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General Trend:

• Little US/China trade news seen over the weekend
• Regional bank funding costs rise in China after bank takeover
• Chinese IT firms gain on speculation related to policy support , chipmakers gain amid focus on supplies to Huawei
• Chinese chipmaker SMIC to delist from NYSE amid trade war
• Tencent on track for 8th straight session of declines, shares have remained weaker following Q1 earnings report
• Japan moves to restrict foreign investments related to IT and telecom
• Nissan CEO declined comment on merger speculation regarding Renault and Fiat
• Offshore Yuan (CNH) rises on warning by China to currency speculators
• AUD/JPY outperforms, tracks rise in Nikkei Futures and Aussie bond yields
• Little initial market impact seen from EU Parliamentary elections
• Trump visiting Japan, notes trade agreement could be announced in August

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.1%
• (NZ) Reserve Bank of New Zealand (RBNZ) Dep Gov Bascand: RBNZ is open to softening stance on capital requirements of big banks – AFR
• VOC.AU Receives offer from EQT Infrastructure for A$5.25/shr; grants non-exclusive due diligence to EQT
• AIR.NZ Guides FY19 pretax above NZ$340M (prior NZ$340-400M); sees H2 avg jet fuel price of $78/bbl (prior $75 prior)
• (NZ) New Zealand Fin Min Robertson: Will review budget rules before 2020 election; Govt to retain fiscal responsibility

Japan

• Nikkei 225 opened +0.2%
• (JP) US President Trump: US and Japan are close to a "big" trade announcement - Nikkei
• (JP) President Trump: Great progress being made in our Trade Negotiations with Japan. Agriculture and beef heavily in play. Much will wait until after their July elections where I anticipate big numbers! – tweet
• (JP) Japan MOF Asakawa (Japan's top currency official): Little link between FX and Japan exports
• (JP) US President Trump: Great talk on Trade, imbalance with Japan will work out; will announce some things on trade in August - meeting with PM Abe in Japan
• (JP) Bank of Japan (BOJ) Gov Kuroda: High uncertainties remain for global economy, concerns over capital outflows and currency depreciation have eased globally
• (JP) Japan Mar Final Leading Index CI: 95.9 v 96.3 prelim; Coincident Index: 99.4 v 99.6 prelim

Korea

• Kospi opened -0.1%
• (KR) US President Trump: "North Korea fired off some small weapons, which disturbed some of my people, and others, but not me. I have confidence that Chairman Kim will keep his promise to me, & also smiled when he called Swampman Joe Bidan a low IQ individual, & worse. Perhaps that’s sending me a signal?" – tweet
• (KR) South Korea government considering extending tax cut for cars - Korean Press
• (KR) South Korea sells KRW508B v KRW500B indicated in 20-yr bonds; avg yield 1.83% v 1.94% prior, bid to cover 3.19x
• (KR) North Korea KCNA: US Bolton's statements are ruining peace and security, banning ballistic technology is giving up self defense

China/Hong Kong

• Hang Seng opened -0.4%; Shanghai Composite opened -0.1%
• (CN) CHINA APR INDUSTRIAL PROFITS Y/Y: -3.7% V +13.9% PRIOR; YTD Y/Y: -3.4% V -3.3% PRIOR
• 1766.HK US Senate has introduced a bill that will block the ability to deliver subway cars to Washington DC – press
• (CN) Joint report by China Association of Automobile Manufacturers (CAAM) said to see 2019 passenger car sales at ~23.7M units, flat y/y (in line with Jan projection) – Xinhua
• (CN) China Banking and Insurance Regulatory Commission (CBIRC) Spokesman Xiao Yuanqi: Those who speculate and short the yuan (CNY) will for sure suffer heavy loss - financial press
• (CN) China PBoC sets yuan reference rate: 6.8924 v 6.8993 prior
• (CN) China PBoC Open Market Operation (OMO): Injects CNY80B in 7-day reverse repos v skips prior; Net: CNY80B injection v CNY0B prior
• (CN) Yields on some of the NCDs issued by regional banks in China rise after recent gov’t takeover of Baoshang Bank
• (CN) China Ministry of Finance (MoF) said to plan to restrict direct investment from foreign IT companies, starting in August - US financial press

North America

• (US) MP Materials, which runs the sole operating rare earths mine in the United States targeting to start processing operation by the end of 2020 now that China has raised rare earth import tariffs to 25% - SCMP

Europe

• (EU) EU Parliament Early Election Results show that more pro-EU parties remain relatively unchanged; France President Macron's En Marche was defeated; traditional centerist parties lost seats to Greens and Liberal parties
• (EU) ECB Weidmann (Germany) reiterated sees no need for ECB to change its policy at present, despite weaker euro zone economy - financial press
• (GR) Greece PM Tsipras: Cannot ignore election result; calls general snap elections

Levels as of 01:20ET

• Hang Seng -0.4%; Shanghai Composite +0.7%; Kospi -0.2%; Nikkei225 +0.3%; ASX 200 -0.1%
• Equity Futures: S&P500 -0.1%; Nasdaq100 -0.2%, Dax -0.0%; FTSE100 -0.0%
• EUR 1.1203-1.1216; JPY 109.28-109.50; AUD 0.6925-0.6937; NZD 0.6550-0.6560
• Commodity Futures: Gold +0.2% at $1,286/oz; Crude Oil -0.8% at $58.32/brl; Copper +0.4% at $2.71/lb

Market movers today

The week starts out quietly on the data front, so focus will be on politics, notably the outcome and implications of the EU parliamentary elections.

A key area of interest will be the EU election result implications for the appointment of the next head of the EU Commission, which could also have implications for the ECB presidential appointment .

In the UK, the results for the Conservative Party will be scrutinised in light of the impending leadership contest.

Selected market news

Although the EU elections saw shrinking support for established parties in many countries, the influence of Eurosceptic groups will remain limited with a vote share of c.23% (from 20.6% previously). Losses for the Social Democrats and Conservatives - which lost their absolute majority for the first time since 1979 - were amply offset by gains for the Greens and Liberals, meaning that overall sentiment in Parliament will remain pro-EU. Still, in France, President Macron's party En Marche lost the race against the far-right Rassemblement National, calling into doubt his grand plans for domestic reforms and further EU integration.

Similarly, in Germany, critical voices in the grand coalition are getting louder after another heavy defeat for the SPD party. While national governments will digest the repercussions of the election results in the coming days, focus in Brussels reverts to coalition building and the election of a new Commission presiden. Note that in the UK, the Conservatives only got 9% of the votes, while Nigel Farage's new Brexit Party got 32%. It may further support the hard Brexit camp as the Conservatives prepare to elect the successor to PM May.

All in all, we expect financial markets to react positively to the EU election results (higher equities and yields). But it is not a big market mover, as we see it. The next major events are the ECB and Fed June meetings.

On Friday night, Fitch changed the outlook on Portuguese government bonds from "stable" to "positive". Fitch pointed to falling public debt/GDP and a low headline fiscal deficit and sees little risk of a sharp deviation from current fiscal policy after the October elections. It shows that the positive rating cycle is still intact in Portugal despite the weaker Eurozone outlook. That said, Moody's did not change the rating or the outlook for Spain. However, the Spanish economy is, like Portugal's, in quite good shape and it is just a matter of time, in our view, before Spain receives a positive outlook.

The EUR/USD seems to be expanding the wave 4 (green) corrective pattern after bouncing at the support line (blue). The bounce indicates the end of a bearish wave X (orange) and the potential start of bullish wave Y (orange). A bullish ABC is likely to take place before price can complete the larger wave 4 (green) pattern. Fibonacci

The EUR/USD is building a bullish channel which could be a wave A (dark red) of a potential larger ABC zigzag pattern. A break below the support trend line (blue) indicates the start of a retracement towards the Fibonacci levels of wave B vs A, which could be bouncing spots for a potential larger push up again.

Bundesbank President Jens Weidmann reiterated over the weekend that there was no need for change in ECB policy. He noted despite recent uncertainties, "the economic outlook is good". And, "we are assuming a rise in price pressures and that's the condition for monetary policy to normalize." Also, "this isn't a situation where prices are falling and we have to react now."

ECB is set to meet again on monetary policy on June 5/6. Eurosystem staff macroeconomic projections will be released Also, details are expected on the third round of cheap loans to banks, the TLTRO III.

Euro firms up notably against Swiss Franc in Asian session today. Official projections of European elections showed that efforts from anti parties are failing in the elections. And after the elections, policies of EU will remain largely unchanged.

That is, within the bloc, there will be further gradual integration, in particular in Eurozone. Externally, EU will continue to defend multilateral, rule-based global trade system and reject protectionism of the US. Also, there will be no renegotiation of Brexit Withdrawal agreement.

The two large alliances of central-right and center-left lost ground and could only make up 44% of the seats. That's down from 56% back in 2014. However, pro-business Liberals and the Greens and had a clear surge to 14% and 9% respectively, up from 9% and 7%. That is, together, these pro-EU groups will have around 67% of seat, enough for outright majority, even though it's down from around 72% in 2014.

Technically, we're seeing the fall from 1.1476 as a corrective move only. Thus, while it's deep, we do not expect a break of 1.1162 low. Rebound should be due considering bullish convergence condition in 4 hour MACD. But Decisive break 1.1162 will carry larger bearish implications.

GBP/USD is slowly recovering and it is currently trading above 1.2680. USD/CAD is likely to resume its upward move above the 1.3550 and 1.3580 resistance levels.

Important Takeaways for GBP/USD and USD/CAD

• The British Pound declined close to the 1.2600 area and recently started an upside correction.
• There is a major ascending channel forming with support near 1.2680 on the hourly chart of GBP/USD.
• USD/CAD corrected lower recently and tested the key 1.3430 support area.
• The pair is currently following a bullish flag pattern with resistance near 1.3450 on the hourly chart.

GBP/USD Technical Analysis

The British Pound declined heavily this past week and broke the key 1.2820 support area against the US Dollar. The GBP/USD pair extended losses below the 1.2750 and 1.2700 support levels.

The pair even broke the 1.2650 support level and the 50 hourly simple moving average. It traded close to the 1.2600 support area and formed a swing low at 1.2605 on FXOpen.

Recently, the pair started a decent recovery and traded above the 1.2650 resistance. The upward move was positive, considering it broke the 1.2700 resistance, the 50 hourly simple moving average, and the 50% Fib retracement level of the last drop from the 1.2813 high to 1.2605 low.

At the moment, there is a major ascending channel forming with support near 1.2680 on the hourly chart of GBP/USD. The pair is currently trading near the channel resistance at 1.2735.

Moreover, it is testing the 61.8% Fib retracement level of the last drop from the 1.2813 high to 1.2605 low. Therefore, the pair could decline or correct lower in the short term below 1.2710.

An initial support on the downside is near the 1.2700 level. However, the main support is near the channel, 1.2680, and the 50 hourly SMA. As long as there is no close below the 1.2680 support area, the pair is likely to bounce back in the near term.

On the upside, an initial resistance is at 1.2735, above which the bulls could target 1.2800 or even 1.2820.

USD/CAD Technical Analysis

The US Dollar remained strong above the 1.3400 level against the Canadian Dollar. The USD/CAD pair climbed towards the 1.3500 level before it started a downside correction.

A swing high was formed at 1.3502 before the pair declined below the 1.3465 level and the 38.2% Fib retracement level of the last wave from the 1.3357 low to 1.3502 high.

However, the decline was protected by the key 1.3430 support area. Moreover, the 50% Fib retracement level of the last wave from the 1.3357 low to 1.3502 high is also acting as a strong support near the 1.3429 level.

At the outset, the pair is currently following a bullish flag pattern with resistance near 1.3450 on the hourly chart. A clear break above the flag resistance at 1.3450 is likely to open the doors for a fresh increase above the 1.3460 and 1.3480 levels.

The main resistance on the upside is near the 1.3500 level, above which the pair could test the 1.3525 level. Conversely, if there is a downside break below the 1.3430 or 1.3420 support, USD/CAD might decline further. The next key support is at 1.3400, where the bulls are likely to appear.

STOCKS

The uncertainty over further developments on the US-China trade talks continues to weigh on the global equities and keeps them mixed. However, the broader view remains negative as the key resistances on major indices like the Dow, DAX, Nikkei are still holding well. Probably, we might expect a sideways consolidation before a fresh leg of downmove begins. Sensex and Nifty are holding above their supports and looks bullish.

Dow (25585.69, +95.22 +0.37%) has been consolidating over the last two weeks within its downtrend. The near term view is negative to test 25250 and 25000. Key resistances are at 25750 and 26000.

DAX (12011.04, +58.63, +0.49%) remains vulnerable to break 12000 and fall to 11800-11600 which would signal a trend reversal. But while the immediate support at 12000 holds, a sideways move between 12000 and 12200 is possible before we see the above mentioned fall.

Nikkei (21169.02, +51.80, +0.25%) is getting support near 20900. While above 20900 a rise to 21250 and 21450 is possible. But only a strong break above 21500 will negate our bearish view for a fall to 20500.

Shanghai (2850.33, -2.67,-0.09%) continues to hover around 2850 and remains vulnerable to test 2800.

Sensex (39434.72, +623.33, +1.61%) is holding well above its support at 38500. The outlook is bullish to test 41000.But a sideways consolidation between 38500 and 39500 cannot be ruled out before we see a fresh rally to 40500-41000.

Similarly, Nifty (11844.10, +187.05. +1.60%) can consolidate between 11600 and 11900 in the near term before targeting 12350 and 12500 levels.

COMMODITIES

A pull-back in the US dollar, weakness in the equities and increasing hopes for a rate cut from the US Federal Reserve is supporting gold and silver. Both can see further upticks in the near term. Copper can extend its corrective rally before the overall downtrend resumes. Oil has bounced but has key resistance ahead which can hold and keep the downtrend intact.

While Gold (1286) sustains above 1275, it can rise to 1290-1292 or even 1300 on a break above 1292.Broadly gold can consolidate between 1265-1300 before the overall downtrend resumes.

Silver (14.60) has support at 14.50 and can test 14.75-14.80. Thereafter it can reverse lower and keep the downtrend intact for a test of 14.25 and 14.

As expected, Copper (2.70) has inched further higher and is heading towards 2.71-2.72. Though there are chances of the current corrective bounce extending to 2.75, the overall view will continue to remain bearish for copper to reverse lower and target 2.62-2.60 over the medium term.

Brent (68.80) has strong resistance between 70 and 71 which will cap the upside and keep the bearish view intact for a test of 66-64.

Similarly, the resistance between 60 and 61 can cap the upside in WTI (58.55) and keep the view negative for a fall to 56-54.

FOREX

Dollar trades higher. UK and US markets are closed today. Currencies could see stable movement today.

Dollar Index (97.58) could test 97.30 which is a very near term support and is likely to hold producing a bounce back towards 98.

Euro (1.1211) has risen in line with our expectation of a rise in Euro mentioned on Friday’s edition. 1.11 has produced a sharp bounce and Euro could move higher towards 1.1265 before pausing. Near term looks bullish.

Euro-Yen (122.71) could be capped at 123 on the upside from where a rejection could take it down to re-test support at 122.

Dollar Yen (109.46) has fallen again from levels near 110.50 last week and could re-test support region of 109.00-108.50 before bouncing back towards 110.50. View for the next 1-2 sessions is bearish.

Aussie (0.6930) has risen above 0.69 and while the rise sustains, Aussie could head towards 0.70

USDCNY (6.89) has come off instead of moving higher towards 6.95. While below 6.92/91, USDCNY could test 6.86/85 which could prove to be a decent support in the near term.

USDINR (69.5350) has come down in line with our expectation. Our earlier mentioned 69.25/00 remains intact and the pair could be seen moving lower towards our target over the next 2-3 sessions.

INTEREST RATES

The US yields are closer to near term support levels and soon see a corrective bounce. The US 30Yr (2.75%) could test 2.72%, the 10Yr (2.33%) could test 2.30%, 5Yr (2.12%) could bounce from 2.10% in the near term.

The US-Japan 10YR (2.40%) is testing immediate support levels and while it bounces from here, it could pull up Dollar Yen along with itself in the near term. The yield spread could bounce back towards 2.50%.

The Japan yields have fallen from trend resistance and could be headed lower in the next 3-4 sessions. A fall towards -0.10% could be on the cards for the 10Yr yield (-0.069%)

Key Highlights

• The Euro found support near 1.1100 after a strong decline against the US Dollar.
• EUR/USD traded above a major bearish trend line at 1.1165 on the 4-hours chart.
• On the upside, there are many hurdles near 1.1225 and 1.1260.
• The US Durable Goods Orders in April 2019 declined 2.1%, more than the -2.0% forecast.

EURUSD Technical Analysis

This past week, the Euro declined below the 1.1150 and 1.1120 support levels against the US Dollar. The EUR/USD pair tested the 1.1100 support area and recently bounced back above 1.1150

Looking at the 4-hours chart, the pair spiked sharply after trading as low as 1.1107. It broke the 1.1165 resistance area and the 50% Fib retracement level of the downward move from the 1.1263 high to 1.1107 low.

Moreover, the pair traded above a major bearish trend line at 1.1165 on the same chart. It even climbed above the 100 simple moving average (red, 4-hours) and the 61.8% Fib retracement level of the downward move from the 1.1263 high to 1.1107 low.

However, there are many hurdles on the upside near the 1.1225 and 1.1250 levels. The main range resistance is near the 1.1265 area, where sellers are likely to defend more gains. If there is a successful break above the 1.1265 barrier, EUR/USD could climb further higher towards the 1.1300 level.

Conversely, if the pair fails to gain strength above 1.1250 or 1.1265, it could start a fresh decline. On the downside, an initial support is near the 1.1180 level, below which the pair is likely to test the 1.1150 support.

Fundamentally, the US Durable Goods Orders report for April 2019 was released by the US Census Bureau. The market was looking for a 2.0% decline in orders in April 2019.

The actual result was lower than the forecast, as there was a 2.1% decline in the US Durable Goods Orders. Moreover, the last reading was revised down from +2.7% to +1.7%.

The report added:

Excluding transportation, new orders were virtually unchanged. Excluding defense, new orders decreased 2.5 percent. Transportation equipment, also down two of the last three months, drove the decrease, $5.4 billion or 5.9 percent to $85.4 billion.

Overall, EUR/USD could move further higher, but other major pairs such as GBP/USD and USD/JPY might continue to struggle in the near term.

The CFTC Commitments of Traders report in the week ended May 21 shows that NET LENGTH in USD Index edged slightly higher, by +35 contracts, to 26 712. Both speculative long and short positions increased during the week. All other major currencies stayed in NET SHORT positions.

Concerning European currencies, NET SHORT for euro futures increased +5 801 contracts to 101 102. NET SHORT for GBP futures jumped +22 834 contracts to 26 152. Speculative long positions dropped -3 694 contracts while speculative shorts gained sharply, by +19 140 contracts, for the week. Besides the European Parliament election, there are a number of factors causing volatility both currencies in coming weeks. For euro, the ECB minutes showed that policymakers were less confident about the economic outlook. They were concerned that their growth projections could be missed. With the policy rate staying in negative territory for years, it could be challenging for the central bank to implement measures to stimulate the economy. The market is closely awaiting technical details about the new tranche of TLTROs. Moreover, the members are also discussing the adverse impacts of negative interest rates on the banking sectors and potential measures to mitigate these impacts. Concerning British pound. Just a few days after the announcement of a revised plan to Brexit, UK PM Theresa May announced that she would resign on June 7. "Who would be the next PM?" and "How would Brexit negotiate proceed?" are the country's major political and economic uncertainties. These are expected to cause significant volatility in Sterling.

On safe-haven currencies, Net SHORT for CHF futures fell -2 515 contracts to 37 495. NET SHORT for JPY futures declined -6 388 contracts to 55 192 during the week. Speculative long positions dropped -8 375 contracts while shorts plummeted -14 763 contracts.

On commodity currencies . NET SHORT for AUD futures rose +2 065 contracts to 66 111. Speculative long positions gained +10 627 contracts while shorts rose +12 692 contracts. Separately, NET SHORT for NZD dropped -574 contracts to 10 864 contracts last week. NET SHORT for CAD futures fell -5 352 contracts to 42 236.

According to the CFTC Commitments of Traders report for the week ended May 21,  NET LENGTH for crude oil futures declined -9 410 contracts to 478 398 for the week. Speculative long positions slumped -22 000 contracts while shorts also plunged -12 590. Uncertainty of US-China trade war continued to trim bets on crude oil futures. For refined oil products, NET LENGTH for gasoline dropped -3 453 contracts to 86 970, while NET SHORT for heating oil decreased -2 852 contracts to 12 083 for the week. NET SHORT for natural gas futures fell -12 921 contracts to 60 978 contracts for the week.

In line with our forecast last week, traders trimmed their long bets on gold as price of the safe-haven asset caught a breath after recent rally. NET LENGTH for gold futures plunged -35 731 contracts to 88 805 last week. Speculative long positions declined -22 733 contracts, while shorts gained +12 998. For silver futures, speculative long positions dropped -2 060 contracts while shorts soared +10 393. These resulted in an increase in  NET SHORT to 12 453 contracts. For PGMs, NET LENGTH of Nymex platinum futures plummeted -10 260 contracts to 15 490 while that for palladium increased +428 contracts to 8 049.