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The euro currency has started to trade lower against the US dollar, following the release of more weaker than expected eurozone manufacturing data. The EURUSD pair may start to target the 1.1110 level if sellers can hold price below the important 1.1130 level. A breakout under the 1.1110 level is likely to prompt a further technical test of the current yearly trading low.

The EURUSD pair is only bearish while below the 1.1165 level, key technical support is found at the 1.1130 and 1.1110 levels.

If the EURUSD pair moves above the 1.1165 level, key technical resistance is found at the 1.1190 and 1.1234 levels.

The British pound has fallen to a fresh four-month trading low against the US dollar during the European trading session, with the pair hitting 1.2604. The GBPUSD pair is increasingly likely to target the 1.2550 and 1.2500 levels if sellers breach the 1.2600 support level. Intraday volatility in the GBPUSD pair is likely to see a sharp rise as voting for the European elections starts today.

The GBPUSD pair is heavily bearish while trading below the 1.2600 level, key support is located at the 1.2550 and 1.2500 levels.

If the GBPUSD pair trades above the 1.2600 level, key intraday resistance is found at the 1.2660 and 1.2710 levels.

Notes/Observations

Asia:

• Japan Prelim PMI Manufacturing slipped to contraction territory on trade fears as new export order fell at the fastest pace in 4 months
• China Mofcom reiterates US actions have escalated trade tensions; China will not make concessions on key major issues; Will protect American companies interests in China

Europe/Mideast:

• German Manufacturing PMI register 4th month of contraction, as year ahead output expectations fell to a 55 month low. Confidence among the service sector fell to a three and a half year low.
• German IFO Business Climate fell in May and missed forecasts
• French Manufacturing PMI rose to a 3 month higher, with Services PMI reaching a 6 month high, as business activity saw the fastest rise in six months.
• Eurozone Manufacturing recorded third straight contraction; current readings indicate Q2 GDP growth of 0.2%, German GDP growth of 0.2% and French GDP growth at 0.1%.
• Concern for the rest of Europe as growth falters as orders fell for the first time in six years
• Conservative Senior PMs and Backbenchers expect PM May to resign within the coming days

Americas

• Fomc minutes from May 1 meeting: Officials saw patient approach appropriate for 'some time'; many policymakers said recent dip in PCE inflation likely to be transitory

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -1.24% at 374.50, FTSE -1.07% at 7,255.83, DAX -1.58% at 11,976.78, CAC-40 -1.54% at 5,296.19, IBEX-35 -1.24% at 9,121.00, FTSE MIB -1.54% at 20,255.50, SMI -0.53% at 9,593.80, S&P 500 Futures -0.75%]

Market Focal Points/Key Themes:

Equities

• European Indices decline sharply across the board led by declines in the auto and tech sector amid weaker than expected PMI datafrom Germany and Eurozone and German IFO Business Climate release. U.S. futures also trade deep in negative territory following China-U.S. trade concerns. On the corporate front, shares of Casino Guichard-Perrachon were halted after falling almost 8% in Paris following suspension of Rallye shares. U.K.'s company Mucklow A&J trading 18% higher after LondonMetric made offer to acquire it in a cash-stock deal, while Merlin Entertainments also trade higher amid responding to 'going private' proposal. On the earnings front, global supplier of food and beverage ingredients to industrial markets Tate & Lyle shares trade 4% lower after missing expectations on guidance. Derichebourg trade 10% lower after fall in year-to-year financials. Industrial firm Renewi and Mitchells & Butlers in the U.K. among notable risers this morning. In other news, Deutsche Bank renews all-time lows amid CEO commentaries during annual meeting. Looking ahead, notable earners include Best Buy, Medtronic, BJ's Wholesale Club, Hormel Foods and Royal Bank of Canada.
• Consumer discretionary: Casino Guichard-Perrachon [CO.FR] -7% (Rallye trading suspended), Merlin Entertainments [MERL.UK] +4% (responds to 'going private' proposal), Intertek Group [ITRK.UK] -2% (trading update), Serco Group [SRP.UK] +10% (acquisition; placement), Mitchells & Butlers [MAB.UK] +4% (earnings)
• Industrials: Pfeiffer Vacuum Technology [OFV.DE] -8% (profit warning), Derichebourg [DBG.FR] -10% (earnings), Renewi [RWI.UK] +5% (earnings)
• Materials: ENQUEST [ENQ.UK] -8% (operations update)
• Financials: Mucklow A&J [MKLW.UK] +18% (to be acquired)
• Utilities: United Utilities Group [UU.UK] -1% (earnings)
• Consumer staples: Tate & Lyle [TATE.UK] -4% (earnings)

Speakers

• (CN) China Commerce Ministry (MOFCOM) spokesperson Gao: US wrong practices escalated trade tensions with China; If US wants to keep talks, they should show sincerity
• (UK) Parliamentary Lawmaker Duncan-Smith: new PM could be in before summer
• (CN) China Foreign Min Spokesman Lu Kang: noted reports on US's Taiwan strait naval passage
• (UR) Ukraine Central Bank Gov Smoliy: See no significant market upheaval due to dissolution of Parliament, the situation is under control
• (CN) China PBoC Deputy Governor: FX market condition is stable, has ample policy tools to cope with exchange rate fluctuations
• (EU) ECB's de Guindos (Spain): Reiterates cross-border asset holdings has stalled, may need more centralized supervision of the Financial markets

Currencies/Fixed Income

• The US Dollar index saw its 7th straight day of trading higher as risk-off is the main topic on everyone's mind. Also, the China and US trade war has begun to reach the global equity markets as companies begin to feel the effects. There was also the release of the FOMC Meeting minutes where the fed showed they were comfortable where interest rates were. EUR/USD The euro continued its slow grind down lower towards the 1.11 handle as Euro area Flash PMI figures showed a mixed bag in both Services and manufacturing. The EU Trade Minister also commented that they were ready to start trade talks, but believed the US was not ready to start tariff discussions. GBP/USD The Cable traded lower again for the 11th straight day as it approaches the 1.26 handle. We could continue to see the cable to sell off, however any positive comments about Brexit and a break of the 1.27 handle could see upside as shorts may begin to take profits

Economic Data

• (DE) GERMANY MAY PRELIMINARY PMI MANUFACTURING: 44.3 V 44.8E
• (FR) FRANCE MAY PRELIMINARY PMI MANUFACTURING: 50.6 V 50.0E
• (EU) EURO ZONE MAY PRELIMINARY PMI MANUFACTURING: 47.7 V 48.1E
• (DE) GERMANY MAY IFO BUSINESS CLIMATE SURVEY: 97.9 V 99.1E; CURRENT ASSESSMENT SURVEY: 100.6 V 103.5E
• (DE) GERMANY Q1 FINAL GDP Q/Q: 0.4% V 0.4%E; Y/Y: 0.7% V 0.7%E
• (FR) FRANCE MAY BUSINESS CONFIDENCE: 106 V 105E
• (SE) Sweden Apr Unemployment Rate: 6.2% v 6.9%e
• (TR) Turkey May Real Sector Confidence (Seasonally Adj): 94.7 v 100.0 prior; Real Sector Confidence NSA (unadj): 98.9 v 105.5 prior
• (CH) Swiss Q1 Industrial Output Y/Y: +4.3% v -0.3%e

Fixed Income Issuance

• (ES) SPAIN DEBT AGENCY (TESORO) SELLS TOTAL €3.97B VS. €3.5-4.5B INDICATED RANGE IN 2024, 2029 AND 2035 BONDS

Looking Ahead

• 07:00 (BR) Brazil May FGV Consumer Confidence: No est v 89.5 prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Initial Jobless Claims: No est v K prior; Continuing Claims: No est v M prior
• 08:30 (CA) Canada Mar Wholesale Trade Sales M/M: No est v 0.3% prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (RU) Russia Gold and Forex Reserve w/e May 17th: No est v $B prior
• 09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to leave Interest Rate unchanged at 6.75%
• 09:45 (US) May Preliminary Markit Manufacturing PMI: No est v 52.6 prior; Services PMI: No est v 53.0 prior; Composite PMI: No est v 53.0 prior
• 10:00 (US) Apr New Home Sales: No est v 692K prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (US) May Kansas City Fed Manufacturing Activity Index: No est v 5 prior
• 15:00 (AR) Argentina Apr Trade Balance: No est v $1.2B prior; Total Exports: No est v $5.1B prior; Total Imports: No est v $4.0B prior

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.11568
Open: 1.11501
% chg. over the last day: -0.04
Day's range: 1.11304 – 1.11573
52 wk range: 1.1111 – 1.2009

EUR/USD started to descend again. The trading instrument updated the local minimums. The pressure on the EUR is caused by the weak economic releases on business activity is Germany and the EU. Right now the attention of the investors is concentrated on the EU Parliament election, which is set to begin today. Keep an eye on this issue. The quotes have prospects for further descend. You should open positions from the key levels.

The Economic News Feed for 23.05.2019:

Publication of the ECB Monetary Policy Meeting Protocols (EU) – 14:30 (GMT+3:00);

Number of Primary Jobless Claims (US) – 15:30 (GMT+3:00);

New Real Estate Sales (US) – 17:00 (GMT+3:00);

The price fixed below 50 MA and 200 MA which points towards the power of the sellers.

The MACD histogram is in the negative zone and keeps falling which points towards a bearish mood.

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

Trading recommendations

Support levels: 1.11300, 1.11000
Resistance levels: 1.11500, 1.11700, 1.11850

If the price fixes below 1.11300, expect further descend towards 1.11000.

Alternatively, the quotes can correct towards 1.11700-1.11900.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.27047
Open: 1.26516
% chg. over the last day: -0.34
Day's range: 1.26052 – 1.26658
52 wk range: 1.2438 – 1.3631

GBP/USD keeps showing a negative trend. The trading instrument is close to the round 1.26000. 1.26550 acts as a local resistance. GBP is under pressure due to the Brexit situation. Theresa May can announce her resignation soon. GBP/USD has prospects for a further descend. You should open positions from the key levels.

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

The price fixed below 50 MA and 200 MA which points towards the power of the sellers.

The MACD histogram is in the negative zone and below the signal line which points towards selling GBP/USD.

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

Trading recommendations

Support levels: 1.26000, 1.25500
Resistance levels: 1.26550, 1.27000, 1.27550

If the price fixes below 1.26000, expect further descend towards 1.25600-1.25400.

Alternatively, the quotes can recover towards 1.27000-1.27200.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.34018
Open: 1.34356
% chg. over the last day: +0.24
Day's range: 1.34315 – 1.34635
52 wk range: 1.2727 – 1.3664

USD/CAD is in a bullish mood. The trading instrument updated the local maximums. USD/CAD are consolidating around 1.34400-1.34650. CAD is under pressure due to the negative trends on the oil quotes. The trading instrument has further prospects for growth. Keep an eye on the US economic trends and open positions from the key levels.

The Economic News Feed for 23.05.2019 is relatively calm.

The price fixed above 50 MA and 200 MA which points towards the power of the buyers.

The MACD histogram is in the positive zone and above the signal line which recommends buying USD/CAD.

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: 1.34400, 1.34200, 1.34000
Resistance levels: 1.34650, 1.34850, 1.35100

If the price fixes above 1.34650.

Alternatively, the quotes can descend towards 1.34200-1.34000.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 110.484
Open: 110.333
% chg. over the last day: -0.26
Day's range: 110.102 – 110.365
52 wk range: 104.97 – 114.56

USD/JPY stabilized. There is no defined trend. The quotes are testing the local support and resistance levles at 110.100 and 110.350. The demand on the safe assets remains high due to the ambiguousness in the US/China trading negotiations. The trading instrument has a tendency to descend. Keep an eye on the US Treasury bonds' yield and open positions from the key levels.

The Economic News Feed for 23.05.2019 is calm.

The indicators do not provide precise signals, the price fixed between 50 MA and 200 MA.

The MACD histogram is in the negative zone and keeps falling which gives a strong signal to sell USD/JPY.

The Stochastic Oscillator is in the neutral zone, the %K line is below the %D line which points towards a bearish mood.

Trading recommendations

Support levels: 110.100, 109.750, 109.500
Resistance levels: 110.350, 110.650

If the price fixes below 110.100, expect the descend of the USD/JPY quotes towards 109.750-109.600.

Alternatively, the quotes can grow towards 110.600-110.800.

The US dollar continues to show positive dynamics against currency majors. The dollar index (#DX) has updated annual highs again. The potential for further growth is still high. According to the FOMC meeting minutes, the Fed plans to adhere to the current monetary policy. The British pound is still under pressure amid uncertainty concerning Brexit. There was information that the Prime Minister of Great Britain Theresa May could announce resignation this Friday. Investors also expect up-to-date information regarding trade negotiations between the US and China.

At the moment, financial market participants are focused on the elections to the European Parliament, which will begin today. In the near future, trading activity and volatility of the euro may increase significantly. German GDP growth in the first quarter of 2019 met market expectations and counted to 0.4%. We also expect important economic releases from the Eurozone, the UK and the US.

Oil quotes are declining amid the growth of oil reserves in the US. At the moment, futures for the WTI crude oil have approached the level of $61.00 per barrel.

Market Indicators

• Yesterday, major US stock indices closed in the red zone: #SPY (-0.31%), #DIA (-0.45%), #QQQ (-0.45%).
• The 10-year US government bonds yield has been declining. Currently, the indicator is at the level of 2.37-2.38%.

The news feed on 2019.05.23:

• Indices on economic activity in Germany and the Eurozone at 11:00 (GMT+3:00);
• Statistics on retail sales in the UK at 11:30 (GMT+3:00);
• Publication of the ECB monetary policy meeting account at 14:30 (GMT+3:00);
• New home sales in the US at 17:00 (GMT+3:00).

Politics Damage GBP

The European Parliament's elections started today in the Netherlands and the UK. Results will not be broadcast until Sunday evening when all EU counties had time to vote. In the UK, conservatives are expected to drop further with the biggest winner being the Brexit party. The Conservative party is forecasted to take a paltry 10% while the Brexit party 30%. The result will likely trigger a Conservative party leadership challenge. This sizable win in the EU will encourage Hard Brexit faction of the party that is pushing for a stronger stance towards the EU. The mounting political risk has accelerated the downside in sterling across the board. After a period of malaise, the market is now pricing in “No Deal” tail risk as a solid probability. The political backdrop suggests that PM May likely to step down should her Withdrawal Agreement Bill is rejected in the early part of June. A solid showing in EU election increases the probability of a hard Brexit PM replacement is high. With Liberal Democrats gaining in the polls the most likely scenario is a choice between a hard no deal exit and general election. Brexit uncertainty will keep GBPUSD under pressure targeting uptrend support at 1.2610.

ZAR set for a rebound ahead of SARB meeting

Ensuring its seat as South African President, Cyril Ramaphosa is facing challenges looking forward. Threats of a potential sovereign debt downgrade from Moody’s during its next assessment in November amid domestic issues relating to weakening Cabinet credibility, a worsening government budget and subdued policy reactions could have serious consequences on capital flows and the South African rand. Yet the South African Reserve Bank monetary policy meeting should give a little boost to the ZAR.

The SARB, although not expected to take any further actions on its repurchase rate (currently: 6.75%) at today’s meeting, should maintain its hawkish bias. Despite inflation data for April pointing to a slowdown, with y/y headline and core figures at 4.40% (prior: 4.50%) and 4.10% (prior: 4.40%), located in the lower part of the target corridor of 4.50%, the SARB will confirm its willingness to act if upside risk associated with the medium-term inflation outlook prevails, which should ultimately support the ZAR.

Currently trading at 14.4850, USD/ZAR is heading along 14.4055 short-term.

EUR/USD

Current level - 1.1148

The bias remains bearish below 1.1180 hurdle, for a test of 1.1110 low and a break through the latter is expected to challenge 1.1015.

USD/JPY

Current level - 110.25

My outlook remains positive, for a rise towards 111.00 area. Crucial on the downside is 109.80.

GBP/USD

Current level - 1.2641

The downtrend is intact, heading towards 1.2580 target area. Initial resistance lies at 1.2690 and crucial on the senior frames is 1.2810.

The Australian Dollar has been depreciating in a descending channel pattern against the Japanese Yen. The channel pattern was formed on April 18 and has guided the currency pair lower.

The exchange rate is currently testing a resistance level formed by the 50-hour simple moving average at 75.96.

If the currency exchange rate passes the 50-hour SMA, a surge towards the weekly and the monthly pivot points at 77.62 could be expected next week.

However, if the 50-hour SMA holds, bearish traders could aim for a support cluster at 74.95 during the following trading sessions.

The British Pound has depreciated about 1.52% in value against the Japanese Yen during last week's trading sessions. The currency pair has tested the lower boundary of a descending channel pattern at 139.46.

The exchange rate is currently trading near the bottom border of the descending channel at 139.46 and could be set for a breakout.

If this breakout occurs, the GBP/JPY pair could continue its decline during next week's session.

However, if the support level holds, the pair will make a retracement towards a resistance cluster at 142.09 in the shorter term.

On Wednesday, the EUR/USD currency pair traded down, trying to surpass the psychological level at 1.1150. During today's morning, the pair declined to the lower boundary of the short-term descending channel located circa 1.1137.

Note, that the rate is pressured by the 55– and 100-hour SMAs, currently located circa the 1.1160 mark. Thus, is unlikely, that a reversal north could occur in the following hours.

From the one hand, the exchange rate could countinue to decline, trading along the lower channel line in the 1.1135/1.1130 range. However, if the given channel does not hold, it is likely, that the rate could decline to the 2018/2019 minimum at 1.1124.