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We are looking at EURAUD here which dropped in five waves from the highs so a three wave rally can be interesting for some bearish opportunities. We are tracking wave B) which may stop around 1.5050-1.5100 area.

EURAUD, 1H

US oil is consolidating under fresh one-month low at $45.63 posted after sharp fall on surprise oil stocks build.

Report from Energy Information Administration released on Wednesday showed crude inventories rose by 3.3 million barrels, compared to forecasted draw of 3.5 million barrels.

Oil price was down 4.6% on Wednesday, marking the second big daily loss in two weeks and extending steep descend from $51.98 peak (25 May high).

US crude oil remains under strong pressure and was mainly unaffected by recent rising geopolitical tensions in the Middle East, with recent OPEC decision to extend production cut, giving no results, as rising fears on global oversupply continue to drive oil price lower.

Wednesday’s fall met target at $45.68 (Fibo 76.4% of $43.74/$51.98 rally) where temporary footstep was found. The price may correct higher on oversold daily studies (no firmer bullish signal being generated so far) but strong bearish sentiment suggests limited upside action before bears resume.

Broken weekly cloud top at $46.54 and broken Fibo 61.8% of $43.74/$51.98 at $46.89 mark solid barriers, which should ideally cap, with extended upticks expected to hold below broken daily Kijun-sen at $47.86.

Firm break below $45.68 handle would open way towards key support at $43.74 (05 May spike low).

Only firm break above pivots at $48.00/40 (Fibo 38.2% of $51.98/$45.63 fall / 05/06 June upside rejections) would sideline immediate bearish threats and signal stronger correction.

Res: 46.54, 46.89, 47.13, 48.00
Sup: 45.68, 45.28, 44.81, 43.74

The pair is probing above 110.00 barrier on Thursday, on the second day of recovery from fresh multi-week low at 109.11.

Strong fall on Tuesday that dented late April's gap did not manage to clearly fill it on first attempt, with subsequent bounce on oversold slow stochastic expected to precede fresh attempts lower.

Firm bearish setup of daily studies maintains pressure for further easing and eventual attack at key short-term support at 108.11 (17 Apr low). Corrective rallies are seen ideally capped by strong barriers provided by descending daily Tenkan-sen (110.41), 200SMA (110.46) and broken Fibo 61.8% of 108.11/114.36 rally at 110.50, before bears re-take control. Conversely, sustained break above that barrier would delay bears for extended recovery.

Today's testimony of former FBI Director Comey is closely watched for stronger signals.

Res: 110.41, 110.46, 110.95, 111.10
Sup: 109.92, 109.73, 109.38, 109.11

EUR/JPY - 123.70

Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79

Trend: Near term up

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

Although the single currency fell to 122.63 yesterday, as euro has rebounded after holding above previous support at 122.56, retaining our view that further consolidation would be seen and recovery to 124.10-20 cannot be ruled out, however, break of 124.70-75 is needed to signal the retreat from 125.81 has ended, bring a stronger rebound to 125.00 but resistance at 125.31 should remain intact, bring retreat later.

On the downside, below said support at 56-63 would signal another leg of corrective decline from 125.82 top is underway for retracement of early upmove to 122.00, then towards 121.25-30 but oversold condition should limit downside and reckon latter level would remain intact, bring rebound later.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7547

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term down

Original strategy :

Buy at 0.7500, Target: 0.7650, Stop: 0.7440

Position: -
Target:  -
Stop: -

New strategy :

Buy at 0.7500, Target: 0.7650, Stop: 0.7440

Position: -
Target:  -
Stop:-

As aussie has eased after rising to 0.7567 yesterday, suggesting consolidation below this level would be seen and pullback to previous resistance at 0.7518 is likely, however,r reckon 0.7500 would limit downside and bring another rise later, above said resistance would extend the rise from 0.7329 low towards 0.7592, then test of resistance at 0.7611 but break of latter level is needed add credence to this bullish count and encourage for subsequent upmove towards resistance at 0.7680 but price should falter below chart point at 0.7750.

In view of this, we are looking to buy aussie on dips as 0.7500 should limit downside and bring another rise. Below support at 0.7457 would abort and suggest top is possibly formed, bring weakness to 0.7415-20 but price should stay well above key support at 0.7372, bring another rebound later.

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

Upside surprise in Swiss data

The publication of the latest batch of economic data from Switzerland went largely unnoticed as investors await impatiently the results of the UK general election and Mario Draghi’s press conference later this afternoon. The EUR/CHF was treading water above the 1.0850 threshold, while USD/CHF stabilised at around 0.9650.

The unemployment rate eased to 3.2% (seasonally adjusted) in May, beating median forecast of 3.3%, while the previous month’s figure was downwardly revised to 3.2%. Investors also got a positive surprise on the inflation front as the headline measure printed at 0.5% y/y, well above estimates of 0.3%.

However, the HICP measure, which allows to compare inflation pressure with that of its European neighbours, shrunk 0.2% m/m in the previous month. On a year-over-year basis, the indicator eased to 0.4%, down from 0.7% in April. There is no reason to worry as core inflation continued to accelerate in May, highlighting the negative effect of the most volatile components, especially petroleum products.

We expect the economic conditions in Switzerland to continue to improve along with the European economy. However, upside pressures on the Swiss franc will take time to dissipate as investors are looking for sustained improvement in the EU before turning their back on the Swiss currency.

ECB meeting: markets expect hints of normalization of the monetary policy

The euro is trading mixed ahead of the ECB meeting today. The European Central Bank is expected to cut its inflation forecast for 2019. Indeed the CPI should, according to an official European report, fall to 1.5% within the next three years while growth should remain below 2%.

In addition, markets are now waiting for hints about the future of the monetary policy. The massive easing did not yet have the expected results. Concerns are also from German Chancellor Angela Merkel and also from Dutch officials. Recently at the end of a meeting with the Dutch parliament, Draghi was offered a plastic tulip to remind of bubble concern.

Today, the rates are not likely to be changed. The press conference will be widely followed. It should have a positive impact on the single currency as we believe that we are approaching towards an inflexion point regarding monetary policy.

Trade the risk recovery on strong China data

The headline events have drowned out most everything else. Even before the prime time events of today, the former FBI Director James Comey's pre-prepared statement, despite providing no new revelations, stole the news cycle from more investment critical news.

In the background Chinese exports and imports both increased more than anticipated. China’s May trade balance printed 281.6bn CNY against 324.1bn CNY expected. Exports increased 8.7% y/y vs. 7.2% expected while imports rose 14.8% y/y vs. 8.3% expected.

Interestingly import growth was driven by “other imports” not commodities which suggest a correction next month. That said the solid read offsets some dire predictions of a sharp economic slowdown and due to mixed recent data is less probable.

The read should also provide a temporary backstop for risk sentiment. We agree the recent surge in volatility has provided a bit of a white knuckle ride yet we remain confident that as the news cycle shifts the good fundamental environment will drive EM prices higher. We sell JPY against EM on the back of Japan’s weak -0.3% 1Q GDP release.

BoJ Kuroda has been increasingly pressured by hawkish politicians to acknowledge the strong economic data and outline an exit strategy. However, today’s disappointing read provides the BoJ some cushion to delay any shift in policy. USDJPY rebound will be challenged at 110.40 resistance.

Today, all eyes will be on the UK General Election. Even though the Conservatives have lost some of their poll-lead recently, they are still expected to secure 43% of the vote, with Labour tracking behind them at 36%. Since a Conservative victory is widely anticipated, if this is indeed the case, market focus may be on how big of a majority the party secures in the House of Commons.

A strong showing that gives them a large majority could prove positive for sterling, on the grounds that PM May could strengthen her hand in the Brexit negotiations with the increased support she will gain. That said, given sterling's sharp rally after May announced the election, most of the good news may be priced in already. Thus, we believe that any upside in the pound is unlikely to be massive. GBP/JPY bulls may take the opportunity to extend yesterday's rally and perhaps drive the battle above the resistance of 143.00 (R1), and the downtrend line taken from the peak of the 10th of May. Such a break could initially aim for our next resistance of 144.00 (R2).

The surprise here and thus the risk for sterling, would be a poor showing by the Conservatives, which leaves them with only a marginal majority in Parliament. In that case, the pound may come under selling interest and GBP/JPY may fall below 141.90 (S1), perhaps targeting the 140.70 (S1) support, marked by yesterday's low.

The worst-case scenario is no majority at all. This implies the Conservatives would need to form a coalition with another party, or govern with a minority. In both of these scenarios, Theresa May could lose a lot of her negotiating power. Therefore, we expect GBP/JPY to tumble below the round number of 140.00 (S3) in this case, something that may pave the way for the 138.00 zone.

ECB meeting: Too soon to change tune?

In Eurozone, the main event will be the highly-anticipated ECB policy gathering. With no expectations for any change in policy, market focus will be on whether the Bank will shift to a less dovish bias. Media reports suggest policymakers will likely indicate that the risks surrounding the growth outlook are no longer tilted to the downside but are instead “broadly balanced”. These reports also suggest officials will discuss whether they should drop some dovish aspects of their forward guidance- that QE can be expanded and that rates can be reduced further if needed.

We share the view for an upgrade in the growth assessment, but we think it is too early for the ECB to alter its dovish forward guidance. A rapid change in language could be over-interpreted by markets as a preliminary hint for tapering, which may result in a sharp appreciation of the euro as well as a spike higher in euro-area bond yields. We don't expect the ECB to risk something like that, especially since it is not clear whether the recent upswing in the core inflation rate is self-sustaining and durable, as Draghi recently pointed out.

Draghi also noted that an extraordinary amount of monetary policy support is still needed, including through the use of the Bank's forward guidance. Unchanged guidance may come as a disappointment for investors looking for such hawkish changes and thereby, lead to a pullback in the euro. EUR/USD may retreat for another test near 1.1200 (S1), where a break could aim for the next support of 1.1160 (S2). Nevertheless, given that the price structure still suggests a short-term uptrend, we would tread any setback that stays limited above the uptrend line taken from the low of the 17th of April as a correction.

Comey's testimony: Smoking gun or non-event?

Last but not least, in the US, former FBI Director James Comey will testify before Congress. The testimony will likely center around whether President Trump attempted to influence an FBI investigation regarding ties between Trump's prior advisor Michael Flynn and Russia. Markets may pay attention to this event as it could hold implications for Trump's tax-reform agenda.

If Comey confirms Trump asked him to drop the investigation, we could see renewed political turmoil in Washington D.C. Investors could begin to question whether Trump can be impeached and consequently, whether he can implement the reforms he has promised amid a political maelstrom. Such concerns could weigh on the dollar. Comey's prepared remarks suggest that he is unlikely to do so, though surprises during the Q&A session are always possible.

EUR/USD

Support: 1.1200 (S1), 1.1160 (S2), 1.1110 (S3)

Resistance: 1.1300 (R1), 1.1370 (R2), 1.1430 (R3)

GBP/JPY

Support: 141.90 (S1), 140.70 (S2), 140.00 (S3)

Resistance: 143.00 (R1), 144.00 (R2), 145.45 (R3)

Although on Thursday morning the common European currency traded against the US Dollar near the previous two trading session levels, which is above the 1.1250 mark, there is an additional detail to the rate. The currency exchange rate plummeted in the hour, which began at 10:00 GMT. The pair fell as low as the 1.12 level, and that event most likely triggered a lot of orders, as during the fall, which was clearly fundamental, the rate retreated below all this week's relevant levels of significance. However, by 14:00 GMT the Euro was back above 1.1250 mark against the US Dollar. It is most likely that the fundamentals will continue to dictate the pair's movements during the day, as the ECB is publishing their updated rate and hosting a press conference.

The British Pound continued to outperform the US Dollar on Wednesday, but with gains limited by the newly-formed ascending channel's resistance line. The channel supports the possibility of the Cable edging lower today, with both trend-lines near 1.29 likely to be retested. The bearish development was long expected, but technical indicators began showing rather strong bullish signals recently, suggesting the channel could be broken to the upside. A continued recovery could suggest the pair is on the path to the larger scale pattern's resistance line just under the 1.35 mark. However, the Sterling is first required to stabilise above 1.30, as supply around this area kept it away from posting more gains since October 2016.

As was anticipated, the US Dollar outperformed the Japanese Yen on Wednesday, with the exchange rate nearing the 110.00 mark. Another rally today would confirm the birth of a new ascending channel, but technical indicators imply the Greenback is to sustain heavy losses. The key support is still the monthly S1 at 109.22, which should be sufficient to limit the losses. In case this area fails, the next target would become the trend-line around 108.80. Nevertheless, due to the falling wedge getting pierced to the upside yesterday, a small possibility of the USD/JPY pair resuming its bullish trend exists. On the other hand, no other signs point to a potential recovery, thus, risks remain skewed to the downside.