EURJPY TECHS: Holding On To Its Recent Gains

• Interestingly, just like with recent weakness in credit extension in part one (here), large domestic banks have most recently seen the greater deposit flight in data for the first two weeks for May to May 10.
• Total deposits of all banks fell by a seasonally adjusted -$26B in the week to May 10 after -$15B the week prior for a four-week average of -$11B.
• This compares with -$22B after -$14B for large domestic banks, although stronger weeks before that help limit the average to just -$3B (with foreign, not small domestic banks making up most of the additional decline in the $11B average above).
• It sees a return to a more typical trend from before regional bank woes came to prominence, with large bank deposits trending lower since early 2022 with the start of the Fed's hiking cycle.

• Non-seasonally adjusted data show a broadly similar trend, suggesting that money market funds might have benefited from this outflow but subsequent more timely data show this has since slowed.

• Checking in with the Fed’s weekly banking H.8 data, most recently for May 10, total loans and leases in bank credit declined for the latest two weeks with -$3B after -$17B as it reverses a reasonable +$42B lift from the final week of April.
• It remains far more measured than the $45-60B weekly declines in the second half of March, but still maintains a clearly softer trend than credit extension prior to emergence of regional banking issues.
• How much this softer banking credit growth weighs on the economy remains an area of contention. It was again shown today by SF Fed’s Daly (’24 voter) saying her prior from speaking to contacts is that the credit tightening is worth as much as a couple hikes in the Fed Funds rate although has seen other estimates ranging from nothing at all to as much as 200bps.
• By sector, the latest small decline in the stock of credit has been concentrated in commercial & industrial loans (perhaps unsurprising after the recent issues for the sector in the Fed’s SLOOS) plus some for ‘other’ loans.

• The breakdown by bank is interesting though, with small banks continuing to extend more credit than their larger counterparts. Even on a four-week average basis, small banks have been increasing loan books by an average $8B per week compared to $0B for large banks.

• RES 4: 140.52 Bull channel top drawn from the Jan 16 low
• RES 3: 139.59 50.0% retracement of the Oct - Jan bear cycle
• RES 2: 139.00 Round number resistance
• RES 1: 138.75 High May 18
• PRICE: 138.57 @ 16:12 BST May 22
• SUP 1: 136.31 Low May 17
• SUP 2: 135.78/134.70 20- and 50-day EMA values
• SUP 3: 133.50 Low May 4
• SUP 4: 133.02 Low Apr 26 and a key near-term support

USDJPY bullish conditions remain intact following last weeks’ strong gains. A key resistance zone between 137.77-91, the May 2 and Mar 8 high respectively, has been cleared. The break strengthens bullish conditions and confirms a resumption of the uptrend that started on Jan 16. The focus is on 139.00 and 139.59, a Fibonacci retracement. Initial firm support is seen at 135.78, the 20-day EMA. Key support is far off at 133.50, the May 4 low.