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The ECB lift its key policy rates by 25 bps today with the key deposit rate now at 3.25%. That’s a downshift from the previous 50 bps pace which we expected to be continued, but in line with market expectations. The decision wasn’t unanimous, but the 50 bps pace was the minority call. The press statement starts with the notion that the inflation outlook continues to be too high for too long with recent data broadly confirming the inflation outlook as set out in March. Especially underlying price pressures remain strong and risks to the inflation outlook remain tilted to the upside. The final sentence of the statement dropped a first hint as to why the ECB slowed its tightening pace: “the past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of the transmission to the real economy remain uncertain.” A second one came during ECB Lagarde’s press conference where she made clear that the Bank Lending Survey published earlier this week was decisive for reducing the tightening pace to 25 bps. Loan growth for firms and households weakened owing to higher borrowing rates, tighter credit supply and lower demand. The ECB’s tightening cycle isn’t over though with the central bank continuing to follow a data-dependent approach and vowing to bring policy rates to sufficiently restrictive levels in future decisions (plural, emphasis added; Lagarde namedropped the June, July & September meetings) to achieve a timely return of inflation to the 2% target. As Lagarde said: “it’s clear that the ECB isn’t pausing and that we have more ground to cover”. There’s no magic (policy rate) number for a sufficiently restrictive policy, but we’re not there yet. Perhaps somewhat as a (minor) quid pro quo – though denied by Lagarde – the ECB announced that it expects to discontinue the reinvestments under the APP all together as of July. That compares to the current €15bn/month pace during Q2 and was suggested by the likes of ECB Wunsch and others over the past two weeks. Over the next 12 months, this new APP reinvestment stance suggests that an additional €160bn of liquidity will pulled from the market. These amounts will gain traction in coming years given the way the €3200bn APP portfolio was built mainly during 2016-2018 (average maturity of APP portfolio rapidly declining). Lagarde confirmed that the end goal was an empty APP portfolio in 15 years’ time, but the ECB keeps some optionality in the process. European yields initially dropped at the front end of the curve with markets interpreting the dovish hike as bringing us to a 3.5% terminal rate already by June. The front end recovered somewhat during the press conference as Lagarde stressed that the journey isn’t over yet. Longer bond yields immediately started rising on a combination of ending APP reinvestments, but also on rising inflation expectations. Changes on the German yield curve vary between -5.1 bps (2-yr) and +7.2 bps (30-yr). EUR/USD in a same way fell from 1.1080 to 1.10 before rebounding back to 1.1040. The EuroStoxx50 erased some of the intraday losses on the ECB call to currently lose around 0.5%.

News & Views

The Norwegian central bank raised its policy rate by 25 bps to 3.25% today. In evaluating its March projections it concluded that: inflation (6.5%) was higher than expected, economic activity - private consumption in particular - stronger, the labour market tighter, wage growth faster and the Norwegian krone (much) weaker. The latter just yesterday set a new record low at EUR/NOK 11.89, excluding the illiquid period shortly after the pandemic outbreak. All of the above arguments argue for a higher terminal rate. Yet, the Norges Bank stuck to the March guidance projecting a 3.5% peak policy rate by June. Governor Ida Wolden Bache did finish the policy statement saying that “If the krone remains weaker than projected or pressures in the economy persist, a higher policy rate than envisaged earlier may be needed.” But it is possible that Oslo is looking for new economic forecasts (due in June) to underpin such a higher rate path. With the benefit of the doubt, the Norwegian krone slightly appreciates today to EUR/NOK 10.83. Norwegian swap yields eke out a few bps across the curve.

French Finance Minister Le Maire together with Bank de France and ECB governor Villeroy will discuss potential adjustments to mortgage rules on Friday to ease credit distribution in the country, Agence France-Presse reported citing Le Maire. The two are expected to discuss the so-called usury rate; the maximum rate at which French banks can lend. This cap is being reviewed every month until July instead of every quarter, an exceptionality that authorities may extend. Lending rules that state that banks cannot distribute loans if repayments exceed 35% of borrower’s income are also subject for discussion in a bid to create more lender flexibility.

Euro dips initially after ECB stepped down tightening pace with a 25bps rate hike today. But it then quickly recovers after ECB President Christine Lagarde firmly said in the press conference, "We are not pausing. That's very clear… We know we have more ground to cover." Overall though, Euro is on the weaker side today, just performing slightly better than Swiss France. New Zealand and Canadian Dollar are the better performances together with Sterling. Dollar and Yen are mixed for now. With ECB risk cleared, focuses will turn to tomorrow's US non-farm payrolls.

Technically, USD/JPY would be worth a watch in the time leading up to NFP tomorrow. For now, 137.76 should be a short term top and fall from there is in favor to extend lower as long as 135.68 minor resistance holds. Renewed decline in US treasury yields and stocks could prompt deeper fall in the pair through 133.00 support. That would be a sign of investor positioning ahead of the last key event of the week.

In Europe, at the time of writing, FTSE is down -0.76%. DAX is down -0.62%. CAC is down -0.96%. Germany 10-year yield is up 0.0254 at 2.277. Earlier in Asia, Japan was on holiday. Hong Kong HSI rose 1.27%. China Shanghai SSE rose 0.82%. Singapore Strait Times rose 0.22%.

US initial jobless claims jumped to 242k

US initial claims rose 13k to 242k in the week ending April 29, higher than expectation of 235k. Four-week moving average of continuing claims rose 3.5k to 239k.

Continuing claims dropped -38k to 1805k in the week ending April 22. Four-week moving average of continuing claims dropped -4.5k to 1828k.

ECB hikes 25bps, reiterates data-dependent approach

ECB raised its three key interest rates by 25bps today, with main refinancing rate, marginal lending rate, and deposit rate becoming 3.75%, 4.00%, and 3.25%, respectively, effective May 10.

In the accompanying statement, ECB explained that incoming information broadly supports the assessment of the medium-term inflation outlook that the Governing Council formed at its previous meeting." While headline inflation has declined recently, the ECB noted that "underlying price pressures remain strong."

The central bank acknowledged that the transmission of past rate increases to euro area financing and monetary conditions has been forceful, but added that "the lags and strength of transmission to the real economy remain uncertain."

ECB emphasized its commitment to ensuring that policy rates are "sufficiently restrictive" to achieve a timely return of inflation to the 2% medium-term target, stating that rates will be kept at these levels "for as long as necessary".

The Governing Council will continue to follow a data-dependent approach, basing its policy rate decisions on assessments of inflation outlook in light of incoming economic and financial data, underlying inflation dynamics, and strength of monetary policy transmission.

Eurozone PPI at -1.6%mom, 5.9% yoy in Mar

Eurozone PPI came in at -1.6% mom, 5.9% yoy in March, versus expectation of -1.4% mom, 5.9% yoy. For the month, industrial producer prices decreased by -4.8% in energy sector and by -0.4% for intermediate goods, while prices increased by 0.2% for capital goods, by 0.3% for durable consumer goods and by 0.9% for non-durable consumer goods. Prices in total industry excluding energy increased by 0.2%.

EU PPI came in at -1.5% mom, 7.0% yoy. The largest monthly decreases in industrial producer prices were recorded in Greece (-7.3%), Ireland (-4.6%) and Lithuania (-4.0%), while the highest increases were observed in Cyprus (+2.4%), France (+2.0%) and Croatia (+0.5%).

Eurozone PMI services finalized at 12-month High, growth to continue in months ahead

Eurozone PMI Services were finalized at 56.2 in April, up from March's 55.0, marking a 12-month high. PMI Composite was finalized at 54.1, up from March's 53.7, an 11-month high.

Among member states, Italy's PMI composite rose to 55.3, a 17-month high, while Germany's increased to 54.2, a 12-month high. Ireland rose to 53.5, a 2-month high. However, Spain dropped to a 2-month low of 56.2, and France fell to a 2-month low of 52.4.

HCOB noted that the service sector is robust across Eurozone, with companies able to pass on at least some inflation in intermediate inputs to customers. Service firms' confidence was reflected in the solid index reading for business expectations and increased staffing levels compared to the previous month.

However, HCOB also highlighted that Eurozone order backlog grew at a weaker pace, nearly stagnating in Germany and falling slightly in Italy. Despite this, all PMI indicators suggest that growth in the Eurozone services sector will continue in the months ahead.

UK PMI services finalized at 55.9, reignited inflationary pressures

UK PMI Services were finalized at 55.9 in April, marking a significant increase from March's 52.9 and the highest reading since April 2022. S&P Global highlighted that demand conditions continued to improve, with higher salary payments contributing to steeper cost inflation. PMI Composite was finalized at 54.9, up from March's 52.2.

Tim Moore, Economics Director at S&P Global Market Intelligence, stated, "A strong rate of service sector growth meant that the UK economy started the second quarter of 2023 in positive fashion. Overall private sector output expanded at the fastest pace for one year, despite another fall in manufacturing production during April."

Moore added that service providers experienced the steepest upturn in new work for 13 months, as resilient consumer spending combined with a turnaround in demand for business services to boost overall order books. However, he also noted that the swift rebound in customer demand appears to have reignited inflationary pressures, with around 34% of the survey panel reporting a rise in their prices charged in April, roughly three times higher than the pre-pandemic average.

China Caixin PMI manufacturing contracts in Apr, demand softens and prices plunge

China's Caixin PMI Manufacturing dropped to 49.5 in April, down from 50.0 and below the expected 50.8, marking the first contraction reading in three months. According to Caixin, output expanded only marginally due to softening demand conditions. Input costs and selling prices fell at the quickest pace in over seven years.

Wang Zhe, Senior Economist at Caixin Insight Group said: "In a nutshell, manufacturing activity weakened in April. Manufacturing supply saw a marginal slowdown of expansion, demand dipped month-on-month, the labor market worsened further, logistics was relatively smooth, inventories remained stable, and prices plunged. Despite all these factors, businesses maintained high confidence in the economic outlook."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1010; (P) 1.1051; (R1) 1.1103; More...

Intraday bias in EUR/USD remains neutral as it retreated ahead of 1.1094 resistance but stays well above 1.0908 support. Further rally remains in favor for now. On the upside, firm break of 1.1094 will resume larger up trend to 1.1273 fibonacci level. Break there will target 61.8% projection of 0.9534 to 1.1032 from 1.0515 at 1.1441 However, considering bearish divergence condition in 4H MACD, break of 1.0908 support will indicate short term topping and turn bias back to the downside.

In the bigger picture, rise from 0.9534 (2022 low) is in progress for 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273. Sustained break there will solidify the case of bullish trend reversal and target 1.2348 resistance next (2021 high). This will now remain the favored case as long as 1.0515 support holds, even in case of deeper pull back.

Economic Indicators Update

Daily Pivots: (S1) 1.1010; (P) 1.1051; (R1) 1.1103; More...

Intraday bias in EUR/USD remains neutral as it retreated ahead of 1.1094 resistance but stays well above 1.0908 support. Further rally remains in favor for now. On the upside, firm break of 1.1094 will resume larger up trend to 1.1273 fibonacci level. Break there will target 61.8% projection of 0.9534 to 1.1032 from 1.0515 at 1.1441 However, considering bearish divergence condition in 4H MACD, break of 1.0908 support will indicate short term topping and turn bias back to the downside.

In the bigger picture, rise from 0.9534 (2022 low) is in progress for 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273. Sustained break there will solidify the case of bullish trend reversal and target 1.2348 resistance next (2021 high). This will now remain the favored case as long as 1.0515 support holds, even in case of deeper pull back.

Daily Pivots: (S1) 1.2489; (P) 1.2539; (R1) 1.2616; More...

Intraday bias in GBP/USD stays on the upside for the moment. Current rally should now target 1.2759 fibonacci level first. Firm break there will target 61.8% projection of 1.0351 to 1.2445 from 1.1801 at 1.3095. However, considering bearish divergence condition in 4H MACD, break of 1.2434 support will indicate short term topping, and turn bias back to the downside for deeper pull back.

In the bigger picture, the rise from 1.0351 medium term term bottom (2022 low) is in progress for 61.8% retracement of 1.4248 (2021 high) to 1.0351 at 1.2759. Sustained break there will add to the case of long term bullish trend reversal. Further break of 61.8% projection of 1.0351 to 1.2445 from 1.1801 at 1.3095 could prompt upside acceleration to 100% projection at 1.3895. For now, this will remain the favored case as long as 1.1801 support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.8880; (P) 0.8906; (R1) 0.8951; More...

Further decline is expected in USD/CHF with 0.8993 resistance holds. The down trend from 1.0146 would target 61.8% projection of 1.0146 to 0.9058 from 0.9439 at 0.8767, which is close to 0.8756 long term support. Strong support is expected there to bring rebound, at least on first attempt. On the upside, break of 0.8993 resistance will indicate short term bottoming, on bullish convergence condition in 4H MACD, and turn bias back to the upside for stronger rebound.

In the bigger picture, fall from 1.1046 (2022 high) is in progress for 0.8756 support (2021 low). But overall, this fall is still seen as a leg in the long term range pattern from 1.0342 (2016 high). So, downside should be contained by 0.8756 to bring reversal. Sustained break of 0.9058 support turned resistance will be the first sign of medium term bottoming. However, decisive break of 0.8756 will carry larger bearish implications.

Daily Pivots: (S1) 134.13; (P) 135.39; (R1) 136.04; More...

Intraday bias in USD/JPY remains on the downside for the moment, as fall from 137.73 continues. This decline is seen as the third leg of the pattern from 137.90. Break of 133.00 will bring deeper fall towards 129.62 support. But still, as long as 129.62 holds, larger rebound from 127.20 is still in favor to resume at a later stage. On the upside, above 135.68 minor resistance will turn bias back to the upside for 137.76.90 instead.

In the bigger picture, price actions from 151.93 high are currently seen as a corrective pattern to the long term up trend. The first leg should have completed at 127.20. Rebound from there is seen as the second leg. Sustained break of 31.8% retracement of 151.93 to 127.20 at 136.34 will bring stronger rebound to 61.8% retracement at 142.48. Meanwhile, break of 129.62 will argue that the third leg is starting through 127.20 low.

• ECB will ensure that the policy rates will be brought to levels sufficiently restrictive
• ECB expects to discontinue the reinvestments under the APP as of July
• ECB slows rate hiking pace to 25bps (as expected), bringing key rate to 3.75%

The ECB kept the door open for more hikes but it looks like they are positioning for the June or July meeting that takes rates to a restrictive level.  They will be data-dependant as they are aware that the lags and strength of transmission to the real economy remain uncertain. Inflation is too high so they had to say that they will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target.

The ECB slowed their rate hiking pace to a quarter-point, bringing the Main Refinancing Rate to 3.75%, one of the lowest rates against the other major central banks.  These last few meetings were supposed to be the time when the ECB plays catch up with their rate hikes, but it is starting to look like they might be done tightening soon.

The euro tumbled alongside European bond yields after the ECB statement.  US jobless claims posted the biggest rise in six weeks and a hot unit labor cost report for the first quarter also gave the dollar some support.  Jobless claims rose 242,000, slightly above the 240,000 consensus estimate and an increase from the prior 230,000 reading.  The US labor market is softening, albeit not quickly enough to justify rate cuts. Sticky US inflation should keep the Fed on hold until year end.

All eyes will be on ECB’s Lagarde press conference as she will have a lot to clarify from the statement.

https://www.youtube.com/watch?v=BQ2_t3tvfwI

Bulls were able to take control of the market, and after touching a low of $1,805 on May 1, the ETH/USD pair moved upwards, touching a high of $1,916 today in the early Asian trading session. The bullish engulfing pattern is above the $1,805 handle on the H1 timeframe. It's a bullish pattern, which signifies the end of a bearish phase.

The market opened bullish this week. The ETH price remains well supported above the $1,800 level and is back above the pivot point.

The relative strength index is at 61.03, indicating a strong demand for Ether and a continuation of the buying pressure in the market.

Both the STOCH and CCI are neutral, meaning that the price is expected to enter into a consolidation zone in the short-term range.

A bullish reversal pattern with the 50-period moving average in the 2-hour timeframe was formed.

Most of the technical indicators are bullish. Most moving averages are bullish at the current Ethereum price of $1,899.

ETH is now trading above the 100-hour simple and 200-hour exponential moving averages.

• ETH price is showing a bullish reversal above the $1,805 mark.
• The short-term range is expected to be mildly bullish.
• The average true range indicates low market volatility.
• The ETH price ranges near the support of the channel.

ETH Bullish Reversal Is above $1,805

On the daily chart, ETH is trading just below its pivot level of $1,900 and is moving in a mild bullish channel. The price is about to break its classic resistance level of $1,904 and its Fibonacci resistance level of $1,907. Supports are $1,870 and $1,886.

Some of the technical indicators signal neutral market sentiment.

We can see the formation of a bullish engulfing pattern in the 2-hour timeframe.

The key support levels to watch are $1,866, which is a 14-day RSI at 50, and $1,890, which is a 3-10 day MACD oscillator.

The Week Ahead

ETH price remains well supported above $1,800, indicative of the bullish momentum, and the next visible targets are located at $1,900 and $1,950 in the medium-term range in the H1 timeframe.

We see a short-term bullish trend line from $1,805 toward $1,912.

The immediate short-term outlook for ETH has turned mildly bullish, the medium-term outlook has turned bullish, and the long-term outlook is neutral in present market conditions.

The resistance zone is at $1,925, which is a 38.2% retracement from the 4-week low, and at $1,965, which is a 14-3 day raw stochastic at 50.

The weekly outlook is $2,000, with a consolidation zone of $1,970.

Bulls were able to take control of the market last week, and after touching a low of $85.16 on May 1, the price started to correct upwards against the US dollar, touching a high of $89.82 today in the early Asian trading session.

There is a morning star pattern above the $85.16 handle on the H1 timeframe. It signifies the end of a bearish phase and the start of a bullish phase in the market.

The momentum indicator is back over zero in the H4 timeframe, indicating a bullish trend.

A bullish harami pattern is forming in the 30-minute timeframe.

Also, Litecoin is trading below its 100-hour simple moving average and 200-hour exponential moving average and above its pivot level of $88.5.

The relative strength index is at 51.92, indicating a neural demand for Litecoin and the shift towards consolidation.

Litecoin price remains above some of the moving averages, which are giving a bullish signal at current market levels of $88.20.

Both the ADX and CCI are signaling neutral market conditions, which means that the price is expected to move in a narrow range in the short term.

The short-term outlook for Litecoin has turned mildly bullish.

• Some of the technical indicators are bullish.
• Litecoin bullish reversal is seen above the $85.16 level.
• The RSI is neutral.
• The average true range indicates low market volatility.

Litecoin Bullish Reversal Is Seen above $85.16

Litecoin's price continues to move in a bullish trend above the $85.00 level. Due to the improved investor sentiments, the Litecoin-to-USD exchange rate is now looking to cross $90.00 in the D1 timeframe.

The momentum indicator is back over zero in both the 2- and 4-hour timeframes.

Some of the technical indicators signal a neutral market sentiment.

LTCUSD is about to break its classic resistance level of $88.29 and Fibonacci resistance level of $88.42, after which the path towards $90 will get cleared.

Litecoin price faces stiff resistance at $90.13, which is a 38.2% retracement from the 13-week high, and at $92.57, at which the price crosses the 18-day moving average.

The Week Ahead

Litecoin price remains well supported above the $85.00 level; resistances are located at $88 and $90.

Most technical indicators signal a bullish sentiment in the market.

Litecoin to USD exchange rate is expected to stay above the important support level of $86.64, which is a 3-10 day MACD oscillator, and at $87.11, which is a pivot point.

The short-term outlook for Litecoin has turned mildly bullish, the medium-term outlook is bullish, and the long-term outlook is neutral at present market conditions.

The weekly projection of Litecoin price is $95, with a consolidation zone of $92.