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USD/CAD is almost unchanged in the Thursday session, as the pair trades at 1.3430. On the release front, Canadian Building Permits posted a sharp decline of 2.5%, well short of the estimate of a 1.4% gain. In the US, unemployment claims dropped sharply to 234 thousand, easily beating the forecast of 251 thousand. The week wraps up with a host of employment indicators. Canada will publish Employment Change and the unemployment rate, while the US releases three key events - Nonfarm Employment Change, Average Hourly Earnings and the unemployment rate.

The Canadian dollar continues to struggle, and a major reason is weak oil prices. Despite OPEC cutting production levels, the world remains awash in oil, as increasing US production has offset the OPEC cuts. US Crude Inventories continue to show surpluses, most of which have been higher than the forecast. This was the case again last week, with US crude inventories posting a strong gain of 1.6 million. The indicator has posted 12 surpluses in the last 13 weeks, which has helped keep oil prices close to the $50 level.

The Federal Reserve released the minutes of its March policy meeting on Wednesday. At that meeting, the Fed raised rates a quarter-point to 0.75%, but the dovish rate statement disappointed the markets, triggering broad losses for the US dollar. In the minutes, policymakers noted upside risk to the US economy, but remained divided on whether inflation will rise to the Fed target of 2.0%. Most policymakers were in favor of taking steps to trim the $4.5 trillion balance, which has ballooned since the Fed implemented its aggressive quantitative easing program back in 2008. So what's next for the Fed? According to the CME's Fed Watch, the odds of a rate hike at the May meeting are just 5 percent, while the likelihood of a rate hike in June stand at 63 percent. Last week, FOMC member Eric Rosengren called for three more hikes, saying the Fed should raise rates in June, September and December. Rosengren said that employment and inflation levels were close to the Fed's targets, and that three additional hikes were needed in order to prevent the US economy from overheating. However, a majority of FOMC members are in favor of just two more hikes this year.

Daily Pivots: (S1) 110.33; (P) 110.89; (R1) 111.25; More....

USD/JPY is still bounded in range of 110.10/112.19 and intraday bias remains neutral at this point. On the downside, break of 110.10 will resume the whole corrective decline from 118.65 and target 50% retracement of 98.97 to 118.65 at 108.81. On the upside, however, break of 112.19 resistance will indicate short term reversal and turn bias back to the upside for 115.49 resistance.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Nonetheless, sustained trading below 55 week EMA (now at 111.16) will extend the consolidation from 125.85 with another fall through 98.97 before completion.

Dollar trades in rather tight range as the markets await the summit between US President Donald Trump and China President Xi Jinping. They will greet each other at Trump's Mar-a Lago retreat in Florida late in the afternoon and dine together. The summit will conclude with a working lunch tomorrow. Pressure is on Trump's shoulder to deliver something concrete out of the meeting. Those would include bringing jobs "stolen" by the Chinese back to the US, ending China's "currency manipulation", push China to use its "great influence" on North Korea, etc. Some market participants might have high expectation on the outcome of the summit. But other might just prefer Trump to move his focus back to tax reform, which is, in our view, more essential in determining the financial markets' direction.

Released from US, initial jobless claims dropped 25k to 234k in the week ended April 1, below expectation of 250k. Prior week's figure was revised up by 1k to 259k. Initial claims have now stayed below 300k level for the 109 straight week, the second longest streak since 1970s. Four week moving average dropped 4.5k to 250k. Continuing claims dropped 24k to 2.03m in the week ended March 25. Challenger job cuts dropped -2.0% yoy in March. From Canada, building permits dropped -2.5% mom in February.

Fed Williams: Takes around five year to shrink balance sheet

San Francisco Fed President John Williams said that it may take around five years for Fed to wind down the $4.5T balance sheet. And, "towards the end of this year would be a good time to take that next step" of normalization of the balance sheet, "assuming the economy progresses.

The minutes of the March FOMC meeting was overall hawkish. They outlined the steps to shrink the USD 4.5T balance sheet. The minutes noted that the reduction has to be "gradual and predictable", accomplished by "phasing out" or reinvestment and such process could start "later this year". No detail is provided yet but the minutes said Fed will "its deliberations on reinvestment policy during upcoming meetings and would release additional information as it becomes available."

Meanwhile, some officials are concerned that if unemployment falls further, it could pose "significant upside risk" of inflation. The minutes also showed "some participants viewed equity prices as quite high relative to standard valuation measures." More on FOMC Minutes: FOMC Might Begin Shrinking Balance Sheet In Late-2017

ECB Draghi: Reassessment of policy stance not warranted

ECB President Mario Draghi expressed today his confidence that "our policy is working and that the outlook for the economy is gradually improving." However, he emphasized that there was no "sufficient evidence to materially alter our assessment of the inflation outlook". Therefore, "reassessment of the current monetary policy stance is not warranted at this stage." And those include "interest rates, asset purchases and forward guidance."

ECB chief economist Peter Praet said that introducing the idea of a rate hike will undo some of the stimulus because of changed market expectations. He said that "if investors start perceiving that the path of the policy rate is subject to upward uncertainty ... long-term interest rates will be pushed higher and asset purchases will become less effective." On the other hand, separately, Bundesbank head Jens Weidmann said that the time for ECB to scale back stimulus was fast-approaching.

Eurogroup Dijsselbloem urged UK and EU to stay away from the cliff

Eurogroup head Jeroen Dijsselbloem urged UK and EU to keep future trade relationship "as close as possible". He said that "the longer I think about it, the longer we study all the topics that need to be negotiated, the more worried I get. It is hugely complex, it is going to take a lot of effort from both sides to try and manage it." And, he urged to "try to stay away from the cliff of the [World Trade Organization] standards" as they would be very damaging to trade between the different regions."

Yesterday, the European Parliament voted 516-133, with 50 abstentions, for the phased approach of Brexit negotiation, rather than parallel. European Union chief negotiator Michel Barnier said yesterday that "parallel talks" on Brexit terms and future trade relationship is "a very risky approach". And, he emphasized that to succeed, "we need on the contrary to devote the first phase of negotiations exclusively to reaching an agreement on the principles of the exit."

Release from Europe, Eurozone retail PMI dropped to 49.5 in March. Germany factory orders rose 3.4% mom in February. Swiss CPI was unchanged at 0.6% yoy in March.

BoJ Kuroda favorite to get second term

In Japan, it's reported that BoJ Governor Haruhiko Kuroda is Prime Minister Shinzo Abe's favorite for the job. And Kuroda will likely renew for another five year term next year. Reuters quoted unnamed source saying that Abe trusts Kuroda and believed he did a "very good job". Also, the it's believed that Abe's administration is happy with impact of BoJ's QQE program that keep government borrowing costs very low. The selection process for the next BoJ Governor will start in the second half of this year.

Release in Asia, Japan consumer confidence rose to 43.9 in March. China Caixin PMI services dropped to 52.2 in March.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 110.33; (P) 110.89; (R1) 111.25; More....

USD/JPY is still bounded in range of 110.10/112.19 and intraday bias remains neutral at this point. On the downside, break of 110.10 will resume the whole corrective decline from 118.65 and target 50% retracement of 98.97 to 118.65 at 108.81. On the upside, however, break of 112.19 resistance will indicate short term reversal and turn bias back to the upside for 115.49 resistance.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Nonetheless, sustained trading below 55 week EMA (now at 111.16) will extend the consolidation from 125.85 with another fall through 98.97 before completion.

Economic Indicators Update

USD/CAD - 1.3434

 
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 1.3375, Target: 1.3550, Stop: 1.3315

Position: -

Target:  -

Stop: -

 
New strategy             :

Buy at 1.3375, Target: 1.3550, Stop: 1.3315

Position: -

Target:  -

Stop:-

As the greenback staged a strong rebound after holding above indicated previous support at 1.3264, consolidation with upside bias is seen and above 1.3456 resistance would add credence to our view that the correction from 1.3535 has ended and bring further gain to 1.3495-00 but break there is needed to signal upmove has resumed for retest of 1.3535, once this level is penetrated, this would extend recent recent upmove from 1.2969 to 1.3575-80 but previous chart resistance at 1.3599 should hold on first testing.

In view of this, we are looking to buy on pullback as 1.3370-75 should limit downside and bring another rise. Below 1.3340 would abort and suggest the rebound from 1.3264 has ended instead, bring further fall to 1.3300-10 but said support at 1.3264 should remain intact. Only a break below this level at 1.3264 would shift risk back to downside for the fall from 1.3535 to extend weakness to 1.3235-40 (61.8% Fibonacci retracement of 1.3056-1.3535) and then 1.3200-10. 

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.

USD/CHF - 1.0039

Original strategy :

Buy at 0.9950, Target: 1.0050, Stop: 0.9915

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9950, Target: 1.0050, Stop: 0.9915

Position : -

Target :  -

Stop : -

As the greenback has maintained a firm undertone after last week’s rally above 1.0003 resistance, suggesting recent rise from last week’s low at 0.9813 is still in progress and bullishness remains for this move to 1.0080, then towards previous resistance at 1.0109, however, loss of upward momentum should prevent sharp move beyond latter level and reckon 1.0140-50 would hold, 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 dollar on pullback as support at 0.9948 should limit downside. Below 0.9925-30 would abort and signal top is formed instead, bring correction to 0.9905-10 but reckon previous resistance at 0.9869 would hold from here. 

GBP/USD - 1.2466

Original strategy :

Sold at 1.2465, Target: 1.2365, Stop: 1.2500

Position : - Short at 1.2465

Target :  - 1.2365

Stop : - 1.2500

New strategy  :

Hold short entered at 1.2465, Target: 1.2365, Stop: 1.2500

Position : - Short at 1.2465

Target :  - 1.2365

Stop : - 1.2500

Cable’s rebound after holding above support at 1.2419 suggests further consolidation above this level would be seen, however, as long as indicated resistance at 1.2500 holds, mild downside bias remains for another fall, below said support at 1.2419 would bring test of 1.2400 but break there is needed to add credence to our view that the rebound from 1.2377 has ended at 1.2559, bring further fall towards support at 1.2377. Looking ahead, only a drop below 1.2377 would confirm the fall from 1.2616 is still in progress for subsequent decline towards key support at 1.2335.

In view of this, we are holding on to our short position entered at 1.2465 but one should exit on such decline. Only break of said resistance at 1.2500 would abort and suggest low has been formed instead, risk a stronger rebound to 1.2525-30, then towards resistance at 1.2559.

EUR/USD - 1.0659

Original strategy  :

Sell at 1.0725, Target: 1.0610, Stop: 1.0760

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.0725, Target: 1.0610, Stop: 1.0760

Position : -

Target :  -

Stop : -

As the single currency has remained under pressure after recent selloff, bearishness remains for the decline from 1.0906 to extend further weakness to 1.0620, then test of previous chart support at 1.0600, however, a sustained breach below the latter level is needed to retain downside bias for subsequent selloff to 1.0570-75 first.

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 1.0720-30 should limit upside. Only a firm break above resistance at 1.0773 would suggest low is formed instead, bring a stronger rebound to 1.0800 but resistance at 1.0827 should remain intact. 

USD/JPY - 110.80

Original strategy  :

Sell at 111.10, Target: 110.10, Stop: 111.45

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 111.10, Target: 110.10, Stop: 111.45

Position :  -

Target :  -

Stop : -

As the greenback ran into renewed selling interest at 111.46 and has dropped sharply, retaining our bearishness for the decline from 112.20 top to resume after consolidation, below 110.27 (this week’s low) would confirm and extend the fall from 112.20 to last week’s low at 110.11. Looking ahead, break there is needed to retain downside bias and confirm medium term decline has resumed for further subsequent fall to 109.80-85 (1.618 times projection of 112.20-111.12 measuring from 111.59) which is likely to hold on first testing.

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 111.00-10 should limit upside. Only above 111.46 resistance would abort and prolong choppy trading, risk rebound to 111.59, then towards 111.90-00 later but price should falter well below said resistance at 112.20. 

Global stocks were vulnerable to sharp losses during late trading on Wednesday after investors were caught unprepared by the hawkish Federal Reserve minutes. The negative momentum has already rippled into Thursday's trading session with Asian shares concluding depressed. European markets may be exposed to further downside shocks as anxiety ahead of the Trump-Xi summit dents risk sentiment. Gains on Wall Street may be limited this week with the appetite for risk diminished by signs of the Federal Reserve unwinding its $4.5 trillion balance sheet. The phenomenal stock market rally could start facing serious headwinds moving forward especially when considering how investors have started to question the logic and sustainability of the Trump rally.

Trump-Xi summit round 1

A strong sense of caution has masked the financial markets on Thursday with investors on high alert ahead of the heavily anticipated Trump-Xi summit. With Trump in the past repeatedly accusing China of keeping its currency at artificially low levels against the Dollar and stealing American jobs, the outcome of the meeting is something that remains unknown. If Trump decides to play hardball and maintains his harsh rhetoric on China, then risk aversion may intensify consequently sending investor's rushing towards safe-haven assets. It must be kept in mind that one should always expect the unexpected with Trump and such could create a possibility of the meeting concluding on a positive note.

Fed hawks support Greenback

Dollar bullish investors were gifted a hawkish surprise on Wednesday after the Fed minutes showed that the Central Bank is planning to shrink its $4.5 trillion balance sheet. Despite the "Dovish hike" in March, the overall tone of the minutes was hawkish which supported the Greenback. With the short-term bulls looking beyond the Trump uncertainty to elevate the Dollar, further upside could be expected if Friday's NFP exceeds expectations. From a technical standpoint, the Dollar Index is hovering around 100.50 with 101.00 as a possibility if bulls can maintain control. In an alternative scenario, weakness back below 100.25 could open a path back towards the psychological 100.00 level.

Draghi Strikes again

The EUR stumbled lower during trading on Thursday after Mario Draghi stated there was no need to change the current policy path amid the weak inflationary pressures. This dovish statement has quelled the heated expectations of the ECB raising rates at the end of the year with the probability dropping below 20%. As risks in Europe remain tilted to the downside and political uncertainty weighing heavily on sentiment, the Euro could be instore for further punishment. From a technical standpoint, the EURUSD remains heavily pressured on the daily charts. Previous support around 1.0750 could transform into a dynamic resistance that encourages a decline towards 1.0500.

Commodity spotlight - Gold

Gold staged an impressive rebound during late trading on Wednesday with prices closing above $1250 as anxiety heightened ahead of the Trump-Xi summit. Although the impressive ADP report and hawkish Fed minutes enticed bears to enforce some downside pressures, the mounting uncertainty across the board has ensured the metal remains buoyed. With the Brexit negotiations, elections in Europe and Trump developments likely to create a risk-off atmosphere, Gold remains somewhat supported in the medium term. From a technical standpoint, bulls need to break above the stubborn $1260 resistance for the bullish trend to continue.

Spot gold has been consolidating in the range between 1238 - 1260 in the past two weeks.

The bulls have failed to break through the short term major resistance level at 1260 over the period.

On the 4-hourly chart, the current price is trading below the downside uptrend line. In addition, the 10 SMA is crossing over the 20 SMA downwards, indicating the bullish momentum is waning.

US President Trump and Chinese president Xi Jinping, are scheduled to meet today at Trump's Mar-a-Lago resort in Florida. This is the first meeting between the leaders of the two biggest economies in the world so markets will be looking for any comments made between these 2 world leaders.

Be aware that the political event and the news that associate with impacts on the US economy, will likely cause volatility for USD and gold prices.

US non-farm payroll and unemployment for March will be released this Friday at 13:30 BST, it will also cause volatility for USD and gold prices.

US initial jobless claims (the week ending March 31) will be released at 13:30 BST today.

The resistance level is at 1255, followed by 1257.50 and 1260.
The support line is at 1250.00, followed by 1247 and 1243.50.