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Daily Pivots: (S1) 136.70; (P) 137.07; (R1) 137.54; More....

EUR/JPY is still extending the consolidation from 139.99 and intraday bias remains neutral. Downside of retreat should be contained by 38.2% retracement of 124.37 to 139.99 at 134.02 to bring rebound. On the upside, firm break of 139.99 will resume larger up trend for 144.06 medium term projection level.

In the bigger picture, up trend from 114.42 (2020 low) is in progress. Such rise is seen as the third leg of the pattern from 109.30 (2016 low). Next target will be 100% projection of 114.42 to 134.11 from 124.37 at 144.06. In any case, outlook will now remain bullish as long as 124.37 support holds, in case of deep pull back.

Daily Pivots: (S1) 0.8386; (P) 0.8418; (R1) 0.8440; More...

Intraday bias in EUR/GBP remains neutral for the moment. On the upside, above 0.8465 will turn focus back to 0.8511 resistance intact. Further break of 0.8511 will reaffirm that 0.8201 is a medium term bottom, and target 0.8697 medium term fibonacci level next. On the downside, below 0.8365 will bring deeper pull back.

In the bigger picture, a medium term bottom could be in place at 0.8201, on bullish convergence condition in daily and weekly MACD. Rise from there could either be a correction to the down trend from 0.9499 (2020 high), or a medium term up trend itself. In either case, further rise should be seen to 38.2% retracement of 0.9499 to 0.8201 at 0.8697. Sustained break there will target 61.8% retracement at 0.9003.

Daily Pivots: (S1) 1.4547; (P) 1.4694; (R1) 1.4787; More...

Break of 1.4687 support suggests that corrective rebound from 1.4318 has completed with three waves up to 1.5053. Intraday bias is back on the downside for retesting 1.4318. Firm break there will resume larger down trend. On the upside however, break of 1.5053 will resume the rebound from 1.4318 to target 61.8% retracement of 1.6223 to 1.4318 at 1.5495.

In the bigger picture, as long as 1.5354 support turned resistance holds, larger down trend form 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.

Daily Pivots: (S1) 1.0284; (P) 1.0331; (R1) 1.0377; More....

Intraday bias in EUR/CHF remains mildly on the upside at this point. Firm break of 1.0400 resistance will resume the rebound from 0.9970 to 1.0610 structural resistance. On the downside, below 1.0186 will turn bias back to the downside for 1.0086 support, to extend the corrective pattern from 1.0400.

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) 1.2695; (P) 1.2774; (R1) 1.2817; More...

Intraday bias in USD/CAD stays neutral with focus on 1.2717 support. Break there will argue that rebound from 1.2401 has completed at 1.2913, ahead of 1.2963 resistance. Intraday bias will be back on the downside for 1.2401, to extend recent sideway trading. On the upside, above 1.2913 will resume recent rally to 1.3022 fibonacci level next. Decisive break there will carry larger bullish implications.

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. Break of 1.2005 will resume the down trend from 1.4667 and that carries larger bearish implications too.

Daily Pivots: (S1) 0.7141; (P) 0.7204; (R1) 0.7318; More...

Break of 0.7228 minor resistance suggests short term bottoming at 0.7029. Intraday bias in AUD/USD is mildly on the upside for stronger rebound to 55 day EMA (now at 0.7294) and possibly above. But outlook is unchanged that fall from 0.7660 is the third leg of the corrective pattern from 0.8006. On the downside, below 0.7029 will target 0.6966 low first. Firm break there will confirm this bearish case and target 0.6756 medium term fibonacci level next.

In the bigger picture, price actions from 0.8006 are seen as a corrective pattern to rise from 0.5506 (2020 low). Fall from 0.7660 should be the third leg of this pattern. Break of 0.6966 will target 50% retracement of 0.5506 to 0.8006 at 0.6756. On the upside, break of 0.7660 will revive that case that the correction has already completed at 0.6966.

Daily Pivots: (S1) 1.0544; (P) 1.0587 (R1) 1.0669; More...

Intraday bias in EUR/USD remains neutral as consolidation from 1.0470 is still in progress. Stronger recovery cannot be ruled out. But upside should be limited by 1.0756 support turned resistance to bring fall resumption. Break of 1.0470 will resume larger down trend and target 161.8% projection of 1.1494 to 1.0805 from 1.1184 at 1.0069.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1185 support turned resistance holds. The break of 1.0635 (2020 low) now raises the chance that it's resuming long term down trend from 1.6039 (2008 high). Retest of 1.0339 (2017 low) low should be seen next. Decisive break there will confirm this bearish case.

Daily Pivots: (S1) 1.2513; (P) 1.2575; (R1) 1.2699; More...

GBP/USD is still bounded in consolidation from 1.2410 and intraday bias remains neutral. Stronger rebound cannot be ruled out, but upside should be limited below 1.2999 support turned resistance. On the downside, break of 1.2410 will target 161.8% projection of 1.3641 to 1.2999 from 1.3297 at 1.2258.

In the bigger picture, rise from 1.1409 (2020 low) has completed at 1.4248, ahead of 1.4376 long term resistance (2018 high). Based on current momentum, fall from 1.4248 is probably the start of a long term down trend. The break of 61.8% retracement of 2.1161 to 1.1409 at 1.2493 is affirming this bearish case too. For now, deeper decline would be seen as long as 1.3158 support turned resistance holds. Next target is 1.1409 low.

Daily Pivots: (S1) 0.9675; (P) 0.9763; (R1) 0.9808; More....

With current retreat, a short term top could be formed at 0.9851 in USD/CHF already, just ahead of medium term projection level at 0.9864. Intraday bias is turned neutral for some consolidations first. Downside should be contained by 38.2% retracement of 0.9193 to 0.9851 at 0.9600. On the upside, firm break of 0.9864 will bring up trend resumption.

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 100% projection of 0.8756 to 0.9471 from 0.9149 at 0.9864. Sustained break there will pave the way back to 1.0342 high. This will now remain the favored case as long as 0.9459 resistance turned support holds.

Markets

The Fed yesterday as expected raised its policy rate by 50 bps, bringing the target range to 0.75%-1.0%. More 50 bps hikes are likely in coming meetings. In a direct address to the American people, Chair Powell said the Fed will use its tools to resolve the hardship that high inflation is causing. With inflation too high and an extremely tight labour market it’s in everyone’s interest to return to stable prices and restore the balances between supply and demand, also in the labour market. In this respect, the Fed in June will start reducing its holdings of Treasury securities by $30 bln p/m and MBS holdings by $ 17.5 bln p/m, doubling those amounts to a combined $ 95 bln p/m in September.

The Fed Chair was confident on the resilience of the economy. The labour market is strong; consumers have excess savings and businesses are in good shape. So, the US economy should be able to cope with higher policy rates without falling into a recession. Neutral financial conditions might be met by a policy rate between 2% and 3% and the Fed won’t hesitate to go above that level if necessary.

Even as the Fed president reiterated a strong commitment to bring inflation back to target, the press conference had a ‘dovish lining’. Hikes of 75 bps are not considered. US yields initially hardly reacted to the Fed statement, but Powell rejecting the option of 50 bps + hikes triggered a short squeeze on US bond markets. In the end, the curve bull steepened with the 2-y declining 14 bps, the 5-y easing 10.9 bps while the 30-y gained 2.6 bps. The correction was mainly driven by a setback in the real yield (10-y -8.6 bps to 0.05%).

This ‘soft’ repositioning also triggered profit taking on the recent USD rally. DXY dropped to the 102.50 area. EUR/USD jumped from the 1.0540 area to close at 1.0622. USD/JPY dropped below the 130 handle (close 129.09). The Fed making no plans to move to 75 bps hikes and Powell’s positive assessment on the economy propelled US equities with gains ranging from 2.81% (Dow) to 3.19% (Nasdaq).

Asian equities mostly trade in positive territory as China returns from holidays despite a poor China services PMI. The dollar regains a few ticks. Later today, the Bank of England (exp 1.0% from 0.75%), the Norges Bank (exp. unchanged) , the Czech National Bank (exp 5.5% from 5.0%) and the Central bank of Poland (expected 5.5% from 4.50%) decide on interest rates. The BoE can’t ignore higher inflation further eroding purchasing power. However, if Bailey and co keep their guarded tone on further action, the hike might not help sterling much.

US yields might enter a ST consolidation pattern near recent peak levels, but we don’t expect a protracted correction. Any USD setback might be modest too, especially against the euro. The ECB still has to clarify its anti-inflation commitment. In this respect, we keep a close eye on a speech of ECB chief economist Lane. A clear hawkish U-turn from Lane won’t pass unnoticed on European (interest rate and FX) markets, but we want to see it happen first before turning more positive on the euro. An EUR/USD rebound above the 1.0760 area would signal some easing of pressure on the euro.

News Headlines

The Brazilian central bank (BCB) raised its key Selic rate as expected by 100 bps, to 12.75%, the highest level since January 2017. The cumulative amount of tightening since early last year amounts 1075 bps. Inflation pressures intensified further due to supply problems related to the new corona-wave in China and the war in Ukraine. The repricing of monetary policy in advanced economies increases uncertainty for emerging markets as well. As Inflation risks prevail, the BCB aims to continue its tightening cycle next meeting but with a smaller (<100 bps) hike. Monetary policy is already in restrictive territory. Therefore, some cautiousness is necessary in future actions. The Brazilian real didn’t respond to the outcome with USD/BRL already back below 5 ahead of the verdict via the dollar correction.