Sample Category Title

GBP in torment as Brexit risk revives

After reaching its highest range in early May amid hopes of a swift arrangement between both leading parties Conservatives and Labor, it appears that the British pound loses sight. Nervousness over upcoming EU parliamentary elections is felt, as recent polls are favoring Nigel Farage’s newly formed Brexit party with a majority of 34% while both historical leading parties are ranked second (Labor party: 21%) and fourth (Tories: 11%), alongside with pro-EU Liberal Democrats (12%), thus rising risk of a potential disorderly Brexit looking forward. Yet the UK is certainly not an isolated case where we should see unconventional parties taking the lead (i.e. Italy, Austria, France, Germany, Denmark or Finland, not to mention others).

There is therefore good reasons to consider downside risk for GBP as a hard Brexit would have extreme consequences on the currency. Furthermore, the recent labor data releases are not particularly rejoicing. Despite an unemployment rate of 3.80% in March, lowest since 1974, wage growth of 3.20% (prior: 3.40%) shows signs of weakness while the monthly staff demand index from Recruitment and Employment Confederation and accountants points to 53.6 (prior: 55.5) in March, its lowest level since August 2012, suggesting that the robust labor market is losing pace.

We would therefore favor a GBP bearish bias. GBP/USD lost -2.55% since its high from 3 May 2019 (1.3173). The pair is approaching support at 1.2803 (14 February 2019 low).

AUD slides temporarily amid disappointing job report

The Australian dollar slid to the lowest since January 21st 2016 - if we discard the flash crash from January 2nd this year – amid disappointing job figures. The Australian dollar fell as low as 0.6893 against the greenback after the unemployment rate rose to 5.2% in April, leaving it at the highest level since August last year. The slight increase in the participation rate from 65.7% to 65.8% can’t solely explain the move as the number of full time jobs contracted by 6.3k, while labour market underutilisation rose by 34.7k.

A week ago, the Reserve Bank of Australia decided not to lower the Official Cash Rate and maintained it at 1.5% while most economist anticipated a reduction of 25bps. However, the tone of the statement was slightly dovish as it reiterated the view that the outlook for the global economy is “tilted to the downside”, while the outlook for household consumption remains the main domestic uncertainty. However, the RBA remained relatively optimist regarding the growth outlook. Despite this relatively enthusiastic statement, we believe that Philip Lowe is much closer to announce a cut than a raise. In addition, the RBNZ cut rate last week; therefore there is a solid probability that the RBA will walk in Adrian Orr’s footsteps.

Speculator are still net short Aussie and a continued to increase their positions. As of last last, total net short position reached 26% of total open interest (futures only). Given the likelihood of the RBA cutting rate at its next meeting in early June, we believe that the Aussie has room for further debasement with 0.6850 as next target. Nevertheless, investors should keep in mind that the Australian dollar is extremely sensitive to US-China trade war developments - as 35% of Australia’s export go to China – meaning positive news may trigger sharp upside moves.

EUR/USD

Current level - 1.1207

The bearish pressure has been lost with the failure at 1.1170 and intraday there is a risk of another attempt towards 1.1270 resistance area.

USD/JPY

Current level - 109.45

The intraday bias is absolutely neutral. A violation of 109.70 hurdle will challenge 110.30 area.

GBP/USD

Current level - 1.2840

The violation of 1.2860 low signals a completion of the consolidation phase and the bias is bearish, for a dive towards 1.2690. Initial resistance lies at 1.2890.

Yesterday, the XAU/USD exchange rate traded sideways around the 55-hour moving average, currently located at the 1,297.25 mark.

From a theoretical point of view, it is likely, that the price for gold could decline, as it should target the lower boundary of the short-term ascending channel. However, the rate has to surpass the 100-hour SMA at 1,293.57.

If the given support level holds, it is likely, that gold could trade sideways between the given moving averages. Also, it is unlikely, that the rate could breach the given channel south due to the 200-hour SMA at 1,288.41.

Yesterday, the EUR/USD currency pair tested the support level formed by the weekly S1 at 1.1184.

During today's morning, the pair raised to the resistance level formed by a combination of the 100-hour SMA, the weekly and monthly PPs at 1.1220. If the given resistance holds, it is expected, that a reversal south could occur, and the exchange rate could re-test the given support.

However, note, that the rate is supported by the 55– and 200-hour moving averages at 1.1212. Thus, the rate could breach the given resistance and reach the psychological level at the 1.1240 mark.

On Wednesday, the GBP/USD exchange rate tumbled to the support level—the weekly S2 at the 1.2843 mark.

Given that the rate is still pressured by the 55-hour moving average, currently located at 1.2896, it is likely, that bears could prevail in the market in the short run. A possible downside target is the psychological level at 1.2800.

However, if the given channel holds, a reversal north could occur in the nearest future, and the currency pair could try to surpass the given moving average.

During the previous trading session, the USD/JPY currency pair traded sideways between the weekly S1 and the Fibonacci 50.00% retracement, located 109.32 and 109.58 respectively.

Note, that the pair is trading near the upper boundary of the short-term descending channel, thus, from a theoretical point of view, it is likely, that a reversal south could occur in the short run.

Also, note, that the exchange rate is pressured by the 55– and 100-hour moving averages at 109.57, thus, from a technical perspective, it is unlikely, that a breakout north could occur in the nearest future.

A narrow descending channel pattern has guided the British Pound lower against the Japanese Yen since last week's trading sessions.

The exchange rate is currently testing a support cluster formed by the combination of the weekly and the monthly pivot points at 140.23.

If this support cluster holds, a breakout through the upper boundary of the narrow descending channel pattern might occur within this session.

However, if the currency exchange rate passes the monthly and weekly PPs as mentioned earlier, a decline towards the 136.00 mark could be expected in the short-term.

The 50-hour simple moving average has guided the AUD/JPY currency pair lower since last week trading sessions. The Australian Dollar depreciated about 2.12% in value against the Japanese Yen during this past week.

The narrow descending channel pattern could continue to guide the exchange rate lower within this week's trading sessions.

However, it is likely that the currency exchange rate makes a retracement towards the 50-hour simple moving average at 76.69 during the following trading days.

Meanwhile, technical indicators flash sell signals on both the 4(H) and the daily time frames chart.

Notes/Observations

Asia:

• China Commerce Ministry's Gao echoes sentiment from the Foreign Ministry spokesperson Geng Shuang; Reiterates China strongly opposes U.S. bullying; Urges U.S. to cancel tariffs on Chinese goods as soon as possible to avoid causing recession-like impact on world economy
• Expresses no knowledge of plans for U.S. trade delegation to visit China at present contrary to earlier reports -Indonesia leaves rates unchanged as expected
• Australian Dollar (AUD) and bond yields decline, June rate cut bets rise after disappointing April unemployment data

Europe/Mideast:

• Italy ECB member Visco sees rising bond yields filtering to higher cost of loans for households and firms; stresses need to reduce debt -National Grid CEO opposes Labour proposals to nationalize energy networks, stating it would slow investment and raise costs for customers

Americas

• (US) Pres Trump signed executive order banning the purchase or use of communications technology that poses a national security risk (as expected

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.14% at 377.54, FTSE -0.06% at 7,292.29, DAX -0.33% at 12,060.20, CAC-40 -0.36% at 5,355.05, IBEX-35 -0.01% at 9,176.50, FTSE MIB -0.18% at 20,826.50, SMI +0.38% at 9,516.50, S&P 500 Futures -0.04%]
• Market Focal Points/Key Themes: Equities European Indices trade mostly lower strong U.S. session yesterday on press reports that U.S. President Trump plans to delay auto imports tariffs up to 6 months. U.S. Index futures trade slightly lower as trade tensions continue to be at the forefront. On the earnings front, shares of Ubisoft trade sharply lower after weak bookings guidance in earnings report yesterday. In the U.K. Thomas Cook trades almost 18% lower following increase in operating losses and citing challenging trading environment for upcoming summer period. Shares of Sophos, Norsk Hydro and Bouygues are among notable risers this morning, while Burberry and Safestyle trade notably in negative territory. On the corporate front, both German giant ThyssenKrupp and Finnish company Kone trade higher on press speculation that Kone exploring whether option to bid for ThyssenKrupp's Elevator unit is viable. Shares of Nokia and Ericsson trade slightly higher after U.S. President Trump signed order likely to restrict Huawei/ZTE on 5G. Looking ahead notable earners include Walmart, Manchester United and QIWI.
• Consumer discretionary: Ubisoft [UBI.FR] -13% (earnings), Thomas Cook [TCG.UK] -18% (earnings; mulling divestment; credit facility), Burberry [BRBY.UK] -4.5% (earnings; buyback program), Safestyle [SFE.UK] -15% (trading update)
• Energy: Norsk Hydro [NHY.NO] +4.5% (embargo lifted)
• Financials: Investec [INVP.UK] +0.5% (earnings), Generali [G.IT] +0.5% (earnings)
• Materials: KBC Group [KBC.BE] -0.5% (earnings)
• Industrials: ThyssenKrupp [TKA.DE] +3%, Kome [KNEBV.FI] +3% (Kone reportedly exploring whether option to bid for Elevator unit is viable), Balfour Beatty [BBY.UK] -1% (trading update), National Grid [NG.UK] -0.5% (earnings)
• Technology: Sophos [SOPH.UK] +13% (earnings)
• Telecom: Bouygues [EN.FR] +2.5% (earnings), Nokia [NOKIA.FI] +1%, Ericsson [ERICB.SE] +1.5% (Trump signed order likely to restrict Huawei/ZTE on 5G)

Speakers

• (CN) China Commerce Ministry (MOFCOM) spokesperson Gao: Reiterates China strongly opposes U.S. bullying; no information on any plans for U.S. trade delegation to visit China
• (CN) China Foreign Min Spokesman Lu Kang: Reiterates China to take necessary measures to defend its companies
• (JP) Japan Cabinet Secretary Suga: Broad US car import restrictions cold hit global economy
• (EU) ECB's Visco (Italy): Global Economy, Euro Area and Italy are in a difficult time
• (DE) ECB's Weidmann (Germany): domestic inflation is stubbornly low; no need to postpone normalization if outlook

Currencies/Fixed Income

• As comments between the Trump and China continue to dominate the main stage, China seen becoming more aggressive saying that if the US continues on their path, they will have to take necessary countermeasures. They also urge the US to cancel the tariffs on Chinese goods to avoid causing a recession like impact on the world economy
• EUR/USD Seen trading higher as it tested the 1.12 handle only to be pushed higher after Trump made comments reportedly plans to delay auto import tariffs. Also, the Bund yields remain negative as Bund future contracts break through the 167 handle a level tested earlier this year making a new high of 167.43.
• AUD/USD – The Aussie making a new low as it breaks the 0.69 level as it now trades higher on the day following a mixed bag of news with a higher employment change than expected as well as a higher unemployment rate.
• GBP/USD – The cable trading lower as it broke the 1.29 handle as concerns over the labour party's plan for nationalizing the UK utility industry. The next level seen is 1.2770 a level created back in February

Economic Data

• (FR) France Q1 ILO Unemployment Rate: 8.7% v 8.7%e
• (IT) Italy Apr Final CPI M/M: 0.2% v 0.2% prelim; Y/Y: 1.1% v 1.1% prelim
• (EU) Euro Zone Mar Trade Balance (Seasonally Adj): €17.9B V €19.4Be; Trade Balance NSA (unadj): €22.5B V €17.5B prior
• (IT) Italy Mar Total Trade Balance: €4.6B v €3.3B prior; Trade Balance EU: €1.2B v €1.1B prior

Fixed Income Issuance

• (FR) France Debt Agency (AFT) sells total €8.998B vs. €8.0-9.0B indicated range in Inflation-linked 2022 and 2025 bonds (Oatei)
• (SE) Sweden sells SEK500M vs .SEK500M of 0.125% June 2032 inflation linked bonds; Avg Yield: -1.5950% v -0.9946% prior; Bid-to-cover: 2.58x v 3.77x prior

Looking Ahead

• 06:00 (IL) Israel Q1 Advance GDP Annualized: 2.9%e v 3.1% prior
• 06:00 (IL) Israel Apr Consumer Confidence: No est v 130 prior
• 07:00 (BR) Brazil May FGV Inflation IGP-10 M/M: 0.8%e v 1.0% prior
• 07:00 (SE) Sweden Central Bank (Riksbank) Gov Ingves Keynote Address
• 07:30 (TR) Turkey Central Bank TCMB Survey of Expectations: 12-months Inflation Expectations: No est v 15.4% prior
• 08:00 (PL) Poland Apr CPI Core M/M: 0.9%e v 0.4% prior; Y/Y: 1.7%e v 1.4% prior
• 08:00 (UK) Baltic Dry Bulk Index
• 08:30 (US) Apr Housing Starts: 1.209Me v 1.139M prior; Building Permits: 1.290Me v 1.269M prior
• 08:30 (US) Initial Jobless Claims: 220Ke v 228K prior; Continuing Claims: 1.68Me v 1.684M prior
• 08:30 (US) May Philadelphia Fed Business Outlook: 9.0e v 8.5 prior
• 08:30 (CA) Canada Mar Int'l Securities Transactions (CAD): No est v 12.1B prior
• 08:30 (CA) Canada Mar Manufacturing Sales M/M: +1.5%e v -0.2% prior
• 08:30 (CA) Canada Apr ADP Payroll Estimates: No est v +13.2K prior
• 08:30 (US) USDA Weekly Net Export Sales
• 08:30 (ES) ECB's De Guindos (Spain)
• 09:00 (RU) Russia Gold and Forex Reserve w/e May 10th: No est v $490.9B prior
• 09:00 (EU) European Finance Ministers (Eurogroup) with ECB's Draghi in attendance
• 10:30 (US) EIA Weekly Natural Gas Inventories
• 12:05 (US) Fed's Kashkari (dove, non-voter)
• 13:30 (UK) BOE's Haskel in NY
• 14:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to leave Overnight Rate unchanged at 8.25%
• 14:00 (FR) ECB's Corure (France) on banking

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.

Gold pares gains but further upside could follow

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.

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.

Oil heading for third positive day

Oil prices are trading higher again on Thursday, building on yesterday's gains which came in more favorable risk markets and as EIA reported a higher inventory build than expected, albeit a smaller one than API reported a day earlier. Perhaps the API number adjusted people's expectations for the number and the release fell short of these expectations, despite still representing another large build which you would typically associate as being negative for oil prices.