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Daily Pivots: (S1) 1.5008; (P) 1.5084; (R1) 1.5208; More...

Intraday bias in EUR/AUD remains neutral as range trading continues. On the upside, above 1.5187 will target 1.5277 resistance and than 1.5354 support turned resistance next. On the downside, break of 1.4759 support will suggest that rebound from 1.4318 has completed. Intraday bias will be turn back to the downside for retesting 1.4318 low.

In the bigger picture, as long as 1.5354 support turned resistance holds, larger down trend from 1.9799 (2020 high) is still expected to continue. On resumption, next target is 61.8% projection of 1.9799 to 1.5250 from 1.6434 at 1.3623, which is close to 1.3624 long term support (2017 low). However, firm break of 1.5354 will indicate medium term bottoming and bring stronger rally back to 1.6434 key resistance.

Daily Pivots: (S1) 1.0111; (P) 1.0165; (R1) 1.0232; More....

Intraday bias in EUR/CHF stays on the downside at this point. Break of 1.0086 support will affirm that case that corrective rebound from 0.9970 has completed after failing 1.0505 long term resistance. Deeper fall would be seen to retest 0.9970 low next. On the upside, above 1.0232 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 1.0513 resistance holds.

In the bigger picture, as long as 1.0505 support turned resistance (2020 low) holds, long term down trend from 1.2004 (2018 high) is expected to continue. Next target is 100% projection of 1.2004 to 1.0505 to 1.1149 at 0.9650. However, firm break of 1.0505 will suggest medium term bottoming, and bring stronger rebound towards 1.1149 structural resistance.

Daily Pivots: (S1) 1.2953; (P) 1.3016; (R1) 1.3092; More...

Intraday bias in USD/CAD remains on the upside and rise from 1.2005 should be resuming. Sustained trading above 1.3022 fibonacci level will carry larger bullish implications. Next target is 100% projection of 1.2005 to 1.2947 from 1.2401 at 1.3343. For now, outlook will stay bullish as long as 1.2859 support holds, in case of retreat.

In the bigger picture, focus stays on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. However, rejection by 1.3022 will maintain medium term bearishness.

Daily Pivots: (S1) 0.6871; (P) 0.6962; (R1) 0.7027; More...

Intraday bias in AUD/USD remains neutral for the moment. On the downside, firm break of 0.6828 support will resume larger fall from 0.8006. Next target is 0.6756/60 cluster support. However, firm break of 0.7282 will be a sign of bullish reversal and bring stronger rebound to 0.7666 resistance.

In the bigger picture, price actions from 0.8006 are seen as a corrective pattern to rise from 0.5506 (2020 low). Deeper fall could still be seen to 50% retracement of 0.5506 to 0.8006 at 0.6756. This coincides with 100% projection of 0.8006 to 0.7105 from 0.7660 at 0.6760. Strong support is expected from 0.6756/60 cluster to contain downside to complete the correction. Meanwhile, firm break of 0.7660 resistance will confirm that such corrective pattern has completed, and larger up trend is ready to resume.

Daily Pivots: (S1) 132.98; (P) 134.20; (R1) 136.24; More...

Intraday bias in USD/JPY remains neutral and consolidation from 135.58 could extend. But further rally is expected as long as 131.34 support holds. On the upside, break of 135.58 will resume larger up trend to 61.8% projection of 114.40 to 131.34 from 126.35 at 136.81. Firm break there will target 100% projection at 143.29.

In the bigger picture, current rally is seen as part of the long term up trend from 75.56 (2011 low). Next target is 100% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 149.26, which is close to 147.68 (1998 high). This will remain the favored case as long as 126.35 support holds.

Daily Pivots: (S1) 0.9636; (P) 0.9685; (R1) 0.9750; More...

Intraday bias in USD/CHF stays mildly on the downside and further decline could be seen. However, fall from 1.0048 is viewed as the third leg of the corrective pattern from 1.0063. Strong support should be seen at around 0.9543 to contain downside to bring rebound. On the upside, above 0.9815 minor resistance will turn bias back to the upside for retesting 1.0063 resistance.

In the bigger picture, down trend from 1.0342 (2016 high) should have completed with three waves down to 0.8756 (2021 low) already. Rise from 0.8756 is likely a medium term up trend of its own. Next target is 1.0237/0342 resistance zone. This will remain the favored case as long as 0.9471 resistance turned support holds. However, sustained break of 0.9471 will extend long term range trading with another falling leg.

Daily Pivots: (S1) 1.0441; (P) 1.0500 (R1) 1.0556; More...

Intraday bias in EUR/USD remains neutral for the moment. Further fall is in favor with 1.0786 resistance intact. On the downside, sustained break of 1.0339/48 will resume larger down trend. Next target is long term projection level at 1.0090.

In the bigger picture, focus stays on 1.0339 long term support (2017 low). Decisive break there will resume whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. However, firm break of 1.0805 support turned resistance will delay this bearish case, and bring stronger rebound first.

Markets

A hectic week ended on a calmer note. The wild bond swings eased somewhat – at least compared to the moves in the days before. US Treasuries forfeited some of the sharp gains that intensified in the final trading hours on Thursday. Yields rebounded between 2.4 bps (20y) to 8.6 bps (2y). German Bunds outperformed after having missed out on that late-session UST acceleration. The German yield curve bull steepened with changes ranging from -8.6 bps (5y) to flat (30y).

Commodity prices turned a bit less red-hot too. The likes of oil fell more than 6% (Brent closed at $113/b). Copper extends a two-week slide by almost 3% to close at the lowest level since September last year. Easing commodities may suggest inflation fears have once again made way for growth concerns.

But this didn’t stop equities from catching a breather after some significant losses earlier. Both European and US indices stabilized or even gained marginally. The dollar strengthened from below 104 (trade-weighted DXY) to 104.70, erasing much of Thursday’s yield-driven declines. USD/JPY, with the help of the stubborn BoJ, skyrocketed back to the multi-decade highs at 135. EUR/USD retreated from 1.055 to 1.05. Commodity currencies including the Aussie dollar suffered. Sterling was not in a great shape either with markets already paring back bets on BoE hikes again. EUR/GBP found support from the upward sloping line that is holding up the pair since mid-April. The couple rose from 0.854 to 0.859. The Swiss franc continued to appreciate after the CNB shocker hike. EUR/CHF dipped sub 1.02.

After last week’s hawkish actions and language, focus turned back from inflation to growth. Asian equity markets trade in the red with South Korea underperforming (-4%). Core bond futures trade near Friday’s closing levels. US cash markets are closed in observance of Juneteenth. The dollar is a bit in the defensive, depreciating against most of the G10 peers. EUR/USD surpasses 1.05 again. USD/JPY’s attempt north of 135 is unsuccessful as of yet. The yuan strengthens back below USD/CNY 6.70.

US markets are closed and the European economic calendar is vast emptiness. We do note the avalanche of ECB speakers, including president Lagarde and chief economist Lane. But we don’t expect them to deviate from the narrative told two weeks ago. Attention later this week goes to the Fed’s semi-annual testimony before Congress of which the text was already publish last Friday. PMIs are also due this Thursday while the UK braces for 9%+ inflation on Wednesday and dire retail sales on Friday. For core bond markets we stick to the view of sideways consolidation as we feel that enough tightening has been priced in for the time being. That should also rein in the dollar a bit. The upcoming string of probably not very rosy UK data combined with the technicals may keep sterling under pressure.

News Headlines

French President’s Macron Ensemble group remained the biggest group in the French national Assembly after the second round of the Parliamentary election. However, Ensemble failed to reach an absolute majority of 289 seats out of 577 seats. Ensemble currently is expected to gain 245 seats. The leftist coalition led by Jean-Luc Mélenchon (Nupes) is reported to have gained 131 sets. The far right national party surprised with bigger than expected 89 seats. The center right Republicans and its allies secured 61 seats. Having no majority in the National Assembly might complicate President Macron’s reform agenda as he probably will need to look for support mainly with Nupes or the center right Republicans on specific policy issues.

Erik Thedeen, currently the head of the Swedish Financial Supervisory Authority will become the new Governor of the Swedish Riksbank. He will replace Stefan Ingves who was head of the Swedish central bank for 17-years. Thedeen will take up its new job starting on January 1 of next year and is appointed for a term of six years. Ingves during his term mainly focused on bringing inflation sustainably back to the inflation target in a context of low inflation. Thedeen comes at the helm of the Riksbank as policy needs to bring excessive inflation back down to the Bank’s inflation target. In this move, new Riksbank governor, amongst others, will have to take into account the financial stability risks due to high household debt.

Cryptocurrencies had a rough weekend. A massive selloff hit the sector on Saturday and sent the price of Bitcoin below the $18K mark, the lowest level since the end of 2020. Ethereum fell below $900, as smaller cryptocurrencies followed their major peers to the south.

Sunday saw a rebound as some dip buyers piled in on belief that Bitcoin may have cheapened enough to catch an interesting dip, but cryptocurrencies remain at a slippery ground as factors that triggered this weekend’s selloff are still in play. And the level of stress in the market intensifies, both from the macro and industry specific perspectives.

From the macro perspective, the Federal Reserve (Fed) is pulling back monetary support to fight the soaring inflation, and the tighter monetary conditions pull the rug from under the feet of risky assets like cryptocurrencies. Unfortunately, the worry of a tightening Fed - and other central banks - is here to stay until we see a significant and a persistent drop in inflation. At this week’s semi-annal testimony, the Fed Chair Jerome Powell will repeat the bank’s strong commitment to fighting inflation, which could send the risk assets further south.

From the industry perspective, as the money pours out of the crypto industry, we see some industry giants having trouble to keep their business together, and that adds another level of sector-specific stress. Over the past couple of weeks, we saw the Terra, which was supposed to be a stable coin collapse to zero. Last week, Celsius, which is one of the biggest crypto lenders suspended withdrawals and even account to account transfers to prevent people from a virtual bank. On Friday, Babel finance froze withdrawals and redemptions hinting that if the crypto meltdown continues, we could see more of the crypto institutions take similar measures. And, again on Friday, Three Arrows Capital, said it considers asset sales, and bailout following heavy losses it incurred during this year’s selloff.

The mix of discouraging news, and the sharp price declines now convince the long-term hodlers to pull out the white flag.

Pricewise, given that the $20K has been cleared, the next wave of selloff would be a test for the $15/17K support. Below, we could see a further meltdown to $10K.

On the upside, we will likely see some decent resistance within the $22/25K range. But a positive breakout will take a stronger collective effort and belief to happen, as the FOMO, the fear of missing out a skyrocketing train is no longer the reality. The reality is that Bitcoin could fall further, and it’s no longer a piece of cake to be a crypto investor, as it is no longer a piece of cake to be a stock investor.

Traditional markets

Stock markets saw some relief at the end of a heavily stressful trading week, which saw the biggest weekly loss since March 2020 on the back of a 75bp hike from the Fed, a 50bp hike from the Swiss National Bank, a 25bp hike from the Bank of England, and emergency meeting from the European Central Bank to fix the fragmentation issue at the heart of the Europe to be able to fasten the rate hikes as well, without causing a renewed debt crisis in the eurozone.

Sentiment is mixed and investors lack direction this morning. European futures are in the negative and US futures are in the positive before the European opening bell.

FTSE futures are down on cheaper oil and firmer pound.

In the FX space, the US dollar index is softer this morning, leaving some space to breath for other currencies. The EURUSD is better bid above the 1.05 and Cable gains above 1.22. Gold is a touch below the 200-DMA. The precious metal remains under the pressure of soaring yields, which also reduces its potential as a safe haven hedge to falling markets.

US crude is below $110 per barrel this morning, which is perhaps the best news this Monday. Joe Biden sent a letter to US oil refiners last week, telling the industry that he is unhappy that they are making above normal profits at a time of war, and asking them to find solutions to increase efforts to refine more. Some producers, including Exxon responded that it’s possible that the US uses short term solutions, the ones that are put in place in case of natural catastrophes and unexpected events to allow increasing supplies, but in the longer term, the government should also promote investment through clear and consistent policy supports. The problem is, the US, as other countries, wants to move away from fossil fuel, which in term makes investing in refining facilities – that has a payback period of around a decade, significantly less meaningful for oil companies.

As such, falling demand due to a global economic slowdown is the most effective short-term solution to pause the oil rally.

Market movers today

This week starts with a fairly quiet data calendar although we have several ECB speakers out. US markets are closed today for the Juneteenth holiday.

After a very eventful last week with several notable central bank decisions, this week on paper looks quieter. On Wednesday we get UK CPI and Fed Chair Jerome Powell testifies to Congress. On Thursday, Norges Bank's rate decision marks the highlight alongside preliminary PMIs for the euro area (including country-specific indices for Germany and France), the UK, Japan and the US. On Friday, German IFO expectations and US new home sales are due.

We are closing in to the 30 June Riksbank June meeting which means that the blackout-period starts later this (7 days before). Today, Ingves will attend a seminar today with the headline "The new world of payments - the central bank's role" where markets will look for any policy signals.

The 60 second overview

Markets: Elevated inflation and rising recession risks remain the key themes in markets following a week where several central banks announced more monetary tightening. Fed comments over the last sessions including the weekend remarks from Fed Governor Waller in our view support the call for yet another 75bp US rate hike at the next monetary policy meeting in July. Tighter US monetary conditions is one of the key reasons behind the sharp tightening in global financial conditions this year including the sell-off in equities, higher bond yields, a stronger USD and wider credit spreads.

French politics: President Emmanuel Macron and his group of parties 'Ensembe' looks set to lose their absolute majority in the National Assembly following a surprise late surge from Marine Le Pen's the far right in yesterday's legislative elections. Initial results and projections leave Ensemble winning 245 seats - well short of the 289 seats needed for an absolute majority. If confirmed by final results it would mark the first time since 2002 that an elected French President will only have a relative parliamentary majority.

While Macron will probably be spared a 'cohabitation' government with a hostile prime minister, as his group remains the largest faction, he will still face difficulties in implementing his ambitious reform agenda to modernize public services and the pension system. Weeks of negotiations will now follow, as Macron has to seek allies from rival parties on the centre-right and -left.

The election result clearly points towards an increasingly divided France, and political uncertainty is just returning at a time when the economy has also lost steam, as high living costs are weighing on consumers and fiscal vulnerabilities have resurfaced with rising public borrowing costs. While he retains significant powers over foreign and defence policy, a challenging second term awaits Macron on the domestic front.

Change of Riksbank governor: On Friday it was announced that Governor Stefan Ingves, who leaves the Riksbank by the end of the year (after 17 years) will be succeeded by the current head of the Swedish FSA, Erik Thedéen. Speculations as to whether Thedéen is a monetary policy hawk or a dove have now started. Meanwhile, either way with inflation at 7.2% the consensus view clearly is to hike the repo rate to bring down inflation.

Equities: Equities closed higher on Friday measured by the MSCI world index. However, there was big regional, style and sector differences. Most notable the energy sector in another massive underperformance, losing almost 5%. Looking at the performance last week, the energy sector fell 15% and hence not as good a stagflation hedge as some would argue. One of the key takeaways in dreadful last week for equities was the drop in oil price and underperformance of the energy sector. This is a big change from what we have seen so far this year where higher oil price has been one of the major reasons for weak equity performance due to the link into inflation scare.

Also worth nothing last week, MSCI cyclicals outperformed MSCI defensives despite the massive sell-off in equities. For us, this just underscores one need to be careful in being to defensive and current stage. In US on Friday, Dow -0.1%, S&P 500 +0.2%, Nasdaq +1.4% and Russell 2000 +1.0%. The positive tone from Wall Street on Friday has not carried over to Asia this morning where most indices are lower, dragged down by South Korea and Japan. US futures are slightly higher this morning while European once are flat.

FI: One of the Federal Reserve members Christopher Waller has during the week-end been calling for another 75bp in July. The call for more front-loading of Fed hikes will support the flattening bias and increase the risk of a recession. In Europe, Olli Rehn said the ECB is committed to containing bond-market panic. We have a string of ECB speeches today including Lagarde.

FX: NOK led losses among majors last week and we do not expect Norges Bank this week to add any support to the heavily battered NOK. Inflation data remains top of everyone's mind as the key market topic. The Riksbank will be forced to act more aggressively after new serious inflation misses.

Credit: The European credit markets ended a historic bad week on a slightly positive footing, with iTraxx main tightening by 0.7bp to 112.1bp and Xover tightening by 6.9bp to 562.4bp. There were no clear drivers for the pause in bearishness and we mostly see it as temporary breather in an otherwise very sour market that is pricing in a rising recession risk.

Nordic macro

We have now reached the week of the long-awaited Norges Bank meeting (on Thursday). In short, we expect NB to hike policy rates for the fourth time in this cycle by 25bp. We expect NB to stick to its 'gradual' strategy but also open the door for an August hike. We expect a forward guidance signal of close to a 50/50 split between August and September as the timing for the next 25bp hike but still with a verbal guidance towards September. We expect the top point of the rate path to fall in the 2.50-2.75% range by end-2023 and that the subsequent inversion will prove steeper than in the March Monetary Policy Report leaving a close to unchanged end-point of around 2.3% in Q4 2025. The steeper inversion reflects a much worse employment-inflation trade-off than expected in the last monetary policy report. If this calls proves right it would be a disappointment to markets and lead to lower short-end rates. Admittedly, the balance of risk to our call is skewed towards a more aggressive NB.