Daily Technical Analysis

[xtreamforex.com]

The Reserve Bank Board meets next week on May 2.

Following the release of the March quarter inflation report Westpac now expects the Board to extend the pause it instigated at its April meeting to the May meeting.

This decision comes despite the likelihood that the FOMC will announce its decision to raise the federal funds rate by 0.25% to 5.125% two days after the RBA meeting (see below). However, as with the RBA, we expect this decision to mark the peak of the cycle.

We have always argued that May is likely to be the peak of the tightening cycle, so we are now lowering our forecast for the peak of the policy rate from 3.85% to 3.6%.

Given the uncertainty about the current outlook and the need to contain inflation expectations, it is almost certain that the Board will maintain its clear bias toward tightening. However, as 2023 progresses, the credibility of this tendency is likely to fade.

Read More : Daily & Weekly Analysis On Xtreamforex

[xtreamforex.com]

A busy week of data releases and central banks begins on a quiet note. Today we are eager to see if the US ISM manufacturing index for April reflects similar strength to previous PMIs.


Early Tuesday morning, we expect the RBA to leave monetary policy unchanged in line with market and consensus expectations. In addition, HICP data for the euro area will be released tomorrow.


On Wednesday, all eyes will be on the Fed, where we expect a final 25 basis point hike. The labour market report for April will be published on Friday.


On Thursday, there is the meeting of ECB, where we stick to our call for a 50 basis point hike, although the risks for a lower hike are rather low, especially if tomorrow’s bank lending survey disappoints.


Read More : Daily & Weekly Analysis On Xtreamforex

[xtreamforex.com]

Choosing to raise is the better policy option, even if it is not consistent with our interpretation of the implicit guidelines.


The Reserve Bank Board raised the policy rate by another 0.25% at its May meeting, bringing the policy rate to 3.85%.


The decision came as a great surprise to markets, which had priced in less than five basis points. In this tightening cycle, there have been a number of decisions that came as a surprise to markets – the decision to raise the rate by 50 basis points (instead of 25) in June and 25 basis points (instead of 50 basis points) in October .


Markets and the majority of economists, including Westpac, had difficulty following the Bank’s guidance.


In our bulletin last Friday, we stated. “We have argued over the past six months that the peak of the current cycle will be the May Board meeting. We believe the peak should be 3.85%, with the final 25 basis point increase in May based on the current situation – record low unemployment and very high inflation – rather than relying on forecasts. We continue to believe that this would be the better policy approach given the risks, but it does not seem consistent with the Board’s intentions.”


Our assessment of the Board’s intentions relied heavily on the references in the Governor’s recent speech to the importance of ensuring that the inflation path is consistent with the Bank’s forecasts. The Inflation Report for the March quarter indicates that inflation is consistent with (if not somewhat better than) this trajectory.


Read More : Daily & Weekly Analysis On Xtreamforex

[xtreamforex.com]

The year-to-date performance of the S&P 500 has been heavily skewed by the top 8 market cap stocks (FAANG + MNT).


US regional bank fear persists despite the takeover of First Republic Bank by JPMorgan Chase.


Markets are looking out for clues on the timing of the first Fed rate cut in today’s post-FOMC.


The combined top 8 US stocks (in terms of market capitalization) in the S&P 500 under the FAANG + MNT group; (Meta/Facebook, Apple, Amazon, Netflix, Alphabet/Google, Microsoft, NVIDIA, Tesla) that contributed close to 102% of the 2023 year-to-date return of the S&P 500 as of 28 April.


These observations suggest the average return of the remaining 492 stocks in the S&P 500 is negative which indicates a weak market breadth condition.


The lopsided return from FAANG + MNT became more pronounced after the onset of the US mini-banking crisis in mid-March.


Read More : Daily & Weekly Analysis On Xtreamforex

[xtreamforex.com]

The Federal Reserve delivered its tenth consecutive rate hike on Wednesday, as expected, but reset its guidance to indicate increased emphasis on incoming data. Hence, Friday’s nonfarm payrolls will be the next test for the US dollar at 12:30 GMT, with forecasts pointing to a discouraging outcome.


The Federal Open Market Committee (FOMC) decided to increase its funds rate by a quarter percentage point to the highest range in sixteen years of 5.0-5.25% for the sake of fighting inflation, despite three private banks collapsing recently. Although Powell reiterated that the banking system remains sound and resilient, he acknowledged that downside risks in the sector have grown, and a more cautious approach might be needed.


Unlike the ECB, the Fed is now more confident that a pause in monetary tightening could be around the corner but with inflation standing at 5.0% y/y – more than twice its symmetrical 2.0% target – it could not make any promises. Alternatively, it chose a safer path, adopting a less hawkish guidance to state that additional tightening could still be possible if there are signs of stronger-than-expected growth, inflation, and hiring. Previously, policymakers were focused on signs of slowing inflation to ease the pace of tightening.


Nonfarm payrolls might be the next challenge for markets


Read More : Daily & Weekly Analysis On Xtreamforex

[xtreamforex.com]

Better than expected US non-farm payrolls for April have failed to ignite US dollar bulls.


Two outliers; the safe haven currencies, CHF and JPY underperformed against the US dollar due to the resurgence of risk-on behavior in the US stock market.


JPY future’s bearish positioning has highlighted a risk of a short-term revival of JPY’s strength.


Last Friday, the better-than-expected US official non-farm payrolls data (labour market) for April failed to trigger a meaningful rally in the US dollar in general where the US Dollar Index ended the 5 May US session with a loss of -0.16% to close at 101.28, a whisker away from its 100.95 key medium-term support that has been tested twice so far in past four weeks.


Even the recovery in the 2-year US Treasury yield which added 12 basis points to close at 3.92% last Friday reinforced by the rosy US payrolls data that put a halt to the prior three sessions of daily losses has failed to ignite the bulls in the US dollar.


Interestingly, the major currencies that underperformed against the US dollar last Friday were the safe haven pair duo; CHF (-0.5%) and JPY (-0.4%), and the primary driver was the risk-on behaviour seen in the US stock market.


Read More : Daily & Weekly Analysis On Xtreamforex

[xtreamforex.com]

AUD/USD ends 6-day rally
Australian retail sales decline
Fed warns that banks are tightening credit


The Australian dollar is in negative territory, ending a rally of close to 200 points. In the European session, AUD/USD is trading at 0.6760, down 0.29% on the day.


Australian retail sales decline


Australian retail sales posted a decline of 0.6% in the first quarter, following a downwardly revised reading of -0.3% in Q4 2022. The reading matched the consensus, but investors were not pleased with a second straight decline and the Aussie has lost ground today. The National Australia Bank responded to the release by warning that a “consumer recession” had arrived.


Australians are holding tight onto their wallets due to the uncertainty in economic conditions. The cost-of-living crisis, driven by high inflation and rising interest rates, has driven down household spending. The new budget may help matters a little, but inflation will have to continue moving lower before consumers increase spending.


Read More : Daily & Weekly Analysis On Xtreamforex

[xtreamforex.com]

The University of Michigan consumer confidence for the month of May unexpectedly set the tone for last week’s trading session WS. The overall indicator fell more than expected, from 63.5 to 57.7, the lowest level since last July. However, markets focused on the prospective inflation expectations component of the report. 1-year inflation expectations fell less than hoped from 4.6% to 4.5%, while long-term (5-10 year) expectations rose from 3% to 3.2% (versus 2.9% consensus), the highest level since March 2011! Similar signs were provided by the NY Fed’s latest survey of consumer expectations (inflation expectations for 3 and 5 years rose by 0.1 percentage points) and in Europe by the ECB survey of consumer expectations.


Median expectations for 1-year and 3-year inflation EMU rose from 4.6% to 5% and from 2.4% to 2.9%, respectively. U.S. Treasuries slipped after the Michigan survey and underperformed German bunds. U.S. yields rose more than 9 basis points in the 2- to 7-year range of the curve, while longer maturities gained 5 to 8 basis points. The 2-year US yield closed just below the psychological 4% mark.

Read More : Daily & Weekly Analysis On Xtreamforex

[xtreamforex.com]

U.S. stocks started the week on a slightly positive note after weak economic data fueled expectations of a pause by the Federal Reserve (Fed), hopes of a resolution in the debt ceiling talks between Joe Biden and Kevin McCarthy, and Microsoft received EU approval to buy Activision.


However, the latter are all weak reasons to jump on an upward trend, because,


1. New York’s Empire State manufacturing index fell to -31.80 in May, while analysts had expected a drop to around -3.70. Minneapolis Fed head Kashkari, however, warned investors that the Fed will continue to raise interest rates. Bostic of the Atlanta Fed said the Fed should hold rates this year but definitely not cut them, while Goolsby of the Chicago Fed wouldn’t promise a rate pause in June. He said he’s watching the data and remains ‘particularly vigilant about the impact of rate hikes on credit conditions.”

While a Fed rate hike in June is still off the table, activity in fed funds futures suggests investors see higher odds of a rate hike next month. The probability of a 25 basis point rate hike is now at 19%. But of course, the data and the progress of the debt ceiling talks will be key to what the Fed could and would do.


Read More : Daily & Weekly Analysis On Xtreamforex

[xtreamforex.com]

Risk sentiment remains poor as the US couldn’t reached an agreement on its debt ceiling.


But House Speaker McCarthy hinted that an agreement is possible within days. Despite both sides being far apart, everyone knows the catastrophic consequences of an eventual US default, and no one is ready to push the US into that black hole.


Yesterday, both equities and bonds were sold off on US debt ceiling impasse, while the US dollar index remained capped at two-week highs.


On the data front, U.S. retail sales released yesterday were weaker than expected. Although the monthly numbers showed a rebound after two months of negative results, it was less than expected, and the annual numbers showed that sales growth unexpectedly slowed, falling to a disappointing 1.6% from 2.4% the previous month and well below the 4.20% forecast by analysts. Core retail sales excluding gas and autos rose more than expected, while industrial production posted a larger increase in April. However, the latest data is unlikely to persuade Fed officials to change their view that the Fed’s next move should be a pause in tightening rather than another hike.


Read More : Daily & Weekly Analysis On Xtreamforex