EURGBP TECHS: Bear Threat Remains Present
- RES 4: 0.8621 High May 9 and a key short-term resistance
- RES 3: 0.8596 1.0% 10-dma envelope
- RES 2: 0.8549 50-day EMA
- RES 1: 0.8541 High May 31
- PRICE: 0.8508 @ 06:29 BST Jun 6
- SUP 1: 0.8484 Low May 29 and the bear trigger
- SUP 2: 0.8454 76.4% of the Mar 7 - Sep 26 ‘23 bull phase
- SUP 3: 0.8408 Low Aug 24 2023
- SUP 4: 0.8388 Low Aug 17 2022
EURGBP continues to trade above its recent lows. The trend condition is bearish with sights on 0.8484, the May 29 low and the bear trigger. A break of this level would confirm a resumption of the downtrend and confirm a clear break of key supports at the 0.8500 pivot level, and the zone between 0.8498, the Feb 14 low, and 0.8493, the Aug 23 ‘23 low, strengthening a bearish theme. Initial resistance to watch is 0.8541, the May 31 high.
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LOOK AHEAD: UK Timeline of Key Events (Times BST)
| Date | UK | Period | Event |
| 07-May | 0930 | Apr | S&P Global/CIPS Construction PMI |
| 09-May | 0001 | Apr | RICS House Prices/ KPMG/REC Jobs Report |
| 09-May | 1200 | Bank Of England Interest Rate | |
| 09-May | 1230 | BoE Press Conference | |
| 09-May | 1400 | Apr | BOE's Decision Maker Panel Data |
| 09-May | 1715 | BOE's Pill MPR Virtual Q&A | |
| 10-May | 0700 | Mar | GDP/ Trade/ Services/ Production/ Construction |
| 10-May | 0700 | Q1 | GDP First Estimate |
| 10-May | 1215 | BOE's Pill at National MPC Agency Briefing | |
| 10-May | 1245 | BOE's Dhingra remarks at KCL Econdat Conference | |
| 14-May | 0700 | Mar | Labour Market Survey |
| 14-May | 0830 | BOE's Pill Speech at Chartered Accountants Summit | |
| 16-May | 1200 | BOE's Greene Speech at Make UK on Labour Market | |
| 17-May | 0900 | BOE's Mann Speech at Economics Statistics Centre | |
| 21-May | 1100 | May | CBI Industrial Trends |
RBA: Target By End 2025 But Path “Unlikely To Be Smooth”, Rates On Hold For Now
The RBA left rates at 4.35% which was widely expected and maintained its neutral bias with the optionality that it isn’t “ruling anything in or out”. In that respect there was little change but the tone of the statement was a lot more cautious re the inflation outlook saying that not only is it “falling more gradually than expected” but the Board “will remain vigilant to upside risks”. The statement with the updated forecasts implies that rates are on hold for at least this year given the current outlook.
- 2024 headline inflation was revised up substantially with Q2 up 0.5pp to 3.8% and Q4 +0.6pp also to 3.8% but the oil price assumption was also higher. While it will not be near the top of the band at the end of this year, the RBA continues to project 2.8% in Q4 2025 and 2.6% in Q2 2026, so no change in when inflation enters the band and reaches the mid-point but the “process” is “unlikely to be smooth”. This also means no reason to change rates in either direction.
- Trimmed mean was revised up 0.2pp to 3.8% in Q2 2024 and 0.3pp to 3.4% in Q4.
- The RBA uses market pricing and professional forecasters for its OCR assumption. Rates are little changed until H2 2025, which implies that they need to stay around 4.35% in order for inflation to return to target by Q4 2025. While there is significant uncertainty especially the further out years, current circumstances suggest that rates may not be cut until H2 2025, which would be after the Federal election due by May 2025.
- Growth was revised down 0.5pp to 1.3% in Q2 2024 driven by private domestic demand, while public demand was revised up. The rest of the horizon was little changed. The unemployment rate was revised down.
- A few changes of note include that supply and demand are not in balance but “somewhat closer”, services prices are expected “to ease more slowly than previously forecast”, and wages are now unsustainably high given “trend productivity growth”.
- See statement here.
AUSSIE BONDS: ACGBs Richer, Curve Slightly Steeper, RBA Keeps Rates On Hold
ACGBs (YM +7.0 & XM +6) are richer today after the RBA as widely expected kept rates on hold at 4.35%, while earlier we had Retail Sales Ex Inflation consensus is -0.3% down from 0.30% in March.
- US Tsys futures have edged a touch higher post the RBA rate decision, with curves little changed.
- The cash ACGB curve is slightly steeper post RBA with yields 6-8bps lower. The AU-US 10-year yield differential is 2.5bps lower at -15.5bps.
- Swap rates are 6-7bps lower.
- The bills strip is slightly cheaper, with pricing f4-7bps higher
- RBA-dated OIS pricing is mixed out past July, with the market pricing 10bps of easing into the year-end from an expected terminal rate of 4.31%.
- Looking ahead, Foreign Reverse at 4.30pm AEST
