Forex

Today’s data showed that CPI inflation moderated to 7% y/y in the first quarter in Australia, not long after the country’s central bank had paused its year-long rate hike cycle

There is an air of uncertainty, with participants unsure of what comes next for markets. A large part of this is that markets are hesitant of how Fed monetary policy plays out and are looking at Q1 GDP and core PCE for direction (released Thursday and Friday at 12:30 GMT).

Given the lag on the EU inflation front, the ECB will need to be more aggressive than the Fed for at least the medium term. This is reflected in the spread between the German (proxy for EU) and US 2-year notes. This is because short-term borrowing costs react quickly to changes in monetary policy.

Yesterday saw a higher-than-expected average earnings index (3m/y) out of the UK at 5.9% (vs 5.1%-forecast). Today inflation has proved persistent with headline CPI (y/y) at 10.1% (vs 9.8%-forecast) and core CPI (y/y) at 6.2% (vs 6.0%-forecast). This suggests at least another 25bps hike from the BoE in May.

Yesterday, the EURUSD slipped from its bullish channel between the upper blue and red bands. Today, it is looking to reclaim that position. The daily RSI is above 50. The longer it maintains on the bullish side of 50, the greater the chances of higher prices ahead.

GBPUSD has slipped out of its bullish channel and is now trading in the neutral zone between the two blue bands. However, today’s candle (still to complete) shows positivity, with price trading off the low for the day. The daily RSI is above 50 and needs to be watched. If it maintains on the bullish side of 50, the bullish channel, between the upper blue and red bands, may be…

FXCM’s USDOLLAR basket reacted off its key support level at 12,750. The catalyst for the reaction were comments by Fed Governor Christopher Waller.

The USDJPY appears to be charting a head and shoulders top. The pattern is yet to complete, as per the pattern completion gap, but its RSI is on the bearish side of 50. If it maintains on this side of 50, the USDJPY will likely be under pressure.

FXCM's USDOLLAR basket finds itself near the 12,750 level, which is regarded as an important level of support.

The Bank of Canada kept its overnight rate at 4.5%, in line with expectations. It was the first major central to pause its hiking cycle. In its rate statement the BoC said that the “Governing Council continues to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the 2% target.”

Headline CPI came in lower-than-expected printing at 5% y/y (5.2% y/y - forecast) and 0.1% m/m (0.3% m/m – forecast). Core CPI, which strips out volatile items such as food and energy, came in at 5.6% on an annual basis and 0.4% m/m. The numbers are still above the Fed’s 2% target, but these are signs of moderating inflation