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The pair stands at the back foot in early Friday’s trading and maintaining negative tone after strong fall on Thursday.

The dollar came under pressure on strong rhetoric from G7 which reduced risk sentiment as G7 leaders are set to clash with President Trump’s policy regarding tariffs which threatens of global trade war.

Recovery rally from 108.11 (29 May low) stalled at strong 200SMA barrier, failing to clearly break higher on repeated attempt.

Subsequent fall closed below initial support at 109.75 (daily Kijun-sen) and weakened near-term structure on formation of bearish Outside Day.

Pivotal support at 109.44 (daily 10SMA / Fibo 38.2% of 108.11/110.26) holds for now, but risk of further weakness exists.

South-heading 14-d momentum and slow stochastic support the notion as thick hourly cloud (base lays at 109.86) weighs.

Firm break below 109.44 would generate strong bearish signal for extension of pullback from 110.26/22 double-top, towards daily Tenkan-sen (109.18) and possible extension towards the top of rising and widening daily cloud (108.62) on stronger bearish acceleration.

Conversely, bullish signal could be expected on close above daily Kijun-sen, which would turn near-term focus higher again.

Res: 109.75, 110.00, 110.16, 110.26
Sup: 109.44, 109.18, 108.93, 108.62

The Euro moves lower after spiking to 1.1839 on Thursday (the highest since 16 May) but failing to close above pivotal barriers at 1.1810 (Fibo 61.8% of 1.1996/1.1509) and 1.1817 (falling 30SMA). Corrective dip is likely to precede fresh upside attempts as momentum turned lower and enters negative territory, while slow stochastic is emerging from overbought territory and supporting the notion. Dips should be ideally contained by 20SMA (1.1735) to keep bulls intact. Break above 30SMA would generate bullish signal for extension towards 1.1881 (Fibo 76.4% of 1.1996/1.1817) and 1.1909 (fibo 38.2% of 1.2555/1.1509 fall). Bearish scenario sees increased risk for deeper pullback on sustained break below 20SMA, while return below weekly cloud top (1.1681) and weekly close in the cloud would signal reversal and turn focus lower.

Res: 1.1805, 1.1837, 1.1881, 1.1909
Sup: 1.1752, 1.1735, 1.1694, 1.1681

Markets

Global core bonds started the day still on a weak footing with recent ECB comments echoing through markets. They suggested a debate on ending APP at next week's meeting and caused a hawkish repositioning. The sell-off lost pace however and the start of US dealings marked an intraday turnaround. Core bonds gained traction with US Treasuries outperforming German Bunds. We think that the move is linked to building stress in some emerging markets. Brazil and Turkey appear on investors radar as potential next domino's to fall after Argentina. Both central banks stepped up efforts to stop the rod, the one being more successful (Turkey) than the other (Brazil). The Brazilian real lost another 3% despite increased interventions. The sell-off in BRL pulled safe haven flows into US Treasuries and the Japanese yen (USD/JPY from >110 to 119.60). US stock markets remained remarkably resilient (-0.1%) with Nasdaq underperforming. The US yield curve bull flattened with yields 2.8 bps (2-yr) to 5.4 bps (10-yr) lower. The German yield curve steepened with yield changes ranging between -1 bps (2-yr) and +2.3 bps (30-yr). The Bund gained additional ground though after the official close, which will be reflected in today's opening.

The euro initially remained in the driver's seat as well. The short squeeze in EUR/USD propelled the pair towards first resistance at 1.1830. A break didn't occur after an intense test with the pair returning towards 1.18 into the close even if interest rate differentials played in the disadvantage of the greenback. The dollar might have profited from unwinding of carry trades. EUR/GBP approached first resistance at 0.8843 yesterday. A real test didn't occur with EUR/GBP eventually closing back below 0.88. Sterling lost ground after the UK released its backstop plan for the Irish border. The blueprint remains vague and doesn't provide a big short term breakthrough. The backstop will remain in place until the end of 2021. By then, a final arrangement should be made. Putting an exact timing in the blueprint is a concession by UK PM May to hard brexiteers.

The eco calendar remains thin today. Asian stock markets (up to -1.5%) and currencies like IDR, INR, THB,... are under downward pressure adding evidence that tensions on EM start affecting global trading. Investors might therefore hold a cautious approach ahead of the weekend and despite next week's central bank meeting. Core bonds could benefit, ending the sell-off since the end of May. Peripheral bond markets are expected to remain under pressure. On FX markets, the dollar might profit against most majors bar JPY because of the unwinding of carry trades. EUR/USD could in this case move again lower in the 1.1510-1.1830 trading range we've put forward after the ECB gossip. Sterling could underperform given the latest brexit delay.

News Headlines

Brazil's Central bank chief Goldfajn held a surprise press conference yesterday after another failed attempt with currency swaps to strengthen its Réal. He stated that the central bank will continue to intervene as long as necessary to fend off attacks, with a $380bn of FX reserves. USD/BRL trades at 3.9, from 3.7 at the start of June.

Argentina and the IMF have agreed on a $50bn financing deal. Last month, Argentine President Mauricio Macri cried for help after the peso lost a fifth of its value in a fortnight. The markets welcomed the bigger than expected ($30bn) deal, with economists saying the country has now ample capacity to pay its debt.

While US tariffs are worrying, China published strong trade data this morning. Exports rose 12.6% YoY last month (11.1% expected) and imports grew 26% YoY (18% expected). The trend of imports outpacing the exports is leading to a narrowing of the trade surplus ($24.9bn in May, down from a revised $28.3bn in April). President Trump is pressuring China to narrowing its bilateral trade surplus with the US.

Market movers today

Today, we get only second tier data (manufacturing and industrial product ion data from France will be watched), so market focus is set to be on developments around the G7 meeting, which starts in Canada today and runs until tomorrow.

In addition, aft er yesterday's t ones from P rime Minister Theresa May on backing down and including a time limit to the backstop option, further developments on UK Brexit talks will be followed even more closely as the backstop option is another point of disagreement with the EU.

We published our ECB and FOMC previews ahead of next week's meetings. For the ECB, we expect only a formal change to forward guidance in July, while we expect the Fed to take its next step towards the neutral rate by another 25bp hike

We also published FX Strategy – EUR/USD lower for longer - but not forever, 8 June. We opt to revise down our forecast profile for EUR/USD and now see the cross at 1.17 in 1M, 1.17 in 3M (previously 1.19), 1.20 in 6M (1.23) and 1.25 in 12M (1.28).

Selected market news

Global risk sentiment remained sour this morning amid open political tensions between the US and other G7 countries ahead of today's G7 meeting and pressure in key emerging market countries such as Brazil. Asian stock markets are retreating and the JPY is advancing. Overnight the White House announced that president Donald Trump will leave the G7 meetings in Canada early tomorrow morning to go t o Singapore ahead of next week's summit with North Korea's leader Kim Jong-Un. The decision comes as president Trump yesterday accused French president Emmanuel Macron and Canadian Prime Minister Just in Trudeau of imposing ‘massive' tariffs on the US and other non-monetary obstacles to sales of its products. Trump's reaction came in response to signals from the French and German G7 delegations that they would be prepared to sign a communique without the US given disagreement on trade, Iran and climate change.

Meanwhile, Brazilian assets came under significant pressure yesterday . Political uncertainty ahead of the presidential election, including whether the well-respected central bank governor Ilan Goldfajn in the autumn coupled with general sour emerging market sentiment is putting Brazil under pressure. This prompted the central bank governor to stress yesterday that the Brazilian central bank has ample reserves and the fundamentals of the Brazilian economy are good but , at this stage, it would not consider an emergency meeting. At the same time, the IMF announced a USD50bn package for Argentina to strengthen investor sentiment .

USDCAD is still holding above the simple moving averages in the daily timeframe over the last couple of weeks signaling that the pair is ready for more bullish extension. Also, the price remains above the 50% Fibonacci retracement level of the downleg from 1.3800 to 1.2060, around 1.2925 and challenged several times the 1.3050 resistance level in the past, which is acting as strong resistance level.

Looking at the short-term chart, based on technical indicators, momentum is too weak to provide a sustained move higher. The MACD oscillator is flattening near its trigger line in the positive area, while the RSI indicator is standing above the 50 threshold but is sloping slightly upwards.

In case of an upward attempt, the 1.3050 resistance level could act as a significant barrier before being able to re-challenge the 1.3130 obstacle, which overlaps with the 61.8% Fibonacci mark. A climb above this region would send prices above the upward sloping channel towards the 1.3350 hurdle, which would suggest a stronger bullish structure.

Conversely, the next support should come from the 20- and 40-simple moving averages (SMAs) near 1.2900 and 1.2820 respectively. A dip below this region would drive the price towards the next barrier of the 38.2% Fibonacci, around 1.2725. Further losses could send the pair until the next low of 1.2530, taken from the trough on April 17 and significantly weaken the bullish medium-term picture.

Having a look at the bigger picture, USDCAD has been trading within an ascending sloping channel since September 2017, failing several times to exit from this range.

Yesterday's trading session saw a rotation from the NASDAQ and Tech into the Dow Jones and Industrials. The European Indices have under preformed this week in part due to Euro strength and in part due to concern about trade/political stability in Italy and worsening economic data. China diverged from its Asian Equity counterparts this week and has led the Indices lower overnight. The G7 is meeting today and tomorrow with tensions between the US and the other participants at a high level over trade. Moves in FX are light today in anticipation of the meetings today which will dominate direction into next week and beyond.

UK Halifax House Price Index (3m/YoY) (May) was 1.9% against an expected 1.9% from 2.2% previously. This data has been declining since hitting a high of 3.9% in June 2014 and is expected to rebound from a multi-year low last month. GBPUSD moved higher from 1.34533 to 1.34717 following this data release.

Eurozone Gross Domestic Product s.a. (Q1) was 0.4% QoQ and 2.5% YoY as previously reported. The QoQ number has been holding steady around 0.6% for 2017 but drop down to 0.4% showing a decline in growth across the Eurozone. The YoY number drop down to 2.5% after weakening Eurozone data. This data sent the EURGBP pair higher from 0.87781 to 0.88372 after this data release.

US Continuing Jobless Claims (May 25) were 1.741M against an expected 1.738M. Initial Jobless Claims (Jun 1) were 222K against an expected 225K. This data is showing an increase in the number of people who are jobless. USDJPY moved 110.000 to 109.642 in the time after this data release.

EURUSD is up 0.09% overnight, trading around 1.18091.
USDJPY is down -0.02% in the early session, trading at around 109.667
GBPUSD is up 0.03% this morning trading around 1.34256.
Gold is down -0.09% in early morning trading at around $1,295.96
WTI is down -0.26% this morning, trading around $65.75

Daily Pivots: (S1) 146.71; (P) 147.42; (R1) 147.94; More...

GBP/JPY dropped sharply after hitting 148.10 and intraday bias is turned neutral first. Another rise is expected as long as 145.82 minor support holds. Above 148.10 will target 149.99 resistance first. Break there will pave the way to retest 153.84 high. However, break of 145.82 will argue that the rebound is completed and bring retest of 143.18 low.

In the bigger picture, no change in the view that decline from 156.59 is a corrective move. In case of another fall, strong support should be seen above 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47) to contain downside and bring rebound. Meanwhile, break of 153.84 should confirm that the correction is completed and target 156.59 and above to resume the medium term up trend.

The G7 meeting is taking place today and tomorrow as world leaders meet to discuss global economic issues. Trade is expected to be a key issue during this meeting on the back of US Trade Tariffs and the retaliatory responses.

At 08:15 GMT, ECB’s Mersch is expected to speak today at a scheduled event. EUR crosses may be affected by any comments made.

At 12:15 GMT, Canadian Housing Starts s.a (YoY) (May) will be released with an expected number of 218K from a previous 214K last month. This data is showing a strong performance with indications that the headline number will beat expectations this month. CAD pairs can see an increase in price movement from this data.

At 12:30 GMT, Canadian Unemployment Rate (May) is expected to be 5.8% against a previous 5.8%. Participation Rate (May) is expected to be 65.4% against 65.4% prior. Net Change in Employment (May) is expected to be 17.5K against a prior -1.1K. Unemployment had fallen to the lowest levels in ten years in December at 5.7% but ticked up slightly in January. The large drop to -88K in the Net Change in Employment data, the largest fall since 2009, stabilized in the last three months and is expected to rebound today after last month’s drop under zero. CAD pairs can see an increase in price movement from this data.

At 17:00 GMT, Baker Hughes US Oil Rig Counts is due to be released with a headline number from last week of 861. As this number creeps higher more and more rigs are coming into operation increasing the supply of oil onto the market and adding downward pressure on prices. WTI Oil fell last week as rig counts increased signalling additional supply in the US market.

The GBP/USD bounced at the top of the bear flag chart pattern and 23.6% Fibonacci retracement level. The bearish bounce however needs to break below the bear flag pattern before it becomes more likely that the wave 4 (purple) correction has been completed and a wave 5 can start. The 38.2% and 50% Fibonacci levels of wave 4 could act as resistance but a break above the 50% makes a wave 4 less likely.

The GBP/USD could be in a wave 4 but a break below the 61.8% Fib makes this wave count unlikely and a larger bearish trend could start. A bullish bounce could see price test the Fibonacci levels.

Daily Pivots: (S1) 129.06; (P) 129.67; (R1) 130.04; More....

EUR/JPY drops sharply after hitting 130.26 and intraday bias is turned neutral for some consolidations. Another rise is expected long as 127.78 minor support holds. Above 130.26 will target 131.34 first. And break will target 133.47 key resistance next. However, break of 127.78 will indicate completion of the rebound and turn bias to the downside for retesting 124.61 instead.

In the bigger picture, as long as 124.08 resistance turned support holds, medium term rise from 109.03 (2016 low) is still in progress and another high above 137.49 would be seen. Nonetheless, considering bearish divergence condition in daily MACD, decisive break of 124.08 will confirm medium term reversal and target 61.8% retracement of 109.03 to 137.49 at 119.90 and below.