Solid ECN – The euro's value increased to over $1.065, though it stayed near its lowest point since the beginning of November. This movement came as investors evaluated surprisingly strong preliminary PMI data from some of Europe's biggest economies. Recent surveys showed that business activity in the Eurozone increased more in April than in almost a year.
Germany saw economic growth for the first time in nine months. Regarding monetary policy, European Central Bank (ECB) officials indicated a readiness to start lowering borrowing costs possibly by June, with some predicting up to three rate cuts by the end of 2024. However, the overall market mood has changed slightly.
Expectations for rate reductions by the ECB and the U.S. Federal Reserve have lessened this year, driven by ongoing high inflation and signs of a sturdy economy in the U.S.
Solid ECN – The British pound has traded just above $1.24, hovering near its lowest level since mid-November. This comes as investors process robust UK PMI data and consider how it might influence future economic policies.
The most recent data shows a significant boost in British business activity in April, the highest since May 2023, primarily due to a surge in services output. Regarding monetary policy, expectations have shifted, predicting an initial decrease in borrowing costs as early as August, sooner than the earlier forecast of September.
This shift followed comments from Deputy Governor Dave Ramsden, who noted a decreased risk of persistently high British inflation and the possibility that it could drop below the Bank of England's latest projections.
Conversely, Chief Economist Huw Pill acknowledged that the new economic reports suggest an impending rate cut, though he cautioned that it might still be some distance away.
Solid ECN – Recently, the Australian dollar climbed above $0.65, reaching its highest point in nearly two weeks. This increase came after unexpectedly strong inflation data within Australia, suggesting that the Reserve Bank of Australia might keep interest rates stable. In the first quarter, Australia's consumer price index dropped to 3.6% from 4.1% in the previous quarter. Although this marks the fifth consecutive quarterly decline, it was still higher than the predicted 3.4%.
Additionally, Australia's monthly CPI rate rose to 3.5% in March, up from 3.4% in February, which was surprising as analysts expected it to remain unchanged. Earlier in the week, new data revealed that Australia's private sector growth hit a two-year high in April, driven by near-stable manufacturing and continued service growth.
Meanwhile, the Australian dollar also gained from a weakening US dollar, which fell as business activity in the US slowed in April, pointing towards a less aggressive monetary policy by the Federal Reserve.
NZ Dollar Rises as US Dollar Weakens, Inflation Drops
Solid ECN – The New Zealand dollar has recently seen a slight increase, trading just over $0.594, due to improved market confidence and a slight weakening of the US dollar. Investors feel more optimistic, moving away from last week's urgent rush to safer investments, fueled by expectations that the tensions between Iran and Israel won't escalate further.
Additionally, the Kiwi gained from a dip in the US dollar, which occurred after recent figures indicated a decrease in US manufacturing and a slowdown in service sector growth, which could support lowering interest rates. In New Zealand, the Reserve Bank maintained the official cash rate at 5.5% for the month, stating that a tight monetary policy is necessary to bring inflation back within the target range of 1-3%.
The nation's annual inflation rate has dropped to 4% for the first quarter of 2024, marking the lowest rate since the second quarter of 2021.
WTI Crude Oil Prices Stay High Amid Falling US Stocks
Solid ECN – WTI crude oil prices stayed over $82 per barrel on Wednesday, following a near 2% increase the day before. This rise came unexpectedly due to a drop in U.S. crude oil supplies, suggesting strong demand. According to the Energy Information Administration, U.S. crude stocks fell by 6.368 million barrels last week, marking the most significant decline in three months.
This decrease contrasted with predictions of a 1.6 million barrel increase. Confirmatory government data aligned with previous industry reports from the American Petroleum Institute. Additionally, weaker U.S. business activity hints at possible interest rate cuts by the Federal Reserve, further boosting demand prospects.
Meanwhile, investors are also keeping an eye on tensions in the Middle East, particularly as Israel intensifies its actions in Gaza. Despite robust PMI data in Europe, expectations are growing that the UK and EU may soon reduce their economic stimulus.
Gold Prices Stable as Investors Eye US Economic Data
Solid ECN – Gold prices remained stable at around $2,320 per ounce last Thursday. Investors focused on upcoming U.S. economic updates to get more precise insights into the Federal Reserve's future actions. This interest grew after recent economic reports were reviewed. Orders for long-lasting goods slightly exceeded forecasts in March. However, data released on Tuesday showed a slowdown in growth in the U.S. private sector.
Now, traders are looking forward to the first quarter's GDP report and the March personal consumption expenditures (PCE) data, which will be released on Friday. These reports follow a period of higher-than-expected consumer inflation, which has altered the expectations for interest rate reductions. Federal Reserve officials have recently indicated no immediate plans to lower rates, with most market participants expecting a rate cut in September at the earliest.
As interest rates stay elevated, the appeal of gold, which does not yield interest, diminishes. Additionally, decreasing tensions in the Middle East have led investors to opt for riskier assets, further affecting gold prices.
Solid ECN – On Thursday, the Japanese yen fell below 155 per dollar, reaching its lowest point in 34 years. This happened as the Bank of Japan (BOJ) began a two-day meeting to discuss its monetary policy. Although the BOJ stopped using negative interest rates in March, rates are not expected to change now.
However, investors are looking for signs that the bank might take action because the yen has weakened significantly. This weakness has hit a critical point that many believed would cause officials in Tokyo to step in.
BOJ Governor Kazuo Ueda mentioned at last week’s G20 summit that the bank might increase interest rates again if the yen’s drop continues to push up prices by making imports more expensive. He reiterated this possibility this week, stating that rates could rise if inflation trends towards the 2% target as predicted. On the other hand, Japan’s Finance Minister Shunichi Suzuki chose not to comment on the currency levels.
Swiss Franc Recovers Amid Policy Changes and Low Inflation
The Swiss franc has stabilized around 0.91 against the USD, recovering from significant losses earlier in the year that pushed it to a six-month low. This happened due to major differences in the monetary policies anticipated for the U.S. and Switzerland. In March, Switzerland saw its lowest inflation in over two years, dropping to 1%. This supports the Swiss National Bank's (SNB) claim that inflation pressures are easing.
Amid low business confidence and falling retail sales, the SNB is expected to increase interest rates in its June meeting. After the SNB's surprising rate cut in March—the first central bank to do so amid global inflation concerns—the franc had fallen sharply.
Additionally, the lower inflation forecast has enabled the central bank to ease its support of the franc. Consequently, foreign currency reserves have grown for the third consecutive month since hitting a seven-year low in November.
Solid ECN – The Canadian dollar surged beyond 1.37 against the USD this April, bouncing back from its five-month nadir of 1.382 on April 16th. This improvement came as concerns about global risks eased with resolving tensions in the Middle East, and unimpressive US economic data weakened support for the US dollar.
In Canada, the prices of industrial products increased by 0.8% in March, aligning with forecasts and a slight dip from the prior month’s revised increase of 1.1%. Furthermore, new house prices in March held steady, defying expectations of a slight rise, with the annual change in the New Housing Price Index showing a decline of 0.4%. In the US, demand for the dollar as a safe-haven asset declined following assurances from Iran of no retaliatory strikes against Israel, coupled with a slowdown in the US manufacturing and services industries that heightened anticipation of interest rate reductions.
For further clues, the focus now shifts to upcoming US economic reports, including the GDP data on Thursday and the Federal Reserve’s PCE price index on Friday.
Solid ECN – WTI crude oil prices were stable at around $83 per barrel on Thursday. This followed a decrease in prices the day before. Investors are assessing how the delayed cuts in US interest rates might affect future oil demand. There is concern that the Federal Reserve might maintain higher rates longer due to strong recent inflation and job data.
Looking forward, markets are focused on Thursday's upcoming US GDP data and the Fed's preferred PCE price index report on Friday to get more clarity. Despite this, the latest official figures revealed a significant drop in US crude inventories, which fell by 6.37 million barrels last week, surprising many who had expected an increase of 1.6 million barrels.
On another note, concerns about supply have lessened as tensions in the Middle East have reduced. Iran and Israel have indicated that they will not take further military action against each other. Also, oil tankers, previously stopped due to disruptions in the Red Sea, have resumed their deliveries. This helps ease market tightness abroad and supports countries in stocking up on oil.
Swiss Franc Stabilizes as Inflation Eases, Rate Hike Possible
The Swiss franc has stabilized at about 0.91 against the USD, recovering from significant losses earlier in the year that dropped to a six-month low. This change happened due to substantial differences in the anticipated monetary policies of the US and Switzerland. In March, Switzerland's yearly inflation rate decreased to a low of 1%, not seen in over two years, reinforcing the Swiss National Bank’s (SNB) statement that inflation pressures are easing.
This comes as business optimism declines and retail sales shrink, prompting speculation that the SNB might increase interest rates in its next meeting in June. Previously, the franc fell sharply when the SNB unexpectedly cut rates in March, becoming the first major central bank to do so amid current global inflation concerns.
Additionally, with a more stable inflation forecast, the central bank has been able to reduce its support for the franc, leading to an increase in foreign currency reserves for the third consecutive month since hitting a seven-year low in November.
Bitcoin's Bearish Engulfing Pattern and Future Predictions
Solid ECN – Bitcoin's price pulled back from $62,733, which coincides with 38.2% Fibonacci support. In today's trading session, the BTCUSD pair rose and tested the EMA 50 at around $65,288. As of this writing, digital gold began to follow the primary trend, which is bearish, and interestingly, it formed a bearish engulfing pattern.
The technical indicators provide mixed signals. The RSI hovers below 50, but the Awesome Oscillator bars are green and marching towards the signal line.
From a technical perspective, the primary trend remains downward as long as the price hovers within the bearish flag. If the 78.6% Fibonacci resistance level holds, the bearish wave will likely continue. As its initial target, it would aim for the 23.6% Fibonacci level, followed by the $60,000 psychological level.
Solid ECN – The euro continues to struggle, hovering around $1.07, as investors examine a wide range of economic reports and their implications for the future actions of the ECB and the Federal Reserve. Recent data from the European Central Bank shows that inflation expectations dropped to their lowest point since December 2021, at 3.0%.
Furthermore, there has been no change in the growth of lending, leading analysts to believe that ECB officials may lower interest rates for the first time in June. On the other hand, the US dollar remains strong, driven by ongoing inflation concerns and robust consumer spending, indicating that the Fed may not reduce borrowing costs until at least September.
In early May, natural gas prices in Europe dropped to around €28.5/MWh, their lowest in nearly three weeks. This dip came as new weather forecasts predicted moderately warm and dry European conditions for the next 10 days. Consequently, the need for heating, which heavily relies on natural gas, is expected to decrease.
Moreover, strong winds are anticipated, which should boost wind power production during this period. Additionally, the natural gas supply from Norway has increased following the end of maintenance outages, ensuring a stable supply for European countries. This situation is further supported by Europe's high gas storage levels, recently recorded at 62%.
There's also optimism about the return of LNG exports from the US. Looking ahead, energy ministers from the G7 nations have decided to gradually eliminate coal power by the latter half of the next decade. This decision is likely to sustain natural gas demand in the future, although exceptions have been made for Japan and Germany.
Solid ECN – The euro stayed at $1.07, continuing its fall against the US dollar. This trend is driven by the belief that the European Central Bank (ECB) will adopt a gentler approach than the US Federal Reserve. Recent data reveals that inflation in the Eurozone remained at 2.4% in April, as expected. The core inflation rate, however, dropped slightly to 2.7% from 2.9%.
This supports the possibility of an interest rate cut by the ECB in June. In the first quarter, the Eurozone's economy grew by 0.3%, beating expectations of a 0.1% increase. This suggests a recovery from the slow growth seen since the end of 2022. Meanwhile, the US Federal Reserve has kept interest rates high for the sixth time. They plan to keep rates steady until they are sure inflation will consistently reach their 2% goal.
Solid ECN – The offshore yuan recently soared to a six-week high, surpassing 7.23 against the dollar following the U.S. Federal Reserve’s decision to keep interest rates unchanged. Fed Chair Jerome Powell emphasized a shift towards easier monetary policies and ruled out further rate hikes, weakening the dollar and boosting the yuan's position in the foreign exchange markets.
Holiday Season Slows Market Activity
Market activity was notably subdued because the Chinese markets were closed for the Labor Day holiday. This seasonal pause contributed to thinner trading volumes, temporarily dampening the usual flurry of transactions.
Manufacturing Data Encourages Optimism
Further bolstering the yuan, a private survey showed a modest rise in Chinese manufacturing activity, with the index reaching its highest since early 2023. This increase is a positive sign of recovery in the sector. Investors await more economic reports next week, including data on services, trade, and inflation, which could provide additional market direction.
Solid ECN – On Thursday, WTI crude oil prices settled above $79 per barrel, as there are hints that the US might plan to fill up its emergency oil stocks by purchasing oil at $79 per barrel or less. However, the prices are still near the lowest in seven weeks, falling over 5% this week.
This decline comes amid the possibility of a ceasefire between Israel and Hamas and a rise in US oil supplies. Egypt is taking the lead in restarting peace talks between Israel and Hamas, which might prevent a bigger conflict in the area. According to the EIA, US oil inventories unexpectedly increased by 7.3 million barrels last week, against forecasts of a 2.3 million barrel drop.
Additionally, US oil production surged to 13.15 million barrels per day in February, up from 12.58 million the prior month. This increase is the most significant monthly rise in over three years.
Bitcoin Analysis: Resistance Turned Support Insight
Solid ECN–Bitcoin trades in the bearish channel, as shown in the BTCUSD daily chart. Bears managed to close below the $59,598 resistance and are stabilizing the price below this level. As of writing, the BTCUSD pair trades near the broken resistance, which now acts as support.
From a technical standpoint, the trend remains bearish, and Bitcoin might dip to $50,940 in the subsequent selling pressure. For the scenario to come into play, the price should stay below the median line of the Bollinger band.
Conversely, if the BTCUSD price closes above the support at $59,559, the consolidation phase would extend further to the upper band of the flag.
Solid ECN – Gold prices remained stable at around $2,300 per ounce this Friday, marking the lowest level in four weeks. Investors are maintaining caution as they await the release of the US non-farm payroll data later today. This significant economic indicator will provide insights into the Federal Reserve's future monetary policy decisions.
Federal Reserve and Economic Indicators
The Federal Reserve opted to keep interest rates unchanged last Wednesday, indicating a possible inclination toward future rate reductions. However, concerns over recent disappointing inflation figures might delay these cuts. Moreover, the stable number of new unemployment claims last week suggests a tight labor market, likely bolstering the economy throughout the second quarter.
Geopolitical Developments Impacting Gold
Easing geopolitical tensions in the Middle East, particularly the growing optimism for a ceasefire agreement between Israel and Hamas brokered by Egypt, has also influenced gold prices. As a result, the precious metal is set to register a 1.6% decline this week, marking its second consecutive weekly drop.
Solid ECN – The New Zealand dollar, commonly referred to as the NZD, has seen a notable increase, surpassing the $0.59 mark. This resurgence comes after a period of losses earlier in the week. The uplift was triggered by a retreat in the US dollar, which occurred following the Federal Reserve's decision to maintain current interest rates.
Adding to the momentum, Fed Chair Jerome Powell indicated that further rate hikes were unlikely, reinforcing the central bank’s current stance towards easing monetary policy.
Economic Signals in New Zealand
Recent economic data from New Zealand has shown some concerning trends, with the unemployment rate climbing to 4.3% in the first quarter of the year. This is the highest it has been in three years and surpassed economists' forecasts. Such figures hint at a possible shift in monetary strategy, potentially prompting the Reserve Bank of New Zealand (RBNZ) to lower interest rates earlier than the US Federal Reserve.
Anticipation for RBA’s Decision
As the market digests New Zealand's unfolding economic indicators, attention is now turning towards the Reserve Bank of Australia’s (RBA) upcoming policy announcement.
The decision is keenly awaited as it could have significant implications for New Zealand's monetary policy direction. Investors and economists alike are closely watching, with many predicting a rate cut by the fourth quarter. However, opinions vary, with some forecasts suggesting stable rates until 2025.
