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Daily Pivots: (S1) 124.11; (P) 124.40; (R1) 124.62; More...

EUR/JPY drops sharply today but still, price actions from 125.80 are seen as a corrective pattern. In case of deeper fall, downside should be contained by 38.2% retracement of 114.84 to 125.80 at 121.61 to bring rise resumption. We're staying mildly bullish in the cross. And, break of 126.09 key resistance will extend the whole rebound from 109.03 to 100% projection of 109.03 to 124.08 from 114.84 at 129.89. Nonetheless, firm break of 121.61 will dampen our bullish view and bring deeper fall to 61.8% retracement at 119.02.

In the bigger picture, focus is staying on 126.09 support turned resistance. Decisive break there will confirm completion of the down trend from 149.76. And in such case, rise from 109.20 is at the same degree and should target 141.04 resistance and above. Meanwhile, rejection from 126.09 and break of 114.84 will extend the fall from 149.76 through 109.20 low.

Daily Pivots: (S1) 1.4968; (P) 1.5077; (R1) 1.5137; More...

Intraday bias in EUR/AUD stays neutral for consolidation below 1.5226 temporary top. Further rise is still expected 1.4927 support holds. Above 1.5226 will extend the rally from 1.3624 to next medium term fibonacci level at 1.5455. However, break of 1.4927 will indicate short term topping on bearish divergence condition in 4 hour MACD. In such case, intraday bias will be turned back to the downside for 1.4669 support next.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a corrective pattern. Such correction should be completed at 1.3624 after defending 1.3671 key support. Rise from 1.3642 is now expected to target 61.8% retracement of 1.6587 to 1.3624 at 1.5455. Sustained break there will pave the way to retest 1.6587. In any case, outlook will now stay cautiously bullish as long as 1.4669 support holds.

Daily Pivots: (S1) 0.8687; (P) 0.8727; (R1) 0.8761; More...

Intraday bias in EUR/GBP is turned neutral with a temporary top in place at 0.8766. But further rally is still expected as long as 0.8654 support holds. Above 0.8766 will target 0.8786 resistance and then 0.8851. Decisive break of 0.8851 will pave the way to retest 0.9304 high. However, break of 0.8654 will indicate short term topping on bearish divergence condition in 4 hour MACD. In such case, intraday bias will be turned back to the downside for 55 day EMA (now at 0.8579).

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. The leg from 0.9304 should have completed after testing 0.8332 structural support. But it's too early to say that larger rise from 0.6935 is resuming. Rejection from 0.9304 will extend the consolidation with another falling leg. Meanwhile, firm break of 0.9304 will target 0.9799 (2008 high). In case of another decline, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside and bring rebound.

US Session Highlights

(US) MAY FINAL MARKIT SERVICES PMI: 53.6 V 54.0 PRELIM

(US) MAY ISM NON-MANUFACTURING COMPOSITE: 56.9 V 57.1E

(US) APR FINAL DURABLE GOODS ORDERS: -0.8% V -0.5%E; DURABLES EX TRANSPORTATION: -0.5% V -0.4% PRELIM

(US) APR FACTORY ORDERS: -0.2% V -0.2%E

(US) Senate Minority Leader Schumer: ready to work with Pres Trump on a real infrastructure plan

Stock rally slowed to a grind with most indices slightly lower on the day. Concerns over the rift between Saudi Arabia and allies with Qatar weighed on oil. Despite lower crude prices and subdued buying power, the worst performing S&P sectors YTD, Energy and Financials, managed to tick up today, by 0.2% each.

US markets on close: Dow -0.1%, S&P500 -0.1%, Nasdaq -0.2%

Best Sector in S&P500: Energy

Worst Sector in S&P500: Utilities

Biggest gainers: KORS +4.4%; NVDA +3.0%; TSO +2.8%

Biggest losers: INCY -5.7%; MNK -5.1%; BMY -4.8%

At the close: VIX 10.1 (+0.3pts); Treasuries: 2-yr 1.30% (+1bp), 10-yr 2.18% (+2bp), 30-yr 2.84% (+3bps)

US movers afterhours

THO: Reports Q3 $2.11 v $1.87e, R$2.02B v $1.96Be; affirms FY17 capex $130M; +11.5% afterhours

COVS: Agrees to be acquired at $2.45/shr by OpenText for $103M; +9.1% afterhours

ACOR: CVT-301 Phase 3 Data showed significantly improved Motor Function during OFF Periods in Parkinson’s Disease; plans to file NDA in U.S. by end of 2Q17; +9.8% afterhours

SIG: COO Bryan Morgan resigns due to violations of company policy; -0.8% afterhours

CASY: Reports Q4 $0.76 v $0.89e, R$1.85B v $1.87Be; Guides FY18 SS fuel gallons sold +1-2%, SS grocery/merchandise sales +2-4% y/y, operating expenses +9-11% y/y; -3.9% afterhours

Politics

(US) White House wants debt ceiling to be raised by August Congressional recess - press

(US) White House nominates Joseph Otting as the US Comptroller of Currency (OCC) - financial press

(UK) According to Survation Poll taken June 2-3, support for Conservatives Party at 41.5% vs 40.4% for Labour – US financial press

Key economic data

(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 1.50% (AS EXPECTED)

(AU) AUSTRALIA Q1 CURRENT ACCOUNT BALANCE (A$): -3.1B V -0.5BE; NET EXPORTS OF GDP: -0.7% V -0.4%E

(JP) JAPAN APR LABOR CASH EARNINGS Y/Y: 0.5% V 0.3%E (4-month high)

Asia Session Notable Observations

Asian markets are mixed in the wake of modest declines on Wall St where cash indices fell after two days of large gains. Despite the miss in US economic data and political risk of former FBI director Comey testinony this week, expectations for more than one rate hike by the FOMC are back above 50%, with a tightening this month now seen as nearly 95%-certainty. Risk aversion picked up slightly in the Asia session, as 10-year Treasury yield fell 2bps, USD/JPY plunged over 70pips below 109.70, and US equity futures turned from slightly gains to losses.

Australia economic data and monetary policy were in focus in today's session. Q1 Current Account saw a much bigger drop in Exports as pct of GDP at -0.7%, and analysts are speculating this may result in an annualized q/q contraction in tomorrow's GDP report. RBA stood pat at 1.5% and was also more Neutral than expected, acknowledging the expected slowdown in Q1 GDP but maintaining view of 3% long run growth forecast. RBA also added that business conditions have improved and capacity utilisation has increased.

In China, PBoC skipped its regular daily reverse repo ops but injected CNY498B in medium-term lending facility (MLF) operations. Yuan fix was also set marginally stronger, with the Offshore rate remaining at 6.77.

Speakers and Press

China

(CN) Muddy Waters' Carson Block: China is a massive asset bubble and credit bubble; blow up could start in shadow banking and wealth management

(CN) Analysts expect liquidity conditions to tighten in June amid seasonal factors; Unlikely it will lead to full-scale liquidity crunch - Chinese press

(CN) China Foreign Min Wang Yi announced an agreement had been reached between China and ASEAN countries on a first draft of a framework for a Code of Conduct (COC) for the South

China Sea - press

(CN) China Information Daily: China should continue to push for normalizing IPOs

Japan

(JP) Japan Fin Min Aso: Importance of lowering Japan debt-to-GDP ratio is clear - press

Australia/New Zealand

(AU) AMP's Oliver: Overall picture for Australia economy is subpar growth running well below that assumed by RBA and in the budget - SMH

(AU) Australia Fair Works Council (FWC) to raise Minimum Wage by 3.3%/A$22.20/week for a total of A$694.90/week - press

(AU) ANZ CEO: Australia house prices are very inflated; There is a very low probability of a housing crash - press

(NZ) New Zealand real estate agency Barfoot & Thompson: Auckland region May property sales were 886 units, up from 664 m/m but down from 1,306 y/y; lowest number of sales in the month of May since 2010 - NZ press

Korea

(KR) Bank of Korea (BOK): THAAD dispute may impact talks on Korea-China currency swap - Korean press

(KR) US Nuclear Submarine USS Cheyenne has arrived in Busan, South Korea - Korean press

Asian Equity Indices/Futures (00:15ET)

Nikkei -0.6%, Hang Seng +0.4%, Shanghai Composite -0.2%, ASX200 -1.2%, Kospi closed

Equity Futures: S&P500 -0.1%; Nasdaq -0.1%, Dax -0.3%, FTSE100 -0.3%

FX ranges/Commodities/Fixed Income (00:15ET)

EUR 1.1255-1.1275; JPY 109.75-110.50; AUD 0.7455-0.7490; NZD 0.7125-0.7160

Aug Gold +0.4% at 1,287/oz; July Crude Oil -0.4% at $47.19/brl; July Copper -0.1% at $2.56/lb

iShares Silver Trust ETF daily holdings fall to 10,562 tonnes from 10,601 tonnes prior; 4th straight decline

(CN) PBOC SETS YUAN MID POINT AT 6.7934 V 6.7935 PRIOR; 5th straight firmer Yuan fix; Strongest Yuan fix since Nov 10th

(CN) PBOC skips open market operations v CNY70B prior injected (first skip since May 28th)

(CN) PBOC conducts CNY498B in medium-term lending facility (MLF) operations; Offers 1-year MLF at 3.2% v 3.2% prior

(JP) Japan MoF sells ¥723B v ¥0.8T offered in 30-year 0.8% (0.8% prior) JGBs; Avg yield: 0.817% v 0.819% prior; bid to cover: 3.63x (highest since Oct 2016) v 3.35x prior

Asia equities notable movers

Australia

Musgrave (MGV) +1.4%; Reports high grade gold intersected near surface at Lena

BHP (BHP) -1.3%; Tribeca Partners said to propose some candidates to replace certain BHP directors

Sirtex (SRX) -1.5%; Announces primary endpoint of combined SIRFLOX/FOXFIRE study was not met

Spark Infrastructure (SKI) -2.0%; Cut at Goldman Sachs

APA Group (APA) -4.5%; Cut at Goldman Sachs

Japan

Toshiba (6502) +3.5%; Western Digital reportedly willing to compromise in order to get deal on Toshiba chip unit - Nikkei

Hong Kong

Evergrade (3333) +6.2%; To redeem all of its perpetual bonds by the end of June, ahead of plan

Beijing Capital (2868) +3.0%; May contracted sales

China Aoyuan Property Group (3883) +1.3%; May contracted sales

Shimao Property (813) +5.9; May contracted sales

The US dollar remained rather subdued yesterday and is seen breaking past late May lows. The weakness in the greenback comes amid a soft non-manufacturing PMI report from ISM. The index fell to 56.9 in May, missing estimates of 57.1 and weaker than April's headline print. Factory orders were also seen contracting 0.2% after rising 1.0% in the previous month.

Among commodities, oil prices took a hit after Saudi Arabia, Egypt and Bahrain severed diplomatic ties with Qatar. The nations accused Qatar of supporting terrorist groups. Oil prices initially rose to session highs of $48.40 before giving up the gains and settling at $47.39.

Looking ahead, the RBA's interest rate decision saw no major changes to monetary policy. In the eurozone, the Sentix investor confidence is expected to rise modestly to 27.6, up from 27.4 previously while the Ivey PMI from Canada is expected to show a headline print of 62.0, slightly lower than 62.4.

EURUSD intraday analysis

EURUSD (1.1266): EUR/USD formed an inside bar with price action staying firm within Friday's range high and low. Price action briefly tested the support level at 1.1245 before bouncing off to close above the support. We expect that EURUSD will now continue to push higher especially with the inverse head and shoulders pattern that has emerged at the top. This suggests a continuation to the upside with the next target at 1.1300 followed by 1.1383. The bias changes if EURUSD slips below 1.1245 support level in which case the bullish inverse head and shoulders pattern on the 4-hour chart will be invalidated.

GBPUSD intraday analysis

GBPUSD (1.2977): GBP/USD continues to maintain a modest uptrend, but theprice is seen testing 1.1293 resistance level. A reversal here could see a potential decline in the near term. On the 4-hour chart, there is evidence of a head and shoulders pattern that is shaping up and should be confirmed on a reversal around 1.1293. This pattern could, however, be invalidated if GBPUSD pushes towards 1.3000. To the downside, expect the price level at 1.2800 likely to offer some support but a break down below this level will trigger a move to 1.2600.

XAUUSD intraday analysis

XAUUSD (1284.55): Gold prices are continuing to push higher following the breakout at 1274.00 resistance level. Price action is seen currently filling the gap from April 21 at 1284.87. In the near term, we can expect to see a short term decline back to 1274.00 where support can be established at the previous resistance level. This will keep the bias to the upside with the potential for gold prices to reach as high as 1300.00. To the downside, a break down below 1274.00 will, however, keep gold prices range bound with the bias turning lower below 1263.00.

Daily Pivots: (S1) 1.0841; (P) 1.0871; (R1) 1.0885; More...

EUR/CHF's corrective fall from 1.0986 is still in progress and deeper decline might be seen. Nonetheless, downside should be contained by 1.0791/0872 support zone, probably around 55 day EMA (now at 1.0828). Rise from 1.0629 is expected to resume later. Above 1.0902 minor resistance will turn bias back to the upside for 1.0986/0999.

In the bigger picture, the price actions from 1.1198 are seen as a corrective move. Such correction could have completed after defending 38.2% retracement of 0.9771 to 1.1198 at 1.0653. Decisive break of 1.0999 resistance will target a test on 1.1198 high. For now, this will be the preferred case as long as 1.0791 support holds.

Asian stocks followed Wall Street lower on Tuesday as the safe-haven Yen and gold strengthened after a disappointing start to the week. Apparently, it's geopolitical risks leading the direction. While market participants were focused on the UK general election and former FBI head James Comey's testimony on Thursday, Qatar hit the headlines on Monday after tensions between the country and its neighboring nations escalated.

The surprise decision led by Saudi Arabia to cut ties with Qatar left many investors puzzled on how this outcome may impact oil prices. The initial reaction on Monday sent Brent futures 1.6% higher, but gains were reversed later in the session as investors realized that the political tensions would not lead to production outages. With Qatar's crude production capacity of approximately 650,000 barrels per day, even output disruptions would not have a significant impact on prices. I also don't believe Qatar's LNG exports will be affected, despite Saudi Arabian and UAE waters being restricted.

Continued rising tensions might risk OPEC's oil production agreement, and if Qatar decided not to follow the agreed production quota, other nations could follow, resulting in a failure of the quota policy deal. However, I think this scenario remains unlikely.

In currency markets, the dollar fell to lowest levels in six weeks against the Yen. This shouldn't be surprising given the scale of event risks this Thursday, specifically UK's general election and former FBI director James Comey testifying before the US Senate intelligence committee about potential Russian interference in 2016's US election.

The pound managed to remain bid, despite the weaker than expected PMI data and conflicting poll outcomes. The latest polls indicate that the Labour party continues to narrow the gap on the Conservatives. YouGov showed a Tory lead of just four points as opposed to ICM which indicated an eleven-point lead. Whether Britons were seriously swayed in the aftermath of Saturday's attack will be known on Thursday, but I think if the Conservatives manage to increase their lead it could potentially send GBPUSD above 1.3.

European equity markets are expected to open a little lower on Tuesday, in-keeping with the moderate risk aversion that we've seen overnight and as traders look ahead to a number of major events on Thursday.

Gold and Yen Gain in Risk Averse Trade

It's quite normal to see this kind of behaviour when the latter part of the week is as busy as it is. We're seeing a little bit of risk aversion in the markets today with European futures tracking similarly small losses across the US and Asia, Gold making modest gains to trade at six week highs and the yen making further advances.

Post RBA Decision

But we have a big week or so ahead of us with the UK heading to the polls and the ECB announcing its latest monetary policy decision on Thursday and the Federal Reserve doing the same next Wednesday. Once these events pass, we may have a little more clarity and therefore see a little less caution in the markets.

Conservative Lead Under Considerable Threat in Latest Survation Poll

The UK election remains the standout event for most, with the outcome being so important for Brexit negotiations over the next couple of years. The Conservative lead over Labour has collapsed, if the polls are to be believed, and it seems that the only thing that Theresa May currently has on her side now is time, with Labour still having a lot to do and only two days in which to achieve it.

As it is, a working majority is now in doubt with another poll released overnight from Survation showing the lead at only a single point.

USD/CAD Canadian Dollar Slightly Higher on Soft US Data

The pound has not been too shaken by the polls in recent days though, having shown a certain vulnerability to them prior to that. Despite the lead closing and May's majority looking under threat, the pound has continued to grind higher against the dollar and remain just below 1.30, and has held its own against both the euro and the yen. Whether this reflects a lack of faith in the polls or just those that point to a much tighter race isn't clear but there doesn't appear to be much election risk being priced in which in itself concerns me given what's happened previously.

As far as today is concerned, it's looking a little quiet on the releases front, with eurozone Sentix investor confidence and retail sales the only notable data this morning. We'll also get JOLTS job openings from the US later this afternoon but aside from this, focus will likely remain on events later in the week.

Geopolitics rising temperature launches gold higher but sent oil back to earth initially.

OIL

It is a strange world that we live in when the financial press globally is reporting that oil has fallen because of geopolitical tensions in the Middle East. Saudi Arabia, the United Arab Emirates and Bahrain are imposing effectively, an air and land blockade on Qatar and evicting their citizens and diplomats for alleged Qatari mischief-making around the region, including passing cash to Iran. Unsurprisingly, Iran has thrown its full weight behind Qatar.

The line of group thinking seems to be, that a belligerent Iran may walk away from its OPEC production cut quota, starting of a cascade of agreement breakers and undermine the entire OPEC agreement. Which quid pro quo would indeed be bad for oil. I should note, Qatar is the world's largest LNG exporter and a minor oil producer. The merits of that argument aside, I would argue that the possibility of Saudi Arabia and the Gulf Co-Operation Council squaring up to Iran across the Gulf of Arabia, one of the world's maritime choke points for a huge amount of the planet's energy needs, is not bearish for oil.

A more plausible explanation for the brick wall the oil rally ran into in North America is intraday longs taking profit and U.S. shale producers lining up to sell the rally in large size for hedging purposes. It seems to me a case of fitting the facts to the price action and not vice versa. Time will tell of course, but traders would be well advised to monitor their news feeds carefully and to be alert to rapid changes in short-term sentiment.

The argument goes the market is always right because the market sets the market price and the price action on crude in Asia today continues to be poor. Both Brent and WTI were hovering just above their post-OPEC lows in early Asian trading, with Brent spot falling 20 cents to 49.00 and WTI spot also falling to 46.75. That appears to be reversing into Europe where maybe reality is biting.

That seems to be shifting into Europe where maybe reality is biting. Brent has rallied to 49.40 and WTI to 47.60 to see both contracts up nearly 1.80% from their lows this morning.

Brent spot has resistance at 49.50 initially followed by 50.60 with support at 48.75.

WTI spot has resistance at 48.00 with support at 46.50, the post-OPEC low.

GOLD

Gold traded sideways in early Asia, following the pattern of yesterday after Friday's Non-Farm inspired rally. It has moved much more to plan though through the remainder of the session, surging ten dollars (0.80%) to two-month highs of 1288.55 as we head into Europe.

Middle East tensions have certainly underpinned the yellow metal this morning, but it is the latest polls from the U.K. ahead of Thrusday's election which are raising the temperature. Depending on which one you look at, the Conservatives lead could be as small as one percent over Labour.

The price action remains constructive, with the technical picture suggesting gold is consolidating before another potential push to the upside. With event risk in the form of this Thursday's ECB rate decision and the U.K general election, one would expect the safe haven bid to be alive and well as the week progresses.

Gold is trading at 1288.55 with resistance at the April high of 1295.70. A break of this level would suggest a possible imminent test of 1300. Support appears at 1277 followed by the 1270/1272 breakout region.

Daily Pivots: (S1) 0.7439; (P) 0.7469; (R1) 0.7515; More...

AUD/USD is still bounded in range of 0.7370/7516. Intraday bias remains neutral for the moment. As long as 0.7516 resistance holds, deeper fall is expected. Below 0.7328 will resume the decline from 0.7748 to 0.7144/7158 support zone. On the upside, break of 0.7516 resistance will indicate near term reversal and turn bias back to the upside.

In the bigger picture, we're still treating price actions from 0.6826 low as a corrective pattern. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seen to 55 month EMA (now at 0.8091) and above.