Swiss CPI figures released earlier today came out above expectations, at 1.4%, leading to a reversal of some recent losses for the Swiss franc against other currencies. Observing the USD/CHF pair, we notice a significant intraday drop that appears to be an impulsive move down from a new high. Ideally, this trend could drive the pair even lower, possibly toward the 0.9 area where new support might be found. The reason is wave C of a potential ABC flat formation. So, despite current sell-off, we still believe that the higher degree trend will resume at some point, perhaps within the next week or so.

It has been a remarkable week for the yen, which has exhibited sharp swings throughout the week.

The Japanese yen fell as much as 1% earlier and on Thursday but has pared most of those losses. USD/JPY has risen 0.38% to 155.19 at the time of writing.

In the Asian session, the yen fell as low as 157.55 but then recovered to precisely 153. The reason for the swing is unclear but there are strong suspicions that Japan’s Ministry of Finance (MoF) ordered another round of intervention. Japan’s top currency official, Masota Kanda, refused to comment on whether Japan had intervened. Kanda was also mum about whether there was intervention on Monday, when the yen spiked and fell below the 160 level before recovering.

Money market movements indicate that the MoF did intervene on Monday, selling as much as $35 billion to prop up the yen. The yen’s swings Monday and today could signal that the MoF has targeted 160 as its “line in the sand” for intervention.

Fed holds rates, US dollar slips

There was no surprise from the Federal Reserve which maintained the benchmark rate in the target range of 5.25% to 5.50% on Wednesday. This marked a six straight pause, as Fed Chair Powell was clear that high inflation has delayed rate cuts. The rate statement said that inflation had fallen in the past year but there was a lack of progress towards the 2% inflation target in recent months. At a press conference, Powell said that the Fed was not yet confident that inflation was falling closer to the target.

Consumer inflation has been moving higher and the US economy remains surprisingly strong, which has complicated the Fed’s plan to provide relief to households by lowering rates. Still, the Powell said the next rate move was unlikely to be a hike, which sent the US dollar broadly lower against the majors on Wednesday. The yen soared as much as 3.2% against on the dollar after the rate announcement and closed on Wednesday with gains of 2%.

Financial markets struggle for direction on Thursday, with XAU/USD hovering around the $2,300 mark. The US Dollar traded throughout the day on sentiment, advancing with optimism while falling when things soured. In a broader view, however, little has changed across the board throughout the week, as the Federal Reserve (Fed) failed to deliver a clear message. The central bank announced on Wednesday that it would slow the pace of decline in its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion starting in June. Interest rates have been left unchanged, as expected.

The Fed was hawkish but not as hawkish as feared. Indeed, Chairman Jerome Powell dropped some dovish comments in the middle of his press conference. Inflation is still the main issue, but not the only one. Price pressures intensified in the first quarter of the year, while other macroeconomic data indicated economic progress slowed. Still, Powell repeated that decisions will be made meeting by meeting and clarified that it is unlikely the next policy move will be a hike. He added that cutting rates is an option if inflation resumes its fall but also if there is weakness in the labor market, uplifting the relevance of employment-related figures ahead of the next Fed decision.

Data released these days showed the labor market remains tight. The ADP survey indicated that the private sector added 192K new positions in April while the number of job openings remained little changed at 8.5 million on the last business day of March, according to the JOLTS Job Openings report. Furthermore, the US reported Unit Labor Costs in the first quarter of the year rose 4.7%, implying an upward risk to inflaiton, while Nonfarm Productivity in the same quarter advanced a measly 0.3%.

Another indicator of labor sector performance will be the April Nonfarm Payrolls report, which will be out on Friday. The US is expected to have added 243K, while the Unemployment Rate is foreseen steady at 3.8%. The report includes an update on wages, while separately, the US will release the April ISM Services PMI, an indicator of economic health.

From a technical perspective, the daily chart shows sellers rejected advances for a second consecutive day around $2,326.50, the 23.6% Fibonacci retracement of the $1,996.06/$2,431.43 rally. The same chart shows the 20 Simple Moving Average (SMA) remains flat just above the mentioned level, while the longer ones maintain their upward slopes well below the current price. Finally, technical indicators held within negative levels with uneven strength, skewing the risk to the downside.

The 4-hour chart shows the pair is currently developing below bearish 20 and 100 SMAs, although a modestly bullish 200 SMA. Technical indicators recovered from their early lows but remain below their midlines and are losing their upward strength, suggesting buyers are not interested at the time being.

SELL GOLD on all rallies 2330 exit 2270
SELL GBPUSD on all rallies  12565 exit 12475
SELL EURUSD on all rallies 10748 exit 10680
BUY USDJPY 152.66 exit 154.28

Prepared by: Mr. SAM KIMA, Senior Vice President