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China maintains LPRs

China disappointed markets that were looking for more comprehensive stimulus measures as it left both its one and five-year Loan prime Rates (LPR) unchanged. Although the PBOC did announce some targeted support measures for homeowners and small businesses and set a much weaker CNY fix versus the US dollar today, equities in China have bucked the trend elsewhere, heading directly south.

China continues to stay wedded to deleveraging parts of the economy while attempting to add stimulus in a targeted sector manner. However, the Shanghai lockdown and fears its Covid-zero policy will crimp growth this year continue to weigh on markets that clearly want more of the usual cast-of-thousands stimulus measures from years past. The IMF overnight downgraded world growth citing both the Ukraine war and the China Covid-zero policy.

A weaker CNY fix today might hint at China’s attempt to offset the slowdown, weakening the yuan to boost exports. If supply chains remain constrained though, this may well be for naught. As US 10-year and 30-year yields approach 3.0%, eroding a 40-year downtrend line, it is notable that both USD/CNY and USD/CNH smashed through one-year resistance lines overnight. That points to more currency weakness ahead, something that will undoubtedly spill over to regional Asian currencies.

Another hint that Asia is putting growth ahead of inflation, and thus likely currency weakness, came from Indonesia yesterday. Bank Indonesia left policy rates unchanged and was surprisingly dovish in the post-meeting press conference. That is something of a U-turn, especially as Indonesia’s commodity complex is partially shielding it from the ravages of the global inflation wave. With core and headline inflation numbers still creeping up, and growth slowing, Southeast Asia’s biggest economy is likely showing the path for other regional central banks.

Nowhere is the US/Asia interest rate differential showing up more than in Japan. Japan trade data today showed exports slowing, but a blowout in imports thanks to soaring energy prices. That in itself is a yen negative as importers pay for energy in US dollars. The Bank of Japan has been forced to intervene once again in the JGB market today, capping 10-year yields at 0.25%. That has given temporary solace to the yen, which has rallied versus the US dollar in Asia today. However, no amount of BOJ/MOF-speak, or yield curve intervention can overcome the stark differences in monetary policy trajectory versus the Anglo-Saxon world. They will not be alone in Asia this year and Asian currency weakness will be one of the themes of 2022.

Some temporary relief came from Fed speakers overnight, who were markedly less hawkish than James Bullard on Friday, sticking to the 2.50% terminal Fed Funds story. That was an excuse for an increasingly desperate stock market to buy back equities even as US yields and the US dollar moved higher. Thankfully, US earnings season has been relatively trouble-free, Netflix aside. It faces another challenge tonight though as Tesla releases results. Netflix fell by 20% overnight on soft results and outlooks, continuing a trend starting with Facebook of punishing technology-related darlings who don’t keep the perpetual mega growth story going. Tesla likely has a bit more leeway as an “energy-transition” stock, but weak results will likely stop any broader equity recovery in its tracks.

The data calendar is now quiet in Asia with the China LPRs out of the way. It is a similar look across Europe as well. In the US, Existing Home Sales have downside risk as 30-year mortgages hit multi-decade highs. The Fed releases its Beige Book, but more attention is likely to be on the bid-to-cover ratio of the 20-year US bond auction tonight. A weak bid cover likely sees US yields move higher once again. We have Evans and Daily from the Federal Reserve speaking tonight, introducing some more hawkish upside risk again.

The Russian invasion of Ukraine has fallen off the front pages with financial markets, but that complacency is dangerous. Russia’s new offensive has started and if it doesn’t go well, we can’t discount Russia lashing out in economic petulance. Certainly, the situation in Ukraine, now that part two of the war is unfolding, will kneecap any sustained recovery by European equities and add another headwind to a very wobbly-looking euro. Gold may have fallen overnight, along with oil, but that is just the fast money being given the usual gold whipsaw. Gold’s price action of late, rising with both US yields and the US dollar, is telling us that serious and persistent risks abound in the world.

The British Pound started a fresh decline from the 1.3085 resistance against the US Dollar. The GBP/USD pair traded below the 1.3050 support zone, but the bulls appeared near 1.2980.

A low was formed near 1.2980 and the pair is now correcting higher. It traded above the 1.3020 level and the 50 hourly simple moving average. Besides, there was a move above a bearish trend line at 1.3030 on the hourly chart.

The pair is now facing resistance near the 1.3045 level. If there is a clear upside break above the 1.3045 resistance, the pair could rise steadily towards the 1.3075 level in the near term. The next major resistance sits near 1.3085 on FXOpen.

On the downside, an initial support is near the 1.3015 level. The main support is forming near the 1.3000 level. A break below the 1.3000 support could even push the pair below the 1.2980 support.

EUR/USD

The sentiment remains unchanged since yesterday, and during the early hours of today`s trading, the EUR/USD is hovering between the levels at 1.0757 and 1.0811. If the bears gain enough momentum and breach the support zone at 1.0757, then the negative expectations for the future path of the currency pair will be strengthened and the sell-off will most likely continue towards the zone at 1.0640. If the bulls prevail, then a successful attack on the zone at 1.0811, followed by a violation of the next target at 1.0850, could lead to a rally and a test of the important level at 1.0922.

USD/JPY

The yen lost quite a bit of ground against the dollar, and at the time of writing this analysis, the price is consolidating under the zone at 129.40. A new attack for the bulls is a highly probable scenario and a successful violation of the mentioned level could easily lead to new gains and continue the rally for the Ninja towards the highs at around 133.70. If the bears take control instead, then a violation of the support at 126.96, followed by a breach of the lower target at 126.48, could deepen the decline and lead to a move towards the major support zone at 125.75.

GBP/USD

The support zone at 1.2986 withheld the bearish attack and the sterling recovered some of its recent losses against the greenback. If the bulls manage to breach the close resistance at 1.3045, then a recovery towards the upper zone at 1.3104 would be the most probable scenario. If the bears increase the pressure, then a new successful attempt and a violation of the mentioned level at 1.2986 could easily deepen the decline towards the support at 1.2850.

EUGERMANY40

The bearish momentum faded and the bulls prevailed during yesterday's session. The EUGERMANY40 rallied and tested the resistance at 14184 and a confirmation of the breach could easily fuel a more sustained move towards the zone at 14322, followed by the higher level at 14562. The first target for the bears is still the zone at 14034, but only a breach of the support at 13958 could deepen the decline and lead to a move towards the local low at 13884, which would strengthen the negative expectations for the future path of the index.

US30

The better-than-expected data for the first quarter earnings season in the U.S. helped the index rebound, and at the time of writing, the price is hovering just above the resistance at 34882. If this breach is confirmed, then the next target for the buyers can be found at the zone at 35110. If the bears re-enter the market, then the corrective move should be limited to the support at 34706.

Market movers today

Today is a quiet day in terms of economic data releases, as we mostly receive tier-2 data releases.

We have some FOMC speeches tonight with Daly and Evans on the wire. As 50bp seems like a done deal by now, the question is whether the Fed dares to hike by 75bp to get even faster back to neutral. Bullard, a well-known hawk, seems supportive while Bostic pushed back yesterday. The Fed's Beige Book is due out tonight. The Fed's blackout period starts on Saturday ahead of the next meeting in early May.

As the French presidential election is entering its hot phase, incumbent President Macron and National Rally's Marine Le Pen will face each other in a TV debate at 21:00 CET today. Markets will keep a close eye on candidates' performance, as a large part of left-wing voters remain undecided and polls still point to a narrow race.

The 60 second overview

Bank of Japan: For the third time since February, the BoJ stepped in to buy an unlimited amount of 10-year JGBs to keep its yield curve control in place as the global pressure for higher yields pushed 10-year JGBs above the BoJ's 25bp tolerance band. With the economy still recovering from the pandemic and inflation below target, the BoJ's policy stance remains loose and in growing divergence to other major central banks.

Economic Outlook: The IMF adjusted its expectations to global growth this year to 3.6% from 4.5% in January as the war in Ukraine is taking its toll on the global economy. Particularly the growth outlook in Europe has been hit hard and the Ukrainian economy is expected to shrink by almost 35% this year. Besides the war, IMF points to other challenges to the global economy as well such as China's repeated COVID lockdowns and tighter global monetary policy. Only regions expected to grow faster than back in January are Latin America and the countries in the Middle East.

Equities: US equities rebounded on Tuesday but Europe a touch lower after the long holiday. Commodities pulled back and yields moved even higher. Intuitively, this triggered a rotation into value cyclicals in Europe. However, it did not in the US: Real estate, communication services and tech were beating the tape, despite the US 10y yield approaching 3%. The usual positive correlation between yields and equities is back though, as it was a clear risk on session with a preference for cyclicals.

FI: Yields continue to rise ahead of the French presidential election on Sunday and the next FOMC meeting on May 4. The upward pressure on yields is driven by the expectations for tighter monetary policy from the Federal Reserve and ECB, where a 50bp or even 75bp rate hike from the Federal Reserve is mentioned by Federal Reserve members. There are more Fed speakers today as well as the Beige Book, which is released tonight.

Looking at other central banks such as Bank of Japan, the buying of JGBs continues as they keep the yield curve target of 25bp and they plan to increase the bond buying in Q2 compared to Q1, where they bought USD 3.5bn of bonds.

FX: EUR/USD moved briefly above 1.08 yesterday but ended the day below. Lower oil prices pushed the cross higher (EUR positive) but rising US yields dominated eventually with US 10yr Treasury yields moving closer to 3.0% (USD positive). Higher US yields also pushed USD/JPY closer to 129. In the lack of domestic news EUR/NOK has been remarkably resilient to recent oil volatility - in both directions.

Credit: Credit markets saw initially a rather negative day, however the development improved over the last trading hours. Itraxx main was 1.2bp wider at 80bp, while Xover was 5.7bp wider at 380.5bp.

Netflix dived more than 25% in the afterhours trading after announcing that the subscriptions fell by 200’000 in the Q1.

The carnage in Netflix’s share price will certainly plummet the good mood in Nasdaq, which rallied more than 2% yesterday. Nasdaq futures are pointing to the downside at the time of writing.

The European markets traded in the red on the back of the escalation in Ukraine, as Russia launched the ‘second phase’ of the war in the Eastern Ukraine. The futures point at a positive start, yet the risks remain tilted to the downside.

Yesterday

Major US indices traded in the green on Tuesday, despite discouraging news.

First, the World Bank cut the global growth forecast by nearly a percentage point, from 4.1% to 3.2%, which includes a 4.1% economic contraction in Europe and Central Asia mainly due to the Ukrainian war. And IMF followed the world bank in cutting its growth forecast from 4.4% to 3.6% in 2022. It also projected an even faster inflation of 5.7% in advanced economies and 8.7% in emerging and developing countries.

Crude oil fell 4.5% to $102 per barrel, but is already trading up this morning as the price pullbacks in crude oil are still seen as interesting dip-buying opportunities as the supply side remains problematic with the war, the OPEC’s unwillingness to pump more oil, the unrest in Libya and Houthi attacks in Saudi Arabia. Therefore, the slowdown in demand side is certainly slowing the positive trend, but it doesn’t necessarily weigh enough to reverse the positive trend.

Then, the Chinese data showed that the imports fell, the industrial production slowed sharply in March due to new Covid lockdowns, the unemployment advanced to 5.8% which is above the government’s target of 5.5% and the retail sales tumbled near 2% during the month and 3.5% since last March, which is the worst annual drop since 2020. The Chinese government is stubborn in keeping the zero Covid policy in place and the places that are actually locked down stand for about 25% of the GDP according to JP Morgan.

Finally, St Louis Fed President James Bullard said he wouldn’t rule out a 75-bp increase in the US rates, though this is not his ‘base case’ for May meeting. He said that the fed funds rate should be lifted to minimum to 3.5% by the end of the year. Funny enough, the market didn’t react to his words. Bullard’s comments went mostly unpriced.

But the US 2-year yield continued to push higher, as the US 10-year yield is now preparing to test the 3% mark for the first time since the end of 2018. Gold couldn’t consolidate gains near the $2000 mark and the failure to move above this psychological level sent the price of an ounce down to the $1945 this morning. The geopolitical tensions should keep the downside limited, but the rising US yields drives a part of safe haven demand towards alternatives, and the dollar amasses a part of the geopolitical inflows.

The US dollar continues gaining against the major counterparts. The US dollar index is now comfortably consolidating above the 100 mark, and the gains against the Japanese yen are unstoppable as the USDJPY fell to the lowest level in almost twenty years and the pair is now preparing to test the 130 mark on growing divergence between an increasingly hawkish Fed, and a still-dovish BoJ, given that the Japanese don’t fight the same inflation battle than the rest of the world. But the Japanese officials are feeling tense about the rapid fall in the yen, as a rapid depreciation could harm the economy. The rapid yen depreciation calls for a concrete action from the Bank of Japan, as the verbal intervention from the officials haven’t been sufficient to stop the bleeding in the yen.

Daily Pivots: (S1) 164.78; (P) 165.10; (R1) 165.56; More...

Intraday bias in GBP/JPY remains on the upside at this point. Sustained break of 61.8% projection of 150.96 to 164.61 from 159.02 at 167.46 will pave the way to 100% projection at 172.68. On the downside, below 166.13 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress, and notable support from 55 week EMA affirms medium term bullishness. Next target is 61.8% retracement of 195.86 (2015 high) to 122.75 (2016 low) at 167.93. Sustained break there will be a long term bullish signal, and could pave the way back to 195.86. This will now remain the favored case as long as 150.95 support holds.

Daily Pivots: (S1) 137.61; (P) 138.36; (R1) 139.82; More....

Intraday bias in EUR/JPY remains on the upside for the moment. Current up trend should target 144.06 projection level next. On the downside, below 137.82 minor support will turn intraday bias neutral and bring consolidations first. But downside of retreat should be contained above 134.33 support to bring rally resumption.

In the bigger picture, up trend from 114.42 (2020 low) is in progress. Sustained break of 137.49 (2018 high) will resume larger 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) 0.8282; (P) 0.8298; (R1) 0.8317; More...

Intraday bias in EUR/GBP stays neutral as consolidation from 0.8248 is extending. Further decline is still expected as long as 0.8379 resistance holds. Below 0.8248 will target a retest on 0.82101 low. On the upside, however, above 0.8379 minor resistance will turn bias back to the upside. Further break of 0.8511 will reaffirm that 0.8201 is a medium term bottom, and target 0.8697 medium term fibonacci level next.

In the bigger picture, a medium term bottom should 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. This will remain the favored case as long as 0.8294 support holds.

Daily Pivots: (S1) 1.4590; (P) 1.4633; (R1) 1.4672; More...

Intraday bias in EUR/AUD remains neutral as consolidation from 1.4318 is extending. Outlook stays bearish with 1.4940 resistance intact. On the downside, break of 1.4318 will resume larger down trend to 1.3624 long term support next. On the upside, however, firm break of 1.4940 will indicate short term bottoming and turn bias back to the upside for 1.5327 resistance instead.

In the bigger picture, fall from 1.9799 is seen as a long term impulsive move. 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). Some support could be seen there to bring interim rebound. But overall, break of 1.5354 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of recovery.

Daily Pivots: (S1) 1.0210; (P) 1.0243; (R1) 1.0309; More....

EUR/CHF's rebound from 1.0086 is extending higher and intraday bias stays on the upside. Current development suggests that rise from 1.0400 might be resuming. Firm break there will confirm and target 1.0610 resistance next. On the downside, below 1.0165 will turn bias back to the downside for 1.0086 and below instead.

In the bigger picture, long term down trend from 1.2004 (2018 high) is still in progress. Next target is 100% projection of 1.2004 to 1.0505 to 1.1149 at 0.9650. In any case, sustained break of 1.0505 support turned resistance (2020 low) is needed to be the first sign of medium term bottoming. Otherwise, outlook will remain bearish.