Sample Category Title

Daily Pivots: (S1) 164.98; (P) 165.36; (R1) 166.09; More...

Intraday bias in EUR/JPY remains on the upside for the moment. Current up trend should target 169.96 key resistance next. On the downside, break of 164.39 minor support will turn intraday bias neutral again first. But outlook will continue to stay bullish as long as 162.26 support holds, in case of retreat.

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 169.96 (2008 high). Break of 160.20 support is needed to be the first sign of medium term topping. Otherwise, outlook will stay bullish in case of retreat.

Daily Pivots: (S1) 0.8578; (P) 0.8611; (R1) 0.8630; More...

Intraday bias in EUR/GBP is turned neutral first with current retreat. On the upside, decisive break of medium term trend line resistance (now at 0.8649) will solidify the bullish case of trend reversal, and target 0.8764 resistance next. However, sustained break of 55 4H EMA (now at 0.8580) will indicate rejection by the trend line, and bring retest of 0.8491/7 support zone instead.

In the bigger picture, outlook is mixed up by current strong rebound. On the upside, sustained break of the trend medium term trend resistance will argue that the down trend from 0.9267 (2022 high) has completed as a triangle pattern. Further rise should then be seen through 0.8764 resistance next. However, rejection by the trend line will retain medium term bearishness for another fall through 0.8491 at a later stage.

Daily Pivots: (S1) 1.6468; (P) 1.6516; (R1) 1.6545; More...

Outlook is mixed up by deeper than expected fall from 1.6679. On the downside, firm break of 1.6368 support will revive that case that rebound from 1.6127 has completed at 1.6742. Fall from there is seen as the third leg of the pattern from 1.7062. Deeper decline would then be seen to 1.6127 support and below.

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) 0.9722; (P) 0.9741; (R1) 0.9780; More...

The strong break of 55 4H EMA suggest that EUR/CHF's pull back from 0.9847 has completed at 0.9563 already. Intraday bias is back on the upside for retesting 0.9847 high. Decisive break there will resume larger rally from 0.9252. On the downside, below 0.9708 minor support will turn intraday bias neutral again first.

In the bigger picture, while 55 D EMA (now at 0.9655) 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

Disappointing April US PMI’s triggered some short covering in US Treasuries. The composite PMI declined from 52.1 to 50.9 (vs 52 consensus) with both manufacturing (49.9 from 51.9) and services (50.9 from 51.7) contributing. Details showed inflows for new business falling for the first time in six months and firms’ future output expectation slipping to a 5-month low. Both suggest that the US economy could lose some further momentum in the second quarter of the year. Companies cut payrolls numbers (48.5 from 51.2) at the fastest pace since May 2020. Weaker demand and a less tight labour market fed through to an easing in rates of increase of selling prices. Details show dynamics of inflation changing from wage-related services-led price pressures to intensifying factory cost pressures (higher raw material and energy). Markets went into yesterday’s PMI’s following a string of strong activity/labour market data and higher CPI releases. This context made markets vulnerable to some milder positioning going into next week’s FOMC meeting. We don’t expect PMI’s to be trend-reversers though. Daily changes on the US yield curve eventually varied between -3.9 bps (2-yr) and +1.4 bps (30-yr) with yields closing off intraday lows. European bonds yesterday underperformed following consensus-beating PMI’s. The context was obviously different with Europe coming from a period of weakness. German yields added 1.5 bps to 2.5 bps. The combination of better EMU and worse US numbers propelled EUR/USD from 1.0639 to 1.0701 with the pair trying to sustainably regain the previous YTD low at 1.0694. Sterling was yesterday’s outperformer in FX space as BoE chief economist offered some counter weight to recent soft comments by BoE Baily and Ramsden, suggesting that the MPC is currently split on how long policy rates should remain at their current peak levels. EUR/GBP returned below 0.86. Today’s eco calendar contains German Ifo business climate, US durable goods orders, a record-volume $70bn 5-yr Note auction and an avalanche of Q1 earnings. After yesterday, we expect the yields and the dollar to temporarily lose some momentum.

News & Views

The National bank of Hungary (MNB) yesterday slowed the pace of rate cuts. The base rate was reduced by 50 bps to 7.75% compared to a 75 bps reduction in March. The MNB sees persistently moderating inflation. Rising real wage growth and strengthening confidence support a gradual economic recovery, mainly driven by domestic demand. (2-3% growth this year). Headline CPI inflation fell within the MNB’s tolerance band (3.6% Y/Y in March). Core inflation remained higher at 4.4%, but in line with the MNB March projection. The MNB expects the pace of price increases to rise temporarily in the middle of this year. The decline in core inflation might stop in Q2 and is expected to fluctuate between 4.5% and 5% in the remainder of the year. Financial stability considerations remain important in the MNB’s policy assessment. High FX reserves and the persistent improvement in the current account balance have contributed to the strengthening of the country's risk perception. Still, the risk premium on Hungarian assets has risen recently in a deteriorating international sentiment. The outlook for inflation combined with a volatile risk environment warrant a carful, patient approach to monetary policy, resulting in a slower pace or rate reductions than was the case earlier. KBC expects two additional 50 bps rate cuts in May and June, before a further slowdown of easing in H2. The forint yesterday gains modestly to close the session near EUR/HUF 393.

Australian Q1 CPI printed at 1.0% Q/Q and 3.6% Y/Y, compared to 0.6% Q/Q and 4.1% Y/Y in the final quarter of last year. The outcome disappointed expectations for a faster disinflation. Also underlying measures of inflation (trimmed mean 1.0% Q/Q and 4.0% Y/Y) printed higher than expected. In a quarterly perspective, price increases for food (+0.9%), housing (+0.7%), health (2.8%) and education (+5.9), contributed to the rise. Prices for clothing and footwear declined 1.1% Q/Q. Good prices were up 0.5% Q/Q, but services inflation still printed at a strong 1.4% Q/Q. Both headline and core (trimmed mean) inflation stay well above the RBA’s 2-3% target band. Stubbornly high inflation, especially for the likes of services/non-tradeable goods, doesn’t allow the RBA to cut interest rates anytime soon. Australian yields jumped higher this morning with the 3-y government bond yield adding 17 bps (to 4.01%). Markets now see only a small chance (< 30%) for a fist rate cut by the end of the year. The prospect for protracted interest rate support also propelled the Aussie dollar with AUD/USD regaining the 0.65 mark (0.652).

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.

Short Term Elliott Wave view on FTSE suggests that rally from 8.18.2023 low is unfolding as a 5 waves impulse. Up from 8.18.2023 low, wave 1 ended at 7745.82 and pullback in wave 2 ended at 7279.86. Up from there, wave ((i)) ended at 7764.37 and wave ((ii)) pullback ended at 7404.08. The Index then extended higher in wave ((iii)) towards 8015.63 as the 1 hour chart below shows. Wave ((iv)) pullback ended at 7882.68 and wave ((v)) ended at 8044.98. This completed wave 3 in higher degree.

Pullback in wave 4 took the form of Elliott Wave zigzag structure. Down from wave 3, wave ((a)) ended at 7952.12 and wave ((b)) rally ended at 8009.52. Final leg wave ((c)) lower ended at 7791.84 which completed wave 4. The Index has resumed higher again in wave 5. Up from wave 4, wave (i) ended at 7898.77 and wave (ii) ended at 7809.68. Wave (iii) higher ended at 8076.52 and pullback in wave (iv) ended at 8021.67. Expect the Index to extend higher in wave (v) of ((i)). It then should pullback in wave ((ii)) to correct cycle from 4.16.2024 low before it resumes higher. Near term, as far as pivot at 7791.84 low stays intact, expect dips to find buyers in 3, 7, or 11 swing for further upside.

FTSE 60 Minutes Elliott Wave Chart

FTSE Elliott Wave Video

https://www.youtube.com/watch?v=s6h2GOlKgo0

Tesla’s Q1 results didn’t look good at all. The revenue dropped 9% - the first revenue drop in four years - and net income plunged by 55% compared to the same time last year. And these numbers were not only bad, but they were also worse than the expectations for the 3rd straight month. Yet investors looked past the ugly quarterly results from Tesla and sent the stock price 13% higher in the afterhours trading – yes there is no mistake, Tesla jumped 13% after announcing a revenue and earnings miss, as investors focused on plans to accelerate the launch of new models that include cheaper models. The post-earnings jump could be a flash in the pan given rising challenges the company faces.

Elsewhere, Apple eked out a small gain despite news that iPhone sales in China fell 19% in Q1 while Huawei’s rose almost 70%. Texas Instruments rose on a bullish revenue forecast for the current quarter hinting at a slower decline in chip demand from industrials and car industry. Spotify rallied 11% after its CFO said that ‘historical price increases have had minimal impacts on growth’ a few weeks after revealing plans to increase prices later this year. GM raised its 2024 profit outlook and Visa’s profit surged amid higher credit card spending. Meta, Ford and IBM will report today.

Overall, there was nothing worrying in company news yesterday, and even the bad news saw a positive market reaction, partly due to a decline in US yields yesterday following a set of lower than expected PMI figures from the S&P Global and a strong sale of 2-year treasury notes. According to the S&P’s survey, the expansion in US services was unexpectedly slower than expected in April, while manufacturing PMI slipped below 50, into contraction, whereas analysts had penciled a faster expansion. The dollar index fell as a reaction, and the greenback’s major peers strengthened.

Note that the EURUSD was already up before the release of the US PMI numbers yesterday, as the PMI data released in Europe revealed a surprise rise in German and French services; the German services expanded fast enough to push the composite PMI into the expansion zone. German manufacturing – which is the country’s main strength – came in weaker than expected, yet the better-than-expected Eurozone PMI combined with the worse-than-expected US PMI sent the EURUSD above the 1.07 level. We will be watching the German sentiment index, the 10-year bund auction, the US durable goods orders and the 5-year note auction today.

In Japan, the yen strengthened a little bid yesterday but the gains remained limited after news that the Bank of Japan (BoJ) will focus on the falling yen when it meets this week. But the yen’s medium-term bearish trajectory will be hard to reverse unless the BoJ gives hints of further rate increases in the foreseeable future. In Australia, the AUDUSD extended a rally to the 200-DMA after the inflation data came in stronger-than-expected and fueled the Reserve Bank of Australia (RBA) hawks. Trend and momentum indicators are about to turn positive, but the dollar’s weakness is subject to important risks this week as the Q1 GDP update and the core PCE index could easily reverse the recent weakness and send the dollar soaring again, on melting rate cut bets for the Federal Reserve (Fed).

Equities

News of improved activity boosted appetite in the Stoxx 600 ahead of closely watched bank earnings in the next few days. The European banks have been performing very well as high European Central Bank (ECB) rates boost earnings expectations and high capital returns attract investors. The severe retreat in ECB rate cut bets should continue to back optimism, but the banks should deliver to keep the rally going.

In the UK, the British FTSE 100 advanced to an all-time high and is expected to further benefit from the developing reflation trade that should back mining and energy stocks.

In the US, the lower US yields helped the S&P500 rebound yesterday. Technology stocks led gains but there are mixed views regarding the future of the US stock rally. Earnings expectations for the mega tech stocks are very high, and the market reaction could be unpredictable as forecasts matter at least as much as earnings and revenue prints.

In commodities, US crude jumped to $84pb as yesterday’s API report printed a 3-mio-barrel decline in weekly inventories, while gold rebounded after tipping a toe below the $2300 per ounce, in a move that’s reportedly caused by margin calls.

In focus today

In Germany we await Ifo data for April. The current assessment of the economy remains weak, but expectations have risen lately so it will be important to follow if we finally see a turn in the assessment of the current activity.

Economic and market news

What happened overnight

In Australia, the Q1 inflation print came in higher than expected at 1.0% m/m (cons: 0.8%) and 3.6% y/y (cons: 3.5%), due to service price pressures remaining to the high side. For March alone inflation increased slightly to 3.5% against 3.4% in February. The markets now price in very low probability of a rate cut in August. AUD rates rose upon release and AUD/USD has strengthened modestly. Notably USD rates also rose around 1bp following the release with markets speculating in possible common denominators.

What happened yesterday

In the US, and as widely expected, the Senate passed the USD 95 billion bill which provides military aid for Ukraine, Israel and Taiwan. The bill came to a vote after the house passed the same bill on Saturday. House speaker Mike Johnson suddenly switched course last week after not letting the House vote about the bill for nearly two months.

The US PMIs surprised to the downside in both manufacturing and services driving a considerable move lower in USD yields. Composite PMI landed at 50.9 down from 52.1 in March. There was a notable decline in services output prices index (54.0; from 56.4), snapping the recent rising trend.

Tesla shares jumped after the US close - ending a 7-day streak of declines - as Tesla presented Q1 earnings and a plan to accelerate launch of more affordable cars. With markets closely monitoring earnings reports of especially tech-companies in the US the rise in Tesla spread to the rest of the tech cluster.

The euro area composite PMI rose more than expected to 51.4 (cons: 50.7, prior: 50.3) in April which suggests that the economy is now back in growth territory for the second consecutive month. The economy is driving at two speeds as the service PMIs rose to 52.9 (cons: 51.8, prior: 51.5) in an upward surprise while manufacturing PMI unexpectedly declined to 45.6 (cons: 46.5, prior: 46.1). The output price index in the service sector increased marginally to 55.1 from 55.7. The changes in service output prices have recently been a good indicator of the monthly change in core inflation.

In Sweden, Riksbank governor Thedéen spoke yesterday where he signalled that he has not made up his mind about when we the Riksbank will deliver the first rate cut. He said that before our next interest rate decision in two weeks' time, we need to analyse what the clearly lower inflation means for inflation in the longer term and weigh up the risks of inflation rising again." The lower inflation is positive for the Riksbank, but May is not a done deal.

In the UK, Bank of England's Pill talked with caution on impending rate cuts. He is one of the internal members who has voted with the majority for the entire cycle. Pill said little of news and the passage of time have brought a cut somewhat closer but also that a cut "remains some way off" and there is still "some way to go" before he is convinced of a sustainable return to target. EUR/GBP ended yesterday lower. Comments and data the past week suggest that a May cut is highly unlikely. We think June is still in play with both two inflation prints and two job reports before then set to convince the BoE of a more sustainable easing in inflation pressures. UK PMI's surprise to the topside. Composite at 54.0 (cons: 52.6, prior: 52.8), services at 54.9 (cons: 53.0, prior: 53.1), manufacturing at 48.7 (cons: 50.4, prior: 50.3). However, manufacturing back in contractionary territory. Input prices accelerated in April, however there was a moderation in the rate of prices charged inflation in the UK private sector.

In Hungary, the central bank (MNB) cut the key rate by 50 basis points to 7.75% as expected, which remains an EU-high. This marks a step down in terms of the pace of cuts, as previous cuts have been in the interval of 75-100 basis points. Policy guidance indicates a target for the key rate of 6.5-7% by summer, although different board members have stressed that they are in "no rush" to get there. As such, most likely the MNB will continue to cut interest rates at least over the coming meetings, unless the Forint weakens substantially and/or inflation re-accelerates.

Equities: Global equities climbed higher yesterday, pushing the discussion around corrections off the table. We witnessed broad-based gains with momentum, growth, long duration, and lower quality emerging as the significant victors. Special mention must be made of small caps, which did well yesterday and have performed surprisingly well during the yield run-up since early February. The earnings numbers did not change substantially yesterday, if anything they worsened slightly, but the narrative around earnings did. Commentators are now using equity market performance to gauge earnings instead of examining the numbers directly. In the US yesterday, the Dow was up by 0.7%, S&P 500 by 1.2%, Nasdaq by 1.6%, and Russell 2000 by 1.8%. Asian markets are trending higher this morning, led by Japan, South Korea, and Taiwan. Futures in the US and Europe are also up this morning.

FI: European rates ended marginally higher on the day, amid stronger than expected PMI figures out of Europe. Considering the surprising strength the market reaction was rather muted. That said, hawkish comments from BoE's Pill and US PMIs falling short led to some volatility in the afternoon. Generally, the long end underperformed the shorter end. Intra-euro area spreads traded in a tight range. The 10y German Bund yield ended at 2.50%. ECB rate cut expectations for this year was 2bp lower at 76bp.

FX: The USD weakened on the weaker-than-expected US PMI report, pushing EUR/USD above 1.07 for the first time in almost two weeks. Scandies found support in benign risk sentiment, and EUR/SEK is once again trading below 11.60. Stronger-than-expected UK data made EUR/GBP erase some of the past days' gains.

Daily Pivots: (S1) 1.0656; (P) 1.0684; (R1) 1.0729; More...

Outlook in EUR/USD is unchanged and intraday bias stays neutral first. Strong resistance should be seen from 1.0723 to complete the corrective rise from 1.0601. Break of 1.0601 will resume the fall from 1.1138 to 100% projection of 1.1138 to 1.0694 from 1.0980 at 1.0536 next. Nevertheless, firm break of 1.0723 will bring stronger rebound to 55 D EMA (now at 1.0786) instead.

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) 1.2368; (P) 1.2414; (R1) 1.2495; More...

Intraday bias in GBP/USD stays neutral at this point. While recovery from 1.2298 might extend higher, upside should be limited by 1.2538 support turned resistance. On the downside, below 1.2298 will resume the fall from 1.2892 to 1.2036 support next.

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.