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On Tuesday, the GBP/USD currency pair skyrocketed to the monthly PP at 1.3033. During Wednesday's trading session, the pair headed to the resistance level formed by the weekly R2 at 1.3090.

If the given resistance does not hold, it is expected, that the exchange rate could continue to extend gains. A possible upside target is the resistance level located at the 1.3119 mark.

Otherwise, it is likely that the rate could trade sideways between the given resistance and support. It is unlikely, that bears could prevail in the market, and the British Pound could slump lower than the weekly R1 at the 1.3006.

During the previous trading session, the USD/JPY currency pair reversed north from the 111.30 level. During today's morning, the pair was trading near the upper boundary of the short-term descending channel at 111.60.

It is unlikely, that a breakout north from the channel could occur in the nearest future due to the resistance level formed by a combination of the 55– and 100-hour SMAs, as well the monthly PP at 111.55.

It is expected, that the exchange rate reverses south from the given channel line and targets the weekly S1 at 111.18.

However, if the given resistance does not hold, the rate could jump to the weekly PP and the 200-hour SMA at 111.79.

Yesterday, the XAU/USD exchange rate reversed south from the psychological level at 1,286.00. During Wednesday's morning hours, the rate reversed north from the 200-hour SMA at 1,277.99.

Given that the price for gold is pressured by the 55– and 100-hour moving averages, it is likely, that some downside potential prevail in the market in the short run. In this case, the rate could decline to the 1,276.00 level.

However, if the given support holds, it is expected, that gold could trade sideways between the given SMAs. Also, is the given resistance does not hold, the rate could jump to the monthly PP at 1,287.27.

Notes/Observations

• Most of Asia (including China, Hong Kong, Japan) is closed for holiday; most of Europe is also closed
• US/China official completed talks in Beijing; negotiation move back to Washington next week
• Focus on FOMC; potential for Fed to be more optimistic on the economic situation

Asia:

• South Korea Apr Trade Balance registers a larger-than-expected surplus as exports fall for a 5th straight month ($4.1B v $3.7Be)
• New Zealand Employment Change registered its 1st decline since 2017 (Q/Q: -0.2% v +0.5%e); odds increasing for a RBNZ rate cut

Europe/Mideast:

• ECB’s Lane (Ireland): if there were a negative Brexit outcome, there would be a big reaction in financial markets; market appears overly optimistic. Not the case that the ECB is out of options

Americas:

• White House said to have drop its cyber theft demands in effort to accelerate trade deal with China

Energy:

• Weekly API Oil Inventories: Crude: +6.8M v -3.1M prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [FTSE +0.1% at 7426, S&P 500 Futures +0.3%]

Market Focal Points/Key Themes:

• The FTSE trades slightly higher this morning, in a quieter morning with the closure of many of the major European Indices for May Day holiday. US Index futures point to a higher open buoyed by stronger results from Apple, after reporting above forecasts and Q2 guidance ahead of estimates. Shares are up over 5% in the premarket.
• On the corporate front shares of Sainsbury's trade sharply higher following strong earnings, while UK fashion retailer Next trades slightly higher on a Q1 update and affirmed outlook. Elsewhere, Orsted, London Stock Exchange and Augean are among other names rising on earnings, while Avon Rubber, GN Store Nord and RPS Group are among the names trading lower following earnings and updates.
• Elsewhere Lloyds Banking shares rise after revising its capital guidance; with Just Eat and Forrexpo trading lower following analyst downgrades.
• Looking ahead notable earners include CVS, Johnson Controls, Estee Lauder and Humana among others.

Equities

• Consumer discretionary: Sainsbury's [SBRY.UK] +4.7% (Earnings), Next [NXT.UK] +0.3% (Earnings), Just Eat [JE.UK] -2.0% (Analyst downgrade)
• Materials: Augean [AUG.UK] +11% (Trading update),
• Energy: Orsted [ORSTED.DK] +1.7% (Earnings), Sound Energy [SOU.UK] +6% (Tendrara gas sales update)
• Financials: Lloyd's [LLOY.UK] +1.4% (Adjustments to capital guidance), LSE [LSE.UK] +2.1% (earnings)
• Healthcare: Ambu A/S [AMBUB.DK] -0.5% (Earnings)

Speakers

• ECB’s De Guindos (Spain): Financial stability is more challenging; consolidation remains necessary. Low interest rate environment would be with us for the foreseeable future caused by structural factors. Both national and cross border consolidation are potentially viable
• UK Labour Shadow Business Sec Long-Bailey: Cross-party talks have been positive but still waiting to see if Govt moved from some issues
• Treasury Sec Mnuchin reiterated that had productive talks in Beijing on the trade front; negotiations to resume back in Washington next week

Currencies/ Fixed Income

• FX markets were listless with many trading centers closed for holiday.
• USD remains slightly on the defensive for the time being with focus shifting to the FOMC decision later today. Dealers noted that the greenback could recover some lost ground if the Fed became more optimistic on the economic situation
• EUR/USD holding above the 1.12 level while the GBP/USD was higher by 0.2% at 1.3070 area.
• NZD currency was softer after New Zealand employment data sparked further speculation that the RBNZ could cut rates as soon as next week. NZD/USD lower by 0.2% at 0.6655 area.

Economic Data

• (UK) Apr Nationwide House Prices M/M: 0.4% v 0.1%e; Y/Y: 0.9% v 0.7%e
• (AU) Australia Apr Commodity Index: 122.2 v 122.1 prior
• (NL) Netherlands Apr Manufacturing PMI: 52.0 v 52.2e (68th month of expansion)
• (UK) Apr UK PMI Manufacturing: 53.1 v 53.1e (33rd month of expansion)
• (UK) Mar Net Consumer Credit: £0.5B v £1.0Be; Net Lending: £4.1B v £3.6Be
• (UK) Mar Mortgage Approvals: 62.3K v 64.5Ke
• (UK) Mar M4 Money Supply M/M: -0.5% v +0.3% prior; Y/Y: 2.2% v 1.3% prior; M4 Ex IOFCs: 0.7% v 2.4% prior
• (DK) Denmark Apr PMI Survey: 59.6 v 56.6 prior

Fixed Income Issuance

• None seen

Looking Ahead

• 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays)
• 06:45 (US) Daily Libor Fixing
• 07:00 (US) MBA Mortgage Applications w/e Apr 26th: No est v -7.3% prior
• 07:00 (UK) Weekly PM May question time in House of Commons
• 08:00 (UK) Baltic Bulk Index
• 08:15 (US) Apr ADP Employment Change: +180Ke v +129K prior
• 08:30 (CA) Canada Mar MLI Leading Indicator M/M: No est v 0.0% prior
• 08:30 (US) Treasury quarterly refunding for 3-year, 10-year and 30-year bonds for week of May 6th
• 09:30 (CA) Canada Apr Manufacturing PMI: No est v 50.5 prior
• 09:45 (US) Apr Final Markit Manufacturing PMI: 52.4e v 52.4 prelim
• 10:00 (US) Apr ISM Manufacturing: 55.0e v 55.3 prior; Prices Paid: 55.0e v 54.3 prior
• 10:00 (US) Mar Construction Spending M/M: 0.0%e v 1.0% prior
• 10:30 (US) DOE Weekly Oil Inventories
• 14:00 (US) FOMC Interest Rate Decision: expected to leave Interest Rates unchanged at 2.25-2.50% range; Leaves Interest Rate on Excess Reserves (IOER) unchanged at 2.40%
• 14:30 (US) Fed Chair Powell post rate decision press conference

It is going to be a very a slow day as most markets are closed for Labour Day. Only Australia, New Zealand, Denmark, Israel, the United Kingdom and the US are open for trading today. Despite the fact that the majority of traders are taking a day off, equities continued to climb to all time high in the US. The S&P 500 closed above the 2,940.9 threshold for the first time since September 21 2018, with futures edging higher this morning; we’ll most likely see another record high today. In the UK, equities were also gaining ground, while the pound sterling climbed back to 1.3055 against the greenback amid easing Brexit fears.

The Kiwi was the biggest mover in the Asian session amid a disappointing job report that hinted at a possible rate cut from the RBNZ. NZD/USD fell as much as 0.70% to $0.6629 after data showed that employment growth contracted 0.2% in the first quarter – versus median forecast of +0.5% and +0.1% in 4Q 2018 – while on a year-over-year basis employment growth increased 1.5% versus 2.2% expected and 2.3% in the previous quarter. However, the unemployment rate eased to 4.2% from 4.3%, thanks to a contraction in the participation rate, which eased from 70.9% to 70.4%.

The treasury market reacted moderately to the news, while money market rates rose. According to overnight indexed swap (OIS), the probability of a rate cut at the next meeting increased from 39% on Tuesday to 59% this morning. For the June meeting, the likelihood of a cut has jumped from 59% to 71%. The Reserve Bank of New Zealand is one of the central banks that has the leeway to cut interest rates to spur economic growth, while at the same time trying to give a lift to inflation. Given the slowdown in economic growth, stalling wage pressure and anaemic inflation pressures, we believe that a rate cut remains a live possibility.

Even though, the Federal Reserve would most likely adopt a dovish stance at its meeting today, we believe that the RBNZ would lean towards more accommodative monetary policy in a more aggressive way. Therefore, we anticipate that there is room for further Kiwi weakness with $0.65 as medium-term target.

CAD pending ahead of Fed decision

After losing as much as 1 % against the greenback following the Bank of Canada (BoC) meeting, the loonie has been retracing back, bouncing by 0.70%. Yet major questions arise as both today’s FOMC rate decision as well as Canadian manufacturing PMI come into play. It is therefore very likely that the CAD should continue its progression.

Last Wednesday, the BoC lowered its growth forecast for 2019 from 1.70% to 1.20%, removed its wording concerning future rate hike and starts considering accommodating monetary policy, turning towards a more data dependent approach. Although the Canadian economy remains in a good situation, with inflation close to the 2% target, a tight labor market and vivid domestic consumption, the manufacturing sector remains in pain. However, the situation is expected to improve for the 2Q 2019 while Canadian manufacturing PMI should have progressed in April (consensus: 51.5; March: 50.5). Nevertheless, the evolution of today’s trading session will be mainly skewed towards Fed’s meeting. The key question is whether it will consider strong growth and a tight labor market as the main factors for attention or if weakening inflation should be addressed in its coming forward guidance. It seems more likely that it will stick with current dovish bias, stating that the risk of a global recession is quite lively.

Currently trading at 1.3393, USD/CAD is heading along 1.3350 short-term

Wednesday May 1: Five things the markets are talking about

With most of continental Europe and Asia closed for the May 1 bank holiday, trading ranges have been tightly contained with thin liquidity as we wait for the main event for today – the Federal Open Market Committee (FOMC) monetary policy announcement.

U.S equity futures and U.K stocks have advanced this morning following Apple's upbeat forecast after Tuesday's market close. Treasuries and the U.S dollar remain in a holding pattern as investors wait for clues on direction, especially from Fed Chair Powell's press conference after today's rate announcement (02:30 pm EDT).

There is a lot on the line for the Fed today – no rate hike is expected but will Chairman Powell follow through and reiterate his most recent ‘dovish comments? The Feds integrity is at stake here, chairman Powell needs to keep to ‘his script,' a ‘dovish' stance otherwise he is expected to lose some degree of respect from the street.

Elsewhere, WTI oil futures are under pressure on signs of a sharp increase in U.S crude inventories and concerns over global demand.

On the Sion-U.S trade front, Treasury Sec. Mnuchin reiterated that they had productive talks in Beijing on the trade front and that negotiations to resume back in Washington.

On tap: Bank holiday – CNY, CHF, GER. Fr. & ITL, U.S ISM manufacturing PMI, FOMC monetary policy statement & CNY Caixin manufacturing PMI (May 1), U.K inflation report, BoE monetary policy statement & AUD building approvals (May 2), non-farm payroll (May 3).

1. Most equity bourses are closed for May 1, except……

Markets in Japan remain closed for Golden Week, reopens May 6, while a number of other countries are set to follow suit today – China, Hong Kong, S. Korea, Switzerland, Germany, France and Italy.

Down-under, Aussie stocks closed out just shy of an 11-year peak overnight, after a surprise earnings beat from some financials supported risk appetite. Nevertheless, trading volumes were fairly low, ahead of the conclusion of the Fed's two-day meeting. The S&P/ASX 200 index rose +0.8% at the close of trade. The benchmark fell -0.5% on Tuesday.

In Europe, with the continent closed for Mayday, investors focus has turned to the U.K. The FTSE trades slightly higher this morning, while the U.S Index futures point to a higher open supported by stronger results from Apple after the close last night, and this after reporting above forecasts and Q2 guidance ahead of estimates. Shares are up over +5% in the premarket.

U.S stocks are set to open in the ‘black' (+0.3%).

Indices: FTSE +0.1% at 7426, S&P 500 Futures +0.3%

2. Oil falls on swelling U.S. stockpiles, gold lower

Oil prices are again under pressure after reports this week show a rise in U.S crude inventories. Also adding concerns, is the intensifying political crisis in Venezuela, tightening U.S. sanctions on Iran, and ongoing OPEC+ supply cuts.

Brent crude oil futures are at +$71.52 per barrel, down -54c, or -0.8%, from Tuesday's close.
U.S West Texas Intermediate (WTI) crude futures are down -66c, or -1%, at +$63.25 per barrel.

API data yesterday showed that U.S crude stocks rose by +6.8M barrels to +466.4M barrels in the week to April 26.

Market focus is also conscience of the ongoing crisis in major oil producer Venezuela, where there is a standoff between President Maduro and opposition leader Juan Guaido. The situation remains fragile and at a tipping point that could lead to much more violence and further disruptions to crude supply.

Already on the supply side, oil markets have already tightened this year due to supply cuts led by the OPEC+ as well as U.S sanctions on Iran's oil exports.

Note: OPEC is due to meet next month to discuss its production policy. Trump continues put pressure on the group to increase output to make up for the shortfall from Iran, OPEC's de-facto leader Saudi Arabia said on Tuesday it had no immediate plans to raise output.

Ahead of the U.S open, gold prices have eased a tad overnight on gains in equity markets that were open. Spot gold is down -0.3% at +$1,278.92 per ounce, while U.S gold futures fell -0.4% to +$1,280.70 an ounce. The yellow metal will take its cue from today's Fed decision.

3. Yields confined to a tight range

The Fed is expected to disappoint President Trump later today by keeping interest rates unchanged despite Trump's repeated calls for it to start cutting rates. Officials are expected to keep the interest rate on hold at between +2.25% and +2.5% and remain patient. The market is currently pricing in a +50% chance of a rate cut this year (September).

However, many of the risks that nudged the Fed toward patience have since faded. Unstable markets have rallied, financial conditions have eased, spending has rebounded and U.S growth was better than expected in Q1. Fed Chair Powell's press conference will be keenly watched for clues for the future (02:30 pm EDT). Hence, there is potential for the Fed to be more optimistic on the economic situation.

Elsewhere, the odds of a Reserve Bank of New Zealand (RBNZ) rate cut rise after weaker than expected Q1 employment change overnight (-0.2% vs. +0.5%) and private wages data – dealers are now pricing in a +56% chance of rate cut at May 8 meeting vs. +40% prior.

Note: AUD/NZD seen in focus for next week, RBA due to meet on May 7th (Tuesday) and RBNZ to meet on May 8th (Wed)

Central Bank of the Republic of Turkey (CBRT) yesterday announced that it has vowed to use all its tools to curb inflation as it seeks to reassure markets that it would not soften its monetary policy. Officials dropped their pledge to deliver further tightening if needed at its last decision.

Currently, the yield on 10-year Treasuries increased +1 bps to +2.51%, while in the U.K, the 10-year Gilt yield advanced less than +1 bps to +1.187%, the highest in more than a week.

4. Dollar looking for support

The USD remains slightly on the defensive as market focus shifts to the FOMC decision later today. Dealers noted that the greenback could recover some lost ground if the Fed became more optimistic on the economic situation.

EUR/USD is holding above the €1.12 level at €1.12 39, while the USD/JPY is lower by -0.2% at ¥111.32 area.

The pound has extended its gains slightly after the U.K. manufacturing PMI survey fell to a two-month low but stayed comfortably above the 50 level that separates growth from contraction. The pound's rise is very limited, however, as concerns remain over how Brexit uncertainty is impacting the economy. It last traded up +0.3% at £1.3075.

5. U.K manufacturing hits two-month low

IHS Markit data in the U.K this morning showed the manufacturing sector activity “cooled-off” sharply from its thirteen-month highs in April.

The April manufacturing PMI fell to 53.1, down from March's 13-month high of 55.1. PMI rose in March because of Brexit stock-building, which continued in April, “albeit to a lesser extent than in the prior survey month,” said IHS Markit. “Output growth slowed from March's ten-month high,” it said.

Digging deeper, rates of expansion eased sharply in the intermediate and investment goods sectors, in contrast to a mild acceleration at consumer goods producers. The upturn in new work received also weakened, as domestic market conditions remained subdued and new export business contracted. The month of April saw overseas demand decrease at the “second-fastest pace in the past four-and-a-half years.”

Daily Pivots: (S1) 144.45; (P) 144.91; (R1) 145.78; More...

GBP/JPY's strong recovery suggests that 143.72 key support was defended. And near term bullishness is retained. That is, rise from 131.51 is in favor to extend. On the upside, break of 147.19 resistance will target 148.98/149.48 resistance zone first. However, on the downside, decisive break of 143.72 will indicate near term reversal, after rejection by 149.48 key resistance. In that case, intraday bias will be turned to the downside for 141.00 support first.

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.

The USDJPY pair holds in narrow consolidation between key points at 111.50 (200SMA) and 111.37 (Fibo 38.2% of 109.71/112.40, reinforced by 30SMA) in Europe on Wednesday.

Tuesday's eventual close below 200SMA was strong negative signal for broader dollar bulls, which requires confirmation on break and close below 111.37 Fibo support and signal reversal.

Fresh bearish momentum adds to negative outlook, as 10/20SMA in bearish setup converge and on track to form bear-cross, while thinning daily cloud (cloud top lays at 110.86) would be also magnetic.

Sustained break below 111.37 would open immediate support at 111.27 (55SMA) and risk extension towards 111.05 (50% retracement and 110.86 (daily cloud top).

Conversely, return and close above 200SMA would have negative impact on fresh bears from 112.40 (24 Apr high).

The pair is likely to hold in neutral near-term mode and await for fresh signals from US data / Fed, due later today.

Res: 111.50, 111.70, 111.90, 112.03
Sup: 111.37, 111.27, 111.05, 110.86

Daily Pivots: (S1) 124.63; (P) 124.86; (R1) 125.26; More....

Outlook in EUR/JPY remains unchanged. Corrective rise from 124.09 is expected to be limited by 125.29 resistance to bring another decline. Fall from 126.79 is seen as the third leg of the corrective pattern from 127.50. On the downside, break of 124.09 will target 123.65 support and below. However, sustained break of 125.28 will turn focus back to 126.79 resistance instead.

In the bigger picture, there is no confirmation of completion of the down trend from 137.49 (2018 high) yet. In case of an extension, break of 118.62 will target 109.03/114.84 long term support zone. 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.

Daily Pivots: (S1) 0.8578; (P) 0.8616; (R1) 0.8641; More...

EUR/GBP weakens notably today but stays well inside range of 0.8474/8722. Intraday bias remains neutral as consolidation from 0.8474 could extend further. In case of another rise, upside should be limited by 0.8722 resistance. On the downside, firm break of 0.8474 will resume larger down trend for 0.8416 long term projection next. On the upside, though, sustained break of 0.8722 will suggest near term reversal and bring stronger rise back to 0.8840 resistance and above.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). Current fall from 0.9305 (2017 high) is a falling leg inside the pattern. Such decline could extend to 100% projection of 0.9305 to 0.8620 from 0.9101 at 0.8416 and possibly below. But for now, we'd expect strong support around 0.8312 support to contain downside and bring rebound.