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USD/JPY continues to trade quietly. In the North American session, the pair is trading at 111.92, down 0.02% on the day. On the release front, it’s a quiet start to the week. The sole U.S. event was Existing Home Sales. The indicator slowed to 5.21 million in March, missing expectations and well below the February release of 5.51 million. On Tuesday, the Bank of Japan releases its preferred inflation indicator, BoJ Core CPI, with an estimate of 0.5%.

Crude has jumped to a 5-month high after the Trump administration announced that it would terminate sanction waivers given to some importers of Iranian oil, as of May 1. This move is intended to further tighten sanctions against Iran and cripple Iranian oil exports. The move has been bitterly criticized by Iran, which has upped the ante by threatening to close the Strait of Hormuz, a critical gateway for seaborne oil shipments. The rising geopolitical temperature could further boost oil prices, which are up 50% since December. Higher oil prices could weigh on economic growth and boost the safe-haven Japanese yen.

Will it be more of the same from the Bank of Japan? The markets aren’t expecting any rate moves, but investors will be closely monitoring the rate statement and outlook report regarding the economic outlook. The BoJ recently downgraded its regional growth forecasts, and a dovish message from the BoJ could weigh on the yen.

Eurogroup President Mario Centeno said in an interview that "it is true that there is a deceleration going on in Europe and that it may be less temporary than we think." The slowdown surprised by both intensity and duration. And it's related to political risks as "uncertainty grows when decisions are not taken." Though, he remained optimistic that "forecasts point to a recovery in the second half of the year."

Separately, Centeno expressed his concern regarding Italy's fiscal heath in another interview. He warned that "Italy is facing some difficulties in this economic cycle". And, "the message is relatively simple: the government has a demanding budget to execute and it needs to be executed with credibility, and we need to gather all our efforts to reverse Italy's growth tendency.

The FTSE index hasn’t missed a beat in the Monday session, after posting gains on Friday. In the North American trade, the FTSE is trading at 7,528, up 0.92% on the day. It’s a light data session, with no British events. On Tuesday, the U.K. releases public sector net borrowing.

The Brexit conundrum continues to grab the headlines, but this hasn’t had any effect on the FTSE, which continues to head upwards. The blue-chip index soared 8.0% in the first quarter and hasn’t missed a beat in April, gaining 3.2%. Despite the turmoil surrounding Brexit and the lingering uncertainty over Britain’s imminent departure from the EU, investor confidence remains high. The British economy has generally performed well, although there are constant concerns that a no-deal Brexit could send the British economy reeling.

Crude oil prices jumped to a 5-month high after the Trump administration announced that it would terminate sanction waivers given to some importers of Iranian oil, as of May 1. This move is intended to further tighten sanctions against Iran and cripple Iranian oil exports. The move has been bitterly criticized by Iran, which has upped the ante by threatening to close the Strait of Hormuz, a critical gateway for seaborne oil shipments. The rising geopolitical temperature could further boost oil prices, which are up 50% since December. Higher oil prices could weigh on economic growth and send stock markets lower.

US sales of new single-family houses rose to 692k in March, up from 662k, well above expectation of 647k. That's also the highest level since November 2017. Also from US, house price index rose 0.3% mom in February, below expectation of 0.6% mom.

GBP/USD has posted slight losses in the Tuesday session. In North American trade, GBP/USD is trading at 1.2953, down 0.21% on the day. On the release front, there are no British events. In the U.S., the House Price index slowed to 0.3%, shy of the estimate of 0.6%. Later in the day, the U.S. releases new home sales and the Richmond manufacturing index. On Tuesday, the U.K. releases public sector net borrowing.

British lawmakers return to work on Tuesday after a short break, and it’s a safe bet that Brexit will be high on the agenda. However, there is another departure date being discussed besides Britain leaving the EU. Some Conservative MPs plan to tell Prime Minister May to name her exit date, or else she will be ousted in June. May has been unable to pass the withdrawal agreement through a divided parliament, and her days could be numbered at 10 Downing Street.

While the currency markets have been listless during Easter week, oil prices have jumped. Crude has jumped to a 5-month high after the Trump administration announced that it would terminate sanction waivers given to some importers of Iranian oil, as of May 1. This move is intended to further tighten sanctions against Iran and cripple Iranian oil exports. The move has been bitterly criticized by Iran, which has upped the ante by threatening to close the Strait of Hormuz, a critical gateway for seaborne oil shipments. The rising geopolitical temperature could further boost oil prices, which are up 50% since December. Higher oil prices could weigh on economic growth and send nervous investors to the safety of the U.S. dollar.

Oil continues higher as sanctions waiver expiry nears

Oil prices are creeping higher again on Tuesday, although they have lost a little of the spark that saw them steamroll through yet another key resistance area at the start of the week. There isn’t much doubt about the trigger for the latest rally, with Trump’s decision not to extend waivers on imports of Iranian oil beyond May unsurprisingly providing further upward pressure – although I’m sure he’ll just blame OPEC.

The rally took gains in WTI to more than 50%, since it bottomed out back in December. That’s not a bad return and makes the OPEC+ meeting in June all the more interesting, with an extension to December now a doubt, especially with Russian support already a doubt.

Reports that Saudi Arabia and UAE will make up the shortfall from the sudden decline in Iranian output is doing little to stop the moves, given that both are currently cutting production to comply with the agreement.

From a technical perspective, momentum hasn’t really backed even the latest move which suggests the rally may be running out of steam. This would be perfectly understandable at this point. We’ve run into resistance around $75 today, at which point the stochastic is making a lower high, as is the MACD histogram. While this negative divergence isn’t a bearish signal in itself, it could be construed as a red flag.

If this continues to push higher, through highlighted resistance above, the $79-80 becomes notable potential resistance. $78 is a recent peak as well but prior to this, support and resistance was frequently found in the $79-80 range.

If we see a corrective move, $72.50-73.50 could offer the first test, with roughly $67.75-69.40 below here being interesting. Not only was that a recent strong area of resistance, the cluster of moving averages also makes it interesting.

Hello traders,

USDCHF is trading in an impulsive rise within wave 3, but we see some important Fibo. cluster around 1.0220 area, so watch out for a potential drop and slow down into a wave 4 correction soon.

USDCAD is on the rise, away from 1.3333 intraday swing low where we called the end of a corrective set-back, so it appears that impulsive wave three is now in progress; ideally up to 1.3450 as our minimum upward objective.

Markets

Global core bonds are mixed with US Treasuries outperforming German Bunds. Most EU markets re-opened after being closed for the long weekend. German Bunds traded with a downward bias, tracking yesterday’s modest losses in the US Note Future. Modest losses for EU equities didn’t translate into gains for core bonds, in a low-volume trading session. ECB governor Coeuré said he sees no policy argument for tiering the negative interest rates, but had no impact on trading. The German yield curve is mixed with changes up to +1.2 bps (10-yr). US Treasuries moved little higher overnight, partly recovering from yesterday’s losses, and moved sideways throughout the European session ahead of the 2-yr Note auction and housing data. The latter attracts extra attention following recent disappointing US housing data. As US investors joined trading, sentiment turned. The US 10-yr Note spurred higher without a clear trigger, dragging German Bunds along. The US yield curve moves lower with losses up to -2.9 bps (5-yr). Peripheral spreads over the German 10-yr yield are stable with Italy (+6 bps) underperforming on reports of government tensions and an upcoming rating review by S&P.

EUR/USD trading remained technical in nature as there were few data to provide directional guidance. The pair hovered in a tight range in the mid 1.12 area during the morning session. A tweet of US president Trump suggested that more US retaliation on EU tariffs might be on the cards. There was no immediate FX reaction to the Trump headlines. However, the dollar captured a better bid going into the US trading session. EUR/USD dropped to the low 1.12 area. USD/JPY tries again to regain the 112 handle reversing a brief downtick this morning in Asia. We didn’t see a specific trigger for the USD uptick. US corporates mostly reporting earnings ahead of expectations maybe was a slightly USD supportive. CHF weakness against the dollar is also a potential euro negative. Headlines/rumours on rising political tension in Italy also didn’t help the euro.

Over the previous two weeks EUR/GBP traded with a cautious positive bias drifting higher in the 0.86 big figure. Today, there were no important UK eco data. Markets looked for any progress in the Brexit debate as UK politicians returned from the Eastern holiday recess. For now, there are few indications that the negotiations between the conservative party and labour will result in an agreement anytime soon. At the same time, there are plenty of headlines that UK PM’s leadership is again being contested in her own conservative party. For now this has no additional negative impact on sterling. EUR/GBP even declined as the 0.8700/0.8723 resistance is seen difficult to break short-term. EUR/GBP dropped to the mid 0.86 area.

News Headlines

ECB’s Coeuré dismissed the case for a tiered deposit system aimed at offsetting the side effects of negative interest rates, saying that “there is no evidence so far” that they have been detrimental to lending. He also suggested that the new TLTRO series may be less generous than the previous round.

Eurozone government debt to GDP decreased from 87.1% to 85.1% in 2018 but intra EMU dispersion is wide. Greece posts a stunning 181.1% ratio but extended its budget surplus to 1.1%. Italy (132.2%) and Portugal (121.5%) are the blocks other major laggards and showed budget deficits of -2.1% and -0.5% respectively.

Saudi Arabia is said to plan a limited response to the tougher US stance against Iranian oil exports but it wants to see a decline in Iranian shipments first before engaging in any significant output increases. Oil prices retreated from the intraday highs after the news got public. Currencies of oil-reliant countries (the likes of CAD, NOK) slipped.

Dollar rises broadly in early US session as traders seem preparing for solid Q1 earnings reports in US. Stocks indices are relatively steady, though, with DOW, S&P 500 and NASDAQ up slightly in initial trading. But after all, improvement in the overall sentiments could revive the chance for a Fed hike later in the year. Also, recent surge in oil prices could eventually be fed into rise in core inflation, which is another factor for a Fed hike. Nevertheless, Q1 GDP report to be released on Friday would be the first make or break for the greenback.

Staying in the currency markets, Yen is following Dollar as the second strongest one. Sterling is the third strongest for now. Swiss Franc is the weakest one as funds are flowing out from this safe haven, partly thanks to rally in oil prices. Australian Dollar is the second weakest, followed by New Zealand Dollar. Aussie will be vulnerable to steep selloff should CPI data featured in upcoming Asian session disappoints. Gold also breaks 1270 handle on Dollar strength.

Technically, with break of 1.1226 temporary low, EUR/USD is heading towards 1.1176 key support and break will resume larger down trend from 1.2555. GBP/USD's break of 1.2960 support suggests earlier than expected near term reversal and turns outlook bearish for 1.2773 support. AUD/USD's accelerates downward towards 0.7052 support and break will solidify near term bearishness. USD/CAD, however, is still awaiting upside range breakout.

In Europe, currently, FTSE is up 0.63%. DAX is down -0.09%. CAC is up 0.03%. German 10-year yield is up 0.0169 at 0.043. Earlier in Asia, Nikkei rose 0.19%. Hong Kong HSI dropped -0.00%. China Shanghai SSE dropped -0.51%.Singapore Strait Times dropped -0.13%. Japan 10-year yield dropped -0.0025 to -0.029.

Released in US session, US house price index rose 0.3% mom in February, below expectation of 0.6% mom. New home sales rose to 692k in March, well above expectation of 647k. Canada wholesales sales rose 0.3% mom in February, above expectation of 0.1% mom. Eurozone consumer confidence dropped to -7.9 in April, below expectation of -7.

Twitter reported surge in monetizable daily active users

Twitter reported USD 787m in revenue in Q1, an 18% yoy increase, and beat estimate of USD 775m. Monetizable daily active users also rose from 126m to 134m, beating expectation of 128.4m. That's also the largest jump in monetizable daily active users users in the past four years. Monthly active users also rose from 321m to 330m. Amazon earnings are the next focus.

Gold extends decline on Dollar strength, heading towards 1234 fibonacci level

Gold's near term down trend resumes today thanks to broad based strength in Dollar. The development also further solidify the case of medium term reversal. That is, rise from 1160.17 has completed at 1346.71, on bearish divergence condition in daily MACD. Near term outlook will now stay bearish as long as 1280.85 support turned resistance holds. Gold is targeting 61.8% retracement of 1160.17 to 1346.17 at 1234.42 and below.

ECB Coeure: Growth to return in H2, no grounds for overly gloomy thoughts

ECB Executive Board Member Benoit Coeure said in a newspaper interview that policymakers expected "growth to return in the second half of the year". He told German daily Frankfurter Allgemeine Zeitung "there are no grounds for overly gloomy thoughts". However, he admitted for now "it is very uncertain how long and how strong the downturn will be."

On monetary policy, Coeure sees no argument for tiered deposit rate. He urged banks to focus on their own costs, rather than blaming ECB's negative rate for lower profits. Meanwhile, currently, markets are pricing in no rate cut until at least 2021. Coeure warned "we are not tied to such market expectations; they are an important input, but we are not led by them." He added market pricing are merely reflecting "an assessment of the downside risks which is different to that of the Governing Council".

Maeda: BoJ ready to use combinations of measures to ease further if needed

Eiji Maeda, BoJ Executive Director of International Affairs, reiterated the central bank stands ready to ease monetary policy further if needed. He said in the Diet that "if the economy's momentum for achieving our price target is threatened, we are ready to ease monetary policy as necessary". And, "we'll continue to take steps as needed, including a combination of them, with an eye on their effects and side-effects" on the financial system.

Separately Finance Minister Taro Aso said there is no plan for the government to test a heterodox modern monetary theory. That is, countries issuing their own currencies can never run out of money".

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1243; (P) 1.1253; (R1) 1.1269; More.....

EUR/USD's fall resumes after brief consolidation and reaches as low as 1.1213 so far. Intraday bias is back on the downside for 1.1176 key support. Decisive break there will resume whole down trend form 1.2555. For now, near term outlook will be cautiously bearish as long as 1.1324 resistance holds, in case of recovery

In the bigger picture, EUR/USD has been losing downside momentum around 61.8% retracement of 1.0339 (2016 low) to 1.2555 (2018 high) at 1.1186. But for now, there is no clear sign of medium term reversal yet. Downside from 1.2555 is expected to resume sooner or later as long as 1.1569 structural resistance holds. Decisive break of 1.1186. could pave the way back to 1.0339 low.

Economic Indicators Update

US stocks are slightly higher as a wide range of companies are starting to release earnings results.  When looking at the top and bottom lines, we are seeing most results either beating or coming close to inline with expectations.  The dollar is mixed again in what has been a lackluster session so far.  EUR/USD has stayed within a 20 pip range, while GBP/USD recapture tentatively recaptured the 1.30 handle with a 0.2% gain.

• USD – Slight bid as US Futures climb higher
• Earnings – Lockheed crushes it and Verizon misses on subscriber growth
• Brexit – Parliaments back from Easter break
• Oil – Still riding high on US decision on Iranian waivers
• Gold – Drifts lower as earnings as geopolitical tensions ease

USD

The dollar has minimal gains against its major trading partners as investors await a wrath of earnings results this week and the release of US Q1 GDP numbers on Friday.  While the G10 central banks are all pretty much on the dovish side of things or just waiting for a few more months of data before reassessing their policy biases, we may see emerging market currencies outperform here.  While we have not had any major updates on the trade front in recent days, an inevitable trade deal between China and US could allow the Chinese to unleash more stimulus which would benefit EM.

Earnings

Peak earnings season is here, and a flurry of results are seeing many big names beat expectations, but cloudy outlooks are preventing some shares from soaring higher.  Lockheed Martin delivered a strong beat on the EPS with a $5.99 result, much higher than the $4.34 expected by analysts.  The world’s largest defense contractor also delivered strong guidance that topped estimates.

Verizon saw shares surge higher on the initial read of results, but the lower-than-expected subscriber gain is concerning and that is why shares erased most of their gains.  Verizon decided not to have a lot of price promotions or giveaways like their competitors and that is why we are seeing weak subscriber numbers.  The company did boost their outlook and are leading the way forward with 5G, so if we see any weakness, it may be short-lived.

Brexit

Parliament is back from Easter recess and May returns to calls for her to step down.  The Prime Minister will hold a cabinet meeting today and will likely try to devise a plan to present a new withdrawal agreement bill to be voted on next week.

It appears not much has changed, May is under pressure, May is trying to get Labour on board, but talks seem to be going nowhere.  A longer extension with someone new at the helm might be how this plays out.  While no-deal Brexit is very unlikely, we may see bullish bets on cable fade on the failure to reach a deal before the European Parliament elections in May.

Oil

West Texas Intermediate crude continues to ride momentum from the US decision to end waivers that for the last six months allowed eight countries to buy Iranian crude.   Iranian Oil minister Zanganeh noted, “U.S. dream to cut Iran’s crude exports to zero won’t be fulfilled.”  He also noted that Iran has export deals with Armenia, Azerbaijan, Iraq and Turkey.

The US decision on Iranian crude imports is one that will test OPEC + and possibly end the production deal.  While Saudi Arabia has been over-delivered on their end of the cuts, we will probably see Russia less likely be interested in holding back production while the Saudis and US are ramping up their levels.

Gold

Gold prices are softer on the day, mostly following the decline with European equities.  The precious metal remains near the session lows as a wrath of earnings results from the likes of Twitter, Coca-Cola and Harley Davidson delivered decent results.  Safe-haven demand has been hurt by trade optimism and improving global growth prospects.  If we continue to see better than expected earnings results, gold may continue to make fresh 2019 lows.  Gold could find some support around the $1,250 level.  While a better global economy will hurt demand for gold, the de-dollarization story could see central banks buy gold and provide a backdrop that would prevent a complete freefall.