Forex Signals Brief May 21: Further Slowdown in Canada Inflation

There were no economic releases yesterday with Europe and Canada being on bank holiday. The US dollar strengthened as US Treasury rates rose. However, several Federal Reserve officials spoke, and the overall narrative is that the Fed is currently on hold. The April CPI report was encouraging, but it represented only one data point.

Inflation was notably weak in the first quarter of 2024. As a result, the Fed has adopted a wait-and-see approach, emphasizing the need to monitor incoming data before making further policy decisions. Discussions about reducing rates have diminished, and there is even some speculation that the Fed might still consider tightening if inflation does not show

Fed’s Bostic and Daly:

• Both officials highlight the cautious approach the Fed is taking regarding inflation reaching the 2% target. They emphasize the need for patience and continuous monitoring of inflation trends before making any decisions on policy adjustments.
• Daly specifically mentions shelter inflation, indicating expectations for gradual improvements in this component. This suggests that the Fed is closely watching various factors contributing to inflation dynamics.

Fed’s Jefferson:

• Jefferson acknowledges the restrictive nature of the current policy rate, indicating that despite ongoing improvements in the labor market and moderate declines in inflation, the pace of progress is not as rapid as anticipated.
• He underscores the importance of evaluating incoming economic data and the evolving economic outlook when determining appropriate policy rates, suggesting a data-dependent approach.

Fed’s Barr:

• Barr characterizes Q1 inflation as “disappointing” and emphasizes the need for confidence in inflation trends before considering any relaxation of monetary policy.
• He advocates for giving the current tight policy more time to effectively address inflation concerns, suggesting a patient approach to policy adjustments.
• Barr highlights the Fed’s readiness to “hold steady” and maintain vigilance over the economy, indicating a preference for maintaining the status quo until there is more clarity on inflation dynamics and economic conditions.

Today’s Market Expectations

Today started with the minutes from the latest RBA meeting, which were released in the Asian session.

Later we have the highlight of the day. The CPI Y0Y is predicted to be tick down to 2.8% from the previous month’s 2.9%. While this indicates a modest decrease in the year-over-year inflation rate, it remains within the BoC’s target range of 1-3%. CPI MoM is expected to be 0.5%, down from the previous year’s 0.6%. Trimmed-Mean CPI YoY is predicted to be fall to 2.9%, down from the previous year’s 3.1%. The Median CPI YoY is expected to tick down to 2.7% from 2.8% the year before, which would be bearish for the CAD.

Yesterday the volatility was low as the economic calendar was empty, so we didn’t open many forex signals. We went long on EUR/USD and shorted the Dow Jones index, but those trades didn’t close, so we only had one signals closed. The Bitcoin signal it the take profit target as BTC pushed to

Gold Prints Another Record High at $2,450 

Last week Gold (XAU/USD) closed above $2,400 for the first time in history, suggesting that a new high was imminent. The market’s reaction to weaker-than-expected CPI data triggered a flight to safe-haven assets, such as gold, pushing the XAU/USD pair back towards $2,400. The rebound from the $2,330 support level, which previously acted as resistance during April’s consolidation period, indicated bullish market sentiment, which pushed the price higher yesterday, touching the $2,450 level. This recovery, combined with the 20-period Simple Moving Average (SMA) on the H4 chart, reinforces Gold’s positive outlook.

XAU/USD – H4 chart

USD/JPY Continues the Upside Move

The AUD/USD pair experienced a notable increase last week, driven by a risk-on sentiment following disappointing US inflation data. This upward movement carried the pair above the 200-day Simple Moving Average (SMA), which is a significant technical milestone. Currently, the level near 1.2650, corresponding to the 200-day SMA, serves as crucial support for the pair, which means that it is a good place to look for AUD/USD longs during dips.

AUD/USD – Daily Chart

Cryptocurrency Update

Booking Profit in Bitcoin As Buyers Push To $70K Again

Since March, BITCOIN has demonstrated a pattern of lower highs, indicating a potential move into a downtrend or consolidation phase. However, this pattern appears to have been disrupted by last week’s uptrend. The recent decline in Bitcoin’s price to around $61,000 presented a buying opportunity for investors, as the 100-day Simple Moving Average (SMA) has turned into support, which aligns with our own position. Previously, technical indicators such as the 50-day and 20-day SMAs acted as resistance, hindering Bitcoin’s upward momentum. These levels have now been breached, suggesting that the 50-day moving average is likely to become a new support level on the daily chart and yesterday BTC touched $70,000 for the first time since early April, reaching our TP BTC target.

BTC/USD – Daily chart

A 20% Surge in Ethereum 

Ethereum (ETH) has experienced significant price volatility, frequently dipping below the $3,000 mark before recovering. This pattern of oscillations highlights Ethereum’s resilience, as it consistently rebounds above the $3,000 milestone. The repeated recovery indicates strong support levels below $3,000, which have been crucial in helping ETHEREUM bounce back from downturns. However, the 100-day Simple Moving Average (SMA), now acting as resistance, has capped Ethereum’s advances. Following another bounce off the support zone last week, ETH’s upward momentum was halted at the 100 SMA (green). However, yesterday Ethereum surged higher after the break of MAs.

ETH/USD – Daily chart