GBPUSD TECHS: Corrective Pullback

European yields fell on a data-heavy Wednesday.

• After some initial overnight weakness, Bunds and Gilts largely looked through higher-than-expected Q1 Eurozone GDP and French and German state-level flash inflation.
• Core instruments would strengthen through the European morning session on weaker equities and oil prices which helped support global FI generally.
• Stronger-than-expected (or at least, less-weak-than-expected) US GDP and PCE inflation data saw core FI pull back sharply, but Bunds and Gilts would rally anew as equities tumbled on US growth fears.
• The German and UK curves leaned bull steeper on the day, with outperformance in the bellies. Periphery EGB spreads widened modestly, with GGBs underperforming.
• Following today's inflation releases, April Eurozone core HICP (Friday) is seen as having upside risks vs the 2.5% Y/Y estimate coming into the week.
• Thursday is a holiday (Labor Day) throughout much of Europe, though in the UK we get consumer credit / money supply / mortgage data, as well as final April Manufacturing PMI.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5bps at 1.686%, 5-Yr is down 5.9bps at 1.985%, 10-Yr is down 5.3bps at 2.444%, and 30-Yr is down 4.5bps at 2.882%.
• UK: The 2-Yr yield is down 4bps at 3.803%, 5-Yr is down 4.1bps at 3.917%, 10-Yr is down 3.9bps at 4.441%, and 30-Yr is down 3.7bps at 5.207%.
• Italian BTP spread up 1bps at 112bps / Greek up 1.3bps at 85.5bps

The Bundesbank’s estimate of seasonally-adjusted German CPI suggests April sequential services inflation momentum was the highest since May 2024. While that will have been pushed upwards from Easter Effect one-offs, and residual seasonality appears to persist in the SA time series, the print underscores that services inflation remains sticky in Germany. 

• Services inflation accelerated to 0.43% M/M (sa) in April (vs 0.26% prior, 5.3% annualized), while manufactured goods ex-energy continued to run soft at 0.08% M/M SA (vs 0.25% prior, 1.0% annualized).
• This left sequential core CPI SA at 0.17% M/M (0.26% prior, 2.1% annualized).
• However, markets appear to be looking through this latest services strength. Dec-25 Euribor futures continue to trade not too far off dovish extremes seen mid-April, with around 66bp of easing priced through December. 

• It comes as a) core goods inflation is soft, and b) analyst and ECB expectations are increasingly expecting EZ headline inflation returning to target around end-2025 amid the firmer US tariff stance. US trade policy of course has tilted the ECB Governing Council's focus towards growth instead of inflation risks.

   

• RES 4: 1.1696 1.618 proj of the Feb 28 - Mar 18 - 27 price swing 
• RES 3: 1.1625 1.500 proj of the Feb 28 - Mar 18 - 27 price swing
• RES 2: 1.1608 High Nov 9 2021
• RES 1: 1.1440/1573 High Apr 23 / 21 and the bull trigger  
• PRICE: 1.1347 @ 16:25 BST Apr 30
• SUP 1: 1.1308 Low Apr 23
• SUP 2: 1.1251 20-day EMA and a key support    
• SUP 3: 1.1144/1002 High Apr 3 / 50-day EMA and a pivot level     
• SUP 4: 1.0805 Low Apr 3  

The recent pullback in EURUSD is considered corrective and the trend structure is unchanged, it remains bullish. MA studies are in a bull-mode position signalling a dominant uptrend, and the latest move down is allowing an overbought condition to unwind. A resumption of gains would open 1.1608 next, the Nov 9 2021 high. Key support is at the 20-day EMA, at 1.1251. A break of this average would signal scope for a deeper corrective pullback.