Yen rips higher on Japan intervention, EZ inflation in focus

Headlines

* Japanese financial authorities intervened in forex market to support yen

* Eurozone inflation set for sideways move; Q1 GDP likely to return to growth

* Dollar dips as markets wait for FOMC meeting and NFP data

* Stocks edge higher to kick off new week as Tesla jumps

FX: USD sold-off but hasn’t broken the recent range just below 106. Major risk events are on the horizon with the Fed meeting and US monthly employment data. A relatively more hawkish Powell is priced in so there may be some caution ahead of Wednesday. Money markets predict around 35bps of easing for this year.

EUR found a bid but remains below last week’s high at 1.0752. German headline inflation remained stable in April hinting that the disinflation trend has stalled, and prices remain sticky. Core inflation fell again and should keep a June rate cut in play. The region’s price data is released today.

GBP pushed higher to two-week highs and up to its 200-day SMA at 1.2556. It was stronger versus the euro for a fifth straight day. There’s little UK data out this week so prices will be directed by US events. A bullish outside range weekly candle hinted at higher prices. The 50-day SMA is at 1.2623.

USD/JPY finally succumbed to intervention after hitting 160.20 in the early hours of Monday. The major fell sharply in three main parts and to a low at 154.51 before rebounding. Japanese markets are closed for Golden Week, so liquidity was thin. Key questions still to be answered include if this was a one-off or a more prolonged campaign of intervention. Softer US data is really needed for a decisive move lower.

AUD enjoyed a sixth consecutive days of gains on spillover from the JPY move. Prices touched the 200-day SMA at 0.6584. USD/CAD edged lower as firmer stocks and stronger commodity prices have all helped an improvement in the loonie.

Stocks: US equities were choppy as markets focused on JPY intervention ahead of the big risk events. The broad-based benchmark S&P 500 finished 0.32% higher at 5147. The tech-dominated Nasdaq 100 added 0.36% to close at 17,878. The Dow Jones marginally outperformed, up 0.38% to settle at 38,596. Tesla surged 15.3% after the EV-maker had its Full Self-Driving system tentatively approved in China in a Baidu tie-up. That was its biggest one-day gain since 2021. But it still leaves Tesla down 22% this year amid a dark outlook for EV sales growth. Alphabet gave back 3.3% after storming higher after its better-than-expected results last week. Amazon reports after the US close today. The megacap’s cloud computing business will be in focus while investors will be attuned to the online retailing giant’s view of consumer spending. Its shares have risen around 20% this year.

Asian Stocks: APAC futures traded positively to kick off the week after the tech surge on Wall Street last week. The ASX 200 moved north led by real estate and tech. China indices were in the green with Hong Kong entering bull market territory after climbing over 20%% from its January lows. The Nikkei 225 was closed.

Gold posted a narrow-ranged low after dipping below $2300 last week. The 10-year Treasury yield moved down and further away from last week’s high above 4.73%. Yields and the dollar could be volatile on the FOMC meeting and NFP.  

Day Ahead – Eurozone data

Headline HICP in the euro area is forecast to hold steady at 2.4% y/y in April. But there are upside risks due to strong upward pressure on oil and gas prices. The all-important core, which strips out volatile food and energy costs, is seen declining to 2.7% y/y from 2.9%. The March data saw a pullback in both headline and core inflation with the former dragged lower by food and energy prices. Sticky services inflation will be watched, which printed at 4% previously.

For the Q1 GDP report, expectations are for a print of 0.2% q/q. This is an improvement from the flat print in Q4. The annual measure is seen at 0.2% y/y, up from the prior 0.1%. There should be modest support from consumers. But the main boost will come from weaker imports and a rebound in exports driving the gains. The region’s economy appears to have turned a corner with the recent PMIs painting a reasonably upbeat picture.

Chart of the Day – EUR/USD trading around a major Fib level

The data focus will likely mainly fall on the inflation data given those timelier PMI metrics will likely overshadow the GDP data. Currently, ECB policymakers are pretty in tune with a June rate cut. However, commentary from hawks on the Governing Council is attempting to guide markets towards not expecting back-to-back rate cuts. This would suggest a potential path of reductions at the June, September, and December meetings. Those have accompanying new staff macro projections. But markets now price in less rate cuts, with around 66bps for 2024.

EUR/USD’s rebound from the 1.06 support area continues to develop but progress is choppy. The major is currently trading around a Fib level of the Q4 rally at 1.0712. Friday’s sharp fall left a bearish outside range day which would ordinarily mean more downside to come. Last week’s high and next resistance is at 1.0752. A fall below 1.0673 could see prices move quickly towards 1.06.