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Markets

Friday’s nasty market sell-off dragged into yesterday’s Asian and European trading as traders hit the panic button in the run-up to tomorrow’s tariff announcement by US president Trump. It’s planned as a Rose Garden event at the White House at 3 pm Washington time (9pm CET), but we wouldn’t be surprised to see headlines arriving earlier via the POTUS’ social media platforms. Trump yesterday said that he settled on a plan. Whether it will be the long-flagged reciprocal tariffs or a final U-turn towards a 20% global tariff thus remains unclear. Yesterday’s sell-off gradually slowed as US dealings got under way with even some rebound action into the close. The tech-heavy Nasdaq index was 2.7% weaker at its worst intraday moment, to eventually close the session virtually unchanged compared with Friday’s closing levels. The S&P 500 (+0.55%) and Dow Jones (+1%) even ended with gains. European equity futures this morning also suggest a somewhat firmer start after suffering 1%+ losses for the third time in four trading sessions yesterday. US Treasuries faded somewhat into the close, but the return action was less outspoken than in equities. Daily changes on the US yield curve varied between -2.8 bps and -5.7 bps with the curve bull flattening. German Bunds underperformed with curve moves between +2.7 bps (2-yr) and -1.1 bp (30-yr). The German 10-yr yield technically tested 2.65% support. The front end suffered a setback after Bloomberg published an article suggesting that more ECB officials appear ready to accept an April rate pause. EUR/USD at the same time moved back from the 1.08 area to a close near 1.0820. “Dovish officials still see the need for further loosening, but may not insist on a seventh reduction since June if their more hawkish colleagues want additional time to assess the data, the people said. They stressed, however, that the meeting is two and a half weeks away and the thinking may yet shift.” We hold firmly to our view of a final 25 bps (to 2.25%) tactical rate cut before sticking to a long pause. EMU money market rates remain to aggressive in our view, discounting sub-2% ECB policy rate by the end of the year. April EMU CPI numbers, up for release today, aren’t expected to alter that view in light of already published national figures. Consensus expect headline inflation to pick-up to 0.6% M/M with the annual reading dipping from 2.3% to 2.2%. Core inflation is set to slow from 2.6% to 2.5%. The US eco calendar contains February JOLTS job openings (7.65mn expected from 7.74mn) and the March manufacturing ISM (49.5 from 50.3). The probability is low that they’ll directionally steer markets ahead of the big event risk dubbed “Liberation Day”.

News & Views

The Reserve Bank of Australia (RBA) left its policy rate unchanged at 4.1% after an inaugural rate cut in February. At the press conference, Governor Bullock indicated that the decision was a consensus one and that the RBA didn’t explicitly discuss a rate cut. In its policy statement the central bank signaled a cautious approach. Recent information suggests that underlying inflation continues to ease, but that the board needs to be confident that inflation will return to the midpoint of the 2-3% target range on a sustainable basis. Private domestic demand is recovering, but some business continue reporting weakness. The labour market remains tight and productivity hasn’t picked up resulting in ongoing high labour costs. International uncertainty remains elevated and might impact inflation in either direction. The Bank concludes that monetary policy remains restrictive, but governor Bullock indicated that it wasn’t as restrictive as has been the case at others. In this respect, the RBA hasn’t made up its mind on a May rate cut. Even so, the market sees slightly less than 70% chance of a May rate cut. The Aussie dollar underperformed yesterday on overall risk-off, but regains slightly ground this morning (AUD/USD 0.6261).

The BoJ this morning published its quarterly Tankan business outlook. The headline large manufacturing conditions index eased to 12 from 14, but this remains a decent level. The outlook in the sector eased only modestly to 12 from 13. The large non-manufacturing index improved from 33 to 35 (outlook 28 unchanged). Big firms expect capex to increase 3.1% this FY, marginally softer than expected. Firms still also expect inflation to rise to 2.5% in the year ahead and still to stay at 2.3% in five years (both higher compared to previous report). This suggests that inflation expectations are anchored near the BOJ target and should support a further normalization of monetary policy. USD/JPY trades little changed near 150 this morning.

Daily Pivots: (S1) 192.96; (P) 193.49; (R1) 194.24; More...

No change in GBP/JPY's outlook and intraday bias stays neutral. On the upside, break of 195.95 will extend the rally from 187.04 once again, to 198.94 resistance. However, firm break of 192.00 support will turn bias back to the downside for deeper fall. Overall, corrective pattern from 180.00 is still extending.

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 152.11 will bring deeper fall even still as a correction.

Daily Pivots: (S1) 161.30; (P) 161.90; (R1) 162.74; More...

Range trading continues in EUR/JPY and intraday bias stays neutral. Further rise is in favor as long as 160.73 support holds. Above 164.16 will resume the rally from 154.77 to 164.89 resistance, and then 166.67. However, break of 160.73 will turn bias back to the downside for 158.87 support and below. Overall, sideway consolidation pattern from 154.40 is still extending.

In the bigger picture, price actions from 175.41 are seen as correction to rally 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.

Daily Pivots: (S1) 0.8356; (P) 0.8367; (R1) 0.8385; More...

Intraday bias in EUR/GBP stays neutral at this point. On the downside, below 08314 will bring deeper fall back to 0.8239 support. However, firm break of 0.8373 minor resistance will argue that fall from 0.8448 is merely a correction and has completed. Retest of 0.8448 should be seen next.

In the bigger picture, EUR/GBP is still bounded inside medium term falling channel. While rebound from 0.8221 might extend higher, it could still develop into a corrective pattern. Overall outlook will be neutral at best and down trend from 0.9267 (2022 high) could extend, at least until decisive break of channel resistance (now at 0.8495).

Daily Pivots: (S1) 1.7223; (P) 1.7295; (R1) 1.7385; More...

Intraday bias in EUR/AUD remains on the upside for retesting 1.7417 high. Firm break there will resume larger up trend, and target 61.8% projection of 1.6355 to 1.7417 from 1.7047 at 1.7703. For now, risk will stay on the upside as long as 1.7047 support holds, in case of retreat.

In the bigger picture, up trend from 1.4281 (2022 low) is resuming and should target 61.8% projection of 1.4281 to 1.7062 from 1.5963 at 1.7682, which is also close to 61.8% retracement of 1.9799 (2020 high) to 1.4281 at 1.7691. For now, this will remain the favored case as long as 1.6800 resistance turned support holds, even in case of deep pullback.

Daily Pivots: (S1) 0.9511; (P) 0.9531; (R1) 0.9558; More....

Intraday bias in EUR/CHF stays neutral for the moment. Strong support is still expected from 0.9486 to complete the correction from 0.9660. On the upside, above 0.9581 minor resistance will bring retest of 0.9660 high. Firm break there will resume whole rise from 0.9204. However, sustained break of 0.9489 will dampen this view, and bring deeper fall back to 0.9331 support next.

In the bigger picture, prior strong break of 55 W EMA (now at 0.9491) is a medium term bullish sign. Sustained break trading above long-term falling channel resistance (at around 0.9610) would suggest that the downtrend from 1.2004 (2018 high) has bottomed at 0.9204. Stronger rally should then be seen to 0.9928 key resistance at least.

Daily Pivots: (S1) 1.0783; (P) 1.0816; (R1) 1.0848; More...

Intraday bias in EUR/USD remains neutral and outlook is unchanged. On the upside, break of 1.0857 resistance will indicate that correction from 1.0963 has completed already. Retest of 1.0953 should be seen first. Firm break there will resume the rally from 1.0176 towards 1.1274 key resistance. In any case, outlook will remain bullish as long as 38.2% retracement of 1.0358 to 1.0953 at 1.0726 holds.

In the bigger picture, prior strong break of 55 W EMA (now at 1.0692) suggests that fall from 1.1274 (2024 high) has completed as a three wave correction to 1.0176. Rise from 0.9534 is still intact, and might be ready to resume. Decisive break of 1.1274 will target 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. Also, that will send EUR/USD through a multi-decade channel resistance will carries larger bullish implication. This will now be the favored case as long as 1.0531 resistance turned support holds.

Daily Pivots: (S1) 1.2879; (P) 1.2925; (R1) 1.2964; More...

Intraday bias in GBP/USD remains neutral as consolidations continue below 1.3013. On the downside, below 1.2869 will bring deeper correction. But downside should be contained above 38.2% retracement of 1.2248 to 1.3013 at 1.2721. On the upside, break of 1.3013 will resume the rally from 1.2099 towards 1.3433 high.

In the bigger picture, up trend from 1.3051 (2022 low) is not completed. Resumption is expected after corrective pattern from 1.3433 completes. Next target will be 1.4248 key resistance (2021 high). This will now remain the favored case as long as 1.2099 support holds.

Daily Pivots: (S1) 0.8798; (P) 0.8827; (R1) 0.8873; More…

USD/CHF is still bounded in consolidation from 0.8757 and intraday bias stays neutral. In case of stronger recovery, upside should be limited by 0.8911 support turned resistance. On the downside, break of 0.8757 will resume the fall from 0.9200 to 61.8% retracement of 0.8374 to 0.9200 at 0.8690. Sustained break there will pave the way back to 0.8374 support.

In the bigger picture, rejection by 0.9223 key resistance keep medium term outlook bearish. That is, larger fall from 1.0342 (2017 high) is not completed yet. Firm break of 0.8332 (2023 low) will confirm down trend resumption.

Daily Pivots: (S1) 149.02; (P) 149.65; (R1) 150.59; More...

Intraday bias in USD/JPY is turned neutral with current recovery. Outlook is unchanged that corrective rise from 146.52 has completed at 151.20. Risk will stay on the downside as long as 151.29 resistance holds. Below 148.69 will bring retest of 146.52 low first. Firm break there will resume whole decline from 158.86 towards 139.57 support next.

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.