inflation, which, in turn, is seen as a key factor lending support to the Gold price.
• According to the data published by the US Commerce Department, the world’s largest economy grew by 1.6% at an annualized rate in the first quarter, marking the weakest reading since mid-2022.
• Additional details of the report revealed that underlying inflation rose more than expected, by 3.7%, in the first quarter, reaffirming bets that the Federal Reserve will keep rates higher for longer.
• The yield on the benchmark 10-year US government bond shot to the highest level in more than five months in reaction to the mixed data and acts as a headwind for the non-yielding yellow metal.
• This, along with easing fears about a further escalation of geopolitical tensions in the Middle East, undermines the safe-haven precious metal and should contribute to capping the upside.
• The US Dollar bulls, meanwhile, prefer to wait for more cues about the Fed’s rate cut path, putting the focus squarely on the release of the Personal Consumption Expenditures (PCE) Price Index.
• The crucial inflation data will play a key role in influencing the Fed’s future policy decisions and driving the USD demand, which should help in determining the near-term trajectory for the commodity. 

Technical Analysis: Gold price consolidates in a range, $2,300 holds the key for bulls and should act as a strong base

From a technical perspective, the XAU/USD, so far, has been struggling to make it through the 100-period Simple Moving Average (SMA) on the daily chart. The said barrier is currently pegged near the $2,345 region and should now act as a key pivotal point amid mixed oscillators on the daily chart. Meanwhile, a sustained strength beyond will be seen as a fresh trigger for bullish traders and lift the Gold price to the next relevant hurdle near the $2,371-2,372 region. The subsequent move up could extend further towards the $2,400 round figure en route to the all-time peak, around the $2,431-2,432 area touched earlier this month.

On the flip side, bearish traders are likely to wait for some follow-through selling and acceptance below the $2,300 mark before placing fresh bets. The Gold price might then extend the corrective decline further towards the $2,260-2,255 intermediate support before eventually dropping to the $2,225 area and the $2,200-2,190 region, representing the 50-day Simple Moving Average (SMA).

• The Australian Dollar remains firmer due to the hawkish sentiment surrounding RBA’s rate trajectory.
• The Australian Dollar gains in response to the Aussie 10-year yield hitting a 21-week high of 4.59%.
• The rebound of the US Dollar could be attributed to a shift in market sentiment toward risk-off.

The Australian Dollar (AUD) continues its upward trend for the fifth consecutive session on Friday. The Australian Dollar (AUD) gains momentum against the US Dollar (USD) amid growing support for a hawkish stance from the Reserve Bank of Australia (RBA). This sentiment is strengthened by the reassessment by TD Securities, pushing back the anticipated rate cut by the RBA to February 2025 from November.

The Australian Dollar strengthened further on the back of rising yields in Australian government bonds, with the 10-year yield hitting a 21-week high of 4.59%. This surge is attributed to the recent release of Australia's Consumer Price Index (CPI) data on Wednesday, which surpassed expectations and triggered a hawkish sentiment surrounding the RBA.

The US Dollar Index (DXY), which measures the performance of the US Dollar (USD) against six major currencies, rebounds, potentially influenced by a shift toward risk-off sentiment. However, this gain could be limited due to the downward correction in US Treasury yields, which contributed to the weakening of the Greenback.

Despite mixed preliminary data released from the United States (US) on Thursday, including higher-than-expected Core Personal Consumption Expenditures and lower-than-expected Gross Domestic Product Annualized for the first quarter, the US Dollar remained subdued.

Market attention now turns to the US Personal Consumption Expenditures (PCE) Price Index data for March, scheduled for release on Friday. This data is anticipated to draw significant focus as investors gauge its implications for inflationary pressures and potential impacts on US monetary policy.

Daily Digest Market Movers: Australian Dollar appreciates due to the hawkish RBA

• In the first quarter, the US Gross Domestic Product Annualized (Q1) expanded at a slower pace, growing by 1.6% compared to the previous reading of 3.4%. This figure fell short of market expectations, which anticipated a growth rate of 2.5%. The deceleration in GDP growth suggests potential headwinds or slowdowns in various sectors of the economy.
• US consumer prices have demonstrated resilience, with the latest data indicating that the Personal Consumption Expenditures (QoQ) Price Index for Q1 increased at a 3.7% annual rate. This surpassed both market expectations of 3.4% and the previous reading of 2.0%. The persistent upward movement in consumer prices may indicate ongoing inflationary pressures, which could influence monetary policy decisions by the Federal Reserve.
• The US Initial Jobless Claims for the week ending on April 19 experienced a significant decrease, falling by 5,000 to 207,000. This figure marks the lowest level seen in two months and surpasses both market expectations of 214,000 and the previous reading of 212,000. This unexpected decline in jobless claims indicates a strengthening labor market, suggesting reduced layoffs and potentially increased hiring activity.
• According to the CME FedWatch Tool, the likelihood of the Federal Reserve's (Fed) interest rates remaining unchanged in the June meeting has risen to 85.2%, up from Wednesday’s 83.5%.
• Luci Ellis, the chief economist at Westpac and former Assistant Governor (Economic) at the Reserve Bank of Australia, notes that inflation slightly exceeded expectations in the March quarter. Westpac anticipates that the Board will keep interest rates unchanged in May and has adjusted their forecasted date for the first rate cut from September to November this year.
• In March, the Consumer Price Index (CPI) indicator in Australia rose to 3.5% YoY. While this figure exceeded expectations of 3.4%, it represented the highest level in four months. The uptick was primarily driven by faster increases in housing and transport prices.
• Excluding volatile items and travel, the monthly Australian CPI indicator climbed to 4.1% in March, up from a 3.9% gain in February. Despite this rise, inflation continues to remain outside the Reserve Bank of Australia's target range of 2-3%, indicating ongoing challenges in achieving the desired level of price stability.

Technical Analysis: Australian Dollar holds position above 0.6500

The Australian Dollar trades around 0.6520 on Friday. The pair has breached into a symmetrical triangle pattern, with the 14-day Relative Strength Index (RSI) above the 50-level, supporting this bullish outlook.

The AUD/USD pair could target the pullback resistance at the level of 0.6553. A breakthrough above the latter could lead the pair to approach the psychological level of 0.6600 and aim for the triangle's upper boundary near 0.6639.

On the downside, immediate support is expected around the psychological level of 0.6500. A break below this level may lead to further downside momentum, with the next significant support region around 0.6443, following further support at April’s low of 0.6362.

AUD/USD: Daily Chart

• Indian Rupee trades on a positive note on the weaker USD on Friday. 
• The uptick in INR is bolstered by interbank USD sales and easing Middle East tensions.
• The final reading of the US March Personal Consumption Expenditures Price Index (PCE) will be the highlight on Friday. 

Indian Rupee (INR) extends the rally on Friday, bolstered by interbank US Dollar (USD) sales. The softer USD against key rivals overseas and easing geopolitical tensions in the Middle East also supported the local currency. However, the recovery in crude oil prices and foreign capital outflows might weigh on the INR. Additionally, a hawkish repricing of US Federal Reserve (Fed) rate cut expectations amid elevated inflation will continue to boost the USD and cap the pair’s downside. 

Market players will keep an eye on the final reading of the US March Personal Consumption Expenditures Price Index (PCE), which might offer some hints about the inflation trajectory in the US and point to the Federal Reserve's (Fed) next move. Apart from this, India’s general election, which started on 19 April and will run until 1 June, will be closely watched. 

Daily Digest Market Movers: Indian Rupee remains firm amid global challenges

• The Indian Rupee was the least volatile major currency among its emerging market peers and a few advanced economies in the financial year 2023–24, according to the Monthly Economic Review report of the Department of Economic Affairs under the Ministry of Finance.
• The report added that India’s foreign exchange reserves reached an all-time high in March 2024, sufficient to cover 11 months of projected imports and more than 100% of total external debt. 
• The first estimate of US Gross Domestic Product (GDP) grew by 1.6% on an annualized basis in the first quarter (Q1) of 2024, compared to a 3.4% growth in Q4 2023, below the market consensus of 2.5%.  
• The US Personal Consumption Expenditures Prices (PCE) rose at an annualized rate of 3.4% in Q1, nearly double the 1.8% pace recorded in Q4 2023.
• HSBC analysts expect the Fed to leave its policy rate unchanged in May and said that economic growth and core inflation data in the coming months will likely impact policy in June and beyond. 

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

The Indian Rupee trades stronger on the day. The positive outlook of USD/INR remains unchanged on the daily chart as the pair is above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) holds in bearish territory around 48.00, suggesting the potential decline cannot be ruled out. 

The first downside target of USD/INR will emerge near the confluence of the 100-day EMA and a low of April 10 in the 83.10–83.15 region. A decisive break below this level will see a drop to a low of January 15 at 82.78, followed by a low of March 16 at 82.65. On the upside, the immediate resistance level is seen near a high of April 15 at 83.50. Further north, the next hurdle is located near an all-time high of 83.72, en route to the 84.00 psychological level.

• AUD/JPY extends its winning streak after the lower-than-expected Tokyo CPI data released on Friday.
• The Australian 10-year Government Bond Yield has reached a 21-week high of 4.59%.
• Tokyo CPI has fallen below the Bank of Japan's (BoJ) 2% target for the second time this year.

AUD/JPY extends its winning streak for the fifth consecutive session on Friday. The Australian Dollar (AUD) finds support from increasing bids for a hawkish stance for the Reserve Bank of Australia’s (RBA) monetary policy. The revision by TD Securities indicates a delay in the expected rate cut by the Reserve Bank of Australia (RBA) until February 2025 instead of November. This boosts the Australian Dollar (AUD) and consequently supports the AUD/JPY cross.

Australia’s Consumer Price Index (CPI) data on Wednesday, surpassing expectations, is also playing a role in an increase in Australian government bond yields as traders price out expectations regarding interest rate cuts by the RBA in 2024. The Australian 10-year Government Bond Yield has reached a 21-week high of 4.59%, indicating a significant upward trend.

The Japanese Yen (JPY) depreciated following the release of Japan's Tokyo Consumer Price Index (CPI), which came in well below expectations early Friday. This print marks the second time this year that inflation has fallen below the Bank of Japan's (BoJ) 2% target, reducing pressure on the central bank to raise interest rates again. As a result, market sentiment is shifting towards the expectation that the BoJ will abstain from implementing rate hikes during its meeting on Friday.

Daily Digest Market Movers: AUD/JPY gains ground after weaker Tokyo’s CPI data

• Tokyo Consumer Price Index rose 1.8% YoY in April, well below the previous print of 2.6%. Markets were broadly expecting Tokyo inflation to hold steady over the period. The Core CPI fell sharply to 1.6% year-on-year, marking its lowest level since March 2022 and falling well below forecasts of 2.2%.
• SocGen's assessment of the potential for USD/JPY to test the Japanese Ministry of Finance's intervention limits due to persistent US rate expectations and recent market dynamics suggests a significant focus on the interplay between US economic data and currency movements.
• On Friday, a report from Reuters said that the Bank of Japan (BOJ) is expected to project that inflation will remain close to its 2% target in the coming years and signal its preparedness to raise interest rates from their near-zero levels. This stance by the BOJ is aimed at preventing yen depreciation and discouraging market participants from pushing the currency to fresh 34-year lows.
• Jiji news agency reported on Thursday that the Bank of Japan (BOJ) might reduce its bond purchases appears to be exerting a more significant influence on the market sentiment compared to the lower-than-expected Tokyo Consumer Price Index (CPI) data released today.
• According to Luci Ellis, Westpac's chief economist and former Assistant Governor (Economic) at the Reserve Bank of Australia, inflation slightly surpassed expectations in the March quarter. They anticipate the Board will maintain interest rates in May and have revised the projected date for the initial rate reduction from September to November this year.
• According to analysts at Barrenjoey Capital Partners, a leading Australian investment banking firm, advised to utilize the trimmed mean to rank Australia's inflation. Australia's six-month annualized rate of trimmed mean inflation, standing at 3.6%, is notably the highest worldwide, surpassing even the United States' 3.2% six-month annualized rate of trimmed mean inflation.
• Australia’s Consumer Price Index (CPI) rose by 1.0% QoQ in the first quarter of 2024, against the expected 0.8% and 0.6% prior. CPI (YoY) increased by 3.6% compared to the forecast of 3.4% for Q1 and 4.1% prior. Australia’s Monthly Consumer Price Index (YoY) rose by 3.5% in March, against the market expectations and the previous reading of 3.4%.
• According to the Japan Times, the proportion of Japanese companies intending to increase their pay scales reached 70.7%, marking a rise of 6.3 percentage points from the previous year. Additionally, the number of companies planning to implement pay-scale hikes and regular pay increases totaling 5% or more amounted to 36.5%, nearly doubling from the previous year. This could provide support for the Yen.

Technical Analysis: AUD/JPY hovers around the major level of 101.50

The AUD/JPY trades around 101.50 on Friday, testing the upper boundary of the daily ascending channel, trading around a fresh five-month high of 101.66. Additionally, the 14-day Relative Strength Index (RSI) is trending above the 50-level, strengthening the bullish sentiment. The immediate resistance is seen at the psychological level of 102.00.

On the downside, immediate support for the AUD/JPY pair could be found at the psychological level of 101.00. If the pair breaches below this level, it suggests a bearish sentiment may prevail and might lead the AUD/JPY cross to a further decline toward the psychological level of 100.00, followed by the 21-day Exponential Moving Average (EMA) at the level of 99.87. Further depreciation will likely test the lower boundary of the ascending channel around the level of 99.00.

AUD/JPY: Daily Chart

Following his meeting with US Secretary of State Antony Blinken early Friday, China’s Foreign Minister Wang Yi said that the Sino-US “relationship has stabilized but negative factors are building.”

Additional comments

In response, Blinken said that “there is no substitute for face-to-face diplomacy,” adding that “we need to avoid miscalculations.”

Blinken said that he “hopes the US and China can make progress on agreements, citing fentanyl, military-to-military ties and AI risks.”

Market reaction

At the press time, AUD/USD is holding higher ground near 0.6530, unperturbed by these comments. The spot is up 0.21% on the day.

• WTI recovers to $83.60 in Friday’s early Asian session.
• The expectation that the Fed might delay rate cuts weighs on the black gold. 
• The concern over oil supply disruptions amid renewed geopolitical tensions lifts the black gold.

Western Texas Intermediate (WTI), the US crude oil benchmark, is trading around $83.60 on Friday. The black gold edges higher as the market weighed the weaker-than-expected US economic growth data against a potential geopolitical risk from a looming Israeli invasion of the southern Gaza city of Rafah.

WTI prices face some sell-off following the GDP report from the Commerce Department on Thursday. The US economy expanded at its slowest pace in nearly two years in the first quarter (Q1) of 2024 as inflation rose at a faster pace. The advanced US GDP grew by 1.6% on an annualized basis in the first quarter (Q1) in 2024, compared to a 3.4% growth in Q4 2023. This reading came in below the market estimation of 2.5%. Additionally, the inflation in the United States remains elevated and it might trigger the speculation that the Federal Reserve will not cut interest rates before September. 

However, WTI prices recover and hold positive ground after Treasury Secretary Janet Yellen said that US economic growth was likely stronger than suggested by weaker-than-expected quarterly data.

Apart from this, the concern over oil supply disruption amid the escalating geopolitical tensions boosts the black gold. Israel launched airstrikes on Rafah as the country made preparations to invade the city, per Reuters. 

The worries about the largest drawdown in US commercial crude stockpiles since mid-January also lift the WTI prices. The Energy Information Administration (EIA) reported that crude inventories for the week ending April 19 fell by 6.368 million barrels from the previous reading of 2.735 million barrels built.

• The Japanese Yen struggles to register any recovery amid dovish BoJ expectations.
• The lack of action by Japanese authorities and softer Tokyo CPI also exert pressure.
• Traders keenly await the crucial BoJ decision ahead of the US PCE Price Index data.

The Japanese Yen (JPY) languishes near a multi-decade low against its American counterpart during the Asian session on Friday as traders keenly await the outcome of the highly-anticipated Bank of Japan (BoJ) policy meeting. After the historic decision in March to raise short-term interest rates for the first time in 17 years, the central bank is widely expected to leave policy settings and bond purchase amounts unchanged amid signs that inflation in Japan is cooling. This puts the market focus squarely on the quarterly inflation and growth forecasts, which will play a key role in influencing the near-term JPY price dynamics. 

In the meantime, the lack of any decisive action by Japanese authorities to support the domestic currency fails to provide any respite to the JPY bulls. Meanwhile, the US Dollar (USD) hangs near a two-week low touched on Thursday in reaction to data showing a sharp slowdown in the US economic growth, which, in turn, caps the upside for the USD/JPY pair. That said, an unwelcome pickup in inflation reaffirmed market bets that the Federal Reserve (Fed) will keep interest rates higher for longer, which should act as a tailwind for the currency pair ahead of the US Personal Consumption Expenditures (PCE) Price Index.

Daily Digest Market Movers: Japanese Yen bulls remain on the sidelines ahead of BoJ and the key US macro data

• Government data showed on Friday that consumer inflation in Tokyo decelerated sharply in April and dashed hopes for any hawkish signals from the Bank of Japan, undermining the Japanese Yen. 
• The headline Tokyo Consumer Price Index (CPI) rose 1.8% YoY in April, while core CPI (ex-Fresh Food, Energy) increased by 1.8% YoY during the reported month, both missing consensus estimates. 
• A core CPI gauge that excludes both fresh food and energy prices and is closely watched by the BoJ as a gauge of underlying inflation fell below the 2% target for the first time since September 2022. 
• From the US, the Commerce Department reported on Thursday that Gross Domestic Product grew at a 1.6% annualized rate in the January-March period, marking the weakest reading since mid-2022. 
• This pointed to a significant loss of momentum at the start of 2024, though was offset by a rise in the underlying inflation, which reaffirmed bets that the Federal Reserve will keep rates higher for longer. 
• A Jiji report indicated that the BoJ might buy fewer bonds, pushing Japan’s five-year bond yield to the highest level since April 2011, albeit does little to provide any meaningful boost to the JPY. 
• Japan's Finance Minister Shunichi Suzuki reiterated that he is closely monitoring FX fluctuations and that he will prepare to take full steps on the currency, though declined to comment on details of the policy.
• Meanwhile, traders now seem reluctant and prefer to wait for the crucial BoJ policy decision, which will be followed by the release of the US Personal Consumption Expenditures (PCE) Price Index.

Technical Analysis: USD/JPY is likely to confront stiff resistance near 156.00 amid overbought RSI on the daily chart

From a technical perspective, momentum beyond the overnight swing high, around the 155.75 zone, has the potential to lift the USD/JPY pair to the 156.00 mark. The latter should act as a strong barrier and cap the upside amid the extremely overbought Relative Strength Index (RSI) on the daily chart, which, in turn, warrants some caution for bullish traders. 

On the flip side, the 155.35-155.30 region is likely to protect the immediate downside ahead of the 155.00 psychological mark. This is closely followed by a short-term trading range resistance breakpoint, around the 154.70 area, below which the USD/JPY pair could drop to the 154.00 round figure en route to last Friday's swing low, around the 153.60-153.55 zone.

On Friday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1056 as compared to the previous day's fix of 7.1058 and 7.2396 Reuters estimates.

Japan’s five-year bond yield rose to the highest level since April 2011 ahead of the Bank of Japan (BoJ) interest rate decision on Friday, per A Jiji. The yield advanced 2.5 basis points (bps) to 0.523% in the early Asian session on Friday.  

The Bank of Japan (BoJ) is expected to leave its short-term rate target unchanged in the range between 0% and 0.1% on Friday, following the conclusion of its two-day monetary policy review meeting for April.   

Market reaction 

At the time of writing, USD/JPY is trading 0.02% lower on the day to trade at 155.62. 

• GBP/USD snaps the three-day winning streak near 1.2502 in Friday’s early Asian session. 
• The US economy grew at a slower pace of 1.6% in Q1 2024, compared to 3.4% in the previous reading. 
• The expectation that the BoE will cut rates before the US Fed might exert some selling pressure on the GBP. 

The GBP/USD pair trades on a weaker note around 1.2502 during the early Asian trading hours on Friday. The modest rebound of the US Dollar (USD) weighs on the major pair despite weaker US GDP growth numbers. The US Personal Consumption Expenditures (PCE) Price Index data on Friday will be in the spotlight. 

On Thursday, the US economy grew at a slower pace of 1.6% in the first quarter (Q1) of 2024, compared to 3.4% in the previous reading. This figure came in weaker than the market expectation of 2.5%. However, prices have remained sticky, with the data on Thursday revealing the Personal Consumption Expenditures Price Index in Q1 climbing at a 3.4% annual rate, above the Fed's 2% target. The Greenback has dropped to two-week lows near mid-105.00 after the release of weaker-than-expected Q1 GDP growth and a hotter-than-expected inflation reading. 

According to the CME FedWatch tool, financial markets have priced in less than 10% odds that the US Federal Reserve (Fed) will cut interest rates in June, while the probability of a September rate cut dropping below 58%. Investors will take more cues from another inflation report on Friday. The US PCE is expected to show an increase of 0.3% MoM in both headline and core PCE figures. On an annual basis, the headline PCE and Core PCE figures are estimated to show a rise of 2.6% and 2.7% YoY, respectively. 

On the GBP’s front, the Bank of England (BoE) Governor Andrew Bailey and other BoE policymakers stated that inflation in the United Kingdom dropped in line with the central bank's expectations and the risk of elevated inflation had reduced, paving the way for a rate cut. The market anticipates that the UK central bank will wait until next quarter to lower borrowing costs, and it will begin before the US Fed. This, in turn, might cap the upside of the Pound Sterling (GBP). 

Japanese Finance Minister Shunichi Suzuki said on Friday that he is closely monitoring  foreign exchange (FX) fluctuations. Suzuki further stated that he will prepare to take full steps on the currency. However, he declined to comment on forex and policy details.

Key quotes

Market reaction 

At the time of writing, USD/JPY is trading 0.02% lower on the day to trade at 155.72.