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The single currency has been showing a trend of increasingly higher local declines throughout the month. Growth impulses in April and earlier in June hit an invisible soft ceiling approaching 1.15, but this appears to be only a temporary shake-up of positions after an impressive rise and before further growth.

The euro is supported by politicians who are one after another abandoning budgetary constraints in favour of stimulus measures. The stimulus measures are concentrated in the military sector, but this is largely irrelevant to the currency market. The recent decline in energy prices, an important item of industry expenditure, is also positive for the euro.

We also note the sustained support that EURCHF and USDCHF have experienced over the past couple of months, suggesting that the Swiss National Bank is working to curb the franc’s growth, a familiar task for this central bank.

As a result of all these forces, the euro is trading close to 166 against the Japanese yen, near its October highs, adding 7.5% to its February lows. EURUSD is completing a corrective pullback from 1.1570 to 1.1060, which took place in April-May. Technically, breaking through the latest highs will make the next target the 1.24-1.25 area, surpassing the 2020 peaks.

This year’s EURUSD growth has broken the long-term downward trend. However, confirmation will be needed with growth above the previous cyclical high in the 1.25 area before it is justified to talk about a new long-term growth cycle for the euro, like that seen in 2002. Fundamentally, this will require a return to soft monetary policy with a tolerant view of inflation slightly above 2% and a reduction in rates at the first signs of an economic slowdown. This is not Powell’s current approach, but who knows what fate awaits us around the corner?

Markets

The framework deal agreed between the US and China overnight didn’t trigger an outsized market reaction. It is seen as confirming the trade truce reached in Geneva last month. Both countries are trying to create some goodwill, by agreeing to easing restrictions on exports of rare earths (China) or technology (US). Still, scant communication post the meeting also indicates that the heavy lifting of an in depth agreement on trade and tariffs between the two countries still has to be done. Equity indices in Europe and US futures trade little changed to even marginally lower as markets headed into the US CPI release to be published at the start of US dealings. Yields in Europe and the US at that point added 2-4 bps across the curve.

US May inflation printed softer than expected at 0.1% M/M and 2.4%Y/Y (from 2.3%) for the headline and 0.1% M/M and 2.8% Y/Y (unch.) for the core measure. Energy prices declined 1.0% M/M. Services increased a mild 0.2% M/M (3.7% Y/Y). Goods prices excluding food and energy were unchanged M/M suggesting that, for now, there is only limited pass-through of (potentially) higher tariffs. Evidently, importers still are in some kind of interim period with the final impact of tariffs still highly uncertain. This uncertainty also applies to the Fed assessment, with the US central bank for now not committing to further easing as long as activity and the labour market are holding up well. Even so, the CPI report triggered a bull steepening of the US curve with yields easing between 6 bps (2-y) and 1 bp (30-y). Markets now are again discounting 50 bps of cumulative Fed rate cuts by EoY. German yields are off the intraday top levels on spill-overs from the US and are trade between unchanged (2-y) and +3.0 bps (30-y). The ECB wage tracker ‘predicts’ wage growth in Q4 to slow to 1.7% Y/Y (1.6% in April and compares to 5.4% Y/Y in Q4 2024). Average growth for 2025 is seen at 3.1%. The market reaction to the report was limited. After some consolidation over the previous days, the loss of interest rate support again pressures the dollar. EUR/USD (1.146 area) is closing in on last week’s top (1.1495) with the YTD top (1.1573) looming on the horizon. UK Chancellor of the Exchequer Reeves proposing new spending plans focused on health care, housing and defense (but at the same time testing the limits of fiscal credibility) don’t help sterling. EUR/GBP extends yesterday’s rebound to trade near 0.848.

News & Views

Hungarian inflation unexpectedly rose by 0.2% m/m to be up 4.4% Y/Y in MAY. Core inflation eased to 5% from 4.8% y/y but remains above the central bank’s 3% +/- 1 ppt target. Food prices (included those of processed food) accelerated again despite the profit margin caps the government introduced earlier this year and recently extended through September (and probably all the way through next year’s spring parliamentary elections). Tradeable goods prices rose faster in yearly terms as well but the disinflation in market services continued. The latter could be related to government pressure. Other major moves included a 2.2% increase in gas prices compensating a 1.9% drop in oil. Base effects could push headline inflation lower through July before fluctuating in a 3.7-4.2% range for the remainder of 2025H2, according to KBC Economics. Risks stay tilted to the upside (wages, fiscal loosening, rising domestic demand). A central bank rate cut (if any) from the 6.5% currently remains a distant prospect in these circumstances, especially since it risks pressuring the Hungarian forint again. The HUF recently performed strong though, with EUR/HUF after today’s CPI data testing the 400 barrier for the first time since Liberation Day.

The ECB in its annual review of the international role of the euro found that the share of the common currency in global official foreign exchange reserves remained broadly stable at constant exchange rates, hovering at around 20%. The share of the US dollar declined by 2.0 pts to 57.8%. The ECB said that “these developments align with long-term trends that started in the last decade”. By the end of 2024 the share of currencies other than the USD and the euro had risen to 22.4%, driven by strong gains in non-traditional reserve currencies, including the Loonie and Aussie dollar. The share of gold in total official foreign reserves – comprising foreign exchange and gold holdings – increased to 20% at the end of 2024, surpassing that of euro (16%), on the back of historically high gold prices (around 30% higher in nominal terms) and big purchases, the review noted. The ECB found that central bank increased their gold stock by more than 1000 tonnes of gold last year, which is double the level seen in the previous decade. Central banks worldwide now hold almost as much gold as they did in 1965 during the Bretton Woods era.

US Consumer Prices came in notably weaker than expected.

Specifically, Core CPI, which was anticipated at +0.3% month-over-month, registered +0.1% month-over-month, bringing the year-over-year figure to 2.8%.

Headline CPI also showed a softer reading, at 0.1% m/m against a 0.2% expectation.

Markets had remained subdued at the beginning of the week in anticipation of this data, which provides further clarity on the Federal Reserve's dual mandate. As a reminder, last week's Non-Farm Payrolls report surprisingly beat expectations, coming in at 139K versus a 130K consensus.

The market has reacted positively to this news. A strong employment backdrop coupled with easing price pressures presents an ideal scenario for the economy and significantly alleviates concerns about stagflation.

Expect upcoming months' CPI reports to create similar reactions in terms of volatility!

June CPI Data, June 11, 2025 – Source: MarketPulse Economic Calendar

Market Reactions on the charts

Looking at the reactions from the charts, it seems like the market would have been less surprised by a beat than a miss – These asymmetrical expectations create quite volatile movements, there will be a lot of movement today.

Nasdaq Breaks 22,000

Nasdaq 15m Chart, June 11, 2025 – Source: TradingView

Gold and US Bonds rally

This piece of news allows the pricing of more cuts, great news for both bonds and gold

Gold 15m Chart, June 11, 2025 – Source: TradingView

US 10Y Bond 15m Chart, June 11, 2025 – Source: TradingView

The US Dollar Takes a hit on lower inflation, More cuts get priced

Dollar Index 15m Chart, June 11, 2025 – Source: TradingView

The piece of data largely invalidates the Inverse Head & Shoulders that was building as more cuts get priced in.

I still don't expect the FED to cut on June 18th and expect board members to say that they welcome the news but are waiting for the release of more data – In the meantime, markets are still euphoric all-around.

Commodities and Cryptos are also rallying with WTI up 2% on the session.

Safe Trades!

The Consumer Price Index (CPI) rose 0.1% in May, a tick below the consensus forecast in Bloomberg and modest deceleration from April's gain of 0.2% m/m. On a twelve-month basis, CPI was up 2.4% (from 2.3% in April).

• Energy costs (-1.0% m/m) were lower on the month and helped to partially offset the uptick in food prices (0.3% m/m).

Excluding food and energy, core inflation rose a subdued 0.1% m/m, marking a deceleration from April's gain of 0.2% m/m. The twelve-month change held steady at 2.8% for the third consecutive month, while the three-month annualized fell to a ten-month low of 1.7%.

Services prices rose a 'soft' 0.2% m/m (0.17% m/m unrounded), as primary shelter costs slowed (to 0.3% m/m from 0.4% m/m in April), while price growth for non-housing services (0.1% m/m) came in on the softer side.

• Travel costs (-0.9% m/m) were down for the fourth consecutive month, as both hotels and airfares were lower. Price growth for recreational services (-0.1% m/m) also registered a decline.

Core goods inflation was flat on the month, but after excluding new (-0.3% m/m) and used (-0.5% m/m) vehicle prices, goods prices were up 0.2% m/m – matching last month's gain.

Key Implications

On the surface, price pressures remained subdued in May. But looking under the hood, there's already some evidence to suggest that tariff passthrough is underway. We expect prices pressures for consumer goods to heat up over the coming months, as businesses drawdown on existing inventory stockpiles and higher input costs start to squeeze profit margins. The push higher on goods prices is likely to eclipse the cooling in services inflation that is currently underway, leading to a turn higher in core inflation measures.

From the Fed's standpoint, this morning's release does little to alter their near-term decision making. Policymakers remain in a holding pattern until they gain more certainty on how the administration's trade and fiscal policies will impact both the real economy and inflation trajectory. With the labor market still healthy and near-term inflation likely to drift higher, the prospect of a summer rate cut has faded. Post release, Fed futures are pricing just 20bps of policy easing by September.

Daily Pivots: (S1) 1.1383; (P) 1.1415; (R1) 1.1458; More...

EUR/USD bounced in early US session but stays below 1.1494 resistance. Intraday bias remains neutral first. Price actions from 1.1572 are seen as a corrective pattern to rally from 1.0716. While rebound from 1.1064 might extend, strong resistance should emerge from 1.1572 to limit upside. On the downside, break of 1.1356 support will argue that the correction is already in the third leg, and target 1.1209 support for confirmation.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0894) holds.

Daily Pivots: (S1) 1.3444; (P) 1.3510; (R1) 1.3563; More...

Range trading continues in GBP/USD and intraday bias stays neutral. With 1.3414 support intact, further rally remains in favor. On the upside, break of 1.3615 will resume the rally from 1.2099 and target 100% projection of 1.2099 to 1.3206 from 1.3138 at 1.3813. Considering bearish divergence condition in 4H MACD, break of 1.3414 support should confirm short term topping, and bring deeper correction to 1.3138 support instead.

In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.2913) holds, even in case of deep pullback.

Daily Pivots: (S1) 0.8197; (P) 0.8213; (R1) 0.8234; More….

USD/CHF Is still bounded in range above 0.8156 and intraday bias stays neutral. Price actions from 0.8038 are seen as a corrective pattern to decline from 0.9200. While fall from 0.8475 might extend lower, downside should be contained by 0.8038 to bring rebound. Break of 0.8436 resistance will suggest that it's already in the third leg of the correction, and target 0.8475.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8696) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.

Daily Pivots: (S1) 144.44; (P) 144.86; (R1) 145.33; More...

USD/JPY dips mildly today but stays in established range. Intraday bias stays neutral. On the upside, above 146.27 resistance will argue that price actions from 148.64 has completed as a corrective pattern. Intraday bias will be back on the upside for 148.64 resistance and above to resume the rebound from 139.87 low. However, firm break of 142.10 will bring retest of 139.87 instead.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Dollar fell broadly following weaker-than-expected US inflation report for May, reinforcing the narrative that consumer prices have not yet felt the full brunt of tariff pressures. The data offered some relief that the feared pass-through from tariffs to end consumers hasn’t materialized, at least not yet.

However, it wasn’t enough to shift expectations for the June and July Fed meetings, where markets still overwhelmingly anticipate the central bank to hold steady. What did shift slightly was the probability of a September rate cut. According to fed funds futures, the odds of a cut in Q3 have now climbed above 55%. Nonetheless, the Fed is unlikely to act preemptively without more confirmation.

On trade, President Trump declared this week’s talks with China a success, albeit with no rollback of existing tariffs. While the 55% tariff rate remains in place, Trump noted that China has committed to supplying key items such as magnets and rare earths “up front,” with the US reciprocating on non-economic terms like student access.

In the broader FX market, Dollar is now the weakest performer for the week, followed by Sterling and Yen. The Pound remains weighed down by soft UK labor market data. On the other hand, Euro is gaining the upper hand, while commodity Aussie and Kiwi are benefiting from improved risk sentiment. Swiss Franc and Loonie sit in the middle.

In Europe, at the time of writing, FTSE is up 0.22%. DAX is up 0.41%. CAC is up 0.10%. UK 10-year yield is up 0.008 at 4.552. Germany 10-year yield is down -0.006 at 2.521. Earlier in Asia, Nikkei rose 0.55%. Hong Kong HSI rose 0.84%. China Shanghai SSE rose 0.52%. Singapore Strait Times fell -0.37%. Japan 10-year JGB yield fell -0.019 to 1.461.

US CPI ticks up to 2.4%, core unchanged at 2.8%, undershoot expectations

US consumer inflation data for May came in softer than expected, offering some relief to markets concerned about price pressures from tariffs and broader cost pass-throughs.

Headline CPI rose just 0.1% mom, below consensus of 0.2% mom. Core CPI, which excludes food and energy, also surprised to the downside with a 0.1% mom rise against an expected 0.3% mom. The gains in overall prices were primarily driven by shelter (0.3% mom) and food (0.3% mom), while energy posted a -1.0% monthly drop.

On an annual basis, headline CPI rose slightly from 2.3% yoy to 2.4% yoy, still undershooting the forecasted 2.5% yoy. Core CPI held steady at 2.8% yoy, also missing expectations of 2.9% yoy.

ECB’s Lane: Last week's rate cut aimed at anchoring expectations, avoiding prolonged undershoot

ECB Chief Economist Philip Lane emphasized that last week’s rate cut was a strategic step to ensure inflation remains on track toward the 2% target over the medium term. He argued that, without this move, the "projected negative inflation deviation" over the next 18 months could have risked becoming entrenched.

In a speech today, Lane also stressed the importance of clarity in ECB’s reaction function. By cutting the deposit facility rate to 2.00%, the central bank signaled that "we are determined to make sure that inflation returns to target in the medium term". This helps "underpin inflation expectations and avoid an unwarranted tightening in financial conditions."

On the other hand, holding the rate at 2.25% could have sent the wrong signal, Lane warned, potentially triggering a market repricing that would reinforce a "more pronounced and longer-lasting undershoot of the inflation target."

ECB’s Kazaks: Further fine-tuning cuts likely

Latvian ECB Governing Council member Martins Kazaks signaled openness to further interest rate cuts, suggesting that while ECB has already delivered significant easing, "fine-tuning" adjustments could be needed depending on how the economy evolves.

He noted that current market pricing for one more cut is “not out of the realm of the baseline,” but stressed that any additional moves must be carefully calibrated to keep inflation anchored near the 2% target.

Kazaks warned against complacency, highlighting risks of a persistent inflation undershoot. While not yet leaning toward accommodative territory, he emphasized the importance of vigilance, particularly amid the uncertain impact of global trade tensions. So far, deflationary effects seem to dominate, but the final outcome remains highly uncertain and must be watched closely.

Japan’s CGPI cools to 3.2% in May, but food inflation continue to rise

Japan’s corporate goods price index slowed more than expected in May, easing from 4.1% to 3.2% yoy, versus the anticipated 3.5% yoy. The decline reflects the broader disinflationary trend in upstream prices, aided by the recent rebound in Yen. Yen-based import price index plunged -10.3% yoy, a sharper drop than April’s -7.3% yoy.

Falling raw material costs were evident across sectors, with steel prices down -4.8% yoy, chemicals -3.1% yoy, and non-ferrous metals -2.1% yoy

However, consumer-related categories showed more persistence in inflation. Prices of food and beverages accelerated to 4.2% yoy from April’s 4.0% yoy, suggesting that inflationary stickiness in essential goods remains a challenge despite broader producer-side cooling.

AUD/USD Mid-Day Report

Daily Pivots: (S1) 0.6497; (P) 0.6515; (R1) 0.6540; More...

Intraday bias in AUD/USD is mildly on the upside with breach of 0.6536 resistance. Rise from 0.5913 could be resuming for 61.8% retracement of 0.6941 to 0.5913 at 0.6548. However, considering bearish divergence condition in 4H MACD, break of 0.6478 support will turn bias back to the downside for 55 D EMA (now at 0.6410) and possibly below.

In the bigger picture, AUD/USD is still struggling to sustain above 55 W EMA (now at 0.6443) cleanly, and outlook is mixed. Sustained trading above 55 W EMA will indicate that rise from 0.5913 is at least correcting the down trend from 0.8006 (2021 high), with risk of trend reversal. Further rise should be seen to 38.2% retracement of 0.8006 to 0.5913 at 0.6713. However, rejection by 55 W EMA will revive medium term bearishness for another fall through 0.5913 at a later stage.

Daily Pivots: (S1) 0.6497; (P) 0.6515; (R1) 0.6540; More...

Intraday bias in AUD/USD is mildly on the upside with breach of 0.6536 resistance. Rise from 0.5913 could be resuming for 61.8% retracement of 0.6941 to 0.5913 at 0.6548. However, considering bearish divergence condition in 4H MACD, break of 0.6478 support will turn bias back to the downside for 55 D EMA (now at 0.6410) and possibly below.

In the bigger picture, AUD/USD is still struggling to sustain above 55 W EMA (now at 0.6443) cleanly, and outlook is mixed. Sustained trading above 55 W EMA will indicate that rise from 0.5913 is at least correcting the down trend from 0.8006 (2021 high), with risk of trend reversal. Further rise should be seen to 38.2% retracement of 0.8006 to 0.5913 at 0.6713. However, rejection by 55 W EMA will revive medium term bearishness for another fall through 0.5913 at a later stage.