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Dow is trading at the highest in nearly six weeks at the start of the US session on Monday, after it opened with a gap-higher in Asia and advanced around 1.3% since then.

The latest trade deal between US and China provided strong relief to the markets and boosted risk sentiment, after highly volatile conditions in past few weeks, driven by fears of global trade war and all negative consequences it may cause.

The sentiment started to improve after the US made agreements with a number of countries, including Japan, South Korea, India and United Kingdom) with deal with the biggest trading partner and the second largest world economy – China, boosting prospects for stronger economic growth.

The Dow Jones entered the fourth consecutive week of gains and emerged above weekly cloud top (42096), with the action on daily chart testing converged 100/200DMA’s (42356).

Bulls may show hesitation at this point as fading bullish momentum indicates, though strong positive sentiment is expected to keep bulls firmly in play, with shallow dips rather to mark positioning for fresh push higher than to signal correction.

Broken Fibo 61.8% of 45024/36496 (41797) and session low (41600) offer good supports where dips should find firm ground, guarding supports at 41257 (55DMA) and 41141 (10DMA).

Res: 42356; 42570; 42834; 43050
Sup: 41960; 41600; 41257; 41141

USDJPY: ⬆️ Buy

• USDJPY broke the resistance area
•  Likely to rise to resistance level 150.00

USDJPY currency pair continues to rise strongly inside the c-wave, which recently broke the resistance area between the resistance level 146.00 (top of the previous wave a), 50% Fibonacci correction of the downward impulse from March and the resistance trendline of the daily down channel from January.

The breakout of this resistance area accelerated the minor c-wave of the active ABC correction (2) from the end of April.

USDJPY currency pair can be expected to rise to the next resistance level 150.00 (target price for the completion of the active c-wave).

USDCHF: ⬆️ Buy

• USDCHF broke resistance area
•  Likely to rise to resistance levels 0.8500 and 0.8600

USDCHF currency pair recently broke the resistance area between the resistance level 0.8325 (which stopped the previous waves A and (b)) and the 38.2% Fibonacci correction of the downward impulse 5 from April.

The breakout of this resistance area accelerated the C-wave of the active ABC correction (2) from the middle of last month.

Given the strongly bullish US dollar sentiment seen today, USDCHF currency pair can be expected to rise to the next resistance levels 0.8500 and 0.8600.

Dow Jones: ⬆️ Buy

• Dow Jones broke the resistance area
• Likely to rise to resistance level 43000.00

Dow Jones index recently broke the resistance area between the resistance level 42000.00, 61.8% Fibonacci correction of the downward impulse from February and the resistance trendline from the same month.

The breakout of this resistance area accelerated the C-wave of the active ABC correction (2) from the start of April.

Dow Jones index can be expected to rise to the next resistance level 43000.00 (former top of wave 4 from March).

S&P 500 index: ⬆️ Buy

• S&P 500 index broke resistance area
• Likely to rise to resistance level 5930.00

S&P 500 index recently broke the resistance area between the resistance levels 5800.00 (top of wave 4 from March), 5700.00 (which stopped wave 1 at the start of May) and the 61.8% Fibonacci correction of the downward impulse from February.

The breakout of this resistance area is aligned with the short-term impulse wave 3 of the intermediate impulse wave (3) from April.

S&P 500 index can be expected to rise to the next resistance level 5930.00, former support from January and February.

Markets

Markets are flying high following the “substantial progress” made during the first high-level US-Sino trade talks over the weekend. US Treasury Secretary Bessent, one of the attendees, shortly before the European open briefed what this meant in practice: a sharp reduction on both sides in import tariffs for 90 days. The US cut tariffs on Chinese goods from 145% to 30%. This level consists of the 10% base rate currently in place for all other countries and the 20% levy related to the separate issue of fentanyl. China in return lowered the rate to 10% from 125%. Risky assets shifted into an even higher gear after seeing the details, not least because US President Trump ahead of the talks suggested a much higher 80% tariff “seems right”. Bessent in an interview with Bloomberg a couple of hours later added a few more details to it. He said the 10% is a floor and it’s “implausible” the US would go below that level. The 34% announced on Liberation Day in turn is a ceiling. Adding the 20% fentanyl levy, which Bessent said could also be lowered if China takes action, brings that to a max tariff of 54%. Stock markets are on a tear, surging 1.7% in Europe and opening almost 4% higher in the US (Nasdaq). Pharmaceuticals do weigh on the performance with the sector underperforming on Trump’s aim to slash US drug prices. Core bond yields shoot up dramatically with curves bear flattening. Yields in the US rise between 5.2 (30-yr) and 11.1 bps (2-yr). And that’s only the beginning if Bessent’s “victory is a three-legged stool” view for year’s end comes true when the three parts of the US administration’s programme will be kicking in: a settlement to (most of) the trade disputes, having the tax bill done and deregulation across all industries. German rates add 5.4 bps to 13.6 bps in a similar shift. The 10-yr yield (2.64%) is returning to the gap opening levels (2.65%) in the wake Merz’ defense spending announcement early March. Bunds underperform vs. swap as well as European countries, pushing spreads lower both in semi-core and peripheral member states. It reflects a reversal of haven flows and possibly hopes for a similar quick breakthrough in US-European trade talks. It would reduce uncertainty materially and help avoid a sharp growth slowdown. Combined with the now-reduced disinflationary risk of cheap redirected Chinese goods flooding the European market, investors pare ECB rate cut bets materially. Money markets now assume the rate to be closer around 1.75% by year’s end than the 1.5% last Friday. This repositioning has some more room to go. The US dollar is the star performer in currency markets. EUR/USD at some point fell below 1.11 before paring losses to 1.112 currently, down from 1.1244 at the open. After losing the 1.1235 support, 1.1026 is the next reference to look at. USD/JPY surges to 148, the highest since the April 2 mayhem. The trade-weighted DXY came close to but never really tested 102. Other typical risk-on beneficiaries include the AUD and NZD as well as the Scandinavian currencies. The Swiss franc slips to EUR/CHF 0.937.

News & Views

According to a survey of published by the German Ifo Institute, companies in the German Industry are assessing that they are drastically losing competitiveness. 24% of companies rated their competitiveness compared to countries outside the EU as low. Competition within the EU is also becoming tougher, according to 21%. Hardly any company saw its position improve against global competition. “We have never seen a slump like this in international competition in such a short space of time” Klaus Wohlrabe, Head of Surveys at Ifo was quoted. The automotive industry, which has been losing ground for around two years, is particularly hard hit. The situation also remains tense in the metal and chemical industries. Beverage manufacturers are comparatively stable – their position in international competition has hardly changed recently. Ifo in this respect urges the new government to take decisive action to prevent the German industry from even further falling behind in international competition.

The unemployment rate in the Czech Republic in April remained stable at 4.3%. While still historically low, it compares to a level of 3.7% in April last year. The number of people looking for a job declined by 3.6k to 318.5 k. The number of vacancies rose by 4k to 95.8 k. The tight labour market and above average wage growth are mentioned as a factor of importance in the monetary policy assessment of the Czech central bank (CNB) as it is seen as contributing to services inflation. The CNB last week cut its policy rate by 25 bps to 3.5%, but indicated that any such easing steps have to be cautious and that monetary policy will remain tight with distinctively positive rates.

The Japanese yen has started the week with sharp losses. USD/JPY is trading at 148.18, up 1.9% on the day. Earlier, the yen strengthened to 148.59, its strongest level since April 3.

US and China agree to temporary cut in tariffs

The US and China have reached an agreement to slash tariffs on each other's products for 90 days. This would be a major de-escalation in the bruising tariff war between the world's two largest economies. Under the agreement, the US and China will slash tariffs by 115%, leaving US tariffs on China at 30% and China's tariffs on the US at 10%.

The tariff agreement has boosted risk appetite, sending global stock markets higher. The deal has weighed on safe-haven assets like the yen, which is sharply lower on Monday. Gold, another safe-haven, has plunged 3.1% today.

Japan's household spending, wages decelerate

In Japan, household spending and wage growth were down in March. Household spending decelerated to 0.4% m/m, down sharply from 3.5% in February. Average Cash Earnings declined to 2.1% y/y, down from a downwardly revised 2.7% a month earlier. There was more bad news as service-sentiment for April eased, reflecting concern over US tariffs.

These numbers support the case for the Bank of Japan to continue its wait-and-see stance before raising interest rates. The BoJ wants to see inflation remain sustainable at 2%, which will require higher wage growth and stronger consumer spending.

Fed members support Powell's wait-and-see stance

Over the weekend, a host of Fed members made public statements. New York Fed President John Williams and Fed Governor Adriana Kugler both noted that current rate policy was in an appropriate place and suggested patience was needed. This message echoed Fed Chair Powell's remarks at last week's FOMC meeting, when he said the Fed would take a wait-and-see attitude due to the uncertainty over US tariffs.

Daily Pivots: (S1) 1.1200; (P) 1.1246; (R1) 1.1296; More...

Intraday bias in EUR/USD's remains mildly on the downside for 55 D EMA (now at 1.1053) and possibly below. But downside should be contained by 38.2% retracement of 1.0176 to 1.1572 at 1.1039 to bring rebound. On the upside, break of 1.1380 will suggest that the correction from 1.1572 short term top has completed, and bring retest of 1.1572.

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 1.0789) holds.

Daily Pivots: (S1) 1.3236; (P) 1.3279; (R1) 1.3347; More...

GBP/USD's fall from 1.3442 short term top resumed after brief recovery and intraday bias is back on the downside. Deeper fall should be seen to 55 D EMA (now at 1.3063) and below. But downside should be contained by 38.2% retracement of 1.2099 to 1.3442 at 1.2929 to bring rebound. On the upside, above 1.3321 minor resistance will turn intraday bias neutral first.

In the bigger picture, price actions from 1.3433 are seen as a corrective pattern to the up trend from 1.3051 (2022 low). Rise from 1.2099 could either be resuming the up trend, or the second leg of a consolidation pattern. Overall, GBP/USD should target 1.4248 key resistance (2021 high) on decisive break of 1.3433 at a later stage.