ASIA: Coming up in the Asian session on Friday

• An upside surprise, with even another ‘low’ 0.4% if driven by areas away from PPI-relevant categories (which could limit the impact from any supercore surprises this month), could bring 5% 2Y Treasury yields back into play again.
• Expect sizeable resistance at this level though, having struggled to hold a sustained break on multiple occasions over the past month.
• The longest foray into a 5 handle was after the surprisingly strong ECI data for Q1 on Apr 30, reaching a high of 5.043%, before it slipped below with the FOMC on May 1 and it hasn’t tested it since.
• Instead, it reached a snap low of 4.708% after payrolls on May 3 – demonstrating the heightened sensitivity to softer labor data – but is currently back at 4.85% after some upside inflationary surprises.
• This 5% level could still see a firm test though as it would be seen as further evidence that the start-of-year acceleration is more than just a bump in the disinflationary path back towards 2% PCE inflation.
• We imagine this would come from a further delay in the start point of rate cuts rather than outright expectations of a near-term hike.
• An inline reading of around 0.30% M/M would further dial up attention on labor data.
• Markets will still clearly be sensitive to a downside surprise of 0.2% M/M but after three months averaging 0.37% M/M for core CPI, the onus is clearly on seeing multiple softer inflation readings as various FOMC members have said.

[Table taken from the MNI CPI Preview - find the full report here, although note the table in the link incorrectly labels auto insurance as airfares]

• Analysts are broadly centered around a 0.3% M/M print for core CPI inflation in April, as seen by those estimates to 2.d.p below.
• The range of supercore CPI estimates is relatively narrow compared to recent months, for the most part close to 0.4% M/M and within 0.3-0.5% M/M.

• RES 4: 1.3977 High Oct 13 ‘23 and a key M/T resistance
• RES 3: 1.3899 High Nov 1 and a key resistance
• RES 2: 1.3846/55 High Apr 16 and the bull trigger / High Nov 10 2023
• RES 1: 1.3785 High Apr 30
• PRICE: 1.3647 @ 16:12 BST May 14
• SUP 1: 1.3638 50-day EMA
• SUP 2: 1.3610 Low May 3
• SUP 3: 1.3547 Low Apr 9
• SUP 4: 1.3478 Low Apr 4

A bullish trend condition in USDCAD remains intact for now, despite Thursday’s weakness. Key support to watch is 1.3638, the 50-day EMA. This average was pierced on Friday, but remains intact as a support, for now. A continuation higher would expose the key resistance and bull trigger at 1.3846, the Apr 16 high. Note that moving average studies are in a bull-mode position, highlighting an uptrend.