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EUR/USD Consolidating below 1.1300.

EUR/USD is consolidating below strong resistance given at 1.1300 (09/11/2017 high). Hourly support is given at 1.1110 (22/05/2017 low) has been broken. Stronger support lies at 1.0842 (11/05/2017 low) and key support is given at 1.0494 (22/02/2017 low). Expected to show continued bullish pressures.

In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD Short-term bullish.

GBP/USD is bouncing from hourly support given at 1.2757 (21/04/2017 low). Hourly resistance lies at 1.3046 (18/05/2017 high). Expected to show continued bullish pressures.

The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY Renewed bearish pressures.

USD/JPY is trading lower. Hourly support has been broken at 110.24 (18/05/2017 low). Hourly resistance is given at 112.13 (24/05/2017 high). Stronger support is located at 108.13 (17/04/2017 low). Other key supports lie at a distance 106.04 (11/11/2016 low).

We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

Notes/Observations

Euro Zone confidence near decade high ahead of ECB decision on Thursday

IMF chief Lagarde offered a compromise to Europe on Greece debt relief that should allow the release of aid next month and avoid the potential for default

Overnight

Asia:

Reserve Bank of Australia (RBA) left its Cash Rate unchanged at 1.50% (as expected); keeps its neutral policy statement despite soft Q1 Current Account

Japan Apr Labor Cash Earnings at a 4-month high (Y/Y: 0.5% v 0.3%e)

Europe:

IMF's Lagarde stated that there could be a program for Greece involving IMF disbursement only when debt measures had been clearly defined by the creditors. Would allow Euro Zone Finance Ministers to pay next tranche at June 15th meeting Eurogroup meeting

Survation Poll on UK Parliamentary elections: Support for Conservatives Party at 41.5% vs 40.4% for Labour

UK May BRC LFL Sales Y/Y: -0.4% v -0.5%e

Americas:

White House wants debt ceiling to be raised by August Congressional recess. Supports reforming tax code but top priority to boost economy is getting tax cuts. Expects congress to move ahead on healthcare reform bill in June or July

White House deputy press secretary Sanders: President Trump will not use executive privilege to block former FBI Dir Comey testimony to Congress

Economic Data

(IE) Ireland May Services PMI: 59.5 v 61.1 prior, Composite PMI: 58.7 v 58.7 prior

(DE) Germany May Construction PMI: 55.3 v 54.6 prior

(EU) Euro Zone Jun Sentix Investor Confidence: 28.4 v 27.4e (highest reading since July 2007)

Fixed Income Issuance:

(ID) Indonesia sold total IDR14.0T in 5-year,10-year and 15-year Bonds

(AT) Austria Debt Agency (AFFA) sold total €1.32B vs. €1.32B in 2023 and 2027 RAGB bonds

Sold €575M in in 0% 2023 RAGB bond; Avg Yield: -0.101% v -0.095% prior; Bid-to-cover: 2.05x v 2.32x prior

Sold €625M in 0.50% 2027 RAGB; Avg Yield: 0.524% v 0.660% prior; Bid-to-cover: 2.34x v 2.05x prior

(ZA) South Africa sold total ZAR2.65B vs. ZAR2.65B indicated in 2035, 2044 and 2048 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -0.3% at 3570, FTSE -0.3% at 7506, DAX -0.4% at 12774, CAC-40 -0.3% at 5293, IBEX-35 -0.2% at 10867, FTSE MIB +0.1% at 20749, SMI -0.8% at 8976, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes European indices trade slightly lower across the European space led by the SWISS SMI which is leading the decliners with notable weakness in Roche following disappointing Aphinity Study. The Airline Sector was in focus with low cost airline carriers Easyjet and Ryanair reported May metrics, and positive CEO comments from Lufthansa and IAG helping lift shares. Online Electrical retailer AO world was one of the leading decliners after its full year loss widened. Looking to the US morning retailers including Fred's, Francesca Hlds, Michaels, GIII Apparel and Conn's set to report results.

Equities

Consumer discretionary [Easyjet [EZJ.UK] +1.2% (May Metrics), Lufthansa [LHA] +2.1% (CEO comments), Tom Tailor [TTI.DE] -3.6% (Rights issue), AO World [AO.UK] -6.3% (FY Results)]

Healthcare: [Roche [ROG.CH] -4.4% (APHINITY study disappoints in breast cancer drug trial), Basilia [BSLN.UK] +0.9%( presentation of interim phase 1/2a clinical data with anticancer drug candidate BAL101553)]

Speakers

Italy Stats Agency (ISTAT) Monthly Economic Note: Domestic economy accelerates and led by domestic demand and services

OECD Secretary General Gurria: UK exit from EU needed to be made as smooth and seamless as possible in the interests of all parties; process still at the beginning stage

Italy's Constitutional Affairs Committee said to have signed off on a new electoral law after the main parties reached a deal which could pave the way to a national election in the autumn

Turkey Central Bank: Weak TRY currency (Lira) to weigh on CPI. Lagged impact of earlier depreciation in currency was seen in consumer price inflation

Currencies

Overall theme in FX continued to see the USD on the defensive since Friday's weaker-than-expected US non-farm payrolls report. The recent spat of soft data has prompted traders to pare back expectations of future interest rate increases by the Fed

USD/JPY was at 7-week lows and holding below the 110 level while the EUR/USD was steady just above the 1.1250 area.

GBP/USD was former and holding above the 1.29 level. More polls showing Conservation holding a slight lead heading into Thursday's snap election.

AUD/USD hit some headwinds after Q1 Current Account saw a much bigger drop in Exports as pct of GDP at -0.7%, and analysts are speculating this may result in an annualized q/q contraction in Wed Q1 GDP report. AUD/USD hovering around 0.7480

Fixed Income

Bund futures trade at 164.73 up 22 ticks, as European indexes retreat across the board as markets positions for risk. Resistance lies near the 165.95 level followed by 167.79. A break of the 162.65 support level could see lows target 159.96 followed by 157.50.

Gilt futures trade at 129.10 higher by 21 ticks, off the highs of the day as dealers report solid traffic in the belly of the curve. Last week's decline fell back below both the 129.00 handle and the 129.14 April 18th high. Price finds key support at the 128.27 support level. An acceleration lower could test the 127.43 region. Resistance remains the noted 129.00/129.14 region, then 129.75 followed by 130.28.

Tuesday's liquidity report showed Monday's deposits dropped lower to €592.6B from €602B prior. Use of the marginal lending facility fell to €221M from €262M prior.

Corporate issuance saw over $7.85B come to market via 10 issues headlined by Astrazeneca $2.0B in an 3-part senior unsecured note offering and Air Lease $0.6B in a 5-year senior note offering

Looking Ahead

(IE) Ireland Debt Agency (NTMA) announces upcoming Bonds for Thursday, Jun 8th

(MX) Mexico May Vehicle Production: No est v 278.1K prior, Vehicle Exports: No est v 228.8K prio

05:30 (ZA) South Africa Q1 GDP Annualized Q/Q: +0.9%e v -0.3% prior; Y/Y: 1.0%e v 0.7% prior

05.30 (UK) Weekly John Lewis LFL sales data

05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

05:30 (DE) Germany to sell €0.5B in 0.1% Apr 2026 Index-linked bonds

05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0B in 6-Month Bills

05:30 (UK) DMO to sell £2.5B in 0.5% 2022 Gilts

06:00 (IE) Ireland Apr Industrial Production M/M: No est v 1.7% prior; Y/Y: No est v 3.1% prior

06:30 (EU) ESM to sell €1.5B in 3-month bills

06:45 (US) Daily Libor Fixing

07:00 (BR) Brazil Central Bank (BCB) COPOM Minutes

07:30 (TR) Turkey May Effective Exchange Rate (REER): No est v 90.31 prior

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:15 (UK) Baltic Dry Bulk Index

08:30 (SI) Slovenia to sell 12-month Bills; Avg Yield: % v -0.300% prior; bid-to-cover: x v 3.5x prior

08:55 (US) Weekly Redbook Sales

08:55 (FR) France Debt Agency (AFT) to sell €5.0-6.2B indicated range in 3-month, 6-month and 12-month BTF Bills

09:00 (RU) Russia announces weekly OFZ bond auction

09:00 (EU) Weekly ECB Forex Reserves:

09:00 (NZ) Fonterra Global Dairy Trade Auction

09:30 (EU) ECB announces Covered-Bond Purchases

10:00 (US) Apr JOLTS Job Openings: 5.74Me v 5.743 M prior

10:00 (CA) Canada May Ivey Purchasing Managers Index (Seasonally adj): No est v 62.4 prior; PMI (Unadj): NO est v 58.5 prior

10:20 (BR) Brazil May Vehicle Production: No est v 191.1K prior; Vehicle Sales: No est v 156.9K prior; Vehicle Exports: No est v 228.8K prior

11:30 (US) Treasury to sell 4-Week Bills

12:00 (US) DOE Short-Term Crude Outlook

14:30 (UK) PM May interview

15:00 (MX) Mexico Citibanamex Survey of Economists

16:30 (US) Weekly API Oil Inventories

FTSE100 remains in red for the third day, driven mainly by firmer pound and extends pullback from fresh record high at 7587, posted last week.

Current action is seen as correction of larger bull-leg from 7143 (28 Apr trough) and was signaled by overbought daily studies.

Daily RSI reversed from overbought territory and shows more room for extended correction, eyeing initial support at 7482 (Fibo 23.6% of 7143/7587 rally), followed by 7464 (rising 20SMA) and 7454 (thick 4-hr base, with extended dips expected to find ground at 7417 (Fibo 38.2%) to keep broader bulls intact.

Violation of the latter would risk deeper correction and expose next pivot at 7365 (daily Kijun-sen/50% retracement).

Broken Tenkan-sen marks initial resistance at 7522 and caps today’s action.

All eyes are on UK election for fresh signals.

Res: 7522, 7551, 7570, 7587
Sup: 7482, 7464, 7454, 7417

Cable posted marginally higher high at 1.2949 on Tuesday, on the second attempt above pivot at 1.2941 (Fibo 61.8% of 1.3047/1.2768 downleg), but without clear break so far.

Yesterday's rally eased downside pressure that was building on dip to 1.2853, however, confirmation of bullish continuation requires close above initial barrier at 1.2915 (converged 20/30SMA's and Fibo barrier at 1.2941.

Technical studies are bullishly aligned and supportive for further advance, while slow stochastic is entering overbought zone on daily chart which may slow down bulls.

Daily Tenkan-sen/10SMA mark initial support at 1.2890, holding above which will keep in play positive near-term outlook.

Firm break above 1.2940/50 zone would open way towards 1.2981 (Fibo 76.4%) and psychological 1.3000 barrier.

However, the pair has been recently driven mainly by politics and focus is on UK election on Thursday, results of which will give clearer direction signals.

Res: 1.2949, 1.2981, 1.3014, 1.3047
Sup: 1.2890, 1.2853, 1.2829, 1.2800

After a rather flat Monday's trading session the yellow metal began a fast surge during the late hours of the day's trading. On Tuesday morning the bullion's price was located just below the 1,290 mark, and it could be observed that the commodity price faces no notable resistance up to the 1,291.60 level, where the monthly R1 is located at. Most likely the metal will pause near that mark, as the hourly Bollinger bands are indicating that the surge has been exhausted. Afterwards a short period of consolidation could take place, which would later on be replaced with a continuation of the climbing of the yellow metal's price. If the bullion could manage to pass the second weekly resistance at 1,293.85, the way up to the weekly R3 at the 1,307.66 mark would be free.

A set of weak US fundamental data yesterday caused the USD/JPY pair to undergo another decline, with the two-week support line failing to hold the losses early morning today. The 109.00 level is now exposed, with the only significant support on the Greenback's path being the monthly S1 at 109.22. However, the lower Bollinger band might also be a sufficient interim support, which could help the Buck remain afloat, but technical studies are unable to confirm that, as the daily signals are still distinctly bearish. A close in the red zone today would imply the end of the triangle pattern, while a recovery from the intraday low would mean the pattern's apex is yet to be reached. A recovery is doubtful, as the are no certain market movers present today.

Not only did the rally on Monday cause the two-week down-trend to be pierced, but also help the Cable stabilise above the monthly pivot point. Nevertheless, the GBP/USD pair could still fall under the 1.29 mark in order to retest the up-trend, where the bullish momentum is expected to be reacquired. As a result, a bearish correction today would not be a surprise, but losses are unlikely to exceed yesterday's gains. Overall, technical indicators support the possibility of the bullish trend lasting through the week, at least from the technical perspective. Other factors, such as the elections in the UK on Thursday are also likely to have a serious impact on the Cable's exchange rate, with risks skewed to the downside, as it would confirm the rising wedge's end.

It can be observed on the hourly chart of the EUR/USD currency exchange rate that the pair has found support. It was expected that the rate will reach the 1.13 mark during Monday’s trading session. However, that event has been delayed due to the pair changing its direction just above the 1.1280 mark. The fall was concluded when the currency exchange rate encountered the support of the 55-hour SMA and a short term ascending channel pattern’s lower trend line near the 1.1240 level. As a result a surge began, which lasted into early Tuesday trading. The target of the 1.13 mark remains in force, as it is expected that the Euro might continue to gain against the Greenback in the next two trading session due to them being quiet in regard to fundamental data releases.

GBP better bid despite rising uncertainty

The pound sterling edged slightly higher against the greenback on Tuesday as investors tried to switch their focus to the upcoming general election from the weekend’s terror attack. The Conservatives, ahead of the Labour party by a massive 20 points six weeks ago, now have 42% of voting intention or a four point lead over Labour.

GBP/USD continued to gather momentum as it rose 0.15% to 1.2925. The UK may be heading for a bumpy ride as the Conservatives may not get the expected support from the people. Investors anticipated that a solid Tory lead will help the UK get a better deal from the European Union. However, the eroding Tory support runs counter to these expectations and raises the likelihood of a GBP sell-off. Nevertheless, Theresa May’s party will surely remain in office and will even increase their working majority in the House of Commons. Therefore, we believe it is too early to ring the alarm bells yet.

Heavy risk weeks send JPY higher

Risk sentiment remains negative with significant rotation into safe haven trade such as JPY, CHF and gold. Yet as with recent shift in sentiment this move feels like fear of heights rather than any structural change.

Markets are pointing to a build-up of risks rather than a single event for example the UK elections, geopolitical events, slow growth in US, ECB meeting and Comey Testimony. The escalations in tensions in the Middle East have now also halted diplomatic communication between Qatar and its neighbours. That situation has damaged oil prices as markets question the unity of OPEC.

In FX markets, falling US front end yields have killed USDJPY bullish momentum. Correlation between US/JP yields and USDJPY remains insanely tight.

While JPY yield remained pinned, the pushing out of Fed rate hikes has narrowed the interest rate differential. While risk aversion headlines sound nice USDJPY is reliant on performance of the US economic fundamentals and the effect on fed interest policy. Given the US schedule and general Trump-driven uncertainty (and action packed Thursday schedule), USDJPY clearing 109.65 will target 108.10/15 support.

Perhaps the primary worry to our theory that risk aversion is transitory, and buy on risk dips, is the ECB meeting on Thursday. We anticipated that Draghi will retain his dovish tone until September, yet given the strong EU economic data the probability that he hints of reduction of emergence measures has increased. Even the slightest ECB signal would have profound effects on asset prices that have relied for 10 years on central bank excessive support.

Oil may hit $44 a barrel with prices under strong downside pressures

This last weekend was intense in the Middle East. Indeed, Saudi Arabia and other OPEC countries (Egypt, Bahrain and United Arab Emirates) have all cut diplomatic relations with Qatar due to the nature of its relation with terrorism.

The growing geopolitical uncertainties have as a result sent the oil prices lower. There is the growing fear that with this major political issue, Qatar may not comply with the extended production cut which OPEC agreed for nine more months.

A barrel of crude is now trading below $48 and has lost around 8% since May 25. We now monitor the risk of military escalations between the two major OPEC members which seems at the moment very unlikely but would put larger downwards pressures on oil.

Nonetheless, we believe for the time being this diplomatic incident is compromising the OPEC deal, despite Qatar being a very small oil producer and one of the smallest amongst OPEC.

At the same time, it is important to notice that US crude production has increased by 10% in the last year and this is adding up to put stronger downside pressures on oil. We target $44 a barrel within the next few weeks.

'They are going to overlook the slowdown in GDP as a temporary blip. We think they will remain on hold until they see any signs of a pick up in the labour market.' - Tapas Strickland, National Australia Bank

As markets expected, the Reserve Bank of Australia kept interest rates and its policy unchanged at its meeting on Tuesday but expressed optimism over the economic outlook for Australia despite acknowledging an economic slowdown during the latest quarter. The RBA left rates at a record low of 1.50% for the 10th month. The Bank pointed to rebounding iron ore and coal prices, the country's main exporting goods, improved mining investment and a house building boom. Following these optimistic comments, the Aussie hit its 10-day high of 0.7500 against the Greenback. Policymakers also said that the upcoming GDP figures would show growth was slower in the March quarter. Analysts suggested that the Bank would likely remain on hold until it sees a rebound in the labour market, as the RBA stated that the situation in the job market was 'mixed', with high underemployment and low hours worked offsetting employment growth. According to market forecasts, the Australian economy grew 0.2% in the first quarter, compared to the preceding quarter's expansion of 1.1%.