EURJPY TECHS: Short-Term Weakness Considered Corrective

• RES 4: 166.69 High Oct 31 2024 and a key resistance
• RES 3: 166.10 High Nov 6         
• RES 2: 165.21/43 High May 13 / High Nov 8 2024 
• RES 1: 164.07 High May 15 
• PRICE: 162.87 @ 16:39 GMT May 20
• SUP 1: 162.25/15 50-day EMA / Low May 19      
• SUP 2: 161.60 Low May 6
• SUP 3: 160.99 Low Apr 22  
• SUP 4: 159.48 Low Apr 9  

EURJPY maintains a bearish tone following the pullback from its recent high and the cross continues to trade at its latest lows. The pullback is considered corrective. However, the cross is testing a key support at 162.25, the 50-day EMA. A clear break of this level would undermine a bearish theme and signal scope for a deeper retracement. For bulls, a resumption of gains would refocus attention on the bull trigger at 165.21, the May 13 high.  

Canadian bank analysts don't appear to have altered their base cases for the June BOC decision in the wake of stronger-than-expected April core CPI readings. However, most who saw multiple cuts in the coming months have reconsidered that in light of the CPI data, with a rate cut on June 4th potentially hinging on next week's national accounts data and/or developments in inflation expectations. 

Selected comments:

• CIBC's base case for a 25bp cut in June is in question following the CPI data: "While headline inflation was in line with our forecast, core measures looked stronger than anticipated which puts a question mark over our forecast for a 25bp cut at the June meeting. That call now relies on next week's GDP data suggesting that the economy is tracking towards a contraction in Q2, which would be weaker than the Bank of Canada's less pessimistic "scenario 1" forecast within its April MPR. Without that evidence, policymakers could well elect to wait for more data before making further any further reductions in interest rates."
• RBC similarly sees risks that its base case of a couple of summer cuts will not materialize: "the BoC will be more concerned about growth in their preferred core price measures, which should not be impacted by tax changes. Those were already showing signs of acceleration in months before tariffs were imposed... Our own base case expectation has been that a softening economic growth backdrop will ultimately push the BoC to cut the overnight rate down to 2.25% in the summer (from 2.75% currently) after skipping a reduction in April. But the central bank will need to balance that pessimistic growth outlook with inflation pressures -- and the latest upside inflation surprise means it could well now take downside economic growth surprises to justify further cuts."
• TD still sees a June cut as live, albeit with significant risks: "We think the Bank of Canada can still look through a hotter inflation backdrop with more evidence of slower growth due to tariffs...The Bank can draw some comfort that CPIX and the ex. food/energy measures remain well below CPI-trim/ median, with both CPIX/xFE sitting at 2.6% y/y in April, but it's less comforting that all four measures have seen a similar acceleration since bottoming out in Q4. We believe the Bank can still look through this increase with more evidence of softer growth in Q1 National Accounts, but if next week's GDP report does not show a meaningful impact from recent tariffs and uncertainty then a June rate cut looks far more challenging."

• Spot gold has risen by 1.8% to $3,288/oz, bringing the yellow metal to its highest level since May 12.
• Analysts at Saxo bank said that short covering, once gold breached the $3,250 level, triggered the further move higher as the market assesses whether it is past peak optimism.
• The move has seen gold pierce initial resistance at $3,259.3, the 20-day EMA, a clear break of which would turn attention to $3,347.5, the May 9 high.
• Silver has also rallied sharply today, with the precious metal up by 2.0% at $33.0/oz, the largest one-day gain since May 6.
• A bullish theme in silver remains intact, with resistance to watch at $33.686, the Apr 25 high. Clearance of this level would confirm a resumption of the uptrend.
• Meanwhile, crude prices have struggled for clear direction and are holding within yesterday’s range as the market continues to watch progress on trade, Iran and Ukraine.
• WTI Jun 25 is down by 0.1% at $62.6/bbl.
• For WTI futures, key resistance to watch is $63.4, the 50-day EMA, a clear break of which would highlight a stronger reversal, opening $65.82, the Apr 4 high.
• Elsewhere, Henry Hub has surged by over 10%, with support coming from warmer weather forecasts amid the transition from a mild spring to summer.
• Traders are also capitalising on lower prices, which has sparked some bargain buying, Bloomberg reported.