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There’s nothing to break the deadlock for now. Last week’s correction higher in US Treasuries and lower in USD following the Fed-payrolls combo isn’t met by real follow-up action this week. A very light eco calendar supports the current standstill. Lower volatility and last week’s bond correction prove fertile breathing ground for stock markets. Main European indices build on yesterday’s 1%+ gains on Wall Street. Israeli forces taking control of the Rafah border-crossing don’t spoil sentiment. Central bank comments are so far limited to ECB de Cos who confirmed that the ECB is readying a June rate cut without committing to a further path for rates in H2 2024. ECB Nagel and Fed Kashkari will still hit the wires later today and could together with the US Treasury’s $58bn 3-yr Note auction be a welcome decoy on this otherwise dull session. Daily changes on the US yield curve currently range between -0.7 bps (2-yr) and -3.4 bps (30-yr). German yields record similar losses with the long end also outperforming. EUR/USD holds an extremely narrow range between 1.0760 and 1.0780.

UK Gilts outperform as London returns from May Day holiday festivities. UK Gilt yields slide 4 bps (2-yr) to 8 bps (10-yr) in the run-up to Thursday’s BoE policy meeting. Recent MPC comments suggest that the board is split between following the ECB’s lead with a rapid first policy rate cut (eg Bailey, Ramsden, Dhingra) or the Fed’s example by sticking with peak interest rates for somewhat longer (eg Pill, Mann, Haskel). The new Monetary Policy Report will help navigating the decision. We see asymmetric market risks if the “ECB-pack” gets its way given current market pricing of a first policy rate cut in August or September. The BoE may lay the groundwork for a June move given the window of opportunity created by the accelerating disinflation process in coming months. Simultaneously such action would help the UK economy out of its precarious situation with no growth recorded in Q2 of last year followed by a technical recession in H2 2023. Such outcome would send EUR/GBP sustainably above 0.86 with resistance kicking in at EUR/GBP 0.8786.

News & Views

The OECD, IMF and WTO are forecasting a sharp rebound in global trade this year. After just 1% growth in 2023, trade in goods and services should recover to 2.3% this year and go down the same path in 2025 (3.3%). OECD chief economist Lombardelli attributed the uptick to a cyclical recovery after high inflation, surging interest rates and sluggish demand weighed on trade growth last year. China and east Asia together with a booming US economy were singled out as key drivers of trade activity. Expansions in China and the US, for example, helped annual goods trade growth rise to 1.2% in the second month of the year (latest available data), up from a 0.9% contraction in January. Despite the green shoots, global trade still falls short of the 4.2% average rate (IMF calculations) between 2006 and 2015.

Spanish central bank governor de Cos said his institution will likely upgrade its 1.9% growth forecast in the upcoming update in June. It only recently (March) upped the full-year forecast from the 1.6% previously expected. The southern economy is among the European top performers with the services sector (in particular tourism) providing strong impetus to activity. De Cos added that a strong labour market and the stabilization of geopolitical tensions supported this trend. GDP in the first quarter of the year expanded by 0.7% quarter on quarter, crushing estimates for an already solid 0.4%.

Graphs

US 2y holding steady above first support zones ahead of tonight’s start of the financing round with a $58 3 yr Note auction

EUR/GBP counting down to Thursday’s BoE meeting. Will a shift from Fed to ECB alike pricing trigger upside break?

Brent oil ($/b) eases to lowest level since mid-March, unhindered by ongoing Israeli offensive in Rafah.

USD/JPY: yen extends losses on second day of the week. BoJ governor Ueda said he’s closely monitoring the its impact on prices.

Cable is holding within a narrow range on Tuesday as traders await fresh signals from the key economic event for sterling this week- BoE monetary policy meeting on Thursday.

Data released today (Apr UK construction PMI well above expectations and house prices inched higher) contributed to positive near-term bias, while the price stays above 200DMA (1.2545).

Repeated daily close above 200DMA and broken Fibo barrier at 1.2552 (61.8% of 1.2709/1.2299) to reinforce bullish technical structure and partially offset existing pressure from repeated strong upside rejection in past two days and a bull-trap, left on Friday.

The pair would probably stay in a quiet mode until BoE’s verdict on Thursday, which is likely to generate strong near-term direction signal.

The upside trigger lays at 1.2612 (Fibo 76.4% / 55DMA), with firm break to signal bullish continuation of the upleg from 1.2299 (Apr 22 low).

Conversely, loss of initial supports at 1.2545 (200DMA) and 1.2524 (10DMA) would weaken near term structure and risk extension through lower pivots at 1.2504 (broken Fibo 38.2%) and 1.2486 (20DMA).

Res: 1.2538; 1.2612; 1.2641; 1.2709.
Sup: 1.2545; 1.2504; 1.2486; 1.2405.

• EURUSD returns within range between 1.0725 and 1.0930
• MACD and RSI detect a lack of directional momentum
• For the bears to recharge, a break below 1.0725 may be needed
• The outlook may turn bullish if the price breaks above 1.0930

EURUSD has been in a recovery mode since April 16 when it hit support near the 1.0610 area. Since then, the pair has been respecting an upside support line, which let it on Friday back within the sideways range that has been containing most of the price action since mid-November. This has turned the short-term outlook back to neutral.

Both the MACD and the RSI suggest a lack of strong directional momentum, corroborating the notion of a neutral picture for now. The former lies below zero, but above its trigger line, while the latter, although it returned above its equilibrium 50 level, has been flattening.

For the bears to be considered in charge again, EURUSD may need to fall below both the 1.0725 zone, which is the lower end of the aforementioned range, and also below the newly established upward sloping trendline. Such a dip could initially aim for the 1.0610 barrier, the break of which could encourage more sellers to jump into the action and perhaps push the price towards the 1.0520 zone, which offered support between October 18 and November 1.

On the upside, the pair is still capped by the downtrend line taken from the high of December 28, but even if the bulls breach it, they may feel more comfortable taking the steering wheel after EURUSD breaks the upper bound of the range at around 1.0930. After that, their next test may be at around 1.1000.

To recap, EURUSD continued moving higher, returning within the sideways range between 1.0725 and 1.0930. For the outlook to shift either bullish or bearish, traders may need to exit that range again.

The Japanese yen is down for a second straight day on Tuesday. USD/JPY has risen 0.45%, up 154.59, up 0.45% at the time of writing. The yen is down 1% this week after soaring 3.4% against the dollar a week earlier.

The markets are still buzzing after Japan’s Ministry of Finance apparently intervened twice last week in the currency markets in order to prop up the ailing Japanese yen. Previous interventions have provided only a brief boost for the yen and after crossing above the 160 line last week, the yen has already lost some of last week’s huge gains. With the Fed signaling that it won’t rush into cutting rates, the US/Japan rate differential remains wide and is putting pressure on the yen.

Bank of Japan Governor Ueda weighed in on the yen’s woes on Tuesday, saying that the BoJ would monitor recent yen moves in guiding policy, as such moves could have a “major impact on the economy and prices”. The BoJ tightened policy in March but rates remained around zero and Ueda hasn’t indicated plans to tighten further. Investors were not impressed and the yen continued to lose ground until last week’s intervention.

On Monday two Fed members said that the Fed could afford to be patient. Richmond Fed President Barkin said that first-quarter inflation data was “disappointing” but he remained hopeful that the current restrictive policy would dampen demand and bring inflation back to the target of 2%. New York Fed President Williams said that policy was in “a very good place” and that a rate cut would depend on the data.

USD/JPY Technical

• USD/JPY is testing resistance at 154.34. Above, there is resistance at 154.79
• There is support at 153.57 and 153.12

Daily Pivots: (S1) 153.12; (P) 153.57; (R1) 154.34; More...

Intraday bias in USD/JPY remains neutral for the moment. On the upside, firm break of 55 4H EMA (now at 154.79) will bring stronger rebound towards 157.98 resistance. On the downside, below 151.86 will resume the fall from 160.20. But strong support should be seen from 150.87 resistance turned support to bring rebound.

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) 0.9043; (P) 0.9056; (R1) 0.9076; More....

USD/CHF is staying in consolidation above 0.9005 temporary low and intraday bias stays neutral. Further decline is in favor as long as 55 4H EMA (now at 0.9101) holds. On the downside, break of 0.9005 and sustained trading below 55 D EMA (now at 0.8996) will bring deeper fall to 38.2% retracement of 0.8332 to 0.9223 at 0.8883. However, firm break of 55 4H EMA will bring stronger rebound to retest 0.9223 high.

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) 1.2535; (P) 1.2565; (R1) 1.2591; More...

GBP/USD is staying in consolidation below 1.2633 temporary top and intraday bias remains neutral at this point. Further rise remains in favor as long as 1.2471 support holds. Above 1.2633 will resume the rebound from 1.2298 to 1.2708 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) 1.0753; (P) 1.0772; (R1) 1.0789; More...

EUR/USD is staying in consolidation below 1.0810 temporary top and intraday bias stays neutral. While deeper retreat cannot be ruled out, further rally is expected as long as 55 4H EMA (now at 1.0725) holds. On the upside, above 1.0810 will resume the rebound from 1.0601 to 1.0884 resistance next. However, firm break of 55 4H EMA will turn bias to the downside for 1.0648 support instead.

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.

The forex markets are displaying some calmness today. While Dollar is trading as the strongest performer, it lacks clear upside momentum indicating a reversal of the decline started last week. With no significant economic data expected from the US for the remainder of the week, Dollar's next move hinges on shifts in risk sentiment and movements in other major currencies.

Meanwhile, New Zealand Dollar is standing as the second strongest, benefiting from Australian Dollar's selloff following RBA's decision to maintain a neutral stance without leaning towards a hawkish tone. Additionally, Euro garners support from better-than-expected Eurozone retail sales data, positioning it as the third strongest currency for the day.

In contrast, Japanese Yen underperforms, emerging as the worst performer, followed by Australian Dollar and Swiss Franc. Sterling and the Canadian Dollar hold intermediate positions.

Technically, AUD/USD's retreat from 0.6645 temporary top is so far rather shallow. As long as 55 4H EMA (now at 0.6554) holds, further rally will remain in favor. Break of 0.6645 will resume the whole rise from 0.6361 to 100% projection of 0.6361 to 0.6585 from 0.6464 at 0.6688. The next move will depend on how risk markets flare, in particular in Asia.

In Europe, at the time of writing, FTSE is up 1.10%. DAX is up 0.64%. CAC is up 0.33%. UK 10-year yield is down -0.0749 at 4.152. Germany 10-year yield is down -0.028 at 2.446. Earlier in Asia, Nikkei rose 1.57%. Hong Kong HSI fell -0.53%. China Shanghai SSE rose 0.22%. Singapore Strait Times fell -0.10%. Japan 10-year JGB yield fell -0.0337 to 0.872.

Eurozone retail sales rises 0.8% mom in Mar, EU up 1.2% mom

Eurozone retail sales volume grew 0.8% mom in March, above expectation of 0.6% mom. Volume of retail trade increased for food, drinks, tobacco by 1.2%, for automotive fuel in specialised stores by 2.0%. Volume was stable for non-food products (except automotive fuel).

EU retail sales grew 1.2% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were recorded in Poland (+7.3%), Cyprus (+4.8%) and Hungary (+2.0%). The largest decreases were observed in Sweden (-1.8%), Malta (-1.0%) and Austria (-0.8%).

UK PMI construction hits 14-month high but hiring trend subdued

UK PMI Construction surged from 50.2 to 53.0 in April, marking its most robust reading since February 2023. According to S&P Global, this growth was primarily driven by increased activity in commercial projects and civil engineering. However, house building experienced a decline, albeit amid improving supply conditions.

Tim Moore, Economics Director at S&P Global Market Intelligence, highlighted the sector's consolidation of its return to growth, with overall industry activity expanding at the fastest pace in 14 months. This growth was fueled by heightened confidence in the UK's economic outlook, leading to increased demand for construction services. Despite the uptick in workloads, hiring remained subdued, aligning with broader trends observed across the UK economy.

RBA stands pat, upgrades inflation forecasts, not ruling anything in or out

RBA left cash rate target unchanged at 4.35% as widely expected. The central bank maintained that it's "not ruling anything in or out" regarding the next move in monetary policy because of uncertainty surround inflation outlook.

In the new economic forecasts, both headline and core inflation forecasts for 2024 are upgraded substantially. Meanwhile, growth forecasts were downgraded slightly for both 2024 and 2025.

Year-average GDP growth:

• For 2024 downgraded from 1.5% to 1.3%
• For 2025 downgraded from 2.2% to 2.1%.

Year-ended CPI inflation:

• For Dec 2024 upgraded from 3.2% to 3.8%.
• For Dec 2025 unchanged at 2.8%.
• For June 2026 at 2.6% (new).

Year-ended trimmed mean inflation:

• For Dec 2024 upgraded from 3.1% to 3.4%.
• For Dec 2025 unchanged at 2.8%.
• For June 2026 at 2.6% (new)

Japan's PMI services finalized at 54.3, strong demand and rising costs

Japan's PMI Services for April finalized at 54.3, slightly up from March's 54.1. PMI Composite also saw an uptick, reaching 52.3, the highest level since August 2023.

According to Tim Moore, Economics Director at S&P Global Market Intelligence, April showcased "another strong month" for the service sector, driven by increasing business and consumer spending. This momentum resulted in the fastest upturn in business activity since August 2023. Despite challenges such as shortages of candidates hindering recruitment, positivity regarding the longer-term business outlook contributed to solid employment growth.

However, rising wage costs have emerged as a significant concern, leading to the sharpest increase in average cost burdens in eight months. Service providers are responding to elevated cost pressures by seeking higher prices from clients, with the latest survey indicating the fastest pace of price increases since the sales tax hike in April 2014.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0753; (P) 1.0772; (R1) 1.0789; More...

EUR/USD is staying in consolidation below 1.0810 temporary top and intraday bias stays neutral. While deeper retreat cannot be ruled out, further rally is expected as long as 55 4H EMA (now at 1.0725) holds. On the upside, above 1.0810 will resume the rebound from 1.0601 to 1.0884 resistance next. However, firm break of 55 4H EMA will turn bias to the downside for 1.0648 support instead.

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