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Euro Boosted by Hawkish ECB Lagarde, Gold Rebounding Further

Euro rises broadly today after hawkish comments from ECB President Christina Lagarde. But so far, Aussie and Kiwi are even stronger on positive risk sentiment. On the other hand, Dollar and Yen are both trading generally lower. Sterling, Swiss Franc and Canadian are mixed for now.

Technically, Gold also extends the rebound from 1786.65 short term bottom. For now, further rise will remain in favor as long as 1833.22 minor support holds. Sustained break of 55 day EMA (now at 1886.00) will pave the way to channel resistance at around 1933. Current development is in-line with more Dollar weakness for the near term.

In Europe, at the time of writing, FTSE is up 1.19%. DAX is up 0.95%. CAC is up 0.45%. Germany 10-year yield is up 0.0040 at 0.981. Earlier in Asia, Nikkei rose 0.98%. Hong Kong HSI dropped -1.19%. China Shanghai SSE rose 0.01%. Singapore Strait Times dropped -0.83%. Japan 10-year JGB yield rose 0.0002 to 0.240.

Lagarde: ECB Likely in a position to exit negative rates by end of Q3

In a blog post, ECB President Christine Lagarde said she expects net asset purchases under the APP to “end very early in the third quarter”. “This would allow us a rate lift-off at our meeting in July, in line with our forward guidance,” she said.

Also, “based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter,” she added.

Looking forward, the “next stage” of monetary policy normalization would “need to be guided by the evolution of the medium-term inflation outlook”.

“If we see inflation stabilizing at 2% over the medium term, a progressive further normalization of interest rates towards the neutral rate will be appropriate,” she said. “But the pace and overall scale of the adjustment cannot be determined ex ante.”

Germany Ifo rose to 93 in May, no observable signs of recession

Germany Ifo Business Climate rose from 91.9 to 93.0 in May, above expectation of 91.4. Current Assessment index rose from 97.3 to 99.5, above expectation of 97.2. Expectations Index ticked up from 86.8 to 86.9, above expectation of 85.8.

By sector, manufacturing rose from -0.7 to 2.8. Service rose from 5.5 to 8.1. Trade rose from -13.2 to -10.8. Construction rose from -20.0 to -13.4.

Ifo said: “The German economy has proven itself resilient in the face of inflation concerns, material bottlenecks, and the war in Ukraine. There are currently no observable signs of a recession.”

RBA Kent: Gradual QT also plays a role in stimulus removal

RBA Assistant Governor Christopher Kent said in a speech that while most observers focuses were on the central bank’s 25bps rate hike this month, it also decided to proceed with “quantitative tightening”.

“As the Bank now takes steps to remove the considerable monetary stimulus, increases in the cash rate are the tried and tested measure that will do most of the work…,” he said. “the gradual process of QT will also play a role in this task, but a predictable and modest one.”

“Because the Bank’s bond portfolio will mature gradually, the Bank’s balance sheet and commercial banks’ ES balances will remain large for some years. This means that the cash rate will continue to trade slightly below the cash rate target, but above the rate paid on ES balances. Most importantly though, the Bank will continue to be able to maintain effective control over the cash rate as it withdraws monetary policy stimulus in the period ahead.”

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0529; (P) 1.0564 (R1) 1.0595; More

EUR/USD’s break of 1.0641 resistance should confirm short term bottoming at 1.0348, just ahead of 1.0339 long term support. Intraday bias is back on the upside for 55 day EMA (now at 1.0766). Break there will target 1.0935 resistance next. On the downside, however, below 1.0532 minor support will turn intraday bias back to the downside for retesting 1.0348 low instead.

In the bigger picture, focus stays on 1.0339 long term support (2017 low). Decisive break there will resume whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. However, firm break of 1.0805 support turned resistance will delay this bearish case and bring medium term corrective rebound first.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:01 GBP Rightmove House Price Index M/M May 2.10% 1.60%
08:00 EUR Germany IFO Business Climate May 93.0 91.4 91.8 91.9
08:00 EUR Germany IFO Current Assessment May 99.5 97.2 97.2 97.3
08:00 EUR Germany IFO Expectations May 86.9 85.8 86.7 86.8

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