Sample Category Title

• EURUSD challenges new 5-month low
• Penetrates symmetrical triangle to the downside
• MACD and RSI continues bearish momentum

EURUSD has been losing more than 2.5% since the pullback from the 1.0880 resistance level and is challenging a new five month low around the 1.0600 handle. The market has been experiencing a strong sell-off over the last five days, switching the short-term outlook to bearish.

Technically, the RSI is holding beneath the 30 level, while the MACD is standing beneath its trigger and zero lines, strengthening its negative momentum.

In case the market extends its selling interest then the first support to watch is the 1.0515 barrier, taken from the lows on November 1. Even lower, the low from October at 1.0450 could be a critical level for steeper decreases.

On the flip side, an upside recovery may meet the 1.0655 resistance level ahead of the 1.0695-1.0720 restrictive region. The penetrated ascending trend line may act as resistance level together with 1.0760 before meeting the 20-day SMA at 1.0780.

To conclude, EURUSD is heading south, breaking the symmetrical triangle and opening the way for more losses.

Markets

Markets yesterday initially reacted stoic to Saturday’s attack of Iran and against Israel. European and US equity markets even opened in green. Brent oil briefly dropped below the $90 p/b mark. Investors apparently expected any Israeli reaction to be guarded as the international community advocated de-escalation. Yields also resumed the uptrend that was interrupted on Friday. The focus from bond market also returned to the data. US March retail sales printed exceptionally strong both for headline (0.7 % M/M) and core measures (control group 1.1% m/m). The report reinforced recent market positioning assessing that the three rate hikes suggested in the March Fed dots is becoming ever more unlikely. US yields for maturities > 2-y touched new YTD peak levels. The former was blocked by the 5.0% barrier. Later, risk sentiment turned for the worse as Israeli officials warned the country will respond to the Iran attack. (US) equities gave of initially gains to close deep in red (Nasdaq -1.79%). Oil reversed course closing north $90 p/b. Especially short-term US yields ceded part of the early gains. Still, in a steepening move, yields closed between 2.4 bps (2-y) and 8.7 bps (30-y) higher. German yields showed similar gains (2-y +5.6 bps, 30-y 8.2 bps) but remain within the sideways consolidation pattern that is already in place since February. On FX markets, the dollar continues to outshine peers. The trade-weighted index DXY regained the 106 mark (106.21). USD/JPY touched a new 34-y top (close 154.28). EUR/USD saw more follow-through losses on Friday’s break below 1.0695 (close 106.24).

Yesterday’s WS risk-off spilled over to Asia this morning with regional indices losing up to 2.0%. Chinese data published this morning (cf infra) don’t help to improve sentiment. Still US Treasuries struggle to avoid further losses (+1 bp). The dollar outperforms (EUR/USD 1.0615, USD/JPY 134.35). Later today, the eco calendar is modestly interesting including ZEW confidence in Germany. In the US, building permits & housing starts and March production data will be released. Even in a risk-off context, bonds probably aren’t in a good position to play a safe haven role as inflationary risks won’t disappear anytime soon. At the same time, the dollar has few contenders to rival its save haven credentials. EUR/USD 1.0611 (76% retracement Oct/Jan) is the finally hurdle for a return to the 2023 low (1.0448). UK labour data published this morning were mostly weaker than expected. Employment in the 3 months to February declined sharply (-156k vs +74k expected). The unemployment rate jumped from 4.0% to 4.2%. Average weekly earnings eases marginally less than expected. Sterling declines in a first reaction (EUR/GBP 0.854).

News & Views

Chinese growth beat expectations but it’s only a shallow victory. GDP expanded 1.6% q/q in 2024Q1, accelerating from an upwardly revised 1.2% in Q4 2023 and topping the 1.5% analyst estimate. The accompanying monthly data releases shed some light on the composition. Fixed asset investment gained steam in March, accelerating to 4.5% y/y. The upswing, however, was almost entirely driven by state investments growing 7.8% vs a mere 0.5% growth in private investments. Industrial production slowed, both by state-owned companies and privately owned ones. The headline figure dropped to 4.5%. Retail sales offered little reasons to cheer as well with a deceleration to 3.1% y/y, down from the 5.5% gain in the first two months of the year and even further down from December’s 7.4%. Both industrial production and retail sales missed expectations by a wide margin. Property investment tumbled 9.5% in March, suggesting few to no signs of improvement in the giant but ailing sector. The Chinese yuan understandably quickly erased a kneejerk move higher in the wake of the release. USD/CNY traded at 7.2304 at this morning’s low-point before recovering to 7.2376 currently – near the weakest level since mid-November. It is this ongoing CNY weakness that prevents the Chinese central bank to drastically cut rates to jumpstart the economy, especially against the background of a Fed that has its hands tied because of stubbornly high inflation and ongoing economic strength.

The EU stepped up the trade offensive against China by unleashing a series of probes. It already launched an investigation into Chinese subsidies for electric vehicles and concluded last month that there was “sufficient evidence” of that, paving the way for import duties by July at the earliest. In addition, the EU will now look into the possibility of illegal support for Chinese windparks on European soil and for solar and railway firms. It will also launch an inquiry into China’s procurement of medical devices in the short run.

Daily Pivots: (S1) 190.70; (P) 191.71; (R1) 193.01; More..

Range trading continues in GBP/JPY and intraday bias stays neutral for the moment. On the upside, break of 193.51 will resume larger up trend to 195.86 long term resistance. Nevertheless, decisive break of 189.97 support will indicate that it's at least correcting the rise from 178.32, and target 38.2% retracement of 178.32 to 193.51 at 187.70.

In the bigger picture, current rally is part of the up trend from 123.94 (2020 low), and is in progress for 195.86 long term resistance (2015 high). Break of 187.94 support is needed to be the first sign of medium term topping. Otherwise, outlook will remain bullish in case of retreat.

Daily Pivots: (S1) 162.90; (P) 163.67; (R1) 164.68; More...

Range trading continues in EUR/JPY and intraday bias stays neutral. On the upside, firm break of 165.33 will resume larger up trend towards 169.96 key resistance next. However, decisive break of 162.26 support will argue that it's at least correcting the rise from 153.15, and target 38.2% retracement of 153.15 to 165.33 at 160.67.

In the bigger picture, current rally is part of the up trend from 114.42 (2020 low), which is still in progress. Next target is 169.96 (2008 high). Break of 160.20 support is needed to be the first sign of medium term topping. Otherwise, outlook will stay bullish in case of retreat.

Daily Pivots: (S1) 0.8525; (P) 0.8539; (R1) 0.8551; More...

Outlook in EUR/GBP remains unchanged as range trading continues. Intraday bias stays neutral at this point. On the downside, firm break of 0.8529 support will argue that the corrective recovery from 0.8497 has completed at 0.8601. Intraday bias will be back on the downside for retesting 0.8497 low next. On the upside, break of 0.8601 will resume the rebound instead.

In the bigger picture, there is no clear sign that down trend from 0.9267 has completed, despite loss of downside momentum as seen in D MACD. As long as 0.8601 resistance holds, the down trend will remain in favor to resume through 0.8491 low at la later stage.

Daily Pivots: (S1) 1.6438; (P) 1.6468; (R1) 1.6521; More...

Intraday bias in EUR/AUD turned back to the upside with break of 1.6516 resistance. Further rally would be seen to 1.6677 resistance next. Break there will confirm that correction from 1.6742 has completed, and bring further rally through this high. On the downside, though, break of 1.6368 will resume the fall from 1.6742 instead.

In the bigger picture, fall from 1.7062 medium term top is seen as a correction to the up trend from 1.4281 (2022 low). The correction is probably still in progress with fall from 1.6742 as the third leg. Strong support is expected around 1.5846 and 38.2% retracement of 1.4281 to 1.7062 at 1.6000 to bring rebound.

Daily Pivots: (S1) 0.9662; (P) 0.9702; (R1) 0.9721; More...

No change in EUR/CHF's outlook as correction from 0.9847 is in progress. Intraday bias stays mildly on the downside for 38.2% retracement of 0.9252 to 0.9847 at 0.9620. But strong support is expected from there to contain downside to bring rebound, and set the range for the consolidation pattern from 0.9847. On the upside, above 0.9745 minor resistance will turn bias back to the upside for retesting 0.9847 instead.

In the bigger picture, a medium term bottom should be in place at 0.9252 already, on bullish convergence condition in W MACD. Rise from there now target 38.2% retracement of 1.2004 (2018 high) to 0.9252 (2023 low) at 1.0303, even as a correction to the down trend from 1.2004. This will remain the favored case as long as 55 D EMA (now at 0.9636) holds.

UK payrolled employment fell -67k or -0.2% mom in March. Median monthly pay rose 5.6% yoy, slowed from prior month's 6.2% yoy. Claimant count rose 10.9k, below expectation of 17.2k.

In the three months to February, unemployment rate rose from 4.0% to 4.2%, above expectation of 4.0%. Average earnings including bonus rose 5.6% yoy, unchanged from prior month's rate. Average earnings excluding bonus rose 6.0%, down slightly from January's 6.1% yoy.

Full UK labor market data release here.

A stronger-than-expected retail sales data from the US cemented the idea that the US economy remains too strong for the Federal Reserve (Fed) to cut the rates in summer. Retail sales jumped 0.7% in March on a monthly basis, more than 4% on a yearly basis, the 3 and 6-month bill auctions were weak, and Atlanta Fed’s GDPNow forecast rebounded to 2.8%. Not bad.

Then, China posted a surprisingly stronger-than-expected GDP number this morning, showing that the Chinese economy grew 5.3% in the first quarter, comfortably higher than a 4.8% growth penciled in by analysts. But the sky is not blue in China. The industrial production missed estimates, house prices continue to fall and consumer spending slowed significantly during March, hinting that the underlying problems – like property crisis and weak consumer confidence - are not going away. Remember, Fitch cut the country’s outlook to negative last week citing risks to public finances, while in contrast Goldman and Morgan Stanley raised their outlook for the country’s economic growth pointing at improved factory activity and recovery in exports. But the EU started a deluge of investigations on China that could hurt the country’s export outlook, along with the risk of seeing Donald Trump become the next US president. The contradictory expectations and mixed data explained why the CSI 300 slid despite a 5.3% GDP growth. Shanghai’s Composite fell almost 1.5%.

A strong Chinese GDP may have not boosted appetite for Chinese stocks, but it sure boosts worries that rising Chinese growth – regardless of where growth comes from – will fuel global inflation and make major central banks think twice about their rate cutting plans. While the European Central Bank (ECB) and the Bank of England (BoE) are seen cutting the rates between summer and fall respectively, the outlook becomes complicated for the US. Provided that the economic growth and jobs market remain robust and inflation is heating up, the idea that the Fed’s next move will be a rate hike starts cooking in many investors’ minds. UBS now thinks that the Fed could increase borrowing costs to 6.5% next year to combat inflation. The fading Fed cut expectations continue to pressure the treasury market. The US 2-year yield is preparing to jump sustainably above the 5% level, the 10-year yield advanced past the 4.60% and the US dollar index extends gains. The EURUSD is trading a touch below the 1.0615 this morning with euro bears eyeing a further decline to 1.05 level, while the USDJPY spiked above 154 – the unthinkable at the start of the year – as the yen bears defy the Japanese authorities intervention threats and T. Rowe Price calls for another 10% slide in the Japanese yen.

In equities, the S&P500 had a bad start to the week with a 1.20% decline, as technology stocks led losses. Nasdaq fell 1.65%. Both the indices slipped below their 50-DMA following yesterday’s selloff. While strong economic data is not necessarily bad news for company earnings – as consumers continue to spend – the rising inflation, the fading dovish Fed expectations, and the latest optimism regarding earnings expectations could limit the upside potential in major stock indices, if company results fail to beat high expectations. The fear sets in and the VIX index rises rapidly.

Earnings

Goldman Sachs surprised in the Q1 with a 28% jump in profit, but JPM and Wells Fargo’s first quarter results didn’t enchant investors. BoFA and Morgan Stanley will release their quarterly results in the coming hours. BoFA may announce a narrowing net interest margin, as did JPM and Wells Fargo, while Morgan Stanley is expected to post its 9th consecutive quarterly drop in earnings. Later this week, Netflix will begin the dance for the major tech earnings, Tesla is due to reveal its Q1 results next week.

Tesla said that it will cut 10% of its workforce globally to adjust to slowing EV demand. In fact, the company has had a bad quarter, deliveries fell 8.5% while the global EV sales increased less than 3%. Tesla lost market share despite cutting the prices of its electric cars. Losing market share despite lowering prices calls for immediate action to increase profitability. Price increases and cost cutting are the first aid measures that should soothe investors’ nerves, while bringing forward new revenue streams like robotaxis should keep investors dreaming for a bright future. Yet, the context of slowing EV growth and rising competition will likely continue to weigh on profits, and robotaxis are a niche and a slowly growing segment which won’t show in the bottom line in the immediate future. Therefore, Tesla – which has a PE ratio of nearly 62, has room to extend losses to settle at a more reasonable valuation. A slide toward the 100 is possible.

In focus today

We continue to follow the developments in the Middle East after Iran's strike on Israel in the weekend. It will be key to watch for signals on the extent of an Israeli retaliation. So far, Israel has said it will "exact a price" from Iran, while the US, France, and the UK have all urged restraint. See more below.

We also look out for the German ZEW data for April. The assessment of the current business situation has stabilised in the recent months while expectations have risen, which suggests a bottoming out of activity Germany. It will be interesting to see if the April data further point to an improvement in activity. See more in Research Germany - Worst is over in German manufacturing, 15 April. Yesterday we also published Research Global - Manufacturing recovery to continue into the summer, 15 April, where we look at the lift to the global manufacturing cycle.

Economic and market news

What happened overnight

Chinese data releases overnight were a mixed bag. On the positive side GDP for Q1 surprised to the upside showing an increase in growth from 5.2% to 5.3% (consensus 4.8%). This puts the government on track for its 5% growth target and still leaves upside risk to our forecast of 4.5% for this year. However, growth is still much dependent on stimulus and public investments. Retail sales for March disappointed with growth of only 3.1% y/y in March versus consensus expectations of 4.8% y/y. Industrial production also surprised to the downside. After a strong start in Jan/Feb at 7% growth, March dropped to 4.5% y/y (consensus 6.0% y/y). On the slightly positive side, housing data showed a few rays of light with home sales improving as the three-month average increased to 108.2 million square meters (using our own seasonal adjustment) up from 70 million square meters in January. Overall housing is still weak, though and provides the main drag on the economy as it has a negative spill-over to private consumption. China is preparing new stimulus with a trade-in scheme for consumer goods coming soon, which may hold consumption in the short term before the scheme kicks in. Overall, developments continue to be in line with our muddling through scenario for Chinese growth.

What happened yesterday

Fears of an immediate further escalation of the Israel/Iran conflict diminished slightly yesterday, and oil prices posted a modest decline during the day but reversed losses overnight to stay flat. Markets were characterized by a degree of caution as they waited for signals from the conflict. Israel has made it clear that it intends to respond, but it has yet to decide on how and by how much and has stated that it will seek support from its allies. When and how are the key questions, including whether it will be by proxy or a direct confrontation, where the latter would be a very significant escalation. Several major powers (incl. the US and Germany) have sought to deescalate the situation by urging restraint. An escalation of the conflict could spark major unrest in the region and have global economic consequences, with an analysis from Bloomberg indicating that a direct war would raise the oil price by some USD 64 and lower GDP growth by 1 percentage point.

Opposite signed macro surprises from the US and euro area as figures for US retail sales showed a 0.7% m/m increase (cons: 0.3%) in March. The figure is somewhat clouded by technical factors (seasonal adjustment) but indicates the continuation of a steady growth trend. Conversely, euro area industrial production declined 6.4% y/y (cons: -5.7%) in February which together with a large decline in January means production will likely be a significant drag on growth in Q1 2024. US yields gained with the 10Y up 13bp as of last night, while the reaction to the euro area data was more muted.

The yen weakened against major currencies (again) during Monday's session with USD/JPY moving past the 154 mark (+0.6%) to hit its lowest level for the yen since 1990 as of last night. The strong US retail sales was one factor as this supports delayed Fed rate cuts. The Japanese finance minister reiterated warnings about a possible intervention, but he is in a tough spot as the recent development has largely been due to upside US surprises since the yen is sensitive to US rates, which puts the sustainability of the effects of an intervention into question.

Equities: Global equities were lower yesterday as US yields once again spoiled the party. The European and US equity cash sessions looked very different both in direction and rotations as the yield spike came relatively late in the European cash session. The global impact is of course biggest from the US development and hence the part to focus on. Sharply higher real yields and a steeper curve "finally" resulted in big tech and long duration stocks underperforming and thereby signalling that the recent lift to yields is more than equities can absorb short-term. The flipside was defensive value outperforming with banks joining after a very strong result from Goldman Sachs. VIX jumped to 19, reflecting the uncertainty arising from yields moving higher and financial conditions tightening. In US yesterday, Dow -0.7%, S&P 500 -1.2%, Nasdaq -1.8% and Russell 2000 -1.4%. Asian markets are sharply lower this morning led by Japan, South Korea and Taiwan reflecting the tech and cyclical sell-off. Chinese markets are doing better on mixed data out of China this morning. GDP came out very strong while industrial production and retails sales numbers disappointed. European and US futures are lower this morning as well.

FI: Global yields moved higher across the board as fear of escalation of the Middle Eastern conflict faded and thus markets have almost reversed the rally it recorded on Friday, despite the news over the weekend. 10y Bunds rose 6bp to 2.44% yesterday. US retail sales was stronger than anticipated. Currently, rates markets are caught in a directionless range currently as markets are waiting for a catalyst.

FX: The USD and the CHF, two safe havens, outperform the rest of G10 amid tensions in the Middle East. EUR/USD hits year-lows just shy of breaking below 1.06, while USD/JPY makes new year highs flirting with 154.50. Initially, EUR/SEK has weathered the storm, although the topside remains vulnerable to deteriorating risk sentiment. NOK/SEK down from parity to around 0.9950 as EUR/NOK edged higher. Brent oil is at USD 90.6/bbl this morning.