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Daily Pivots: (S1) 1.0739; (P) 1.0760; (R1) 1.0787; More....

Intraday bias in EUR/USD remains neutral for the moment. Fall from 1.0915 is seen as another falling leg of the corrective pattern from 1.1274. Further decline could be seen to retest 1.0601 support next. On the upside, above 1.0780 minor resistance will turn intraday bias neutral first. But risk will be mildly on the downside as long as 1.0915 resistance holds, in case of recovery.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern, which might still be in progress. Break of 1.0601 will target 1.0447 support and possibly below. Nevertheless, on the upside, firm break of 1.1138 will argue that larger up trend from 0.9534 (2022 low) is ready to resume through 1.1274 high.

Daily Pivots: (S1) 1.2700; (P) 1.2719; (R1) 1.2749; More...

Range trading continues in GBP/USD and intraday bias stays neutral. . Considering bearish divergence condition in 4H MACD, firm break of 1.2680 support will turn bias back to the downside for 55 D EMA (now at 1.2651) and possibly below. Nevertheless, break of 1.2816 will resume the rise from 1.2298 to 1.2892 resistance.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern. Fall from 1.2892 is seen as the third leg which might have completed already. Break of 1.2892 resistance will argue that larger up trend from 1.0351(2022 low) is ready to resume through 1.3141. Meanwhile, break of 1.2445 support will extend the corrective pattern with another decline instead.

Daily Pivots: (S1) 0.8952; (P) 0.8969; (R1) 0.8982; More….

Intraday bias in USD/CHF remains neutral for the moment. On the upside, firm break of 0.8987 support turned resistance will argue that correction from 0.9223 has completed, after drawing support from 0.8883 fibonacci level. Intraday bias will be back on the upside for 0.9157/9223 resistance zone. Nevertheless, sustained break of 0.8883 fibonacci level will carry larger bearish implications and bring deeper decline.

In the bigger picture, price actions from 0.8332 medium term bottom are tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Rejection by 0.9243 resistance, followed by sustained break of 38.2% retracement of 0.8332 to 0.9223 at 0.8883 will strengthen this case, and maintain medium term bearishness. However, decisive break of 0.9243 will argue that the trend has already reversed and turn medium term outlook bullish for 1.0146.

Daily Pivots: (S1) 155.57; (P) 156.33; (R1) 157.52; More...

No change in USD/JPY's outlook and intraday bias stays neutral. On the upside, break of 157.70 will resume the whole rise from 151.86 and target 160.20 high. Nevertheless, break of 154.53 will turn bias to the downside for 151.86 support and possibly below, as the third leg of the corrective pattern from 160.20.

In the bigger picture, a medium term top might be formed at 160.20. As long as 55 W EMA (now at 147.77) holds, fall from 160.20 is seen as correcting the rise from 140.25 only. However, sustained break of 55 W EMA will argue that larger correction is possibly underway, and target 146.47 support next.

Daily Pivots: (S1) 1.3747; (P) 1.3764; (R1) 1.3775; More...

Intraday bias in USD/CAD remains mildly on the upside at this point. Correction from 1.3845 might have completed at 1.3589 already. Further rise would be seen to retest 1.3845 high. On the downside, break of 1.3662 support will extend the corrective pattern from 1.3845 with another falling leg instead.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern. In case of another fall, strong support should emerge above 1.2947 resistance turned support to bring rebound. Firm break of 1.3976 will confirm up resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149.

Unimpressive was to investors what Apple revealed about its AI plans at its Worldwide Developer conference yesterday. The company gave details regarding its partnership with Sam Altman’s OpenAI, they said that they will integrate ChatGPT into iPhones via Siri, they promised that many workloads will be done on-device (without need to share user data), and a ‘private cloud compute’ will be available if there is need for more computational power. And yet, none of it surprised or impressed investors. Apple shares declined nearly 2% yesterday. Cherry on top, Elon Musk said that he would ban Apple devices at the office if ChatGPT is integrated at the operating system level due to data security risks. Voila. The announcement from Apple didn’t go down smoothly the market’s throat yesterday.

Elsewhere, the S&P500 and Nasdaq both eked out small gains, and energy stocks recovered as oil jumped to $78pb following news that the US imposed fresh sanctions on Yemeni Houthis. I believe that the oil rally triggered by geopolitical news will see solid resistance within the $78/80pb band and that oil needs fundamentally supportive news – like softer monetary policies – to make a sustainable attempt above this resistance band.

Widening spreads, falling Euro

Mood in French streets were chaotic yesterday; imagine, people are supposed to be eating fine food and drinking good wine in beautiful coastal cities at this period of the year and not worry about whether Marine Le Pen’s far-right party will take over control. The CAC 40 sold off more than the European peers, the French 10-year yield spiked to the highest levels since November, the spread between the 10-year French and German yield spiked past 55bp and the EURUSD retreated to 1.0732, and is consolidating losses near 1.0770. Thanks Macron.

Political uncertainty and division are never welcome. And Le Pen securing 32% of the cake in the EU Parliament is not excellent news for France’s EU friendly reputation. But France has a history of being an important pillar of the EU and the French may take their responsibility and vote accordingly. Look, Britain never managed to strengthen its back after Brexit and French watch the show from the front seat. We will see how France will respond to Macron’s gambit – and I think France will be fine - but political turmoil in the next few weeks could lead to higher and wider spreads across EU yields and negatively impacting eurozone growth expectations and stock valuations. And the latest turmoil comes when the European Central Bank (ECB) is at a crossroads due to a renewed uptick in inflation. As such, grey clouds may be gathering for the SXXP near its peak level.

The Fed won’t help lift sentiment

The Federal Reserve (Fed) starts its two-day meeting today and is widely expected to trim its rate cutting projections for this year due to sticky inflation and still-tight jobs market. The US dollar index spiked past its 50-DMA following last Friday’s surprisingly strong jobs data, and is consolidating gains above this level ahead of tomorrow’s most important CPI data and the Fed announcement. Provided the economic data and the inflation trends, there is a greater chance that we hear a hawkish Fed statement than the contrary.

In focus today

In the US, NFIB's small business optimism index is due for release for May. General sentiment has remained weak over the past few months, and also firms' price plans took a turn lower in the April survey.

In the UK, focus turns to the release of the official UK labour market report. With the sharp increase in national living and minimum wage age this will likely underpin wage pressures with wage growth excl. bonus expected to tick up to 6.1% 3m y/y.

Overnight we get Chinese CPI and PPI for May. Consensus is for a rise in CPI from 0.3% y/y to 0.4% y/y, which seems fair. It should not move markets. PPI is set to rise to -1.5% y/y up from -2.5% y/y. Higher metal prices lately is the main culprit for the expectations of easing producer price deflation.

Economic and market news

What happened yesterday

In France, markets reacted to the news about Emmanuel Macron calling for snap parliamentary election on Sunday. If the election results are similar to those of Sunday's European Parliament election, Macron will no longer able to push reforms like indexation of the retirement age, the uncertainty around French public finances has increased. The yield on the 10Y French government bonds widened 8bp vs. 10y German Bunds, to the widest level this year at 55bp. EUR/USD dropped to 1.0733 at some point yesterday the lowest rate since 9 May.

In the euro area, ECB president Lagarde said that ECB interest rates are not on a linear downward path, and that policymakers could at times wait more than one meeting before lowering rates again. We expect ECB to cut interest rates once more in 2024 at the December meeting. Markets are currently pricing 31bp of cuts by year end.

Further in the euro area the Sentix index came in at 0.3 (cons: -1.8, prior: -3.6), which was higher than expected. It was driven by improved future expectations. However, the assessment of the current situation is still weak, especially for the German economy.

Market movements

Equities: Global equities ascended yesterday, with US indices finishing near the day's peak, while European indices lagged due to the EP election results indicating a shift to the right and French PM Emmanuel Macron calling for a snap election.

It was not a classic macro-driven day, which was also visible in the sector rotation where consumer staples and financials underperformed. In the US, utilities were the top performers, while banks, particularly regional ones, were among the biggest losers on a day marked by higher yields at the long end of the curve. While we do''t want to overanalyse these signals, we need to take notice and we are aware of the extend run we have had in for instance the cyclical outperformance. In the US yesterday, Dow gained 0.2%, S&P 500 0.3%, Nasdaq 0.4%, and Russell 2000 0.3%.

Asian markets present a mixed picture this morning, with Japan on the rise and China leading declines. Likewise, US and European futures are mixed.

FI: European yields started off on a weak footing, led by underperformance of France and Italy, on the back of the EP election on Sunday. While Italian bonds recovered somewhat, the French underperformance was quite clear through the day as risk premium rose after Macron made the surprise move of calling for a National Assembly election later this month (first round). French bonds widened 8bp vs. 10y German Bunds, to the widest level this year at 55bp. Relatively to other names such as Portugal and Belgium, French bonds are now just 8bp and 4bp cheaper than those.

FX: The EUR sold off against the rest of the G10 currencies yesterday as the market digested the fall out of the EU parliamentary elections. EUR/USD extended the drop from Friday and fell firmly below 1.08.

UK payrolled employment fell slightly by -3k in May, following -85k monthly decline in April. Annual growth rate of payrolled employment slowed further from 0.7% yoy to 0.6% yoy. Annual growth in median pay was at 5.2% yoy, down sharply from April's 6.8% yoy. Claimant count jumped 50.4k, versus expectation of 10.2k.

In the three months to April, unemployment rate rose to 4.4%, above expectation of 4.3%. Average earnings including bonus rose 5.9% yoy, above expectation of 5.7% yoy. Average earnings excluding bonus rose 6.0% yoy, matched expectations.

Full UK employment release here.

Daily Pivots: (S1) 0.6588; (P) 0.6599; (R1) 0.6623; More...

Intraday bias in AUD/USD remains neutral at this point. On the upside, firm break of 0.6713 will resume whole rise from 0.6361 to 0.6870 resistance next. However, sustained break of 0.6578 cluster support (38.2% retracement of 0.6361 to 0.6713 at 0.6579) will dampen this bullish view, and bring deeper fall to 61.8% retracement at 0.6495.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which could have completed at 0.6269 already. Rise from there is seen as the third leg which is now trying to resume through 0.6870 resistance.

Australian Dollar is trading broadly lower today, primarily due to selloff in stocks in Hong Kong and China as markets reopened after holiday. This downward pressure is compounded by the decline in Australian business confidence, which turned negative. ANZ has become the first of the big four banks to push its forecast for RBA next rate cut from November this year to February 2025. However, this adjustment has provided little immediate support for Aussie .

Japanese Yen is also experiencing selling pressure, making it the second weakest currency for the day at this point. Japanese Finance Minister Shunichi Suzuki did not make any new comments about Yen's recent depreciation. Nevertheless his remarks last Friday emphasized that any foreign exchange intervention would depend on necessity and effectiveness. Investors are now closely watching the upcoming BoJ meeting, with speculation that the central bank might start tapering its bond purchases.

Meanwhile, Euro is making a modest recovery from yesterday's selloff but remains the weakest performer for the week. Euro's rebound is limited, indicating persistent concerns about the region's political uncertainty. In contrast, British Pound is showing mild strength as markets anticipate upcoming job data.

Dollar is holding onto some of its recent gains, though it lacks the momentum for a significant rally. Market participants are cautious, likely waiting for tomorrow's US. CPI data release and FOMC rate decision, along with the updated dot plot, which will provide clearer guidance on Fed's policy easing path.

Technically, GBP/CHF stabilized after dipping to 1.1360 last week but lacked momentum for recovery. Risk will stay on the downside as long as 1.1480 minor resistance holds. Below 1.1360 will target 38.2% retracement of 1.0634 to 1.1675 at 1.1277 and below. But strong support should be seen around 1.1167 (50% retracement at 1.1155) to bring rebound, at least on first attempt.

In Asia, at the time of writing, Nikkei is up 0.36%. Hong Kong HSI is down -1.66%. China Shanghai SSE is down -1.15%. Singapore Strait Times is down -0.24%. Japan 10-year JGB yield is down -0.016 at 1.023. Overnight, DOW rose 0.18%. S&P 500 rose 0.26%. NASDAQ rose 0.35%. 10-year yield rose 0.039 to 4.469.

ECB's Lagarde: No linear path for interest rate cuts

In a joint interview with four European newspapers, ECB President Christine Lagarde dismissed the notion that last week's quarter-point rate cut would be the start of a series of similar moves. Lagarde made it clear that "interest rates will not necessarily move downward in a straightforward manner."

"We are not following a pre-determined path," she explained, noting that "there could be periods where we leave interest rates unchanged."

When asked if rates could remain unchanged for multiple meetings, Lagarde said, "It's possible. We need to observe how labor costs evolve and ensure that earnings continue to absorb the recent increases."

Lagarde emphasized ECB's ongoing efforts to control inflation, stating, "We are still in tightening territory and will continue as long as necessary to bring inflation back to 2 percent."

Australia's NAB business confidence returns to negative, inflation pressures re-emerge

Australia's NAB Business Confidence fell from 2 to -3 in May, returning to negative territory. Business conditions also saw a slight decline, dropping from 7 to 6. Specifically, trading conditions decreased from 13 to 10, and profitability conditions fell from 6 to 3. However, employment conditions improved, rising from 2 to 5.

NAB Chief Economist Alan Oster noted pointed out that forward orders are particularly weak in retail, wholesale, and construction sectors, indicating potential challenges ahead. Despite a slowdown in activity, capacity utilization remains above average, suggesting that the "process of bringing supply and demand back into balance remains incomplete".

Inflationary pressures are re-emerging, with labor cost growth increasing to 2.3% on a quarterly basis, up from 1.5% in April. Purchase cost growth also rose to 1.9%, compared to 1.3% previously. Overall product price growth climbed to 1.1%, up from 0.8%, with retail price growth increasing to 1.6% from 1.0%, and recreation and personal services prices edging up to 1.0% from 0.9%.

Oster concluded that the data presents a "mixed" picture for RBA. There are clear signs of growth challenges, yet inflationary pressures remain a concern. "We expect the RBA to keep rates on hold for some time yet as they navigate through these contrasting risks."

Looking ahead

UK job data is the main focus in European session. Later in the day, US will release NFIB business optimism index. Canada will publish building permits.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6588; (P) 0.6599; (R1) 0.6623; More...

Intraday bias in AUD/USD remains neutral at this point. On the upside, firm break of 0.6713 will resume whole rise from 0.6361 to 0.6870 resistance next. However, sustained break of 0.6578 cluster support (38.2% retracement of 0.6361 to 0.6713 at 0.6579) will dampen this bullish view, and bring deeper fall to 61.8% retracement at 0.6495.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which could have completed at 0.6269 already. Rise from there is seen as the third leg which is now trying to resume through 0.6870 resistance.

Economic Indicators Update