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USD/CHF breaks resistance

The Swiss franc weakened across the board as risk appetite picks up. The pair had met stiff selling pressure in the former daily demand zone around 0.9140 and a subsequent fall below 0.9020 pushed out the weak hands. However, the 30-day SMA (0.8980) has proved to be a solid backbone with an oversold RSI attracting renewed buying interests. A surge above 0.9100 might have kept the bulls in the game by prompting sellers to reconsider. 0.9040 is a fresh support and a close above the ceiling of 0.9140 would resume the rebound.

EUR/JPY bounces higher

The euro advances as the ECB will stretch the rate differential at the upcoming policy meeting. On the daily chart, sentiment remains upbeat as the price grinds its way along the 30-day SMA. The single currency has consolidated its gains after clearing the psychological level of 150.00 with 149.60 as a key support to keep the current momentum going. The double top next to 151.00 is a major ceiling ahead and its breach would flush out the last sellers and pave the way for a bullish continuation in the medium-term.

DAX 40 to test recent peak

The Dax 40 pops higher as investors expect a modest 25bp hike from the ECB this week. A surge above the psychological level of 16000 has helped the index break free of the recent consolidation range. After the RSI shot into the overbought area a brief pullback saw follow-through interests over the former resistance, keeping the bullish momentum intact as a deeper retracement would send the price to 15730. On the upside, the recent peak of 16300 is the last obstacle before the uptrend could resume.

Market movers today

US CPI for May is out ahead of the monetary policy decision announced tomorrow. Consensus looks for unchanged m/m core inflation of 0.4% but we see a better change that it will decline to 0.3%, not least because used car prices took a big jump in April which should not repeat in May. Headline inflation should decline to 0.2% m/m so close to be consistent with 2% annual inflation, driven by cheaper energy.

German ZEW measures analysts' assessment of the economy and is not always the best indicator, but it can trigger market reactions from time to time. Consensus is for a slight worsening in June. We also get the more detailed final inflation data for May in Germany and Spain.

The UK labour market report is expected to show slightly higher inflation but also slightly higher wage growth in April, so could be a mixed bag for the rate outlook.

We get Norwegian GDP for April which we expect to show a contraction, but for assessing the Norwegian economy, the Regional Network report on Thursday is more important.

The 60 second overview

Risk appetite improves: Market sentiment got off to a good start this week as investors eye a pause in the Fed's hiking cycle and inflation releases have generally surprised to the downside lately. It provides some optimism that today's US CPI will confirm that inflation pressures are easing.

China cuts rates: The People's Bank of China (PBOC) overnight cut the repo rate by 10bp from 1.9% to 2.0. The CNH weakened in response and Chinese equities and metals prices saw a small lift adding to gains seen over the past two weeks. While monetary easing has been expected, the repo rate cut came slightly earlier than most expected as repo rate changes normally coincide with changes in the rate on the Medium Lending Facility, which will be set on Thursday. It sends a clear signal policy makers are now ready to step in to add stimulus to underpin the economy after recent data has disappointed. We are likely to see other stimulus measures soon but we expect the overall amount of new stimulus to be moderate and mostly aimed at avoiding a new downturn rather than giving a big boost to the economy.

Oil prices fall: Oil prices slipped yesterday towards recent lows around USD72 (Brent spot) even as risk sentiment was on the positive side. It seems fair to conclude by now that the decision by Saudi Arabia to slash another 1mb/d of its oil production in July has failed to stabilise the market. Instead, continued selling of strategic reserves may be what is depressing oil prices currently. There has also been speculation about a US-Iran nuclear deal drawing closer although officials on both sides have denied this. European natural gas prices on the other hand have started to rise again, albeit only modestly. The European natural gas price was normalised in real terms this year, so a small rise should not cause panic. In particular since natural gas storages are more than 70% full already. Still the natural gas market remains fragile as imports are much lower now and demand increasingly dependent on the weather due to the volatility of renewable energy production; hence, it might not take a lot for the market to start tightening again.

Equities: Global equities higher yesterday in a strong growth, quality, and cyclical lead rally. No major news out justifying the magnitude of this risk-on mode but the absence of bad news fostering renewed risk taking and investors giving up on their underweight position. The pain trade has been up this year and risk is that it will continue until we get much weaker job data, or a new tail risk threat arises. Bears should not count on inflation or central banks. Inflation is heading lower and central banks are getting closer to pausing, both supporting equity risk taking. In US yesterday, Dow +0.6%, S&P 500 +0.9%, Nasdaq +1.5% and Russell 2000 +0.4%. Rally continues this morning in Asian with Japanese markets once again leading the region higher. Futures in Europe are in solid green while US futures are higher not to the same extent as in Europe.

FI: There was a modest decline in global bond yields yesterday as well as another spread tightening between the periphery and core-EU. The 10Y spread between Italy and Germany has tightened to 165bp and is now at the tightest level since the start of the year. This is despite the expected reduction in the TLTROs, higher funding rates, QT and the possibility of a hawkish ECB on Thursday.

FX: It has been a fairly slow start to the week in FX markets with the drop in oil taking centre stage. This has put notable pressure on the NOK with EUR/NOK back above 11.60 whilst also CHF and GBP have had a weak start to the weak. EUR/USD remains little changed heading into the next couple of important sessions with US CPI today and both Fed (Wednesday) and ECB meetings (Thursday) later in the week.

Credit: The primary market activity slowed down somewhat during the start of the week as investors await decisions from the Fed and ECB on interest rates. The secondary market saw relatively limited news and credit spreads barely moved on Monday where iTraxx Main widened 1bp to 78bp while iTraxx Xover widened 2bp to 410bp.

Nordic macro

Norwegian GDP for April is the main Nordic release today. We expect it to show a contraction, but the Regional Network report on Thursday will be more important to assess the state of the Norwegian economy.

Daily Pivots: (S1) 174.11; (P) 174.94; (R1) 175.52; More...

Further rise is expected in GBP/JPY with 172.64 support intact, despite current retreat. Further rise should be seen to 100% projection of 148.93 to 172.11 from 155.33 at 178.51 next. Strong resistance could be seen from there to bring pull back, at least on first attempt. But break of 172.64 support is needed to indicate short term topping. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, up trend from 123.94 (2020 low) is extending. Next target will be 161.8% projection of 122.75 (2016 low) to 156.59 (2018 high) from 123.94 at 178.69. For now, medium term outlook will remain bullish as long as 167.82 support holds, even in case of deep pull back.

Daily Pivots: (S1) 149.80; (P) 150.07; (R1) 150.48; More....

EUR/JPY rises notably today but stays below 151.05 resistance. Intraday bias remains neutral first. On the upside, above 151.05 will target 151.60 high. Firm break there will resume larger up trend to 153.64 projection level. On the downside, below 148.58 will extend the corrective pattern from 151.60 with another falling leg.

In the bigger picture, rise from 114.42 (2020 low) is in progress. Next target is 61.8% projection of 124.37 to 148.38 from 138.81 at 153.64. Sustained break there will pave the way to 100% projection at 162.82. For now, medium term outlook will remain bullish as long as 139.05 support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.8558; (P) 0.8582; (R1) 0.8624; More...

Intraday bias in EUR/GBP is turned neutral with current recovery. Outlook will stay bearish as long as 0.8634 resistance holds. Break of 0.8538 will resume larger decline from 0.8977 to 161.8% projection of 0.8977 to 0.8717 from 0.8874 at 0.8453. However, considering bullish convergence condition in 4H MACD, firm break of 0.8634 will indicate short term bottoming and turn bias to the upside for stronger rebound.

In the bigger picture, the down trend from 0.9267 (2022 high) is still in progress. It's seen as part of the long term range pattern from 0.9499 (2020 high). Deeper fall would be seen towards 0.8201 (2022 low). But strong support should be seen from there to bring reversal. This will now remain the favored case as long as 0.8717 support turned resistance holds.

Daily Pivots: (S1) 1.5911; (P) 1.5936; (R1) 1.5961; More...

Deeper fall could still be seen in EUR/AUD. But downside should be contained by 100% projection of 1.6785 to 1.6134 from 1.6513 at 1.5862, on loss of momentum as seen in 4H MACD. Break of 1.6101 support will indicate short term bottoming, and turn bias back to the upside for rebound.

In the bigger picture, a medium term is possibly in place at 1.6785 already, on bearish divergence condition in D MACD. Fall from there is seen as corrective whole up trend from 1.4281 (2022 low). Deeper decline is expected as long as 1.6513 resistance holds, to 38.2% retracement of 1.4281 to 1.6785 at 1.5828. Strong support could be seen there to complete the first leg of the corrective pattern.

Daily Pivots: (S1) 0.9726; (P) 0.9757; (R1) 0.9809; More...

EUR/CHF's break of 0.9760 resistance suggests short term bottoming at 0.9670, on bullish convergence condition in 4H MACD, after hitting 61.8% retracement of 0.9407 to 1.0095 at 0.9670. Intraday bias is back on the upside. Sustained trading above 55 D EMA (now at 0.9779) will add to case that whole correction from 1.0095 has completed, and target 0.9878 resistance next. For now, risk will stay on the upside as long as 0.9670 support holds.

In the bigger picture, prior rejection by 38.2% retracement of 1.1149 to 0.9407 at 1.0072 suggests that medium term outlook is staying bearish. The pair is also capped below 55 W EMA (now at 0.9929). Down trend from 1.2004 (2018 high) is not complete yet and is in favor to resume through 0.9407 at a later stage. However, decisive break of 1.0095 resistance will raise the chance of bullish trend reversal. Rise from 0.9407 should then target 1.0505 cluster resistance (2020 low at 1.0505, 61.8% retracement of 1.1149 to 0.9407 at 1.1484).

Daily Pivots: (S1) 1.3327; (P) 1.3356; (R1) 1.3396; More....

Intraday bias remains neutral and USD/CAD's focus stays on 1.3299 support. On the upside, break of 1.3460 resistance will turn bias back to the upside for 1.3653 resistance, to extend the triangle consolidation pattern from 1.3976. However, sustained break of 1.3299 will indicate that larger corrective fall is underway, and target 100% projection of 1.3860 to 1.3299 from 1.3653 at 1.3092.

In the bigger picture, rise from 1.2005 (2021 low) is expected to resume through 1.3976 after consolidation from there completes. On decisive break of 1.3976, next target will be 1.4667/89 long term resistance zone. This will remain the favored case as long as 38.2% retracement of 1.2005 to 1.3976 at 1.3233 holds. However, sustained break of 1.3233 will pave the way to 61.8% retracement at 1.2758, and raise the chance of bearish reversal.

Daily Pivots: (S1) 0.6731; (P) 0.6752; (R1) 0.6772; More...

AUD/USD's rally from 0.6457 is in progress and intraday bias stays on the upside for 0.6817 structural resistance. Decisive break there will carry larger bullish implications. On the downside, however, break of 0.6691 minor support will turn intraday bias neutral first.

In the bigger picture, fall from 0.7156 is still in favor to continue as long as 0.6817 resistance holds. Prior rejection by 55 W EMA (now at 0.6801) keeps medium term outlook bearish. Break of 0.6457 will target 0.6169 key support (2022 low). Nevertheless, firm break of 0.6817 will indicate that fall from 0.7156 has completed in a three-wave corrective structure. Rise from 0.6169 would then be ready to resume through 0.7156.

Daily Pivots: (S1) 139.20; (P) 139.48; (R1) 139.90; More...

Sideway consolidations continue in USD/JPY and intraday bias remains neutral first. Further rally is expected as long as 138.22 minor support holds. On the upside, break of 140.90 will resume larger rise from 127.20 to 142.48 fibonacci level. However, considering bearish divergence condition in 4 hour MACD, break of 138.22 will confirm short term topping, and turn bias back to the downside for 55 D EMA (now at 136.77).

In the bigger picture, rise from 127.20 is seen as the second leg of the corrective pattern from 151.93 high. Stronger rally would be seen to 61.8% retracement of 151.93 to 127.20 at 136.34. Sustained break there will pave the way back to retest 151.93. On the downside, however, break of 133.73 support will argue that the pattern could have started the third leg through 127.20 low.