Forex Forecast & Forex Technical Outlook for 29 April 2024 to 03 May 2024 - Paste text,images,html and share with anyone

The persistent inflation and resilient consumer demand indicators revealed in this week’s economic data further undermine the case for implementing summer rate cuts. Initial estimates of first-quarter GDP indicated a deceleration to an annualized rate of 1.6%, accompanied by a significant rise in the core PCE deflator. Notwithstanding elevated interest rates and inflation, consumers demonstrated steadfast spending patterns, as evidenced by their substantial personal consumption expenditures in the first quarter and March.

April PMI data from the United Kingdom and the Eurozone highlighted the stark contrast between sluggish manufacturing and robust service sector activity. However, the data continues to be optimistic, consistent with forecasts of moderate recoveries in growth for both economies this year. Although the Bank of Japan has not altered its stance on monetary policy this week, it is not unreasonable to consider the possibility that policy normalization could continue by the end of the year.

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Forex Technical Outlook for 22 April 2024 to 26 April 2024

Let’s see the list of events to look at this week:

German Prelim CPI m/m on Monday
CNY Manufacturing PMI on Tuesday
CAD GDP m/m on Tuesday
CB Consumer Confidence on Tuesday
ADP Non-Farm Employment Change on Wednesday
Federal Funds Rate and FOMC Statement on Wednesday
US Non-Farm Employment Change on Friday

Let’s see the market outlook from the weekly forecast:

EUR/USD

As traders digested the implications of the March core Personal Consumption Expenditures Price Index (PCE), the US Federal Reserve’s (Fed) preferred inflation metric, the EUR/USD pair declined below 1.0700 on Friday.

Following the report’s publication, the pair initially surged, only to retreat substantially after that, falling below the critical 1.0700 level. The reversal occurred after the release of core PCE data, which indicated a year-over-year reading of 2.8%, surpassing the anticipated value of 2.6% set by analysts and previously documented at 2.8%, as per the US Bureau of Economic Analysis (BEA). The monthly increase in Core PCE was 0.3%, which aligns with previous readings.

The probability that the Federal Reserve would opt to reduce interest rates in September increased marginally following the release, from 59% before the event to 60% after that.

EUR/USD moved higher and found resistance at the 20-day EMA line from where a bearish daily candle appeared. The simple trend trading opportunity would be a potentially bearish signal for this pair, targeting the 1.0520 support line. However, the downside momentum is valid as long as the price trades below the 100-day SMA.

GBP/USD

The consistent decline observed in the GBP/USD pair can be attributed to strong anticipations that the Bank of England (BoE) will commence reducing interest rates after its June meeting.

Policymakers at the Bank of England (BoE) have yet to provide an exact timeframe for implementing interest rate reductions despite their expectation of a substantial decline in inflation in the future months. Andrew Bailey, governor of the Bank of England, stated at the press conference that followed the most recent monetary policy meeting that market expectations of two to three rate cuts this year are not “irrational.”

Concurrently, the economic prognosis for the United Kingdom has improved, notwithstanding the BoE’s continuing elevated interest rates. Despite a deceleration in Manufacturing PMI, the preliminary April PMI report from S&P Global/CIPS, released on Tuesday, indicates robust service sector activity, which has bolstered overall economic activity. Furthermore, the data indicates substantial influxes of fresh business in the service industry.

Typically, a surge in service demand results in wage and employment increases within the industry, contributing to inflationary pressures. This occurrence may hinder advancements in attaining the intended inflation rate of 2%. In addition, BoE policy makers continue to be concerned about the elevated inflation in the service sector. At present, the annual service inflation rate in the United Kingdom is 6%, which exceeds the threshold required to enable a reduction in inflation to the intended 2%.

GBP/USD formed a bottom and showed a bullish V-shape recovery last week, which could be a primary sign of a trend reversal. However, the 20-day EMA is an immediate resistance from where a bullish breakout could be a potential long opportunity.

AUD/USD

The AUD/USD pair is trading in the 0.6540s, maintaining its upward momentum following the US core Personal Consumption Expenditures Price (PCE) Index data for March. Despite the data indicating a higher-than-anticipated inflation rate, the US Dollar (USD) exhibits minimal response across most pairs, including AUD/USD, which appears poised to record its fifth consecutive daily gain if it concludes Friday on a bullish note.

In March, US core PCE registered at 2.8% year-over-year, surpassing the expected 2.6% and mirroring the previous 2.8%, while headline PCE climbed to 2.7%, exceeding the anticipated 2.6% and the prior 2.5%. The monthly PCE data aligned with expectations.

The subdued reaction of the US Dollar could be attributed to its prior adjustment to inflationary Gross Domestic Product (GDP) data for the first quarter released on Thursday, which anticipated the inflationary core PCE figures.

Although US GDP growth slowed in Q1, the GDP Price Index, a gauge of goods inflation, rose considerably higher than before. Consequently, the US Dollar strengthened across most pairs, prompting AUD/USD to retract its earlier gains, dipping to a low of 0.6486 following the release.

With persistent inflation, the Reserve Bank of Australia (RBA) is perceived as the final G10 central bank likely to implement interest rate cuts, prompting some analysts to delay projections for an RBA rate cut until February 2025. This anticipation that Australian interest rates will decline more gradually than those of other nations provides support for the AUD, as relatively higher interest rates attract greater capital inflows.

AUD/USD rebounded higher and formed multiple daily candles above the 20-day EMA line. Moreover, the trendline resistance is protected, which could be the primary target of the bull run. A daily candle above the 0.6650 level could extend the gain, targeting 0.6871 as an ultimate target.

USD/JPY

The Japanese Yen (JPY) appreciated against the American equivalent to a new multi-decade low of 156.99 on Friday, as the Bank of Japan (BoJ) maintained its policy settings and US inflation continued to rise.

Despite the post-meeting press conference where BoJ Governor Kazuo Ueda attempts to offer solace, the Yen experiences a transient recovery after an intervention attempt that seems to have taken place on Friday morning. As the BoJ’s uncertain rate outlook, indications of a slowdown in inflation in Japan, and an overall uptick in equity market sentiment continue to weigh heavily on the JPY’s allure as a safe haven currency, a strong selling bias persists.

USD/JPY continued moving higher and made a record high last Friday. However, the gap between the price and dynamic 20 EMA has expanded, suggesting a bearish correction before extending the gain.

XAU/USD

The price of gold (XAU/USD) fell from $2,350 on Friday, as the annual core Personal Consumption Expenditure Price Index (PCE) data for March in the United States surpassed expectations. The underlying annual inflation rate increased quicker by 2.7%, exceeding the anticipated 2.6%, albeit slower than the 2.8% observed in February.

The unexpectedly high inflation figures diminish anticipations of interest rate reductions by the Federal Reserve (Fed) at its monetary policy meeting in September, thereby diminishing the allure of gold. The monthly data on underlying inflation is consistent with expectations and the prior estimate of 0.3%. The prevailing conditions are advantageous for bond yields and the US Dollar.

The yield on 10-year US bonds declined marginally to 4.69%, remaining near a five-month peak. Due to the increased probability that the Federal Reserve will delay rate cuts until later in the year, yields remain robust despite the failure to reduce inflation to the target of 2%.

In the interim, the US Dollar Index (DXY), a metric used to assess the strength of the US Dollar relative to six prominent currencies, recovered to 105.80 after disclosing inflation data that exceeded expectations. However, sluggish US Q1 GDP growth cast doubt on the economy’s ability to maintain momentum in the coming quarters, and the US Dollar weakened on Thursday.

The XAU/USD formed a bullish reversal from the dynamic 20-day EMA and static 2291.16 level. This is a sign of a bullish trend continuation signal, with the main aim of testing the 2440.00 level.

The alternative approach is to seek a bearish opportunity after having a stable bearish pressure below the 2290.00 line.

BTC/USD

The Personal Consumption Expenditures (PCE) index, which the Federal Reserve uses as its benchmark for inflation, surpassed all projections in March, indicating that U.S. prices will continue to rise.

This unforeseen increase, which signifies a deceleration in the reduction of inflation beyond expectations, implies that the Federal Reserve might extend its support for elevated interest rates. As a result, high-risk assets such as Bitcoin and equities are buffeted.

To assess inflation trends at their foundation, policymakers at the Federal Reserve closely observe a core indicator, which excludes the volatile costs of food and energy. In comparison to February, this indicator remained unchanged at 2.8%.

Jack Mallers, the CEO of Strike, recently issued an audacious forecast regarding the price of Bitcoin that considers financial instabilities in the bond markets, which may be influenced by interest rate adjustments. Mallers predicted that Bitcoin’s price could reach $1 million, citing that stabilization of these markets would necessitate a bailout, which could result in significant liquidity injections and inflation of asset prices, including Bitcoin. The speaker emphasized the scarcity and fixed supply of Bitcoin, which, in conjunction with increased demand amid financial instability, are factors in its exceptional value growth.

The capped supply of Bitcoin, which Mallers characterized as the “hardest” money ever created, stands in striking contrast to the fiat currencies vulnerable to inflation. Bitcoin’s intrinsic hardness establishes it as a more valuable store of value than conventional assets such as gold, the supply of which can be further expanded.

According to the daily price of BTC/USD, a prolonged consolidation is seen, which might result in a bullish continuation after completing the re-accumulation phase. In that case, investors should monitor how the price reacts at the 60000.00 psychological level, from which a bullish exhaustion could be a high-probability long signal.

However, the upcoming halving event could be a crucial trend identifier for this instrument, which might create a long-term bull run, following the previous halving sentiments.