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• Rates: US technical breaks confirmed in weekly close?!
  Today's empty eco calendar suggest technically- and sentiment-driven trading on core bond markets. We expect both the US 10-yr and 30-yr yields to close above this week's broken resistance levels, suggesting more upside medium term. European markets weathered the mini Italian political crisis well, but it's too early to declare victory for BTP's.
• Currencies: EUR/USD decline slows. USD/JPY outperforms
  Yesterday, the dollar couldn't extend its rally against the euro even as there was still uncertainty on the program of the new Italian government and as US eco data stayed strong. With no important data on the calendar, some further EUR/USD consolidation might be on the cards going into the weekend. Monetary policy divergence is weighing on the yen.

The Sunrise Headlines

• US stock markets closed around 0.2% lower after US president Trump said that China is very spoiled on trade. Asian risk sentiment is mixed overnight with Japan and China outperforming.
• Japan's national core CPI rose 0.7% Y/Y in April (vs 0.8% Y/Y consensus), slowing further after dropping in March for the first time since the country exited deflation in early 2017.
• China has offered President Trump a $200 bn reduction in its annual trade surplus with the US by increasing imports of American products and other steps, said a Trump administration official. (BB)
• French President Macron has issued a stark warning against hasty EU enlargement in a sign of the tough fight ahead for six western Balkan countries that want to join (FT).
• President Trump's trade chief said the US is “nowhere near” a deal on NAFTA, effectively brushing aside an offer from House Speaker Ryan for more time to conclude a deal that could be considered in Congress this year (WSJ).
• Oil headed for a third weekly gain as tensions in the Middle East intensified and the IEA said global stockpiles have shrunk. Brent crude temporary traded above $80/barrel yesterday for the first time since end 2014.
• Today's eco calendar only contains second tier EMU eco data and speeches by Fed governors Mester, Kaplan and Brainard.

Currencies: EUR/USD Decline Slows. USD/JPY Outperforms

EUR/USD decline slows. USD/JPY outperforms

Yesterday, the EUR/USD decline slowed. Uncertainty on the program of a nascent Italian government weighed temporarily on the euro intraday, but wasn't able to push EUR/USD to a new 2018 low. The pair settled in the 1.18 area. Investors are looking for details on the government program first. US yields continued trending higher supported by strong US eco data (Philly Fed). However Europe copied this yield rise, providing no additional interest rate support for the dollar against the euro. USD/JPY outperformed (close at 110.77 from 110.40). EUR/USD finished the day only marginally lower at 1.1795 (from 1.1808).

Overnight, sentiment on risk isn't too bad. Positive developments in the trade talks between the US and China might be a (slightly) positive factor for global investor sentiment. Investors apparently also feel more at ease with higher US yields as they mirror the expectation for good US growth in Q2. The tradeweighted dollar is near recent top (93.50). USD/JPY still outperforms most other USD cross rates. The pair already touched the next big figure (111). EUR/USD stabilizes in the 1.18 area.

Today, there are hardly any data in the US and Europe. Fed governors Mester, Kaplan and Brainard speak, but it is unsure they will address any specifics on the current monetary policy. So, FX traders will have to look for guidance from global risk sentiment and from the developments on bonds markets. The negotiations to form a new Italian government remains a wild card. The MT picture remains USD constructive. However, on Wednesday and yesterday, the USD rise against the euro lost momentum. US eco data might support USD gains further down the road. However, in a daily perspective some EUR/USD consolidation or even some slight profit taking on EUR/USD shorts might be on the cards. At the same time, the rise in US and EMU yields weighs on the yen as investors expect further policy divergence. The USD/JPY uptrend looks solid. Even EUR/JPY is developing a cautious bottom out pattern.

Yesterday, there was plenty of debate whether the UK will should stay in the EU customs union beyond the transition period. Initially, sterling gained slightly ground on positive headlines. However, sterling returned these gains later as UK PM failed to bring clarity on the issue as she attended the EU summit in Sofia. Today, there also no UK data. We expect technical sideways trading for EUR/GBP in the mid 0.87 area.

USD/JPY: interest rate differentials continue to move against the yen

Daily Pivots: (S1) 1.5660; (P) 1.5702; (R1) 1.5745; More....

Intraday bias in EUR/AUD remains on the downside for 1.5621 key support. Current downside acceleration raises the chance of medium term reversal. And focus will be on 1.5621. On the upside, break of 1.5774 support turned resistance is needed to be first sign of short term bottoming. Otherwise, deeper will still be in favor in case of recovery.

In the bigger picture, while there is bearish divergence condition in daily MACD, there is no clear sign of reversal yet. Current rally from 1.3624 could extend to 1.6587 key resistance (2015 high). Nonetheless, we'd expect further loss of upside momentum, and strong resistance from 1.6587 to limit upside and bring reversal. On the downside, sustained break of 1.5621 support should confirm reversal and turn outlook bearish for 1.5153 support and below.

Daily Pivots: (S1) 0.8705; (P) 0.8732; (R1) 0.8753; More...

Intraday bias in EUR/GBP remains neutral and near term outlook also remains rather mixed. On the downside, break of 0.8679 support should confirm completion of the rebound form 0.8620. And intraday bias will be turned back to the downside for this support. Whole decline from 0.9305 will likely be resuming too. On the upside, above 0.8844 will resume the rebound from 0.8620 and target 0.8967 cluster resistance (50% retracement of 0.9305 to 0.8620 at 0.8963)

In the bigger picture, for now, the decline from 0.9305 is seen as a leg inside the long term consolidation pattern from 0.9304 (2016 high). Such consolidation pattern could extend further. Hence, in case of strong rally, we'd be cautious on strong resistance by 0.9304/5 to limit upside. Meanwhile, in another decline attempt, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside.

Daily Pivots: (S1) 149.05; (P) 149.44; (R1) 150.12; More...

Intraday bias in GBP/JPY mildly on the upside as recovery from 147.04 could extend higher. But still, such choppy rise is seen as a correction. Hence, upside should be limited below 150.60 support turned resistance to bring fall resumption eventually. On the downside, below 148.16 will likely resume the decline from 153.84 through 147.04 to 144.97 low. Break there will resume the fall from 156.59 and target 100% projection of 156.59 to 144.97 from 153.84 at 142.22 next.

In the bigger picture, for now, we're treating price actions from 156.59 as a corrective move. Therefore, while deeper fall is expected, 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. There is still prospect of extending the rise from 122.36. However, considering that GBP/JPY failed to sustain above 55 month EMA (now at 153.94), firm break of 139.29 will confirm trend reversal and turn outlook bearish.

Market movers today

There are no global key figures of interest today. Focus will continue to be on the political situation in Italy (where bond yield spreads are now wider than before the election) and on news coming out from the trade negotiations between China and US in Washington.

The development in US 10-year yields and oil prices also continues to be in focus.

Selected market news

EU leaders are in Bulgaria to extend their links with partners during the EU-Western Balkans summit . The EU leaders also discussed the Iran nuclear deal, agreeing unanimously that the EU will stay in the agreement as long as Iran remains fully committed to it .

The trade with the US was also discussed. Today, the European Commission is expected to introduce a blocking statute to protect European companies doing business with Iran from the possible US sanctions. Previously, the US Treasury Department announced that companies doing business in Iran will have 90 to 180 days to cease their active contracts before facing US penalties.

The EU also promised to suspend trade negotiations with the US until the EU members receive total exemption from steel and aluminium tariffs by the US.

US stocks slid and the USD strengthened as US President Donald Trump said yesterday that he doubts the US and China could agree over their foreign trade. The world's two biggest economies have restarted negotiations over trade tariffs in Washington. Trump called China and the EU ‘very spoiled'. T he negotiations are continuing today.

While the Brent oil price rose to USD80/bbl for the first time almost in four years, commodity exporters in the EM universe weakened together with several other EM peers on the strengthened USD and US 10-year Treasury yields hitting 3.1% for the first time in seven years.

The euro continues to trade to the downside against the US dollar, as investors remain concerned about the current Italian political and economic situation. The EURUSD pair currently trades around the 1.1800 level, after finding further technical selling from the 1.1830 resistance level. Euro traders continue to look for further losses below the 1.1800 level, as medium-term sellers retain firm control of the EURUSD pair.

The EURUSD remains strongly bearish while trading below the 1.1800 level, further losses towards the 1.1780 and 1.1762 levels may occur.

If the EURUSD pair holds above the 1.1800 level, we may see buyers move price back towards the 1.1837 and 1.1875 resistance level.

Daily Pivots: (S1) 130.28; (P) 130.58; (R1) 130.94; More....

Intraday bias in EUR/JPY remains neutral for the moment. Deeper decline is expected with 131.36 resistance intact. Break of 129.22 will target 128.94 first. Break there will resume the corrective fall from 137.49 and target 61.8% projection of 137.49 to 128.94 from 133.47 at 128.18, and possibly further to 126.61 medium term fibonacci level.

In the bigger picture, for now, price actions from 137.49 are viewed as a corrective pattern only. Hence, while deeper decline would be seen, strong support is expected at 38.2% retracement of 109.03 to 137.49 at 126.61 to contain downside and bring rebound. Up trend from 109.03 (2016 low) is expected to resume afterwards. Though, sustained break of 126.61 will be an important sign of trend reversal and will turn focus to 124.08 resistance turned support.

Daily Pivots: (S1) 1.1775; (P) 1.1818; (R1) 1.1866; More...

Intraday bias in EUR/CHF is turned neutral for consolidation above 1.1770 temporary low. With 1864 support turned resistance intact, deeper fall is expected. Break of 1.1770 will target 61.8% retracement of 1.1445 to 1.2004 at 1.1659 and below. Nonetheless, break of 1.1864 will indicate short term bottoming and turn bias back to the upside for stronger rebound.

In the bigger picture, current development suggests solid rejection by prior SNB imposed floor at 1.2000. Considering bearish divergence condition in daily MACD, 1.2004 could be a medium term top. And price action from 1.2004 is corrective the up trend from 1.0629. Hence, for now, deeper fall could be seen back to 1.1445, which is close to 38.2% retracement of 1.0629 to 1.2004 at 1.1479. We'd expect strong support from there to bring rebound to extend the medium term corrective pattern.

The British pound continues to trade within its well established short-term range against the greenback, as the US dollar index consolidates from elevated levels. The GBPUSD pair currently trades around the 1.3500 level, as traders look for a clear break of the weekly trading-range between the 1.3540 to 1.3606 levels. Sterling traders may also be cautious as the United Kingdom economy releases a slew of high-impacting macroeconomic data next week.

The GBPUSD pair remains intraday bearish while trading below the 1.3500 level. Key support is found at the 1.3475 and 1.3450 levels.

The GBPUSD pair remains intraday bullish while trading above the 1.3500 level, key resistance is found at the 1.3537 and 1.3568 resistance levels.

For currency traders, North America will generate much of the market-moving headlines Friday as Canadian data and US policy speakers set the tone ahead of the weekend.

A relatively light European session will begin with a pair of German reports scheduled for 06:00 GMT. Germany's producer price index (PPI) for the month of April is forecast to rise 0.3%, which translates into a year-over-year growth rate of 1.8%. Meanwhile, German wholesale prices are forecast to rise 0.2% month-on-month.

The European Commission's statistical agency will report on the overall trade balance at 09:00 GMT. The budget surplus for Brussels is forecast to fall slightly to €20.7 billion in March from €21 billion on a seasonally adjusted basis.

Shifting gears to North America, the government of Canada will release two high-profile reports that will be closely monitored by loonie traders. At 12:30 GMT, Statistics Canada will report on retail sales and consumer inflation. The retail sales report is expected to show monthly growth of 0.3% for March. Meanwhile, Canada's consumer price index (CPI) is expected to hold steady at 2.3% year-over-year during April.

For the United States, three Federal Open Market Committee (FOMC) members will deliver speeches on Friday, including Loretta Mester, Robert Kaplan and Lael Brainard. The FOMC policy-setting board is widely expected to raise interest rates next month when it meets in Washington.

USD/CAD

The Canadian dollar's recovery proved to be short-lived Thursday, as the US greenback strengthened against a basket of its peers. USD/CAD jumped more than 60 pips to trade at 1.2832, where it was last seen hovering. The bulls are eyeing a re-test of the 15 May high near 1.2920. A sustained push above this level could generate support for a bigger rebound toward the psychological 1.3000.

EUR/USD

Europe's common currency traded within a narrow range against the dollar on Thursday, with prices hovering near 1.1800 USD. At the time of writing, EUR/USD was trading at 1.1805, gaining slightly from the previous close. Technical levels to watch include interim resistance levels at 1.1835, which corresponds with the 17 May high. On the opposite side of the spectrum, support is located at the Thursday low of 1.1775.

GBP/USD

Cable traded within a choppy range on Thursday, with prices reaching a high near 1.3570 before plunging back below the 1.3490 handle. At the time of writing, GBP/USD was trading steadily at 1.3513. With the bears in control, the pair could be eyeing a bigger reversal back down toward the 1.3400 handle. Downward momentum is building, which means traders should look for a breach of Thursday's low.