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Daily Pivots: (S1) 164.55; (P) 164.82; (R1) 165.25; More...

Range trading continues in EUR/JPY and intraday bias stays neutral. Consolidation from 165.33 could extend further. On the upside, firm break of 165.33 will resume larger up trend towards 169.96 key resistance next. However, decisive break of 162.59 will argue that it's at least correcting the rise from 153.15, and target 38.2% retracement of 153.15 to 165.33 at 160.67.

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) 0.8607; (P) 0.8626; (R1) 0.8645; More...

Intraday bias in EUR/GBP remains on the upside and outlook is unchanged. Fall from 0.8764 has probably completed already. Further rally would be seen to medium term trend line resistance (now at 0.8649). Decisive break there will solidify this bullish case and target 0.8764 resistance next. On the downside, below 0.8596 minor resistance will turn intraday bias neutral again first.

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) 1.6479; (P) 1.6556; (R1) 1.6597; More...

Intraday bias in EUR/AUD remains neutral at this point. For now, further rally will remain mildly in favor as long as 1.6368 support holds. Corrective fall from 1.6742 could have completed with three waves down to 1.6368. Above 1.6678 will target a retest on 1.6742 resistance next.

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) 0.9695; (P) 0.9711; (R1) 0.9732; More...

No change in EUR/CHF's outlook and intraday bias stays neutral. On the upside, firm break of 0.9721 resistance will argue that correction from 0.9847 has completed already, and turn intraday bias back to the upside for retesting 0.9847. However, break of 0.9563 will bring deeper fall to 61.8% retracement of 0.9252 to 0.9847 at 0.9479.

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

German and EU swap rates yesterday tested YTD highs in absence of strong market drivers. These technical resistance levels stood their ground with rebounding stock markets (Nasdaq +1.1%) offering some counterweight as well. Unlike yesterday, today’s agenda could be an inspiring one both in EMU and in the US. April PMI confidence indicators are scheduled for release. The current dire economic outlook keeps the consensus bar rather low both for manufacturing (46.5 from 46.1) and services (51.8 from 51.5). Germany and France have been the main laggards in past months so we recall improving April German ZEW (agree, investor) sentiment and a less pessimistic tone in the latest monthly outlook by the German Bundesbank. The BuBa suggested that the nation might have avoided a winter recession. The economic situation brightened somewhat but remains weak at its core. Matching consensus or doing better could be sufficient in the current environment to push yields through resistance levels, both at the front and at the long end of the curve. European money markets are more and more coming to terms with the fact that a bumpy H2 inflation path, the Fed’s hold, somewhat better economic momentum and a higher neutral rate limit the scope for more rate cuts after June. Yesterday’s suggestion by Portuguese governor Centeno that the central bank could lower its policy rate by a cumulative 100 bps this year seems very unrealistic. Room for repositioning in the other direction (less rate cuts) could temporarily limit the downside in EUR/USD. On today’s US side of the equation we get April PMI’s as well. They are expected to hum along at 52. March new home sales and April Richmond Fed manufacturing index are on the agenda as well. Other wildcards include the start of the US Treasury’s end-of-month refinancing operation with a record volume $69bn 2-yr Note auction and Q1 earnings with eg Tesla after trading.

The Japanese yen (USD/JPY 154.75) isn’t impressed this morning by yet another verbal intervention warning by FM Suzuki nor by BoJ governor Ueda’s renewed call for a less easy monetary policy if the price trend rises towards 2% in line with the BoJ outlook. The BoJ meets on Friday and gives a new (quarterly) economic assessment. We keep a close eye on UK PMI’s and speeches by BoE chief economist Pill and BoE Haskel as well given GBP-weakness since last Friday. EUR/GBP yesterday closed at its highest level since the first trading day of this year (0.8627). The pair could advance further as the BoE aligns itself with the ECB rather than with the Fed.

News & Views

ECB Villeroy said that the central bank can’t be the solution to the funding of the green transition at it is legally impossible and would risk stoking inflation. Villeroy indicated that monetary financing of the green transition could fuel inflation just as the EMU is exiting a crisis of record high inflation. Such an approach would also be a breach of the European treaties that prohibit deficit financing. “There is a monetary illusion according to which central banks could shoulder the main part of the burden”, he said. The BoF Governor also indicated that private sources should provide the main part of the financing as fiscal sources are scarce.

Czech central bank policymaker Holub assessed that there was no need for the CNB to accelerate the pace of rate cuts amid signs of a strengthening economy and expectations of delayed and more gradual easing by the major central banks. Holub advocated a 75 bps step at the March CNB policy meeting as inflation returned to the 2% CNB target faster than expected. Since then, the Czech economy showed signs of a rebound in household consumption and better activity overall. In this respect, Holub expects the CNB to upwardly revise its 2024 growth forecast at the next meeting (from 0.6% for this year). Along with expected slower cuts in the US and EMU this suggests that keeping the current pace of 50 bps at the May 2 meeting would be more appropriate. Holub expects inflation in 2024 to develop in the upper half of the +/- 1% range around the 2% target. Stronger wage growth could still contribute to elevated service inflation. Holub also indicated that the CNB has to take into account that CZK may stay a bit weaker than expected. For now, Holub didn’t see much reason to challenge current market pricing of interest rates falling to 4% over the next year (policy rate currently 5.75%).

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.

The week started on a hopeful note after the de-escalation of tensions between Israel and Iran. Gold shortly fell below $2300 per ounce in Asia. Brent dipped below the $86pb level, as US crude tested the 50-DMA to the downside. Equities rebounded. The Stoxx 600 index jumped past the 50-DMA and the 500 psychologic mark, while the S&P500 regained the 5000 handle.

On the economic calendar, a series of PMI data are expected to confirm a slight improvement in global activity levels. But the data will also highlight the growing divergence between the US where manufacturing is gaining further momentum in the expansion territory and Germany, which is still deeply in the contraction territory with manufacturing PMI sitting between 41-43 range. The PMI data will hardly prove those betting for diverging Federal Reserve (Fed) and (European Central Bank (ECB) policies wrong, and should back a further slide in the EURUSD toward the 1.05 level.

Elsewhere, the yen bears are cautiously pushing the USDJPY toward the 155 psychological resistance to see if that level would trigger a response from the Japanese authorities – which eventually won’t matter beyond clearing the short-term bears. In the absence of a hawkish stance from the Bank of Japan (BoJ), the USDJPY will likely continue its upside trajectory. Cable, on the other hand, is slightly better bid after tipping a toe below the 1.23 on Monday, backed by a growing chorus that the Bank of England (BoE) will eventually hike its rates before the Fed.

In the absence of major economic data today, like jobs, growth and inflation, FX traders will continue to digest the idea that the Fed is moving away from the rate cutting dream and let the US and European treasury auctions and S&P500 earnings gain the headlines.

How bad doctor?

The expectations regarding Tesla’s Q1 performance are weak - to say the least. The profit is seen down by 40% compared to the same time last year, the car deliveries were down by 8.5% in Q1, the controversial price cuts didn’t help Tesla gain market share, but they will certainly cause a sizeable profit meltdown.

But alas, the company decided that it would continue to cut the price of its vehicles again last weekend and said that Musk is willing to cut 20% of jobs globally after announcing, last week, that it would cut 10% of its global workforce and abandon the idea of a cheap model – that could’ve boosted profits rapidly - and prioritize Elon Musk’s robotaxi dream – which will hardly show in results in a predictable timeline to justify the company’s still hefty market valuation. Plus, thousands of Cybertrucks were recalled due to technical problems and Elon Musk is pushing for his $56bn pay package amid growing controversies regarding his decisions and future perspectives. The company’s share price and the PE ratio are going down rapidly, and there are not many barriers to slow down or reverse the selloff.

Tesla dived another 3.40% yesterday and the PE ratio is now below 55. The selloff could continue if the company fails to convince investors on three major points. 1. Are sales continuing to fall after the sharp Q1 decline? 2. Is it a good idea to continue cutting the price of EVs provided that the latest cuts didn’t necessarily help boost sales? 3. Are robotaxis and self-driving cars realistic in terms of profit and growth?

Too much optimism kills optimism

Elsewhere, optimism regarding the S&P500 earnings reigns - which to me is an alarming sign. A recent Bloomberg survey showed that almost two-thirds of people surveyed expected the earnings give a further boost to the S&P500 – that’s apparently the highest vote of confidence for corporate earnings since the beginning of the poll in October 2022. And when confidence is this high, it often suggests that we are getting closer to a turning point. We start seeing an increased volatility – a sign of rising stress – in the most popular tech stocks. This earnings season will certainly not go down the market’s throat as smoothly as present optimism suggests. Even less so as the Fed expectations are no longer supportive of market valuations.

In focus today

In the euro area, focus today will be on the euro area PMIs for April. The previous months' PMIs have shown a return of the two-speed economy with the service sector in expansionary territory and manufacturing sector stuck in contraction. We expect that service PMIs will remain above 50 as rising real wages and a strong labour market are supporting activity. The manufacturing PMIs will likely increase but stay below 50 as the global manufacturing cycle is slowly turning positive, inventory dynamics support production, and financial conditions have eased. We also keep an eye on PMIs from the UK.

In Sweden, Riksbank governor Erik Thedéen gives a speech on monetary policy and the current economy at 18.00 CET.

The Hungarian National Bank will announce their rate decision following their rate setting meeting. We expect the bank to deliver a 50bp rate cut. If we are right, it will be the seventh cut since October last year.

Tesla will deliver their Q1 earnings today, after Tesla fell 3.4% in yesterday's trading to record the seventh straight loss.

Economic and market news

What happened overnight

In Japan, Bank of Japan (BoJ) Governor Ueda said that the BoJ would hike interest rates again if trend inflation accelerates towards its 2% target, in line with their forecast. He also stated that for the time being BoJ must keep its ultra-loose monetary policy as trend inflation remains somewhat below the 2% target. BoJ hosts its two-day policy meeting at the end of this week. We expect the BoJ to stay on hold at this week's meeting, but hike interest rates one more time later this year, especially if the JPY remains week.

Speaking of the weak JPY, the Japanese Finance Minister Suzuki issued yet another warning of possible currency intervention. Suzuki told the parliament that last week, he voiced strong concerns of the week JPY at the trilateral level with his counterparts from the US and South Korea, and that they agreed with him. He was not more specific about how big an intervention would be. USD/JPY hit as high as 154.84 overnight, which is the highest level since 1990. Already last month there were speculation about the government intervening if USD/JPY would hit the 152 level, and the market reaction has been very modest to this point, indicating that markets at this stage need to see action.

The US is preparing a draft of sanctions, that threatens to cut off some Chinese banks from the global financial system according to Wall Street Journal (see U.S. Takes Aim at Chinese Banks Aiding Russia War Effort). The sanctions should target Chinese banks offering commercial support of Russia's military production.

What happened yesterday

Euro area consumer confidence rose marginally to -14.7 in April (cons: -14.5, prior: -14.9). The level indicates that consumers remain pessimistic despite record-low unemployment and rising real income. The weak consumer confidence is likely one of the reasons for the still weak private consumption and declining consumption share. However, confidence is moving upward and is now at the highest level since February 2022. As economic fundamentals for households are decent, we expect private consumption to tick up during the year.

The Oil market remained calm yesterday as news of new sanctions from the USA against Iran's oil sector was absorbed. Brent was stable around 87 dollars per barrel - a modest price level considering the recent escalation of geopolitical tensions in the Middle East. The dollar has also risen recently - primarily driven by higher US interest rates. The strong dollar may also help alleviate pressure on the oil price. We expect the oil price to stay around the current level for the foreseeable future.

Equities: Global equities surged across regions yesterday. Notably, this was led by banks and defensive sectors, while technology made only a marginal recovery following last week's underperformance. This reinforces our fundamental belief that the real challenge at present is primarily tied to inflation and central bank concerns rather than geopolitical issues and earnings. In the US yesterday, the Dow saw a +0.7% increase, S&P 500 +0.8%, Nasdaq +1.1%, and Russell 2000 +1.0%. This morning, Asian markets and European futures are broadly higher, while US futures are stable.

FI: European rate markets continued to fluctuate significantly in yesterday's session with curves generally ending lower. BTPs rallied following S&P's decision to confirm its BBB (stable) rating last Friday despite Italy's worsening budget outlook. The Bund curve bull-flattened slightly with the 10Y tenor dipping below the 2.5% mark. The 10Y US Treasury yield was down 6bp to the current level of 4.60%. Markets added 4bp to ECB rate cut expectations for 2024 (now 77bp) following dovish comments from Banco de Portugal's Centeno who said cuts at around 100bp could be compatible with inflation reaching 2% in the medium-term. The Bund ASW spread was steady at 34.5, while credit spreads continued tightening throughout the day.

Yesterday's macro news flow was very limited. Eurozone consumer confidence improved further in preliminary April data, but the current index level at -14.7 is still low in a historical context. As economic fundamentals for households are decent, we expect private consumption to tick up during the year, but we will likely have to wait until confidence rises further.

FX: A quiet and rather uneventful session yesterday. The dollar was little changed, while the scandies were stronger on the day, supported by benign risk sentiment as the S&P 500 ending its 6-day rout. The yen continues to shrug off intervention warnings and USD/JPY is closing in on 155.

Daily Pivots: (S1) 1.0628; (P) 1.0650; (R1) 1.0675; More...

Intraday bias in EUR/USD remains neutral as range trading continues. Upside of recovery should be limited by 1.0723 support turned resistance. 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.

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) 1.2303; (P) 1.2347; (R1) 1.2395; More...

Intraday bias in GBP/USD remains on the downside at this point. Current fall from 1.2892 is in progress for 161.8% projection of 1.2892 to 1.2538 from 1.2708 at 1.2207 next. On the upside, above 1.2391 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another fall.

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) 0.9103; (P) 0.9113; (R1) 0.9131; More....

Intraday bias in USD/CHF remains neutral at this point. Consolidation from 0.9151 could extend, but further is expected as long as 0.8996 support holds. Break of 0.9151 will resume the larger rise from 0.8332 to 0.9243 resistance. However, firm break of 0.8996 will turn bias to the downside for 55 D EMA (now at 0.8953).

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 0.8728 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.