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Daily Pivots: (S1) 122.45; (P) 122.63; (R1) 122.79; More....

EUR/JPY is staying in consolidation from 122.08 and intraday bias remains neutral. More sideway trading could be seen. But upside should be limited by 124.09 support turned resistance to bring fall resumption eventually. On the downside, firm break of 122.08 will resume the fall from 127.50 and target 118.62 low next. Nevertheless, firm break of 124.09 will at least bring stronger rebound back to 125.23 resistance and above.

In the bigger picture, current development argues that rebound from 118.62 is merely a correction and has completed at 127.50. EUR/JPY is staying in long term falling channel from 137.49 (2018 high). Decisive break of 118.62 will confirm resumption of this medium term fall and target 109.20 low. For now, this will be the favored case as long as 125.23 resistance holds.

• Rates: The US 10-yr yield nears 19-month low
  EU bonds gained ground as investors pondered EU election results and Italy is again in the European Commission's fiscal crosshairs. Sentiment remains cautiously positive overnight without a clear trigger. Today's eco data (EU economic confidence and US consumer confidence) is not expected to rattle investors.
• Currencies: EUR/USD rebound fails to extend as investors await guidance
  EUR/USD held close to the 1.12 mark yesterday. The event risk of the EU elections being out of the way wasn't enough to inspire further euro gains. Today, the eco calendar contains EU confidence and the US consumer confidence. The dollar is slightly better bid this morning, but we don't expect EUR/USD to break important levels ahead of next week's key US data.

The Sunrise Headlines

• US financial markets were closed yesterday (Memorial Day). Asian stock markets are extending yesterday's gains. China outperforms.
• Salvini's economic adviser Borghi said Italy must have an ECB seat when Draghi's term ends because they want a bigger role for the central bank in stimulating economies by having it buy infrastructure bonds issued by the EIB.
• The Tory leadership bid is gaining traction after May's resignation last Friday. Housing Minister Malthouse entered the race yesterday, following Michael Gove, Andrea Leadsom, Jeremy Hunt and current favourite Boris Johnson.
• ECB governing council Hansson said the central bank's new TLTRO's should be less generous given the improvement in economic outlook. He also argued that a tiered ECB deposit rate might be unfair and “make things overly complicated”.
• Austrian Chancellor Kurz lost a no-confidence vote yesterday after the government collapsed following a scandal that drove Kurz' coalition partner from power. Elections are expected in September.
• Japan's Economy Minister Motegi downplayed Trump's comments yesterday that they would strike a deal in August, adding they reflect “his hopes of swift progress” in negotiations but that no timetable for future talks had been set.
• Today's economic calendar contains the US Conference Board consumer confidence (May) and the EMU economic confidence (May). Also in the EU, the political horse-trading (EC, ECB, European Council) kicks off

Currencies: EUR/USD Rebound Fails To Extend As Investors Await Guidance

USD traders await more clear guidance

FX trading developed in thin market conditions yesterday as US and UK markets were closed. EUR/USD started north of 1.12 as the event risk of the EU elections was out of the way. However, there was no positive driver to extend gains. EUR/USD returned to the 1.12 area. Later, the euro lost a few more ticks on headlines that Italy might be fined by the EC for not complying with the EU budget rules. EUR/USD closed at 1.1194 (from 1.1203). USD/JPY rebounded slightly to close at 109.51.

This morning, most Asian equities are trading higher. The dollar outperforms (DXY 97.80 area). The yuan declines. USD/CNY returns north of 6.90. EUR/USD is trading in the 1.1180 area. USD/JPY hovers in the mid 109 area. Sentiment is not too bad even as there is no indication that the US and China are making progress to solve their trade dispute. Later, the eco calendar is moderately interesting. The EC confidence data are still expected to remain soft. This shouldn't be a surprise anymore, but even so, it won't help the euro. US consumer confidence (Conf Board) is expected to improve further (130 from 129.2). Recent US consumer confidence data were rather solid, but it wasn't always visible in hard data. So, in a day-to-day momentum, data might be tentatively in favour of the dollar. Still we don't expect a clear directional trend. As is always the case, headlines on trade remain a wildcard.

Last week, EUR/USD tested the 1.1110 support, but a sustained break didn't occur. A broader USD up-move was capped as investors saw risks that Fed might be forced to cut rates further out in time as trade tensions might hurt US growth. Next week's early month US data will bring an update in this debate. In the meantime, the EUR/USD downside looks again better protected. Some modest/limited gains in the 1.1110/1.1324 range are possible with intermate resistance at 1.1265.

In thin technical trade (UK markets closed) sterling initially gained a few ticks yesterday, but the prospect of protracted political uncertainty caused EUR/GBP to return to the 0.8830 area. Today, there are only second tier UK eco data. We expect more erratic-like trading in EUR/GBP as the focus remains on the leadership contest in the UK conservative party. The chance/risk that a headline Brexiteer might succeed, makes sustained sterling gains unlikely. A break beyond 0.8840 would further weaken the picture for sterling

EUR/USD rebounded off 2019 low, but no follow-through gains yet.

Now that United Kingdom tradersare returning back to office following a public holiday, we should expect for the fallout from the Brexit Party’s success in the European Parliamentary elections to put the spotlight even firmer on the pressure for the next Prime Minister of the United Kingdom to secure a Brexit deal sooner rather than later. UK Prime Minister Theresa May’s resignation and the leadership race that will begin is sure to dominate at the top and centre of each political headline, but the problem that the British Pound faces is that if whoever succeeds to become the next Prime Minister does chase a no-deal Brexit, the Pound should sink below 1.25.

Hardline Brexiteers will have no appetite for another delay to the eventual date of the United Kingdom leaving the European Union and this is an issue for traders because if Boris Johnson does succeed, like many feel he will as the front-runner candidate, he has already made it clear that the time is up to deliver Brexit. This means that he will, if needed, settle for a no-deal Brexit and the British Pound risks losing a further 5% in such a scenario.

At the moment the GBPUSD has found a near-term bottom marginally above 1.26, but more Brexit pessimism can be priced into this market and this can also drive the GBPUSD to the lower 1.20’s as the second half of 2019 begins.

What would help buying sentiment for the Pound is that a great deal of GBP pessimism around Brexit has been priced in throughout the past couple of weeks. Boris Johnson is known to have a strong pro-Brexit stance and not as concerned about a no-deal outcome as others, but any news decreasing the chances of him winning the leadership race to become the next UK Prime Minister will be viewed as GBP-positive. There is also the remote scenario that Johnson pledges to secure a Brexit deal which no matter how unlikely this would appear today, would provide a positive shock to the GBP.

Daily Pivots: (S1) 0.8801; (P) 0.8819; (R1) 0.8848; More...

Intraday bias in EUR/GBP is turned neutral as consolidation from 0.8850 is set to extend for a little longer. Deeper retreat could be seen through 4 hour 55 EMA (now at 0.8776). But downside should be contained above 0.8681 resistance turned support to bring rebound. On the upside, break of 0.8850 and sustained trading above 0.8840 resistance will pave the way to 0.9101 key resistance next.

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) 1.6154; (P) 1.6181; (R1) 1.6209; More...

No change in EUR/AUD's outlook as consolidation from 1.6262 is extending. Intraday bias remains neutral for the In case of deeper pull back, downside should be contained by 38.2% retracement of 1.5683 to 1.6262 at 1.6041 to bring rise resumption. Current development argues that 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.

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 GBP/USD has either completed the wave 4 (green) at the most recent high or price will expand the swing towards higher Fibonacci retracement levels of wave 4 vs 3. The main Fib to keep an eye on is the 38.2% retracement level, which is a typical bouncing spot for a wave 4. A bearish continuation is aiming for the round level at 1.25 and then the Fibonacci targets around 1.2425-1.2450.

The GBP/USD is now testing the 78.6% Fibonacci level of wave B vs A. A bullish bounce could confirm that a larger ABC (dark red) is taking place whereas a bearish breakout could indicate the immediate downtrend continuation.

Daily Pivots: (S1) 1.1219; (P) 1.1241; (R1) 1.1260; More...

Intraday bias in EUR/CHF remains neutral for the moment and outlook is unchanged. In case of another fall through 1.1195, we'd still expect strong support above 1.1162 to bring rebound. Considering bullish convergence condition in 4 hour MACD, break of 1.1292 resistance should confirm short term bottoming. Further rise should then be seen back to retest 1.1476 resistance. Nevertheless, sustained break of 1.1162 could carry larger bearish implication and turn outlook bearish.

In the bigger picture, at this point, we're slightly favoring the case that corrective fall from 1.2004 has completed at 1.1162 after being supported by 61.8% retracement of 1.0629 to 1.2004 at 1.1154. Decisive break of 1.1501 resistance should confirm and target 1.1713 resistance next. On the downside, sustained break of 1.1154 will confirm resumption of decline from 1.2004 and target 1.0629 support next.

General Trend:

• Equity markets open little changed with both US and UK markets closed on holiday, so little initial direction offered, as the session progressed markets traded higher, yields continue to decline
• Trump wraps up trip in Japan, Abe notes that they did not talk about currency clause, trade deal more likely to come in August
• Trump notes that China is ready for a trade deal, but US is not ready to make one with China, little reaction seen in markets or currency, despite the threat of higher tariffs
• China markets boosted by two regions relaxation on lottery and bidding indicators as well as Guangdong easing auto license plate restrictions
• China President Xi reiterates plans to open up additional sectors to foreigners and notes China is willing to expand service trade cooperation with all nations
• Multi year highs in iron ore gave a boost to Aussie market
• Japan 20-yr and 40-yr JGB yields fall to multi-year lows

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.1%
• SML.NZ Guides initial 2019/20 Milk price NZ$7.00/kgMS; raises 2018/219 milk price to NZ$6.25/kgMS (prior NZ$6.40)
• (AU) According to analysts, the interest rate cut in Australia that will go into effect June 4th expected to immediately stop falling house prices – AFR
• BKY.AU Strength attributed to election results in Spain and possible authorization to operate uranium mine in Salmanca - Spanish press

Japan

• Nikkei 225 opened slightly higher
• RNO.FR Any merger with Fiat Chrysler would not include Nissan - financial press
• (JP) Japan Fin Min Aso: Japan and US have a deeper understanding of trade, Trump did not talk about currency clause
• (JP) Japan government announces new rule to limit foreign ownership of IT and telecom firms, effective Aug 1
• (JP) Japan Apr PPI Services Y/Y: 0.9% v 1.1%e
• 8035.JP To buy back ¥150B in shares (8.5% of shares outstanding) (yesterday)
• (JP) Japan Econ Min Motegi: President Trump comments show aim to accelerate talks, no comment if a trade deal will be able to be reached by August
• (JP) Japan MoF sells ¥400B v ¥400B indicated in 0.50% (prior 0.80%) 40-year JGBs, highest accepted yield 0.535% v 0.610% prior, bid to cover:3.87x v 3.50x prior

Korea

• Kospi opened slightly higher
• (KR) South Korea May Consumer Confidence: 97.9 v 101.6 prior

China/Hong Kong

• Hang Seng opened -0.1%; Shanghai Composite opened -0.1%
• (CN) US President Trump: China would like to make a trade deal, US is not ready to make a trade deal with China - speaking from Japan
• (CN) China PBOC spokesperson: Will monitor liquidity of smaller banks and use various monetary policy instruments such as OMOs to keep banking system liquidity reasonable and sufficient
• (CN) China PBoC Dep Gov & CIRC Chairman Guo: Financial industry to encourage exploration of alternative markets for firms experiencing trade frictions – Xinhua
• BABA Considering $20B listing on Hong Kong Exchange – press
• 0175.HK CEO: Auto sales in H1 are not looking optimistic
• (CN) China Industry Ministry MIIT Vice Min Wang Zhijun: US tariffs increase will lead to some increase in enterprise operation costs, lower competitiveness and fewer orders, but the impact on China's manufacturing sector is generally controllable; The $200B in goods that falls under newly raised tariffs accounts for 41.8% of China's US-bound exports, but only 8% of total exports – Xinhua
• (CN) China PBoC Open Market Operation (OMO): Injects CNY150B in 7-day reverse repos v CNY80B injected prior; Net: CNY70B injection v CNY80B prior
• (CN) China PBoC sets yuan reference rate: 6.8973 v 6.8924 prior
• (CN) China Guangdong to ease auto plate restrictions - Chinese press
• (CN) China President Xi: China will increase access for foreigners to further sectors, willing to expand service trade cooperation with all nations - local media

Other Asia

• (TH) Thailand Apr Manufacturing Production Index y/y: -2.7% v -0.9%e; Capacity Utilization: 63.9% v 74.3% prior
• 2353.TW Chairman: continue to finalize production plans outside of China for products bound for the US, all options remain on the table

North America

• Markets re-open Tuesday after holiday
• TSLA Said to plan announcement on China for Friday, May 31st
• (CA) Canada Govt said to give formal notice to bring legislation forward to ratify the new NAFTA treaty - financial press

Europe

• RNO.FR Board met today to examine the proposal received from Fiat Chrysler Automobiles regarding a potential 50/50 merger between Renault and Fiat; board decided to study with interest the opportunity of such a business combination, comforting Groupe Renault's manufacturing footprint and creating additional value for the Alliance
• (IT) EU Commission said to consider opening discipline process on Italy as soon as Jun 5th regarding its 2018 debt levels - financial press
• (KW) Kuwait Oil Min: Sees balanced market until end of year - financial press

Levels as of 01:10ET

• Hang Seng +0.4%; Shanghai Composite +0.9%; Kospi +0.1%; Nikkei225 +0.5%; ASX 200 +0.5%
• Equity Futures: S&P500 +0.2%; Nasdaq100 +0.4%, Dax +0.2%; FTSE100 +0.4%
• EUR 1.1179-1.1203; JPY 109.42-109.64; AUD 0.6916-0.6929; NZD 0.6543-0.6554
• Commodity Futures: Gold -0.1% at $1,281/oz; Crude Oil +0.9% at $59.16/brl; Copper -0.2% at $2.71/lb

Market movers today

It is another quiet day in terms of data releases, and hence markets will focus on the implications of the EU vote in different countries.

In the UK, both the Labour and Conservative parties are digesting the poor EU elections. Signs from the labour Party of supporting a second referendum will be interesting and the leadership candidates from the conservative party are lining up, with Brexiteers such as Boris Johnson among the favourites, prompting a weakening of GBP.

In Italy, EU is rumoured to launch an EDP procedure against the country in early June over the 2018 fiscal outcome, which could prompt reactions from the Italian government.

The Hungarian central bank (the MNB) will announce its policy rate decision. We expect that this time the MNB will again leave the rate unchanged at 0.90% despite core inflation climbing to the upper bound of the central bank target on brisk economic growth and double-digit wage expansion. However, it may implement another hike of the overnight depo rate and further cuts in FX swaps as a tool for liquidity tightening.

Selected market news

Trading in Asian stocks was thin and gains moderated following advances of the European stock market. The calendar was light and the US market was closed for Memorial Day, and also the UK market was off. Europe saw relief on the EU parliamentary election results, while worries on political withstand in the EU eased.

Markets did not move significantly on US President Donald Trump's announcement that the US was not ready to reach a trade deal with China. Trump also added that tariffs on Chinese goods "could go up very, very substantially, very easily." Yet, Japan's minister of economy said that Trump signalled during his visit to Japan that there could be an announcement on trade in August.

A Bloomberg story pictured yesterday afternoon that the European Commission is considering proposing a disciplinary procedure against Italy next week over its failure to rein in debt, which could impose a EUR3.5bn fine. The step could come as part of the EU's regular budget monitoring process, most likely on 5 June, and would mark an escalation of Rome's budget tussle with Brussels that roiled markets at the end of 2018. Yet, the final decision on further fines may not come for months, after Italy is given time to correct its finances. The EU has never fined a country over its budget. The news weighed heavily on the EUR, as the EUR/USD traded 0.3% lower this morning from its highs yesterday, while Italian yields rocketed.

For the 24 hours to 23:00 GMT, the GBP declined 0.41% against the USD and closed at 1.2682, after UK Prime Minister Theresa May announced that she would resign from her position.

On Friday, data indicated that UK’s retail sales climbed 5.2% on a yearly basis in April, compared to 6.7% in the prior month. Market participants had envisaged retail sales to record a rise of 4.6%.

In the Asian session, at GMT0300, the pair is trading at 1.2672, with the GBP trading 0.08% lower against the USD from yesterday’s close.

The pair is expected to find support at 1.2644, and a fall through could take it to the next support level of 1.2616. The pair is expected to find its first resistance at 1.2724, and a rise through could take it to the next resistance level of 1.2776.

Looking ahead, trades would keep an eye on UK’s BBA mortgage approvals for April, slated to release in a few hours.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.