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Markets

In a session devoid important data, global yield curves bull flattened yesterday. The move probably was due to technical considerations alongside lingering uncertainty on the outcome of trade negotiations between the US and major trading partners that have to be finished before the Augst 1 deadline. On the ‘technical side of the equation’, ultra-long yields in several major economies last week came close to cycle peak and/or high profile levels (e.g. US 30-y 5%, 30-y Japanese 3.2% area, UK 30-j 5.5% area, German 30-y 3.25% area). Those levels held, at least for now. At the same time, most recent headlines on the status of the US-EU trade talks suggest that the US is less inclined to a compromise after the US president Trump set a 30% reference tariff. A tariff level well above the hoped for 10% with potential EU retaliation might have bigger negative consequences both for US and EU growth. German yields declined between 4.6 bps (2-y) and 9.3 bps (30-y). The US yield curve also bull flattened with yields easing between 0.8 bps (2-y) and 4.35 bps (30-y). Despite sharply lower EMU (and UK) yields, the dollar underperformed. DXY dropped from 98.35 to close near 97.85. EUR/USD jumped from 1.1635 to 1.1694. Despite rising uncertainty on a favorable outcome of the trade talks, equities again held up fairly well. The S&P 500 for the first time ever closed north of 6300 (+0.14%) as the earnings season will come into full swing this week.

This morning, Asian equities show a mixed picture with China slightly outperforming. Japanese markets reopen after a market holiday yesterday. During the weekend, the LDP-led collation also lost its majority in the Upper House. Even so, Prime Minister Ishiba indicated to stay in his function as key topics, including the conclusion of trade talks with the US, have to be addressed. The outcome of the election keeps the focus on debt sustainability as some of the opposition parties winning in the elections are pushing for (costly) additional measures (including a sales tax cut) to address a cost of living crisis that was a major topic. For now, the market reaction is modest. The 30-y yield adds 2.5 bps (3.10%). After gaining modest ground yesterday, the yen eases slightly (USD/JPY 147.7).

Today’s eco calendar is again thin. We keep an eye that the Philly Fed non-manufacturing activity survey and the ECB lending survey. Later this week, headline from the trade talks will probably continue to set the tone for global trading. Other interesting topics later this week included a 20-y US Treasury auction tomorrow, US and EMU PMI’s on Thursday and the ECB policy decision, also on Thursday. After reducing the policy rate to 2% in June, the ECB is expected to keep a wait-and-see approach, taking its time to assess the outcome of the trade negotiations and its potential impact on EMU growth and inflation going forward.

News & Views

The non-partisan US budgetary watchdog came up with a new estimate for Trump’s recently enacted tax and spending law. The Congressional Budget Office says it would add $3.4tn to US deficits over the next decade, reflecting a $4.5tn decrease in revenue and a $1.1tn decline in spending. This new analysis does not take into account the dynamic effects coming from the impact on growth or interest rates though. The CBO’s calculations are always relative to a current-law scenario, ie one where Trump’s 2017 tax cuts would expire by the end of the year. As per request of Senate Republicans, the CBO also made an analysis relative to the current policy which compares the budgetary impact with the situation as it is today, regardless of any laws fading out. In such a scenario, US deficits would in fact decrease by $366bn over the next decade. It’s this accounting trick that lawmakers used to count the permanent extension of the 2017 tax cuts as costing nothing and allowing the OBBBA to be voted by simple majority in the Senate rather than the required 60-40.

The Polish finance ministry in recently approved updated assumptions for 2025-2029 has forecasted an economic growth of 3.4% and 3.5% for this year and the next respectively. That’s a downward revision from April’s 3.7% for 2025. Inflation would average at 3.7% in 2025 and 3% in 2026. This marks a more significant downward adjustment from 4.5% and 3.8%. The government expects inflation to remain consistent with the central bank’s 2.5% +/-1 ppt target afterwards. The numbers serve as part of the macroeconomic framework for next year’s state budget.

Daily Pivots: (S1) 198.40; (P) 198.91; (R1) 199.31; More...

Intraday bias in GBP/JPY remains neutral and more consolidations would be seen below 199.96. While deeper pullback cannot be ruled out, further rally will remain in favor as long as 195.33 support holds. Above 199.96 will resume the rise from 184.35 to 100% projection of 180.00 to 199.79 from 184.35 at 204.14.

In the bigger picture, price actions from 208.09 (2024 high) are seen as a correction to rally from 123.94 (2020 low). The pattern might still extend with another falling leg. But in that case, strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. Meanwhile, decisive break of 208.09 will confirm long term up trend resumption.

Daily Pivots: (S1) 171.86; (P) 172.35; (R1) 172.80; More...

Intraday bias in EUR/JPY remains neutral as consolidations continue below 173.21. With 170.78 support intact, further rally is expected. On the upside, break of 173.21 will target 138.2% projection of 154.77 to 164.16 from 161.06 at 174.03. Break there will bring retest of 175.41 high. Nevertheless, considering bearish divergence condition in 4H MACD, break of 170.78 will indicate short term topping, and turn bias to the downside for deeper pullback.

In the bigger picture, price actions from 175.41 (2024 high) are seen as correction to up trend from 114.42 (2020 low). The pattern might still extend with another falling leg. But in that case, strong support should be seen from 38.2% retracement of 114.42 to 175.41 at 152.11 to contain downside. Meanwhile, decisive break of 175.41 will confirm long term up trend resumption.

Daily Pivots: (S1) 0.8655; (P) 0.8664; (R1) 0.8679; More...

EUR/GBP is still extending consolidations below 0.8696 and intraday bias remains neutral. Further rally is expected with 0.8607 support intact. On the upside, above 0.8696 will bring retest of 0.8737 high. However, firm break of 0.8607 will confirm short term topping, on bearish divergence condition in 4H MACD. Deeper fall should be seen back to 55 D EMA (now at 0.8550).

In the bigger picture, the structure from 0.8221 medium term bottom are not impulsive enough to suggest that it's reversing the down trend from 0.9267 (2022 high). But even if it's a correction, firm break of 0.8737 will still pave the way to 61.8% retracement of 0.9267 to 0.8221 at 0.8867. For now, further rise will remain in favor as long as 55 W EMA (now at 0.8474) holds.

Daily Pivots: (S1) 1.7860; (P) 1.7896; (R1) 1.7961; More...

Intraday bias in EUR/AUD stays neutral for the moment. On the upside, break of 1.8094 will resume the choppy rise from 1.7245 towards 1.8554 high. However, break of 1.7717 support will revive the case that rise from 1.7245 has completed, and turn bias back to the downside for 1.7459 support instead.

In the bigger picture, price actions from 1.8554 medium term top are seen as a corrective pattern. While deeper pullback might be seen, downside should be contained by 38.2% retracement of 1.4281 (2022 low) to 1.8554 at 1.6922 to bring rebound. Up trend from 1.4281 is expected to resume at a later stage.

Daily Pivots: (S1) 0.9314; (P) 0.9324; (R1) 0.9343; More....

Intraday bias in EUR/CHF stays neutral at this point. On the upside, firm break of 0.9365 resistance will be the first sign that corrective pattern from 0.9445 has already completed. Further rise should then be seen to 0.9428/45 resistance zone. Firm break there will resume the rebound from 0.9218 low. However, firm break of 0.9292 will bring retest of 0.9218 instead.

In the bigger picture, while downside momentum has been diminishing as seen in W MACD, there is no sign of bottoming yet. EUR/CHF is still staying below 55 W EMA (now at 0.9424) and well inside long term falling channel. Outlook will stay bearish as long as 0.9660 resistance holds. Break of 0.9204 (2024 low) will confirm resumption of down trend from 1.2004 (2018 high).

Daily Pivots: (S1) 1.1635; (P) 1.1676; (R1) 1.1737; More...

Intraday bias in EUR/USD remains neutral for the moment. On the upside, break of 1.1720 minor resistance will suggest that corrective pullback from 1.1829 has already completed at 1.1555. Intraday bias will be back on the upside for retesting 1.1829. On the downside, below 1.1555 will extend the correction towards 38.2% retracement of 1.0176 to 1.1829 at 1.1198.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will remain the favored case as long as 1.1604 support holds.

Daily Pivots: (S1) 146.72; (P) 147.70; (R1) 148.31; More...

Intraday bias in USD/JPY remains neutral as consolidations continue below 149.17. Deeper pullback could be seen but further rally is expected as long as 55 D EMA (now at 145.91) holds. On the upside, break of 149.17 will target 100% projection of 139.87 to 148.64 from 142.66 at 151.43. That is close to 61.8% retracement of 158.86 to 139.87 at 151.22.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). There is no clear sign that the pattern has completed yet. But still, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.

Daily Pivots: (S1) 1.3426; (P) 1.3468; (R1) 1.3535; More...

Intraday bias in GBP/USD remains neutral and outlook is unchanged. On the upside, firm break of 1.3561 support turned resistance will argue that correction from 1.3787 has already completed after hitting 1.3369 support. Intraday bias will be back on the upside for retesting 1.3787. Nevertheless, firm break of 1.3363/9 will bring deeper correction to 1.3138 cluster support (38.2% retracement of 1.2099 to 1.3787 at 1.3142).

In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.3017) holds, even in case of deep pullback.

Daily Pivots: (S1) 0.7957; (P) 0.7990; (R1) 0.8014; More….

Intraday bias in USD/CHF remains neutral and outlook is unchanged. On the downside, break of 0.7946 support will argue that correction from 0.7871 has completed at 0.8063 after rejection by 0.8054 support turned resistance. Intraday bias will be back on the downside for retesting 0.7871. Nevertheless, firm break of 0.8054/63 will bring stronger rebound to 55 D EMA (now at 0.8139).

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8475 resistance holds.