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EURUSD has recovered somewhat after the aggressive drop towards the 23-month low of 1.1110 on April 26, stretching further the its medium-term descending channel. Currently, the price is still hovering beneath the 20- and 40-simple moving averages (SMAs) in the daily timeframe, while the momentum indicators hold in bearish territory. The RSI is pointing down; however, the MACD surpassed the trigger line, suggesting a possible upside retracement.

The 1.1200 region is keeping the bulls under control and any jump above that region would send prices until the 20- and 40-SMAs around 1.1225 and 1.1253 respectively. Slightly above these lines the 1.1260 barrier and the 23.6% Fibonacci retracement level of the downleg from 1.1815 to 1.1110 near 1.1275 are located. Should the bulls beat the aforementioned obstacles the price could hit the 1.1325 resistance, which stands near the downtrend line.

On the other hand, a continuation of the downward movement could drive prices until the 1.1110 level again, while in case of steeper decreases, the pair could hit the 1.0900 psychological hurdle, identified by the peaks on March 2017.

Summarizing, in the medium-term picture, the outlook has turned even more bearish after the slip towards the 23-month trough and the continuation of the bearish channel over the last four months.

The US dollar has come under renewed downside pressure against the Japanese yen on Monday, following bearish comments surrounding Sino-US trade talks from President Trump. The USDJPY pair has a strong bearish intraday bias while trading below the 110.90 level and may target the 110.00 level. Traders should be aware that the large inverted head and shoulders pattern on the four-hour time frame still remains valid.

The USDJPY pair is heavily bearish while trading below the 110.90, key intraday support is found at the 110.40 and 110.00 levels.

If the USDJPY pair trades above the 110.90 level, key intraday resistance remains at the 111.30 and 111.60 levels.

The euro continues to recover higher against the greenback after the pair found strong dip-buying interest from the 1.1135 support level. The EURUSD pair could advance back towards the 1.1250 level of bulls can maintain price above the 1.1190 support level. Technical indicators across the four-hour time frame also suggest that the EURUSD pair can continue to trade higher.

The EURUSD pair is only intraday bullish while trading above the 1.1190 level, key technical resistance is found at the 1.1216 and 1.1250 levels.

If the EURUSD pair moves below the 1.1190 level, key technical support is found at the 1.1164 and 1.1135 levels.

Litecoin is attempting to move higher in early week trade after the sixth largest cryptocurrency by market capitalization was given a boost by the latest strong rally in Bitcoin. The LTCUSD pair only has an intraday bullish bias while trading above key technical support, at $75.00. Bulls will soon need to break the former monthly trading high or the LTCUSD pair may come back under downside pressure.

The LTCUSD pair is only bullish while trading above the $75.00 level, key resistance is found at the $85.00 and $99.00 levels.

If the LTCUSD pair trades below the $75.00 level, key support is found at the $65.00 and $58.00 levels.

The financial market was caught off-guard by a Trump tweet that warned of additional tariffs on Chinese goods. Yesterday, the President said that the 25% tariffs threat to Chinese goods will come this Friday. This came at a time when investors were waiting for a deal between the two countries to be signed soon. In response to the tweet, the US dollar declined against major currencies, Asian stocks fell, and crude oil declined by more than 2% in early trading.

The euro moved lower against the USD ahead of key data expected today. The EU will release its retail sales for the month of March. This data is expected to show an increase of 1.8%, which will be lower than the 2.8% growth in February. The Markit composite PMI is expected to remain unchanged at 51.3. In Germany, the services and composite PMI numbers are expected to remain unchanged at 55.6 and 52.1 respectively. In Italy, the services PMI is expected to increase to 54.4 from the previous 53.1.

The Australian dollar declined sharply after Trump threatened to increase tariffs on Chinese goods and ahead of the RBA decision expected tomorrow. The RBA is expected to leave rates unchanged at the current 1.50%. This decision will give investors an insight into what the RBA thinks about the economy and whether it will change its decision on rate hikes later this year.

EUR/USD

The EUR/USD pair declined in the Asian session after Trump’s threat on tariffs. The pair reached a low of 1.1170 from Friday’s close of 1.1205. It then pared some of those gains. On the hourly chart, the pair’s price is between the middle and upper line of the Bollinger Bands while the RSI has remained unchanged at the current level of 54. Today, the pair could remain along these levels as traders wait for more guidance on trade.

GBP/USD

Sterling jumped sharply against the USD after the Trump announcement. It rose from a low of 1.2988 to a high of 1.3175. On the four-hour chart, the price is slightly below the upper line of the Bollinger Bands, while the RSI has dropped slightly from above 70 to the current level of 63. The dot of the Parabolic SAR indicator remains at the lower side. The pair will likely resume the upward trend and test the 1.3200 level.

AUD/USD

The AUD/USD pair declined to a low of 0.6962 after the Trump tweet and ahead of the RBA decision. This was the lowest level since January 7. On the four-hour chart, the price is below the 25-day and 50-day moving averages, while the RSI has moved closer to the oversold level of 30. The Accumulation/Distribution indicator has started to move up. There is a possibility that the pair will drop further ahead of the RBA decision.

Market movers today

We have a very interesting week ahead of us although today is quiet in terms of economic data releases. We thought that the US and China were about to strike a trade deal this week, but Trump's latest tweet questions that (see more below). This is likely to dominate markets today.

In terms of economic data releases, European PMI services, retail sales and investor confidence are due out today. We also get unemployment data for Norway.

In the UK, we will follow the cross-party negotiations between Theresa May and Jeremy Corbyn that May's team wants to wrap up this week after both parties suffered in the UK elections last week. According to media reports, Theresa May is preparing to offer Corbyn to make a customs arrangement with the EU.

Otherwise this week, German industrial production, US inflation and China inflation are due out. The EU Commission is also publishing its new economic forecasts for the EU countries.

In Scandi, we get Riksbank minutes tomorrow and Norges Bank decides on monetary policy on Thursday.

Selected market news

Over the weekend, US President Trump threatened to impose new tariffs on all of US imports from China. It is a huge turn of events that adds renewed uncertainty to the outcome of this week's talks. It may be that it is just a bluff and an attempt to squeeze out more of China but bullying rarely works on China and Trump's threat could backfire. Chinese Vice Premier Liu He is supposed to travel to Washington this week to wrap up the negotiations but this meeting may be cancelled now. That said, according to the US, the renewed threat comes as China is backpedalling on earlier commitments.

If talks this week fail, we could face a new escalation of the trade war, which would give a big hit to risk sentiment and could derail the brewing signs of recovery in the global economy. This morning stocks are flashing red in Asia with Chinese stock indices more than 5% down. Futures on S&P500 are down nearly 2%. Yuan plunged the most in three years.

However, with Trump going into election campaign, we still do not think he would risk a no-deal outcome that would most likely derail the stock market rally and cause a dive in economic sentiment. So our baseline is still a deal by the end of Q2. But uncertainty has clearly gone up.

General Trend:

• Markets await China’s response to Trump tariff threat
• China Vice Premier Liu He likely to delay trip to US by 3 days and shorten trip to only 1 day for trade talks this week (in response to Trump's tweets on raising tariffs) - SCMP
• Trade-related concerns weigh on Shanghai IT, Consumer Discretionary and Telecom Services sectors after recent holiday break; ZTE drops over 6%
• China confirms new bank rules related to recognition of non-performing loans (NPLs)
• Westpac declines as profits dropped y/y
• Korean Won (KRW) declines amid China and North Korea-related concerns
• Indonesia’s economy moves into ‘technical recession’ in Q1
• (IR) National Sec Adviser Bolton: Deploying bomber task force to send a message to Iran regime, in response to a number of troubling and escalatory indications and warnings (timing uncertain)
• Some analysts see volatility for Aussie and Kiwi this week, markets are divided on upcoming RBA and RBNZ decisions
• RBA due to meet on May 7th (Tuesday) and RBNZ to meet on May 8th (Wed)
• Japan due to return from Golden Week holiday on Tuesday

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.6%
• WBC.AU Reports H1 (A$) Cash profit 3.18B v 4.20B y/y, Net interest income 8.26B v 8.28B y/y, Net Op Rev 9.9B v 11.1B y/y
• FCG.NZ Switzerland's Froneri in exclusive talks to buy Tip Top from Fonterra for NZ$375M – AFR
• (NZ) New Zealand Shadow Board reiterates no recommended change in RBNZ rates
• (AU) Some expect the May 7th RBA meeting to be the most contentious policy meeting in years for the central bank, markets are pricing in even chance of rate cut - US financial press
• CIM.AU HK's GMT releases research report accusing CIMIC of inflating profits by ~100% in the last 2-yrs and hiding poor performance
• (NZ) New Zealand Apr Commodity Price Index 2.5% v 1.4% prior
• (AU) Australia Apr Melbourne Institute Inflation m/m: 0.2% v 0.4% prior; y/y: 1.8% v 2.1% prior
• (NZ) New Zealand Treasury: H1 GDP may be slightly below forecast, notes business pessimism about tax policy

Japan

• Nikkei 225 closed for holiday

Korea

• Kospi closed for holiday
• (KR) North Korea shot several short range missiles which traveled 70-200km, leader Kim told troops to keep on high alert posture - South Korea press
• (US) Pres Trump tweets on North Korea and Russia relations; North Korea's Kim "knows that I am with him & does not want to break his promise to me. Deal will happen!"
• (KR) US Sec of State Pompeo: US still has every intention to negotiate with North Korea over its nuclear program despite its weapons tests over the weekend – Yonhap
• (KR) South Korea parliament leader Moon Hee-sang to visit China this week for talks on bilateral cooperation in building peace on the Korean Peninsula - Yonhap

China/Hong Kong

• Hang Seng opened -2.5%; Shanghai Composite opened -3.0%
• (CN) CHINA PBOC: CUTS RESERVE RATIO REQUIREMENT (RRR) FOR SMALL AND MEDIUM SIZE BANKS BY IMPLIED 350BPS TO 8% (PRIOR 11.5%), CNY280B of long term funds to be released, effective May 15th
• (CN) China Vice Premier said to be considering canceling trade talks this week after Trump threats - US financial press
• (CN) CHINA APR CAIXIN PMI SERVICES: 54.5 V 54.2E ; PMI COMPOSITE: 52.7 V 52.9 PRIOR
• (CN) US President Trump told Aide: Significant hurdles remain to reaching a trade deal with China
• (CN) President Trump tweet: For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars....of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!
• (CN) China May 1-4 holiday period revenue from tourism +16.1% y/y to CNY117.7B - US financial press
• (HK) Hong Kong Apr PMI: 48.4 v 48.0 prior, New business from China falls for the 12th consecutive month
• (CN) China PBoC Open Market Operation (OMO): Injects CNY20B in 7-day Reverse Repos v skip prior; Net injects CNY20B v nil prior
• (CN) China PBoC sets yuan reference rate: 6.7344 v 6.7286 prior (weakest setting since Feb 20, 2019)
• (CN) PBoC backed China Financial News reiterates still room for targeted cuts to the RRR
• (CN) China CBIRC: Will impose a 60-day threshold for non-performing loans (NPL) recognition, to communicate NPL rules through window guidance

Other Asia

• (SG) Singapore Apr PMI: 53.3 v 51.8 prior
• (ID) Indonesia Q1 GDP Q/Q: -0.5% v -0.4%e (2nd consecutive contraction, enters technical recession); Y/Y: 5.1% v 5.2%e

North America

• BRK.A Reports Q1 Net earnings per A share +$13,209 v -$692 y/y, Rev $60.7B v $58.5B y/y
• BRK.A Warren Buffett: See little chance a Tesla introduced insurance product will impact existing insurers; Over time, Berkshire could repurchase $100B in shares - AGM comments
• DIS 'Avengers: Endgame' top movie in the N. American box office with $145.8M in sales, global sales total $2.19B in the 12-days after release, putting it on track to be the most successful movie of all time
• APC Occidental submits revised acquisition proposal for $76/shr compromised of $59.00/shr cash and 0.2934 shares (prior $38.00/shr cash and 0.6094 shares); offers to pay $1.0B break up fee to Chevron if Occidental offer is chosen
• (US) White House Chief of Staff Mulvaney said to be saying that Trump's infrastructure plan is too costly and unlikely to succeed - US press
• OXY Reports Q1 Core $0.84 v $0.73e; Rev $4.09B v $3.96Be

Europe

• (UK) PM May was warned that more than 100 MPs would try to block a soft Brexit - UK press

Levels as of 01:20ET

• Hang Seng -3.3%; Shanghai Composite -5.6%; Kospi closed; Nikkei225 closed; ASX 200 -0.8%
• Equity Futures: S&P500 -1.7%; Nasdaq100 -2.0%, Dax -1.9%; FTSE100 closed
• EUR 1.1171-1.1203; JPY 110.30-110.86; AUD 0.6963-0.7000; NZD 0.6602-0.6629
• Commodity Futures: Gold +0.2% at $1,283/oz; Crude Oil -2.25% at $60.53/brl; Copper -1.4% at $2.78/lb

• Before entering what was supposed to be the last round of trade talks, Trump threatens new tariffs on all of US imports from China. It is a huge turn of events that adds renewed uncertainty to the outcome of the trade talks.
• It may be that it is just a bluff and an attempt to squeeze out more of China, but bullying rarely works on China and Trump’s threat could backfire.
• China may very well decide to skip talks this week, which could be the start of a new escalation of the trade war that would give a big hit to risk sentiment and could derail the brewing signs of recovery in the global economy.
• However, with Trump going into the election campaign, we still do not think he would risk a no-deal outcome that would most likely derail the stock market rally and cause a dive in economic sentiment. Our baseline is therefore still a deal by the end of Q2, but uncertainty has clearly gone up.

On Sunday night, the US-China trade talks took a dramatic shift for the worse as Trump tweeted that he is going to raise tariffs on USD200bn of imports from China from 10% to 25%. He also said that another USD325bn of Chinese goods will be tariffed ‘shortly’. This is a huge turn of events as only yesterday Trump was saying trade talks were going “very well” and his Treasury Secretary Stephen Mnuchin last week said the talks in Beijing had been “productive”.

It is not clear what has led to this sudden turn of events. Trump said in his tweet “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”. Whether something happened over the weekend or he is simply bluffing to put pressure on China in the last round of this poker game is unclear. No doubt the uncertainty over the coming week’s trade talks have gone up sharply. Trump’s tweet seems so aggressive that it some of his most hawkish advisers (Lighthizer and Navarro?) may have fired him up with tough talk about China. There has been signs of impatience in the US in getting the last bits solved and maybe Trump has concluded that he needed more tariff threats to get China to give more concessions.

On Friday, we put a 75% probability on a trade deal this week. That is clearly too high now, and we are back in unchartered territory.

A key question is how China will react to the threat? One thing is clear. China does not like to be bullied. This has to do with the importance of saving face in Chinese culture as well as China’s history of being bullied and occupied by foreign powers during what China calls the ‘century of humiliation’ from 1840-1949. So far in the trade war China has refused to negotiate whenever it felt it had ‘a gun to the head’. In addition, as a sign of good faith Chinese leaders have tried to deliver a lot to Trump even before a deal is made by increasing purchases of US agricultural products, passing a Foreign Investment Law that bans technology transfer, raises protection of intellectual property rights and stresses equal treatment of domestic and foreign companies.

Trump’s tweet could be seen as a stab in the back that China might not put up with. The coming days will be very decisive for whether we are in for a real new escalation or whether things calm down again and a deal is reached. Sources overnight suggested that China considers skipping the talks this week and not go to Washington. This would be in line with China’s previous behaviour last year when threatened by Trump.

Overnight, China eased monetary policy further by cutting the Reserve Requirement Ratio for small banks and midsized banks to 8% from 10-11.5%. A targeted cut was expected but that it comes now could be another sign that Beijing is buckling up for a new trade fight with the US and sending a signal that they will not bow to US bullying. Last year when Trump pulled out of talks in May, China was very quick to ease monetary policy.

Chinese stock markets are down more than 5% this morning and markets will now price in a risk of full blown trade war. Even though both sides want to make a deal, the path there is now very unclear and a scenario in which Trump taxes all of Chinese exports to the US has to be factored in as a possibility again.

Daily Pivots: (S1) 0.6997; (P) 0.7011; (R1) 0.7038; More...

AUD/USD's decline resumed by breaking through 0.6984 temporary low. Intraday bias is back on the downside. Current fall from 0.7295 should target 100% projection of 0.7295 to 0.7003 from 0.7205 at 0.6913. Decisive break there will indicate further downside acceleration and pave the way to retest 0.6722 low. On the upside, break of 0.7069 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain cautiously bearish in case of recovery.

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.

Daily Pivots: (S1) 1.3387; (P) 1.3439; (R1) 1.3473; More...

Intraday bias in USD/CAD remains neutral for consolidation below 1.3521. For now, further rally remains in favor as long as 1.3274 support holds. On the upside, break of 1.3521 will resume the whole rise from 1.3068 to retest 1.3664 high. On the downside, below 1.3376 will turn bias to the downside for 1.3274 support. Break will indicate that choppy rebound from 1.3068 has completed at 1.3521. Near term outlook will be turned bearish for retesting 1.3068 support.

In the bigger picture, USD/CAD is staying well inside medium term rising channel (support at 1.3272). Thus, the up trend from 1.2061 (2017 low) should be in progress. On the upside, decisive break of 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685 will pave the way to 78.6% retracement at 1.4127 next. This will remain the favored case as long as 1.3068 support holds. However, sustained break the channel support will be the first sign of medium term reversal. Firm break of 1.3068 would confirm.