Sample Category Title

Daily Pivots: (S1) 0.9762; (P) 0.9780; (R1) 0.9797; More...

Intraday bias in EUR/CHF remains neutral at this point. 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.

Markets

The Japanese yen slid dramatically on Friday as the Asian island was heading towards a long weekend. USD/JPY soared from 155.65 to 158.44 in the wake of another JPY disappointing BoJ meeting. It contrasted with Fed policy needing to be restrictive for longer. The latter was once again obvious from higher than expected March PCE deflators, despite them triggering a minor uptick in core bonds which resulted in net daily changes of 4-5 bps lower at the long end of the curve. Some in the market were bracing for an even higher outcome after the Q1 PCE publication a day earlier. The dollar was generally in a very good place, gaining against almost every one of the G10 peers. EUR/USD retreated from an intraday high of 1.075 to just south of 1.07. DXY tried but failed to recapture 106. The greenback was unhindered by an outright bullish market sentiment that drove stocks up to 2% higher in the US (Nasdaq).

Japanese markets are closed tor Showa Day today but the JPY bears do not take a day off. The sell-off continues with low volume circumstances amplifying a sharp USD/JPY upswing that went beyond 160 for an umpteenth 34y high. That was followed by a violent countermove bringing the pair 5 JPY down to an intraday low of 155. USD/JPY currently trades in the 156.3 region. Japan’s currency chief Kanda didn’t want to comment when asked about these sharp moves in an interview shortly after. But they have “FX intervention” written all over it. Doing it today gives them an advantage because less liquidity works in both ways of course. Currency interventions, as the past has shown as well, usually don’t have a long-lasting market impact. We suspect it won’t be different this time around. For now the JPY strengthening move against the dollar does have knock-on effects in other pairs too. EUR/USD rebounded to 1.0726 and GBP/USD (cable) to 1.254. The Japanese currency will grab most of the market attention today along with the publication of some national inflation readings (Germany, Spain, Belgium) in the run-up to the European figure tomorrow. But that’s only part of a heavy economic calendar this week. EMU Q1 GDP numbers are also scheduled for release while the US readies for the April ISMs, the JOLTS and labour market report, the US Treasury’s quarterly refunding announcement and the FOMC meeting. We believe the combination should draw a firm bottom below core bond yields with the long end of the curve being most vulnerable for some additional losses. The US dollar may regain momentum when the JPY effect wears off eventually. The EUR/USD YtD low of 1.0601 remains the key reference.

News & Views

Rating agency Fitch affirmed the Bulgarian BBB rating with a positive outlook. The potential for a higher credit rating reflects the prospects for euro adoption which would lead to a further improvement in external metrics. Despite the euro adoption process being delayed beyond January 2025 and renewed political uncertainty (snap election in June is sixth parliamentary vote in just over three years), Fitch considers that there is broad political commitment locally and at the EU level to euro adoption. Bulgaria is on track to meet all euro-adoption nominal criteria (public finances, interest rate and exchange rate) apart from price stability criterion. Harmonised inflation (HICP) was 3.1% in March 2024, above the EU27 rate of 2.6%. Fitch expects inflation to continue to ease, albeit more slowly. HICP is set to average 3.3% in 2024 and 2.9% in 2025. GDP growth would accelerate from 1.8% last year to 2.4% this year and 3.1% in 2025. Bulgaria holds a similar BBB rating with positive outlook at S&P and a one-notch better Baa1 rating at Moody’s (stable outlook).

Scottish First Minister Yousaf (SNP) is preparing to quit after he decided that he won’t survive a confidence vote according to The Sunday Times. Yousaf last week decided to end his party’s power-sharing deal with the Greens as it has “served its purpose”. The decision came after the government scrapped a plan to cut carbon emissions by 75% by 2030 after concluding it was unachievable. The SNP want to run a minority government but no longer with Yousaf as PM as the opposition Conservatives tabled a vote of no-confidence in him.

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 YTD low at 1.0695. Stronger-than-expected US March inflation figures forced a technical break, opening the path to last year’s low at 1.0494.

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.

In focus today

Focus today is on German and Spanish inflation data for April that will give important indications of where the euro area print tomorrow is heading.

China releases PMI manufacturing for April overnight from both NBS as well as Caixin. Both indices have increased to decent levels in recent months, but we believe the odds are skewed towards a small correction lower as PMI manufacturing declined in both US and the euro area in April. It would also fit with our muddling through scenario of moderate growth but neither a boost nor bust.

In Sweden, GDP statistics for Q1 2024 are published at 08.00. We anticipate a strong start to the year as the GDP indicator in January and February showed m/m increases of 1.1% and 0.1%, respectively. Despite unemployment rising in March, working hours greatly increased. This should both contribute to the aggregate GDP number as well as make up for the decreasing employment. The last growth indicator for Q1 GDP is the March retail sales figure, which is released simultaneously as the GDP figure. For some time now, indicators from both Commerce Sweden and NIER have clearly been hinting at a shift in sentiment amongst business owners in the retail sector. This has also been reflected in retail sales figures, which have steadily increased over the last three months. The March sales figures are thus most probably going to reflect a strong contribution to economic growth.

At 15.50 Riksbank vice governor Martin Flodén speaks.

The rest of the week focus will be especially on the euro area inflation print and Q1 GDP figures (Tuesday), the FOMC rate decision and Treasury Quarterly Refunding Statement (Wednesday), preliminary productivity figures for the US (Thursday), and last, but not least the US jobs report, euro area unemployment figures for March, and Norges Bank rate decision (Friday).

Economic and market news

What happened overnight

In Japan, the yen weakened briefly past 160 against the greenback (USDJPY) as of this morning, thus reaching its lowest level against the dollar since April 1990. The increasingly weak yen has been fuelling speculation in markets that the Bank of Japan may soon intervene to counter any further decline of its currency.

Oil prices began the week slightly lower from Friday's close with Brent trading around 88.7 USD/bbl as of this morning.

What happened over the weekend and on Friday

In the US, March PCE inflation figures came in at 0.3% m/m as widely anticipated by market participants. The price gauge rose 2.8% y/y 0.1 ppts. more than consensus expectations. The subsequent reaction in markets was mostly muted.US equity markets regained what was lost during Thursday's session and then some on the back of strong Q1 reports out from Silicon Valley giants Microsoft and Alphabet.

In Riyadh, Saudi Arabia, president of the World Economic Forum (WEF), Borge Brende, made it clear he saw geopolitically triggered recessions, government debt ratios globally as well as potential trade wars as clear risk factors for global economic growth. Brende spoke at a WEF event. He emphasised the projected 3.2% global economic growth for 2024 was not bad, however it stood below the trend of recent decades of 4%.
Market movements

Equities: Global equities rose on Friday, with the MSCI world index almost 3% higher for the week. Last week's performance, especially on Friday, was driven primarily by strong earnings, with macro factors playing a secondary role. Global tech led the outperformance, rising by 5% last week, thus offsetting some of the underperformance seen in the weeks leading up to big tech reporting. Cyclicals broadly outperformed defensives last week, and the VIX dropped from 17 to 15. In the US on Friday, the Dow rose by 0.4%, the S&P 500 by 1.0%, the Nasdaq by 2.0%, and the Russell 2000 by 1.1%. Asian markets are higher this morning, with Japanese stock markets closed for a holiday. European and US futures are also higher.

FI: 10Y US Treasury declined modestly on Friday, but April was still a bad month for the Treasury market as 10Y US yields rose some 25bp, while 10Y German yields rose some 17bp during April. Given the expected supply of Treasuries as well as EGBs there still needs to be a premium for the investor even though at 5% then 2Y Treasuries looks very attractive.

FX: USD/JPY jumped above 158 on Friday as the USD was buoyed by rising US yields and the JPY lack policy support. EUR/USD holds steady around the 1.07 mark ahead of the FOMC meeting on Wednesday. SEK had a rough week last week with EUR/SEK rising above the 11.70 level.

Just one week after posting its worst weekly loss over a year, and after a week of unfavourable economic data for both the US economic outlook and Federal Reserve (Fed) expectations, we saw the S&P500 record its best performance since October 2023. Yes, the S&P500 gained nearly 3% last week, while Nasdaq 100 gained more than that, as last week’s sour combo of slowing US growth but rising inflation was offset by the better-than-expected earnings from Microsoft and Google, and a surprise jump in Tesla shares despite earnings miss. By the way, Elon Musk went on a surprise visit in China this weekend and Tesla revealed a partnership with Baidu on maps (addressing a significant obstacle in the implementation of self-driving capabilities in China) on hope that when China is good, everything else will follow suit.

Zooming out, Friday’s higher-than-expected core PCE print didn’t weigh much on investor sentiment, as most of the price action due to the inflation disappointment happened after Thursday’s GDP report.

All in all, last week ended on a positive note; the technology stocks did the heavy lifting while Exxon Mobil and Chevron reported weak results in the Q1 because of subdued nat gas prices. This week, two more Magnificent 7 companies – Apple and Amazon – will report their Q1 earnings, along with many other big names including MicroStrategy, Super Micro Computer, Qualcomm, Mastercard and Shell.

Is there anyone out there?

The USDJPY flirted with the 160 level this morning on thin market volatility due to local Japan public holiday, following the lack of a much-expected intervention - or at least an announcement - from the Bank of Japan (BoJ) last Friday. The yen bears are testing the Japanese officials’ patience and wondering why no one does or says anything to stop the bleeding. And the more the BoJ waits, the more they risk losing credibility. At the current levels, an intervention could pop anytime, but the medium term impact of a currency intervention is not a given, if the intervention is not backed by a more hawkish policy stance.
Elsewhere

The dollar index starts the week under selling pressure ahead of a series of jobs data from the US and the Fed’s latest policy decision. The Fed is not expected to make any changes to its policy this week, nor in June, nor in July, nor in September… To be honest, with such a visible U-turn in US inflation towards the undesired direction, the Fed should not act anytime soon. If they can’t pass this message this week, I will be questioning the Fed’s credibility and intentions… Therefore, risks in the US dollar remain tilted to the upside, especially if inflation elsewhere continues to fall, as it is the expectation for the Eurozone. Due this week, the Eurozone countries will be revealing the April inflation reads and core inflation in the Eurozone is expected to ease to 2.6% from 2.9% printed a month earlier. A softer European inflation will be yet another confirmation of diverging inflation dynamics between the US and the Eurozone, back an upcoming June rate cut from the European Central Bank (ECB), at a time the Fed is no longer seen cutting its rates more than just once this year. The Fed/ECB divergence should limit the EURUSD’s potential into the 1.08 level, which includes the 50 and 100-DMA and the major 38.2% Fibonacci retracement on ytd decline.

Ceasefire?

US crude begins the week with a minor slide with hope that Antony Blinken’s efforts to convince Israel to cease fire in Gaza could pay off, as White House announced Sunday that Israel has agreed to hear out its concerns. The barrel of US crude could see support near the $82pb as besides the tense geopolitical landscape in the Middle East, the reflation trade – that relies on softer central bank policies and narrow supply due to OPEC’s efforts – remain favourable for an extension of the rally. Yet a hawkish Fed message this week is a downside risk to this positive outlook – especially if the US finally convinces Israel to cease fire in Gaza.

Daily Pivots: (S1) 1.3637; (P) 1.3667; (R1) 1.3699; More...

Intraday bias in USD/CAD remains on the downside as fall from 1.3845 short term top is in progress. Next target is 55 D EMA (now at 1.3600). On the upside, above 1.3730 minor resistance will turn bias back to the upside for retesting 1.3845 instead.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern only. In case of another fall, strong support should emerge above 1.2947 resistance turned support to bring rebound. Firm break of 1.3976 will confirm up resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149.

Daily Pivots: (S1) 0.6515; (P) 0.6535; (R1) 0.6554; More...

Intraday bias in AUD/USD remains on the upside as rise from 0.6361 short term bottom is in progress. Fall from 0.6870 might have completed at 0.6361 already. Further rally would be seen to 0.6643 resistance next. On the downside, below 0.6516 minor support will turn intraday bias neutral first.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which is still in progress. Overall, sideway trading could continue in range of 0.6169/7156 for some more time. But as long as 0.7156 holds, an eventual downside breakout would be mildly in favor.

Daily Pivots: (S1) 1.0660; (P) 1.0707; (R1) 1.0739; More...

Intraday bias in EUR/USD remains neutral for the moment. On the upside, above 1.0752 will resume the rebound to 55 D EMA (now at 1.0780). On the downside, break of 1.0673 minor support will turn intraday bias to the downside for retesting 1.0601 low.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern to rise from 0.9534 (2022 low). Current fall from 1.1138 is seen as the third leg. While deeper decline is would be seen to 1.0447 and possibly below, strong support should emerge from 61.8% retracement of 0.9534 to 1.1274 at 1.0199 to complete the correction.

Daily Pivots: (S1) 1.2448; (P) 1.2495; (R1) 1.2540; More...

GBP/USD's rebound form 1.2298 is resuming and intraday bias is back on the upside. Further rally would be seen to 55 D EMA (now at 1.2582). Sustained break there will argue that fall from 1.2892 has completed already, and bring further rise to this resistance. Nevertheless, on the downside, break of 1.2448 minor support will bring retest of 1.2298 low instead.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to up trend from 1.0351 (2022 low). Fall from 1.2892 is seen as the third leg. Deeper decline would be seen to 1.2036 support and possibly below. But strong support should emerge from 61.8% retracement of 1.0351 to 1.2452 at 1.1417 to complete the correction.

Daily Pivots: (S1) 0.9111; (P) 0.9130; (R1) 0.9165; More....

Intraday bias in USD/CHF remains neutral for the moment, and more consolidations could be seen. On the upside, firm break of 0.9151 will resume the rally from 0.8332 and should target 0.9243 key resistance next. On the downside, break of 0.9085 will turn bias to the downside for deeper pullback.

In the bigger picture, price actions from 0.8332 medium term bottom as tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Further rise would be seen as long as 0.8884 resistance turned support holds. But upside should be limited by 0.9243 resistance, at least on first attempt. However, decisive break of 0.9243 will argue that the trend has already reversed and turn medium term outlook bullish.

Daily Pivots: (S1) 156.06; (P) 157.26; (R1) 159.53; More...

Yen's steep retreat today suggests that a short term top is already in place 160.20, close to 160 psychological level. Intraday bias is turned neutral for consolidations first. Some support might come from 38.2% retracement of 146.47 to 160.20 at 154.95 to bring recovery. But break of 160.20 is not envisaged for now. However, firm break of 154.95 will turn bias to the downside for deeper correction to 55 D EMA (now at 151.80).

In the bigger picture, current rise from 140.25 is seen as the third leg of the up trend from 127.20 (2023 low). Next target is 100% projection of 127.20 to 151.89 from 140.25 at 164.94. Outlook will remain bullish as long as 150.87 resistance turned support holds, even in case of deep pullback.