Sample Category Title

BoE's Chief Economist Huw Pill suggested today that it is "not unreasonable" for central bank to consider rate cuts over the summer. However, he emphasized the critical need for to maintain a "restrictive stance" on monetary policy to address persistent domestic inflation pressures.

Pill's comments come against the backdrop of newly released data, which he referenced in his remarks. "We actually got some additional data this morning that would be consistent with a small additional decline in the first quarter," he said, pointing to the latest figures on private sector regular pay growth.

This data indicates a slight cooling in the labor market, although Pill noted that it "still remains pretty tight by historical standards." He emphasized that "rates of pay growth remain quite well above what would be consistent for meeting the 2% inflation target sustainably."

• EURJPY in the green for the seventh consecutive trading day
• Bulls aim for April’s multi-year highs, but they might run out of steam soon

For the past week, EURJPY has been experiencing a non-stop upward movement, currently targeting April’s bar of 169.27, which proved tough to claim despite the flash spike to a 40-year high of 171.56.

Having jumped back above January’s upward-sloping channel, the pair might retain buying interest in the coming sessions. The technical indicators confirm this narrative as the RSI continues to trend up and is still below the overbought level of 70. Yet, with the stochastic oscillator looking for a bearish turn above its 80 overbought level, the market might struggle to repeat its recent success.

Surpassing the 170.00 level decisively could pave the way for reaching the 40-year high of 171.56 or establishing a new higher high within the 172.25-172.70 trendline area. Beyond the latter, the rally might expand towards the 175.00 round level or up to the 161.8% Fibonacci extension of the previous downleg at 176.23.

On the downside, a step below the 167.25-167.95 area, where the 23.6% Fibonacci retracement of the November-April upleg is placed, could initially halt near the 20-day simple moving average (SMA) at 166.45. If selling forces persist, the price might retest the 50-day SMA and the lower boundary of the bullish formation within the 164.00-164.60 region. Note that the 38.2% Fibonacci number is in the neighborhood. Hence, failure to pivot there could cause a sharper decline towards the 50% Fibonacci of 162.35.

In a nutshell, EURJPY bulls might stay in charge in the coming sessions, but their ability to successfully surpass the 169.27-17.00 constraining territory remains uncertain.

• GBPUSD looks neutral in very short-term
• A jump above 1.2630 could add some optimism
• Stochastic and MACD are mixed

GBPUSD has successfully jumped above the 200-day simple moving average (SMA) with the next crucial obstacle coming from the short-term downtrend line and the 50-day SMA around 1.2590.

Technically, the MACD oscillator is still developing with weak momentum above its trigger line and below the zero level, while the stochastic is extending its upside movement towards the overbought region after the bullish crossover within its %K and %D lines.

If the market overcomes the diagonal line, immediate resistance could be faced from the 1.2630 barricade ahead of a test of the 1.2708 mark. However, the broader outlook would shift to a more neutral one as only a break above the six-month high of 1.2892 could switch the bias to bullish.

On the other hand, a break beneath the 1.2465 support level could endorse the short-term bearish movement, meeting the five-month low of 1.2300. Steeper decreases could turn traders’ attention towards the 1.2186 bottom.

Summarizing, GBPUSD has been moving sideways since April 25 as it is holding within the SMAs, and a move above the downtrend line could change the broader picture to neutral too.

Short Term Elliott Wave in DAX suggests that the Index ended wave (4) pullback at 17626.54. From there, it rallies higher in wave (5) as a nesting impulse Elliott Wave structure. Up from wave (4), wave ((i)) ended at 18226.32 and dips in wave ((ii)) ended at 17795.96. The Index then nested higher within wave ((iii)). Up from wave ((ii)), wave (i) ended at 18235.80 and pullback in wave (ii) ended at 17875.98. Wave (iii) higher ended at 18845.86 and wave (iv) pullback is proposed complete at 18706.08.

Expect the Index to rally higher in wave (v) to complete wave ((iii)). Potential target for wave (v) is 123.6 – 161.8% external retracement of wave (iv). This area comes at 18877 – 18930. Afterwards, it should pullback in wave ((iv)) to correct cycle from 4.25.2024 low before another high again in wave ((v)) to end wave 1. Then it should do a larger degree correction in wave 2 to correct cycle from 4.19.2024 low before it resumes higher. Near term, as far as pivot at 17626.54 low stays intact, expect any pullback to find support in 3, 7, 11 swing for further upside.

DAX 60 Minutes Elliott Wave Chart

DAX Elliott Wave Video

https://www.youtube.com/watch?v=ZBKnW35ypxs

Daily Pivots: (S1) 195.21; (P) 195.75; (R1) 196.74; More...

Intraday bias in GBP/JPY stays on the upside at this point. Rebound from 191.34 is seen as the second leg of the corrective pattern from 200.53, and could target 197.40 resistance. On the downside, break of 194.74 minor support will turn intraday bias neutral 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 183.41) holds, fall 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) 167.83; (P) 168.24; (R1) 168.98; More...

Intraday bias in EUR/JPY stays on the upside at this point. Rebound from 164.01 is seen as the second leg of the corrective pattern from 171.58. Firm break of 168.64 will target 171.58 high. On the downside, below 167.49 minor support will turn intraday bias neutral first.

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 157.89) holds, fall 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) 0.8585; (P) 0.8597; (R1) 0.8603; More...

Intraday bias in EUR/GBP remains neutral at this point. On the downside, below 0.8585 minor support will argue that rebound from 0.8529 has completed, and larger fall might be ready to resume. Intraday bias will be back on the downside for 0.8529 support first.

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) 1.6295; (P) 1.6324; (R1) 1.6357; More...

No change in EUR/AUD's outlook and intraday bias stays neutral. While stronger recovery might be seen, further decline is expected as long as 1.6494 resistance holds. Fall from 1.6742 is seen as the third leg of the corrective pattern from 1.7062. Break of 1.6216 will turn bias back to the downside to 1.6127 support, or further to 100% projection of 1.7062 to 1.6127 from 1.6742 at 1.5807.

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) 0.9765; (P) 0.9784; (R1) 0.9819; More...

Intraday bias in EUR/CHF remains neutral at this point. On the upside, decisive break of 0.9835/47 resistance will resume larger rally from 0.9252. On the downside, however, break of 0.9728 will extend the corrective pattern from 0.9847 with another fall, back to 0.9563 support.

In the bigger picture, as long as 0.9563 support holds, rise from 0.9252 medium term bottom is still in favor to continue. Break of 0.9847 resistance will target 38.2% retracement of 1.2004 (2018 high) to 0.9252 (2023 low) at 1.0303, even as a correction to the down trend from 1.2004.

Markets

Fed vice-chair Jefferson came with an important message to his colleagues. The current diversity of viewpoints among policymakers lends to stimulating debates and ultimately better policy. But… there’s a but… in such a situation, more communication could increase rather than reduce uncertainty about Fed policy. “The potential for misinterpretation is especially acute when many policymakers speak at the same time and disagree with each other”. Also the Summary of Economic Projections (including dot plot) serves as an additional source of volatility in uncertain, and rapidly changing, market conditions (rate outlook). Fed officials have been discussing alternative communication strategies after the previous meeting. An official strategic review including communication policy will start later this year. Earlier this month, the Bank of England received the results of a similar evaluation conducted by former Fed chair Bernanke. Jefferson confirmed the concerning lack of inflation progress in the first quarter, suggesting to keep the policy rate in restrictive territory awaiting that additional evidence. Unlike the FOMC statement, Jefferson didn’t specifically mention a policy rate cut. Fed Chair Powell speaks tonight at a special event organized by Netherlands’ foreign bankers’ association but its unclear if he’ll touch on monetary policy.

US April producer prices have the potential to move markets today. Another upward surprise would up the ante in the run-up to tomorrow’s CPI figures. Consensus expects 0.3% M/M and 0.2% M/M increases for headline and core PPI prints to day. The bar is higher tomorrow at 0.4% and 0.3% respectively. We have the feeling that especially tomorrow, even meeting this bar isn’t the hoped-for evidence that the disinflation process will continue. Therefore, and following the post-FOMC correction, we see asymmetric risks. US yields can then move again somewhat higher withing new trading ranges (4.75%-5.05% for 2-yr yield; 4.4%-4.75% for 10-yr). Such outcome should help the dollar holding above 105 support for the trade weighted greenback and below EUR/USD 1.0872 resistance.

UK labour market data were mixed this morning. April payrolls fell by 85k (vs +20k expected) but the March figure was upwardly revised from 67k job losses to only 5k. The unemployment rate ticked up from 4.2% to 4.3% in the three months to March. Wages rose slightly more than expected over that period (5.7% 3M/YoY). Sterling trades volatile not knowing to choose the weaker employment or the stickier wage inflation side.

News & Views

The NY Fed’s April survey of consumer expectations showed one-year ahead inflation expectations increasing to 3.3% from 3% in March. They also increased to 2.8% from 2.6% at a five year ahead horizon, but eased slightly to 2.8% from 2.9% at a three year horizon. Higher inflation expectations in the New-York Fed survey follow a rise in both one-year and longer time expectations in the consumer sentiment report of the University of Michigan published last week. Home price expectations in the NY-Fed survey also ticked up to 3.3% after seven consecutive months at 3%, reaching their highest level since July 2022. However, answers on the labour market, income and spending showed a more mixed picture. Spending growth expectations also increased (0.2% to 5.2%). Median expected household income eased slightly (0.1%) to 3%. The average perceived likelihood of voluntary and involuntary job separation declined, as did the perceived likelihood of finding a job in the event of a job loss.

Indian inflation eased only slightly in April to 4.83% from 4.85% in March. A further/faster decline in inflation was hampered by elevated food price inflation. Food price inflation (about half of the country’s inflation basket) rose 8.70% Y/Y in April up from 8.52 Y/Y in March. Inflation of most other components continues to ease. Fuel and power prices even were 4.24% lower. The Reserve Bank of India aims to bring inflation back to its 4% target. The April data suggest that it will keep its policy rate on hold at 6.5% at the next policy meeting early June. As is the case for several emerging market currencies, the Indian Rupee is trading in the defensive against a broadly strong dollar. At USD/INR 83.51, the Indian currency trades very close to the all-time lows reached last month (83.57).

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. Together with weak growth momentum, this gives backing to deliver a first 25 bps rate cut. A more bumpy inflation path in H2 2024 and the Fed’s higher for longer 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 left the door open for rate cuts later this year. Soft US ISM’s and weaker than expected payrolls supported markets’ hope on a first cut post summer, triggering a correction off YTD peak levels. Sticky inflation suggests any rate cut will be a tough balancing act. 4.37% (38% retracement Dec/April) already might prove 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, suggesting that the disinflation process provides a window of opportunity to make policy less restrictive (in the near term). Sterling’s downside turned more vulnerable with the topside of the sideways EUR/GBP 0.8493 - 0.8768 trading range serving as the first real technical reference.