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Cable regained traction and moves higher in early European trading on Wednesday after Tuesday’s strong upside rejection at daily cloud top and daily action ending in Doji candle with long upper shadow.

All eyes are on today’s EU summit on Brexit, with slight optimism as no-deal scenario has been ruled out, but markets will be looking what sort of Brexit extension the EU will allow.

PM May favors short delay on hopes they will manage to make a break trough and have her plan finally approved by the parliament.

On the other side, the EU will likely insist on one-year extension if there will be no plan, but with option to leave earlier if conditions change.

Series of UK data today (GDP 0.2% f/c vs 0.5% prev / Industrial production Feb 0.1% f/c vs 0.6% prev / Manufacturing production Feb 0.2% f/c vs 0.8% prev) could also impact sterling, but Brexit remains key event and driver.

Tuesday’s failure to clearly break above 55SMA (1.3094) and daily cloud top (1.3110) could be initial negative signal, however, the downside risk would be limited as the price remains supported by rising trendline (drawn off 12 Dec low at 1.2476).

Key support lays at 1.2976 (200SMA) and sustained break here would generate strong bearish signal.

Conversely, close above daily cloud top (1.3110) would signal further advance.

Res: 1.3079, 1.3094, 1.3110, 1.3131
Sup: 1.3042, 1.3005, 1.2976, 1.2936

• Today is packed with market-moving events, including an ECB meeting, an EU summit on Brexit, US inflation data, and Fed minutes
• ECB is likely to maintain a dovish tone amid growth, trade concerns
• EU set to offer UK long but ‘flexible’ Brexit extension
• Meanwhile, trade uncertainty returns to haunt stocks

ECB meets – No action, but perhaps more cautious language

The European Central Bank (ECB) will announce its policy decision at 11:45 GMT, but the real action will likely begin with President Draghi’s press conference at 12:30 GMT. Policymakers already recalibrated their forward guidance at the previous meeting, so we are unlikely to get any major signals today. Hence, traders will focus mainly on Draghi’s overall tone.

The euro area economy has shown some signs of stabilization lately, but probably not enough to calm the ECB’s nerves around a deteriorating growth outlook. Meanwhile, the US is clearly preparing the ground for a trade dispute with the EU, amplifying downside risks to growth. Against this backdrop, Draghi will most likely maintain a dovish tone in general, so if there is any sizeable move in the euro, it could be lower – particularly if he hints the ECB is willing to consider more stimulus should the economy slow further.

EU to offer UK long ‘flexible’ extension – pound may like it

Staying in Europe, EU leaders will gather at ~16:00 GMT for an emergency summit to decide whether to offer the UK another Brexit extension, and if so, for how long. Theresa May has requested a short one, until June 30, but the EU is more likely to offer her a longer one until year-end, with the ‘flexibility’ of being able to leave earlier if the UK Parliament approves a deal in the meantime.

As for the pound, the risks seem tilted to the upside for now. A long extension would take the immediate threat of a no-deal exit off the table, diminishing the biggest tail risk, and would simultaneously fuel hopes that the UK could end up with a ‘softer’ Brexit or better yet, another referendum.

On the data front, UK GDP data for February are due, but focus remains on politics, not economics.

US inflation and Fed minutes coming up

Across the Atlantic Ocean, US CPI data for March and the minutes from the Fed’s March meeting are due for release. Markets already have a good sense of where the Fed stands, so the bulk of attention could be on the inflation prints.

Fed rate-cut expectations have grown, but one would hardly know by looking at a chart of the dollar. The world’s reserve currency has held up well, mainly because its other major peers – notably the euro, pound, and yen – aren’t attractive enough. Europe’s economy is in bad shape, the pound is tormented by Brexit worries, and Japan offers interest rates so low the yen isn’t appealing without risk aversion. Until one of these narratives starts to change, any massive downside in the dollar seems unlikely.

Stocks snap winning streak as (trade) reality sets in

US shares closed in the red on Tuesday, with the benchmark S&P 500 (-0.61%) index ending an eight-day winning streak, as investors realized that the next chapter in the trade saga will likely feature an EU-US standoff. The ‘final straw’ was a tweet by President Trump confirming he will likely impose tariffs on EU products.

On another note, the pullback may reflect traders cutting their exposure to US equities ahead of the upcoming earnings season, amid mounting concerns around profit and revenue growth this year.

Ethereum continues to trade towards the best levels of the year so far, as the second largest cryptocurrency edges closer to major another technical breakout. ETHUSD bulls need to move price above the $185.00 level in order to accelerate buying interest towards the $220.00 level. The daily time frame is showing that key weekly support is located at the $160.00 and $155.00 levels.

The ETHUSD pair is bullish while trading above the $160.00 level, key technical resistance is found at the $185.00 and $220.00 levels

If the ETHUSD pair trade below the $160.00 level, key support is found at the $155.00 and $149.00 levels.

The euro is testing back towards major weekly technical support against the US dollar, after the pair found strong resistance from the 1.1283 level. The EURUSD pair retains a bullish intraday bias above the 1.1250 level, although buyers must soon move price above the 1.1290 resistance level. The 1.1350 level currently offers the strongest form of weekly technical resistance.

The EURUSD pair is only bullish while trading above the 1.1250 level, key technical resistance is found at the 1.1290 and 1.1350 levels.

If the EURUSD pair trades below 1.1250 level, key support is found at the 1.1216 and 1.1170 resistance levels.

The US dollar has fallen to a fresh weekly trading low against the Japanese yen currency as the greenback comes under selling pressure ahead of the release of the FOMC meeting minutes. USDJPY sellers need to move price below the 110.90 support level in order to turn the weekly sentiment towards the pair bearish. Traders should note that a bearish triple top pattern formation is also creating technical selling pressure on the four-hour time frame.

If the USDJPY pair trades below the 110.90 level, sellers may test towards the 110.65 and 111.40 levels.

If bulls move price above the 111.30 level, buyers may test towards the 111.65 and 112.20 levels.

The euro has been relatively unchanged against the USD this week as investors wait for the European Central Bank’s monetary decision which is expected late today. Investors expect it to leave the deposit facility rate at minus 0.40% and the marginal lending facility at 0.25%. Most importantly, investors are waiting for guidance regarding the next interest rates hike. In the last meeting, the bank extended the period from summer to December. In addition, investors are waiting for the ECB’s outlook of the European economy after the IMF lowered the global outlook yesterday.

The Japanese yen was relatively unchanged against the USD after more data showed weakness in the economy. In February, the core machinery orders declined by minus 5.5%, which was lower than the expected -5.2%. In January, the orders declined by -2.9%. This was the lowest decline since the one released in November last year. On a MoM basis, the orders increased by 1.8%, which was lower than the expected 2.5%. On a positive side, in March, the PPI increased by an annualized rate of 1.3%, which was higher than the expected 1.1%. Bank lending also increased by 2.4%.

Sterling was also unmoved after the EU indicated that it will give the UK another extension of Article 50. Theresa May has requested this extension to help her negotiate with the opposition. The Europeans have asked for a serious proposal from the PM because this is the second extension she has asked for. In addition, they are afraid that the divisions in the UK parliament are so large that no bill will be voted for. While the extension removes the probability of a no-deal Brexit on Friday, it continues the fatigue and uncertainty about the future of the UK. Today, the ONS will release the first reading of first quarter GDP. Traders will also receive the industrial production, manufacturing production, and trade data from the country.

The price of crude oil was also relatively unmoved after the American Petroleum Institute (API) released its weekly crude oil stock number. The inventories rose by 4.0 million barrels. Today, the EIA will release its data, which is expected to show that the inventories rose by 2.294 million barrels. This will be lower than last week’s data of 7.23 million barrels. In addition, traders will receive the monthly report from OPEC. Meanwhile, traders will also receive the minutes of the last Fed meeting.

USD/JPY

On Monday, the USD/JPY pair reached a high of 111.80. Since then, the pair’s price has moved lower, and yesterday, it reached a low of 110.97. This was along the 61.8% Fibonacci Retracement level. The price is now trading at 111.13, which is along the middle line of the Bollinger Bands. The stochastic oscillator has been moving upwards. There is a likelihood that the pair will remain within this range as traders wait for the Fed minutes.

EUR/USD

The EUR/USD pair has been relatively unmoved and is currently trading at the 1.1260 level. On the hourly chart, this price is slightly above the 23.6% Fibonacci Retracement level. It is also slightly above the lower line of the Envelopes indicator while volumes have remained a bit low. Today, the pair will likely see some major changes as investors receive the direction from the ECB and the Fed minutes.

XTI/USD

The XTI/USD pair reached a YTD high of 64.80 on Monday. Since then, the upward momentum has slowed, and the pair is now trading at the important psychologically level of 64. On the hourly chart, this price is along the 25-day moving average and slightly below the 50-day moving average. The Awesome Oscillator has also moved slightly in the negative side. There is a likelihood that the pair will resume the upward trend but this will depend on the inventory numbers from the US.

The precious metal managed to post gains for the second daily session as price settled at $1303.92 by Tuesday’s close. The market sentiment helped to push the price of the precious metal higher. With the ECB due to take center stage today, followed by the Fed meeting minutes, gold could remain in a holding pattern in the near term.

Is There More Room for XAUUSD to Rally?

Price action in XAUUSD currently shows that price has settled within the 1307 – 1301 level of resistance as noted few days ago. We expect price to remain flat within this level. However, the risks are balanced as there is scope for gold to breakout higher which could see price attempting to test 1320. To the downside, the support at 1287 – 1284 will be the level to watch.

Oil prices maintained the bullish trend but eased after touching new highs of $64.68. Price retreated after conflicting signals. Russia, the largest non-OPEC supplier said on Tuesday that it prefers to increase supply when the current production cuts end in June. This was in contrast to the production cuts currently underway alongside tensions in Libya which have caused oil prices to maintain a steady uptrend.

Is WTI Crude Oil Due for a Correction?

WTI Crude oil has been rallying for the past five consecutive weeks pushing oil prices to a five-month high. The uptrend is still intact, and we expect this current dip to be a mere correction to the uptrend. The main target for crude oil prices is near the $65.00 – $66.00 region. The current dip is likely to see price testing $62.80 where support could be formed.

The euro was trading flat after briefly rising to a nine-day high on Tuesday. President Trump threatened the EU with an $11 billion tariff due to subsidies given to the European airline manufacturer, Airbus. The euro was initially unmoved on the reports but later settled the day flat.

Will the EURUSD Fall?

The currency pair extended declines after it rallied to intraday highs of 1.1276. The current declines will see price retesting the previous resistance level at 1.1245 to form support. If this holds, we expect a rebound which could eventually break 1.1276 to test the 1.1300 region. But a failure at the expected support could push EURUSD closer to 1.1245 and possibly extend further declines.

Daily Pivots: (S1) 0.8597; (P) 0.8626; (R1) 0.8657; More...

No change in EUR/GBP's outlook as it's staying in consolidation from 0.8474. Intraday bias stays neutral and more sideway trading could be seen. But as long as 0.7822 resistance holds, near term outlook remains bearish. 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.