USDJPY: Bears Hold Grip And Eye Key Support

Technical Analysis

Summary:

USDJPY continues to descend for the fifth consecutive day, after a double upside rejection and a bull-trap at 148.49 Fibo barrier (76.4% of 151.15/139.88) contributed to the change of direction.

Weaker dollar (which acted as a safe haven on trade uncertainty) following relief on US-China trade agreement and signal that BoJ may resume with tightening (which boosts demand for yen) were the main drivers.

Bears eye pivotal support at 144.26 (50% retracement of 139.88/148.64 recovery leg, reinforced by daily Kijun-sen and bull-trendline off 139.88), loss of which would further weaken near-term structure and risk deeper drop.

The action remains weighed by falling thick daily cloud, daily MA’s in predominantly bearish configuration and long upper shadow weekly candle of last week which points to growing offers and potential formation of reversal pattern on weekly chart.

However, bears are likely to face increased headwinds at 144.26 support that may keep the price in consolidation before attempts through 144.26 trigger.

Near-term action is expected to remain biased lower while below daily Tenkan-sen (145.51).

Res: 145.30; 145.51; 146.10; 146.58
Sup: 144.26; 143.84; 143.23; 142.38

Source: ACTIONFOREX

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Warren Takunda

Stocks

London stocks had extended losses by midday on Monday as sentiment took a hit after Moody’s downgraded its credit rating on the US.

The FTSE 100 was down 0.7% at 8,620.35.

Moody’s announced late on Friday that it was cutting the rating to Aa1 from the highest triple-A rating.

"This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns," it said.

Moody’s said "successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs".

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "Like a long weekend hangover, a headache of worry is seeping into sentiment today.

"Moody’s stripped the US of its triple-A rating, citing the growing US fiscal deficit, and the higher borrowing costs the administration will be forced to pay. Given the pledge by Trump to cut taxes, it’s feared the situation could deteriorate further. More of a sombre mood is expected on Wall Street when trading opens later, with futures indicating falls of around 1% for the S&P 500 and 1.3% for the Nasdaq.

"The implications of Trump’s erratic policymaking are causing caution to creep back in, dampening down the enthusiasm of recent weeks. US Treasury yields have risen as investors sold off US bonds, with the yield on 30-year US debt hitting 5%, the highest level since April, amid the Liberation Day turmoil. A more risk-off environment is emerging again, with gold climbing higher after its losses of recent weeks, as investors look again for shelter for some of their money."

On home shores, investors mulled reports that the UK and European Union have reached a tentative agreement on a so-called Brexit reset.

It was understood that behind the scenes negotiations ahead of an EU-UK summit on Monday have led to agreements on fishing rights, food and farming checks, youth mobility and defence and security.

The latest house price index from Rightmove was also in focus. It showed that house prices edged higher in May, although the rate of growth was notably smaller than usual for the time of year.

UK house prices rose by 0.6% in May, or by 1.2% year-on-year. That compares to April’s 1.4% uplift.

The average house price now stands at a record high of £379,517, while agreed sales were up 5% year-on-year.

However, Rightmove said May’s price increase was the lowest for this time of year since 2016, as supply continued to catch up with demand.

The number of available homes for sale is now at a 10-year high, while the amount of new properties coming to market is 14% higher year-on-year.

May also suffered from a dip in demand following changes to stamp duty thresholds in April.

Rightmove's Colleen Babcock said: "It’s another new price record this month. But having seen a May price record for the last five years, it appears to be driven more by seasonal factors given that new buyer demand has slowed.

"This month’s price increase being the lowest in May for nine years is a sign of a market that favours buyers and is more subdued than usual."

However, Rightmove also acknowledged that the latest cut to Bank Rate could boost both buyer affordability and activity later in the year.

In equity markets, stocks that are particularly exposed to the US were the worst performers on the FTSE 100, with Flutter Entertainment, Scottish Mortgage Investment Trust and Pershing Square the biggest fallers.

Oil giant BP gushed lower amid weaker oil prices and after a downgrade to ‘hold’ at Jefferies.

Drinks giant Diageo reversed earlier gains as it reiterated guidance for full-year organic sales and operating profits after a solid pickup in underlying growth in the third quarter.

Organic net sales increased by 5.9% in the three months to 31 March, compared with a 1.0% increase in the first half, though this was mainly a result of “significant phasing benefits” which are expected to reverse in the fourth quarter.

The company also gave its first financial estimate of the impact of tariffs on its business, calculating a $150m hit on an annualised basis before any mitigation measures.

Genuit also reversed earlier gains as the pipe maker held annual guidance after an 8.5% rise in revenue from the first four months of the year and added that it was not directly exposed to US tariffs.

IT services group Kainos slumped as it met expectations with its full-year results, with profits falling by a quarter amid tough trading conditions, but delivered a cautious outlook.

Dr Martens tumbled as RBC Capital Markets cut its price target on the stock to 60p from 70p and reduced its revenue and earnings per share estimates, saying that consensus estimates may be too optimistic.

Precious metals miner Fresnillo shot to the top of the FTSE 100 as gold prices rose, while Hochschild also rallied.

Ryanair flew higher despite reporting an 16% decline in full-year profit after tax to €1.61bn as average fares declined 7%.

Source: Sharecast

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Glendon

Economic

Forex

“Sell America” talk is back in markets after Moody’s Ratings stripped the American government of its top credit rating, blaming successive presidents and congressional lawmakers for a ballooning budget deficit it said showed little sign of narrowing.

That comes after President Donald Trump’s blast of reciprocal tariffs in early April spurred widespread selling of US assets — a move that had been partially reversed after he suspended many of those levies and then cut a trade truce with China.

For markets, the trade and debt trajectory concerns are becoming interwoven. For the sell America camp, Trump’s tariffs risk driving up inflation, slowing the economy and souring appetite for Treasuries and the dollar. For the buy America side, an influx of investment into US manufacturing will spur growth and make it easier to service a debt pile that the Congressional Budget Office warned in January was on track to surpass record debt levels set after World War II, reaching 107% of GDP by 2029.

Unsurprisingly, Treasury Secretary Scott Bessent belongs in the latter camp. Asked about Moody’s decision during an interview on NBC’s Meet the Press with Kristen Welker, Bessent shifted the blame toward the prior administration and said “Moody’s is a lagging indicator — that’s what everyone thinks of credit agencies.”

“Who cares? Qatar doesn’t. Saudi doesn’t. The UAE doesn’t,” Bessent said of the Moody’s downgrade. “They’re all pushing money in and they’ve made 10-year investment plans.”

Nor, it seems, do Japan, the UK, Canada and Belgium. Treasury figures on Friday showed they were among the countries whose Treasuries holdings rose in March — a month that saw a second straight jump in foreign purchases to a fresh record high.

Meantime, a move by China to shrink its holdings of Treasuries was seen as a portfolio adjustment rather than a revolt against American assets. Brad Setser, a former US Treasury official now at the Council on Foreign Relations, wrote on X that he viewed China’s shift more as “a move to reduce duration than any real move out of the dollar.”

The Treasury holdings data preceded the April turmoil in the Treasuries market, meaning the next couple of readings will be poured over with great interest. Especially after strong gains in several Asian currencies earlier this month.

Given the speculation about a diversification out of American assets, Gavekal Research has mapped out the potential for repatriation of capital to the region.

Eleven major Asian economies over the past decade doubled their holdings of foreign assets to some $40 trillion in gross terms, or $10.5 trillion net, Udith Sikand, the group’s senior emerging markets analyst, wrote in a recent note. While precise data are sketchy, most of the accumulation appears to have been in dollars, and the rise has been led by the private and semi-official sectors — not central banks, he said.

If those investors conclude that returns in the US going forward won’t be what they were, and if they’re increasingly lured to rising yields in Asia, “the size of the potential flows is enormous,” Sikand said. “South Korea, Japan, Singapore, Taiwan and Hong Kong between them have net international positions excluding official reserves of more than $5 trillion.”

“If even a small portion of these assets flow back into Asian currencies, the exchange rate appreciation will be substantial,” in Asian currencies, Sikand wrote.

Reports in the coming week may give the fullest reading to date of how major economies are faring with trade disruptions, halfway through Trump’s 90-day hiatus on so-called reciprocal tariffs.

Chinese consumer and industry data on Monday will be followed by purchasing manager indexes on Thursday from around the world, pointing to the growth impact from the policy of widespread US levies — unveiled by Trump on April 2, then put on hold on April 9.

A collective view of the fallout could emerge from Group of Seven finance ministers, depending on whether they can agree on a communique when they meet in Canada starting on Tuesday.

Elsewhere, housing data in the US, inflation releases from Japan to the UK to Canada, a likely interest-rate cut in Australia and minutes of the ECB’s April decision are among the highlights.

Source: Bloomberg Europe

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Pepperstone

Economic

Stocks

Technical Analysis

These positive fundamental factors marry well with the tailwinds that stem from increased corporate equity buybacks and a broad array of systematic and mechanical flows, with CTAs buyers of S&P 500 futures as the index rises above key buy trigger levels. Options dealers – who had recently been big sellers of call options – subsequently bought SPY ETFs, Nvidia and Tesla to adjust their deltas. While the further reduction in S&P 500 20-day realised volatility has also seen volatility-targeting funds increase both their US equity exposure and leverage within the portfolio.

The trading bias for the week ahead - 19 May 2025

The performance of the SPX has been wholly impressive - not just from absolute performance (the SPX has rallied 23% from the April low) – but also from the fact that in the past 15 trading sessions, we've only seen one day with the S&P 500 closing 1% lower. However, after this run, the daily chart is showing signs of exhaustion, with the buyers hesitating to push the index above 5900.

For now, I remain skewed and open-minded to the prospect of further upside and will remain so until price closes (daily timeframe) below both the 8-day EMA and the rising uptrend (drawn from the 9 April low). With the index seeing ever diminishing daily high-low trading ranges, we see the technical set-up forming a rising wedge pattern – again, until the index closes below the rising trend support, I am open to scenario that the index could push further higher and where an upside break of 5930 would see the index target 6000 and from there the ATH's of 6144.

Assessing the trading environment

With the S&P 500 in a mature trending state, with lower volatility and range compression, the environment (for those trading on higher timeframes) has favoured long momentum and carry strategies.

Statistical relationships between S&P 500 companies have broken down, with the 1-month realised correlation between S&P 500 companies falling to 19% - the 28th percentile of the 12-month range. Lower correlations are not only indicative of reduced volatility but also highlight an improved environment for stock pickers, with recent investor flows headed towards high beta, high growth and cyclical equities.

While US large-cap tech and consumer discretionary plays have outperformed, we see good participation in the rally, with 86% of S&P 500 companies now above the 20-day MA, a 10 ppt increase from last week. We also see 80% of S&P 500 companies above the 50-day MA, with 30% of companies closing at a 4-week high. One can view the market internals as a guide on the participation, while others may see the market internals as a contrarian indicator, with the current standing suggestive that we're reaching the ‘Greed' phase in the rally, with much of the good news in the price.

We see that volumes in both the SPX cash and futures have been consistently in line with the 15-day average, and from here I will be watching for any marked increase in volumes on down days.

The risk to the S&P 500?

Earnings this week from Target and Home Depot will get focus from traders, and the guidance that these retailers offer on how they see the tariff landscape evolve and how they plan to manage their margins has the potential to impact the broad index. The US fiscal also gets increased attention with Trump looking to pass his tax policy through the House – a factor that has many considering future deficit levels and how this translates into higher Treasury supply and ultimately US Treasury pricing. With yields across the Treasury curve pushing range highs, a further push higher could start to weigh more on the equity market, although it's the rate of change (in yield) that matters most to equity valuation.

Often the biggest factor that could compel further upside or an increased bout of profit taking is price itself - and with market players having aggressively covered shorts, running down portfolio hedges and amassing a reasonable long position in high beta equity and S&P 500 futures, if the S&P 500 rolls over and breaks trend support that in itself could lead to other players reducing their equity exposure.

So, in summary, I remain with a long bias for the S&P 500 but will be guided by the price action and technicals and would reassess as and when price breaks below these triggers.

Good luck to all.

Source: Pepperstone

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Gerik

Economic

Rising Yields Reflect Mounting Fiscal Pressure

U.S. Treasury yields climbed significantly at the start of the week, reflecting investor anxiety following Moody’s decision to downgrade the nation’s credit rating. The 10-year yield rose 7 basis points to 4.51%, while the 30-year yield exceeded 5% for the first time since early April. Analysts attribute the rise in yields to investor demands for greater returns to offset heightened fiscal risks, particularly as the Republican-led House advances a major tax cut package expected to add $3–5 trillion in debt over the next decade.

Economist George Lagarias of Forvis Mazars emphasized that Moody’s move reflects deep structural concerns: “The ballooning debt is not being addressed. The Republican mega bill is also contributing to rising yields.” His remarks underscore that the bond market is responding not only to immediate policy changes but also to a broader lack of fiscal discipline.

Stocks and Dollar Decline on Policy Volatility

Despite a strong close on Friday, U.S. equity futures reversed course Monday, with S&P 500 futures down 1.2% and Nasdaq futures sliding 1.4%. This drop reflects investor apprehension over both the downgrade and unpredictable trade policies. European markets mirrored the decline, with the STOXX 600 falling 0.5% and individual losses in Frankfurt, Paris, and London ranging from 0.1% to 0.6%. In Asia, the Nikkei fell 0.7%, and the MSCI Asia-Pacific index dropped 0.4%.

Currency markets reacted similarly. The U.S. dollar fell 0.6% against the yen to 144.85 and lost ground to the euro, which climbed 0.7% to $1.1224. According to European Central Bank President Christine Lagarde, this reflects waning confidence in the reliability of U.S. fiscal and trade policy, especially as President Trump’s administration wavers between tariff escalations and deal-making.

Tariff Tensions Add to Market Strain

Adding to the financial unease is renewed uncertainty surrounding U.S. trade policy. Treasury Secretary Scott Bessent reaffirmed on Sunday that maximum tariffs would be imposed on nations failing to negotiate “in good faith.” While specific countries were not named, the ambiguity has heightened market unease. JPMorgan economist Michael Feroli estimates the current effective tariff rate at 13%, equivalent to a 1.2% GDP tax shock.

The unpredictability of tariff enforcement has already begun to impact corporate outlooks. Walmart recently announced it may need to raise prices due to tariff burdens, prompting President Trump to suggest the company “eat the tariffs.” Analysts warn that forcing large retailers to absorb such costs would squeeze margins across the sector, posing risks to earnings and stock valuations.

Fed Outlook Moderates, but Cuts Still Expected

Markets are now pricing in just 52 basis points of Federal Reserve rate cuts for 2025—down from over 100 basis points projected one month ago. There is only a 40% probability of a rate move by July, though expectations rise to over 95% by September. Despite elevated yields, investor sentiment remains cautious due to mixed signals on inflation, growth, and political stability.

A series of Federal Reserve speakers, including New York Fed President John Williams and Vice Chair Philip Jefferson, are scheduled to speak this week, potentially offering further insight into the central bank’s policy stance. Fed Chair Jerome Powell is expected to deliver remarks on Sunday.

Global Headwinds Deepen Market Unease

Compounding U.S. fiscal issues are weak data out of China, where April’s retail sales missed forecasts, and industrial output slowed. Chinese blue chips dipped 0.3%, feeding into broader global market pessimism. Meanwhile, European sentiment received a temporary lift from a centrist victory in Romania’s presidential election and political stability in Poland and Portugal.

On the diplomatic front, news of a tentative UK-EU agreement on defence, fisheries, and youth mobility was a rare bright spot, hinting at improving post-Brexit coordination. However, it had little immediate impact on financial markets dominated by fiscal fears.

Commodities Reflect Diverging Economic Signals

Gold prices rebounded 0.9% to $3,231 per ounce after a 4% decline last week, reflecting renewed safe-haven demand amid macroeconomic uncertainty. Oil prices, however, remained under pressure. Brent crude fell 0.6% to $65.04 per barrel, while U.S. crude eased to $62.15, as investors weighed concerns over increased supply from OPEC and Iran against fragile demand growth.

Moody’s downgrade has triggered a cascade of reactions across bond, equity, currency, and commodity markets. The rise in yields illustrates that investors are demanding compensation for perceived fiscal irresponsibility, especially as Trump’s proposed tax cuts advance and trade policy remains fluid. With confidence in U.S. economic leadership under strain, financial markets are entering a period of heightened volatility—underscored by both domestic legislative uncertainty and global geopolitical friction.

Source: Reuters

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Gerik

Economic

Panel Approval Advances Trump’s Ambitious Fiscal Agenda

In a rare Sunday night session, the U.S. House Budget Committee narrowly approved President Trump’s expansive tax-cut legislation, unlocking the next phase of the bill’s journey through Congress. After a brief impasse caused by intra-party disputes over spending reductions, four hardline Republicans abstained rather than block the vote outright, allowing the bill to pass 17–16. This sets the stage for possible full House consideration before the Memorial Day recess.

The bill seeks to extend the 2017 Trump-era tax cuts, reduce income tax on tips and overtime, increase defense spending, and fund a new border enforcement initiative. While the provisions fulfill key campaign pledges, their fiscal impact is raising alarm. According to nonpartisan projections, the legislation could add between $3 trillion and $5 trillion to the national debt—now totaling $36.2 trillion—over the next decade.

Credit Downgrade and Fiscal Risks Stir Market Anxiety

The committee vote came just days after Moody’s downgraded the U.S. credit rating, citing unsustainable debt growth and a projected debt-to-GDP ratio of 134% by 2035. Treasury Secretary Scott Bessent dismissed the downgrade, insisting that economic growth from the tax cuts would outpace borrowing needs. However, many economists have warned that this optimistic scenario mirrors flawed assumptions from the 2017 tax cuts, which ultimately added nearly $1.9 trillion to the deficit despite including their economic effects.

The downgrade marks the third from major ratings agencies in recent years and could further rattle investor confidence, especially with Trump’s ongoing trade policy unpredictability already unsettling global markets. Wall Street is expected to react sharply as trading resumes, with heightened sensitivity to U.S. fiscal credibility and interest rate expectations.

Medicaid and Social Spending at the Center of Intra-Party Conflict

A significant point of contention within the Republican Party remains the extent of spending cuts to offset tax reductions. Hardline conservatives continue to push for deeper reductions to social programs, particularly Medicaid. Representative Ralph Norman and others are demanding more aggressive restrictions, including work requirements and limits on benefits for able-bodied adults.

Moderate Republicans, however, are resisting such cuts, warning that eliminating or scaling back support could alienate key voter blocs. If implemented as proposed, the bill could remove Medicaid coverage from an estimated 8.6 million Americans. Some Republican senators and House members fear this would undercut electoral support ahead of the 2026 midterms, particularly in states where Trump secured narrow victories.

Ideological Divide Over Fiscal Responsibility and Growth Strategy

The Republican Party remains divided over how to reconcile long-term debt concerns with their pro-growth tax agenda. While Speaker Mike Johnson argues that the bill represents a turning point for economic stability, critics—including Democrats and some economists—suggest the plan is fiscally reckless. Johnson’s response to the Moody’s downgrade, describing it as validation of the need for “historic spending cuts,” underscores this ideological split.

Democrats, led by Senator Chris Murphy, have warned that the downgrade signals potential recession risk and rising borrowing costs. The broader economic implications—ranging from elevated interest rates to constrained credit access for consumers and businesses—could affect economic activity at a time of already fragile global confidence.

Legislative Momentum Amid Fiscal and Political Uncertainty

The passage of Trump’s tax bill through the Budget Committee is a tactical victory for Republican leadership, but the road ahead is fraught with political, economic, and social risk. As the legislation heads to the House floor, the debate will intensify—not just over the fiscal logic of the tax cuts, but over the social and economic consequences of offsetting them with deep entitlement reductions. With a looming debt ceiling deadline later this summer, the interplay between tax policy, creditworthiness, and voter sentiment is set to define the next phase of America’s fiscal trajectory.

Source: Reuters

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Gerik

Economic

Comprehensive Agreement Signals Strategic Shift in EU-UK Relations

On May 19, just hours before the EU-UK Summit in London, EU officials confirmed that both sides have reached a provisional agreement encompassing key issues such as defence and security cooperation, fisheries access, and youth mobility programs. The breakthrough comes after extended technical negotiations and increasing momentum in recent days, reflecting a mutual desire to stabilize and deepen ties disrupted by Brexit.

The newly drafted "Common Understanding" document has been distributed to all 27 EU member states and is now undergoing formal approval through a written procedure. According to Brussels-based diplomats, early indications suggest that no significant opposition is expected, setting the stage for an official endorsement during the summit.

A Reset Driven by Mutual Strategic and Economic Interests

The agreement is being hailed by EU diplomats as a landmark development, reflecting a shared recognition that the current global context—marked by geopolitical instability, economic competition, and security risks—demands closer transnational cooperation. British Prime Minister Keir Starmer, European Commission President Ursula von der Leyen, and European Council President Antonio Costa are scheduled to formalize the deal later today.

The inclusion of British firms in large-scale EU defence procurement frameworks is expected to be one of the most economically impactful elements of the deal. This represents a significant policy reversal since the UK’s departure from the EU and highlights the continent’s renewed focus on collective defence capabilities amid rising external threats.

For the UK, re-engagement in EU security infrastructure offers both strategic legitimacy and economic opportunity, especially at a time when global military procurement and supply chains are becoming increasingly integrated.

Youth Mobility and Fisheries: Symbols of Reconciliation

Beyond the defence sector, the agreement also addresses two politically sensitive areas: fisheries and youth mobility. Disputes over fishing rights had remained an enduring flashpoint since Brexit, particularly between the UK and EU coastal states. While specific details are not yet public, the inclusion of fisheries in this broader reset suggests a pragmatic compromise has been found to stabilize maritime economic activity.

The youth mobility arrangement, meanwhile, marks a re-opening of opportunities for young people to travel, study, and work across borders more freely. This is expected to restore some of the lost people-to-people exchanges that were abruptly disrupted by Brexit, particularly impacting university partnerships, cultural exchanges, and early-career job markets.

Diplomatic Tone Suggests Renewed Trust

Diplomats involved in the process have described the atmosphere as markedly constructive. “The scene is now all set for a very successful and constructive reset of the relationship,” said one EU official, noting that the agreement reflects “positive signs” from recent days of negotiation in London.

The tone suggests a mutual effort to move beyond past friction and begin a more stable and productive chapter. While the new deal does not reverse Brexit, it reflects a recalibrated relationship built on shared challenges—from economic competitiveness to regional defence coordination.

This tentative agreement marks the most significant re-engagement between the EU and the UK since the 2016 referendum. Rather than reigniting debates over sovereignty or rejoining the bloc, it signals a pragmatic shift towards practical cooperation in critical sectors. As global pressures mount, both sides appear to recognize the costs of isolation and the strategic value of collaboration. If formally adopted by all member states, this agreement could serve as a new foundation for stability, economic partnership, and regional security in post-Brexit Europe.