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Today will see the release of a set of UK economic data for March at 09:30 BST, including manufacturing production, industrial production, and trade balance. This will be followed by the Bank of England's (BoE) interest rate decision and monetary policy minutes at 12:00 BST and the NIESR GDP estimate (Feb to April) at 13:00 BST.

Recent UK economic data has been soft lowering market expectations for a rate hike. The general election will be held on June 8 and, with the Brexit procedure ongoing, the BoE is unlikely to take any actions at least before the election result; therefore, they are likely to keep policies steady until the Brexit negotiation deal has a clear outline.

GBP/USD has rallied approximately 3% since Theresa May's announcement of a snap general election on April 18th. On Monday May 8th GBP/USD hit a 7-month high of 1.2988. The bulls failed to breach the significant psychological level at 1.3000 since then. Markets seem to be taking a cautious stance ahead of the BoE announcements.

The BoE's announcement will likely cause a move to GBP and GBP crosses. With a hawkish comment, it will likely cushion GBP/USD. Conversely, with a dovish comment, we will likely see a correction downward.

ECB Governor Draghi stated on Wednesday that “the Eurozone economy is becoming increasingly solid and downside risks have further diminished”. However, it is too early for the ECB to remove QE as inflation pressure continues to be subdued.

Although the Eurozone recovery is sound, with the expectation ECB is not yet going to remove QE, EUR/USD only rebounded around 20 points during the speech, followed by a retracement due to the strengthening of USD. EUR/USD hit a 2-week low of 1.0852 after Draghi's speech.

German Q1 GDP first reading will be released at 07:00 BST, Friday May 12th. It will be followed by a set of crucial US data for April at 13:30 BST including retail sales, core retail sales, CPI and core CPI.

The German unemployment rate has seen a downtrend since 2009. The global economic recovery helping to boost German exports. German business confidence for April hit a 6-year high indicating German companies regard the economic outlook as optimistic.

German GDP has been oscillating in the range between 1.3% – 3.1% in 2016. The consensus for Q1 GDP is 1.7%, with a better-than-expected reading it will likely provide further support for EUR and the DAX index.

The Dax index hit a record high of 12834.45 on May 5th, lifted by market expectations on Macron's victory. It has seen a 44.2% surge since February 2016.

Today, it's 'Super Thursday' in the UK. That means that besides the BoE rate decision and the meeting minutes, we will also get the quarterly Inflation Report, which Governor Carney will present at a press conference after the gathering. The BoE added a hawkish touch the last time it met, indicating that 'some members' would consider a reduction in stimulus should there be any further upside news on the prospects for growth or inflation. On top of that, Kristin Forbes dissented the decision to remain on hold, favoring an immediate rate hike instead. Since that gathering, data showed that the core CPI rate rose further, but GDP growth slowed significantly in Q1.

Therefore, we think that the BoE is likely to stand pat, erase the hawkish touch it added the last time, and reiterate that policy can respond in both directions. We believe that policymakers will place more emphasis on supporting economic growth, and repeat that above-target inflation entirely reflects the drop in sterling and is thus transitory. As such, although Forbes is likely to dissent again, the overall tone of the Committee may be somewhat more concerned than previously. In this case, sterling could reverse some of its latest gains. In addition, there is the prospect for the GDP forecasts to be revised lower.

GBP/USD has been trading in a consolidative manner recently, staying between the support of 1.2900 (S1) and the psychological round figure of 1.3000 (R1). A cautious committee today may be an excuse for some profit taking on existing long positions, which could cause the rate to correct lower. We believe that a dip below 1.2900 (S1) may open the way for a test near the key zone of 1.2850 (S2). Nevertheless, we still see an uptrend on the 4-hour chart and as such, we would treat such a slide as a corrective setback.

The key risk to our view for a pullback is the prospect that more than one MPC members vote for a rate hike. Something like that could indicate that there is increasing support among the Committee for such action, thereby raising speculation for a rate hike in coming meetings. In such a case, GBP/USD could surge, break above the psychological level of 1.3000 (R1), and perhaps aim for the next resistance of 1.3050 (R2).

RBNZ keeps the door for further easing open; NZD tumbles

Overnight, the RBNZ kept its policy rate unchanged, but did not communicate a more optimistic bias as many market participants may have anticipated. The statement accompanying the decision made it clear that although domestic economic data are improving, some of the progress is transitory, particularly in the inflation outlook. With regards to the Kiwi, the Bank noted that its 5% decline since February is encouraging, and if sustained will help to rebalance the growth outlook. Perhaps most importantly, policymakers kept the door for further easing wide open, indicating that numerous uncertainties remain and that policy may need to adjust accordingly. Given that this may have come as a surprise to NZD-traders, the Kiwi plunged. We think that the currency could remain under pressure for a while, perhaps until the recent concerns regarding a slowdown in Chinese growth ease a little bit.

NZD/USD traded higher heading into the meeting, to hit resistance marginally above the 0.6940 (R1) barrier just a few hours before the decision. At the time of the decision though, given the disappointing tone of the RBNZ, the pair plunged and broke below the 0.6880 (R2) level. For now, we believe that the pair may correct some of that steep fall, and perhaps test the 0.6880 (R2) territory as a resistance this time. If the bears manage to take advantage of such a corrective rebound, we would expect them to aim for another test near 0.6840 (R1), where a decisive dip may pave the way for the 0.6780 (S1) support area.

As for the rest of today's highlights:

During the European day, Sweden's CPI data for April are due out. The forecast is for both the headline and the underlying inflation rates to have moved higher, which could reverse some of SEK's latest losses.

As for the UK economic data, we get the trade balance and industrial production for March, but these are likely to be overshadowed by the BoE meeting.

From the US, we get PPI data for April and initial jobless claims for the week ended on the 5th of May.

Besides BoE Governor Carney, we have three more speakers on the agenda. From the ECB, we will hear from Vice President Vitor Constancio and Executive Board member Peter Praet. In the US, comments from the influential New York Fed President William Dudley will be in focus.

GBP/USD

Support: 1.2900 (S1), 1.2850 (S2), 1.2770 (S3)

Resistance: 1.3000 (R1), 1.3050 (R2), 1.3125 (R3)

NZD/USD

Support: 0.6780 (S1), 0.6680 (S2), 0.6620 (S3)

Resistance: 0.6840 (R1), 0.6880 (R2), 0.6940 (R3)

Weekly
    •    Last Candlesticks pattern: N/A
    •    ime of formation: N/A
    •    Trend bias: Near term up

Daily
    •    Last Candlesticks pattern: Hammer
    •    Time of formation: 3 Feb 2016
    •    Trend bias: Up

EURGBP – 0.8445

The single currency met resistance at 0.8509 late last week and has retreated, suggesting the rebound from 0.8312 has possibly ended at 0.8531 and consolidation with downside bias is seen for further fall to 0.8351 support, however, a daily close below there is needed to add credence to this view and bring resumption of recent decline for retest of 0.8312. Looking ahead, only a drop below 0.8304 support would revive bearishness and signal early downtrend has resumed for weakness to 0.8270-75, then 0.8250 but price should stay well above 0.8200-10.

On the upside, whist recovery to the Tenkan-Sen (now at 0.8447) cannot be ruled out, reckon said resistance at 0.8509 (last week’s high) would hold and bring another decline later. Only a break of said previous resistance at 0.8531 would shift risk back to upside for the rebound from 0.8312 low to bring retracement of recent decline towards 0.8592 resistance but a daily close above there is needed to signal recent decline has ended instead, bring further gain to the upper Kumo (now at 0.8623), then towards 0.8660-65, however, price should falter well below previous resistance at 0.8735, bring retreat later.

Recommendation: Hold long entered at 0.8400 for 0.8600 with stop below 0.8310.

On the weekly chart, as the single currency has retreated again after brief recovery to 0.8509, suggesting initial downside risk remains for weakness to 0.8350-55, however, as long as recent support at 0.8312 holds, consolidation with mild upside bias is seen for another rebound, above said resistance at 0.8509 would bring test of 0.8531, break there would bring test of the Tenkan-Sen (now at 0.8550) but break of resistance at 0.8592 is needed to signal the fall from 0.8857 has ended, then gain to 0.8675-80 would follow, however, as broad outlook remains consolidative, reckon upside would be limited to 0.8788 resistance, bring retreat later.

On the downside, although initial pullback to 0.8351 support cannot be ruled out, as long as minor support at 0.8351 holds, prospect of another rebound remains. A drop below 0.8351 would bring test of indicated support at 0.8304-12, once this level is penetrated, this would signal decline from 0.9576 top has resumed for retest of 0.8304 but only break there would extend the fall from 0.9576 top for retracement of medium term upmove to previous support at 0.8251, then 0.8200.

EUR/USD is undergoing an intraday drop form the high, which could mean that final wave C as part of wave Y) found a top at the start of this week and that the whole fourth wave correction since January of 2017 is completed. If so, then we will see a minimum three wave decline to unfold in the next trading sessions and a break beneath the previous minor wave four swing at 1.0844 level, that may cause the GAP at 1.080 to be filled.

EURUSD, 4H

Data was supportive to oil overnight, while a stronger dollar and a safer world see gold languish.

Crude Oil

Oil shot higher by over 3 percent overnight as the U.S. Crude Inventories dropped by a massive 5.2 million barrels against a decline of 1.8 million expected. Brent spot traded as high as 50.35 and WTI spot to 47.60 before both saw late session profit taking to open in Asia at 49.90 and 47.30 respectively.

With the OPEC production cuts almost certainly to be extended, oil may well have dodged the worst for now. However, it would be premature to call a bottom in prices as U.S. production continues to ramp up along with that of exempted OPEC members Libya and Nigeria. Compliance with cuts may also become a talked about issue in the second half of the year as production cut fatigue sets in amongst the OPEC and Non-OPEC parties to the agreement.

This both crude contracts opened positively and traded up around 40 cents in the Asia session.

Brent spot has resistance nearby at 50.35, the overnight highs, followed by 51.15, its 200-day moving average. Support lies at 48.50.

WTI spot has resistance at 48.50 and then 49.00, its 200-day moving average. Support lies distantly at 46.00 and then 45.50.

Gold

Gold struggles to sustain any meaningful rallies after it broke its 100-day moving average and closed below it on Tuesday. Gold rose to 1225 in overnight trading before belly flopping and settling near its lows of 1218.50 where it opened this morning. Asia has traded positively however as the back of high physical demand nearing 1221.25 as we start Europe’s session.Extreme long positioning, the spectre of a Federal Reserve rate hike next month, and the inability of any news to raise the safe haven temperature globally are all gradually eroding gold’s pricing premium.

However, extreme long positioning, the spectre of a Federal Reserve rate hike next month, and the inability of any news to raise the safe haven temperature globally are all gradually eroding gold’s pricing premium.

With a close under the 100-day average, now at 1224.50 and initial resistance, the technical picture points to a possible move to the 1195/1200 longer term support region. Interim support is found at 1214.35 with the possibility of more stop-loss selling from short-term players if it breaks.

Weekly

    •    Last Candlesticks pattern: Doji
    •    Time of formation: 20 Feb 2017
    •    Trend bias: Up

Daily

    •    Last Candlesticks pattern: Doji
    •    Time of formation: 1 Sep 2016
    •    Trend bias: Near term down

EUR/CHF – 1.0973

The single currency rallied after finding renewed buying interest at 1.0792 and broke above previous resistance at 1.0899, adding credence to our view that low has been formed at 1.0631, hence bullishness remains for the erratic rise from there to bring at least a stronger correction of early decline to 1.1001 resistance, however, break there is needed to encourage for headway to 1.1050-60, then 1.1100 but overbought condition should prevent sharp rise beyond 1.1150 and price should falter below previous chart resistance at 1.1201, risk from there has increased for a retreat to take place later.

On the downside, whilst initial pullback to 1.0930-40 is likely, reckon the Tenkan-Sen (now at 1.0886) would limit downside and bring another rise later. Below 1.0845-50 would defer and suggest top is possibly formed, bring test of the Kijun-Sen (now at 1.0818) but support at 1.0792 would hold from here, bring rebound later. A daily close below this support at 1.0792 would abort and signal top is formed, bring subsequent fall to the upper Kumo (now at 1.0726) but support at 1.0671 should remain intact, the single currency shall stage another rebound from there.

Recommendation: Buy at 1.0880 for 1.1080 with stop below 1.0780.

On the weekly chart, this week’s rally together with the breach of indicated previous resistance at 1.0899 add credence to our view that the rise from 1.0631 low is still in progress and may extend further gain to 1.1001 resistance, a sustained breach above this level would signal the fall from 1.1201 has ended, bring further gain to 1.1100 and possibly test of resistance at 1.1129 but price should falter below said recent high at 1.1201, bring retreat later. 

On the downside, expect pullback to be limited to the upper Kumo (now at 1.0912) and the lower Kumo (now at 1.0860) should attract renewed buying interest, bring another rise later.  Below the Tenkan-Sen (now at 1.0818) would defer and suggest top is possibly formed, risk test of 1.0792 support, once this level is penetrated, this would add credence to this view, bring further fall towards 1.0725-30 but support at 1.0656 should remain intact, bring another rally later this month.

EUR/USD

Current level - 10867

The overall outlook remains bearish below 1.0900, for a slide towards 1.0770 area. Crucial on the upside is 1.0950.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 114.18

Although there is still a risk of a downswing towards 113.50, the overall outlook is positive, for a rise towards 115.60 area.

GBP/USD

Current level - 1.2937

The intraday outlook is neutral as the consolidation pattern is capped at 1.3000 sentiment area. Initial intraday support is projected at 1.2900, followed by 1.2830.

USD/CHF - 1.0080

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 1.0085

Kijun-Sen level                    : 1.0072

Ichimoku cloud top                 : 1.0054

Ichimoku cloud bottom              : 0.9987

Original strategy :

Buy at 1.0015, Target: 1.0115, Stop: 0.9980

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0015, Target: 1.0115, Stop: 0.9980

Position : -

Target :  -

Stop : -

As the greenback has continued trading with a firm undertone after this week’s rally, adding credence to our view that recent upmove is still in progress and may extend further gain to previous resistance at 1.0108, break there would confirm resumption of early rise and encourage for headway to 1.0130 and then 1.0150-55 which is likely to hold from here due to loss of near term upward momentum. 

In view of this, would not chase this rise here and we are looking to buy dollar on pullback as 1.0010-15 should limit downside. Only below previous resistance at 0.9957 would defer and suggest top is possibly formed, bring test of 0.9920-25 but break of previous resistance at 0.9903 is needed to add credence to this view, bring further fall to 0.9880-85.

Pound sterling has been flirting with the 1.3 level for most of the past week, but failing to break above this key level indicates that a strong catalyst is needed to convince traders to go long from here. Whether we see a break above or a pullback hinges upon the Bank of England's decision and the quarterly Inflation Report issued today.

Although market participants are confident that interest rates won't change today, there seems to be divided opinion on what messages we'll receive due to the mixed economic data releases in the past couple of weeks. On the positive side, unemployment is at its lowest levels in twelve years, economic activity is improving based on PMI's, and inflationary pressures are building with consumer prices above 2%. On the downside, GDP came well below expectations in Q1, consumers are hesitant to spend, wage growth is not keeping pace with inflation, and housing activity is heading south. The central bank will also take into consideration the political hurdles of the snap general election on 8 June and UK's negotiations with the EU.

Overall, I think there's little reason for the BOE to shift expectations one way or the other. The base case scenario is to wait and see until we get more clarity on both the economic and political outlook.

Although I don't see sufficient support for GBPUSD to trade much higher than current levels, if any MPC voting members join Kristin Forbes to vote in favor of a rate hike, the pound is likely to break above the 1.3 level, as a shift to the hawks will suggest a rate hike coming soon.

The Euro dipped to 1.0850 support (former congestion low/Fibo 38.2% of 1.0568/1.1020 downleg) on Wednesday, on three-day fall following upside rejection at 1.1020.

Support is holding for now, with Wednesday's Doji and today's acceleration higher, seen as initial reversal signal.

Such scenario requires break and close above 10SMA (1.0910) for confirmation, as notion is supported by strongly oversold slow stochastic and underpinned by 20/200SMA Golden Cross.

Otherwise, risk would remain shifted to the downside while recovery stays capped under 10SMA.

Violation of plethora of strong supports between 1.0850 and 1.0825 would generate stronger bearish signals and risk filling the gap of 24 Apr for stronger retracement of 1.0568/1.1020 upleg.

Res: 1.0896, 1.0910, 1.0932, 1.0950
Sup: 1.0850, 1.0825, 1.0794, 1.0777