Sample Category Title

Headlines

European equities traded stable near opening levels throughout dealings with France outperforming as investors scaled back worst case scenario bets ahead of this weekend's first presidential election round. US equities opened unchanged.

US eco data slightly disappointed. Weekly jobless claims rose from 234k to 244k (vs 240k expected), but remain near historically low levels. The Philly Fed business outlook declined from 32.8 to 22 in April while a more modest setback to 22 was forecast.

Dallas Fed President Kaplan said he still thinks 3 rate hikes are appropriate this year and advocates starting to wind down the balance sheet at the end of 2017/early 2018. Despite his generally hawkish profile, he said that the neutral rate may be closer to 2% than 3%.

North Korean state media warned the US of a "super-mighty pre-emptive strike" after US Secretary of State Tillerson said the United States was looking at ways to bring pressure to bear on North Korea over its nuclear programme.

Consensus is building towards agreement to extend an OPEC deal to limit output by three to six months as the producer group seeks to achieve its goal of bring down inventory stocks, Saudi Arabia's oil minister al-Falih said.

In the first poll since PM May called the June 8 election the Conservative Party are enjoying a 24% lead. The poll from YouGov, taken between April 18-19, shows voting intentions for the Conservative Party at 48% with Labour second at 24%.

Rates

German 10-yr yield regains 0.2%

Global core bonds worked away overbought conditions today. German Bunds underperformed US Treasuries as investors scaled back safe haven bets ahead of the 1st French presidential election round. French assets were the star performers with both bonds (OAT's) and stocks (CAC40) outperforming. The increase in German yields was disproportional given general risk sentiment (other bourses nearly unchanged; oil prices flat). Yesterday's ECB survey about the malfunctioning of several money markets (as QE creates scarcity of high quality collateral) might still have been in play as well. US eco data (weekly jobless claims, Philly Fed business outlook) were marginally weaker than expected but ignored.

At the time of writing, the German yield curve bear steepens with yields 2.1 bps (2-yr) to 5.2 bps (30-yr) higher. Technically, the German 10-yr yield firmly regained 0.2% support. Changes on the US yield curve ranged between +1.6 bps (2-yr) and +2.5 bps (5-yr), the belly underperforming the wings. On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrowed up to 4 bps for France. Core spreads widened 1 bp.

The French treasury tapped the on the run 3-yr BTAN (€3.43B 0% Feb2020) and 5-yr BTAN (€2.07B 0% May2022). The combined amount sold was the maximum of the targeted €4.5-5.5B range. Demand was lower than usual, but shouldn't surprise ahead of this weekend's presidential elections. The auction bid cover amounted 1.78. Additionally, the French Treasury sold three inflation-linked bonds for a combined €1.25B. The Spanish debt agency tapped the on the run 5-yr Bono (€1.63B 0.4% Apr2022), 10-yr Obligacion (€1.42B 1.5% Apr2027), 30-yr Obligacion (€0.94B 2.9% Oct2046) and off the run Obligacion (€0.99B 6% Jan2029) for a combined €4.97B, in the middle of the eyed €4.5-5.5B range. Demand was plain vanilla with an auction bid cover of 1.61.

Currencies

Euro rebounds going into French elections

The rebound of the euro that started early this week continued. European yields recovered from the recent lows and interest rate differentials narrowed slightly in favour of the single currency. The euro rally petered out later in the session, but EUR/USD (currently 1.0760) still trades in positive territory on a daily basis. We see the move as a positive repositioning of the euro ahead of the first round of the French presidential election. At the same time, the dollar isn't in really good shape. USD/JPY profited only slightly from the rise in core yields. The pair still hovers in the 109 area.

In a daily perspective, EUR/USD hovered in the low 1.07 area in Asia. The euro received a better bid at the start of European trading. The move coincided with a rise in European yields. There were no important data in EMU, but European equities performed quite well given the mediocre performance of US equities yesterday evening. The CAC 40 outperformed. This suggests that European investors are adapting positions for a potential favourable outcome of the first round of the French presidential elections. European core yields rose (albeit slightly) more than their US counterparts. EUR/USD touched an intraday top in the 1.0775 area after which the pair moved sideways.USD eco data (jobless claims and Philly Fed) were slightly softer than expected. The reports had no impact on the dollar.

The swings in USD/JPY were less pronounced than in EUR/USD. The pair dropped briefly to the 108.75 area late in Asia, but soon rebounded supported by a rise in core yields and a decent European equity sentiment. The pair returned to the 109 area and gained slightly further ground (109.30/35 currently) as yields resumed their uptrend during the US session. USD/JPY is trading off the recent lows (108.13) but the performance of the dollar isn't still convincing, given the rise in US/European yields. The picture of EUR/JPY is more constructive. The pair trades in the 117.50 area compared to a correction low below 116 on Monday.

Sterling awaiting new guidance after recent rise

Sterling trading was mostly driven by global moves and technical considerations. There were no UK eco data or other important news. Dollar softness continued to support cable, but the momentum eased as the session continued. The pair currently struggles not to fall back below the 1.28 handle. At the same time, EUR/GBP was supported by the overall euro rebound . EUR/GBP returned to the 0.84 area. For now, there is no big story behind the rise of the euro/European yields. A repositioning/reduction of euro shorts ahead of the French elections is likely. Even so, today's rebound suggests that a break below the key EUR/GBP 0.83 support is difficult. This might a fortiori be the case if this weekend's first round of the French election would turn out market friendly.

USD/CAD - 1.3480

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700

Trend:  Near term up

 
Original strategy       :

Buy at 1.3380, Target: 1.3530, Stop: 1.3320

Position: -

Target:  -

Stop: -

 
New strategy             :

Buy at 1.3400, Target: 1.3580, Stop: 1.3340

Position: -

Target:  -

Stop:-

The greenback finally penetrated indicated previous resistance at 1.3455, adding credence to our view that the correction from 1.3535 has ended and upside bias remains for the rise from 1.3223 to extend gain to previous resistance at 1.3535, once this level is penetrated, this would confirm early upmove has resumed and extend headway towards previous chart resistance at 1.3599 later which is likely to hold from here.

In view of this, would not chase this rise here and would be prudent to buy on subsequent pullback as 1.3400 should limit downside. Only below previous resistance at 1.3337 would abort and suggest top is possibly formed, risk weakness to 1.3300-10 but indicated support at 1.3262 should remain intact.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

How big of a risk is the French election for the markets?

The market risk is big and I cannot quantify it. It can be similar to 2011 with the risk of disintegration of Eurozone and the European Union will increase. Additionally, France - UK - US: a new alliance? It could happen.

Which is the best tool to track French election market risk? French bonds? CAC-40? Polls?

In order to track the French election market risk I look at the spread differential between French and German bonds (wider spread = more risk). Also, one could use the barometer of fear - the EUR/JPY (rate goes down = more risk) currency pair.

Polls are forecasting a very tight race among the main four candidates in Sunday's first round: how low could EURUSD go in case of a Le Pen vs Mélenchon showdown in the second round?

It all depends upon how large the advantage of Le Pen would be. If she wins in the first around by an advantage of 5%, the move can be large and the EUR/USD could be targeting 1.03 and even levels below that. If the numbers will be tight, then the movement should not be large as most if it has already been discounted. In case of Melenchon's advantage after the first round, the Euro could shoot towards 1.09.

And how high could the EURUSD rally if Fillon vs Macron was the outcome of the first round?

The main risk factor (Le Pen) will be out of the game so the EUR/USD goes up. Target? 1.09 at first, possible 1.12.

Could the French election have a GBP-Brexit-type effect on the EUR?

It sure can. If Le Pen wins the election, it will put the UK in a good position - another big player and another trading partner. They could join forces against Germany.

Should traders prepare for important gaps in the Euro on the post-election Monday openings?

Oh, yes. How important this upcoming weekend is? Option traders fear the French election outcome more than Brexit. Of course, everybody fears Le Pen. If this happens, the gaps will be large, both on the EUR/USD and the EUR/JPY (even larger)

Where would capital fly in case of a EUR meltdown if there was a Frexit? German bonds? USD? Other currencies?

There are a couple of possibilities that I take into account and those are: JPY and CHF (currencies), US and JPY bonds, gold and silver (commodities). Obviously, volatility will be high but those markets that I have mentioned should experience the largest gains.

Is the European Union "two-speeds" idea good for the EUR in the long-term?

To be honest, it is a logical idea. The European Union will find it difficult to grow having such a large economic discrepancies among countries. The "two-speeds" idea could be a solution. Of course, a very bad solution for smaller countries. Its introduction (of the two-speeds concept) would cause larger delamination, declining solidarity and integrity. All that would cause anger of people and it would not be good for the EUR.

USD/JPY - 109.10

Original strategy  :

Bought at 108.45, Target: 109.45, Stop: 108.30

Position :  - Long at 108.45

Target :  - 109.45

Stop : - 108.30

New strategy  :

Hold long entered at 108.45, Target: 109.45, Stop: 108.65

Position :  - Long at 108.45

Target :  - 109.45

Stop : - 108.65

As dollar has eased after faltering below indicated resistance at 109.22, suggesting further consolidation would take place, however, reckon downside would be limited to 108.45-50 and bring another bounce to said resistance, break there would add credence to our view that a temporary low has been formed at 108.13, bring retracement of recent decline to 109.40-45 (previous resistance and 38.2% Fibonacci retracement of 111.58-108.13) but reckon upside would be limited to 109.86-87 (50% Fibonacci retracement and previous resistance) and price should falter below 110.25-30 (61.8% Fibonacci retracement), bring retreat later.

In view of this, we are holding on to our long position entered at 108.45. Below 108.30-32 would risk retest of 108.13 support (this week’s low) but break there is needed to signal recent decline has resumed and extend weakness to 107.75-80 later.

USD/CHF - 0.9950

Original strategy :

Sold at 1.0000, Target: 0.9900, Stop: 1.0010

Position : - Short at 1.0000

Target :  - 0.9900

Stop : - 1.0010

New strategy  :

Exit short entered at 1.0000,

Position : - Short at 1.0000

Target :  -

Stop : -

Although the greenback has remained under pressure and mild downside bias remains for recent decline from 1.0108 top to extend weakness to 0.9935-38 (50% projection of 1.0067-0.9955 measuring from 0.9992) and then 0.9926 (61.8% Fibonacci retracement of 0.9813-1.0108) but reckon 0.9900-05 (1.618 times projection of 1.0108-1.0008 measuring from 1.0067) would hold, bring rebound later.

In view of this, would be prudent to exit our short position entered at 1.0000. Above resistance at 0.9992 would suggest low is possibly formed but break of previous support at 1.0008 is needed to add credence to this view, bring a stronger rebound to 1.0020-30.

Daily Pivots: (S1) 0.9961; (P) 0.9976; (R1) 0.9997; More.....

USD/CHF's fall from 1.0107 is still in progress and intraday bias stays on the downside for 0.9812 support. As noted before, correction from 1.0342 is still in progress with another leg started at 1.0107. Break of 0.9812 might be seen. But we'll look for bottoming signal below there. On the upside, above 1.0008 minor resistance will turn bias back to the upside for 1.0107 resistance instead.

In the bigger picture, we're still maintaining that firm break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the cross. However, the corrective nature of the fall from 1.0342 is starting to give the medium term outlook a bullish favor. Hence, in stead of looking for topping signal around 1.0342, we'd now pay closer attention to upside acceleration as USD/CHF approaches this level again.

GBP/USD - 1.2803

Original strategy :

Buy at 1.2755, Target: 1.2855, Stop: 1.2720

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.2710, Target: 1.2850, Stop: 1.2675

Position : -

Target :  -

Stop : -

Although cable rebounded after finding support at 1.2770 and gain to 1.2855-60 cannot be ruled out, break there is needed to signal the pullback from 1.2906 has ended, bring retest of this level, break there would extend recent upmove to 1.2920-30 (2 times extension of 1.2365-1.2575 measuring from 1.2500), then 1.2950 but loss of near term upward momentum should prevent sharp move beyond 1.2990-00 (1.236 times projection of 1.2109-1.2616 measuring from 1.2365 and psychological resistance). If said resistance continues to hold, then further consolidation would take place and another retreat to 1.2755-60 (38.2% Fibonacci retracement of 1.2515-1.2906) cannot be ruled out but 1.2700-10 should hold, bring another rally.

In view of this, would not chase this rise here and would be prudent to buy cable on subsequent pullback as downside should be limited to 1.2710 (50% Fibonacci retracement of 1.2515-1.2906), bring another rise. Below 1.2700 would defer and signal top has been formed, risk correction to 1.2660-65 (61.8% Fibonacci retracement of 1.2515-1.2906) and price should stay well above 1.2608-16 (previous resistance now support).

Daily Pivots: (S1) 1.2743; (P) 1.2801; (R1) 1.2833; More...

No change in GBP/USD's outlook. With 1.2614 resistance turned support holds, near term outlook remains bullish for further rise. Firm break of 100% projection of 1.2108 to 1.2614 from 1.2365 at 1.2871 will target 161.8% retracement at 1.3184. Still, price actions from 1.1946 are seen as a correction. Hence we'd expect strong resistance below 1.3444 to bring larger down trend resumption. On the downside, break of 1.2614 resistance turned support will turn bias back to the downside for 1.2365 support first.

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) 108.42; (P) 108.79; (R1) 109.23; More....

Intraday bias in USD/JPY as consolidation from 108.12 temporary low extends. With 110.10 resistance intact, near term outlook stays bearish. Rise from 98.97 is finished at 118.65 and fall from there would extend. On the downside, break of 108.12 will target 61.8% retracement of 98.97 to 118.65 at 106.48. Sustained break there will pave the way back to 98.97 low. Nonetheless, break of 110.10 will be the first sign of near term bottoming and turn bias back to the upside for 112.19 resistance instead.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. Current development suggests that it's not completed yet and is extending. In case of deeper decline, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

EUR/USD - 1.0758

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 1.0729

Kijun-Sen level                  : 1.0724

Ichimoku cloud top             : 1.0707

Ichimoku cloud bottom      : 1.0676

Original strategy  :

Buy at 1.0685, Target: 1.0785, Stop: 1.0650

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0690, Target: 1.0790, Stop: 1.0655

Position : -

Target :  -

Stop : -

As the single currency has risen again after brief pullback, suggesting recent upmove from 1.0570 is still in progress and upside bias remains for further gain to 1.0783-85 (61.8% projection of 1.0602-1.0737 measuring from 1.0700), then 1.0800-10, however, loss of near term upward momentum should prevent sharp move beyond 1.0825-30, risk from there is seen for a retreat to take place later.

In view of this, would not chase this rise here and would be prudent to buy euro on pullback as 1.0690-00 should limit downside. Only below previous resistance at 1.0670 (now support) would abort and signal top is formed instead, bring correction towards previous support at 1.0635 which is likely to hold from here.