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Daily Pivots: (S1) 1.2919; (P) 1.2955; (R1) 1.3004; More...

GBP/USD's breach of 1.2987 resistance suggests that recent rally is resuming. Intraday bias is back on the upside. Based on broad based weakness in dollar, further rally would be seen. But at this point, price actions from 1.1946 are still viewed as a corrective pattern. Hence, we'd expect upside to be limited below 1.3444 to complete the correction. Though, break of 1.2844 support is needed to indicate short term topping. Otherwise, further rise would be in favor in case of retreat.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term reversal yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Daily Pivots: (S1) 0.7399; (P) 0.7421; (R1) 0.7454; More...

Intraday bias in AUD/USD is mildly on the upside as recovery from 0.7382 extends. But such rise is seen as a correction and should be limited below 0.7555 resistance to bring decline resumption. Below 0.7388 minor support will turn bias to the downside for 0.7382. Break there will extend the fall from 0.7748 and target 0.7144/7158 support zone. On the upside, firm break of 0.7555 will argue that fall from 0.7748 is completed and turn bias back to the upside.

In the bigger picture, we're still treating price actions from 0.6826 low as a correction pattern. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seen to 55 month EMA (now at 0.8115) and above.

Daily Pivots: (S1) 1.3568; (P) 1.3605; (R1) 1.3639; More....

USD/CAD is losing some downside momentum with 4 hour MACD crossed above signal line. But with 1.3721 minor resistance intact, deeper decline is expected to 1.3534 resistance turned support. Break there should confirm completion of the rise from 1.2968 and target 1.3222 support next. On the upside, above 1.3721 will turn bias back to the upside and target 1.3793 and above. However, as noted before, choppy rise from 1.2460 is seen as a corrective move. In case of an extension, upside should be limited by 1.3838 fibonacci level to bring reversal.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. Rise from 1.2460 is seen as the second leg and would end at around 61.8% retracement of 1.4689 to 1.2460 at 1.3838. Break of 1.3222 should indicate the start of the third leg while further break of 1.2968 should confirm. Nonetheless, sustained trading above 1.3838 would pave the way to retest 1.4689 high.

Daily Pivots: (S1) 0.9942; (P) 0.9980; (R1) 1.0003; More.....

USD/CHF's fall reaches as low as 0.9773 so far and there is no sign of bottoming yet. Intraday bias remains on the downside. Based on current momentum, USD/CHF would be targeting 100% projection of 1.0342 to 0.9860 from 1.0099 at 0.9617. On the upside, above 0.9849 minor resistance will turn bias neutral and bring consolidation before staging another decline.

In the bigger picture, USD/CHF is bounded in medium term range of 0.9443/1.0342 for the moment. Consolidative trading would likely continue and medium term outlook remains neutral. Break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the pair. Meanwhile, downside attempts should be contained by 0.9443 key support level.

Daily Pivots: (S1) 110.02; (P) 111.57; (R1) 112.37; More...

USD/JPY's fall from 114.36 extends to as low as 110.52, and recovers mildly ahead of 61.8% retracement of 108.12 to 114.36 at 110.50. There is no clear sign of bottoming yet. Break of 110.50 will bring deeper fall to 108.12 low. In that case, the whole decline from 118.65 would likely extend through 108.12 to 61.8% retracement of 98.97 to 118.65 at 106.48. On the upside, break of 112.22 minor resistance is needed to indicate completion of the fall from 114.36. Otherwise, deeper fall is still expected even in case of recovery.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

The financial markets are rocked as US President Donald Trump's political turmoil intensified. DOW dropped sharply by -372.82 pts, or -1.78% to close at 20606.93 overnight, the worst day since last September. S&P 500 lost -43.64 pts, or -1.82% to close at 2357.03. NASDAQ fell -158.63 pts, or -2.57% to close at 6011.24. Treasury yield also tumbled sharply with 10 year yield losing -0.113 to close at 2.216. Dollar is deeply and broadly sold off with the dollar index hitting as low as 97.33. Gold surges on Dollar weakness and breaches 1260 handle, comparing to last week's low at 1214.3. In the currency markets, Swiss Franc and Japanese Yen are trading as the strongest major currencies for the week on safe haven flow. But Euro is not far behind as the third strongest one.

Trump's Turmoil Worsens

Trump's turmoil worsened after report of his intervention on FBI investigation of former national security advisor Michael Flynn. Several congressional panels are requesting testimony from former FBI Director James Comey, fired by Trump, on the issue. At the current moment, Republican politicians generally avoided direct response to the issue while House Speaker Paul Ryan said he has full confidence on the President. But there are already some Republicans calling for new investigative panels. The Justice Department has named former FBI Director Robert Mueller as the special counsel of oversee the investigation on Russia's intervention of last year's presidential election.

Markets reacted negatively to uncertainties

Markets are so uneasy with the development as it's getting more doubtful on Trump to deliver his economic agenda. Much was priced in since last year's election on expectation of the promised corporate tax cuts from 35% to 15% and USD 1T infrastructure spending. These policy actions would now be, at the very best, deferred. Meanwhile, uncertainties have spiked much higher, risking a dysfunctional government. Former Fed chair Ben Bernanke commented on the developments and said that "one of the reasons the markets are reacting is because there's a lot of uncertainty. Things could break a lot of different ways here."

Starting to price out June hike odds

And the situation has worsen to a point that markets are starting even to price out the chance of a June Fed hike. Fed fund futures are now showing 64.6% chance of a June hike, down from 87.8% a week go.

Dollar index could be in medium term correction

The change in market expectation is clearly reflected in the Dollar index too. Now with strong break of 55 week EMA, it's raising the chance that 103.82 is a medium term top after failing 61.8% projection of 78.90 to 100.39 from 91.91 at 105.19. That is, the five wave sequence from 72.69 could be completed. The index will remain vulnerable as long as 99.88 resistance holds. And further downside acceleration will pull the index to 91.91 cluster support (38.2% retracement of 72.69 to 103.82 at 91.91) before having strong support for sustainable rebound.

Elsewhere...

Japan GDP rose 0.5% qoq in Q1, above expectation of 0.4% qoq. GDP deflator dropped -0.8% yoy, below expectation of -0.7% yoy. Australia employment grew 37.4k in April, above expectation of 5.0k. Unemployment rate dropped to 5.7%, below expectation of 5.9%. Consumer inflation expectation rose 4.0% in May. UK retail sales will be the main feature in European session. US will release jobless claims, Philly Fed survey and leading indicators.

USD/JPY Daily Outlook

Daily Pivots: (S1) 110.02; (P) 111.57; (R1) 112.37; More...

USD/JPY's fall from 114.36 extends to as low as 110.52, and recovers mildly ahead of 61.8% retracement of 108.12 to 114.36 at 110.50. There is no clear sign of bottoming yet. Break of 110.50 will bring deeper fall to 108.12 low. In that case, the whole decline from 118.65 would likely extend through 108.12 to 61.8% retracement of 98.97 to 118.65 at 106.48. On the upside, break of 112.22 minor resistance is needed to indicate completion of the fall from 114.36. Otherwise, deeper fall is still expected even in case of recovery.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Economic Indicators Update

STOCKS

Dow (20606.93, -1.78%) fell sharply yesterday over political worries in Washington. Support is seen near 20413 which could be tested before a bounce back towards 20777 is seen.

Dax (12631.61, -1.35%) also came off sharply instead of moving up towards 13000. It could test 12400 before bouncing back to higher levels.

Shanghai (3095.61, -0.28%) faced some rejection near 3120 but while above 3050, there is some scope of a rise towards 3145-3170 in the medium term.

Nikkei (19529.70, -1.44%) has come off exactly from weekly resistance near 20000 and while that holds a correction towards 19000 is possible in the coming sessions. Near term looks bearish.

Nifty (9525.75, +0.14%) looks bullish in the near term. A rise towards 10000 seems to be on the cards in the medium term.

COMMODITIES

Gold (1259) is trading at its yesterday’s high with an immediate support at 1249. If 1249 holds on a closing basis then sideways consolidation within 1249-1280 continues though the same is not our proffered view due to its overbought condition. Thus we need to keep a close watch on the price action in Dollar Index (97.44) which could give some cue on further Gold direction. We will remain bearish while it is trading below 1280 levels and a close below 1249 could open up 1230 levels as well.

We were expecting a bounce back in silver towards 16.90 levels since 11th May onwards as the scrip was highly oversold and yesterday Silver (16.90) made a intraday high of 17.03. Current trading range could be 15.70-16.90 with a bearish bias while silver is trading below 17.50 levels.

Copper (2.51) has found resistance at 2.54 levels. In the medium term 2.44 are going to be a strong support now but a close below that could open up 2.40-35 levels as well. We will remain bearish while it is trading below 2.65 levels.

Sideways consolidation in the broader ranges of 50.30-52.20 for Brent and 47.15-49.50 for WTI continues as expected. If they will manage to hold above their interim resistances of 52.20 in Brent and 49.50 in WTI, then it could implies strength in oil prices in the extreme short term time frame. Still, the bulls will be assured of strength of Brent (52.07) and WTI (48.94) only when a firm closing above 53.50 and 51.20 are made by both Brent and WTI respectively.

FOREX

The political turmoil in US continues to take its toll as Dollar cracks very sharply with the majors having their best day in quite a while.

Dollar Index (97.50) is cracking sharply in line with expectations and remains in course for our targets of 96.50-00. The best the bulls can expect at the moment is a consolidation after this sharp crack with 98.50 as ceiling but no bottoming sign is visible yet.

Euro (1.1156) has hit a high of 1.1174 so far, not too far away from our initial target of 1.1200 but at this rate of rise, even the higher target of 1.1300 may be met by the next week.

Dollar Yen (111.06) broke below 112.00 and tested the interim support of 110.50 in a sharp decline. This support area of 110.50-00 may arrest the decline for the rest of the week and a consolidation in 110.00-112.00 may be seen for a couple of sessions.

Pound (1.2964) has risen along with the other majors but the inability to break above the resistance of 1.3000 yet makes it a relative underperformer. While above 1.3000, higher targets of 1.3200-1.3400 open up, expect more sideways consolidation in 1.2850-1.3000 till the breakout materializes.

Aussie (0.7454) is out of the contracting range of 0.7380-0.7450 and closing in to the major resistance of 0.7500 which may hold in the near term and push it down once again. Only a successful break above 0.7500 may negate the possibility of seeing the downside targets of 0.7300-0.7290 and bring bullish options on the table.

Dollar Rupee (64.15) is trading at 64.37 in the NDF as the weakness of Rupee against all the majors propels it higher. In the near to medium term, the range has been established in 64.00-70 which may see a few more oscillations in the coming days. For these last 2 sessions of the week, the upside may be limited to 64.45-55.

INTEREST RATES

The US yields have come off sharply as expected. While the Dollar Index remains below 98 and moves down to lower levels, the US yields also would head to lower levels in the coming sessions.

The US-Japan 10Yr (2.20%) yield spread has come down to test immediate support just below current levels and if that holds, we could see a bounce back within the next 2-3 sessions. This could possibly indicate that there could be less downside for Dollar-Yen just now. But we also need to keep a close watch on the Nikkei, which has come off from a strong resistance.

The UK-US 10Yr (-1.17%) has broken above the long term channel resistance and could move higher in the near term, taking up the Pound also towards 1.30 and higher. Near term looks bullish.

The German-US 10Yr (-1.86%) and the Euro are rising sharply. While there is some more room on the upside for the yield spread towards -1.75%, Euro could test levels near 112.50-113.0 in the near term.

The German yields have all fallen a bit and looks bearish in the near term. Failure to sustain above immediate resistances confirm stronger bears to dominate in the coming sessions.

The USD collapses under the weight of allegations overnight, giving a boost to oil and sending gold soaring as investors dump equities and run for safety.

OIL

Both Brent and WTI exploded higher overnight buy some 1.80% despite the Crude Inventories showing a lower than expected drawdown. Oil appears to have benefited from a confluence of factors coming together. A weaker U.S. Dollar as President Trump’s travails deepen. The largest OPEC producers are indicating they support a production cut extension ahead of next week’s meeting. And finally, a drawdown for six weeks in a row on crude inventories in the U.S. along with drawdowns also seen on gasoline and distillates.

As ever, late session profit taking saw both crude contracts give back some of their gains with Brent and WTI spot levels opening at 52.00 and 49.00 respectively. However, amongst all the bullish clamours that are sweeping the market this morning we not a divergence between the Brent and WTI contracts. While Brent has comfortably closed above its 22-day average overnight, WTI has failed to do so. It marks the 3rd day in a row that WTI has broken its 200-day average but has failed to close above it to trigger a further bullish technical signal. Our best interpretation is the U.S. shale producers are now back in the market selling futures at these levels to hedge future production.

Brent

This morning Brent spot basis has a double top resistance at 52.40 with a general congestion zone of previous daily highs in this region as well. A break above implies a technical move to the 100-day average at 53.50. Intraday support appears at the 50.80 regions and then 50.50.

WTI

WTI spot basis continues to struggle above its 200-day average which sits at 49.10 this morning. Intra-day resistance appears at 49.55 and then 59.85, just ahead of the psychological 50.00 level. Support lies initially at 48.00 and then 47.20.

GOLD

Gold rocketed 30 dollars higher overnight to touch 1261 as investors globally flocked to safety as the political turmoil in Washington D.C. ratchets to new highs on the temperature dial. Gold was the primary beneficiary along with U.S. bonds as investors globally rotated out of equities and the U.S. Dollar and fled to safe-havens.

In the process gold has exploded through its 200-day moving average at 1246.60 and trend line resistance at 1257.00 to paint an impressive technical picture this morning in Asia. We do however note, that the move has been driven by “there’s never just once cockroach” approach to political uncertainty, rather than a fundamental investment reassessment structurally of gold itself. Whilst it is evident the investor world does not like cockroaches, gold itself will now trade on headlines rather than fundamentals necessarily.

This morning gold trades in Asia at 1260.50 with resistance initially at 1271.00 and then 1295.00. Nearby support sits at 1257.00 followed by 1241.00. Whilst the technical picture looks constructive, traders should monitor their news feeds for near-term direction.

Political Pandemonium

While the markets aggressive risk-off reverberation may well be exaggerated, the fact is dealers never actually believed the Trump impeachment chatter until yesterday when the Comey notes came to light. There is a very high level of uncertainty oozing from the markets but one thing that is crystal clear, investors now believe that at a minimum the rising US political entropy will jeopardise the White House policy agenda, and at the extreme, a Trump impeachment will lead to a flat out market collapse.

What initially started as a risk off narrative turned into a full blow US dollar -off a move that has been intense and unforgiving. But despite the magnitude of the dollar sell-off overnight, we may only be scratching the surface if this storyline has legs.

US political risk will continue to drive sentiment near term which will continue to pressure S&P futures and regional bourses while the traditional havens, Yen, US Treasuries and Gold will provide an umbrella for investors as dark and ominous political thunderheads gather.

Besides the political headline risk, the market is becoming less sure about a June Fed interest rate hike as the pandemonium in Washington and sagging equity markets will not go unnoticed by Dr Yellen and company. It’s a toxic brew for dollar bulls who are getting steamrolled from every possible angle.

US Dollar

Completely engulfed in the Trump Comey story but the key for extending the short USD trade will be how loyal Republican legislators remain to Trump, or will they look to abandon what appears to be a rudderless ship.

Australian dollar

Another solid employment number this morning, and should be supportive but with external US political factors weighing on risk sentiment, it’s unlikely dealers will muster up the courage to make any serious attempt near .7475 level.

Euro

Asset rotation into Europe should continue to provide support while US political decay plays into the Euro as a haven poxy. Any shift in ECB guidance will be a bonus for the EURO bulls

Asia FX

Very deep rooted risk off sentiment with the only bright spot a bounce on oil on the back of inventory decline.Far too much uncertainty in the short term market which will see dealers either keeping inventory light or on the sidelines awaiting the next catalyst

As we head into the back-end of the week, the US Dollar has experienced an aggressive sell off.

One interesting line I picked up in my morning reading was:

'The US Dollar has now fully reversed all initial gains following the election victory for President Trump.'

This highlights the lack of confidence in the Trump administration that talked the talk of having the policies to boost economic growth, but so far has failed to walk the walk in delivering anything meaningful.

The latest political developments (which I'm not going to go into for obvious reasons but everyone has access to Twitter and Google), only continue to errode any confidence that markets once had in Trump's election win being some sort of new dawn.

Just take a look at the US Dollar Index chart on your MT4 platform:

USDX Daily:

Thanks to these latest political developments, the USDX trend line break that we had been watching has followed through.

The question we have to now ask ourselves as traders, is will the market remain USD bearish, even if the Fed continues toward interest rate normalisation. That is, do you think that further Fed rate hikes that are definitely coming, will be able to provide any support for the USD?

Bonus Chart!

As long as we're looking at the US Dollar, I thought it'd be worthwhile to also take a look at the S&P 500 chart:

S&P 500 Daily:

As you can see on the daily, at the moment it's all about the gap fill.

Keep an eye on the the level and whether it acts as a magnet to essentially pull price down toward it.