RENEWABLES: UK Morning Wind Forecast

• RES 4: 1.4111 High Apr 4
• RES 3: 1.4016 High May 12 and 13 and a key resistance 
• RES 2: 1.3920 High May 21 
• RES 1: 1.3798 50-day EMA 
• PRICE: 1.3610 @ 08:07 BST Jul 1
• SUP 1: 1.3600 Low Jun 30  
• SUP 2: 1.3540 Low Jun 16 and the bear trigger
• SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
• SUP 4: 1.3473 Low Oct 2 2024

The primary downtrend in USDCAD remains intact and short-term gains between Jun 16 - 23 appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend and open 1.3503, a Fibonacci projection. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3798.

ING note that “over the past week, the markets’ ECB rate cut discount for the near term has come down slightly, though still clearly centred around a 1.75% terminal rate. However, the market is already anticipating higher rates beyond the middle of next year”.

• They go on to flag that “there is still a trade deal that needs to be finalised for markets to find more conviction in that view, but headlines of late seem to suggest more progress despite the noise that the U.S. President still injects. Should the outlines become clearer, that would allow longer EUR rates to set their sights on the impact of the EU and German spending plans. The 10-Year EUR swap rate would then start drifting beyond 2.6% where we still eye a long run fair value level of close to 3%.”

Euribor futures are little changed through the blues today, but there are some interesting technical setups to be aware of at the front of the strip. Downward sloping trendlines drawn from the mid-April highs continue to cap upside in the white/front-red futures. Additionally, the U5/U6 spread remains contained by a falling wedge pattern, with the upper trendline drawn from the March 6 high still in close proximity (see chart).

• ECB-dated OIS are little changed through the next 12 months. One more 25bp cut remains essentially fully priced this cycle.
• This morning, Dutch June flash inflation was in line with the 5-analyst strong 2.8% Y/Y consensus. Some analysts have flagged downside risks to current tracking for a 2.0% Y/Y Eurozone-wide headline reading at 1000BST. Core is still seen tracking around 2.3% Y/Y.
• We’ve already had a lot of ECB-speak this morning (Nagel, Simkus, Wunsch, Lane, de Guindos). None have been too market moving for STIRs, but Wunsch did suggest the risks to rates are to the downside (he is usually considered a cautious/hawkish-leaning Governing Council member).
• Interestingly, de Guindos also noted that a EURUSD gain beyond 1.20 could be "complicated". This is a dovish signal, with a stronger EUR likely to exert downward pressure on import prices. Note that EURCNH reached its highest level in a decade overnight.
• On the tariff front, Bloomberg reported that the EU is willing to accept a 10% baseline US tariff, but is still pushing for concessions on sector-specific levies. Chief Economist Lane re-iterated that a 10% tariff is already in the ECB’s baseline projection.
• June manufacturing PMIs are due this morning (final reads for France, Germany and Eurozone), alongside the ECB’s consumer expectations survey. 

Figure 1: Euribor U5/U6 Spread (Bloomberg Finance L.P)