USDJPY TECHS: Gains Considered Corrective

While measures of core inflation were clearly higher than expected in the April CPI report, inflation breadth didn't show signs of increasing across the price basket as a whole.

• MNI calculates that the percentage of items in the CPI basket (MNI uses 185 items) seeing higher than 2% Y/Y inflation moderated to 49.2% in April, down from March's 51.9% (was a 13-month high).
• And the percentage seeing higher than 3% fell to 40.0% from March's (likewise 13-month high) 41.1%.
• One observation on a more granular level is that there was greater stubbornness in services than goods from a breadth perspective.
• The % of goods with 2+% inflation ticked lower to 29.7% (32.4% prior), of 3% 33.6% (from 36.6%) and 4+% to 17.3% (from 18.9%).
• Services by contrast saw increasing inflation breadth: while the percent of services seeing 2+% inflation stayed steady at 19.5%, 55.6% (a 15-month high, from 51.9% prior) saw 3+% inflation and 13.0% (from 11.4%) saw 4+% inflation.
• This underlines the overall acceleration in core services in the month, notably with travel-related services rebounding from a softer March, alongside other resilient categories.

Yields closed mostly higher across Europe Tuesday, with Gilts underperforming Bunds ahead of UK CPI data.

• The tone for Gilt weakness was set by BoE hawkish dissenter Pill, who sounded less dovish than we had expected in saying that while there should be cuts, a quarterly 25bp pace is too fast, particularly since the first cut was delivered earlier than he would have preferred.
• Strength in European equities and renewed weakness in Treasuries weighed on the European FI space, though the sell-off stalled a couple of hours before the cash close and yields finished off their highs.
• In data, Eurozone flash May consumer confidence was a little stronger-than-expected.
• The German curve twist steepened, with the UK's leaning bear steeper (with 2s underperforming Schatz, in light of Pill's commentary).
• Periphery/semi-core EGB spreads closed mostly tighter, led by BTPs and OATs.
• Wednesday's highlight is UK CPI which could turn out to be the most important UK data release of 2025. MNI's preview is here.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.1bps at 1.842%, 5-Yr is up 0.2bps at 2.151%, 10-Yr is up 1.8bps at 2.606%, and 30-Yr is up 5bps at 3.088%.
• UK: The 2-Yr yield is up 3.6bps at 4.043%, 5-Yr is up 3.9bps at 4.196%, 10-Yr is up 3.9bps at 4.703%, and 30-Yr is up 3.9bps at 5.458%.
• Italian BTP spread down 1.3bps at 99.6bps  / French OAT down 1.3bps at 66.3bps  

• RES 4: 0.8768 High Nov 20 ‘23    
• RES 3: 0.8624/0.8738 High Apr 21/ High Apr 11 and the bull trigger
• RES 2: 0.8541/8557 High May 2 / High Apr 28
• RES 1: 0.8457 50-day EMA
• PRICE: 0.8421 @ 16:37 BST May 20
• SUP 1: 0.8394 Low May 16   
• SUP 2: 0.8359 1.236 proj of the Apr 11 - 16 - 21 price swing
• SUP 3: 0.8316 Low Mar 28 and a key support
• SUP 4: 0.8277 1.618 proj of the Apr 11 - 16 - 21 price swing  

EURGBP is trading at its recent lows. A bearish theme remains in play. The cross has recently cleared 0.8457, the 50-day EMA, signalling scope for a continuation lower near-term. The 0.8400 handle has been pierced, a continuation lower would open 0.8359, a Fibonacci projection. Key near-term resistance to watch is 0.8541, the May 2 high. A break of this hurdle is required to signal a potential reversal.