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It’s been relatively quiet around US President Trump the past fortnight. Too quiet now it seems… Two weeks ago, the POTUS was too busy collecting money in the Middle East. This week, he needed to align House Republicans to pass his big beautiful, deficit-augmenting, bill. They narrowly did so yesterday, giving way to the Senate to deliberate on the bill. Overall, the bill remains on track to make the president’s self-imposed Independence Day deadline. With those issues out of the way, Trump went back to one of his favorite pastimes: ranting on social media. It started rather innocent with an attack at the very untalented Bruce Springsteen, morphed into a treat of 25% tariffs on Apple if iPhones aren’t made in the US (Apple is pivoting production from China to India) and ended with the recommendation of a straight 50% tariff on the EU, effective June 1st as talks with the bloc are “going nowhere”. So far for the 90-day truce in the trade war. The Truth Social post covered an otherwise calm trading session with risk aversion. European stock markets fell off a cliff, currently registering losses of over 2%. US equity futures also dived up to 2% lower. Core bonds rallied with German Bunds outperforming. Yields currently cede 9 bps to 7.5 bps in a bull steepening move. More ECB rate cuts beyond the June meeting are all of a sudden back into play. US Treasuries build on yesterday’s sell-the-rumour, buy-the-fact gains (House vote) with yields losing 6 bps (2-yr) to 1.5 bps (30-yr) in a similar steepening move. The euro suffered only a marginal setback against the dollar whose losing more and more international appeal. EUR/USD dipped from 1.0375 to 1.0325. EUR/GBP trades below 0.84 for the first time since early April on EUR weakness after UK markets ignored strong April UK retail sales. Safe haven currencies JPY (USD/JPY 142.50) and CHF (EUR/CHF 0.93) excel. US Treasury Secretary Bessent hopes that Trump’s threat “lights a fire under the EU”. He called EU negotiations an exception to the rule as talks with many Asian nations move quickly in the right direction. Last time around Trump had a tariff recommendation (80% for China to unlock trade talks), Bessent managed to eventually agree on a 30% tariff. Going into the long US (and UK) weekend, we can only hope for the best and expect the worse. The stakes at the G7 meeting of finance ministers and central bankers in Canada are high. Bank of Japan governor Ueda at the sidelines of that meeting was asked late last night on this week’s sell-off in long-term Japanese government bonds. They pushed Japanese 20-yr (>2.5%), 30-yr (>3.2%) and 40-yr (3.7%) yields to their highest levels since 1999. Ueda declined to comment specifically on short-term developments, “but of course we will continue to monitor the market carefully”. These comments echo the Japanese MoF’s first verbal firing shots in the run-up to FX interventions in case of an uncontrolled weakening of the Japanese currency. Markets took notice with Japanese government bonds leading the way higher this morning. In a corrective move, the local yield curve bull flattened with the Japanese 30-yr yield ending 12.7 bps lower.

News & Views

German Q1 GDP growth upwardly revised from 0.2% to 0.4% Q/Q, with positive contributions from private consumption (0.5% Q/Q from 0.2%) and capital investments (0.9% Q/Q from 0.2%). Net exports added a strong 0.9% ppts (after being negative for the previous three quarters). Also today, the German IFO Institute reported that its survey series on export expectations improved significantly in May. The index rebounded from -9.4 in April to -3 in May. Head of Ifo Surveys Klaus Wohlrabe assessed that the easing in the tariff conflict brought relief for exporters. This improvement obviously seems outdated all of a sudden following today’s Trump tariff threat.

Previewing next week’s policy decision, KBC expects the National Bank of Hungary to keep its policy rate unchanged at 6.5%, in line with consensus. The MNB has to maintain cautious approach amid persistent inflationary pressures and global uncertainties. CPI inflation slowed from 5.7% in February to 4.2% in April, but stays above the 2%-4% MNB target range. In addition, the slowdown was helped by margin caps introduced on food prices. Caps on other goods kicked in in May. They might slow inflation short-term, but don’t solve the issue further out. KBC expects inflation to average 4.5% in 2025. The MNB signals that tight monetary conditions are needed to slow inflation and anchor inflation expectations. Global uncertainty also advocates caution. We expect MNB to keep rates unchanged throughout summer, but if the ECB and the Fed ease policy further there might be some room for one or two 25 bps steps in autumn. The valuation of the forint, a further deterioration of the Hungarian fiscal position and global risk sentiment are main risks to this scenario.

President Trump Reignites Tariff Discussion

US President Donald Trump just reignited market volatility with a series of tweets and comments around tariffs.

The President posted to his Truth Social platform that tariffs of at least 25% would be put in place for iPhones not made in the US. The move sent the S&P lower but the comments on EU tariffs really hampered risk sentiment and risk assets.

In a separate Truth Social post, President Trump criticized the European Union, accusing it of engaging in unfair trade practices that have contributed to a significant trade deficit with the United States. Highlighting issues such as trade barriers, VAT taxes, and corporate penalties, Trump expressed frustration over stalled negotiations with the EU.

In his post, Trump stated:

"The European Union has been very difficult to deal with. Their powerful Trade Barriers, VAT Taxes, ridiculous Corporate Penalties, Non-Monetary Trade Barriers, Monetary Manipulations, unfair and unjustified lawsuits against Americans Companies, and more, have led to a Trade Deficit with the US of more than $250,000,000 a year, a number which is totally unacceptable. Our discussions with them are going nowhere! Therefore, I am recommending a straight 50% Tariff on the European Union, starting on June 1, 2025. There is no Tariff if the product is built or manufactured in the United States. Thank you for your attention to this matter!"

The proposed 50% tariff, set to take effect on June 1, 2025, would exempt products manufactured within the United States, signaling a push to encourage domestic production. This announcement is likely to spark significant debate and could have far-reaching implications for US-EU trade relations.

Market Reaction - DAX Falls 2.7%, S&P Down 1.5%

Risk assets have taken a hit with the Wall Street's "fear gauge", the CBOE Volatility Index .VIX, spiked to a more than two-week high and was last at 24.6 points.

S&P 500 has tumbled 1.5% as megacap and growth stocks turned sharply lower, with Amazon AMZN.O and Nvidia NVDA.O sliding more than 2% each.

The DAX index slid as much as 2.7%.

This is what i would consider a major escalation in the tariff conversation. Markets had hoped that most of the proposed tariffs by the US administration would be negotiated away.

Concerns will now rise that if these tariffs are implemented, growth in the European Union may be affected. This comes after disappointing PMI data from the EU earlier this week.

Germany's two-year bond yield fell 10 basis points to 1.73%, while the 10-year yield dropped 9 basis points to 2.55%.

In currency markets, the Japanese yen was the top performer, with the dollar down 0.9% at 142.77 yen and the euro down 0.56% at 161.43 yen.

Gold saw renewed safe haven flows as the precious metal is tarding above the $3350/oz mark at the time of writing.

The euro was steadier against the dollar, rising 0.3% to $1.1311, as traders weighed U.S. tariff concerns against eurozone growth worries.

DAX Index Daily Chart, May 23, 2025

Source: TradingView.com

Support

23212
22800
22405

Resistance

23750
24000
24250

• EUR/USD is showing bullish momentum on the weekly chart with a potential bullish engulfing candle, suggesting further gains and possible new yearly highs.
• On the daily chart, a close above 1.1366 is needed for a structural change.
• The RSI on the daily timeframe indicates a bullish bias, but a US Dollar recovery could trigger a pullback in EUR/USD.

EUR/USD is enjoying a good run this week despite weak PMI data reigniting stagflation concerns. However, US Dollar weakness continues to help the Euro as it trades around 1.6% higher against the greenback.

The performance of the Euro has surprised me to say the least. This morning we saw traders fully price ECB rate cuts in April for the first time. This was followed by Morgan Stanley lowering the Euro area's 2025 GDP forecast to 0.8% vs prior forecast of 1.0% while also saying that they expect the ECB benchmark rate to reach 1.5% in December 2025 vs the prior forecast of June 2026.

It is no surprise then that the rally in EUR/USD has largely been driven by US Dollar weakness as was evident this week. Weak Euro Area data was once again ignored as the US Dollar continued its struggles.

The technicals are also painting an interesting picture so let's take a look.

Technical Analysis on EUR/USD

Let us start with the technical picture on the weekly chart.

As you can see below, the recent pullback in EURUSD appears to have found support with last week's candle closing as a doji indecision candle at the trendline which was broken on April 7.

This was a sign that a potential reversal may be incoming this week and that has come to fruition thus far as the US Dollar struggled.

EUR/USD is currently up around 1.6% for the week with the weekly candle on course to close as a bullish engulfing candle. At present, the weekly candle is on course to engulf the past three weeks of bearish price action hinting at significant buying pressure.

Looking at this picture and further gains at this stage look likely with fresh yearly highs also not out of the question.

EUR/USD Weekly Chart, May 23, 2025

Source: TradingView.com

On the daily chart below, the swing high at 1.1366 needs to be broken with a daily candle close above this level needed for a change in structure.

If such a move develops this may embolden bulls further that the rally has the legs to take out the April 21 highs at 1.1572.

Beyond the 1.1366 handle, there is also resistance around the 1.1400 level and 1.1482 which could prove a challenge for bulls to overcome.

The RSI period - 14 on the daily timeframe though also appears to support a bullish narrative for now. Having broken back above the neutral 50 level on May 19, this supports the idea that momentum is currently favoring a bullish bias.

However, indicators are not always correct and thus a pullback cannot be ruled out if the US dollar finds support next week.

EUR/USD Daily Chart, May 23, 2025

Source: TradingView.com

Support

• 1.1270
• 1.1200
• 1.1100

Resistance

• 1.1366
• 1.1400
• 1.1482

Retail sales saw their first increase in 2025, up 0.8% month-on-month (m/m) in March, a tick above Statistics Canada's advanced estimate. After adjusting for inflation, the volume of retail sales posted a 0.9% m/m increase.

For the first quarter, retail sales volumes saw mild growth (+0.2% quarter-on-quarter, q/q) after two quarters of relatively strong gains.

Motor vehicles and parts sales (4.8% m/m) contributed most to the headline print, reversing the decline from the two months prior.

Lower crude oil prices in March drove a -6.5% m/m decline in receipts at gas stations and fuel vendors (-2.6% m/m on a price-adjusted basis).

Excluding auto sales and receipts at gas stations, core retail sales increased for a second consecutive month (0.2% m/m), driven primarily by higher sales of building materials (+2.6% m/m) and clothing/jewelry/leather goods (+2.6% m/m). A -2.7% m/m pullback from general merchandise retailers tempered core retail gains.

E-commerce sales fell 2.1% m/m in March.

Statistics Canada's advanced estimate for April points to a 0.5% m/m rebound.

Key Implications

March retail sales data came in a bit warmer than expected. Consumers pulled forward their auto purchases, something we expected as buyers front-ran counter tariffs imposed in April. The surprise was in the 5 of 7 non-auto retail components that advanced on the month, which may represent stockpiling of non-discretionary items ahead of other incoming tariffs.

Expectations for another solid month of sales growth in April may offer some positive momentum for total consumer spending into the second quarter, though we expect spending weakness to dominate the broader trend. Canadian consumer confidence has nosedived in recent months and the labour market has started to shed jobs. Against this backdrop, we expect consumers to stay relatively hesitant until confidence and clarity are restored, which we think will occur in the later stages of this year. A few more Bank of Canada rate cuts in the coming months may help soften the blow.

Daily Pivots: (S1) 143.08; (P) 143.75; (R1) 144.68; More...

USD/JPY's fall from 148.64 resumed after brief recovery. Intraday bias is back on the downside for retesting 139.87 low. On the upside, above 144.31 minor resistance will turn intraday bias neutral again first.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.8246; (P) 0.8277; (R1) 0.8319; More….

USD/CHF is holding above 0.8208 temporary low and intraday bias remains neutral. Risk will stays on the downside as long as 0.8475 resistance holds. Corrective rebound from 0.8038 should have completed already. Below 0.8208 will bring retest of 0.8038 first. Firm break there will resume larger down trend to 61.8% projection of 0.9200 to 0.8038 from 0.8475 at 0.7757 next.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8765) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.

Daily Pivots: (S1) 1.3393; (P) 1.3417; (R1) 1.3443; More...

GBP/USD's rally resumed after brief consolidations and intraday bias is back on the upside. Current rally should now target 61.8% projection of 1.2706 to 1.3442 from 1.3138 at 1.3593, and then 100% projection at 1.3874. On the downside, below 1.3389 minor support will turn intraday bias neutral again first.

In the bigger picture, up trend from 1.3051 (2022 low) is now resuming. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.2843) holds.

Daily Pivots: (S1) 1.1242; (P) 1.1294; (R1) 1.1331; More...

Intraday bias in EUR/USD is back on the upside with breach of 1.1362 temporary top. As noted before, correction from 1.1572 could have completed at 1.1064 already. Further rise should be seen to retest 1.1572 first. Firm break there will resume larger up trend. Next near term target will be 61.8% projection of 1.0176 to 1.1572 from 1.1064 at 1.1927. However, below 1.1255 minor support will dampen this view and turn intraday bias neutral again.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0818) holds.

Global financial markets are thrown back into turmoil today after US President Donald Trump reignited trade tensions by announcing he would recommend a sweeping 50% tariff on EU imports starting June 1. In a pointed social media post, Trump accused the EU of stonewalling negotiations, declaring that discussions were “going nowhere.” The announcement came on the heels of another threat, this time directed at Apple, with Trump warning of at least a 25% tariff if the company doesn’t relocate iPhone production to the US.

The market reaction was swift and severe. DOW futures plunged over 500 points, and European equities were battered as traders rushed to reprice geopolitical risk. The shock move revives fears of a new phase in the trade war, one with potentially deeper and more systemic consequences than the US-China dispute, especially given Europe’s central role in global supply chains and transatlantic investment flows.

Currency markets mirrored the chaos. While Euro was understandably under pressure from the tariff news, Dollar was hit even harder, staying at the bottom of the performance board for the day. Traders appear to be weighing the long-term implications of such a dramatic trade escalation on US economy.

Safe haven demand surged, with Yen leading gains. Kiwi and Swiss Franc are following. Sterling held up relatively well thanks to robust retail sales data. Aussie remained relatively steady, though vulnerable to shifts in global risk sentiment.

In Europe, at the time of writing, FTSE is down -0.95%. DAX is down 2.11%. CAC is down -2.33%. UK 10-year yield is down -0.044 at 4.712. Germany 10-year yield is down -0.079 at 2.567. Earlier in Asia, Nikkei rose 0.47%. Hong Kong HSI rose 0.24%. China Shanghai SSE fell -0.94%. Singapore Strait Times rose 0.06%. Japan 10-year JGB yield fell -0.013 to 1.549.

Canada retail sales rise 0.8% mom on autos, underlying momentum weakens

Canada’s retail sales rose by 0.8% mom in March, surpassing expectations of a 0.6% gain. Motor vehicle and parts dealers drove the advance with a strong 4.8% mom rebound. The first quarter posted a solid 1.2% gain in total retail activity, extending the streak of quarterly increases to four.

However, the underlying trend was less encouraging. Retail sales excluding autos plunged -0.7% mom, far worse than the expected -0.1% mom decline.

StatCan’s advance estimate points to a modest 0.5% rebound in April.

ECB’s Lane sees wages easing, cautions on persistent global shocks

ECB Chief Economist Philip Lane expressed confidence that services inflation will continue to moderate, citing subdued outcomes in recent wage agreements.

Speaking at a lecture, Lane noted that the current wage settlements for 2025 are already "quite low," with those for 2026 appearing even more restrained. That suggested easing cost pressures in the services sector, a key driver of core inflation.

However, Lane tempered optimism by pointing to the persistent volatility in the global economic environment. He highlighted large recent swings in exchange rates and energy prices, attributing them to structural shifts in the global trading system.

ECB’s Rehn and Stournaras back June rate cut

ECB Governing Council members Olli Rehn and Yannis Stournaras signaled support for a rate cut in June, provided that incoming data confirms the current trend of stabilizing inflation and moderate growth. Rehn stressed the importance of maintaining a data-dependent approach amid a backdrop of “pervasive uncertainty” stemming from geopolitical tensions and global trade conflicts.

Speaking in an interview with Kathimerini, Rehn noted that "if incoming data and macroeconomic analysis confirm the current outlook for stabilizing inflation and somewhat subdued growth, the appropriate response in June would be to continue monetary easing and lower interest rates."

However, he cautioned against making any assumptions beyond June. "let's stay on the path of data-driven decision-making at every meeting, especially as we find ourselves under the clouds of pervasive uncertainty due to geopolitics and trade wars," he emphasized.

Stournaras echoed the view of a June cut, but suggested the ECB may pause thereafter to reassess. "I believe we will reduce interest rates one more time in June and then I see a pause," he said.

UK retail sales beat expectations with 1.2% mom growth, strongest annual gain since 2022

UK retail sales volumes jumped by 1.2% mom in April, significantly above the expected 0.3% mom gain. This marks the fourth consecutive monthly increase, with volumes now at their highest level since July 2022. Food store sales led the rise with a sharp 3.9% rebound, attributed largely to favorable weather conditions, offsetting declines seen in February and March.

On a broader basis, sales volumes grew 1.8% over the three months to April compared to the prior three-month period, the strongest gain since July 2021. Year-on-year, volumes rose 2.6%, the largest increase since March 2022.

Sticky inflation persist as Japan’s core CPI climbs to 3.5%

Japan’s inflation pressures remained elevated in April, with the core CPI (excluding fresh food) rising from 3.2% yoy to 3.5% yoy, beating expectations of 3.4% yoy and marking the highest level since January 2023. This keeps core inflation above the BoJ’s 2% target for over three years.

Core-core CPI, which excludes both food and energy, also ticked up from 2.9% yoy to 3.0% yoy, suggesting broader underlying price momentum. Headline CPI held steady at 3.6% yoy.

There were notable upward drivers in inflation. Energy prices surged 9.3% yoy, up from March’s 6.6% yoy. Food prices (excluding fresh items) jumped 7.0% yoy, up from 6.2% yoy. In particular, rice prices soared by 98.4% yoy, a seventh consecutive record high, reflecting persistent supply shortages.

However, services inflation, closely watched by BoJ as a wage-sensitive component, edged slightly lower to 1.3% from 1.4%, tempering some of the hawkish signals.

NZ retail sales rise 0.8% qoq in Q1, but ex-auto growth modest

New Zealand retail sales volumes rose a stronger-than-expected 0.8% qoq in Q1 to NZD 25B, offering a positive surprise relative to market expectations of flat growth.

According to Stats NZ, 10 of the 15 major retail industries saw increased activity, led by a 3.1% jump in motor vehicle and parts retailing and a 3.7% rise in pharmaceutical and other store-based sales. Clothing and accessories also saw a healthy 3.2% gain.

Despite the upbeat headline, underlying momentum appears less robust when excluding the volatile auto sector. Core retail sales rose just 0.4% qoq, sharply missing expectations of a 1.5% qoq rise.

Economic indicators spokesperson Michelle Feyen noted that growth was "modest" and broad-based.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1242; (P) 1.1294; (R1) 1.1331; More...

Intraday bias in EUR/USD is back on the upside with breach of 1.1362 temporary top. As noted before, correction from 1.1572 could have completed at 1.1064 already. Further rise should be seen to retest 1.1572 first. Firm break there will resume larger up trend. Next near term target will be 61.8% projection of 1.0176 to 1.1572 from 1.1064 at 1.1927. However, below 1.1255 minor support will dampen this view and turn intraday bias neutral again.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0818) holds.

Canada’s retail sales rose by 0.8% mom in March, surpassing expectations of a 0.6% gain. Motor vehicle and parts dealers drove the advance with a strong 4.8% mom rebound. The first quarter posted a solid 1.2% gain in total retail activity, extending the streak of quarterly increases to four.

However, the underlying trend was less encouraging. Retail sales excluding autos plunged -0.7% mom, far worse than the expected -0.1% mom decline.

StatCan’s advance estimate points to a modest 0.5% rebound in April.

Full Canada's retail sales release here.