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Market sentiments are generally steady today. Better than expected job and housing data lift Dollar mildly higher in early US session. Yen and Swiss Franc are trading of the softer side, paring some of this week's gains. While US moves to contain Huawei catch a lot of headlines, there is practically no negative reactions in the markets. Chinese stocks ended the day higher while US futures also point to higher open. It will take a while more to see what's next in US-China trade and political tensions.

Meanwhile, Sterling's selloff is gathering momentum again, in particular against Dollar and Euro. UK government keeps saying that talks are continuing with opposition Labor and pledges to bring back the Brexit Withdrawal Agreement as soon as possible. But traders are clearly impatient with the lack of concrete progress. If seemed that politicians in the two biggest parties of the UK didn't learn anything from recent local election defeats.

Euro is steady as Italian yield retreats while German yield recovers. German 10-year yield is back above -0.1 after initial dive. Though, it's unsure whether it can sustain above this -0.1 handle. US auto tariffs are another major uncertainty for the Eurozone, in particular Germany. While there were rumors that Trump will delay auto tariffs decisions, Commerce Secretary Wilbur Ross sounds noncommittal today. He just noted that Trump has many options on May 18, when a decision is due.

In Europe, currently, FTSE is up 0.25%. DAX is up 0.64%. CAC is up 0.30%. German 10-year yield is down -0.0022 at -0.097. Earlier in Asia, Nikkei dropped -0.59%. Hong Kong HSI rose 0.02%. China Shanghai SSE rose 0.58%. Singapore Strati Times rose 0.36%. Japan 10-year JGB yield dropped -0.008 to -0.059.

US jobless claims dropped to 212k, housing starts, Philly Fed survey

US initial jobless claims dropped -16k to 212k in the week ending May 11, below expectation of 220k. Four-week moving average of initial claims rose 4.75k to 225k. Continuing claims dropped -28k to 1.66M in the week ending May 4. Four week-moving average of continuing claims rose 1.5k to 1.668M.

Building permits rose 0.6% mom to 1.296k annualized rate. Housing starts rose 5.7% to mom to 1.235M. Philadelphia Fed Business Outlook diffusion index jumped to 16.6 in May, up from 8.5 and beat expectation of 9.0.

China hit back on treatment of Huawei and three core issues in trade negotiations with US

The Chinese government is apparently furious at US move to sanction its telecom giant Huawei. Tensions of the two sides is set to escalate further while there is no set timing for resuming the collapsed trade talks. While Trump might want to meet Xi to clear out the outstanding issues to seal a trade deal at the upcoming G20 summit, the two sides are actually moving farther apart.

Trump's administration hit Huawei on two heavy measures yesterday. Firstly, the U.S. Commerce Department is adding Huawei and 70 affiliates to its "entity List" that bans them from buying US technologies without government approval. Secondly, Trump signed an executive order banning US companies from using telecom equipment made by companies deemed to pose a national security risk. As Commerce Secretary Wilbur Ross put, the decision was to "prevent American technology from being used by foreign-owned entities in ways that potentially undermine U.S. national security or foreign policy interests."

Chinese commerce ministry spokesman Gao Feng said today "China has emphasized many times that the concept of national security should not be abused, and that it should not be used as a tool for trade protectionism... China will take all the necessary measures to resolutely safeguard the legitimate rights of Chinese firms."

On trade Gao warned "the tariff hike by the United States will only bring greater difficulties to the consultations... "We urge the United States to cancel the wrong practices as early as possible, avoiding greater losses to Chinese and American companies and consumers, and causing a 'recession-like' impact on the world economy."

Gao also also clarified the three concerns on China. Firstly, all tariffs must be removed in order to reach a deal. Secondly, additional purchase of US goods is an issue to be resolved. Thirdly, the text of the agreement must be balanced, respecting each other's sovereignty. Gao emphasized, "to reach any agreement, China's three core concerns must be properly resolved,"

Separately, Foreign ministry spokesman Lu Kang, said "negotiations and consultations, to have meaning, must be sincere... First, there must be mutual respect, equality and mutual benefit. Second, one's word must be kept, and not be capricious."

Bundesbank Weidmann: Trade wars only know losers

Bundesbank President Jens Weidmann warned today that trade wars would damage the global economy and are useless in reducing current account deficit. He said "some expect higher tariffs to reduce current account balances… But this hope may prove futile, our analyses suggests."

Also, Trump's new tariffs will pose risks to the US economy. And, "retaliatory tariffs of other countries are likely to further weaken the global economy and world trade. Trade wars only know losers."

Domestically, he admitted that inflation is "stubbornly low". However, if outlook allows it, there is no need to postpone monetary policy normalization.

ECB Visco: Eurosystem ready to use a wide of of instruments to support economy

ECB Governing Council member Ignazio Visco said today that the economic prospects of Eurozone are clouded by uncertainties. Italy and global economy are experiencing a difficult time too. He noted that trade, mostly fueled by US, added to global economic slowdown. And as Bank of Italy Governor, he urged the country to boost productivity to fully recovery its growth path.

Though, he dismissed the worries that ECB is "disarmed" should current situation deteriorates into a full-blown recession. He emphasized "central banks can rely on a wide range of instruments to support economic activity and, if necessary, the Eurosystem is ready to use them all in order to fulfill its mandate."

BoJ Wakatabe: QQE has clearly positive impact on the economy and prices

BoJ Deputy Governor Masazumi Wakatabe reiterated to the parliament that the quantitative and qualitative easing program (QQE) had "clearly positive" impact of the economy and prices. And, benefits of easing is "outweighing" its costs. He admitted that BoJ hasn't put a sustained end to deflation yet while inflation remains below 2% target. But he emphasize "we're seeing an end to a long period of time when consumer prices kept falling." On exit, he said "how an exit from easy policy affects BOJ's balance sheet would depend on various factors such as means, the order in which it exits."

Released from Japan, Domestic CGPI rose 1.2% yoy in April, above expectation of 1.1% yoy.

Australian employment grew 28.4k driven by part-time jobs, unemployment rate rose to 5.2%

In April, Australia employment rose 28.4k, more than expectation of 15.2k. However, the growth was mainly driven by 34.7k growth in part-time jobs. Full-time employment contracted -6.3k. Unemployment rate rose to 5.2%, up from 5.1% and above expectation of 5.0%. That's also an eight-month high. But participation rate also rose 0.2% to record high of 65.8%.

Looking at some details, in seasonally adjusted terms, the largest increase in employment was in New South Wales (up 25.1k), followed by Western Australia (up 6.4k) and Queensland (up 5.4k). The only decrease was in Victoria (down 7.6k).

The seasonally adjusted unemployment rate increased in New South Wales (up 0.2 pts to 4.5%), Victoria (up 0.2 pts to 4.9%), South Australia (up 0.2 pts to 6.1%), Western Australia (up 0.1 pts to 6.1%) and Tasmania (up 0.1 pts to 6.8%). The only decrease was observed in Queensland (down 0.2 pts to 5.9%).

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2805; (P) 1.2864; (R1) 1.2902; More....

GBP/USD drops further to as low as 1.2793 so far today and intraday bias stays on the downside. Rebound from 1.2391 should have completed 1.3381 already. Deeper fall should be seen to retest 1.3381 low. On the upside, above 1.2851 minor resistance will turn intraday bias neutral for consolidation first. But recovery should be limited well below 1.3176 resistance to bring fall resumption.

In the bigger picture, medium term decline from 1.4376 (2018 high) halted and made a medium term bottom after hitting 1.2391. Rebound from 1.2391 is seen as a corrective move for now. In case of another rise, strong resistance could be seen around 61.8% retracement of 1.4376 to 1.2391 at 1.3618 to limit upside. On the downside, break of 1.2773 support will suggests that such corrective rise is completed and bring retest of 1.2391 low first.

Economic Indicators Update

US initial jobless claims dropped -16k to 212k in the week ending May 11, below expectation of 220k. Four-week moving average of initial claims rose 4.75k to 225k. Continuing claims dropped -28k to 1.66M in the week ending May 4. Four week-moving average of continuing claims rose 1.5k to 1.668M.

Building permits rose 0.6% mom to 1.296k annualized rate. Housing starts rose 5.7% to mom to 1.235M.

Philadelphia Fed Business Outlook diffusion index jumped to 16.6 in May, up from 8.5 and beat expectation of 9.0.

Gold has also settled over the last couple of days as the initial panic has faded.

After approaching $1,300 at the start of the week – having taken some time to break $1,290, a stubborn resistance level – gold has taken a breather, albeit while barely paring gains along the way. The yellow metal looks caught in two minds at the moment, with the break below $1,280 – a major support level this year – failing to generate the downside momentum that you would typically expect.

Gold Daily Chart

The rebound hasn’t exactly been convincing either though and looks highly dependent on risk appetite in the markets remaining weak. The recent correction in the dollar has also supportive for gold over the last few weeks but that could reverse course again, with the US still in a better position that many of its peers, particularly in defensive markets.

In the short-term, there doesn’t appear to be much support for a run at the lows. The last few days has barely seen price pare its gains and as you can see in the 4-hour chart below, it looks more like a flag than anything more which is typically bullish after a strong run. Whether we can make more substantial gains is another thing.

Gold 4-Hour Chart

There remains plenty of resistance above though, with the area around $1,306-1,316 being particularly interesting. This falls between the 50 and 61.8 fib levels and contains the previous high. A break through here could be quite a bullish signal.

UK 100 stock index (FTSE 100) has advanced considerably over the last couple of days after touching the 7124 support, remaining below the 50-day average. The stochastic oscillator is confirming this view, as it is heading north, approaching the overbought territory.

If the price manages more bullish actions and surpasses successfully the 50-SMA, immediate resistance would come from the 61.8% Fibonacci retracement level of the downleg from 7900 to 6533 around 7380. Further up, the index could rest around the 7530-7560 resistance area.

On the other hand, in case of bearish structure the market might revisit the 50.0% Fibonacci of 7220, which stands slightly above the 200-SMA. More declines could meet the 7124 support and the 38.2% Fibonacci of 7060.

Overall, a jump above the 61.8% Fibonacci again could confirm the near-term bullish tendency in the daily chart.

A new blow to China-US relations was inflicted by the United States, imposing sanctions against Huawei, the Chinese telecom giant. This situation potentially open additional front of trade disputes between China and the United States. Moreover, investors were unnerving by the weak economic reports from the United States. Retail sales fell by 0.2%, although growth was expected. Industrial production declined by 0.5%, while Crude Oil inventories rose. All this may be evidence of a weakening of demand in the largest global economy. As a result, the demand for protective US government bonds increased. The increase in their prices caused a decrease in yield to the lowest levels since December 2017.

Stocks

US stocks received cautious support on Wednesday afternoon. We have repeatedly noted that the dynamics of the final part of the American session is often the key to investor sentiment. The demand for stocks allows indices to gain momentum. Weak macroeconomic reports up to a point do not have a negative impact on the markets while investors are priced in the Fed's softer monetary policy. The chances of rate cut this year have risen to 81%, up from 56% a month earlier, according to CME's FedWatch tool.

EURUSD

The single currency remains chained to the level of 1.1200 from the end of April. From November to April, this level served as an important point of support, attracting buyers. However, weak macroeconomic data and a general increase in alertness on the markets shifted the fight between bulls and bears to lower levels.

Chart of the day: GBPUSD

The demand for protective assets, such as the US government bonds, and the chronic inability of British politicians to agree on Brexit conditions, form downward pressure on the pair. GBPUSD declines for 9th trading session in a row, decreased by 2.6%. The chart shows that the sellers intensified after an unsuccessful attempt to return to the upward trend. In addition, the pair has managed to decline below 1.3000, a 200-day moving average and previous local minimums. Bears are probably targeting 1.2800, the next area of support.

The Chinese government is apparently furious at US move to sanction its telecom giant Huawei. Tensions of the two sides is set to escalate further while there is no set timing for resuming the collapsed trade talks. While Trump might want to meet Xi to clear out the outstanding issues to seal a trade deal at the upcoming G20 summit, the two sides are actually moving farther apart.

Trump's administration hit Huawei on two heavy measures yesterday. Firstly, the U.S. Commerce Department is adding Huawei and 70 affiliates to its "entity List" that bans them from buying US technologies without government approval. Secondly, Trump signed an executive order banning US companies from using telecom equipment made by companies deemed to pose a national security risk. As Commerce Secretary Wilbur Ross put, the decision was to "prevent American technology from being used by foreign-owned entities in ways that potentially undermine U.S. national security or foreign policy interests."

Chinese commerce ministry spokesman Gao Feng said today "China has emphasized many times that the concept of national security should not be abused, and that it should not be used as a tool for trade protectionism... China will take all the necessary measures to resolutely safeguard the legitimate rights of Chinese firms."

On trade Gao warned "the tariff hike by the United States will only bring greater difficulties to the consultations... "We urge the United States to cancel the wrong practices as early as possible, avoiding greater losses to Chinese and American companies and consumers, and causing a 'recession-like' impact on the world economy."

Gao also also clarified the three concerns on China. Firstly, all tariffs must be removed in order to reach a deal. Secondly, additional purchase of US goods is an issue to be resolved. Thirdly, the text of the agreement must be balanced, respecting each other's sovereignty. Gao emphasized, "to reach any agreement, China's three core concerns must be properly resolved,"

Separately, Foreign ministry spokesman Lu Kang, said "negotiations and consultations, to have meaning, must be sincere... First, there must be mutual respect, equality and mutual benefit. Second, one's word must be kept, and not be capricious."

Bundesbank President Jens Weidmann warned today that trade wars would damage the global economy and are useless in reducing current account deficit. He said "some expect higher tariffs to reduce current account balances... But this hope may prove futile, our analyses suggests."

Also, Trump's new tariffs will pose risks to the US economy. And, "retaliatory tariffs of other countries are likely to further weaken the global economy and world trade. Trade wars only know losers."

Domestically, he admitted that inflation is "stubbornly low". However, if outlook allows it, there is no need to postpone monetary policy normalization.

ECB Governing Council member Ignazio Visco said today that the economic prospects of Eurozone are clouded by uncertainties. Italy and global economy are experiencing a difficult time too. He noted that trade, mostly fueled by US, added to global economic slowdown. And as Bank of Italy Governor, he urged the country to boost productivity to fully recovery its growth path.

Though, he dismissed the worries that ECB is "disarmed" should current situation deteriorates into a full-blown recession. He emphasized "central banks can rely on a wide range of instruments to support economic activity and, if necessary, the Eurosystem is ready to use them all in order to fulfill its mandate."

Auto-tariff delay temporarily appeases investors

Equity markets are marginally in the red again on Thursday, with US futures in a similar position, as investors continue to weigh up the ongoing trade war threat for the global economy and markets.

It's been quite the couple of weeks on the trade war front. We've gone from a deal being close to done, to talks collapsing and tariffs imposed and now Trump seeking to alleviate market concerns. The sell-off on Monday clearly lit a fire under the President who likes to make it known that he follows the markets closely.

His initial response was to soften his tone on Sino-US talks, referring to them as a “little squabble”, and now he's correctly deemed it not wise to embark on trade wars on multiple fronts, likely out of fear of what impact it will have on markets and his ratings ahead of an election year. The decision to delay auto tariffs – directed at the EU and Japan – by six months has brought some calm to markets but it won't be enough to ease concerns altogether if the conflict with China continues to heat up.

It's also become clear – on a less positive note – that the experience of a trade war with China hasn't deterred the Trump administration from this hostile and potentially damaging method of improving trade terms between the US and its partners. While we can all breathe a sigh of relief that we're not going to see trade wars on multiple fronts, the battle has merely been postponed.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.12031
Open: 1.12017
% chg. over the last day: -0.04
Day's range: 1.12015 – 1.12110
52 wk range: 1.1111 – 1.2009

EUR/USD is moving sideways, the technical picture is ambiguous. The support and resistance are at 1.12000 and 1.12200. EUR is supported by the statements that the US may not introduce fees on the import cars in the next six months. The market participants are waiting for important releases from the US. Keep in mind that the real data may differ from the forecasted.

The Economic News Feed for 16.05.2019:

Real Estate Market Stats (US) – 15:30 (GMT+3:00);

PMI from Philadelphia's Federal Reserve (EU) – 15:30 (GMT+3:00);

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 is below the %D line which points to the bearish mood.

Trading recommendations

Support levels: 1.12000, 1.11800, 1.11650
Resistance levels: 1.12200, 1.12400, 1.12600

If the price fixes below 1.12000, expect further descend toward 1.11800-1.11600.

Alternatively, the quotes can recover toward 1.12400-1.12600.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.29035
Open: 1.28413
% chg. over the last day: -0.47
Day's range: 1.28209 – 1.28518
52 wk range: 1.2438 – 1.3631

GBP/USD keeps showing a negative trend. Yesterday GBP reached the 3-monthly minimum regarding the USD. GBP is under pressure due to the growing expectations of failure to reach any consensus between Theresa May and the opposing parties. The quotes are testing the 1.28250-1.28800 range. The trading instrument has prospects for further descend. Keep an eye on the US news feed.

The Economic News Feed for 16.05.2019 is calm.

The price fixed below 50 MA and 200 MA which points to 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 GBP/USD.

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

Trading recommendations

Support levels: 1.28250, 1.27600
Resistance levels: 1.28800, 1.29250, 1.29700

If the price fixes below 1.28250, expect further descend toward 1.27600-1.27400.

Alternatively, the quotes can recover toward the round 1.29000.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.34629
Open: 1.34369
% chg. over the last day: -0.14
Day's range: 1.34266 – 1.34504
52 wk range: 1.2727 – 1.3664

USD/CAD started to descend. The trading instrument set the new local minimums. The quotes are testing support at 1.34250 with 1.34550 acting as a mirror resistance. The market participants are waiting for important reports from the US. USD/CAD has prospects for further descend, you should open positions from the key levels.

The Economic News Feed for 16.05.2019 is calm.

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

The MACD histogram is in the negative zone and below the signal line which gives a strong signal to sell USD/CAD.

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

Trading recommendations

Support levels: 1.34250, 1.34100, 1.33800
Resistance levels: 1.34550, 1.34850, 1.35000

If the price fixes below 1.34250, expect further descend toward 1.34000-1.33800.

Alternatively, the quotes can grow toward 1.34700-1.34850.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 109.620
Open: 109.584
% chg. over the last day: -0.13
Day's range: 109.335 – 109.591
52 wk range: 104.97 – 114.56

USD/JPY keeps trading in a flat. There is no defined trend, the local support and resistance are at 109.350 and 109.750. The trading instrument has further recovery prospects. The market participants are waiting for important releases from the US. Keep an eye on the US Treasury bonds' yield and open positions from the key levels.

The Economic News Feed for 16.05.2019 is calm.

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

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: 109.350, 109.000
Resistance levels: 109.750, 110.100, 110.300

If the price fixes above 109.750, expect further correction toward 110.100-110.300.

Alternatively, the quotes can fall toward the round 109.000.