28th May, 2025
Snapshot
- DXY: Bounced after US-EU perceive to speed up trade talks and Conference Board Consumer Confidence beat estimates
- EUR/USD: Subdued inflation readings in Euro Area big four economies will support an ECB rate cut at it’s June 5 meeting
- USD/JPY: Extends recent gains in Asian session but the 50 DMA overhead could cap further rise
- AUD/USD & NZD/USD: Australian headline CPI higher than consensus /RBNZ cut rates as expected but vote was not unanimous
- Oil: Market weighs between risk of additional US sanctions on Russia and increased OPEC+ supply
- Gold: Growing Supply-Demand imbalance in bond markets is a global phenomenon with risk of debt monetisation down the road
US Dollar
Dxy rejection off 50 DMA on 12 May casting bearish overtones on the market. The broader downtrend off 110.176 (13 Jan YTD high) remains very much intact and we continue to see eventual renewed attempts on 97.921 (21 Apr low). A 50-200 DMA death cross that was triggered on 16 Apr weighs and suggests longer term bears now taking a hold on market. Recent breach of the 28 April 98.901 low now exposes 97.921 for a retest. 100.118 (22 May high) should now cap bounces, any overshoot above there should fade towards the 50 DMA~101.10
With Trump retreating off his 50% tariff threat on the EU until July 9 and potentially triggering EU to speed up the trade talks after his call with President of the European Commission Ursula von der Leyen, market focus shifted to the heavy US data docket yesterday. The May survey data mainly showed an overall improvement in outlook as that was when the US-China temporary truce was achieved. The hard data like Durable goods orders decline less than expected, possibly easing recession fears and market took the opportunity to chase after risk on trades
Fed's Barkin said that there is significant uncertainty about the economic impact of tariffs, while sentiment among households and businesses has declined sharply this year, consumer spending appears to remain resilient. Elevated uncertainty regarding tariffs and policy changes though has caused businesses to freeze hiring and delay investment decisions. He added that both businesses and individuals are on a “wait and see mode”, holding off major decisions until there is more certainty from Washington on key policy issues. The Fed too, is awaiting more clarity before making any moves on borrowing costs
Upcoming US data later today :
The GDP Growth Rate QoQ Second Estimate numbers fc -0.3%, not expected to show any major revision
Other data of interest April’s Pending Home Sales MoM fc -1.00% vs prior 6.10%. March 2025 data saw a strong 6.1% MoM increase in pending home sales, the largest jump since December 2023. However, the surge came after several weak months and the housing market remains under pressure from high mortgage rates (30 year rates around 6.9%)
Historically, April often sees a pullback after a strong March. With mortgage rates still elevated and affordability strained, a reversal or significant slowdown in April In April is likely
US will also be publishing the weekly labour data - initial jobless claims for week ending 24 May and Continuing Claims for week ending 17 May,
Euro
EurUsd bulls gaining traction since bouncing off the 50 DMA. Recent breach back above 1.1381 puts 1.1425 (28 Apr high) within sights and above there should trigger renewed attempt on 21 Apr YTD high at 1.1573. Best to treat intermittent dips as random noise unless market tracks back below the 50 DMA~1.1176, which could then usher in a deeper corrective pullback
France reported a Flash May CPI YoY at 0.7%, CPI EU Harmonized YoY at 0.6%
The other three large eurozone economies of Germany, Spain and Italy are due to report their May inflation numbers this Friday and all three are expected to report inflation at or below ECB’s 2% target
This would be the first time in eight months and only the second time since 2021 that inflation in these countries hasn’t exceeded the ECB’s target. These four economies represent over 70% of the euro area’s total output. The region’s inflation has fallen from a peak of above 10% to current levels. This reflects benign price pressures and a significant cooling of inflation. This subdued inflation backdrop likely supports an ECB interest rate cut at it’s June 5 meeting, to boost economic growth. External risk such as the potential US tariffs on EU imports should also nudge the ECB towards a rate cut decision
The strong euro and falling energy costs are cited as key drivers for the decline in inflation. Wage pressures are also easing and likely to persist. ECB Vice President Luisde Guindos confirmed the disinflationary trend and expects price stability to be achieved soon
Meantime, EU trade chief, Maros Sefcovic will lead political negotiations on industries such as steel and aluminum, automobiles, pharmaceuticals, semiconductors and civilian aircraft. At the same, EU will also prepare countermeasures should negotiations with the US, fail to reach a satisfactory outcome
Upcoming Eurozone data later today:
Eurozone 1 year and 3 year CPI Expectations for April will be released. 1 year CPI Expectations fc 2.80% vs prior 2.90% / 3 year CPI Expectations fc for 2.50% vs prior 2.50% Both the 1 year and 3 year Inflation expectations remain below the perceived inflation rate of the previous 12 months. The recent uptick in both short term and medium term expectations may reflect ongoing concerns about price pressures even as actual inflation rates have moderated compared to their 2022 peaks
Germany publishes it’s Import Price Index data and their unemployment data. Germany’s Unemployment rate expected to remain stable at 6.3%. In April the number of unemployed people rose by 4,000, well below the consensus forecast of a 20,000 increase and down from a 26,000 rise in March. The consensus for May is an increase of 13,000 unemployed. Given the recent pattern of actual increases coming in below consensus, the May figure could be more modest compared to estimates, possibly in the 4,000-10,000 range
Japanese Yen
UsdJpy rejects recent breach below 142.36 (6 May higher low) bouncing off 142.12 (27 May low). Look to fade upside towards the 50 DMA ~145.42 where the broader bear trend may seek to reassert. Under 141.97 (29 Apr low) risks renewed attempts on 22 Apr YTD low at 139.89.
Japan’s Ministry of Finance (MOF) took an unusual step and sent out a questionnaire to major banks and investors, asking for feedback about the demand for long dated government bonds. This move was seen as a sign that the government might reduce how many super long bonds it issues, making them less plentiful and hopefully more attractive to buyers. The mere hint of this possibility caused yields on 30 year and 40 year JGBs to drop sharply as investors anticipated less supply and more support from the government. This sharp drop in yields also cause the Yen to weaken by over 1% and send a ripple effect across the global bond market in which US Treasuries was bought as well
BOJ Governor Ueda reaffirm his intention to continue raising the benchmark interest rate if the economy improves as expected. He sounded cautious optimism that Japan is now closer to it’s inflation target than at any other time in the last 3 years. This raise the prospects that BOJ may be putting rate hikes back on the table. Raising short term rates could also help stop the yield curve from steepening too much
Last week’s April inflation data came in hot, with core inflation up 3.5% YoY from March 3.2% reading and above consensus of 3.4%. Core-core inflation also rose to 3.0% vs prior 2.9% in March and matching consensus expectations. April’s inflation data continues to indicate persistent price pressures in Japan, mainly from food, labour and energy factors. This week's Tokyo CPI data for May, a lead indicator for nationwide inflation is also expected to show an uptick following the expiration of energy subsidies. Persistent price growth is bolstering the case for another rate hike
Japan OIS markets however seemed sceptical if the next hike will be forthcoming, pricing in between 15-18bps of rate hikes for the year or 0-1 hike
Japan’s Chief trade negotiator Ryosei Akazawa aims to resolve tariff talks in time for the G7 June summit scheduled for June 15-17, where US President Trump and Japan’s PM Shigeru Ishiba will meet. If Japan manages a successful trade negotiation where they can get the auto tariffs off the table, narratives for a BOJ rate hike resumption could start to heat up as the tariffs uncertainty was one of the big stumbling blocks for BOJ policy makers. The “Liberation Day” tariffs deadline is July 9, a trade deal before that could set up BOJ for that opportunity to hike at its July meeting
US Economic council director Kevin Hassett recently told CNBC that nations offering advantageous deals could secure tariffs below the 10% threshold. He had previously flagged Japan as one of the nations nearing completion of a deal. If Japan really managed to have the 25% auto tariff removed, it would create cross currents on the Jpy. It will be seen as a major shift from US initial hardline stance, likely boosting risk sentiment and easing safe haven demand, possibly weakening the Jpy as investors shift to higher yielding assets.
Longer term though, auto tariffs removal would boost Japan’s auto industry ~ which accounts for 28% of its exports to US, increase export revenues, boost corporate profits, strengthen Japan’s economy, which are all Jpy positive. A stronger economy could also allow the BOJ to accelerate it’s rate hike cycle, narrowing the US-Japan interest rate differential which would also boost Jpy strength
Australian and New Zealand Dollar
AudUsd breaks above .6515 (7 May YTD high) to post fresh YTD highs at .6537 (26 May high) but as yet, sustained follow through gains were not forthcoming. Market have yet to make 3 consecutive daily closes above the 200 DMA this year and further sideways gyrations around the 200 DMA could persist before attempts to push higher. Sights are on 7 Nov 24’ .6688 lower high next. Loss of the 50 DMA~.6350 dampens upside views
Societe Generale’s Olivier Korber says that the Australian dollar could strengthen against the US dollar as economic growth expectations for Australia this year surpass that of the US. He indicated that the Aussie’s recent mild appreciation has yet to reflect this shift in relative growth expectations
Recently Released Australia Data
- April CPI YoY 2.4% vs fc 2.3% vs prior 2.4%
- April CPI Trimmed Mean YoY 2.8% vs prior 2.7%
Australia headline CPI number came in higher than expected and may slow the pace of expected RBA rate cuts. Monthly trimmed mean CPI was broadly in line with RBA’s forecast while headline CPI remained steady at 2.4% YoY but above consensus of 2.3%
The May CPI report will have the final say but for now, the base case is for RBA to stand pat at July’s meeting and enact it’s next rate cut at the August meeting. Most major bank forecasts are converging on a year-end cash rate between 3.10% - 3.35%
NzdUsd probed above .6029 (22 Apr high) to post fresh YTD highs at .6032 (26 May high) but have been unable to sustain gains above .6029 as yet. Maintaining recent strength above the 50 DMA~.5858 should keep upside bias intact though, with sights on gains over .6038 (61.8% retrace of .6379-.5486 fall) towards .6120 (11 Oct 24 minor lower high) next
RBNZ cut it’s OCR by 25bps to 3.25% as expected. The follow up commentary though was not as dovish as what came out from the RBA. The vote for the rate cut wasn’t unanimous and while they remain concern about external challenges and signaled it has scope for further reductions, it also highlighted that the full effects of rate cuts have yet to be fully realized. They reiterated its expectation that the economy will recover modestly in 2025 and that employment will increase from 2H 2025. This suggest RBNZ may be willing to take a wait and see approach. NZ OIS markets now priced in about 39 bps cuts for the year, meaning another rate cut and possibly another one after that for 2025
The RBNZ forward guidance shows the average OCR falling to 2.92% by the end of the year, lower than the 3.14% it projected in its February policy statement
Oil and Other Commodities
Brent Crude Oil have remain capped under the 50 DMA since 3 April, with market currently tracing a wide consolidative range between 58.40 – 68.65. Reclaiming the range ceiling at 68.65 (23 Apr high) needed to suggest a turnaround. A daily close below 63.32 (23 May reaction low) signals a move towards the lower band of the range
Oil traders weighing between the outlook for more OPEC+ supply and risk of additional US sanctions on Russia
OPEC+ will determine output policy for July this Saturday
In a report released by JPMorgan Center for Geopolitics, it suggested the war is reaching a critical inflection point where “Europe is running out of weapons, Ukraine is running out of defence forces, the US is running out of patience and transatlantic unity is in the verge”
It also suggested that at current pace of advance, Russia will take 118 years to seize full control of Ukraine and that this reality might cause President Putin to shift towards a negotiated settlement that secures partial strategic gains.
They see the most likely outcome, with a 50% probability is where “prolonged stalemate with economic stagnation, reduced aid and waning prospects for integration with Western alliances result in Ukraine’s gradual drift back into Russia’s sphere of influence”
Gold unfolded a 3-legged correction off it's record high at 3500.10 (22 Apr high) which may have terminated at 3120.98 (15 May low). The steady ascent off there have since recoup over 76.4% of the losses from 3435.63 (7 May high). Scope now seen for renewed attempts on 3435.63 - 3500.10 (7 May high - 22 Apr YTD high). Lapse back under the 50 DMA~3199.48 suggests corrective phase not over, opening 3084.95 (76.4% retrace of 2956.71-3500.10 rally) instead
Gold took a back seat yesterday as markets shift to a risk on mood in anticipation of a quicker outcome between US-EU talks after Trump’s call with EU Commission President Ursula von der Leyen is perceived to have hasten the negotiation process.
Trump’s threat to impose tariffs on the EU and Apple Inc was a fresh reminder to the markets that the trade war remains on and uncertainty looms as we head towards the July deadline for the “Liberation Day” tariffs. Meantime the Ukraine-Russia war appears headed for an escalation after Ukraine got the go ahead from European allies to use weapons supplied by it’s allies to launch strikes deep inside Russia with no range limits.
The recent Japanese super long bonds market turmoil in which investors got nervous about the stability of Japan’s debt market and demand higher returns to take on the risk of holding these bonds, is a reminder that the supply-demand imbalance in the bond market is not just a US problem but is a global phenomenon. Please see GOLD : Gold’s Ascent fuelled by fears of global debt monetisation
This supply-demand imbalance is set to grow with US moves towards de-globalization and pushing through of the Big Beautiful Bill, re-militarization in the EU, continued militarization of the US and China, and elevated structural inflation across the developed world. The ascent of Gold and Bitcoin in part, is because they are looking towards the end game of governments around the world borrowing more than they are capable of repaying. That likely outcome is debt monetization and in time to come you will need more of that fiat currency to exchange for that one ounce of gold.
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