FOREX: USD/JPY Bounces, But S/T Tech Drivers Still Point Lower
- Australian monthly CPI came in lower-than-expected, which could call into question the RBA's next inflation outlook round, however the currency is again firmer off lows and holding the bulk of the recovery off Monday's 0.6373. This price actions favours this week's weakness as a false break below the bottom-end of the multi-month trend channel, and a reversion higher here would make 0.6552, the June 16 high and bull trigger, the primary upside target.
- USD/CHF remains within range of cycle lows after the solid outperformance posted from the beginning of the week. Having initially benefited from haven flows on the exchange of fire between Israel and Iran, the CHF has held the rally, keeping 0.8035 in sight as the next downside level in USD/CHF.
- Meanwhile, USD/JPY is recouping a small part of the sharp losses posted off the 148.03 high, putting prices back above Y145.50 in what's likely a corrective rally off the pullback lows. This week's price action has formed a shooting star candle pattern - which argues in favour of further S/T losses in the pair. The 50-dma marks the next downside level at 144.25, but we see the 20-day EMA at 144.81 as more materially important in the short-term. The level has been pierced, but a clear break of it would strengthen a bearish threat.
- May new home sales data is the sole US release Wednesday. This should keep focus on the second appearance from Fed's Powell this week, this time in front of the Senate Finance Committee. He struck a balanced tone on policy yesterday, however a mention from the Fed chair that rate cuts could come faster on "lower inflation, weaker labor" still elicited interest from markets, despite the Fed chair again implying September is the next 'Live' meeting.
- The ongoing NATO meeting in the Netherlands will be carefully watched for cohesion around Trump's latest narrative that the US has secured firmer military commitments from Europe, despite remaining signs of dissention among countries including Spain. The US President remains in NATO sessions until 1040ET, at which time he is scheduled to return to the White House.
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EGBS: Goldman Sachs: Smooth Sailing For Sovereign Credit
Goldman Sachs write “the recovery in risk sentiment coupled with policy puts on both the monetary and fiscal side continue to create a favourable environment for European sovereign credit. Even a risk wobble on tariff and trade risks saw marginal widening in sovereign credit spreads, which outperformed their equity beta”.
- Goldman continue “to estimate that sovereign spreads are slightly tight to fundamentals, but the same dynamics that are likely to keep the EUR front-end steep also imply that growth upside should prevent material widening”.
- They note that “French political risk remains an ongoing uncertainty, although we do not expect this to worsen tangibly on a short-term horizon. Unless we see increasing pressure from opposition parties for fresh elections, sovereign spreads will likely remain tight given the current favourable macro backdrop”.
- Zooming out, Goldman note that “relative to our year-end targets, Bonos are the least stretched and, given the strongest fiscal fundamentals there, we continue to expect vol-adjusted outperformance in Bonos vs BTPs and OATs.
- Overall, they “prefer sovereign credit to gain duration exposure in Europe, given the more symmetric distribution for terminal rate pricing”.
CHINA: /RATINGS: Moody's Affirms China At A1, Outlook Negative
Moody's notes that "the affirmation of the A1 rating takes into account China's large, dynamic economy and capacity for innovation, even as we expect potential growth to slow towards 3.5-4.0% by 2030. Recent trends indicate an improving quality of growth, bolstering economic resilience. The debt burden is likely to increase further, although we expect that it will be partly offset by low interest rates supported by a large domestic savings pool. China's financial system provides large captive demand for government debt, while capital controls contribute to financial stability during periods of stress".
- "The negative outlook is driven by risks that trade tensions between China and its major trading partners could have a long-lasting negative effect on China's credit profile. In particular, shifts in global trade flows and dampened trade growth pose challenges to China's transition to higher productivity-led economic growth and its efforts to contain the rise in its government debt".
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COMMODITIES: Medium-Term Trend Signal for Gold Unchanged and Remains Bullish
WTI futures traded to a fresh S/T cycle high last Wednesday before finding resistance. The recovery since Apr 9, appears corrective. Key resistance to watch is $62.71, the 50-day EMA. It has been pierced, a clear break of it would highlight a stronger reversal and open $65.82, Apr 4 high. For bears a reversal lower would refocus attention on $54.33, the Apr 9 low and bear trigger. The May 21 price pattern is a shooting star - a reversal signal. Gold has recovered from its recent lows. The climb signals the end of the corrective phase between Apr 22 - May 15. Medium-term trend signals are unchanged, they remain bullish. Note that moving average studies are in a bull-mode position highlighting a dominant uptrend. A continuation higher would open $3435.6 next, the May 7 high. Key support and the bear trigger has been defined at $3121.0, the May 15 low.
- WTI Crude up $0.42 or +0.68% at $61.96
- Natural Gas down $0.02 or -0.6% at $3.313
- Gold spot down $22.78 or -0.68% at $3334.7
- Copper up $1.5 or +0.31% at $485
- Silver down $0.01 or -0.03% at $33.4544
- Platinum down $5.19 or -0.47% at $1091.32
