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Fed chair Jerome Powell sounded upbeat in his speech on " The Outlook for the U.S. Economy" last Friday. He acknowledged that "the labor market has been strong, and my colleagues and I on the Federal Open Market Committee (FOMC) expect it to remain strong." And, inflation is expected to " move up in coming months and to stabilize around 2 percent over the medium term." Powell also pointed to others signs of strengthen including "steady income gains, rising household wealth, and elevated consumer confidence". Powell also noted that the connection between unemployment rate and inflation has "clearly weakened" over the past couple of decades. But he emphasized that the connection "still persists". And "it continues to be meaningful for monetary policy."

Regarding monetary policy, Powell said that "as long as the economy continues broadly on its current path, further gradual increases in the federal funds rate will best promote these goals" of price stability and full employment. He repeated what others have said that " raising rates too slowly would make it necessary for monetary policy to tighten abruptly down the road, which could jeopardize the economic expansion." On the other hand, "raising rates too quickly would increase the risk that inflation would remain persistently below our 2 percent objective." And Fed's gradual path is aiming at balancing these two risks.

Regarding recent tensions between Trump and China on trade, Powell noted that "the discussion about trade is at a relatively early stage". And, "people really don't see yet any impact for the near-term outlook." However, he did noted that business leaders have already expressed their concerns to Fed officials that "changes in trade policy have become a risk to the medium-term outlook."

EURUSD - The pair faces recovery higher in the new week. On the upside, resistance comes in at 1.2300 level with a cut through here opening the door for more upside towards the 1.2350 level. Further up, resistance lies at the 1.2400 level where a break will expose the 1.2450 level. Conversely, support lies at the 1.2200 level where a violation will aim at the 1.2150 level. A break of here will aim at the 1.2100 level. Below here will open the door for more weakness towards the 1.2050. All in all, EURUSD faces further downside threats.

USDCHF - With the pair closing further higher the past week, more strength is envisaged. On the downside, support lies at the 0.9550 level. A turn below here will open the door for more weakness towards the 0.9500 level and then the 0.9450 level. On the upside, resistance resides at the 0.9650 level where a break will clear the way for more strength to occur towards the 0.9700 level. Further out, resistance comes in at the 0.9750 level. Above here if seen will turn attention to 0.9800. All in all, USDCHF faces further upside pressure but with caution.

Another Freaky Friday

The tale of the tape seldom lies, well at least today's virtual one, which has been swinging widely on the seismic shifts in trade war sentiment. Also, Friday was no exception when calm gave we to horror as panic-stricken investors ran for the exits. Friday's soft March US jobs and bellicose trade war rhetoric were the main ingredients amongst a toxic brew of factors that sent US stock markets plunging.

Much ink has been spilt over trade wars in the last few days, and we now wait to see what the Trump administration does next. China's Ministry of Commerce press conference on Friday was relatively calm, so we are back to hand-in, handout as the ball is squarely in President Trump's court.

And while the market base case scenarios remain no full out escalation, last week's ruckus does suggest both sides are floating more than just ” trial balloons” so investors remain incredibly jittery as China my not ” blink first “. Nevertheless, soothsayers Mnuchin and Kudlow were out ahead of the market open trying to calm investors nerves both suggesting that there will be no trade war.

The never-ending choplogic of trade war rhetoric is likely to grumble on for the near future, with most of the impact on equities. However, FX remains somewhat jaded by all the nonsense knowing it's little more than a fool's errand to chase these type of markets, getting tugged and pulled in every direction. Most currency traders believe the quarrelsome debate between China/US will end up in concession. However, to a tee, all are aware that the tail risk for escalation remains “ginormous.”

Following a weaker US job report on Friday, the market will pivot to the March US CPI inflation print & FOMC minutes, which are both due on Wednesday. However, we are unlikely to get anything new in the minutes after Fed Chair Powell's Friday speech held an unchanging tone that he has yet to see concrete signs of building price pressures. While Presidents Trumps twitter account and headlines risk with continues to permeate every nook and cranny, Wednesday CPI data will to top this week's calendar.

However, simmering below the surface is Robert Mueller and the investigation of Russia interference in the US elections of 2016 will continue and may cause some worrisome headlines.

Tensions with Iran will also come to fore as Trump's May deadline to decide whether to leave the nuclear deal draws near. But the appointment of John Bolton increases risk around this decision.

Buckle it's going to be another roller coaster ride this week.

Oil Markets

Despite some bullish signal emerging last week, crude oil prices tumbled on Friday after President Trump had ordered new tariffs levied against China to the sum of 100 billion. While its possible and escalating trade war could dent global growth sentiment, the real fear is that China if pushed hard enough, could slap a tax on US oil imported into China.

Also, US exports going through the roof U.S. crude oil exports rose to 2.175 million barrels per day, or more than 15 million a week, at the end of March which is more than offsetting the Venezuela supply disruption. And when you consider Russia was testing the upper limits of the OPEC compliance, and despite Russia oil minister openly supporting the deal, there are growing concerns Russia will be first to buckle. With US, production and exports filling the current global production void, if Russia ramp up it will throw the delicate worldwide supply and demand balance out of whack and prices will tumble.

Gold Markets

Gold risk reversals have increased ten folds since ‘trade wars' began two weeks ago, as gold remains one of the critical havens plays this year. Gold prices will continue to run incredibly headline sensitive as trade war rhetoric is expected to dominate the landscape this week. However, with Friday much weaker than expected US payrolls data, Gold prices will also take their cue from the XAU-DXY inverse correlation, as the US dollar should trade with a softer bias to start the week.

Currency Markets

My main takeaway from last week after USDJPY failed to break 106 when China issued the Soybean tariff is that I need to look beyond trade war equity led to risk aversion to supporting a long-term bullish JPY narrative.

And despite the enormous volumes going through in NY Friday, the market was unable to take out 106.75 suggesting that currencies traders are taking a ” this too shall pass” approach to trade war rhetoric.

Japanese Yen

Tariff headlines continue to dominate although price action would suggest it's becoming less intensive with each release. More like the North Korean peninsula that triggered massive waves of shock but ended up with tepid waves of awe.

Non the fewer a good chunk of the markets continue to view longer-term bullish JPY with Reserve manager buying and Abeixit simmering under the surface.

The Euro

The divergence of data momentum between the US and Europe would suggest less EURUSD bullishness Most likely a range bound trade until we get a definitive shift in ECB which should start to build in May.

The Malaysian Ringgit

The US jobs report came in less than expected, which is supportive for the MYR and should keep the market more disposed to maintain a long MYR position despite the upcoming elections.

Concerning the elections, I continue to favour a long MYR through the event, as there is no real political risk.

Nevertheless, with the BNM likely in a little rush to raise interest rates soon due to lower inflation while considering that global trade war continues to frame local sentiment, the MYR will be hard pressed to make significant gains this week

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EUR/USD dropped to 1.2214 last week but recovered since then. Initial bias is neutral this week first. As long as 1.2344 minor resistance holds, further decline is expected. Break of 1.2214 will target 1.2154 key support first. Firm break there should confirm rejection by 1.2516 key fibonacci resistance. In that case, whole decline from 1.2555 should target 38.2% retracement of 1.0339 to 1.2555 at 1.1708 next. However, break of 1.2344 will turn bias back to the upside for 1.2475 and above to extend recent range trading.

In the bigger picture, key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 remains intact despite attempts to break. Hence, rise from 1.0339 medium term bottom is still seen as a corrective move for the moment. Rejection from 1.2516 will maintain long term bearish outlook and keep the case for retesting 1.0039 alive. Firm break of 1.1553 support will add more medium term bearishness. However, sustained break of 1.2516 will carry larger bullish implication and target 61.8% retracement of 1.6039 to 1.0339 at 1.3862 in medium term.

In the long term picture, 1.0339 is seen as an important bottom as the down trend from 1.6039 (2008 high) could have completed. It's still early to decide whether price action from 1.0339 is developing into a corrective or impulsive pattern. Reaction to 38.2% retracement of 1.6039 to 1.0339 at 1.2516 will give important clue to the underlying momentum.

USD/JPY's rebound from 104.62 extend to 107.48 last week but lost momentum again. Initial bias is neutral this week first. Outlook remains unchanged too. The reaction from 38.2% retracement of 114.73 to 104.62 at 108.48 is crucial to determine the outlook. Firm break of 108.48 will add some credence to the case of trend reversal. And USD/JPY should target 61.8% retracement at 110.86 next. Nonetheless, rejection from 108.48 (which is close to 108.12 key resistance too), will retain bearishness. Break of 105.65 support will indicate that the rebound is completed and turn bias back to the downside for 104.62 and below.

In the bigger picture, medium term down trend from 118.65 (2016 high) is still in progress and extending. Build up in downside momentum argues that it might be extending the whole corrective pattern from 125.85 (2015 high). 100% projection of 118.65 to 108.12 from 114.73 at 104.20 will be a key level to watch as firm break there could bring downside acceleration. And in that case, 98.97 key support level (2016 low) would at least be breached. This bearish case will now be favored as long as 108.12 support turned resistance holds.

In the long term picture, the rise from 75.56 (2011 low) long term bottom to 125.85 top is viewed as an impulsive move, no change in this view. Price actions from 125.85 are seen as a corrective move which could still extend. In case of deeper fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77. Up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

Despite dipping to 1.3964 initially last week, GBP/USD drew solid support from 1.3982 and rebounded. The break of 1.4096 minor resistance suggests that pull back from 1.4243 has completed already. Initial bias is turned back to the upside for 1.4243 first. Break will target a test on 1.4345 high next. On the downside, however, sustained break of 1.3964/82 will indicate completion of the rise from 1.3711. In that case, deeper decline should be seen back to retest 1.3711.

In the bigger picture, as long as 1.3651 resistance turned support holds, medium term outlook in GBP/USD will remain bullish. Rise from 1.1946 is at least correcting the long term down trend from 2007 high at 2.1161. Further rally would be seen back to 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466. However, GBP/USD fails to sustain above 55 month EMA (now at 1.4267) so far. Break of 1.3651 will be the first sign of medium term reversal and turn focus to 1.3038 support for confirmation.

In the longer term picture, rise from 1.1946 should at least be correcting the whole long term down trend from 2.1161 and should target 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466. It too early to tell if it's developing into a long term up trend. We'll monitor the upside momentum and reaction to 1.5466 to decide later.

USD/CHF rose further to 0.9648 last week but formed a temporary top there and retreated. Initial bias is neutral this week first. Rejection from 0.9626 key fibonacci resistance, followed by break of 0.9521 support, will turn bias back to the downside for 0.9432 support. Break there will indicate near term reversal and completion of rebound from 0.9186. Meanwhile, sustained break of 0.9626 will be another evidence of larger reversal. In this case, further rise would be seen to next fibonacci level at 0.9900.

In the bigger picture, fall from 1.0342 is seen as a medium term down trend. Main focus is on 38.2% retracement of 1.0342 (2016 high) to 0.9186 (2018 low) at 0.9626. Sustained break there will add to the case of trend reversal and target 61.8% retracement at 0.9900 and above. However, rejection from 0.9626 will maintain medium term bearishness for another low below 0.9186.

In the long term picture, at this point, the long term decline from 1.0342 is still in favor to extend lower to 0.8698 key support. But sustained break of above mentioned 0.9626 will turn focus back to 1.0037/0342 resistance zone.

AUD/USD stayed in consolidation above 0.7642 last week and outlook is unchanged. Initial bias remains neutral this week first. And outlooks stays bearish with 0.7784 resistance holds. On the downside, break of 0.7642 will turn bias to the downside to extend recent fall from 0.8135 to retest 0.7500 key support level. On the upside, however, break of 0.7784 will suggest near term reversal and turn bias to the upside for 0.7915 resistance first.

In the bigger picture, medium term rebound from 0.6826 is seen as a corrective move. It might still extend higher but we'd expect strong resistance from 38.2% retracement of 1.1079 to 0.6826 at 0.8451 to limit upside to bring long term down trend resumption. On the downside, break of 0.7500 support will now be an important signal that such corrective rebound is completed. In that case, AUD/USD would be heading back to 0.6826 low in medium term.

In the longer term picture, 0.6826 is seen as a long term bottom. Rise from there could either reverse the down trend from 1.1079, or just develop into a corrective pattern. At this point, we're favoring the latter. And, as long as 38.2% retracement of 1.1079 to 0.6826 at 0.8451 holds, we'd anticipate another decline through 0.6826 at a later stage. But strong support should be seen between 0.4773 (2001 low) and 0.6008 (2008 low).