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• AUD/JPY inches lower after the release of mixed Chinese data on Friday.
• China’s Retail Sales rose for the successive 15th month but the softest gain in this sequence.
• Former BOJ chief economist Toshitaka Sekine suggested the central bank could raise the rate three times in 2024.

AUD/JPY hovers around 103.70 during the European trading hours on Friday. The Australian Dollar (AUD) continues to experience a decline, driven by recent mixed economic data from China. Any economic change in the Chinese economy could catalyze the Australian market as both nations are close trade partners.

China's Retail Sales (YoY) increased 2.3% in April, down from March's 3.1% and the expected 3.8%. This marks the 15th consecutive month of growth in retail activity but represents the slowest uptick in this trend. Meanwhile, Industrial Production improved 6.7% YoY, surpassing the anticipated 5.5% and the previous recording of 4.5%.

The Aussie Dollar had already been under pressure after Australia's employment figures released on Thursday presented a mixed picture. Australia’s Wage Price Index (QoQ) increased by 0.8% in the first quarter, falling short of the market's forecast of a 0.9% rise. This quarter's increase is the smallest since late 2022. Additionally, annual pay growth slowed slightly to 4.1%, down from the previous 4.2%, and below market expectations.

The Japanese Yen (JPY) encountered renewed pressure as the Bank of Japan (BoJ) maintained its bond-buying amounts on Friday from the previous operation, opting against a surprise cut to debt purchasing earlier in the week. Traders speculate that the BoJ might reduce bond buying at the June policy meeting. BOJ Governor Kazuo Ueda also mentioned that there are no immediate plans to sell the central bank’s ETF holdings.

In an interview with Bloomberg, former BOJ chief economist Toshitaka Sekine suggested that the Bank of Japan could raise its benchmark interest rate up to three more times this year. Sekine proposed that the next move could potentially occur as early as June, given the significant room available to adjust its current "excessively" easy settings.

Silver prices (XAG/USD) rose on Friday, according to FXStreet data. Silver trades at $29.63 per troy ounce, up 0.18% from the $29.58 it cost on Thursday.

Silver prices have increased by 16.33% since the beginning of the year.

The Gold/Silver ratio, which shows the number of troy ounces of Silver needed to equal the value of one troy ounce of Gold, stood at 80.39 on Friday, up from 80.36 on Thursday.

Investors might use this ratio to determine the relative valuation of Gold and Silver. Some may consider a high ratio as an indicator that Silver is undervalued – or Gold is overvalued – and might buy Silver or sell Gold accordingly. Conversely, a low ratio might suggest that Gold is undervalued relative to Silver.

(An automation tool was used in creating this post.)

Gold prices fell in India on Friday, according to data from India's Multi Commodity Exchange (MCX).

Gold price stood at 73,161 Indian Rupees (INR) per 10 grams, down INR 51 compared with the INR 73,212 it cost on Thursday.

As for futures contracts, Gold prices decreased to INR 72,912 per 10 gms from INR 72,980 per 10 gms.

Prices for Silver futures contracts increased to INR 87,575 per kg from INR 87,300 per kg.

Global Market Movers: Comex Gold price edges higher despite Fed officials suggest interest rates should stay higher for longer

• The US weekly Initial Jobless Claims increased by 222K for the week ending May 11 from 232K in the previous week, above the 220K estimated, according to the US Bureau of Labor Statistics (BLS).
• Housing Starts rose by 5.7% MoM to 1.36 million in April, while Building Permits dropped by 3% MoM in April to 1.44 million.
• Atlanta Fed President Raphael Bostic said he saw signs of cooling inflation in the recent CPI report, but he prefers to watch the May and June data to gain confidence that the inflation doesn’t turn back the other way.
• Cleveland Fed President Loretta Mester said policy was well positioned, and it was too soon to say progress on inflation had stalled. 
• Richmond Fed President Tom Barkin noted the central bank needs to keep borrowing costs high for longer to ensure inflation is on track to its target, citing higher prices in the services sector.
• Financial markets are currently pricing in nearly 75% odds of a Fed rate cut in September, an increase from 65% earlier in the week. The markets are also pricing in full 25 basis point (bps) rate cuts before the end of the year, according to the CME FedWatch Tool. 

(An automation tool was used in creating this post.)

FX option expiries for May 17 NY cut at 10:00 Eastern Time, via DTCC, can be found below

- EUR/USD: EUR amounts

• 1.0675 753m
• 1.0725 652m
• 1.0740 494m
• 1.0775 825m
• 1.0800 601m
• 1.0810 813m
• 1.0820 685m
• 1.0825 500m
• 1.0850 3b
• 1.0875 1.2b
• 1.0915 1.1b

- GBP/USD: GBP amounts     

• 1.2475 550m

- USD/CHF: USD amounts     

• 0.9000 605m

- USD/CAD: USD amounts     

• 1.3600 508m
• 1.3675 887m
• 1.3725 924m
• 1.3735 585m

- USD/JPY: USD amounts       

• 152.50 1.1b
• 153.60 842m
• 154.00 2b
• 154.80 500m
• 155.00 2b
• 155.50 891m
• 156.00 791m
• 156.35 538m
• 156.60 475m
• 157.00 1.4b

- AUD/USD: AUD amounts

• 0.6550 559m
• 0.6570 492m
• 0.6600 524m
• 0.6625 728m
• 0.6650 431m
• 0.6655 705m

- NZD/USD: NZD amounts       

• 0.5880 1.5b
• 0.5950 949m

• USD/CHF continues to advance after the release of lower Swiss production data on Friday.
• Swiss Industrial Production declined by 3.1% in Q1, marking the second consecutive quarter of declining industrial activity.
• The US Dollar appreciates Fed officials suggesting prolonging higher rates as pricing pressure persists in the US economy.

USD/CHF extends its gains for the second day, trading around 0.9080 during the early European hours on Friday. The Swiss Franc (CHF) depreciated against the US Dollar (USD) after the release of the lower Industrial Production released by Swiss Statistics.

The volume of production of Industries in Switzerland declined by 3.1% in the first quarter, following an upwardly revised decline of 0.5% in the previous quarter. This marks the second consecutive quarter of declining industrial activity. On a seasonally adjusted quarterly basis, industrial production dropped by 1% in Q1, compared to an upwardly revised decline of 1.1% in the prior quarter.

On the USD front, the Federal Reserve (Fed) maintains a cautious stance regarding inflation and the potential for rate cuts in 2024, which contributes support for the US Dollar (USD), underpinning the USD/CHF pair.

Reuters reports on Thursday, Atlanta Fed President Raphael Bostic said at an event in Jacksonville that the need for patience with interest rates, noting that substantial pricing pressure persists in the US economy. Additionally, Cleveland Fed President Loretta Mester indicated that it might take longer than anticipated to confidently ascertain the inflation trajectory, suggesting that the Fed should maintain its restrictive stance for an extended period.

However, the higher-than-expected Initial Jobless Claims were released by the US Department of Labor on Thursday. This has contributed to the market expectations of the Federal Reserve’s (Fed) delivering a rate cut in September. The number of Americans filing new claims for jobless benefits rose to 222,000 for the week ending May 10, surpassing the market consensus of 220,000 but below the previous week's figure of 232,000.

• The Pound Sterling consolidates slightly below 1.2700 as the focus shifts to UK inflation data.
• Investors expect that the BoE could start reducing interest rates in the June or August meeting.
• Fed’s hawkish stance on interest rates boosts US Dollar’s recovery.

The Pound Sterling (GBP) turns sideways in Friday’s London session after posting a fresh monthly high at 1.2700 on Thursday. The GBP/USD pair struggles to extend upside as investors shift focus to the United Kingdom Consumer Price Index (CPI) data for April, which will be published on Wednesday.

The UK inflation data will provide fresh cues about the interest rate outlook. Investors remain divided between the June and the August meeting about when the Bank of England (BoE) could start reducing interest rates. 

April’s inflation data is expected to significantly influence the next move in the Pound Sterling as BoE Governor Andrew Bailey said after the release of the March’s CPI data on April 17, “Inflation in the UK will fall near its 2% target next month” and has declined roughly in step with the BOE’s forecast in February. Bailey added, “I expect that next month's number will show quite a strong drop because we have a particularly unique energy to household energy pricing system in the UK,” Bloomberg reported.

Daily digest market movers: Pound Sterling upside stalls as US Dollar rebounds

• The Pound Sterling’s rally to near the round-level resistance of 1.2700 stalls as the market sentiment turns slightly cautious. Federal Reserve (Fed) policymakers push back market expectations for rate cuts despite an expected decline in the United States (US) inflation data for April.
• A slew of Fed policymakers lined up to speak on the interest rate outlook on Thursday. Their commentary suggested that the current interest rate framework is optimal in the present scenario. Policymakers suggested that a one-time decline in inflation figures is insufficient to give them confidence that the disinflation process has continued again after stalling in the first quarter of this year.
• Hawkish commentaries from Fed policymakers have negatively impacted speculation for Fed rate cuts, for which investors expect that the central bank will choose the September meeting as the earliest point. The CME FedWatch tool shows that the probability of interest rates declining from their current levels in September has come down to 68% from 73% recorded after the release of the inflation data.
• The Fed maintaining a stance of higher interest rates for longer has offered some relief to the US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rebounds to 104.66 after posting a fresh monthly low near 104.00 on Thursday but is still on track to close the week in negative.
• Meanwhile, investors’ concerns over US labor market strength deepened further after the Department of Labor showed on Thursday that Initial Jobless Claims for the week ending May 10 were higher-than-expected. The number of individuals claiming jobless benefits for the first time was 222K, above estimates of 220K but lower than the prior reading of 232K, the highest level in eight months. 

Technical Analysis: Pound Sterling trades close to 61.8% Fibo retracement around 1.2670

The Pound Sterling advances to the 61.8% Fibonacci retracement (plotted from the March high at around 1.2900 to the April low at 1.2300) at 1.2670 on a daily timeframe. The GBP/USD pair could extend its upside after a decisive break above the round-level resistance of 1.2700. 

On the downside, 50-day and 200-day Exponential Moving Averages (EMAs), which trade around 1.2565 and 1.2536, respectively, will be the major support zones for the Pound Sterling

The 14-period Relative Strength Index (RSI) has shifted into the bullish range of 60.00-80.00, suggesting that the momentum has leaned toward the upside.

• The Mexican Peso is trading sideways after its strong rally on Wednesday. 
• This is probably a consolidation within an uptrend and more strength is likely for the Peso. 
• US data was mixed on Thursday and provided a balm to Wednesday’s negative releases, supporting USD/MXN.  

The Mexican Peso (MXN) trades broadly unchanged in its key pairs on Friday, with USD/MXN flatlining as the US Dollar (USD) stabilizes after its recent sell-off and market sentiment remains relatively calm heading into the weekend.

At the time of writing, USD/MXN is trading at 16.70, EUR/MXN at 18.14 and GBP/MXN at 21.15. 

Mexican Peso stable after midweek volatility

The Mexican Peso holds the line in its major pairs as a lack of market moving data and geopolitical shocks keeps volatility to a minimum. 

On Thursday the US released a mixed bag of data that did not really change the outlook for the economy or interest rates, a key driver for FX. The same went for Europe and the UK. 

Regarding the US data, the results were as follows:

• Initial Jobless Claims came in at 222K in the week ending May 10, which was above the 220K expected but below the upwardly revised 232K of the previous week. 
   
• The number of Building Permits awarded – said to be a leading indicator for the economy – fell to 1.44M in April, which was below the 1.48M expected and 1.47M previous. 
   
• Housing Starts in April rose to 1.36M from 1.29M previously, but not as much as the 1.42M economists had expected. 
   
• The Philadelphia Fed Manufacturing Survey came in at 4.5 in May, below the 8 forecast and the 15.5 previously. 
   
• US Industrial Production flatlined in May, coming in at 0.0% when analysts had expected a 0.1% rise, the same as the previous month. 

Apart from the data, several US Federal Reserve (Fed) officials commented on Fed monetary policy, but their words were interpreted as neutral and had little impact. 

The President of the Richmond Fed Thomas Barkin said inflation is coming down, but that it will “take more time” to hit the Fed’s target. 

Cleveland Fed President Loretta Mester, meanwhile, welcomed the latest CPI data but said monetary policy is well-positioned.

Atlanta Fed President Raphael Bostic said he was pleased with the progress on inflation in April but that the Fed needed to “be patient and vigilant.”

In Europe, European Central Bank (ECB) executive board member Isabel Schnabel, meanwhile, said an interest rate cut in June may be appropriate but the “path beyond June is much more uncertain.”

So, to sum up, no big changes there and business as usual. 

Technical Analysis: USD/MXN threatens to go lower

USD/MXN – the value of one US Dollar in Mexican Pesos – trades sideways after the massive sell-off on Wednesday.

The consolidation after the steep decline could possibly be the early beginnings of a Bear Flag continuation pattern, although it is still early to say for sure. 

USD/MXN 4-hour Chart 

Ever since breaking out below the bottom of its range at 16.86 on May 9, the pair has looked like it has been in a short-term downtrend, favoring shorts over longs. 

If USD/MXN breaks below the May 15 lows of 16.64, it will probably confirm the start of the next leg lower. 

More downside would likely reach the conservative target for the breakout of the mid-April to May range at 16.54, which is the 0.618 Fibonacci ratio of the height of the range extrapolated lower.  Further bearishness could even reach 16.34, the full height of the range extrapolated lower. 

Given the medium and long-term trends are bearish, the odds further favor more downside. 

It would take a recovery and decisive break back inside the range (above 16.86) to reverse the downtrending bias.

A decisive break would be one accompanied by a longer-than-average green candlestick that closed near its high or three green candlesticks in a row. 

Here is what you need to know on Friday, May 17:

Following the sharp decline seen after April inflation data on Wednesday, the US Dollar Index managed to stage a modest rebound on Thursday and closed the day in positive territory. On Friday, Eurostat will release revisions to April Harmonized Index of Consumer Prices (HICP) data. Later in the day, investors will remain focused on comments from Federal Reserve (Fed) officials in the absence of high-impact data releases from the US.

The data published by the US Department of Labor showed on Thursday that there were 222,000 first-time applications for unemployment benefits in the week ending May 11, down from 232,000 in the previous week. In the meantime, several Fed officials spoke on Thursday and called for patience with regards to lowering the policy rate, while acknowledging the progress seen in inflation in April Consumer Price Index (CPI) data. After falling more than 2% on Wednesday, the benchmark 10-yaer US Treasury bond yield gains 0.7% on Thursday and closed the day in the green, helping the US Dollar stay resilient against its rivals. Early Friday, the 10-year US yield stays flat slightly below 4.4% and US stock index futures trade virtually unchanged.

Fed officials stick to cautious tones, but outlook beginning to tease rate cuts.

During the Asian trading hours, the data from China showed that Retail Sales rose 2.3% on a yearly basis in April, missing the market expectation for an increase of 3.8%. On a positive note, Industrial Production expanded 6.7% in the same period and beat analysts' estimate of 5.5%. After closing in the red on Thursday, AUD/USD continued to edge lower and was last seen losing 0.2% on the day at 0.6665.

Australian Dollar struggles as Aussie 10-year yield drops to a monthly low.

Following Wednesday's impressive upsurge, EUR/USD corrected lower on Thursday. The pair stays relatively quiet and fluctuates slightly above 1.0850 in the European morning on Friday.

GBP/USD turned south after testing 1.2700 early Thursday and registered modest daily losses. The pair continues to edge lower toward 1.2650 early European session.

USD/JPY stretches higher on Friday and trades above 155.50 after closing in positive territory on Thursday. 

Gold struggled to build on Wednesday gains and posted small losses on Thursday, pressured by recovering US Treasury bond yields. XAU/USD, however, managed to find a foothold early Friday and was last seen gaining 0.4% on the day at $2,386.

Gold price loses traction, with Fed speakers in focus.

• EUR/JPY gains momentum near 169.20 in Friday’s early European session. 
• The cross keeps the bullish vibe unchanged above the key EMA, with the RSI indicator standing above the 50-midline.
• The first upside barrier is seen at 169.40; 167.80 acts as an initial support level. 

The EUR/JPY cross extends the rally around 169.20 during the early European trading hours on Friday. The Japanese Yen (JPY) has weakened as Japan's economy contracted more than expected in the first quarter (Q1) of 2024, challenging the Bank of Japan's (BoJ) push to get interest rates further away from near zero. On Friday, the BoJ left the amount of bonds it buys at regular operations unchanged, adding to a modest dip in the JPY after helping the currency earlier in the week with a surprise reduction in purchases, per Bloomberg. 

Technically, EUR/JPY maintains the bullish outlook unchanged as the cross holds above the 100-period Exponential Moving Averages (EMA) on the four-hour chart. The upward momentum is backed by the Relative Strength Index (RSI), which stands in bullish territory near 62.60, supporting the buyers for the time being.  

The immediate resistance level for the cross will emerge near a high of May 15 at 169.40. The additional upside filter to watch is the 170.00 psychological round figure. A decisive break above the latter will see a rally to the next barrier around a high of April 29 at 171.60. 

On the flip side, the first downside target is seen at the 100-period EMA at 167.80. Further south, the next contention level is located near a low of May 16 at 167.33, followed by a low of April 29 at 165.66. 

EUR/JPY four-hour chart

• Silver price appreciated as higher Initial Jobless Claims contributed to the expectations of the Fed reducing rates in September.
• Fed officials suggested prolonging of higher rates as pricing pressure persists in the US economy.
• The US Dollar gains ground as the Fed adopts a cautious stance regarding the potential rate cuts in 2024.

Silver price retraces its recent losses registered on Thursday, trading around $29.70 per troy ounce during the Asian hours on Friday. The price of the grey metal as investors turn cautious following the higher-than-expected Initial Jobless Claims released by the US Department of Labor on Thursday. This has contributed to the dovish expectations of the Federal Reserve’s (Fed) delivering a rate cut in September.

The number of Americans filing new claims for jobless benefits rose to 222,000 for the week ending May 10, surpassing the market consensus of 220,000 but below the previous week's figure of 232,000.

On Thursday, Fed Bank of Atlanta President Raphael Bostic emphasized the need for patience with interest rates, noting that substantial pricing pressure persists in the US economy. Additionally, Cleveland Fed President Loretta Mester indicated that it might take longer than anticipated to confidently ascertain the inflation trajectory, suggesting that the Fed should maintain its restrictive stance for an extended period.

Reuters reports on Thursday, Atlanta Fed President Raphael Bostic said at an event in Jacksonville that the need for patience with interest rates, noting that substantial pricing pressure persists in the US economy. Additionally, Cleveland Fed President Loretta Mester indicated that it might take longer than anticipated to confidently ascertain the inflation trajectory, suggesting that the Fed should maintain its restrictive stance for an extended period.

In the absence of top-tier economic data from the US docket, market participants will likely observe Fedspeak for insights into the future direction of the Fed's monetary policy. Later on Friday, Minneapolis Fed President Neel Kashkari and San Francisco Fed President Mary Daly are scheduled to speak, potentially providing valuable hints.

• EUR/USD could retest the upper boundary aligned with the psychological level of 1.0900.
• The momentum indicator MACD suggests a bullish sentiment for the pair.
• The potential support appears at the nine-day EMA at 1.0818.

EUR/USD continues to lose ground, trading around 1.0860 during the Asian hours on Friday. From a technical perspective on a daily chart, analysis indicates a sideways trend for the pair as it continues to lie within the symmetrical triangle. A surpassing of the upper boundary could shift the momentum toward a bullish bias.

However, the momentum indicator Moving Average Convergence Divergence (MACD) suggests a bullish sentiment for the EUR/USD pair. Positioned above the centerline, there's a noted divergence above the signal line, indicating upward momentum.

The EUR/USD pair could challenge the key barrier at the upper boundary of the symmetrical triangle aligned with the psychological level of 1.0900. A break above this level could support the pair to test the pullback resistance at 1.0981.

Conversely, downside potential for the EUR/USD pair suggests initial support near the significant level of 1.0850, with further support expected around the nine-day Exponential Moving Average (EMA) at 1.0818. A breach below the latter could prompt movement toward the lower boundary of the symmetrical triangle, aligning with the psychological threshold of 1.0700. Additional support levels might come into play around April’s low at 1.0601.

EUR/USD: Daily Chart

• USD/JPY appreciates as BoJ maintains its bond-buying amounts from the previous operation.
• Former BOJ chief economist Toshitaka Sekine suggested the central bank could raise the rate three times in 2024.
• The US Dollar strengthens as the Fed maintains a cautious stance regarding the prospect of interest rate reductions in the current year.

USD/JPY rose to near 155.90 during the Asian session on Friday as the Japanese Yen (JPY) encountered renewed pressure. This was sparked by the Bank of Japan (BoJ) maintaining its bond-buying amounts from the previous operation, opting against a surprise cut to debt purchasing earlier in the week.

Traders speculate that the BoJ might reduce bond buying at the June policy meeting. BOJ Governor Kazuo Ueda also mentioned that there are no immediate plans to sell the central bank’s ETF holdings.

In an interview with Bloomberg, former BOJ chief economist Toshitaka Sekine suggested that the Bank of Japan could raise its benchmark interest rate up to three more times this year. Sekine indicated that the next move could potentially occur as early as June, given the significant room available to adjust its current "excessively" easy settings.

The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, trades around 104.60 after rebounding from a multi-week low of 104.08 marked on Thursday. The Federal Reserve (Fed) maintains a cautious stance regarding inflation and the potential for rate cuts in 2024.

Reuters reports on Thursday, Atlanta Fed President Raphael Bostic said at an event in Jacksonville that the need for patience with interest rates, noting that substantial pricing pressure persists in the US economy. Additionally, Cleveland Fed President Loretta Mester indicated that it might take longer than anticipated to confidently ascertain the inflation trajectory, suggesting that the Fed should maintain its restrictive stance for an extended period.

• Gold price retraces on the rebound of the USD on Friday. 
• The Fed's cautious approach weighs on the yellow metal. 
• Gold traders will focus on the Fed’s Kashkari, Waller, and Daly speeches on Friday. 

The gold price (XAU/USD) trades with a bearish bias on Friday after retreating from the nearly $2,400 barrier. The bullish move of precious metals in the previous sessions was bolstered by the softer-than-expected US inflation data in April, which triggered hope for rate cuts from the US Federal Reserve (Fed). However, the cautious approach from Fed officials on Thursday to keep borrowing costs high for longer suggested that the US central bank is not in a rush to cut interest rates this year. This, in turn, boosts the US Dollar (USD) broadly and drags the yellow metal lower, as higher interest rates might well reduce overall investment demand for non-yielding gold. 

In the absence of top-tier economic data from the US docket, market participants will monitor Fedspeak, which might offer some hints about the future path of the Fed’s monetary policy. The Fed’s Kashkari, Waller, and Daly are set to speak later on Friday. 

Daily Digest Market Movers: Gold price edges lower as Fed officials suggest interest rates should stay higher for longer

• The US weekly Initial Jobless Claims increased by 222K for the week ending May 11 from 232K in the previous week, above the 220K estimated, according to the US Bureau of Labor Statistics (BLS). 
• Housing Starts rose by 5.7% MoM to 1.36 million in April, while Building Permits dropped by 3% MoM in April to 1.44 million.
• Atlanta Fed President Raphael Bostic said he saw signs of cooling inflation in the recent CPI report, but he prefers to watch the May and June data to gain confidence that the inflation doesn’t turn back the other way.
• Cleveland Fed President Loretta Mester said policy was well positioned, and it was too soon to say progress on inflation had stalled. 
• Richmond Fed President Tom Barkin noted the central bank needs to keep borrowing costs high for longer to ensure inflation is on track to its target, citing higher prices in the services sector.
• Financial markets are currently pricing in nearly 75% odds of a Fed rate cut in September, an increase from 65% earlier in the week. The markets are also pricing in full 25 basis point (bps) rate cuts before the end of the year, according to the CME FedWatch Tool. 

Technical Analysis: Gold price’s upside remains intact

The gold price trades on a negative note on the day. According to the four-hour chart, the precious metal has formed an ascending trend channel since May 2. The constructive outlook of gold remains intact, as it is above the 100-period Exponential Moving Average (EMA). The path of least resistance level is to the upside, as XAU/USD stands in bullish territory around 62.00. 

The upper boundary of the ascending trend channel and psychological barrier of $2,400 act as a crucial resistance level for the yellow metal for the time being. With a break above this level, gold could make another attempt at an all-time high of $2,432 en route to the $2,500 round figure. 

In the bearish case, the first downside filter to watch is the lower limit of the ascending trend channel of $2,355. Further south, the next contention level is seen at the 100-period EMA at $2,340. Any follow-through selling below the mentioned level might drag XAU/USD back to $2,300. 

European Central Bank (ECB) Board member Isabel Schnabel said on Friday that the central bank may cut interest rates in June, but policymakers should look very carefully at the data because there is a risk of easing prematurely, per Reuters. 

Key quotes

“Says depending on incoming data rate cut in June may be appropriate but a path beyond June is much more uncertain.”

“Recent data have confirmed that the last mile of disinflation is most difficult.”

“Based on current data, a rate cut in July does not seem warranted.”

“With inflation risks still being tilted to the upside, front-loading of easing process would come with a risk of easing prematurely.”

“We cannot pre-commit to any particular rate path due to very high uncertainty.”

“It's virtually impossible to quantify a change in the natural rate of interest in real-time with any reasonable degree of precision.”

“The closer we get to a potentially neutral level, and this could be well above 2%, we need to move even more cautiously.”

“2% target has served us well, a change in the target is not appropriate.”

“Geopolitical shocks are a key risk that we need to watch, and this poses upside risks to the inflation outlook.”

“Over the longer run, geopolitical fragmentation would pose further upside risks to inflation by reducing the efficiency and reliability of global supply chains.”

Market reaction

These comments have little to no market reaction to the Euro. The EUR/USD pair is trading at 1.0861, losing  0.06% on the day.

• The Australian Dollar extends its losses after mixed economic data from China on Friday.
• The Australian Dollar struggles as Australia’s 10-year bond yield has dropped to a monthly low of 4.2%.
• China’s Retail Sales increased for the consecutive 15th month but the softest gain in the sequence.
• The US Dollar has rebounded as the Fed remains cautious about inflation and potential rate cuts in 2024.

The Australian Dollar (AUD) continues to experience a decline for the second consecutive session, largely influenced by recent mixed economic data from China released on Friday. The Aussie Dollar had already been under pressure after Australia's employment figures released on Thursday presented a mixed picture. Any economic change in the Chinese economy could catalyze the Australian market as both nations are close trade partners.

The Australian Dollar’s decline is bolstered as the yield on Australia’s 10-year government bond has dropped to near 4.2%, marking its lowest level in a month. This decline in bond yields is a reaction to the domestic jobs report, which showed an unexpected slowing in wage growth during the first quarter. The slowing wage growth has led markets to discount the possibility of any interest rate hikes by the Reserve Bank of Australia (RBA).

The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, has rebounded from a multi-week low of 104.08 marked on Thursday. The Federal Reserve (Fed) maintains a cautious stance regarding inflation and the potential for rate cuts in 2024. Investors will take more cues from the Minneapolis Fed President Neel Kashkari and San Francisco Fed President Mary Daly's speeches later in the day.

Daily Digest Market Movers: Australian Dollar depreciates after mixed Chinese data

• China's Retail Sales increased 2.3% year-over-year in April, down from March's 3.1% and falling short of the expected 3.8%. This marks the 15th consecutive month of growth in retail activity but represents the slowest uptick in this trend. Meanwhile, Industrial Production improved 6.7% YoY, surpassing the anticipated 5.5% and the previous recording of 4.5%.
• On Thursday, Fed Bank of Atlanta President Raphael Bostic emphasized the need for patience with interest rates, noting that substantial pricing pressure persists in the US economy. Additionally, Cleveland Fed President Loretta Mester indicated that it might take longer than anticipated to confidently ascertain the inflation trajectory, suggesting that the Fed should maintain its restrictive stance for an extended period.
• Australia’s Wage Price Index (QoQ) increased by 0.8% in the first quarter, falling short of the market's forecast of a 0.9% rise. This quarter's increase is the smallest since late 2022. Additionally, annual pay growth slowed slightly to 4.1%, down from the previous 4.2%, and below market expectations.
• Sarah Hunter, Chief Economist and Assistant Governor (Economic) at the Reserve Bank of Australia (RBA), delivered a speech at the REIA Centennial Congress on Thursday. During her address, Hunter explored various potential strategies to address the imbalance between housing supply and demand growth. This issue looms large in Australia, with escalating prices, rents, and homelessness posing significant challenges.
• US Consumer Price Index (CPI) decelerated to 0.3% month-over-month in April, came in at lower than expected 0.4% reading. While Retail Sales flattened, falling short of the expected increase of 0.4%.
• On Tuesday, the Australian Budget for 2024-25 returned to a deficit after recording a surplus of $9.3 billion in 2023-24. The Australian government aims to tackle headline inflation and alleviate the cost of living pressures by allocating billions to reduce energy bills and rent, alongside initiatives to lower income taxes.
• A Reuters report cited Treasurer of Australia Jim Chalmers, expressing his expectation that the current headline inflation rate of 3.6% will return to the Reserve Bank of Australia’s target range of 2-3% by the end of the year. If this scenario unfolds, the central bank will likely consider cutting interest rates earlier than markets had anticipated.
• Federal Reserve Chair Jerome Powell has anticipated a continued decline in inflation on Tuesday. Powell expressed less confidence in the disinflation outlook compared to previous assessments. He also highlighted that Gross Domestic Product (GDP) growth is expected to reach 2% or higher, attributing this positive forecast to the strength of the labor market.

Technical Analysis: Australian Dollar falls toward 0.6650

The Australian Dollar trades around 0.6660 on Friday. Observing the daily chart for AUD/USD showed an ascending triangle formation. Additionally, the 14-day Relative Strength Index (RSI) suggests a bullish sentiment, holding above the 50 mark.

The AUD/USD pair could challenge the upper threshold of the ascending triangle, resting near the four-month peak of 0.6714. A breach above this level might prompt exploration toward the significant barrier at 0.6750.

Conversely, potential support stands at the nine-day Exponential Moving Average (EMA) at 0.6634, followed by the lower boundary of the ascending triangle around at 0.6610. A breakdown below this level could exert downward pressure, directing attention toward the throwback support at 0.6550.

AUD/USD: Daily Chart

China’s Retail Sales rose 2.3% YoY in April from 3.1% in March, worse than the 3.8% expected. The nation’s Industrial Production improved 6.7% YoY in the same period versus 5.5% anticipated and 4.5% recorded previously. The official data was published by the National Bureau of Statistics (NBS) on Friday.

Meanwhile, the Fixed Asset Investment rose 4.2% YTD YoY in April versus the 4.6% expected and 4.5% seen in March.  

Market reaction to Chinese data

The Australian Dollar (AUD) attracts some sellers following the Chinese data. The AUD/USD pair is adding 0.16% on the day to trade at 0.6666, as of writing.

• NZD/USD extends losses due to the upward correction in the US Dollar.
• Fed remains cautious about inflation and potential rate cuts in 2024.
• The New Zealand Dollar could draw some support from higher PPI inputs and outputs for Q1.

The NZD/USD pair extended its losses to near 0.6110 during the Asian session on Friday. This decline can be attributed to the recovery of the US Dollar (USD), which rebounded after hitting multi-week lows around 104.00 on Thursday.

The Federal Reserve (Fed) maintains a cautious stance regarding inflation and the potential for rate cuts in 2024. On Thursday, Fed Bank of Atlanta President Raphael Bostic emphasized the need for patience with interest rates, noting that substantial pricing pressure persists in the US economy.

Additionally, Cleveland Fed President Loretta Mester indicated that it might take longer than anticipated to confidently ascertain the inflation trajectory, suggesting that the Fed should maintain its restrictive stance for an extended period.

Furthermore, the US Department of Labor released the US Initial Jobless Claims on Thursday. The number of Americans filing new claims for jobless benefits rose to 222,000 for the week ending May 10, surpassing the market consensus of 220,000 but below the previous week's figure of 232,000.

On the Kiwi front, New Zealand's Producer Price Index (PPI) inputs and outputs increased in the first quarter. PPI input prices rose by 0.7% compared to the expected 0.7%. While PPI output prices increased by 0.9% against the expected 0.5%. These higher-than-expected PPI figures could provide some support for the New Zealand Dollar (NZD), potentially limiting the downside of the NZD/USD pair.

According to Stats NZ, the largest contributors to the rise in output prices were electricity and gas, which saw an 8.8% quarter-on-quarter increase. Energy costs also significantly impacted input prices, climbing 11.6%. Additionally, insurance costs substantially contributed to the increase in PPI input costs, rising by 5.0% quarter-on-quarter.

The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Friday at 7.1045 as compared to the previous day's fix of 7.1020 and 7.2222 Reuters estimates.

• USD/CAD holds positive ground near 1.3620 in Friday’s early Asian session. 
• Several Fed officials emphasized their cautious stance to keep the rate higher for longer, lifting the USD. 
• The recovery in oil prices is likely to cap the commodity-linked Canadian Dollar. 

The USD/CAD pair trades on a stronger note around 1.3620 on Friday during the early Asian trading hours. The uptick of the pair is bolstered by the renewed US Dollar (USD) demand as the US Federal Reserve (Fed) officials emphasized their cautious stance to hold rates higher for longer. 

On Thursday, the US weekly Initial Jobless Claims for the week ending May 11 came in at 222,000 from the previous week of 232,000, above the market consensus of 220,000, according to the US Bureau of Labor Statistics (BLS). Housing Starts climbed 5.7% MoM to 1.36 million in April, while Building Permits declined by 3% MoM in April to 1.44 million. However, these mixed reports had little to no impact on the Greenback as traders kept an eye on the Fed official's remarks about the interest rate cuts. 

Atlanta Fed President Raphael Bostic stated on Thursday that he saw signs of cooling inflation in the recent report, but he prefers to watch the May and June data to make sure the inflation doesn’t turn back the other way. Meanwhile, Cleveland Fed President Loretta Mester said she wants to see more data to gain confidence that inflation is on course to meet the Fed’s 2% target. 

Richmond Fed President Tom Barkin noted the central bank needs to keep borrowing costs high for longer to ensure inflation is on track to its target, citing higher prices in the services sector. Financial markets are currently pricing in nearly 70% odds of a Fed rate cut in September, an increase from 65% earlier in the week, according to the CME FedWatch Tool.

On the Loonie front, Canada’s Manufacturing Sales fell 2.1% MoM in March from a 0.9% rise in February, weaker than the market expectation of a decline of 1.4%, Statistics Canada showed Wednesday. Elsewhere, the extended rebound in oil prices might lift the commodity-linked Canadian Dollar (CAD) and cap the upside of the pair as Canada is the largest oil exporter to the United States.

• WTI prices gains traction near $78.90 on Friday.
• The softer US April inflation data, Fed rate cut expectations, and a drop in US crude inventories boost the black gold. 
• The ongoing geopolitical risks in the Middle East might cap the downside of WTI prices. 

Western Texas Intermediate (WTI), the US crude oil benchmark, is trading around $78.90 on Friday. The black gold edges higher amid the recent drop in US crude inventories and the possible interest rate cuts by the Federal Reserve (Fed). 

The recent US CPI inflation report this week showed that US inflation eased slightly in April, prompting the expectation of interest rate cuts from the US Fed in September. This, in turn, weighs on the US Dollar (USD) and benefits USD-denominated oil as lower interest rates help stimulate the economy, which can boost crude oil demand.

About the data, a decline in oil inventories lifted the black gold. Crude inventories in the US for the week ending May 3 fell by 2.5 million barrels to 457 million barrels, from 1.36 million barrels drawn in the previous week, according to the Energy Information Administration (EIA). The market consensus projected that stocks would decrease by 1.35 million barrels. 

On Thursday, Israel's tanks moved into Jabalia in northern Gaza and pummelling Rafah in the south without advancing, per Reuters. Ceasefire negotiations mediated by Qatar and Egypt are at a stalemate, with Hamas demanding a stop to attacks and Israel refusing until the group is annihilated. Oil traders will closely monitor the developments surrounding the renewed geopolitical tensions in the Middle East. Any escalating geopolitical risks might raise concern about oil supply disruptions, lifting the WTI prices. 

• EUR/USD slumps back from 1.0900 on Thursday’s broad USD recovery.
• Economic data strictly mid-tier on Friday, main focus to be on policymaker appearances.
• Next week brings PMI figures for both the EU and the US.

EUR/USD eased slightly on Thursday, falling back below 1.0880 as the Greenback broadly recovers losses from earlier in the week. The pair remains notably up for the trading week, but a late break for the US Dollar is on the cards as investors second-guess the Fed Reserve’s (Fed) stance on rate cuts and keep one foot in the safe haven USD.

A June rate cut from the European Central Bank (ECB) is getting priced in by traders. ECB policymakers have been prodding markets cautiously in recent appearances, but ECB Governing Council member and Governor of the Latvian central bank Martins Kazaks announced Thursday that a June rate cut is definitely on the table. Markets will be keeping a close eye on next week’s Purchasing Manager’s Index (PMI) figures that are due from both the EU and the US.

Read more: Fed officials stick to cautious tones

Fed officials continue to dominate investor focus, with multiple policymaker from the US central bank giving soundbites on Thursday. Fed officials have broadly struck a notably cautious tone as the Fed tries to keep market hopes for Fed rate cuts to a dull simmer. At current cut, the CME’s FedWatch Tool shows rate markets are pricing in 70% odds of at least a quarter-point cut from the Fed in September, with 90% odds of two total rate cuts by the end of year.

Several central bankers are expected to make appearances on Friday, with a speech from the ECB’s Luis de Guindos, and the Fed’s Neel Kashkari, Christopher Waller, and Mary Daly on the docket to round out the trading week.

EUR/USD technical outlook

EUR/USD trimmed away some gains, briefly falling back below 1.0860 on Thursday, but the pair remains notably bullish in the near-term, trading well above the 200-hour Exponential Moving Average (EMA) at 1.0802. The pair is testing into its highest bids since mid-March, and is on pace to close in the green for a fourth consecutive week.

Bullish momentum has carried EUR/USD back above the 200-day EMA at 1.0799, and the pair is up 2.5% from the last swing low into the 1.0600 handle. A technical ceiling is priced in at the March swing high of 1.0980, and bulls will have their work cut out for them if a push back to the 1.1000 handle is to be achieved.

EUR/USD hourly chart

EUR/USD daily chart

• GBP/USD trades with a mild positive bias around 1.2670 on Friday. 
• Fed officials said it might take longer for inflation to reach their target, emphasizing the need to keep rates high for longer. 
• BoE’s Greene noted she wants more data on price pressures easing before it starts cutting its rate. 

The GBP/USD pair posts modest gains near 1.2670 during the early Asian session on Friday. Meanwhile, the USD Index (DXY) recovers some lost ground after retracing to multi-week lows near 104.00 in the previous session. The Federal Reserve (Fed) sticks to cautious tones regarding inflation and the chance of rate cuts this year. Investors will take more cues from the Fed’s Kashkari, Waller, and Daly speeches later in the day.

Several Fed officials emphasized the need to keep borrowing costs high for longer as they await more evidence that inflation is easing. On Thursday, Fed Bank of Atlanta President Raphael Bostic cautioned about the need for patience with interest rates, saying that there is still a lot of pricing pressure in the US economy. Cleveland Fed President Loretta Mester stated that it might take longer than expected to gain confidence about the path of inflation, adding that the Fed should hold its restrictive stance for longer. The cautious approach from the Fed policymakers has provided some support to the Greenback and weighs on the major pair. 

The number of Americans filing new claims for jobless benefits rose by 222K for the week ending May 11, the US Department of Labor (DoL) reported Thursday. The figure came in above the market consensus of 220K and below the previous reading of 232K gains. 

On the GBP’s front, the Bank of England (BoE) noted last week that the UK central bank needs to see more evidence that inflation will stay low, but he thought the inflation is moving in the right direction and a June cut cannot be ruled out. The BoE policymaker Megan Greene said the BoE wants more data on price pressures easing before it starts easing policy. The expectation that the UK central bank might cut the interest rate before the US Fed is likely to weigh on the Pound Sterling (GBP) and cap the upside of the GBP/USD pair in the near term. 

New Zealand's Producer Price Index (PPI) inputs and outputs rose in the first quarter, with business input prices rising 0.7% (previous 0.9%), and business output prices rising 0.9% (previous 0.7%).

According to Stats NZ, the largest contributor to output prices were electricity and gas, which rose 8.8% QoQ, with energies also making up the largest contributor to input prices, which climbed 11.6%. Insurance costs also contributed heavily to PPI input cost increases, rising 5.0% QoQ.

Market reaction

As markets head into the Pacific Friday market session, NZD/USD is trading on the high side. The pair is testing above 0.6120 after setting a Thursday peak above 0.6145.

About New Zealand's Produce Price Index - Output

The Producer Price Index Out released by the Statistics New Zealand is a measurement of the price changes of goods produced by the producers in New Zealand. Generally speaking, a price hike generates higher retail prices for consumers. Thus, a high reading is seen as positive (or bullish) for the NZD, while a low reading is seen as negative (or bearish).

• Australian Dollar trades at 0.6678, down 0.23%, influenced by higher US yields.
• Jobless claims rise, housing data fluctuates, and industrial production stalls.
• Fed officials suggest higher rates may persist as Australian jobs report shows mixed results with unemployment revised to 4.1%.

The Australian Dollar posted losses of 0.23% against the US Dollar on Thursday amid higher US yields that underpinned the Greenback during the day. Wall Street hit new all-time highs but retreated afterward, ending the session with losses. As Friday’s Asian session begins, the AUD/USD trades at 0.6678, virtually unchanged.

AUD/USD down as US yields rise and traders speculate on potential Federal Reserve policy easing

Traders’ sentiment remains upbeat, as speculations that the Federal Reserve would join the list of central banks that might ease policy grew. The latest US consumer inflation report on Wednesday increased the odds that the Fed might cut at least 41 basis points toward the end of 2024.

On Thursday, Initial Jobless Claims for the last week increased by 222K, above estimates, but trailed the prior week’s 232K. Other data showed that housing data was mixed, with Housing Starts increasing 5.7% YoY, while Building Permits plunged -3%.

Elsewhere, the Fed revealed that Industrial Production stalled in April, coming to 0% MoM, below estimates and the prior month’s 0.1% increase.

Meanwhile, a slew of Fed officials hit the wires on Thursday, saying the central bank should keep rates higher for longer as they wait for more evidence that inflation is slowing. The Fed Regional Bank Presidents Loretta Mester, John Williams, and Thomas Barkin argued that curb inflation to their 2% goal may take longer than expected.

On the Aussies' front, the latest jobs report revealed the economy added 38.5K jobs in April, but the unemployment rate was revised from 3.9% to 4.1%. Most of the jobs added were part-time, with figures rising 44.6K, offsetting the losses of full-time employment of -6.1 K.

ANZ analysts said, “The weakness in hours worked and the moderation in yearly wage growth reported in the Wage Price Index together confirm a picture of a softening labour market. There is no change to our RBA view off the back of these data.”

Ahead of the week, the Australian docket is empty, while the US one will feature further Fed speaking, led by Governor Christopher Waller.

AUD/USD Price Analysis: Technical outlook

The AUD/USD uptrend remains in place, though it paused after breaching the 0.6700 figure. Although momentum is on the bulls’ side, as depicted by the Relative Strength Index (RSI), a drop below the Thursday low of 0.6654 could exacerbate a drop toward the May 14 low of 0.6579. On the other hand, if buyers regain 0.6700, that could pave the way to test the current week's high of 0.6714, ahead of challenging 0.6750.

• USD/JPY pares away recent declines but still down from recent peaks.
• Japanese GDP contracts more than expected, battering Yen.
• Fedspeak weighs on risk sentiment, but rate cut hopes remain.

USD/JPY recovered ground on Thursday, climbing back over the 155.00 handle after dipping to 153.60 on Wednesday. Japanese growth figures contracted more than expected, and Federal Reserve (Fed) rate cut hopes are struggling beneath the weight of cautionary talking points from Fed officials.

Japan’s Gross Domestic Product (GDP) contracted more than expected in the first quarter, declining -0.5% QoQ compared to the previous quarter’s flat 0.0% print, revised down slightly from the initial print of 0.1%. Markets were expecting a -0.4% contraction. Annualized Japanese GDP growth also contracted, decline -2.0% for the year ended Q1, worse than the expected -1.5% and down from the previous 0.0% (also revised down from 0.4%).

Read more: Fed officials stick to cautious tones, but outlook beginning to tease rate cuts

Fed officials have begrudgingly begun to hint at the possibility of late-year rate cuts in 2024, but remain overly cautious regarding the US’ inflation outlook and still-tight labor market. Inflationary pressures continue to ease, helping to bolster broad-market hopes for a Fed rate cut, but price growth still remains well above the Fed’s 2% target, and Fed policymakers are leery after disinflation progress slowed in the first quarter.

Despite risk appetite cooling slightly during the Thursday US market session, rate traders still expect the Fed to meet rate cut expectations. According to the CME’s FedWatch Tool, rate markets are pricing in 70% odds of a September rate trim of at least a quarter of a percent.

USD/JPY technical outlook

USD/JPY’s technical recovery on Thursday dragged the pair back over the 155.00 handle, but technical resistance sits nearby at the 200-hour Exponential Moving Average (EMA) at 155.44. The pair remains down from the last swing high above 156.50, but USD/JPY has recovered from the near-term low near 152.00.

USD/JPY is still trading deeply into bull country, bolstered above the 50-day EMA at 153.36 and trading well above the 200-day EMA at 148.48. Despite a suspected “Yentervention” from the Bank of Japan (BoJ) recently, the pair is still up over 10% in 2024.

USD/JPY hourly chart

USD/JPY daily chart

• The daily RSI shows that the pair has strong positive momentum, approaching overbought conditions but turning flat.
• Hourly RSI indicates a slight retreat, hinting at some short-term consolidation.
• The pair remains firm above its main SMAs, signaling a solid bullish sentiment in the near and distant future.

On Thursday's session, the NZD/USD remained flat at around 0.6120, as investors seem to be taking profits. After the Kiwi jumped above its main Simple Moving Averages (SMAs) the outlook turned bullish for the pair, but further consolidation may be in the horizon.

On the daily chart, the Relative Strength Index (RSI) shows positive momentum, fluctuating within positive territory, and nearing overbought status but turned flat on Thursday. The green bars of the Moving Average Convergence Divergence (MACD) reinforce the positive trend but are also flattened.

NZD/USD daily chart

Moving to the hourly chart, mixed signals are visible. The RSI retreated slightly after being deep in overbought terrain, revealing a subtle slowdown in buying enthusiasm in recent hours. The red bars of the MACD suggest that the buying traction was weak in the last hours.

NZD/USD hourly chart

To conclude, bearing in mind the positive RSI indicators and the green MACD histogram, alongside the currency pair being above critical SMAs, the market seems to favor the bulls for the NZD/USD pair in both the short and long term but further consolidation shouldn’t be taken off the table. However, the conquered 100- and 200-day SMA will be a strong support that could limit losses.