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A better-than-expected print for first quarter Japanese GDP growth extends the longest winning streak there since 2006, although still-soft CPI likely means continued accommodation from the Bank of Japan.

Kampai…Longest Growth Stretch in 11 Years

The Japanese economy expanded at an annualized pace of 2.2 percent in the first quarter. Not only was that the fastest pace of growth since the first quarter of last year, it also marks the fifth consecutive quarterly expansion - the longest stretch of uninterrupted growth in Japan since 2006.

The growth rate came from broadly based support. The largest overall positive contributor came from consumer spending which grew at an annualized rate of 1.4 percent, enough to add 0.8 percentage points to the overall growth rate. Going into today's release, we already knew that retail sales in Japan had strung together three straight monthly increases which had lifted the yearly growth rate for store sales to the fastest pace since April 2015. In fact the surge in April of 2015 had to do with the 2014 implementation of a consumption tax hike which suppressed spending in April 2014. While there is no perfect way to adjust for the impact of the tax, the takeaway here is that consumers in Japan are spending again at a pace not seen in years.

Consumers are not the only ones feeling a bit more confident. The Tankan survey of large manufacturers rose in the first quarter to its fastest pace of expansion since 2015. That confidence has manifested itself in today's GDP report in the form of increased business spending. Admittedly, the 1.0 percent annualized pace of growth for business outlays is hardly overwhelming but, it marks the third consecutive quarterly increase - the longest winning streak for cap-ex since 2014.

Who's Done With TPP?

The United States backing out of the Trans Pacific Partnership (TPP) was a blow to Japanese trade prospects, although the world's third largest economy is benefitting from trade even without that trade partnership. Japanese exports swelled again in the first quarter and even though imports also increased at the fastest pace in two years, net exports added half a percentage point to the first quarter's overall growth rate.

A factor in Japan's trade strength could be a Chinese boycott of South Korean goods and a resulting shift to Japan. Japan's exports to China surged by the most in two years in February and rose again in March.

FX and Monetary Policy

The risk-off sentiment in recent days has pushed the yen higher as periods of pronounced market risk often will, but our base case scenario is for continued yen weakness over time. Despite this better-than-expected GDP report, inflation moved further away from the central bank's target in March suggesting a continued dovish policy bias from the Bank of Japan.

CRUDE OIL: With the commodity threatening further upside, more strength is likely in the days ahead. On the downside, support resides at the 48.00 level where a break will expose the 47.50 level. A cut through here will set the stage for a run at the 47.00 level. Further down, support resides at the 46.50 level. On the upside, resistance resides at the 49.00 level. Further out, resistance comes in at the 49.50 level. A break above here will aim at the 50.00 level and then the 50.50 level followed by the 51.00 level. All in all, CRUDE OIL remains biased to the upside on further

Spot Gold pulled back from fresh two-week high at $1265 on Thursday, trimming strong gains of the previous day, when yellow metal surged nearly 2% after political crisis broke out in the US.

Strong fall of dollar on political uncertainty over raising doubts whether US president Trump will be able to follow through with his campaign promises on tax cuts and fiscal stimulus, increased demand for safe haven assets and boosted gold price.

Wednesday's rally broke above $154 pivot (daily Kijun-sen) and cracked next target at $1264 (Fibo 61.8% of $1295/$1214 descend), generating bullish signals, but the rally showed signs of fatigue.

Gold price eased on profit-taking and dollar managing to consolidate after previous day's losses, threaten to extend pullback.
Scenario is supported by overbought slow stochastic on daily chart and RSI turning south.

Former strong resistances at $1245 zone (daily cloud top / converged 20 / 200 / 55 SMA's) now act as strong support which should ideally contain correction and keep near-term bulls intact.

Otherwise, stronger correction of $1214/$1265 rally could be expected on sustained break below this support.

Res: 1254; 1260; 1265; 1270

Sup: 1249; 1245; 1240; 1236

USD/CHF - 0.9796

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9794

Kijun-Sen level                    : 0.9794

Ichimoku cloud top                 : 0.9903

Ichimoku cloud bottom              : 0.9848

Original strategy :

Sell at 0.9870, Target: 0.9770, Stop: 0.9905

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9870, Target: 0.9770, Stop: 0.9905

Position : -

Target :  -

Stop : -

As dollar has recovered after intra-day marginal fall to 0.9764, suggesting minor consolidation above this level would be seen and recovery to 0.9850 cannot be ruled out, however, reckon 0.9870 would limit upside and bring another decline later, below said support at 0.9774 would extend early selloff from 1.0344 top towards 0.9735-40 (76.4% retracement of 0.9550-1.0344), however, near term oversold condition should prevent sharp fall below 0.9700, risk from there is seen for a rebound to take place later. 

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 0.9870 should limit upside. Above 0.9900 would defer and risk rebound to 0.9925-30 but upside should be limited to 0.9950 and price should falter well below previous support at 0.9987, bring another decline.

GBP/USD - 1.3006

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2992

Kijun-Sen level                    : 1.2991

Ichimoku cloud top              : 1.2934

Ichimoku cloud bottom        : 1.2922

Original strategy :

Buy at 1.2945, Target: 1.3045, Stop: 1.2910

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.2945, Target: 1.3045, Stop: 1.2910

Position : -

Target :  -

Stop : -

Cable’s intra-day rally above indicated psychological resistance at 1.3000 confirms recent upmove has resumed and bullishness is seen for further gain to 1.3050, then 1.3075-80, however, near term overbought condition should prevent sharp move beyond 1.3100-10, risk from there has increased for a retreat to take place later.

In view of this, would not chase this rise here and would be prudent to buy cable on pullback as support at 1.2933 should limit downside and bring another upmove. Below 1.2900-10 would abort and signal top is formed instead, bring weakness towards support at 1.2866, however, price should stay above said support at 1.2844. 

EUR/USD - 1.1112

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1125

Kijun-Sen level                  : 1.1137

Ichimoku cloud top             : 1.1095

Ichimoku cloud bottom      : 1.1035

Original strategy  :

Buy at 1.1065, Target: 1.1185, Stop: 1.1030

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1055, Target: 1.1155, Stop: 1.1020

Position : -

Target :  -

Stop : -

As the single currency has eased after rising to 1.1172, suggesting minor consolidation would be seen and pullback to 1.1100 and possibly support at 1.1081 cannot be ruled out, however, reckon 1.1055-65 would limit downside and bring another rise later, above said resistance at 1.1172 would extend recent rise towards 1.1205-10 (1.618 times projection) but reckon 1.1250 would hold from here, bring retreat later.

In view of this, would not chase this rise here and we are looking to buy euro on pullback as 1.1065-70 should limit downside. Below previous resistance at 1.1025 (now support) would defer and suggest top is possibly formed instead, risk test of another previous resistance at 1.0990 first. 

USD/JPY - 111.27

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 110.83

Kijun-Sen level                  : 111.10

Ichimoku cloud top             : 112.89

Ichimoku cloud bottom      : 112.54

Original strategy  :

Sell at 111.85, Target: 110.45, Stop: 112.20

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 112.05, Target: 110.85, Stop: 112.40

Position :  -

Target :  -

Stop : -

As the greenback has recovered again after falling to 110.24, suggesting consolidation above this level would be seen and test of resistance at 111.42 cannot be ruled out, however, reckon upside would be limited to 111.75-85 and renewed selling interest should emerge around 112.05 (50% Fibonacci retracement of 113.85-110.24), bring another decline, below said support at 110.24 would extend selloff from 114.37 top to 110.00 but loss of near term downward momentum should prevent sharp fall below 109.70-75, bring rebound later.

In view of this, would not chase this fall here and would be prudent to sell dollar on subsequent recovery as 112.05-10 should limit upside and bring another decline. Above 112.35-40 would defer and signal low is formed instead, risk a stronger rebound to 112.65-70.

The European equity sell-off resumed at today's opening, but found a bottom around noon. There was a tentative attempt to fight back going into the US session, but the outcome is still uncertain. US equities open marginally negative.

Warmer weather and a late Easter encouraged UK shoppers to return to the high street in April, with retail sales rebounding strongly. Total retail sales excl. auto fuel increased by 2% M/M and 4.5% Y/Y. The results were much better than economists had forecast – analysts had expected a monthly increase of 1%.

ECB chief economist Peter Praet warned his colleagues to tread with caution when publicly discussing plans the bank has to wind down its stimulus measures, according to the minutes of the latest ECB meeting. "Any substantial change in communication needed to be motivated by some more evidence that the present indications of acceleration of activity found confirmation in hard data and fed through to an adjustment in inflation."

The UK Conservatives' lead over the Labour party has fallen to its lowest level of the election campaign so far, according to the first major poll carried out since Labour launched its manifesto this week. The Conservatives were still comfortably ahead, however, with 49% of respondents supporting May's party.

News of a bribery scandal engulfing Brazilian president Michel Temer last night hit the country's assets, as investors take cover against a fresh corruption crisis which threatens to pierce the country's tentative return to political stability. The Brazilian real suffers a 8% blow against the dollar.

US initial claims fell to 232K from 236K previously, defying expectations for a rise. It is one of the lowest observations of the past decades and suggests ongoing labour market strength. The Philly Fed business survey defied expectations for a deterioration of conditions. The headline rebounded to a very high 38.8 from 22 previously, re-approaching the 30-yr high reached in February (43.30).

Rates

Core bond rally slows, as no new info is available.

Global core bonds continue to profit from the risk aversion which continued to dominate trading today, even if the movements slowed. European equities declined mainly in the morning session. In the afternoon, Bunds traded sideways, as equities bottomed and even regained some slight ground ahead of the US open. There was evidence of various contacts between Trump's campaign team and Russia, but no evidence yet about wrongdoing according to some officials. That wasn't enough for bonds to keep yesterday's strong pace of advance intact though.

At the time of writing, US yields are narrowly mixed between +1.4 bps (2-yr) and -3.1 bps (30-yr) flattening the curve. The German yield curve bull flattens with yields 0.6 bps (2-yr) to 3.6 bps (30-yr) lower. On intra-EMU bond markets, 10-yr peripheral yield spreads versus Germany widened by 2 to 4 bps, with Greece underperforming (+11bps).

Intraday, the Bund opened strong and rallied once equities resumed their sell-off after the European open. French labour market data were surprisingly strong (Q1), confirming the catching up the French economy is making since a few quarters. However, core bonds were driven not by data, but by risk sentiment. Once equities bottomed at noon, Bunds topped and started trading sideways. US Treasuries followed Bunds higher in the European morning session, but eased in early US trading, which was reinforced by the strong data. Initial claims dropped instead of the expected increase and the Philly Fed business confidence printed very strong. US Treasuries finally settled around yesterday's closing levels.

Currencies

Dollar more resilient even if sentiment remains fragile

Global markets stayed in risk-off mode today as the Trump correction continued. However, the risk-off trade had no additional negative impact on the dollar. Interest rate differentials turned slightly in favour of USD. The US eco data were better than expected. EUR/USD traded off the overnight top and hovers in the low 1.11 area. USD/JPY rebounds to the 110.50/111.00 area even as US equities struggle to prevent further losses.

Overnight, Asian equity losses were modest given yesterday's sharp decline in the US. USD/JPY touched a correction low near 110.55, but rebounded to the 11.20 area at the start in Europe. EUR/USD showed a similar picture. The pair touched a minor top around 1.1172, but returned to the 1.1150 area.

With few eco data on the agenda in Europe, the only relevant question for global trading was whether the risk-off trade would continue. European equities opened only marginally lower despite a poor close in the US yesterday. However, the selling of risky assets resumed and European equity indices soon showed additional losses of around 1%. Contrary to what was the case yesterday, the dollar stayed away from the overnight lows against the euro and the yen. Interest rate differentials between the dollar and the euro settled north of yesterday's lows, giving the US currency some downside protection. EUR/USD hovered sideways in the lower half of the 1.11 big figure. USD/JPY stabilized in the mid 110 area. The dollar entered calmer waters.

The US jobless claims and the Philly Fed survey were strong. Especially the Philly Fed survey printed at a historically very high level, easing concerns on an imminent slowdown in the US. The dollar gained slightly further ground after the publication of the release. This afternoon, there were also plenty of headlines on the political crisis in Brazil. Of late, the dollar wasn't in a very good position to play a safe haven role. However a crisis in Brazil maybe still cause some buying interest for the US currency in the American region. Whatever the reason, risk sentiment remains very fragile but the dollar was much more resilient than yesterday. EUR/USD trades currently in the 1.1110 area. USD/JPY changes hands in the 111 area.

Sterling rebounds on impressive retail sales

Sterling didn't profit from a good labour market report yesterday. Today's reaction to the April retail sales was different. The rebound in April sales was much bigger than expected at 2.3% M/M and 4.0% Y/Y. March sales were also less negative than initially reported. The report eased recent fears (which were also mentioned by the BoE) that a decline in real income due to higher inflation could weigh on domestic spending. The report was a good reason for markets to rectify the recent sterling underperformance. EUR/GBP dropped from the 0.86 area to fill bids around 0.8525. Cable finally cleared the 1.30 barrier and came close to the 1.3050 area. The pair trades currently in the 1.3020 area as pressure on the dollar is slightly easing. ST consolidation in EUR/USD currently prevents an intraday rebound in EUR/GBP. The pair holds in the 0.8540 area.

FTSE remains firmly in red for the second consecutive day on Thursday and extends pullback from all-time high at 7497 which FTSE contract for June delivery hit on Tuesday after nine straight days of rally. Political crisis that broke in the US weighed on UK's benchmark index which dipped to 7371 on Thursday, finding temporary footstep just above strong support at 7365, provided by rising daily Tenkan-se and Fibo 38.2% of 7143/7497 bull-leg). Pullback should be ideally contained here, according to the wave principles, as the price is currently riding on the fourth, corrective wave of five-wave ascend from 7032 (19 Apr low). However, deeper correction cannot be ruled out as daily RSI and slow stochastic reversed from overbought territory and show plenty of room at the downside. Loss of 7365 support could extend correction towards next supports at 7320 and 7280 (Fibo 50% and 61.8% of 7143/7497 rally) respectively.

Res: 7419; 7443; 7460; 7497

Sup: 7365; 7320; 7280; 7267

EUR/GBP - 0.8533

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term down

Original strategy  :

Bought at 0.8530, Target: 0.8630, Stop: 0.8490

Position : - Long at 0.8530

Target :  - 0.8630

Stop : - 0.8490

New strategy  :

Hold long entered at 0.8530, Target: 0.8630, Stop: 0.8490

Position : - Long at 0.8530

Target :  - 0.8630

Stop : - 0.8490

 
Although the single currency has retreated after rising to 0.8615 yesterday and consolidation below this level would be seen, reckon downside would be limited to 0.8505-10 and bring rebound later, above 0.8595 would bring retest of 0.8615, break there would signal the erratic rise from 0.8312 low has resumed and extend gain to 0.8630, having said that, as this move is viewed as retracement of recent decline, reckon upside would be limited to 0.8650-60, risk from there is seen for a retreat later.

In view of this, we are holding on to our short position entered at 0.8530. Below 0.8500-05 would defer and suggest top is possibly formed, bring weakness to support at 0.8457 but break of previous resistance at 0.8452 is needed to confirm and bring test of support at 0.8423 first.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.