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Strong U.S. data

Last Friday's data release, of NFP, average hourly earnings and an 18 year low in unemployment, exceeded market expectations and had a beneficial effect on markets. Non-farm employment increased by 223K in May, which was significantly better than the expected 190K. This growth indicates that, after some decrease in speed at the beginning of the year, the US economy is once again gaining momentum. The annual growth rate of wages accelerated from 2.6% to 2.7%. It is not so strong as to cause markets to fear Fed Rate increases, but it is good enough to dispel the fears of a prolonged slowdown in the economy.

The week starts on a positive

U.S. stock indices added more than 1% on Friday and early indications from Asia are showing a similar improvement. Growth of 0.3-0.4% is expected from Europe due to increased demand for risks. USD failed to consolidate its position on the foreign exchange market. The reaction to Friday's data was particularly mooted. It appears that the mitigation of fears around interest rates in the U.S. has helped kept USD on the offensive. In early Monday trading the dollar index has returned to the lows seen on Friday. It is important to understand that the labour market data was not negative for the USD, instead the current movement has been caused by a decrease in the degree of fear and a fall in the demand for safe-heavens.

G7 vs. USA

The introduction of steel and aluminum tariffs by the US has united all other countries in a rare critique of this approach. The G7 summit will occur at the end of this week where Trump personally will face his critics. Iran is trying to saddle the tide of discontent with U.S. policy and has called on countries to keep the nuclear deal from which the US recently withdrew. It may seem counterintuitive, but this news was positively perceived by the markets, as they reduce the risks of the surge of protectionism in world trade.

UK PMI construction was unchanged at 52.5 in May, above expectation of 52.0.

Sam Teague, Economist at IHS Markit and author of the IHS Markit/CIPS Construction PMI®:

"The May PMI data signalled an unchanged pace of activity growth across the UK's construction sector since April's somewhat underwhelming rebound, yet nevertheless indicating a recovery in the second quarter after the contraction seen at the start of the year.

"However, activity in May was once again buoyed by some firms still catching up from disruptions caused by the unusually poor weather conditions in March, and a renewed drop in new work hinted that the recovery could prove short-lived.

"Inflows of new business slipped back into decline, signalling the resumption of the downward trend in demand seen during the opening quarter. Companies frequently noted that Brexit uncertainty and fragile business confidence led clients to delay building decisions in May.

"With new order books deteriorating and cost pressures picking back up, it's not surprising to see construction firms taking a dimmer view of prospects and pulling-back on hiring, all of which makes for a shaky-looking outlook."

Full release here.

Here are the latest developments in global markets:

FOREX: The dollar eased a bit versus a basket of currencies on Monday after being boosted on Friday on the back of a largely upbeat US employment report. The aussie was a notable outperformer versus the greenback, being helped by better-than-expected Australian retail sales data.

STOCKS: Wall Street's major benchmarks closed considerably higher on Friday, with the positive sentiment carrying through to today's Asian session. The Japanese Nikkei 225 and Topix indices finished higher by 1.4% and 1.5%, while Hong Kong's Hang Seng was up by 1.5%. Futures markets pointed to a higher open for major European indices, with contracts on the Dow, S&P 500 and Nasdaq 100 also being in the green. Apple, the world's largest company by market-cap, will be in focus today as its Worldwide Developers Conference in San Jose, California, kicks off; new product offerings are anticipated to be unveiled by the corporation.

COMMODITIES: WTI was flat at $65.84/barrel, while Brent crude traded 0.2% down at $76.66/barrel. Overall, the two oil benchmarks experienced significant declines in recent days on what is perceived by market participants as rising prospects of higher world supplies. Turning to gold, it was 0.1% down at around $1,291/ounce, building on Friday's losses which came on the back of a stronger dollar.

Major movers: Dollar higher versus the yen, though trade risks loom; aussie jumps

At 0659 GMT, the dollar index was trading 0.15% lower, while dollar/yen was 0.1% up at 109.65, after adding 0.6% on Friday. The robustness of Friday's jobs report out of the US almost completely eliminated any uncertainty regarding the delivery of a 25bps interest rate hike by the Fed when it meets later in June and increased the odds for four interest rate increases in total during 2018.

Trade uncertainty as the US get more confrontational with China, but also other traditional allies such as the EU and Canada, will be monitored in the days to come as it has the capacity to divert funds out of the dollar and into safe havens, including the yen.

Euro/dollar was 0.2% up and not far below the 1.17 handle. The situation has cleared in Spain – which either way was not really perceived as a major risk – while a first line of uncertainty was removed in Italy as well; the latter acted as the catalyst for some notable euro-gains last week. Now, it remains to be seen what type of policies the anti-establishment parties which have come to power in Italy will follow. Will they play by the “rules of the game”, something which is expected to be perceived as euro-friendly by markets, or will they attempt to shake things up?

Sterling, which was helped by stronger-than-anticipated manufacturing PMI data on Friday, was 0.1% up, having reached a 10-day high of 1.3377 earlier in the day.

In the antipodean sphere, aussie/dollar was a notable gainer today. Specifically, the pair traded higher by more than 0.8% and not far below a six-week high 0f 0.7631 touched earlier in the day. Strong company profits and a retail sales beat were the reasons behind the aussie's advance. Meanwhile, the NZD was also boosted, with kiwi/dollar being up by 0.4%, close to Thursday's four-week high of 0.7023.

Day ahead: Eurozone's Sentix due; trade developments at the forefront

Early in the European session, data out of the eurozone will attract some attention as political risks in Italy have somewhat calmed down after the anti-establishment parties 5-Star Movement and League managed to reach an agreement on forming a coalition government last week.

At 0830 GMT, Eurozone's Sentix Investor confidence index for the month of May is expected to ease from 19.2 in April to 18.4, hitting the lowest level since February. In contrast, producer prices out of the region due at 0900 GMT are projected to grow faster in April, with analysts seeing an expansion of 2.4% y/y compared to 2.1% in March. Meanwhile, the UK will be on the receiving end of construction PMI data for May at 0830 GMT, one day ahead of the much more important for the UK economy services PMI print.

US factory orders for April are due at 1400 GMT; a month-on-month contraction in orders is expected.

Trade uncertainty is a theme that is expected to dominate market attention in the days to come. Note that on Thursday US President Donald Trump decided to impose tariffs on steel and aluminum imported from the EU, Canada and Mexico. Trump's move saw immediate countermeasures from Canada and Mexico, the US's NAFTA partners, while the EU has also threatened to retaliate, with all three countries filing complaints at the World Trade Organization. In the meantime, any updates on the US-China trade spat will also be closely watched by markets. The US export-promoting team led by the Commerce Secretary Wilbur Ross failed to make progress in meetings with Chinese officials over the weekend. Lastly, rising global trade risks are also expected to be discussed on a G7 meeting in Quebec later this week.

As for today's public appearances, German Chancellor Angela Merkel and Israeli Premier Benjamin Netanyahu will be holding a joint news conference after discussing relations between Israel and Iran (1430 GMT), while at 1700 GMT Bank of England Member of Monetary Policy Committee Silvana Tenreyro will be making comments.

Technical Analysis: US 100 stock index bullish at 2½-month highs

The US 100 stock index (NASDAQ 100) has been running bullish after it found support at the 200-day simple moving average (SMA), unlocking a fresh 2½-month high of 7,104.10 during pre-US market trading. Price action above its SMAs and with the red Tenkan-sen line holding above the blue Kijun-sen line, the uptrend off April's trough of 6,294.20 could stay in place in the short-term.

The market could also retain positive momentum in the near-term as long as the RSI is positively sloped above its neutral threshold of 50. Yet, downside corrections cannot be excluded as the indicator is edging closer to overbought territory, above 70.

Should the price extend higher, traders could look for resistance around the record high of 7,185.15, while a significant break above that level could open the way towards the 7,300 key-level and at the same time turn the medium-term outlook into a more conclusively bullish one.

Conversely, a move lower could meet support between the 7,000 key-mark and the 20-day SMA currently at 6,929.39; this was a previously congested area. Even lower, the attention could turn to April's peak of 6,857.15, before the focus shifts to the area around the 50-day SMA at 6,755.09.

EURUSD is on course for a possible bullish retracement following the rebound on the 10-monnth low around 1.1510. The sharp sell-off, especially in the past seven weekly sessions, has shifted the long-term outlook from positive to negative. However, the momentum indicators in the near-term are supportive for the bullish correction.

From the technical point of view, in the daily timeframe, the RSI indicator is sloping slightly to the upside above the threshold of 30, while the MACD oscillator jumped above its trigger line in the bearish territory.

Immediate resistance is being provided by the 38.2% Fibonacci retracement level, near 1.1720 of the upleg from 1.0340 to 1.2540, as prices bounced back near this level after briefly tumbling below it. Moreover, should prices rise higher, the next resistance would likely come from the 1.1820 barrier but the price first needs to surpass the 20-day simple moving average (SMA). A jump above this region should extend gains towards the 200-day SMA near 1.2015, slightly below the 23.6% Fibonacci mark.

In case of a downward attempt, EURUSD would likely meet support at the 10-month low near 1.1510. A break below this significant level would endorse downside pressure and challenge the 50.0% Fibonacci of 1.1450. Steeper declines should drive the common currency until the 1.1300 handle, taken from the high on November 2016.

In the bigger picture, the bullish picture turned to bearish, with the moving averages all pointing downwards. However, should prices pare the previous weeks’ losses, this would risk shifting the long-term picture to a positive one again.

The USD/CAD has formed a bullish swing but the price is still below the breakout level. We see a retracement at this point and next zone for a potential bounce is 1.2875-1.2890. There is a lot of confluence within the zone including 61.8 fib of the last swing. However, for a bullish continuation a clear break of 1.3028 is needed (or 4h close above) and the doors to 1.3078 will be open. The USD/CAD needs to stay above 1.2825 for bulls to dominate.

W L3 - Weekly Camarilla Pivot (Weekly Interim Support)

W H3 - Weekly Camarilla Pivot (Weekly Interim Resistance)

W H4 - Weekly Camarilla Pivot (Strong Weekly Resistance)

D H4 - Daily Camarilla Pivot (Very StrongDaily Resistance)

DL3 – Daily Camarilla Pivot (Daily Support)

DL4 – Daily H4 Camarilla (Very Strong Daily Support)

POC - Point Of Confluence (The zone where we expect price to react aka entry zone)

XAUUSD (1293.58): Gold prices slipped after failing to break out above the resistance level of 1304 - 1301 level. The decline in gold prices is likely to see the precious metal continuing to maintain the downside bias with the gains capped at the 1304 - 1301 level of resistance. To the downside, the support at 1282 is the most likely target as gold prices are likely to test this support level more firmly. Although gold prices look fairly bearish for the moment, we expect to see a bottom taking shape and could signal a near term change in the trend to the upside.

USDJPY (109.60): The USDJPY posted strong gains on Friday but price action was seen easing back towards the close. The USDJPY managed to post the rally and hit the resistance zone of 109.57 - 109.43 level. We expect to see the USDJPY currency pair pulling back lower and could settle into the range with the lower support at 108.90. However, in the event of a breakout, then USDJPY could be seen extending the gains to the upside, targeting the next main resistance level at 110.85.

EURUSD (1.1693): The euro currency was seen easing back on Friday after two days of gains earlier in the week. The common currency managed to hold its ground against a stronger U.S. dollar. The minor decline on Friday coincides with the falling price channel which is currently serving as dynamic resistance. In the near term, we expect the EURUSD to retest the support level at 1.1610 - 1.1577 level. A rebound off this level could signal the EURUSD to maintain the sideways range with the upper resistance at 1.1730. A breakout from this range could potentially set the stage for the next leg in the currency pair's direction.

The U.S. dollar was seen easing back towards Friday's close after a solid performance during the week. The monthly payroll figures showed that the U.S. economy added 223,000 jobs during the month of May, beating estimates by a strong margin.

The U.S. unemployment rate also fell to an 18 year low to 3.8% while the median forecasts expected to see the unemployment rate staying unchanged at 3.9%. Wage growth also increased 2.7% on an annual basis for the year ending May.

Elsewhere, the monthly manufacturing PMI in the UK showed an increase to 54.4. This was higher than the estimates of 53.5 and up from the previous month's 53.9.

Looking ahead, the economic calendar for the day will see the release of the UK's construction PMI. Forecasts show that construction PMI might have eased to 52.0 from 52.5 in April.

In the U.S. the factory orders data will be coming out. Forecasts point to a 0.4% decline.

Cable stands at the front foot at the beginning of the week and broke above Fibo barrier at 1.3362 (38.2% of 1.3617/1.3204 bear-leg) after Friday’s trading closed above 10SMA (1.3332) and generated bullish signal.

Repeated close above 10SMA, which now acts as initial support, is needed to signal broader downtrend is pausing and holding in consolidation mode.

The pair holds in green for the second straight day and gaining momentum for attack at next barrier at 1.3422 (falling 20SMA) break of which would signal correction under way and sideline broader bears.

UK Construction PMI data are due today and eyed for fresh signals (May f/c 52.0 vs Apr 52.5), with stronger that expected release to add to bullish near-term outlook, which is expected to remain in play while broken 10SMA holds.

Bearish scenario requires return and close below 10SMA to signal an end of recovery and turn focus lower.

Res: 1.3410, 1.3422, 1.3460, 1.3520
Sup: 1.3362, 1.3332, 1.3310, 1.3253