Sample Category Title

• EURUSD drops to a fresh 5-month low before paring some losses
• Oscillators suggest that risks remain tilted to the downside

 EURUSD came under severe selling pressure in the aftermath of a hotter-than-expected inflation report on April 10, violating its 2024 low of 1.0693. Although the pair managed to find its footing at the five-month bottom of 1.0600, it has so far failed to stage a significant recovery.

Should downside pressures persist, the pair might revisit its recent five-month low of 1.0600. Sliding beneath that floor, the price could test the October-November support of 1.0516. Even lower, the September support of 1.0487 may provide downside protection.

On the flipside, bullish actions might meet initial resistance at the crucial 2024 support zones of 1.0693 and 1.0722. Conquering this barricade, the bulls could attack 1.0795, a region that acted both as support and resistance throughout 2024. A violation of that hurdle could set the stage for the September high of 1.0884.

In brief, EURUSD has been rangebound in the last few sessions, but the momentum indicators are suggesting that the bears remain in control. Meanwhile, the completion of a death cross between its 50- and 200-day simple moving averages (SMAs) could potentially trigger a new round of weakness.

• EURJPY is preparing to test the recent 165.34 high
• The growing intervention threat is limiting the aggressive bullish appetite
• Momentum indicators maintain some degree of bullish tendency

EURJPY is edging higher today with the bulls apparently preparing to challenge the recent 165.34 high following another false attempt by the bears to push this pair below the December 7, 2023 ascending trendline. The continued verbal commentary from Japanese officials, the countdown to this week’s BoJ meeting and the dovish commentary from ECB members are keeping the door open to more volatile sessions ahead, as made evident by the tightening Bollinger bands.

In the meantime, momentum indicators still show a bullish tendency. Specifically, the RSI continues to hover tentatively above its midpoint and, more importantly, the stochastic oscillator is trying to rejoin its overbought territory. However, the Average Directional Movement Index (ADX) remains stuck far below its 25-threshold and thus signals a trendless market.

Should the bulls ignore the intervention threat, they would aim to push EURJPY comfortably above the 165.34 high. They could then gradually try to lead EURJPY towards the July 13, 2007 high at 168.93.

On the other hand, the bears are desperate to recoup part of their significant losses. They could attempt to push EURJPY back below the 164.29-164.97 area and then test the support set by the various simple moving averages employed at 163.19 (50-day SMA) and 160.93 (100-day SMA). If successful, they could then try their luck and determination against the busier 159.64-159.80 range.

To sum up, EURJPY bulls are trying to record a new higher high but the heightened intervention threat and the upcoming BoJ gathering are keeping them on their toes. 

Daily Pivots: (S1) 190.16; (P) 191.44; (R1) 192.58; More..

Intraday bias in GBP/JPY remains neutral as consolidations from 193.51 could extend further. On the upside, firm break of 193.51 will resume larger up trend to 195.86 long term resistance. Nevertheless, decisive break of 190.02 will indicate that it's at least correcting the rise from 178.32, and target 38.2% retracement of 178.32 to 193.51 at 187.70.

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 of 187.94 support is needed to be the first sign of medium term topping. Otherwise, outlook will remain bullish in case of retreat.

Daily Pivots: (S1) 163.51; (P) 164.27; (R1) 165.52; More...

Intraday bias in EUR/JPY stays neutral for the moment. 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) 0.8569; (P) 0.8593; (R1) 0.8637; More...

Intraday bias in EUR/GBP remains on the upside at this point. Fall from 0.8764 has probably completed already. Further rally would be seen to medium term trend line resistance (now at 0.8650). 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) 1.6551; (P) 1.6616; (R1) 1.6672; More...

Intraday bias in EUR/AUD is turned neutral again with current retreat. But 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) 0.9606; (P) 0.9662; (R1) 0.9758; More...

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

Germany's industrial sector continues to faces another challenging year ahead, with Federation of German Industries (BDI) issuing a warning about the downturn in industrial production and the stagnation of exports for 2024. According to BDI's latest forecasts, industrial production is anticipated to drop by -1.5% this year. Additionally, exports are expected to remain flat.

BDI President Siegfried Russwurm highlighted the persistent struggles of the German industry, which has not fully recovered from "cost and demand shocks," driven by spikes in energy prices and inflation pressures.

Russwurm expressed concern over the long-term trend, noting that, despite some signs of a moderate recovery, the "overall production figures" have been following a "worrying downward trend" for several years.

Markets

Sterling finally snapped. A speech by Bank of England Ramsden was the straw that broke the camel’s back. He referred amongst others to the April CPI figure which will likely show the UK converging with the EU. Earlier last week, Bank of England governor Bailey also referred to that number which might even (temporarily) dip to/below the BoE’s 2% inflation target. Bailey’s comments suggested that the BoE would rather team up with the ECB in turning policy less restrictive in the near term than with the Fed which is clearly hinting at higher for longer. Ramsden on Friday added that he has more confidence that inflation persistence is easing with the current restrictive policy stance cutting service inflation. Employment and activity data showed weakness as well last week while the BoE covered the upside (March) CPI surprise with its dovish statements. UK money markets over the past weeks followed the US rather than the EMU example, making them vulnerable to a correction on the BoE’s guidance. UK gilts on Friday outperformed with yields falling 2.1 bps (30-yr) to 10.2 bps (2-yr). Money markets currently discount an inaugural 25 bps rate cut in August, with a second one to be delivered at the end of the year. Loss of interest rate support hurt sterling. EUR/GBP managed a first close outside of the 0.85-0.86 trading range since mid-January. The pair jumped from 0.8558 to 0.8614, taking out 38% retracement on the EUR/GBP-decline from Nov 23 (0.8768) to Feb 24 (0.8493) at 0.8601 in the process. EUR/GBP 0.8665 (62% retracement) is minor next resistance ahead of that 0.8768. Cable (GBP/USD) already fell out of the 2024 sideways trading range on USD-strength (< GBP/USD 1.2519) with the pair closing at a new YTD low of 1.2367. Similar 62% retracement as in EUR/GBP stands at 1.2364, the final support ahead of 1.2037.

Today’s eco calendar won’t move markets with EMU April consumer confidence the sole important release. ECB President Lagarde gives a lecture at Yale university, but she’ll stick to previous comments. On Friday for example she stressed two-sided inflation risk and that the ECB won’t commit to a preset rate path in H2 2024. We saw some underperformance at the front end of the EMU curve on Friday as more governors put (hawkish) risks against a (dovish) rate path for H2. This also gave some temporary support for EUR/USD (1.660). Stock markets remain in correction/sell-on-upticksmode with Nasdaq losing another 2%. On a weekly basis, the tech index fell over 6%.

News & Views

S&P raised the outlook on the Greek BBB- rating from stable to positive, reflecting an expectation that the tight fiscal regime will continue to spur a reduction in the government debt ratio. S&P also expects growth to continue to outperform EMU peers. The New Democracy government after last year’s election outlined and begun implementing a robust reform agenda aimed at unblocking structural bottlenecks. 2023 growth was slightly softer than expected, but at 2% remained relatively healthy. Even so, S&P indicates that fiscal receipts have not softened, increasing by 6.2% last year, due to still high inflation and dividends from fiscal reforms. In the medium term, S&P projects real GDP growth to average 2.4% in 2024-2027, due to a pick-up in investment driven by NextGenEU projects, improved balance sheets of households and the banking system and the fact that the Greek economy is still 22% below its pre-debt crisis peak. Greece could reach the government’s primary budget balance target of 2.1% this year. Public debt which reached a peak level of 207% of GDP in 2020 is expected to fall to about 131% by 2027.

German Finance Minister Lindner on the sidelines of the IMF meeting in Washington said its country is opposed to a new round of joint debt issuance by the EU as members states should maintain responsibility for their own finances. The comments came as other EU members aim for now joint borrowing to finance the energy transition, the shift to the digital economy and a revamp of their militaries to address Russia’s threat. In this respect, Lindner indicated that this opposition is not only a question of getting around objections of the constitutional court on a stricter interpretation of legal limits on government borrowing. Lindner also argued that the results of the EU’s €800bn pandemic recovery fund were mixed and that a repletion of doesn’t seem advisable.

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 starts with a relief rally in equities following a calm weekend on the geopolitical scene. The US 2-year yield pushes above 5% ahead of US GDP and PCE updates. Four of Magnificent 7 are due to report earnings this week.

Oil under pressure following calm weekend

US crude kicks off the week under selling pressure, near the $81.50pb level. But the $80pb psychological level, which also coincides with the major 38.2% Fibonacci retracement on December to April rebound, will likely act as a strong support to the actual retreat as the Middle East tensions could resurface anytime.

But, one thing that could send the price of a barrel below that level is a further fall in rate cut expectations from the Federal Reserve (Fed), and eventually the other central banks. Even though the European Central Bank’s (ECB) Villeroy said that the ECB shouldn’t wait much even though the Mid East tensions drive oil prices higher, there is little chance that the ECB will ignore a potential U-turn in euro area inflation dynamics on the back of surging energy prices and US dollar appreciation.

US two-year yield above 5%.

The strong economic data from the US and hawkish comments from the Fed members closed the door on the expectation of a summer rate cut from the Fed. The US 2-year yield has been testing the 5% level since 10th of April and looks ready to go above this week. The US will reveal the first estimate of Q1 GDP on Thursday and the core PCE price index on Friday. The US economy is expected to have grown 2.5% in Q1 and the core PCE is seen flat on a monthly basis and lower on a yearly basis. Atlanta Fed’s GDPNow forecast points at a first quarter growth of nearly 3% and the last three CPI prints in the US surprised to the upside. Risks to the US economic data remain tilted to the upside.

Is it a bad thing? Robust growth is good news for everyone if inflation continues to slow. Otherwise it’s bad news, because it means that the Fed should try harder to fight inflation by keeping its monetary policy at a sufficiently restrictive level to slow down the economy and eventually push it into recession. Therefore, the combination of growth and inflation will give investors the next indication regarding how far the Fed stands from its first rate hike. Activity on Fed funds futures gives more than 50% for a September rate cut. And because September is too close to November elections, that could delay the first cut to the end of the year. Voila.

All eyes on magnificent seven

The S&P500 and Nasdaq have significantly decoupled from the yields and the Fed expectations since last year as the AI rally fueled optimism in technology stocks and sent these indices to record levels. But the first set of earnings from the most popular chip stocks disappointed last week. Both ASML and TSM reported their Q1 results last week, and both companies failed to satisfy investors despite highlighting that the AI should continue to boost their revenue and profits this year.

This week, 4 of the Magnificent 7 companies will be revealing their Q1 results: Microsoft, Google, Meta and Tesla..

And if the tech stocks can’t boost appetite, the rest of the S&P500 will hard it hard to do so. The S&P500 index is expected to print a 4% earnings decline in Q1 – a decent contrast with the +38% expected for the Magnificent 7. And among the Magnificent 7, Tesla and Apple don’t look promising. So all hopes rely on 5 stocks. 5 stocks will determine where the S&P500 should be headed next.