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The British pound has fallen below the 1.3100 level against the US dollar after reversing sharply from the 1.3130 resistance level during the European trading session. The GBPUSD pair is increasingly likely to test towards the pivotal 1.3064 level while trading under the 1.3100 level. The MACD indicator on the four-hour time frame is also starting to turn lower as downside pressure builds.

The GBPUSD pair is only intraday bearish while trading below the 1.3100 level, key support is found at the 1.3064 and 1.3000 levels.

If the GBPUSD pair trades above the 1.3100 level, key intraday resistance is found at the 1.3130 and 1.3174 levels.

Aussie better bid as RBA stands idle

The Australian dollar stood amongst the best performers on Tuesday morning after investors have been wrong-footed by the Reserve Bank of Australia’s (RBA) monetary policy decision. Indeed, Governor Lowe acted contrary to the expectations by maintaining the Official Cash Rate at record low 1.5%, while market participants expected a 25bps cut. The Australian dollar rallied more than 0.70% to $0.7048 following the RBA decision.

The statement 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. Surprinsingly, the RBA remains quite confident regarding the growth outlook as it only trimmed its forecast by 0.25% to 2.75%. Philip Lowe also noticed “there has been little progress in reducing unemployment over the past six months.” He concluded by saying that there was “still spare capacity in the economy” and that further improvement in the job market was necessary for inflation too go near the target range.

Despite this relatively upbeat statement, we believe that the central bank has definitely not closed the door to another rate cut. Australia’s dependency on Chinese imports has continued to increase over the last few year. Indeed, more than 38% of Australia’s exports go to China. The slowdown of the world’s second largest economy will inevitably affects negatively the Aussie economy. It may take time to materialize but it will. Luckily, the RBA is one of the few central banks that has room to manoeuvre as interest rates are largely – compare to most central banks – above zero. Against such a backdrop, we maintain our bearish view on the Aussie: However, we do not expect a sharp debasement but rather a continuous depreciation as China’s economy slowdowns and the interest rate differential makes the Aussie less attractive to investors.

German economy faces toughest consequences of trade war

German manufacturing sector remains in recession territory since January 2019. The release of April manufacturing PMI of 44.4 is part of a downward trend that began last July and which is expected to last, as German factory orders signal a drop in industrial production for the coming quarter. Although the month-to-month metric in factory orders is pointing to a rebound of 0.60% (prior: -4%), the price-adjusted metric that removes major orders fell at -1.90%. The expansive monetary policy from the ECB is of good help for both the construction and service sectors by supporting domestic demand, albeit Germany’s heavy dependence of external trade means that further escalation in current Sino-American trade conflict would put the economy in a recession across all sectors. Trade duties of 25% on USD 200 billion Chinese products are expected to be imposed on Friday while a Chinese delegation accompanied by Chinese Vice Premier Liu He arriving in Washington on Thursday could reverse the situation. At current, we see little upside for the single currency. The dependence over Asian demand makes the euro even more sensitive to potential US – China discord intensification. Today’s EU Commission economic forecast could become less relevant if the situation on Friday worsens.

Currently trading at 1.1200, EUR/USD is heading along 1.1170 short-term.

Daily Pivots: (S1) 144.68; (P) 145.52; (R1) 146.04; More...

Intraday bias in GBP/JPY remains neutral with focus on 144.80 minor support. Further rise is still in favor with 144.80 intact. On the upside, break of 146.50 resistance will solidify that case that consolidation from 148.87 has completed. Further rise should be seen to retest 148.87/149.48 resistance zone next. On the downside, though, firm break of 144.80 minor support will turn focus back to 143.72 key support.

In the bigger picture, focus is staying on 149.98 key resistance. Decisive break there should confirm that medium term fall from 156.59 (2018 high) has completed at 131.51 already. Rise from 131.51 is then seen as the third leg of the corrective pattern from 122.36 (2016 low). GBP/JPY should then target 156.59 and above. However, rejection by 149.98 will retain medium term bearishness and could extend the fall from 156.59 through 131.51 to 122.36.

European markets are trading lower because of the weakness in the German factory order data released today. The data was much softer than the forecast and this amplifies the concerns about the economic health of the country. The actual reading was 0.6 percent, against the estimate of 1.6%.

One can always debate what can really derail the equity market sentiment? Is it the softness in the economic numbers, geopolitical tensions or the Trump tweets? Clearly, president Donald Trump's tweets triumph everything, the example of this can be seen yesterday. The question is if investors should consider such dramatic moves as an opportunity? Especially, when the major benchmark indices have made an all-time high.

Well, there are two sides to this, the equity market is not cheap. So buying at these prices doesn't necessarily mean bagging a bargain. However, the famous saying is: the trend is your friend, and looking at the major indices: S&P 500, Nasdaq, the Dow Jones, one can clearly see that the trend is skewed to the upside. Particularly, the FOMO element gathers more force when the year to date performance becomes a focal point. The Nasdaq index is up whooping 22.43 percent year to date, the S&P 500 is up 16.98 and the Dow Jones 13.34 percent. This makes the picture clear why one doesn’t want to stay on the sideline.

As the UK market was closed yesterday because of the bank holiday, traders will have to measure the trump tactic very carefully. Looking at the last 24-hour market reaction, it becomes clear that traders do not really believe that Donald Trump is going to do what he said in his tweet. They believe this was nothing but just a tactic. It has worked to an extent because the Chinese negotiators do understand the underlying risk better now. No one wants a war, it is not beneficial to the US, no matter how Trump sugar coat’s this and it does do any favor to the second biggest economy of the world, China.

BMWs Reported Drop In Profit

The earnings season is still in full swing and we do not want to see the economic data becoming ugly because this will exhaust the upward momentum, particularly when the European Elections are just around the corner.

BMW reported it's quarterly earnings today, the company's profit slumped nearly 80%. Earnings before tax dropped 589 million euros. This was mainly due to the increase in spending on new technology and competition in some markets. These two factors pushed the profit margin lower. Generally speaking, it is normal for this to drop especially when a company starts to invest in new technology and the new models will hit the market soon. Thus, I do not see any particular reason why the stock shouldn't be performing well in the near future.

Brexit and Theresa May

In the currency market it is all about sterling and brags drama around it Theresa May the British prime minister is going to sit down with Labour Party. failure to have any resolution may trigger the chances for another referendum or even emergency election. there are also strong possibility battery some mate maybe replace buy a breakfast hardliner while Michael Barnier, the EU lawmaker is eagerly looking for some positive outcome.

Daily Pivots: (S1) 123.59; (P) 123.95; (R1) 124.54; More...

Intraday bias in EUR/JPY remains on the downside for the moment, with focus on 123.39 key support. Sustained break will indicate larger reversal. That is rise from 118.62 has completed at 127.50 already. In such case, deeper fall should be seen to retest 118.62 low. On the upside, rebound from the current level, followed by break of 125.23 minor resistance, will turn bias back to the upside for 126.79 resistance instead.

In the bigger picture, there is no confirmation of completion of the down trend from 137.49 (2018 high) yet. Break of 123.39 support will favor of down trend extension and target 118.62 low. However, break of 127.50 will solidify the case of medium term bullish reversal. Further decisive break medium term channel resistance will affirm reversal and target 133.12 key resistance and above. On the downside, sustained break of 123.39 will add to the case that down trend from 137.49 is still in progress for another low below 118.62.

Daily Pivots: (S1) 1.5973; (P) 1.6019; (R1) 1.6053; More...

EUR/AUD formed a temporary top at 1.6064, ahead of 1.6122 key resistance and retreated sharply. Intraday bias is turned neutral first. Some more consolidations would be seen in near term. But at this point, we'd continue to favor the bullish case that correction from 1.6765 has completed with three waves down to 1.5683. On the upside, above 1.6064 will turn bias back to the upside for 1.6122. Decisive break of 1.6122 will confirm this bullish view and target retesting 1.6765 high. However, break of 1.5806 support will argue that fall from 1.6765 is resuming and turn bias back to the downside for 1.5683 low for confirmation.

In the bigger picture, as long as 1.5346 support holds, outlook will still remain bullish. Uptrend from 1.1602 (2012 low) is expected to resume sooner or later. Break of 1.6765 will target 61.8% retracement of 2.1127 (2008 high) to 1.1602 at 1.7488 next. However, firm break of 1.5346 key support will indicate trend reversal, with bearish divergence condition in weekly MACD, and turn outlook bearish.

EUR/USD

Current level - 1.1208

Current rise above 1.1130 should be the final leg of the whole consolidation pattern after 1.1110 low and 1.1275 hurdle is expected to cap the upside, for a slide towards 1.1015.

USD/JPY

Current level - 110.67

The violation of 111.00 area signals a negative bias, for a dip to 109.70. Crucial on the upside is 111.60.

GBP/USD

Current level - 1.3124

The upmove above 1.2960 support is still intact, currently getting ready for another leg, towards 1.3350. Initial support lies at 1.3080 and crucial on the downside is 1.2990.

Daily Pivots: (S1) 0.8508; (P) 0.8534; (R1) 0.8576; More...

A temporary low was formed at 0.8489, ahead of 0.8472 key support, with subsequent recovery. Intraday bias is turned neutral first. After all, price actions from 0.8472 is seen as a consolidation pattern. In case of another rise, upside should be limited below 0.8681 resistance. On the downside, decisive break o 0.8472 will confirm resumption of down trend from 0.9101 and target 61.8% projection of 0.9101 to 0.8472 from 0.8681 at 0.8292 next.

In the bigger picture, medium term decline from 0.9306 (2017 high) is seen as a corrective move. Current development suggests that it's extending through 0.8312 support towards 50% retracement of 0.6935 (2015 low) to 0.9306 at 0.8121. We'll look for strong support around there to contain downside to complete the correction. But for now, break of 0.8681 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of recovery.

Aussie is higher across the board after RBA leaves rates unchanged at 1.5%, but currency still moved higher because expectations were 1.25%. We have seen a nice bounce on AUDUSD but not in five waves yet, so we have to be patient and careful. Remember the most important will be the daily closing price; for now it is still too early to tell where that will be, but if above or around 0.7066 then this would definitely be bullish.

AUDUSD, 1h

In less than 24 hours there will be also another important rate decision coming out; for NZD which will be on our radar screen because of AUDNZD pair. If news comes out positive from New Zealand, then this cross can finally be ready for a sell-off; price is now at very nice technical resistance. Decline back to 1.0570 would be bearish for the pair.

AUDNZD, 1h

The EUR/JPY has formed a black marubozu straight off the POC zone. We should see a further drop if the price remains capped below.

123.92-124.02 is the breakout spot for the pair. A clear continuation below the trend line targets 123.79 as the first target, followed by 123.52. Further bearish advancement is possible below 123.49. If that happens the daily ATR projection will be overshot which indicates strong bearish trend. In that case the target is 123.11. The scenario is invalid should the price reach 124.35.