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Fed is widely expected to keep federal funds rate unchanged at 1.50-1.75% this week. But the tightening path will continue with another hike in June, to 1.75-2.00%. Fed fund futures are pricing in 100% chance of that. Markets will look into FOMC statement to confirm such expectations, but they actually don't really need it.

The expectation for another hike in September also grew notably this week. Fed fund futures are pricing in 77.5% chance of a hike ito 2.00-2.25%. That's up from prior month's 57%.

One more in December? The markets are unsure. Expectations did grew but Fed fund futures are still pricing in less than 50% chance of one more hike to 2.25-2.50% in December.

RBA is going to announce rate decision again tomorrow. And, it's widely expected the it would keep the cash rate unchanged at 1.50%, and maintain a neutral stance. The message has been delivered repeatedly, while the next move is a hike, there is no pressing need to act in the near term.

The more interest part could be the new economic forecasts. Back in February, RBA projected GDP to grow 3.25% in both 2018 and 2019. And, they were above the government's forecasts released back in December. The government projected growth to be at 3.0% in fiscal 2018/19 and fiscal 2019/20. There are some expectations for RBA to lower 2018 growth forecast this week, while the government may raise it as it delivers the May Budget.

Also, RBA projected underlying inflation (in February) to hit 1.75% in 2018 and 2.00% in 2019. But there is sofar no sign of any up trend in inflation yet. It's more likely for RBA to keep inflation projections unchanged.

The temporary exemptions on US steel and aluminum tariffs will expire tomorrow on May 1. There is little progress made on trade negotiation between the US and other countries. Commerce Secretary Wilbur Ross was quoted saying that some countries will have their exemptions extended, but not all. But there is no more information from the White House regarding the pressing issue.

So far, only South Korea is granted permanent exemptions after revising the bilateral free trade agreements with the US. There, South Korea agreed to a quota of around 2.7 million tons of steel exports to the US. And, the quota for US car imports was doubled to 50,000, without the requirement to meet local safety standards.

NAFTA negotiations made some progress last week after intensive work, but it's not ready to be wrapped up before May 1 target. Talks will instead resume on May 7 after US Trade Representative Robert Lighthizer returns from his China trip. It's believed that Canada and Mexico will have their exemptions extended but it's only confirmed when it's announced.

Canadian Foreign Minister Chrystia Freeland reiterated her stance that NAFTA is a "completely separate track" from the steel tariffs. And, "there is no justification whatsoever for tariffs or quotas on Canadian steel or aluminum as a national security consideration." Mexican Economy Minister Ildefonso Guajardo warned of retaliation and said "ambassador Lighthizer knows very clearly our position and how we have to react if any measure is imposed on Mexico." It's reported that Mexico already has a list of American products that it would tax in retaliation.

German Chancellor Angela Merkel also warned of retaliation. She issued a statement after dialogue with French President Emmanuel Macron and UK Prime Minister Theresa May. Merkel said the three leaders "agreed that the U.S. ought not to take any trade measures against the European Union," which is "resolved to defend its interests within the multilateral trade framework."

This topic will make some headlines in the early part of the week.

Key Highlights

• The Euro declined this past week and tested a major support at 1.2060 against the US Dollar.
• There is a key bearish trend line in place with resistance at 1.2150 on the 4-hours chart of EUR/USD.
• The US Gross Domestic Product Annualized reading in Q1 2018 (Prelim) came in at 2.3%, compared with the forecast of 2.0%.
• Today, the German CPI report for April 2018 (Prelim) will be released, which is forecasted to remain flat (MoM).

EURUSD Technical Analysis

The Euro remained in a bearish zone this past week and declined below 1.2200 against the US Dollar. The EUR/USD pair traded as low as 1.2056 before it found support.

It started an upside correction from the 1.2056 low and moved above 1.2080. There was also a break above the 23.6% Fib retracement level of the last decline from the 1.2244 high to 1.2056 low.

However, there are many resistances on the upside around the 1.2150 and 1.2170 levels. There is also a key bearish trend line in place with resistance at 1.2150 on the 4-hours chart.

The same trend line resistance is close to the 50% Fib retracement level of the last decline from the 1.2244 high to 1.2056 low. Therefore, a break above the 1.2150 resistance won’t be easy. More importantly, 1.2170-1.2180 area was a support earlier and now it is likely to prevent upsides.

The pair is currently trading well below declining 100 (red) and 200 (green) simple moving averages (4-hour), which is a bearish sign. Therefore, if the pair corrects higher, upsides are likely to be capped by 1.2150-1.2170.

This past week, the US Gross Domestic Product Annualized reading for Q1 2018 (Prelim) was released by the US Bureau of Economic Analysis. The market was looking for a growth of 2%, less than the last 2.9%.

However, the actual result was on the positive side as there was a growth of 2.3% in the GDP. The report added that:

Current-dollar GDP increased 4.3 percent, or $211.2 billion, in the first quarter to a level of $19.97 trillion. In the fourth quarter, current-dollar GDP increased 5.3 percent, or $253.5 billion.

Overall, the US Dollar is likely to remain in an uptrend versus the Euro, Pound and the Japanese Yen in the near term.

Economic Releases to Watch Today

• German Retail Sales for March 2018 (MoM) – Forecast +1.0%, versus -0.7% previous.
• German Retail Sales for March 2018 (YoY) – Forecast +1.5%, versus +1.3% previous.
• German Consumer Price Index for April 2018 (YoY) (Prelim) – Forecast +1.6%, versus +1.6% previous.
• German Consumer Price Index for April 2018 (MoM) (Prelim) – Forecast 0.0%, versus +0.4% previous.
• US Personal Income for March 2018 (MoM) – Forecast +0.4%, versus +0.4% previous.
• US Pending Home Sales for March 2018 (MoM) – Forecast +0.6%, versus +3.1% previous.

GOLD - The commodity continues to face its downside pressure but looks to recovery higher. On the downside, support comes in at the 1,320.00 level where a break will turn attention to the 1,310.00 level. Further down, a cut through here will open the door for a move lower towards the 1,300.00 level. Below here if seen could trigger further downside pressure targeting the 1,290.00 level. Conversely, resistance resides at the 1,330.00 level where a break will aim at the 1,340.00 level. A turn above there will expose the 1,350.00 level. Further out, resistance stands at the 1,360.00 level. All in all, GOLD looks to weaken further lower but with caution.

EURUSD - The pair extended its weakness the past week though backing off mildly on Friday. On the upside, resistance comes in at 1.2150 level with a cut through here opening the door for more upside towards the 1.2200 level. Further up, resistance lies at the 1.2250 level where a break will expose the 1.2300 level. Conversely, support lies at the 1.2050 level where a violation will aim at the 1.2000 level. A break of here will aim at the 1.1950 level. Below here will open the door for more weakness towards the 1.1900. All in all, EURUSD faces further downside threats.

USDCHF - The pair remains biased to the upside closing further higher the past week. On the downside, support lies at the 0.9850 level. A turn below here will open the door for more weakness towards the 0.9800 level and then the 0.9750 level. On the upside, resistance resides at the 0.9950 level where a break will clear the way for more strength to occur towards the 1.0000 level. Further out, resistance comes in at the 1.050 level. Above here if seen will turn attention to 1.0100. All in all, USDCHF faces further upside pressure.

After a tumultuous week marked by a USD rally that caught everyone by surprise, testing recent trader fortitude should come early in the week after US Treasury yields moved lower into the weekend. The rise in US yields is thought to be the primary driver behind the USD resurgence, but unwinding of USD short positions, given that CFTC market positioning was at seven years highs, also goes a long way to explain the dynamic shift in USD sentiment. All of which raises the critical question is the move about positioning or an impressive set up for a leg higher. Despite a slight pullback at the end of Friday's session, USD is widely expected to remain in the driving seat near term as everyone wonders where the USD's political risk is hiding.

While the inflation impact from higher oil prices and commodity prices in general, continue to pump up inflation expectation and push bond yields higher, keep in mind that much of the recent spike in Yields is about as much about supply as it is about inflation. 10Y UST yield broke 3% and traded as high as 3.03% this week, boosting the Dollar. And when combined with a very dovish ECB it sent the DXY towards 92 – But indeed, over the medium, an expansive US fiscal deficit and the markets ability to ingest the supply of bond needed to fund it implies the dollar should continue to struggle long term. Speculators continue to add to short positions according to the CFTC by 90,444 contracts in the week ended April 24 to an unrivalled 462,133.

Over the near term, however, this week's US NFP number will go a long way to cementing the dollar's near-term trend. The recent rise in US yields is responsible for crystallising USD strength, and this appears to have been accentuated by comparatively strong data flow in the US. So look for US economic data to continue having a substantial impact on USD sentiment. On the FOMC front, it should be relatively uneventful as most non-press conference meeting are, but the policy statement should offer some insights.

However, this week's US Trade Roadshow to China, which includes 'Team Trump ' Steven Mnuchin, Robert Lighthizer and Larry Kudlow, has undoubtedly calmed investors nerves triggering an unwind of USD risk premiums around tariff and trade. Also, the North Korea talks should play our favourable for the dollar as it evaporates much of the political risk weight that has been hanging around the US Dollars neck like an anvil in recent months.

The epoch-making North/South Korea summit is helping regional risk sentiment and on the back of the massive earnings beat from Samsung should see the regional bourses do well. The KOSPI will understandably attract a lot of attention and should continue to bolster local markets. But it's essential to contain ones exuberance as regional risk can easily entangle in higher US yields, but so far the push in treasury yields has not been intense enough to cause a substantial adverse shift in risk sentiment, but caution prevails as the move higher in US Bond yields could be far from over.

In other local trade news, The China Securities Regulatory Commission ( CSRC) officially issued the 'Administrative Measures for Foreign-invested Securities Companies' as expected Wall Street access comes along with the usual amount of Mainland Administrative Red Tape.

Sentiment remains positive amongst the Regional Comprehensive Economic Partnership( RECP)participants that issues of complex trade rules and other infrastructure concerns can be ironed out to makes ASEAN economies a desirable destination for trade and commerce.

US Equity Markets

Strong corporate earnings supported equity markets which saw most US equities nudge higher.But with signs, the synchronised global growth is reverting to a synchronised slowdown amidst rising US interests rates and higher commodity prices make for convincing argument profit margins are cresting. But as far as bond yields are concerned, the equity market tipping point is undoubtedly above 3 % so traders will be keying on the pace of interest rate rises over the near term which could signal the end to the equity party as the interest rate party in the US shut down months ago.

Asia Equity Markets

Of course, rising US yields pose the biggest obstacle to local equity and bond markets but the peace and unification discussion with North and South Korea along with President Trump outwardly supporting the progress, it is hard to envision these talks as nothing but positive for the markets.

Oil Markets

Oil consolidated near recent highs on Friday but in the absence of any significant pre-weekend profit taking it suggest concerns that the US will exit the Iranian nuclear deal as early as May 12 continues to resonate with investors.

The markets reacted apathetically to Baker Hughes US Crude Oil Drilling Rig Count., UP 5 to 820 Rigs, Most Since March 2015 suggesting that the primary focus is falling on Iran sanctions while declining production is overshadowing the Rig count in Venezuela and Angola.

Precisely what happens with Tehran's nuclear program remains the most significant driver in oil price sentient

Gold Markets

Rising interest rates and a firming dollar remain bearish risks for the gold and silver while leaders of North and South Korea undertaking to remove nuclear weapons from the peninsula has convincingly reduced geopolitical risk premiums. Also, the latest USD GDP reading showed growth but unfortunately for gold investors, came with few hints of inflation. With that in mind, gold positions continued to be rolled back as the markets are adjusting portfolios given the increased potential for the dollar to rise in the weeks head becomes a reality.

G-10 Currency Markets

EUR: Many traders are still licking their wounds and probably have not positioned for a downside move as our platform has not seen many chase the recent EUR step lower. On a break of 1.2050, we could test 1.1915 as trader flood into downside exposure

JPY: Less conviction on the longer term move to 100 with the BoJ stuck in neutral. 'Abexit' could keep the top side in check despite the evolving stronger USD narrative.

AUD: No rate hike nor change in RBA bias should keep the AUD in a defensive posture and with only six basis points of rate hikes priced in this year, it would suggest rising US yields will continue to hurt the Aussie sentiment. The market has been caught way short adding at these levels before, but this time it feels different. The market continues to add cash shorts given that traders will probably be short gamma on the break lower.

Asia Currency Markets

Several of the ASEAN carry trades remain extremely susceptible to the broad USD strength such INR and IDR, but as tension ease in Korean Peninsula, North Asian currencies, should be relatively hardy over the short term due to both robust Bond and Equity inflows suggesting USD shorts versus both CNH and KRW should remain in vogue.

MYR: The Malaysian Ringgit is being very much weighed down by the shifting game of Prime Minister political thrones. The contest is shaping up to be much closer than expected which has seen some bullish pre-election currency bets pared back as we enter the final countdown to GE 14. There was some interest to buy MYR ahead of USD 3.92 by locals but continues to be overshadowed by the unwinding of foreign bond inventories, but this was more so prevalent when the UST 10 yield was above 3 %.

High oil prices and the decline in risk premium around North-South Korea peace talks should continue to resonate favourably and will unquestionably have a longer-term positive impact on the Malaysian economy. So if US bond yields begin to crest, the Ringgit could be poised to make another run at 3.80 provided no electoral surprises.

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Speculators were mixed over the energy complex in the week ended April 24. Net LENGTH for crude oil futures plunged -15 708 contracts from a week ago to 712 423. NET LENGTH of heating oil rose +6 420 contracts to 22 656 while net LENGTH for gasoline gained +9 813 contracts to 84 967. Net SHORT for natural gas increased +6 930 contracts to 96 227 for the week.

With the exception of gold, speculators were bullish over the precious metal complex last week. Net LENGTH for gold slumped -26 423 contracts to 136 646. Silver reverted to Net LENGTH of 12 054 contracts for the week. For PGMs, net LENGTH for platinum added +186 contracts to 17 832 while that for palladium gained +413 contracts to 10 961.