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Market participants are looking closely for signs of a recovery in economic growth in the euro area, as 1Q 2019 GDP figures are released this morning. Although considering yesterday release of ZEW sentiment indicator for May pointing to -1.6 (prior: 4.5), there are good reasons to consider that the outlook for the second quarter remains subdued, as risks over the US and China increases uncertainty with regard to external trade.

Germany is therefore a good example to illustrate the situation. The downtrend of soft indicator ZEW at -2.1 (prior: 3.1) in negative territory suggests that economic growth in the country should be restrained for the coming six months, despite strong growth figures in 1Q 2019 q/q of 0.40% (prior: 0%), highest since June 2018 and which would imply an end to the downturn at first sight. Yet the unusual contribution from construction investment due to a moderate climate in the period overestimates the gauge. Positive inflows came from domestic demand, machinery and equipment while government expenditure recorded a decline. In the same period, the y/y gauge printed at 0.60% (prior: 0.90%), lowest since March 2013, indicating that GDP is should flatten or potentially decline in the second quarter of the year. Under current situation, we would expect a recovery phase starting from second half 2019, as the Chinese economy is will benefit from government’s stimulus measures.

Currently trading at 1.1210, EUR/USD is heading along 1.1195 as US data are approaching.

The common European currency depreciated about 70 base points against the Japanese Yen on Tuesday. The monthly pivot point at 122.59 provided support for the exchange rate during yesterday's trading session.

Given that the 50-, 100– and 200-hour simple moving averages are above the price action on the 1(H) time frame chart, it is likely that the currency pair will continue its downside movement within this session. The possible targets for the pair will be at the 122.00 mark.

Meanwhile, technical sentiment suggests that the currency exchange rate could continue its decline in the shorter term.

The Australian Dollar depreciated about 33 base points against the US Dollar on Tuesday. The currency pair was pressured down by the 50-hour simple moving average during yesterday's trading session.

As for the near future, it is likely that the Aussie will continue its southern movement against the Greenback. Bears could target a support cluster at 0.6864 in the shorter term.

However, the AUD/USD currency exchange rate is expected to aim for a re-test of the resistance cluster formed by the combination of the weekly, the monthly PPs and the 50-hour SMA at 0.6950 today.

The US Dollar traded sideways movement against the Canadian Dollar on Tuesday. The currency pair was supported by a support cluster formed by the 50– and 100-hour SMAs at 1.3460 during Tuesday's trading session.

Everything being equal, it is likely that bulls could gather enough momentum to dash through a significant resistance level set by the weekly R1 at 1.3516 during the following trading session.

Furthermore, technical indicators flash buy signals on both the 4(H) and the daily time frames charts.

The New Zealand Dollar depreciated about 25 base points against the US Dollar on Tuesday. The pair was pressure down by the 50-hour simple moving average during yesterday's trading session.

The currency pair is currently trading near a support level formed by the monthly S1 at 0.6560.

If the support level holds, a pullback towards the 200-hour simple moving average at 0.6595 could be expected within this session.

However, if the currency exchange rate passes the monthly S1 as mentioned earlier, a decline towards the weekly S1 at 0.6542 could follow.

The USD stabilized against the Yen yesterday and firmed against a number of other currencies as trade worries seems to ease a bit. US President Trump, stated yesterday that trade talks with China are still ongoing and haven’t collapsed, calling the US-Sino trade war “a little squabble”, according to media. Also the US president tweeted that China will be pumping money into their system and called on the Fed to “match” the Chinese stimulus. On other news, Trump is expected to sign an executive order and practically banning Huawei’s equipment in the US market, as a national threat. Analysts point out that the markets may turn their attention and monitor key financial releases again in the next days. Should trade fears ease further, we expect the Yen to weaken, yet probably the Aussie could remain under pressure. USDJPY stabilised yesterday, maintaining a range bound motion just below the 109.75 (R1) resistance line. As the pair broke downward trendline incepted since the 6th of May, we switch our bearish outlook, in favour of a sideways movement. It should be mentioned that the pair may still be sensitive to any trade war headlines, as well as today’s financial releases. Should the pair come under the selling interest of the market, we could see the pair aiming if not breaking the 109.15 (S1) support line. Should the pair’s long positions be favoured by the market, we could see it breaking the 109.75 (R1) resistance line and aim for the 110.30 (R2) resistance level.

EUR drops on Italian concerns

The common currency weakened yesterday against the USD, as concerns about Italy’s intentions grew among investors. As per news reports, Italy’s deputy Prime Minister Salvini stated that the country is ready to break EU budget rules on debt levels if needed. We would like to note that the statements made could also pose a tactic of Salvini, ahead of the EU Parliament’s elections, to rally supporters of his party, the Lega. The EUR didn’t have any favors coming from financial releases yesterday either, as Germany’s ZEW dropped into the negatives, confirming the pessimistic view in Eurozone’s largest economy. We could see the uncertainty of the EU elections weighing on the EUR in the near term, however markets could also be watching financial indicators. EUR/USD dropped yesterday, breaking the 1.1220 (R1) support line, now turned to resistance. We could see the pair rebounding somewhat as today’s financial releases are forecasted to provide some support for the EUR, while at the same time weaken the USD. Should the bears be in control of the pair’s direction, we could see it breaking the 1.1175 (S1) support line and aim lower. On the flip side, should the bulls take over, we could see EUR/USD breaking the 1.1220 (R1) and aim for the 1.1260 (R2) resistance barrier.

Other economic highlights, today and early tomorrow

During today’s European session, we get from Germany the preliminary release of Q1’s GDP growth rate along with Eurozone’s 2nd estimate of the GDP release for Q1. In the American session, we get the US retail sales growth rates for April, Canada’s inflation rates for April, the US Industrial production growth rate for April and the EIA crude oil inventories figure. During tomorrow’s Asian session, we get Japan’s PPI rate and Australia’s employment data for April. As for speakers please note that Fed’s Quarles, Richmond Fed President Barkin and ECB’s Praet are speaking today.

EURUSD H4

Support: 1.1175 (S1), 1.1125 (S2), 1.1075 (S3)
Resistance: 1.1220 (R1), 1.1260 (R2), 1.1300 (R3)

USD/JPY H4

Support: 109.15 (S1), 108.50 (S2), 107.90 (S3)
Resistance: 109.75 (R1), 110.30 (R2), 110.90 (R3)

EUR/USD

Current level - 1.1205

The downtrend is intact and a break through 1.1170 will challenge 1.1110 low. Crucial on the upside is 1.1240.

USD/JPY

Current level - 109.67

The support at 109.40 guards the positive intraday bias, for a bounce towards 110.30. The outlook on the senior frames remains neutral.

GBP/USD

Current level - 1.2902

The bias is bearish, for a test of 1.2860 low and the latter should provide a reliable base for one more upswing, to 1.3050.

The pair eases in early European trading after attempts to extend Tuesday's recovery were repeatedly capped by falling 5SMA (109.63) which tracks descend in past two weeks.

Japanese yen remains supported by concerns about further escalation of trade war, with improved sentiment on comments on Tuesday from US President Trump that trade talks with China had not collapsed, so far showing limited positive impact.

Bears show hesitation at key Fibo support at 109.41 (38.2% of 104.57/112.40), as recovery attempts fail to benefit from bear-trap pattern below 109.41 pivot. Studies on 4-hr chart remain bearish while reversal of daily momentum / stochastic suggests some corrective action.

Falling 5SMA marks initial barrier and limits for now, with extended upticks expected to remain below falling 10SMA (110.17) and daily cloud base (110.31) to maintain bearish bias.

Break below 109.00 handle would open way towards 108.49 (50% retracement of 104.57/112.40).

Res: 109.63, 109.81, 110.00, 110.31
Sup: 109.44, 109.02, 108.49, 108.00

The GBP/USD has formed a bullish confluence at W L4 support which is additionally supported by historical buyers.

1.2890-1.2900 is the zone where we might see a bounce. Historical buyers and the pair being in an oversold territory might give us a bounce and needed correction. The zone is also in oversold territory as higher TF dynamical levels of support and resistance hold the price above the W L4 support. Targets are 1.2940 and 1.2980. If that happens the pair even might correct further during next couple of days as there is still room till next supports. Have in mind that W L3 hasn’t been tested this week so if bullish momentum persists 1.3053 is the valid target for the week.

The movements in early Wednesday trade from Asia suggest that investors are tepidly putting some risk back on the table, even as uncertainties surrounding US-China trade tensions continue to cast a cloud over market sentiment. Most Asian stocks are trading in positive territory, perhaps taking their cue from US counterparts which rebounded from the sharpest drop in four months.

With Donald Trump downplaying trade tensions between the United States and China as a "little squabble", there is cautious optimism that both sides will eventually reach a trade deal, with investors potentially looking at the G20 meeting in Japan next month as a possible target for a breakthrough in trade relations. It is likely that European markets will attempt to benefit from the positive tone seen in the previous US and Asia trading sessions, but this does not change the fact that spectators are very concerned that both Washington and Beijing have raised tariffs on each other's goods. This is a major negative for the world economy and investors should remain alert as global sentiment remains fragile and highly sensitive to trade developments.

US retail sales, industrial production data may serve as near-term Dollar catalysts

The US Dollar can continue its climb from Tuesday's trading session, should the US retail sales and industrial production data due later on Wednesday, come in better-than-expected. The Greenback's upward trajectory in 2019 should remain intact as long as the US economy continues to be in a "good place", as often referenced by Fed officials. Broader concerns over the ramp-up in US-China trade tensions should also support the US Dollar, as it offers investors refuge during periods of uncertainty.

Greenback steady even as Trump repeats call for lower US interest rates to "match" China stimulus

US President Donald Trump has once again called on the Federal Reserve to lower interest rates, in a bid to "match" stimulus measures in China. He described such a move by the US central bank as "game over", and that the US will win in its trade conflict with China.

Amid such repeated calls by Trump for US interest rates to be lowered, the Dollar Index is holding around the 97.5 mark at the time of writing, even though the Fed funds futures now point to more than a 70 percent chance of an interest rate cut by December. Markets are casting an eye over the potential ramifications of heightened trade tariffs on the US inflation and growth outlook, which may ultimately tip the balance in favour of a Fed rate cut before 2019 is over.

Currency spotlight – EURUSD

Elsewhere, the Euro offered a fairly muted reaction this morning despite the first estimate of German Q1 GDP printing above market expectations. Economic growth in Germany expanded 0.7% year-on-year during the first quarter of 2019. The Euro is likely to remain on standby until Eurozone Q1 GDP figures are released later in the day. Should the pending GDP figures from Europe meet or exceed market expectations, the Euro has scope to push higher against the Dollar and other major currencies. We should however not discount the threat that downside risks to the Eurozone economy from external headwinds can lead to a flurry of selling positions on the Euro entering the market.

Focusing on the technical picture, the EURUSD remains bearish on the weekly timeframe with prices trading within a bearish channel. A solid weekly close below the 1.1200 support level is likely to inspire a steeper decline towards 1.1120 and 1.1000 in the medium term. Should 1.1200 prove to be a strong support level, the EURUSD could test 1.1310.