The AUD/USD snapped five consecutive weekly losses and is recording decent gains of 0.15%, as Wall Street closes in the red amidst a dismal sentiment, courtesy of central bank tightening, as investors reposition their portfolios once the US central bank hiked rates 50-bps for the first time in 20-years. At the time of writing, the AUD/USD is trading at 0.7070.
Wall Street’s printed losses between 1.03% and 2.42%, putting an end to a volatile week led by three central banks tightening monetary policies as they scramble to tackle inflation towards their target levels. Furthermore, the US Department of Labor reported that the US economy added 428K new jobs to the economy, smashing expectations, while the Unemployment Rate at 3.6% was unchanged.
Aside from this, the US Dollar Index, a measurement of the greenback’s value against a six currencies basket, is pairing early day losses, up 0.11%, currently at 103.658, while the US 10-year Treasury yield reached a YTD high around 3.131%.
At the beginning of the week, the Reserve Bank of Australia (RBA) surprised the markets with a 25-bps rate hike, the first since November 2010. Market participants expected a lift-off of 15-bps, to leave rates around 0.25% though the central bank stuck to the 25-bps path. Also, the RBA began the reduction of the stimulus, allowing its portfolio of bonds to run down as they mature.
The AUD/USD initially reacted upwards, though faced strong resistance around 0.7147 as traders prepared for the Federal Reserve’s meeting.
On Wednesday, the Fed decided to increase the Federal Funds Rates (FFR) by 50-bps points to the 1% threshold as foreseen by the majority of the economists and announced the quantitative tightening at a pace of $47.5 billion in the first three months, followed by an adjustment capped at $95 billion a month.
At his press conference, Fed Chair Powell said that 75-bps increases are not something the Fed is not actively considering it. He added that “if we see what we expect to see,” 50-bps increases would be“on the table” at the following couple of FOMC meetings.
On the headline, the AUD/USD immediately surged above the R1 daily pivot at 0.7150, rallying sharply towards the R3 pivot point around 0.7250, and paired some of the last week’s losses.
That said, Wednesday’s rally in global equities was perceived as a sign of relief that a higher Fed rate hike, probably a 75-bps, brought Fed’s St. Louis President Bullard, did not happen. However, on Thursday, market participants made a U-turn, dumping equities, flighting towards safe-haven assets, and boosting the USD, the JPY, and the CHF.
Therefore, once both central banks’ decisions are in the rearview mirror, the AUD/USD might depreciate in the near to medium term, as money market futures expect the FFR to be around 2% by the summer, contrarily to the RBA's cash rate, which is expected to be at around 0.85%.
The EUR/USD trimmed some of Thursday’s losses, and it is set to finish the week on the right foot, snapping four consecutive weeks of losses amidst a risk-aversion environment in the financial markets. At 1.0552, the EUR/USD edges up some 0.13%.
Sentiment remains negative, as reflected by US equities, extending their losses for the second straight day. Earlier in the North American session, the US Department of Labour unveiled April’s Nonfarm Payrolls report, which showed that the US economy added 428K jobs, higher than the 391K foreseen by analysts. Job gains were led by leisure, hospitality, manufacturing, transportation, and warehousing.
The Unemployment Rate remained unchanged at 3.6%, and Average Hourly Earnings rose by 5.5% y/y, lower than the 5.6% last month’s previous reading.
“Nothing in today’s employment report would change the Fed’s expected path ... current market sentiment does not place a lot of confidence in the Fed getting inflation under control without a recession,” according to sources cited by Reuters.
Analysts at ING wrote in a note that “the unemployment rate held steady at 3.6% rather than dropping to 3.5% as expected, which in combination with a softer average hourly earnings figure of 0.3% month-on-month rather than the 0.4% consensus forecast (and slower than the 0.5% gain in March) may been taken as a signal of less inflationary pressures in the jobs market.”
Meanwhile, the US Dollar Index, a measurement of the greenback’s value against a six currencies basket, is pairing early day losses, up 0.11%, currently at 103.664, while the US 10-year Treasury yield reached a YTD high around 3.131%.
From a daily chart perspective, the EUR/USD remains downward biased. Despite Friday’s price action, which favored the shared currency, the major remains vulnerable to further selling pressure, albeit ECB’s member efforts to boost the EUR.
The 1-hour chart in the near-term depicts the EUR/USD as neutral-upward biased. The 50-hour simple moving average (HSMA) crossed over the 200-HSMA, a bullish signal, but the almost horizontal slope keeps the EUR/USD range-bound.
Upwards, the EUR/USD’s first resistance would be April 2017 high at around 1.0569. Break above would expose Friday’s daily high, shy of the 1.0600 figure, followed by the R1 daily pivot at 1.0620. On the downside, the EUR/USD’s first support would be the 200-HSMA at 1.0550. A breach of the latter would expose the February 2017 swing low at 1.0494, followed by the S1 daily pivot at 1.0470, and then 1.0450.
The Swiss franc remains defensive during the day, failing to recover from heavy losses in the week, which amount to 1.45% so far, with some time ahead of Wall Street’s close. At the time of writing, the USD/CHF is trading at 0.9877 amidst a risk-off market mood.
On Friday, US equities prepare to finish the week on a lower note. In the meantime, US Treasury yields keep pushing higher, led by the 10-year benchmark note at around 3.12%, one bps short of YTD highs.
The US Dollar Index, a measurement of the greenback’s value against a six currencies basket, is pairing early day losses, up 0.04%, currently at 103.589.
During Friday’s trading session, the USD/CHF opened near 0.9850 in the Asian Pacific session and fluctuated in a 30-pip range of 0.9850-80 amid the lack of catalyst as FX traders head into the weekend.
The USD/CHF seems poised to extend its gains towards the next week, despite that the major retreated from YTD highs around 0.9890. The Relative Strength Index (RSI) at 80.33 shows the pair well within overbought territory but is still aiming higher, meaning that a leg-up might be on the cards.
In the meantime, the 1-hour chart shows that once the USD/CHF re<ched 0.9890, 2022’s YTD high consolidated in the 0.9825-90 area. It’s worth noting that the 50, 100, and 200-simple moving averages (SMAs) remain below the spot price, meaning that USD bulls remain in charge.
If the USD/CHF breaks the top of the range, the first resistance would be the 0.9900 mark. Once cleared, the R1 daily pivot would be the next supply zone around 0.9920, followed by the R2 pivot point at the USD/CHF parity.
On the other hand, the USD/CHF first support would be the confluence of the 50-SMA and the daily pivot at around 0.9818-20. A breach of the latter would expose the 100-SMA at 0.9802, followed by the confluence of the S1 daily pivot and the 200-SMA near the 0.9740-47 range.
The USD/JPY records decent gains during the North American session of 0.18% and is about to finish the week above the 130.00 mark amidst a dismal market mood for the second consecutive week. At 130.48, the USD/JPY is still upward pressured by the US 10-year Treasury yield, rising almost six basis points, sitting at 3.10%.
Sentiment remains downbeat post-Wednesday’s Federal Reserve rate hike of 50-bps. Albeit higher US Treasury yields on Friday, the greenback edges down, as portrayed by the US Dollar Index, which registers losses of 0.13% and was last seen at 103.428.
On Friday, the USD/JPY opened above the 130.00 mark and edged towards the daily high at around 130.81. However, late in the Asian session dipped towards the confluence of the 50 and the 100-hour simple moving averages (SMAs), but positive US macroeconomic data lifted the pair to current price levels.
The USD/JPY remains uptrend, though Friday’s price action failed to reach a fresh YTD high above 131.25. Despite USD/JPY bulls taking a breather, it is worth noting that as of today, the 100-day moving average (DMA) at 110.31 crossed over the 200-DMA at 109.97, further cementing the upward bias.
The 4-hour chart depicts the USD/JPY consolidating around current levels, and the R1 daily pivot at 130.91 proved to be solid resistance challenging to overcome. If the USD/JPY is to break upwards, the previous-mentioned 130.91 would be its first resistance. Break above would expose the 131.00 mark, followed by the YTD high at 131.25, followed by the R2 pivot point at 131.64.
On the flip side, the USD/JPY first support would be the 130.00 mark. A breach of the latter would expose the confluence of the 50-simple moving average (SMA) and the daily pivot around 129.75-83. Once cleared, the next support would be the 100-SMA at 128.69.
The British pound appears to regain composture but remains losing in the day, down 0.06%, after the Bank of England hiked rates by 25-bps on Thursday. At the time of writing, the GBP/USD is trading at 1.2352.
Global equities remain down during the North American session, while the US 10-year Treasury yield rose to a YTD high of around 3.131%. Albeit higher US yields, the greenback is giving back some earlier weekly gains, as portrayed by the US Dollar Index, a gauge of the buck’s value against a basket of six currencies, down 0.18%, sitting at 103.370.
The US Department of Labour reported April’s Nonfarm Payrolls figures, showing that the economy added 428K new jobs, higher than the 391K, though the Unemployment Rate remained unchanged. Also, the Average Hourly Earnings rose by 5.5%, slightly lower than expected, and would not deter the Federal Reserve from continuing its tightening cycle.
Analysts at ING perceived the report as mixed. They added in a written note that “the unemployment rate held steady at 3.6% rather than dropping to 3.5% as expected, which in combination with a softer average hourly earnings figure of 0.3% month-on-month rather than the 0.4% consensus forecast (and slower than the 0.5% gain in March) may been taken as a signal of less inflationary pressures in the jobs market.”
Elsewhere, the Bank of England (BoE) Chief Economist Huw Pill crossed the wires in the mid-European session. He said that inflation in the UK is becoming more persistent, added that inflation is going up to 10%, and expects growth to stagnate in Q2.
Next week, the UK economic docket will reveal the Gross Domestic Product (GDP) for March, alongside the Balance of Trade and Manufacturing Production. Across the pond, a raft of Fed speaking throughout the week would dominate the headlines, alongside the Consumer Price Index (CPI) and Producer Price Index (PPI) for April.
The GBP/USD is still downward biased, though it faced solid support at June’s 2020 lows around 1.2251. Also, the MACD, as the histogram shows, is “forming” a positive divergence, which is usually a signal that the trend is about to shift. However, unless the MACD-line crosses above the signal line, GBP/USD traders should refrain from opening fresh long bets in the pair.
To the upside, the first resistance would be the figure at 1.2400. Break above would expose crucial resistance areas like July 2020 swing low-turned-resistance at 1.2479, followed by 1.2500. On the other hand, the GBP/USD first support would be 1.2300. A breach of the latter would expose the YTD low at 1.2275, closely followed by June’s 2020 swing low at 1.2251.
The US economy created 428.000 jobs for the second month in a row, near market expectations. According to analysts at Wells Fargo, the report is solid and reinforces their belief that the Federal Reserve will execute another 50 bps interest rate hike at its next meeting on June 14-15.
“Nonfarm payroll growth barreled ahead in April. Employment rose by 428K in the month, more or less in line with consensus expectations after accounting for modestly negative revisions to prior months. The labor force participation rate disappointingly fell two-tenths of a percentage point, but the decline came on the heels of a string of solid increases, and we are cautious about reading too much into today's drop. Wage growth looks to be showing some tentative signs of peaking on a year-ago basis but is still running more than double its average pace in the 2010s.”
“As workers stream back into the labor market and the Fed steps on demand, we expect wage growth to moderate ahead. While the first quarter's rise in the Employment Cost Index was a scorcher, there are other signs that wage hikes may start ease, indicated by small business compensation plans and reports from the Fed's latest Beige Book. That said, wages are unlikely to slow to a pace consistent with 2% inflation anytime soon and point to elevated labor costs keeping the Fed on its hawkish path.”
“In the near-term today's solid job report reinforces our belief that the FOMC will execute another 50 bps rate hike at its next meeting on June 14-15.”
Data released on Friday showed the Canadian economy created 15.3K jobs in April below the 55K of market consensus. Analysts at CIBC, point out that investors judged that the slight disappointment of the jobs numbers likely didn’t change the expected course of Bank of Canada interest rate hikes.
“After sprinting ahead in the previous two months, Canadian employment growth slowed to a gentle jog in April. The 15K gain in jobs was below the consensus forecast of +40K, and well below the pace seen in the prior two months as the economy quickly emerged from Omicron-driven restrictions of January. However, today's modest disappointment doesn’t change the overall view of a labour market that is much stronger than had been expected at the start of the year. As such, the figures shouldn’t deter the Bank of Canada from delivering one more non-standard 50bp rate hike at its next meeting.”
“Nationally, the unemployment rate fell to a fresh low of 5.2%, but this time it was driven lower by a decline in participation rather than the strong employment readings of prior months. The adjusted unemployment rate, which takes into account persons who wanted a job but did not look in the current period, also fell below its pre-pandemic level in the latest month (7.2% vs 7.4%).”
“Today's data were a little weaker than expected, but not by enough to change the overall view of a very strong labour market. As such, the Bank of Canada shouldn't be deterred from delivering another non-standard 50bp rate hike at its next meeting. However, signs of a slowing in growth, including the decline in hours worked today, will likely become more frequent and see rate hikes later in the year revert to the usual 25bp increments.”
The AUD/NZD cross is about to post the highest weekly close since August 2018. The aussie peaked near 1.1200 and then pulled back. It is hovering around 1.1030/40. The close far from the top adds to some exhaustion signs, like the daily RSI turning to the downside.
The ongoing pullback could continue while the cross holds below 1.1060. A daily close above 1.1100 should increase the odds of another test of 1.1200.
The correction found support at 1.1015. A break lower should open the doors to more losses targeting 1.1000 first and below the next support at 1.0975. If AUD/NZD reaches 1.0975, a rebound seems likely, while a slide below could damage the outlook for the aussie.
On a long-term perspective, the 1.0750 area contains and uptrend line from November low and the 100-day Simple Moving Average.
After a volatile week, with employment data from New Zealand and a rate hike from the Reserve Bank of Australia, AUD/NZD is likely to calm, starting to move in smaller ranges.
Gold spot (XAU/USD) persist downward pressured, and it seems that it would finish the week with losses of around 0.60%, extending its fall from April’s swing high at around $1998.30s, below March’s lows around $1890. At $1884.74 a troy ounce, Gold Prices reflect the greenback’s strength.
The gold push above the $1900 figure proved short-lived. It lasted no longer than some hours, shedding earlier gains post-Fed hike on Wednesday, retreating below solid resistance around $1890, so the yellow metal is ready to print its third weekly loss in a row. It is worth noting that the dip in XAU/USD is courtesy of higher US Treasury yields, led by the 10-year benchmark note, which rose to a daily high near 3.12%, closing to the 2018 year high at 3.24%.
Headwind for gold was also generated by a firm US dollar in the week. Albeit printing losses on Friday, down 0.03%, is up 0.29% in the week, as shown by the US Dollar Index, sitting at 103.511.
On Friday morning, the US Department of Labour reported the Nonfarm Payrolls report for April, which showed an increase of 428K jobs added to the economy, beating the estimations of 391K. The Unemployment Rate remained unchanged at 3.6%, and according to the report, it was led by gains in leisure, hospitality, manufacturing, transportation, and warehousing.
Regarding Average Hourly Earnings, on private nonfarm payrolls rose by 0.3% m/m. Meanwhile, the annual-based measure increased by 5.5%, almost unchanged, compared to the previous month’s reading of 5.6%.
Analysts at Commerzbank, in a note, commented that the labor market is robust, and it puts the US decline in GDP for the Q1 in perspective. They added that “this decline was due exclusively to significantly higher imports and lower inventory buildup. By contrast, domestic final demand increased strongly.”
“Employment growth remains high. In addition, companies still offer more than 11.5 million open jobs, indicating unchanged robust demand for workers. This demand is drawing from an increasingly empty pool of available labor, which is likely to keep wage pressures high,” added Commerzbank analysts.
Still, Commerzbank expects that the Federal Funds Rate upper bound would be 3.00% by the end of the year.
XAU/USD is still neutral-upward biased, but as long as it struggles to reclaim $1890, that could open the door for further downward pressure. Additionally, the 50 and the 100-day moving average (DMAs), with the latter at $1883.16, below the former, are resistance levels that cap higher prices.
Upwards, XAU/USD’s first resistance would be March’s lows around $1890. A break above would expose the $1900 mark, followed by May 4 swing high at $1909.66. On the flip side, gold’s first support would be the 100-DMA, at $1883.16. Once cleared, the next support would be May 3 cycle low, around $1850.34, followed by the 200-DMA at $1835.77.
The EUR/GBP rose further on Friday and climbed to 0.8590, reaching the highest intraday level since December. It then pulled back to 0.8565. Over the last two days, it gained more than 150 pips
The cross is about to post the highest weekly close since October, the biggest gain in months. The technical outlook has improved dramatically for the euro, that faces 0.8600 as the next critical resistance. The 20-week moving average at 0.8375 is now a critical support. The line is turning flat and could turn positive for the first time since 2020.
The pound is about to end the week with losses across the board weakened, particularly after the Bank of England meeting. The central bank announced a rate hike on Thursday from 0.75% to 1.00% as expected. Market participants put their attention on forward guidance and it was not clear. Three members asking for a rate hike of 50 basis points were offset by two members arguing it would be appropriate to remove the forward guidance on future hikes.
While the pound remains under pressure, the euro received support from talk regarding the European Central Bank with more board members speaking about rate hikes and even a positive rate by year-end. Those comments helped the euro on Friday.
Analysts at Danske Bank expect EUR/GBP to remain rangebounded around 0.84. “On the one hand, a re-pricing of Bank of England (and perhaps a more hawkish ECB) is likely to weigh on GBP but on the other hand GBP usually appreciated vs EUR in an environment where USD performs.”
After testing multi-month lows printed earlier in the week following strong US jobs data, major US equity indices have seen a decent intra-day rebound in recent trade. The S&P 500 went as low as the 4,060s (down 1.8% at the time), but has since rebounded to the 4,120s, where it now trades down closer to 0.5%. Despite further upside in the US 10-year yield, which recently surpassed 3.10% for the first time since 2018, the big tech/growth stock dense, rate-sensitive Nasdaq 100 index was last trading near 12,800 and down about 0.4%, having pared earlier losses to near 12,500. The Dow was last down about 0.5% in the 32,800 area, having seen similar price action.
The latest US jobs report showed that the US labour market remained in good health in April. The economy added over 400K jobs, a little more than the 391K expected and the unemployment rate remained unchanged at 3.6%, practically in line with pre-pandemic levels. Granted, it was expected to fall to 3.5%, and other labour slack metrics like the underemployment rate and participation rate deteriorated ever so slightly, but the data was received as robust.
Analysts said that the report would ease any fears about the US economy being in a recession after data last week showed that US real GDP unexpectedly shrunk in Q1, mostly due to a record trade deficit. Labour market strength is typically associated with an economy that is still growing. This, analysts reasoned, may partly explain the negative reaction to the data seen in US equity markets.
While the Fed, which hiked interest rates by 50 bps earlier in the week and signaled significant further tightening ahead, is mostly focused on tackling inflation right now, signs of economic weakness (such as last week’s GDP report) might discourage them from tightening as quickly/far. In that sense, Friday’s US jobs report has been interpreted increasing the confidence that Fed policymakers will feel that the US economy can handle significant, rapid monetary policy tightening.
It is perhaps then not surprising to see US equities experiencing further losses and ending the week close to lows. However, with US Consumer Price Inflation data upcoming next Tuesday, it appears as though traders lacked the conviction, or at least there remains enough dip-buying demand, to keep the major US equity bourses above recent lows. Nonetheless, the S&P 500 still looks on course to post a fifth successive week in the red.
In a blog post on Medium, Minneapolis Fed President and traditionally dovish FOMC member Neel Kashkari argued that, given that long-term real rates have the greatest influence on the demand for credit, financial conditions are already nearly back to neutral levels. But Kashkari argued that the Fed still needs to follow through with its forward guidance on rate hikes and balance sheet reduction to ensure that conditions remain neutral. Kashkari said his assessment of the nominal neutral rate of interest is still that it is around 2.0%.
His remarks come after the Fed lifted interest rates by 50 bps in a widely expected move earlier in the week and outlined quantitative tightening plans.
While FX markets did not see much of a reaction to a largely as expected US labour market report that hasn’t been interpreted as having much of an impact on Fed tightening expectations, a continued collapse in Wall Street sentiment looks likely to weigh on NZD/USD on Friday. Less than one hour since the US open, the S&P 500 index is trading a further nearly 2.0% lower, after cratering more than 3.5% on Thursday.
Traders are citing a combination of factors from concerns about the rapid pace of expected Fed tightening this year to the weakening outlook for global growth amid still sky-high inflation. The net result for NZD/USD is that Thursday’s highs in the upper 0.6500s now look well in the rear-view mirror and a break below 0.6400 and towards 0.6380 support appears to be on the cards.
If US yields, which broke higher this week (the 10-year went above 3.0% for the first time since December 2018), continue their upwards march next week and risk appetite in equities remains ropey, it’s a good bet to think that the US dollar will remain bid. A break below 0.6380 in NZD/USD could open the door to a run lower to the next supply zone in the 0.6200 region.
The main focus next week will be on April US Consumer Price Inflation data, out on Tuesday. But NZD/USD traders would also do well to keep an eye on quarterly New Zealand Inflation Expectations figures out on Thursday, as this will likely have an impact on RBNZ tightening expectations.
Barnabas Gan, Economist at UOB Group, reviews the latest Retail Sales figures in Singapore.
“Singapore’s retail sales surprised with an 8.7% y/y expansion in Mar 2022, against market expectations for a much slower 0.7% y/y growth. Retail sales excluding motor vehicles surged 13.4% y/y in the same month.”
“The advance in retail sales suggests that Singapore’s domestic retail environment has improved in tandem with a tighter labour market. More importantly, the decline in Feb 2022 was short-lived, and was largely seasonal due to Chinese New Year (CNY).”
“The advance in retail sales suggests that Singapore’s domestic retail environment has improved in tandem with a tighter labour market. More importantly, the decline in Feb 2022 was short-lived, and was largely seasonal due to Chinese New Year (CNY).”
The US Dollar Index (DXY), which tracks the buck vs. a basket of key rival currencies, now alternates gains with losses in the mid-103.00s on Friday.
After printing new highs in the area last seen back in late December 2002 just past the 104.00 hurdle, the index met some selling pressure and receded to the 103.20/15 band against the backdrop of the mixed performance in US yields.
The pullback in the index came despite the US economy added 428K jobs during April, as per the latest Payrolls figures. In addition, the Unemployment Rate stayed put at 3.6%, the Average Hourly Earnings expanded a tad below expectations vs. the previous month and the Participation Rate corrected a little lower to 62.2%.
Later in the session, NY Fed J.Williams (permanent voter, centrist) and Atlanta Fed R.Bostic (2024 voter, centrist) are due to speak, while the Consumer Credit Change for the month of March will close the weekly calendar.
The dollar regained its solid appeal and managed to record new highs just beyond the 104.00 mark, or fresh 19-year peaks, as investors’ expectations for a tighter rate path by the Federal Reserve have been nothing but reinforced by the FOMC event on Wednesday. The constructive stance in the dollar is also underpinned by the current elevated inflation narrative and the solid health of the labour market as well as bouts of geopolitical tensions and higher US yields.
Key events in the US this week: Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change (Friday).
Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Future of Biden’s Build Back Better plan.
Now, the index is losing 0.05% at 103.49 and the breakout of 104.06 (2022 high May 6) would open the door to 105.00 (round level) and finally 105.63 (high December 11 2002). On the other hand, the next support emerges at 102.35 (low May 5) seconded by 99.81 (weekly low April 21) and then 99.57 (weekly low April 14).
The AUD/USD pair reversed an early North American session spike to the 0.7135 region and dropped to a fresh multi-day low in the last hour. The pair was last seen hovering around the 0.7065 region, down over 0.60% for the day.
The US dollar witnessed some selling in reaction to the mixed US jobs report and moved further away from a two-decade high touched earlier this Friday. The headline NFP print showed that the US economy added 428K new jobs in April as compared to the 391K anticipated. This, however, was offset by a slight disappointment from Average Hourly Earnings and the unemployment rate, which, in turn, weighed on the buck.
That said, expectations that the Fed would need to take more drastic action to bring inflation under control helped limit the USD slide. In fact, the markets are still pricing in a further 200 bps rate hike for the rest of 2022, which was evident from a fresh leg up in the US Treasury bond yields. This, along with a weaker risk tone, drove haven flows towards the buck at the expense of the perceived riskier aussie.
With the latest leg down, the AUD/USD pair has now reversed its weekly gains and has now moved well within the striking distance of the monthly low, around the 0.7030 region touched on Monday. Some follow-through selling would be seen as a fresh trigger for bearish traders and drag spot prices to the 0.7000 psychological mark. The downward trajectory could further get extended towards the YTD low, around the 0.6965 region.
Global oil prices continued to rise on Friday and look on course to post a second successive weekly gain. Front-month WTI futures were unable to break above Thursday’s highs in the $111.00s per barrel, but nonetheless was last trading up by nearly $1.50 near the $110 mark, with weekly gains currently standing at over $5.50. Market commentators continued to cite expectations for EU nations to soon reach an agreement on a phased Russian oil import ban as supporting the price action.
Sources told Reuters on Friday that the EU is looking at ways to appease some of the small EU nations that have so far refused to sign up for the ban. Another factor being cited as supporting the price action is OPEC+ continued slow pace of bringing fresh supply back to the market. The cartel agreed earlier this week to stick to its current policy of lifting output quotas by 432K barrels per day each month, though there is little confidence that the group will actually be able to meet this output hike target, as Russian output falls amid Western sanctions and smaller OPEC+ nations struggle amid chronic underinvestment.
“The looming EU embargo on Russian oil has the makings of an acute supply squeeze,” one oil market analyst at broker PVM said on Friday. “In any case, OPEC+ is in no mood to help out, even as rallying energy prices spur harmful levels of inflation,” they added.
WTI bulls continue to eye a test of late-March highs in the $116.00s, though for now, worries about slowing global growth and demand in China amid ongoing lockdowns in major cities there is holding back the upside. In its latest forecasts, the Bank of England on Thursday forecast a decent chance of a recession in the UK in 2023 and it is feared that the Eurozone economy may be headed the same way.
Meanwhile, torrid conditions in US (and global) equity markets as investors fret about aggressive Fed tightening, slowing growth, geopolitical risks and China lockdowns risks is also likely dampening crude oil upside. Though weakened as of late, WTI historically has a positive correlation to US equities given its status as a risk-sensitive commodity.
European Central Bank Executive Board Member Frank Elderson said on Friday that the ECB must ensure that high inflation doesn't become entrenched in people's expectations, reported Reuters. Weaker economic data so far doesn't suggest that the Eurozone is entering a recession, he added.
Elderson's remarks come after a series of hawkish remarks from other ECB officials earlier in the day. German central bank head Joachim Nagel said that the window for the ECB to take monetary policy measures was slowly closing. France central bank head Francois Villeroy de Galhau said it is “reasonable to raise rates into positive territory by the year-end.”
Economist at UOB Group Barnabas Gan comments on the recent decision by the RBI to raise the interest rate.
“The Reserve Bank of India (RBI) raised interest rates in an unscheduled policy move yesterday (4 May 2022). The decision to raise the benchmark repo rate by 40bps to 4.40% was voted by all six members. This is the first repo rate hike since Aug 2018, after keeping it unchanged for 11 straight policy meetings prior.”
“Effective 21 May 2022, the cash reserve ratio will also be raised by 50bps to 4.5% of net demand and time liabilities. This is estimated to absorb a total of INR870bn of liquidity from the banking system.”
“The decision to raise interest rates was likely in view of higher inflationary pressures for the year ahead. Notably, inflation was 6.95% y/y in Mar 2022, and significantly above the central bank’s upper tolerance threshold of 6.0%.”
“Moreover, policy-makers cited further downside risks following the geopolitical tensions and sanctions against Russia. Notwithstanding the risks, we note that high-frequency data since the start of this year had been supportive of India’s economic growth.”
“As cited in our previous RBI report, the decision to adopt a hawkish stance and a higher liquidity adjustment rate in Apr 2022 is a decisive signal for RBI to gradually exit its accommodative monetary policy stance. RBI’s decision to hike rates in May, while being earlier than we had thought, is in line with our call for higher policy rates into the year ahead. As such, we expect further 25bps rate hike each in 3Q22 and 4Q22, to bring the repo rate to 4.90% by year-end.”
Copper has lost all the gains it made this year. But in the view of strategists at ING, the metal should rally once China recovers from covid.
“Despite all the doom and gloom in the short-term picture, we are cautiously optimistic about copper in the medium term once China brings the virus under control and becomes more confident in easing lockdowns. However, the magnitude of demand pick-up will depend largely on the scale of the stimulus and, in particular, the policies relevant to those copper intensive sectors, such as the power infrastructure and the property market.”
“Our base case average prices remained unchanged for 2Q at $10,000/t from the previous update, but some potential upside episodes driven by a demand recovery may be delayed into late 2Q22 or 2H22 rather than sooner. And currently, our price forecasts remain unchanged for 3Q at$9,900/t and 4Q at $9,800/t (LME 3M quarterly average).”
EUR/USD comes under some selling pressure after the daily recovery stalled near the 1.0600 region at the end of the week.
EUR/USD deflates from earlier peaks and now faces some selling interest following a positive surprise from the US docket after the economy added 428K jobs in April, while the Unemployment Rate stayed unchanged at 3.6% in the same period.
Further data from the labour market saw Average Hourly Earnings expand 0.3% MoM and 5.5% from a year earlier. The Participation Rate, in the meantime, ticked a tad lower to 62.2%.
Indeed, the greenback regains some ground lost in the wake of the mixed results from the US labour market, which in turn puts the pair under some downside pressure in a context where yields on both sides of the Atlantic continue to march higher.
EUR/USD came under renewed downside pressure in the wake of the FOMC event. The downtick, however, seems to have met contention around 1.0480 so far this week, while the upside looks limited near 1.0640. The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.
Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Impact on the region’s economic growth prospects of the war in Ukraine.
So far, spot is gaining 0.32% at 1.0572 and faces the next up barrier at 1.0641 (weekly high May 5), followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level). On the flip side, a breach of 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017).
The USD/CAD pair quickly reversed an early North American session dip and jumped to a fresh daily high, around the 1.2875 region post-US/Canadian monthly jobs report.
The headline NFP print showed that the US economy added 428K new jobs in April as compared to the 391K anticipated. This, however, was offset by a slight disappointment from the unemployment rate, which held steady at 3.6% against a downtick to 3.5% anticipated. Moreover, Average Hourly Earnings also missed market expectations and rose 0.3% MoM in April.
The mixed US employment data did little to provide any impetus, though expectations that the Fed would need to take more drastic action to bring inflation under control acted as a tailwind for the buck. In fact, the markets are still pricing in a further 200 bps rate hike for the rest of 2022, which was evident from a fresh leg up in the US Treasury bond yields.
Apart from this, a generally weaker tone around the equity markets further drove haven flows towards the greenback. This, along with a rather unimpressive Canadian employment data, acted as a tailwind for the USD/CAD pair. Statistics Canada reported that the number of employed people rose by 15.3K in April, as against 55K anticipated, and the jobless rate edged down to 5.2%.
This, however, was offset by modest uptick in crude oil prices, which extended some support to the commodity-linked loonie and kept a lid on any further gains for the USD/CAD pair. Hence, it will be prudent to wait for some follow-through buying before traders start positioning for an extension of the recent appreciating move witnessed over the past two weeks or so.
S&P 500 has been unable to clear key resistance at 4308. Thus immediate risk stays seen lower for a conclusive break of the 4115 Q1 low for a fall back to 4063/57 and eventually the 38.2% retracement of the 2020/2021 uptrend at 3855/15, analysts at Credit Suisse report.
“Whilst the market has just managed to again close above the 4115 Q1 low with weekly MACD momentum below zero and falling the immediate risk stays seen lower and below 4115/06 would be seen to clear the way for a retest of the recent and May 2021 lows at 4063/57.”
“A break below 4063/57 can see downside momentum increase further with potential channel support seen next at 4034/33.”
“Big picture, we would look for an eventual fall to the 38.2% retracement of the 2020/2021 uptrend at 3855/15.”
“Resistance is seen moving to 4174/75 initially, then 4199, with the 13-day exponential average now at 4255. Only a break above 4308 though would be seen to mark a near-term base and we shall maintain an immediate tactical negative outlook whilst beneath here.”
The USD/JPY pair surrendered its modest intraday gains to the weekly high and eased back closer to the daily low, around the 130.15 region in reaction to the mixed US monthly jobs report.
The headline NFP print showed that the US economy added 428K new jobs in April as compared to the 391K anticipated. This, however, was offset by a slight downward revision of March's reading to 428K from the 431K reported previously. Moreover, the unemployment rate missed consensus estimates and held steady at 3.6% during the reported month.
The report further revealed that Average Hourly Earnings rose 0.3% MoM in April and 5.5% YoY as against 0.4% and 5.5% expected, respectively. The data forced the US dollar to extend its modest pullback from a two-decade high. Apart from this, a weaker risk tone benefitted the safe-haven Japanese yen and acted as a headwind for the USD/JPY pair.
That said, a big divergence in the monetary policy adopted by the Fed and the Bank of Japan helped limit any deeper losses, at least for the time being. The markets seem convinced that the Fed would need to take more drastic action to bring inflation under control and are still pricing in a further 200 bps rate hike for the rest of 2022.
This, in turn, remained supportive of elevated US Treasury bond yields, which supports prospects for the emergence of some USD dip-buying. In contrast, the BoJ has promised to conduct unlimited bond purchases to defend its “near-zero” target for 10-year yields and vowed to keep its existing ultra-loose policy settings.
The fundamental backdrop suggests that any meaningful pullback might still be seen as a buying opportunity and remain limited. Nevertheless, the USD/JPY pair remains on track to post gains for the ninth successive week and the highest weekly close since April 2002.
The Canadian economy added 15,300 jobs in April, the latest data release by Statistics Canada revealed on Friday. That was below expectations for a 55,000 job gain and marked a substantial slowdown after March's 72,500 job gain. In terms of the job breakdown, full-time employment fell by 31,600 in April versus a 47,100 rise in part-time employment.
The Unemployment Rate fell as expected to 5.2% from 5.3% in March, but this was driven by a surprise fall in the Participation Rate from 65.4% in March to 65.3% in April.
The loonie saw a choppy reaction to the latest jobs report and USD/CAD continues to trade flat in the 1.2830s versus pre-data release levels.
The US economy added 428,000 jobs in April, according to the latest Non-farm Payrolls (NFP) report released by the US Bureau of Labour Statistics on Friday. That was a little above the median economist forecast for a gain of 391,000 jobs, and exactly in line with the pace of jobs gains in March (which was revised lower to 428,000 from 431,000). The headline job gain was driven by a 406,000 gain in private-sector jobs, which came in above the 385,000 expected increase.
Factory jobs were up 55,000 on the month, above the expected 35,000. Goods-producing jobs were up 66,000, Construction jobs were up 2,000, private sector service-providing jobs were up 340,000 and retail jobs were up 4,000. Government jobs rose by 22,000, above the expected 4,000 rise.
In terms of measures of labour market slack; the Unemployment Rate remained unchanged at 3.6% in April versus the median economic forecast for a drop to 3.5%. The U6 Underemployment measure, meanwhile, rose a tad to 7.0% from 6.9% previously. The Labour Force Participation Rate fell slightly to 62.2% from 62.4% a month earlier. In terms of major US ethnic minority employment rates; the Black Unemployment Rate fell to 5.9% in April from 6.2% in March, while the Hispanic jobless rate fell to 4.1% from 4.2%. The White unemployment rate remained unchanged at 3.2%.
Finally, Average Hourly Earnings growth came in at 5.5% YoY as expected, with wages posting a slightly more modest MoM growth rate of 0.3% than the expected 0.4%. The Average Hourly Wage was $31.85 in April versus $31.75 in March. The average number of hours worked in the week remained unchanged at 34.6, versus expectations for a rise to 34.7.
Slightly weaker than forecast measures of labour market slack seemed to negative the slightly stronger than expected headline NFP print, with FX markets not showing much, if any, reaction to the latest data.
Gold has broken price support at $1,877. XAUUSD is seen at risk to a test of support from its nine-month uptrend and 200-day moving average (DMA) at $1,836/26, economists at Credit Suisse report.
“We look for a fall back to the uptrend from last August and 200-DMA at $1,836/26, but with fresh buyers expected here.”
“A weekly close below $1,826 though would warn of a retest of pivotal long-term support at $1,691/77.”
“Above $1,998 is needed to reassert an upward bias for a retest of the $2,070/75 record highs.”
Ukrainian President Volodymyr Zelenskyy said on Friday that he can see no willingness on the Russian side to end the war in Ukraine, reported Reuters. Zelenskyy said that Russia thinks it can escape war crimes prosecutions because of its nuclear threat.
Russo-Ukrainian peace talks have been deadlocked over the past few weeks as Russia has ramped up its offensive in the east and south of Ukraine. Zelenskyy said last Friday that peace talks with Russia at a high risk of ending given the action of Russian troops during the war.
Bank of England Chief Economist Huw Pill said on Friday that the BoE should not over-respond to short-term developments and should not be over-aggressive with policy moves, reported Retuters. Pill added that the BoE's Monetary Policy Committee is cautious about commenting too much on market policy rate expectations, and reiterated that the bank is not driven by financial market developments.
Pill had earlier remarked that two members of the bank's rate-setting committee did not sign up to the new guidance on interest rates because they felt that enough may have already been done.
Spot silver (XAG/USD) is trading with a negative bias, though for now remains supported above the $22.00 per troy ounce mark, ahead of the release of US labour market data at 1330BST, as well as lots of Fed speak thereafter. $22.00 has acted as a significant support level in 2022 and a break below it could open the door to technical selling into the Q4 2021 lows in the $21.50 area.
The upcoming Bureau of Labour Statistics data release, which is expected to show nearly job gains of nearly 400,000 in the US last month, as well as the unemployment rate falling to 3.5% from 3.6%, will be viewed in the context of how it impacts the outlook for Fed policy. Earlier this week, the Fed raised interest rates by 50 bps and outlined quantitative tightening plans as expected, whilst also signaling intent to continue with 50 bps rate hikes at upcoming meetings in a bid to get interest rates back to around 2.5% by the end of the year.
A sharp rally in US yields on Thursday as bond market participants took a more hawkish view of Wednesday’s Fed announcement saw XAG/USD pull sharply lower from earlier weekly highs in the $23.30 area. Silver is currently on course to post a third successive week in the red, during which time it has reversed nearly 15% lower from mid-April highs in the low-$26.00s. If anything in the labour market report triggers fresh hawkish Fed bets and further yield upside, XAG/USD is at risk of breaking lower.
Statistics Canada is scheduled to publish the monthly jobs report for April later this Friday at 12:30 GMT. The Canadian economy is anticipated to have added 55K jobs during the reported month, down from the 72.5K rise reported in March. Meanwhile, the unemployment rate is expected to tick lower from 5.3% to 5.2% in April.
Analysts at NBF offered a brief preview of the report and explained: “Job creation should have continued apace during the month, reflecting a strong economy. That said, the number of jobs added may have come down after two extremely solid months. Our call is for 25K gain. Such an improvement of the labour market would leave the unemployment rate unchanged, assuming the participation rate remained at 65.4%.”
Ahead of the key release, rising crude oil prices underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair amid a modest US dollar pullback from a two-decade higher. The data is likely to be overshadowed by the simultaneous release of the US NFP report, though any significant divergence from the expected readings might still infuse some volatility around the pair.
From current levels, any meaningful upside is likely to confront stiff resistance near the 1.2900 mark. Some follow-through buying should pave the way for additional gains and lift spot prices to December 2021 high, around the 1.2960-1.2965 zone, en-route the key 1.3000 psychological mark.
On the flip side, the 1.2800 round figure now seems to protect the immediate downside ahead of the 1.2780-1.2775 region. The downtick could be seen as a buying opportunity around the 1.2750-1.2745 area. This, in turn, should help limit the downside near the 1.2715-1.2710 zone, or the weekly low touched on Thursday, which is closely followed by the 1.2700 round-figure mark.
• Canada Employment Preview: Forecasts from five major banks, battling a labour crunch
• USD/CAD Forecast: Bulls await descending trend-line breakout, US/Canadian jobs data in focus
• USD/CAD: Canadian Employment should prove broadly supportive of the loonie – ING
The employment Change released by Statistics Canada is a measure of the change in the number of employed people in Canada. Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, a high reading is seen as positive, or bullish for the CAD, while a low reading is seen as negative or bearish.
The Unemployment Rate released by Statistics Canada is the number of unemployed workers divided by the total civilian labour force. It is a leading indicator for the Canadian Economy. If the rate is up, it indicates a lack of expansion within the Canadian labour market. As a result, a rise leads to weaken the Canadian economy. Normally, a decrease of the figure is seen as positive (or bullish) for the CAD, while an increase is seen as negative or bearish.
GBP/USD is consolidating at multi-month lows in the 1.2350s ahead of the release of key US labour market data at 1330BST followed by a barrage of commentary from Fed policymakers later in the day. The sterling bears are currently taking a breather after GBP was hammered in wake of a dovish leaning Bank of England policy announcement on Thursday that saw cable drop over 2.0% from the 1.2630s to current levels in the mid-1.2350s.
To recap, the BoE on Thursday raised interest rates by 25 bps as expected to 1.0% and, while a few members of the Monetary Policy Committee (MPC) wanted a larger 50 bps rate hikes, the bank also softened its tone on the need for further tightening. The meeting minutes revealed that two MPC members deemed the reference to further tightening as inappropriate given risks to the economic outlook, which were reflected in the BoE’s new forecasts which signal a risk of a recession in 2023.
Sterling has been battered since mid-April amid a combination of growing pessimism about the outlook for the UK economy and BoE tightening as the UK endures its worst cost-of-living crunch in decades. This has been a major contributor to GBP/USD’s more than 5.0% drop from mid-April levels in the 1.30-31 region, though another driver has been USD strength, as traders price in a more hawkish Fed outlook.
The upcoming US labour market data release and commentary from Fed officials on Friday will be viewed in the context of how it influences market expectations for Fed tightening this year and next. The recent rally in US bond yields, with the 10-year on Thursday moving above 3.0% for the first time since December 2018, suggests markets are pricing for a higher terminal interest rate from the US central bank.
Should that trend continue on Friday, GBP/USD is at risk of further losses. Bears will be eyeing the next key support level in the form of June 2020 lows in the 1.2250 area. To the upside, April lows just above 1.2400 will likely offer resistance, and any such rebound into the 1.2400s might entice sellers.
Bank of England Chief Economist Huw Pill said on Friday that two members of the bank's rate-setting committee (the Monetary Policy Committee or MPC) did not sign up to the new guidance on interest rates because they felt that enough may have already been done, reported Reuters.
Pill's remarks come after he said earlier in the day that “key message we hoped to land yesterday is that we face risks on both sides of the economic outlook.” Arguments about balancing risks with rates are quite finely balanced themselves, he added.
Friday's US economic docket highlights the release of the closely-watched US monthly jobs data for April. The popularly known NFP report is scheduled for release at 12:30 GMT and is expected to show that the economy added 391K jobs during the reported month, down from the 431K in March. The unemployment rate, however, is expected to edge lower to 3.5% in April from 3.6% previous. Apart from this, investors will take cues from Average Hourly Earnings, which could add to rising inflationary pressures.
Analysts at Goldman Sachs offered a brief preview and sounded less optimistic about the report: “We estimate NFP rose by 300K in April. We estimate a one-tenth drop in the unemployment rate to 3.5%, reflecting a solid or strong rise in household employment partially offset by another 0.1pp rise in labour force participation to 62.5%. While labour demand remains at elevated levels and dining activity has returned to normal, seasonally-adjusted job growth tends to slow during the spring hiring season when the labour market is tight.”
Heading into the key data risk, the US dollar eased a bit from a two-decade high touched earlier this Friday and assisted the EUR/USD pair to rebound over 100 pips from sub-1.0500 levels. That said, expectations that the Fed would need to take more drastic action to curb soaring and elevated US Treasury bond yields should act as a tailwind for the buck. A stronger NFP report will reinforce speculations and attract fresh USD buying. Conversely, any disappointment is more likely to be overshadowed by a generally weaker tone around the equity markets. This, along with concerns that the European economy will suffer the most from the Ukraine crisis, suggests that the path of least resistance for the pair is to the downside.
Eren Sengezer, Editor FXStreet, offered a brief technical outlook and outlined important technical levels to trade EUR/USD: “The pair is trading near the static resistance of 1.0560, which is reinforced by the 50-period SMA on the four-hour chart, and a four-hour close above that level could open the door for a rebound toward 1.0600 (psychological level, Fibonacci 23.6% retracement level of the latest downtrend). Finally, 1.0660 (Fibonacci 38.2% retracement) forms the next significant resistance.”
“On the downside, 1.0540 (20-period SMA) aligns as interim support ahead of 1.0500 (psychological level and 1.0470 (multi-year low set on April April 26),” Eren added further.
• Nonfarm Payrolls Preview: Could employment become a new headache for the Fed?
• NFP Preview: Forecasts from 12 major banks, robust job growth
• EUR/USD Forecast: Euro's recovery attempts to remain as technical corrections
The nonfarm payrolls released by the US Department of Labor presents the number of new jobs created during the previous month, in all non-agricultural business. The monthly changes in payrolls can be extremely volatile, due to its high relation with economic policy decisions made by the Central Bank. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the forex board. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish), although previous months reviews and the unemployment rate are as relevant as the headline figure.
Despite the US Dollar Index (DXY) hitting fresh 20-year highs to the north of the 104.00 level earlier in the day on Friday, spot gold (XAU/USD) prices have remained resilient. An earlier dip into the upper $1860s per troy ounce has been reversed and the precious metal is currently changing hand in the mid-$1880s, up about 0.3% on the day, as the US dollar pares earlier gains and focus shifts to the upcoming release of US labour market data at 1330BST.
The upcoming Bureau of Labour Statistics data release, which is expected to show nearly job gains of nearly 400,000 in the US last month, as well as the unemployment rate falling to 3.5% from 3.6%, will be viewed in the context of how it impacts the outlook for Fed policy. Earlier this week, the Fed raised interest rates by 50 bps and outlined quantitative tightening plans as expected, whilst also signaling intent to continue with 50 bps rate hikes at upcoming meetings in a bid to get interest rates back to around 2.5% by the end of the year.
The market’s initial interpretation of Fed Chair Jerome Powell’s post-meeting message was dovish given he essentially ruled out the possibility of a 75 bps move at any upcoming meeting. That helped XAU/USD prices rally to weekly highs above the $1900 level in early Thursday trade. However, a sharp rise in US yields and bond markets took a more hawkish view of events saw gold quickly release its grip on the $1900 level.
While a historic drop in US equity markets on Thursday helped keep safe-haven gold’s losses fairly contained (XAU/USD still trades more than 1.5% above earlier weekly lows), gold is nonetheless on course to post a third consecutive weekly loss. If the upcoming jobs report triggers further fears of a US wage-price spiral that would require a more aggressive monetary tightening response from the Fed, XAU/USD may retest weekly lows just above the $1850 level.
DXY comes under some selling pressure after hitting fresh 19-year peaks past 104.00 the figure on Friday.
The underlying bullish view for the dollar, remains well in place for the time being. That said, extra gains above the 104.00 region should prompt the index to meet the next target at 105.63 (December 11 2002 high) ahead of the December 2002 peak at 107.31.
The current bullish stance in the index remains supported by the 8-month line in the 96.85/90 band, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 95.98.
EUR/JPY adds to the weekly recovery and manages to reclaim the area beyond the 138.00 hurdle at the end of the week.
If the cross surpasses the 138.00 area on a sustainable basis, then the door could open to a potential visit to the 2022 high at 140.00 (April 21). Beyond this level emerges the June 2015 high at 141.05.
In the meantime, while above the 200-day SMA at 130.87, the outlook for the cross is expected to remain constructive.
Senior Economist Alvin Liew and Rates Strategist Victor Yong at UOB Group review the latest FOMC event (May 4).
“The 3/4 May 2022 FOMC as widely expected, continued it rate hiking cycle by lifting the policy Fed Funds Target rate (FFTR) by 50bps to 0.75-1.00%, the biggest hike since 2000, and importantly, it signaled clearly that more rate hikes will follow with its focus on reining in inflation as it ‘anticipates that ongoing increases in the target range will be appropriate’. Unlike the Mar FOMC, the decision this time was unanimous (9-0).”
“The other key element was the release of the plans for the Balance Sheet Reduction [BSR] also termed as Quantitative Tightening, [QT] which will start on 1 Jun 2022, just three months after it concluded its Quantitative Easing (QE) in Mar 2022. The timeline is much more accelerated when compared to the previous episode in 2017-2019.”
“Even as FOMC Chair Powell confirmed that the Fed is ‘on a path to move policy rate expeditiously to more normal levels…Additional 50 bps increases should be on table at next couple of meetings’, he dismissed speculation that the Fed was contemplating an even larger increase of 75bps hike in the months ahead, saying that it is ‘not something that the committee is actively considering’.”
“Given the clear indications for on-going hikes to combat inflation spelt out in the May FOMC and Powell’s explicit comment that ‘additional 50 bps increases should be on table at next couple of meetings’, we now expect the FFTR will be hiked faster by 50bps in the June and July FOMC (from our previous forecast of 25bps).”
“We continue to expect 25bps in every remaining meeting of this year. Including the Mar FOMC’s 25bps hike and yesterday’s 50bps hike, this upgrade now implies a cumulative 250bps of increases in 2022, bringing the FFTR higher to the range of 2.50-2.75% by end of 2022 (from our previous forecast of 200bps hikes to 2.00-2.25% by end 2022). We maintain our forecast for two 25bps rate hikes in 2023, bringing our terminal FFTR to 3.00-3.25% by mid-2023 (versus previous forecast of 2.50-2.75%).”
Bundesbank President and European Central Bank (ECB) Governing Council member Joachim Nagel argued on Friday that the window for the ECB to take monetary policy measures was slowly closing, per reuters.
"Optimistic about a 2022 move."
"I see no recession but a much weaker growth rate."
"I don't buy the argument that the monetary policy should hold back because of the economy right now."
The EUR/USD pair edged slightly higher following these comments and was last see rising 0.5% on a daily basis at 1.0590.
The USD/CAD pair edged lower during the first half of the European session and dropped to a fresh daily low, around the 1.2815-1.2810 region in the last hour.
A combination of factors failed to assist the USD/CAD pair to capitalize on the overnight strong bounce from a near two-week low and attracted fresh selling near the 1.2865 region on Friday. A pickup in crude oil prices underpinned the commodity-linked loonie and acted as a headwind for spot prices amid modest intraday US dollar pullback.
An impending European Union embargo on Russian oil continued fueling worries about tightening supply and helped offset concerns about slowing global economic growth. In fact, the EU had proposed a plan to phase out Russian oil imports by end of the year. This, in turn, was seen as a key factor that extended some support to crude oil prices.
On the other hand, the USD witnessed some profit-taking amid some repositioning trade ahead of Friday's release of the closely-watched US monthly jobs report - popularly known as NFP. This further exerted some downward pressure on the USD/CAD pair, though hawkish Fed expectations and elevated US Treasury bond yields should limit the USD losses.
Fed Chair Jerome Powell had said that policymakers were ready to approve a 50 bps increase at upcoming meetings. Moreover, the markets expect that the Fed would need to take more drastic action to curb soaring and are pricing in an additional 200 bps rate hike for the rest of 2022. This, in turn, supports prospects for the emergence of some USD dip-buying.
Investors might also prefer to wait for a fresh impetus from the release of monthly employment details from the US and Canada, due later during the early North American session. This, along with the US bond yields, will influence the USD. Traders will further take cues from oil price dynamics for some short-term opportunities around the USD/CAD pair.
UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comments on the latest CPI release in the Philippines.
“Headline inflation jumped further to 4.9% y/y in Apr (from 4.0% in Mar), exceeding Bangko Sentral ng Pilipinas (BSP)’s 2.0%-4.0% medium-term target range for the first time in seven months. The reading also surpassed our estimate (4.5%) and Bloomberg consensus (4.6%). It was again a broad-based increase in prices, led by higher fuel and food prices as well as electricity rates amid persistent weakness in Peso (PHP).”
“We believe that inflation will likely stay near the 5.0% level for the rest of the year as the Russia-Ukraine conflict lingers while China is still grappling with its COVID-19 outbreak. These two event risks alongside a more hawkish Fed will tilt inflation pressures higher amid elevated commodity prices, prolonged supply-chain disruptions, and weaker local currency due to narrower interest rate differentials with US rates. The ongoing petitions for a hike in minimum wage and public transport fare domestically will also lift inflation should they be approved. We reiterate our inflation forecast of 4.5% for this year (BSP est: 4.3%; 2021: 3.9%).”
“In view of broadening inflationary pressures, continued expansion in domestic economic activities and narrowing interest rate differentials with US Fed Funds rate, we stick to our BSP call for a 25bps hike in the overnight reverse repurchase rate to 2.25% by 2Q22. The next two Monetary Board meetings are scheduled on 19 May and 23 Jun.”
After bottoming out in the 1.0480 region earlier in the session, EUR/USD manages to regain some buying interest and now reclaims the area further north of the 1.0500 barrier.
EUR/USD regains some composure following Thursday’s sharp selloff and after dropping to fresh multi-session lows in the 1.0485/80 band during early trade.
Indeed, some selling pressure in the greenback sponsors the ongoing bounce in the pair well north of 1.0500 the figure as the sentiment in the risk-associated universe appears somewhat improved in the European morning.
Also lending some support to the shared currency, ECB’s Villeroy suggested that the bank’s policy rates could return to the positive territory by the end of the year. In the same line, the German 10y bund yields climb to fresh peaks near 1.10% for the first time since later July 2014.
In the euro docket, Industrial Production in Germany contracted at a monthly 3.9% in March. In the US calendar, April’s Payrolls are due seconded by the Unemployment Rate, Consumer Credit Change and the speeches by FOMC’s Williams and Bostic.
EUR/USD came under renewed downside pressure in the wake of the FOMC event. The downtick, however, seems to have met contention around 1.0480 so far this week and ahead of the key NFP due later on Friday. The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.
Key events in the euro area this week: Germany Industrial Production (Friday).
Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Impact on the region’s economic growth prospects of the war in Ukraine.
So far, spot is gaining 0.18% at 1.0558 and faces the next up barrier at 1.0641 (weekly high May 5) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level). On the flip side, a breach of 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017).
The AUD/USD pair maintained its offered tone through the first half of the European session and was last seen trading near a multi-day low, just below the 0.7100 mark.
The pair extended the previous day's sharp retracement slide from the 0.7265 region, or a near two-week high and witnessed some follow-through selling for the second successive day on Friday. The downtick seemed rather unaffected by the Reserve Bank of Australia’s (RBA) hawkish Statement on Monetary Policy, suggesting a further increase in interest rates is needed to restrain inflation.
On the other hand, the US dollar eased a bit from the two-decade high touched earlier this Friday, though did little to impress bullish traders or lend any support to the AUD/USD pair. The modest USD pullback could be solely attributed to some repositioning trade ahead of the closely-watched US monthly jobs report and is likely to remain limited amid hawkish Fed expectations.
Fed Chair Jerome Powell had said that policymakers were ready to approve a 50 bps increase at upcoming meetings. Moreover, the markets expect that the Fed would need to take more drastic action to curb soaring and are pricing in an additional 200 bps rate hike for the rest of 2022. This remained supportive of elevated US Treasury bond yields, which should act as a tailwind for the buck.
Investors, however, seem reluctant to place aggressive bets and preferred to wait for a fresh catalyst from the US NFP report, scheduled for release later during the early North American session. The data is anticipated to be consistent with tightening labour market conditions, which, along with the US bond yields, might influence the USD and provide a fresh impetus to the AUD/USD pair.
FX option expiries for May 6 NY cut at 10:00 Eastern Time, via DTCC, can be found below.
- EUR/USD: EUR amounts
- GBP/USD: GBP amounts
- USD/JPY: USD amounts
- AUD/USD: AUD amounts
- USD/CAD: USD amounts
- EUR/GBP: EUR amounts
Gold’s excursion above the $1,900 mark proved short-lived. April Nonfarm Payrolls data from the US will be the last significant data release of the week. However, the jobs report is unlikely to impact Gold Price unless deviates significantly from expectations, economists at Commerzbank report.
“Gold is set to post its third weekly loss in a row. Bond yields are probably the main factor weighing on its price. Because the market-based inflation expectations have not changed, real interest rates have likewise increased noticeably. This has made gold less attractive as an alternative investment.”
“Market participants are likely to be turning their attention to the US this afternoon, where the official labour market report for April is to be published. The Bloomberg consensus anticipates a lower number of jobs created than in recent months. In our opinion, however, the data are only likely to have any noticeable impact on the gold price if they deviate significantly from expectations.”
See – NFP Preview: Forecasts from 12 major banks, robust job growth
The EUR/GBP cross built on the previous day's dovish Bank of England-inspired strong rally and gained traction for the second successive day on Friday. The momentum pushed spot prices to a fresh YTD peak, around the 0.8555-0.8560 region during the early part of the European session.
From a technical perspective, the overnight sustained strength above the very important 200-day SMA was seen as a fresh trigger for bullish traders. A subsequent breakthrough a downward-sloping trend-line extending from April 2021 supports prospects for a further near-term appreciating move.
That said, RSI (14) on the daily chart have moved on the verge of breaking into the overbought territory and warrants some caution. Hence, it will be prudent to wait for some consolidation or modest pullback before traders start positioning for the near-term bullish breakout momentum.
Nevertheless, the EUR/GBP cross seems poised to aim back to reclaim the 0.8600 round-figure mark for the first time since October 2021. Some follow-through buying has the potential to lift spot prices towards the 0.8625 intermediate hurdle en-route the 0.8655-0.8660 area.
On the flip side, the aforementioned descending trend-line resistance breakpoint, just ahead of the 0.8500 psychological mark, now seems to protect the immediate downside. Any further decline is likely to attract fresh buying and remain limited near the 0.8440 region (200-DMA).
The latter should act as a strong base for the EUR/GBP cross, which if broken will negate the positive bias. The subsequent technical selling would expose the next relevant support near the 0.8400 mark, which is followed by the weekly low, around the 0.8365 area.
GBP/USD is seeing a dead cat bounce above 1.2300, reversing quickly from fresh 22-month lows reached at 1.2276 in the last hour.
The US dollar remains in charge and advanced to the highest levels since December 2002 when compared to its majors, adding to the renewed weakness in the cable.
The sentiment around the GBP remains undermined after the BOE projected a recession for the UK economy in Q4 2022 while hiking the key rate by 25 bps to 1% on Super Thursday.
On the other hand, despite a contraction in the US Q1 GDP, Fed Chair Jerome Powell remains confident on the economy and labor market, suggesting 50 bps rate hikes in the next two policy meetings.
The Fed-BOE divergence on the monetary policy, as well as, the economic outlook will likely keep GBP/USD’s bearish potential intact. The focus now shifts towards the US NFP data and speeches from the Fed and BOE policymakers for fresh trading incentives on the spot.
Also read: BOE’s Pill: We face risks on both sides of economic outlook
Looking at the daily chart, Thursday’s sell-off that followed the Asian consolidation carved out a bear flag formation on the four-hour chart.
The major breached the rising trendline support at 1.2340 on a 4-hour candlestick closing basis, validating the bear flag.
The further downside, therefore, opened up and the price went on to refresh 22-month lows below 1.2300.
At the time of writing, the spot is attempting a minor comeback, although the bear flag support now resistance at 1.2340 is acting as a powerful upside barrier.
The recovery momentum will gather steam only on a sustained move above the latter, with eyes on the pattern resistance at 1.2388.
If bulls reclaim that level, then it will lead to the pattern failure, unleashing the additional recovery towards the 1.2450 psychological barrier.
Should the selling momentum resume, then bears will test the 22-month lows once again, opening floors towards 1.2250.
It has been 10 years since the height of the Euro Crisis. Do we need to be worried of a Euro Crisis 2.0? In the opinion of economists at Deutsche Bank, if rates were to rise sharply for longer, we might well be facing Euro Crisis 2.0.
“The good news is that all EZ countries have been able to significantly lower their interest costs relative to GDP. Also, most countries have used the ultra-loose monetary policy environment over the past 10 years to increase the duration of their outstanding debt, making them less sensitive to temporarily rising rates and yields.”
“The bad news is that debt levels have continued to rise. Although lower yields provide relief, these countries will face similar interest costs as a share of GDP at lower yield levels than in 2011. For example, if the yield for 10y Italian bonds were to rise by 2% next year, by the end of 2025 Italy would be facing the same interest burden as a percentage of GDP as it did in 2011 (all else held constant, refinancing via 10y).”
Commenting on the interest rates outlook, European Central Bank (ECB) policymaker Francois Villeroy de Galhau said Friday, it is “reasonable to raise rates into positive territory by the year-end.”
“Inflation expectations are less and less anchored at 2% now.”
“Must watch exchange rate developments.”
“Too weak a euro jeopardizes price stability objective.”
EUR/USD is rebounding towards 1.0550, as the US dollar eases from fresh two-decade highs ahead of the critical US NFP release.
In a CNBC interview on Friday, Bank of England (BOE) Chief Economist Huw Pill said, “key message we hoped to land yesterday is that we face risks on both sides of the economic outlook.”
Inflation going up to 10% and falling afterwards is because energy and international goods prices are main factors.
We don't have a forex target or objective.
We are not focused on short-term reactions in markets.
There is an obvious risk of second round effects.
Arguments about balancing risks with rates are quite finely balanced themselves.
Monetary policy cannot offer a quick fix overnight.
Asked about what would cause the BOE to pause rates, Pill says we would want to see more evidence inflation expectations and wage and price setting and momentum in economy more consistent with target.
If we don't see that we will need to act further.
GBP/USD keeps its recovery momentum intact towards 1.2350 on Pill’s comments. The spot is currently trading at 1.2336, still down 0.26% on the day.
Here is what you need to know on Friday, May 6:
Following the downward correction witnessed after the Fed's policy announcements late Wednesday, the US Dollar Index surged higher on Thursday and reached its strongest level since December 2002 at 103.94. The benchmark 10-year US Treasury bond yield rose more than 3% and the S&P 500 fell 3.6%. April Nonfarm Payrolls data from the US, which is expected to come in at 391,000, will be the last significant data release of the week. Market participants will pay close attention to speeches by Bank of England (BOE) and Fed policymakers throughout the day as well. Finally, the Canadian employment report will be looked upon for fresh catalysts.
Nonfarm Payrolls Preview: Could employment become a new headache for the Fed?
The Bank of England (BOE) announced on Thursday that it hiked the policy rate by 25 basis points (bps) to 1% as expected. Although the policy statement revealed that three Monetary Policy Committee members voted for a 50 bps rate hike, the British pound came under heavy bearish pressure. The BOE warned that the UK economy could go into recession and Governor Andrew Bailey noted that there was a "very sharp slowdown" in activity. Finally, the bank clarified that it will work on a plan to start selling the government bonds that it has purchased since the beginning of the crisis and unveil it in August.
EUR/USD erased all the gains it recorded on Wednesday and was last seen testing 1.0500. European Central Bank Governing Council Member Olli Rehn argued on Thursday that the policy rate could reach zero in Autumn with the first rate hike coming in July. Nevertheless, these comments failed to help the shared currency find demand.
GBP/USD is trading at its lowest level since June 2020 at around 1.2300 early Friday. The pair is down more than 250 pips on a weekly basis.
USD/JPY regained its traction on surging US Treasury bond yields and snapped a two-day losing streak on Thursday. The pair was last seen posting modest daily gains near 130.50.
Gold jumped above $1,900 on Thursday but made a sharp U-turn in the second half of the day to close deep in negative territory. XAU/USD is staying relatively quiet near $1,870 in the European morning.
US April Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises.
Bitcoin fell nearly 8% on Thursday amid risk aversion and went into a consolidation phase near $36,300. Ethereum lost 6.5% and was last seen moving sideways at around $2,700.
Gold reversed modest intraday losses and was last seen trading around the $1,974-$1,975 region, nearly unchanged for the day during the early European session.
The spillover effect from the overnight broad sell-off on Wall Street weighed on investors' sentiment, which was evident from a softer tone around the equity markets. This, in turn, was seen as a key factor that extended some support to the safe-haven gold, though any meaningful upside remains elusive amid the prospects for a further policy tightening by the Fed.
Fed Chair Jerome Powell said on Wednesday that a 75 bps rate hike is not under active consideration, though stated that policymakers were ready to approve a 50 bps increase at upcoming meetings. Moreover, the markets are still pricing in a further 200 bps rate hike for the rest of 2022, which remained supportive of elevated US Treasury bond yields.
Apart from this, the underlying bullish sentiment surrounding the US dollar, which held steady near its highest level in two decades, further acted as a headwind for the dollar-denominated gold. The downside, however, seems cushioned as investors preferred to wait on the sidelines ahead of the release of the closely-watched US monthly jobs data.
The popularly known NFP report is expected to be consistent with tightening labour market conditions and likely back the case for additional Fed rate hikes. This, along with the emergence of fresh selling on Thursday, suggests that the path of least resistance for the non-yielding gold is to the downside and any attempted recovery could be seen as a selling opportunity.
The yen now stands around 130, a 20-year low versus the US dollar. Economists at Nordea expect the USD/JPY to advance towards the 135 level by year-end.
“Back in 2002, USD/JPY topped at 135 and we expect USD/JPY to move towards this level by end-2022.”
“At some point, the peak USD bullishness will turn around and we expect USD/JPY to move lower during the second half of next year.”
EUR/USD has broken below 1.05 for the first time since 2016. Economists at Nordea expect the pair to reach parity later this year, before rebounding in 2023.
“A higher rate differential and the safe-haven status of the USD argue for movements lower.”
“We see EUR/USD move down to parity (1.00) sometime before the year-end. At some point, however, the tide will turn. Likely when the Fed reaches the peak of its hiking cycle by summer next year.”
“We expect EUR/USD to end 2023 around 1.10.”
GBP/USD plunged to its lowest level since July 2020 after Bank of England’s (BoE) gloomy economic outlook. Economists at MUFG Bank believe that cable could extend its slump to the 1.20 level.
“We think the terribly grim GDP forecasts going forward (-0.25% in 2023) are a strong signal that the scope for sustaining monetary tightening is quickly diminishing. With the BoE’s inflation forecast in 3yrs time under an assumption of no further monetary tightening at just 2.16%, barely above the 2% target, there is a clear signal in the forecast that the BoE is close to a pause.”
“The sharp equity market selloff and a clear day of risk-off as financial market conditions continue to tighten is not a favourable backdrop for GBP and a continued grind toward the 1.20 level looks likely.”
“The political outlook for the UK could be about to worsen. Results are slowly beginning to come in for the Local elections that took place yesterday and as expected the results at this early stage do not look good for the government. The results won’t force PM Johnson out but will likely weaken his position further and leaves him vulnerable to party dissatisfaction that could create instability and uncertainty into the autumn. How badly the Tories do outside of London more generally will be key.”
The Federal Open Market Committee (FOMC) raised rates by 50bp and formally announced its plan for balance sheet reduction. Economists at HSBC believe the US dollar will remain strong.
“The FOMC raised the federal funds target range by 50bp to 0.75-1.00%. The Committee also announced a plan to begin reducing its holdings of Treasury securities and mortgage-backed securities (MBS), i.e., quantitative tightening (QT) or balance sheet reduction, from 1 June onwards.”
“Fed Chair Jerome Powell stressed that 50bp should be ‘on the table at the next two meetings’, (and the FOMC’s next two meetings are scheduled for 14-15 June and 26-27 July), and if inflation were to come under control, the pace of hikes could be slowed to 25bp subsequently.”
“We continue to believe the USD will remain strong. First, the Fed’s attitude towards the appropriate pace of tightening can change if the data warrant it. Secondly, the 50bp pace is likely to be sustained for the next couple of meetings, as per Powell’s remarks. This would outpace many G10 central banks. Third, while USD bears will say the market is aggressively priced for the Fed, the same is true of most G10 central banks. Finally, the USD’s advantage in a slowing global growth environment remains a support.”
Silver (XAG/USD) stays defensive below $22.50. A break below $21.68/42 would open up additional losses to $18.95/48, strategists at Credit Suisse report.
“Silver has fallen sharply to turn the spotlight back on long-term price support at $21.68/42.”
“Failure to hold $21.68/42 would see a large and significant top complete to mark an important change of trend lower with support then seen at $19.65 initially, then $18.95/48.”
Czech National Bank (CNB) delivered another hawkish surprise, but the koruna story remains unchanged. Economists at ING expect the EUR/CZK pair to stay in the 24.30-24.50 range.
“CNB raised its key rate by 75bp to 5.75%, surprising the market by 25bps to the upside. At the same time, the central bank's new forecast expects rates to rise well above 8%. However, Governor Jiří Rusnok also presented an alternative scenario, with a shifted monetary policy horizon from 2023 to 2024 and implies a peak in rates below 6%, which is the current level and a later rate cut compared to the baseline scenario.”
“The koruna's story remains unchanged. The strong dollar, rising core rates and persistent risk aversion will continue to prevent a more significant appreciation and we continue to expect the koruna to remain in the 24.30-24.50 range.”
Sterling fell sharply yesterday after the Bank of England (BoE) signalled a 'rate protest' to market pricing of its tightening cycle. Economists at ING expect the EUR/GBP pair to advance towards 0.86 by year-end.
“The BoE forecast a UK contraction in 2023 and revised the 2022 peak in inflation. The BoE update also included an implicit 'rate protest' against market pricing of tightening prospects – a measure that hit the pound.”
“Signs that the BoE may be close to the top of its tightening cycle (two of the nine Monetary Policy Committee dissented against further hikes) suggest sterling may be vulnerable as trading partners including the US and the eurozone push ahead with tightening cycles.”
“This month we are raising our year-end EUR/GBP forecast to 0.86 from 0.84. The 200-day moving average near the 0.8450 area may now prove good EUR/GBP support, with a bias towards 0.86 now.”
In the view of economists at ING, US average earnings may be the most important data point today. They expect the dollar to stay bid.
“We suspect the key focus in today's US Nonfarm Payroll report will be the average weekly earnings numbers and the unemployment rate. An average hourly earnings number in line with consensus (0.4% month-on-month, 5.5% year-on-year) should keep US yields and the dollar firm. Any soft headline employment data will be ascribed to tight labour markets.”
“We expect the dollar to remain bid and DXY to remain pressing the 104.00 area.”
See – NFP Preview: Forecasts from 12 major banks, robust job growth
Since the beginning of 2021, USD/KRW has been on a stable uptrend. Economists at Credit Suisse expect the pair to climb as high as the 1314716 area.
“With the 55-week and 200-week moving averages steadily rising and with the DXY near its 20-year highs, we stay biased for the advance to continue with a move to the March 2020 high at 1293 initially.”
“Though consolidation should be allowed for 1293, an eventual move above would see scope for a move to the mid 2009 high as well as the top of the highlighted channel at 1314/16, where a solid ceiling should be found for a potential bounce-back lower again.”
The USD/JPY pair traded with a mild positive bias through the early European session and was last seen hovering around mid-130.00s, just a few pips below the weekly high.
Spot prices built on the previous day's goodish rebound from the vicinity of the weekly low and scaled higher for the second successive day on Friday. A big divergence in the monetary policy stance adopted by the Fed and the Bank of Japan was seen as a key factor that continued acting as a tailwind for the USD/JPY pair.
Fed Chair Jerome Powell downplayed the possibility of an aggressive tightening path, though said that policymakers were ready to approve 50 bps rate hikes at upcoming meetings. Moreover, the markets are still pricing in a further 200 bps rate hike for the rest of 2022, which was reinforced by elevated US Treasury bond yields.
On the other hand, the Japanese central bank has vowed to keep its existing ultra-loose policy settings and promised to conduct unlimited bond purchases to defend its “near-zero” target for 10-year yields. This, in turn, offered support to the USD/JPY pair, though a softer risk tone underpinned the safe-haven JPY and capped gains.
Investors also seemed reluctant and preferred to wait on the sidelines ahead of the closely-watched US monthly jobs data, scheduled for release later during the early North American session. The popularly known NFP report, along with the US bond yields, will influence the USD and provide a fresh impetus to the USD/JPY pair.
Labour data will also be released in Canada today. Employment figures are set to lift the loonie, economists at ING report.
“While a modest slowdown from March’s 70K increase in employment is expected (consensus is around 40K today), the release should prove broadly supportive of the Canadian dollar.”
“We also see some risk of an above-consensus read today given the strong demand backdrop, the positive implications of higher commodity prices for Canada’s oil and gas industry and apparently fewer labour constraints than in the US.”
“The balance of risk for CAD today is slightly tilted to the upside, though our preference for USD/CAD trading sub 1.25 in 2H22 will require some calmer international conditions.”
See – Canada Employment Preview: Forecasts from five major banks, battling a labour crunch
Palladium (XPD/USD) remains on the back foot around the weekly low, recently sidelined near $2,175 during the early Friday morning in Europe.
The commodity’s failure to cross the 61.8% Fibonacci retracement (Fibo.) of December 2021 to March 2022 upside, near $2,260, directed the quote towards refreshing the week’s bottom the previous day.
In doing so, the XPD/USD prices keep the late April’s downside break of the five-month-old rising trend line, around $2,335 by the press time.
Hence, palladium is all set to retest the 200-DMA support of $2,140. However, a daily closing beneath the same becomes necessary for the bears to keep reins.
Following that, March’s low near $2,045 and the $2,000 thresold will lure the bears ahead of directing them to the late 2021 swing high near $1,997.
Meanwhile, the aforementioned Fibo level and the previous support line, respectively around $2,260 and $2,335, restrict the short-term rebound of the palladium prices.
Should XPD/USD bulls manage to cross the $2,335 level, 50% Fibonacci retracement level and March 18 swing high, close to $2,480 and $2,605 in that order, should gain the buyer’s attention.
Trend: Bearish
The GBP/USD downtrend has accelerated again. Economists at Credit Suisse maintain a negative outlook for 1.2251 and eventually 1.2072/1.2017.
“We look for the trend to stay directly lower with support seen next at the June 2020 low at 1.2251 and eventually what we look to be stronger support at the 61.8% retracement and May 2020 low at 1.2072/1.2017.”
“Resistance at 1.2637 now ideally caps. Above can see a corrective recovery back to 1.2973/81.”
The NZ dollar has weakened a little as central banks in other regions start to tighten monetary conditions. However, the kiwi is assumed to appreciate steadily to reach 0.69 by the end of 2022, economists at ANZ Bank report.
“The Reserve Bank of Australia increased its cash rate by 25bp to 0.35%, while the US Federal Reserve lifted its cash rate 50bp as expected. These central bank movements have weighed a little on the NZD, but our currency is still expected to strengthen as the year progresses.”
“By the end of the 2022 calendar year, we anticipate the NZD/USD will reach 0.69.”
Extra gains in USD/CNH could now see the 6.7600 region revisited in the next weeks according to Peter Chia and Quek Ser Leang, FX Strategists at UOB Group.
24-hour view: “We did not expect the strong surge in USD that sent it soaring to a high of 6.6985 (we were expecting sideway-trading). At the time of writing, USD just cracked 6.7000. Upward momentum is strong and further USD strength would not be surprising. Resistance levels are at 6.7250 and 6.7400. On the downside, 6.6700 is likely strong enough to hold any pullback.”
Next 1-3 weeks: “We highlighted on Wednesday (04 May, spot at 6.6400) that it is premature to expect the bullish phase to come an end. We added, USD ‘may trade below 6.6979 for a few days first’. USD jumped to a high of 6.6985 during NY session before extending its advance during Asian hours. Strong upward momentum is likely to lead to an advance to 6.7400, as high as 6.7600. On the downside, the ‘strong support’ level has moved higher to 6.6400 from 6.6000.”
EUR/GBP has seen a break above the 0.8514 prior YTD high to suggest an important base is in the process of being established. A weekly close above here would open up additional gains toward 0.8826/61, economists at Credit Suisse.
“Assuming we see a weekly close above the 0.8514 March high, which we look for, this should confirm an important base is in place to clear the way for a more sustained recovery to 0.8601/18 initially and eventually back to 0.8826/61.”
“Support at 0.8366 now ideally holds.”
NZD/USD remains under pressure. Nonetheless, economists at Credit Suisse stay cautious of a possible mean-reversion back higher.
“NZD/USD has experienced a strong decline since the beginning of April, breaking the YTD low at 0.6528, which opens up the potential for further downside. Nonetheless, NZD/USD has had a tendency to not follow through on significant breakouts in the last 8 months and we, therefore, stay wary of a possible mean-reversion back higher.”
“From a shorter-term perspective, a break below the lows of mid-June 2021 at 0.6385/68 would put further downward pressure on the market and open the door to reach the 61.8% retracement of the 2020/21 uptrend at 0.6231 in due course.”
The greenback adds to Thursday’s strong uptick and trades at shouting distance from the key 104.00 barrier when tracked by the US Dollar Index (DXY) at the end of the week.
The index advances for the second straight session on Friday, as the current upside momentum remains well propped up by speculation that the Federal Reserve could hike rates by extra 50 bps (or higher) in the next months.
On the latter, and according to CME Group’s FedWatch Tool, the probability of a 75 bps rate hike at the June 15 meeting is now at nearly 90% from almost 6% seen a week ago.
In the US money markets, yields in the short end of the curve trade marginally lower around 2.70%, while the belly and the long end look to extend the advance around 3.05% and 3.15%, respectively.
Data wise in the US calendar, all the attention will be on the publication of April’s Nonfarm Payrolls and the Unemployment Rate, seconded by March’s Consumer Credit Change and speeches by NY Fed J.Williams (permanent voter, centrist) and Atlanta Fed R.Bostic (2024 voter, centrist).
The dollar regains its solid appeal and stays en route to a potential visit to the 104.00 mark sooner rather than later, as investors’ expectations for a tighter rate path by the Federal Reserve have been nothing but reinforced by the FOMC event on Wednesday. The constructive stance in the dollar is also underpinned by the current elevated inflation narrative and the solid health of the labour market as well as bouts of geopolitical tensions and higher US yields.
Key events in the US this week: Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change (Friday).
Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Future of Biden’s Build Back Better plan.
Now, the index is gaining 0.21% at 103.76 and the breakout of 103.94 (2022 high May 5) would open the door to 104.00 (round level) and finally 105.63 (high December 11 2002). On the other hand, the next support emerges at 102.35 (low May 5) seconded by 99.81 (weekly low April 21) and then 99.57 (weekly low April 14).
GBP/USD fell from levels around 1.26 to below 1.24 and EUR/GBP appreciated above 0.85 after the Bank of England (BoE) presented a quite gloomy outlook. The British pound is set to suffer further downside pressure, economists at Commerzbank report.
“Shrinking GDP next year, stagnation in 2024 and CPI inflation rising up to 10%. What the BoE presented in its outlook yesterday was really quite gloomy.”
“It is quite possible that the BoE is much less restrictive than it would usually be in view of this inflation momentum. And it is probably clear that this fact is putting pressure on the currency.”
“Countries are well-advised to choose their trade partners based on what states match each other politically. And in the case of the UK, these are mainly European countries. ‘Friend shoring’ is easier within an economic union than outside. This suggests that yet another optimistic idea of the Brexiteers has been made redundant.”
“Great Britain might go through a different development economically, which really will seem much gloomier than in Europe. And that can only be negative for sterling.”
USD/CHF prices justify bullish bias in the options market as the Swiss currency (CHF) pair rise 0.21% to 0.9872 heading into Friday’s European session. The major currency pair rallied the most since November 2020 while refreshing a 26-month high amid a broad risk-off mood.
The same could have helped the options market traders to build the biggest positive daily risk reversal (RR), a gauge of the spread between calls and puts, in two months.
Not only the daily RR of 0.2000 by the weekly figures of 0.225 also braces for the strongest print since the week ended during the mid-March.
The optimism in the options market, coupled with the broad risk-off mood, is likely to be challenged during the pre-NFP anxiety. However, the same could keep the ball rolling in favor of the US dollar.
Read: USD/CHF oscillates around 0.9850 ahead of the Swiss Unemployment Rate and US NFP
Canada will release April employment figures on Friday, May 6 at 12:30 GMT and as we get closer to the release time, here are forecasts from economists and researchers at five major banks regarding the upcoming employment data.
Another 55K new workers are expected in April, following February’s gain of 72,5K. The unemployment rate should fall to 5.2% from 5.3% and the participation rate is forecast to be unchanged at 65.4% just 0.2 points below its final pre-pandemic level.
“We look for another 40K jobs added to drive the unemployment rate lower to 5.2% in April, in line with the market consensus. Services should account for the bulk of newly created jobs, alongside a mixed performance for the goods-producing sector. We also look for wage growth to hold at 3.7% YoY as tight labour market conditions help offset a large base-effect.”
“We look for job growth to slow to 25K in April after a 409K surge over the last two months. Demand for workers remains exceptionally strong but the supply of available workers has shrunk dramatically. The unemployment rate hit its lowest level since at least 1976 in March at 5.3%. We expect a further pickup in employment within the hospitality sector from what are still very low levels. But as the pool of available workers dwindles, additional labour demand will have a greater impact on wage pressures than on employment counts.”
“Job creation should have continued apace during the month, reflecting a strong economy. That said, the number of jobs added may have come down after two extremely solid months. Our call is for 25K gain. Such an improvement of the labour market would leave the unemployment rate unchanged, assuming the participation rate remained at 65.4%.”
“Citi: 60K, prior: 72.5K; Unemployment Rate – Citi: 5.2%, prior: 5.3%; Hourly Wage Rate Permanent Employees – Citi: 3.6%, prior: 3.7%. Employment should rise with two-sided risks. Somewhat counterintuitively, the more hawkish scenario for the BoC could be in the event of a downside surprise to job growth over the coming months a downside risk could be a result of labor supply shortages that may start to see stronger increase in wages.”
“A continued strengthening of demand for consumer-facing services likely resulted in increased efforts among companies to fill vacant positions in April. The result could be a further solid increase in overall employment levels (we forecast +55K), led by labour-intensive services such as food & accommodation. However, those efforts to fill vacancies likely included higher wages, putting upward pressure on hourly earnings, as will cost of living adjustments stemming from the current high inflation environment. The gain expected in total employment should be good enough to edge the jobless rate down to 5.2%. While that would be another record low, further modest declines could still be seen before the labour market becomes tight enough to drive sustained, strong, wage pressure. A smaller proportion of seasonal jobs in today’s labour market means that short-term, frictional, unemployment is lower, which impacts the overall jobless rate.”
The Bank of England (BoE) delivered a third consecutive 25bps hike. Economists at Standard Chartered now expect another 25bps hike in June. Furthermore, another hike in August is also expected – which should be the final rate hike of the year.
“The BoE delivered a third consecutive 25bps hike (with three members opting for 50bps). Whereas previously we saw one further 25bps hike this year in August, we now envisage an additional 25bps hike in June, taking Bank Rate to 1.5% by year-end (1.25% previously).”
“We still view market pricing this year (four to five additional 25bps hikes by year-end) as too aggressive; so while additional tightening in Q4 cannot be ruled out, we think the BoE will pause at 1.50% to assess incoming data.”
“We still see Bank Rate topping out at 2.00% next year, and so reduce our expectation to two additional rate hikes in 2023 (from three previously), most likely in Q2 and Q3, but the timing of these additional hikes is highly uncertain at this stage.”
AUD/USD remains pressured around the intraday low, down 0.20% on a day near 0.7100 heading into Friday’s European session.
The Aussie pair hit the wall of resistance around 0.7265-70 the previous day before posting the biggest daily fall since February 2021. The pullback moves also get along with the descending RSI line, not oversold, to keep bears hopeful.
However, a weekly support line surrounding 0.7070 restricts the quote’s immediate downside, a break of which can direct AUD/USD prices towards the weekly low, also the lowest level since late January, around 0.7030.
Should the quote drop below 0.7030, the 0.7000 psychological magnet and the yearly bottom surrounding 0.6965 will be in focus.
Alternatively, recovery moves can aim for the 100-SMA, around 0.7235, ahead of targeting the 0.7265-70 resistance confluence, including the monthly resistance line and 38.2% Fibonacci retracement of the April-May fall.
In a case where AUD/USD prices rally beyond 0.7270, the odds of the pair’s further advances toward the 200-SMA level of 0.7365 can’t be ruled out.
Trend: Further weakness expected
The USD/TRY pair is oscillating in a minor range of 14.84-14.87 in the Asian session. The asset witnessed a firmer rebound after hitting a low of 14.36 on Thursday.
On the daily scale, the major is displaying back and forth moves in a tad lower range of 14.40-15.09 from March. The 20-period Exponential Moving Average (EMA) at 14.77 is overlapping to the prices, which signals a consolidation ahead.
Meanwhile, the 50- and 200-period EMAs at 14.54 and 12.48 respectively are scaling higher, which adds to the upside filters.
The Relative Strength Index (RSI) (14) is juggling in a bullish range of 60.00-80.00, which still favors greenback bulls and signals more upside for the asset.
An upside break of the consolidation at 15.09 will drive the asset towards the round level resistance at 15.50, followed by 16 December 2021 high at 15.75.
On the flip side, Turkish lira bulls could regain control if the asset tumbles below the lower boundary of consolidation at 14.40. This will drag the asset towards February 28 high at 14.40. A breach of 14.40 will send the asset towards the psychological support at 14.00.
Peter Chia and Quek Ser Leang, FX Strategists at UOB Group, noted that further upside could encourage USD/JPY to revisit the 131.25 level in the next weeks.
24-hour view: “Our expectations for USD to consolidate were incorrect as it soared to a high of 130.55. Further USD strength would not be surprising but last week’s high near 131.25 is unlikely to come under threat for now (there is another resistance at 130.85). Support is at 130.10 followed by 129.90.”
Next 1-3 weeks: “Our view from yesterday (05 May, spot at 129.15) where the ‘pullback in USD could extend to 128.30’ was proven wrong quickly as it soared above our ‘strong resistance’ level at 130.15. Upward momentum has improved and there is room for USD to retest the 131.25 level (last week’s high). Only a breach of 129.60 (‘strong support’ level) would indicate that the build-up in momentum has eased.”
Considering advanced prints from CME Group for crude oil futures markets, open interest rose for the third session in a row on Thursday, now by around 7.5K contracts. In the same line, volume reversed the previous drop and went up by around 63.8K contracts.
The rally in prices of natural gas remained unabated for yet another session on Thursday, prices reached new peaks amidst rising open interest and volume. Against that, the commodity now seems to be en route to the psychological barrier at the $10.00. mark per MMBtu.
Industrial Production in Germany declined more than expected in March, the official data showed on Friday, suggesting that the manufacturing sector activity is contracting sharply.
Eurozone’s economic powerhouse’s industrial output plunged by 3.9% MoM, the federal statistics authority Destatis said in figures adjusted for seasonal and calendar effects, vs. a -1.0% expected and 0.2% last.
On an annualized basis, German industrial production tumbled 3.5% in March versus a 3.1% growth registered in February.
The shared currency is holding the lower ground near 1.0520 on the downbeat German industrial figures.
At the time of writing, EUR/USD is trading at 1.0521, down 0.19% on the day.
The Industrial Production released by the Statistisches Bundesamt Deutschland measures outputs of the German factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. A high reading is seen as positive (or bullish) for the EUR, whereas a low reading is seen as negative (or bearish).
Gold Price is trading on the defensive so far this Friday, as traders move on the sidelines ahead of the all-important US Nonfarm Payrolls release. As FXStreet’s Dhwani Mehta notes, XAU/USD’s bearish potential appears intact.
“The US economy is likely to have added 391K jobs in April vs. 431K created previously. A stronger than expected print is needed for the dollar bulls to continue Thursday’s rebound, drowning Gold Price towards the 200-Daily Moving Average (DMA) at $1,835. A dismal reading, however, could justify the Fed’s less hawkish stance, prompting the greenback to resume its correction from multi-year highs while benefiting Gold Price.
“If gold buyers manage to hold above the 21-SMA support at $1,874, then the road to recovery could challenge the bearish 50-SMA at $1,886. The next significant resistance is pegged at the $1,900 round level, above which the rising wedge upper barrier at $1,912 will be probed.”
“A sustained break below the rising wedge trendline support at $1,872 will validate the bearish continuation formation. A retest of the three-month low of $1,850 will be on the table should the $1,860 demand area cave in.”
See – NFP Preview: Forecasts from 12 major banks, robust job growth
EUR/USD dribbles in a bearish court as inflation woes play their role ahead of the key US Nonfarm Payrolls (NFP), down 0.14% around 1.0520 heading into Friday’s European session.
That said, the major currency pair dropped the most in a week the previous day after the Bank of England’s (BOE) pessimistic economic forecasts triggered the US dollar’s rally due to its traditional safe-haven appeal. Although the pre-NFP anxiety and recently hawkish comments from the Head of Germany’s IFO institute seem to have challenged the pair bears of late.
"The US interest rate hike leads to an appreciation of the U.S. dollar against the euro, which increases inflationary pressure in Europe," Ifo head Clemens Fuest said, according to an advance copy of the newspaper, published on Friday per Reuters. The news also adds, "In this respect, there is some pressure for the ECB to follow."
Elsewhere, after the Bank of England’s (BOE) double-digit inflation forecast, the Reserve Bank of Australia’s (RBA) quarterly Monetary Policy Statement also propelled inflation fears by drastically raising the expectations for 2022 and 2023 in its latest release. Also highlighting the price pressure are the Tokyo Consumer Price Index (CPI) data from Japan.
It’s worth noting that, economic fears emanating from China’s covid conditions and the Russia-Ukraine crisis also weigh on the market sentiment, as well as the EUR/USD prices.
While portraying the mood, S&P 500 Futures drop back towards the yearly low marked earlier in the week, down 0.10% at the latest, whereas the US 10-year Treasury yields remain around the highest levels since late 2018 marked on Thursday.
Moving forward, EUR/USD traders will pay attention to the Fedspeak and second-tier data from the bloc, as well as risk catalysts for intermediate directions ahead of the US employment report. Forecasts suggest that the US Nonfarm Payrolls (NFP), expected to ease to 391K from 431K, while the Unemployment Rate may also decline to 3.5% from 3.6% in April.
Should the jobs report fail to portray an easing employment crunch, the EUR/USD prices have further south to track.
Also read: US April Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises
The EUR/USD pair’s failures to keep the post-Fed rebound beyond the short-term key SMAs join the receding bullish bias of the MACD to favor sellers. That said, the latest weakness aims for an upward sloping trend line from April 28, surrounding 1.0510, ahead of challenging the 1.0490 horizontal support comprising multiple lows marked in the last week.
Meanwhile, recovery moves may initially aim for the 50-SMA and the recent swing high, respectively around 1.0560 and 1.0640. However, EUR/USD bulls will remain cautious until witnessing a clear break of the 100-SMA, close to 1.0690 at the latest.
The US Bureau of Labor Statistics (BLS) will release the April jobs report on Friday, May 6 at 12:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of 12 major banks regarding the upcoming employment data.
Expectations are for a 391K rise in Nonfarm Payrolls following the 431K increase in March. The unemployment rate is expected to have contracted to 3.5% from 3.6% in the previous month while Average Hourly Earnings are expected at 5.5% YoY.
“We expect a strong job creation of 350K in April, which would be only slightly less than in March (431K). The unemployment rate would then fall to 3.5%, the level immediately before the pandemic.”
“We expect the job market continued to tighten in April, with an increase in nonfarm payrolls of ~400k and possibly a further drop in the unemployment rate to 3.5%.”
“We expect NFP to gain 465K, the unemployment rate to tick down to +3.5%, and average hourly earnings to gain +0.2%.”
“We look for payrolls to have stayed solid in April, posting a similar figure to that of March. Indeed, we pencil in a net job gain of 400K. We also look for average hourly earnings to have advanced 0.3% MoM (5.4% YoY) after 0.4% in March. A strong report could perversely push the market to price in more tightening as the Fed reduced its optionality at its most recent meeting. That leaves a resilient USD vs EUR and yen very much the path of least resistance. A softer wages print should help to temporarily take the edge off but this will be short-lived until evidence of a peak/moderation in CPI emerges.”
“We see job creation of 425K positions with a stable unemployment rate at 3.6%.”
“We expect NFP to gain by 475K workers for April, modestly down from recent averages. We expect the unemployment rate to hold steady at 3.6% for April. Returning workers imply more labour available.”
“The US unemployment rate is very low and employment is expected to rise another 400K in April. A tighter squeeze in labour markets will add more fuel to the inflation fire as firms bid up wage prices to secure scarce talent. There are already clear signs that strong household and business demand is outpacing the US economy’s domestic production capacity, further broadening inflation pressures.”
“Hiring should have continued at a strong pace in the month, as the epidemiological situation remained under control. Layoffs, meanwhile, could have gone down a bit, judging from a decrease in initial jobless claims between the March and April reference periods. All told, payrolls may have increased 375K. The household survey is expected to show a similar gain, a development which could leave the unemployment rate unchanged at 3.6%.”
“We expect a continued slowing in the monthly pace of job gains in April at 360K, this will likely be the softest since April 2021 which could be a sign that worker shortages are now more clearly limiting job gains. Average hourly earnings should rise 0.5% MoM and 5.5% YoY in April, although with risks of an even larger increase while the unemployment rate in April is expected to fall modestly to meet the pre-pandemic low of 3.5%.”
“Although job openings remain at lofty levels in the US, with the prime-age employment-to-population ratio only slightly below its pre-pandemic level, hiring likely slowed to 315K in April as the labor supply pool remains slim. Moreover, high-frequency indicators of activity in service sectors levelled off during the month as the Omicron subvariant spread, and the downside surprise in the Q1 GDP report could also portend a bit less vigorous hiring in goods sectors. Higher wages were likely still on offer as employers tried to overcome the labor shortage in some industries, with average hourly wages expected to show 0.4% growth on the month. The unemployment rate likely fell to 3.5%, its pre-pandemic level, on the still healthy employment gain. We’re below the consensus which could see the USD and bond yields fall.”
“We have revised our forecast for April US NFP to 300K from 400K. Our forecasts for April Unemployment Rate and Average Hourly Earnings (MoM) remain the same at 3.5% and 0.4%, respectively.”
“We estimate NFP rose by 300K in April. We estimate a one-tenth drop in the unemployment rate to 3.5%, reflecting a solid or strong rise in household employment partially offset by another 0.1pp rise in labour force participation to 62.5%. While labour demand remains at elevated levels and dining activity has returned to normal, seasonally-adjusted job growth tends to slow during the spring hiring season when the labour market is tight.”
AUD/USD is now seen within the 0.7030-0.7210 range amidst the ongoing mixed outlook, commented Peter Chia and Quek Ser Leang, FX Strategists at UOB Group.
24-hour view: “We highlighted yesterday that ‘the swift and sharp rally in AUD has room to extend to 0.7270 before the risk of a pullback would increase’. AUD subsequently rose to 0.7267 before plunging to a low 0.7079. The rapid decline appears to be overdone and AUD is unlikely to weaken much further. For today, AUD is more likely to trade between 0.7060 and 0.7160.”
Next 1-3 weeks: “Yesterday (05 May, spot at 0.7245), we highlighted that the recent weak phase came to an abrupt end and we held the view that ‘the outsized rally has scope to extend but is unlikely to break 0.7305’. We did not expect the reversal that sent AUD plunging by 1.95% (NY close of 0.7114). The sharp but short-lived swings have resulted in a mixed outlook. From here, AUD could trade between 0.7030 and 0.7210. Looking ahead, AUD has to close below 0.7030 before a sustained decline is likely.”
CME Group’s flash data for crude oil futures markets saw traders add nearly 65K contracts to their open interest positions on Thursday, reversing at the same time two daily pullbacks in a row. Volume followed suit and rose by almost 71K contracts.
Prices of the WTI extended the weekly rebound beyond the $108.00 mark on Thursday in tandem with increasing open interest and volume. That said, extra gains appear on the cards with the next hurdle at $110.00 per barrel ahead of the March 24 high at $116.61.
In opinion of Peter Chia and Quek Ser Leang, FX Strategists at UOB Group, GBP/USD carries the potential to drop further and revisit the 1.2250 region in the next weeks.
24-hour view: “We highlighted yesterday that ‘the rapid rise appears to be overdone’ but we were of the view that GBP ‘could advance to 1.2660 first before easing’. GBP subsequently rose to 1.2637 before staging an abrupt sell-off that sent it nose-diving to a low of 1.2325. While deeply oversold, the weakness in GBP has scope to extend to 1.2300 before stabilization is likely (the next support at 1.2250 is unlikely to come under threat). Resistance is at 1.2420 followed by 1.2460.”
Next 1-3 weeks: “We highlighted yesterday (05 May, spot at 1.2620) that GBP has moved into a consolidation phase and is likely to trade within a range of 1.2520/1.2720. The subsequent outsized decline of 2.22% (largest 1-day drop since Mar 2020) came as a surprise. The rapid and strong build-up in momentum suggests GBP could weaken further. The next support is at 1.2250. On the upside, a breach of 1.2500 would indicate that the current strong downward pressure has eased.”
Open interest in gold futures markets increased for the third session in a row on Thursday, this time by around 14.7K contracts according to preliminary readings from CME Group. Volume followed suit and went up by around 56.8K contracts following two consecutive daily pullbacks.
Gold prices could not sustain a move past the $1900 mark on Thursday, ending the session with modest losses. The downtick was amidst rising open interest and volume, exposing further weakness in the very near term and with the immediate target at $1850 per ounce troy.
The EUR/GBP pair has recovered half of its intraday losses as investors have started dumping sterling on bolstering fears of a recession in the world’s fifth-largest economy, the UK. The pound bulls are experiencing broader weakness after the Bank of England (BOE) raised its interest rates by 25 basis points (bps) to 1%.
The announcement of the interest rate hike by a quarter to a percent came with a 6-3 majority while the minority were advocating for a 50 bps interest rate hike. The BOE is expecting that inflation could climb to 10% going forward. Although every economy is facing the headwinds of soaring inflation, the catalyst that has weakened sterling is the statement by BOE Governor Andrew Bailey that UK corporate are unable to create jobs now, which is a major issue for the central bank now rather than the ramping up inflation. Households are facing a higher living cost crisis, which is affecting consumer confidence. Going forward, the speech from BOE’s monetary policy committee (MPC) member Dr. Catherine L Mann will remain in focus.
On the euro front, investors are still gauging the names of oil suppliers who would cater to the daily requirement of 3.5 million barrels of oil by Europe, earlier which was being addressed by Moscow. The embargo on oil imports from Russia is on the cards and its quick prohibition may raise the odds of sheer unemployment and stagflation in Europe. Next week, euro investors will focus on the release of economic growth forecasts by the European Commission (EC).
Peter Chia and Quek Ser Leang, FX Strategists at UOB Group, suggested that EUR/USD could accelerate losses on a breakdown of 1.0470.
24-hour view: “The sharp and swift sell-off in EUR came as a surprise as it plummeted to 1.0491 before rebounding. The rapid decline appears to be running ahead of itself but there is room for the weakness in EUR to extend even though a break of last week’s low at 1.0470 appears unlikely. On the upside, a break of 1.0600 (minor resistance is at 1.0570) would indicate that the current weakness has stabilized.”
Next 1-3 weeks: “Yesterday (05 May, spot at 1.0615), we highlighted that ‘while it is premature to expect a major reversal, the current short-term EUR strength could extend to 1.0695’. EUR subsequently rose to 1.0641 before staging a surprisingly sharp drop to 1.0491. The breach of our ‘strong support’ at 1.0520 indicates that upside pressure has dissipated. On the downside, 1.0470 is a solid support and EUR has to close below this level before a sustained decline is likely. At this stage, it is not clear whether EUR has enough momentum to close below 1.0470. Looking ahead, if EUR closes below 1.0470, the next support level to monitor is at 1.0420.”
Copper prices hold onto the bear-run as firmer US dollar and hardships for the largest customer, namely China, challenge the inventory conditions and favor sellers. The commodity prices hit the four-month low on LME earlier in the week and remain depressed afterward.
“Benchmark three-month copper on the London Metal Exchange (LME) was down 0.4% at $9,455.50 a tonne, as of 0156 GMT,” said Reuters. The news also mentioned that the most-active June copper contract on the Shanghai Futures Exchange fell 1.3% to 72,100 yuan ($10,783.89).
That said, the risk-aversion wave takes clues from the concerns that the higher inflation will escalate interest rate and negatively affect the global growth, which in turn dampens the red metal’s industrial demand.
The inflation-linked woes worsened the previous day after the Bank of England (BOE) forecasted double-digit inflation and economic recession. The same rocked the US boat due to the rising inflation fears and firmer jobs market, which the Fed seemed to have taken lightly by rejecting 75 basis points (bps) of a rate hike.
On the other hand, the US Securities and Exchange Commission (SEC) added over 80 Chinese firms to the list of companies facing probable delisting from the US exchanges, which portrayed fresh Sino-American tussles and weighed on the risk appetite as well. Further, the worsening covid conditions in China and the European Union’s (EU) readiness for more sanctions on Russia add to the risk-off mood.
The downbeat Factory Orders from Germany, softer activity data from the West and Peru’s refrain to remove temporarily suspension of civil liberties in an area comprising a major copper mine are some additional challenges for the red metal prices.
On the positive side, depleting inventory levels and supply crunch are some motivations for the buyers to stay on the table.
That being said, the commodity prices are likely to remain depressed in the short-term considering the global woes and downbeat conditions in China. Today’s US employment data may add to the metal’s weakness should the headline Nonfarm Payrolls (NFP) beat the expectedly easy figures with strong numbers.
The NZD/USD pair has witnessed a bearish open rejection-reversion session and has now turned sideways with a negative bias. After a flat opening at around 0.6442, the asset moved higher till 0.6442 but aggressive responsive selling activity at higher levels dragged the asset below the opening price.
The asset is scaling gradually lower despite a steady US dollar index (DXY), which shows that kiwi bulls are weaker against other risk-sensitive currencies too. It looks the consistent employment data released on Wednesday is responsible for the same. Statistics New Zealand reported the Unemployment Rate at 3.2%, in line with the estimates and prior print. Also, the Employment Change remained similar to the forecast at 0.1%.
One thing which has dented the demand of the antipodean is the higher Labor Cost Index from its previous figures. The NZ Labor Cost Index came in at 3.1%, similar to the market consensus but higher than the prior print of 2.8%. This shows that the consistent labor market is bolstering the inflationary pressures as higher labor costs will result in higher inflation in an already inflated market.
Meanwhile, the DXY is struggling to overstep 103.70 as investors are awaiting the disclosure of the US Nonfarm Payrolls (NFP). A preliminary estimate for the US NFP is 391k against the past print of 431k. Higher-than-expected job additions in the US labor force will strengthen the DXY bulls further.
GBP/USD bears take a breather around 1.2370, consolidating the post-BOE slump around a two-year low during early Friday morning in Asia. The cable’s latest moves could be linked to the market’s anxiety ahead of the US employment report for April. However, the bears keep reins amid broad inflation fears, as well as negative headlines concerning Brexit.
The Democratic Unionist Party’s (DUP) struggle in the North Ireland (NI) elections, raise Brexit fears as Irish Republican Party member Sinn Fein is known to unite Ireland with the bloc. On the same line are the recent allegations that Brexit is the cause of rallying chicken prices in Britain, as well as Spain’s hard stand against British immigrants and visitors.
More important than the Brexit, GBP/USD bears cheer the broad inflation fears and concerns that the UK economy may witness recession in the years to come, mainly due to the double-digit CPI. The Bank of England (BOE) raised the benchmark interest rate by 25 basis points (bps) the previous day, matching market forecasts, but triggered broad pessimism with its economic projections.
The same helped the US dollar to regain its upside momentum as the greenback bulls doubt the Fed’s expectations of easing inflation and employment crunch at home. As a result, today’s US Nonfarm Payrolls (NFP), expected to ease to 391K from 431K, will be crucial to watch. Also important will be the US Unemployment Rate which may also decline to 3.5% from 3.6% in April.
Also read: US April Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises
Additionally important for the GBP/USD traders to watch are the headlines concerning Brexit and comments from the various central bank speakers, scheduled for release during the US session.
GBP/USD stays on the way to June 2020 low surrounding 1.2250 unless crossing the immediate hurdle, namely the weekly swing high close to 1.2640.
Gold Price (XAU/USD) has regained some strength as responsive buying kicks in after the precious metal tumbled to near $1,866.15 in the Asian session. The precious metal is likely to trade lackluster in the European shift as investors are on the sidelines ahead of the release of the US Nonfarm Payrolls (NFP). The US Bureau of Labor Statistics is likely to report an addition of 391k job opportunities in the labor force, lower than the previous record of 431k. While the Unemployment Rate is likely to improve to 3.5% from 3.6%.
Consistent tight labor market conditions are signaling an extremely high hawkish tone by the Federal Reserve (Fed) in June. The market participants are yet not over with the uncertainty of May’s monetary policy meeting and think tanks in the global markets have started forecasting June’s policy announcement.
Meanwhile, the US dollar index (DXY) has defined its trading range as 103.46-103.94 till the release of the US NFP. The 10-year US Treasury yields have tumbled to near 3.06% but their stability above 3% is very much crucial for the greenback bulls.
On an hourly scale, XAU/USD has attracted some significant bids after hitting the demand zone, which is placed in a range of $1,861.64-1,871.83. The 200-period Exponential Moving Average at $1,890.63 has turned flat, which signals a consolidation ahead, while the 20-EMA at $1,879.50 is still trending lower.
It is worth noting that the Relative Strength Index (RSI) (14) is defending itself from slipping into the bearish range of 20.00-40.00, which signals the availability of responsive buyers.
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Risk aversion runs on full steam during early Friday’s Asian session as traders fear a faster increase in price growth to stall the economic growth. The magnified reaction to sour sentiment could also be linked to the return of China and Japan after multiple days of holidays.
While portraying the mood, MSCI’s index of Asia-Pacific shares outside Japan drops 2.70% whereas Japan’s Nikkei 225 prints 0.84% intraday gains by the press time. Headlines from the global rating agency Fitch, suggesting that monetary tightening poses medium-term risks to Japan’s debt dynamics seem to have favored the Japanese equity markets of late.
Elsewhere, Australia’s ASX 200 dropped over 2.00% as the RBA’s quarterly Monetary Policy Statement (MPS) justifies the Aussie central bank’s latest rate hike by significantly revising up inflation forecasts. The MPS also expects a 1.75% cash rate in December 2022, versus the latest print of 0.35%.
On the same line is New Zealand’s NZX 50 which marks around 2.0% daily loss by tracking equities in China, as well as due to the broad risk-aversion wave. Chinese indices see the red as covid adds to the broad fears relating to inflation and economic growth.
It should be observed that the risk-off couldn’t weigh the oil prices as global producers ignore the market push for more output, as well as the European Union’s (EU) oil embargo on Russian imports. This helps the Indian bears to keep reins, in addition to the broad risk-off mood, as New Delhi relies heavily on oil imports amid record deficits.
On a broad front, S&P 500 Futures drop back towards the yearly low marked earlier in the week, down 0.33% at the latest, whereas the US 10-year Treasury yields rose one basis point (bps) to 3.08%, surrounding the highest levels since late 2018 marked on Thursday.
Although the risk-aversion wave keeps equity buyers away, today’s US employment data will be crucial as the Fed’s judgment to deliver “only” 50 basis points (bps) of rate hike relies on hopes of easing the labor market crunch and inflation fears.
Read: S&P 500 Futures decline, yields stay firmer as inflation woes weigh on sentiment ahead of US NFP
Fitch Ratings said in the latest report on Friday, higher bond yields on a likely monetary policy tightening will make it harder for Japan to stabilize or reduce its public debt/GDP ratio.
“Wwe do not expect a sharp rise in the country’s very low-interest rates, and the structure of Japan’s debt should mitigate medium-term risks to the debt trajectory.”
“We estimate that general government debt/GDP reached 248% in the fiscal year ending March 2022 (FY21). This is the highest of any investment-grade sovereign – Italy, with the second highest ratio, stands at around 150% – and is Japan’s main credit weakness.”
WTI bulls attack $108.00 by keeping the previous triangle breakout near the highest levels since late March. That said, the black gold prints a three-day uptrend during early Friday.
In addition to the triangle breakout, firmer RSI conditions and recent higher-low formation also keep WTI oil buyers hopeful.
The current upside aims for the $110.00 threshold before the latest multi-day peak of $110.30 test the buyers.
It should be noted, however, that the quote’s upside past $110.30 will need validation from the $114.60-80 region, comprising multiple tops marked since March, to keep oil bulls on the table.
Alternatively, pullback moves may initially aim for the previous resistance line of the seven-week-long symmetrical triangle, around $103.00, a break of which will direct the commodity prices towards the triangle’s support line, near $95.80.
In a case where WTI crude oil drops below $95.80, the 100-DMA level of $93.60 will be crucial to watch before confirming the bear run.
Trend: Further upside expected
The USD/CAD pair is oscillating in a range of 1.2814-1.2866 as the market participants are eyeing the release of employment data from the US and Canada. The asset remained in positive territory on Thursday after the Fed-led rally in the risk-sensitive assets faded.
The greenback bulls are driving higher as higher seen US Nonfarm payrolls (NFP) have triggered the odds of a 75 basis point (bps) rate hike by the Federal Reserve (Fed) in June. A solid US labor market is compelling for higher wages, which in turn will energize the inflationary pressures and henceforth the aggressive hawkish tone from the Fed. The US NFP is seen at 391k against the prior print of 431k.
Meanwhile, the loonie bulls will also be driven by employment data on Friday. An improvement is seen in the Unemployment Rate as it is seen at 5.2% against the previous figure of 5.3%. While, Statistics Canada is likely to post the Net Change in Employment at 55k, lower than the past figure of 72.5k.
On the oil front, the oil prices are struggling to settle above $108.00 despite the tailwinds of renewed fears of supply concerns. Ongoing discussions over Europe’s embargo on Russian oil imports have raised questions over the alternative supplier of oil to the world’s largest trading bloc, the European Union (EU). Addressing the regular demand of 3.5 million barrels is not a cakewalk. It will require blood and sweat to shift the dependency on oil imports from Moscow. It is worth noting that Canada is the leading exporter of oil to the US and higher oil prices will result in a narrow fiscal deficit for loonie.
USD/INR grinds higher around the intraday top, keeping the bounce off a three-week low, as the US dollar cheers rush to risk-safety ahead of the key employment report on Friday. The Indian rupee (INR) pair’s weakness could also be linked to the firmer oil prices and challenges for China, other than what’s already there for the global economy.
US Dollar Index (DXY) regained its strength the previous day after the Bank of England (BOE) renewed inflation fears, providing another catalyst to push Fed towards heavier rate hikes than the 50 basis points (bps) already signaled and priced in. Following that, the greenback gauge reversed the post-Fed losses, currently up 0.04% near 103.60.
Other than the return of the market fears and the USD strength, strong oil prices, mainly due to Thursday’s verdict of the OPEC+ group, comprising the Organization of the Petroleum Exporting Countries (OPEC) countries and allies including Russia. The oil cartel announced to continue with the current policy of raising monthly output by 432K barrels per day (BPD). Also supporting the oil prices, as well as weighing on the risk catalysts is the European Union’s (EU) oil embargo on Russian imports. That said, the WTI crude oil prices stay mildly bid around $107.70 by the press time after refreshing a six-week high the previous day. As India is a big importer of oil and witnesses ballooning budget deficits, a jump in the oil prices drowns INR.
Elsewhere, recently downbeat economics from Asian major China and Indonesia’s restriction on the exports of cooking oil ingredients, which was duly raised in the latest World Trade Organization (WTO) meet, also propel USD/INR.
On the contrary, the heavily oversubscribed initial public offering (IPO) of the nation’s largest insurance provider and firmer activity numbers for March, as well as the Reserve Bank of India’s (RBI) rate hike, challenge the USD/INR upside moves.
Amid these plays, S&P 500 Futures print mild losses and the Indian indices see the red whereas the US 10-year Treasury yields remain firmer around the highest levels since late 2018 marked the previous day.
Moving on, USD/INR traders will pay attention to the US employment data due to the Fed’s hesitance in raising the benchmark rate by 75 basis points (bps). That said, the headline US Nonfarm Payrolls (NFP) to ease to 391K from 431K whereas the Unemployment Rate may also decline to 3.5% from 3.6%.
Also read: Bond massacre continues and the Fed dove rally fails already
USD/INR pokes a one-week-old resistance line, around 76.65, a clear break of which won’t hesitate to renew the weekly top surrounding 77.10. The bullish bias also takes clues from the firmer RSI and the pair’s ability to stay beyond an upward sloping trend line from mid-January, near 76.00 by the press time.
The AUD/USD pair has found a minor rebound after tumbling below Friday’s open at 0.7124. The aussie bulls failed to sustain above 0.7110 in the early Tokyo session but have bounced back after the release of the Reserve Bank of Australia’s (RBA) monetary policy statement (MPS).
With respect to the RBA’s MPS, the inflation targets have risen sharply and the RBA sees them remain elevated till 2024. Australian central bank has warned that core inflation could now hit 4.6% by December, a hefty two percent gain from the figure disclosed in February. For sure, the inflation forecasts will remain above the targeted band and pricing pressures will remain a burden for the households. To curb the higher living costs, the RBA will push its Cash Rate to normalization.
Meanwhile, the US dollar index (DXY) is looking to recapture its fresh 19-year high at 103.94, recorded on Thursday. The expectation of decent additions to the labor force and an impactful slippage in the Unemployment Rate has improved the DXY’s appeal. The US Nonfarm Payrolls (NFP) is seen at 391k while the jobless rate will improve to 3.5%. An extremely tight labor market conditions are expected to bolster the Labor Price Index, which will strengthen the inflationary pressures. This has fueled the odds of a 75 basis point (bps) rate hike by the Federal Reserve (Fed) in June’s monetary policy meeting.
USD/JPY remains on the front foot around the weekly top surrounding 130.50 during Friday’s Asian session. The yen pair’s latest gains could be well linked to the market’s rush to risk safety and Japan’s return from holidays.
Technically, hidden bullish divergence of the RSI and USD/JPY prices join a 13-day-old rising channel to underpin the latest run-up.
The aforementioned divergence takes place when prices make higher high but the indicator, here RSI, prints lower low. The divergence hints at a gradual pick-up in the upside momentum backed by the buyer’s confidence.
That said, the quote is well-directed towards the previous monthly top near 131.15. However, a convergence of the stated channel’s upper line nad 61.8% Fibonacci Expansion (FE) of April 14 to May 04 upside, around 132.50, appears a tough nut to crack for the USD/JPY bulls.
Alternatively, pullback moves remain elusive beyond the channel’s support line, close to 129.00 by the press time. Also acting as the key support is the 100-SMA level near 128.55.
Overall, USD/JPY maintains the bullish trajectory but will be tested for further advances soon.
Trend: Further upside expected
The EUR/USD pair has slipped lower after struggling to sustain above the round level resistance of 1.0540. The asset witnessed a sheer downside after sensing rejection from its crucial barricade at 1.0643 on Thursday. At the press time, the major has tumbled below Wednesday’s low at 1.0516 and is expected to extend losses in the European session.
On the hourly scale, the shared currency bulls have faced rejection from the 20-period Exponential Moving Average (EMA), which is trading at 1.0544. The asset has turned sideways after a vertical downside in a tad wider range of 1.0471-1.0641. The 200-EMA at 1.0588 is scaling lower, which adds to the downside filters.
Momentum oscillators, Relative Strength Index (RSI) (14) is on the verge of slipping below 40.00. In case it happens, greenback bulls may get strengthened and will drag the asset swiftly.
Should the asset drops below Monday’s low at 1.0490, a bearish setup will be triggered that will drag the asset towards the 9 January 2017 low and 19 December 2016 low at 1.0454 and 1.0352 respectively.
On the flip side, greenback bulls may lose their grip if the asset oversteps Thursday’s high at 1.0642. This will drive the asset towards the round level resistance at 1.0700, followed by April 22 low at 1.0767.
Gold Price is licking its wounds after failing another attempt to find a foothold above the $1,900 mark. The less hawkish Fed-led dollar sell-off turned out to be temporary, as recession fears hit the market after the BOE’s warning and triggered massive risk-off flows into the safe-haven greenback. ‘Sell everything’ mode returned, as bond markets tumbled alongside equities. Amid uncertain economic times, in the face of the Ukraine crisis and China’s covid lockdowns, the king dollar will remain the go-to asset at the expense of gold price.
Also read: US April Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises
The Technical Confluences Detector shows that Gold Price is attempting a minor bounce, looking to recapture the critical resistance at $1,874, which is the intersection of the previous day’s, month’s and week’s low.
The SMA5 one-day at $1,878 will be probed if gold bulls flex their muscles on the road to recovery.
Further up, gold buyers would aim for the Fibonacci 23.6% one-day at $1,881, above which a fresh upswing towards $1,887 will be in the offing. That level is the confluence of the SMA50 four-hour, Fibonacci 38.2% one-day and Fibonacci 23.6% one-week.
Alternatively, the immediate support is seen at the pivot point one-week S1 at $1,869. The next downside target is envisioned at the pivot point one-day S1 at $1,863.
A sharp sell-off on a sustained breach of the latter cannot be ruled out towards the $1,850 demand area, where the pivot point one-month S1 coincides with the Bollinger Band one-day Lower.
The straw that will break gold bulls’ neck is pegged at $1,835, the SMA200 one-day.
The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.
Raw materials | Closed | Change, % |
---|---|---|
Brent | 111.4 | 0.65 |
Silver | 22.502 | -2 |
Gold | 1877.22 | -0.26 |
Palladium | 2184.66 | -2.56 |
Analysts at Goldman Sachs offer a sneak peek at what to expect from Friday’s US Nonfarm Payroll data due to be released at 1230 GMT.
Also read: US April Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises
“We estimate nonfarm payrolls rose by 300k in April.”
“We estimate a one-tenth drop in the unemployment rate to 3.5%, reflecting a solid or strong rise in household employment partially offset by another 0.1pp rise in labour force participation to 62.5%.”
“While labour demand remains at elevated levels and dining activity has returned to normal, seasonally-adjusted job growth tends to slow during the spring hiring season when the labour market is tight.”
Having witnessed an entertaining show of risk-aversion, market sentiment remains sour during early Friday as the previous concerns surrounding inflation and growth challenge the post-Fed optimism.
While portraying the risk-off mood, S&P 500 Futures drop back towards the yearly low marked earlier in the week, down 0.33% at the latest, whereas the US 10-year Treasury yields rose one basis point (bps) to 3.08%, surrounding the highest levels since late 2018 marked on Thursday.
After the Bank of England’s (BOE) double-digit inflation forecast, the Reserve Bank of Australia’s (RBA) quarterly Monetary Policy Statement also propelled inflation fears by drastically raising the expectations for 2022 and 2023 in its latest release. Also highlighting the price pressure are the Tokyo Consumer Price Index (CPI) data from Japan.
Hence, inflation is the key challenge to the global market and can stall the post-covid growth trajectory, which in turn doubts the Fed’s rejection of heavy rate hikes amid expectations of easing pain over time.
As a result, the rush to risk-safety renews the US dollar buying and weigh on the gold, as well as Antipodeans. It should, however, be noted that oil prices refrain from more downside as geopolitical fears surrounding the EU’s oil embargo on Russia and the OPEC+ plan to stay on the previous output hike policy favor energy buyers.
Looking forward, market players will pay close attention to the US employment data as Fed eyed a pause in the robust Nonfarm Payrolls (NFP), expected to ease to 391K from 431K. Also important will be the US Unemployment Rate which may also decline to 3.5% from 3.6% in April.
Also read: Forex Today: The BOE opened Pandora’s box
AUD/USD takes offers to refresh intraday low around 0.7090 as the RBA MPS magnifies inflation woes during Friday’s Asian session. In doing so, the Aussie pair extends the previous day’s losses, the biggest since February 2021, as sour sentiment also exerts downside pressure on the risk barometer pair.
Reserve Bank of Australia’s (RBA) quarterly Monetary Policy Statement (MPS) justifies the Aussie central bank’s latest rate hike by significantly revising up inflation forecasts. The MPS also expects a 1.75% cash rate in December 2022, versus the latest print of 0.35%.
Read: RBA SMoP: Drastically revised up forecasts for inflation, AUD/USD dips below 0.7100
Other than the RBA’s MPS, the risk-aversion wave and the US dollar’s recovery also weigh on the AUD/USD prices.
The downbeat mood could be linked to the worsening inflation fears and concerns that the global growth will stall due to the surging prices, signaled by the Bank of England (BOE) the previous day. On the same line could be the Western sanctions on Russia due to its invasion of Ukraine, recently softer data from China and covid woes in the dragon nation.
It’s worth noting that the global woes and troubles in China, Australia’s key customer joins the US-China tensions to add to the risk-off catalysts and weigh on the Aussie prices.
While portraying the mood, the S&P 500 Futures drop 0.33% whereas the US 10-year Treasury yields rose one basis point (bps) to 3.08% at the latest.
Moving on, AUD/USD traders will pay attention to the risk catalysts and the yields for short-term directions ahead of the US jobs report for April. Market consensus favors the headline US Nonfarm Payrolls (NFP) to ease to 391K from 431K whereas the Unemployment Rate may also decline to 3.5% from 3.6%.
Also read: US April Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises
AUD/USD stays on the way to a weekly low surrounding 0.7030 unless crossing the 100-DMA level of 0.7261.
The Reserve Bank of Australia's Statement on Monetary Policy has been released and traders are looking for an update to its forecasts and more detail surrounding the RBA’s views on the risks to the economic outlook.
The RBA has drastically revised up forecasts for inflation, foreshadowing how far interest rates might have to rise to bring the country's cost of living crisis under control.
''In its quarterly statement on monetary policy, the Reserve Bank of Australia (RBA) warned core inflation could now hit 4.6% by December, a startling two percentage points higher than its previous forecast made in February.
That would be well above the RBA's 2-3% target band and inflation was only seen returning to the top of the band by mid- 2024, suggesting a lengthy tightening cycle was in store,'' Reuters reported.
On monetary policy: Further increases in interest rates needed to restrain inflation.
RBA sharply raises inflation forecasts, sees core inflation above 2-3% band until 2024.
RBA says appropriate to start normalising interest rates.
RBA says inflation pressures broadening due to supply chain bottlenecks, strong demand.
RBA says more firms expect materially higher wage costs, difficulty in finding workers.
RBA says economy has been more resilient than expected, nearer to full employment.
RBA forecasts trimmed mean inflation at 4.6% dec 2022, 3.1% dec 2023, 2.9% june 2024.
RBA forecasts cpi inflation at 5.9% dec 2022, 3.1% dec 2023, 2.9% june 2024.
RBA forecasts unemployment 3.7% dec 2022, 3.6% dec 2023, 3.6% june 2024.
RBA forecasts wage growth 3.0% dec 2022, 3.5% dec 2023, 3.7% june 2024
RBA forecasts gdp growth 4.2% dec 2022, 2.0% dec 2023, 2.0% june 2024.
RBA forecasts assume cash rate of 1.75% Dec 2022, 2.5% Dec 2023.
RBA says outlook for business/govt investment positive but constrained by capacity, supply chains.
RBA says Australia terms of trade to reach new peak in mid-2022, stay high for longer.
RBA says Australian dollar around where it was at start of year despite recent fall.
Meanwhile, despite that firth rate increases, are needed, the Aussie has been offered below 0.7100:
The wheels are set in motion for lower levels should the support give out. There is a vacuum in the price imbalance between 0.7077 to 0.7045 that could be filled in the forthcoming hours.
The RBA Monetary Policy Statement released by the Reserve bank of Australia reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. It is considered as a clear guide to the future RBA interest rate policy. Any changes in this report affect the AUD volatility. If the RBA statement shows a hawkish outlook, that is seen as positive (or bullish) for the AUD, while a dovish outlook is seen as negatvie (or bearish).
USD/CNH holds onto the previous day's recovery moves as buyers attack multiple tops marked surrounding 6.6980, with an intraday high being 6.6972, during Friday’s Asian session.
Given the recently bullish MACD signals and sustained trading beyond the 20-SMA, not to forget the two-day-old rising support line, USD/CNH prices are likely to stay firmer.
That said, a clear upside break of the 6.6980 becomes necessary for the USD/CNH bulls to brace for the 61.8% Fibonacci Expansion (FE) of April 24 to May 03 moves, near 6.7180.
It’s worth noting that the pair’s successful run-up beyond 6.7180 will direct buyers towards the 6.7860 level, counted as the difference of the latest range.
Meanwhile, pullback moves may initially aim for the 20-SMA and aforementioned trend line support, respectively near 6.6640 and 6.6590.
Following that, a horizontal area from April 25, near 6.6090-6110, will be crucial to watch.
Trend: Further upside expected
In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.6332 vs. the last close of 6.6535 which is the weakest level set since Nov 5 2020. This was vs. the estimate of 6.6402.
China maintains strict control of the yuan’s rate on the mainland.
The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.
Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day closing level and quotations taken from the inter-bank dealer.
At 1.2365, the pound is flat vs. the US dollar but remains in highly bearish territory having collapsed below vital daily support on Thursday. GBP/USD fell from a high of 1.2634 to a low of 1.2325 on a combination of stark warnings from the Bank of England, poor global economic data and the prospects of an aggressive Federal Reserve.
The Bank of England hiked rates by 25bps, but ''shockingly, the BoE is now forecasting inflation at 10.25% YoY in Q4 this year, up from its earlier estimate of 5.75%, on utility costs,'' analysts at ANZ Bank explained.
''In a particularly pointed example of what is a common global theme, inflation is causing a “real income shock” – with average earnings growth not keeping pace with inflation, real personal consumption will inevitably slow sharply.''
''In fact, the BoE forecast all components of domestic demand to decelerate throughout this year and into next.''
Against a backdrop of worsening PMIs out of China and Germany’s factory orders fell a colossal 4.7% in March vs. -1.1% expected, the US dollar thrived in anticipation of inflows to the US economy that has fared better by comparison to elsewhere.
This leaves the Nonfarm Payrolls as a critical event. For instance, ANZ Bank explained, ''whilst the Fed is not currently considering a 75bps rate increase, that guidance is based on expectations that the trend increase in monthly Nonfarm payrolls will slow and core inflation is stabilising.
But there are no guarantees at all that that will be the case. Demand for labour in the US remains very strong and core services inflation is rising steadily. The April Nonfarm payroll and employment reports tomorrow night, therefore, carry a lot of significance.''
The AUD/JPY pair has rebounded sharply after attracting significant bids around 92.30. The risk barometer witnessed a steep fall earlier after the hangover of the unexpected rate hike by the Reserve Bank of Australia (RBA) on May 3.
RBA Governor Philip Lowe announced a rate hike by 25 basis points (bps) to 0.35%, higher than the preliminary forecast of 15 bps. Higher than expected rate hike was backed by soaring inflation in the aussie area. Earlier, the Australian Bureau of Statistics reported the yearly Australian inflation at 5.1%, much higher than the estimates of 4.6% and the prior print of 3.5%. Mounting price pressures forced the RBA to adopt a hawkish tone and feature a rate hike. Going forward, investors will keep an eye over the release of the RBA monetary policy statement (MPS), which will disclose the strategic planning behind the rate hike decision. Also, it will unveil the current status of the critical economic indicators.
Meanwhile, the Japanese yen is underperforming as its pullback season has ended. The Bank of Japan's (BOJ) ultra-loose monetary policy will keep on haunting the yen bulls. More stimulus is expected from the BOJ going forward as the Japanese economy has yet not reached its pre-pandemic levels. Tokyo’s Consumer Price Index (CPI) has landed at 2.5% much higher than the expectations of 1.9% and the prior print of 1.3%. This may force the BOJ to shift its tone slightly neutral.
EUR/JPY picks up bids to refresh intraday high around 137.60, approaches weekly top during the active Asian session on Friday.
The cross-currency pair’s latest gains could be linked to the firmer US Treasury yields, which usually weigh on the JPY prices. Also likely to have favored the EUR/JPY buyers is the monetary policy divergence between the European Central Bank (ECB) and the Bank of Japan (BOJ).
It’s worth noting that the EUR/JPY advances recently ignore strong Tokyo Consumer Price Index (CPI) data for April, 2.5% YoY versus 1.9% expected and 1.3% prior. Also likely to have challenged the pair’s upside, but did not, was the disappointment from German Factory Orders. The key industrial activity data from the European powerhouse slumped the most in five months with a -4.7% figure the previous day, versus -1.1% expected and revised up prior release of -0.8%.
While portraying the mood, the S&P 500 Futures drops 0.33% whereas the US 10-year Treasury yields rose five basis points (bps) to 3.07% at the latest.
Moving on, a light calendar in Europe and Japan may not disappoint EUR/JPY momentum traders as the US jobs report and risk catalysts are in full steam to move the markets.
Also read: Bond massacre continues and the Fed dove rally fails already
Unless dropping back below the 21-DMA level surrounding 137.00, EUR/JPY remains directed towards a late April swing low near 138.25-30.
AUD/USD is up for the key moves as the Reserve Bank of Australia (RBA) is up for justifying its latest bold moves, via the quarterly Monetary Policy Statement (MPS) at 01:30 AM GMT on Friday.
Given the RBA’s larger-than-expected rate hike of 25 basis points (bps), in contrast to the inflation fears raised by the Bank of England (BOE) and doubts over the Fed’s 50 bps policy, today’s RBA MPS becomes the key for the AUD/USD traders.
In addition to the reasons that back the latest moves, the RBA’s quarterly economic forecasts will also be important to watch for near-term directions.
AUD/USD pares the biggest daily loss since February 2021 while picking up bids to refresh intraday high around 0.7125 ahead of the key event. The reason for the pair’s latest recovery is linked to the hopes of an upbeat outcome from the RBA MPS, as well as a return of the full markets.
That being said, the RBA has already conveyed its readiness for further rate hikes and signaled the economic resilience during the latest move on Tuesday. The Aussie central bank also conveyed inflation fears and hence made it logical that the MPS will upwardly revise the previous GDP and CPI forecasts, which in turn can help the AUD/USD prices extend the latest recovery moves. However, any mentioning of economic fears might not be taken lightly.
Technically, AUD/USD pair’s pullback from 100-DMA, around 0.7265 by the press time, eyes to retest the weekly bottom near 0.7030. Also acting as an upside filter is the confluence of a downward sloping trend line from early April and the 200-DMA, near 0.7285.
AUD/USD clings to 0.7100 after reversing Fed-led rally on inflation woes, RBA MPS, NFP eyed
AUD/USD Forecast: Can bulls defend the 0.7000 threshold?
The RBA Monetary Policy Statement released by the Reserve bank of Australia reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. It is considered as a clear guide to the future RBA interest rate policy. Any changes in this report affect the AUD volatility. If the RBA statement shows a hawkish outlook, that is seen as positive (or bullish) for the AUD, while a dovish outlook is seen as negative (or bearish).
NZD/USD renews intraday high around 0.6445 while paring the previous day’s heavy losses during Friday’s Asian session.
The kiwi pair dropped to the fresh low since 2020 while posting the biggest daily fall since March 2021. The latest rebound, however, portrays a megaphone chart pattern that suggests further widening of the bearish moves and increased volatility.
That said, NZD/USD prices currently aim for the 0.6500 threshold before challenging the upper line of the aforementioned chart pattern, near 0.6575.
Should the pair buyers manage to cross the 0.6575 hurdle, the 100-SMA level surrounding 0.6615 will act as the last defense for the bears.
On the flip side, a convergence of the megaphone’s lower line and multiple lows marked during late June 2020, around 0.6385-80, becomes strong support to watch during the quote’s downside.
In a case where NZD/USD drops below 0.6380, it becomes vulnerable to testing the late 2019 bottom around 0.6200.
Trend: Further weakness expected
A pullback in the AUD/USD pair at around 0.7080 is going to turn into a bearish impulsive wave as it lacks conviction. The aussie bulls witnessed a steep fall on Thursday after struggling to sustain above 0.7250. The pair is looking to dive further as it has surrendered its entire gains recorded on Wednesday.
The formation of Tweezer Tops candlestick pattern that displays similar highs at around 0.7267 and a similar range of 189 pips is advocating the completion of a positive pullback. On the daily scale, potential support is placed at the January 28 low of 0.6966.
The aussie bulls have faced intense selling pressure from the 20-period Exponential Moving Average (EMA) at 0.7229. Also, the 50-EMA at 0.7287 is scaling lower, which adds to the downside filters.
The Relative Strength Index (RSI) (14) will trigger a bearish setup if it tumbles below 40.00 decisively. This may bring more weakness in the asset going forward.
A slippage below Thursday’s low at 0.7076 will trigger the formation of Tweezer Tops candlestick pattern and activate more sellers to a low of 0.7000 (the psychological support), followed by January 28 low of 0.6966.
On the flip side, the greenback bulls may lose control if the asset oversteps Wednesday’s high at 0.7266, which will send the asset towards the round level resistance at 0.7300. A breach of the latter will drive the asset towards April 19 low at 0.7344.
Index | Change, points | Closed | Change, % |
---|---|---|---|
Hang Seng | -76.12 | 20793.4 | -0.36 |
ASX 200 | 62 | 7366.7 | 0.85 |
FTSE 100 | 9.77 | 7503.27 | 0.13 |
DAX | -68.3 | 13902.52 | -0.49 |
CAC 40 | -27.28 | 6368.4 | -0.43 |
Dow Jones | -1063.09 | 32997.97 | -3.12 |
S&P 500 | -153.3 | 4146.87 | -3.56 |
NASDAQ Composite | -647.17 | 12317.69 | -4.99 |
At 1.0536, EUR/USD is down flat in the Tokyo session while the Nikkei is lower by some 0.7% on the heels of a blood bath in global stocks overnight. The euro was sold off heavily.
The price dropped from a high of 1.0641 to a low of 1.0492 on Thursday, the day after the Fed hiked rates by 50bps but dialled down the sentiment of a more aggressive tightening of 75bps. Following an initial drop, the US dollar was soaring at the start of the North American shift. The euro was subsequently sold off and in the wake of damaging data from the eurozone and ongoing concerns over the Ukraine crisis, the bears piled in.
Overall, Chinese PMIs that remain in contraction territory and the COVID lockdowns that are disrupting supply chains combined with the contagion of the Ukraine crisis in commodity markets have left a dark cloud over global growth prospects and the eurozone.
Additionally, the Bank of England warned of stagflation while it raised rates by 25bps. ''Shockingly, the BoE is now forecasting inflation at 10.25% YoY in Q4 this year, up from its earlier estimate of 5.75%, on utility costs,'' analysts at ANZ Bank explained.
''In a particularly pointed example of what is a common global theme, inflation is causing a “real income shock” – with average earnings growth not keeping pace with inflation, real personal consumption will inevitably slow sharply.''
''In fact, the BoE forecast all components of domestic demand to decelerate throughout this year and into next.''
Domestically, German data that was showing that industrial orders in March suffered their biggest monthly drop since last October hammered down the coffin for the euro on Thursday.
DXY, an index that measures the greenback vs. six rivals, is currently trading at 103.486after rallying from a low of 102.352 to a new cycle high of 103.942.
Looking ahead for the day, it is all about Nonfarm Payrolls, NFP.
''US Nonfarm Payrolls are expected to continue reflecting healthy gains in employment growth in March keeping the unemployment rate near its lows,'' analysts at Westpac said.
''The historically tight labour market should continue to support average hourly earnings. The FOMC’s Williams, Kashkari and Bostic are all due to speak at different events.''
Pare | Closed | Change, % |
---|---|---|
AUDUSD | 0.71104 | -2.01 |
EURJPY | 137.254 | 0.04 |
EURUSD | 1.05408 | -0.77 |
GBPJPY | 160.863 | -1.39 |
GBPUSD | 1.23564 | -2.18 |
NZDUSD | 0.64234 | -1.84 |
USDCAD | 1.28345 | 0.75 |
USDCHF | 0.98458 | 1.23 |
USDJPY | 130.205 | 0.82 |
Gold (XAU/USD) remains on the back foot at around $1,873, down 0.20% intraday as traders react to the latest bout risk-off mood during full markets on Friday. The metal’s declines could also be linked to the anxiety ahead of the crucial US employment report for April, considering the latest Fed guidance and the market’s U-turn on Thursday.
Risk appetite worsened the previous day after the Bank of England (BOE) forecasted doubt-digit inflation and economic recession. The same rocked the US boat due to the rising inflation fears and firmer jobs market, which the Fed seemed to have taken lightly by rejecting 75 basis points (bps) of a rate hike.
Also challenging the sentiment is the worsening covid conditions in China and the European Union’s (EU) readiness for more sanctions on Russia. Further, the US Securities and Exchange Commission (SEC) added over 80 Chinese firms to the list of companies facing probable delisting from the US exchanges, which portrayed fresh Sino-American tussles and weighed on the risk appetite as well.
Amid these plays, Wall Street indices slumped more than 3.0% each while the US 10-year Treasury yields rallied 3.40% on a daily closing while rising to the fresh high in late 2018 beyond 3.00%. As a result, the US Dollar Index (DXY) also regained its strength and poked April’s multi-month high around 104.00. It’s worth noting that the S&P 500 Futures print mild gains and the DXY remains firmer around 103.60 by the press time.
Looking forward, the US NFP will be crucial for the gold report considering the Fed’s sustained rejection of a larger rate lift cycle, as well as the recent increase in the inflation expectations portrayed by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data.
Forecasts suggest the headline US Nonfarm Payrolls (NFP) to ease to 391K from 431K whereas the Unemployment Rate may also decline to 3.5% from 3.6%.
Also read: Gold Price Forecast: The dollar steals the show as fears rule financial markets
Gold prices reverse the early week’s rebound from a 200-day EMA, as well as four-month-old horizontal support, as traders brace for the US NFP.
The latest pullback highlights the 21-day and the 50-day EMA, around $1,908 and $1,912 in that order, as the short-term key hurdles around bearish MACD signals and weak RSI (14).
Hence, the metal’s further declines appear more likely, which in turn focuses on the 200-day EMA level of $1,858 as the nearby key support before an area ranging from January, surrounding $1,850-53.
Should the gold prices drop below $1,850, bears can aim for $1,810 and the $1,800 threshold before watching over the yearly bottom surrounding $1,780.
Alternatively, a clear upside break of the $1,912 needs validation from 50.0% Fibonacci retracement (Fibo.) of January-March upside, around $1,927, to challenge the $1,960 resistance confluence, including a convergence of the downward sloping trend line from March and 50% Fibo.
Trend: Pullback expected
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