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On Wednesday, the EUR/USD currency pair plummeted to the support level formed by the 100-hour SMA and the weekly R1 at 1.1218.

If the given support holds, it is likely, that a reversal north could occur within the following trading hours. However, note, that the pair has to surpass the resistance cluster formed by the 55-hour SMA, the weekly R2 and the monthly R1 in the 1.1249/1.1266 range.

If the given support does not hold, it is expected, that the exchange rate could maintain its decline. In this case, the rate has to surpass the support cluster formed by the weekly and monthly PPs, the 200-hour SMA and the Fibonacci 38.20% retracement in the 1.1167/1.1200 range.

The GBP/JPY currency pair has been depreciating in a descending channel pattern since the beginning of May. The exchange rate reached a six-month low during this week's trading sessions.

As for the near future, it is likely that the British Pound will continue to edge lower against the Japanese Yen. The potential downside target will be near a support level formed by the weekly S1 at 135.72.

However, given that a breakout had occurred through the upper boundary of the descending channel pattern, bullish traders could push the currency exchange rate towards the 200-hour SMAs at 141.67 in the nearest future.

The AUD/JPY currency pair has continued to decline in a descending channel pattern since the middle of April. The currency exchange rate tested the upper boundary of the channel pattern at 75.83 during yesterday's trading session.

If the resistance level formed by the upper border of the descending channel pattern holds, the exchange rate will continue its downward swing during the following trading sessions.

However, if a breakout occurs, a surge towards a resistance cluster formed by the 200-hour simple moving average and the weekly R3 at 76.91 could occur in the nearest future.

The pair eases on Thursday after limited recovery was capped by falling 5SMA as threats of deepening trade conflict continue to fuel safe-haven buying and support yen.

The near-term action holds within 107.80/108.50 zone, held by huge option expiries today, but risk remains at the downside on dominating trade worries and bearish daily studies.

Eventual close below 108 handle, following several failure in past few sessions, would generate initial bearish signal for attack at key Fibo support at 107.57 (Fibo 61.8% of 104.59/112.40), loss of which would risk stronger bearish acceleration.

Highs of today / Thursday (108.46/48) mark immediate resistance, but lift above falling 10SMA (108.84) is needed to neutralize downside risk and open way for further recovery.

Today’s ECB policy meeting and Friday’s US jobs data release are key events which are expected to generate stronger direction signals.

Res: 108.48, 108.84, 109.02, 109.15
Sup: 108.07, 107.81, 107.57, 107.00

Notes/Observations

• Focus leaning a dovish Draghi post rate decision press conference with the announcement of a ‘generous' TLTRO and any tweaks on its interest rate guidance
• Decent auctions out of Europe (Spain and France) help send yields lower
• RBI cuts by another 25bps for its 3rd rate cut in a row

Asia:

• PBOC steps up MLF, aimed at offsetting maturities and supporting banks. PBoC offered CNY500B 1-year medium term lending facility (MLF) at 3.3% (Note: CNY463B in medium-term lending facilities (MLF) are due to mature)
• US preparing to sell over $2B in weapons systems to Taiwan

Europe/Mideast:

• IMF's Lagarde stated that she did not see threat of global recession brought on by US tariff threats but tariffs threats could slow growth further and increases uncertainties. To tell G20 finance leader to "do no harm" to recovery with trade barriers

Americas:

• US and Mexico trade officials failed to reach any deal on tariffs and immigration. Talks were viewed as a "starting" point, not a finish line
• but the question remains what happens on Monday
• President Trump stated that talks with Mexico would resume on Thursday (Jun 6th); Tariffs to take effect on Monday if no agreement was reached
• Fitch cuts Mexico sovereign rating one notch to BBB from BBB+; outlook revised to Stable
• Moody's revised Mexico sovereign rating outlook to Negative from Stable; affirmed A3 rating
• Fed's Beige Book: US. economic activity expanded at modest pace from April through mid-May, a slight improvement over the march through early-April period

Energy:

• OPEC Sec Gen Barkindo: OPEC+ will take economic bearishness into account at our next meeting. OPEC is determined to bring down inventories and to restore investment

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.58% at 376.24, FTSE +0.61% at 7,263.99, DAX +0.45% at 12,035.06, CAC-40 +0.64% at 5,325.95, IBEX-35 +0.71% at 9,216.00, FTSE MIB +0.80% at 20,317.50, SMI +1.52% at 9,748.80, S&P 500 Futures +0.25%]
• Market Focal Points/Key Themes: European Indices trade higher once again continuing the positive momentum seen this week despite a mixed session in Asia ahead of today's ECB rate meeting and press conference. US Index futures also point to a higher open following two days of gains. On the corporate front shares of Renault declines over 7% after Fiat confirmed its withdrawn its merger proposal due to political conditions in France. Fiat Chrysler declines slightly on the news. On the earnings front Go-Ahead Group outperforms following an upbeat outlook from its London and International bus operations; Mitie Group also gains on earnings, with Joules and Amini Tech also gaining on earnings. Meanwhile Remy Cointreau declines after earlier being in positive territory following a rise in earnings and profits. In other news Motif Bio declines sharply following the receipt of FDA meeting minutes indicating a further clinical trial will be needed for Iclaprim; while Entertainment Once gains following confirmation that Film President Mark Gordon continues to be a part of the eOne team both now and into the future. Looking ahead notable earnings include Signet Jewelers, Ciena, JM Smucker, Science Applications and Michaels among others.

Equities

• Consumer discretionary: Entertainment One [ETO.UK] +15% (response to press speculation), Remy Cointreau [RCO.FR] -1.5% (earnings), Bertrandt [BDT.DE] +0.5% (earnings), Mitie Group [MTO.UK] +6% (earnings), Go-Ahead [GOG.UK] +10% (trading update), Auto Trader [AUTO.UK] -1% (earnings)
• Healthcare: Motif Bio [MTFB.UK] -25% (FDA minutes)
• Industrials: Renault [RNO.FR] -7%, Fiat Chrysler [FCA.IT] -1% (merger talks fell apart; French govt comments)
• Technology: Amino Technologies [AMO.UK] +4.5% (trading update), SimCorp [SIM.DK] -2% (acquisition; does not announce buyback)

Speakers

• EU's Dombrovskis stated that the planned flat tax by the Italian govt could be very expensive and have a negative impact on public finances
• Italy Dep PM Di Maio (5-Star): Should not have any corrections to budget; EU had made absurd requests on investments. Negotiations with EU must be led by politicians not technocrats. He added that not all EU parameters needed to be abolished
• Moody's on Italy: County's 2020 budget will be important for the direction of the sovereign creditworthiness (**Reminder: on Oct 20th Moody's cut Italy sovereign rating one notch to Baa3 from Baa2 (lowest level of investment grade) with the outlook stable)
• IMF reiterated stance that ECB needed to maintain policy support needed
• Russia Central Bank Gov Nabiullina: Monetary easing would not lead to higher growth. Reiterated view that was that considering lowering the key rate
• India Central Bank (RBI) Policy Statement changed stance to accommodative from neutral and announced the formation of panel to review liquidity management Cut its FY19/20 GDP from 7.2% to 7.0% while raising Apr-Sept (H1) inflation forecast from 2.9-3.0% to 3.0-3.1%. RBI set Oct-Mar inflation forecast between 3.4-3.7%
• China Commerce Ministry (MOFCOM) Report noted that the US benefited a lot from bilateral trade and should create conditions for more balanced trade. Bilateral trade helped the US create a lot of jobs for itself . Reiterated that US should loosen high-tech exports curbs. Also reiterated that China was willing to actively expand imports from US
• China Commerce Ministry (MOFCOM) Spokesman Gao Feng reiterated that China would take needed retaliation if US trade dispute escalated. Stressed that future directions of trade talks depended on the US. Additional stated that China was seriously concerned about US arms sales to Taiwan
• China said to boost auto, electronic product consumption. To encourage 5G phone development, sales. China said to have asked local govt not to introduce any new curbs on auto purchases.
• BOJ Gov Kuroda stated that addressing market failures was the most vital role of regulation
• Russia Energy Min Novak stated that for the time being Russia would maintain its 2019 oil production level and would discuss OPEC+ meeting between July 2-4th period (**Note: Back in Dec Russia saw 2019 oil production at 556M tons, flat y/y)
• President Trump tweet reiterated that Mexico had made progress in tariffs talks but needed to do more. Talks were also ongoing with China. Reiterated tariffs on China could be raised another $300B if necessary in trade dispute and would make such a move at the right time if necessary. Told Mexico the tariffs go on if no deal made and that the country had to step up to the plate

Currencies/Fixed Income

• USD: The USD index futures traded higher yesterday breaking a week long sell off. The future briefly traded below the 96.80 level before being pushed back higher closing the day at 97.20 with the appearance of shorts taking some profits.
• EUR/USD: The Euro has seen more movement this week than it has the past three, with the Euro briefly trading higher above the 1.13 handle only to be sold off hard back towards 1.12. The volatility was from the comments made by Italy's Deputy PM Di Maio saying that they are ready to sit down with the EU and discuss constructively. I believe we will continue to see volatility like this as Italy remains the Euros main catalyst for movement. Focus leaning a dovish Draghi post rate decision press conference with the announcement of a ‘generous' TLTRO and any tweaks on its interest rate guidance
• GBP/USD: Cable failed to break last week's high of 1.2750 as we begin to look towards the UK PM race set to begin next week. We expect to finish the week in the 1.26/1.27 region unless further comments come out regarding Brexit, as we have no further economic figures for the week
• USD/MXN: The Mexican Peso continues to see volatility with the Peso weakening against the USD. Moody's and Fitch cut Mexico's sovereign rating, then Trump commenting that more needed to be done on immigration before a deal could be reached on tariffs. Unless really good news comes out about an agreement from Trump, it's difficult to see the Peso strengthening against the USD with the lower level in the region of 19.50-19.60.

Economic Data

• (DE) Germany Apr Factory Orders M/M: 0.3% v 0.0%e; Y/Y: -5.3% v -5.9%e
• (RO) Romania Q1 Preliminary GDP (2nd reading) Q/Q: 1.3% v 1.3%e; Y/Y: 5.0% v 5.0%e
• (IN) India Central Bank (RBI) cut Repurchase Rate b 25bps to 5.75% (as expected
• (AT) Austria May Wholesale Price Index M/M: 0.4% v 0.7% prior; Y/Y: 1.1%v 2.2% prior
• (CZ) Czech Apr Industrial Output Y/Y: 3.3% 2.7%e; Construction Output Y/Y: 8.9% v 12.0% prior
• (CZ) Czech Apr National Trade Balance (CZK): 17.6B v 16.3Be
• (HU) Hungary Apr Industrial Production M/M: -1.1% v +1.0% prior; Y/Y: 6.0% v 6.8%e
• (DE) Germany May Construction PMI: 51.3 v 53.0 prior
• (CN) Weekly Shanghai copper inventories (SHFE): 145.6K v 165.4K prior
• (EU) Euro Zone Q1 Final GDP Q/Q: 0.4% v 0.4%e; Y/Y: 1.2% v 1.2%e
• (EU) Euro Zone Q1 Household Consumption Q/Q: 0.5% v 0.6%e; Govt Expenditures Q/Q: 0.1% v 0.0%e; Gross Fix Capital Q/Q: 1.1% v 0.5%e
• (EU) Euro Zone Q1 Final Employment Q/Q: 0.3% v 0.3% prelim; Y/Y: 1.3% v 1.3% prelim
• (IS) Iceland May Preliminary Trade Balance (ISK): -16.4B v -15.1B prior
• (GR) Greece Mar Unemployment Rate: 18.1% v 18.4% prior
• (CY) Cyprus May CPI M/M: 0.1% v 0.4% prior; Y/Y: 0.2% v 1.2% prior
• (ZA) South Africa Current Account Balance (ZAR): -143B v -149Be; Current Account to GDP Ratio: -2.9% v 3.3%e

Fixed Income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €2.45B vs. €2.0-3.0B indicated ranhe in 2021 and 2024 bonds
• Sold €1.34B in 0.05% Oct 2021 SPGB; Avg yield: -0.361% v -0.244% prior, Bid-to-cover: 2.60x v 3.25x prior (Apr 4th 2019)
• Sold €1.11B in 0.25% July 2024 SPGB bond; Avg yield: -0.096% v +0.023% prior; Bid-to-cover: 2.55x v 2.04x prior
• (ES) Spain Debt Agency (Tesoro) sold €476M vs. €250-750M indicated range in inflation-linked 1.00% Nov 2030 bonds; Real Yield: -0.283% v +0.111% prior; Bid-to-cover: 3.06x v 1.70x prior
• (FR) France Debt Agency (AFT) sold total €8.997B vs. €7.5-9.0B indicated range in 2027, 2029, 2036 and 2050 bonds
• Sold €875M in 2.75% 2027 Oat; yield -0.08% v +1.18% prior, Bid-to-cover: 5.77x v 1.89x prior (May 7th 2015)
• Sold €3.998B in 0.50% May 2029 Oat; Avg Yield: 0.14% v 0.37% prior; Bid-to-cover: 2.55x v 3.11x prior (May 2nd 2019)
• Sold €1.578B in 1.25% May 2036 Oat; Avg Yield 0.66% v 1.28% prior; Bid-to-cover: 2.64x v 1.31x prior (Aug 2nd 2018)
• Sold €2.546B in 1.50% May 2050 Oat; Avg Yield: 1.16% v 1.46% prior; Bid-to-cover: 1.63x v 1.94x prior

Looking Ahead

• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)
• Sells HUF in 1.50% Aug 2022 bonds; Avg yield: % v 1.26% prior; bid-to-cover: x v 2.02x prior
• Sells HUF in 2.5% Oct 2024 bonds; Avg yield: % v 2.10% prior; bid-to-cover: x v 2.81x prior
• Sells HUF in 3.00% Aug 2030 bonds; Avg yield: % v 3.13% prior; bid-to-cover: x v 2.13x prior
• 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: expected to cut Key Rate by 25bps to 17.25%
• 07:00 (ZA) South Africa Apr Electricity Production Y/Y: No est v -2.9% prior; Electricity Consumption Y/Y: No est v -2.8% prior
• 07:30 (US) May Challenger Job Cuts: No est v 40.0K prior; Y/Y: No est v 10.9% prior
• 07:45 (EU) ECB Interest Rate Decision: Expected to leave Key Rates unchanged; Expected to leave 7-Day Main Refinancing Rate unchanged at 0.00%; Expected to leave Marginal Lending Facility unchanged at 0.25%; Expected to leave Deposit Facility Rate unchanged at -0.40%
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Q1 Final Nonfarm Productivity: 3.5%e v 3.6% prelim; Unit Labor Costs: -0.9%e v -0.9% prelim
• 08:30 (US) Initial Jobless Claims: 215Ke v 215K prior; Continuing Claims: 1.66Me v 1.657M prior
• 08:30 (US) Apr Trade Balance: -$50.7Be v -$50.0B prior
• 08:30 (CA) Canada Apr Int'l Merchandise Trade (CAD): -2.8Be v -3.2B prior
• 08:30 (EU) ECB's Draghi post rate decision press conference
• 08:30 (EU) ECB updates Staff Projections
• 08:40 (US) Fed's Kaplan speaks at Boston College
• 09:00 (RU) Russia Gold and Forex Reserve w/e May 31st: No est v $492.2B prior
• 09:00 (MX) Mexico Mar Gross Fixed Investment: -1.7%e v -1.9% prior
• 09:00 (MX) Mexico May Vehicle Production: No est v 299.7K prior; Vehicle Exports: No est v 284.5K prior
• 09:00 (CL) Chile Apr Nominal Wage M/M: 0.1%e v 1.0% prior; Y/Y: 4.6%e v 4.8% prior
• 10:00 (CA) Canada May Ivey Purchasing Managers Index (Seasonally adj): No est v 55.9 prior; PMI unadj: No est v 56.7 prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (US) Treasury announcement on 3-year, 10-year and 30-year bonds
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
• 13:00 (US) Fed's Williams on International Economics
• 12:00 (US) Fed Reports Q1 Financial Accounts: Household Change in Net Worth: No est v -$3.73T prior

EURAUD recorded some losses in the past few days, crossing below its 20-day simple moving averages (SMA) to touch the 1.6050 support level. The short-term picture thus seems to be slightly negative, though for the medium-term outlook looks to be positive, as it has been developing in an ascending channel since December 2018.

Short-term momentum indicators suggest the rally may be losing steam. The RSI seems to have flattened near its 50 zone, while the MACD appears ready to drop below its zero line soon, which would be a negative signal.

A potential pullback in the market may meet initial support near 1.6050, the latest low. A downside break would open the way for the 1.5900 psychological zone, but first need to challenge the 40-day SMA currently at 1.6000.

On the flipside, advances could stall near 1.6260 again, and if the buyers manage to overcome it, the next obstacle would be the return line of the channel around 1.6300. If the bulls pierce above that too, attention would turn to 1.6350, the October 2018 high.

Summarizing, the medium-term picture is bullish as the pair is trading higher over the last six months.

Eurozone Q1 GDP growth was finalized at 0.4% qoq, unrevised. Over the year, Eurozone GDP grew 1.2% yoy. EU28 growth was finalized at 0.5% qoq, 1.5% yoy.

Among Member States for which data are available for the first quarter of 2019, Croatia (1.8%) recorded the highest growth compared with the previous quarter, followed by Hungary and Poland (both 1.5%). A decrease was observed in Latvia (-0.1%).

Quarterly, on the components, household final consumption expenditure rose by 0.5% in both the euro area and the EU28. Gross fixed capital formation increased by 1.1% in the euro area and by 1.3% in the EU28. Exports increased by 0.6% in the euro area and by 0.5% in the EU28. Imports increased by 0.4% in the euro area and 1.2% in the EU28.

Full release here.

Oil prices entered in a bear market territory yesterday after slumping more than 3.4 percent. The price is down nearly 22 percent from its high of $66.44 (for WTI) which was formed on the April 23 this year. Technically speaking, when the price drops 10 percent from its recent high, traders classify this as a correction territory and another 10 percent drop from there makes a bear territory.

Reasons For the Oil Sell-Off

The sell-off in the oil prices has been lead mainly due to the two main factors:

• Oil glut building up
• Trade war impacting the demand equation

Despite the fact that we had many negative headline on oil prices in the past few days, the gains for the WTI and Brent are standing tall. The year to date gains for WTI is at 9.58% and for Brent it is 10.88%. Remember, during the peak, when the price of WTI touched its high $66.44 and Brent $74.04, these YTD gains were over 30%.

Nonetheless, despite the brutal sell off yesterday, the WTI oil prices is still holding its critical level of $50. For Brent, the critical price point is $60. Supply glut is a concern here. According to the US petroleum stockpiles data, the supply jumped by 22 million barrels last week touching the highest level since 1990.

Also, the data from nearly half of the global oil consumption countries showed that year-on-year demand growth has halted. Basically, oil glut horrors have started to flash on trader’s dash board. The below chart shows that US petroleum stock piles has surged while the WTI crude futures have fallen off the cliff.

Having said this, both Brent and WTI have attracted bargain hunters and both of them are trading in a positive territory today. The WTI is up 0.23 percent and the Brent prices are trading higher by 0.21 percent.

The Bigger Question

The bigger question is if this upward move, which is primarily driven by the bargain hunters, can sustain? Well, the answer to this question isn’t that simple.

More To Come

The fact is that the effects of the trade war between the US and China were never factored in the oil demand equation. It is only now that we have started to see some of these concerns surfacing in the oil market and sadly, it is only going to get worse because I do not see any light at the end of this tunnel due to the prolong trade war between the US and China. The fact is that it is only now that we are seeing some of the effects of the trade war in the oil market and Trump is in full nuclear trade war mood; he is picking up wars left and right- the Mexico trade war is a great example of this.

To conclude, it is very likely that if the trade war issues are not resolved we can see the oil market giving up all of its gains. The key support level for Brent sits at $55 and for the WTI it is $45

The greenback retraced some of its earlier fall, despite the weaker than expected ADP employment figure yesterday. Analysts tend to also attribute the correction to an initial overreaction during yesterday's morning as the USD had continued to weaken. Analysts also fear that the market may be pricing too aggressively the possibility of a rate cut by the Fed and sooner than later. The US labor department is to release its Employment report for May tomorrow and the markets are expected to scrutinize the employment data to estimate whether there is a slack in the US employment market or not. We could see the USD stabilising somewhat today, yet should market worries persist we could see the USD start weakening again. USD/JPY maintained a sideways movement yesterday between the 108.50 (R1) resistance line and the 107.90 (S) support line. We expect the pair to maintain its sideways movement for today, yet the market may start positioning itself ahead of the US employment report. Should the pair's long positions be favoured by the market's we could see it breaking the 108.50 (R1) resistance line. Should the pair come under the selling interest of the market, we could see it breaking the 107.90 (S2) support level.

ECB interest rate decision

The ECB is to release its interest rate decision today (11:45, GMT) and is widely expected to remain on hold at 0.0%. EUR OIS imply a probability of 95% for the bank to remain on hold at the current stage. Given the probably unchanged interest level, the markets are expected to be influenced by the accompanying statement and the following press conference of ECB President Mario Draghi (12:30, GMT). The bank may sound dovish given the recent soft inflation rate and despite some hopes still existing regarding growth. Points of special interest would include the announcing of possible terms for the new TLTRO program, any further rate guidance and any changes in the bank's forecasts. Should the bank sound more on the dovish side, we could see the common currency weakening. EUR/USD tumbled yesterday after testing the 1.1300 (R2) resistance level, breaking the 1.1260 (R1) support line (now turned to resistance), the upward trendline incepted since May 31st and continued its drop only to bounce on the 1.1220 (S1) support line. As the pair broke its upward trendline, we switch our bullish view in favor of a sideways scenario. Should the bulls take over the pair's direction, we could see it breaking the 1.1260 (R1) resistance line once again and aim for higher grounds. Should the bears dictate the pair's direction, we could see it breaking the 1.1220 (S1) support line and aim for the 1.1175 (S2) support barrier.

Other economic highlights, today and early tomorrow

Today during the European session, we get Germany's factory order's growth rate for April and Eurozone's 2nd estimate of the GDP growth rate for Q1. In the American session, we get the US international trade balance for April and Canada's trade balance figure also for April as well as the Ivey PMI for May. In tomorrow's Asian session, we get Japan's household spending for April. As for speakers, please note that BoJ Governor Kuroda, BoE Governor Carney, IMF's Christine Lagarde, Dallas Fed President Kaplan, NY Fed President Williams, BoJ Governor Kuroda and San Francisco Fed President Daly are scheduled to speak.

USD/JPY H4

Support: 107.90 (S1), 107.20 (S2), 106.60 (S3)
Resistance: 108.50 (R1), 109.15 (R2), 109.75 (R3)

EUR/USD H4

Support: 1.1220 (S1), 1.1175 (S2), 1.1125 (S3)
Resistance: 1.1260 (R1), 1.1300 (R2), 1.1340 (R3)

• US dollar stabilizes after roller-coaster session amid mixed data and little progress in US-Mexico talks
• Euro eases from 7-week highs as ECB meeting eyed for direction
• Oil plunges on rising stocks, global growth jitters but gold soars

Fragile risk sentiment as hopes of Mexico deal fade

Markets were mostly in a risk-averse mood on Thursday as hopes of a quick deal between the United States and Mexico over illegal migration were dashed after President Trump tweeted yesterday that “not nearly enough” progress is being made in the talks.

His comments raised the prospect of another prolonged trade conflict for the US, as talks with China remain at a standstill, and increase the likelihood that 5% tariffs on all Mexican imports will go ahead on June 10 even as negotiations are set to continue today.

Mexico has prepared a list of US products that it could target in retaliatory tariffs should a resolution not be found, though, there’s still some optimism that the two sides will be able to reach some sort of an agreement to ease the migration pressure.

Rough ride for dollar and peso

The Mexican peso fell sharply on the disappointing headlines, falling back towards the 5-month low of 19.60 brushed earlier this week. Further weighing on the peso were ratings downgrades by Fitch and Moody’s as lower oil prices and the possibility of US tariffs darkened the county’s economic outlook.

The dollar wasn’t having a particularly better time either amid mixed signals about the US economy. The greenback took a big tumble yesterday on a shockingly weak private employment survey by ADP, pointing to a potentially poor jobs report on Friday. However, much a stronger-than-expected ISM non-manufacturing PMI for May later helped the US currency bounce back.

The dollar index has recovered to around 97.30 after plunging to a two-month trough of 96.75 yesterday. But against the safe-haven yen, the dollar was struggling again today, slipping to around 108.20 yen, as Treasury yields headed back down on rising expectations that the Fed will cut rates later this year.

Falling yields and dollar lift gold

The growing odds that the Fed will be forced to ease monetary policy later this year to counter the negative impact from the worsening trade and geopolitical tensions have been a big boost for gold. The precious metal surged to a 3½-month high of $1343.86 an ounce before settling lower around $1334.

Gold has been unable to benefit as much as other safe havens from the recent deterioration in risk appetite as it’s been held back from a strong dollar. It stands to make more substantial gains should the Fed begin to provide clearer signals of a rate cut.

In contrast, oil prices were struggling near 4½-month lows as the weakening global growth backdrop weighed on the demand outlook. Further pressuring oil was a huge jump in US crude stocks in the latest weekly EIA inventory data, which sent WTI briefly diving below the $51 a barrel.

Euro looks to ECB for more stimulus

The European Central Bank will announce its latest decision today at 11:45 GMT, followed by President Mario Draghi’s press conference at 12:30 GMT. No change in policy is expected but the ECB will probably outline the full details of its previously announced TLTRO 3 program. It’s also possible to central bank could adjust its forward guidance in interest rates if its latest economic projections contain sharp downward revisions.

But investors will mainly be watching for clues from Draghi that the ECB stands ready to increase stimulus should growth and inflation in the euro area not pick up in the near future.

The euro hit a 7-week high of $1.1306 yesterday before climbing down to around $1.1230 as the dollar recovered and traders grew wary of another major clash between Italy and the European Commission. All the indications so far are that Italy’s leaders are not willing to budge on their existing spending pledges, raising the prospect of another stand-off in the coming months.

In the meantime, the euro faces an immediate risk from a dovish Draghi, which threatens to undo the currency’s modest rebound versus the dollar over the past week.