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Economic Sentiment in Germany rose unexpectedly, according to the latest May assessment. The corresponding ZEW indicator rose to -34.3 in May from -41.0 a month earlier, against expectations of a dip to -43.0.

Meanwhile, the current assessment of the economic situation continues to deteriorate, both under the influence of the situation in Ukraine and due to a slowdown in China. Germany, for which China is the main export market, is concerned with the lockdown in the second world economy and the resulting economic slowdown and falling demand for machinery and cars from Germany.

Despite the lapse in the current assessment, investors and traders are paying more attention to sentiment. The positive surprise helps EURUSD stabilise near 1.0500 and reinforces the bulls’ hopes that a straight road below parity is not yet a done deal.

AUDUSD is confronting the falling red Tenkan-sen line at 0.6971 after finding fresh positive footing between the 0.6921 base, formed over the first half of July 2021, and the 0.6900 handle. Despite new positive forces, the falling simple moving averages (SMAs) are endorsing the negative picture that evolved around the beginning of April.

The Ichimoku lines are indicating that downward pressures remain active, while the short-term oscillators are reflecting mixed messages in directional momentum. The MACD is flattening, implying some dwindling in negative potency, while the positively charged stochastic oscillator, is promoting additional gains after the bounce in the pair. That said, the RSI is failing to improve towards the 50 threshold, revealing weakness in buying interest.

If the red Tenkan-sen line at 0.6971 caps additional advances, sellers could revisit the 0.6900-0.6921 support zone where the pair recently found its feet. If this region fails to curb sellers’ second attempt to push lower, the price may then meet the 0.6876 barrier before targeting the 0.6806-0.6832 support section, moulded by the lows over the latter part of June 2021. Should frail buying pressures remain scarce, the price could then test the June 2020 trough of 0.6776.

On the flipside, if buying interest intensifies, initial resistance could occur at the 0.7029 obstacle. If buyers overstep this barrier, the price may then encounter multiple upside constraints, operating within the region from the 0.7058 low until the 0.7100 handle. In the event buyers conquer this section too, the bulls could then try to cement confidence in the pair by recapturing the area beyond the 0.7135 high and the adjacent Ichimoku cloud.

Summarizing, AUDUSD is sustaining a negative bearing beneath the SMAs and the 0.7100 barrier. The bearish bias remains robust should the price fail to lift back above the 0.7029 obstacle.

The S&P500 index lost about 3.2% Monday, closing below 4,000, a significant round level. The performance of S&P futures on Tuesday morning is feeding us with cautious optimism, pointing to buyers’ dominance at the start of trading in Europe. The market looks emotionally and technically oversold, which allows you to expect a rebound in the coming days.

The current values for the US S&P500 are the lowest in 13 months. At the beginning of last year, the index did not take the high of 4000 at the first attempt, and now this level could be no less significant support.

The local disposition shows that the market looks oversold after almost a month and a half of decline. Meanwhile, the Relative Strength Index hints at potential exhaustion of the downside momentum, as along with new lows in the S&P500, the RSI on the daily charts has not updated its lows.

Moreover, since January, a sequence of lower local lows for S&P has been followed by higher lows for RSI. A reversal often follows this, and the crucial round level 4000 could be just that.

The Nasdaq100 has taken an even more pronounced loss in the last six months, losing more than 27% from the peak to the bottom, and yesterday it touched lows from December 2020. However, we also see an accumulated oversold condition, which could work as at least a temporary shock absorber for a bounce.

The Nasdaq100 has corrected to more than 61.8% from a rise from the lows of December 2018 to the highs of November 2021 and is around the August-November 2020 peaks, which puts it in line with the S&P500. Although it wanders into the bear market territory, it could still receive support from buyers in the coming days.

Among the fundamental reasons to buy are expectations of an imminent peak in inflation, which is often a turning point for the stock market, and expectations that the economy will continue to pick up, which will restore confidence in companies to rebuild their earnings. This makes the stock market potentially attractive for buying from current levels.

We're seeing a small recovery in stock markets on Tuesday, as investors dust themselves off following the rout at the start of the week.

There's clearly a huge amount of worry about a recession in the markets at the minute as central banks continue to aggressively tighten against the backdrop of a slowing economy and a cost-of-living crisis. There's a lot of pressure on household budgets and it's only going to intensify as the year progresses which will take its toll.

The Bank of England alluded to that last week, with a recession now expected later this year as energy prices surge once more. While the Fed and others may still be more optimistic about their prospects, with a soft landing still the base case in the US, many are sceptical it can be achieved.

Given the record of central banks in correctly anticipating the path of inflation and interest rates over the last 12 months, perhaps investors are right to treat their forecasts with a large dose of scepticism. The inflation data from the US on Wednesday will naturally be heavily scrutinized as a result, with investors looking for signs of pressure easing. We'll need to see a sharp decline in the coming months for concerns to abate.

Comments from policymakers will also naturally be poured over for signs of evolving attitudes within the central banks. Most notably whether there is increased support for 75 basis point hikes from the Fed. We have a plethora of speakers from the Fed today including John Williams, Loretta Mester, Christopher Waller, Neel Kashkari, Raphael Bostic and Thomas Barkin.

Oil slips closer to $100

Oil prices are slightly lower again today and not far from double-digit territory as traders grapple with the prospect of recessions and a tightening of Chinese restrictions. The unwillingness and, more accurately, inability of OPEC+ to turn the taps on more is keeping oil prices very elevated but at a little over $100, it's more comfortable than was looking probable at times over the last couple of months.

The EU struggling to find a coordinated response on Russian oil is possibly helping to alleviate some near-term pressures, although progress with Hungary is reportedly being made. This also comes as some OPEC members warn of dwindling energy capacity as a result of underinvestment, perhaps a sign that we should get used to these higher prices.

Gold struggling as central banks raise their game

Uncertainty and risk aversion in the markets is doing little to support gold at the moment, with the dollar instead being favoured and the yellow metal under heavy pressure. Since coming within a whisker of $2,000 a few weeks ago, gold has fallen more than 7% and looks vulnerable to further losses.

Inflation is still extremely high and economic uncertainty is weighing heavily on risk assets. But central banks are being very aggressive to try and contain price pressures which appears to be getting in the way of gold retaining the gains it made earlier in the year when they were still in denial.

A small recovery

Bitcoin is making small gains after getting hammered on Monday. Much higher interest rates and investors ditching risky assets are creating very uncomfortable conditions for cryptos which haven't had to deal with these circumstances before. How much appetite will there be for instruments like bitcoin if rates keep rising? It's all well and good performing well in a world of seemingly unlimited cheap money but the new reality will be far more challenging. A break of $30,000 could deliver much more pain for bitcoin.

Daily Pivots: (S1) 129.85; (P) 130.60; (R1) 131.08; More...

Intraday bias in USD/JPY remains neutral for the moment. Further is expected as long as 128.61 support holds. Above 131.34 will target 261.8% projection of 109.11 to 116.34 from 114.40 at 133.26. However, firm break of 128.61 will indicate short term topping, and turn bias to the downside for deeper pull back.

In the bigger picture, current rally is seen as part of the long term up trend form 75.56 (2011 low). Sustained trading above 61.8% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 130.04 will pave the way to 100% projection at 149.26, which is close to 147.68 (1998 high). For now, this will remain the favored case as long as 121.27 support holds.

Daily Pivots: (S1) 0.9879; (P) 0.9922; (R1) 0.9983; More....

Intraday bias in USD/CHF remains mildly on the upside for 261.8% projection of 0.9149 to 0.9459 from 0.9193 at 1.0005 next. On the downside, break of 0.9708 support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat.

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. Sustained trading above 100% projection of 0.8756 to 0.9471 from 0.9149 at 0.9864 will pave the way to 161.8% projection at 1.0306, which is close to 1.0342 (2016 high). This will remain the favored case as long as 0.9459 resistance turned support holds.

Daily Pivots: (S1) 1.2259; (P) 1.2333; (R1) 1.2403; More...

GBP/USD is staying in consolidation above 1.2259 temporary low and intraday bias remains neutral at this point. Some consolidations could be seen but upside of recovery should be limited by 1.2637 resistance to bring fall resumption. On the downside, firm break of 161.8% projection of 1.3641 to 1.2999 from 1.3297 at 1.2258 will extend recent down trend to 200% projection at 1.2013 next.

In the bigger picture, based on current momentum, fall from 1.4248 (2018 high) at least at the same degree as the rise form 1.1409 (2020 low). That is, fall from 1.4248 could be a leg inside the pattern from 1.1409, or resuming the longer term down trend. In either case, deeper decline is expected as long as 1.2999 support turned resistance holds. Next target is 1.1409 low.

Daily Pivots: (S1) 1.0506; (P) 1.0549 (R1) 1.0604; More...

Range trading continues in EUR/USD and intraday bias remains neutral. In case of another recovery, upside should be limited by 1.0756 support turned resistance to bring fall resumption. On the downside, firm break of 1.0470 will resume larger down trend to 161.8% projection of 1.1494 to 1.0805 from 1.1184 at 1.0069.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1185 support turned resistance holds. The break of 1.0635 (2020 low) now raises the chance that it's resuming long term down trend from 1.6039 (2008 high). Retest of 1.0339 (2017 low) low should be seen next. Decisive break there will confirm this bearish case.

Risk sentiment stabilizes today with rebound in major European stocks while US futures also point to higher open. Selloff in commodity currencies slow a bit but they remain the worst performers, led by Aussie. Yen, Euro and Dollar are the stronger ones, and they're mixed against each other. Sterling and Swiss Franc are also consolidating against Euro for now. Overall, trader might hold their bets first before tomorrow's US CPI release.

Technically, Bitcoin is stabilizing after breaching 30k handle earlier today. But further decline is still expected with 35224 resistance intact. Current down trend from 68986 is expected to continue to 61.8% projection of 68986 to 33000 from 48226 at 25986. The next fall would likely come with another round of selloff in stocks, which would also be reflected in the FX markets too.

In Europe, at the time of writing, FTSE is up 0.66%. DAX is up 1.49%. CAC is up 0.95%. Germany 10-year yield is down -0.0564 at 1.035. Earlier in Asia, Nikkei dropped -0.58%. Hong Kong HSI dropped -1.84%. China Shanghai SSE rose 1.06%. Singapore Strait Times dropped -1.25%. Japan 10-year JGB yield dropped -0.0032 to 0.251.

Fed Williams: To move expeditiously in bringing rate back to more normal levels this year

In a speech, New York Fed President John Williams said he expects the FOMC to "move expeditiously in bringing the federal funds rate back to more normal levels this year". The ongoing pandemic and Ukraine war "bring a tremendous amount of complexity and uncertainty". Fed will "need to be data dependent and adjust our policy actions as circumstances warrant.".

For 2022, Williams expects core inflation to be nearly 4%, before falling to around 2.50% next year, then further decline to close to 2% long-run goal in 2024. He also expects GDP growth to be around 2% in 2022 while unemployment rate to remain around its current low level.

Germany ZEW rose to -34.3 in May, deterioration still assumed, just slower

Germany ZEW Economic Sentiment improved form -41 to -34.3 in May, above expectation of -42.5. Germany Current Situation index, however, dropped from -30.8 to -36.5, slightly below expectation of -35.0. Eurozone Economic Sentiment rose from -43.0 to -29.5, above expectation of -41.0. Eurozone Current Situation index dropped -6.5 pts to -35.0.

ZEW President Professor Achim Wambach: "The ZEW Indicator of Economic Sentiment increased moderately this month but still remains at a relatively low level. Compared to last month, the outlook for the economic situation in Germany is thus slightly less pessimistic. The experts still assume that it will continue to deteriorate, but at a lower pace than expected before.

"The strong restrictions in China to fight against new Covid-19 infections lead to a strong reduction in the assessment of the current economic situation in China. This is a heavy weight on the future development of the German economy.

With regard to the ECB's monetary policy stance there is a large majority of experts expecting an increase in interest rates during the next six months. Accordingly they expect a decline of inflation rates from their very high current level.

BoJ Kuroda: Retail level CBDC is an option

BoJ Governor Haruhiko Kuroda said in an online seminar that the central bank has not decided on central bank digital currency (CBDC) yet. But he noted it could be an option for securing a seamless and safe infrastructure.

"CBDC is not the only way, so a national discussion is needed as to how to achieve this goal," Kuroda said, adding, "retail level CBDC is an option."

BoJ started the second phase of the CBDC experiments in April. The process will last for around a year.

BoJ Uchida: Important to continue with powerful monetary easing

BoJ Executive Director Shinichi Uchida told the parliament today, "Japan's economy is still in the midst of recovering from the pandemic's impact. It is recently under pressure from rising commodity prices... It's therefore important for the BOJ to continue supporting economic activity with powerful monetary easing." He also said BoJ has no plan to adjust the 50bps band allowed for 10-year JGB yield to fluctuate around 0%.

Separately, Finance Minister Shunichi Suzuki said after a cabinet meeting, "stability is important and rapid moves as seen recently are undesirable," referring to Yen's exchange rate. But he emphasized that any actions would follow the practice agreed with G7 partners.

Also from Japan, overall household spending dropped -2.3% yoy in March, versus expectation of -2.8% yoy.

Australia NAB business confidence dropped to 10 in Apr, conditions rose to 20

Australia NAB business confidence dropped from 16 to 10 in April. Business conditions rose from 15 to 20. Looking at some details, trading conditions rose from 23 to 27. Profitability conditions rose from 12 to 22. Employment conditions were unchanged at 10.

NAB Group Chief Economist Alan Oster said: "Price growth eased somewhat in the April survey after hitting record rates in March, but remained high when looking at the history of the survey, supporting our expectation that inflation will remain elevated in Q2 and likely Q3.

"Still, the strong business conditions including trading conditions and profitability show that the economy is faring quite well and so far, demand is holding up in the face of higher inflation."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0506; (P) 1.0549 (R1) 1.0604; More...

Range trading continues in EUR/USD and intraday bias remains neutral. In case of another recovery, upside should be limited by 1.0756 support turned resistance to bring fall resumption. On the downside, firm break of 1.0470 will resume larger down trend to 161.8% projection of 1.1494 to 1.0805 from 1.1184 at 1.0069.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1185 support turned resistance holds. The break of 1.0635 (2020 low) now raises the chance that it's resuming long term down trend from 1.6039 (2008 high). Retest of 1.0339 (2017 low) low should be seen next. Decisive break there will confirm this bearish case.

Economic Indicators Update

In a speech, New York Fed President John Williams said he expects the FOMC to "move expeditiously in bringing the federal funds rate back to more normal levels this year". The ongoing pandemic and Ukraine war "bring a tremendous amount of complexity and uncertainty". Fed will "need to be  data dependent and adjust our policy actions as circumstances warrant.".

For 2022, Williams expects core inflation to be nearly 4%, before falling to around 2.50% next year, then further decline to close to 2% long-run goal in 2024. He also expects GDP growth to be around 2% in 2022 while unemployment rate to remain around its current low level.

Full speech here.