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Markets

Several ECB policymakers hit the wires today, including Holzmann, de Guindos and heavyweight Schnabel. As a loyal hawk it was no surprise for Holzmann to caution against easing before the central bank is certain of inflation’s return to 2%. De Guindos stuck to the official guidance of a June cut without committing to anything beyond. Schnabel all but ruled out back-to-back cuts, saying that data currently do not warrant it. “The part of inflation that has become entrenched through second-round effects is proving more persistent. Given the high uncertainty about the inflation outlook, we should give ourselves sufficient time to assess how the recovery is proceeding and how monetary policy affects economic growth and inflation.” Schnabel noted how especially domestic inflation is stickier and that further progress is needed. Wage growth plays a significant role here. Next Thursday we’ll finally get the long-awaited outcome of the Q1 wage negotiations, a key indicator watched by the ECB. Apart from that, next week’s agenda also includes the FOMC May meeting minutes & May PMI business confidence. In a sidenote, Schnabel reiterated her belief in a higher neutral rate, especially due to the exceptionally high investment needs arising globally from the green and digital transitions. The comments supported an already ongoing recovery in European yields. Swap rates add between 3 and 4.2 bps. German Bunds underperform Treasuries with yields rising up to 4.7 bps at the front. US yields trade flat (2-yr) to 2.4 bps (30-yr) higher, preserving key technical levels in the process ahead of the weekend (4.70-4.74% for the 2-yr yield and 4.35-4.37% for the 10-yr yield).

Currency markets trade pretty calm with a general bias towards USD strengthening. A more fragile risk environment on equity markets amid all the buoyancy earlier this week helps the dollar recoup some losses. DXY builds on yesterday’s gains to trade around 104.73. EUR/USD inches south towards 1.0845. Sterling is well bid, eking out a fourth daily gain this week. EUR/GBP drops to 0.856 compared to a 0.858 open. The British eco calendar next week holds some interesting data including PMI’s, retail sales and April CPI. Strong negative base effects will push the latter significantly lower and even close towards the 2% target on a y/y basis. Despite core and services gauges still being well above that level, it will probably add to the BoE’s growing conviction that a rate cut soon (June) may be warranted. Money markets currently attach a 60% probability to that scenario.

News & Views

China today announced an in ex extenso plan to address the crisis in its property market. At the core of the plan are measures to support local governments to buy unsold homes in order to convert them into affordable houses for low and middle-income citizens. The package also includes scrapping a minimum interest rate on mortgages and lowering the required downpayments for first-time homebuyers (from 20% to 15%). The central bank announced a CNY 300 bln refunding program providing financing to banks to support buying of homes by state-owned firms. Still there are doubts whether the measures and amounts announced today will suffice to restore the supply-demand balance in a distorted housing market. Illustrating the problems in the sector, data published this morning showed prices of new homes declining by 0.58% M/M and 3.51% Y/Y, accelerating from -2.65% Y/Y in March.

Riksbank Governor Erik Thedéen in a speech today said that ‘Following a period with substantial global price impulses, price growth in Sweden of around 10 per cent and considerable uncertainty over inflation prospects, we are now back in a situation where inflation is close to the target of 2 per cent and where the prospects for continued low inflation are favourable’. This allowed the RB to start easing policy. The RB governor reconfirmed that if the inflation outlook holds, the policy rate could be cut two more times during the second half of the year. Still any policy adjustment needs by characterized by caution. In assessing the inflation outlook the RB also needs to consider international developments which affect the Swedish economy, via several different channels, including the exchange rate. The krone today trades marginally weaker at EUR/SEK 11.64 with the YTD low for the krone still not that far away at EUR/SEK 11.77.

Graphs

EUR/SEK: Riksbank governor Thedeen confirms two more cuts later this year, provided the current outlook holds

European 2-yr swap yield ends the week with gains. ECB’s Schnabel rules out back-to-back cuts and argues for caution

DXY tries to regain some of the sharp losses incurred earlier this week amid signs of bottoming out

EuroStoxx50 struggles for direction after closing at a new 24-yr high earlier this week.

Daily Pivots: (S1) 154.15; (P) 154.84; (R1) 156.08; More...

Intraday bias in USD/JPY remains neutral and outlook is unchanged. Price actions from 160.20 are seen as a corrective pattern. On the upside break of 156.78 will resume the rise from 151.86, as the second leg, to retest 160.20 high. On the downside, below 153.59 will target 151.86 and below as the third leg.

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) 0.9013; (P) 0.9038; (R1) 0.9088; More....

Intraday bias in USD/CHF stays neutral at this point. Further decline is expected as long as 0.9101 resistance holds. Break of 0.8987 will resume the whole fall from 0.9223 and target 38.2% retracement of 0.8332 to 0.9223 at 0.8883 next. However, break of 0.9101 will turn bias back to the upside for stronger rebound.

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) 1.2642; (P) 1.2672; (R1) 1.2699; More...

GBP/USD is staying in consolidation below 1.2669 and intraday bias remains neutral. Further rally is expected as long as 1.2445 support holds. Break of 1.2708 resistance will pave the way to 1.2892 resistance next.

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 1.2298 support will extend the corrective pattern instead.

Daily Pivots: (S1) 1.0850; (P) 1.0872; (R1) 1.0890; More...

EUR/USD is staying in consolidation below 1.0894 and intraday bias stays neutral at this point. Further rally is expected as long as 1.0765 support holds. Break of 1.0894 will resume the rise from 1.0601 to 1.0980 resistance. Decisive break there will confirm that whole fall from 1.1138 has completed already.

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.

Dollar is gradually recovering from the selloff triggered by US CPI data release earlier in the week. However, the recovery momentum remains indecisive. US stock markets, after a record run, are taking a breather, but bullish sentiment still appears dominant. The stock rally might resume if DOW convincingly breaks the 40k mark, which could again put the greenback under pressure. With an empty US economic calendar today, significant moves are probably only to be seen next week.

For the week, Swiss Franc, Yen, and Dollar are the worst performers, reflecting an overall risk-on sentiment. New Zealand Dollar remains the strongest, followed by British Pound and Australian Dollar. Euro and Canadian Dollar are positioned in the middle.

Technically, a key focus for the last session of the week is USD/CHF, which is now eyeing the 0.9101 resistance level. A firm break there would suggest that the corrective fall from 0.9223 has completed with three waves down to 0.8987. A stronger rally could then be expected, potentially retesting the 0.9223 high. If this scenario plays out, it might signal a broader comeback for Dollar.

In Europe, at the time of writing, FTSE is down -0.38%. DAX is down -0.29%. CAC is down -0.45%. UK 10-year yield is up 0.0276 at 4.115. Germany 10-year yield is up 0.041 at 2.505. Earlier in Asia, Nikkei fell -0.34%. Hong Kong HSI rose 0.91%. China Shanghai SSE rose 1.01%. Singapore Strait Times rose 0.26%. Nikkei rose 0.0261 to 0.952.

Eurozone CPI finalized at 2.4% in Apr, core CPI at 2.7%

Eurozone CPI was finalized at 2.4% yoy in April, unchanged from March's reading. CPI core (ex-energy, food, alcohol & tobacco) was finalized at 2.7% yoy, down from prior month's (2.9% yoy). The highest contribution to the annual Eurozone inflation rate came from services (+1.64 percentage points, pp), followed by food, alcohol & tobacco (+0.55 pp), non-energy industrial goods (+0.23 pp) and energy (-0.04 pp).

EU CPI was finalized at 2.6% yoy. The lowest annual rates were registered in Lithuania (0.4%), Denmark (0.5%) and Finland (0.6%). The highest annual rates were recorded in Romania (6.2%), Belgium (4.9%) and Croatia (4.7%). Compared with March 2024, annual inflation fell in fifteen Member States, remained stable in four and rose in eight.

ECB's de Guindos: Inflation to fluctuate at current levels before falling to 2% in 2025

ECB Vice-President Luis de Guindos addressed inflation expectations at an event today, noting that "headline inflation is there at 2.4%, core inflation below 3%." He projected that inflation will "fluctuate around these values" in the coming months.

Looking further ahead, de Guindos expressed confidence in achieving ECB's long-term inflation goal, stating, "In the medium term, in the year 2025, we will be moving in a stable way towards our price stability objective which is 2%.

Mixed signals in China's economic data: Industrial production surges, retail sales lag

China's economic data for April revealed a mixed picture, with industrial production rising by 6.7% yoy, surpassing the expected 4.6%.

However, fixed asset investment for the year to date grew by 4.2% yoy, falling short of the anticipated 4.6%. Notably, real estate investment declined significantly, dropping by -9.8% in the first four months of the year.

Retail sales, a critical indicator of consumer spending, increased by only 2.3% yoy, below the forecast of 3.8%.

According to the National Bureau of Statistics , production and demand saw a stable increase, with employment and prices showing overall improvement. The NBS stated that the economy was generally stable, continuing to rebound and progress well.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0850; (P) 1.0872; (R1) 1.0890; More...

EUR/USD is staying in consolidation below 1.0894 and intraday bias stays neutral at this point. Further rally is expected as long as 1.0765 support holds. Break of 1.0894 will resume the rise from 1.0601 to 1.0980 resistance. Decisive break there will confirm that whole fall from 1.1138 has completed already.

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.

Economic Indicators Update

The US stock market has surged to new heights, with the S&P 500 index reaching a record high of 5,325 points and the DJIA index touching 40,000 points. Investors are experiencing euphoria, spurred by the unexpectedly low US inflation figures released earlier.

Inflation has recently been a critical driver of market volatility, thus its stabilisation is a cause for significant optimism. The April CPI increase, lower than expected at just 0.3% month-on-month, suggests a potential return to a downward inflation trajectory. Year-on-year, the CPI climbed by 3.4% in April, a slight dip from 3.5% in March. Inflation peaked in June 2022 at 9.1%, and while there was progress, the current deceleration is encouraging for investors.

The April inflation report marked the first decline in year-on-year inflation since January 2024. The CPI rose slower, raising market hopes that the Federal Reserve might soon ease monetary conditions.

Technical analysis of S&P 500

On the H4 chart of the S&P 500 index, a consolidation range has formed around the 5188.0 level. With an upward breakout, extending the fifth wave to 5363.0 is possible. The growth link to 5315.0 has been executed, and we now expect a consolidation range to form around this level. A downward breakout could lead to a range expansion to 5250.5, while an upward breakout could extend to 5363.0. The market is developing the fifth wave of growth without any significant correction, and a sharp decline along the trend to 4735.0 could begin at any moment. This scenario is technically supported by the MACD indicator, with its signal line at the maximums and pointing strictly downwards.

On the H1 chart, the upward move to 5315.5 has been completed. A consolidation range is forming around this level, and a downward impulse to 5296.0 has been fulfilled. We expect a growth link to 5315.5 (testing from below) today. A downward breakout from the range could lead to a continuation of the decrease wave to 5250.5. The Stochastic oscillator technically confirms this scenario, with its signal line above 20 and expected to rise to 80, indicating a potential for continued growth.

The euro has posted slight losses on Friday. EUR/USD is down 0.28%, trading at 1.0837 in the North American session at the time of writing.

Eurozone CPI steady, core CPI falls

The April inflation report showed that headline inflation remained steady at 2.4% y/y, holding at its lowest level in almost three years. Services inflation and energy prices declined, while food, alcohol and tobacco prices were slightly higher. Monthly, headline CPI eased to 0.6%, down from 0.8% in March and matching the market estimate.

The most significant news was the decline in core CPI, which excludes energy and food, alcohol and tobacco and is a more accurate indicator of inflation trends. The core rate fell to 2.7% y/y, down from 2.9% in March and matching the market estimate. Core CPI has now decelerated nine straight times and has dropped to its lowest level since February 2022. The European Commission announced earlier in the week that eurozone inflation is expected to drop to 2.5% in 2024 and fall to the 2% target in the second half of 2025.

The European Central Bank has done a good job slashing inflation, which was running at 7% a year ago. The ECB has signaled that it is ready to shift policy and lower rates at the June meeting.
ECB President Lagarde has widely hinted at a June cut but has remained mum about what happens after that. Lagarde doesn’t want to raise expectations of a series of rate cuts and then disappoint the markets if the ECB doesn’t follow through.

There are no key economic releases out of the US today, leaving FedSpeak as the highlight of the day. Three voting members of the FOMC, Christopher Waller, Mary Daly and Adriana Kugler will deliver speeches which could provide some insights into future US rate policy. FOMC members have sounded rather hawkish, saying that restrictive policy is working and there is no rush to lower rates.

EUR/USD Technical

• EUR/USD is testing support at 1.0850 and is putting pressure on support at 1.0832
• There is resistance at 1.0872 and 1.0890

Silver climbed above $29.8, rewriting the highs from January 2021, but once again faced selling intensification from that level for the first time in four years and has pulled back to $29.40 at the time of writing.

Silver does not look overheated, as it is only now entering overbought territory on the RSI on the daily timeframes. Last month, silver was actively added for another three weeks after the RSI entered levels above 70. A two-week pullback in the second half of April later removed that overbought area. Technically, this clears the way up.

The upside potential after the pullback is also indicated by the April correction fitting into a classic Fibonacci pattern with a pullback to 61.8% of the initial rally from late February, followed by a quick recovery. A strong rise above the recent peaks will be an important confirmation of the growth extension and will make the $33 level a likely target for a new impulse.

We also note that the fresh assault on the 30 level came just a month after the previous one, and this rally started from a higher level than what we saw in March or 3-4 years ago.

Long-term trends are also on the bulls’ side. In the last two years, they have been able to quickly turn the price to the upside after dips under the 200-week moving average. This year, the price is successfully pulling away from that line, but the most furious part of the rally may be ahead.

Silver could be ready to repeat the growth spurt it showed in 2010-2011. Back then, the multi-year resistance was at the $20 level, and the acceleration came after the 50-week moving average exceeded the 200-week moving average, and the price took that important round level. We have already gotten the first signal, so we must wait for the overcoming of $30 at the end of the week to confirm the bullish sentiment.

A move above $30 will make us seriously consider levels above $50/oz as a long-term target, repeating the 2011 and 1980 peaks.

Market picture

The crypto market cooled off on Thursday afternoon, but on Friday morning, buyers stepped up again, bringing capitalisation back to levels from the day before at $2.39 trillion. Strong growth was followed by rapid profit-taking, which is a necessary part of healthy growth, suggesting a high chance of continued gains in the coming days.

Bitcoin was pulling back towards $65K on Thursday but is already trying to regain its footing above $66K on Friday morning. If cryptocurrencies get support from the global risk appetite on Friday, Bitcoin could exceed $70K over the weekend. A test of the $71K-$74K highs area, in our view, could happen as early as early next week, triggering a new episode of FOMO.

Solana has been revived, adding over 10% in less than three days. On Thursday, the coin managed to break out of the $125-155 consolidation range. The day before, it consolidated above the 50-day moving average. Potentially, this opens the way to $200, and this is a case where altcoins are moving better than Bitcoin.

News background

According to the company’s report, hedge fund Millennium Management owned $1.94bn worth of spot bitcoin-ETFs at the end of the first quarter of 2024, which corresponds to 3% of its assets under management.

In the first quarter, 937 companies invested $11bn in bitcoin-ETFs, K33 calculated based on summary reporting information to the SEC. On 15 May, net inflows into spot bitcoin-ETFs rose to $303 million. The positive trend continued for the third day in a row.

According to Bloomberg, there is almost zero probability that the US SEC will approve spot Ethereum-ETFs. Ethereum’s exchange rate against Bitcoin has fallen to a three-year low.

According to the FT, the world’s largest financial derivatives exchange, CME Group, plans to launch spot trading in Bitcoin in addition to its existing futures product. The exchange would then become another channel for Wall Street companies to trade Bitcoin in addition to ETFs.

Tether, the company that issues USDT, has partnered with The Open Network and the Oobit service to “create a seamless cross-chain payments solution.” This could expand the use of crypto assets as a means of payment for people without access to banking services.

Major cryptocurrency exchanges Binance, Bybit, and OKX all listed the NOT token of gaming Web3 project Notcoin on 16 May. The coin will also be added to Telegram’s built-in crypto wallet, Wallet. The project attracted users’ attention due to the announced coin distribution.