Swiss Franc Surges, Yen Under Pressure, Aussie Looking at Copper

Yen is once again back under selling pressure today, with the selloff mainly concentrated against Swiss Franc, and to a lesser extent Euro. Risk-on sentiment, rising benchmark treasury yields, and the expectation of BoJ keeping policy ultra-loose will likely keep Yen weak for the time being. The only question is whether selling would intensify again. That might depend on market reactions to the development regarding US debt ceiling negotiations. Meanwhile, Australian and Canadian Dollar are following Yen as the next weakest. On the other hand, New Zealand Dollar is following Swiss Franc and Euro as the next strongest. Dollar and Sterling are mixed in the middle.

Technically, AUD/USD might be ready to breakout from established range of 0.6563/6817 this week. The direction could very much depend on the next move in Copper. While Copper stabilized just ahead of 100% projection of 4.3556 to 3.8229 from 4.1743 at 3.6416, there is no sign for a sustainable bounce yet. Indeed, decisive break of 3.6416 could prompt downside acceleration towards 161.8% projection at 3.3124. That should most likely drag AUD/USD through 0.6563. However, firm break of 3.8229 would indicate near term bullish reversal, and help lift AUD/USD for a test on 0.6817 resistance at least.

In Europe, at the time of writing, FTSE is up 0.03%. DAX is down -0.38%. CAC is down -0.32%. Germany 10-year yield is up 0.0270 at 2.452. Earlier in Asia, Nikkei rose 0.90%. Hong Kong HSI rose 1.17%. China Shanghai SSE rose 0.39%. Singapore Strait Times rose 0.27%. Japan 10-year JGB yield dropped -0.0197 to 0.387.

CHF/JPY resumes up trend, heading to 156 next

CHF/JPY resumes recent up trend today by breaking through 153.93 resistance, and reaches as high as 154.38 so far. The move is firstly driven but return to weakness in Yen, following extended rally in US and European benchmark treasury yields. Nikkei also ended up for another day and closed above 31k handle, extending the run for the highest level in more than 30 years. Secondly, Swiss Franc is also rising against European majors, even though it’s starting to hesitate.

Near term outlook in CHF/JPY will now stay bullish as long as 149.77 support holds even in case of retreat. Next target is 161.8% projection of 137.40 to 147.58 from 140.21 at 156.68.

The momentum of CHF/JPY will very much depend on the performance of Swiss Franc elsewhere. In particular, if EUR/CHF could break through 61.8% retracement of 0.9407 to 1.0095 at 0.9670 decisively towards 0.9407 low, CHF/JPY could accelerate up in tandem. However, bottoming and rebound in EUR/CHF from current level could cap CHF/JPY’s upside momentum.

Fed Kashkari: It’s a close call for June, but we’re not done

In an interview with CNBC, Minneapolis Fed President Neel Kashkari acknowledged the uncertainty surrounding the decision whether to raise rates further in June. He highlighted, “I think right now it’s a close call, either way, versus raising another time in June or skipping. What’s important to me is not signaling that we’re done.”

Kashkari clarified that even if the Federal Reserve opted not to hike rates in June, it wouldn’t signal the end of the current tightening cycle. Instead, it would be a strategic move to gather more information and potentially reinitiate the raise in July.

Considering his tenure on the committee, which spans “seven or eight years”, Kashkari conceded that this period marks the highest degree of uncertainty they’ve faced in terms of comprehending the underlying inflationary dynamics. Consequently, he is placing a greater emphasis on inflation to guide his decisions.

He speculated, “It may be that we need to go north of 6%, let’s see what happens in the underlying services economy.” Yet, Kashkari is mindful of the potential impact of banking stress on inflation rates.

“But if the banking stresses start to bring inflation down for us, then maybe we’re getting closer to being done. I just don’t know right now,” he added.

RBNZ shadow board divided on rate hike this week

NZIER disclosed that its RBNZ Shadow Board is in disagreement over whether RBNZ should raise OCR the Official Cash Rate (OCR) this week. A “large number” of the Shadow Board members viewed a 25bps to 5.50% as “warranted”. But “the rest” recommended to hold at 5.25%.

This discord was extended to future projections, as NZIER noted a divergence of opinion regarding where OCR should stand in twelve months.

The Shadow Board acknowledged several recent economic developments that indicated a slowing pace in New Zealand economy, including weaker government tax revenue, decreased consumer spending, and ongoing declines in business profitability.

However, members also recognized potential inflation risks from rising net migration inflows and any new fiscal stimulus in the new Budget.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.8960; (P) 0.9010; (R1) 0.9044; More

USD/CHF’s retreat from 0.9061 extends lower today but stays above 0.8918 support. Intraday bias remains neutral first and outlook is unchanged. Rebound from 0.8818 short term bottom is expected to continue as long as 0.8918 minor support holds. On the upside, sustained trading above 55 D EMA (now at 0.9039) should confirm that current rally is at least correcting whole down trend from 1.0146. Further rise should then be seen to 38.2% retracement of 1.0146 to 0.8818 at 0.9325. On the downside, though, break of 0.8918 will bring retest of 0.8818 low instead.

In the bigger picture, fall from 1.1046 (2022 high) is seen as a leg in the long term range pattern from 1.0342 (2016 high). So, downside should be contained by 0.8756 to bring reversal. Sustained break of 0.9058 support turned resistance will be the first sign of medium term bottoming. However, decisive break of 0.8756 will carry larger bearish implications.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY Machinery Orders M/M Mar -3.90% 0.70% -4.50%
14:00 EUR Eurozone Consumer Confidence May P -17 -18

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