Dollar Strengthens Modestly as Forex Markets Quiet

The forex markets are displaying some calmness today. While Dollar is trading as the strongest performer, it lacks clear upside momentum indicating a reversal of the decline started last week. With no significant economic data expected from the US for the remainder of the week, Dollar’s next move hinges on shifts in risk sentiment and movements in other major currencies.

Meanwhile, New Zealand Dollar is standing as the second strongest, benefiting from Australian Dollar’s selloff following RBA’s decision to maintain a neutral stance without leaning towards a hawkish tone. Additionally, Euro garners support from better-than-expected Eurozone retail sales data, positioning it as the third strongest currency for the day.

In contrast, Japanese Yen underperforms, emerging as the worst performer, followed by Australian Dollar and Swiss Franc. Sterling and the Canadian Dollar hold intermediate positions.

Technically, AUD/USD’s retreat from 0.6645 temporary top is so far rather shallow. As long as 55 4H EMA (now at 0.6554) holds, further rally will remain in favor. Break of 0.6645 will summarize the whole rise from 0.6361 to 100% projection of 0.6361 to 0.6585 from 0.6464 at 0.6688. The next move will depend on how risk markets flare, in particular in Asia.

In Europe, at the time of writing, FTSE is up 1.10%. DAX is up 0.64%. CAC is up 0.33%. UK 10-year yield is down -0.0749 at 4.152. Germany 10-year yield is down -0.028 at 2.446. Earlier in Asia, Nikkei rose 1.57%. Hong Kong HSI fell -0.53%. China Shanghai SSE rose 0.22%. Singapore Strait Times fell -0.10%. Japan 10-year JGB yield fell -0.0337 to 0.872.

Eurozone retail sales rises 0.8% mom in Mar, EU up 1.2% mom

Eurozone retail sales volume grew 0.8% mom in March, above expectation of 0.6% mom. Volume of retail trade increased for food, drinks, tobacco by 1.2%, for automotive fuel in specialized stores by 2.0%. Volume was stable for non-food products (except automotive fuel).

EU retail sales grew 1.2% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were recorded in Poland (+7.3%), Cyprus (+4.8%) and Hungary (+2.0%). The largest decreases were observed in Sweden (-1.8%), Malta (-1.0%) and Austria (-0.8%).

UK PMI construction hits 14-month high but hiring trend underdued

UK PMI Construction emerged from 50.2 to 53.0 in April, marking its most robust reading since February 2023. According to S&P Global, this growth was primarily driven by increased activity in commercial projects and civil engineering. However, house building experienced a decline, albeit amid improving supply conditions.

Tim Moore, Economics Director at S&P Global Market Intelligence, highlighted the sector’s consolidation of its return to growth, with overall industry activity expanding at the fastest pace in 14 months. This growth was fueled by heightened confidence in the UK’s economic outlook, leading to increased demand for construction services. Despite the uptick in workloads, hiring remained underdue, aligning with broader trends observed across the UK economy.

RBA stands pat, upgrades inflation forecasts, not ruling anything in or out

RBA left cash rate target unchanged at 4.35% as widely expected. The central bank maintained that it’s “not ruling anything in or out” regarding the next move in monetary policy because of uncertainty surrounding inflation outlook.

In the new economic forecasts, both headline and core inflation forecasts for 2024 are substantially upgraded. Meanwhile, growth forecasts were downgraded slightly for both 2024 and 2025.

Year-average GDP growth:

  • For 2024 downgraded from 1.5% to 1.3%
  • For 2025 downgraded from 2.2% to 2.1%.

Year-ended CPI inflation:

  • For Dec 2024 upgraded from 3.2% to 3.8%.
  • For Dec 2025 unchanged at 2.8%.
  • For June 2026 at 2.6% (new).

Year-ended trimmed mean inflation:

  • For Dec 2024 upgraded from 3.1% to 3.4%.
  • For Dec 2025 unchanged at 2.8%.
  • For June 2026 at 2.6% (new)

Japan’s PMI services finalized at 54.3, strong demand and rising costs

Japan’s PMI Services for April ended at 54.3, slightly up from March’s 54.1. PMI Composite also saw an uptick, reaching 52.3, the highest level since August 2023.

According to Tim Moore, Economics Director at S&P Global Market Intelligence, April showcased “another strong month” for the service sector, driven by increasing business and consumer spending. This momentum resulted in the fastest upturn in business activity since August 2023. Despite challenges such as shortages of candidates hindering recruitment, positivity regarding the longer-term business outlook contributed to solid employment growth.

However, rising wage costs have emerged as a significant concern, leading to the sharpest increase in average cost burdens in eight months. Service providers are responding to elevated cost pressures by seeking higher prices from clients, with the latest survey indicating the fastest pace of price increases since the sales tax hike in April 2014.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0753; (P) 1.0772; (R1) 1.0789; More…

EUR/USD is staying in consolidation below 1.0810 temporary top and intraday bias stays neutral. While deeper retreat cannot be ruled out, further rally is expected as long as 55 4H EMA (now at 1.0725) holds. On the upside, above 1.0810 will summarize the rebound from 1.0601 to 1.0884 resistance next. However, firm break of 55 4H EMA will turn bias to the downside for 1.0648 support instead.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern. Fall from 1.1138 is seen as the third leg and could have been completed. Firm break of 1.1138 will argue that larger up trend from 0.9534 (2022 low) is ready to resume through 1.1274 high. On the downside, break of 1.0601 will extend the corrective pattern instead.

Economic Indicators Update

GMT ccy Events Current Forecast Previous Revised
00:30 JPY Services PMI Apr F 54.3 54.6 54.6
04:30 AUD RBA Interest Rate Decision 4.35% 4.35% 4.35%
05:30 AUD RBA Press Conference
05:45 CHF Unemployment Rate M/M Apr 2.30% 2.30% 2.30%
06:00 EUR Germany Trade Balance (EUR) Mar 22.3B 22.4B 21.4B
06:00 EUR Germany Factory Orders M/M Mar -0.40% 0.40% 0.20%
06:45 EUR France Trade Balance (EUR) Mar -5.5B -5.0B -5.2B -5.6B
07:00 CHF Foreign Currency Reserves (CHF) Apr 720B 715B
08:30 GBP Construction PMI Apr 53 51.1 50.2
09:00 EUR Eurozone Retail Sales M/M Mar 0.80% 0.60% -0.50% -0.30%
14:00 CAD Ivey PMI Apr 58.1 57.5
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