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We sold cable last week at 1.2955 and sterling did falter below resistance at 1.2991 and retreated, we then lowered our stop to 1.2910, however, the British pound found good support at 1.2844 and has rebounded, our lowered stop at 1.2910 were tripped with 45 points profit.

A short position was also entered in EUR/JPY, however, the single currency found good support at 123.31 and has risen again today, the position was stopped at 124.55 and the pair resumed recent upmove.

No position was entered among other currency pairs.

In short, 2 positions were entered last week with total loss of 10 points and the positions are listed below.
 

 9 May  : EUR/JPY - Short at 124.00, exited at 124.55   ( - 55 points )
10 May : GBP/USD - Short at 1.2955, exited at 1.2910  (+ 45 points)

|                 AUD          EUR/JPY           EUR/GBP         CAD          GBP         GBPJPY
Jan             - 15             -275                - 35            -120
Feb           + 140            -17                  - 40             +11
Mar            - 20            +115                +132           - 19
Apr             + 30                                  - 40           +120                              + 45
May                             - 55                                                       +45         
Jun           
Jul            
Aug          
Sep              
Oct           
Nov         
Dec                                                                                                                                               
Y-T-D        + 135           - 232               + 17            + 158           +45            + 45

Headlines

The German Dax reached a new all-time high around the European market opening, but couldn't cling on to gains. Other European indices also trade slightly lower. US stock markets opened around 0.3% higher.

The Empire Manufacturing business sentiment unexpectedly declined from 5.2 to -1 in May while markets expected a pick-up to 7.5. The index is now at the lowest level since October 2016.

ECB chief economist Praet said that "growth still needs a high degree of accommodation." The ECB will reassess its risk assessment in June. Currently risks are more balanced, but still tilted to the downside. Praet expects the output gap to be closed sometime in 2019. Inflation pressures remain subdued at this stage.

Emmanuel Macron has appointed centre-right politician Édouard Philippe as his prime minister. Mr Philippe, the 46-year old mayor of Le Havre, is a Republican party MP close to Alain Juppé, the former prime minister who lost the Republican party's presidential nomination to François Fillon in primary elections last year.

Germany should use its rising tax revenues to invest in infrastructure projects that will enhance its growth potential, and encourage employers to raise wages to help lift euro zone inflation, the IMF said. The IMF recommendations run counter to the thinking of German FM Schaeuble.

Vladimir Putin has blamed US intelligence services for the WannaCry infection that has swept across the world, as the spread of the cyber-attack appeared to stall in Europe.

Rates

France announces new 30-yr syndicated benchmark

Global core bonds lost modest ground in dull session. Traded volumes were low, even for a Monday. Brent crude gained around $2/barrel as Saudi Arabia and Russia push to extend oil output cuts until March 2018. The higher oil price weighed slightly on core bonds. ECB chief economist Praet repeated that the EMU still needs a high degree of stimulus and that inflation is subdued. Economic growth is increasingly solid, broad-based, but the strong sentiment needs to be reflected in hard data. His comments failed to impact trading. The US empire manufacturing index unexpectedly turned negative for the first time since October last year, but received the same underwhelming receipt.

At the time of writing, the German yield curve bear steepens with yield changes ranging between 0.6 bp (2-yr) and +4.7 bps (30-yr). The underperformance of the very long end of the yield curve is supply-related. The French debt agency announced the launch of a syndicated 31-yr benchmark (May2048) in the near term. The US yield curve shifted in similar fashion with yields 0.8 bps (2-yr) to 2.3 bps (30-yr) higher. On intra-EMU bond markets, 10-yr yield spread changes versus Germany range between -2 bps and +1 bp.

Currencies

Euro rally continues

The euro remained well bid in today's very thin technical and sentiment driven session. A second tier weak US Empire Manufacturing index gave the pair some extra, albeit temporary, fuel, but it was mainly follow through buying after Friday's weak US data. Interest rate differentials were little changed at the short end, but narrowed at the longer end after the announcement of a fresh French long bond. Geopolitical tensions after the North Korean missile test and some ongoing ECB QE tapering speculation were often cited on news wires, but we think they had little to do with the euro strength.

EUR/USD started the European session on a positive footing and very gradually moved higher during the European morning session. The US NY Fed manufacturing survey disappointed as it dropped just into negative territory. EUR/USD added a few ticks and reached the 1.0980 level, up from 1.0933 at the opening. The pair seems to hesitate now that it nears the 1.10 handle and the 1.1023 recent high

USD/JPY goes nowhere

Following two down-days, USD/JPY tried to move higher at the start of the European session, but it never came further than 113.73 from 113.40. Later on, disappointment kicked in and dollar selling pushed the pair back to the 113.40, slightly helped by the weak US NY manufacturing survey. European equities lost too little ground to speak about risk aversion and safe haven flows into the yen.

EUR/GBP tests 0.85 level

EUR/GBP trading was sentiment-driven. Sterling tried to regain part of Friday's losses in Asian and early European trading, but the EUR/GBP decline stalled at 0.8458. After bottoming out, the pair followed EUR/USD higher and reached the 0.85 handle, testing first resistance (0.8509/31) which if broken would form a triple bottom on the charts. Cable went slightly higher to 1.2940 from just below 1.29 at the open, but lost again some ground and is now quoted around 1.2918. EUR/USD outperformed EUR/GBP.

After seeing the sharp retreat from 1.2988 last week, we took the view that a temporary top has possibly been formed, so a short position was entered at 1.2900 and although the pair did fall to 1.2844, renewed buying interest emerged there and has rebounded, the position was stopped at 1.2935.

No position was entered among other currency pairs. 

In short, only 1 position was entered among all 4 currency pairs with total loss of 35 points and the position is listed below:

12 May : GBP/USD - Short at 1.2900, exited at 1.2935  (- 35 points)

|                 JPY              EUR              CHF            GBP

Jan          + 167             - 85              - 10            + 50
Feb          + 200            +150             +93            - 59
Mar              -23              -70               -23            - 35
Apr             + 65            + 93             + 50            - 40
May            + 5                                                   - 35
Jun          
Jul           
Aug         
Sep             
Oct         
Nov        
Dec                                                                                               
Y-T-D       + 413            + 83               +110           -119     

USD/CHF - 0.9970

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9988

Kijun-Sen level                    : 1.0005

Ichimoku cloud top                 : 1.0072

Ichimoku cloud bottom              : 1.0069

Original strategy :

Sell at 1.0035, Target: 0.9935, Stop: 1.0070

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.0035, Target: 0.9935, Stop: 1.0070

Position : -

Target :  -

Stop : -

As the greenback has fallen again after brief recovery, suggesting the fall from 1.0100 top is still in progress and further weakness to 0.9950-55 (61.8% Fibonacci retracement of 0.9859-1.0100) would be seen, break there would add credence to this view, bring subsequent fall to 0.9930-35 but price should stay well above previous resistance at 0.9903, bring rebound later.

In view of this, would be prudent to sell dollar on recovery as 1.0035-40 should limit upside. Above previous support at 1.0056 would defer and risk a stronger rebound to 1.0080 but price should falter below resistance at 1.0100-08, bring retreat later.

GBP/USD - 1.2913

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2920

Kijun-Sen level                    : 1.2901

Ichimoku cloud top              : 1.2901

Ichimoku cloud bottom        : 1.2871

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite falling marginally to 1.2844 on Friday, the subsequent stronger-than-expected rebound suggests the fall from 1.2991 has ended there, hence consolidation with mild upside bias is seen for test of 1.2949 resistance but break there is needed to add credence to this view, bring further gain to 1.2970 but said resistance at 1.2991 should hold from here. Only a break of 1.2999-00 (1.236 times projection of 1.2109-1.2616 measuring from 1.2365 and psychological resistance) would revive bullishness and extend recent upmove to 1.3040-50 first.

In view of this, would not chase this rise here and would be prudent to stand aside for now. Below the Kijun-Sen (now at 1.2893) would bring weakness to 1.2860-65 but only break there would revive bearishness for test of 1.2844 support, break there would extend the fall from 1.2991 top to 1.2831 support, then 1.2805.

EUR/USD - 1.0980

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.0958

Kijun-Sen level                  : 1.0952

Ichimoku cloud top             : 1.0887

Ichimoku cloud bottom      : 1.0883

Original strategy  :

Sell at 1.0995, Target: 1.0880, Stop: 1.1030

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1000, Target: 1.0900, Stop: 1.1035

Position : -

Target :  -

Stop : -

Euro has staged a strong rebound after falling to 1.0839, suggesting consolidation above this level would be seen and near term upside risk remains for further gain to 1.0997 resistance, however, if our view that top has been formed at 1.1025 is correct, upside would be limited and price should falter below recent high at 1.1025, bring another decline later. Below 1.0895-00 would bring weakness to 1.0855-60 but break there is needed to retain bearishness an extend the fall from 1.1025 top to 1.0821, then 1.0795-00 later.

In view of this, we are still looking to sell euro on further subsequent rebound as 1.0997 resistance should limit upside. Only break of said resistance at 1.1025 would abort and signal early upmove has resumed instead, bring further gain to 1.1050-55 and later 1.1075-80 before prospect of another retreat.

USD/JPY - 113.54

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 113.50

Kijun-Sen level                  : 113.43

Ichimoku cloud top             : 113.84

Ichimoku cloud bottom      : 113.67

Original strategy  :

Buy at 112.70, Target: 113.80, Stop: 112.35

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 112.70, Target: 113.80, Stop: 112.35

Position :  -

Target :  -

Stop : -

Although the greenback found support at 113.12 and recovered, last week’s retreat from 114.37 suggests further consolidation below this level would be seen and downside risk is for another corrective fall to 113.00-05, however, 112.60-65 (50% Fibonacci retracement of 110.87-114.37) should limit downside and bring rebound later, above 113.75 would bring test of 114.00-05 but break of latter level is needed to signal the pullback from 114.37 has ended, bring retest of this level later.

In view of this, we are inclined to buy dollar on next decline but one should exit on such rebound as 114.37 resistance should cap upside. Below support at 112.39 would risk further weakness to 112.20-25 (61.8% Fibonacci retracement of 110.87-114.37) but still reckon previous support at 112.09 would hold from here.

The CAC has started the week quietly, as the index is at 5401.50 in the Monday session. There are no releases out of the eurozone, so we can expect the CAC to remain subdued for the remainder of the day. Tuesday will be busy, highlighted by Eurozone Flash GDP for the first quarter, which is expected to improve to 0.5%. France will release Final CPI for April, with an estimate of 0.1%. As well, Germany and the eurozone will release ZEW Economic Sentiment.

The first quarter of 2017 has seen improved numbers in the euro area, largely due to strong numbers from Germany, the largest economy in the eurozone. Germany's economy expanded 0.6% in the first quarter, compared to a 0.4% gain in Q4 of 2016. What was particularly encouraging was that the expansion was broadly based, with strong consumer and state spending, and an upsurge in the construction and manufacturing and export sectors. However, inflation levels continues to recede, after some strong numbers in the first quarter. In April, German Final CPI dropped to 0.0%, marking a 3-month low. This trend has also characterized inflation in the eurozone, as weaker inflation levels has lessened pressure on the ECB to tighten monetary policy.

The EU released its Spring 2017 Economic Forecast, and the report gave the eurozone a passing grade. The report noted that the European economy is in its fifth year of recovery, and forecast eurozone GDP growth of 1.7% in 2017 and 1.8% in 2018. On the inflation front, the report stated that inflation had risen in recent months, but this was mainly due to an increase in oil prices. Still, inflation was expected to reach 1.6% in 2017 and 1.3% in 2018, compared to just 0.2% in 2016. Stronger growth has led to lower unemployment, and the report projected that eurozone unemployment rate would drop to 9.4% in 2017 and 8.9% in 2018. At the same time, economic risks remain tilted to the downside, including US economic and trade policy under President Trump, the European banking sector and Brexit. This forecast was considerably more optimistic than the Winter 2017 forecast, as is apparent from the captions in the press releases for these two reports: The Winter forecast was entitled "Navigating through choppy waters", while the caption for the Spring forecast reads "Steady growth ahead".

US consumer numbers improved in April, but still missed their estimates. CPI came in at 0.2%, short of the estimate of 0.3%. Core CPI, which excludes the most volatile items, posted a small gain of 0.1, shy of the estimate of 0.2%. Retail Sales came in at 0.3%, compared to the forecast of 0.5%. Retail Sales rose 0.4%, short of the estimate of 0.6%. Consumer confidence remained strong, as the reading of 97.7 beat the forecast of 97.0 points. These numbers underscored a troubling trend where strong consumer confidence has failed to translate into increased consumer spending.

US oil rallied strongly on Monday, extending recovery leg from $43.74 spike low, boosted by agreement between Saudi Arabia and Russia to extend oil production cut for a further nine months. Top oil producers showed strong commitment to extend an existing deal in order to reduce global oil oversupply and stabilize oil price. However, the agreement needs verification on OPEC's May 25 meeting, with strong expectations that agreement will be supported by other oil producers. Oil price rallied over 3.5% since opening in Asia until early hours of American session, taking out important barriers at $48.74 (daily Kijun-sen and 20SMA) and cracking another strong obstacle at $49.30 (200SMA). Near-term focus turns towards key resistances at $49.92/$50.00 (Fibo 61.8% of $53.74/$43.74 descend, reinforced by 55SMA and daily cloud / psychological barrier), break of which would generate another strong bullish signal for extended recovery. Close above these barriers is needed to confirm bullish resumption. Daily MA's are gradually turning into bullish setup, with bullish momentum building up and supporting growing bullish sentiment in the market. On the other side, slow stochastic is strongly overbought on daily chart and suggests hesitation at pivotal $50 zone, however, no firmer bearish signal has been generated so far. Corrective dips should be ideally contained by broken 20SMA/daily Kijun-sen to keep near-term bullish structure intact.

Res: 49.92; 50.00; 50.20; 51.03

Sup: 48.74; 48.20; 47.73; 47.33

EUR/GBP - 0.8504

 
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

New strategy  :

Buy at 0.8465, Target: 0.8565, Stop: 0.8425

Position : -

Target :  -

Stop : -

 
As the single currency has risen again after brief pullback, suggesting further gain to 0.8531 resistance would be seen, however, break there is needed to signal another leg of corrective rise from 0.8312 low is underway for retracement of recent decline to 0.8550 and then 0.8580 but price should falter below resistance at 0.8592, risk from there is seen for a retreat later.

In view of this, we are looking to buy euro on pullback as 0.8460-65 should limit downside and bring another rise. Below support at 0.8423 would abort and signal the rebound from 0.8384 has ended, bring further fall to 0.8400 but said support at 0.8384 should remain intact. Only a break below support at 0.8351 would revive bearishness and signal the rebound from 0.8312 low has ended at 0.8531 and bring further fall towards this support at 0.8312 which is likely to hold from here.

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.