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The DAX has rebounded on Friday, after posting sharp losses on Thursday. Currently, the index is at 12,053, up 0.85% on the day. On the release front, it’s quiet end to the week, with no German or eurozone events. It is Day 2 of the European election, with results to be published on Sunday night, after all EU members have voted.

On Thursday, the DAX posted sharp losses, as investors reacted to a weak German business confidence report. Ifo Business Climate slowed to 97.9, shy of the estimate of 99.2. This was the weakest score since January 2010. Germany and the eurozone are gripped in a slowdown, and this has dampened business confidence. German PMI scores dropped in April, as the German locomotive has lost a gear. Manufacturing PMI dropped to 44.3, marking a fifth straight contraction. Although services PMI continue to point to expansion, the May release disappointed, dropping from 55.6 to 55.2 and missing the forecast of 55.0 points. The manufacturing sector has been hit hard by the global trade war, and the German economy, the largest in the eurozone, managed just a 0.4% gain in the first quarter.

Trade tensions between the U.S. and China remain a key concern for investors. China has reacted angrily to U.S. sanctions on Huawei and has suspended trade talks with the U.S. The spike in tensions weighed on global stock markets, and the DAX plunged 1.8%, its sharpest drop since early February. The index has reversed directions on Friday, and traders should be prepared for futher swings in the markets next week.

EUR/USD has paused on Friday, after gaining ground on Thursday. Currently, the pair is trading at 1.1193, up 0.10% on the day. There are no German or eurozone events on the schedule. Today’s highlight is U.S. durable goods orders, with the markets braced for soft numbers. Durable goods orders is expected to decline 2.0% in April, after a strong gain of 2.7% in March. The core reading is expected to slow to 0.1%, down from 0.4% in the previous release. It’s Day 2 of the EU election, with results to be published on Sunday night, after all EU members have voted.

It’s been a quiet month of May for EUR/USD. The currency posted a modest gain of 0.28% on Thursday, the strongest move in either direction this month. Friday could be a quiet day, unless durable goods reports yield unexpected results. The euro managed to scratch gains despite weak German numbers. Manufacturing PMI dropped to 44.3 in April, marking a fifth straight contraction. Services PMIs continue to point to expansion, but the April score fell to 55.0, down from 55.6 a month earlier. There is also concern about business confidence, as Ifo Business Climate slowed to 97.9, shy of the estimate of 99.2. This was the weakest score since January 2010. Germany and the eurozone are gripped in a slowdown, and this has dampened business confidence.

The Federal Reserve continues to preach patience, as the minutes of the May meeting indicated that the Fed has no plans to change interest rates anytime soon. Although Fed members sounded more optimistic about economic growth, they remain committed to maintaining current rate levels, given that inflation remains low. Despite the Fed message, the markets expect at least one rate cut in 2019. The CME Group has priced in a 36% likelihood of a 25-point basis cut at the September meeting. The possibility of lower U.S. rates makes the greenback less attractive to investors and could boost the euro at the expense of the U.S. dollar.

Notes/Observations

Asia:

• (AU) Westpac now forecasts 3 RBA rate cuts in 2019 (previously said it saw rate cuts in June and Aug 2019); Now expects the RBA to cut the cash rate to 0.75% by Nov 2019 (current target rate is 1.50%)
• (NZ) New Zealand PM Ardern: Economic growth set to be slower than recent years
• (NZ) New Zealand Apr Trade Balance (NZ$): 433M v 450Me
• (JP) JAPAN APR NATIONAL CPI Y/Y 0.9% V 0.9%E; CPI EX FRESH FOOD (CORE) Y/Y: 0.9% V 0.9%E
• (CN) China said to issue policy to boost development of small tech companies - press
• (CN) China responds to Hikvision blacklist: hopes US will stop escalation
• China Commerce Min (MOFCOM): Domestic Economy faces downward pressure; some structural issues remain to be resolved; trade environment growing more uncertain
• Report on China's Foreign Trade Condition
• (KR) North Korea said to take actions against U.S. distrust, hostility

Korean press

• (JP) Japan Cabinet Office cuts economic assessment in May monthly report

Europe/Mideast:

• (RU) IMF: Russia's Central Bank monetary stance is moderately tight now, it's time to resume cutting rates
• (LY) Airstrikes by breakaway Eastern Libya forces hit Libya parliament, other locations in Tripoli - Local Press
• (FI) Finland Apr Preliminary Retail Sales Volume Y/Y: 3.2% v 1.7% prior
• (UK) PM May said to announce her departure date today, on May 24th - BBC
• (UK) APR RETAIL SALES (EX-AUTO /FUEL) M/M: -0.2% V -0.5%E; YOY: 4.9% V 4.2%E
• (UK) PM MAY ANNOUNCES TO STEP DOWN ON JUN 7TH FOLLOWING MEETING WITH 1922 COMMITTEE

Americas

• (US) US Commerce Dept: Proposing rule to impose countervailing duties on countries that undervalue their currency relative to the US dollar

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.80% at 376.80, FTSE +0.70% at 7,281.82, DAX +0.93% at 12,063.50, CAC-40 +0.94% at 5,331.23, IBEX-35 +0.81% at 9,187.48, FTSE MIB +1.42% at 20,422.50, SMI +0.76% at 9,666.80, S&P 500 Futures +0.62%]
• Market Focal Points/Key Themes: European indices opened higher and tacked onto early gains, with continued focus on US-China trade situation as well as UK/EU politics. China continued to talk up policy directives aimed at boosting technology development while the US indicated the administration was going to tie currencies to trade through potential countervailing duties. As speculated, UK PM Theresa May announced she would be stepping down on June 7th, after meeting with the 1922 committee. European elections began yesterday and initial results are expected to be announced on Sunday evening. Italy bond markets performed well following a set of more soothing comments for Dep PM Salvini.

Equities

• Consumer discretionary: Casino Guichard-Perrachon [CO.FR] +16%, Rallye [RAL.FR] -60% (research note; CFO statement), Vapiano [VAO.DE] +1.5% (restructuring), Mothercare [MTC.UK] +13% (earnings), Bodycote International [BOY.UK] -0.5% (trading update)
• Industrials: Maersk [MAERSKB.DK] +1% (earnings; dividend policy and buyback)

Materials:

• Financials: Gam Holding [GAM.CH] +8% (voting rights), Julius Baer Group [BAER.CH] -1% (AUM data), Old Mutual [OML.UK] -0.5% (unit CEO resigns)
• Technology: IQE [IQE.UK] n/c (trading update; Huawei comments), Tarsus [TRS.UK] +37% (to be acquired), Spectris [SXS.UK] +1.5% (trading update)

Speakers

• (JP) Japan PM Abe: Will do all to manage economy amid overseas uncertainties; reiterates no change on sales tax [increase plan] unless Lehman Brothers scale shock occurs
• (KR) South Korea Official Yoon: Q2 GDP expected to 'significantly' improve; housing prices remain stable
• (IT) Italy Dep PM Salvini: Turin-Lyon high-speed rail line, flat tax and devolution are priorities for government after EU vote - press
• (EU) ECB's Vasle (Slovenia): At this stage the economy is 'strong enough', economy still in line with March projections
• (CN) China Foreign Min Spokesman: U.S. politicians are making all kinds of rumors but not giving evidence
• (CN) China PBoC Deputy Governor: FX market condition is stable, has ample policy tools to cope with exchange rate fluctuations
• (JP) Japan Econ Min Motegi: plan to raise nationwide sales tax unchanged, economic growth still intact

Currencies/Fixed Income

• Yesterday saw the Dollar index futures retreat from its high of 98.26 after US Commerce Secretary Ross commented to propose a rule to impose countervailing duties that undervalue their currency relative to the USD. This led the USD/JPY and equity indexes to sell off and the US 10 year future prices to increase to yearly highs and yields to fall. EUR/USD The Euro finally broke out of its range breaking above the 1.12 handle only to get pushed back below. The EU elections will more than likely cause a bit of volatility in the coming week. GBP/USD The Cable has traded in-between the 1.26 and 1.27 handle today and yesterday as the UK waits to hear if the UK PM May will step down or at least set a date to do so. If she does step offer to step down, will she ensure certain steps for Brexit are taken before so.

Economic Data

• (FI) Finland Apr PPI M/M: 0.1% v 0.0% prior; Y/Y: 2.0% v 2.3% prior
• (FI) Finland Apr Preliminary Retail Sales Volume Y/Y: 3.2% v 1.7% prior
• (SE) Sweden Q1 FSA Bank Capital Requirements
• (ES) Spain Apr PPI M/M: +0.6% v -0.3% prior; Y/Y: 2.3% v 2.4% prior
• (AT) Austria Mar Industrial Production M/M: -1.0% v +0.6% prior; Y/Y: 5.7% v 5.9% prior
• (CZ) Czech May Consumer Confidence Index: 2.8 v 1.5 prior; Business Confidence: 12.7 v 15.1 prior
• (SE) Sweden Mar PPI M/M: -0.7% v +1.2% prior Y/Y: 4.9% v 6.3% prior
• (RU) Russia Narrow Money Supply Narrow w/e May 17th (RUB): 10.40T v 10.35T prior
• (UK) APR RETAIL SALES (EX-AUTO /FUEL) M/M: -0.2% V -0.5%E; YOY: 4.9% V 4.2%E

Fixed Income Issuance

NO ISSUANCE

• Looking Ahead
• All Day (EU) European Parliamentary Elections
• 06:00 (UK) CBI Retailing Reported Sales: 6e v 13 prior; CBI Total Distribution Reported Sales: No est v 9 prior
• 08:00 (PL) Poland Apr M3 Money Supply: 0.4%e v 0.9 prior; Y/Y 10.1%e v 9.9% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 0830 (US) Core Durable Goods
• 09:00 (RU) Russia Apr Unemployment Rate: 4.7%e v 4.7% prior; Real Wages Y/Y: No est v 0.0% prior (revised from 0.2%)
• 09:00 (RU) Russia Apr Real Retail Sales Y/Y: 1.4e% v 1.6% prior
• 09:00 (BE) Belgium May Business Confidence: No est v -3.2 prior

BoC is going to decide on interest rate next week again. It's generally expected to keep the overnight rate unchanged at 1.75%. Indeed, according to a Reuters poll, all 40 economists surveyed expected so too. However, forecasters are split on the rate path for BoC ahead.

Probability of a rate cut by the end of 2019 stands at 23% only. Probability of a rate cut by end of 2020 stands at 40%. However, there are still some forecasts expected a rate cut. Around 11 of 33 respondents expect a hike by the end of next year. And 4 even expect two hikes.

Prime Minister Theresa May said on Friday she would step down on June 7, succumbing to calls in her governing Conservative Party to make way for a new leader to try to break an impasse over Britain’s departure from the European Union.

“It is now clear to me that it is in the best interests of the country for a new prime minister to lead that effort. So I am today announcing that I will resign as leader of the Conservative and Unionist Party on Friday the 7th of June,” May said.

Sterling’s record losing streak combined with the growing risks that Brexit will see a hard exit, is making fund managers abandon long-term ‘bullish’ bets. Just a few months ago, the base case was that Brexit would be delivered by PM May and that it would be a soft exit.

However, if we do see Boris Johnson, the current oddsmaker favorite, become Theresa May’s successor, we could see the ‘hardest’ Brexit occur. The pound (£1.2645), which is currently atop of its four-month lows, could see further pressure to target the psychological £1.2000 level and eventually the 2016 lows. A no-deal Brexit and a general election risks are likely to keep the pound under pressure.

But a weaker than expected showing for the Brexit party in the EU elections could potentially provide some relief for sterling, particularly if the Liberal Democrats perform strongly. A new Tory leader that is less of a Brexiteer than the likes of Boris Johnson could also see a modest bounce in the pair.

Support for Nigel Farage’s “no-deal” supporting party is at +37%, according to a recent survey, compared to +19% for the pro-remain Liberal Democrats and just +7% for PM May’s Conservatives.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.11501
Open: 1.11812
% chg. over the last day: -0.28
Day's range: 1.11726 – 1.12056
52 wk range: 1.1111 – 1.2009

EUR/USD started to recover and updated the local maximums. The investors began to fix positions after a long rally. The escalation of the trade war between Washington and Beijing increased the expectation for the FRS to lower the interest rates this year. An additional pressure is cause by the negative trends in the US Treasury bonds' yield. The market participants are watching the EU Parliament elections. The quotes are consolidating around 1.11800-1.12000. You should open positions from these levels. EUR has prospects for further recovery.

The Economic News Feed for 24.05.2019:

Report on the Orders of Durable Goods (US) – 15:30 (GMT+3:00);

The price fixed above 200 MA which points towards the power of the buyers.

The MACD histogram is in the positive zone and keeps rising which points towards a further correction of the EUR/USD quotes.

The Stochastic Oscillator is in the neutral zone, the %K line is crossing the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.11800, 1.11500, 1.11300
Resistance levels: 1.12000, 1.12200, 1.12450

If the price fixes above 1.12000, expect further descend towards 1.12300-1.12500.

Alternatively, the quotes can descend towards 1.11500-1.11300.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.26516
Open: 1.26525
% chg. over the last day: +0.01
Day's range: 1.26477 – 1.26879
52 wk range: 1.2438 – 1.3631

GBP/USD stabilized after a long descend. The GBP is consolidating. The local support and resistance levels are 1.26500 and 1.27000. The market participants are waiting for the relevant info regarding Brexit. A technical correction remains possible. You should open positions from the key levels.

At 11:30 (GMT+3:00) the UK will publish a retail sales report.

The indicators do not provide precise signals, the price has crossed 50 MA.

The MACD histogram has moved into a positive zone which points towards a correction of GBP/USD.

The Stochastic Oscillator is in the neutral zone, the %K line started to cross the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.26500, 1.26000
Resistance levels: 1.27000, 1.27550, 1.28000

If the price fixes above 1.27000, expect further correction towards 1.27500-1.27800.

Alternatively, the quotes can fall towards 1.26200-1.26000.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.34356
Open: 1.34721
% chg. over the last day: +0.33
Day's range: 1.34459 – 1.34824
52 wk range: 1.2727 – 1.3664

USD/CAD started to descend after a sharp growth. The trading instrument updated the local minimums. The key support and resistance levels are 1.34450 and 1.34700. The demand for USD weakens. Keep an eye on the oil quotes dynamics and open positions from the key levels.

The Economic News Feed for 24.05.2019 is calm.

The indicators do not provide precise signals: 50 MA has crossed 200 MA.

The MACD histogram is close to 0.

The Stochastic Oscillator is in the oversold zone, the %K line started to cross the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.34450, 1.34200, 1.34000
Resistance levels: 1.34700, 1.34900, 1.35100

If the price fixes below 1.34450, epxect a correction towards 1.34000.

Alternatively, the quotes can grow towards 1.34800-1.35000.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 110.333
Open: 109.594
% chg. over the last day: -0.73
Day's range: 109.456 – 109.745
52 wk range: 104.97 – 114.56

USD/JPY is showing an agressive bearish trend. The quotes have descended by 70 points. The demand for the safe assets has grown since the trade negotiations between the US and China seem to have reached a dead end. Right now the quotes are consolidating around 109.500-109.750. Keep an eye on the US economic reports. The currency pair has a tendency to descend.

The national basis consumer price index in Japan for April confirmed the market expectations and reached 0.9%.

The price fixed below 200 MA which points towards the power of the sellers.

The MACD histogram is in the negative zone but above the signal line which gives a weak signal to sell USD/JPY.

The Stochastic Oscillator is in the neutral zone, the %K line is crossing the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 109.500, 109.150, 109.000
Resistance levels: 109.750, 110.100, 110.350

If the price fixes below 109.500, expect further descend towards 109.150-109.000.

Alternatively, the quotes can grow towards 110.000-110.200.

During the previous trading session, the EUR/USD currency pair skyrocketed to the 200-hour SMA at the 1.1180 mark. During Friday's morning, the pair was testing the resistance level—the weekly PP at 1.1192.

Note, that the pair is trading near the upper boundary of the short-term descending channel at 1.1200. Thus, it is likely, that a reversal south could occur soon. In this case, the pair would be supported by the given moving average, as well the 55– and 100-hour SMAs at 1.1162.

On the other hand, the exchange rate could trade sideways between the 200-hour moving average and the Fibonacci 38.20% retracement located at the 1.1200 mark.

On Thursday, the GBP/USD exchange rate rised to the 55-hour moving average, currently located at 1.2662. During today's morning, the rate tested the resistance formed by the 100-hour SMA at 1.2690.

If the given resistance holds, it is expected, that some downside potential could prevail in the market, and the rate could target the support level—the weekly S1 at the 1.2610 mark.

However, if the 55--hour moving average holds, it is likely, that the currency pair could surpass the given resistance and target the 200-hour moving average, currently located at 1.2765.

Yesterday, the USD/JPY currency pair dropped to the support level formed by the Fibonacci 50.00% retracement at 109.58. During Friday's morning, the pair was trying to surpass the given support.

If it holds, a reversal north could occur within the following trading hours. However, note, that the exchange rate is pressured by the resistance cluster formed by the 55-, 100-, and 200-hour SMAs, as well the weekly PP and the monthly S2 in the 109.77/110.13 range.

It is unlikely case, that bears could continue to prevail in the market, and the rate could decline lower than 109.12 mark due to the support of the monthly S3.

On Wednesday, the price for gold skyrocketed the resistance level formed by the monthly PP at the 1,287.27 mark.

Given that the XAU/USD exchange rate is pressured by the 200-hour SMA, currently located at 1,284.88, it is likely, that some downside potential could prevail in the market, and gold could target the support level formed by a combination of the 55– and 100-hour SMAs circa 1,278.00.

If the given support level does not hold, it is expected, that the price for gold could fall to the Fibonacci 38.20% retracement at 1,273.68. Also, note, that the rate is trading near the upper boundary of the short-term descending channel, thus, it is unlikely, that some upside potential could prevail in the market