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Australian NAB Business Condition dropped again in May to 1, down from 3. Private sector continues to lose momentum. Goods distribution industries remain particularly weak, and manufacturing is not far behind. Business Confidence jumped from 0 to 7, in a post-election spike, as well as on RBA rate cut expectations. However, forward looking indicators suggest more weakness lies ahead.

Alan Oster, NAB Group Chief Economist noted "business confidence saw a sharp increase in the month following the Federal election and a confirmation from the RBA that rates would be cut in June. We think this will be a short-term spike given other forward-looking indicators saw further deterioration in the month. Forward orders declined further and in addition to being well below average are negative. Capacity utilisation has also pulled back in 2019 to date and is now a touch below average".

"While confidence, at least at face value was a positive outcome, business conditions deteriorated further. Trading conditions and profits are particularly weak. The employment index which we are watching closely, partially reversed some of its decline last month, but is only around average".

Full release here.

EUR/AUD breached 1.6262 resistance late yesterday as rise from 1.5683 is resuming. Next near term target is 61.8% projection of 1.5683 to 1.6262 from 1.6052 at 1.6410.

Trump said yesterday that he and Chinese President Xi are "scheduled to have a meeting" at the G20 summit in Osaka. He added, "We're expected to meet and if we do that's fine, and if we don't -- look, from our standpoint the best deal we can have is 25% on $600 billion."

And, "if we don't have a deal and don't make a deal, we'll be raising the tariffs, putting tariffs on more than -- we only tax 35% to 40% of what they said then they had another 60% that'll be taxed."

He repeated, "China is going to make a deal because they're going to have to make a deal". Also, "at the same time it could be very well that we do something with respect to Huawei as part of our trade negotiation with China. China very much wants to make a deal. They want to make a deal much more than I do, but we'll see what happens."

STOCKS

Global equities broadly remain positive. Market seems to be ignoring the recent threat from Trump that more tariffs will be levied on China if its President does not attend the G-20 meeting. Further development on this front will need a watch to see if it can alter the current market sentiment. Otherwise, indices like the Dow, Nikkei remain positive. Shanghai retains its sideways move. Sensex and Nifty remains mixed and can consolidate sideways for some time. DAX was closed yesterday on account of a public holiday

Dow (26062.68, +78.74, +0.30%) has risen further and keeps our bullish view intact for a test of 26500-26600. Intermediate resistance is at 26250. While that holds an interim dip to 26000-25800 can be seen before we a test of 26500-26600.

Nikkei (21185.30, +50.88, +0.24%) is trading strong. Itlooks likely to breach the resistance at 21200 and rally further towards 21500 as against our expectation for a fall from 21200.

Shanghai (2889.45, +37.32, +1.31%) is getting support near 2820 and has bounced sharply from there. It can test 2910 and then reverse lower to keep the seideways move intact.

Sensex (39784.52, +168.62, +0.43%) and Nifty (11922.70, +52.05,+0.44%) seems to be lacking strength although they sustained higher yesterday. We expect the indices to remain range bound for some time. Nifty can trade between 11800 and 12100 while the Sensex can trade sideways between 39300 and 40300.

COMMODITIES

The upmove in gold and silver are losing steam. The broader weakness could come into play in the absence of any fresh triggers. Copper continues to consolidate within its overall downtrend. The mentioned resistances on oil has been holding very well as expected. Oil might consolidate in the near term before resuming its overall down trend.

Gold (1328.43) remains lower and looks vulnerable for a fall to 1320 and 1310. The price action indicates that the upmove could have come to an end.

Silver (14.69) has declined and is heading towards 14.6 as expected. The broader downtrend remains intact and silver can test 14.25-14 in the coming weeks. A break below 14.5 will trigger this fall.

Copper (2.67) oscillates between 2.60 and 2.68 as expected within its overall downtrend. While below 2.68, the bias is bearish for copper to break 2.60 and test 2.58-2.55 on the downside.

Brent (62.45) has reversed lower to test 62 as expected. We might see some sideways consolidation between 62 and 64/65 before the overall downtrend resumes targeting 60-58 and eventually 55.

WTI (53.50) on the other hand can trade between 53 and 55/56 for some time and then fall to 51-50. We retain our long-term bearish outlook for a fall to 45.

FOREX

Most currencies are stable and seem to be in a sideways range-trade that could continue for some more sessions in the near term.

Dollar Index (96.81) is holding above 96.50 just now. The index could see some pause and trade within 96.50-97.00 for 3-4 sessions before resuming the fall below 96.50. A break below 96.50 could take it down to lower support near 95.80/70.

Euro (1.1312) could be ranged in the 1.1350-1.1280 region for sometime before moving up towards 1.14 in the near term. A reversal seems to have taken place with bullish sentiment setting in for the medium term.

Euro-Yen (122.85) is trading higher and while it moves up, the pair could rise towards 124 in the near term before falling again from there.

Dollar-Yen (108.60) is trading below important levels of 109.0-109.5. Note that 109.50 is a crucial resistance now and if holds, could push Dollar-Yen again towards 107 in the medium term. We could see some range trade below 109.50/00 for the next 3-4 sessions.

Aussie (0.6959) could rise towards 0.7050-0.7100 while it remains above 0.6950.

Pound (1.2681) is holding below 1.2750 and seems to be trading sideways between 1.2750 and 1.2650. After a few more sessions of range trade, Pound is likely to move up towards 1.28-1.2850 levels or even higher.

USDCNY (6.9164) dipped back from 6.9341 but while above 6.90, the pair could still have some scope of moving higher in the medium term.

USDINR (69.66) tested 69.66 yesterday closing near the day’s high as expected. Although we consider a rise to 70.00-70.10 on the upside, Dollar-Rupee is likely to see a corrective dip towards 69.50/40 today. A break above 69.75/80 would accelerate a rise towards the upper limit of 70.10.

INTEREST RATES

The US yields have risen on news that Trump has declined to place tariffs on Mexican imports and the yields could now test earlier support turned resistance. The 30Yr (2.64%) could test 2.75% on the upside while the 10Yr (2.16%) and 5YR (1.92%) may move up towards 2.20% and 1.95% respectively. Longer term trend is bearish within which we may see the current rise as a corrective upmove.

The US-Japan 10YR (2.27%) is trying to rise towards 2.30/35% which if seen could pull up Dollar-Yen in the near term. Immediate correlation between the yield spread and the currency is positive directionally and is likely to continue in the near term.

The 10YR GOI (7.22740%) saw a sharp rise yesterday after testing 7% on the downside. The yield may rise further towards 7.30/35% in the near term and could be bullish for Dollar-Rupee.

The German yields are also bouncing from support levels and are headed higher. The 10Yr (-0.217%) could move up towards -0.11% while the 30Yr (0.399%) could test 0.50% on the upside.

Wall Street edges higher as Mexico cloud lifted

Wall Street responded well to Trump's move to suspend Mexico tariffs, but the good mood could evaporate after he threatened to slap more tariffs on China goods if China President Xi won't meet him at the upcoming G-20 summit.

US30USD Daily Chart

The US30 index advanced for a sixth straight yesterday but is little changed in early trading this morning

The index tested the 78.6% Fibonacci retracement of the April-June drop at 26,226 but failed to close above it. The 55-day moving average is at 25,962

US producer prices are seen rising 2.0% y/y in May, the latest survey of economists shows, a slower pace than the 2.2% recorded in April.

DE30EUR Daily Chart

The Germany30 index touched the highest in nearly two weeks yesterday and has opened flat this morning

The index is rising toward the 61.8% Fibonacci retracement of the May-June drop at 12,131. The 55-day moving average is at 12,001 and has supported prices on a closing basis since June 3

The Euro-zone Sentix investor confidence index is expected to tumble to 1.4 in June from 5.3 in May, according to the latest survey of economists.

WTICOUSD Daily Chart

West Texas Intermediate touched the highest level this month yesterday but then reversed direction to snap a two-day rising streak

The index's decline from mid-April has stalled near the 61.8% Fibonacci retracement level of the December-April rally at $51.47

Weekly stockpiles data from the American Petroleum Institute are due today. Last week saw an increase in inventories of 3.55 million barrels.

Key Highlights

• The British Pound found support near 1.2560 and rebounded recently against the US Dollar.
• GBP/USD broke a major bearish trend line with resistance at 1.2675 on the 4-hours chart.
• The UK Industrial Production in April 2019 declined 2.7%, whereas the forecast was +0.1%.
• The UK Claimant Count in May 2019 could change 22.9K, less than the last 24.7K.

GBPUSD Technical Analysis

This past week, the British Pound found support near 1.2600 against the US Dollar. The GBP/USD pair started a strong rebound, broke the 1.2700 resistance, but failed to clear the 1.2760 resistance.

Looking at the 4-hours chart, the pair gained bullish momentum above the 1.2600 and 1.2650 levels. There was even a break above a major bearish trend line with resistance at 1.2675.

The pair even climbed above the 23.6% Fib retracement level of the last downward move from the 1.3047 swing high to 1.2558 swing low. However, the upward move was capped by the 1.2760 level.

The 38.2% Fib retracement level of the last downward move from the 1.3047 swing high to 1.2558 swing low also acted as a barrier. The current price action indicates that there are chances of an inverse head and shoulders pattern forming with support near 1.2650.

Therefore, as long as the pair is above 1.2650, there are chances of an upside break above 1.2750 and 1.2780 in the coming sessions.

On the downside, an initial support is at 1.2650, below which the pair is likely to start a fresh decline towards 1.2600 and 1.2550. The next important support is near the 1.2500 level.

Fundamentally, the UK Industrial Production report for April 2019 was released by the National Statistics. The market was looking for a 0.1% rise in the industrial production compared with the previous month.

However, the actual result was disappointing as there was a 2.7% decline in the industrial production. The Manufacturing Production also declined 3.9%, whereas the market was looking for a 0.2% rise.

The report stated that:

Production output fell by 2.7% between March 2019 and April 2019; the manufacturing sector provided the largest downward contribution, falling by 3.9%, its largest fall since June 2002 and the impact of Golden Jubilee shutdowns.

Overall, GBP/USD remains under pressure below 1.2750, but as long as it is above 1.2650, there are chances of more gains in the near term.

Economic Releases to Watch Today

• UK Claimant Count Change May 2019 – Forecast 22.9K, versus 24.7K previous.
• UK ILO Unemployment Rate May 2019 (3M) – Forecast 3.9%, versus 3.8% previous.
• US Producer Price Index May 2019 (MoM) – Forecast +0.2%, versus +0.2% previous.
• US Producer Price Index May 2019 (YoY) – Forecast +2.0%, versus +2.2% previous.

The Canadian Dollar is flat against the US dollar on Monday after the greenback rebounded against the loonie. The Trump administration reached a deal with Mexico after threatening to issue tariffs against Mexican imports if immigration requests were not granted. The soft dollar had been a positive for commodities, but with a boost from once again closing a trade war front, oil and gold tumbled more than one percent.

Economic data in Canada has been mixed. A stronger than expected jobs report on Friday contrasted with lower housing starts. US employment underperformed last week giving the Canadian dollar an edge against the dollar as investors are pricing in multiple rate cuts if American indicators continue to disappoint.

The biggest indicators this week won’t be domestic as US inflation and retail sales will take the spotlight as the market awaits the crucial data to see if it validates a rate cut from the Fed in June.

The US central bank is still hawkish on the economy, but its aware of the negative effects a prolonged trade war between the US and China will have on both economies. Various think-tanks have given their estimates and only the White House sees it as a positive for the American economy.

Rate cut estimates are rising as the Fed will be put on the spot if US data continues to lose momentum. It is still too early to call, but June becomes a crucial month as the G20 meeting in Japan could see a meeting between Xi and Trump materialize and hint to an agreement on trade.

OIL – Crude Prices Fall on Russia Indecision and Strong Greenback

Oil prices dropped on Monday after a quick recovery from the US dollar and more tough talk from China on trade. The negotiations between the two super-powers don’t have a date, and with the G20 in Japan fast approaching the chance there is a positive announcement is uncertain. The impact on oil prices from further downgrades in global growth could lead to further losses.

Russia is playing hard to get and remains not committal about extending the OPEC+ deal to cut oil production. The deal has been the major stabilizing force for crude prices, but rising US production and a prolonged trade war are close to offsetting the balance. Russia could be improving their position to seek leverage out of Saudi Arabia before agreeing to rejoin the major producers.

GOLD – Gold Drops on US Dollar Comeback

Gold fell more than 1 percent at the start of the week as the short lived US-Mexico tariff dispute once again put emphasis on the US-China trade war. The US dollar rebounded despite mixed economic indicators putting investors on alert of possible rate cuts from the Fed.

Equities were the main beneficiaries of closing the US second trade war front and investors sold commodities. Gold remains bid as the main dispute between US and China remains unresolved. If there is no sit down between leaders at the G20 the yellow metal will rise as investors will be on the look out for a safe haven.

USDCHF declines with eyes on support at 0.9853 level. This is supportive of its current short term weakness. Resistance resides at the 0.9950 level. Above here, resistance lies at the 1.0000 level and then the 1.0050 level. Further out, resistance comes in at the 1.0100 level. On the downside, support is seen at the 0.9850 level with a turn below here setting the stage for more decline towards the 0.9800 level. And then the 0.9750 level. Further down, support resides at the 0.9700 level. Its daily RSI is bearish and pointing lower suggesting further weakness. All in all, USDCHF declines with eyes on support at 0.9853 level.

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Canadian Dollar displays broad based strength today, as the post job data rally extends. Recent economic data from Canada suggesting that underlying backdrop is improving. GDP growth will likely regain momentum ahead to make up the short falls in the Q1. For now, BoC looks the least likely among global central banks to ease monetary policy. Indeed, should global trade tensions improve, BoC could be ready for policy normalization again.

Technically, GBP/CAD's break of 1.6093 support and today's steep decline suggests resumption of fall from 1.7794. More importantly, the structure of the decline from 1.7794 affirms that it's resuming that one from 1.8415 high too. A retest of 1.6594 low should be seen pretty soon. Break will target 100% projection of 1.8415 to 1.6594 from 1.7794 at 1.5973 in medium term. This will remain the favored case as long as 1.7135 near term resistance holds.

AUD/CAD's steep decline last week also suggests rejection by falling 55 day EMA, which is a bearish signal for near term. Further fall should be seen to 0.9201 support next and break will target 0.9105 low.

Prior rejection by 55 week EMA also suggests medium term bearishness. However, over price actions don't display clear downside impulsiveness. And AUD/CAD is relatively closely long term fibonacci level of 50% retracement from 0.7149 to 1.0784 at 0.8967. Hence, while a break of 0.9105 might be seen in medium term, 0.9 handle could contain downside.

The FTSE has posted considerable gains on Monday. Currently, the index is trading at 7,378, up 0.63% on the day. On the release front, British numbers were unexpectedly soft. Monthly GDP dropped 0.4% in April, its second straight decline. There was no relief from Manufacturing Production, which plunged 3.9% in April, much weaker than the forecast of -1.1%. This was the largest decline since June 2002.

Risk appetite is higher, after Federal Reserve officials hinted last week that a rate cut could be in the works later this year. For most of the year, the Fed has sounded neutral about its next rate move, but last week’s U-turn was a dramatic development. Fed chair Jerome Powell said that the Fed would “act as appropriate to sustain the expansion”, and analysts noted that he did not mention his “patient” approach to monetary policy, which has been a buzzword in Powell’s recent comments. Powell’s remarks echoed comments from James Bullard, president of the St. Louis Fed. Bullard stated that the Fed might have to lower rates shortly due to low inflation and the ongoing trade war with China. Just a month ago, the CME Group set the odds of a quarter-point cut in July at 16%, but that has now jumped to 67%.

The U.S. ended the week on a sour note, as nonfarm payrolls posted its second dismal reading in four months. In May, the economy created only 75 thousand jobs, down from 263 thousand a month earlier. Wage growth was unchanged at 0.2%, shy of the estimate of 0.3%. Despite these soft job numbers, the U.S. labor market is in strong shape, and the greenback could quickly bounce back.