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Eurozone CPI was unchanged at 2.4% yoy in April, matched expectations. CPI core (energy, food, alcohol & tobacco) slowed from 2.9% yoy to 2.7% yoy, above expectation of 2.6% yoy.

Looking at the main components of euro area inflation, services is expected to have the highest annual rate in April (3.7%, compared with 4.0% in March), followed by food, alcohol & tobacco (2.8%, compared with 2.6% in March), non-energy industrial goods (0.9%, compared with 1.1% in March) and energy (-0.6%, compared with -1.8% in March).

Full Eurozone CPI release here.

• EURJPY stabilizes after Japan-driven volatile session
• Bears wait for action below the 167.20 support area
• Eurozone’s flash CPI inflation due at 09:00 GMT

EURJPY rose rapidly to an almost 40-year high of 171.56 on Monday thanks to a suspected intervention from Japanese authorities. But the spike faded immediately, with the price diving to a low of 165.63 before closing the day near 167.54 in the aftermath.

Technically, the resistance line from June 2023, which led to the decline in November 2023, has once again hindered the aggressive bullish movement, increasing the likelihood of a downward reversal as both the RSI and stochastic oscillator have reached their peak in the overbought zone. Recall that the pair has been rising almost every single day since April 15. Hence, some stability would not be very surprising.

The broken January resistance line is assisting the 23.6% Fibonacci retracement of the December-April uptrend in buffering downside pressures near 167.20. If that floor cracks, the pair could slump towards its 20-day simple moving average (SMA) at 165.20 and perhaps test the 38.2% Fibonacci mark of 164.52 too. Then, the spotlight might fall on the 50-day SMA and the support trendline from February at 163.25, a break of which could see an extension towards the constraining ascending line from August 2020 at 161.38.

Alternatively, the bulls might strive to reach Friday’s closing price of 169.27. A successful outcome there could make the 170.00 psychological mark visible again, and if it’s easily broken, the pair could move towards the long-term resistance line at 171.60. The 175.00 round level could be the next target.

The possibility of EURJPY repeating Monday’s impressive rally is uncertain, but there could be ongoing upward pressures if the base at 167.20 holds.  

• GBPUSD rebounds strongly from a 5-month bottom
• But meets strong resistance at 200-day SMA
• Momentum indicators improve but remain neutral-to-negative

GBPUSD experienced a vast decline after posting a fresh 2024 high of 1.2892, generating a clear structure of lower highs and lower lows. Although the pair has been attempting a recovery in the past few sessions following its bounce off a fresh five-month bottom, the 200-day simple moving average (SMA) appears to be curbing its upside.

Should bullish pressures persist, the pair might test the March-April support of 1.2574, which could now serve as resistance. A break above that zone could pave the way for the April peak of 1.2682. Higher, the December resistance of 1.2793 could prove to be the next barricade for the bulls to overcome.

Alternatively, a downside move could meet initial support at the February bottom of 1.2517. Sliding beneath that region, the price may retreat towards 1.2450 ahead of the April support of 1.2405. Further declines could then cease at the five-month bottom of 1.2298.

In brief, GBPUSD has been attempting to recoup some losses after falling to its lowest level since November 2023. For the rebound to extend though, the pair needs to initially jump above the 200-day SMA.

Swiss KOF Economic Barometer rose from 100.4 to 101.8 in April, slightly above expectation of 101.7. This rise positions the barometer in a range that is slightly above average, suggesting a stable yet unspectacular outlook for Switzerland's economy.

According to the KOF Economic Institute, "The Swiss economic development is robust, but there is currently no strong boost in sight."

Overall economic outlook appears to be improving across several key sectors including financial and insurance services, manufacturing, and private consumption. Conversely, outlook for construction and hospitality industries presents a less optimistic picture.

Full Swiss KOF release here.

Markets

Core bonds gained ahead of a busy week. US yields dropped between 1.9 and 5.3 bps with the long end outperforming. The US Treasury unexpectedly lifted its quarterly borrowing estimate by $41bn compared to its January estimate (cf. infra). While only temporary, the small yield spike it triggered at the long end of the curve does reveal some market sensitivity to the matter. German rate declines were about the same, ranging from 2.6 (2y) to 4.5 bps (30y). Inflation readings from the likes of Spain, Belgium and Germany do not call into question the ECB’s intention to cut rates in June. But the fact that inflation reaccelerated is testament to the bumpy road ahead that limits the central bank’s operating room in the months thereafter. ECB’s Wunsch was the latest to warn against back-to-back rate cuts with his Dutch colleague later referring to the US inflation experience showing the need to be vigilant. Currency investors were of course eyeballing JPY graphs all day. The yen gained more than a percent against the euro and the dollar on what is presumed to have been an intervention but did close well below the highest levels of the day. USD/JPY finished at 156.35 compared to an intraday low of 154.54. EUR/USD appreciated from 1.0693 to 1.0721. Sterling did very well but that had probably more to do with USD and EUR spillover moves in the JPY combination rather than genuine GBP strength. Either way, EUR/GBP slid towards 0.853.

Yesterday’s national inflation readings culminate in the European figure today. Risks are slightly skewed to the upside but the deviation from consensus, if any, should be small. Q1 GDP EMU growth is also being readied for release. French just printed a bigger-than-expected 0.2% q/q outcome, adding to the belief that the European economy as a whole is recovering from a winter recession (Q4 figure was revised downwards to -0.1% q/q). But neither CPI nor GDP is probably going to leave a big stamp on (European) markets ahead of a public holiday tomorrow and the FOMC meeting though. The policy statement and chair Powell are expected to sound a lot less confident about inflation’s return towards 2% after the recent string of data. That would contrast sharply with the previous time around but is more or less priced in by US (money) markets. The latter assume one rate hike this year with split opinions on a second one. It means the bar for yields at the front end to rise further (eg. 2y beyond 5%) is high and probably requires Powell to bring back rate hikes on the table. That’s not our base scenario for the time being. The long end continues to be the most vulnerable part. The US dollar holds the upper hand this morning but trades with technically insignificant gains.

News & Views

The US Treasury yesterday its quarterly borrowing estimates for Q2 and Q3. During the April-June quarter, the Treasury expects to borrow $243bn, assuming an end-of-June cash balance of $750bn. That’s $41bn more than announced in January, largely due to lower cash receipts, partially offset by a higher beginning of quarter cash balance ($775bn instead of $760bn). During the July-September quarter, Treasury expects to borrow $847bn assuming an end-of-September cash balance of $850bn. Additional financing details relating to the Treasury’s quarterly refunding will be released on Wednesday.

UK shop price inflation slowed further in April, from 1.3% Y/Y to 0.8% Y/Y, the slowest pace since December 2021. The British Retail Consortium reported that non-food inflation entered deflation (-0.6% Y/Y from +0.2%) while food inflation slowed to 3.4% Y/Y (from 3.7%). Non-food prices fell especially in clothing and footwear where retailers ramped up promotions to encourage consumer spend. CEO of the BRC, Helen Dickinson, said that "while consumers will welcome the lower shop price inflation, geopolitical tensions and the knock-on impact on commodity prices, like oil, pose a threat to future price stability. Retailers will continue to do all they can to keep prices down, but government has a role to play with pro-growth policies that allow businesses to invest in the customer offer."

Graphs

GE 10y yield

ECB President Lagarde clearly hinted at a summer (June) rate cut and has broad backing. EMU disinflation will continue in April and bring headline CPI (temporarily) at/below 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 come to terms with that, pushing yields up.

US 10y yield

The March dot plot contained several hawkish elements including a symbolically higher neutral rate. In our view they set the stage for a later (September at the earliest, likely December) start of a possibly shallower cutting cycle. Upcoming CPI readings (through base effects) and resilient eco data should confirm this. US yields continue their uptrend across the maturity spectrum, setting fresh YTD highs.

EUR/USD

Economic divergence (US > EMU) and a likely desynchronized rate cut cycle with the ECB exceptionally taking the lead pulled EUR/USD towards the previous YTD low at 1.0695. Stronger-than-expected US March inflation figures forced a technical break. Last year’s low at 1.0494 looks vulnerable.

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.

Daily Pivots: (S1) 193.15; (P) 196.84; (R1) 200.07; More..

Intraday bias in GBP/JPY remains neutral as consolidations from 200.53 short term top continues. Outlook will remain bullish as long as 193.51 resistance turned support holds. Firm break of 200.53 will resume larger up trend.

In the bigger picture, current rally is part of the up trend from 123.94 (2020 low). Sustained break of 61.8% projection of 155.33 to 188.63 from 178.32 at 198.89 will pave the way to 100% projection at 211.65. Break of 189.97 support is needed to be the first sign of medium term topping. Otherwise, outlook will remain bullish in case of retreat.

Daily Pivots: (S1) 164.95; (P) 168.26; (R1) 170.86; More...

Intraday bias in EUR/JPY remains neutral as consolidation from 171.58 short term top is extending. Overall outlook will remain bullish as long as 165.33 resistance turned support holds. Above 171.58 will resume larger up trend to 178.39 projection level next.

In the bigger picture, current rally is part of the up trend from 114.42 (2020 low), which is still in progress. Decisive break of 169.96 (2008 high) will pave the way to 100% projection of 139.05 to 164.29 from 153.15 at 178.39. On the downside, break of 162.26 support is needed to be the first sign of medium term topping. Otherwise, outlook will stay bullish in case of retreat.

Daily Pivots: (S1) 0.8522; (P) 0.8545; (R1) 0.8558; More...

Intraday bias in EUR/GBP remains on the downside for the moment. Corrective rebound from 0.8497 should have completed at 0.8643, after rejection by trend line resistance. Deeper fall would be seen to retest 0.8491/7 support zone. On the upside, above 0.8582 minor resistance will turn intraday bias neutral 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) 1.6271; (P) 1.6346; (R1) 1.6402; More...

Intraday bias in EUR/AUD is turned neutral with current recovery. Further decline is expected as long as 1.6484 resistance holds. Below 1.6288 will resume the fall from 1.6742 to 1.6127 support, or further to 100% projection of 1.7062 to 1.6127 from 1.6742 at 1.5807 However, break of 1.6484 will turn bias back to the upside for further rebound.

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 another 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) 0.9739; (P) 0.9772; (R1) 0.9793; More...

Intraday bias in EUR/CHF stays neutral for more consolidations. Further rally is expected with 0.9708 minor support intact. Above 0.9800 will resume the rebound from 0.9563 to retest 0.9847 high. However, break of 0.9708 will turn bias to the downside, to extend the corrective pattern form 0.9847 with another falling leg.

In the bigger picture, while 55 D EMA (now at 0.9644) was breached, EUR/CHF rebounded strongly since then. Rise from 0.9252 medium term bottom should still be in progress. Break of 0.9847 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. However, sustained trading below 55 D EMA will argue that the rebound has completed.