Sample Category Title

Daily Pivots: (S1) 0.9091; (P) 0.9120; (R1) 0.9153; More....

Intraday bias in USD/CHF remains neutral for the moment. Further rally is in favor with 0.9077 minor support intact. On the upside, above 0.9157 will bring retest of 0.9223. However, on the downside, break of 0.9077 will suggest that rebound from 0.8987 has completed. Intraday bias will be turned back to the downside for 0.8987 support. Further break there will resume the fall from 0.9223 to 38.2% retracement of 0.8332 to 0.9223 at 0.8883.

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) 156.78; (P) 156.99; (R1) 157.40; More...

Intraday bias in USD/JPY is back on the upside with breach of 157.18 temporary top. Rise from 151.86, as the second leg of the corrective pattern from 160.20, would target 100% projection of 151.86 to 156.78 from 153.59 at 158.51. On the downside, break of 156.57 minor support will turn intraday bias neutral first. Further break of 153.59 will target 151.86 and below as the third leg of the corrective pattern.

In the bigger picture, a medium term top might be formed at 160.20. But as long as 150.87 resistance turned support holds, fall from there is seen as correcting rise from 150.25 only. However, decisive break of 150.87 will argue that larger correction is possibly underway, and target 146.47 support next.

Daily Pivots: (S1) 1.3623; (P) 1.3638; (R1) 1.3662; More...

Intraday bias in USD/CAD is turned neutral again with current recovery. On the downside, firm break of 1.3589 support will argue that whole rise from 1.3176 has completed at 1.3845 already. Fall from 1.3845 should then resume to 61.8% retracement of 1.3176 to 1.3845 at 1.3432. Nevertheless, break of 1.3742 resistance will revive near term bullishness and target a retest on 1.3845 high.

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.

In focus today

Today, focus is on German inflation data for May which will give an important clue as to what the euro area print on Friday will show. We expect a large increase in core services inflation due to a base effect from the "German ticket", which lowered prices on public transportation in May last year. On Friday, we expect euro area headline inflation to remain at 2.4% y/y driven by rising energy inflation, falling foods inflation and unchanged core inflation at 2.7% y/y.

In the euro area, we will also look out for the April monetary aggregates and lending data. We focus especially on the lending data as we have recently seen signs of a gradual improvement in loan dynamics and thus the credit impulse.

In Sweden we receive retail sales and household lending data at 08.00 CET. NIER's retail confidence indicator suggests there may be a rebound in April after a setback in March. As for household lending it has begun reaccelerating in recent months, and we expect today's print to also be in this direction.

The Riksbank releases the first Stability Report for 2024 at 09.30 CET, followed by a press conference at 11.00 CET.

Fed's Williams (Vice Chair of the FOMC) and Bostic (voting member) speaks at 19.45 CET, and 01.00 CET (Thursday morning) respectively. SNB Chairman Jordan speaks at a conference in South Korea at 02.00 CET (Thursday morning).

Economic and market news

What happened overnight

In China, the IMF upgraded its growth outlook to 5% GDP growth for the year (prior 4.6%) and 4.5% in 2025 (prior 4.1%). The upgrade came after a stronger-than-expected first quarter, as well as recent initiatives by the Chinese government to stimulate the Chinese economy.

In Australia, inflation for April stood at 3.6% y/y compared to expectations of 3.4% y/y according to Reuters. The CPI reading also beat the reading in March which stood at 3.5% y/y. The upside surprise was in part driven by increases to petrol, health, and holiday costs. CPI excluding volatile items and holiday travel remained unchanged from March at 4.1% y/y.

In Asia, most equity markets are in the red this morning with only Shanghai slightly up.

In the US, yesterday marked the shift in markets to a shorter settlement period, as settlement has gone from T+2 to T+1.

US equity futures are pointing down this morning, after a somewhat mixed session yesterday which saw Nasdaq increase by 0.59%, and the Dow Jones fall by 0.55%, whereas the S&P500 and Russell 3000 were more or less flat.

What happened yesterday

In Norway, retail sales came in at -0.3% m/m seasonally adjusted for April. The figure confirms the sideways trend seen in retail sales since last autumn, as is also seen in the 3-month moving average standing at +0.1% m/m.

In the US, consumer confidence for May came in at 102.0 up from April's revised figure of 97.5. The figure beat consensus expectations of a 96.0 print. The higher print in May compared to April marked the first time in three months that the confidence indicator did not decline. Average 12-month inflation expectations rose to 5.4% from 5.3% in April. The 'perceived likelihood of a US recession over the next 12 months' also increased in May, as 69% (up from 65% in April) of consumers now believe a US recession is 'somewhat' or 'very' likely in the coming 12 months. Also in the US, Fed's Kashkari was hawkish when he said that he did not believe that any FOMC member had ruled out a rate hike. Markets sent yields higher on the statement. That said, Kashkari also said that he thinks the odds for a Fed hike is quite low.

In New York City, closing arguments were heard in the trial against former president Donald Trump who is accused of falsifying business records. With Trump aiming to reclaim the Oval Office from incumbent Joe Biden this 5 November, there is a lot on the line for the former president, although being the first ever former president convicted of a crime would not formally bar Trump from taking office.

Germany's GfK Consumer Sentiment index for June improved significantly, rising from -24.0 to -20.9 and surpassing expectations of -22.5. This marks the fourth consecutive month of improved sentiment.

In May, economic expectations jumped from 0.7 to 9.8, while income expectations rose from 10.7 to 12.5, the highest level since January 2022. Willingness to buy edged up slightly from -12.6 to -12.3, and willingness to save dropped sharply from 14.9 to 5.0, the lowest value since August 2023.

Rolf Bürkl, consumer expert at NIM, explained that "falling inflation rates combined with considerable wage and salary increases strengthen consumer purchasing power. This stimulates income expectations and also reduces consumer uncertainty, which was responsible for the comparatively high willingness to save in previous months."

Despite these positive trends, Bürkl noted that uncertainty still lingers among German consumers. This is attributed to the lack of clear future prospects in the country, which undermines planning certainty for significant purchases. "People will have to regain this certainty before they are willing to invest their growing purchasing power in larger purchases," he added.

Full German Gfk consumer sentiment release here.

The first day back after the long weekend brought traders back down to earth. A weak sale of US 2 and 5-year notes, and Federal Reserve’s (Fed) Neel Kashkari’s comments that the Fed cannot rule out hiking the interest rates as a next move sent the US treasuries lower yesterday. Happily, Mr. Kashkari isn’t a voting member this year, but his words saw a swift reaction from the Fed hawks. The US 2-year yield spiked to 4.98%, the 10-year yield advanced past 4.55% and the US dollar index rebounded after testing the 200-DMA to the downside.

The broad-based recovery of the US dollar sent the EURUSD lower yesterday before it reached the 1.09 resistance. Inflation expectations in the Eurozone fell to the lowest levels since 2021. All eyes are on a series of Eurozone inflation updates that are due to hit the ground starting from today. Right now, the divergence between a more hawkish Fed – that debates the necessity of another hike – and the European Central Bank (ECB) – that debates the possibility of back-to-back rate cuts in summer – remain supportive of a downside correction in the EURUSD. The major risk to the bearish euro outlook is Friday’s US core PCE data. If the April rise comes in at 0.2% on a monthly basis – as penciled in by analysts on a Bloomberg survey – it would be the smallest advance for the measure for this year and could help temper the Fed hawks.

Elsewhere, the divergence between central bank expectations continue to drive the price moves in FX. The euro-sterling is testing the critical support of 0.85, while the sterling-yen hit the 200 psychological, the highest level in 16 years. What makes sterling stronger today is PM Sunak’s decision to hold a general election on July 4th which simply zeroed the chances of seeing the Bank of England (BoE) cut the rates in June. But political uncertainties may not let the euro-pound comfortably trend below the 0.85 level.

In equities, the rising US yields weren’t supportive, but good news for technology stocks saved the day and kept the S&P500 little changed. Nasdaq eked out a small gain. Apple revealed that its iPhone shipments to China rose 52% in April following discounts from retail partners amid a difficult Q1. Apple was trading more than 2% pre-market but ended up the session flat, somehow. Nvidia, on the other hand, jumped 7% on news that Elon Musk’s xAI – which recently raised $6bn – will use Nvidia’s H100 GPUs. Cheers, Elon!

Cheap Chinese AI, anyone?

The news that China set a $48 billion fund to support domestic chip-makers didn’t resonated well across the Chinese AI-related stocks – to my surprise. PDD tanked 5% yesterday, Tencent is down by more than 1% and Alibaba is down by almost 4% in Hong Kong this morning.

The thing is, China must – and will - do whatever it takes to give the necessary support to its tech champions to cope with the severe international competition. The problem is, after the crackdown on its tech champions early 2020s, investors are hard to bring back on board. That makes the Chinese stocks both appetizing and terrifying.

Appetizing because they are cheap. PDD for example – the owner of Temu and a heavy AI investor – has a PE ratio of 20 which makes it a relatively cheap AI holding compared to Nvidia for example, which prints a PE ratio of around 66 today.

But terrifying because there are rising tensions between the West and China that prevents the Chinese AI companies’ from accessing the world’s most powerful chips. Because no one knows if the Chinese government would one day wake up and say ‘hey, let’s smash our technology champions’. And because there is a fierce competition among local players. Alibaba for example cut the prices of a bunch of AI services earlier this month by as much as 97% - a move that saw an immediate reaction from its competitor Baidu who replied that it will offer free services based on its Ernie AI models. But one thing is clear, from a valuation perspective, the Chinese AI stocks offer an unbeatable discount over the Western peers for those who are ready to take the China challenge.

Daily Pivots: (S1) 0.6635; (P) 0.6657; (R1) 0.6672; More...

Intraday bias in AUD/USD remains neutral as range trading continues below 0.6713. Further rally is in favor with 0.6578 cluster support (38.2% retracement of 0.6361 to 0.6713 at 0.6579) intact. 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 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 having a modest bounce today after stronger-than-anticipated inflation figures. The data also revealed re-acceleration of inflation for the second consecutive month, with core inflation measures also rising. While most economists still view a further rate hike by RBA as unlikely, today's surprising data suggests that such a move can no longer be completely ruled out.

The prospect of a near-term rate cut has now significantly diminished. Inflation could remain at elevated levels longer than previously expected, with stubbornly high service inflation and a reversal in goods disinflation trends. Despite the positive move in Aussie, its rally has been limited by a rebounding Dollar driven by mild risk aversion in the markets.

Overall in the currency markets, Dollar and Swiss Franc are also performing well, following Australian Dollar's lead. New Zealand Dollar is under significant pressure, making it the worst performer, suffering additional selling pressure against Aussie. Canadian Dollar and Euro are also among the weaker currencies. Meanwhile, British Pound and Japanese Yen are trading in a more mixed manner.

Technically, a temporary low should be in place in AUD/ZND with current recovery and some consolidations would be seen. But further decline remains in favor as long as 1.0889 support turned resistance holds. Fall from 1.1027 should be revering whole rally from 1.0567. Below 1.0803 will target 61.8% retracement of 1.0567 to 1.1027 at 1.0743 and below.

In Asia, at the time of writing, Nikkei is down -0.49%. Hong Kong HSI is down -1.48%. China Shanghai SSE is up 0.32%. Singapore Strait Times is down -0.12%. 10-year JGB yield is up 0.0318 at 1.072. Overnight, DOW fell -0.55%. S&P 500 rose 0.02%. NASDAQ rose 0.59%. 10-year yield rose 0.075 to 4.542.

BoJ's Adachi: Yen depreciation could prompt earlier rate hike

BoJ board member Seiji Adachi has signaled that the central bank could raise interest rate earlier if depreciation of Yen accelerates or persists.

In his speech today, Adachi emphasized the need to avoid premature rate increases. However, he also warned that an excessive focus on downside risks could lead to an inflation spike, necessitating sharp monetary tightening later on.

Adachi highlighted the importance to "gradually adjust" monetary support based on economic, price, and financial developments, as long as underlying inflation trends toward 2% target.

He projected that consumer inflation will re-accelerate from summer through autumn due to rising import costs and sustained wage gains. However, if Yen's decline accelerates or persists, "consumer inflation could rebound sooner than expected".

"If this happens at a time when there is a higher chance of inflation durably and stably exceeding 2%, we may need to push forward the timing of an interest rate hike," Adachi noted.

Australia's April CPI rises to 3.6%, driven by housing and food costs

Australia monthly CPI rose form 3.5% yoy to 3.6% yoy in April, exceeding the expectation of 3.4%. This marks the second consecutive month of rising inflation. CPI excluding volatile items and holiday travel remained steady at 4.1% yoy, while the trimmed mean CPI also edged up from 4.0% yoy to 4.1% yoy.

Significant price increases were observed in several categories: Housing saw a 4.9% rise, Food and non-alcoholic beverages increased by 3.8%, Alcohol and tobacco prices surged by 6.5%, and Transport costs went up by 4.2%.

Australia's Westpac Leading Index rises to -0.01%, some signs of stabilization

Australia Westpac Leading Index improved slightly in April, rising from -0.08% to -0.01%. Westpac noted that the index is once again indicating some stabilization in growth momentum. However, the improvement in growth is expected to be modest.

Westpac forecasts GDP to grow at an annual pace of 1.9% in the second half of the year, up from 1.3% in the first half. Despite this uptick, the growth rate remains below Australia's trend, which is estimated to be around 2.5% per year with some moderation in population growth.

New Zealand ANZ business confidence falls to 11.2, inflation pressures ease

New Zealand's ANZ Business Confidence index dropped from 14.9 to 11.2 in May, signaling a decline in business sentiment. Outlook for own activity also decreased from 14.3 to 11.8.

Cost expectations saw a reduction 76.7 to 72.6, the lowest since February 2021. Wage expectations ticked down slightly from 75.5 to 75.4. Profit expectations fell sharply, from -9.8 to -15.3, and pricing intentions decreased from 46.9 to 41.6, the lowest level since December 2020. Inflation expectations edged down from 3.76% to 3.59%.

According to ANZ, "This month's Business Outlook survey makes for grim reading, but it also provides confirmation that inflation pressures are waning."

They indicated that significant progress in reducing non-tradable inflation is anticipated, which, barring any unforeseen inflationary spikes, should restore RBNZ's confidence. This would potentially allow for future rate cuts, signaling a cautiously optimistic outlook on inflation control and economic stability.

Fed's Kashkari: Low odds for rate hike but keeping options open

In an event in London overnight, Minneapolis Fed President Neel Kashkari stated that the likelihood of raising interest rates again is "quite low," although he emphasized, "I don't want to take anything off the table."

Kashkari pointed out that "wage growth is still quite robust relative to ultimately what we think would be consistent with the 2% inflation target," suggesting that the labor market remains strong. He emphasized the need for a careful assessment of the downward pressure being placed on demand before making any further policy decisions.

When discussing his input for the upcoming dot plot, Kashkari expressed the importance of having comprehensive data before drawing any conclusions. However, he assured that "it certainly won't be more than two cuts" this year, as he had projected in the last dot plot.

Looking ahead

German Gfk consumer sentiment and CPI flash will be released in European session. Swiss UBS economic expectations and Eurozone M3 money supply will be featured too. Later in the day, Fed will publish Beige Book economic report.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6635; (P) 0.6657; (R1) 0.6672; More...

Intraday bias in AUD/USD remains neutral as range trading continues below 0.6713. Further rally is in favor with 0.6578 cluster support (38.2% retracement of 0.6361 to 0.6713 at 0.6579) intact. 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 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

Short Term Elliott Wave in GBPUSD suggests rally from 4.22.2024 low unfolded as a 5 waves impulse Elliott Wave structure. Up from 4.22.2024 low, wave ((i)) ended at 1.2635 and pullback in wave ((ii)) ended at 1.2445. The pair extends higher again in wave ((iii)) with internal subdivision as an impulse in lesser degree. The 1 hour chart below shows the subdivision of wave ((iii)).

Up from wave ((ii)), wave (i) ended at 1.2541 and dips in wave (ii) ended at 1.2502. GBPUSD then extended higher in wave (iii) towards 1.2726 and pullback in wave (iv) ended at 1.2685. Final leg wave (v) ended at 1.2761 which completed wave ((iii)). The pair then pullback in wave ((iv)) towards 1.2675 and extended higher in wave ((v)) to end at 1.2801 high completing wave 1 in higher degree. Near term, as far as pivot at 1.2801 high stays intact, expect dips to find support in 3, 7 or 11 swing pullback to end wave 2 correction before further upside.

GBPUSD 60 Minutes Elliott Wave Chart

GBPUSD Elliott Wave Video

https://www.youtube.com/watch?v=KZCF-rKxkUw

Stronger clothing prices, and a surprise inclusion of health insurance premium increases, offset the suppression of power bills by Tasmanian electricity rebates.

The Monthly CPI Indicator gained 3.6% in the year to April compared to 3.5%yr in March and 3.4%yr in both February and January.

The April print was slightly stronger than Westpac’s forecast of 3.5%, the market median was 3.4%yr, but this variation appears to be due to rounding and revisions as the reported increase in the month was 0.7%, in line with Westpac’s preview in our Weekly. However, it is worth noting a tension in the forecast which suggest an upside surprise in the underlying fundamentals for inflation.