Sample Category Title

Asian stocks got off to a subdued start this morning as financial markets in the region were mostly closed for the holidays.

The mood across global markets has been mixed in recent days, as investors closely monitor US-China trade talks currently taking place in Beijing. Should the negotiations conclude on a positive note with both sides finding a middle ground on trade, this will be a welcome development for equity markets as risk appetite makes a return.

European markets are positioned to trade within a modest range today as investors adopt a wait-and-see approach ahead of the US Federal Reserve’s monetary policy decision. This caution is likely to trickle down into Wall Street which closed mixed yesterday as revenue declines in Alphabet and Apple weighed down on tech stocks.

Dollar waits for Fed rate decision

The past few trading days have certainly not been kind to the Dollar, despite US GDP growth figures for the first quarter of 2019 smashing market expectations last week.

A touch of caution ahead of the Fed’s rate decision and the US jobs report scheduled for release at the end of the week could be one of the factors behind the Dollar’s recent depreciation. The Federal Reserve is expected to leave interest rates unchanged today, despite Donald Trump’s recent call for the central bank to cut rates. With the recent, stronger-than-expected US economic growth figures clashing with sluggish inflation, it will be interesting to hear Jerome Powell’s thoughts on this topic. If Powell sounds move dovish than expected, expectations may mount over a potential rate cut by the end of 2019 – something that is seen to be exposing the Dollar to downside risks.

Focusing on the technical picture, the Dollar Index (DXY) is under pressure on the daily charts. Dollar bears have the chance to re-enter the driving seat if a solid weekly close below 97.50 is achieved.

Commodity spotlight – WTI Oil

The explosive movements seen in Oil prices continue to highlight how sensitive the commodity remains to news revolving around anything to do with supply and demand-side factors.

This was showcased last week, after Oil prices sprinted to fresh 2019 highs on the news of the US ending waivers on Iran sanctions, only to later surrender all gains following news that Trump said he called OPEC to increase output. Regardless of recent declines, Oil prices have the potential to rebound on concerns over possible supply shocks in the near-term. The prospects of roughly 1 million barrels per day removed from the international Oil markets will most likely fuel speculation of tightening conditions, especially when factoring OPEC-led supply cuts since the start of the year and production disruptions in Venezuela and Libya. Although OPEC+ can fill the void by dipping into spare capacity, it may end up leaving up markets exposed to unexpected supply shocks given the geopolitical risks.

Daily Pivots: (S1) 1.0175; (P) 1.0190; (R1) 1.0205; More...

USD/CHF is staying in consolidation from 1.0237 temporary. Intraday bias remains neutral for the moment. In case of deeper retreat, downside should be contained by 1.0130 minor support to bring rise resumption. Prior break of 1.0128 resistance confirmed resumption of up trend from 0.9186. On the upside, above 1.0237 will target 100% projection of 0.9716 to 1.0124 from 0.9879 at 1.0287, and then 1.0342 key resistance. However, break of 1.0130 will indicate short term topping and bring deeper retreat first.

In the bigger picture, medium term up trend from 0.9186 is extending. Current rise should target 1.0342 resistance next. For now, we'd be cautious on strong resistance from there to limit upside, until we see medium term upside acceleration. On the downside, break of 0.9879 support is needed to indicate reversal. Otherwise, outlook will stay bullish in case of deep pull back.

Daily Pivots: (S1) 111.19; (P) 111.46; (R1) 111.71; More...

Intraday bias in USD/JPY remains mildly on the downside for 110.84 support. Decisive of 110.84 will add to the case of reversal and target 109.71 support and below. In any case, break of 112.40 is needed to confirm rise resumption. Otherwise, risk will stay mildly on the downside in case of recovery.

In the bigger picture, medium term outlook in USD/JPY remains a bit mixed as it's staying inside falling channel from 118.65, but there are signs of bullish reversal. On the upside, break of 114.54 resistance will revive the case the corrective fall from 118.65 has completed with three waves down to 104.69. And whole rise from 98.97 (2016 low) is resuming for 118.65 and above. But before that, outlook stays neutral first.

Daily Pivots: (S1) 0.7031; (P) 0.7050; (R1) 0.7069; More...

AUD/USD is staying in consolidation above 0.6988 temporary low and intraday bias remains neutral first. More consolidation would be seen. In case of another rise, upside should be limited by 0.7081 minor resistance to bring fall resumption. Prior break of 0.7003 suggests resumption of whole fall from 0.7295. On the downside, break of 0.6988 will extend the fall from 0.7295 to 100% projection of 0.7295 to 0.7003 from 0.7205 at 0.6913. Decisive break there will indicate further downside acceleration. However, sustained break of 0.7081 will dampen this bearish case and turn focus back to 0.7205 resistance instead.

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) 1.3354; (P) 1.3417; (R1) 1.3454; More...

USD/CAD's fall from 1.3521 is deeper than expected and break of 1.3399 minor support raises the chance of near term reversal. Intraday bias is turned back to the downside for 1.3274 support first. 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. On the upside, though, above 1.3439 minor resistance will revive near term bullishness and turn bias back to the upside for 1.3521. Break of 1.3521 will extend the rise from 1.3068 to retest 1.3664 high.

In the bigger picture, USD/CAD is staying well inside medium term rising channel (support at 1.3255). 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.

Dollar trades broadly lower in thin holiday market as trades await FOMC rate decision. There is no expectation of a change in interest rate nor Fed's patient stance. But Fed chair Jerome Powell's comments on inflation could make or break recent rally in the greenback. For now, Dollar it's considered just in consolidation against Euro, Swissy and Aussie. Even USD/JPY couldn't confirm near term reversal yet.

Staying in the currency markets, New Zealand Dollar is indeed the weakest one, after weak employment data. Yen follows and second and then Dollar. Swiss Franc, on the other hand, is the strongest one for today so far, followed by Sterling and then Euro.

Technically, GBP/USD's break of 1.3019 minor resistance yesterday revived near term bullishness. Further rise might be seen back to retest 1.3381 high. The fortune of EUR/USD could be tied to EUR/GBP which appears to have reversed ahead of 0.8722 resistance. Deeper decline in EUR/GBP towards 0.8747 support could keep EUR/USD steady while lifting GBP/USD.

Dollar to listen to Powell's comments on growth in inflation, some previews

Dollar is staying generally week today, except versus Kiwi and Yen. But FOMC announcement ahead could change its fortune. There is no chance for Fed to change federal funds rate at 2.25-2.50%. Also, Fed will, without a doubt, maintain its patient stance regarding any monetary policy adjustment.

As a reminder, monetary policy normalization is considered largely completed after December's rate hike. Balance sheet run-off is also on track to completion later this week. Generally speaking, policymakers would need strong evidence of an emerging trend in either inflation or employment to make another move.

Yet, an important factor to watch is Fed chairman Jerome Powell's response to strong growth but sluggish inflation. Dollar bears would like to hear Powell mentioning the downside risks in inflation and the readiness to cut interest rate should outlook worsens. On the other hand, Dollar bulls would like to hear Powell dismissing the talks of rate cut as being premature.

Either way, Dollar would pick up its near term direction from there.

Here are some suggested previews:

• FOMC Preview -Fed to Reiterate Patience Rhetoric Despite Strong First Quarter Growth, Focus on Soft Inflation
• FOMC Preview: IOER Cut Possible, But Neutral Outlook Likely For Another Month
• Fed Meets as Rate-Cut Bets Mount

China to open up banking and insurance sectors as new round of trade negotiation with US starts

New round of US-China trade negotiations started in Beijing today. US Treasury Secretary Steven Mnuchin said he had a "nice working dinner" yesterday and "it's good to be back here" in Beijing. It widely known that while progress has been made two key sticky points remained unresolved, an enforcement mechanism and the timelines for lifting imposed additional tariffs.

Meanwhile, China Banking and Insurance Regulatory Commission said it will further open up the banking an insurance sectors. And it plans to issue 12 new measures soon. The measures include dropping the USD 10B asset requirements for foreign companies to set up a legal entity in the country. The USD 20B asset requirements for foreign banks to set up a branch will also be removed. Approval procedures for foreign banks to conduct Yuan businesses will be removed.

Australia AiG PMI improved to 54.8, but employment and wage indices dropped

Australia AiG Performance of Manufacturing Index rose 3.8 pts to 54.8 in April, indicating faster growth. All subsectors except machinery & equipment, and metal products improved. Top concerns for manufacturers in April included the upcoming Federal election, high energy prices, high input costs (due to drought, a low dollar and high commodity prices) and tighter credit conditions.

Employment index dropped sharply by -5.1 pts to 51.5. The release also noted ABS data indicated that total manufacturing employment fell dramatically over summer, with a reduction in employment of 41,600 over the three months to February 2019 (-6.3% q/q, trend). Average wage index dropped -3.5 to 57.7, indicating lower wage pressures across the manufacturing sector. Also, this wage index has been trending down since peaking at September 2018.

New Zealand employment dropped -0.2% qoq in Q1, NZD dips

New Zealand Dollar drops notably today after weaker than expected job data. Employment contracted -0.2% qoq in Q1, below expectation of 0.5% qoq growth. Unemployment rate dropped to 4.2%, down from 4.3% and matched expectations. But labor force participation rate dropped -0.5% to 70.4%. Labor cost index rose 0.3% qoq, below expectation of 0.5% qoq.

Today's data shouldn't change RBNZ's view that New Zealand is current staying at maximum sustainable employment. The reduced momentum in job growth and sluggish wage would provide little support to the already low inflation reading. Weak CPI is a key factor around the case of RBNZ rate cut in near term, probably in May, but the meeting remains live.

Looking ahead

In addition to FOMC rate decision, US will release ISM manufacturing, ADP employment and construction spending. UK will release mortgage approvals, M4 and PMI manufacturing earlier in European session

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3354; (P) 1.3417; (R1) 1.3454; More...

USD/CAD's fall from 1.3521 is deeper than expected and break of 1.3399 minor support raises the chance of near term reversal. Intraday bias is turned back to the downside for 1.3274 support first. 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. On the upside, though, above 1.3439 minor resistance will revive near term bullishness and turn bias back to the upside for 1.3521. Break of 1.3521 will extend the rise from 1.3068 to retest 1.3664 high.

In the bigger picture, USD/CAD is staying well inside medium term rising channel (support at 1.3255). 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.

Economic Indicators Update

Cable maintains positive tone and extends advance in early European session trading on Wednesday, following Tuesday's 0.76% rally which penetrated and closed within thick daily cloud (cloud base lays at 1.3024).

Fresh bulls, boosted by renewed Brexit optimism on media reports that talks between the government and opposition made substantial progress in Brexit talks, pressure key Fibo barrier at 1.3062/68 (38.2% of 1.3381/1.2765 descend / weekly cloud base).

Sustained break here would generate bullish signal for extension of recovery leg from 1.2865 (25 Apr low) and expose targets at 1.3090 (55SMA) and 1.3123 (50% of 1.3381/1.2865).

Rising momentum is about to break into positive territory and supporting the advance, however, stochastic is entering overbought territory and warning of bulls' hesitation at key Fibo barrier.

Consolidation is expected to hold above broken daily cloud base / 20SMA (1.3024/11) to keep bulls in play.

Today's calendar is full and immediate focus turns on UK Manufacturing PMI (Apr 53.2 f/c vs 55.1 prev), with a batch of US data due in early US session, expected to give further signals ahead of Fed's rate decision. The US central bank is likely to stay on hold (2.5%) and ignore pressure from President Trump for rate cut, but dovish shift is also expected.

Bank of England's rate decision is due tomorrow and expected to stay unchanged.

Res: 1.3062, 1.3068, 1.3090, 1.3123
Sup: 1.3052, 1.3024, 1.3011, 1.2972

Dollar is staying generally week today, except versus Kiwi and Yen. But FOMC announcement ahead could change its fortune. There is no chance for Fed to change federal funds rate at 2.25-2.50%. Also, Fed will, without a doubt, maintain its patient stance regarding any monetary policy adjustment.

As a reminder, monetary policy normalization is considered largely completed after December's rate hike. Balance sheet run-off is also on track to completion later this week. Generally speaking, policymakers would need strong evidence of an emerging trend in either inflation or employment to make another move.

Yet, an important factor to watch is Fed chairman Jerome Powell's response to strong growth but sluggish inflation. Dollar bears would like to hear Powell mentioning the downside risks in inflation and the readiness to cut interest rate should outlook worsens. On the other hand, Dollar bulls would like to hear Powell dismissing the talks of rate cut as being premature.

Either way, Dollar would pick up its near term direction from there.

Here are some suggested previews:

• FOMC Preview -Fed to Reiterate Patience Rhetoric Despite Strong First Quarter Growth, Focus on Soft Inflation
• FOMC Preview: IOER Cut Possible, But Neutral Outlook Likely For Another Month
• Fed Meets as Rate-Cut Bets Mount

Gold continued to trade within last Friday’s range as price remained largely muted. The FOMC will be concluding its two-day Fed meeting today. We expect no changes to the interest rates but the markets are pricing for at least one rate cut this year. President Trump tweeted for the Fed to cut rates by 1% as the FOMC meeting was underway.

XAUUSD Remains Range Bound for the Moment

Price action in gold suggests that the sideways range established in the medium term is likely to hold. The resistance level is at 1285 while support is established at 1273. A breakout from this range is essential for gold to further establish the direction. The long term trend remains to the downside. A close below 1273 is required to push gold prices lower. To the upside, above 1285, the 1296 level comes into the picture.

Oil prices remained muted amid reports of an attempted coup to overthrow President Maduro. Many world leaders also joined in, voicing support for the opposition leader. While oil prices briefly spiked, they settled lower on the day. The API’s crude oil inventory report showed a build of 6.81 million barrels keeping a lid on the gains.

Crude Oil to Maintain the Sideways Range

Crude oil briefly tested the resistance area of 64.65 on Tuesday before giving up the gains promptly. Price action remains trading sideways within 64.65 resistance and 62.85 support. A breakout from this support is required for oil prices to continue the correction. A close below 62.85 will lead to further declines toward 60.33 level. However, we expect to see another retest to 64.65 resistance ahead of the declines.