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Daily Pivots: (S1) 1.2500; (P) 1.2549; (R1) 1.2585; More...

Range trading continues in GBP/USD and intraday bias remains neutral first. On the downside, break of 1.2429 support suggest that rebound from 1.2154 has completed. Intraday bias will be back on the downside for resting this low. On the upside, above 1.2666 will target 55 day EMA (now at 1.2698) and above.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2999 support turned resistance holds. On resumption, next target is 1.1409 low.

Daily Pivots: (S1) 0.9733; (P) 0.9761; (R1) 0.9814; More...

Intraday bias in USD/CHF stays on the upside and outlook is unchanged. Further rally is in favor to retest 1.0063 high first. Firm break there will resume larger up trend. However, break of 0.9567 will extend the correction from 1.0063 with another leg, and turn bias to the downside for 61.8% retracement of 0.9193 to 1.0063 at 0.9525.

In the bigger picture, down trend from 1.0342 (2016 high) should have completed with three waves down to 0.8756 (2021 low) already. Rise from 0.8756 is likely a medium term up trend of its own. Next target is 1.0237/0342 resistance zone. This will remain the favored case as long as 0.9471 resistance turned support holds. However, sustained break of 0.9471 will extend long term range trading with another falling leg.

AUDUSD has been underperforming over the last few sessions after it found a strong obstacle to surpass the 200-day simple moving average (SMA) and the 0.7200 round number.

However, the 20- and 40-day SMAs are in the process of posting a bullish crossover, while the MACD is still standing in the positive region. But the RSI indicator is losing momentum in the bullish area, suggesting that the next movements may be to the downside.

If price action remains above the short-term SMAs, there is scope to test the 200-day SMA at 0.7250 again, marginally below the 0.7280 resistance. Clearing this key level would see additional gains towards the 0.7340 inside swing low on April 18. Rising above, it would see prices re-test the 0.7457-0.7490 barrier and then from there would touch the ten-month high of 0.7660.

If the short-term SMAs fail to halt the decline, then the focus would shift to the downside towards 0.7050. More selling interest could open the way for the almost two-year low of 0.6827 which, if breached, would increase downside pressure and bring about a new low near 0.6770 ahead of a dive towards 0.6570, taken from the inside swing high of April 2020.

Overall, AUDUSD has been negative since peaking at 0.7280. Near-term weakness is expected to remain as long as price action take place below the 200-day SMA. Though, a climb beyond the latter may increase the speculation for a bullish bias.

Markets

Core bonds and stocks sold off in lockstep again yesterday as a new surge in oil prices stings. Brent crude rallied from $120.50/b to $124/b, testing the highest level since mid-March. The post-invasion top stands at $139/b. The same factors remain at play: resurging Chinese demand following months of very strict lockdowns and reduced supply via the European embargo against Russia (which more than outweighs the small scaling up of OPEC-supply). The German yield curve bear steepened with yields rising by 3.4 bps (2-yr) to 6.8 bps (30-yr). US yields added 4.5 bps to 5.3 bps across the curve. The US 10-yr Note auction was on the soft side as it tailed 1.2 bps with a below average bid cover (2.41 vs 2.5). The trade weighted dollar for a second straight session attempted to take out first resistance at 102.73, but the test failed again. EUR/USD 1.0627/42 support remained out of reach with the single currency even outperforming in the run-up to today’s ECB meeting (see below). USD/JPY surged from 132.59 to 134.50.
 
Focus turns to Amsterdam today, where the ECB convenes. ECB President Lagarde’s contribution to “The ECB Blog” (May 23) serves as a good guide for what to expect from the central bank in the new inflation landscape. The ECB finally deems it appropriate to return to more normal settings to slash current high inflation and to prevent higher inflation expectations from becoming entrenched in the mindsets of economic agents. The uncertain growth outlook plays second fiddle in this story. New inflation forecasts are about to show upward revisions for 2023 (2.1%) and 2024 (1.9%) as well, underlining the need to act. More specifically, net purchases under APP are to end very early in the third quarter, allowing for a rate lift-off in July and an exit of negative interest rates to the end of the third quarter. Lagarde didn’t specify the magnitude of coming rate hikes, but left the door open to larger-than-usual ones. We attach a rising likelihood to a scenario in which the ECB starts with back-to-back 50 bps rate hikes in July and September. 50 bps rate hikes are turning into the new normal on a global level, while the ECB understands that the window of opportunity to normalize policy in rapidly closing given the clouded eco outlook. On top, there’s already a strong sense of being behind the curve and having misinterpreted the true nature of the inflationary winds. The ECB is also rumoured to strengthen its commitment on preventing fragmentation during its normalization cycle by announcing a new bond buying programme if needed to counter borrowing costs for the likes of Italy should they spiral out of control. From a market point of view, we hold our bearish views on core bonds with the EMU curve likely to turn into bear flattening mode. A test of key resistance in EUR/USD at 1.0806 is likely, with the probability of a break high. It would make the technical picture in the FX cross neutral.

News Headlines

The Polish central bank raised policy rates by an expected 75 bps to 6%, equaling the peak seen before the global financial crisis erupted in 2008. The NBP judged that risks of inflation (expectations) running above the NBP 2.5 (+/- 1 ppt) persist, suggesting more tightening is underway. Prices continued to rise to 13.9% in May in part resulting from commodity prices as well as prolonged global supply chains and international transport, amplified by the effects of war. At the same time, a still-strong Polish economy (8.5% y/y growth in Q1) and tight labour market accompanied by falling unemployment and a marked rise in wages means companies can easily pass increased costs to final prices. The Polish zloty traded stoic around EUR/PLN 4.58. Poland’s swap yield curve bear steepened, adding a little over 5 bps at the long end. That followed more the general market trend rather than being a reaction to the meeting.

It may be The Day of the year for the European Central Bank (ECB). The ECB will reveal its latest economic projections, which will show the implications of the Ukrainian war on the economy, and the mounting pressure on consumer prices, especially due to soaring food and energy prices.

The ECB will likely announce a July rate hike at today’s meeting. But the hint of a July rate hike is not enough to boost the euro, as it is almost fully priced in. What’s left to price is whether the ECB would choose to raise the rates by 50bps to stop the euro depreciation, or whether it will opt for back-to-back interest rate hikes. The latter is more likely, based on Lagarde’s gradual approach to policy tightening.

The problem is, if the ECB decided to start tightening gradually, even back-to-back interest rate hikes may not do the job. The Bank of England (BoE) has been raising its policy rate sharply since the end of last year, but the back-to-back rate hikes didn’t prevent sterling from falling against the US dollar, and the pound barely gained against the single currency.
Euro needs a bold action

What the euro needs is a coup, a bold action from the ECB, to reverse its course, especially against the US dollar. And a stronger euro is the first step in controlling the soaring inflation in Europe. If nothing, the energy purchases, which are negotiated in USD terms, would be ‘cheaper’ for the Europeans and have a cooling effect on consumer prices.

Unless the ECB’s almost certain July rate hike hint isn’t complemented with a whole bunch of super hawkish comments - that would overshadow the ugly economic indicators and the fear of a significantly slowing economic activity, it won’t do much to boost the euro from the actual levels.

Nobody said it was easy

Unfortunately, Christine Lagarde won’t go down in history as the saviour of the Europeans as Mario Draghi did. Mario Draghi ordered free drinks for everyone, and Christine Lagarde needs to pay the bill.

If the ECB doesn’t get seriously hawkish, the EURUSD will certainly hang around the actual levels, a touch lower than the minor 23.6% Fibonacci retracement on last year’s depreciation. But If Christine Lagarde decides to take the reins of the market in her hands, we should see the EURUSD continue pushing toward the 1.10 level in the medium run.

It all depends on the ECB’s next move. It won’t be easy to withstand the fearless Federal Reserve (Fed) that throws fearless hawkish comments to the market now and walks the talk. Activity on Fed funds futures price in nearly 95% chance for a 50bp hike by the Fed at next week’s meeting.

Relentless oil rally boosts Fed hawks

The US dollar remains strong as the US 10-year yield is again above the 3% mark as the relentless rally in oil prices revive inflation fears and the Fed hawks before Friday’s inflation read. The barrel of US crude advanced to $123.50 yesterday.

Market movers today

Today's highlight is the ECB meeting where we expect a formal end to the APP programme. Discussion will focus on the possibility of ECB could move by 50bp at a later stage. Markets are pricing in around 40% of a 50bp hike in July. We also focus on potential fragmentation tools. ECB's new staff projections is expected to see upward revision of inflation and downward revision on growth.

In Sweden, we get the household consumption and April GDP-indicator and Riksbank's Breman will attend a seminar to discuss inflation, monetary policy and sustainability (for more details, see the Nordic section).

The 60 second overview

ECB today: The main event today is the ECB meeting and the expected wind-down of the QE as well as preparing for rate hikes. The inflation outlook is expected to be revised upwards and the growth outlook downwards. The discussion on the policy path centres around a 50bp rate hike already in July. Markets are pricing in around 40% of a 50bp hike in July. Hence, even though there is a lot priced in, the risk is still on the upside for rates and spreads between Italy and Germany. Lagarde will most likely be asked about market fragmentation, but we do not expect much action on this from the ECB at this meeting. Hence, the risk is more pressure on the periphery and especially Italy after the meeting despite the widespread BTPS-Bund spread.

OECD revise growth forecasts lower: Yesterday, OECD published its new global forecast, downgrading significantly their growth forecast for the global economy in 2022 by 1.5pp to 3% compared to their last update in December 2021. They expect economic growth to remain subdued in 2023. The reason for the meagre growth outlook is the war in Ukraine and the impact of higher oil and other commodity prices along with the COVID-related lockdowns in China. In general their forecast for 2022 squares well with ours, also seeing near-term economic growth holding up fairly well. However, in 2023, we are significantly more downbeat on the growth prospects in the US, fearing a mild recession, while OECD expects positive growth. On the other hand, we see a bigger rebound in China than OECD as we think the policy stimulus will support domestic demand. Our forecasts for the euro area in 2023 are fairly identical expecting about 1.6%-1.8% in real GDP growth. Market reactions to the release of the OECD forecasts were muted.

Equities: Equities were lower yesterday as the stagflation fear dominated and slowly but steadily took risk appetite lower during the day. No single event or data point behind the move yesterday but yields across the curve and on both sides of the Atlantic moved higher. This could sound like the stagflation trade coming back but that was not the case. With higher yields, one could have expected value to outperform growth but that was not the case yesterday. Hence, investors are struggling to find out whether to fear stagflation or central bank tightening led recession. Moves in US more less the reverse of Tuesday with Dow -0.81%, S&P 500 -1.1%, Nasdaq -0.7% and Russell 2000 -1.5%. Asian markets are mostly lower this morning with Japan going against the trend as the yen keeps weakening against most other currencies. Futures in Europe and US are lower this morning.

FI: Global yields once again rose after the decline on Tuesday. 10Y Treasuries is back above 3%, while 10Y Germany is again above 1.30%. The curve steepened from the long end. The rise in yields also lead to a modestly wider Bund ASW-spread despite the solid activity in the primary market with plenty of new bond deals. The rise in yields comes despite the focus on risk of a recession and negative sentiment in the bond market.

FX: JPY weakness continues to be the dominant theme as we head into the ECB meeting. USD/JPY has now broken above 134. EUR/USD continues to trade around 1.07 while the Scandies did little in yesterday's session.

Credit: Sentiment in the secondary market remained downbeat yesterday where iTraxx Xover widened more than 8bp and Main 1.5bp. However, recent days' widening should also be seen in light of the string of new issues that have come to the market ahead of tomorrow's ECB meeting.

Nordic macro

Riksbank's Breman will attend a seminar to discuss inflation, monetary policy and sustainability. Published on the website at 09.15. Any hints about coming hikes (50bps?) will be in focus. Our call is for 50bp hike at the next meeting but inflation and inflation expectations released next week will be more or less crucial.

We expect that the weak demand shown in GDP for Q1 released last week will also be reflected in the monthly indicator out today (household consumption and April GDP-indicator). Non-essential consumption is usually the first one to decrease which we also expect to see in today's figures. Especially clothing and restaurants and hotels have had a tough time since the start of the pandemic so far. However, we see no rise in bankruptcies.

Also, production data is out today. During March, production numbers came out flat compared to February while the order inflow came out strong in contrast to the order inflow in PMI. If PMI is correct, new orders in hard data should decrease from here, which seems reasonable given the weaker global demand.

Inflation. The chop-fest range trading beguiling currency, bond, and equities markets in the US this month continued overnight. Overnight, New York decided that it was in fact worried about inflation, having dismissed it the day before. Tomorrow, perhaps, they won’t be once again. That saw equities retreat, US yields firm, with US 10-years back above 3.0% once again, while the US Dollar also booked some modest gains.

Ignoring the noise elsewhere, oil continued its march higher, Brent crude jumping 2.40% to 123.95 a barrel overnight. An unexpected rise by official US Crude Inventories of 2.0 million barrels, and distillates by 2.5 million barrels provided no solace to oil markets, as gasoline stocks remained flat. Most of the price rise can probably be attributed to fighting talk by the UAE Oil Minister at a conference yesterday.

According to Reuters, Minister Suhail al-Mazrouei said the OPEC+ shortfall to target was 2.6 million barrels, with OPEC+ compliance at 200%. He also warned that a reopening of China would place further stress on supplies. He also said that we were nowhere near peak oil prices. Gulp. In other news difficulties monitoring Iran’s nuclear compliance puts a new nuclear deal, and more Iranian crude on international markets, as far away as ever.

That leads nicely into China, where markets were awaiting this morning’s May Balance of Trade release. The trade balance has exploded higher to $78.76 billion, led by exports increasing by 16.90%, while imports climbed by 4.10%. I suspect port reopenings have flattered the data. However, from my point of view, the trade data is irrelevant to a much more important development that has occurred today. This morning, Shanghai residents awoke to the news that the Shanghai district of Minhang, home to two million people, has been placed under strict lockdown with mass testing scheduled for Saturday. Markets have been naively pricing in that the easing of restrictions in Beijing and Shanghai was the final victory over omicron, and thus, peak covid-zero.

As I have said repeatedly with regards to covid-zero country’s experiences, the country has to get lucky 100% of the time, the virus has to only get lucky once. China is no different from anywhere else in this respect and buying the dip for a China bounce is a perilous activity. Covid-zero is going nowhere in China, and nor is the virus. Thus, the chances of extended restrictions returning, with the ensuing drop in China's economic activity, remain as high as ever. They could repeat over and over again. About the only good news from this development is that it might take the edge off the oil rally.

Still, the news isn’t all bad on the inflation front. The US Treasury Secretary indicated overnight that the US was looking to “reconfigure” tariffs on Chinese imports. Translation: we’ll drop a lot of them to try and slow inflation down ahead of November’s mid-term elections. Indonesia today, has also announced an export acceleration scheme to ship at least one million tonnes of palm oil and derivatives to international markets according to Channel News Asia. And yesterday from Reuters, India indicated it would soon allow 1.2 million tonnes of wheat exports after banning exports previously.

Neither development will materially move the dial on food inflation thanks to the Russia/Ukraine conflict, but it does show both an understanding and willingness by exporting countries, of the downstream impacts globally and the need to assist in mollifying them. Like China’s covid-zero policy though, nobody should be naïve enough to expect them not to return and bite the global economy again. Food nationalism will continue to be a real issue throughout 2022 and into 2023.

China’s trade date was the only tier-1 Asia data release today. Philippine’s trade balance held steady at $-4.8 billion for April, barely changing from March. Imports rose 22.80% YoY, likely reflecting skyrocketing food and energy prices. Indonesia’s May Consumer Confidence leapt higher to 128.90, and the rising cost of living or not, it's hard to see any recessionary signs here in Jakarta. Pak President’s removal of the mask mandate seems to have magically restored activity of pre-pandemic levels, and the traffic is well and truly back to normal here. So much so, that Jakarta’s local government has expanded the odd/even car restrictions to a larger part of the Big Durian.

This afternoon's undoubted highlight will be the European Central Bank policy meeting, perhaps the most anticipated one of the year. Given her recent guidance, ECB President Lagarde has primed markets for an ending to their quantitative easing but don’t call it quantitative easing programme, this month or next, as well as two 0.25% rate hikes in July and September. The rates curve has fully priced this in, with 130bps of hikes expected by year-end. I think that’s punchy myself, given that Europe is moving into a war economy, with a lot of inflation imported and beyond its control thanks to the conflict in the East.

By default, one would expect that much of the Euro’s recent recovery is down to those rate hiking expectations as well. So, this afternoon will be all about the press conference as it would be a huge surprise if they hiked by 0.25% today as well. (note: I have already used huge surprise and central bank this week and I was wrong) A rate hike today could shake EUR/USD out of its 1.0700/1.0800 malaise and open gains to 1.1000. On the other hand, If Ms Lagarde has blinked and become dovish again, the adjustment lower by the ECB rates curve and EUR/USD could get quite emotional.

The US calendar is dead ahead of tomorrow's Inflation main event. US Jobless Claims may see traders grasping at straws on a slow news day. Otherwise, I suspect we will see another mood-swing session from the FOMO gnomes of Wall Street, with any excuse to buy, the genetically pre-programmed default option.

Shanghai restrictions weigh on Asian equities

The moody range-trading that has typified US equity markets in June continued overnight as Wall Street decided that inflation was a concern, after all, sending equity markets lower. The S&P 500 fell by 1.08%, the Nasdaq finished 0.73% lower, while the Dow Jones lost 0.82%. Futures on all three remain negative today, easing by around 0.15%.

Asian markets were never likely to have a good start after a weaker New York session, but the lockdown of the Minhang district of Shanghai has delivered a much-needed wake-up call around the reality of China’s covid-zero policy to regional markets. Asia has started today in the red on renewed China slowdown fears, ignoring mighty Chinese trade numbers. The only exceptions are Japan, where a plummeting Yen has lifted the Nikkei 225 0.30% higher, and Jakarta, where the palm oil export scheme has lifted the JCI 0.50% higher.

Elsewhere, it is a sea of red today. South Korea’s Kospi has fallen by 0.60%, Mainland China’s Shanghai Composite eased by 0.45%, with the CSI 300 losing 0.55%. Hong Kong’s Hang Seng has also fallen by 0.50%, with the positive sentiment of the overnight China tech ADR rally evaporating in a sea of mass testing stations.

Regionally, Singapore has fallen by 0.50%, with Taipei losing 0.45%, and Kuala Lumpur falling by 0.70% as the government faces ever-higher fuel subsidy bills with oil's rally. An ironic outcome for an oil predicting nation. Bangkok has managed a 0.20% gain today, with Manila tumbling by 0.90%. Australian markets aren’t liking the Shanghai news either, the All Ordinaries have lost 0.95%, while the ASX 200 has fallen by 0.90%.

With the ECB meeting today, and nerves around China’s covid-zero policy and its impact on growth, along with a surge in oil prices overnight, Europe is unlikely to have any reason to click the buy button this afternoon. That may all change post the ECB is the central bank is more dovish than expected. Conversely, if the ECB delivers a hawkish surprise, European equities are likely to remain pressured.

Currency markets continue to range trade

US yields climbed higher overnight which was enough to lift the dollar index to a 0.20% gain to 102.55. It has given most of that back in Asia, falling to 102.40 thanks to a modest Yen rally. Another inconclusive session leaves support/resistance at 101.30 and 102.70.

EUR/USD edged higher to 1.0715 overnight, adding another 0.15% to 1.0730 in Asia as JPY strength has spread, once again, to the broader FX market in Asia today. Resistance is between 1.0770 and 1.0830 remains a formidable barrier, while support remains at 1.0650. The outcome of today’s ECB meeting will set the tone for the single currency for the rest of the session.

Sterling fell 0.45% to 1.2535 overnight as economic worries, leadership concerns, and the Northern Island protocol weighed on the Sterling. Like the other majors, it remains in a choppy range-trading scenario overall. Resistance remains at 1.2670, 1.2800, and 1.3000. Support is still at 1.2460 and 1.2400.

It was another feeding frenzy by USD/JPY overnight, by far the highlight in an otherwise dull night for currency markets. The disparity between US and Japan monetary policies was once again to the fore. USD/JPY leapt by 1.22% to 134.25 overnight. In Asia, nerves around invention have spurred some long-covering, pushing it slightly lower to 133.95. The Relative Strength Index (RSI) is overbought, but not grossly so, so I do not foresee an aggressive move lower just yet, that may have to wait for 135.00 to trade.

Although I can see an increase in rhetoric about the currency from Tokyo increasing, I do not believe we are close to intervention by the authorities at all. A far more likely occurrence would be some sort of tinkering with the BOJ’s yield curve control policy. Given the vehemence around no change from the BOJ and MOF, that would be a huge surprise as well. ("Huge surprise" used for the 3rd time, danger Will Robinson!) A move by the BOJ in this regard would provoke an ugly washout of USD/JPY long positioning, potentially targeting 125.00. In the meantime, it is business as usual. Support is at 132.65 with the next upside target being 135.00.

Both AUD/USD and NZD/USD fell once again overnight, and I will admit to some confusion over the recent price action. AUD/USD fell 0.55% to 0.7190, easing to 0.7180 in Asia. NZD/USD fell 0.65% to 0.6445 where it remains in Asia. Although the reason behind the negatively eludes me, the technical picture is becoming more soggy than a wet piece of paper. Both currencies have broken below ascending one-month trendlines. Failure of 0.7150 and 0.6425 respectively, suggests another material move lower is occurring.

USD/Asia continues to range trade, with regional currencies almost unchanged today after a directionless New York session. Ominously, the Indian Rupee shrugged off a 0.50% rate hike by the RBI yesterday and the USD/INR is trading at 77.678, near its highs for the year. Similarly, USD/MYR, USD/THB and USD/PHP are all closing in on their year’s highs again. The rally in oil prices could also cause USD/KRW to play catchup and appears to be weighing on all four. A higher than expected US CPI number tomorrow could complicate that picture further, lifting Fed hiking expectations.

UAE Oil Minister lifts oil prices

Oil prices shot higher overnight with the UAE oil minister warning that China’s reopening and the inability of OPEC+ members to pump at production targets posed more upside risks to oil prices. Tensions around Iran’s nuclear programme also diminished hopes of more Iranian crude on international markets. Finally, although US crude inventories rose by 2 million barrels, gasoline production was flat, keeping up the squeeze on refined products in the US.

That saw Brent crude ratchet higher by 2.40% to $123.75 a barrel, while WTI rallied by 2.25% to 122.45 a barrel. In Asia, oil prices have remained flat, with the lockdown of the Minhang district in Shanghai spurring China covid-zero part two fears, crimping demand in Asia today. That said, it is indicative of how tight supplies are that oil has not retreated on that news today.

That leaves the chart picture looking positive with the respective RSIs still not yet in overbought territory. Brent crude has traced out a series of highs at $124.25 marking initial resistance. After that, the road opens to $125.00 and $128.00 a barrel, bringing the Ukraine invasion highs back into sight. WTI has resistance at $123.15, the overnight high, and then $125.00 and $127.00 a barrel. Support is at $119.35 and $117.50 a barrel.

Gold remains in a coma

With little movement in the US Dollar overnight, gold remained sedated as well, closing almost unchanged at $1853.35 an ounce. In Asia, a slightly lower US Dollar has seen gold crawl modestly higher to $1855.00 an ounce. It seems that like currency markets, we are going to have to wait for tomorrow's US Inflation data to create a directional move one way or the other. In the meantime, bring a good book.

Gold has resistance at $1870.00, followed by the 100-DMA at $1890.00, and then $1900.00, where I expect there to be options-related sellers in the first instance. Support is at $1837, $1830.00, and then $1780.00 an ounce. I do not discount a disorderly retreat if the latter fails. The wider $1830.00 to $1870.00 range seems set to continue until Friday.

Daily Pivots: (S1) 133.05; (P) 133.76; (R1) 134.97; More...

USD/JPY is retreating mildly but intraday bias stays on the upside. Current up trend should target 61.8% projection of 114.40 to 131.34 from 126.35 at 136.81. Firm break there will target 100% projection at 143.29. On the downside, below 132.30 minor support will turn intraday bias neutral to bring consolidations first, before staging another rally.

In the bigger picture, current rally is seen as part of the long term up trend form 75.56 (2011 low). Next target is 100% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 149.26, which is close to 147.68 (1998 high). This will remain the favored case as long as 126.35 support holds.

Yen is recovering slightly in Asian session today, digesting recent steep selloff. The climax selling is temporarily past as focuses turn to ECB policy decision today and US CPI tomorrow. Euro is trading mixed for the moment, except versus Yen and Swiss Franc. To be specific, it's range bound against Dollar, Sterling, Aussie and Canadian. The reaction to ECB would be important to decide the next move in Euro for the near term.

Technically, levels to watch include 1.0786 resistance in EUR/USD, 0.8617 resistance in EUR/GBP, 1.4965 minor resistance in EUR/AUD and 1.3538 minor resistance in EUR/CAD. Powerful break of these levels together will confirm that Euro bulls are fully on board, at least for the near term. Otherwise, there might still be some reservations among them.

In Asia, Nikkei closed up 0.18%. Hong Kong HSI is down -0.90%. China Shanghai SSE is down -1.07%. Singapore Strait Times is down -0.31%. Japan 10-year JGB yield is up 0.0031 at 0.251. Overnight, DOW dropped -0.81%. S&P 500 dropped -1.08%. NASDAQ dropped -0.73%. 10-year yield rose 0.057 to 3.029.

BCC: UK inflation to hit 10% in Q4, no GDP growth in Q2 & Q3 with contraction in Q4

In the new economic forecasts, British Chambers of Commerce projected that UK inflation rate will reach 10% in Q4 this year, "comfortably outpacing average earnings growth". That would be the highest since CPI records began in 1989. CPI is only expected to finally fall back to BoE's target of 2% by the end of 2024. BoE interest rate is expected to rise to 2% in 2022, and 3% in 2023.

GDP growth in 2022 was downgraded slightly from 3.6% to 3.5%. Quarter on quarter GDP growth is expected to " flatline with no growth expected in Q2 and Q3 before contracting by 0.2% in Q4". Growth is expected to slow sharply to just 0.6% for 2023, before recovering slightly to 1.2% in 2024.

Alex Veitch, Director of Policy at the British Chambers of Commerce, said: "Our latest forecast indicates that the headwinds facing the UK economy show little sign of reducing with continued inflationary pressures and sluggish growth. The war in Ukraine came just as the UK was beginning a Covid recovery; placing a further squeeze on business profitability."

IMF: Recent Yen depreciation reflect fundamentals

IMF Japan mission chief Ranil Salgado said Yen's recent movements "reflect fundamentals", adding, "we see both positive and negative effects in yen depreciation."

He noted that risks to inflation in Japan are on the upside. But, "inflation in the medium-term will remain well below the BOJ's target once the cost-push factors go away," he said.

"We consider it appropriate for the BOJ to maintain monetary easing until inflation is achieved in a stable and durable manner."

EUR/USD ready for range breakout? Some ECB previews

ECB policy decision and press conference are the major focuses of the day. The central bank is widely expected to announce the end of net asset purchases after this month. That would set the stage for a rate hike "some after after" in July.

Markets are expecting a 25bps rate hike in July, followed by a 50bps move in September. That would bring interest rate comfortably back into positive territory, finally after eight years of negative rate policy. President Lagarde will affirm the latter view, but she'd keep the options open on the pace of tightening.

Suggested readings on ECB:

• ECB Meeting: Setting the Stage for Higher Rates
• ECB Preview – Ready for Lift-Off
• EUR/CHF Set for Breakout as Focus Turns to ECB
• Get Ready for ECB to Hikes Rates (Just Not Tomorrow)
• Key Inflection Point for the ECB at this Week's Meeting

EUR/USD's reaction to ECB is definitely worth a watch today. It should first be noted that EUR/USD had just bounced off above 1.0339 (2017 low) in May. An upside breakout from the near term range today will have 1.0805 support turned resistance and 55 day EMA taken out firmly. That should confirm medium term bottoming at 1.0348. In this case, even as a correction to the down trend from 1.2348, EUR/USD should rise further to channel resistance (now at 1.1159), which is close to 38.2% retracement of 1.2348 to 1.0348 at 1.1112.

USD/JPY Daily Outlook

Daily Pivots: (S1) 133.05; (P) 133.76; (R1) 134.97; More...

USD/JPY is retreating mildly but intraday bias stays on the upside. Current up trend should target 61.8% projection of 114.40 to 131.34 from 126.35 at 136.81. Firm break there will target 100% projection at 143.29. On the downside, below 132.30 minor support will turn intraday bias neutral to bring consolidations first, before staging another rally.

In the bigger picture, current rally is seen as part of the long term up trend form 75.56 (2011 low). Next target is 100% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 149.26, which is close to 147.68 (1998 high). This will remain the favored case as long as 126.35 support holds.

Economic Indicators Update

ECB policy decision and press conference are the major focuses of the day. The central bank is widely expected to announce the end of net asset purchases after this month. That would set the stage for a rate hike "some after after" in July.

Markets are expecting a 25bps rate hike in July, followed by a 50bps move in September. That would bring interest rate comfortably back into positive territory, finally after eight years of negative rate policy. President Lagarde will affirm the latter view, but she'd keep the options open on the pace of tightening.

Suggested readings on ECB:

• ECB Meeting: Setting the Stage for Higher Rates
• ECB Preview – Ready for Lift-Off
• EUR/CHF Set for Breakout as Focus Turns to ECB
• Get Ready for ECB to Hikes Rates (Just Not Tomorrow)
• Key Inflection Point for the ECB at this Week's Meeting

EUR/USD's reaction to ECB is definitely worth a watch today. It should first be noted that EUR/USD had just bounced off above 1.0339 (2017 low) in May. An upside breakout from the near term range today will have 1.0805 support turned resistance and 55 day EMA taken out firmly. That should confirm medium term bottoming at 1.0348. In this case, even as a correction to the down trend from 1.2348, EUR/USD should rise further to channel resistance (now at 1.1159), which is close to 38.2% retracement of 1.2348 to 1.0348 at 1.1112.