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Daily Pivots: (S1) 0.6858; (P) 0.6893; (R1) 0.6921; More...

Intraday bias in AUD/USD remains neutral and some more consolidation could be seen above 0.6864 temporary low. In case of another rise, upside should be limited by 0.6988/7069 resistance zone to bring fall resumption. On the downside, break of 0.6864 will turn bias to the downside and extend the fall from 0.7295 to 161.8% projection of 0.7295 to 0.7003 from 0.7205 at 0.6733, which is close to 0.6722 low.

In the bigger picture, with 0.7393 key resistance intact, medium term outlook remains bearish. The decline from 0.8135 (2018 high) is seen as resuming long term down trend from 1.1079 (2011 high). Decisive break of 0.6826 (2016 low) will confirm this bearish view and resume the down trend to 0.6008 (2008 low). However, firm break of 0.7393 will argue that fall from 0.8135 has completed. And corrective pattern from 0.6826 has started the third leg, targeting 0.8135 again.

• Pound surrenders gains to trade lower after May unveils Brexit plan
• Fed minutes today may boost the dollar a little
• Stocks advance on Huawei relief, but risks still heightened

Sterling not convinced by May's 'last Brexit push'

The British pound briefly spiked higher yesterday, before surrendering all its gains to trade even lower, after PM May laid out her modified Brexit deal. In an attempt to win over votes from opposition parties and pro-EU moderates, she proposed giving Parliament a vote on whether to hold a second referendum, conditional upon her deal passing.

Markets initially got excited, but reality quickly set in. First, a vote to hold a vote means little – especially since a second referendum was already rejected by lawmakers during the indicative votes back in March. Second, by 'softening' her stance this much, she has alienated her own Brexiteers, with prominent Tories like Boris Johnson already saying they'll vote against this bill.

In fact, reports today suggest the Tories will try to make May resign much earlier, perhaps after the EU elections this week. Opinion polls imply a weak showing by the Conservatives, with many voters going for the new Brexit Party. If so, that could raise the likelihood of May being replaced with a 'hardline' Brexiteer as the Tories try to mend their image, raising the odds of a no-deal Brexit. Hence, the risks around the pound still seem skewed to the downside.

UK inflation data for April are on tap today.

Fed minutes could give the dollar a helping hand

The US dollar remains the market's 'darling', as the collective softness in the euro, pound, aussie, and kiwi leaves investors with little alternative but to embrace the greenback. Make no mistake, this is predominantly a story about global weakness driving investors to the US, as opposed to the US attracting capital flows solely on its own merits.

Today, attention will fall on the minutes from the latest Fed meeting, due at 18:00 GMT. Chairman Powell was less cautious than markets had expected back then, downplaying the prospect of rate cuts. The minutes could echo a similar tone, particularly since this gathering took place before the latest escalation in trade tensions. Considering that a rate cut by December is now fully priced in, a neutral bias may trigger a slight unwinding of easing bets, lifting the dollar further.

New York Fed President Williams will also deliver remarks at 14:00 GMT.

Huawei relief lifts global markets, but risks linger

News that the US delayed the blacklisting of Huawei boosted US stock markets yesterday, with the move seen as a gesture of good faith by Trump aimed at restarting negotiations with China. The optimism didn't last very long though, with Asian markets struggling today following reports that the US may limit Chinese surveillance companies from buying American technologies.

Overall, this conflict seems to have entered a new stage, with Washington doing all within its means to put pressure on China to come back to the negotiating table, but Beijing looking unwilling to do so, as it doesn't want to be bullied around. The implication is that China is almost certain to retaliate and given that neither side wants to be seen backing down, more escalation may lie ahead.

The USD remained rather stable against many of its counterparts yesterday, yet strengthened against the Yen. Analysts point out that the easing on Huawei’s trade restrictions from the US commerce department eased concerns somewhat yet the sentiment in the markets seems to remain fragile. Never the less US yields ticked up and provided some support for the USD and analysts were quick to note that its natural for the greenback to be bought, when the US yields rise. We expect the USD to remain rather stable in the absence of substantial financial releases, however we expect the release of the FOMC meeting minutes to create volatility and the USD to remain driven by headlines reeling in. USD/JPY rose yesterday, breaking the 110.30 (S1) resistance line (now turned to support) and stabilised above it. Technically speaking, the pair’s direction seems to be supported by an upward trendline incepted since the 15th of May, and for our bullish outlook to change, we would require the pair’s price action to break it. It should be noted that the pair could prove sensitive to any reaction caused by the release of the FOMC meeting minutes, as well as any further headlines regarding the US-Sino trade war. Should the pair find fresh buying orders along its path, we could see it aiming if not breaking the 110.90 (R1) resistance line. Should the pair come under the selling interest of the market, we could see it breaking the 110.30 (S1) support line and aim for the 109.75 (S2) support barrier.

GBP stable ahead of political storm

The pound stabilized against the USD yesterday after a week of pure losses and reaching the lowest level in four months. According to media, Theresa May is being pressured to give up her Brexit plan and resign in the next days. The pressure increased as May’s efforts to pass her Brexit plan through Parliament found strong resistance once again. Currently the Tory party braces for a disastrous election result in the European Parliament elections next week, which could speed up developments. We expect the pound to remain under pressure due to Brexit uncertainty, however today’s financial releases could also move the pound. Cable, maintained a sideways motion between the 1.2775 (R1) resistance line and the 1.2665 (S1) support line, breaking unsuccessfully the prementioned resistance line at some point yesterday. Technically the pair has broken the downward trendline incepted since the 13th of the month, hence we switched out bearish outlook in favor of a sideways motion scenario. Should the bulls take over, we could see the pair breaking the 1.2775 (R1) resistance line and aim for the 1.2875 (R2) resistance barrier. On the flip side should the bears dictate the pair’s direction, we could see it breaking the 1.2665 (S1) support line and aim for the 1.2560 (S2) support hurdle.

Other economic highlights, today and early tomorrow

In the European session, we get UK’s inflation rates for April. In the American session, we get Canada’s retail sales growth rates for March and from the US the EIA crude oil inventories figure. We would also like to highlight the release of the minutes of the last FOMC meeting. In tomorrow’s Asian session we get Japan’s preliminary Nikkei Mfg PMI for May. As for speakers, please note that ECB’s president Mario Draghi and Peter Praet, as well as Atlanta Fed President Bostic and NY Fed president Williams are speaking today.

GBP/USD H4

Support: 1.2665 (S1), 1.2560 (S2), 1.2475 (S3)
Resistance: 1.2775 (R1), 1.2875 (R2), 1.2980 (R3)

USD/JPY H4

Support: 110.30 (S1), 109.75 (S2), 109.15 (S3)
Resistance: 110.90 (R1), 111.40 (R2), 111.85 (R3)

Pound stays in red in early Wednesday’s trading and hits new lowest levels since early Jan, following Tuesday’s short-lived recovery attempts above 1.2800 mark.

The sentiment remains negative after PM May’s enhanced plan failed to attract opposition and several leading Conservative Eurosceptics.

Basically, May did not offer significant changes of the plan that suggests the parliament would again vote it down in June.

Bearish studies on daily and weekly chart favor further weakness, with adjustments on oversold conditions seen as positioning.

Bears focus immediate target at 1.2629 (Fibo 76.4% of 1.2397/1.3381) with risk of extension towards 1.2476 (2018 low, posted on 12 Dec).

Release of UK inflation data is key event for pound today (Apr y/y 2.2% f/c vs 1.9% prev / m/m 0.7% f/c vs 0.2% prev), but markets do not see potential for stronger reaction, even on upbeat release as political turmoil in the UK over Brexit continues to sour the sentiment and maintain pressure on pound.

Falling 10 SMA (currently at 1.2831) marks pivotal barrier and only sustained break here would sideline bears.

Res: 1.2719, 1.2773, 1.2810, 1.2831
Sup: 1.2661, 1.2629, 1.2615, 1.2580

Gold prices briefly tested the support at 1270 before pulling back from the lows. Price extended gradual declines after breaking down from the 1285 handle. The Fed meeting minutes will be the main highlight of the day. This could potentially see either gold extending the declines or perhaps rebounding off the support level.

XAUUSD Likely to Trade Flat

Price action in the precious metal indicates that the sideways range could build up in the short term. The resistance and support levels of 1285 and 1270 will remain key for the moment. There is scope for gold prices to retest the 1285 level to establish resistance ahead of posting further declines. To the downside, if gold declines below 1270 on a daily basis, we could expect to see a continuation to the downside.

The British pound rose to the day's high of 1.2811 before retreating to end near the lows of 1.2716. The volatility shot up as PM May promised the parliament on a vote to call for a second Brexit referendum if they support her deal. The opposition party, however, rejected the proposal. The monthly inflation reportwill be coming out later today.

GBPUSD Settles Back Near the Support

The currency pair closed the day back near the support area of 1.2716. The consolidation near this level has kept price action subdued so far. There are signs of a bullish divergence building up near the current support which keeps the upside bias intact. GBPUSD could rebound to 1.2895 followed by 1.2975. However, if price breaks below the current support, we could expect to see further declines.

The common currency was trading subdued on Tuesday amid lack of any clear fundamentals. The US existing home sales report saw a decline of 0.4% on the month to 5.19 million units in April. There were also a few Fed speakers lined up during the day but investors remained on the sidelines.

EURUSD Slips to the Support Level

The currency pair extended declines to briefly test the support area near 1.1140 before pulling back modestly higher. The sideways range within 1.1182 and 1.1140 remains in place for now. The currency pair could remain within this range unless there is a strong breakout in either direction.

Pivot (invalidation): 63.20

Our preference Short positions below 63.20 with targets at 62.20 & 61.75 in extension.

Alternative scenario Above 63.20 look for further upside with 63.55 & 63.75 as targets.

Comment The RSI shows downside momentum.

Pivot (invalidation): 14.4800

Our preference Short positions below 14.4800 with targets at 14.3600 & 14.3100 in extension.

Alternative scenario Above 14.4800 look for further upside with 14.5300 & 14.5700 as targets.

Comment As Long as the resistance at 14.4800 is not surpassed, the risk of the break below 14.3600 remains high.

Pivot (invalidation): 1276.25

Our preference Short positions below 1276.25 with targets at 1269.25 & 1265.50 in extension.

Alternative scenario Above 1276.25 look for further upside with 1279.00 & 1282.00 as targets.

Comment The RSI calls for a drop.