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The USD weakened further overnight after the move began in the US trading session yesterday. USDJPY moved down under the 110.000 level after making a high of 111.389. The Macro background is mixed with tensioning increasing around Iran but positive tones coming from US/China negotiations and US/North Korean talks going ahead as planned. The Italian Election has delivered a Coalition Government that “will put Italian national interests first”. This is creating a tension with the EU as the new government has proposed billions of euro in tax cuts, increased social welfare payments and scrapping pension reform, all of which would break the fiscal discipline rules of the EU. The FTSE MIB is set to open down again today after falling to the April lows yesterday around 23083.00.

Chicago Fed National Activity Index (Apr) was 0.34 against an expected 0.14 from a previous 0.10 which was revised up to 0.32. This data has held above the zero level for 2018 with a spike higher to 0.88 in the February reading. This shows a healthy economy with the 2018 average at a higher level than previous years. The rebound higher in the data and the upward revision to last month’s figure, will give relief to those worried about any moves lower. USDCAD moved higher from 1.28516 to 1.28658 after the data release.

FOMC Member Bostic spoke about the economic outlook and price-level targeting at the Atlanta Economics Club. He said that inflation was likely to run a bit above 2% for a while and that the US is close to or at full employment but wage growth is tepid. The Fed has a target of 2% inflation and it would like to get interest rates higher to counter any run above that level. Higher interest rates would also allow the Fed to counter any economic downturn in the years ahead, so normalising policy is of great importance. Slow wage growth slows the pace of hikes for the Fed. USDCAD moved up from 1.28302 to 1.28480 after this event.

FOMC Member Kashkari spoke yesterday saying that he feels that there might still be some slack in the labour market and wages have not picked up. He said that he wanted to allow the economy to continue to strengthen. He said that he is closely watching the yield curve for signs the economy might falter and he thinks the curve could flatten by year end. The Fed is watching the labour market because full employment could mean that the economy has peaked and that it cannot expand until it finds new workers. If the yield curve flattens the spread between short and long term bonds decreases, meaning short term bonds are less risky and more attractive than long term bonds. USDJPY moved higher from 110.950 to 111.069 after this event.

XAUUSD (1291.01): Gold prices extended the declines to the next support level at 1282 but price action bounced back higher. We notice that gold prices are likely to consolidate around this support level in the near term. To the upside, the resistance level at 1304 - 1301 region is most likely to be tested for resistance. If gold prices slip below the support level of 1282, then further declines could eventually push prices down to 1250.

USDJPY (110.84): The USDJPY currency pair was seen giving up the gains as the currency pair drifted lower after the gains stalled near the resistance level of 111.18 - 110.85 level. A break down below this level could signal a correction in the currency pair toward 109.57 - 109.43 region. This correction would mark a retest of the support level which previously served as resistance. To the upside, any gains are likely to be limited to the resistance level for now.

EURUSD (1.1787): The EURUSD currency pair fell to the major support level at 1.1730 before the currency pair managed to bounce back strongly. Despite the rebound in price action, we expect the common currency to continue showing weakness around this level. However, in the event that the EURUSD manages to post a higher low above the support level, then we expect to see a retest of the resistance level formed near 1.1846 - 1.1824 region. Only a breakout above this level will signal further continuation to the upside.

The U.S. dollar continued to strengthen on Monday. The gains came as the markets opened to the weekend news reports about the U.S. Treasury Secretary announcing that the U.S. had put on hold its trade war against China. Both administrations are expected to chalk out a mutually beneficial deal which includes China increasing its imports from the U.S. to reduce the trade deficit.

On the economic front, the data was rather limited. From the Eurozone, Italy continues to remain a key factor for investors.

Looking ahead, the economic calendar for the day will see the release of the UK's Public sector net borrowing data. Estimates show that public sector net borrowing is expected to rise 7.2 billion. This is later followed by the UK's inflation report heading.

The U.S. trading session is relatively quiet with the release of the wholesales sales report from Canada followed by the U.S. Richmond Fed manufacturing index. Estimates point to a robust increase in the Richmond Fed manufacturing index to 9 following a decline to -3 previously.

U.S. investors got overexcited on Monday after Treasury Secretary, Steven Mnuchin, announced over the weekend that the trade war with China was 'on hold.” The relief over trade concerns sent stocks sharplyhigher, particularly the heavyweight industrial stocks. Boeing, United Technologies, Caterpillar and General Electric were the best-performing stocks on the Dow Jones Industrial Average. The rally in the industrial sector pushed the Dow 298 points to trade above 25,000 for the first time since mid-March. Meanwhile, the S&P 500 and Nasdaq Composite gained 0.7% and 0.5%, respectively.

'China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products - would be one of the best things to happen to our farmers in many years!”Donald Trump

It seems the ceasefire is likely to remain on hold for some time. Trump's political base will be severely damaged if Beijing imposes25% tariffs on soybeans, especially as we get closer to November's midterm elections, which the President won't want to risk. This development will lead investors to shift their focus back to fundamentals.

Asian equities didn't enjoy the same excitement in Wall Street as optimism over easing tensions faded, meaning thatAsian investors are likely to become more worried about oil trading at $80. The first response to Nicolás Maduro's victory in Sunday's Venezuelan elections was a fresh round of U.S. sanctions. President Trump banned the purchase of debt issued by the country and state-run oil company PDVSA. Venezuela,literally running out of money, may see its oil production fall below 1 million barrels per day, and given the tight market conditions, energy prices are likely to remain elevated.

In currency markets, the Dollar Index pulled back slightly from its 2018 highs. There were no key economic data releases nor big moves in fixed income instruments to take the cue from yesterday. Traders are waiting for Wednesday's minutes from the latest FOMC meeting to seeany fresh signals related to U.S. monetary policy.

The Euro continued to struggle over the political uncertainty unfolding in Italy and it remains unclear where the new populist party coalitionwill take the country. People voted for the Five Star and far-right League to reject the European consensus on policy, so keep an eye on how Italian bonds perform in the next couple of days, as they arethe key barometer on what investors think about the third-largestEurozone economy.

The Pound has fallen by approximately 1000 pips from April highs in less than five weeks. A combination of weak economic data, delays in rate hikes and the dollar strength contributed to the steep fall. Today's testimony from BoE Governor, Mark Carney, on the latest inflation report may provide some guidance on when the BoE likely to raise rates. Any new signals on policy may lead to big swings in Sterling.

Daily Pivots: (S1) 1.1740; (P) 1.1768 (R1) 1.1820; More....

A short term bottom is in place at 1.1716 with the current recovery, ahead of 38.2% retracement of 1.0339 to 1.2555 at 1.1708, on bullish convergence condition in 4 hour MACD. Intraday bias is turned neutral first. Some consolidations would be seen. But upside of recovery should be limited by 1.1995 resistance to bring fall resumption. On the downside, sustained break of 1.1708 will pave the way to 50% retracement at 1.1447 next.

In the bigger picture, current development suggests that EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. And, a medium term top was formed at 1.2555 already. Decline from there should extend further. Break of 38.2% retracement of 1.0339 to 1.2555 at 1.1708 will pave the way to 61.8% retracement at 1.1186. For now, even in case of rebound, we won't consider the fall from 1.2555 as finished as long as 55 day EMA (now at 1.2113) holds.

Daily Pivots: (S1) 1.3385; (P) 1.3435; (R1) 1.3478; More...

As long as 1.3568 minor resistance holds, deeper decline is expected in GBP/USD. Current fall from 1.4376 should target 0% retracement of 1.1946 to 1.4376 at 1.3161. Though, break of 1.3568 will indicate short term bottoming and bring stronger rebound first.

In the bigger picture, current development suggests that whole medium term rebound from 1.1936 (2016 low) has completed at 1.4376 already, with trend line broken, on bearish divergence condition in daily MACD, after rejection from 55 month EMA (now at 1.4223). 38.2% retracement of 1.1936 (2016 low) to 1.4376 at 1.3448 should now be firmly taken out. Next target will be 61.8% retracement at 1.2874 and below. Outlook will stay bearish as long as 55 day EMA (now at 1.3801) holds, even in case of strong rebound.

Daily Pivots: (S1) 0.9961; (P) 0.9981; (R1) 0.9994; More...

Intraday bias in USD/CHF remains neutral as consolidation from 1.0056 continues. Deeper pull back could be seen. But we'd expect strong support from trend line (now at 0.9807) to contain downside to bring rebound. On the upside, firm break of 1.0056 will confirm rise resumption for 1.0342 key resistance.

In the bigger picture, medium term decline from 1.0342 has completed with three waves down to 0.9186. Rise from there is currently viewed as a leg inside the long term range pattern. Hence, while further rally would be seen, we'd be cautious on strong resistance from 1.0342 to limit upside. For now, further rise is expected as long as 38.2% retracement of 0.9186 to 1.0056 at 0.9724 holds.

Daily Pivots: (S1) 110.73; (P) 111.07; (R1) 111.38; More...

A temporary top is in place at 111.39 with current retreat. Intraday bias in USD/JPY is turned neutral for consolidations. Downside should be contained by 110.02 resistance turned support to bring rise resumption. Above 111.39 will extend the rally from 104.62 to trend line resistance at 112.31. Firm break there will target 114.73 resistance next.

In the bigger picture, corrective decline from 118.65 (2016 high) has completed with three waves down to 104.62. Rise from 104.62 is possibly resuming the up trend from 98.97 (2016 low). This will be the preferred case as long as 55 day EMA (now at 108.65) holds. Decisive break of 114.73 resistance will confirm our view and target 118.65 and above.