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Daily Pivots: (S1) 0.8833; (P) 0.8861; (R1) 0.8901; More...

EUR/GBP's rally continues after brief consolidation and reaches as high as 0.8902 so far. Intraday bias remains on the upside. Further rise should be seen to 0.9101 key resistance next. On the downside, break of 0.8825 minor support will turn bias neutral and bring consolidations again. But outlook will remain bullish as long as 0.8681 resistance turned support holds.

In the bigger picture, medium term decline from 0.9305 (2017 high) is seen as a corrective move. No change in this view. Current development argues that it might have completed with three waves down to 0.8472, just ahead of 38.2% retracement of 0.6935 (2015 low) to 0.9306 at 0.8400, after hitting 55 month EMA (now at 0.8511). Decisive break of 0.9101 resistance will confirm this bullish case. Nevertheless, as EUR/GBP is still staying inside long term falling channel, correction from 0.9305 could still extend to 0.8400 fibonacci level before completion.

Daily Pivots: (S1) 1.6074; (P) 1.6106; (R1) 1.6144; More...

Intraday bias in EUR/AUD remains neutral and consolidation from 1.6262 is still extending. Downside of retreat should be contained by 38.2% retracement of 1.5683 to 1.6262 at 1.6041 to bring rise resumption. Correction from 1.6765 has completed with three waves down to 1.5683. On the upside, break of 1.6262 will pave the way to retest 1.6765 high. However, firm break of 1.6041 will dampen this view and bring deeper fall to 61.8% retracement at 1.5904.

In the bigger picture, as long as 1.5346 support holds, outlook will still remain bullish. Up trend from 1.1602 (2012 low) is expected to resume sooner or later. Break of 1.6765 will target 61.8% retracement of 2.1127 (2008 high) to 1.1602 at 1.7488 next. However, firm break of 1.5346 key support will indicate trend reversal, with bearish divergence condition in weekly MACD, and turn outlook bearish.

Daily Pivots: (S1) 1.1116; (P) 1.1160; (R1) 1.1202; More....

EUR/CHF formed a temporary low after dropping to 1.1119. Intraday bias is turned neutral for some consolidations. Upside should be limited by 1.1278 resistance to bring another fall. On the downside, break of 1.1119 will extend whole decline from 1.2004 and target 61.8% projection of 1.2004 to 1.1173 from 1.1476 at 1.0962 next.

In the bigger picture, focus will stay on 61.8% retracement of 1.0629 to 1.2004 at 1.1154. Sustained break of 1.1154 will argue that fall from 1.2004 is itself a long term down trend. Next target will be 1.0629 support next. This will now remain the favored case as long as 1.1476 resistance holds even in case of rebound.

Cable holds in green for the third straight day and rises to one-week high after larger bears found temporary footstep and sentiment improves on dovish tones from Fed. Yesterday's comments from Fed St Louis president Bullard that US rate cut may be warranted soon and expectations for dovish shift of Fed chief Powell, who is due to speak later today, maintain negative outlook ahead of 19 June Fed policy meeting. Possibilities of further recovery rise on positive signals from Friday's hammer candle and Monday's marginal close above 10SMA, with north-heading daily momentum adding to positive tone. Bulls require further signals on extension above 1.2747 (27 May high) and 1.2760 (falling 20SMA) that would expose key barrier at 1.2796 (Fibo 38.2% of 1.3179/1.2559), break of which would generate reversal signal and open way for stronger recovery. Overall picture remains bearish, as pound is under strong pressure on fears of no-deal Brexit and limited recovery may offer better selling opportunities before broader bears resume. Return and close below 5SMA (1.2637) would confirm negative scenario and expose key 1.2559 support (31 May spike low) .

Res: 1.2686, 1.2705, 1.2747, 1.2760
Sup: 1.2655, 1.2637, 1.2605, 1.2559

The Australian dollar hit new three-week high in early Tuesday's trading, in extension of strong rally in past two days, after The Reserve Bank of Australia cut interest rates by 25 basis points to record low at 1.25%. The central bank cut rates for the first time in three years, in response to signals of country's slowing economy. The action was widely expected and made no surprise in the market, with the Aussie maintaining positive tone on weakening US dollar. Fresh extension of recovery rally from 0.6864 base cracked key resistance zone at 0.6990/0.7000 (double Fibo/psychological barrier), with sustained break here expected to generate strong bullish signal and expose targets at 0.7034 (55SMA/50% of 0.7205/0.6864) and 0.7075 (100SMA/Fibo 61.8%). Rising bullish momentum and daily MA's (5, 10, 20) in bullish setup, support the action, but bulls may show hesitation before breaking higher, as daily stochastic is overbought. Dips are expected to hold above broken 30SMA (0.6960) to keep bulls intact. Converging 10/20SMA's (0.6926/30) mark pivotal support, loss of which will be bearish.

Res: 0.6993, 0.7000, 0.7020, 0.7034
Sup: 0.6960, 0.6944, 0.6926, 0.6898

The Australian Central Bank cut its interest rate to 1.25%, to a new historical low. This decision was widely expected by the markets, therefore did not cause pressure on the AUD. At the same time, monetary policy has globally returned to the centre of investors' attention, who are waiting for growth support from the central banks. This is another episode of global policy easing by the central bank. Prior to this, we saw stimulus from the PBOC, a cut of the RBNZ rates and a pause in the normalization from the Fed and the ECB. However, weak data from the U.S. last night surprised the markets. At the moment market participants are trying to assess whether current measures are sufficient to sustain economy and market growth.

Stocks

Weak U.S. Manufacturing ISM data caused a fairly volatile session on Monday. US indices managed to move away from the intraday lows set at the start of trading on Monday, but they failed to expose growth. In the morning there are cautious sales from levels near Friday's close levels. Chinese indices show a 1% decline since the start of the day, sending HengSeng to the new lows from January on fears of the consequences of trade disputes.

EURUSD

The single currency bounced off local lows on Monday. EURUSD returned to 1.1250, the area of local highs for the past six weeks. Formally, the downward trend broke is not confirmed as the bulls need the pair to consolidate above the previous highs at 1.1250. On the other hand, we have already received several positive signals, when EURUSD exceeded the 50-day average and the resistance of the downward channel, closing the day above these levels.

Gold

Gold rose on Monday to the highest levels since February, reaching $1327 per ounce. In the first hours of the Tuesday trading session, there is some correction after purchases in the previous three trading sessions. The sharp decline in the yield of long-term US government bonds (to a 2.1% for UST-10) and the weakening of the dollar were the factors supporting gold in recent days, forcing investors to consider gold as a more perspective asset. The next milestones on the path of growth are the levels of $1340 and $1360, the highs of the current year and the last six years, respectively.

Chart of the day: Brent

Oil began the week with attempts to bounce from the lows since February. However, by the end of the day sales increased again. This is an alarming sign of the predominance of bears in the market. The last time this happened at the end of last year. Oil ceases to react symmetrically to the news, falling sharply on the bad news or even without it, without growth on the good news. After closing the trading session at a level below $53.2, WTI formally launched a bear market phase for itself. For Brent, this mark (decline by 20% from the peak) passes through $59.80 against the current $60.70.

• Rates: St.-Louis Fed Bullard first one to call for rate cut
  The US yield curve bull steepened again yesterday after Fed Bullard openly called for a rate cut “soon”. He's the first to do so. The US 10-yr yield's first attempt to break below the 2.06%-2.01% area failed. Time for some short term profit taking on heavily overbought US Note future and Bund contracts?
• Currencies: Dollar decline accelerates. EUR/USD nears first resistance at 1.1265
  The dollar decline from the end of last week accelerated yesterday. Market speculation on substantial Fed rate cuts sharply reduced interest rate support for the US currency. EUR/USD is nearing first resistance at 1.1265. Today, a soft EMU CPI might slow further euro gains. That said, current sharp FX moves are mainly dollar driven and this trend might continue.

The Sunrise Headlines

• Yesterday's decline in US stocks was mainly tech-driven after reports of antitrust scrutiny in the sector. The Nasdaq underperformed (-1.61%). Asian equities are trading mixed. China underperforms as growth concerns linger.
• Trump's latest tariff threat to Mexico has caused frustration among Congressional Republicans. They consider blocking the move by overriding the national emergency determination on which Trump's move relies.
• The Australian central bank has cut rates from 1.50% to 1.25%. It will continue to monitor labor market developments closely but gave no clear hint about policy going forward. The Aussie dollar (AUD/USD 0.698) was little changed.
• Fed's Bullard (voter) thinks a rate cut might be needed soon to prop up inflation (expectations) and to cushion the fallout of the escalation trade war. Bullard said the market's current positioning signals that policy's too restrictive.
• Italian PM Conte threatened to resign if Lega and 5SM do not start cooperating. He also warned them that EU budget rules “remain in force until we manage to change them”, alluding to a potential rerun of last year's clash with Brussels.
• Germany's SPD and coalition partner said it won't leave the government after its head resigned on Sunday. The SPD will be jointly led by three people before electing a new leader in October.
• Today's economic calendar eyes rather thin with only EMU inflation (May) scheduled for release. The Chicago Fed Conference is worth paying attention to with Fed's Powell (amongst others) discussing the monetary policy strategy.

Currencies: Dollar Decline Accelerates. EUR/USD Nears First Resistance At 1.1265

USD correction accelerates

USD losses accelerated yesterday. The steep decline in US yields finally caused investors to reduce USD long exposure against other majors like the yen or the euro, undermining the US currency's safe haven status even as sentiment remained risk-off. The US May manufacturing ISM declined slightly but with limited impact on the dollar. The details were not too bad. Later, a further decline of tech stocks and US yields setting new ‘cycle lows' triggered a new USD down-leg. Fed's Bullard indicating a rate cut might be warranted soon reinforced the dollar negative sentiment. EUR/USD closed at 1.1241 (from 1.1169). USD/JPY filled bids below the 108 barrier but closed at 108.07. This morning, most Asian equites indices decline further, but the down move in US yields is slowing. USD/JPY is struggling not to fall below the 108 handle. EUR/USD stabilizes in the mid 1.1250 area. The yuan hardly profits from the overall USD decline (USD/CNY 6.9075). The RBA as expected cut its policy rate by 0.25% to 1.25%. The RBA will closely monitor developments in the labour market and in inflation, but gave no clear guidance on further easing. AUD/USD hovers in the 0.6975 area.

Today, the calendar contains US order data and the EMU May CPI and unemployment rate. After a ‘technical' up-tick in May, EMU CPI is expected to decline to 1.3% from 1.7%. We see downside risks. The EUR/USD rebound since end last week was mainly USD weakness due to the sharp decline in US yields. Still, a negative EMU inflation surprise might slow further euro gains, at least short-term.

EUR/USD tested the 1.1110 support area several times, but no sustained break occurred. A broad USD up-move was capped as markets anticipate substantial Fed rate cuts as trade tensions might hurt US growth. The USD decline accelerated end last week. EUR/USD is nearing first resistance in the 1.1265 area. A break would improve the ST technical picture with 1.1324 the next target.

No change in the story on sterling trading yesterday. A poor UK manufacturing PMI and persistent uncertainty on Brexit/UK politics kept sterling in the defensive. EUR/USD strength also helped EUR/GBP to extend gains beyond the 0.8840 previous resistance. Today, the UK construction PMI is expected stable just above 50. Markets will also keep an eye at Brexit related comments on the side-lines of president Trump's visit to the UK. We see no reason to row against the EUR/GBP uptrend

EUR/USD rebounds on global USD weakness. First resistance at 1.1265 is coming with reach

Gold prices posted strong gains on Monday maintaining the solid momentum from last Friday. Price rallied to a four-month high of 1327.89 before pulling back modestly. The gains came led by the trade uncertainty and a possibly slower pace of growth in the US for the month of May. The dovish comments from the St. Louis Fed also helped investors in their flight to safety.

Can Gold Maintain the Gains?

The current reversal off the highs near 1327.89 comes as price tests the upper resistance level. A close below the 1320.81 level could, though, see gold prices retreating lower. The main support at 1285 remains key to the downside. However, the overall bias is now to the upside. The unfilled gap from Friday's close at 1304.18 remains the initial target followed by a move to the 1290 handle.

The monthly manufacturing PMI from the UK saw the activity falling into contraction. IHS/Markit's manufacturing PMI index recorded a reading of 49.4 on the index. This was below the estimates of 52.5 and down from 53.1 previously. Construction PMI is due later today. Forecasts show a modest pick up in construction activity from 50.5 in April to 50.6 in May.

GBPUSD Trades in a Range

The currency pair has been trading flat within 1.2716–1.2606 levels since last week. This sideways range could potentially give way for a breakout. The bias remains to the upside for the moment. A close above 1.2716 will trigger a possible correction in GBPUSD. The initial target is seen at 1.2895 followed by 1.2975 levels of resistance. To the downside, a close below 1.2606 could, however, signal further declines.

The euro currency was seen posting strong gains on the day. The gains were partly driven by a weaker USD. Eurozone's final manufacturing PMI was confirmed at 47.7, matching the flash estimates. With the exception of France and Spain, manufacturing activity from other regions in the Eurozone fell below the 50-level marking contraction in the sector.

Can the EURUSD Continue to Rise Higher?

The common currency tested the 1.1250 handle on Monday before pulling back modestly. The gains also saw EURUSD breaking past the falling trend line. A follow through from here, above 1.1250 is required in order to confirm further upside in price. To the upside, the next main target is seen at 1.1400 while any pullback could see the EURUSD testing the short-term support at 1.1200.