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Daily Pivots: (S1) 199.24; (P) 199.66; (R1) 200.37; 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. But upside should be limited there. On the downside, below 198.25 minor support will turn intraday bias neutral first. Further break of 197.07 will argue that the third leg of the corrective pattern from 200.53 has started, and target 191.34 support and possibly below.

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) 169.72; (P) 170.11; (R1) 170.64; More...

Intraday bias in EUR/JPY remains on the upside for 61.8% projection of 164.01 to 169.38 from 167.31 at 170.62, and then 171.58 high. On the downside, break of 169.05 minor support will intraday bias neutral first. Further break of 167.31 should turn bias back to the downside to start the third leg of the corrective pattern from 171.58 towards 164.01.

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) 0.8508; (P) 0.8520; (R1) 0.8528; More...

Intraday bias in EUR/GBP remains neutral for the moment, and further decline is expected as long as 55 D EMA (now at 0.8561) 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) 1.6343; (P) 1.6374; (R1) 1.6394; More...

Intraday bias in EUR/AUD is turned neutral first with current retreat. On the downside, break of 1.6322 minor support will indicate rejection by 55 D EMA (now at 1.6408). Deeper fall would be seen to retest 1.6211. 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) 0.9894; (P) 0.9911; (R1) 0.9939; More....

Intraday bias in EUR/CHF is now on the upside this week as recent rally continues. Current rise from 0.9252 should target 100% projection of 0.9304 to 0.9847 from 0.9563 at 1.0106, which is slightly above 1.0095 key structural resistance. On the downside, below 0.9880 minor support will turn intraday bias neutral and bring consolidations first.

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.

Trading has been characteristically subdued in the Monday's Asian session. Japanese Yen is have a broad but weak recovery, with no clear indication of a reversal from its recent selloff. Australian and New Zealand Dollars are also mildly firmer, following rebound in Asian stocks. Meanwhile, Swiss Franc and Euro are among the softer currencies, while British Pound and Dollar are mixed.

Activity in the markets is likely to remain low, compounded by the holidays in both the UK and the US. However, traders are expected to return with heightened focus as significant inflation data from the US, Eurozone, Australia, and Japan are scheduled for release, alongside other important economic indicators from Canada, Swiss and China.

Technically, Gold's rally was cut short after hitting 2449.83 but there is no clear sign of trend reversal yet. As long as 2277.34 cluster support holds (38.2% retracement of 1984.05 to 2449.83 at 2271.90) further rally is still expected. The real test for Golds lies in 2500 psychological level, which is close to 161.8% projection of 1614.60 to 2062.95 from 1810.26 at 2535.69.

In Asia, Nikkei rose 0.66%. Hong Kong HSI is up 1.14%. China Shanghai SSE is up 0.75%. Singapore Strait times is up 0.11%. Japan 10-year JGB yield rose further by 0.0163 to 1.026.

ECB's Lane frames 2024 policy debate to determining degree of reduced restrictiveness

In an interview with the Financial Times, ECB Chief Economist Philip Lane indicated that, barring major surprises, there is sufficient evidence to "remove the top level of restriction" in June, suggesting an initial reduction in the 4.00% deposit rate. He noted that the forthcoming data over the next few months will guide ECB in determining the pace at which further restrictiveness can be eased.

Lane acknowledged that the path to disinflation will be "bumpy and gradual." He framed the debate for this year by stating that ECB still "needs to be restrictive all year long," but within this "zone of restrictiveness," there is potential to "move down somewhat."

He added, "We don't need the data to say normalization is a lock. What we do need the data to say is: is it proportional, is it safe, within the restrictive zone to move down."

Looking ahead to next year, Lane mentioned that discussions about the "normalization" of monetary policy will be more pertinent when wage growth has visibly decelerated and the inflationary impacts of current fiscal measures have diminished.

BoJ's Ueda: Neutral rate estimation a unique challenge for Japan

In a speech today, BoJ Governor Kazuo Ueda reiterated the central bank's commitment to achieving sustainable and stable 2% inflation. He acknowledged the progress made in "moving away from zero" and "lifting inflation expectations," but underscored the need to "re-anchor" them at 2%.

Ueda stressed the importance of a cautious approach, aligning with other central banks that employ inflation-targeting frameworks. However, he highlighted that some challenges are "uniquely difficult" for Japan.

A notable example is determining the "neutral interest rate," a task complicated by Japan's "prolonged period" of near-zero short-term interest rates over the past three decades. This historical context makes it particularly challenging to estimate the neutral rate accurately.

Despite some fluctuations in real interest rates, the lack of significant interest rate movements remains a "considerable obstacle" for BoJ. This impedes their ability to assess the economy's response to changes in interest rates effectively.

BoJ's Uchida: Deflation battle nears end, but anchoring inflation expectations remains a challenge

In a speech today, BoJ Deputy Governor Shinichi Uchida expressed optimism that the end of Japan's long battle against deflation is "in sight." However, he emphasized that there remains a "big challenge" in anchoring inflation expectations at 2% target.

Uchida pointed out that it is "not so clear" whether Japan has fully overcome the "deflationary norm." A critical question is whether companies will maintain their current price-setting behaviors once the global inflationary pressures subside. He highlighted the importance of the labor market in this context.

"If the structural changes in the labor market continue, companies will have to build business models that generate enough profits and wages to keep and attract employees," Uchida noted. Regarding price-setting strategies, he added that companies need to "rewrite their prices in their menus promptly," reflecting labor costs while considering the potential impact on product demand.

The week's spotlights on inflation data from US, Eurozone, Australia, and Japan

Inflation data from several major economies will be under intense scrutiny this week. Although these data points may not directly impact imminent monetary policy decisions, they will significantly influence interest rate outlook for the remainder of the year.

In the US, PCE data is anticipated to reflect the trends observed in recent CPI reports, which indicated resumed cooling in both headline and core inflation. Unless there are unexpectedly large deviations, it is likely that the probabilities of a Fed rate cut in September will remain broadly unchanged at 50/50.

Moving to Europe, preliminary CPI for Eurozone might register a modest increase in May, with the core CPI expected to remain stable. This shouldn't change ECB's plan to reduce interest rates in June. But prospects for a follow-up rate cut in July seem minimal unless economic conditions deteriorate significantly.

In Australia, slight moderation is forecasted in monthly CPI for April. Such a trend would support RBA decision to maintain the current interest rate well into late 2024. However, any unexpected increase in inflation could tilt the balance towards an interest rate hike in the latter half of the year.

Japan's focus will be on Tokyo CPI, where a rebound in core inflation within the capital is anticipated. Yet, it remains premature for BoJ.

Additionally, other economic indicators such as US consumer confidence, Canadian GDP, Australian retail sales, Swiss GDP, and China's NBS PMIs.

Here are some highlights for the week:

• Monday: German Ifo business climate.
• Tuesday: Japan corporate service price; Australia retail sales; Canada IPPI and RMPI; US house price index, consumer confidence.
• Wednesday: New Zealand ANZ business confidence; Australia CPI; German Gfk consumer sentiment; Germany CPI flash; Swiss UBS economic expectations; Eurozone M3 money supply; Fed's Beige Book.
• Thursday: Australia building approvals, private capital expenditure; Swiss trade balance, GDP, KOF economic barometer; Eurozone unemployment rate; Canada current account; US GDP revision, jobless claims, goods trade balance, pending home sales.
• Friday: Japan Tokyo CPI, unemployment rate, industrial production, retail sales; China NBS PMIs; German import prices, retail sales; Swiss retail sales; UK M4 money supply, mortgage approvals; Eurozone CPI flash; Canada GDP; US personal income and spending, PCE inflation, Chicago PMI.

EUR/CHF Daily Outlook

Daily Pivots: (S1) 0.9894; (P) 0.9911; (R1) 0.9939; More....

Intraday bias in EUR/CHF is now on the upside this week as recent rally continues. Current rise from 0.9252 should target 100% projection of 0.9304 to 0.9847 from 0.9563 at 1.0106, which is slightly above 1.0095 key structural resistance. On the downside, below 0.9880 minor support will turn intraday bias neutral and bring consolidations first.

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.

Economic Indicators Update

We had a roller-coaster month of May in terms of central bank expectations. The month began with the Federal Reserve’s (Fed) decision to hold the interest rates steady, and Jerome Powell saying that the Fed’s next move will probably NOT be a rate cut. The latter had sent the markets rallying with enthusiasm. Then, the US jobs data came in softer-than-expected, and inflation didn’t surprise to the upside for the 4th straight month – but producer prices came in hotter-than-expected, and the Fed members kept giving hawkish speeches one after the other, repeating insistently that the rates are good where they are and that cutting them is not necessarily a good idea. Markets’ bull had an ear on the avalanche of Fed comments without necessarily putting too much focus on them, until last week’s Fed minutes revealed an inconvenient truth: that ‘many’ Fed members questioned whether keeping the rates high for longer is enough restrictive to continue the inflation battle, and if hiking rates wouldn’t be more effective. And the mood finally darkened. This is where we are right now.

While last week began on optimism that inflation could allow the Fed to cut rates as early as in September, this week begins on pessimism that the latter will probably not be possible. The US markets are closed today, but the US 2-year yield ended last week near 4.95% and the probability of a September cut fell to a coin flip. But regardless, the US stock markets continue to trade near record levels. The S&P500 and Nasdaq both closed last week a few points below their ATH levels, boosted by a fresh shot of energy after Nvidia reported another set of blowout results and a strong forecast – under these conditions, it will be hard for the tech rally to expand to the rest of the market.

In China and nearby, the CSI 300 and HSI index are better bid this Monday morning following a correction last week – which brought sellers back to the market before the HSI index got the opportunity to test the 20K psychological resistance. The Chinese stimulus measures are supportive of gains, but the rising tensions with the West are threatening the Chinese companies’ revenue expectations. In this beautiful context of rising trade tensions, G7 leaders took the opportunity to further escalate tensions with China at their weekend summit – after the US re-imposed tariffs on hundreds of goods (Biden’s only hope to improve his popularity for the November election). China’s EV makers are on the front line as China became the world’s biggest car exporter. The latest news are about to derail the BYD rally. The stock is preparing to test the 200 support to the downside.

Here in Europe, investors will also be focused on fresh inflation data for May. The headline inflation may have advanced from 2.4% to 2.5% while core inflation is seen steady near the 2.7% level. The European Central Bank (ECB) is expected to start cutting the rates next month. Therefore, if this week’s inflation data shows no surprise, the dovish divergence between the ECB and the Fed should prevent the EURUSD from clearing the 1.09 offers. Against sterling, the euro is sitting on a critical support, the 0.85 level. A hotter-than-expected inflation report from the UK brought the Bank of England (BoE) hawks to the battle field last week, but uncertainties surrounding an upcoming and a too-early general election in the UK will hardly let the pair gain momentum below this level. Elsewhere, the USDJPY is slightly better bid this morning as the Bank of Japan (BoJ) Governor Ueda said that he doesn’t have a ‘big problem’ after the Japan 10-year yield hit a 12-year high last week. If the BoJ leaves the yields to themselves, north is the only possible direction as the country’s debt-to-GDP is at least double the other G7 nations. But we know that they won’t do that – and we also know that the BoJ can’t sustainably counter the yen selloff. As such, buying the Japanese yen still doesn’t look convincing – even at the current levels.

Elsewhere, US crude fell to and rebounded from $76.40pb on Friday on waning reflation trade (due to a significant retreat in Fed cut expectations). OPEC countries will meet this week and probably announce to extend supply cuts into the second half of the year in an attempt to set a floor under the actual selloff. But if the global central banks don’t play along, it will be hard for OPEC to keep oil prices sustained. US crude could extend losses toward the $75pb level if OPEC fails to boost appetite at this week’s announcement.

In an interview with the Financial Times, ECB Chief Economist Philip Lane indicated that, barring major surprises, there is sufficient evidence to "remove the top level of restriction" in June, suggesting an initial reduction in the 4.00% deposit rate. He noted that the forthcoming data over the next few months will guide ECB in determining the pace at which further restrictiveness can be eased.

Lane acknowledged that the path to disinflation will be "bumpy and gradual." He framed the debate for this year by stating that ECB still "needs to be restrictive all year long," but within this "zone of restrictiveness," there is potential to "move down somewhat."

He added, "We don't need the data to say normalization is a lock. What we do need the data to say is: is it proportional, is it safe, within the restrictive zone to move down."

Looking ahead to next year, Lane mentioned that discussions about the "normalization" of monetary policy will be more pertinent when wage growth has visibly decelerated and the inflationary impacts of current fiscal measures have diminished.

Full interview of ECB's Lane.

In a speech today, BoJ Deputy Governor Shinichi Uchida expressed optimism that the end of Japan's long battle against deflation is "in sight." However, he emphasized that there remains a "big challenge" in anchoring inflation expectations at 2% target.

Uchida pointed out that it is "not so clear" whether Japan has fully overcome the "deflationary norm." A critical question is whether companies will maintain their current price-setting behaviors once the global inflationary pressures subside. He highlighted the importance of the labor market in this context.

"If the structural changes in the labor market continue, companies will have to build business models that generate enough profits and wages to keep and attract employees," Uchida noted. Regarding price-setting strategies, he added that companies need to "rewrite their prices in their menus promptly," reflecting labor costs while considering the potential impact on product demand.

Full speech of BoJ's Uchida.

In a speech today, BoJ Governor Kazuo Ueda reiterated the central bank's commitment to achieving sustainable and stable 2% inflation. He acknowledged the progress made in "moving away from zero" and "lifting inflation expectations," but underscored the need to "re-anchor" them at 2%.

Ueda stressed the importance of a cautious approach, aligning with other central banks that employ inflation-targeting frameworks. However, he highlighted that some challenges are "uniquely difficult" for Japan.

A notable example is determining the "neutral interest rate," a task complicated by Japan's "prolonged period" of near-zero short-term interest rates over the past three decades. This historical context makes it particularly challenging to estimate the neutral rate accurately.

Despite some fluctuations in real interest rates, the lack of significant interest rate movements remains a "considerable obstacle" for BoJ. This impedes their ability to assess the economy's response to changes in interest rates effectively.

Full speech of BoJ Ueda.