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Cable firmed in early Wednesday’s trading after hitting nine-week high on Tuesday (1.2800), but subsequently pulling back on unexpectedly strong rise in US consumer confidence in May, which temporarily inflated dollar.

Broken Fibo barrier at 1.2753 (76.4% of 1.2893/1.2299) reverted to solid support (reinforced by 5DMA, which so far holds dips, however risk of deeper pullback is still present as 14-d momentum turns south from extreme highs and RSI is in sideways mode, just under the overbought zone borderline.

This could be seen as initial warning, although MA’s are still in full bullish setup and continue to head north, suggesting cautious approach and bullish bias above 1.2753.

Sterling enjoys support from fading hopes for BoE June rate cut, but some price adjustment cannot be ruled out on stretched daily studies.

Rising 10DMA offers next support at 1.2722, followed by a higher low of May 24 (1.2675) and broken Fibo 61.8% (1.2666) which should ideally contain and keep larger bulls intact.

Release of US inflation data (PCE) on Friday will be closely watched for fresh signals.

Res: 1.2803; 1.2823; 1.2893; 1.2995.
Sup: 1.2745; 1.2722; 1.2666; 1.2635.

• NZDUSD stages a solid recovery from its 2024 lows
• Posts a two-month high and challenges 61.8% Fibo
• Oscillators point to persistent bullish pressures

NZDUSD has been in an aggressive uptrend after recording a 2024 bottom of 0.5851 in mid-April. The positive short-term picture is reinforced by the fact that the pair broke above both its 50- and 200-day simple moving averages (SMAs), while the momentum indicators are also heavily tilted to the upside.

Should the bulls attempt to push the price higher, immediate resistance could be found at 0.6170, which is the 61.8% Fibonacci retracement of the 0.6368-0.5851 downleg. A violation of that region could pave the way for the 78.6% Fibo of 0.6257. Failing to halt there, the pair may challenge the December 2023 high of 0.6368.

On the flipside, if the recovery falters, the 50.0% Fibo of 0.6109 could prevent initial declines. Sliding beneath that floor, the price could descend towards the 38.2% Fibo of 0.6048, which lies very close to the ascending 200-day SMA. Even lower, the 23.6% Fibo of 0.5972 could prove to be the next barricade for the bears to overcome.

Overall, NZDUSD has been in a recovery mode for more than a month now, currently challenging a crucial technical region. However, the risk of a pullback exists considering that the short-term oscillators are approaching overbought levels.

Daily Pivots: (S1) 200.29; (P) 200.47; (R1) 200.79; More...

Intraday bias in GBP/JPY remains on the upside for the moment. Sustained break of 200.53 will confirm larger up trend resumption. Next target is 138.2% projection of 191.34 to 180.07 from 195.02 at 202.93. On the downside, below 198.25 minor support will turn intraday bias back to the downside for 197.07 resistance turned support first.

In the bigger picture, a medium term top could be in place at 200.53 after breaching 199.80 long term fibonacci level. As long as 55 W EMA (now at 183.92) holds, price actions from there is seen as correcting the rise from 178.32 only. However, sustained break of 55 W EMA will argue that larger scale correction is underway and target 178.32 support.

Daily Pivots: (S1) 170.31; (P) 170.55; (R1) 170.90; More...

Intraday bias in EUR/JPY stays mildly on the upside. Break of 61.8% projection of 164.01 to 169.38 from 167.31 at 170.62 will target 171.58 high. Strong resistance could be seen there to limit upside. On the downside, below 169.45 minor support will turn bias back to the downside for 167.31 support.

In the bigger picture, a medium top could be formed at 171.58 after brief breach of 169.96 (2008 high). As long as 55 W EMA (now at 158.72) holds, price actions from there is seen as correcting the rise from 153.15 only. However, sustained break of 55 W EMA will argue that larger scale correction is underway and target 153.15 support.

Daily Pivots: (S1) 0.8496; (P) 0.8507; (R1) 0.8518; More...

Intraday bias in EUR/GBP stays neutral at this point. Further decline is expected as long as 55 D EMA (now at 0.8556) holds. Decisive break of 0.8491/7 will resume larger down trend to 0.8376 projection level next.

In the bigger picture, outlook remains bearish as EUR/GBP is capped below medium term falling trendline. That is, down trend from 0.9267 (2022 high) is still in progress. Firm break of 0.8491/7 will target 100% projection of 0.8764 to 0.8497 from 0.8643 at 0.8376.

Daily Pivots: (S1) 1.6292; (P) 1.6318; (R1) 1.6352; More...

Intraday bias in EUR/AUD remains mildly on the downside for retesting 1.6211 low first. Firm break there will resume the whole decline from 1.6742, as the third leg of the correction from 1.7062. On the upside, above 1.6403 will resume the rebound from 1.6211 instead.

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) 0.9883; (P) 0.9906; (R1) 0.9929; More....

Intraday bias in EUR/CHF is turned neutral with current retreat. But further rise is expected as long as 0.9880 minor support holds. Above 0.9928 will resume whole rally from 0.9252 to 100% projection of 0.9304 to 0.9847 from 0.9563 at 1.0106, which is slightly above 1.0095 key structural resistance. However, firm break of 0.9880 support will indicate short term topping, and turn bias to the downside for 38.2% retracement of 0.9563 to 0.9928 at 0.9789.

In the bigger picture, as long as 0.9728 support holds, rise from 0.9252 medium term bottom is still in favor to continue. Next target is 38.2% retracement of 1.2004 (2018 high) to 0.9252 (2023 low) at 1.0303, even just as a correction to the down trend from 1.2004.

Markets

Global bonds trading took a slow start after a long weekend in the US and the UK. Yields initially lost a few basis points. However, US Treasuries were hit by a triple whammy as the US session preceded. Mid-morning in the US, Fed’s Kashkari confirmed the more hawkish tone from last week’s Fed Minutes. The odds for the Fed to raise rates currently are quite low, but not completely off the table. In any case, the Fed needs (much) evidence before becoming confident to start easing. More or less at the same time, US consumer confidence unexpectedly reaccelerated from 97.5 to 102. Consumers’ assessment on the economy wasn’t unequivocally positive, but expectations on income and spending remained positive. Inflation is hardly seen slowing. The consumer confidence report and the Kashkari comments triggered a first down-leg in US Treasuries. Later, 2-y and 5-y US bond auctions only met with mediocre buying interest, further propelling rates. In a broader perspective, the curve move was interesting. Despite poor auctions of shorter maturities, this time the long end of the curve underperformed (2-y +3 bps, 10-y +8.5 bps, 30-y + 9.6 bps). With money markets already discounting only 1 rate cut this year, investors apparently are caution to place additional bearish bets at the short end of the curve, turning the focus further out. Also keep an eye at the 10-y real yield, which jumped more than 6.5 bps yesterday. German yields also changed course later in the session. Initially, some more hawkish ECB members (Knot, Holzmann) sounded quite confident that th disinflation process is gaining traction. Still, the move in the US at the end of the day also raised German yields between 2 bps (2-y) and 4.5 bps (10-y). US equities hesitated, but in the end held strong (Nasdaq +0.59%, new record close). The rise in yields helped to dollar to hold above first support levels. Admittedly, gains could have been bigger (DXY 104.61, EUR/USD close 1.0857 after testing 1.0890 intraday).

This morning, Asian equities suffer more from the sell-off in US Treasuries than was the case yesterday on WS. The broader rise in LT-yields also spreads to Japan (10-y yield 1.08%). The dollar tries to extend gains. The eco calendar is thin today, expect for the German CPI data. Monthly HICP is expected to rise a modest 0.2%, but unfavourable base effects might rise the Y/Y-measure to 2.7% from 2.4%. In case of an upward surprise, after yesterday’s global bond move, we’re keen to see the reaction at the long end of the curve. The German 10-y yield isn’t far away from the 2.65% April top. The US Treasury will sell $44bn 7-y notes. EUR/USD is locked in the 1.08/1.09 range.

News & Views

Australia’s monthly CPI unexpectedly gained traction in April. The yearly figure picked up from 3.5% in March to 3.6% compared to a 3.4% consensus. It is the second month in a row where annual inflation printed an increase, extending a potential bottoming out process that’s been going on since December last year. It underscores the need for the central bank to remain vigilant on the matter, even as yesterday’s retail sales suggest consumer fragility. Australia’s Bureau of Statistics singled out housing (4.9%, with rents rising 7.5%), food (3.8%) and transport (4.2%) as some of the major contributors. Electricity prices rose 4.2% but the government’s Energy Bill Relief Fund depresses the actual pressures. Without the rebates, prices would have risen 13.9%. Excluding categories including food & vegetables as well as holiday travel, core inflation in April rose by 4.1%, the same as in March. Core CPI in February hit a 2-yr low of 3.9% before creeping marginally higher. Australian swap rates rise between 3.6 and 4.7 bps. AUD/USD erased an earlier minor gain to trade more or less stable around 0.665.

The IMF in a statement this morning lifted Chinese growth prospects for 2024 and 2025. A stronger-than-expected expansion in the first quarter of the year is reflected in an upward revision to the annual target from 4.6% to 5%. Next year’s GDP growth would amount to 4.5% from 4.1% seen earlier. It nevertheless urged the country to address the ongoing housing slump that’s weighing on domestic demand and confidence. Aside from fiscal support, China’s low inflation also creates room for additional monetary support, it said. Authorities are wary to do so, however, fearing that increasing the monetary spread with the likes of the US may trigger capital outflows, pressure the yuan and create financial instability. The currency this morning already hits the lowest level since November at around USD/CNY 7.248. CNY hit a 17-yr low in September last year at USD/CNY 7.35.

Graphs

GE 10y yield

ECB President Lagarde clearly hinted at a summer (June) rate cut which has broad backing. EMU disinflation continued in April and brought headline CPI closer to the 2% target.. 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 have come to terms with that.

US 10y yield

The Fed in May acknowledged the lack of progress towards the 2% inflation objective, but Fed’s Powell indicated that further tightening was unlikely. Soft US early month data triggering a correction off YTD peak levels. However, the Fed minutes still showed internal debate whether policy is restrictive enough. Sticky inflation suggests any rate cut will be a tough balancing act. 4.37% (38% retracement Dec/April) already proved strong support for the US 10-y yield.

EUR/USD

Economic divergence, a likely desynchronized rate cut cycle with the ECB exceptionally taking the lead and higher than expected US CPI data pushed EUR/USD to the 1.06 area. From there, better EMU data gave the euro some breathing space. The dollar lost further momentum on softer than expected early May US data. Some further consolidation in the 1.07/1.09 are might be on the cards short-term.

EUR/GBP

Debate at the Bank of England is focused at the timing of rate cuts. Most BoE members align with the ECB rather than with Fed view but slower than expected April disinflation and a surprise general election on July 4 complicated matters. A June cut in line with the ECB looks improbable. Sterling extends a recent bull rally. A test of EUR/GBP’s 2024 YtD low (0.8489) is possible. We expect this important support level to hold.

Daily Pivots: (S1) 1.0843; (P) 1.0866; (R1) 1.0879; More...

Range trading continues in EUR/USD and intraday bias remains neutral. More consolidations could still be seen. On the upside, break of 1.0894 will resume the rally from 1.0601 to 1.0980 resistance next. However, break of 1.0804 will turn bias back to the downside for 1.0752 resistance turned support.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern. Fall from 1.1138 is seen as the third leg and could have completed. Firm break of 1.1138 will argue that larger up trend from 0.9534 (2022 low) is ready to resume through 1.1274 high. On the downside, break of 1.0601 will extend the corrective pattern instead.

Daily Pivots: (S1) 1.2743; (P) 1.2772; (R1) 1.2790; More...

GBP/USD is losing some upside momentum as seen in 4H MACD. But further rise is expected as long as 1.2670 support holds. Current rally from 1.2298 should target 1.2892 resistance next. However, break of 1.2670 will indicate short term topping, and turn bias back to the downside for deeper pullback.

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.