Forex Signals Brief April 11: Shifting Attention to the ECB Meeting and US PPI

Yesterday’s economic events have certainly stirred the financial markets. The Reserve Bank of New Zealand opened the day, holding interest rates unchanged at 5.50%, but sounding less dovish than expected, which gave the NZD a boost. However, the best was still to come in the US session. Let’s break down some of the key events:

• Inflation and Bond Market:

Analysts who were clinging to diminishing evidence of falling inflation, faced disappointment as the Consumer Price Index (CPI) report revealed hotter-than-expected numbers. Consequently, the odds of a June interest rate cut fell from 55% to 20%, and July’s chances are now at 50/50. The bond market reacted strongly, particularly after a lackluster 10-year Treasury sale.

• Foreign Exchange (FX):

The US dollar surged due to higher interest rates and risk aversion. AUD/USD plummeted nearly 2% in response to the headlines, with minimal pullbacks. EUR/USD initially dropped 60 pips to 1.0790 and continued to sag to 1.0740. Cable (GBP/USD) ended the day 160 pips below its pre-CPI levels.

• Bank of Canada Decision:

The Bank of Canada (BOC) decision was closely watched, with the market pricing in a 20% chance of a rate cut. Although the BOC didn’t cut rates, hints of a potential June cut kept the doves satisfied. USD/CAD continued to rise, although the impact on the Canadian dollar (loonie) was less severe compared to the Australian dollar (Aussie) and New Zealand dollar (kiwi).

• USD/JPY at 35-Year High:

USD/JPY surged to an almost 34-year high after the US inflation report triggered a sharp increase in US Treasury yields. The pair broke past the 152.00 level, which had been considered a potential trigger for intervention by Japanese authorities. At the time of writing, USD/JPY trades at 152.70, gaining 0.90%. The technical outlook suggests that the pair is trading at levels last seen in the 1990s, with resistance levels at 155.78 and 160.32.

Today’s Market Expectations

There’s anticipation for the European Central Bank (ECB) to keep interest rates steady at 4.00%. However, there’s also an expectation that the groundwork will be laid for a rate decrease in June. This move is supported by policymakers who have been advocating for it, including the recent addition of the typically hawkish Holzmann to the team. Despite some positive month-on-month inflation readings, the latest Eurozone inflation report has disappointed, falling short of expectations for both headline and core measures. Notably, services inflation has remained stagnant at 4% since November 2023. However, the data leading up to the June decision, particularly Q1 2024 wage data, will play a crucial role in influencing the ECB’s confidence in its decision-making.

The US Producer Price Index (PPI) Year-on-Year (Y/Y) is expected to increase to 2.3% from 1.6% the previous year, with the Month-on-Month (M/M) figure expected to be 0.3%, up from 0.6%. Similarly, the Core PPI Y/Y is forecasted to rise to 2.3% from 2.0% last year, with the M/M reading expected to be 0.2%, up from 0.3% the previous year. This data is anticipated to be released after the US Consumer Price Index (CPI) report. Given this timing, it’s suggested that the PPI data may not significantly alter the trend established by the CPI publication.

Currently, Initial Claims are hovering near cycle lows, indicating ongoing stability, while Continuing Claims are holding steady around the 1800K mark. Predictions suggest that Initial Claims are expected to come in at 215K compared to the previous figure of 221K. However, there is no clear consensus on Continuing Claims at the time of writing. Last week, Continuing Claims witnessed a decline to 1791K from the previous 1810K.

Yesterday the US Dollar surged higher after the strong US CPI inflation report, gaining around 140 pips across the board, and we booked profit on our buy USD/JPY signal. However, we were unable to get in again and claim some of the action, but the move was too fast and then it stopped, so we closed the day with just one winning forex signal.

Buying the Gold Retreats at the SMA

The latest ascent to a record high of $2,366 strengthens the bullish atmosphere surrounding gold, showing continued demand and investor interest in the precious metal. However, we saw a retreat yesterday following the strong US CPI, although the 20 SMA (grey) held as support. Given the current geopolitical tensions and economic instability, gold remains an appealing option for investors looking to hedge risks and safeguard their wealth, thus we opened a long-term Gold signal at the 20 SMA.

XAU/USD – 240 minute chart

EUR/JPY Remains Supported by MAs

USD/CHF has exhibited a bullish trend since the beginning of the year, experiencing a significant increase of over 5 cents and consistently holding above the 0.90 level. Yesterday, the unexpected uptick in the February unemployment rate, which rose from an anticipated 2.2% to 2.3%, contributed to a 50-pip surge in USD/CHF. This upward movement brought the pair closer to the 0.9050 level during European trading hours.

EUR/USD – Daily Chart

Cryptocurrency Update

Bitcoin Moves Above $70K Again

The bullish momentum in BTC remains strong as purchasers keep buying the dips. We have seen several pullbacks, but buyers keep coming back and the 50 SMA (yellow) is acting as support on the daily chart. So, the price keeps coming back over $70,000 after bouncing off the 50-day Simple Moving Average (SMA). This resiliency indicates that customers remain active and eager to defend key support levels, potentially indicating ongoing bullish strength in the market.

BTC/USD – Daily chart

Ethereum Consolidates Around $3,500 

The 50-period Simple Moving Average (SMA) has emerged as a significant support level for Ethereum, underscoring its importance in predicting price movements. As Ethereum’s price nears the 50-period SMA, the bounce observed from this level indicates the willingness of buyers to participate in the market and support the price. However, ETHEREUM has encountered resistance near the 20-period SMA, hindering further upward momentum. The 20-period SMA acts as a barrier to higher price advancement, suggesting the presence of either selling pressure or insufficient bullish momentum to propel Ethereum’s price beyond this threshold. Additionally, a negative reversal occurred on Tuesday, causing the price to approach $3,000 but ultimately halting above the March lows. These technical dynamics depict a tug-of-war between buyers and sellers in the Ethereum market, with the 50-period SMA providing support while the 20-period SMA presents resistance. We are closely monitoring these moving averages and price levels for potential shifts in market sentiment and direction, especially since we are already long on ETH/USD.

ETH/USD – Daily chart