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Market picture

Crypto market capitalisation rose 6.2% in seven days to $2.57 trillion, approaching the area of this year’s highs above $2.7 trillion. Bitcoin’s price, like the overall market capitalisation chart, tests the upper boundary of the downward range that has been in force since March.

The break of this downtrend is the ability to consolidate above the last local high. For the crypto market, this is the $2.63 trillion area, and for Bitcoin, it is $71.6K. An alternative negative scenario suggests a return to the lower end of the range, just above $2.12 trillion and around $60K for Bitcoin.

Ethereum has not abandoned its attempt to overcome $4000, hovering above $3900 early in the day on Monday. The ability to overcome this psychologically important round level could quickly take the price to the highs of November 2021, in the $4600-4800 area.

News background

According to JPMorgan, the SEC’s approval of the spot Ethereum-ETF is a political decision ahead of the US presidential election. The decision was made immediately after the US House of Representatives approved the FIT21 bill on cryptocurrencies.

The new stage for crypto-ETFs may start in 2025. Standard Chartered believes that Solana and XRP are the next cryptocurrencies in line to launch ETFs. The bank predicts increased dominance of Bitcoin and Ethereum. TD Cowen admits that ETFs for a “basket of cryptocurrencies” will appear within a year.

Analyst Captain Faibik draws attention to the breakdown of the lower boundary of the “rising wedge” figure on the weekly chart of Bitcoin dominance. In his opinion, it means the beginning of the altcoin season. At the same time, the BTC dominance rate may fall from the current 54% to 45%.

Cinneamhain Ventures admits that the regulator’s similar “way of thinking” may spread to tokens of other projects. However, some experts note that the SEC may still classify the staked-locked Ethereum as a security.

According to Bloomberg, the bankrupt FTX exchange has completed a series of auctions to sell $2.6bn worth of Solana (SOL) tokens at significant discounts to the market price. The coins are locked in vesting for four years, but the gradual unlocking will begin in a few months.

Gold price edges higher in early trading on Monday after last week’s 5% pullback from new record high found solid ground at $2327/25, provided by the top of thick rising daily Ichimoku cloud.

Partial profit taking lifted the price, although recovery was mild so far and facing headwinds from initial barrier provided by 20DMA ($2348).

Technical studies on daily chart show positive momentum and oversold stochastic, which is supportive for recovery, but MA’s are in mixed setup and partially cloud bullish outlook.

Recovery needs to register close above upper pivots at $2373/76 (Fibo 38.2% of $2450/$2325 / 10DMA) to firm the structure and open way for attack at next key barriers at $2387 (50% retracement) and $2400/02 (psychological / Fibo 61.8%) above which to signal an end of a healthy correction and shift near-term focus. fully to the upside.

On the other hand, the downside remains vulnerable in the current configuration, but daily cloud provides good support and near-term action is expected to remain biased higher while the price stays above the cloud.

Lower volumes due to US holiday likely to keep the metal’s action in a quieter mode on Monday, while traders await release of US PCE Index, Fed’s preferred inflation gauge (due on Friday, May 31) which will provide more details about Fed’s action in coming months and generate stronger direction signals.

Caution on penetration of rising daily cloud which would increase downside risk and expose key support at 2300 (psychological / 55DMA) and $2277/72 (recent range floor / Fibo 38.2% of $1984/$2450).

Res: 2348; 2363; 2376; 2387.
Sup: 2332; 2320; 2300; 2277.

Daily Pivots: (S1) 1.0815; (P) 1.0836; (R1) 1.0868; More...

Intraday bias in EUR/USD stays neutral and further rise is mildly in favor. 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) 156.83; (P) 156.99; (R1) 157.16; More...

Intraday bias in USD/JPY remains mildly on the upside for 100% projection of 151.86 to 156.78 from 153.59 at 158.51. On the downside, below 155.83 minor support will turn intraday bias neutral first. Further break of 153.69 will target 151.86 and 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. 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) 1.2692; (P) 1.2721; (R1) 1.2767; More...

Intraday bias in GBP/USD stays neutral and further rise is in favor with 1.2670 support intact. Above 1.2760 will resume the rally from 1.2298 to 1.2892 resistance next. On the downside, below 1.2670 will turn bias to the downside for deeper pull back.

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) 0.9134; (P) 0.9146; (R1) 0.9160; More....

Intraday bias in USD/CHF remains neutral for the moment. Current development suggests that pull back from 0.9223 has completed already. Above 0.9157 will bring retest of 0.9223. However, break of 0.9077 support will bring retest of 0.8987. 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.

Markets

With investors looking ahead to a long weekend in the US and the UK; the upleg in core yields slowed on Friday. US and EMU yields closed with changes of less than 1.5 bps across the curve. US durable goods orders (+0.7% M/M) and core shipments (+0.4% M/M) printed stronger than expected, but coming after a downward revision of the March figures. Inflation expectations from the U. of Michigan consumer confidence survey faced a downward revision as well and helped to soften the yield rally. Fed’s Waller elaborated on the topic of a potentially higher neutral US interest rate. This topic will remain in focus as a further rise of the neutral estimate in the June dots is very much possible. Especially in a context where disinflation slows, this might fuel the debate whether Fed policy is tight enough to bring inflation back to target in a timely manner. The Minutes of the May meeting earlier last week showed that the FOMC wasn’t that sure that policy indeed shouldn’t be tightened any further. After last week’s repositioning, US markets now again scaled back the possibility of a September Fed rate cut to about 50%, with markets also seeing only one rate cut this year. The German 2-y yield and EMU 2-y swap rate finished the week at a YtD closing peak. An ECB June rate cut is not put into question anymore, but strong PMI’s and higher than expected Q1 negotiated wages published on Thursday, suggested that the room for follow-up easing might be limited in H2. Equities showed resilience despite the ‘hawkish repositioning’ in bond markets last week. A bearish engulfing pattern on US indices on Thursday didn’t trigger any further follow-through losses. The Nasdaq even rebounded 1.1%. The dollar gained ground last week, but momentum dwindled end last week. EUR/USD still finished the week at 1.0847. So the 1.0895 correction top still isn’t that far away.

Trading probably will take a slow start as US (Memorial Day) and UK markets (Spring Bank Holiday) are closed. German Ifo Business climate should confirm last week’s positive PMI’s and might provide further downside protection for EMU yields and the euro, admittedly in thin market conditions. Later this week, markets will keep a close eye at the April US PCE deflators and the first estimate of the EMU May inflation. US PCE deflators (headline and core) are expected to stabilize at 0.3%, confirming the message from the CPI published earlier this month. EMU (headline) inflation is expected at a modest 0.2% M/M, but unfavourable base effects still might lift the Y/Y measures (2.5% headline, 2.8% core). For now, we don’t see much of a trigger for markets to reverse the recent higher-for longer repositioning. Better EMU eco data also keep EUR/USD near the topside of the 1.0725/1.09 ST trading range.

​​​​​​​News & Views

BoJ governor Ueda in an opening speech to a BoJ-hosted conference in Tokyo said Japan has progressed in lifting inflation expectations after a long period of deflation and ultra-easy monetary policy. He said the central bank will proceed cautiously to achieve 2% inflation, a target which is now being overshot for about two years in the wake of the pandemic and supply-side shocks. Ueda explained a gradual approach is necessary because "The absence of significant interest rate movements poses a considerable obstacle in assessing the economy's response to changes in interest rates,” referring to the extreme difficulty of estimating the country’s level of the neutral rate. The BoJ ended negative rates back in March and is seen hiking modestly further later this year. Japan’s 10-yr yield also topped 1% last Friday amid rising speculation the central bank will soon begin to taper its bond-buying programme. The BoJ is also under pressure from the historically weak yen. Despite the prospect of further monetary normalization, the spread with the likes of the US remains huge. USD/JPY currently trades just south of 157.

France’s PM Attal released a plan to reduce French jobless benefits as he tries to bring traction to president Macron’s economic reforms. The main goal of cutting the maximum duration of welfare to 15 months from 18 months and lengthen the period of work required to qualify for benefits is to get more people into jobs. It also comes with gradual lower government spending over the next few years. France’s high debt burden and budget deficits are in the spotlights recently with the IMF last week issuing a stark warning to bring things under control. Rating agencies have been highlighting the issue as well. France dodged two bullets end April with Moody’s and Fitch keeping the rating unchanged and the outlook stable. But S&P makes an assessment May 31 and holds a negative outlook.

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.

In focus today

The week kicks off with a very light schedule.

We receive the Germany Ifo indicator for May at 10.00 CET. The past two months have seen an increase in the assessment of the business situation, and it will be interesting to see if this continued in May.

The US is out today for Memorial Day, and the UK is out for the Spring bank holiday. Trading resumes Tuesday in both markets.

Elsewise, ECB's Schnabel, SNB's Jordan, Fed's Mester and Bowman, and BoJ's Himino (all voting members of their central banks) will participate in a panel discussion in Tokyo on monetary policy tomorrow morning (06.55 CET).

For the remainder of the week, we will especially be looking out for consumer confidence, GDP and PCE inflation data out of the US, unemployment, and CPI numbers out of the euro area, as well as PMIs out of China and Tokyo CPI out of Japan.

Economic and market news

What happened over night

In Asia, Chinese premier met with colleagues from Japan and South Korea for the first time in four years in three-way talks. Chinese premier Li Qiang heralded the meeting a new start to their relationship, as Japanese media reported the three nations might restart free-trade negotiations that had been on hold since 2019.

In China, industrial profits came out showing monthly growth again in April at 4% up from the -3.5% slide seen in March. The growth for the first four months of the year stood at 4.3% y/y.

Asian equity markets are trading in the green this morning, and oil is up slightly with Brent trading at around USD 82.3/bbl this morning.

What happened Friday and over the weekend

In Japan, inflation declined further as CPI excluding fresh food stood at 2.2% in April down from 2.6% in March. The declining inflation constitutes an obstacle to the Bank of Japan (BoJ) to hike rates further, albeit we are still waiting to see the solid spring wage increases take effect. Regained purchasing power and stronger private spending is what the BoJ is hoping for to pull the economy back into growth mode.

In the US, University of Michigan surveys of consumer expectations of inflation 1 and 5 years ahead showed downwards revisions to the initial releases of both April and May numbers. For May the final figures stood at 3.3% and 3.0% respectively for the 1 and 5 years ahead expectations. Yields were more or less flat by the end of Friday's session, whereas equity markets ended in the green with especially the Nasdaq and S&P500 rising, gaining 1.1% and 0.7% respectively.

In the euro area, we revised our expectations for the ECB policy rate path following a stronger economic start to the year coupled with sticky inflation. We removed our expectation for a September cut, yet still expect a cut during next week's meeting. The following one is projected to follow in December, see more in ECB preview - A political rate cut in June, and no cut in September, 24 May.

In the world of shipping, the cost of shipping containers continues to climb as complications in the Red Sea persist, the Financial Times reported. Prices have soared as businesses have begun preparing for the festive season earlier than usual in an attempt to avoid issues related to the disruption of supply chains caused by the attacks in the Red Sea by the Houthis in Yemen. Latest price data from last week show short-term contracts on routes from the Far East to North Europe and the US West Coast costing USD 4,677 and USD 4,760. Both indices are thus within striking distance of their peaks from earlier in the year when western nations led by the US and UK first began attacks on the Houthis, and shipping companies started swithdrawing from the Red Sea in response to the increased threat level.

Daily Pivots: (S1) 0.6602; (P) 0.6619; (R1) 0.6647; More...

Intraday bias in AUD/USD remains neutral for the moment. 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, firm 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.

Daily Pivots: (S1) 1.3628; (P) 1.3684; (R1) 1.3721; More...

Intraday bias in USD/CAD remains neutral this week first. On the upside, break of 1.3742 will affirm the case that correction from 1.3845 has completed at 1.3589. Further rally would then be seen to retest 1.3845 high. However, sustained trading below 55 D EMA (now at 1.3637) will argue that whole rise from 1.3176 has completed already.

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.