• There is some risk of a recession
• But if we fall into one, it will not be long or deep
• There could be some increase in unemployment from here but economy will still be strong

Pretty much just echoing what we already know since the FOMC meeting two weeks ago, as the Fed looks to be aiming to move to the sidelines for the time being.

This article was written by Justin Low at www.forexlive.com.

• EU bumps up 2023, 2024 growth and inflation forecasts
• ECB reaffirms lagging impact of rate hikes in latest bulletin
• China’s central bank reaffirms to keep liquidity reasonably ample
• Germany April wholesale price index -0.4% vs +0.2% m/m prior
• Eurozone March industrial production -4.1% vs -2.5% m/m expected
• Switzerland April producer and import prices +0.2% vs +0.2% m/m prior
• SNB total sight deposits w.e. 12 May CHF 520.1 billion vs CHF 525.6 billion prior

Markets:

• AUD leads, JPY lags on the day
• European equities higher; S&P 500 futures up 0.4%
• US 10-year yields up 2.2 bps to 3.485%
• Gold up 0.2% to $2,015.03
• WTI crude up 0.6% to $70.45
• Bitcoin up 3.7% to $27,423

It was a relatively slow session but there were some decent moves in markets to start the new week.

The dollar is seeing a bit of a light pullback as risk sentiment recovers, with equities pushing higher in European morning trade. That weighed on the greenback as well as the yen, with a slight rise across the board for other major currencies.

EUR/USD moved up from 1.0860 to 1.0880 while GBP/USD moved up from 1.2460 to 1.2500 during the session. The antipodeans were the lead gainers, with AUD/USD improving from 0.6670 in Asia to 0.6690 and holding at the highs for the day now. NZD/USD is also up 0.4% to 0.6215 but off its earlier high of 0.6230 earlier in the day.

USD/JPY also pushed higher as yields moved up amid the better risk sentiment, with the pair holding just above 136.00 for now – up 0.3% on the day.

Elsewhere, commodities also traded higher across the board as it is a case of a dollar pullback mostly amid a slight bounce in the risk mood to kick start the week.

This article was written by Justin Low at www.forexlive.com.

• Does not see inflation coming down quickly
• There is still a long way to go in battle against inflation
• We may have to go up further on rates
• Thinks the math (on inflation, economy) will work in Fed’s favour in months ahead

He adds that if there is a bias to take action, it might just be a little bit more as he says „we are where my dot has been“.

This article was written by Justin Low at www.forexlive.com.

The pair is moving up today as the dollar is seeing a bit of a pullback to last week’s advance. We are seeing price now nudge back just above 1.2500 but does it really mean anything for cable at this point?

For now, the technical argument is indicating that it would take more than a push above the figure level (at least this one) to push the agenda on the part of buyers. The weekly chart shows that:

The pair did run up against the highs from May last year at 1.2660-66 but ultimately failed to breach that on last week’s close. In fact, that sharp rejection was the first weekly drop in cable in nine weeks. But it also comes just under a key technical point in the form of the 100-week moving average (red line), now seen at 1.2693.

As such, even with a push back above 1.2500, it hardly means anything for any upside move in cable unless buyers can look to take out the levels pointed out above.

And even before that, there is the near-term resistance points from the 100 and 200-hour moving averages, now seen at 1.2558 and 1.2575 respectively.

As for any downside push, the 10 and 17 April lows at 1.2343-53 is going to be a key supportive region to watch before any potential breakdown towards the 100-day moving average at 1.2250 currently. Those will be key targets to watch on any further selling during the week.

In terms of the fundamental picture, a lot of the positive vibes has already been priced in for sterling it would seem. The BOE did as expected and didn’t really offer any stronger conviction to battle inflation down the road. Bailey & co. even kept the door open to pausing and with markets already pricing in a peak of 4.85% in the bank rate, there’s not much room left for any further hawkish implications.

The 5.00% mark is of course the big one to watch but that will depend on the BOE’s conviction next month and also incoming UK economic data in the weeks ahead. But with market pricing already being nearly there, it’s hard to imagine more upside to come for the pound from this factor alone.

As for the Fed side of the equation, Fed funds futures are still pointing to around three rate cuts by year-end and all else being equal, that pricing can only turn to be more hawkish at this point. Markets are convinced the Fed will pause but policymakers have insisted that they want to keep rates higher for longer.

As such, the current outlook does suggest that the risks to the rates pricing are skewed towards the possibility that traders could be wrong. That is unless something else breaks in the US economy and the Fed is forced to „save the day“ by kicking off the rate cut cycle earlier than they intend to.

If you consider the above elements, the path of least resistance may be lower for GBP/USD especially if the technical considerations are also favouring the dollar for now. But even so, the amount of weakness in price may be largely contained as markets are still trying to sort out their feet in dealing with all of the other narratives above.

This article was written by Justin Low at www.forexlive.com.

The upcoming week is expected
to be quite eventful and filled with data releases in all markets. The most
important events will be:

On Monday, the U.S. will release the Empire State Manufacturing Index,
providing insights into the manufacturing sector’s performance.

Tuesday will see several key
releases. In Australia, the Westpac consumer sentiment data and the Monetary
Policy Meeting Minutes will be important to watch. Meanwhile, the U.K. will
report the claimant count change, average earnings index 3m/y, and the
unemployment rate. Additionally, the eurozone will share the German ZEW
economic sentiment report. In Canada, important data such as the CPI m/m,
manufacturing sales m/m, core retail sales m/m, and retail sales m/m will be
published. In the U.S., we’ll get the industrial production data.

Moving on to Wednesday,
Australia will report the Wage Price Index q/q, offering insights into wage
growth. In the U.S., attention will be on the release of building permits and
housing starts, providing indicators for the housing market’s performance.

Thursday will bring
significant updates. Australia will share the employment change and
unemployment rate figures, shedding light on the labour market. In Europe, it
will be a bank holiday in observance of Ascension Day. In the U.S., the focus
will be on the unemployment claims, Philly Fed manufacturing index, existing
home sales, and the CB leading index. Moreover, the Bank of Canada (BoC)
Governor Macklem is expected to hold a press conference in Ottawa, discussing
the Financial System Review.

Lastly, on Friday, Japan will
release the National Core CPI y/y, providing insights into inflation trends.
The G7 Meetings will take place, with discussions revolving around global
economic and geopolitical issues. In the U.S., Fed Chair Powell will
participate in a panel discussion titled „Perspectives on Monetary
Policy“ at the Thomas Laubach Research Conference in Washington DC.
Furthermore, some Fed members are expected to deliver remarks throughout the
day.
Tuesday’s release of the RBA minutes will provide valuable insights into the
surprising 25bps rate hike delivered by the Bank at its previous meeting,
catching many off guard as they anticipated a pause. During the meeting, the
RBA maintained a hawkish stance, indicating the need for further tightening
measures to combat the persistently high inflation levels. The Bank emphasized
its commitment to taking the necessary actions to address the issue. In
Australia, although inflation may have reached its peak — currently standing
at 7% — it remains significantly elevated compared to the Bank’s target and
the current forecast is that it will take a couple of years to return to
target.
The upcoming labour market data for the U.K. could show some improvement,
particularly in terms of participation, employment and wage growth. The
consensus among analysts is for the unemployment rate to remain unchanged at
3.8%, but Citi forecasts a positive 3-month employment change to 190K from the
previous 169K. Should the labour market data continue to exhibit strength,
there is a possibility that the Bank of England will hike the rate by another
25bps at its next meeting in June. However, the decision will also take into
account other factors, such as the forthcoming CPI data scheduled for release
on May 24th, which will contribute to shaping the BoE’s stance.
In the U.S., headline retail sales are projected to rise by 0.7% for the
month-over-month data, while core retail sales are expected to show a modest
uptick of 0.5% m/m. However, Bank of America’s „Consumer Checkpoint“
data suggests a softening in consumer spending, with total card spending per
household declining to -1.2% year-over-year (Y/Y).

The upcoming CPI data for Canada will be closely monitored this week, as its
results carry significant weight. The consensus forecasts a 0.5% increase for
the month-over-month figures, while the year-over-year CPI is expected to drop
slightly from 4.3% to 4.2%. Citi analysts anticipate continued easing in the
y/y figures towards 3% in the coming months, largely driven by substantial base
effects from lower energy prices. Additionally, the Bank of Canada has
emphasized that if inflation persists above target, further tightening is
possible.

The labour market in Australia
remains tight. This week’s data is expected to show wage growth acceleration
primarily driven by the private sector. The unemployment rate is at the
historical 50-year low level of 3.5% under NAIRU forecasts of 4%-4.5%.

In the U.S. housing starts are
expected to see some further decreases, with a consensus of -1.4% m/m to 1.4M
from 1.42M. The consensus for building permits in April is 1.44M, a slight
growth from the previous 1.43M, but analysts from Citi anticipate a much higher
rise to 1.51M (6.2% m/m).

On Thursday, Australia will release labour market data, including the
employment change figures and the unemployment rate. The consensus suggests
that the unemployment rate will decline from 3.5% to 3.4%, while the
participation rate is expected to remain unchanged. Although the current labour
market data appears robust, there are indications from the business sector of a
slight easing in labour demand. Thursday is a bank holiday in most of Europe in
observance of Ascension Day.

For the U.S. – unemployment
claims; Philly Fed manufacturing index; existing home sales and the CB leading
index;

In the U.S. all eyes will be
on the unemployment claims data as it can give us some clues about the labour
market. The consensus is for a drop from 264K to 251K, suggesting the labour
market remains tight for now. Some softness is likely for existing home sales
with a drop to 4.30M from 4.44M being expected. Mortgage application data will
be an important factor for existing home sales, which might stall because
homeowners are reluctant to sell and give up their existing mortgage rates that
are much lower than current ones.

On Friday, Bank of Canada
Governor Macklem is scheduled to hold a press conference in Ottawa, focusing on
the Financial System Review. While these events usually do not yield
significant announcements, it is worth paying attention as there is a
possibility that he may provide new insights on inflation.

In Japan, the National Core
CPI year-on-year data will be released. Over the past few months, Japan has
experienced moderate economic growth, and this trend is expected to continue in
the near future. Although inflation in Japan remains elevated, consumer prices
are considerably lower compared to other developed countries. There are
indications that inflation in Japan may have already peaked, and with the
implementation of government subsidies and the modest economic growth, it is
possible that inflation will gradually return to the Bank’s target.

On Friday, Federal Reserve
Chair Powell is scheduled to speak at the Thomas Laubach Research Conference in
Washington DC, where he will participate in a panel discussion focused on
„Perspectives on Monetary Policy.“ While this event is not anticipated
to yield any significant developments, there is a possibility that Chair Powell
may address topics such as inflation and future rate hikes in his remarks.

This article was written
by Gina Constantin.

This article was written by ForexLive at www.forexlive.com.