GERMANY: GS See Limited Inflation Effects From Minimum Wage Rise

Chicago Fed’s Goolsbee (’25 voter) is hesitant to make a transitory argument for tariff-driven inflation, in contrast to Governor Waller, another FOMC participant at the dovish end of the spectrum, although it’s a view that’s seemingly shared by most of the committee after no apparent discussion at the May FOMC meeting. He sees surprisingly little tariff impact in data released so far but suggested that the April PCE data could be the last vestige of pre-tariff data. 

• “If you only looked at official data you’d be behind the curve. So far we’ve had the last two months, excellent inflation reports but when we’re out talking to people they’re like just wait, just wait, we haven’t seen it yet but the tariffs are coming. So we’ve got to have a little bit of anticipation.”
• “I would say surprisingly little direct impact so far in the data that’s coming out. We don’t know if that will remain true for the next month or two.”
• “PCE inflation […] the backward looking average over the past year is 2.1% Y/Y so it’s pretty close. […] I think that’s the last vestige [of pre-tariff data]. I think these last months of inflation look pretty good to me. They’re why I thought underneath this thing was looking decent on dual mandate grounds.”
• “The more sophisticated thing that we’ve got to decide is if something raised prices, one time and stopped raising them […] econ 101 would say it’s a one-time impact. If you think that’s a transitory shock to inflation, there is a sense in which you should just ignore it when setting monetary policy. [But] We learned the last time around this thing hit the supply chain. […] I’m a little gun shy about making that argument again.”

Overnight reverse repo takeup fell $180B Monday, the biggest drop since the start of the year ($233B on Jan 2) and more than reversing Friday's $150B jump.

• The latest level of $135.8B represents an 11-session low.
• A sharp drop-off in takeup was expected due to month-end dynamics reversing. Indeed the latest level is within the roughly $125-175B range seen in most of late April through the start of last week.

• RES 4: 1.3913 High Sep 14 2021
• RES 3: 1.3681 1.500 proj of the Feb 28 - Apr 3 - 7 price swing
• RES 2: 1.3605 1.382 proj of the Feb 28 - Apr 3 - 7 price swing
• RES 1: 1.3593 High May 26 and a bull trigger  
• PRICE: 1.3548 @ 16:33 BST Jun 2
• SUP 1: 1.3394 20-day EMA
• SUP 2: 1.3335/3232 Low May 20 / 50-day EMA
• SUP 3: 1.3140 Low May 12 and key support
• SUP 4: 1.3041 Low Apr 14

The trend condition in GBPUSD remains bullish and the latest shallow retracement is considered corrective. First key support lies at 1.3394, the 20-day EMA. A clear break of this average would suggest potential for a deeper correction and expose the 50-day EMA, at 1.3232. For bulls, a  resumption of gains would refocus attention on 1.3593, the May 26 high and bull trigger. Clearance of this level would resume the uptrend.