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Daily Pivots: (S1) 192.75; (P) 193.20; (R1) 194.07; More..

GBP/JPY's up trend resumed and reaches as high as 193.62 so far. Intraday bias is back on the upside for 195.86 long term resistance, and then 198.89 projection level. On the downside, below 192.93 minor support will turn intraday bias neutral first. But outlook will remain bullish as long as 189.97 support holds, in case of retreat.

In the bigger picture, current rally is part of the up trend from 123.94 (2020 low), and is in progress for 195.86 long term resistance (2015 high). Break there will target 61.8% projection of 155.33 to 188.63 from 178.32 at 198.89 next. 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.

Markets

Core bonds drifted away again yesterday. In the US, Treasuries reversed Tuesday’s (disappointing) PMI-induced spike higher. Weakening demand and a slight tail at the US Treasury’s record $70bn 5-yr Note sale kept UST’s near intraday lows going into the close. The longer end of the curve underperformed with the front end locked in the run-up to next week’s FOMC meeting and following a sharp, higher for longer, repositioning since mid-March. We argued before that at least some part of the market/investor community needs to be contemplating a rate hike instead of a cut as the Fed next move to push the US 2-yr yield back above the psychological 5% mark. US yields eventually added up to 4.4 bps for the 30-yr gauge which tested the YTD top at 4.8%. German Bunds extended their (consensus-beating Ifo) underperformance. German yield increased by 4.9 bps (2-yr) to 8.2 bps (30-yr). Unlike in the US, European money markets are still banking on (at least) three 25 bps ECB rate cuts this year. We continue to err on the hawkish side of this prognosis. The German 10-yr yield touched 2.6% for the first time since the end of November of last year. This level coincides with 62% retracement on the Q4 setback in yields. A break higher would be technically significant, opening the path for a full return to 3%. Contrary to Tuesday, EUR/USD failed to profit from the interest rate advantage with the pair closing near unchanged at 1.07. Major US and EMU equity benchmarks closed with minor losses.

Overnight risk sentiment is strongly negatively impacted by a disappointing outlook in Q1 Meta earnings. Nasdaq futures suffer losses of 1.5%. Main Japanese and South Korean bourses record similar losses. The risk environment doesn’t translate into stronger US Treasuries or a dollar, which both trade rather stable. The Japanese yen moved beyond USD/JPY 155 for the first time since 1990 yesterday with the pair currently changing hands at 155.66 in the run-up to tomorrow’s BoJ policy meeting (including new growth and inflation forecasts). We don’t think that any “hawkish” hints on “more” policy normalization down the road will be sufficient to save the ailing currency. It will likely take another hit which could prompt officials to move from verbal to effective interventions. As seen in the (recent) past, such moves often offer only temporary relief without backing from the BoJ.

News & Views

National Bank of Poland (NBP) policymaker Kotecki said that recent softer data is slowly tilting the interest rate debate in Poland toward rate cuts. Kotecki’s base scenario nevertheless remains one where interest rates stay at current level until the end of this year. Recent macro indicators “minimally increase the probability of a rate cut, since it’s clear that the economy isn’t accelerating and is far from overheating”. After touching 2% in March, Kotecki expects inflation to be between 5.5% and 6% at the end of the year as the government scaled back subsidies to mitigated energy bills. In this scenario, the NBP could start discussing mild rate cuts if at the end of the year if inflation data show price growth returning to the NBP’s target ‘for good’ in H2 2025 or in early 2026. After a 1% cumulative rate cuts in September and October last year, the NBP since then kept its policy rate unchanged at 5.75% and indicated that rates were likely to stay on hold as inflation risks persist.

South Korean growth beat expectations by a wide margin this morning. Activity accelerated to 1.3% Q/Q in Q1 2024 (vs 0.6% consensus) from 0.6% in Q4 2023, raising Y/Y growth from 2.2% to 3.4%. Growth in domestic demand was an important driver behind the solid growth performance with private expenditure rising 0.8% Q/Q. Government expenditure (0.7% Q/Q) and construction investment also added to the strong performance. Export growth continued at a solid 0.8% Q/Q. In a sector approach, manufacturing (1.2% Q/Q), construction (4.8% Q/Q) and services (0.7%) all show strong figures. In a first reaction, the Bank of Korea took a cautious approach. It admitted that growth seems to be stronger than int the February forecast and that current data will be incorporated in the new update in May. Still the BoK considers it too early to say if consumption has turned the corner. In March the BoK already acknowledged that there could be upside risk to its 2.1% forecast for this year. The BoK currently holds its policy rate at 3.5%. Stronger data might delay rate cuts that were expected for H2 this year.

Graphs

GE 10y yield

ECB President Lagarde clearly hinted at a summer (June?) rate cut and seems to have broad backing. EMU disinflation will continue the next two months and bring headline CPI (temporary) 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 move difficult.

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) start of a possibly shallower cutting cycle. Upcoming CPI readings (through base effects) and resilient eco data should confirm this. US yields continue to enjoy a solid bottom 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.

German Gfk Consumer Sentiment for May rose from -27.3 to -24.2, above expectation of -25.5. This marks the highest level in two years, although it remains significantly low by historical standards.

In April, economic expectations rose from -3.1 to 0.7. Income expectations rose from -1.5 to 10.7. Willingness to buy rose from -15.3 to -12.6. Willingness to save rose from 12.4 to 14.9.

Rolf Bürkl, consumer expert at NIM, attributed the stronger uplift in consumer sentiment mainly to the "noticeable increase in income expectations." He elaborated that these expectations are closely tied to actual developments in real income, buoyed by rising wages and salaries alongside recent dip in inflation rates. This combination has laid a solid foundation for increasing purchasing power among households.

Full German Gfk consumer sentiment release here.

Meta revealed better than expected earnings, a more-than-doubled profit from last year and a 27% rise in sales. Oh, and the revenue growth was up for the fifth quarter. But the share price tumbled 15% in the afterhours trading as investors didn’t like the weaker-than-expected revenue forecast for the current quarter and even less the news that the company will be spending more money to improve its AI capabilities. Meta is now expected to spend around $35 to 40 billion, versus $30-37 billion they said they would spend earlier. In fine, these investments will help the company keep more people longer on their platform and increase their ad revenue with a more intelligent and customized advertisement strategy, but additional spending news comes at a time investors were expecting Meta to start throwing magnificent results into the mix. And all we got is a lower revenue outlook and more spending. Price-wise, Meta will likely slip below its uptrending range building since end of 2022; it’s certainly not the end of the AI hype for Meta, but it’s sure a short-term disappointment.

Google, Microsoft and Intel are due to report today.

So far, we observe that the high expectations have played tricks on stock valuations and the first set of earnings reactions warn that even strong results from Big Tech may not suffice to send their stock prices higher – if we start seeing growth expectations level out. (I am looking at you Microsoft and Nvidia.)

Zooming out, the stumbling giant Meta is weighing on the mood this morning. US futures are down and the technology-heavy Nasdaq is leading losses with more than 1% fall at the time of writing.

The macroeconomic landscape is complex, with investors balancing between robust GDP growth and high earnings expectations for the Big Tech companies, all while considering the fading expectations for a Federal Reserve's (Fed) rate cut. A strong GDP reading would suggest that the US economy is sufficiently strong to support corporate earnings, but it could also delay expectations for a Fed rate cut. Conversely, a softer-than-expected GDP figure would likely increase expectations for a rate cut, especially if earnings disappoint due to inflated expectations. Overall, I believe that a softer-than-expected GDP would elicit a more positive market reaction, but the risks surrounding GDP lean towards a better-than-expected reading. According to a consensus of analyst estimates on Bloomberg, Q1 growth is expected to be around 2.5%, while the Atlanta Fed’s GDPNow projection stands at approximately 2.7%.

The US dollar index rebounded yesterday after trading near a two-week low. The EURUSD remained bid into the 1.0680 support, fueled by better than expected German sentiment data – which showed that business sentiment rose to the highest level in a year. But a set of rating assessments are expected to challenge the rising debt risks in France and Italy, and could limit the upside potential along with a potentially stronger US dollar dependent on today’s first glimpse at the Q1 growth.

The dollar appreciation is a problem for many economies, but it has become a major headache for the Bank of Japan (BoJ). The USDJPY spiked and extended gains above the 155 mark. The BoJ will lean on to the USD strength at this week’s policy meeting and will – potentially – intervene to slow the yen selloff. What’s interesting is that we know that next hours will likely bring an announcement to tackle the yen depreciation, but the yen shorts are not afraid. They know that an FX intervention alone won’t reverse the yen’s falling course unless accompanied by a hawkish BoJ policy outlook. Therefore, even an intervention could backfire and fail to prevent a further rise in USDJPY to the 160 level.

In focus today

In the US, today's focus will be on Q1 flash GDP data, where consensus expects growth to moderate to 2.4% Q/Q AR (Q4 3.4%). Private consumption has remained on a gradually cooling, yet steady trend, while private manufacturing investments and public state and local investments are still supported by past stimulus measures. That said, April PMI data released earlier this week suggested that Q2 has started on a relatively weaker footing.

In the euro area, Isabel Schnabel will deliver the opening remarks for a monetary policy conference in Frankfurt. Christine Lagarde delivers a speech at a conference on the Capital Market Union in Paris. Today's list of ECB speakers also includes Vujcic, Nagel and Panetta. The ECB will also publish its economic bulletin today.

In Sweden, we get the last NIER Economic Tendency Survey (at 9.00 CET) before the Riksbank's upcoming policy rate decision 8 May. Companies' pricing plans will be of high importance. Overall, companies' price plans are now compatible with an inflation rate of 2% (being in line with pre-pandemic averages), but there is perhaps a question mark around the services sector, where we saw an uptick in price plans last month. Riksbank's Aino Bunge participates in a seminar on "Functioning Payments in Crisis and War". Despite the topic of the seminar, we will likely get some comments on monetary policy as Bunge will be available for journalists after the event (around 14.15 CET).

The Central Bank of Turkey announce their rate decision, after their monetary policy meeting. Market consensus is in favour of unchanged interest rate, with some forecasters eyeing a possible hike.

Economic and market news

What happened overnight

The JPY continues to weaken with USD/JPY hitting as high as 155.48 in overnight trading. The Japanese monetary and fiscal authorities have earlier said that they are concerned with the continuously weakening of the JPY, and have threatened to intervene in the market over several occasions, but we are still to see some action on the matter.

What happened yesterday

In the US, President Biden signed the USD 95 billion bill with military aid for Ukraine, Israel, and Taiwan. He later stated that some of the aid for Ukraine would be sent to them already Wednesday evening.

Yesterday's fixed income sell-off has pushed 10y UST yield near recent highs. 10Y UST yields ended up by 5bp in 4.65% for the day.

Meta, the company behind Facebook and Instagram, presented forecasts of higher AI expenses and lighter-than-expected revenue, leading to the share falling 10% in after-hours trading. Alphabet, the parent of Google, fell 3% in extended trading and Microsoft fell 2% as investors fear that they may have underestimated the costs of the AI race among big tech companies. Both companies will deliver financial statements for Q1 today.

In Germany, the Ifo indicator showed that business sentiment increased more than expected in April to 89.4 (cons: 88.8, prior: 87.9). Both the assessment of the current situation and future expectations rose more than expected. Note that the index still indicates that the German economy is in contractionary territory.

ECB's Nagel said that a June rate cut will not necessarily be followed by a series of rate cuts. He is still worried about a potential inflation rebound, especially service inflation, which has proved more persistent than goods inflation, and is driven by continued strong wage growth.
Yesterday's market movements

Equities. Global equities ended marginally higher yesterday after a bit of a roller-coaster ride in both Europe and US. It was a huge reporting day which helps explain the fairly rare mix of sector performance with financials, industrials and healthcare underperforming. The earnings season is peaking today, and that coupled with reports we saw in the afterhours yesterday means that we should prepare for yet another day micro dominating markets. In the US yesterday, Dow -0.1%, S&P 500 +0.02%, Nasdaq +0.1%, and Russell 2000 -0.4%. Asian markets are sharply down this morning, led lower by the afterhours earnings results from the US and even more so, the disappointing company guidance. European futuress are marginally lower this morning while US futures are dragged down by the tech sector.

FI: The Bund curve continued bear-steepening in yesterday's session with the 10Y tenor up by 9bp for the day, closing at a 5-month high of 2.59%. The repricing happened gradually through the day without a clear catalyst triggering the move. The 10Y German auction yesterday was well-bid with BTC at 2.5. However, with Eurozone PMI/IFO data showing strong signs of recovery, additional uncertainty on the disinflationary trajectory is now evident in the remarks coming out from the hawkish ECB members.

Daily Pivots: (S1) 165.67; (P) 165.95; (R1) 166.50; More...

EUR/JPY's up trend continues to as high as 166.78 so far. Intraday bias stays on the upside for 168.72 projection level next. On the downside, below 165.41 minor support will turn intraday bias neutral and bring consolidations first, before staging another decline.

In the bigger picture, current rally is part of the up trend from 114.42 (2020 low), which is still in progress. Next target is 61.8% projection of 139.05 to 164.29 from 153.15 at 168.72, or even further to 169.96 (2008 high). 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.

Japanese Yen's accelerated decline captured significant attention in Asian session, while the broader currency markets remained generally stable. Market participants interpret the apparent lack of urgency from Japanese officials to address Yen's fall as a tacit approval for its continued depreciation. This perspective gains significance following the recent trilateral meeting between Japan, South Korea, and the US, where the sharp decline of Yen was a subject of "serious concerns." Speculation is rife that Japan might tolerate Yen's fall to 160 mark against Dollar before taking any corrective actions.

Concurrently, Dollar is also soft as traders anticipate US Q1 GDP advance report. The US economy is expected to show 2.1% annualized growth in Q1, slowed from Q4's 3.4%. GDP price index is expected to jump from 1.6% to 3.0%. If these projections hold, they would suggest that the economy is continuing to expand at a healthy rate with little risk of recession. This scenario is likely to support Fed's cautious stance on interest rate cuts. A detailed breakdown showing robust consumer spending could even delay Fed's first rate cuts further.

In terms of weekly performance, Yen is currently the weakest among major currencies, followed by Dollar and Swiss Franc. In contrast, Australian Dollar leads as the strongest, followed by Kiwi and Euro, while Sterling and Canadian Dollar hold middle positions. This configuration aligns with the prevailing risk-on sentiment, evidenced by strong rebound in US stock indices and new record high in FTSE.

Technically, a focus today is whether AUD/USD, in reaction to broader risk sentiment, could break through 55 D EMA (now at 0.6526) decisively. In this case, fall from 0.6870 could have completed with three waves down to 0.6361 already. Stronger rally would be seen to 0.6643 resistance first. However, rejection by 55 D EMA, followed by break of 0.6440 minor support will retain near term bearishness, and resume the decline through 0.6361 instead.

In Asia, at the time of writing, Nikkei is down -1.98%. Hong Kong HSI is up 0.25%. China Shanghai SSE is up 0.13%. Singapore Strait Times is down -0.40%. Japan 10-year JGB yield is up 0.0019 at 0.893. Overnight, DOW fell -0.11%. S&P 500 rose 0.02%. NASDAQ rose 0.10%. 10-year yield rose 0.054 to 4.6552.

Yen's selloff intensifies as BoJ meeting commences

Yen's selloff is intensifying and breaking through 155 mark against Dollar as BoJ commences its two-day policy meeting. While no changes in policy are anticipated at this gathering, the continued decline of Yen could provoke hawkish remarks from Governor Kazuo Ueda. He has clearly indicated that a policy adjustment would be considered if weakening Yen's impact on inflation becomes too significant to overlook.

Attention is also turning towards BoJ's new economic projections. Inflation forecasts for fiscal years 2024 and 2025 are expected to be upgraded from current predictions of 2.4% and 1.8%, respectively. For fiscal 2026, forecasts could suggest that core inflation will align closely with BoJ's target of 2%.

Governmental response to Yen's decline has so far been constrained. Finance Minister Shunichi Suzuki reiterated today that there has been no alteration in the government's approach towards Yen's valuation, emphasizing that actions will be taken as appropriate. He added that the government is "carefully monitoring" currency market movements, but declined from further comments.

Technically, strong resistance could be seen from 61.8% projection of 127.20 to 151.89 from 140.25 at 155.20 to limit USD/JPY's rally on the first attempt. However, firm break of this level will put 100% projection of 140.25 to 150.87 from 146.47 at 157.09 as next near term target.

BoC members divided on rate cut timing, united on gradual easing approach

BoC's April meeting summary revealed a "diversity of views" among its members concerning the timing of the first interest rate cut. Despite differing opinions, there was a unanimous agreement that any adjustment to monetary policy would "probably be gradual" once initiated.

Key concerns highlighted by some board members included the need for "more reassurance" regarding the diminishing risks associated with stalling of progress on slowing core inflation. These members observed that the Canadian economy is "performing well", mitigating the risk that the current restrictive monetary policy could excessively decelerate economic activity. However, they cautioned that stronger domestic demand, alongside robust economic growth in the US, "keep core inflation from slowing further" or might even cause it to "pick up again in the event of new surprises".

Conversely, other members argued that there is a tangible risk of maintaining a monetary policy that is "more restrictive than needed." This group emphasized the significant progress already achieved in reducing inflation, noting that the rates of inflation across most goods and services had "come down significantly," and the distribution of inflation rates among the CPI components had begun to "approach normal."

Despite these differing perspectives, the consensus was clear that any forthcoming policy easing would be implemented cautiously. "While there was a diversity of views about when conditions would likely warrant cutting the policy rate, they agreed that monetary policy easing would probably be gradual, given risks to the outlook and the slow path for returning inflation to target," the summary stated.

Looking ahead

German Gfk consumer climate and ECB monthly bulletin will be released in Euroepan session. Later in the day, US Q1 GDP advance is the main focus. Jobless claims, trade balance, and pending home sales will also be released.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 165.67; (P) 165.95; (R1) 166.50; More...

EUR/JPY's up trend continues to as high as 166.78 so far. Intraday bias stays on the upside for 168.72 projection level next. On the downside, below 165.41 minor support will turn intraday bias neutral and bring consolidations first, before staging another decline.

In the bigger picture, current rally is part of the up trend from 114.42 (2020 low), which is still in progress. Next target is 61.8% projection of 139.05 to 164.29 from 153.15 at 168.72, or even further to 169.96 (2008 high). 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.

Economic Indicators Update

Elliott Wave view on GBPUSD suggests that rally from 10.4.2023 low takes the form of an impulsive structure. Up from 10.4.2023 low, wave (1) ended at 1.2828. Correction in wave (2) unfolded as an expanded flat Elliott Wave structure. Down from wave (1), wave A ended at 1.2519 and wave B ended at 1.2894. Down from there, wave C subdivided into 5 waves. Wave ((i)) ended at 1.2538 and wave ((ii)) ended at 1.2709. The 60 minutes chart below shows the move lower in wave C from wave ((ii)) high.

Pair then extended lower in wave ((iii)) towards 1.2405 and rally in wave ((iv)) ended at 1.2485. Final leg wave ((v)) ended at 1.23. This completed wave C of (2) of the expanded flat. The pair has turned higher in wave (3), and the rally shows a promising 5 waves impulse in short term. Up from wave (2), wave (i) ended at 1.236 and wave (ii) ended at 1.233. Wave (iii) higher ended at 1.2465 and wave (iv) pullback ended at 1.242. Expect wave (v) of ((i)) to complete soon. Pair should then pullback in wave ((ii)) to correct cycle from 4.22.2024 low before it resumes higher. Near term, as far as pivot at 1.23 low stays intact, expect pullback to find support in 3, 7, 11 swing for further upside.

GBPUSD 60 Minutes Elliott Wave Chart

GBPUSD Elliott Wave Video

https://www.youtube.com/watch?v=fsHdAHaPx0c

Yen's selloff is intensifying and breaking through 155 mark against Dollar as BoJ commences its two-day policy meeting. While no changes in policy are anticipated at this gathering, the continued decline of Yen could provoke hawkish remarks from Governor Kazuo Ueda. He has clearly indicated that a policy adjustment would be considered if weakening Yen's impact on inflation becomes too significant to overlook.

Attention is also turning towards BoJ's new economic projections. Inflation forecasts for fiscal years 2024 and 2025 are expected to be upgraded from current predictions of 2.4% and 1.8%, respectively. For fiscal 2026, forecasts could suggest that core inflation will align closely with BoJ's target of 2%.

Governmental response to Yen's decline has so far been constrained. Finance Minister Shunichi Suzuki reiterated today that there has been no alteration in the government's approach towards Yen's valuation, emphasizing that actions will be taken as appropriate. He added that the government is "carefully monitoring" currency market movements, but declined from further comments.

Technically, strong resistance could be seen from 61.8% projection of 127.20 to 151.89 from 140.25 at 155.20 to limit USD/JPY's rally on the first attempt. However, firm break of this level will put 100% projection of 140.25 to 150.87 from 146.47 at 157.09 as next near term target.

Key Highlights

• Ethereum started a recovery wave from the $2,800 zone.
• ETH price is facing resistance near a key bearish trend line at $3,400 on the daily chart.
• Bitcoin price is struggling to gain pace for a move above the $67,500 resistance.
• Gold price found support at $2,290 and started a consolidation phase.

Ethereum Technical Analysis

Ethereum found strong bids near the $2,800 zone. ETH price started a decent upward move above the $3,000 resistance and recovered some losses, like Bitcoin.

Looking at the daily chart, the price climbed above the $3,150 resistance. There was a spike above the 50% Fib retracement level downward move from the $3,724 swing high to the $2,807 low.

The price is now stable above the 100-day simple moving average (red) and the 200-day simple moving average (green). However, it is facing resistance near a key bearish trend line at $3,400 on the daily chart.

The trend line is close to the 61.8% Fib retracement level downward move from the $3,724 swing high to the $2,807 low. A daily close above the $3,400 resistance zone could start a steady increase. In the stated case, the price may perhaps rise toward the $3,725 level. The next stop for the bulls may perhaps be near the $4,000 level.

If not, the price might start another decline and test the $3,120 support level. The next major support is near $3,025, below which the price could slide toward $2,800.

Looking at gold prices, the bulls were active near the $2,390 and the bulls might now aim for a fresh increase in the near term.

Economic Releases

• US Gross Domestic Product Q1 2024 (Preliminary) – Forecast 2.5% versus previous 3.4%.
• US Initial Jobless Claims - Forecast 214K, versus 212K previous.