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Daily Pivots: (S1) 1.3673; (P) 1.3710; (R1) 1.3737; More...

Intraday bias remains neutral first, and further decline is in favor with 1.3749 support turned resistance intact. On the downside, below 1.3633 minor support will bring retest of 1.3538 first. Firm break there will resume larger fall from 1.4791. However, considering bullish convergence condition in 4H MACD, firm break of 1.3749 will indicate short term bottoming, and bring stronger rebound back to 1.4014 resistance.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 resistance holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 at 1.3069.

Daily Pivots: (S1) 0.9360; (P) 0.9390; (R1) 0.9418; More....

Intraday bias in EUR/CHF remains neutral as range trading is still in progress. On the upside, break of 0.9428 will resume the rebound from 0.9218 through 0.9445 resistance. However, break of 0.9291 will bring retest of 0.9218 instead.

In the bigger picture, prior rejection by long-term falling channel resistance (now at 0.9527) retains medium term bearishness. That is, down trend from 1.2004 (2018 high) is still in progress. Firm break of 0.9204 (2024 low) will confirm resumption. This will remain the favored case as long as 0.9660 resistance holds.

Daily Pivots: (S1) 0.8524; (P) 0.8543; (R1) 0.8555; More...

Intraday bias in EUR/GBP is turned neutral with current retreat, and some consolidations could be seen below 0.8563 temporary top first. Further rally will remain in favor as long as 0.8492 support holds. Above 0.8563 will target 61.8% retracement of 0.8737 to 0.8354 at 0.8591. Firm break there will pave the way to 0.8373 resistance.

In the bigger picture, price actions from 0.8221 medium term bottom are merely forming a corrective pattern to the down trend from 0.9267 (2022 high). Nevertheless, there is no clear momentum to break through 0.8201 key support (2022 low) yet. Hence, range trading is expected between 0.8221/8737 for now.

Daily Pivots: (S1) 1.7646; (P) 1.7718; (R1) 1.7813; More...

EUR/AUD is staying in consolidations below 1.7880 and intraday bias remains neutral. Further rally is expected with 1.7459 support intact. Above 1.7880 will target 61.8% retracement of 1.8554 to 1.7245 at 1.8054. Firm break there will pave the way to 1.8554. However, break of 1.7459 will dampen this bullish view and bring deeper decline back to 1.7245 low.

In the bigger picture, with 55 W MACD staying well below signal line, 1.8554 is likely a medium term top already. Price actions from there are seen as a corrective pattern only. While deeper pullback might be seen, downside should be contained by 38.2% retracement of 1.4281 (2022 low) to 1.8554 at 1.6922 to bring rebound. Up trend from 1.4281 is still expected to resume at a later stage.

Daily Pivots: (S1) 194.62; (P) 195.29; (R1) 196.56; More...

Intraday bias in GBP/JPY remains neutral, and further rise is expected as long as 193.75 support holds. Firm break of 196.83 will target 199.79 resistance first. However, sustained break of 139.75 will indicate near term reversal and turn bias to the downside for 191.86 support and possibly below.

In the bigger picture, price actions from 208.09 are seen as a correction to rally from 123.94 (2020 low). Strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. However, sustained break of 175.94 will bring deeper fall even still as a correction.

Markets

Lacking guidance from US markets (closed for Juneteenth) and with hardly any EMU data scheduled for release, the EMU yield curve showed some modest bear steepening (German 2-y unchanged, 30-y +2.8 bps). The Fed decision on Wednesday maybe served as a reminder that overall uncertainty/low visibility is a reason for markets not to front-turn on a softer CB tilt. Basically, that was also the message from the BoE policy decision. The BOE left its policy rate unchanged (4.25%). The BoE acknowledging a softer labour market is supporting the case for the MPC to continue reducing policy restriction a quarterly pace (next step in August). Even so, considering recent bumpy inflation path, the MPC reiterates that policy has to remain restrictive for now and that ‘a gradual and careful approach to the further withdrawal of monetary policy restraint remained appropriate’. UK yields regained a few bps. Money markets trade in line with the BOE reducing the policy rate by a cumulative 50 bps by year end. Sterling regained modest ground against the euro (close 0.854) but the overall picture didn’t change. In technical trading EUR/USD hovered in the upper half of the 1.14 big figure (close 1.1495). The Eurostoxx 50 lost 1.33%, mainly on geopolitical uncertainty.

This morning, the market focus turns again to the war between Israel and Iran and the potential involvement of the US. President Trump indicates that he will decide within two weeks. Asian equity markets show some modest relieve, but in essence, this also suggests that this additional layer of uncertainty might be here to stay for some time to come. With the tariff deadline on July 9 and the US budget approval target near July 4, early July will become very crowded for the US administration to decide on several key topics. In the meantime, markets might still be haunted by ‘back-and-forth noise’ as those deadlines are coming closer. This might also be the case today, with only second tier data on the agenda in Europe and the US. US yields show no clear tend this morning. DXY eases to 98.65. EUR/USD regains the 1.15 barrier (1.152). Recent oil-driven USD outperformance apparently is losing momentum as oil eases slightly this morning on the potential two-week decision period. The price action this week confirms the USD being captured in a sell-on-upticks pattern. Last week’s EUR/USD top (1.1631) remains the first technical reference. At the time of finishing this report, UK May retail sales are reported to have declined much more than expected (-2.7% M/M and -1.3% Y/Y). Sterling feels some renewed headwind with EUR/GBP heading toward 0.8545.

News & Views

Japanese inflation in May slowed from 3.6% to 3.5% on a headline level. But the underlying gauge quickened again and more than expected with the Bank of Japan’s preferred gauge (ex. food) rising to 3.7%. Excluding the two readings in December 2022 and January 2023 that came during the post-pandemic surge, it is the highest print since the early eighties. CPI ex food and energy prices accelerated from 3% to 3.3%. Adding rising services price inflation to 1.4% on solid wage growth means that central bank confidence in inflation sustainably returning to the 2% target will surely strengthen. The BoJ left the policy rate unchanged earlier this week amid lingering (trade) uncertainty but minutes released this morning showed that Tokyo will hike if the economic (and inflation) outlook is met. That appears to be the case for now. We believe Japanese money markets are underestimating the probability of higher policy rates later this year with BoJ officials for the time being purposely being guarded in their communication. A hike in December this year is given only a 50% chance and that barely changed after this morning’s numbers. JPY reacted stoic as a result near USD/JPY 145.3.

In a draft EU statement seen by the Financial Times that’s circulating ahead of an EU leader summit June 26-27, France has lobbied EU countries into pledging additional measures that may raise the euro’s profile as a global reserve currency. The statement asks the bloc’s institutions including the ECB “to explore actions to reinforce the international role of the euro” now that of the dollar appears to be waning. The FT cited people familiar with Paris’ thinking that investors are looking for a safe haven from US Treasury debt and so, for one, the EU should issue more joint debt. IMF’s Georgieva concurred on Thursday, calling it “not by chance” that investors looking for quality safe assets are now parking so much in gold these days. The call to action was reinforced by ECB Lagarde’s “global euro moment” speech end May. ECB chief economist Lane earlier this month said that joint bonds are one way to respond to an “undersupply of safe assets” but also cited a Blanchard paper that proposes replacing a proportion of national European government bonds with Eurobonds.

Daily Pivots: (S1) 166.42; (P) 166.87; (R1) 167.70; More...

EUR/JPY rebounded strongly after drawing support from 55 4H EMA and focus is back on 167.59 resistance. Decisive break there will resume rally from 154.77. Next target is 100% projection of 154.77 to 165.19 from 161.06 at 170.45. For now, near term outlook will stay cautiously bullish as long as 164.91 support holds, even in case of another retreat.

In the bigger picture, price actions from 175.41 are seen as correction to up trend from 114.42 (2020 low). Strong support should be seen from 38.2% retracement of 114.42 to 175.41 at 152.11 to contain downside. However, sustained break of 152.11 will bring deeper fall even still as a correction.

Despite an upside surprise in Japan’s core inflation data, Yen extended its decline across the board today. While CPI ex-food rose 3.7% yoy in May, much of the gain was driven by an outsized 100%+ surge in rice prices, which alone contributed nearly half of the index’s increase. This jump, widely seen as transitory due to supply issues, is expected to ease in the autumn, limiting its significance for monetary policy.

More importantly, the minutes from the BoJ’s May meeting revealed a central bank growing more cautious. One policymaker acknowledged that “the likelihood of realizing the outlook…was not as high as before,” while others emphasized the need to weigh both upside and downside risks amid extreme global uncertainty. With that tone, hopes for another rate hike this year are fading fast.

Adding to the caution is the ongoing threat of US-Japan trade friction. If Tokyo fails to secure exemptions from rising tariffs—especially on autos and steel—the economic drag could deepen into late 2025, further weakening the case for policy tightening. That reinforces a narrative of prolonged BoJ patience, even amid sticky inflation.

On the currency performance board, Yen sits firmly at the bottom for the week, joined by Loonie and Swiss Franc. In contrast, Aussie and Kiwi lead the pack, with the Dollar holding firm—for now—alongside them. Euro and Pound trade in the middle of the spectrum. However, Dollar strength looks increasingly fragile heading into the Friday close.

Technically, Gold's extended retreat suggests that rebound from 3120.34 might have completed at 3451.28 already. Corrective pattern from 3499.79 high could already be in its third leg. On the downside, firm break of 3293.53 support will solidify this case, and target 3120.34 support and possibly below.

In Asia, at the time of writing, Nikkei is up 0.06%. Hong Kong HSI is up 1.03%. China Shanghai SSE is up 0.14%. Singapore Strait Times is down -0.01%. Japan 10-year JGB yield is up 0.001 at 1.413.

UK retail sales plunge -2.7% mom in May, led by sharp drop in food spending

UK retail sales volumes slumped -2.7% mom in May, far worse than expectations of a -0.5% decline, marking the steepest monthly fall since December 2023.

The downturn was driven by a sharp -5.0% mom drop in food store sales, reversing April’s 4.7% mom gain and registering the largest fall in this category since May 2021. Non-food store sales also retreated, down -1.4% mom on the month, as department and household-related purchases weakened amid cautious consumer sentiment.

Despite May’s setback, retail sales volumes rose by 0.8% in the three months to May compared to the prior three-month period ending February.

BoJ minutes reflect extremely high uncertainties, stresses need to judge without preconceptions

BoJ’s May policy meeting minutes reveal a board wary of “extremely high uncertainties” stemming from global trade tensions. While BoJ left its short-term interest rate unchanged at 0.5%, it sharply downgraded its growth and inflation outlooks, largely due to the expected hit on Japan’s economy from higher US tariffs.

Members reiterated that “if the outlook for economic activity and prices was realized,” further rate hikes would still be appropriate, aligning with gradual normalization. However, A key theme was the need to remain flexible and data-dependent, with many members emphasizing the importance of “carefully examining” the evolving outlook before acting.

Many members warned that it was crucial “to judge whether the outlook… would be realized, without any preconceptions.” One policymaker admitted that the probability of the forecast materializing was “not as high as before,” while another stressed that both upward and downward risks must be weighed.

The minutes also captured divergent internal views. One board member said that “while the Bank would enter a phase of pausing,” policy must remain “nimble and more flexible.” Another warned of the risk that simultaneous supply-chain disruptions and inflation spikes would leave Japan in a difficult position, especially given that “inflation expectations were not as anchored as in the United States.”

Japan's CPI core jumps to 3.7% as rice prices more than double

Japan’s core consumer inflation (ex-fresh food) accelerated from 3.5% yoy to 3.7% yoy in May, beating expectations of 3.6% yoy and marking the fastest pace since January 2023. The gain was driven by soaring rice costs, which jumped over 100% amid supply shortages. The core-core inflation measure, excluding both fresh food and energy, also quickened to 3.3% yoy from 3.0% yoy, reflecting broadening price pressures.

While the headline CPI edged down slightly from 3.6% yoy to 3.5% yoy, underlying inflation trends continue to exceed BoJ’s 2% target, where they have remained since April 2022.

Also Service prices rose 1.4% yoy in May, up from 1.3% yoy in April, with dining and travel costs gaining momentum—an important sign for BoJ, which monitors this segment closely as a proxy for wage-driven inflation.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 166.42; (P) 166.87; (R1) 167.70; More...

EUR/JPY rebounded strongly after drawing support from 55 4H EMA and focus is back on 167.59 resistance. Decisive break there will resume rally from 154.77. Next target is 100% projection of 154.77 to 165.19 from 161.06 at 170.45. For now, near term outlook will stay cautiously bullish as long as 164.91 support holds, even in case of another retreat.

In the bigger picture, price actions from 175.41 are seen as correction to up trend from 114.42 (2020 low). Strong support should be seen from 38.2% retracement of 114.42 to 175.41 at 152.11 to contain downside. However, sustained break of 152.11 will bring deeper fall even still as a correction.

The worsening global geopolitical weather keeps investors in a cautious mode, and will likely prevent them from taking too much risk before the weekend. While the news that the US is giving itself two weeks to decide whether to intervene in Iran – which is slightly better than earlier reports suggesting they would go in this weekend – has somehow eased tensions, looming uncertainties pushed US and European equities lower yesterday. I’m not sure the US buying itself time can be interpreted as a sign of de-escalation.

European futures are slightly better bid in Asia, perhaps due to interest in European military and defense stocks, which particularly benefit the German DAX and the British FTSE. Rheinmetall is now replacing Kering – the maker of Gucci bags – in the Stoxx 50 index.

Energy stocks are also closely watched, as US crude consolidates gains near and above $75pb with looming upside risks. We’re starting to hear impressive forecasts – as is always the case in escalation markets, with some pointing to a potential jump in crude prices to the $130–150pb range if Iran were to block oil and gas flows through the Strait of Hormuz, where 20% of global supply transits. Satellite images show Iran is rushing to push its oil to market rapidly. It’s said that their exports surged 44% since last week compared to the past 12-month average – likely to boost revenues and act before any potential strike on its oil facilities.

So what’s happening feels like dark clouds gathering in the sky. And the calm in the market could be the calm before a storm.

As such, risks to oil and gas remain tilted to the upside. Nat gas just hit $4 per MMBTu yesterday and is consolidating gains around this level this morning. Gold is not performing as well as it did during the worsening trade headlines, as some flows have been diverted to the US dollar and US Treasuries. But interestingly, the dollar is also giving back some of its early-week gains, and the Swiss franc continues to amass safe-haven flows despite the Swiss National Bank’s (SNB) decision yesterday to lower rates to 0% in an attempt to weaken the franc and support Swiss exporters, who are hit by a terrible combination of tariffs and a strong currency.

Indeed, Swiss watch exports dropped nearly 10% in May. Exports to the US fell 25% – after surging almost 150% the month before the tariffs hit – and exports to major markets including China, Japan, and the UK also declined. So yes, Swatch Group is not doing well these days. The SMI’s reaction to yesterday’s rate cut was not brilliant either. The index is preparing to test the critical Fibonacci support of the post-April 2nd rebound – which stands near the 11,823 mark and serves as a dividing line between the current positive trend and a medium-term bearish consolidation.

The problem is, if a zero-rate policy couldn’t cheer investors up or weaken the franc, there’s not much else the central bank can do. Having exposure to a domestic real estate ETF is probably a safer choice.

Elsewhere, the Bank of England (BoE) refrained from cutting its policy rate yesterday in a widely expected decision. But the composition of the MPC vote was slightly more dovish than expected, with three members (instead of two) voting to cut rates. The message was extremely balanced. MPC members acknowledged the weakening jobs market, softening price pressures in services, slower growth due to Chancellor Reeve’s heavy budget consequences, and Trump’s erratic trade policies. But they also pointed to potential surges in oil and food prices. Six members thought it best to wait until at least August to determine whether a rate cut is justified. Fair enough. Cable is back to 1.35, the EURGBP is consolidating just below 0.8550, and the FTSE 100 sold off under the weight of rising geopolitical tensions. Still, defense and energy stocks should offer some support to the index amid worsening Middle East tensions.

Overall, the week brought two more rate cuts beyond the SNB to Europe. The Riksbank and Norges Bank also opted to cut rates this week to support their economies amid trade and geopolitical headwinds. Meanwhile, the IMF said in a report published yesterday that risks to European growth have shifted sharply to the downside. They forecast the euro area will grow 0.8% this year, despite European Central Bank (ECB) support and European governments’ efforts to boost spending. The IMF called for a ‘decisive push’ to deepen the single market.

The problem is, European governments are drifting to the political right amid the global geopolitical chaos, making the path forward more complex. Either Europeans realize they are too small individually to stand up to increasingly aggressive major powers and decide to stick together – or they will fall apart. But since things move slowly in Europe, I don’t expect either scenario to materialize anytime soon. So the ECB will likely have to continue doing the heavy lifting.

The EURUSD continues to benefit from dollar weakness. The strong euro helps temper inflationary pressures. As long as the dollar stays weak and inflation remains contained, the ECB will have room to act. Is that a reason to keep buying European stocks? Time will tell.

Before we go, today is Triple Witching Day, when futures and options expire simultaneously, often leading to higher volatility. Repositioning flows could drive sharp market moves in the final hours of the trading week and early next week.

In focus today

The conflict between Israel and Iran has now been raging for seven days. While the US has currently assisted Israel only by shooting down Iranian missiles, US President Trump said yesterday that a potential US involvement would be decided within the next two weeks, amid Germany, Fance and Britian holding first face-to-face talks with Iran in Geneva. Iran could potentially choose to disrupt oil and natural gas markets by blocking shipping through the Strait of Hormuz, which could force the US' hand in the matter.

The main data print of today is the consumer confidence for Denmark and the euro area (preliminary). Consumer confidence has been on a downward trend since October last year, likely dampening consumption. For the euro area, we expect the small rebound in May to have persisted into June. Euro area credit growth data will also be interesting, as we have seen a great increase in credit growth in the previous months, which supports activity.

Economic and market news

What happened overnight

In China, loan prime rates remained unchanged as expected with 1-year at 3.00% and 5-year at 3.50%.

In Japan, inflation data for May overshot expectations with core CPI rising to 3.7% y/y from 3.5% y/y in April (cons. 2.6% y/y), which supports the case for BoJ hiking. While price growth eased for clothing, household items and healthcare, it accelerated for recreation and communications. The price level of electricity and gas remained elevated, while food inflation cooled slightly despite rice prices increasing 101.7%.

What happened yesterday

In Norway, Norges Bank (NB) unanimously cut policy rates by 25bp bringing the deposit rate to 4.25%. The move was highly unanticipated by markets and came as a surprise. NB guided for two additional cuts this year, with one in September and one in December. Verbal guidance stated, "The economic outlook is uncertain, but if the economy evolves broadly as currently projected, the policy rate will be reduced further in the course of 2025".

In Switzerland, the Swiss National Bank (SNB) cut the policy rate by 25bp down to 0%, which was in line with the market and our expectations. The SNB maintained their guidance "The SNB will continue to monitor the situation closely and adjust its monetary policy, if necessary, to ensure that inflation remains within the range consistent with price stability over the medium term.". At the press conference, the SNB pushed back on negative policy rates, stating "We would not take the decision to go negative lightly. We are well aware of all challenges related to negative interest. As a central bank we can never exclude it."

In the UK, the Bank of England (BoE) kept the bank rate unchanged in a 6-3 vote split, with 3 favouring a cut. The BoE also maintained their guidance of "a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate". In the afternoon, Governor Bailey said that rates "remain on a gradual downward path". For our full review see Bank of England Review - Setting the stage for an August cut, 20 June.

In Sweden, 1-year and 5-year Q2 CPIF inflation expectations both declined to the 2.0% y/y level from 2.3% y/y and 2.2% y/y, respectively. Previous figures have shown inflation to remain elevated, and the fall was somewhat anticipated.

Equities: Global equity markets moved lower yesterday, notably without US cash equity trading due to the US holiday. Typically, we see less activity on days when the US is out. In Europe, sector and industry performance showed a clear trend: defensive sectors led, while cyclicals underperformed. Energy was the strongest performer, supported by renewed geopolitical tensions in the Middle East and a steady intraday climb in oil prices. In the Stoxx 600, most defensive industries closed in positive territory, while the cyclicals were down over 1% on the day. While this performance broadly aligns with our current strategy, we are surprised by how calmly markets continue to digest the ongoing combination of geopolitical stress and softening, particularly US macro data. Looking at markets this morning, we are seeing a partial reversal of yesterday; Asian equity markets are broadly higher, led by China, whereas Japanese equities are lagging (inflation in Japan once again marginally to the high side this morning). European equity futures are trading markedly higher, while US futures are lower, catching up to yesterday's move during the US holiday.

FI&FX: Risk sentiment soured through yesterday's session as rumours of an upcoming US attack on Iran added to escalation risks. A rise in inflation prices added upward pressure on EUR rates, where the long end of the curve was most impacted. Peripheral and French spreads widened against Germany with the 10Y Italian spread rising above 100bp. EUR/USD traded near 1.147 for most of the session but converged closer to 1.15 by the end of the session. EUR/CHF gained some light tailwind on the back of the SNB decision yesterday, ending the day around 0.9350. EUR/NOK rose 0.5% to 11.55 following Norges Bank's surprise cut, which also led to a significant drop in NOK rates. EUR/GBP was mostly unaffected by the dovish vote split at yesterday's BoE hold. Overnight, oil prices have shed some of yesterday's gains, while US and European equity futures are trading slightly higher.