FOREX: Sterling Consolidating Bulk of Recent Weakness
- GBPUSD had a notable 1.1% move lower on Tuesday amid the renewed dollar strength and global concerns regarding the Israel-Iran conflict. While the pair is unchanged on today’s session, the consolidation strengthens the short-term bearish momentum as we approach both the FOMC and BOE decisions over the next 24 hours.
- The move was likely exacerbated by a breach of the 20-day exponential moving average. The daily close below this average was the first since May 12 and subsequent weakness below 1.3456 (Jun 10 low) emphasises some renewed pessimism for sterling. The next important support lies at 1.3350, the 50-day EMA.
- For EURGBP, a bullish theme remains intact and last week’s gains reinforce current conditions, bolstering the likelihood of a climb towards 0.8592, a Fibonacci retracement. A higher close today would extend the pair’s winning streak to eight sessions, the joint longest streak since May 2019. Further out, 0.8624 will garner attention, the April 21 high.
- HSBC have noted that Wednesday’s UK CPI data do not shift the needle on the main drivers for GBP and believe that deteriorating UK data such as a cooling UK labour market and recent disappointing monthly GDP have been behind EURGBP’s outperformance. We also highlighted that JP Morgan have maintained a bearish GBP stance and continue to run an active short GBP vs NOK, SEK basket expression.
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EQUITY TECHS: E-MINI S&P: (M5) Trend Needle Points North
- RES 4: 6080.75 High Feb 26
- RES 3: 6057.00 High Mar 3
- RES 2: 6000.00 Round number resistance
- RES 1: 5977.50 High May 16
- PRICE: 5911.00 @ 14:29 BST May 19
- SUP 1: 5837.25/5681.27 High Mar 25 / 50-day EMA
- SUP 2: 5455.50 Low Apr 30
- SUP 3: 5355.25 Low Apr 24
- SUP 4: 5127.25 Low Apr 21 and a key support
A bullish trend condition in S&P E-Minis remains intact and last week’s appreciation reinforces current conditions. The contract has cleared an important resistance at 5837.25, the Mar 25 high and a bull trigger. This strengthens the bullish theme, paving the way for a continuation near-term. Sights are on the 6000.00 handle next. Initial firm support to watch lies at 5681.27, the 50-day EMA.
EUROPEAN INFLATION: Eurozone Services Uptick Was An Easter Effect
As was suggested in final country-level data over the last week, the April acceleration in Eurozone services inflation was largely driven by Easter effects. Services related to package holidays and accommodation rose to 6.73% Y/Y (vs 3.92% prior), while airfares accelerated to 13.77% Y/Y (vs -4.54% prior). Other services sub-components were mostly steady in April.
- Notably, insurance inflation eased to 7.42% Y/Y (vs 8.78% prior). While the monthly rate of 0.55% M/M was still above the 1997-2019 average of 0.40%, it was well below the 1.81% seen in 2024.
- A reminder that NSA services inflation was revised up to 3.98% Y/Y in April (vs 3.93% flash, 3.45% prior).
- On a seasonally adjusted basis using ECB data, services prices rose 0.73% M/M (vs 0.67% flash, 0.28% prior). That meant 3m/3m momentum accelerated to 4.16% (vs 4.08% flash, 3.31% prior).
- Headline PCCI inflation, which is judged by ECB staff as the best indicator of underlying medium-term inflation pressures, was steady at 2.21%. Other ECB underlying inflation metrics ticked up on the month.
- The ECB Governing Council remain more concerned about the growth outlook when it comes to near-term policy. There is a general expectation for wage pressures to continue easing through 2025, which should filter into weaker services price pressures. Friday’s Q1 negotiated wages release is expected to confirm these dynamics.
EQUITIES: E-Minis Tick Lower As China Laments U.S. Chip Guidance
E-minis tick lower (but remain above worst levels of the day) as China issues a statement noting that the recent U.S. guidance warning against the use of Huawei’s Ascend chips.
- China notes that the guidance undermines the consensus that was reached between the U.S. & China at the recent Geneva talks, urging the U.S. to correct its “wrongdoings”.
- This isn’t the first time we’ve seen such rhetoric from China on the matter, with similar comments surrounding the U.S. “abusing export controls” made on Thursday of last week.
- That helps explain the limited nature of the move lower in e-minis, but this does serve as a reminder that some of the recent moderation in Sino-U.S. trade tensions could be quickly reversed if one side doesn’t like the actions of the other.
- A reminder that the step down in tariffs between the two is only in play for 90 days, although the closely watched nationalist Global Times media outlet in China has suggested that the truce should be extended.
