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Euro is making notable gains following ECB's decision to increase interest rates by a widely anticipated 25bps. The real kicker, however, is the significant upward revision of core inflation forecasts for both the current and following years, pushing the common currency up across the board. Swiss Franc capitalized on Euro's rally, securing its spot as the day's next strongest performer. Sterling, on the other hand, delivered a mixed performance, selloff against Euro. Australian Dollar emerges as the third strongest player, buoyed by robust jobs data released earlier in Asian trading session.

On the flip side, Japanese Yen continues to languish as the weakest performer, with verbal interventions from Japanese officials having done little to stem its downward trajectory. There was, however, a slight recovery during early US session, likely attributable to traders engaging in short covering in advance of BoJ rate decision in the upcoming Asian session. New Zealand Dollar is the day's second weakest currency, followed closely by Canadian Dollar. Dollar, meanwhile, exhibited a mixed performance, largely brushing off the retail sales and jobless claims data.

Technically, EUR/CAD's rebound from 1.4280 is finally taking up some momentum. Immediate focus is now on 145.10 support turned resistance. Decisive break there should confirm that corrective fall from 1.5111 has completed, just ahead of 1.4236 cluster support (38.2% retracement of 1.2867 to 1.5111 at 1.4254). Stronger rally should then be seen through 55 D EMA (now at 1.4570). If realized, the rally in EUR/CAD could also be accompanied by break of 1.6101 resistance in EUR/AUD.

In Europe, the time of writing, FTSE is up 0.01%. DAX is down -0.72%. CAC is down -0.95%. Germany 10-year yield is up 0.047 at 2.500. Earlier in Asia, Nikkei dropped -0.05%. Hong Kong HSI surged 2.17%. China Shanghai SSE rose 0.74%. Singapore Strait Times rose 0.77%. Japan 10-year JGB yield rose 0.0009 to 0.432.

US retail sales rose 0.3% mom in May, ex-auto sales up 0.1% mom

US retail sales rose 0.3% mom to USD 686.6B in May, above expectation of 0.0% mom. Ex-auto sales rose 0.1% mom to USD 554.5B, matched expectations. Ex-gasoline sales rose 0.6% mom to USD 633.5B. Ex-auto and gasoline sales rose 0.4% mom to USD 501.5B

In the three months to may, sales were up 1.7% from the same period a year ago.

US initial jobless claims unchanged at 262k

US initial jobless claims was unchanged at 262k in the week ending June 10, well above expectation of 246k. Four-week moving average of initial claims rose 9k to 247k, highest since November 20, 2021 when it was 249k.

Continuing claims rose 20k to 1775k in the week ending June 3. Four-week moving average of continuing claims dropped -6k to 1778k.

ECB hikes 25bps, core inflation forecast raised sharply higher

ECB raises its key interest rates by 25bps as widely expected. The main refinancing rate, marginal lending facility rate, and deposit rates will be 4.00%, 4.25% and 3.50% after the hike.

In the accompanying statement, it's reiterated that the Governing Council will continued to follow a "data-dependent approach" in future decisions, to bring rates to levels "sufficiently restrictive" to achieve timely return of inflation to 2% target. Rates will also be kept at that level "for as long as necessary".

In the updated economic projections, core inflation projection is revised up notably in 2023 and 2024, and slightly in 2025. Growth projection was revised down slightly in both 2023 and 2024.

• Inflation is projected to average 5.4% in 2023, 3.0% in 2024 and 2.2% in 2025. (March:  5.3% in 2023, 2.9% in 2024 and 2.1% in 2025).
• Core inflation is projected to reach 5.1% in 2023, before it declines to 3.0% in 2024 and 2.3% in 2025. (March: 4.6% in 2023, 2.5% in 2024 and 2.2% in 2025).
• Growth is projected to be at  0.9% in 2023, 1.5% in 2024 and 1.6% in 2025. (March: 1.0% in 2023, 1.6% in 2024, 1.6% in 2025).

Eurozone exports down -3.6% yoy in Apr, imports down -11.9% yoy

Eurozone exports of goods to the rest of the world decreased -3.6% yoy in April to EUR 216.0B. Imports decreased -11.9% yoy to EUR 227.7B. A EUR -11.7B trade deficit was recorded. Intra-Eurozone trade was also down by -5.2% yoy to EUR 208.3B.

In seasonally adjusted term, exports fell -3.2% mom to EUR 234.5B. Imports rose 5.9% mom to EUR 241.5B. Trade balance turned into EUR -7.1B deficit, versus expectation of EUR 5.7B surplus. Intra-Eurozone trade fell from EUR 224.1B in March to 222.4B in April.

Swiss SECO: Economic growth to be significantly below average

Swiss SECO expert group on business cycles expect "significantly below average growth for the Swiss economy", at 1.1% in 2023, and then 1.5% in 2024. Both were unchanged from prior forecast in March. It added that while the economy started the year "vigorously", "inflationary pressures remain high internationally and there are pronounced economic risks".

Regarding inflation, the group expects inflation to stabilize at 2.3% in 2024 (down from March forecast of 2.4%), and then falls to 1.5% average in 2024 (unchanged from prior forecast). Unemployment rate is expected to average 2.0% in 2023, and then rise to 2.3% in 2024.

Australia employment grew 75.6k in May, unemployment rate back to 3.6%

Australia employment rose 75.6k in May, well above expectation of 16.5k. Full time jobs grew 61.7k while part-time jobs grew 14.3k.

Unemployment rate dropped from 3.7% to 3.6%, below expectation of 3.7%. Participation rate rose from 66.7% to 66.9%. Monthly hours worked dropped -1.8% mom. Employment-to-population ratio rose 0.2% to 64.5%, a record high.

Bjorn Jarvis, ABS head of labour statistics, said: "Looking over the past two months, the employment increases average out to around 36,000 extra employed people each month. This is still around the average over the past year of 39,000 people a month."

"Just before the start of the pandemic almost 13 million people were employed in Australia. In May 2023, this had risen to just over 14 million people."

NZ GDP down -0.1% qoq in Q1, driven by inventory rundown and services exports

New Zealand GDP contracted -0.1% qoq in Q1 as expected. Primary industries fell -0.5%. Service industries fell -0.6%. Goods producing industries fell -0.4%.

StatsNZ noted, "The expenditure measure of GDP fell 0.2 percent this quarter. This decline was driven by run downs in inventories held by businesses, and a fall in exports of services."

"A 2.4 percent increase in household consumption expenditure and 2.0 percent growth in investment in fixed assets partially offset the falls."

China production and investment data show struggling private sector

China's industrial production growth for May came in at 3.5% yoy, aligning with market expectations. However, a discrepancy was observed in growth rates of private and state-owned businesses. Industrial output from private businesses only managed to expand by 0.7% yoy, a stark contrast to the 4.4% yoy growth posted by state-owned enterprises.

Furthermore, China's fixed asset investment rose 4.0% ytd yoy, a figure falling short of the anticipated 4.4% and a marked deceleration from 4.7% recorded during the first four months of 2023. Notably, private businesses experienced a dip in their fixed asset investment by -0.1% ytd yoy, while state-owned enterprises reported robust growth of 8.4%.

Meanwhile, retail sales failed to meet expectations, recording a rise of 12.7% yoy, lower expectation of 13.9% yoy increase.

In a separate but related development, People's Bank of China announced a cut in rate on its one-year medium-term lending facility loans to financial institutions. The rate was lowered from 2.75% to 2.65%, following the bank's decision to cut seven-day reverse repo and standing lending facility rate earlier this week.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0783; (P) 1.0823; (R1) 1.0872; More...

EUR/USD's rally from 1.0634 short term bottom continues today and intraday bias stays on the upside. Corrective fall from 1.1094 could have completed already. Further rally would be seen back to retest 1.1094 high. On the downside, though, below 1.0773 minor support will mix up the outlook and turn intraday bias neutral first.

In the bigger picture, as long as 1.0515 support holds, rise from 0.9534 (2022 low) would still extend higher. Sustained break of 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 will solidify the case of bullish trend reversal and target 1.2348 resistance next (2021 high).

Economic Indicators Update

https://www.youtube.com/watch?v=EwwxwdgZaNw

US retail sales rose 0.3% mom to USD 686.6B in May, above expectation of 0.0% mom. Ex-auto sales rose 0.1% mom to USD 554.5B, matched expectations. Ex-gasoline sales rose 0.6% mom to USD 633.5B. Ex-auto and gasoline sales rose 0.4% mom to USD 501.5B

In the three months to may, sales were up 1.7% from the same period a year ago.

Full US retail sales release here.

US initial jobless claims was unchanged at 262k in the week ending June 10, well above expectation of 246k. Four-week moving average of initial claims rose 9k to 247k, highest since November 20, 2021 when it was 249k.

Continuing claims rose 20k to 1775k in the week ending June 3. Four-week moving average of continuing claims dropped -6k to 1778k.

Full US jobless claims release here.

Inflation has been coming down but is projected to remain too high for too long. The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It therefore today decided to raise the three key ECB interest rates by 25 basis points.

The rate increase today reflects the Governing Council's updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. According to the June macroeconomic projections, Eurosystem staff expect headline inflation to average 5.4% in 2023, 3.0% in 2024 and 2.2% in 2025. Indicators of underlying price pressures remain strong, although some show tentative signs of softening. Staff have revised up their projections for inflation excluding energy and food, especially for this year and next year, owing to past upward surprises and the implications of the robust labour market for the speed of disinflation. They now see it reaching 5.1% in 2023, before it declines to 3.0% in 2024 and 2.3% in 2025. Staff have slightly lowered their economic growth projections for this year and next year. They now expect the economy to grow by 0.9% in 2023, 1.5% in 2024 and 1.6% in 2025.

At the same time, the Governing Council's past rate increases are being transmitted forcefully to financing conditions and are gradually having an impact across the economy. Borrowing costs have increased steeply and growth in loans is slowing. Tighter financing conditions are a key reason why inflation is projected to decline further towards target, as they are expected to increasingly dampen demand.

The Governing Council's future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary. The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions will continue to be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.

The Governing Council confirms that it will discontinue the reinvestments under the asset purchase programme as of July 2023.

Key ECB interest rates

The Governing Council decided to raise the three key ECB interest rates by 25 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 4.00%, 4.25% and 3.50% respectively, with effect from 21 June 2023.

Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP)

The APP portfolio is declining at a measured and predictable pace, as the Eurosystem does not reinvest all of the principal payments from maturing securities. The decline will amount to €15 billion per month on average until the end of June 2023. The Governing Council will discontinue the reinvestments under the APP as of July 2023.

As concerns the PEPP, the Governing Council intends to reinvest the principal payments from maturing securities purchased under the programme until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.

The Governing Council will continue applying flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic.

Refinancing operations

As banks are repaying the amounts borrowed under the targeted longer-term refinancing operations, the Governing Council will regularly assess how targeted lending operations and their ongoing repayment are contributing to its monetary policy stance.

***

The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission. Moreover, the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, thus allowing the Governing Council to more effectively deliver on its price stability mandate.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:45 CET today.

ECB raises its key interest rates by 25bps as widely expected. The main refinancing rate, marginal lending facility rate, and deposit rates will be 4.00%, 4.25% and 3.50% after the hike.

In the accompanying statement, it's reiterated that the Governing Council will continued to follow a "data-dependent approach" in future decisions, to bring rates to levels "sufficiently restrictive" to achieve timely return of inflation to 2% target. Rates will also be kept at that level "for as long as necessary".

In the updated economic projections, core inflation projection is revised up notably in 2023 and 2024, and slightly in 2025. Growth projection was revised down slightly in both 2023 and 2024.

• Inflation is projected to average 5.4% in 2023, 3.0% in 2024 and 2.2% in 2025. (March:  5.3% in 2023, 2.9% in 2024 and 2.1% in 2025).
• Core inflation is projected to reach 5.1% in 2023, before it declines to 3.0% in 2024 and 2.3% in 2025. (March: 4.6% in 2023, 2.5% in 2024 and 2.2% in 2025).
• Growth is projected to be at  0.9% in 2023, 1.5% in 2024 and 1.6% in 2025. (March: 1.0% in 2023, 1.6% in 2024, 1.6% in 2025).

Full ECB statement here.

The Euro kept firm tone on Thursday despite strong upside rejection at 1.0863 (Fibo 50% of 1.1091/1.0635) on Wednesday, as dips were contained by former strong resistance at 1.0805 (daily cloud base) now reverted to solid support.

Hawkish Fed lifted dollar but so far did not manage to derail Euro’s bulls, although the action slowed and currently holding between two key levels, ahead of ECB rate decision.

The European Central Bank is widely expected to raise deposit rate by 25 basis points to 3.5% (the highest since 2001) today and likely to deliver another 0.25% raise in July, as inflation in the bloc remains unacceptably high (more than three times ECB’s 2% target) and underlying price growth is showing initial signs of easing, suggesting that the central bank would remain on tightening path for some time.

Markets will be focusing on ECB forward guidance which indicates central bank’s near future steps, with main question whether the ECB will pause after July’s hike or will continue with policy tightening, with prevailing expectations for more balanced message which will signal that further actions will be data dependent.

Daily studies remain positive with bullish bias expected above daily cloud base, though firm break of 1.0863 pivot required to signal bullish continuation.

Caution on return and close below daily cloud which would generate initial signal of recovery stall.

Res: 1.0863; 1.0904; 1.0917; 1.0980.
Sup: 1.0805; 1.0765; 1.0742; 1.0733.

Last night, the price of bitcoin fell below USD 25k for the first time since mid-March. And the bitcoin chart this morning shows sellers breaking through yesterday's low.

There can be two fundamental reasons for the dominance of sellers:

→ yesterday's press conference of the head of the US Federal Reserve (more details in the next post);

→ claims against the Binance and Coinbase exchanges by the US SEC regulator, which declared about 60 crypto assets as securities.

We wrote on June 13 that after the bearish breakout of the ascending channel (1) and the test of this breakout (2), the price of bitcoin could break through the USD 25k support level from top to bottom.

Could the now-forming USD 25k bearish breakout be false?

There are 3 arguments in favor of this idea:

→ previously this level served as resistance – from the point of view of technical analysis, now it should support the market;

→ the price of bitcoin may receive support from the lower border of the channel shown in red;

→ for the price of bitcoin, punctures of psychological levels are quite typical (for example, punctures from bottom to top of USD 25k in the second half of February).

More confidence from the US authorities on this list could add confidence to the bulls, but so far the situation leaves much to be desired.

Yesterday the Fed (as expected) kept the interest rate unchanged (after a series of 10 increases). However, the opinion of market participants that the rate peak has been reached has been called into question. At the Jerome Powell's press conference, it became known that:

→ the majority of FOMC members are against the rate cut;

→ there may be another increase at the end of the year;

→ high inflation situation may last 2 years.

The markets reacted with a rise in the US dollar. Accordingly, the currencies fell in pairs with the US dollar. Gold also fell in price to a minimum in 3 months — like bitcoin, by the way, and this is not the only similarity in the behavior of the price of gold and the main cryptocurrency.

Note that on the XAU/USD chart, a picture is emerging that a few days ago was formed on the bitcoin price chart (see the previous post).

The price of gold has broken through the ascending channel (shown in blue), formed a breakout test and is moving within the descending channel (shown in red). If we see a continuation of the dynamics shown by bitcoin in the gold market, then XAU/USD may drop to the lower border of the descending channel.

Eurozone exports of goods to the rest of the world decreased -3.6% yoy in April to EUR 216.0B. Imports decreased -11.9% yoy to EUR 227.7B. A EUR -11.7B trade deficit was recorded. Intra-Eurozone trade was also down by -5.2% yoy to EUR 208.3B.

In seasonally adjusted term, exports fell -3.2% mom to EUR 234.5B. Imports rose 5.9% mom to EUR 241.5B. Trade balance turned into EUR -7.1B deficit, versus expectation of EUR 5.7B surplus. Intra-Eurozone trade fell from EUR 224.1B in March to 222.4B in April.

Full Eurozone trade balance release here.