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• GBPUSD declines to its lowest level since May 17
• Momentum indicators ease but remain in positive zones

GBPUSD was in a steady recovery following its bounce off the 2024 bottom of 1.2298, with the price violating both the 50- and 200-day simple moving averages (SMAs). In the near term, although the pair surged to a three-month high of 1.2859, it quickly reversed lower.

Should the pullback extend, the recent support of 1.2655 could act as the first line of defence. Further retreats could cease around 1.2598, a region that held strong both in January and March. Sliding beneath that floor, the price could descend towards the February bottom of 1.2517.

Alternatively, if the bulls manage to erase the latest setback, immediate resistance could be found at the 1.2816-1.2826 range, defined by the most recent peak and the December 2023 high. Failing to halt there, the pair could storm towards the three-month high of 1.2859. A violation of that region could set the stage for the 2024 peak of 1.2892.

Overall, GBPUSD experienced a strong downward move after posting a fresh three-month high. Nevertheless, a break below the 50-day SMA is needed for the short-term outlook to turn bearish. 

The RBA left the cash rate on hold at 4.35%, but their rhetoric suggests the Board is more alert to upside inflation risks. Indeed, the RBA Board appears less certain that inflation is moderating as they’d like and there’s lingering concerns about persistent price pressures.

The Reserve Bank left the cash rate unchanged at 4.35% in a widely-expected decision.

The RBA last hiked in November 2023 and a ‘high for longer’ theme has played out since.

Importantly, in today’s meeting the Board debated hiking the cash rate or leaving the cash rate alone. The Board did not consider cutting the cash rate. The decision was made to stay the course.

Michelle Bullock in her press conference stuck to her usual mantra that the board is not ruling anything in or out. However, she highlighted that the evidence on inflation is that “demand is still too strong.”

Governor Bullock’s remarks, together with the changes to the accompanying Board statement, reveal the RBA has become more alert to upside inflation risks. Additionally, the Board appears less confident inflation is moving sustainably towards the inflation target within a reasonable timeframe.

In perhaps one of the more telling remarks of the press conference, Bullock said “we need a lot to go our way if we are going to bring inflation down to the 2-3% target” and the economy’s narrow path is “getting a bit narrower.”

However, she also emphasised that the case for a rate rise isn’t increasing. Instead, there are a few factors that are making the Board a bit more alert to the upside risks. It means the data flow between now and the next Board meeting will be critical, especially the June quarter inflation read and data on the labour market.

Governor Bullock’s vigilant rhetoric was echoed in the tone of the Board statement where several notable changes were made.

First, the RBA referred to inflation as “proving persistent” and the statement called out the persistence of services price inflation as a key uncertainty. In the press conference, Bullock suggested the monthly inflation measure does not give a solid enough read on inflation momentum, meaning they must rely on the less timely quarterly inflation report.

Second, the statement notes that output growth in most advanced economies appears to have troughed. The RBA has previously highlighted the downside risks to global growth could pose to the Australian economy.

Third, the statement introduced a reference to supply chain risks, relating to geopolitical risks and likely reflecting the recent pick up in shipping costs.

Finally, the last paragraph, arguably the most critical of the statement, stresses the step up in the RBA’s alertness. The RBA notes that while recent data have been mixed, they flag that it has “reinforced the need to remain vigilant to upside risks to inflation.”

Moreover, in the final sentence of the statement, the Board has reinstated the words indicating “they will do what is necessary to achieve that outcome”. This line was last used in February 2024 and the return of these words underscores that the Board is more attentive to upside risks and willing to respond should these risks materialise.

The reference to house prices also returned to the statement alongside the lift in household wealth. House prices were last mentioned in a Board statement late last year.

More broadly, another key area of uncertainty is the outlook for consumption. Indeed, the word uncertainty has been used more times today than in any Board statement in the last six months.

The RBA expects consumption growth to strengthen, as lower inflation and tax cuts drive a lift in real disposable incomes later this year. But the RBA also sees a possible scenario where consumption growth lifts more slowly and where the improvement in household incomes is mostly saved. The larger than previously estimated run down in savings buffers could be consistent with this scenario where households save a larger share of the tax cuts and cost of living support measures to help rebuild buffers. This was called out as a particular area of uncertainty; the RBA was unsure of the extent to which low savings was a sign that consumers were confident enough to spend or unable to save due to pressures on income.

The RBA next meets on August 6 and just before this meeting, the quarterly inflation report is released on July 31. The RBA will have a more comprehensive read on inflation and the economy at the time of this meeting, although it will need to digest the impact of the Stage 3 tax cuts and other fiscal support measures that come into effect on July 1. These effects will not become fully apparent until well after the August meeting.

Our inflation forecasts for the upcoming June quarter report are below that of the RBA’s, leaving us comfortable with our view that the next move in the cash rate will be down and arrive in November. But we acknowledge there’s a greater risk of rate relief slipping into next year. Swap markets have no rate cuts priced for this year and two rate cuts priced in for 2025. The timing of the first rate cut has been pushed out from February to April next year after today’s meeting.

If the concerns around persistent price pressures continue, we think the RBA is more likely to keep the cash rate on hold for longer than to hike again, but the RBA remains data dependent and the upcoming data will be telling.

On 30 May, we noted some uncertainty in the price behaviour of the Nasdaq 100 (US Tech 100 mini on FXOpen) near the resistance level of 18,840, as shown by arrow #1.

Following this, the price declined and tested the former resistance at 18,250 (indicated by arrow #2) – the long lower shadow on the candle indicated aggressive demand (more details in the article on the Hammer pattern).

This test gave the bulls confidence to break through the 18,840 resistance.

In June, the price continued to rally within the ascending channel (shown in green), which is part of a larger ascending channel (shown in blue), driven by:

→ prospects for AI implementation;

→ prospects of Fed rate cuts.

Yesterday, the Nasdaq 100 (US Tech 100 mini on FXOpen) rose by approximately 1.2%, reaching the psychological level of 20,000 points. This record was supported by influential analysts raising their forecasts for US stock markets. For example:

→ Goldman Sachs raised the year-end 2024 target for the S&P 500 (US SPX 500 mini on FXOpen) from 5200 to 5600;

→ Evercore ISI increased its forecast for the same index from 4750 to 6000.

Market sentiment was also buoyed by the anticipation of several comments from FOMC members scheduled for this week. These might confirm the Fed's intention to cut rates as early as September this year.

Technical analysis of the Nasdaq 100 (US Tech 100 mini on FXOpen) shows that:

→ The price is in the upper half of the blue channel, with its median line potentially serving as support.

→ The price is near the upper boundary of the green channel, which can be considered resistance. This suggests that the price might retreat from the psychological level of 20k towards the lower boundary of the green channel.

It is possible that the current bullish drivers will remain relevant until September, allowing the Nasdaq 100 (US Tech 100 mini on FXOpen) to continue rising towards the upper boundary of the blue channel.

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

A week rich in macroeconomic data contributed to the decline of the euro, yen, and pound. Notably, the following events were significant:

• Inflation falling for the second consecutive month (0.2% against the expected 0.3%);
• The publication of the updated forecast from the Federal Reserve (one reduction in the federal funds rate by 0.25%, presumably in September).

Nonetheless, despite the hawkish stance of the Federal Reserve and the steady slowdown in inflation, European currencies managed to stay above key levels relative to the dollar, even laying the groundwork for forming reversal patterns.

GBP/USD

According to the technical analysis of the GBP/USD pair on the daily timeframe, a "piercing candle" pattern was formed yesterday. If the pair closes with any bullish candle today, the price might reach recent highs around 1.2860-1.2810. A resumption of the downtrend is possible with a confident hold below 1.2650. The following news might impact GBP/USD pricing:

• Today at 15:30 (GMT +3:00) the US core retail sales index for May;
• Today at 15:30 (GMT +3:00) the US retail sales volume;
• Tomorrow at 09:00 (GMT +3:00) the UK consumer price index (CPI) for last month.

EUR/USD

Technical analysis of the EUR/USD pair suggests a potential corrective rise towards 1.0800, provided the "bullish engulfing" pattern formed yesterday is realised. If the price falls below 1.0660, a retest of the April low around 1.0600 is possible. Today, important macroeconomic data from the eurozone is expected:

• At 12:00 (GMT +3:00) the ZEW economic sentiment index for the eurozone;
• At 12:00 (GMT +3:00) the eurozone consumer price index (CPI).

Experts forecast a rise in these indices, which may support the strengthening of EUR/USD.

Also important for EUR/USD pricing will be the scheduled speech by the Vice-President of the European Central Bank, Luis de Guindos, at 16:30 (GMT +3:00).

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Daily Pivots: (S1) 199.46; (P) 199.96; (R1) 200.86; More...

Intraday bias in GBP/JPY stays neutral for consolidations below 201.59. Further rally is expected as long as 197.18 support holds. However, considering bearish divergence condition in 4H MACD, firm break of 197.18 will confirm short term topping, and turn bias back to the downside for 191.34 support instead.

In the bigger picture, as long as 188.63 resistance turned support holds, long term up trend is expected to continue. Next target is 100% projection of 155.33 to 188.63 from 178.32 at 211.62.

Daily Pivots: (S1) 168.38; (P) 168.86; (R1) 169.76; More...

Intraday bias in EUR/JPY is turned neutral with current strong rebound. On the upside break of 170.12 resistance will argue that pull back from 170.87 has completed at167.52, after drawing support from 55 D EMA. Intraday bias will be back on the upside for 170.87 and then 171.58 high.

In the bigger picture, as long as 55 W EMA (now at 159.83) holds, price actions from 171.58 medium term top are seen as as correcting the rise from 153.15 only. That is, larger up trend remains in favor to continue as a later stage. However, sustained break of 55 W EMA will argue that larger scale correction is underway and target 153.15 support.

Daily Pivots: (S1) 0.8435; (P) 0.8448; (R1) 0.8463; More...

EUR/GBP is staying in consolidation above 0.8396 and intraday bias stays neutral. Outlook But outlook will remain bearish as long as 0.8482 support turned resistance holds. Below 0.8396 will resume larger down trend to 0.8376 projection level next.

In the bigger picture, down trend from 0.9267 (2022 high) is in progress. Next target is 100% projection of 0.8764 to 0.8497 from 0.8643 at 0.8376. Sustained break there will target 161.8% projection at 0.8211 next. For now, outlook will remain bearish as long as 0.8643 resistance holds, even in case of stronger rebound.

Daily Pivots: (S1) 1.6173; (P) 1.6218; (R1) 1.6278; More...

Intraday bias in EUR/AUD remains neutral for consolidations above 1.6148 temporary low. Outlook will stay bearish as long as 1.6418 resistance holds. Firm break of 61.8% projection of 1.6679 to 1.6211 from 1.6418 at 1.6129 will pave the way to 100% projection at 1.5950.

In the bigger picture, fall from 1.7062 medium term top is seen as a correction to the up trend from 1.4281 (2022 low). In case of deeper fall, strong support is expected around 1.5846 and 38.2% retracement of 1.4281 to 1.7062 at 1.6000 to bring rebound. Break of 1.7062 is in favor as a later stage.

Daily Pivots: (S1) 0.9520; (P) 0.9544; (R1) 0.9572; More....

Intraday bias in EUR/CHF is turned neutral first with current recovery. Some consolidations would be seen first, but upside should be limited below 0.9683 resistance to bring another fall. On the downside, sustained trading below 61.8% retracement of 0.9252 to 0.9928 at 0.9510 will raise the chance of long term down trend resumption, and target 0.9252 low next.

In the bigger picture, the break of 0.9563 support, as well as 55 W EMA (now at 0.9672) argues that rebound from 0.9252 has completed at 0.9928. Medium term bearish is maintained with both 1.0095 resistance intact. Firm break of 0.9252 will resume the down trend from 1.2004 (2018 high).

Markets

The European risk-off from last week shifted into a lower gear. Markets pondered comments from Marine Le Pen of the far right Rassemblement National as she indicated she would respect France’s institutions and was prepared to cooperate with President Macron after the elections. Bunds returned part of their safe haven gains with yields rebounding 5-6 bps across the curve. Bund yields also rose more than swaps. The French 10-y yield spread vs Bunds still widened slightly further (+2 bps to 0.79%). Spreads of other South-European bonds (Italy, Spain, Portugal, Greece) that faced material collateral damage last week narrowed about 3-4 bps (vs Bunds). European equities (EuroStoxx 50 + 0.85%, CAC 40 + 0.91%) tried a bottoming out process after recent sell-off. ECB policymakers including Chief Economist Lane still labelled last week’s repositioning as orderly. The ECB currently has no intention to step in/activate the TPI mechanism. US yields which are still mainly driven by monetary policy considerations rather than by risk sentiment, also rebounded after last week’s soft May price data. A better than expected Empire Manufacturing survey helped US yields to cautiously move away from recent lows/key support levels. US yields rose 5.5-6.5 bps across the curve. In an outright disconnect from European markets, the S&P500 (+0.77%) and the Nasdaq (+ 0.95%) continued their record race. The dollar took a breather (DXY 105.32 from 105.51) but shows resilience despite a more constructive risk sentiment overall. EUR/USD closed at 1.0734 from 1.07 at the open. Still, the picture looks fragile. EUR/GBP also tries to move away from the 0.84 support area (close 0.845) as markets prepare for tomorrow’s UK CPI data and Thursday’s Bank of England policy decision.

This morning, Asian equities join the constructive sentiment on WS yesterday, mostly rising 0.5%-1.0%. Dollar gains marginally (EUR/USD 1.072, DXY 105.45). Later today, US May retail sales are scheduled for release. After a poor showing in April (0.0% M/M headline) markets look out whether the US consumer is able to keep growth afloat (headline 0.2% expected, control group +0.4%). After last week’s softer than expected price data (CPI, PPI and import prices) markets already frontloaded more easing, both for this and next year, than what the Fed is guiding. Still we see an asymmetrical risk for yields to again test the downside in case of a poor outcome. In Europe, political uncertainty will continue to linger. EUR/USD probably remains captured in a sell-on-upticks dynamics.

News & Views

Australia’s central bank left its policy rate unchanged at 4.35%. The pace of disinflation is slowing, but inflation still stays some way above the midpoint of the 2–3 per cent target range. The April CPI indicator rose by 3.6% y/y (up from 3.5% the month before) and core (ex. volatile items and holiday travel) by 4.1%. The May forecast assumed a return within the target in H2 2025 and to the midpoint in 2026. The economy remains in a state of excess demand and domestic cost pressures stay elevated. Labour market conditions eased but remain tighter than is consistent with full employment and inflation at target. The RBA concludes that while recent data have been mixed, they have been reinforcing the need to be vigilant for upside risks to inflation. The RBA ended the statement with the small yet meaningful addition that it will do what is necessary to achieve its goal. Board chair Bullock during the press conference later revealed they discussed the case for a rate hike. These hawkish tweaks pushed up Australian swap yields marginally intraday, allowing the curve to pare net daily declines to 0.5-1.9 bps with the long end outperforming. Money markets have changed little to their policy rate expectations and still pencil in a first cut in February next year. The Australian dollar trades basically unchanged just north of AUD/USD 0.66.

Germany’s electrical and metal workers union, the country’s largest industrial one, is upping the ante ahead of wage negotiations due to kick off this September. It is demanding a 7% increase for a 12-month period for the roughly 4 mln workers in a sector that’s a bellwether for wage agreements in other sectors. Given the industrial malaise in Germany and the fact that inflation was only 2.8% in May, the demand showcases ongoing efforts of union to recover some of the lost purchasing power over the previous years. It’s also closely watched by the ECB as it seeks signs for wage growth to slow down to help bringing back inflation sustainably to its 2% target.

Graphs

GE 10y yield

The ECB cut its key policy rates by 25 bps at the June policy meeting. A more bumpy inflation path in H2 2024, the EMU economy gradually regaining traction and the Fed’s higher for longer US strategy make follow-up moves difficult. Markets are coming to terms with that. For the time being, though, the political narrative dominates. After hitting a new YtD top at 2.7%, the German 10-yr yield corrected lower on safe haven bids.

US 10y yield

The Fed is seeking more evidence than just one slower-than-expected (May) CPI is providing. Upgraded inflation forecasts and a higher neutral rate complicate the exact timing of a first cut further. June dots suggest one move in 2024 followed by four more next year. Markets are positioned more aggressively, turning the recent low in yields into a technical support zone. The US 10-y yield is testing the downside of the 4.2/4.7% trading range.

EUR/USD

EUR/USD is trapped in the 1.06-1.09 range. The desynchronized rate cut cycle with the ECB exceptionally taking the lead, strong US May payrolls and a swing to the right in European elections pulled the pair away from 1.09 resistance. The Fed meeting balanced the weaker than expected US CPI outcome. Euro fragility makes a return to the 1.06 downside more likely than not.

EUR/GBP

Debate at the Bank of England is focused at the timing of rate cuts. Slower than expected April disinflation and a surprise general election on July 4 suggest that a June cut in line with the ECB looks improbable. Sterling gained momentum with money markets now discounting a Fed-like scenario. EUR/GBP tested the 2023 & 2024 lows near 0.85. Euro weakness eventually pulled the trick after French president Macron called snap elections following a weak showing in EU elections.