Investors are feeling nervous awaiting the Fed later in the day. But at the same time, don’t discount the impact from the US data later. There is the ADP employment change, ISM manufacturing PMI, and JOLTS job openings before the FOMC meeting comes in. Those will also play a role in driving market sentiment in the first half of US trading at least.

But if we are to see a more hawkish Fed take later in the day, risk trades could really be in for a world of hurt. For the S&P 500, a test of the 100-day moving average (red line) will be the first key level to watch in that scenario:

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

The near-term pressure is back on for gold in trading today. The precious metal had been holding in a consolidative phase coming into this week, above the $2,300 mark. But amid a break of key near-term support today, we are seeing sellers pick up the momentum now. Here’s a look at the hourly chart:

Gold buyers did manage to hang on at the 100-hour moving average (red line) since the end of last week. But they were unable to force a breakthrough, as price action did not challenge the upper near-term limit of the 200-hour moving average (blue line). In turn, sellers are pushing price back down now and that sees the near-term bias turn more bearish.

So, are there any notable downside levels to watch from here?

The first one will be the $2,300 mark itself. That will be one to watch especially on the daily chart. Then, there is the 23 April low at $2,391 to contend with. However, I’d argue that a firm break below $2,300 will help to set off further downside momentum in gold in any case.

The 38.2 Fib retracement level at around $2,260 and then the $2,200 mark will be the next two key technical levels to watch. That is should the correction lower run much deeper on a break under $2,300. Those are the recognised risk levels to be mindful of.

As for the fundamental plays, the dollar is seeing some push and pull this week. But all eyes are now on the Fed tomorrow next. That will be the first key risk event for gold, before the US jobs report on Friday factors into play.

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

USD

• The Fed left interest rates unchanged as expected at the last meeting with basically no
  change to the statement. The Dot Plot still showed three rate cuts for 2024 and
  the economic projections were upgraded with growth and inflation higher and the
  unemployment rate lower.
• The US Q1 GDP
  surprisingly missed expectations although the core components showed a strong
  economy, nonetheless.
• The US PCE came in line with expectations.
• The US NFP beat expectations across the board
  although the average hourly earnings came in line with forecasts.
• The US PMIs missed expectations in April with the
  commentary citing lower inflationary pressures but also increased layoffs.
• The market expects the first rate cut in
  September.

NZD

• The RBNZ kept its official cash rate
  unchanged as
  expected with no change as the central bank continues to state that the OCR
  will need to remain at restrictive level for a sustained period.
• The latest New Zealand inflation data printed in line with expectations
  supporting the RBNZ’s patient stance.
• The labour market report beat expectations across the
  board with lower than expected unemployment rate and higher wage growth.
• The Manufacturing PMI improved in February remaining in
  contraction while the Services PMI increased further holding on in
  expansion.
• The market expects the first cut in
  August.

NZDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that NZDUSD managed
to erase most of the losses from the US CPI release and almost reached the key trendline
resistance around the 0.60 handle where we had also the 61.8% Fibonacci retracement level
for confluence. The
price couldn’t push right into it as the pair rolled over before that. We may
be heading back into the 0.5860 support but the
sellers will need to break some key levels on the lower timeframes to keep
pushing to the downside.

NZDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the price bounced
from the key support zone around the 0.5920 level where the buyers stepped in
with a defined risk below it to position for a rally back into the major
trendline targeting a break above it. The sellers, on the other hand, will want
to see the price breaking lower to increase the bearish bets into the 0.5860
support.

NZDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price has been diverging with
the MACD for
some time as it was rallying into the major trendline. This is generally a sign
of weakening momentum often followed by pullbacks or reversals. In this case, it
led to a pullback into the support zone but a break below it would confirm a
reversal. This week is full of economic data which will likely give us a
direction for the next few weeks.

Upcoming Events

Today, we have the US Q1 Employment Cost Index and
the Consumer Confidence report. Tomorrow, we get the New Zealand Jobs data, and
later in the day the US ADP, the ISM Manufacturing PMI, the Job Openings and
the FOMC rate decision. On Thursday, we will see the latest US Jobless Claims
figures. On Friday, we conclude the week with the US NFP and ISM Services PMI.

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

Following Monday’s strengthening of the Japanese yen, several hedge funds have started to dump Japanese equities, signaling the end of popular long positions in the country.

Could it be that the direction of the yen is even more critical than that of the economy for the markets?

It is hard to say whether it is more crucial, but it is evident that Japanese stocks have become exceptionally sensitive to yen movements over the past two years. In simpler terms, where the currency goes, so goes the market.

It should, therefore, come as no surprise that after the yen strengthened earlier in the week, the Nikkei 225 index also experienced a correction.

Similar moves have already been observed, especially ahead of the Bank of Japan’s March meeting, when the regulator was expected to announce a monetary policy review.

How much does the Nikkei get affected by the yen moves?

According to some estimates, a 1% rise in the Japanese currency could cause the blue-chip index to fall by about 2%. However, this effect tends to soften over time.

For example, although the USDJPY rate has risen by around 0.76% since the start of the week, the Nikkei index has only increased by 0.36%. Therefore, it is clear that relying solely on the yen’s movements to invest long-term in Japanese stocks can be risky.

As elsewhere and with any other instrument, it is impossible to guarantee the prediction of the direction of movement using only one indicator. It is necessary to look at the big picture.

So why should the index go down when the yen strengthens?

The rising yen puts pressure on exporters‘ earnings, which are crucial to the Japanese economy, given its heavy dependence on international trade.

Looking ahead, the unwinding of bearish yen bets by hedge funds and asset managers could strengthen the Japanese currency to 139 against the dollar by the end of 2024.

In addition, further rate hikes by the Bank of Japan or government interventions could also favor the country’s currency. Another positive factor could be the Fed’s dovish rhetoric.

What should we pay attention to?

The Bank of Japan will release its current account balance forecast tomorrow, which could help determine whether the authorities intervened in the foreign exchange market on Monday.

If they did, it suggests that the regulator is willing to intervene when necessary, and therefore, bearish investors should exercise caution. If not, the yen’s slide could resume.

The problem is that spending foreign exchange reserves is only temporary, which is unlikely to lead to a turnaround. In the end, the government will simply deplete the funds.

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

• ECB should start cutting rates in June if inflation continues to slow as expected
• But to follow data-dependent approach at each meeting considering that uncertainty is still high

Nothing new there from de Cos. This just reaffirms the current ECB outlook and the data today does not change that. EUR/USD is sitting marginally higher on the day at 1.0728 currently.

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

This via the latest release from the Japanese Ministry of Finance:

At the same time though, the BOJ accounts look to be suggesting that Japan spent roughly ¥5.55 trillion on intervention on Monday. We’ll have to see how that figure matches up when the MOF releases the data next month. That provided there is no more need for authorities to step in until the last week of May.

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

Headlines:

• Japan looks to finally draw a line on the yen freefall
• Japan financial authorities reportedly intervened in the FX market
• Japan top currency diplomat says will take appropriate action against excessive FX moves
• Japan top currency diplomat says will not comment on intervention
• ECB’s Wunsch: July rate cut is not a done deal
• Bavaria April CPI +2.5% vs + 2.3% y/y prior
• Spain April preliminary CPI +3.3% vs +3.3% y/y expected
• Eurozone April final consumer confidence -14.7 vs -14.7 prelim

Markets:

• JPY leads, USD lags on the day
• European equities mixed; S&P 500 futures up 0.2%
• US 10-year yields down 4.5 bps to 4.624%
• Gold up 0.2% to $2,341.61
• WTI crude up 0.2% to $83.85
• Bitcoin down 2.5% to $62,308

It is all about the yen to start the new week, as Japan finally intervened to hammer down JPY pairs. It came roughly at 1pm Tokyo time with USD/JPY taking a tumble from 159.60 to 158.00 initially. The move then gathered pace in a drop to 157.20 before subsequently dropping all the way down to 155.05.

That invited volatile swings in the currency with USD/JPY itself running back up to 157.00 before being hammered down again to 154.50 on the day. The drop was a brief one though as the pair then settled around 155.70-90 levels mostly before running back up to 156.20 at the moment. USD/JPY itself is still down 1.3% on the day with the dollar being the laggard and is now down near 400 pips from the highs in Asia.

Other major currencies were seen higher against the dollar, pushing back after the greenback failed to impress following the US Q1 GDP and PCE price data last week. GBP/USD is up 0.3% to 1.2530, USD/CAD down 0.2% to 1.3645, and AUD/USD up 0.5% to 0.6560. The latter is keeping up a solid bounce over the last week, culminating in a test of its 100-day moving average at 0.6584 earlier.

In other markets, stocks are also keeping steadier for the most part. European indices are sitting more mixed though, consolidating after recouping some losses last week. Spanish stocks are lagging after PM Sanchez said that he won’t be stepping down. Meanwhile, US futures are sitting a little higher with month-end set to come into focus as well.

In the bond market, yields are down across the board with traders eyeing the Fed later this week. 10-year yields in the US are down near 5 bps to 4.62% but it keeps in the realms of what we saw since last week.

For the time being, all eyes will be on the yen. Now with US traders coming in and liquidity conditions picking up, will Japan be bold enough to quell any further dip buying on the day?

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

After coming off the boil in trading last week, gold is in a bit more of a consolidative mood now. Buyers are able to hold price above $2,300 and in search of a third straight day of gains. Still, this is only a bit part recovery from the drop from above $2,400 on 19 April. We’re seeing gold trade around $2,340 today but what is the chart saying?

At current levels, gold is seeing price trade in between the 100 (red line) and 200-hour (blue line) moving averages. That suggests the near-term bias is more neutral with traders looking like they are respecting the above technical boundaries.

The dollar itself is also in a state of flux as it did little to impress after the US Q1 GDP and PCE price data last week. So, the greenback is not really pushing much higher after the early gains in April. And for gold, the easing of geopolitical tensions is one factor contributing to the pullback last week. But also as buyers are seen cooling off, following a surging round of gains since March. I mean, in April itself gold is still up by nearly 5% so that says a lot.

But for now, we are seeing traders duke it out in the near-term. Break below the 100-hour moving average and sellers will regain control. However, they will need to firstly look for a stronger push under the $2,300 mark. A daily close below that will be much needed to reaffirm any further downside, at least in the short-term.

As for buyers, break above the 200-hour moving average and the near-term bias will shift to being more bullish again. And that could invite a retest of the $2,400 mark once more.

For trading this week, the key catalyst will be the upcoming FOMC meeting. It’s all about the Fed outlook and while this should be more or less a placeholder meeting, traders will scrutinise Powell’s words for any clues to work with.

As things stand, Fed funds futures are pricing in ~34% odds of a July move and ~78% odds of a September move. The total rate cuts priced in for the year is roughly 36 bps. How that changes will be the main driver for gold price action this week. All that before we get to the US jobs report on Friday.

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

Last Friday, the Nasdaq Composite finished the day
positive as the US PCE report
came mostly in line with expectations. The market has already priced out almost
all the rate cuts that were expected at the beginning of the year and it’s now
expecting just one in September or December. This means that we will need more
worrying data to start pricing in a rate hike and put more downward pressure on
the market. For now, the dip-buyers are again in control as we continue to
erase the losses from the beginning of the month.

Nasdaq Composite Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Nasdaq
Composite reached a key resistance zone
around the 15929 level where we can also find the confluence of the
50% Fibonacci retracement level
and the red 21 moving average. This is
where the sellers will likely step in with a defined risk above the moving
average to position for a drop into new lows. The buyers, on the other hand,
will want to see the price breaking higher to invalidate the bearish setup and
increase the bullish bets into a new all-time high.

Nasdaq Composite Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that
the price got a bit overstretched as depicted by the distance from the blue 8
moving average. In such instances, we can generally see a pullback into the
moving average or some consolidation before the next move. In this case, it
would also fit with the bearish setup as we might see at least a rejection from
the resistance zone.

Nasdaq Composite Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that the
price action into the resistance level might have formed a bearish flag, but
we will need to see the price breaking the bottom trendline to confirm it. In
case of a breakout to the downside, the measured target would stand around the
14700 level.

Upcoming
Events

Tomorrow, we have the US Q1 Employment Cost Index and
the Consumer Confidence report. On Wednesday, we get the US ADP, the ISM
Manufacturing PMI, the Job Openings and the FOMC rate decision. On Thursday, we
will see the latest US Jobless Claims figures. On Friday, we conclude the week
with the US NFP and ISM Services PMI.

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

As for the entirety of the year, Citi sees the Fed delivering 100 bps worth of rate cuts in total. For some context, Fed funds futures are showing the odds of a July rate cut to be at ~34% currently. And only ~36 bps worth of rate cuts priced in for 2024.

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