GBPUSD: Pound ticks lower after concerning UK macro figures
The British pound lost ground early in the European session following the publication of weak macro data from the UK, reducing the chance of a hawkish turn from the Bank of England. The reading for March showed that the unemployment rate in the UK rose to 3.9% against an expected 3.8% and an earlier reading of 3.8%. What’s more, the negative overtones of the publication were provided by a big jump in unemployment claims, which came in at 46.7 thousand against an earlier reading of 26.5 thousand (today’s reading beat analysts’ expectations by more than 49%. Wage growth excluding bonuses is also down and came in at 6.7% y/y vs. the expected 6.8% y/y. At the moment, the money market is pricing in a 30% chance of a halt to the hike cycle at the upcoming BoE meeting in June.
Preliminary data from the UK’s tax office showed the first drop in total headcount in more than two years in April, down 136,000 from March.
The GBPUSD pair reacted with declines to today’s UK data reading, however, the scale of the sell-off has already been largely negated. The downward impulse stopped at the support defined by the 200-period exponential moving average (golden curve), which is currently the main support on the H4 interval.
AUDUSD
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The Australian Dollar higher volatility is caused by concerns about Chinese data and RBA minutes
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Chinese data revealed weaker-than-expected industrial production, retail sales, and investment activity
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The Reserve Bank of Australia (RBA) minutes revealed a divided vote regarding a 25 basis points (bp) rate hike
The Australian Dollar (AUD) experienced a decline as doubts arose regarding China’s economic recovery. The latest statistics unveiled a slowdown in activity, with industrial production growing at 5.6% year-over-year until April, falling short of the forecasted 10.9% and below March’s 3.9%. Similarly, retail sales for the same period reached 18.4%, missing the expected 21.9% and the previous 10.6%. The AUDUSD initially tested 0.6700 level due to a weaker US Dollar but finally regained due to growing concerns about China, which is Australia’s primary export partner.
In light of the Chinese data, the RBA meeting minutes revealed that the decision to raise rates at the May meeting was delicately balanced. Two options were discussed: keeping the cash rate unchanged or increasing it by 25 basis points. The argument for maintaining rates unchanged was primarily based on the recent decline in inflation, which dropped from 7.8% at the end of December to 7.0% year-on-year until the end of March. On the other hand, the perspective of hiking rates was argumented by the possibility of inflation reacceleration, thereby prolonging the period in which CPI remains above the target range of 2-3%. The RBA’s current projections indicate that this target will be met by mid-2025.
AUDUSD pair is trading at 0.6685 and the Australian dollar is appreciating. The price was rejected from a resistance zone around 0.6700, as indicated by the marked red zone. Since the beginning of March, the price has been consolidating within a range between 0.6570 and 0.6780. Rejection from the 0.6700 level suggests a potential test of the support line at 0.6640. If the price continues to decline, it could find support at this level.
Traders should closely monitor the price action around the 0.6640 support level to assess whether it holds or breaks. A decisive break below this support level could indicate further downward momentum, potentially targeting lower support areas. Conversely, if the support at 0.6640 holds, the price may attempt to retest the resistance zone around 0.6700.
EURUSD
The weakness of the dollar accelerated during the European session, although the EURUSD pair remained in a fairly strong downtrend sequence following the Fed’s decision to raise interest rates on 3th May. A strong reading could prompt the Fed to consider another rate hike or at least maintain interest rates unchanged for a longer period. However, if the data were to show that consumers are increasingly struggling with less available cash for purchases (due to high prices), it would be a negative sign for the dollar, potentially breaking the downtrend line and approaching the 50.0% retracement level of the major downtrend. Only a break above 1.0940 would indicate an exit from the downtrend sequence.
Gold
Hawkish comments from a number of Fed members as well as better-than-expected macro data from the United States is providing support for the US dollar today. Fed members speaking today have been reluctant to speak about any immediate rate cuts and instead hinted that rates may rise further if no sufficient progress on inflation is made. On top of that, retail sales and industrial production data for April, which was released today in the evening, turned out to be better-than-expected with retail sales ex-autos and gas jumping 0.6% MoM higher (exp. 0.2% MoM) and industrial production increasing 0.5% MoM (exp. 0.0% MoM). As a result, USD is the best performing G10 currency today. This in turn is putting pressure on precious metals, which are also benefitting from an increase in uncertainty amid lack of agreement on US debt ceiling.
Taking a look at GOLD at D1 interval, we can see that the price of this precious metal is dropping more than 1% today and has broken below the psychological $2,000 per ounce mark. A near-term support zone to watch can be found in the $1,980 area, where the 50-session moving average (green line) and 38.2% retracement of the upward move launched at the turn of February and March 2023 can be found. A break below this hurdle would pave the way for a test of the 50% retracement in the $1,940 area. However, a key support zone to watch can be found around 1% lower in the $1,922 area, where the lower limit of the Overbalance structure can be found.
JAP225
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Indices from Asia-Pacific struggles for direction today, with mixed performance from leading markets. This is a potential response to mixed closing of Wall Street session on Monday when US500 closed with +0.11% gains
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S&P/ASX 200 gains 0.1%, Kospi trades 0.6% higher and Nifty 50 declines 0.1%. Indices from China trade fell 0.3% - HKComp performed slightly better.
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The Japanese index adds 0.35% and is trading at 30,100 points. The NIKKEI 225 index is one of the best performing indices from the last couple of days and now is trading near an all time high after strong economic data and positive comments from country leaders.
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DAX futures point to a slightly higher opening of the European cash session today, with DE30 trading 0.3% higher at 15.964 points.
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Energy commodities are trading sideway - Brent and WTI trade 0.2% higher while US natural gas prices falls 0.6%
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Precious metals continue weaker performance with gold trading once again below $2,000 per ounce and silver at $23,6 per ounce - over 10% lower than last month highs
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The dollar held steady in trading, supported by positive US data, particularly in retail sales. USDJPY maintained its upward push above 136.00. Dollar pairs trade with limited volatility, which may persist during the European trading session.
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Fed’s Bostic highlights that if unemployment rises and inflation remains sticky, the Fed will face enormous pressure. The Fed must maintain a strong commitment to inflation, although it is unclear what actions they would take in the event of a debt default.
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Japanese shares extended their gains due to stronger-than-expected economic growth, boosting market optimism. Goldman Sachs suggests that Japan’s markets may be on the verge of a rare bull market. Wall Street strategists attribute the gains to corporate reforms and easy monetary policy, predicting another 10% increase in shares.
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Japan’s economy grew at its quickest rate in three quarters, according to the reading, which showed an annualized rate of GDP growth for Q1 at 1.6% versus 0.7% expected.
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Economy Minister Goto emphasizes the need to carefully watch the impact of price rises on consumers. Future economic growth is expected to be moderate, supported by rising salaries, better attitudes, and company investment. The Japanese government approved an electricity bill rise, expected to keep inflation above 2% for longer than expected.
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The BoJ may consider to revise its Yield Curve Control (YCC) policy at the upcoming June meeting. The stronger-than-expected GDP outcome supports the view that the BoJ could take a step toward normalization soon.
NIKKEI 225 index is one of the best performing indices. Price is near the all time high level at 30,500 points.
Jap225
Economic Outlook
Japanese NIKKEI 225 is on the rise trading near an all-time high following positive GDP data and supportive comments from country leaders. The Japanese economy grew at a faster-than-expected rate of 1.6% in Q1, surpassing the projected 0.7% growth. This strong economic performance has boosted market optimism.
The recent earnings season has been a positive catalyst for Japanese equities, supported by Warren Buffett’s endorsement and improvements in corporate governance. The projected operating profit growth in the fiscal year ending March 2024 is about 6% for Tokyo Price Index (Topix) companies. Additionally, Goldman Sachs sees a potential in the Japan market, attributing the gains to corporate reforms and easy monetary policy.
The Bank of Japan (BoJ) may consider revising its Yield Curve Control (YCC) policy in the upcoming June meeting, supported by the robust GDP outcome. However, the BoJ is likely to remain patient in taking any policy actions and may wait until next year to make rate hikes, as they review recent developments in inflation and other macroeconomic data. Current interest rate is maintained at -0.1% level and has remained unchanged since 2016. The argument for the YCC policy to remain unchanged is the government’s approval of an electricity bill rise, which likely will support inflation to stay above 2% for a longer period.
JAP225 (Nikkei 225) index is trading at 30,100 points, which is near its all-time high of 30,500. The price is also approaching the upper line of an uptrend channel (marked with blue line) that started in early March. The next significant resistance level should be expected at 30,500, indicating a potential target for further price gains. On the other hand, the support levels are identified at 29,300 and 28,300, which can act as price floors in case of a downward movement.
The MACD indicator, a momentum oscillator, indicates a strong bullish momentum without any signs of divergence at the moment. This suggests that the upward trend may continue, supporting the bullish outlook for the Nikkei 225 index. Traders and investors will be closely monitoring the resistance and support levels for potential trading opportunities.
Crude Oil
Crude oil price shows some slight bullish bias now, affected by grand support (62.3 - 62.7) current positivity, and it might test the key resistance (82.29 - 85.31) .55 before turning back to decline again.
H4: Noting that the EMA50 meets this resistance to add more strength to it.
Until now, the bearish trend scenario still valid and active as long as (69.56) area remains intact, waiting to visit (72.7 - 73.7) area as a next main target, noting that breaching 73.7 will lead the price to recover and achieve gains that start at 76.7 direct.
Wheat
Turkish media reports that Russian and Ukrainian negotiators with help from Turkey and the United Nations are closing in on an extension to Black Sea grain deal. This has triggered a drop on the WHEAT market with grain price erasing all of today’s gains. Nevertheless, the news has not been confirmed yet and Russian media reported over the weekend that any extensions are likely to be just for 60 days (similarly to previous extensions).
GBPUSD
GBPUSD is testing the monthly support at (1.2442).
If the daily candle closes above the (1.2423 - 1.2441) area the price will likely grow to retest recent highs around the (1.2520 - 1.2547) areas, and the bullish trend continues. The next major support is located in the area of 37 pips between (1.2386 to 1.2343). These zones provide opportunities for long positions.
Oil
US Energy Information Administration (EIA) released a weekly report on change in US oil and oil-derivative inventories at 3:30 pm BST today. API data released yesterday in the evening suggested a quite significant build of 3.69 million barrels during the previous week as well as a drop in gasoline and distillate inventories.
Official data released by EIA today showed an even bigger build in US crude oil inventories and a deeper draw in gasoline inventories. Distillate inventories were barely changed compared to a week ago.
Report can be seen as bearish for prices and the market saw it exactly as that. Oil moved lower following the release of EIA report and is now attempting to break below 50% retracement of the downward move launched on May 10, 2023.
AUDUSD
AUDUSD keeps its stability below 0.6668 level. Breaking 0.6630.level will provide strong negative motive that will push the price to achieve negative targets (0.6585 - 0.6560) area.
Therefore, the bearish trend will remain valid and active conditioned by the price stability below 0.6665 and 0.6705 levels.
AUDJPY
Australian jobs market data for April was released during the Asian trading session today and turned out to be a big disappointment. Employment declined by 4.3k in the previous month while the median estimate among economists was for a 24.5k jobs gain. This has led to a jump in unemployment rate from 3.5 to 3.7% (exp. 3.5%). Moreover, the composition of the employment drop is worrying as it was driven by full-time jobs, which fell 27.1k, while part-time jobs increased by 22.8k.
Report was clearly AUD-negative as it showed weakening of the labor market and could be an important factor for the Reserve Bank of Australia when deciding on rates. Major financial institutions are split in their expectations - some, like for example Goldman Sachs, expect one more 25 bp rate hike from RBA in this cycle while others, like for example Commonwealth Bank of Australia, say that RBA is done with hiking already. Money markets are currently pricing in RBA staying on hold at its next meeting on June 6, 2023.
Australian jobs data released trigger a pullback on AUD market. Taking a look at AUDJPY chart at D1 interval, we can see that the pair managed to climb above 200-session moving average (purple line) and attempted to move above the resistance zone ranging below 91.50 mark. However, today’s pullback puts this breakout under question. If we see a daily close below the 200-session moving average, the pair may be set for a correction. However, one should remember that the overall trend is upward with the pair trading in a bullish price channel.
DE30 Closes in on all-time highs
European indices rally, DE30 closes in on all-time highs
European indices are rallying at the beginning of today’s cash trading session on the Old Continent. This comes after a stellar Wall Street session yesterday that saw major US indices gain over 1%, with small-cap Russell 2000 jumping over 2%. Optimism on Wall Street yesterday was triggered by upbeat comments on US debt ceiling negotiations - US president Biden said that talks are progressing and he will have more news on the matter on Sunday, when he returns from G7 summit, while US House Speaker McCarthy said that default is off the table and reaching a deal this week is doable.
Major blue chips indices from Europe are trading over 0.5% higher on the day. German DAX deserves a special mention as the index outperforms regional peers with 1.5% gain. Taking a look at DAX futures (DE30) we can see that price broke above a recent trading range and reached a fresh 1-year high today. Moreover, the index is currently trading just 0.4% below all-time highs from November 2021.
EURUSD
Philadelphia FED Manufacturing Index for May:
Actual: -10.4 Expected: -19.8, Previously: -31.3
Weekly Jobless Claims Data
Actual: 242k, Expected: 255k, Previously: 264k
US Dollar appreciates right after the publication of jobless claims data and the release of the FED Philly Index. EURUSD downward trend indicates growing strengths of the US currency.
USDJPY
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Wall Street indices rallied for another day. S&P 500 gained 0.94%, Dow Jones gained 0.34% and Nasdaq surged 1.51%. Russell 2000 added 0.58%
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US President Biden said that negotiator teams are making a steady progress on debt ceiling
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Meanwhile, US Vice President Harriss and White House economic adviser Brainard warned that US debt default could trigger a recession
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Indices from Asia-Pacific traded mixed today - Nikkei and Kospi gained 0.8%, S&P/ASX 200 moved 0.6% higher, Nifty 50 dropped 0.2% and indices from China traded mostly lower
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European index futures point to a higher opening of the European cash session today
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DAX futures (DE30) briefly traded above 16,300 pts and painted fresh record highs earlier today
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G7 leaders will discuss new sanctions on Russian diamond trade as well as on countries that help Russia circumvent sanctions
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Reuters reports that Chinese state banks have intervened on the market to support falling yuan
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Japanese CPI inflation accelerated from 3.2 to 3.5% YoY in April (exp. 3.5% YoY). Core CPI inflation (ex-food) accelerated from 3.1 to 3.4% YoY (exp. 3.4%). So-called core-core CPI inflation (ex-food and energy) accelerated from 3.8 to 4.1% YoY (exp. 3.4% YoY)
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New Zealand’s trade balance for April reached NZ$427 million (exp. -NZ$235 million)
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Cryptocurrencies are trading mixed - Bitcoin drops 0.3%, Dogecoin trades 0.1% lower, Ripple adds 0.4% and Litecoin rallies 1.5%
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Energy commodities trade mixed - oil gains 0.7-0.8% while US natural gas prices drop 0.6%
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Precious metals trade higher - gold gains 0.2%, platinum adds 0.3% while silver and palladium gain 0.6% each
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AUD and JPY are the best performing major currencies while EUR and GBP lag the most
Japanese yen is one of the best performing G10 currencies today following a beat in CPI data for April. USDJPY is pulling back and looking towards a test of a recently-broken resistance zone at 138.00.
Economic Calendar for Today
- European indices set to open higher
- Powell to speak on the economy in the evening
- Canadian retail sales data for March
Futures markets point to a higher opening of the European cash session. DAX futures (DE30) painted a fresh all-time high above 16,300 pts earlier today but has pulled back a bit since. Moods on the markets are upbeat as traders are being constantly reminded that debt ceiling negotiations are progressing with House Speaker McCarthy saying yesterday that the debt ceiling deal could be put to a vote on the House floor as soon as next week.
Economic calendar for the final trading day of the week is light. Traders were offered German PPI data for April this morning and it showed a smaller year-over-year drop than expected - from 6.7 to 4.1% YoY while the market expected 4.0% YoY. Nevertheless, the release did not have a major impact on the market. CAD may see some moves in the early afternoon when Canadian retail sales data for April is released at 1:30 pm BST. However, central bankers’ speeches may be the biggest source of FX volatility in the afternoon as there is a number of them scheduled, including speeches from Fed Chair Powell and ECB President Lagarde.
NATGAS
NATGAS drops 1.5% today but weather forecasts suggest potential for more gains
NATGAS rallied yesterday, supported by:
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Smaller-than-expected natural gas inventory build reported by EIA. Inventories rose 99 bcf while the market expected 110 bcf increase. Gain, however, was in-line with 5-year average
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New weather forecast for summer period from NOAA was released and it show potential for a very high temperatures in key states in terms of demand for air conditioning
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Moreover, some factors that could also trigger upward pressure surfaced recently:
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Gas output in Canada is dropping hard. Drilling activity in Canada started to decline much earlier than in the United States. This suggests that US output may also drop significantly in coming weeks given recent declines in the number of active gas rigs
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Comparative inventories are at cyclical highs, what may be seen as a contrarian signal
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Freeport LNG terminal exports up to 2.3 billion cubic feet of gas per day, reaching new record levels
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Of course, one should keep in mind that contract rollover will occur next week (currently around +$0.12 per MMBTu). Given current NATGAS prices, it would result in a test of the $2.70 per MMBTu area. Prices jumped around $0.15 per MMBTu following the latest rollover but launched another downward impulse later on. One cannot rule out the situation of sellers returning to the market after the contract rolls over and prices at near-term contract are once again attractive for bears. On the other hand, seasonal patterns suggest that NATGAS may be set to rebound after reaching local low in mid-June.
Natural gas inventories increase in line with seasonal patterns. Comparative inventories are at extremely high levels (inverted axis), signaling a potential local low on natural gas prices. Nevertheless, prices traded sideways for as much as 6 months after similar situations back in 2017 and 2020.
NATGAS pulls back from the $2.6 per MMBTu area. Range of the largest correction in the current upward impulse suggests a possibility of price dropping to around $2.4 per MMBTu. On the other hand, such a correction may not occur ahead of contract rollover (May 23, 2023). Seasonal patterns suggest a potential for range trading until June 3, followed by small correction and significant gains starting from around June 18 when demand for air conditioning increases due to the beginning of summer period.
Oil
WTI (OIL.WTI) launched a new week’s trade lower as failure to make progress on the US debt ceiling over the weekend brings us closer to the US default. On top of that, the Chinese decision to ban Micron chips is also risking reigniting tensions between the US and China.
US30
US indices launched this week’s trading on the back foot and moved lower on Tuesday and Wednesday. However, tides turned yesterday as it became more and more likely that Fed will keep rates unchanged at June meeting (13-14 June, 2023). Comments from Fed Harker and Jefferson signaling that FOMC is in position to skip a rate hike at the June meeting led to a slump in rate hike bets on money markets. Currently, markets price in just a 25% chance of 25 basis point rate hike at June meeting while those odds were as high as 70% following release of JOLTS data on Wednesday. NFP report for May, which is scheduled to be released at 1:30 pm BST today, will be watched closely but it seems that Fed members have already made up their minds when it comes to the June decision and therefore jobs data may not have too much of an impact.
Taking a look at Dow Jones futures (US30) at D1 interval, we can see that the index made another test of the 32,900 pts support zone and has once again failed to break below. The aforementioned support zone is marked with previous price reactions, 200-session moving average (purple line), upward trendline and the 50% retracement of the downward move launched at the beginning of 2022. Positive demand-side reaction to this hurdle suggests that the index may be set for a bigger recovery move. The first resistance zone to watch should current gains extend can be found in the 33,700 pts area, marked with 61.8% retracement.
USDCHF
Swiss CPI inflation data for May was released this morning at 7:30 am BST. Data came in-line with market expectations and showed a deceleration in headline measure from 2.6% to 2.2% YoY. This is the lowest reading since February 2022. Core gauge slowed from 2.2% to 1.9% YoY, slighly more than expected. As such an outcome was expected, there was no major reaction on CHF market.
USDCHF saw barely any reaction to Swiss CPI print. Pair continues to test a short-term 0.9110 resistance zone.