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EURUSD resumed upside momentum on Friday but the gains were not enough to overcome the 1.12 key resistance area, with the price remaining below its simple moving averages (SMA) as well.

The MACD continues to hold close to its red signal line and the RSI keeps fluctuating near the 50 neutral mark, both pointing to a sideways short-term trading.

A decisive close above the previous high of 1.1214 and therefore higher than the 50-day SMA could spark a stronger rally, turning the spotlight to May’s peak of 1.1262. Running higher and towards the 1.1320-1.1346 former congested zone, would bring into question the downtrend started early in January .

On the downside, the market seems to be creating a floor around 1.1110 and any drop below that boundary could raise selling volumes, extending the five-month old downleg probably towards the 1.10-1.0950 area.

Meanwhile in the medium-term picture, the negatively sloped 50-day SMA which continues to distant itself below the longer-term 200-day SMA suggests that the bearish profile is likely to stay.

In brief, EURUSD is expected to consolidate in short term, while in the medium-term the outlook remains bearish.

Daily Pivots: (S1) 0.8812; (P) 0.8844; (R1) 0.8867; More...

Despite some loss of upside momentum, intraday bias remains on the upside with 0.8790 minor support intact. Further rise should be seen for 0.9101 key resistance next. On the downside, break of 0.8790 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.

• US dollar manages to stabilize after Friday's slump but Treasury yields tumble to fresh lows
• US-China ties continue to deteriorate but some hope for deal with Mexico
• Aussie defies gravity, climbs to 3-week highs on upbeat data

Dollar off lows but remains weighed by recession risks

Markets were mired in a risk-averse theme on Monday as there was little prospect of the United States and China ending their worsening trade row. In fact, relations between the two global powers hit new lows as China's Vice Commerce Minister said the country won't cave in to external pressure from Washington, while the US upped geopolitical tensions after the acting US Defence Secretary indicated the US would no longer “tiptoe” around China's behaviour in the South China Sea.

Investors now see the chances of President Trump and President Xi using the G20 summit in Japan later this month to resolve their differences as fairly remote. The deepening gloom looks set to weigh on riskier assets for some time yet with stocks in Asia struggling near 4-month lows, while US and European equity futures were pointing to another red day.

In forex markets, the dollar was last trading marginally above its 4½-month trough of 108.05 yen touched earlier today. Dollar weakness helped the euro extend its gains for a second straight session, climbing to around $1.1170. Safe-haven currencies like the yen and the Swiss franc stood firm, with the franc hitting 2-month highs versus the greenback, though the yen eased slightly against the risk-sensitive aussie and kiwi.

US-Mexico talks eyed for glimmer of hope

As if the increasingly damaging trade war with China wasn't bad enough for markets to contend with, Trump opened up a new front in the trade fight last week by threatening to impose tariffs on all Mexican imports. The US will slap 5% duties on all Mexican imports on June 10, to rise by 5% a month until it reaches 25%, unless Mexico takes action to stem the flood of illegal immigrants entering the US across the Mexican border.

But there have been encouraging signs that such a destructive move can be averted. Mexican President Andres Manuel Lopez Obrador signalled on Saturday that he is ready to tighten his country's borders with Central American nations, which are the main source of the immigrants, and expects “good results” from talks with the US that are due to start today in Washington.

His comments did little to bolster the battered Mexican peso, however, which was slightly weaker on Monday near Friday's 5-month trough. Lower oil prices also weighed on the peso, as the weakening demand outlook drove WTI and Brent crude to 4-month lows, with both benchmarks plummeting below key technical levels.

Aussie shrugs off risk-off tone to head higher

The sharp escalation in trade tensions over the past week has heightened fears that the US and global economy are heading towards a recession. The surging expectations of a global downturn have been devasting for risk-free sovereign bond yields, with 10-year US Treasury yields plunging to near 21-month lows. Traders have now fully priced in two rate cuts by the Fed this year and all eyes will be on Fed Chairman Jerome Powell, when he speaks at a Fed event in Chicago tomorrow. The dollar could suffer another sell-off if Powell signals a possible easing in monetary policy.

Central banks will be the focus for the euro too as the European Central Bank will hold a policy meeting on Thursday, while pound traders will be watching PMI releases out of the UK this week, starting with the manufacturing PMI today. The pound tumbled to 5-month lows on Friday but has managed to reclaim the $1.26 level, aided by a weaker dollar.

Things appear to be looking up for the Australian dollar, however, as, despite, intensifying trade tensions, the aussie is benefiting from positive data out of both China and Australia. China's Caixin manufacturing PMI for May and Q1 business inventories numbers from Australia beat expectations, prompting investors to pare back some of their bets of an overly dovish RBA, which is due to announce its latest policy decision tomorrow at 04:30 GMT.

Daily Pivots: (S1) 1.6066; (P) 1.6105; (R1) 1.6141; More...

EUR/AUD is staying in consolidation from 1.6262 and intraday bias remains neutral first. Downside 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.

The Japanese yen continues to shine on Monday and ticked to new multi-month high against US dollar at 108.07 (the lowest since 14 Jan), supported by fresh safe-haven demand, after signals of trade war spreading to countries beyond China.

The USDJPY pair fell sharply on Friday, registering loss of 1.2% in a biggest daily fall since 20 Dec.

Also, Friday's close below important Fico support at 108.49 (50% of 104.59/112.40) was negative signal, which added o pair's strong bearish sentiment on risk-off mode.

Daily techs maintain strong negative momentum and MA's are in full bearish setup, favoring further downside and test of next supports at 107.76/57 (10Jan trough/Fibo 61.8% of 104.59/112.40).

Price adjustment on oversold conditions is expected to precede fresh weakness and offer better selling opportunities, with upticks expected to be capped at 109 zone (former low of 13 May/falling 5SMA).

Descending 10SMA which capped last week's action marks pivotal resistance at 109.43 and sustained break here would question bears.

Res: 108.49, 109.02, 109.43, 109.63
Sup: 108.07, 107.79, 107.57, 107.00

As the northern hemisphere heads into summer season, market sentiment around the world is pointing firmly south due the rising heat that is being felt in the air from global trade tensions.

Investors have overall received notification that the trade tensions theme is very much a global story and it will involve multiple nations across the world. This is by no means a positive backdrop for either market sentiment or economic momentum, and we should be prepared for number of potential revisions to world economic growth projections due to the uncertain external backdrop over global trade.

External uncertainties paint picture of more resilient demand for safe assets

Such an environment of a number of external uncertainties around global trade will ensure that appetite for safe havens remains resilient. Investors are expected to tread very carefully towards adding risk in their portfolio amid the delicate market conditions.

Gold has managed tobreak past the $1,309 handle after having surged by about 2.7 percent since May 30.The Japanese Yen is holding around its strongest level against the US Dollar since January, hovering around the lower-108 region at the time of writing. 10-year US Treasury yields have sunk below 2.13 percent to their lowest since September 2017.

With global equities having just posted its first monthly loss of 2019, putting more risk on the table doesn’t appear to be a viable option for investors at this point in time.

Unless President Trump makes a sharp U-turn and starts caring more about the global economy against his campaign promises, markets willhave to come to terms with an investment climate that’s dominated by tradetensions and heightened insecurities.

Softer Dollar allows for mild reprieve in Euro, Pound … for now

The US Dollar Indexhas softened towards 97.75 at the time of writing, allowing G10 currencies to have some breathing space. The Greenback may ease further should the May US Manufacturing PMI due Monday come in below market expectations, as signs of a softer US economy are bound to intensify broader fears of the anticipated global economic slowdown for 2019.

Despite its recent relief against the Greenback, the Euro also stands in line to come under renewed downward pressure should its economic data releases this week disappoint. This, in turn, should allow the European Central Bank to maintain its downbeat stance at the June 6 policy meeting.Clouds over the Euro’s outlook will only grow darker should the US-China dispute intensify and impact economic demand in Europe, while Italy’s fiscal dispute with the EU administration threatens to erode investor sentiment surrounding the Eurozone.

Likelihood of Eurosceptic emerging at number 10 to weaken Pound further

Pound investors will be keeping a close eye on the hunt for a new UK Prime Minister, as Theresa May prepares to step down from her position as Prime Minister later this week.

Although the change at the top isn’t expected to be completed until end-July,Sterling may still react to the political jostling between the 13 PM candidates, as fears of a no-deal Brexit cast a long shadow over this leadership transition.

The Pound can extend its slide above 3% against the Dollar last month to its lowest levels since January if fear emerges that a Eurosceptic candidate will emerge as the next UK Prime Minister.

Daily Pivots: (S1) 1.1159; (P) 1.1192; (R1) 1.1242; More....

EUR/CHF drops sharply to as low as 1.1119 so far today after breaking 1.1162 support firmly. Current development confirms resumption of whole decline from 1.2004. Intraday bias is now on the downside for 61.8% projection of 1.2004 to 1.1173 from 1.1476 at 1.0962 next. On the upside, break of 1.1278 resistance is needed to confirm short term bottoming. Otherwise, outlook will stays bearish in case of recovery.

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.

Pivot (invalidation): 108.45

Our preference Short positions below 108.45 with targets at 108.05 & 107.75 in extension.

Alternative scenario Above 108.45 look for further upside with 108.70 & 108.90 as targets.

Comment The RSI advocates for further decline.

Pivot (invalidation): 1.2620

Our preference Long positions above 1.2620 with targets at 1.2675 & 1.2700 in extension.

Alternative scenario Below 1.2620 look for further downside with 1.2600 & 1.2580 as targets.

Comment The RSI is bullish and calls for further advance.

Pivot (invalidation): 1.1165

Our preference Long positions above 1.1165 with targets at 1.1200 & 1.1215 in extension.

Alternative scenario Below 1.1165 look for further downside with 1.1150 & 1.1135 as targets.

Comment The RSI is bullish and calls for further advance.