By Laila Kearney

NEW YORK (Reuters) – Oil prices fell by nearly $1 a barrel on Friday as comments from U.S. central bank officials indicated higher-for-longer interest rates, which could hinder demand from the world’s largest crude consumers.

Brent crude futures were down 93 cents, or 1.1%, to $89.95 a barrel by 1:29 p.m. ET (1729 GMT), while U.S. West Texas Intermediate crude shed 88 cents, or 1.1%, at $78.38 a barrel.

Both benchmarks headed for weekly losses.

Oil prices also were pressured as the U.S. dollar strengthened after Dallas Federal Reserve President Lorie Logan said it was unclear whether policy was tight enough to bring down inflation to the U.S. central bank’s 2% goal. A strong dollar makes greenback-denominated commodities more expensive for buyers using other currencies, and higher-for-longer U.S. interest rates could also dampen demand.

Higher interest rates typically slow economic activity and weaken oil demand.

Atlanta Fed President Raphael Bostic also told Reuters he thought inflation was likely to slow under the current monetary policy, enabling the central bank to begin reducing its policy rate in 2024 – though perhaps by only a quarter of a percentage point and not until the final months of the year.

“The two fed speakers certainly seemed to put the kibosh on the prospect of rate cuts,” said John Kilduff, a partner at Again Capital LLC.

Prices were also under pressure from rising U.S. fuel inventories approaching the typically robust summer driving season, said Jim Ritterbusch of Ritterbusch and Associates.

“Given the price decline of the past month and the weaker-than-expected demand trends for U.S. gasoline and diesel, some bearish demand adjustment would appear likely,” Ritterbusch said.

Next week, U.S. inflation data could influence Fed decisions on interest rates.

Prices drew little support from the U.S. oil rig count, which is an indicator of future supply, despite energy services firm Baker Hughes data showing the oil rigs fell by three to 496 this week, their lowest since November. [RIG/U]

Data on Thursday showing China imported more oil in April than the same month last year also helped to keep oil prices from moving lower. China’s exports and imports returned to growth in April after contracting the previous month.

The European Central Bank, meanwhile, looks increasingly likely to start cutting rates in June.

In Europe, a Ukrainian drone attack set an oil refinery in Russia’s Kaluga region on fire, RIA state news agency reported on Friday, the latest salvo from Kyiv in what has become a series of tit-for-tat attacks on energy infrastructure.

Conflict in the Middle East also continues after Israeli forces bombarded areas of the southern Gaza city of Rafah on Thursday, according to Palestinian residents, after a lack of progress in the latest round of negotiations to halt hostilities in Gaza.

(Additional reporting by Natalie Grover in London, Katya Golubkova in Tokyo and Sudarshan Varadhan in Singapore; Editing by Marguerita Choy and David Gregorio)

Investing.com– Oil prices moved little in Asian trade on Wednesday, as signs of a potential build in U.S. inventories and anticipation of key inflation data kept traders from making any large bets. 

Markets were also watching for any progress in ceasefire talks between Israel and Hamas, although the latest round of negotiations appeared to be making little headway.

Chatter over a potential ceasefire in the Middle East had pulled oil prices off five-month highs earlier this week. But losses in crude were also limited by little progress in the ceasefire talks, while Iran threatened military action against Israel.

Brent oil futures expiring in June steadied at $89.49 a barrel, while West Texas Intermediate crude futures rose 0.1% to $84.54 a barrel by 20:24 ET (00:24 GMT). 

US inventories see bigger-than-expected build- API

Data from the American Petroleum Institute showed late-Tuesday that U.S. crude inventories grew a bigger-than-expected 3 million barrels in the week to April 5. 

The reading suggested that supplies in the world’s largest fuel consumer were possibly not as tight as markets were hoping for, especially amid record-high production. 

But a sustained draw in gasoline inventories showed fuel demand remained robust.

The API data usually heralds a similar reading from official inventory data, which is due later on Wednesday.

The U.S. Energy Information Administration hiked its outlook for U.S. oil production this year- a trend that could potentially herald less tight supplies.

But the EIA also said it expects Brent to average $88.55 a barrel in 2024, up from a prior forecast of $87 a barrel. 

CPI data looms, rate outlook uncertain

A key point of focus for crude markets was U.S. consumer price index inflation data, due later in the day. The reading is widely expected to factor into the outlook for U.S. interest rates, and is also expected to offer markets with more cues for their next leg of movement.

Wednesday’s CPI report is expected to show inflation picked up slightly in March- a trend that bodes poorly for crude markets, given that it gives the Federal Reserve more impetus to keep rates higher for longer. 

The CPI report comes after a blowout nonfarm payrolls print last week. Several Fed officials also warned in recent sessions that sticky inflation will deter the central bank from cutting interest rates early. 

High rates and inflation are expected to weigh on economic activity and also chip away at oil demand. 

Gasoline prices increased this week to hover above last year’s average amid rising oil prices, falling inventories, and a more expensive summer blend of gas.

The national gas average on Friday sat at $3.53 per gallon, nearly $0.10 higher than a year ago, according to AAA data.

“Gas prices are a lot like seasonal temperatures. They start to rise with the arrival of spring,” said Andrew Gross, a spokesperson for AAA.

The national average on Friday sat at a higher levelthan a year ago for the first time since late December.

Prices in California, the most expensive state for gasoline, approached $4.97 per gallon, $0.14 more the same day last year.

Gasoline prices typically rise heading into the spring as more motorists get on the road and refineries introduce a more expensive summer driving fuel blend. This year’s retail prices have also been impacted by a steady climb in crude oil futures.

As of Friday, West Texas Intermediate (CL=F) contracts were hovering around $81 per barrel while Brent (BZ=F), the international benchmark price, traded near the $85 level. Brent and WTI have gained about $10 per barrel since the start of the year.

Ongoing output cuts from oil alliance OPEC+ along with Russian refinery interruptions stemming from Ukrainian drone attacks have lifted crude prices in recent weeks.

“While inventories are shrinking, most traders feel the latest rally in prices has happened a bit too far too fast and a corrective phase is needed. Still, the decline in Russia’s global exports (due to Ukrainian attacks) will be a supply factor as driving season begins, ” Dennis Kissler, senior vice president at BOK Financial, said in a recent note.

GVZ, or the gold volatility index, witnessed a strong move higher on Thursday as markets digested the recent Fed statement and latest summary of economic projections. The projections invalidated a growing belief in the market that the Fed will be forced to forgo a third rate cut in 2024 due to robust US data and resulted in a dovish repricing in the dollar. 

However, it has not taken long for markets to rally behind the dollar once again – something that is likely to keep the greenback supported into Friday’s PCE data which falls on Good Friday.

The chart below reveals gold’s recent responsiveness to the dollar (DXY) and shorter-term yields like the US 2-year yield. The aggressive move higher corresponded with falling yields and a lower USD but shortly thereafter,

Daily Gold Chart with DXY and 2-Year US Treasury Yields

Source: TradingView, prepared by Richard Snow

POTENTIAL EVENING STAR EMERGES MOMENTS AFTER PRINTING THE NEW ALL-TIME HIGH

An evening star could be emerging as the week came to a close, although the middle candle has a very notable upper wick which is not synonymous with the candle stick pattern. Nevertheless, price action suggests the recent move higher was an overreaction to the Fed news, as prices continued to ease into the weekend.

At the start of the coming week, the prior high of $2146.80 comes immediately into view as an early indication of whether bears may set the tone for the week. It’s a quiet week apart from final Q4 GDP data for the US and UK just to list a few and then on Friday PCE data for the month of Feb is due.

The dollars strong, immediate recovery poses a challenge for further upside for gold over the shorter-term and with few catalysts to choses from next week, gold may consolidate around the prior all time high with a view to trade lower.

Daily Gold Chart (XAU/USD)

Source: TradingView, prepared by Richard Snow

The weekly chart helps put golds multi-week advance into perspective. The week before the one that’s just passed revealed a bit of a slowdown in bullish momentum and the candle relating to the most recent trading week that’s just come to a close, reveals a rejection of higher prices.

In a married put strategy, an investor purchases an asset—such as shares of stock—and simultaneously purchases put options for an equivalent number of shares.2 The holder of a put option has the right to sell stock at the strike price, and each contract is worth 100 shares.

An investor may choose to use this strategy as a way of protecting their downside risk when holding a stock. This strategy functions similarly to an insurance policy; it establishes a price floor in the event the stock’s price falls sharply. This is why it’s also known as a protective put.

For example, suppose an investor buys 100 shares of stock and buys one put option simultaneously. This strategy may be appealing for this investor because they are protected to the downside, in the event that a negative change in the stock price occurs. At the same time, the investor would be able to participate in every upside opportunity if the stock gains in value. The only disadvantage of this strategy is that if the stock does not fall in value, the investor loses the amount of the premium paid for the put option.

In the P&L graph above, the dashed line is the long stock position. With the long put and long stock positions combined, you can see that as the stock price falls, the losses are limited. However, the stock is able to participate in the upside above the premium spent on the put. A married put’s P&L graph looks similar to a long call’s P&L graph.

With calls, one strategy is simply to buy a naked call option. You can also structure a basic covered call or buy-write. This is a very popular strategy because it generates income and reduces some risk of being long on the stock alone. The trade-off is that you must be willing to sell your shares at a set price—the short strike price. To execute the strategy, you purchase the underlying stock as you normally would, and simultaneously write—or sell—a call option on those same shares.1

For example, suppose an investor is using a call option on a stock that represents 100 shares of stock per call option. For every 100 shares of stock that the investor buys, they would simultaneously sell one call option against it. This strategy is referred to as a covered call because, in the event that a stock price increases rapidly, this investor’s short call is covered by the long stock position.

Investors may choose to use this strategy when they have a short-term position in the stock and a neutral opinion on its direction. They might be looking to generate income through the sale of the call premium or protect against a potential decline in the underlying stock’s value.

In the profit and loss (P&L) graph above, observe that as the stock price increases, the negative P&L from the call is offset by the long shares position. Because the investor receives a premium from selling the call, as the stock moves through the strike price to the upside, the premium that they received allows them to effectively sell their stock at a higher level than the strike price: strike price plus the premium received. The covered call’s P&L graph looks a lot like a short, naked put’s P&L graph.

https://www.youtube.com/watch?v=2rPwhkDilxw

Options trading is the practice of buying or selling options contracts. These contracts are agreements that give the holder the choice to buy or sell a collection of underlying securities at a set price by a specific date. Investors can, but don’t have to, own the underlying security to purchase or sell an option.

Options trading also involves two parties: the holder (buyer) and the writer (sometimes called the seller). Holders are investors who purchase contracts, while writers create them. The holder pays the writer a premium for the right to sell or buy a stock by a certain date. This premium is usually a fee per share, and it’s also the maximum a holder can lose if the contract expires worthless.

Options trading is appealing because it can allow a holder to make a bet on how a stock will perform without risking more than their initial investment. And though that might sound simple, the strategies involved in options trading can be complex. There are many other rules, risks and exceptions involved.

Success in options trading requires a strong understanding of options vocabulary, jargon and key concepts. To even get started, you’ll often need to sign an agreement and prove to your broker that you know what you’re doing.

How does options trading work?

When you trade options, you’re essentially placing a bet on if a stock will decrease, increase or remain the same in value; how much it will deviate from its current price; and in what time those changes will occur.

Based on those parameters, you can choose to enter into a contract to buy or sell a company’s stock. The most basic types of contracts are what options traders refer to as calls and puts.

After you’re locked in a contract, you can proceed in a few ways: You can exercise your right to buy or sell, you can resell your contract to another party, or you can elect for your contract to expire worthless. To recap:

• Holders purchase contracts. They can exercise their right to sell or buy the underlying stock before the contract expires. If they bet on a stock’s trajectory correctly, there’s potential for unlimited gains. If the contract expires worthless, the holder will, at most, lose their initial investment.

• Sellers, or writers, of contracts can make a profit off of the premiums they charge buyers. But they’re also liable for selling or buying the underlying stock at the strike price should the market move against their favor. This also means that in certain circumstances, losses can be unlimited.

Unlike stocks, options trades involve finite contract dates, which means that you don’t get the benefit of time to see if your trade will eventually move in the direction you want it to move. So options investors need to be armed with a certain level of confidence and knowledge about the stock market to make informed decisions.

Why trade options?

Typically, people trade options for three reasons: hedging, speculation or profit. Deciding whether to buy or sell — or which options trading strategy to use — largely depends on your objectives.

Hedging. Options can act as a “hedge” or as a sort of insurance to potentially help minimize risk from sudden changes in the market. Purchasing a protective put on a stock you own, for example, can help combat any resulting losses from that stock suddenly dropping.

Speculation. Similar to stocks, options can also be used in a speculative manner. You can place a bet on how a stock will perform over time, then purchase an options contract that reflects that view. The benefit is that you don’t have to own the underlying stock to purchase the contract and, if your bet doesn’t pan out, the maximum amount of money you’ll lose is your initial investment.

Profit. Some traders also use options for more general profit earning. That is, options can play a part in their larger investment strategies. Writers can make a profit off of the premiums they charge buyers. But they can also suffer a loss because of their obligation to fulfill the contract at the strike price.

Advantages and disadvantages of options trading

While options can arm an investor with a protective shield against loss, the nature of options trading remains inherently risky. Here are a few benefits and drawbacks to consider:

Advantages

• Cheaper than stocks (sometimes). Investors can get started with options using less capital than may be required for stock trading. That’s because the premium for purchasing a contract (i.e., a bundle of stocks) can be lower than purchasing shares of a stock upfront. But options traders may also be required to maintain a margin account with a brokerage, which can drive the price of total investment up.

• Low risk, high reward (sometimes). In an ideal world, option holders can magnify their wins by placing smart bets, but contracts can, and sometimes do, expire worthless. Although the loss will be limited to your initial investment, it’s still a net negative.

• Insurance policy. If a holder purchases a contract that inversely reacts to a stock they own, this can help them hedge against potential losses should the underlying stock price drop. Options also allow holders to lock in a fixed price, which can feel safer than traditional investing as it gives them an out when things go sideways.

Disadvantages

• Educational investment. Options trading requires a certain commitment to mastering vocabulary, jargon and options strategies to trade knowledgeably. If you’re new to investing or prefer a hands-off approach, this type of trading may feel overwhelming.

• High risk for sellers and some additional costs. Writers of contracts can expose themselves to sizable risk — such as theoretically unlimited losses — when engaging in certain strategies. Meanwhile, holders may also be asked to set up margin accounts to trade, which come with additional fees, such as interest rates.

• Taxes. When it comes to stocks, you can generally choose how long to hold on to an asset before selling. This allows you to be more strategic about the type of capital gains tax rate your profits will see. With options’ shorter timelines, profits you make will probably be considered short-term gains, which are taxed at a less-favorable rate. With some careful planning, though, you may be able to tap into other tax strategies, such as tax-loss harvesting, to minimize or offset your liability.

Fundamental Analysis

Fundamental analysis is the study of the strengths and weaknesses underlying the economy of a nation’s economy, and relating those findings to its currency. In very general, overbroad terms, positive economic data is good for a currency, because economic growth leads to increased interest rates, which leads to a better carry, and traders want to own high yielding currencies.

In addition to the interest rates that currently exist, traders are often focused on interest rate EXPECTATIONS – or where the interest rate will be after the next central bank meeting. These interest rate expectations are equally (or even more) important to determining the strength of a given currency as the current interest rate. These interest rate expectations are highly influenced by economic data releases. These data releases can and often do cause great market volatility, and extreme moves in price. It greatly behooves a trader to know when economic data is being released – please check out our “Key Economic Events”, available on the WrightInv.com homepage.

Do Fundamentals Really Matter?

There are a number of traders who believe that fundamental analysis is irrelevant, and that price (technical analysis) is the only relevant aspect to currency trading. Here at Wright Time Capital Group; however, we believe that both technical and fundamental analyses are essentially for a trader to have success. Certainly fundamentals alone are not enough to ensure profitability – a trader also needs a good sense of timing, and a way to determine a profitable strategy and risk / reward ratio. Fundamental analysis alone cannot do it all. Fundamentals do, however, paint a broader picture, and allow traders to maximize their capital by specifically targeting setups that take advantage of fundamental strengths and weaknesses in the underlying global economy.

5

Key Economic Events

While there are dozens of different, important economic events, this page provides you with a brief introduction into arguably the three most important – employment, inflation, and Central Bank rate decisions.

Non-Farm Payrolls and Employment Data

One of the largest economic data movers in the global financial markets, employment data, but more specifically Non-farm Payrolls serves as a guage of employment in the public and private sector along with the unemployment rate.

Consumer Price Index (Inflation)

Central Bank Decisions

One of the mostly watched central bank interest rate decision is the Federal Open Market Committee (FOMC). The focus of the FOMC are price stability and to promote employment. As the latter is necessary for economic expansion, it is also worth noting the dual mandate which combines a lower combating of consumer prices.

How does this impact the currency market? Higher yields translates into a stronger greenback relative to its counterpart, with the opposite also holding true.

Bitcoin was falling Thursday and other cryptocurrencies were mixed, with momentum still lacking following a surge in prices earlier this year.

Bitcoin has fallen 0.7% over the last 24 hours to $62,106. The largest cryptocurrency, Bitcoin hit a record high near $74,000 in mid-March amid a surge of interest from new spot Bitcoin exchange-traded funds, or ETFs, but its price has since dropped.

On the face of it, the drop is puzzling, considering that the price should have been supported by the April 19 halving, when Bitcoin’s programmatic monetary policy changed—and the issuance of new tokens in half was cut in half, restricting supply.

One possible reason, according to J.P. Morgan strategist Nikolaos Panigirtzoglou, is that the halving was already priced in. J.P. Morgan analysts already saw Bitcoin as well above their volatility-adjusted comparison to gold, which would imply prices a $45,000 price.

A more bullish explanation could be that previous Bitcoin halvings have led to a more delayed cycle of price rises.

”The recent halving event has led to short-term downward price movements, a pattern observed in previous occurrences. Following this, there is typically a 9–12-month period of upward momentum, leading to the peak of the market cycle,” wrote Matteo Greco, research analyst at Fineqia International, in a recent research note.

Beyond Bitcoin, Ether—the second-largest crypto—was off 0.1% to $3,008.75. The Securities and Exchange Commission is expected to make a final decision on Ether spot ETFs this month. Optimism, however, has been muted for a quick follow-up to the approval of Bitcoin ETFs which sent Bitcoin to all-time highs.

“Market participants anticipate that the SEC will likely withhold approval for these products, despite approving BTC ETFs in January. Concerns over the liquidity of ETH’s spot and futures markets, along with its past classification as a security by the SEC, contribute to the skepticism surrounding swift approval,” wrote Fineqia’s Greco.

Smaller cryptos or altcoins were mixed Thursday, with Cardano down 0.8% and Polygon off 0.5%%, while Dogecoin had dipped 0.1%.

Stock futures hovered near the flatline Tuesday night as investors await key U.S. inflation data that will inform the Federal Reserve’s path on rate policy.

Futures tied to the Dow Jones Industrial Average added 37 points, or 0.09%. S&P 500 futures traded higher by 0.08%, while Nasdaq 100 futures climbed 0.1%.

During Tuesday’s regular trading, investors appeared to be in a holding pattern ahead of the March consumer price index report. The 30-stock Dow slipped 0.02%, while the S&P 500 gained 0.1%. The Nasdaq Composite inched higher by 0.3%.

The CPI report, which is set to release on Wednesday at 8:30 a.m. ET, is estimated to have increased 0.3% in March on a month-over-month basis and 3.4% from 12 months earlier, according to economists surveyed by Dow Jones. Economists expect core CPI, which excludes volatile food and energy prices, to rise 0.3% and 3.7%, respectively.

Traders are looking to the CPI data for clues on how central bank policymakers may proceed on interest rates — and the outcome is sure to affect Wednesday’s market moves. Fed funds futures trading data suggests a 42% likelihood that the central bank will hold steady on rates in June, according to the CME FedWatch Tool.

A hotter-than-expected inflation reading could lead to a serious pullback after the market’s run-up this year, while a cooler print could lead Treasury yields to pull back and lift the equity market, according to Quincy Krosby, chief global strategist at LPL Financial.

“The market is increasingly concerned that inflation remains more stubborn, or perhaps even stalled in its downward trajectory,” Krosby said. “There’s a whiff of stagflation hovering over markets if the Fed goes ahead with initiating the easing cycle without inflation quickening its downward path.”

In addition to the big inflation report on Wednesday, investors are also looking forward to the meeting minutes from the Fed’s gathering last month. They will be hunting for clues on where policymakers stand on expected rate cuts this year.

Earnings season for the first quarter is also about to kick off. Delta Air Lines is slated to post results Wednesday before the bell.

Investing.com– Oil prices moved little in Asian trade on Wednesday, as signs of a potential build in U.S. inventories and anticipation of key inflation data kept traders from making any large bets. 

Markets were also watching for any progress in ceasefire talks between Israel and Hamas, although the latest round of negotiations appeared to be making little headway.

Chatter over a potential ceasefire in the Middle East had pulled oil prices off five-month highs earlier this week. But losses in crude were also limited by little progress in the ceasefire talks, while Iran threatened military action against Israel.

Brent oil futures expiring in June steadied at $89.49 a barrel, while West Texas Intermediate crude futures rose 0.1% to $84.54 a barrel by 20:24 ET (00:24 GMT). 

US inventories see bigger-than-expected build- API

Data from the American Petroleum Institute showed late-Tuesday that U.S. crude inventories grew a bigger-than-expected 3 million barrels in the week to April 5. 

The reading suggested that supplies in the world’s largest fuel consumer were possibly not as tight as markets were hoping for, especially amid record-high production. 

But a sustained draw in gasoline inventories showed fuel demand remained robust.

The API data usually heralds a similar reading from official inventory data, which is due later on Wednesday.

The U.S. Energy Information Administration hiked its outlook for U.S. oil production this year- a trend that could potentially herald less tight supplies.

But the EIA also said it expects Brent to average $88.55 a barrel in 2024, up from a prior forecast of $87 a barrel. 

CPI data looms, rate outlook uncertain

A key point of focus for crude markets was U.S. consumer price index inflation data, due later in the day. The reading is widely expected to factor into the outlook for U.S. interest rates, and is also expected to offer markets with more cues for their next leg of movement.

Wednesday’s CPI report is expected to show inflation picked up slightly in March- a trend that bodes poorly for crude markets, given that it gives the Federal Reserve more impetus to keep rates higher for longer. 

The CPI report comes after a blowout nonfarm payrolls print last week. Several Fed officials also warned in recent sessions that sticky inflation will deter the central bank from cutting interest rates early. 

High rates and inflation are expected to weigh on economic activity and also chip away at oil demand. 

• USD/JPY continued to sideways range trade, with bullish fundamentals offset by the threat of BOJ intervention
• US CPI and PPI reports, the ECB interest rate decision and geopolitics loom as the key drivers for USD/JPY this week
• Near-term bias remains to sell rallies in USD/JPY rather than buying dips

The overview

USD/JPY sits in a narrow trading range, sandwiched by bullish fundamentals and threat of intervention from the Bank of Japan to support the yen. The latter has reduced the odds of near-term upside for USD/JPY despite the release of important inflation updates in the United States this week.

Unless the Japanese government softens its public stance towards weakness in the yen, the preference is to sell rallies rather than buy dips or breaks. Geopolitical tensions in the Middle East are another wildcard for traders to navigate.

Key events for USD/JPY

There’s no need to reinvent the wheel when it comes to the likely USD/JPY drivers this week with the US interest rate outlook and geopolitics the key areas to focus on. As the latter is impossible to predict, what we as traders can do is look at the events that are likely to have the largest impact, taking into consideration positioning and technical factors.

Over the week, three such events stand out: the US consumer price inflation report on Wednesday, the US Producer price inflation report on Thursday and the ECB interest rate decision, also on Thursday. While the Fed speaking calendar is extremely busy, they key point to remember is the tone will be heavily influenced by these events, along with last Friday’s blockbuster US non-farm payrolls report.

There’ll be plenty of headlines to navigate, including from the FOMC minutes on Wednesday, but the vast majority will be noise and not impact USD/JPY meaningfully.

US CPI preview

Having topped market expectations at the headline and underlying level in the first two months of the year, markets may receive greater clarity as to whether the inflation acceleration is the start of a new trend or simply a seasonal anomaly.

Both headline and core CPI are forecast to lift 0.3%, down a tenth from February. While a deceleration, both would be incompatible with inflation returning to the Fed’s 2% inflation mandate in a timely manner.

The core services ex-housing figure, known simply as “supercore” inflation, will be influential given the Fed has nominated it as something it’s watching. It decelerated noticeably in February, minimising the damage to the dovish rates case despite the heat in other readings.

Potential USD/JPY market reactions

If that happens and we see no upside surprise in the core or headline inflation rates, it’s likely US front-end bond yields will decline, dragging back-end rates lower with it. That should narrow the yield differential between the US and Japan and weigh on USD/JPY. However, if we see another upside surprise, especially at the core level, USD/JPY and yields would likely lift, reflecting the diminishing case for Fed rate cuts in 2024.

Source: Refinitiv 

US PPI, ECB rates decision in focus

The same approach applies for Thursday’s producer price inflation report with a hotter reading likely to lift USD/JPY, and vice versus if cold. A 0.3% gain is expected.

The ECB monetary policy meeting is the other key event simply because the euro is the largest weight in the US dollar index, making its fluctuations influential on other G10 FX names, including the yen. While no change in policy rates is expected, there is a growing risk it may signal the likely timing of its first rate cut will be brought forward from June. If that eventuates, EUR would likely weaken against the USD, dragging JPY along with it.

As for geopolitics, the rule of thumb is that if the tensions in the Middle East are subsiding, it should boost USD/JPY. If they escalate significantly, the likely repatriation of capital to Japan would weigh heavily on USD/JPY.

USD/JPY technical setup

With markets continued to pare rate cut expectations from the Fed, widening interest rate differentials with Japan, fundamentals suggest the bias for USD/JPY should be higher heading into the US inflation reports this week. However, with the threat of intervention from the BOJ elevated, rallies continue to suffocate on pushes towards resistance at 152, creating what I’ve described previously as a stalemate scenario.

With USD/JPY sandwiched by the intervention threat and bullish fundamentals, I’ll direct you to recent trade ideas that remain valid and have already worked since written. They can be accessed here and here.

The one overriding message is that while the technical picture looks bullish for USD/JPY, with a break of 152 pointing to the potential for substantial gains, the threat of BOJ intervention has greatly reduced the odds we’ll see significant upside should a topside break occur.

That suggests there’s limited reward and ample risk of going long on pushes toward 152. If the BOJ were to intervene, or even just signal such a move was imminent, USD/JPY could fall hundreds of pips in the space of seconds. As such, unless the Japanese government’s stance towards the weaker yen shifts substantially, selling rallies, rather than buying dips or breaks, remains the preferred strategy.

Resistance is located just below 152 with support located at 151.50, 151.20, 150.80 and 150.27. A more pronounced support zone is located between 149.58 and 149.00. Good luck!

— Written by David Scutt

Follow David on Twitter @scutty

Via Forex.com

After a subdued performance earlier this month, the U.S. dollar (DXY index) advanced this past week, climbing roughly 0.23% to 105.31. This resurgence was buoyed by a slight uptick in U.S. Treasury yields and a prevailing sense of caution among traders as they await the release of April’s U.S. consumer price index (CPI) figures, scheduled for this Wednesday.

The greenback could build upon its recent rebound if the pattern of consistently hotter-than-expected and sticky inflation readings observed this year repeats itself in next week’s fresh cost of living data from the Bureau of Labor Statistics.

Consensus forecasts indicate that both headline and core CPI registered a 0.3% uptick on a seasonally adjusted basis last month, resulting in the annual readings shifting from 3.5% to 3.4% for the former and from 3.8% to 3.7% for the latter—a modest yet encouraging step in the right direction.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

• USD/JPY continued to sideways range trade, with bullish fundamentals offset by the threat of BOJ intervention
• US CPI and PPI reports, the ECB interest rate decision and geopolitics loom as the key drivers for USD/JPY this week
• Near-term bias remains to sell rallies in USD/JPY rather than buying dips

The overview

USD/JPY sits in a narrow trading range, sandwiched by bullish fundamentals and threat of intervention from the Bank of Japan to support the yen. The latter has reduced the odds of near-term upside for USD/JPY despite the release of important inflation updates in the United States this week.

Unless the Japanese government softens its public stance towards weakness in the yen, the preference is to sell rallies rather than buy dips or breaks. Geopolitical tensions in the Middle East are another wildcard for traders to navigate.

Key events for USD/JPY

There’s no need to reinvent the wheel when it comes to the likely USD/JPY drivers this week with the US interest rate outlook and geopolitics the key areas to focus on. As the latter is impossible to predict, what we as traders can do is look at the events that are likely to have the largest impact, taking into consideration positioning and technical factors.

Over the week, three such events stand out: the US consumer price inflation report on Wednesday, the US Producer price inflation report on Thursday and the ECB interest rate decision, also on Thursday. While the Fed speaking calendar is extremely busy, they key point to remember is the tone will be heavily influenced by these events, along with last Friday’s blockbuster US non-farm payrolls report.

There’ll be plenty of headlines to navigate, including from the FOMC minutes on Wednesday, but the vast majority will be noise and not impact USD/JPY meaningfully.

US CPI preview

Having topped market expectations at the headline and underlying level in the first two months of the year, markets may receive greater clarity as to whether the inflation acceleration is the start of a new trend or simply a seasonal anomaly.

Both headline and core CPI are forecast to lift 0.3%, down a tenth from February. While a deceleration, both would be incompatible with inflation returning to the Fed’s 2% inflation mandate in a timely manner.

The core services ex-housing figure, known simply as “supercore” inflation, will be influential given the Fed has nominated it as something it’s watching. It decelerated noticeably in February, minimising the damage to the dovish rates case despite the heat in other readings.

Potential USD/JPY market reactions

If that happens and we see no upside surprise in the core or headline inflation rates, it’s likely US front-end bond yields will decline, dragging back-end rates lower with it. That should narrow the yield differential between the US and Japan and weigh on USD/JPY. However, if we see another upside surprise, especially at the core level, USD/JPY and yields would likely lift, reflecting the diminishing case for Fed rate cuts in 2024.

Source: Refinitiv 

US PPI, ECB rates decision in focus

The same approach applies for Thursday’s producer price inflation report with a hotter reading likely to lift USD/JPY, and vice versus if cold. A 0.3% gain is expected.

The ECB monetary policy meeting is the other key event simply because the euro is the largest weight in the US dollar index, making its fluctuations influential on other G10 FX names, including the yen. While no change in policy rates is expected, there is a growing risk it may signal the likely timing of its first rate cut will be brought forward from June. If that eventuates, EUR would likely weaken against the USD, dragging JPY along with it.

As for geopolitics, the rule of thumb is that if the tensions in the Middle East are subsiding, it should boost USD/JPY. If they escalate significantly, the likely repatriation of capital to Japan would weigh heavily on USD/JPY.

USD/JPY technical setup

With markets continued to pare rate cut expectations from the Fed, widening interest rate differentials with Japan, fundamentals suggest the bias for USD/JPY should be higher heading into the US inflation reports this week. However, with the threat of intervention from the BOJ elevated, rallies continue to suffocate on pushes towards resistance at 152, creating what I’ve described previously as a stalemate scenario.

With USD/JPY sandwiched by the intervention threat and bullish fundamentals, I’ll direct you to recent trade ideas that remain valid and have already worked since written. They can be accessed here and here.

The one overriding message is that while the technical picture looks bullish for USD/JPY, with a break of 152 pointing to the potential for substantial gains, the threat of BOJ intervention has greatly reduced the odds we’ll see significant upside should a topside break occur.

That suggests there’s limited reward and ample risk of going long on pushes toward 152. If the BOJ were to intervene, or even just signal such a move was imminent, USD/JPY could fall hundreds of pips in the space of seconds. As such, unless the Japanese government’s stance towards the weaker yen shifts substantially, selling rallies, rather than buying dips or breaks, remains the preferred strategy.

Resistance is located just below 152 with support located at 151.50, 151.20, 150.80 and 150.27. A more pronounced support zone is located between 149.58 and 149.00. Good luck!

— Written by David Scutt

Follow David on Twitter @scutty

Via Forex.com

Trading often tempts us to follow the herd – buying when everyone else is buying, and selling in a frenzy of fear. But savvy traders understand the potential hidden in contrarian strategies. Indicators like IG client sentiment offer a unique window into the market’s collective mood, revealing instances where overwhelming optimism or pessimism can signal a potential reversal.

Of course, contrarian signals aren’t a crystal ball. They shine brightest when used to enrich an already robust trading strategy. By combining contrarian insights with careful technical and fundamental analysis, traders gain a richer understanding of the forces driving the market – forces that the crowd might easily overlook. Let’s explore this concept by examining IG client sentiment and its potential impact on the euro across four key FX pairs: EUR/USD, EUR/CHF, EUR/GBP, and EUR/JPY.

IG data reveals a slight but fading bullish bias towards the EUR/USD among retail traders. Currently, 53.15% of clients hold net-long positions, resulting in a long-to-short ratio of 1.13 to 1. This positive tilt has weakened significantly, with net-long positions down a substantial 10.90% compared to yesterday, despite a tiny 0.05% increase over the week. Mirroring this, net-short positions surged by 31.26% since yesterday and are up 11.10% over the week.

Typically, a net-long stance hints at potential declines from a contrarian perspective. But, the recent shift in sentiment complicates the outlook. While a slight majority still favors the upside, the growing number of traders leaning bearish could signal an impending bullish burst for EUR/USD.

All in all, EUR/USD presents a mixed picture. It’s essential for traders to proceed with caution and not rely solely on sentiment. These insights should be combined with thorough technical and fundamental analysis for a well-informed trading strategy.

EUR/CHF FORECAST – MARKET SENTIMENT

Data from IG reveals clients are bullish on EUR/CHF, with 53.08% of traders currently holding net-long positions. This results in a long-to-short ratio of 1.13 to 1. However, sentiment appears to be weakening, with net-long positions down 3.10% since yesterday, even while they’ve increased by 8.70% compared to last week. Mirroring this, net-short positions are up 12.18% from yesterday but down 6.75% compared to last week.

Our typical contrarian approach suggests EUR/CHR could be in for a pullback. However, the recent weakening of buying positions on the pair and the mixed timeframe comparisons create a less confident outlook.

Overall, the EUR/CHF presents a complex picture based on current sentiment. While there may be some downward pressure, the lack of a strong contrarian signal warrants caution. As always, traders should consider these clues within a broader technical and fundamental analysis framework before making any trading decisions.

EUR/GBP FORECAST – MARKET SENTIMENT

Based on IG data, the sentiment surrounding EUR/GBP within the retail crowd appears optimistic, with 61.22% of traders maintaining net-long positions. This equates to a long-to-short ratio of 1.58 to 1. Nevertheless, this bullish stance is beginning to wane, as net-longs have declined by 1.80% since yesterday, despite a 4.95% jump over the past week. In contrast, net-shorts experienced a large 9.01% surge from yesterday but demonstrate a more consistent decrease of 12.00% versus last week’s levels.

Traditionally, substantial net-long positioning might indicate potential losses for the underlying asset from a contrarian standpoint. However, recent shifts in market positioning have clouded the clarity of this signal. Presently, EUR/GBP appears to be caught amidst conflicting forces. While contrarian indicators still suggest some downward pressure is probable, the absence of a robust, enduring trend renders it a less assured prediction.

EUR/JPY FORECAST – MARKET SENTIMENT

IG data reveals a strong bearish bias towards the EUR/JPY, with 73.47% of traders currently holding net-short positions. This translates to a significant 2.77 to 1 short-to-long ratio. Notably, the number of net-short positions has climbed by 7.11% since yesterday and 1.73% compared to last week. However, net-long positions have also surged, up 25.13% from yesterday and a notable 18.78% from last week.

Our contrarian approach suggests this heavy net-short positioning could be a positive sign for the EUR/JPY. Yet, the recent weakening of the bearish bias introduces a degree of uncertainty. While the contrarian perspective still points to potential gains for the pair, the increasing number of long positions over key timeframes warns that a trend shift may be imminent.

As always, traders should carefully integrate sentiment signals with a well-rounded strategy that includes thorough technical and fundamental analysis.

Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry’s standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries, but also the leap into electronic typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum.

Bitcoin was falling Thursday and other cryptocurrencies were mixed, with momentum still lacking following a surge in prices earlier this year.

Bitcoin has fallen 0.7% over the last 24 hours to $62,106. The largest cryptocurrency, Bitcoin hit a record high near $74,000 in mid-March amid a surge of interest from new spot Bitcoin exchange-traded funds, or ETFs, but its price has since dropped.

On the face of it, the drop is puzzling, considering that the price should have been supported by the April 19 halving, when Bitcoin’s programmatic monetary policy changed—and the issuance of new tokens in half was cut in half, restricting supply.

One possible reason, according to J.P. Morgan strategist Nikolaos Panigirtzoglou, is that the halving was already priced in. J.P. Morgan analysts already saw Bitcoin as well above their volatility-adjusted comparison to gold, which would imply prices a $45,000 price.

A more bullish explanation could be that previous Bitcoin halvings have led to a more delayed cycle of price rises.

”The recent halving event has led to short-term downward price movements, a pattern observed in previous occurrences. Following this, there is typically a 9–12-month period of upward momentum, leading to the peak of the market cycle,” wrote Matteo Greco, research analyst at Fineqia International, in a recent research note.

Beyond Bitcoin, Ether—the second-largest crypto—was off 0.1% to $3,008.75. The Securities and Exchange Commission is expected to make a final decision on Ether spot ETFs this month. Optimism, however, has been muted for a quick follow-up to the approval of Bitcoin ETFs which sent Bitcoin to all-time highs.

“Market participants anticipate that the SEC will likely withhold approval for these products, despite approving BTC ETFs in January. Concerns over the liquidity of ETH’s spot and futures markets, along with its past classification as a security by the SEC, contribute to the skepticism surrounding swift approval,” wrote Fineqia’s Greco.

Smaller cryptos or altcoins were mixed Thursday, with Cardano down 0.8% and Polygon off 0.5%%, while Dogecoin had dipped 0.1%.

By Laila Kearney

NEW YORK (Reuters) – Oil prices fell by nearly $1 a barrel on Friday as comments from U.S. central bank officials indicated higher-for-longer interest rates, which could hinder demand from the world’s largest crude consumers.

Brent crude futures were down 93 cents, or 1.1%, to $89.95 a barrel by 1:29 p.m. ET (1729 GMT), while U.S. West Texas Intermediate crude shed 88 cents, or 1.1%, at $78.38 a barrel.

Both benchmarks headed for weekly losses.

Oil prices also were pressured as the U.S. dollar strengthened after Dallas Federal Reserve President Lorie Logan said it was unclear whether policy was tight enough to bring down inflation to the U.S. central bank’s 2% goal. A strong dollar makes greenback-denominated commodities more expensive for buyers using other currencies, and higher-for-longer U.S. interest rates could also dampen demand.

Higher interest rates typically slow economic activity and weaken oil demand.

Atlanta Fed President Raphael Bostic also told Reuters he thought inflation was likely to slow under the current monetary policy, enabling the central bank to begin reducing its policy rate in 2024 – though perhaps by only a quarter of a percentage point and not until the final months of the year.

“The two fed speakers certainly seemed to put the kibosh on the prospect of rate cuts,” said John Kilduff, a partner at Again Capital LLC.

Prices were also under pressure from rising U.S. fuel inventories approaching the typically robust summer driving season, said Jim Ritterbusch of Ritterbusch and Associates.

“Given the price decline of the past month and the weaker-than-expected demand trends for U.S. gasoline and diesel, some bearish demand adjustment would appear likely,” Ritterbusch said.

Next week, U.S. inflation data could influence Fed decisions on interest rates.

Prices drew little support from the U.S. oil rig count, which is an indicator of future supply, despite energy services firm Baker Hughes data showing the oil rigs fell by three to 496 this week, their lowest since November. [RIG/U]

Data on Thursday showing China imported more oil in April than the same month last year also helped to keep oil prices from moving lower. China’s exports and imports returned to growth in April after contracting the previous month.

The European Central Bank, meanwhile, looks increasingly likely to start cutting rates in June.

In Europe, a Ukrainian drone attack set an oil refinery in Russia’s Kaluga region on fire, RIA state news agency reported on Friday, the latest salvo from Kyiv in what has become a series of tit-for-tat attacks on energy infrastructure.

Conflict in the Middle East also continues after Israeli forces bombarded areas of the southern Gaza city of Rafah on Thursday, according to Palestinian residents, after a lack of progress in the latest round of negotiations to halt hostilities in Gaza.

(Additional reporting by Natalie Grover in London, Katya Golubkova in Tokyo and Sudarshan Varadhan in Singapore; Editing by Marguerita Choy and David Gregorio)

TOKYO (Reuters) – Japan’s economy likely contracted an annualised 1.5% in the January-March quarter as all key drivers of growth slumped due to an uncertain outlook, a Reuters poll showed, which will probably set back Bank of Japan efforts to raise interest rates.

Cabinet Office data due out at 8:50 a.m. on May 16 (2350 GMT on May 15) is expected to show the economy’s contraction would be equivalent to quarterly decline of 0.4%, according to the poll of 17 economists.

The decline followed growth of 0.4% annualised in the last three months of 2023, with the main pillars of GDP collapsing and leaving no growth engine for the January-March quarter.

“The trend of thrifty consumers remains strong due to rising living costs likely being exacerbated by the yen weakening,” said Takeshi Minami, chief economist at Norinchukin Research Institute, who predicted the overall economy would contract at 1.2% annualised in the January-March period.

Private consumption, which makes up more than 50% of the economy, likely fell 0.2% in the quarter as consumers tightened belts to guard against the rising costs living.

The earthquakes that struck the Noto peninsula at the start of this year also undermined output and consumption. As well, a scandal at Toyota’s compact car unit Daihatsu led to the suspension of output and shipments.

Capital expenditures also fell 0.7% quarter-on-quarter as companies remained slow to invest their hefty profits in plants and equipment, such as labour-saving technology to overcome labour shortages.

External demand, or net exports, which means shipments minus imports, likely shaved 0.3 percentage points off GDP growth. Domestic demand probably fell for a fourth straight quarter.

The corporate goods price index, a key gauge of prices corporations charge against each other, probably rose 0.8% in April year-on-year, keeping the pace unchanged from March.

The CGPI data will be released at 8:50 a.m. on May 14 (2350 GMT on May 13).

The CGPI, broadly equivalent to wholesale prices, likely rose 0.3% month-on-month in April, accelerating slightly from the 0.2% rise for March, underscoring persistent inflation that is boosting the costs of living and doing business.

(This story has been refiled to say quarterly decline, not monthly, in paragraph 2)

(Reporting by Tetsushi Kajimoto; Editing by Tom Hogue)

President Biden wants to raise taxes on Elon Musk, Jeff Bezos, and their cohort of Americans, who are amassing extraordinary wealth that is not taxable under current law.

Biden says his plan would make the system more fair — but experts say it lacks practicality.

The president wants to impose a minimum 25% tax on all Americans with assets over $100 million. The “billionaire tax” would impact the 10,700 wealthiest Americans and generate an estimated revenue of $400 billion over 10 years.

The idea of levying higher taxes on those at the top of the economic ladder is not new. Yet the latest proposal raises more questions than answers.

“Are you taxing the rich? Are you taxing the wealthy?” Peter Ferrigno, director of tax service at Henley & Partners, a citizenship investment consulting firm, told Yahoo Finance. “They’re very similar, but they are not the same thing.”

Furthermore, the proposed policy challenges a fundamental principle of the US tax code, which treats money earned as income differently from wealth generated through valuation growth.

How could the US government tax wealth?

Biden hasn’t offered many specifics, but to get to a minimum 25% rate, experts say he would have to tax unrealized gains — unsold profits from increases in asset values — as part of billionaires’ income. Under current law, unrealized gains aren’t taxed until the asset is sold at a profit.

The president says this is the proper way to calculate the true income — and true tax rate — of the ultra-wealthy. Billionaires make the bulk of their money through stock or investment growth instead of a wage from a 9-to-5 job. So, the president says, they shouldn’t be able to shelter income simply because they haven’t pocketed the profits.

“Billionaires don’t often have a typical paycheck,” Brandon Zureick, managing director and portfolio manager at Johnson Investment Counsel, told Yahoo Finance.

Take one of the world’s wealthiest people, for example: Elon Musk’s net worth surged nearly $12 billion over a span of five years beginning in 2018, from $8.4 billion to $20 billion. However, Musk reported only $1.52 billion in income during those years and paid $455 million in taxes.

That may sound like a lot, but Musk’s true tax rate amounted to only 3.79%. By contrast, the median American household earned $70,800 in 2021 and paid an average tax rate of 15%.

Under Biden’s proposal, Musk’s tax bill would have totaled $3 billion for 2018 through 2022 — nearly seven times higher than what he paid.

The 25 wealthiest Americans paid $13.6 billion in federal income taxes from 2014 to 2018. Meanwhile their wealth collectively increased by $401 billion in that same period, ProPublica reported. This means their collective average true tax rate was 3.4%.

To redesign this aspect of the tax code, Biden needs to consider: What happens when unrealized gains turn into losses?

In other words, how will the taxes work when investment values decline on paper?

“When you start taxing unrealized gains rather than realized gains, you’re going down a very slippery slope,” Ferrigno said. “You want to tax the going up? Are you going to give money back when they go down again?”

For instance, if Musk’s share in Tesla (TSLA) surges from $100 billion to $200 billion, Biden’s proposed wealth tax would cost Musk $25 billion in that year — 25% of the unrealized $100 billion gain. But if Tesla shares declined by $100 billion the next year, would the government need to pay Musk back?

“That’s where you open up a whole reason that other countries don’t do this,” Ferrigno said. “Income tax has been around for centuries. And the reason no one’s ever done this is because it’s practically impractical.”

Top 1% pays nearly half of US tax

Opponents of a wealth tax reason that the share of federal taxes paid by the top 1% is already adequate. In 2021, the top 1% paid over $1 trillion, almost half of all tax revenue collected, according to the Tax Foundation.

“The income tax system in the United States is highly progressive and redistributive,” Erica York, senior economist at the right-leaning think tank Tax Foundation and author of its latest report on income tax data, told Yahoo Finance. The top 10%, she added, paid almost 76% of all tax revenue.

Critics also note that there is already a separate income tax on the rich, making Biden’s proposal redundant and unnecessary.

The alternative minimum tax (AMT) is a parallel system that sets a floor on what high-income individuals must pay. It removes some benefits and deductions on their tax returns, limiting the reductions to their tax liabilities.

“The US has had the alternative minimum tax for about 50 years,” Ferrigno said. “They already have a tool in the toolbox to try and address [taxes on high incomes].”

Ferrigno said an update to the AMT would be sufficient in taxing billionaires’ incomes.

Caution: Don’t be like Norway

History shows how exorbitant income disparities can lead to social crises: “Back to the French Revolution and guillotine if not careful,” Ferrigno said.

But he said the Biden administration should start with a lower tax rate on billionaires, like 10%, and progress from there before landing at 25%.

After all, levying an overwhelming wealth tax on the super rich, who are also super mobile, can backfire. A number of billionaires left Norway in 2022 after the country implemented a 1.1% capital asset tax on married households with equity over the equivalent of $3.7 million.

“Find out what works and import it and avoid what Norway did to drive half of [ultra-wealthy] away,” Ferrigno said. “Look at how Spain has a high enough threshold that people just grudgingly accept it.”

Spain has a long-standing regional wealth tax from 0.16% to 3.5%. But instead of emigration, wealthy Spaniards either accepted their wealth tax rate or relocated to a cheaper region within the country.

“[Spain’s wealth tax] has been there for a long time as well, so people are used to it,” Ferrigno said. “Plus the exemptions ensure that few people get into the highest brackets.”

Switzerland also assesses various wealth taxes at the regional level on individuals’ assets worldwide, including bank account balances, equities, boats, and airplanes.

Transformative technology, such as blockchain ledgers and artificial intelligence, is transforming financial systems, yet the US tax codes haven’t kept up.

“Our current system where we sit today may have been great in the past, but it’s not so great today,” said Jose Murillo, partner and National Tax Department leader at Ernst & Young.

An overwhelming share of American voters, or 70%, support the idea of raising taxes on billionaires, a recent Bloomberg poll shows.

“Imagine what we can do,” Biden said of taxing the wealthiest Americans, “from cutting the deficit to providing for childcare, to providing healthcare, to continue to provide our military with all they need.”

“This is not beyond our capacity,” Biden said.

Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).

Stock futures hovered near the flatline Tuesday night as investors await key U.S. inflation data that will inform the Federal Reserve’s path on rate policy.

Futures tied to the Dow Jones Industrial Average added 37 points, or 0.09%. S&P 500 futures traded higher by 0.08%, while Nasdaq 100 futures climbed 0.1%.

During Tuesday’s regular trading, investors appeared to be in a holding pattern ahead of the March consumer price index report. The 30-stock Dow slipped 0.02%, while the S&P 500 gained 0.1%. The Nasdaq Composite inched higher by 0.3%.

The CPI report, which is set to release on Wednesday at 8:30 a.m. ET, is estimated to have increased 0.3% in March on a month-over-month basis and 3.4% from 12 months earlier, according to economists surveyed by Dow Jones. Economists expect core CPI, which excludes volatile food and energy prices, to rise 0.3% and 3.7%, respectively.

Traders are looking to the CPI data for clues on how central bank policymakers may proceed on interest rates — and the outcome is sure to affect Wednesday’s market moves. Fed funds futures trading data suggests a 42% likelihood that the central bank will hold steady on rates in June, according to the CME FedWatch Tool.

A hotter-than-expected inflation reading could lead to a serious pullback after the market’s run-up this year, while a cooler print could lead Treasury yields to pull back and lift the equity market, according to Quincy Krosby, chief global strategist at LPL Financial.

“The market is increasingly concerned that inflation remains more stubborn, or perhaps even stalled in its downward trajectory,” Krosby said. “There’s a whiff of stagflation hovering over markets if the Fed goes ahead with initiating the easing cycle without inflation quickening its downward path.”

In addition to the big inflation report on Wednesday, investors are also looking forward to the meeting minutes from the Fed’s gathering last month. They will be hunting for clues on where policymakers stand on expected rate cuts this year.

Earnings season for the first quarter is also about to kick off. Delta Air Lines is slated to post results Wednesday before the bell.

Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry’s standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries, but also the leap into electronic typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum.

President Biden wants to raise taxes on Elon Musk, Jeff Bezos, and their cohort of Americans, who are amassing extraordinary wealth that is not taxable under current law.

Biden says his plan would make the system more fair — but experts say it lacks practicality.

The president wants to impose a minimum 25% tax on all Americans with assets over $100 million. The “billionaire tax” would impact the 10,700 wealthiest Americans and generate an estimated revenue of $400 billion over 10 years.

The idea of levying higher taxes on those at the top of the economic ladder is not new. Yet the latest proposal raises more questions than answers.

“Are you taxing the rich? Are you taxing the wealthy?” Peter Ferrigno, director of tax service at Henley & Partners, a citizenship investment consulting firm, told Yahoo Finance. “They’re very similar, but they are not the same thing.”

Furthermore, the proposed policy challenges a fundamental principle of the US tax code, which treats money earned as income differently from wealth generated through valuation growth.

How could the US government tax wealth?

Biden hasn’t offered many specifics, but to get to a minimum 25% rate, experts say he would have to tax unrealized gains — unsold profits from increases in asset values — as part of billionaires’ income. Under current law, unrealized gains aren’t taxed until the asset is sold at a profit.

The president says this is the proper way to calculate the true income — and true tax rate — of the ultra-wealthy. Billionaires make the bulk of their money through stock or investment growth instead of a wage from a 9-to-5 job. So, the president says, they shouldn’t be able to shelter income simply because they haven’t pocketed the profits.

“Billionaires don’t often have a typical paycheck,” Brandon Zureick, managing director and portfolio manager at Johnson Investment Counsel, told Yahoo Finance.

Take one of the world’s wealthiest people, for example: Elon Musk’s net worth surged nearly $12 billion over a span of five years beginning in 2018, from $8.4 billion to $20 billion. However, Musk reported only $1.52 billion in income during those years and paid $455 million in taxes.

That may sound like a lot, but Musk’s true tax rate amounted to only 3.79%. By contrast, the median American household earned $70,800 in 2021 and paid an average tax rate of 15%.

Under Biden’s proposal, Musk’s tax bill would have totaled $3 billion for 2018 through 2022 — nearly seven times higher than what he paid.

The 25 wealthiest Americans paid $13.6 billion in federal income taxes from 2014 to 2018. Meanwhile their wealth collectively increased by $401 billion in that same period, ProPublica reported. This means their collective average true tax rate was 3.4%.

To redesign this aspect of the tax code, Biden needs to consider: What happens when unrealized gains turn into losses?

In other words, how will the taxes work when investment values decline on paper?

“When you start taxing unrealized gains rather than realized gains, you’re going down a very slippery slope,” Ferrigno said. “You want to tax the going up? Are you going to give money back when they go down again?”

For instance, if Musk’s share in Tesla (TSLA) surges from $100 billion to $200 billion, Biden’s proposed wealth tax would cost Musk $25 billion in that year — 25% of the unrealized $100 billion gain. But if Tesla shares declined by $100 billion the next year, would the government need to pay Musk back?

“That’s where you open up a whole reason that other countries don’t do this,” Ferrigno said. “Income tax has been around for centuries. And the reason no one’s ever done this is because it’s practically impractical.”

Top 1% pays nearly half of US tax

Opponents of a wealth tax reason that the share of federal taxes paid by the top 1% is already adequate. In 2021, the top 1% paid over $1 trillion, almost half of all tax revenue collected, according to the Tax Foundation.

“The income tax system in the United States is highly progressive and redistributive,” Erica York, senior economist at the right-leaning think tank Tax Foundation and author of its latest report on income tax data, told Yahoo Finance. The top 10%, she added, paid almost 76% of all tax revenue.

Critics also note that there is already a separate income tax on the rich, making Biden’s proposal redundant and unnecessary.

The alternative minimum tax (AMT) is a parallel system that sets a floor on what high-income individuals must pay. It removes some benefits and deductions on their tax returns, limiting the reductions to their tax liabilities.

“The US has had the alternative minimum tax for about 50 years,” Ferrigno said. “They already have a tool in the toolbox to try and address [taxes on high incomes].”

Ferrigno said an update to the AMT would be sufficient in taxing billionaires’ incomes.

Caution: Don’t be like Norway

History shows how exorbitant income disparities can lead to social crises: “Back to the French Revolution and guillotine if not careful,” Ferrigno said.

But he said the Biden administration should start with a lower tax rate on billionaires, like 10%, and progress from there before landing at 25%.

After all, levying an overwhelming wealth tax on the super rich, who are also super mobile, can backfire. A number of billionaires left Norway in 2022 after the country implemented a 1.1% capital asset tax on married households with equity over the equivalent of $3.7 million.

“Find out what works and import it and avoid what Norway did to drive half of [ultra-wealthy] away,” Ferrigno said. “Look at how Spain has a high enough threshold that people just grudgingly accept it.”

Spain has a long-standing regional wealth tax from 0.16% to 3.5%. But instead of emigration, wealthy Spaniards either accepted their wealth tax rate or relocated to a cheaper region within the country.

“[Spain’s wealth tax] has been there for a long time as well, so people are used to it,” Ferrigno said. “Plus the exemptions ensure that few people get into the highest brackets.”

Switzerland also assesses various wealth taxes at the regional level on individuals’ assets worldwide, including bank account balances, equities, boats, and airplanes.

Transformative technology, such as blockchain ledgers and artificial intelligence, is transforming financial systems, yet the US tax codes haven’t kept up.

“Our current system where we sit today may have been great in the past, but it’s not so great today,” said Jose Murillo, partner and National Tax Department leader at Ernst & Young.

An overwhelming share of American voters, or 70%, support the idea of raising taxes on billionaires, a recent Bloomberg poll shows.

“Imagine what we can do,” Biden said of taxing the wealthiest Americans, “from cutting the deficit to providing for childcare, to providing healthcare, to continue to provide our military with all they need.”

“This is not beyond our capacity,” Biden said.

Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).

The Covid-19 Pandemic and subsequent global lockdowns impacted billions of people, and its repercussions are still being felt. Within the financial industry, the S&P 500 took a hit from 3,337.75 in February, 2020 to 2,304.92 by March 20: a thousand point crash in only 30 days.

Since that time, the Dow Jones Industrial Average has climbed to new heights, largely on the back of “The Magnificent Seven”, which are: Microsoft (NASDAQ: MSFT), Meta Platforms (Facebook) (NASDAQ: META), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG), Apple (NASDAQ: AAPL), Tesla (NASDAQ: TSLA), and Nvidia (NASDAQ: NVDA).

Nvidia has been one of the leaders of this post-pandemic surge, so let’s take a look as to why Nvidia stock, which has gained over 13X since that time roughly four years ago, was able to accomplish so much.

Nvidia’s GPUs for 3D graphics have fueled the AI boom.

Nvidia’s beginnings were filled with struggles. Within its first three years of operation, founder and CEO Jensen Huang had to fire half of his employees trying to get the RIVA 128 graphic accelerator for 3D graphics completed and out to market. Having burned through $20 million in Venture Capital funding down to being a month away from bankruptcy, Nvidia finally succeeded, and the RIVA 128’s sales fueled Nvidia’s fortunes enough for it to go public in 1999. 

Nvidia soon after released its first Graphics Processing Unit, the GeForce 256, which was crucial for accelerating 3D consumer hardware for video content, leading to landmark graphics hardware design contracts for Microsoft XBOX and Sony (NYSE: SONY) PlayStation 3’s RSX graphics processor. By 2012, the company’s GPUs would be crucial to powering the AlexNet neural network, which set the stage for commercialized Artificial Intelligence (AI). 

As Nvidia continued to grow, it expanded its product line, including their RTX series GPUs in 2018, which pioneered real-time ray tracing, This graphic rendering method mimics the actual physical behavior of light, which creates the hyper-realism key to the success of virtual reality in video graphics for video gaming and AI.

High profile deals with Toyota (NYSE: TM), Baidu (NASDAQ: BIDU), and Alphabet (still Google in 2018) would follow. 

Nvidia’s Cambridge-1 is the largest supercomputer in the UK and uses AI for healthcare research.

Unlike thousands of other companies that were negatively impacted by the local government mandated lockdowns during the Covid-19 outbreak, Nvidia was not one of them.

AI would prove to be the winning horse in Nvidia’s race to the top. Nvidia continued to improve its GPU offerings and created new partnerships for expanding the applications for AI. In October 2020, Nvidia announced the plans to design the Cambridge-1 supercomputer. In collaboration with AstraZeneca, GlaxoSmithKline, King’s College London, the Guy’s and St. Thomas NHS Foundation, and other organizations, the Nvidia Cambridge-1 is the UK’s largest supercomputer, and was specifically created for British healthcare research since its launch in 2021.

MSN

Reddit Inc. enjoyed a strong debut as a public company in its closely watched offering Thursday, but don’t expect the IPO floodgates to re-open, according to Christian Munafo, Chief Investment Officer of Liberty Street Advisors. 

“The fact that this is well received is encouraging to us,” he told MarketWatch, but noted the caution that still exists in the broader IPO market. “I don’t think you’re going to turn a switch and the floodgates will open … we think there’s going to be a reserved approach.”

“We continue to believe that the market is going to start opening up, it’s just going to be measured,” he added. Munafo is portfolio manager of Liberty Street Advisors’ Private Shares Fund, which gives retail investors access to late-stage, venture-backed private companies. The fund is not an investor in Reddit.

Related: How Reddit’s big first trading day stacks up

Geopolitical uncertainty, interest-rate hikes and bank failures hindered a hoped-for IPO market rebound in 2023. A spate of underperforming IPO stocks in recent years has also contributed to the current air of caution in the IPO market, according to Munafo.

There is also an “underwriters’ dilemma” at the moment, according to Munafo. “Think about the investment bankers that underwrote a lot of the IPOs and SPACs that didn’t work out in 2020, 2021,” he told MarketWatch. “We think that the underwriters will take a cautious approach too in terms of how they are pricing these IPOs.”

“There’s a lot of investors that ultimately got burned in the last cycle,” Munafo added.

Related: Reddit revives a sleepy IPO market

However the Liberty Street Chief Investment Officer said there are a number of companies in the private market that are potential IPOs, and acknowledged the IPO chatter around videogame-focused chat startup Discord Inc., and security-operations company Arctic Wolf, which are part of the Private Shares Fund portfolio.

Elon Musk’s SpaceX is also in the portfolio and Munafo pointed to the IPO spinoff talk that has swirled around Starlink, the SpaceX-owned satellite internet constellation.

‘Hoping isn’t planning’

Federal Reserve Chair Jerome Powell had a rather sunny outlook for the economy after the Federal Open Market Committee projected things are going to keep going: more growth, less inflation and low unemployment. But special contributor Larry Summers said that as much as we can hope for the best, we need a plan for what may be around the corner.

Rather than simply say that current rates are restrictive, the Fed “needs to take a view” on where the long-term neutral rate is, Summers said. “If you don’t know what’s neutral, you don’t know how expansionary or restrictive you’re being.” And he finds “bizarre” the Fed’s suggestion “that the ultimate neutral rate is 2.6%.” Among other things, Summers cited expansionary fiscal policy, new climate investment, more defense spending and money flowing into chips for the AI revolution. “The neutral rate is far more likely to have a 4-handle on it right now than it is to have a 2-handle,” he said. If Summers is right, those rates aren’t nearly as restrictive as Powell thinks they are.

After a subdued performance earlier this month, the U.S. dollar (DXY index) advanced this past week, climbing roughly 0.23% to 105.31. This resurgence was buoyed by a slight uptick in U.S. Treasury yields and a prevailing sense of caution among traders as they await the release of April’s U.S. consumer price index (CPI) figures, scheduled for this Wednesday.

The greenback could build upon its recent rebound if the pattern of consistently hotter-than-expected and sticky inflation readings observed this year repeats itself in next week’s fresh cost of living data from the Bureau of Labor Statistics.

Consensus forecasts indicate that both headline and core CPI registered a 0.3% uptick on a seasonally adjusted basis last month, resulting in the annual readings shifting from 3.5% to 3.4% for the former and from 3.8% to 3.7% for the latter—a modest yet encouraging step in the right direction.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

• USD/JPY continued to sideways range trade, with bullish fundamentals offset by the threat of BOJ intervention
• US CPI and PPI reports, the ECB interest rate decision and geopolitics loom as the key drivers for USD/JPY this week
• Near-term bias remains to sell rallies in USD/JPY rather than buying dips

The overview

USD/JPY sits in a narrow trading range, sandwiched by bullish fundamentals and threat of intervention from the Bank of Japan to support the yen. The latter has reduced the odds of near-term upside for USD/JPY despite the release of important inflation updates in the United States this week.

Unless the Japanese government softens its public stance towards weakness in the yen, the preference is to sell rallies rather than buy dips or breaks. Geopolitical tensions in the Middle East are another wildcard for traders to navigate.

Key events for USD/JPY

There’s no need to reinvent the wheel when it comes to the likely USD/JPY drivers this week with the US interest rate outlook and geopolitics the key areas to focus on. As the latter is impossible to predict, what we as traders can do is look at the events that are likely to have the largest impact, taking into consideration positioning and technical factors.

Over the week, three such events stand out: the US consumer price inflation report on Wednesday, the US Producer price inflation report on Thursday and the ECB interest rate decision, also on Thursday. While the Fed speaking calendar is extremely busy, they key point to remember is the tone will be heavily influenced by these events, along with last Friday’s blockbuster US non-farm payrolls report.

There’ll be plenty of headlines to navigate, including from the FOMC minutes on Wednesday, but the vast majority will be noise and not impact USD/JPY meaningfully.

US CPI preview

Having topped market expectations at the headline and underlying level in the first two months of the year, markets may receive greater clarity as to whether the inflation acceleration is the start of a new trend or simply a seasonal anomaly.

Both headline and core CPI are forecast to lift 0.3%, down a tenth from February. While a deceleration, both would be incompatible with inflation returning to the Fed’s 2% inflation mandate in a timely manner.

The core services ex-housing figure, known simply as “supercore” inflation, will be influential given the Fed has nominated it as something it’s watching. It decelerated noticeably in February, minimising the damage to the dovish rates case despite the heat in other readings.

Potential USD/JPY market reactions

If that happens and we see no upside surprise in the core or headline inflation rates, it’s likely US front-end bond yields will decline, dragging back-end rates lower with it. That should narrow the yield differential between the US and Japan and weigh on USD/JPY. However, if we see another upside surprise, especially at the core level, USD/JPY and yields would likely lift, reflecting the diminishing case for Fed rate cuts in 2024.

Source: Refinitiv 

US PPI, ECB rates decision in focus

The same approach applies for Thursday’s producer price inflation report with a hotter reading likely to lift USD/JPY, and vice versus if cold. A 0.3% gain is expected.

The ECB monetary policy meeting is the other key event simply because the euro is the largest weight in the US dollar index, making its fluctuations influential on other G10 FX names, including the yen. While no change in policy rates is expected, there is a growing risk it may signal the likely timing of its first rate cut will be brought forward from June. If that eventuates, EUR would likely weaken against the USD, dragging JPY along with it.

As for geopolitics, the rule of thumb is that if the tensions in the Middle East are subsiding, it should boost USD/JPY. If they escalate significantly, the likely repatriation of capital to Japan would weigh heavily on USD/JPY.

USD/JPY technical setup

With markets continued to pare rate cut expectations from the Fed, widening interest rate differentials with Japan, fundamentals suggest the bias for USD/JPY should be higher heading into the US inflation reports this week. However, with the threat of intervention from the BOJ elevated, rallies continue to suffocate on pushes towards resistance at 152, creating what I’ve described previously as a stalemate scenario.

With USD/JPY sandwiched by the intervention threat and bullish fundamentals, I’ll direct you to recent trade ideas that remain valid and have already worked since written. They can be accessed here and here.

The one overriding message is that while the technical picture looks bullish for USD/JPY, with a break of 152 pointing to the potential for substantial gains, the threat of BOJ intervention has greatly reduced the odds we’ll see significant upside should a topside break occur.

That suggests there’s limited reward and ample risk of going long on pushes toward 152. If the BOJ were to intervene, or even just signal such a move was imminent, USD/JPY could fall hundreds of pips in the space of seconds. As such, unless the Japanese government’s stance towards the weaker yen shifts substantially, selling rallies, rather than buying dips or breaks, remains the preferred strategy.

Resistance is located just below 152 with support located at 151.50, 151.20, 150.80 and 150.27. A more pronounced support zone is located between 149.58 and 149.00. Good luck!

— Written by David Scutt

Follow David on Twitter @scutty

Via Forex.com

Trading often tempts us to follow the herd – buying when everyone else is buying, and selling in a frenzy of fear. But savvy traders understand the potential hidden in contrarian strategies. Indicators like IG client sentiment offer a unique window into the market’s collective mood, revealing instances where overwhelming optimism or pessimism can signal a potential reversal.

Of course, contrarian signals aren’t a crystal ball. They shine brightest when used to enrich an already robust trading strategy. By combining contrarian insights with careful technical and fundamental analysis, traders gain a richer understanding of the forces driving the market – forces that the crowd might easily overlook. Let’s explore this concept by examining IG client sentiment and its potential impact on the euro across four key FX pairs: EUR/USD, EUR/CHF, EUR/GBP, and EUR/JPY.

IG data reveals a slight but fading bullish bias towards the EUR/USD among retail traders. Currently, 53.15% of clients hold net-long positions, resulting in a long-to-short ratio of 1.13 to 1. This positive tilt has weakened significantly, with net-long positions down a substantial 10.90% compared to yesterday, despite a tiny 0.05% increase over the week. Mirroring this, net-short positions surged by 31.26% since yesterday and are up 11.10% over the week.

Typically, a net-long stance hints at potential declines from a contrarian perspective. But, the recent shift in sentiment complicates the outlook. While a slight majority still favors the upside, the growing number of traders leaning bearish could signal an impending bullish burst for EUR/USD.

All in all, EUR/USD presents a mixed picture. It’s essential for traders to proceed with caution and not rely solely on sentiment. These insights should be combined with thorough technical and fundamental analysis for a well-informed trading strategy.

EUR/CHF FORECAST – MARKET SENTIMENT

Data from IG reveals clients are bullish on EUR/CHF, with 53.08% of traders currently holding net-long positions. This results in a long-to-short ratio of 1.13 to 1. However, sentiment appears to be weakening, with net-long positions down 3.10% since yesterday, even while they’ve increased by 8.70% compared to last week. Mirroring this, net-short positions are up 12.18% from yesterday but down 6.75% compared to last week.

Our typical contrarian approach suggests EUR/CHR could be in for a pullback. However, the recent weakening of buying positions on the pair and the mixed timeframe comparisons create a less confident outlook.

Overall, the EUR/CHF presents a complex picture based on current sentiment. While there may be some downward pressure, the lack of a strong contrarian signal warrants caution. As always, traders should consider these clues within a broader technical and fundamental analysis framework before making any trading decisions.

EUR/GBP FORECAST – MARKET SENTIMENT

Based on IG data, the sentiment surrounding EUR/GBP within the retail crowd appears optimistic, with 61.22% of traders maintaining net-long positions. This equates to a long-to-short ratio of 1.58 to 1. Nevertheless, this bullish stance is beginning to wane, as net-longs have declined by 1.80% since yesterday, despite a 4.95% jump over the past week. In contrast, net-shorts experienced a large 9.01% surge from yesterday but demonstrate a more consistent decrease of 12.00% versus last week’s levels.

Traditionally, substantial net-long positioning might indicate potential losses for the underlying asset from a contrarian standpoint. However, recent shifts in market positioning have clouded the clarity of this signal. Presently, EUR/GBP appears to be caught amidst conflicting forces. While contrarian indicators still suggest some downward pressure is probable, the absence of a robust, enduring trend renders it a less assured prediction.

EUR/JPY FORECAST – MARKET SENTIMENT

IG data reveals a strong bearish bias towards the EUR/JPY, with 73.47% of traders currently holding net-short positions. This translates to a significant 2.77 to 1 short-to-long ratio. Notably, the number of net-short positions has climbed by 7.11% since yesterday and 1.73% compared to last week. However, net-long positions have also surged, up 25.13% from yesterday and a notable 18.78% from last week.

Our contrarian approach suggests this heavy net-short positioning could be a positive sign for the EUR/JPY. Yet, the recent weakening of the bearish bias introduces a degree of uncertainty. While the contrarian perspective still points to potential gains for the pair, the increasing number of long positions over key timeframes warns that a trend shift may be imminent.

As always, traders should carefully integrate sentiment signals with a well-rounded strategy that includes thorough technical and fundamental analysis.

GVZ, or the gold volatility index, witnessed a strong move higher on Thursday as markets digested the recent Fed statement and latest summary of economic projections. The projections invalidated a growing belief in the market that the Fed will be forced to forgo a third rate cut in 2024 due to robust US data and resulted in a dovish repricing in the dollar. 

However, it has not taken long for markets to rally behind the dollar once again – something that is likely to keep the greenback supported into Friday’s PCE data which falls on Good Friday.

The chart below reveals gold’s recent responsiveness to the dollar (DXY) and shorter-term yields like the US 2-year yield. The aggressive move higher corresponded with falling yields and a lower USD but shortly thereafter,

Daily Gold Chart with DXY and 2-Year US Treasury Yields

Source: TradingView, prepared by Richard Snow

POTENTIAL EVENING STAR EMERGES MOMENTS AFTER PRINTING THE NEW ALL-TIME HIGH

An evening star could be emerging as the week came to a close, although the middle candle has a very notable upper wick which is not synonymous with the candle stick pattern. Nevertheless, price action suggests the recent move higher was an overreaction to the Fed news, as prices continued to ease into the weekend.

At the start of the coming week, the prior high of $2146.80 comes immediately into view as an early indication of whether bears may set the tone for the week. It’s a quiet week apart from final Q4 GDP data for the US and UK just to list a few and then on Friday PCE data for the month of Feb is due.

The dollars strong, immediate recovery poses a challenge for further upside for gold over the shorter-term and with few catalysts to choses from next week, gold may consolidate around the prior all time high with a view to trade lower.

Daily Gold Chart (XAU/USD)

Source: TradingView, prepared by Richard Snow

The weekly chart helps put golds multi-week advance into perspective. The week before the one that’s just passed revealed a bit of a slowdown in bullish momentum and the candle relating to the most recent trading week that’s just come to a close, reveals a rejection of higher prices.