The moves are relatively light but it continues from the slight drop in the dollar from yesterday. And that follows from the stronger gains at the end of last week for the greenback. As such, it is looking to be a case of the dollar getting checked back so far to start the new week. EUR/USD is up 0.2% to 1.0855 but continues to sit just under its 100-day moving average for now:

There are also some large option expiries at 1.0860-70 that are likely to limit any further gains. However, buyers are starting to contest a break above the 100-hour moving average of 1.0853 now. Push above that and the near-term bias switches to being more neutral. But the 100-day moving average at 1.0873 remains a key ceiling to watch in the bigger picture.

Elsewhere, USD/JPY is down slightly by 0.1% to 151.28 but trapped in a relatively narrow range under 25 pips today. Meanwhile, GBP/USD is up 0.2% to 1.2660 as it pushes back past its own 100-day moving average of 1.2636 currently. But there is some near-term resistance from the 100-hour moving average at 1.2667 next.

Besides that, USD/CAD is backing away from the 1.3600 mark to 1.3568 at the moment while AUD/USD is up 0.2% to 0.6550 on the day. The latter is testing its own 200-day moving average at 0.6550 as well as its 100 and 200-hour moving averages at 0.6548-55. Push above those levels and buyers will seize more control in trying to return to an upside bias.

The dollar’s slight weakness on the day comes as equities are slowly nudging higher during the session. S&P 500 futures are at the highs now, up 0.4% on the day.

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

• Data may confirm inflation trend going into June meeting

As mentioned before, the ECB is waiting on wages data that will be released later in May before firming up any language on a rate cut in June. Until then, one can expect them to stick with the current narrative for the time being. Carry on as you will.

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

• It is desirable, inescapable that we do have several years of wage increases above normal
• But what we need to make sure is that it returns to normal
• And I would say we’re confident that it is on track
• If that assessment is confirmed, we an start to look to reverse the rate hikes we have made previously

This isn’t anything new. The ECB would just like confirmation from the wages data in May before being more explicit about their conviction to get to the first rate cut in June.

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

That’s the first positive reading in ten months for the UK retail sales balance. However, the expected retail sales for April is seen at -25 as compared to -15 in March. That shows that retailers are expecting the decline in sales to resume next month. CBI notes that:

„The stabilisation of retail sales in March should give some hope that the sector’s downturn is bottoming out. The earlier timing of Easter will likely mean weaker year-on-year sales in April, but easing inflation should support retail spending going forward.“

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

• Inflation is quickly falling towards the 2% target

Just some token remarks there by Panetta. As things stand, the ECB is waiting on wages data in May before firming up their conviction for a move in June.

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

Last Friday, the Dow Jones extended the pullback
from the highs reached after a strong rally triggered by the FOMC decision. This
might have been just a profit-taking move from overstretched levels as nothing
has changed in the data as we got strong US Jobless Claims figures
and good US PMIs. Looking
ahead, we are approaching a new month where we get the key economic data
including the US CPI. The path of least resistance though remains to the upside
until the labour market cracks or the reacceleration in inflation gets
confirmed and we get some hawkish repricing in interest rates expectations.

Dow Jones Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Dow Jones is
trading inside a rising channel and continues to diverge with the
MACD, which
is generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, it should be a signal for a pullback into the lower
bound of the channel where we will also find the red 21 moving average for confluence.

Dow Jones Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that from
a risk management perspective, the buyers will have a much better risk to
reward setup around the lower bound of the channel where we can find the
confluence of the 61.8% Fibonacci
retracement level and the daily 21 moving average. The
sellers, on the other hand, will want to see the price breaking lower to confirm
the reversal and position for a bigger correction into the base of the channel
at 37128.

Dow Jones Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that we have
a minor support zone
around the 39450 level where we can find the confluence of the red 21 moving
average, the trendline and the 50% Fibonacci retracement level. This is where
the buyers are likely to step in with a defined risk below the support zone to
position for a rally into a new all-time high. The sellers, on the other hand,
will want to see the price breaking lower to position for a drop into the lower
bound of the channel.

Upcoming Events

This week is going to be shortened by the US Holiday on
Friday. Tomorrow, we have the US Durable Goods and Consumer Confidence reports.
On Wednesday we have Fed’s Waller speaking. On Thursday, we get the latest US
Jobless Claims figures, while on Friday we conclude with the US PCE report and
Fed Chair Powell.

This article was written by FL Contributors at www.forexlive.com.

The pair is flat on the day now at 151.42 as it continues to hang near multi-year highs since last week. The 2022 and 2023 highs of 151.90-94 is the key resistance region in play at the moment for USD/JPY. Hold below and sellers can look to build off that ceiling to push price back lower. But break above and the sky is the limit for the pair as there is little technical resistance left until above 160.

As such, the only thing that can rein in any USD/JPY breakout from here is intervention by Tokyo. And the warnings are growing louder in the last few days. Earlier today, Japan’s top currency diplomat Kanda was rather vocal about the situation. He said that the yen’s weakness did not reflect fundamentals and warned against the recent „big slide“.

Kanda noted that the latest yen moves were „speculative“, adding that „I feel something strange about it“.

That’s a suggestion that Tokyo could look to get more involved if the one-sided move continues. And it comes despite the BOJ putting an end to negative rates and scrapping its yield curve control policy last week.

Looking at the situation, I reckon Tokyo won’t look to intervene so long as the technical ceiling above holds. A break higher will tilt the balance of risks for the yen, which could lead to a much sharper decline in the currency next. As such, the potential lines for USD/JPY intervention look to be closer towards 154 to 155 in my view.

For now, the bond market will remain a key spot to pay attention to. 10-year Treasury yields are at 4.225% and so long as they stay underpinned, chances are USD/JPY will follow as well.

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

UPCOMING EVENTS:

• Tuesday: US
  Durable Goods Orders, US Consumer Confidence.
• Wednesday:
  Australia Monthly CPI, Fed’s Waller.
• Thursday: BoJ
  Summary of Opinions, Australia Retail Sales, Canada GDP, US Final Q4 GDP,
  US Jobless Claims.
• Friday: US
  Good Friday Holiday, Japan Jobs data, Tokyo CPI, Japan Industrial
  Production and Retail Sales, US PCE, Fed Chair Powell.

Tuesday

The US Consumer Confidence is expected to
remain unchanged at 106.7 in March. The last
report interrupted a three-month positive streak as the data surprised with a
big miss to the downside across the board. The commentary highlighted that “while
overall inflation remained the main preoccupation of consumers, they are now a
bit less concerned about food and gas prices, which have eased in recent
months. But they are more concerned about the labour market situation
and the US political environment”. The Present Situation Index will be
something to watch as that’s generally a leading
indicator for the unemployment rate.

Wednesday

The Australian Monthly CPI Y/Y is expected
at 3.6% vs. 3.4% prior. The RBA focuses more on the quarterly CPI readings,
but the monthly indicator is timelier and can be a guide for the trend,
especially at turning points. The Core measures will be more important as
that’s what the RBA is more focused on. As a reminder, the RBA dropped
the tightening bias in their recent monetary
policy decision and we got a strong
labour market report soon after. Therefore,
unless we get a big downside surprise, the data shouldn’t change much for the
central bank and the market’s pricing.

Fed’s Waller will give a speech on the “Economic
Outlook” at the Economic Club of New York. Waller is a key FOMC member
because he’s been a “leading indicator” for changes in Fed’s policy. He was
the first one talking about QT in December 2021 and the first one mentioning
rate cuts in November 2023. Given the recent hot CPI reports and the FOMC
decision, it will be interesting to hear from him and it’s likely that he will
deliver some hawkish comments.

Thursday

The US Jobless Claims continue to be one
of the most important releases every week as it’s a timelier indicator on the
state of the labour market. This is because disinflation to the Fed’s target is
more likely with a weakening labour market. A resilient labour market though
will make the achievement of the target much more difficult. Initial Claims
keep on hovering around cycle lows, while Continuing Claims remain firm around
the 1800K level. This week, Initial Claims are seen at 215K vs. 210K prior,
while there’s no consensus for Continuing Claims at the time of writing
although the previous release saw an uptick to 1807K vs. 1820K expected and
1803K prior.

Friday

The Tokyo Core CPI Y/Y, which is seen as a
leading indicator for National CPI, is expected at 2.4% vs. 2.5% prior. We
got a Nikkei
report recently which stated
that the BoJ was considering a rate hike in July or October.
If we start to get hot inflation data, the market might start to price in a
July hike, but the Yen might not appreciate that much if the US data continues
to surprise to the upside.

The US PCE Y/Y is expected at 2.4% vs. 2.4%
prior, while the M/M measure is seen at 0.4% vs. 0.3% prior. The Core PCE Y/Y
is expected at 2.8% vs. 2.8% prior, while the M/M reading is seen at 0.3% vs.
0.4% prior. Forecasters can reliably estimate the PCE once the CPI and PPI are
out, so the market already knows what to expect. We might see a miss though as
Fed Chair Powell during his Press Conference said this about the February PCE: „We have it well below 30bps on core PCE”.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Goldman Sachs forecasts for USD/JPY:

• 3 months 155 (the prior forecast for 3 months out was 145)
• 6 months 150 (prior 142)
• 12 months 145 (prior 140)

These are from a GS note sent to client on Friday.

GS cite a “benign macro risk environment“ for its bearish view on yen. GS analysts also say they don’t expect rate cuts from the Federal Reserve to lift the yen:

• „If anything, the anticipation of adjustment cuts has reduced the probability of the recession risks that tend to activate the yen’s safe-haven appeal.”

Over the past many, many months Goldman Sachs have been a stand out amongst analysts in not expecting a US recession, the firm has consistently had its recession probability forecast well under consensus.

USD/JPY update as of Friday afternoon, US time:

ps. Join in on Monday morning Asia time / Sunday evening US time when Asian markets react to this from Bostic:

• Fed’s Bostic say he now anticipates only one rate cut this year

This article was written by Eamonn Sheridan at www.forexlive.com.

Raphael Bostic is president and chief executive officer of the Federal Reserve Bank of Atlanta, he spoke late on Friday. During Asia time I noted here how late he was speaking and expressed a hope he wouldn’t be saying too much of importance …. well, he sure did!

He is now expecting one 25bp cut in 2024, down from the two he was expecting, and he expects that single cut later in the year. He says he is „definitely less confident“ than he was in December that inflation will continue to fall towards the Bank’s 2% target

Bostic’s reasoning:

• economy has proved more resilient than anticipated so much so that he’s doubled his expected GFP growth estimate to 2%
• sees little or no change in the current 3.9% unemployment rate
• says 3.9% unemployment was considered an inflationary level not too long go
• says inflation is falling but more slowly than anticipated, with many items recording outsized price increases

Bostic has concluded that the balance of risks favours waiting longer for cuts.

Bostic says just one rate cut is not a problem, but a good thing:

• „If we have an economy that is growing above potential, and we have an economy where unemployment is at levels that were deemed to be unimaginable without pricing pressures, and if we have an economy where inflation is moderating … those are good things … That gives us space for patience.“

Bostic is an FOMC voter this year.

–

OK, so this will make for an interesting Monday morning in Asia / Sunday evening in the US. It’ll sap a few bids from risk assets.

This article was written by Eamonn Sheridan at www.forexlive.com.