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The Euro keeps firm tone on fading hopes for ECB rate cut, with markets focusing on tomorrow’s release of German inflation data (annualized CPI expected to rise in May).

The bull leg off higher low at 1.0805, where 100DMA contained recent pullback, extends into third straight day and pressuring pivotal barriers at 1.0891/95 (Fibo 76.4% of 1.0981/1.0601 / May 16 high) violation of which to complete corrective phase and open way towards key targets at 1.0981/1.1000 (Mar 8 / Jan 11 highs / psychological).

Strong positive momentum and MA’s in bullish setup with multiple bull-crosses on daily chart, as well as completion of bull-flag pattern, support the action add to positive near-term outlook.

Rising 10DMA (1.0854) offers immediate support, guarding broken Fibo 61.8% (1.0836) and key supports at 1.0811/08 (converging 100/20DMA’s, on track to for another bull cross) which should keep the downside protected and maintain larger bullish bias.

Res: 1.0895; 1.0942; 1.0981; 1.1000.
Sup: 1.0854; 1.0836; 1.0808; 1.0785.

Cable has seen some nice recovery at the end of 2023; move is looking impulsive so more gains can be seen after the corrective retracement which has unfolded down from March highs. So far, price came down with three waves but pair is making a nice turn-up in last few weeks, out of a downward channel, thus it appears that pair is back in bullish mode. In fact, UK CPI figures reported last week indicated a cooling of inflation, but not as much as expected, so potential June cuts are most likely off the table. Looking at the 4h time frame, we see nice five subwaves up as expected which look like a wave 3, therefore we can expect much higher targets after a next pullback while market trades above 1.2570 invalidation level. However, there can be some resistance in the short-term, near the daily trendline that comes in around 1.28. Support on dips is at 1.2650.

In an interview with CNBC today, Minneapolis Fed President Neel Kashkari emphasized the need for "many more months of positive inflation data" before considering a reduction in monetary policy restrictions.

Moreover, he noted that Fed might still need to hike rates if inflation does not decrease further, stating, "I don't think we should rule anything out at this point."

Kashkari expressed confidence that Fed would eventually achieve its 2% inflation target but cautioned against rushing into rate cuts. However, "I'm not seeing the need to hurry and do rate cuts. I think we should take our time and get it right," he added.

• EURJPY is in a steady uptrend, threatening multi-year peak
• But oscillators point to overbought conditions

EURJPY has been in a steady advance since the beginning of May following its bounce off the long-term ascending trendline. However, the risk of a pullback has increased as the price is approaching its 40-year high of 171.56 given that momentum indicators are flashing overbought conditions.

Should the upward trajectory resume, the pair could revisit its recent 40-year peak of 171.65 registered on April 29. Violating that region, the price could then meet resistance at the 175.00 psychological level.

On the flipside, if the pair experiences a pullback, the May support of 167.31 could act as the first line of defence. A break below that zone could trigger a retreat towards 165.34 ahead of 164.28, two previous resistance regions that could serve as support in the future. Even lower, the April support of 163.60 could prevent further declines.

In brief, EURJPY has been on the rise again, attempting to re-visit its 40-year high of 171.56. Nevertheless, traders should not rule out an impending pullback as technical indicators are warning of an overstretched advance.

Market picture

The crypto market capitalisation is down 0.8% in 24 hours to $2.55 trillion. Bitcoin is losing 0.7%, Ethereum is down 1.1%, and the top altcoins are changing between -0.9% (Toncoin) and +1.1% (Solana).

Bitcoin’s hashrate updated a record after the fourth halving. The index reached 676 Eh/s now. The moving average of BTC hashrate over the last 7 days exceeded 650 Eh/s, having reached 659 Eh/s at the beginning of the week. Bitcoin miner capacity increased after the halving, although the opposite was expected.

Bitcoin failed to build on Monday’s gains and is losing ground on Tuesday. It is pulling back deep from the upper boundary of the trading range, trading at $68K. The lower boundary of the range (a potential target for bears) is below $60K. That said, the first cryptocurrency’s ability to consolidate above $70K will break this bearish pattern.

News background

Disposer MtGox has begun actively distributing funds. A total of 142,000 BTC ($9.7 billion), 143,000 BCH ($69.6 million) and 69 billion yen ($439 million) are scheduled to be distributed. This event temporarily pressurises the markets as the recipients of the assets can sell them immediately. However, this sell-off will finally close a longstanding phobia.

Ethereum developers announced that the Pectra update will be released by the first quarter of 2025. This is the next major upgrade to the network after Dencun, which was implemented in March. The update will include proposals to improve the Ethereum Virtual Machine object format, as well as the deployment of EIP-7251.

Bloomberg recorded a sharp rise in the number of crypto funds. Between January and March, 25 cryptocurrency-focused venture capital and hedge funds entered the market, the highest number since the second quarter of 2021.

The aggregate value of blockchain assets (TVL) in The Open Network (TON) exceeded $300 million, with the figure showing parabolic growth since the beginning of March. The liquidity flow is mainly related to the Tonstakers liquidity-stacking programme and the decentralised exchange Ston.fi.

As the chart indicates, on Monday, the price of WTI crude oil rose by approximately 1%.

Reuters reports that the bullish sentiment is driven by:

→ the upcoming OPEC+ meeting scheduled for 2 June;

→ expectations of high fuel demand with the start of the summer driving season and holiday season in the US.

Conducting a technical analysis of WTI crude oil on 10 May, we drew an ascending channel in blue and suggested a scenario of continued price growth within this channel.

Since then:

→ the price formed a low on 15 May at the level of 76.35, but quickly recovered from it. Thus, the bears' attempt to break the low of 8 May at the level of 76.68 quickly failed. In other words, there was a false breakout of the 8 May low.

→ A similar pattern occurred on 24 May – the price dropped below the 15 May low of 76.35, but quickly recovered.

Two false bearish breakouts are a bullish sign. And the strong behaviour of WTI crude oil prices on Monday confirms this.

Analysing the XTI/USD chart today, it is important to note that:

→ the price movement in April-May forms a descending channel (shown in red);

→ this decline since 5 April may be a correction within the larger ascending blue channel;

→ the price quickly returned to the blue channel, briefly dipping below its lower boundary;

→ the price is near the upper boundary of the descending channel.

Thus, conditions are being created for the end of the corrective movement. The bears' inability to hold the WTI oil price at new lows may be used by the bulls to resume the upward trend. It is also possible that news related to the OPEC+ meeting will contribute to this development.

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• GBPUSD creates upside rally from five-month low
• Stochastic and RSI hold in overbought areas

GBPUSD has been in a steady uptrend over the last month, posting a fresh two-month high of 1.2782 and remaining well above the short-term simple moving averages (SMAs). Technically, the pair is sailing near overbought waters according to the stochastic oscillator. The RSI is also flagging a potential downfall as it’s losing impetus near 70.

If buyers stay in play, the door will open for the 1.2820 resistance level ahead of the six-month high of 1.2892. Running higher, the outlook will be brighter, switching the long-term outlook to a more positive one, flirting with the 1.3000 round number.

Should the bears press the price below 1.2630-1.2670, the 50- and the 200-day SMAs at 1.2575 and 1.2537 respectively may be the first obstacles for traders to look for. If the latter gives way too, the decline could continue towards the support line of 1.2465 before plunging to the five-month low of 1.2300.

In a nutshell, despite the latest exciting rebound in GBPUSD, there are some obstacles to consider before a real bullish trend reversal takes place in the long-term view.

Markets

As US and UK markets were closed yesterday, directional guidance for trading on European markets solely had to come from domestic sources. German IFO Business climate printed softer than hoped for after last week’s strong PMIs. The overall index stabilized (89.3) as better expectations were neutralized by an, albeit modest, setback in the current assessment. The immediate impact on EMU bond markets was negligible, but yields finally fell prey to the forces of gravity and this move was reinforced by comments from ECB’s Villeroy and Lane. As the ECB is in a data-dependent and meeting-by-meeting approach, the Bank of France governor wants to keep all options open. A June rate cut is a done deal except in case of a big shock. After that, Villeroy didn’t commit to any specific path for follow-up easing, but contrary to some of his more hawkish colleagues he doesn’t exclude a next step in July. If expectations for inflation returning to 2% next year are confirmed, there is room for the ECB to already reduce restrictive policy this year. Villeroy also labelled current market expectations on the ECB’s terminal rate (2.50%/2.75% area) as not unreasonable. In a separate interview, Chief economist Lane agreed, that within restrictiveness, there is room to lower rates. German yields declined between 4.7 bps (2-y) and 2.2 bps (30-y). Even after the comments markets still are about 50-50% split on two or three 25 bps ECB rate cuts by the end of the year. In low volume trading, European equities remained well bid (EuroStoxx 50 + 0.47%). The euro briefly reversed initial losses to close the day even marginally stronger at 1.0859. Sterling outperformed with EUR/GBP testing the 0.85 barrier.

This morning, Asian equities are trading mixed, mostly with no big changes. US yields decline marginally and the dollar stays in the defensive (DXY 104.44; EUR/USD 1.0875). Later today, the calendar in the EMU and the US is modestly interesting with markets still focused on key inflation data later this week (EMU May flash CPI and US April PCE deflators on Friday). In EMU, the ECB 1-year inflation expectation is expected to ease for 3.0% to 2.9% (3-y expected unchanged at 2.5%). After yesterday’s comments from ECB’s Villeroy and Lane, a soft surprise might cause markets to again move in the direction of 3 rather than 2 ECB rate cuts this year, supporting some further decline especially at the short end of EMU yield curves. In the US, house prices and consumer confidence (Conference Board) will be released. The overall index is expected to continue the gradual downtrend (96 from 97) since the start of the year. Such an outcome, might help cap last week’s rebound in US yields, keep equities well bid and weigh on the dollar. In a day-to-day perspective, the US currency might return to ST support levels (DXY 104.08 and EUR/USD 1.0895). Softer UK price data (cf infra), this morning are keeping EUR/GBP north of 0.85.

News & Views

US yields decline marginally and the As US and U British retail shop price rises eased to 0.6% y/y in May, the slowest pace since end 2021, the British Retail Consortium reported this morning. That’s slower than the 0.8% the month before and defies expectations for a pickup to 1%. The decline was broad-based with food prices rising 3.2% compared to 3.4% in April. Non-food was even increasingly deflationary for a second month straight (-0.8%, from -0.6%). The BRC chief executive noted that “Retailers cut furniture prices in an attempt to revive subdued consumer demand for big-ticket items, and football fans have been able to grab some bargains on TVs and other audio-visual equipment.” The price data come after the UK last week released April CPI numbers that topped estimates across the board. UK money markets have all but fully priced out a June rate cut by the Bank of England as a result.

Australian retail sales in April rose a meagre 0.1% m/m, erasing only part of the 0.4% decline the month before. The head of Australia’s statistics bureau noted that the timing of easter and school holidays across the country induced some volatility in turnover in March and April. But this doesn’t change the fact that “Since the start of 2024, trend retail turnover has been flat as cautious consumers reduce their discretionary spending.” Turnover in most non-food industries rose with the exception of clothing, footwear and personal accessory retailing. Food-related spending was mixed with food retailing (-0.5%) normalizing after an early Easter-boosted March while there was a small rise in cafes, restaurants and takeaway. The Australian dollar strengthens this morning despite the poor reading against an overall weak USD. AUD/USD trades around 0.666.

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) 199.85; (P) 200.14; (R1) 200.67; More...

Intraday bias in GBP/JPY remains on the upside for 100% projection of 191.34 to 180.07 from 195.02 at 200.75. Strong resistance could be seen there to limit upside. But upside should be limited there. 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) 170.08; (P) 170.29; (R1) 170.61; More...

EUR/JPY's rally from 164.01 is still in progress and intraday bias stays 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.