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Daily Pivots: (S1) 142.13; (P) 142.99; (R1) 143.50; More....

Intraday bias in EUR/JPOY remains neutral as range trading continues. On the upside, decisive break of 144.23 will resume larger up trend. On the downside, below 141.39 minor support will bring deeper fall, to extend the corrective pattern from 144.23.

In the bigger picture, up trend from 114.42 (2020 low) is in progress. Such rise is seen as the third leg of the pattern from 109.30 (2016 low). Sustained trading above 100% projection of 114.42 to 134.11 from 124.37 at 144.06 will indicate upside acceleration and target 149.76 long term resistance (2014 high). In any case, outlook will now remain bullish as long as 132.63 support holds, in case of deep pull back..

Daily Pivots: (S1) 0.8590; (P) 0.8626; (R1) 0.8648; More...

Intraday bias in EUR/GBP remains neutral for the moment. On the downside, break of 0.8484 support will suggest rejection by 0.8697 medium term fibonacci resistance. Outlook will be turned bearish for 0.8248 support next. On the upside, break of 0.8720 and sustained trading above 0.8697 medium term fibonacci level will carry larger bullish implication. Next target is 0.9003 fibonacci level.

In the bigger picture, rise from 0.8201 medium term bottom could could either be a correction to the down trend from 0.9499 (2020 high), or a medium term up trend itself. Sustained break of 38.2% retracement of 0.9499 to 0.8201 at 0.8697 will affirm the latter case, and pave the way to 61.8% retracement at 0.9003. However, rejection by 0.8697 will maintain medium term bearishness.

Daily Pivots: (S1) 1.5124; (P) 1.5221; (R1) 1.5276; More...

Intraday bias in EUR/AUD remains neutral as range trading continues. On the upside, sustained break of 1.5354 support turned resistance will indicate medium term bottoming at 1.4318. Stronger rally would be seen back to 100% projection of 1.4318 to 1.5277 from 1.4759 at 1.5718. On the downside, however, break of 1.5083 minor support will retain medium term bearishness, and turn bias back to the downside for 1.4759 support instead.

In the bigger picture, as long as 1.5354 support turned resistance holds, larger down trend from 1.9799 (2020 high) is still expected to continue. On resumption, next target is 61.8% projection of 1.9799 to 1.5250 from 1.6434 at 1.3623, which is close to 1.3624 long term support (2017 low). However, firm break of 1.5354 will indicate medium term bottoming and bring stronger rally back to 1.6434 key resistance.

Daily Pivots: (S1) 0.9931; (P) 1.0004; (R1) 1.0041; More....

Intraday bias in EUR/CHF stays on the downside at this point. Sustained break of 0.9970 low will resume larger down trend. Next target is 0.9650 long term projection level. On the upside, however, above 1.0214 minor resistance will delay the bearish case, and turn bias back to the upside for stronger rebound.

In the bigger picture, as long as 1.0505 support turned resistance (2020 low) holds, long term down trend from 1.2004 (2018 high) is expected to continue. Next target is 100% projection of 1.2004 to 1.0505 to 1.1149 at 0.9650. However, firm break of 1.0505 will suggest medium term bottoming, and bring stronger rebound towards 1.1149 structural resistance.

EUR/USD

The common European currency lost quite a bit of ground against the dollar and the pair breached the zone at 1.0467. At the time of writing the analysis, the pair is trading just below the level at 1.0467. If the bearish attack continues, then a test of the major support at 1.0396 would be the most probable scenario. A violation of the mentioned level would easily deepen the sell-off towards the low at 1.0359 and would strengthen the negative expectations for the future path of the EUR/USD. If the bulls enter the market, then their first target would be the level at 1.0467, which is currently acting as resistance. Today, increased volatility can be expected around the announcement of the initial jobless claims data for the United States at 12:30 GMT.

USD/JPY

The positive sentiment remained unchanged and the Ninja tested the resistance at 136.47. A successful confirmation of the breach here would easily lead to new gains for the dollar against the yen and could continue the rally towards the zone at 137.00. If the bullish momentum fades, then the bears could try to breach the support at 135.43. А success for them could deepen the decline and could pave the way for a test of the lower zone at 134.33.

GBP/USD

Like all the other major currencies, the sterling lost some ground against the dollar and the pair breached the support zone at 1.2170. It is currently holding positions around the level at 1.2118, but if the sell-off continues, the expectations are for a test of the next target at 1.2038. A successful violation could easily deepen the decline and could strengthen the negative expectations for the future path of the Cable. If the buyers prevail instead, then their first target would be the zone at 1.2170, followed by the upper important resistance at 1.2321.

EUGERMANY40

After the successful breach of the zone at 13126, the EUGERMANY40 continued to tumble, and during the early hours of today’s trading, the index is heading for a test of the lower support at 12948. A successful attack for the bears could easily extend the losses and could lead the price towards the lows at 12833. If the bulls manage to limit the sell-off above the mentioned zone at 12948, then they could attempt to violate the zone at 13126 as well. However, only a breach of the upper resistance at 13434 could lead to a change in the current sentiment of the market participants.

US30

Neither the bears nor the bulls managed to prevail, and at the time of writing the analysis, the U.S. index is hovering around the support zone at 30931. A successful breach for the sellers could lead to future losses and could pave the way for a test of the next target at 30141, followed by the lower zone at 29748. Better-than-expected unemployment change data for the U.S. (today; 12:30 GMT) could encourage the buyers to re-enter the market. A successful attack on the resistance at 31345, followed by a breach of the next zone at 31707, could easily lead to a rally aimed towards 32259.

Markets

Markets yesterday still showed highly sensitive to any headline on inflation. Even the CPI release from the German state of North-Rhine Westphalia triggered a nervous start on (European) bond markets. The lower than expected inflation print (-0.1% M/M) later was conformed in the overall German figure (HICP -0.1% M/M, 8.2% Y/Y in May, from 8.7% in April). The slowdown was at least partially due to a one-off reduction in the cost of public transport. Later, Spanish HICP (10% Y/Y) and Belgian (9.65 % Y/Y) CPI showed no sign of easing at all. European yields temporarily reversed the initial decline. However, markets one way or another still pondered the idea that inflation might be nearing a peak momentum. Financial inflation expectations both in EMU and the US eased further. At a panel debate, Fed’s Powell, ECB Lagarde and BoE governor Bailey all reiterated that preventing a de-anchoring of inflation expectations should be avoided at any price. Investors apparently conclude that the ‘inevitable’ slowdown in growth might allow CB’s to slow the pace of hiking in 2023. A further topping out in (some) commodities also gives some comfort. Whatever the driver, core bonds rebounded. The belly of the curve outperformed the wings. The US 2-y eased 7.1 bps. Yields in the 5/10-y sector declined 9/8 bps. Similar reaction in Bunds the 5y outperforming (-15 bps) despite mixed regional inflation data. The euro initially tried to resist the decline in EMU yields, but broader USD strength finally pushed EUR/USD off a cliff (close at 1.0442 VS open 1.052). DXY finished north of 105. The Hawkish Sintra Powell comments pushed USD/JPY for a multi-year high test of the 137-level. Sterling hardly gained against a soft euro (close EUR/GBP¨0.8616). The Swiss franc strengthened below parity against the euro (close EUR/CHF 0.997). US equities showed no clear directional trend (S&P -0.07%).

Risk sentiment in Asia stays fragile with China outperforming on better PMI’s (cf infra). The dollar eases (DXY 104.98; USD/JPY 136.4; EUR/USD 1.045). Later today, investors will keep a close eye at the US PCE deflators (May). A further substantial rise is expected (headline 0.7% M/M and 6.4% Y/Y). Or will markets give more weight to a potentially softer core reading (0.4% M/M expected)? The Chicago PMI, US jobless claims might give some further insights in the growth part of the equation. OPEC+ meets in Vienna, but no amendment of the approved production hike for August looks to be on the cards. The Riksbank is expected to hike rates by 50 bp today. On interest rate markets, recent consolidation pattern looks firmly in pace with the topside in yields capped for now as investors look out for the impact of (anticipated and already implemented) policy tightening and slower growth on inflation. 3.00% and 2.13% are first intermediate support of the US 10-y and the 10-y EMU swap respectively. In EUR/USD even the 1.0600/27 area proved a too high hurdle for now. 1.06/1.0341 serves as the ST trading range short-term.

News Headlines

Senate Democrats are working on shrinking the amount of tax increases planned in president Biden’s economic package. The $2.2tn deal approved by the House last year would be paid for by $1.5tn in tax increases but met fierce resistance from Democratic Senator Manchin. His vote is crucial in the 50-50 split Senate to get Biden’s Build Back Better deal through. Manchin and Senate Majority leader Schumer are close to agreeing that the overall tax increase amount would be roughly $1tn and that half of that needs to go to deficit reduction over 10 years. Time is ticking for Biden and the Democrats. By the end of September, the budget resolution that allows them to pass the bill with a simple majority, expires. Many believe the bill probably needs approval already next month, before August recess.

Market movers today

The main event today will be the Riksbank meeting at 9.30 CET (followed by the press conference at 11.00 CET). Consensus expects a hike of 50bp, including Danske. We expect the alternative repo rate path from April to become the new main scenario, with a steeper front and ending at 2.5%. This would be in the middle of market pricing (another 300bp) and our own view (3x50bp plus 25bp in February ending at 2.0%). Market prices 56bp for today, hence, only a significant deviation from a 50bp hike will cause high volatility. As for QE, the Riksbank in April decided to cut the reinvestment volumes in half for H2. We see a chance of another downward adjustment, but it is not our base case.

US personal spending data and German retail sales for May might bring more evidence that higher prices are taking their toll on consumers' willingness to spend and in turn stoke markets' recession fears.

French inflation will likely take another jump higher during June with rising fuel costs. Markets will also keep an eye on US PCE inflation, after CPI again surprised on the upside for May.

The 60 second overview

China PMIs: China Services PMI came in much better than expected at 54.7 in June compared to consensus 50.5 and prior 47.8, an obvious reflection of the easing of local Covid outbreaks and restrictions. Manufacturing activity disappointed slightly despite the index returning to expansionary territory with a reading at 50.2 compared to consensus 50.5 and prior 49.6. Asian stocks are mixed in the morning with Nikkei down but Hong Kong and Shanghai stocks in green as investors weigh recession concerns in Western markets against the ongoing recovery in Chinese economy.

Natural rates: Yesterday, we published a piece discussing natural rates: Research Global - Natural rates - regime change or low for longer? 29 June. The key message is that rates are likely to decline again after the current period of high inflation ends, although not all the way back to pre-pandemic lows. This is because the key structural factors that have pushed down the natural interest rate remain in place: increasing life expectancy, slowly growing or decreasing working age population, lower productivity growth, higher mark-ups and risk premia, a shock from the financial crisis and higher inequality all together push neutral rates lower. The key upside risks to natural rates are related to the increased fiscal spending and investments in defence, green transition and digitalisation which could drive higher potential growth going forward, but in net, we expect the desire to save still to dominate the desire to invest.

NATO and Russia: In a widely expected move, NATO called Russia the 'most significant and direct threat to the allies' security' in its updated Strategic Concept document published yesterday. As a response to Russian invasion of Ukraine, NATO leaders committed to increasing the alliance's combat forces in high alert seven-fold and to modernising Ukraine's military. Finland and Sweden have now been officially invited to join NATO and the actual ratification process (by member states) may begin next. President Putin said Russia would respond in kind if NATO sets up infrastructure in Finland and Sweden after they join. Over the last few days, Russia has clearly stepped up its attacks in Ukraine. We maintain our view that a frozen conflict in Ukraine is the most likely scenario and consider any escalation unlikely, yet possible (as Kremlin's actions remain unpredictable). While sanctions have weakened Russia's economy and its capacity to maintain or develop its artillery, high energy prices ensure sufficient income for Russia to continue its aggression against Ukraine.

FI: Yields ended lower (Bund yields 11bp lower), peripheral spreads tighter and sem-icore spreads wider with the belly of the curve as the biggest performer. German inflation failing to meet estimates was likely the main driver, however, we do not believe the peak inflation has been reached. This view is also confirmed with Spanish and Belgian inflation surprising on the upside. The government initiatives (transport of 9EUR/m during summer and the 'tankrabatt') gave cause for lower inflation print in Germany than otherwise expected. The peak in euro inflation is still set for September this year. With stagflation fears in markets, credit spreads generally widened.

FX: With the EUR trading heavy and both USD and CHF staying bid EUR/USD has moved below 1.05 while EUR/CHF has broken below the psychologically important parity level. SEK continues to trade poorly and has been one of the key losers over the last week while NOK has range traded.

Credit: On Wednesday, Credit markets were hit by a further spread widening, amidst risk-off mode in major equity indices. With recession fears creeping back into markets, Itrax main widened 3.3bp to close at 117.7bp, while Xover widened 22.3 to close at 582.4bp. There was no sign of relief for Nordic Real Estate credits, which were once again hit by sell-offs in what has so far been an extremely tough week for the sector.

Nordic macro

Riksbank decision is released 09.30 CET today, followed by a press conference at 11.00 CET. All respondents in BBG expect a hike of 50 bps including Danske. We expect the April alternative repo rate path to become the new main scenario with a steeper front and ending at 2.5 %. This would be in the middle of market pricing (another 300 bps) and our own view for 3*50bp plus 25 in Feb ending at 2.0 %. Market prices 56bp for today, hence, only a significant deviation from 50bp hike causes high volatility. As for QE, the Riksbank in April decided to cut the reinvestment volumes in half for H2. We see a chance of another downward adjustment, but it is not our base case.

Jerome Powell, Christine Lagarde and Andrew Bailey blamed pandemic and the war for sending inflation off the chart at a European Central Bank (ECB) event yesterday. We blame them for having called inflation transitory, and having been left behind the curve for too long.

The EURUSD slid to 1.0430, and the euro bulls are gently leaving the market, increasingly less convinced that Christine Lagarde doesn’t have a magic tool to address the fragmentation issue in Europe. At this point, no one knows how the ECB will raise the interest rates and avoid the peripheral yields from spiking to crisis levels. But inflation in Spain and Belgium spiked above 10% in June, while the ECB is not expected to raise the rates by more than 25bp at its next meeting. Seems insignificant to you? To us, too.

No wonder the euro-swissy is below the 1.00 mark. If the fall continues, the Swiss National Bank will likely intervene.

More inflation

The US will release the latest PCE figure today, which will likely show no pleasant surprise in the US, either. But happily for the Federal Reserve, investors don’t care much about the PCE index, even though the latter is what the Fed is watching to determine whether inflation is in line with its policy.

The PCE index was at 6.3% last month, much lower than the CPI index as the PCE gives a lower weight to gasoline and rents, which sent CPI inflation skyrocketing. Therefore, even if the Fed could bring the PCE down to 2%, it won’t solve the problem of high energy, high rents.

US rents for example hit another record high in June, up 14% over the last year.

Anyway, the chances are that we won’t see PCE hinting at lower inflation anytime soon.

Russia isn’t happy

The tensions between Russia and the West continue rising as NATO decided to welcome Finland and Sweden in the alliance. Putin threatened that if NATO infrastructure is deployed in these countries, Russia will have to respond in kind. Oil prices remained fairly contained however, as the European Union agreed on a framework to eliminate carbon emissions for new cars and vans by 2035. And they better respect their deadline, because the oil giants will not invest in extra refining capacities knowing that they will be out of business in many key markets in less than 15 years.

US crude consolidates above the $110pb this morning after having advanced to $115 yesterday. Sentiment remains comfortably bullish as OPEC will unlikely surprise for a second month at today’s decision. OPEC countries have struggled to meet their production targets last month, pumping around 3 million barrels less per day than their 42 million target. This means that the supply problems will remain the major headline in oil, and the prices will likely push higher unless the recession fears take the upper hand.

Daily Pivots: (S1) 1.2860; (P) 1.2880; (R1) 1.2916; More...

Intraday bias in USD/CAD remains neutral for the moment. On the downside, below 1.2818 will extend the fall from 1.3077 to 55 day EMA (now at 1.2800). Sustained break there will target 1.2516 support next. On the upside, break of 1.3077 and sustained trading above 1.3022 fibonacci level will carry larger bullish implications, and bring up trend resumption.

In the bigger picture, focus stays on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. However, rejection by 1.3022 will maintain medium term bearishness.

Daily Pivots: (S1) 0.6854; (P) 0.6887; (R1) 0.6912; More...

Intraday bias in AUD/USD remains neutral for the moment. On the downside, firm break of 0.6828 support will resume larger fall from 0.8006. Next target is 0.6756/60 cluster support. On the upside, above 0.7068 minor resistance will bring stronger rebound to 0.7282 resistance first. Firm break there will be a sign of bullish reversal and bring stronger rebound to 0.7666 resistance.

In the bigger picture, price actions from 0.8006 are seen as a corrective pattern to rise from 0.5506 (2020 low). Deeper fall could still be seen to 50% retracement of 0.5506 to 0.8006 at 0.6756. This coincides with 100% projection of 0.8006 to 0.7105 from 0.7660 at 0.6760. Strong support is expected from 0.6756/60 cluster to contain downside to complete the correction. Meanwhile, firm break of 0.7660 resistance will confirm that such corrective pattern has completed, and larger up trend is ready to resume.