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Daily Pivots: (S1) 1.2760; (P) 1.2794; (R1) 1.2843; More....

USD/CAD rebounds strongly in early US session. But it's staying in range of 1.2728/2996 and intraday bias remains neutral. For now, we're still favoring the bullish case that rise from 1.2061 is still in progress. Above 1.2996 resistance will affirm this view and target 1.3124 and above. However, break of 1.2728 will now dampen our bullish view and turn focus back to 1.2526 support instead.

In the bigger picture, current development suggests that rebound from 1.2061 has not completed yet. Focus is back on 38.2% retracement of 1.4689 to 1.2061 at 1.3065. Sustained trading above there will confirm medium term bullish reversal. That is, down trend from 1.4689 has completed at 1.2061 already. In that case, next target will be 61.8% retracement at 1.3685. However, break of 1.2526 support will dampen this bullish view again. And, focus will be back on 1.2061 key support level, which is close to 50% retracement of 0.9406 (2011 low) to 1.4689 (2015 high) at 1.2048

Daily Pivots: (S1) 1.3470; (P) 1.3519; (R1) 1.3565; More...

GBP/USD weakens again in early US session but it's staying in range above 1.3450. Intraday bias remains neutral at this point. On the upside, above 1.3607 will indicate short term bottoming and bring strong rebound for 55 day EMA (now at 1.3815). On the downside, firm break of 1.3448 will pave the way to next fibonacci level at 1.2874.

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 was almost met. Break there will target 61.8% retracement at 1.2874 and below. Outlook will stay bearish as long as 55 day EMA (now at 1.3815) holds, even in case of strong rebound.

Daily Pivots: (S1) 0.9991; (P) 1.0012; (R1) 1.0038; More...

Intraday bias in USD/CHF remains neutral as the consolidation from 1.0056 is still in progress. On the downside, below 0.9956 will bring deeper pull back. But downside should be contained by trend line support (now at 0.9789) to bring rebound. On the upside, sustained break of 1.0037 will resume recent rise for 1.0342 key resistance next.

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) 110.27; (P) 110.57; (R1) 110.06; More...

Intraday bias in USD/JPY remains on the upside at this point. Current rally from 104.62 is in progress for trend line resistance at 112.43. On the downside, below 110.45 minor support will turn intraday bias neutral first. But outlook will stay bullish as long as 109.14 support holds.

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 108.30) holds. Decisive break of 114.73 resistance will confirm our view and target 118.65 and above.

Data this morning showed that Canada’s annual inflation rate slowed slightly last month, but remained above the Bank of Canada’s (BoC) +2% inflation threshold for a third consecutive month.

Canada’s CPI rose +2.2% on year-over-year basis in April. Today’s headline print was just shy of the markets expectation of +2.3%. On a month-over-month basis, prices climbed +0.3% in April.

Digging deeper, the BoC’s preferred gauge – average core inflation – rose on a 12-month basis to +2.03%, the highest level in nearly six-years.

Canada Retail Sales Climb

Canadian retail sales rose for a third consecutive month in March, beating market expectations.

March retail sales rose +0.6% m/m, on a seasonally adjusted basis to C$50.24B. The consensus was looking for a +0.3% gain. On a price-adjusted, or volume, basis, retail sales increased by a higher +0.8% in March.

Stats Canada also revised both January and February prints a tad higher to +0.3% (+0.1%) and +0.5% (+0.4%) respectively.

Digging deeper, sales rose in six of 11-subsectors, led by a 3.3% advance at new-car dealers. However, ex-autos, retail sales declined -0.2%.

Going forward

Due to higher interest rates and new mortgage financing rules, introduced last January, Canadian households are expected to pare back their spending habits to service their increasing debt loads.

The CAD (C$1.2895) has come under considerable pressure, paring back all of this week’s gains, and about to tackle the psychological C$1.2900-20 level where there is some initial interest to buy the loonie.

The Canadian dollar is steady in the Friday session, continuing the lack of movement seen on Thursday. Currently, USD/CAD is trading at 1.2870. In economic news, Canadian retail sales reports were mixed. Retail Sales improved to 0.6%, above the estimate of 0.3%. However, Core Retail Sales declined 0.2%, well off the estimate of 0.5%. There are no economic indicators in the U.S on the schedule.

Negotiations over a new NAFTA agreement have failed to reach a conclusion, and the parties haven’t even reached an ‘agreement in principle’. Although there is no official deadline to wrap up a deal, there are upcoming events which could mean that a deal won’t be made in 2018. Mexico holds general elections in June and the U.S holds congressional mid-term elections in November. Meanwhile, the Trump administration has given both Canada and Mexico another 30-day exemption on steel and aluminum tariffs, lasting until June 1. Earlier in the week, U.S Commerce Secretary Wilbur Ross said that further extensions could be granted, depending on the progress made in the NAFTA talks. Ottawa has demanded “full and permanent” exemptions from the tariffs, but may have to cough up more concessions in the NAFTA talks in order to convince Washington to exempt Canadian steel and aluminum imports from tariffs.

The US economic picture continues to look bright. The Trump tax cuts and increase in government spending have boosted growth, and inflation is moving closer to the Federal Reserve target of 2 percent. These developments, although positive, have given rise to a policy debate in the Fed with regard to the pace of rate hikes. Earlier in the week, San Franciso Fed President John Williams said that only a few more hikes are needed before the economy can manage on its own without the Fed tightening or easing policy. This “neutral rate’ policy is being disputed by other Fed policymakers, who believe that the U.S. economy has shifted into a higher phase, warranting rate cuts once economic indicators point to a hot economy. This split over monetary policy could intensify in the second half of 2018 if the economy continues to improve.

Daily Pivots: (S1) 1.1770; (P) 1.1804 (R1) 1.1831; More....

Breach of 1.1762 temporary low suggests that recent decline is resuming. Intraday bias is EUR/USD is back on the downside. Current fall from 1.2555 is resuming for 1.1708 medium term fibonacci level next. Break will target 1.1553 support. On the upside, above 1.1821 minor resistance will turn bias neutral again. But outlook will continue to stay bearish as long as 1.1995 resistance holds.

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 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 target 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 1.2162) holds.

Dollar takes back the driving street in early US session as it jumps higher against all other major currencies. Swiss Franc is probably the only one that can counter Dollar's strength, as helped by the selloff in EUR/CHF. Euro is weighed down by news that the populist parties of 5-Star movement and the League has finally signed the accord to form coalition government. Though, Canadian Dollar is even weaker after disappointing retail sales and CPI data.

Technically, EUR/USD's break of 1.1762 suggests that it's ready to resume recent fall. EUR/CHF also takes out 1.1770 support too. But for now, Dollar is still holding in range against Sterling, Swiss Franc, Aussie and even Canadian.

CAD trading lower after retail sales and CPI

Canadian Dollar trades notably lower after weaker than expected data. Headline retail sales rose 0.6% mom in March, above expectation of 0.4% mom. However, ex-auto sales was a big miss, contracted -0.2% mom versus consensus of 0.5% mom growth. Headline CPI slowed to 2.2% yoy in April, down from 2.3% yoy, and missed expectation of 2.3% yoy. CPI core common was unchanged at 1.9% yoy. CPI core median was unchanged at 2.1%. CPI core trim rose to 2.1% yoy.

EU demonstrates commitment to Iran nuclear deal with measures on four fronts

European Commission formally announced the measures to protect interests of EU companies investing in Iran as part of the EU's continued commitment to the Joint Comprehensive Plan of Action (JCPoA), the Iran nuclear deal. The EU acted on four fronts. The proposals got unanimous backing of EU Heads of State of Government at the Sofia meeting.

Firstly, it launched the formal process to activate the "Blocking Statute", by updating the list of US sanctions on Iran falling within its scope. It "forbids EU companies from complying with the extraterritorial effects of US sanctions, allows companies to recover damages arising from such sanctions from the person causing them, and nullifies the effect in the EU of any foreign court judgements based on them.". It's targeted to be in force before August 6, 2018.

Secondly, it launched the formal process to remove obstacles for the European Investment Bank (EIB) to decide under the EU budget guarantee to finance activities outside the European Union, in Iran.

Thirdly, as confidence building measures, the Commission will continue and strengthen the ongoing sectoral cooperation with, and assistance to, Iran.

Fourthly, EC is encouraging Member States to explore the possibility of one-off bank transfers to the Central Bank of Iran.

Full release here and details of the "Blocking Statute" here.

Italy's "Contract for the Government of Change"

The populist parties of the League and the 5-Star Movement signed an accord to form a ruling coalition. The agreement is called "Contratto Per Il Governo Del Cambiamento" or "Contract for the Government of Change". Five Star leader Luigi Di Maio said on Facebook that "it has been 70 very intense days, so many things have happened, but in the end we managed to achieve what we announced in the campaign."

The 58-page document contains no mention of exit from the Eurozone. But it called for a review of EU governance and fiscal rules. Regarding fiscal policies, it said "the government's actions will target a programme of public debt reduction not through revenue based on taxes and austerity, policies that have not achieved their goal, but rather through increased GDP by the revival of internal demand."

That indicates there could be less revenue and more debt for the government in the near term. Italian 10 year yield jumps to high as 2.22 today, hitting the highest level since last July.

The joint program will be put to vote by 5-Star and League members. After approval, it will be presented to Italian President Sergio Mattarella.

China denied offer to cut USD 200B in surplus with US

China denied the news that it's offering to cut trade surplus with US by USD 200B. Chinese foreign ministry spokesman Lu Kang said in a regular news briefing "this rumor is not true. This I can confirm to you".

He added, "as I understand, the relevant consultations are ongoing and they are constructive," regarding the trade talks between the US and Chinese delegates led by Vice Premier Liu He.

Separately, the Chinese Ministry of Commerce announced to end the "anti-dumping and anti-subsidy investigations of imported sorghum originating in the United States".

The MOFCOM noted in the statement that "the imposition of anti-dumping and anti-subsidy measures on imports of sorghum originating from the United States would have a widespread impact on consumer living costs, and does not accord with the public interest."

Japan CPI core slowed to 0.7% yoy, missed expectation

Japan national CPI core, ex-food, slowed to 0.7% yoy in April, down from 0.9% yoy and below expectation of 0.8% yoy. That's the second month of decline and it moved further away from BoJ's 2% target. It's also the lowest level since September 2017 and off recent cyclical high of 1.0% set in February. Overall CPI slowed to 0.6% yoy, down from 1.1% yoy. Ex-food, ex-energy CPI slowed to just 0.4% yoy, down from 0.5% yoy.

Recently, BoJ just dropped the time frame for meeting the 2% inflation target. And it maintained the stance to continue with ultra loose monetary easing. While recent surge in oil price could help lift overall and ex-food CPI ahead, the core-core CPI remained worryingly weak.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1770; (P) 1.1804 (R1) 1.1831; More....

Breach of 1.1762 temporary low suggests that recent decline is resuming. Intraday bias is EUR/USD is back on the downside. Current fall from 1.2555 is resuming for 1.1708 medium term fibonacci level next. Break will target 1.1553 support. On the upside, above 1.1821 minor resistance will turn bias neutral again. But outlook will continue to stay bearish as long as 1.1995 resistance holds.

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 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 target 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 1.2162) holds.

Economic Indicators Update

GBPJPY is paring some of Friday’s gains as over the last hours it is moving below its intraday high around 150.00. The price reached a new two-week high and is creating a bullish correction after the rebound on the 147.00 psychological level.

In the 4-hour chart, the technical indicators are pointing to a neutral to positive bias with the RSI just below the 70 level, while the MACD oscillator is flattening above its trigger line.

In case of further losses, the price could challenge the immediate support of 149.30. A drop below this region should see the May 6 trough of 148.20 acting as a major support barrier. Further downside pressures would reinforce the bearish structure in the medium-term and open the way towards the next key support level of 147.60, taken from the low on May 11.

In the event of a continuation of the upside reversal, a successful surpass above the 150.00 hurdle could drive the pair until the 150.60 resistance barrier. Also, above this critical level, the pair could open the ways towards the 152.70 peak, identified by the April 26 peak.

Overall, GBPJPY has been trading well above the 20- and 40-simple moving averages (SMAs) in the near term, signaling that the bullish correction is still in play.

Canadian Dollar trades notably lower after weaker than expected data.

Headline retail sales rose 0.6% mom in March, above expectation of 0.4% mom. However, ex-auto sales was a big miss, contracted -0.2% mom versus consensus of 0.5% mom growth.

Headline CPI slowed to 2.2% yoy in April, down from 2.3% yoy, and missed expectation of 2.3% yoy. CPI core common was unchanged at 1.9% yoy. CPI core median was unchanged at 2.1%. CPI core trim rose to 2.1% yoy.