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Deutsche bank has faced a fresh setback by the rating agency
The populist party over in Italy surged to power

Pain and more pain that is what Deutsche Bank’s investors are felling and it appears that there is no shortage of bad news. The new CEO of the bank has faced a fresh setback by the rating agency. The S&P Global Ratings cut the bank’s credit rating to BBB+ because of the restructuring. But remember that bad days are followed by good ones and we have seen this episode way too many times when the rating agencies have taken this path and then did the U-turn.

Yes, it is not a comfortable sing for investors to see the credit rating of their bank sitting at the third-lowest investment grade but I do believe that management is taking tough actions to resolve the issues. The lower rating grade would increase the borrowing cost for the bank but given that the bank already wants to close the operations in areas where it is not profitable, an increase in borrowing cost would not have a much detrimental effect.

Although, it is a sad thing that Deutsche bank is moving away from most of the trading business and we have banks like Goldman Sachs performing extremely well especially in the commodity trading area where its commodity trading revenue for this year has already exceeded the total commodity trading revenue of the last year.

The populist party over in Italy surged to power imposing more risk to core fundamentals of the Eurozone. The Five Star Movement and League parties swept to power and this means that there would be more friction with Europe. Giuseppe Conte will become the prime minister today and Paolo Savona will be responsible for the EU affairs. Markets have been wary and we have seen the reaction from the investors throughout this week, it wasn’t encouraging.

Over in Spain, Spanish Prime Minister is also in turbulent time, the corruption drumbeat is all you can hear. There is no doubt that the Prime Minister has pulled the country out of its dark the economic rebound triggered by his efforts is now in its fifth year. Nonetheless, the euro is holding on its gains ahead of the important data release which could potentially impact the price. The manufacturing PMI numbers for Spain, Germany, Italy, Spain and for the Eurozone are due later. An uptick would in te manufacturing PMI across the board would encourage euro bulls.

WTI oil price moved higher on Friday after falling 1.7% previous day as report of further rise in US oil production offset positive impact from a massive draw in US crude inventories (3.6 million barrels vs forecasted draw of 0.4 million barrels. Traders are trying to understand the divergence between two benchmarks, WTI and Brent, as the US oil ended day in red after post-data fall while Brent recovered most of losses and closed positively on Thursday.

The WTI continues to trade above rising daily cloud (cloud top lays at $66.61 today) which contained repeated attacks in past four days and marks significant support.

Markets remain concerned about rumors that OPEC and non-OPEC oil producers may ease their agreement to cut production until the end of 2018 in order to further tighten oil markets.

Negative momentum and bearish setup of 10/20/30SMA’s and fresh strength of the dollar weigh on oil price.

Also, repeated failure to clearly break above cracked pivotal Fibo barrier at $68.50 (38.2% of $72.89/$65.79) adds to negative near-term outlook.

Daily cloud top is under pressure, but break below and close within the cloud is needed to generate stronger bearish signal.

Alternative scenario requires weekly close above $68.50 Fibo barrier to ease persisting bearish pressure.

Res: 67.44, 68.26, 68.50, 69.03
Sup: 66.80, 66.61, 66.34, 65.79

EUR/USD

Current level - 1.1689

The outlook remains bullish above 1.1645, for a break through 1.1750, towards 1.1830 area. Crucial on the downside is 1.1590.

USD/JPY

Current level - 109.15

The recent failure at 108.36 signals, that the possibility of another test at 107.90 has already vanished and my outlook is bullish, for a break through 109.20, towards 110.40.

GBP/USD

Current level - 1.3279

The pullback after 1.3350 test is only an inner corrective wave and my outlook is positive, for a rise towards 1.3460.

Focus on Payroll Reports and trade war

Markets will focused on today US labor report. Acceleration in GDP growth increase the risk that job gains continue to rise. The worry is that employees will begin to feel the effect of labor shortages and are forced to raise pay to attract workers. Todays labor report will again focus on wage inflation rather than the headline NFP read. A surprise in average hourly earnings will increase concerns that labor –cost are now at a tipping point, with acceleration the next phase. USD positioning will be dependent on today's numbers. Higher than expected wage growth will fuel expectation for consumer inflation outlook and will steepen the Fed interest rate path, forcing USD and US rates higher. Given the surprise recovery from soft 1Q there is a significant risk of upside move in wages today.

In the short -term we are constructive on USD against low yielding G10 currencies but in broader term see EUR as oversold and watch for a correction as political fears fade. Elsewhere, in retaliation to announcement of 25% duties on imported steel and 10% on aluminum tariffs on EU, Canadian and Mexican imports the EU stated they would impose their own tariffs. The EU have indicated retaliatory tariffs on €2.8bn on American imports. Clearly, this aggressive strike and counter strike has significantly increased the probably for an international trade war. However, at this point we have not seen contagion into risky assets. Suggesting, market expected that cooler heads will eventually prevail. Or perhaps markets are just waiting for the main event US-China.

Investors are nervous about Italy's new government

The FX market reacted little to the announcement of a coalition government in Italy. President Sergio Mattarella finally approved the list of ministers presented by Prime Minister Giuseppe Conti. The single currency reported some modest gains against most of its peers. Obviously, safe haven currencies fell the most as the risk sentiment improved somewhat. The Japanese yen slid 0.30% against the single currency with EUR/JPY sliding to 127.50, while EUR/CHF consolidated around 1.1530. On the other hand, the equity market's reaction was sharper as the FTSE MIB surged 2.65% to 22,350 points. Italian banks were leading the charge with Banco BPM up 7.25%, BPER Banca up 6.25% and UBI Banca rising 5.75%.

The new government is formed of Matteo Salvini (leader of the League) as interior and deputy prime minister, Luigi DI Maio (leader of the 5-satr movement) as industry and deputy prime minister, Enzo Moavera Milanesi as foreign minister, Giovanni Tria as finance minister, Elisabetta Trenta as defence minister, while the Eurosceptic economist Paolo Savona, who was refused as finance minister, will be in charge of EU affairs. The government will be sworn in today. Italian sovereign yields continued to eased ahead of the weekend: the 2-year fell to 0.74%, while the 10-year one reached 2.60%.

Despite this good news, investors are not sleeping soundly yet. Indeed, the Italian government has a busy program and it is not exactly in line with what Brussels likes, especially in term of immigration and budget policy. Therefore, we expect that the market will not switch fully into risk-on mode, especially against the backdrop rising trade tensions between the US and EU – among other countries.

Bitcoin has shifted into a sideways range between 7105 and 7535. The pair is further contained between strong support and resistance given at 6306 (13/11/2017 low) and 10232 (01/02/2018 high). The technical structure suggests short-term decrease.

In the long-term, the digital currency has had an exponential growth but also presented important downturns. There is decent likelihood that the currency could stabilize between 7'000 - 12'000 in 2018. Bitcoin is trading below its 200 DMA (8500 range).

Crude oil is weakening confirming a strong bearish momentum. Hourly support and resistance are given at 65.56 (17/04/2018 low) and 73.56 (28/11/2014 high). The technical structure suggests further short-term upward moves.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness is very likely. For the time being, the pair lies in an upside trend since June 2017. Support lies at 42.20 (16/11/2016) while resistance is located at 77.83 (20/11/2014). Crude oil is trading largely above its 200 DMA.

Silver has bounced. However, the short-term succession of higher lows continues to favour a bullish bias as long at uptrend floor holds.. Hourly support and resistance are given at 16.05 (19/12/2017 low) and 16.87 (06/03/2018 high).

In the long-term, the trend remains negative/ sideways. Further downside is very likely. Resistance is located at 21.58 (10/07/2014 high). Strong support can be found at 11.75 (20/04/2009). The pair is trading below its 200 DMA.

Gold has weakened after the successful test of its key resistance at 1302. Hourly support and resistance are given at 1263 (21/12/2017 low) and 1329 (08/03/2018 high). The technical structure suggests short-term upwards moves.

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1'392 (17/03/2014) is required to confirm it. A major support can be found at 1'045 (05/02/2010 low). The pair is trading below its 200 DMA.

EUR/CHF weakness is holding, confirming an underlying bearish trend. Bearish target at 1.1463 was hit, placing the next extension level at 1.1352 (21/08/2017 low). Steep decline puts key resistance at 1.1516 (25/05/2017 low).

In the longer term, the technical structure has reversed. Strong resistance at 1.20 (level before the unpeg) is now at reach. The ECB's slowing QE program is likely to cause buying pressures on the euro, which should weigh in favour of the EUR/CHF. Support and resistance can be found at 1.0624 (24/06/2016 low) and 1.2097 (18/12/2014 high).

EUR/GBP continues to improve as can be seen by the break of the resistance and declining trendline at 0.8789. However, monitor the resistance implied by 0.8838, as the bounce seems short-term overextended. Next support and resistance are given at 0.8668 (22/03/2018 low) and 0.8838 (23/02/2018 high).

In the long-term, the pair has largely recovered from 2015 lows. The technical structure suggests further upside pressure. Strong resistance can be found at 0.9500 (psychological level) while support remains at 0.8304 (05/12/2016 low). The pair is trading below its 200 DMA.