Sample Category Title

Weekly

    •    Last Candlesticks pattern: Marubozu
    •    Time of formation: 14 Nov 2016
    •    Trend bias: Down

Daily

    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 15 Feb 2017
    •    Trend bias: Down

USD/JPY – 110.29

As dollar has recovered after falling to 109.11, suggesting consolidation above this level would be seen and corrective bounce to 110.90-00 cannot be ruled out, however, reckon resistance at 111.71 (this month’s high) would hold from here and bring another decline later, below said support at 109.11 would extend the fall from 114.37 to minor support at 108.88 but loss of near term downward momentum should prevent sharp fall below recent low at 108.13, risk from there is seen for another rebound later.

On the upside, whilst initial recovery to 110.90-00 is likely, reckon upside would be limited to 111.50-55 and bring another decline later. A daily close above 111.71-74 (previous resistance and current level of the Kijun-Sen) would defer and suggest low is possibly formed, bring a strong recovery to resistance at 112.13 but reckon upside would be limited to 112.45-50 but price should falter below 113.12 and the greenback shall head south again later this month.
 

Recommendation : Sell at 111.50 for 109.50 with stop above 112.50.

On the weekly chart, despite last week’s fall to 109.11, lack of follow through selling and the subsequent rebound formed a doji star, hence consolidation above this level would be seen and test of the Tenkan-Sen (now at 111.25) cannot be ruled out, however, reckon upside would be limited to resistance at 111.71 and bring another decline later, below the lower Kumo (now at 109.38) would bring retest of 109.11, break there would extend the fall from 114.37 to 108.65-70 but reckon previous chart support at 108.13 would hold on first testing. In the event dollar drops below said support at 108.13, this would signal the fall from 118.66 top has resumed and extend weakness towards previous resistance at 107.49.

On the upside, expect recovery to be limited to 111.50 and resistance at 111.71 should hold, bring another decliner. Above said resistance at 111.71 would bring test of previous resistance at 112.13 but only break there would defer and risk a stronger rebound to 112.45-50, then 112.70-75, break there would suggest the retreat from 114.37 has ended instead, bring test of 113.10-15, then towards the Kijun-Sen (now at 113.37) but break of 113.85 is needed to signal another leg of rebound from 110.24 is underway for a retest of 114.37 later. Looking ahead, only break of said resistance at 114.37 would extend the rise from 108.13 to 114.60-65 (61.8% Fibonacci retracement of 118.66-108.13), then towards resistance at 115.51 which is likely to hold from here.

USD/CHF - 0.9679

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9686

Kijun-Sen level                    : 0.9703

Ichimoku cloud top                 : 0.9678

Ichimoku cloud bottom              : 0.9660

Original strategy :

Sold at 0.9720, Target: 0.9620, Stop: 0.9755

Position : - Short at 0.9720

Target :  - 0.9620

Stop : - 0.9755

New strategy  :

Hold short entered at 0.9720, Target: 0.9620, Stop: 0.9720

Position : - Short at 0.9720

Target :  - 0.9620

Stop : - 0.9720

Although dollar staged a strong rebound from last week’s low of 0.9613 to 0.9728 (last week’s high), the subsequent retreat has retained our bearishness and consolidation with mild downside bias remains for weakness to 0.9657 support, however, break of 0.9640 is needed to signal the rebound from 0.9613 has ended, bring retest of this level first. A break below this level would extend recent decline to 0.9600-05 (50% projection of 1.0100-0.9692 measuring from 0.9808) later.

In view of this, we are holding on to our short position entered at 0.9720. Above said resistance at 0.9728 would abort and signal a temporary low has been formed at 0.9613 last week instead, bring a stronger rebound to 0.9761 resistance but price should falter below resistance at 0.9808.

GBP/USD - 1.2743

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2750

Kijun-Sen level                    : 1.2722

Ichimoku cloud top              : 1.2807

Ichimoku cloud bottom        : 1.2769

Original strategy :

Sold at 1.2760, Target: 1.2630, Stop: 1.2795

Position : - Short at 1.2760

Target :  - 1.2630

Stop : - 1.2795

New strategy  :

Hold short entered at 1.2760, Target: 1.2660, Stop: 1.2785

Position : - Short at 1.2760

Target :  - 1.2660

Stop : - 1.2785

Although the British pound rebounded after falling to 1.2635 on Friday, as long as resistance at 1.2780 holds, bearishness remains for recent decline to resume after consolidation, below 1.2695-00 would suggest the rebound from 1.2635 has ended, bring further fall to 1.2660-70, however, reckon said last week’s low at 1.2635 would hold on first testing. A break below this level would extend weakness to 1.2616 (previous resistance turned support) and possibly towards 1.2575-80 but reckon downside would be limited to 1.2550.

In view of this, we are holding on to our short position entered at 1.2760. Above 1.2780 would defer and risk a stronger rebound to 1.2800-05 but break there is needed to signal a temporary low has been formed, bring further gain to 1.2830-35 but price should falter below 1.2870-75 and bring another decline later.

Theresa May stays for now but is clearly weakened

Final result. Conservative 317 seats, Labour 262 seats, Scottish National Party 35 seats, Liberal Democrats 12 seats, Democratic Unionist Party 10, Sinn Fein 7, Others 7.

While, as expected, PM Theresa May is forming a minority government supported by the Democratic Unionist Party (DUP), the bigger question is whether she is a 'dead woman walking', as previous Chancellor of the Exchequer George Osborne put it. PM Theresa May called for a snap election in order to consolidate power within the Conservative Party and House of Commons, as she was greatly ahead in opinion polls at that time. As it failed, Theresa May's position is clearly weakened and she had to let her two Chiefs of Staff (Nick Timothy and Fiona Hill) go. Gavin Barwell (moderate Conservative) has been appointed new Chief of Staff. The Telegraph writes that almost two-thirds of Conservative Party members want Theresa May to resign.

Still, it is not easy for the Conservatives to get rid of Theresa May now, as the Brexit negotiations are set to start soon and a leadership contest will only increase uncertainty. Note a leadership can be triggered in two ways: (1) If 15% of Conservative MPs lose confidence with the leader and (2) the leader resigns

Boris Johnson, seen by many as a candidate for succeeding Theresa May, has urged Conservatives to back Theresa May (reasons: (1) she won the most Conservative votes since Margaret Thatcher, (2) the government must focus on Brexit, (3) the people do not want a new election).

A likely scenario is that Theresa May stays for now but is replaced at a later point in time. Theresa May refused to answer yes when asked if she will stay a full term.

Minority government is weak from the beginning

Regarding the corporation between the Conservatives and DUP, we got some different messages over the weekend, not least since Downing Street's No 10 issued a statement saying a 'confidence and supply' deal was reached, which the DUP later rejected. Downing Street later said the statement was issued in error. The conclusion is that negotiations between Theresa May and the DUP are not concluded and are set to continue this week. Notice that the Conservatives have rejected a more formal agreement due to the DUP's views on same sex marriage, death penalty and abortion.

The Queen's speech, a speech held by the Queen, written by the government and which sets out the government's agenda for the coming year, is due to take place on 19 June.

Irish Prime Minister Enda Kenny wrote on Twitter that he has told PM Theresa May he is concerned about her relying on support from the DUP, as it may put the Good Friday agreement at risk.

Brexit: Theresa May challenged by both Brexiters and Remainers

On Brexit, PM Theresa May is being challenged by both Brexiters and Remainers. Most noticeable is Ruth Davidson, leader of the Scottish Conservative Party (who won 13 out of 59 Scottish seats, up from just one in 2015), has threatened to break away from the Conservatives to form a separate organisation, see The Telegraph.

Ms. Davidson has vowed to use the Scottish votes to prioritise the single market over curbing immigration, thus rejecting Theresa May's hard Brexit.

Sky News Sources say cabinet ministers are 'privately lobbying the PM to alter the Brexit plan from 'ideologically driven' approach to a 'pragmatic Brexit'.

Also, the EU seems to be taking advantage of the weak Prime Minister. See The Guardian. EU sources say it will take 12 months for the EU to change negotiating guidelines about the phased negotiations (first divorce bill, citizens' rights and Irish border, second future relationship), which PM Theresa May has rejected, as she wants the talks about the withdrawal agreement and the future relationship conducted simultaneously.

You can find an overview of the DUP's view on Brexit in a tweet from Open Europe here. The DUP wants to maintain the Common Travel Area and a frictionless border (and hence remain in the Customs Union), which indicates a softer Brexit, However the DUP's desire to have an 'effective immigration policy which meets the skills, labour and security needs of the UK' may imply a harder Brexit. The EU will be against this.

Theresa May has told Angela Merkel that the Brexit negotiations will start this month, see POLITICO.

Theresa May reappoints most important Cabinet members

Theresa May did not reshuffle the most important positions in her new cabinet. Philip Hammond is still Chancellor of the Exchequer (finance minister), which may surprise some given the conflicts between the two, but media reports indicate that she is too weak. Boris Johnson remains as Foreign Secretary, Amber Rudd as Home Secretary and David Davis is Brexit Secretary. Liam Fox is not among the most important cabinet members but continues as Trade Secretary. Michael Gove, who was sacked as Justice Secretary by Theresa May last year after he ran in the Conservative leadership contest after David Cameron resigned, has been appointed as Environment Secretary.

Damian Green (Remainer) is named Deputy Prime Minister, which may be an indication of a softer Brexit. Green will play an important role in the Brexit negotiations but his softer Brexit approach is likely to only be behind the scenes. See The Guardian.

Trump may not visit the UK after all

Sources say US President Trump has told PM Theresa May he refuses to visit the UK if there are public protests, see The Guardian. While both US and UK officials deny the story, it seems unlikely in our view that a US-UK free trade deal will be reached anytime soon, also given Trump is busy with many other things.

EUR/USD - 1.1206

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 1.1207

Kijun-Sen level                  : 1.1192

Ichimoku cloud top             : 1.1231

Ichimoku cloud bottom      : 1.1211

New strategy  :

Sell at 1.1230, Target: 1.1130, Stop: 1.1265

Position : -

Target :  -

Stop : -

Although the single currency rebounded after falling to 1.1166 on Friday and initial upside risk is seen for this rebound to extend gain towards 1.1231-37 (current level of the upper Kumo and previous resistance), however, reckon 1.1250 would hold, bring retreat later, below 1.1180 would bring retest of 1.1166 but break there is needed to extend the fall from 1.1285 top for retracement of early upmove to 1.1145-50 and then towards 1.1120 but support at 1.1109 should hold from here.

In view of this, we are inclined to sell euro on further subsequent recovery. Above 1.1265-70 would abort and bring retest of 1.1285, only break there would revive bullishness and confirm recent upmove has resumed and extend further gain to previous chart resistance at 1.1300, break there would encourage for headway to 1.1340-45 and later towards chart point at 1.1366.

Market movers today

Today is a very quiet day in terms of economic data releases. We get Danish CPI for May, which we expect fall to 0.9% y/y from 1.1% in April due to a reversion of package holiday prices after the surge in April (Easter effect ), lower fuel prices and base effects from food prices.

Focus on the outcome of the UK and French elections. See below and our update on the UK election: Research UK: Hung parliament adds government risk premium to GBP, 9 June 2017.

The main event this week is the Fed meeting on Wednesday where in contrast to the consensus expectation and market pricing we think the Fed will stay on hold and instead make an announcement on balance sheet reduction.

Selected market news

Emmanuel Macon and his party La Republique en Marche won a sweeping victory in the first round of the French parliamentary election yesterday . According to polls Macron's party is on the way to win a clear majority in the French parliament with 70% of the seats when the second round of the election is held on Sunday. The Socialist party of Francois Hollande faced a humiliating defeat getting only 10 to 14% of the votes, which is likely to give them only 15-25 seats down from 284 seats currently. The National Front led by Marine Le Pen also suffered a poor election with only 13.5% of the vote, which would only add a couple of seats compared to today.

The result will give Macron a strong mandate for reforms in France and will put France in a role to strengthen the EU in alliance with Germany's Angela Merkel, who is again leading polls for the German election on 22 September. The latest German polls show a 14 -15 point lead for CDU/CSU over SPD. Macron's first test will be his proposed labour market reforms, which will encourage flexible company-based agreements between businesses and employees instead of industry-based deals. The reforms are likely to face strong resistance from the unions, which will be weakened by such a move.

In the UK some of The resa May's key ministers are working for a softer Brexit. With May clearly weakened after the UK election her vision of a 'clean break' is no longer on the table.

Stock markets finished on a strong note on Friday apart from US tech stocks (Nasdaq down close to 2%). Asian stock markets have traded mostly lower overnight , though.

The bearish tone in bond markets on Friday continued overnight in Asia ahead of the Fed meet ing this week. While the market is pricing a high probability of a Fed hike this week (around 90%) the rate path priced after that has become very subdued with the next hike not fully priced until mid-2018. We look for the Fed to skip hiking this week (and instead announce a plan for balance sheet reduction) but to hike in both July and December, see also Weekly Focus.

USD/JPY - 110.30

Most recent candlesticks pattern   : N/A

Trend                      : Down

Tenkan-Sen level              : 110.27

Kijun-Sen level                  : 110.47

Ichimoku cloud top             : 110.04

Ichimoku cloud bottom      : 109.80

Original strategy  :

Sold at 110.20, stopped at 110.55

Position :  - Short at 110.20

Target :  -

Stop : - 110.55

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Although the greenback jumped to as high as 110.81, lack of follow through buying on break of previous resistance at 110.73 and the subsequent retreat suggest consolidation below 110.81 would be seen and pullback to 110.00 cannot be ruled out, however, break of 109.75 support is needed to signal top is formed, bring further fall towards 109.38 but only break there would indicate the rebound from 109.11 has ended at 110.81, bring retest of this level later.

On the upside, above 110.50-60 would bring test of 110.81 but break there is needed to signal the erratic rise from 109.11 low is still in progress for further gain to 111.00 and possibly 111.20-30 but price should falter well below resistance at 111.71, bring retreat later. As near term outlook is mixed, would be prudent to stand aside in the meantime.

• FTSE lower but GBP weakness remains supportive;
• GBP vulnerable as May’s weak and unstable government prepares for talks;
• Fed, BoE and BoJ to come later in the week.

Equity markets in Europe are expected to start the week a little softer, with the FTSE leading the losses as the UK index pares Friday’s gains and is weighed down by small gains in the pound.

The UK index came under some early pressure in futures markets on Friday as it became clear that we were headed for a hung parliament but as has now become the norm, it quickly rebounded to end the day more than 1% higher. While the negative knee jerk reaction to these results continues to be happen, the time taken to recover is getting shorter and shorter, with traders perhaps learning from past experience and capitalising on any dips.

Sterling’s sell-off on Friday clearly aided the bounce, ending the day more than 1.5% lower against the dollar and vulnerable to further downside. With Theresa May scrambling to repair the self-inflicted damage suffered as a result of the election, there remains a huge amount of uncertainty around her position and with only a week to go before Brexit talks with the EU begin, I feel there may be a few more twists to come yet. May has not delivered the strong and stable government she wanted and instead looks weak and vulnerable. I find it hard to see how she recovers from this.

While the election result and upcoming Brexit talks will likely remain a key talking point this week, there’s also a number of other events that markets will be very focused on. The start of the week may be quiet but we’ll get monetary policy decisions from the Federal Reserve, Bank of England and Bank of Japan on Wednesday, Thursday and Friday, respectively. The Fed will be of particular interest with markets now fully pricing in a rate hike and instead more concerned with whether they’ll signal another this year or focus more on balance sheet reduction.

For the 24 hours to 23:00 GMT, the AUD declined 0.07% against the USD and closed at 0.7529 on Friday.

LME Copper prices rose 1.6% or $91.5/MT to $5739.0/MT. Aluminium prices declined 0.05% or $1.0/MT to $1901.5/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7525, with the AUD trading slightly lower against the USD from Friday’s close.

The pair is expected to find support at 0.7516, and a fall through could take it to the next support level of 0.7507. The pair is expected to find its first resistance at 0.7538, and a rise through could take it to the next resistance level of 0.7551.

With a public holiday being observed in Australia today, investor sentiment would be governed by global macroeconomic factors.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR slightly declined against the USD and closed at 1.1196 on Friday.

On the economic front, Germany’s seasonally adjusted trade surplus narrowed more-than-expected to a level of €18.1 billion in April, as growth in imports outpaced that of exports. The nation had posted a revised surplus of €25.3 billion in the prior month, while markets anticipated it to narrow to a level of €23.0 billion.

In the US, data revealed that the seasonally adjusted final wholesale inventories dropped more-than-expected by 0.5% on a monthly basis in April, while the preliminary print had indicated a fall of 0.3%. In the previous month, the wholesale inventories had climbed 0.2%.

In the Asian session, at GMT0300, the pair is trading at 1.1208, with the EUR trading 0.11% higher against the USD from Friday’s close.

The pair is expected to find support at 1.1177, and a fall through could take it to the next support level of 1.1147. The pair is expected to find its first resistance at 1.1227, and a rise through could take it to the next resistance level of 1.1247.

With no major economic releases in the Euro-zone today, investors will look forward to the US monthly budget statement for May, slated to release later in the day.

The currency pair is trading above its 20 Hr moving average and showing convergence with its 50 Hr moving average.