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The British pound has fallen back under the 1.2700 level against the US dollar in early Thursday trade after bulls failed to break the former key trading high, at 1.2747. However, yesterday’s move higher has helped to create a bullish inverted head and shoulders pattern on the four-hour time frame. All moves lower in the GBPUSD pair are expected to find strong buy dip-buying demand around the 1.2660 support level.

The GBPUSD pair is strongly bullish while trading above the 1.2700 level, key resistance is located at the 1.2747 and 1.2800 levels.

The GBPUSD pair is only bearish while trading below the 1.2660 level, key intraday support is found at the 1.2645 and 1.2630 levels.

The price of crude oil declined sharply after the EIA released weekly inventory data. The numbers showed that the inventories rose by 6.7 million barrels. This was much higher than the drawdown of more than 849K that investors were expecting. It was also higher than the 3.5 million released by the American Petroleum Institute (API). The current declines put crude prices in a bear market. This could force OPEC to make changes when the leaders meet later this month.

The euro weakened ahead of the ECB decision expected later today. The bank is expected to leave interest rates, the marginal lending facility and the deposit facility rate unchanged at 0%, 0.25%, and -0.40%. Traders will want to listen to the bank’s response to the ongoing trade conflict between the US, China, Mexico and the European Union. Eurostat will also release the final reading of the first quarter GDP. The economic growth is expected to remain unchanged at 1.2%.

The Australian dollar declined after the statistics office released trade data. In April, the exports increased by 3%. The trade surplus declined to A$4.871 billion, which was lower than the expected A$5.05 billion. In March, the surplus was A$4.88 billion. Exports of non-monetary gold rose by A$272 million while rural goods declined by 2%. This came a day after the country released the GDP numbers, which showed that the economy expanded by 1.8% in Q1.

EUR/USD

The EUR/USD pair declined sharply in overnight trading ahead of the ECB decision. The pair fell from a high of 1.1307 to a low of 1.1218. On the hourly chart below, the price is along the 61.8% Fibonacci Retracement level. It is also slightly above the 25-day and 50-day moving averages. The Parabolic SAR is also on the right side of the price. The RSI remains slightly above the oversold level of 30. The pair will likely move in either direction after the ECB decision.

AUD/USD

After a few days of gains, the AUD/USD pair declined after weak trade data. The pair is now trading at 0.6968. This price is at the same level as the variable index dynamic average. The commodity channel index has declined to the oversold level while the accumulation/distribution indicator has eased slightly. There is a likelihood that the pair will resume the upward trend today.

XTI/USD

The XTI/USD pair declined sharply to a low of 50.65. This is a 24% decline from the YTD high of 66.53. This means that the price is in a bear market. On the four-hour chart, the price is below all the moving averages and is along the lower line of the Bollinger Bands. The RSI and the Relative Vigor Index remains in the oversold level. While the downward momentum could continue, there is a possibility that the pair could see some gains today.

• Rates: German Bunds prone for profit taking?
  The ECB announces details of TLTRO III funding at today’s meeting. The central bank probably won’t be able to convince investors that they have much in the toolbox left to fight any potential near term economic downturn. That could trigger profit taking in German Bunds, even if TLTRO III conditions were to be very generous.
• Currencies: Dollar decline slows, for now. Euro watches ECB policy meeting
  EUR/USD again failed to close above the 1.1265 resistance yesterday as the dollar received some good news. Today, headlines on US trade policy remain a wildcard for global currency trading. Even so, the focus turns to the EMU/ECB side of the story. The lack of ECB tools to stimulate the economy further might cause some by-default euro gains

The Sunrise Headlines

• Wall Street shrugged off initial doubts after a major miss in the ADP job report yesterday. The S&P and DJI outperformed (+0.82%). Asian equity markets are trading mixed, with China underperforming peers.
• US Treasury Secretary Mnuchin wants to talk about including a currency clause in the bilateral US/Japanese trade deal that is still in the progress of being made, a Treasury official said.
• The Chinese central bank injected $72 bn to roll over medium-term lending to ease liquidity concerns after the government’s first bank seizure in two decades at the end of May drove up funding costs for smaller and medium sized lenders.
• Fitch downgraded Mexican debt from BBB+ to BBB, citing increased risks in public finances and a bleak economic outlook. Moody’s changed its outlook to negative from stable as it sees a deterioration in the policy framework.
• Frederiksen’s Social Democrats won Danish elections. The left-leaning party adopted tougher rules on foreign labor, a move that undermined the success of the Rasmussen led centre-right bloc and the Danish People’s Party in particular.
• Fed districts reported a modest growth pace with 'relatively subdued' wage pressures, the Beige Book showed. Some districts cited worker availability issues however, while others warn trade and tariff uncertainty delayed investment.
• Today’s economic calendar is all about the ECB policy meeting, followed by a press conference where the details about TLTRO III will be revealed. NY Fed president Williams is scheduled to speak. Spain and France tap the bond market

Currencies: Dollar Decline Slows, For Now. Euro Watches ECB Policy Meeting

Dollar avoids further losses. Euro watching ECB

Euro and USD traders faced conflicting drivers yesterday. In the end the dollar avoided further losses, at least for now. Intraday, EUR/USD touched the 1.13 area on a poor ADP labour report. Later, the US non-manufacturing ISM printed solid. Investor hope on a solution in the US-Mexico dispute on tariffs also supported US yields and the dollar. On the EMU side of the story, the EC laying the groundwork for disciplinary action against Italy for not complying with fiscal rules weighed on the euro. EUR/USD closed at 1.1221. So, a sustained break of the 1.1265 resistance again failed. USD/JPY also rebounded to close at 108.46.

This morning, sentiment in Asia is fragile compared to WS yesterday evening. US president Trump indicated that there is still work to do in the US-Mexico negotiations. US yields are drifting lower and the dollar is ceding modest ground (EUR/USD 1.1230 area; USD/JPY near 108.20). The PBOC offered ample liquidity to smooth tensions in the banking sector. UCD/CNY traders little changed in the 6.91 area.

Today, US jobless claims and the trade balance will probably only be of intraday significance for FX trading. The focus turns to the ECB meeting. We expect no big changes in the ECB forecasts from March. Markets will keep an eye on the ECB communication on the LTRO pricing. Less generous conditions might be slightly euro supportive. In a broader perspective, the question is how much ammunition the ECB has left to stimulate the economy further. If markets see no significant measures to be available soon, this might cause some by-default euro strength. Headlines on US trade politics remain a wildcard. Of late, EUR/USD extensively tested the 1.1110 support, but no break occurred. The USD topside test was rejected as markets anticipate Fed rate cuts as trade tensions might hurt US growth. EUR/USD still tries to break the 1.1265 level in a sustainable way. A break would improve the technical picture with 1.1324 the next target.

EUR/GBP entered some kind of consolidation modus. The pair found a ST equilibrium in the upper half of 0.88. There is little high profile news on Brexit or on the leadership race in the conservative party. At the same time, UK eco data have little impact on sterling trading either. Some more wait-and-see price action might be on the cards for sterling until there is some clarity on who will succeed PM May.

EUR/USD: battle on 1.1265 resistance as USD and euro are both facing issues, preventing a clear directional move

Daily Pivots: (S1) 1.1192; (P) 1.1248; (R1) 1.1278; More.....

EUR/USD retreats notably after hitting 1.1304 and intraday bias is turned neutral first. Further rise will remain in favor as long as 1.121 resistance turned support holds. Above 1.1304 will extend the rebound from 1.1107 short term bottom to 1.1448 key resistance next. However, break of 1.1215 will turn bias back to the downside for retesting 1.1107 low instead.

In the bigger picture, down trend from 1.2555 (2018 high) might still be in progress. Such decline would target 78.6% retracement of 1.0339 (2016 low) to 1.2555 (2018 high) at 1.0813 on resumption. However, break of 1.1448 resistance would confirm medium term bottoming, on bullish convergence condition in daily MACD. In such case, stronger rebound should be seen to 38.% retracement of 1.2555 to 1.1107 at 1.1660. We'd look at the structure of the rebound to decide whether it's a corrective rise later.

Daily Pivots: (S1) 1.2658; (P) 1.2702; (R1) 1.2724; More....

As noted before, a short term bottom is likely in place at 1.2559 on bullish convergence condition in 4 hour MACD. Strong rebound could be seen but upside should be limited by 1.2865 support turned resistance to bring fall resumption. On the downside, break of 1.2559 will extend the decline from 1.3381 for 1.2391 low first. However, sustained break of 1.2865 will indicate completion of fall from 1.3381. In that case, corrective pattern from 1.2391 would be in another rising leg through 1.3381 resistance.

In the bigger picture, medium term decline from 1.4376 (2018 high) is possibly ready to resume. Decisive break of 1.2391 would target a test on 1.1946 long term bottom (2016 low). For now, we don't expect a firm break there yet. Hence focus will be on bottoming signal as it approaches 1.1946. In any case, medium term outlook will stay bearish as long as 1.3381 resistance holds, in case of strong rebound.

Daily Pivots: (S1) 0.9885; (P) 0.9918; (R1) 0.9981; More...

USD/CHF recovered after forming a temporary low at 0.9854. Intraday bias is turned neutral for consolidation first. Upside should be limited by 1.0008 support turned resistance to bring fall resumption. On the downside, break of 0.9854 will extend the decline from 1.0237 to 0.9716 cluster support (50% retracement of 0.9186 to 1.0237 at 0.9712).

In the bigger picture, USD/CHF's break of long term trend line support is the first indication of medium term reversal. Focus is now back on 0.9879 support. Sustained break should confirm that medium term up trend from 0.9186 has completed at 1.0237 already. Further fall should be seen to 0.9716 cluster support (50% retracement of 0.9186 to 1.0237 at 0.9712) next. Break will target 61.8% retracement at 0.9587.

Daily Pivots: (S1) 108.02; (P) 108.25; (R1) 108.70; More...

USD/JPY continues to lose downside momentum as seen in 4 hour MACD. But there is no sign of bottoming yet. Further decline is expected and sustained break of 61.8% retracement of 104.69 to 112.40 at 107.63 will pave the way back to 104.62/9 key support zone. Though, break of 109.02 support turned resistance will indicate short term bottoming and bring lengthier consolidations first.

In the bigger picture, decline from 118.65 (Dec 2016) is still in progress, with the pair staying indicate long term falling channel. Break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51. For now, we'd expect strong support above 98.97 (2016 low) to contain downside to bring rebound.

Daily Pivots: (S1) 0.6951; (P) 0.6980; (R1) 0.6997; More...

AUD/USD retreated after hitting 0.7007 and intraday bias is turned neutral first. Further rise will remain in favor as long as 0.6938 resistance turned support holds. Above 0.7007 will extend the rebound from 0.6864 short term bottom to 0.7205 key resistance next. However, break of 0.6938 minor support will turn bias back to the downside for 0.6864 low instead.

In the bigger picture, with 0.7393 key resistance intact, medium term outlook remains bearish. The decline from 0.8135 (2018 high) is seen as resuming long term down trend from 1.1079 (2011 high). Decisive break of 0.6826 (2016 low) will confirm this bearish view and resume the down trend to 0.6008 (2008 low). However, firm break of 0.7393 will argue that fall from 0.8135 has completed. And corrective pattern from 0.6826 has started the third leg, targeting 0.8135 again.

Key Highlights

• The Euro started a decent recovery from the 120.78 low against the Japanese Yen.
• EUR/JPY recovered above 121.50 and a bearish trend line on the 4-hours chart.
• The Euro Zone Services PMI increased from 52.8 to 52.9 in May 2019.
• The Euro Zone GDP could grow 0.4% in Q1 2019 (QoQ), similar to the last reading.

EURJPY Technical Analysis

After a sharp decline, the Euro found support near 120.80 against the Japanese Yen. The EUR/JPY pair started an upside correction and traded above the 121.50 resistance area.

Looking at the 4-hours chart, the pair traded above the 23.6% Fib retracement level of the downward move from the 123.74 high to 120.78 swing low. Moreover, there was a break above a key bearish trend line with resistance at 121.60.

The pair even broke the 122.00 resistance and tested the next key resistance near the 122.25 level. The 50% Fib retracement level of the downward move from the 123.74 high to 120.78 swing low acted as a strong resistance.

On the upside, there are many important resistances near 122.40 and the 100 simple moving average (red, 4-hours). If there is an upside break above 122.40, the pair could start a strong recovery towards 123.00 or 123.50.

Conversely, if the pair fails to move above the 100 SMA, it could start a fresh decline below the 121.50 and 121.40 support levels. The main support is at 120.80, below which the pair could decline to 120.00.

Fundamentally, the Euro Zone Services Purchasing Managers Index (PMI) for May 2019 was released by the Markit Economics. The market was looking for no change from the last reading of 52.5.

However, the actual result was above the market forecast since there was an increase in the services PMI to 52.9. Moreover, the last reading was revised up from 52.5 to 52.8.

The report stated that:

Modest growth of the private sector economy occurred at a time when levels of incoming new business were rising only slightly for the third month running.

Overall, EUR/JPY needs to recover above the 122.40 resistance area to continue. If not, there is a risk of more downsides below 121.00.

Economic Releases to Watch Today

• Euro Zone Gross Domestic Product Q1 2019 (QoQ) – Forecast 0.4%, versus 0.4% previous.
• Euro Zone Gross Domestic Product Q1 2019 (YoY) – Forecast 1.2%, versus 1.2% previous.
• ECB Interest Rate Decision – Forecast 0%, versus 0% previous.
• US Initial Jobless Claims – 215K Forecast, 215K previous

General Trend:

• Fiat withdraws merger proposal for Renault, cites politics in France; Nissan shares decline
• Softbank rises over 3% in Japan, tracks gains on the Nasdaq
• Chinese equity markets decline in early trading amid losses in IT shares
• China expected to issue 5G licenses later today, telecom services firms decline ahead of the announcement amid profit taking
• China’s Hengfeng Bank has been in the headlines
• PBOC steps up MLF, aimed at offsetting maturities and supporting banks
• Singapore gov’t moves to support local property market prices
• ECB rate decision expected later today
• India Central Bank is expected to cut rates at later today policy meeting
• G20 Finance Ministers meetings expected to be held over the weekend

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.4%
• (AU) Australia Apr Trade Balance (A$): 4.87B v 5.0Be (16th straight surplus)
• (NZ) New Zealand May Commodity Price Index 0.0% v 2.6% prior
• (NZ) New Zealand announces dairy industry regulations changes: Proposed to allow Fonterra to refuse to supply milk to large rivals

China/Hong Kong

• Shanghai opened flat, Hang Seng +0.2%
• (CN) China PBoC offers CNY500B 1-year medium term lending facility (MLF) at 3.3% v 3.3% prior; Of the total MLF, CNY37B in funds to be offered to small and medium-sized banks
• (CN) China PBoC Shanghai Branch said Baoshang Bank credit risk is 'isolated' case; Small and medium-sized banks are operating 'normally' - financial press
• (CN) China Hengfeng Bank is targeting strategic investors, may receive funds from local government - Chinese Press
• (CN) PBoC Advisor said to call for more debt controls - China Daily
• (CN) China PBoC Open Market Operation (OMO): Injects CNY10B in 7-day reverse repos v CNY60B prior
• (CN) China PBoC sets yuan reference rate: 6.8945 v 6.8903 prior
• (CN) China reportedly to grant 5G licenses later today; expected to grant to China Unicom, China Broadcasting, China Telecom, and China Mobile - Chinese Press
• (CN) China Association of Automobile Manufacturers (CAAM) said to be calling for stimulus to revive auto sales - financial press
• CWT International (HNA unit): Announces its receivers have commenced due diligence over charged assets, the assets have not been disposed by the receivers; default caused cross default of UK property loan which may be due for immediate repayment

Japan

• Nikkei opened -0.2%
• (JP) Japan Fin Min Aso to meet with US Treas Sec Mnuchin to discuss currency clause, meeting to occur on sidelines of this weekend's G20 meetings - Japanese Press

Korea

• Kospi closed for holiday
• (KR) China Pres Xi to visit South Korea in June, meeting expected to occur before G20 meeting in Japan (June 28-29th) - South Korea Press

Other

• (SG) Singapore government to reduce supply of private housing units in H2 2019, notes demand for land from developers has moderated
• (SG) Singapore May PMI: 52.1 v 53.3 prior
• (TH) Thailand Parliament elects PM Prayuth to new term

North America

• (MX) US AND MEXICO TRADE OFFICIALS FAIL TO REACH DEAL ON TARIFFS AND IMMIGRATION DURING WEDS MEETING – CNBC
• (US) US President Trump: Talks with Mexico will resume on Thursday; Tariffs to take effect on Monday if no agreement is reached
• (US) Senate Fin Chair Grassley (R-IA): thinks announcement could be made Thurs night about Mexico tariffs deal; predicts US won't impose tariffs on Mexican imports
• (MX) Mexico Foreign Min Ebrard: Today's meeting focused on migrations proposals, did not discuss tariffs; Tomorrow's meeting to seek common ground
• (MX) Fitch cuts Mexico sovereign rating one notch to BBB from BBB+; outlook revised to Stable
• (MX) Moody's revises Mexico sovereign rating outlook to Negative from Stable; affirms A3 rating
• (US) Fed's Brainard (voter, dove): We will be prepared to adjust policy to sustain growth; will monitor data - Yahoo interview
• IMF's Lagarde: Does not see threat of global recession brought on by US tariff threats but tariffs threats could slow growth further and increases uncertainties

Levels as of 1:20 ET

• Nikkei 225, +0.2%, ASX 200 +0.5%, Hang Seng flat; Shanghai Composite -0.8%; Kospi closed
• Equity Futures: S&P500 -0.1%; Nasdaq100 flat, Dax -0.2%; FTSE100 +0.2%
• EUR 1.1233-1.1219 ; JPY 108.48-108.18 ; AUD 0.6974-0.6962 ;NZD 0.6632-0.6616
• Gold flat at $1,333/oz; Crude Oil +0.3% at $51.82/brl; Copper -0.1% at $2.624/lb