The S&P 500
has been rising steadily since last week due to a more dovish than expected
FOMC decision where the Fed decided to signal a bigger QT taper beginning in
June and the Fed Chair Powell pushing back repeatedly against rate hike
expectations. Moreover, the data on Friday
showed that the Fed might indeed just keep rates higher for longer as job and
wage growth soften. All of the above is supportive for the market in the short
term as the hawkish positioning unwinds a bit.

S&P 500
E-mini Futures Technical Analysis – Daily Timeframe

On the daily
chart, we can see that the bigger correction into the 4834 level might have
been invalidated for the time being. The S&P 500 bounced around the 5000
level as we got two positive catalysts from the FOMC decision and the softer US
NFP data. The path of least resistance remains to the upside with new all-time
highs in sight.

S&P 500
E-mini Futures Technical Analysis – 1 hour Timeframe

On the 1 hour
chart, we can see that the price broke out to the upside following the softer
US NFP report and after a retest of the 5120 zone, continued higher with the
buyers piling in with more conviction. If we get a pullback, the 5167 level
might be the first support for a dip-buying opportunity.

Upcoming
Catalysts

This week is pretty bare on the data front with just the US
Jobless Claims on Thursday and the University of Michigan Consumer Sentiment
survey on Friday being the only notable releases. It’s unlikely that they will
change the market’s expectations that much, so the price action might remain
tentative heading into the US CPI next week, although the bias should remain
bullish.

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

The turnaround came as traders are starting to digest a more dovish Fed outlook since last week. We’ve gone from seven rate cuts priced in to start the year down to one rate cut, before moving towards two rate cuts now. To be more exact, Fed funds futures are reflecting ~45 bps worth of rate cuts currently for 2024. It was roughly 31 bps just at the start of last week.

And that has helped to keep a modest bid in bonds, with Treasury yields now down to its lowest in a month. So, have we reached the peak in yields for this year?

Well, higher yields wasn’t supposed to be part of the script to begin with. So, to see 10-year yields hit 4.70% at the end of last month was already a big win for bond sellers. But not everyone is abandoning that view as of yet, even with the recent poor US data. The bond king himself is arguing for yields to move to 5% next, rather than 4%.

That being said, there’s a good argument as well that we could see yields cool in the months ahead.

As things stand, economic data is paramount and is a key driver of market sentiment. We’ve already got a taste of how quickly things can change from the softer US data last week. And if that keeps up, especially with softer labour market conditions, it could compel traders to consider more rate cuts so long as inflation doesn’t run much hotter from here.

That said, the oversupply in Treasuries was already a key factor driving yields higher last year. And that might come into play again, should we see economic data take more of a backseat that is.

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

The USD weakened
across the board recently due to a more dovish than expected FOMC decision last
week where the Fed decided to signal a bigger QT taper beginning in June and
the Fed Chair Powell pushing back repeatedly against rate hike expectations.
Moreover, the data on Friday showed that the Fed might indeed just keep rates
higher for longer as job and wage growth soften.

The JPY, on the
other hand, doesn’t have much fundamental support as the BoJ might not be able
to lift interest rates again given the easing inflation rates, although there
might be some short-term support from hawkish messages around the reduction of
the QE programme. All else being equal, the USDJPY pair should remain in an
uptrend both from the Fed’s higher for longer stance and global growth
expectations.

USDJPY
Technical Analysis – Daily Timeframe

On the daily
chart, we can see that USDJPY bounced on the strong support zone around the 152.00 handle where we had the confluence of the trendline and the 61.8% Fibonacci
retracement
level. The buyers bought the dip offered by the miss in the US NFP report as
that didn’t change much for the bigger picture. The sellers don’t have much to
work with at the moment, so they might want to wait for the price to break
below the trendline and the strong support around the 152.00 handle before piling
in more aggressively and target the 146.00 handle.

USDJPY Technical Analysis – 1 hour Timeframe

On the 1 hour
chart, we can see that the pair has now basically reached the key resistance
zone around the 155.00 handle. The price is tentatively breaking above the trendline although
we will likely need an extension above the 155.00 handle to trigger a stronger
rally. That’s when we can expect the buyers to pile in with more conviction and
target the 160.00 handle. The sellers might start stepping in around these
levels to position for a break below the trendline with a better risk to reward
setup but there’s not much at the moment that can give them support.

Upcoming
Catalysts

This week is pretty bare on the data front with just the
Japanese wage data and the US Jobless Claims on Thursday and the University of
Michigan Consumer Sentiment survey on Friday being the only notable releases.
It’s unlikely that they will change the market’s expectations that much, so the
price action might remain tentative heading into the US CPI next week, although
the bias should remain bullish.

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

This is clearly one of the most boring weeks so far as the lack of key economic data is keeping the FX markets in tight ranges. The only notable releases will be the US jobless claims on Thursday and the University of Michigan consumer sentiment survey on Friday, but they are unlikely to change anything for the market unless we see big surprises.

We have also many Fed speakers throughout the week but again they are unlikely to change the market’s pricing, on the contrary, they might tone down their language after the recent US NFP report. This leaves us waiting for the US CPI report next week which is going to be a big market-mover.

There is no consensus at the moment but a miss will likely trigger a bigger reaction than a beat in light of the recent softening in the labour market data. In fact, now that is pretty clear that the bar for a rate hike is VERY high, the market will probably need something more than just a high CPI print. Falling wage growth and softening labour market shouldn’t lead to a sustained re-acceleration in inflation, although it might remain higher for longer, in which case the Fed looks to be comfortable to just hold rates steady.

Moreover, higher input price inflation as seen in the ISM PMIs could have the reverse effect this time and instead of being passed on to consumers, businesses might find other ways to decrease costs, which could translate in more layoffs. Some leading labour market indicators like the Conference Board Employment Trends Index (ETI) have been signalling softening in the labour market for quite some time.

We had some fun trading the repricing in interest rates expectations in Q1 2024 as the market went too far with the seven rate cuts expected for 2024 at the beginning of the year. Now that we reached kind of a balance between two and one rate cut, we will need something more to trigger another sustained trend.

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

Headlines:

• Dollar on edge as we look to the new week
• What changed after the US NFP report?
• Central banks are still on the agenda this week
• ECB’s Vujčić says rates will be gradually lowered over time
• ECB’s Šimkus: Last week’s data were as expected
• Eurozone May Sentix investor confidence -3.6 vs -4.9 expected
• Eurozone April Final Services PMI 53.3 vs. 52.9 expected
• Eurozone March PPI -0.4% vs -0.4% m/m expected
• SNB total sight deposits w.e. 3 May CHF 473.2 bn vs CHF 475.7 bn prior
• Russia says it is to hold tactical nuclear weapons drill

Markets:

• AUD leads, JPY lags on the day
• European equities higher; S&P 500 futures up 0.3%
• US 10-year yields down 1.9 bps to 4.481%
• Gold up 0.8% to $2,319.44
• WTI crude up 1.0% to $78.87
• Bitcoin up 1.8% to $64,067

It was a slower session with London out on holiday and that saw light changes among major currencies.

The dollar is marginally softer at the balance, keeping more mixed amid a jump in USD/JPY during Asia trading. The pair moved up to near 154.00 earlier and has been holding around 153.70-80 levels mostly during the session.

Besides that, the dollar is mildly softer against the likes of the euro, pound and loonie. EUR/USD is sitting within a 20 pips range around 1.0770 while GBP/USD is up 0.2% to 1.2575 as buyers look to take the next step higher. AUD/USD is up 0.3% to 0.6628 amid a better risk mood on the day so far.

Equities are seen keeping up the gains from last week, with S&P 500 futures up nearly 0.4% while European indices are also posting modest gains today.

The minor drag in the dollar comes as yields stay on the backfoot with 10-year Treasury yields just under 4.50%. The retreat in yields is continuing after the softer data on Friday, prompting traders to step up Fed rate cut bets.

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

• GDP and inflation data were as expected; haven’t changed thinking
• Can afford to reduce restriction
• Expects other rate cuts beyond June
• Sees three rate cuts for this year

It just reinforces the point that June is a done deal and that they’re not going to pre-commit to anything after just yet.

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

The USD weakened
across the board last week due to a more dovish than expected FOMC decision
where the Fed decided to signal a bigger QT taper beginning in June and the Fed
Chair Powell pushed back repeatedly against rate hike expectations. Moreover,
the data on Friday showed that the Fed might indeed just keep rates
higher for longer as job and wage growth soften.

The JPY, on the other
hand, doesn’t have much fundamental support as the BoJ might not be able to
lift interest rates again given the easing inflation rates, although there
might be some short-term support from hawkish messages around the reduction of
the QE programme. All else being equal, the USDJPY pair should remain in an
uptrend both from the Fed’s higher for longer stance and global growth
expectations.

USDJPY
Technical Analysis – Daily Timeframe

On the daily chart,
we can see that USDJPY bounced on the strong support
zone around the 152.00 handle where we had the confluence
of the trendline
and the 61.8% Fibonacci
retracement level. The buyers stepped in and bought the dip offered by the
miss in the US NFP report as that didn’t change much for the bigger picture.
The sellers will need the price to break below the trendline to change the bias
and start looking for new lows with the 146.00 handle as the first target.

USDJPY
Technical Analysis – 1 hour Timeframe

On the 1 hour
chart, we can see that we now have a strong resistance around the 155.00 handle
where we can also find the downward trendline defining the current short-term bearish
trend. That’s where we can expect the sellers to step in with a defined risk
above the trendline and position for a break below the 152.00 support with a
better risk to reward setup. The buyers, on the other hand, will want to see
the price breaking higher to increase the bullish bets into the 160.00 handle.

Upcoming
Catalysts

This week is pretty bare on the data front with just the Japanese
wage data and the US Jobless Claims on Thursday and the University of Michigan
Consumer Sentiment survey on Friday being the only notable releases. It’s
unlikely that they will change the market’s expectations that much, so the
price action might remain tentative heading into the US CPI next week, although
the bias should remain bullish.

See the video below

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

The gains may be gradual but it is slowly shaping up to be a decent showing for equities now in European morning trade. S&P 500 futures are up 0.4% with Nasdaq futures up 0.3%, from being little changed in Asia. This is also helping the mood with European indices, as the DAX is up nearly 1% and CAC 40 up 0.8% currently.

This is mostly a continuation from the mood since last week, as traders shore up bets for a Fed rate cut sooner rather than later. The US data on Friday only served to compound that sentiment. There won’t be much on the agenda this week to shake things up. So if anything else, do look out for Fedspeak to perhaps influence things.

Otherwise, we’ll have to wait on the US CPI data on 15 May to change the pace settings in markets.

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

• Incoming data has been consistent with projections
• Expects loosening of policy stance but to still stay in restrictive territory

Nothing new there from the ECB for the time being. A June rate cut is all but confirmed but they’re not pre-committing to anything after just yet. It all depends on the data in the next few months. The good news for them is that at least the euro area economy is holding up decently to start the year.

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

UPCOMING EVENTS:

• Monday: China
  Caixin Services PMI, Eurozone PPI, Fed SLOOS.
• Tuesday: RBA
  Policy Decision, Switzerland Unemployment Rate, Eurozone Retail Sales.
• Thursday: Japan
  Average Cash Earnings, BoJ Summary of Opinions, BoE Policy Decision, US
  Jobless Claims.
• Friday: New
  Zealand Manufacturing PMI, UK GDP, Canada Jobs report, US University of
  Michigan Consumer Sentiment survey,

Tuesday

The RBA is expected to keep the Cash Rate
unchanged at 4.35%, although the risk of a shock rate hike cannot be dismissed.
The last
inflation report was a cold shower for
rate cuts expectations in 2024 as the Q1 CPI figures beat forecasts across the
board by a big margin. The market pushed back the expectations for the first
rate cut further away with the first move now seen sometime in Q2 2025. The
central bank stated several times that the best contribution that monetary
policy can make to the wellbeing of the Australian people is to ensure that
inflation returns to target in a reasonable timeframe.

Thursday

The Japanese Average Cash Earnings Y/Y is
expected at 1.5% vs. 1.8% prior. The BoJ continues to see the achievement of
their inflation target and stating that another rate hike remains dependent
on the data. The timing for such a move remains uncertain though with July
and October being on the table, although the latter is the most probable one.
Governor Ueda has also mentioned that irrespective of what the data would say
in the near future, they would like to find a way and timing to reduce the
amount of JGB purchases.

The BoE is expected to keep interest rates
unchanged at 5.25%. The latest
inflation report showed the headline and
core figures moderating further but the services inflation measure, which is
what the central bank is more concerned about, remaining sticky at 6%. On
the labour market side, the
last data showed an increase in the
unemployment rate and job losses with high wage growth figures. At the last
meeting, the vote split changed with the
most hawkish members joining the hold camp and Dhingra remaining the usual
dissenter voting for a cut. The market expects the first rate cut in September
and it’s unlikely that we will see the BoE making major changes at the upcoming
decision.

The US Jobless Claims continue to be one
of the most important releases to follow 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 could make the achievement of the target more difficult.
Initial Claims keep on hovering around cycle lows, while Continuing Claims
remain firm around the 1800K level. This week Initial Claims are expected at 210K
vs. 208K prior,
while there is no consensus at the time of writing for Continuing Claims
although the prior release showed a decrease to 1774K vs. 1797K expected and 1781K
prior.

Friday

The Canadian labour market report is
expected to show 17.5K jobs added in April vs. -2.2K in March with the
unemployment rate ticking higher to 6.2% vs. 6.1% prior. The last
report missed expectations across the board
with job losses and a big jump in the unemployment rate. There was also an
increase in wage growth, which is what the BoC is more concerned about, although
a looser labour market should depress wage gains going forward. The market
expects the central bank to deliver the first rate cut in June, although the probability for a July move is higher.

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