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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.

With a rate hike completely off the table, the primary focus was on housing, the labour market and the inflation outlook in its accompanying monetary policy statement.

But with the key GDP data due tomorrow it was even less likely the RBA would make any significant adjustment to previous comments.

The recent economic data, with most aggregators settling within the RBA current forecasts, appear to have calmed concerns at the Bank, well at least for now. I think the RBA is prepared to look through any soft patches in Q 1 data due in part to the transitory influences of Cyclone Debbie.

The Australian Dollar is trading mixed with little shift in language. However, this may be more a function of today bad Q1 trade data. However, there is nothing in the statement corroborating the markets slightly dovish lean as there is around 6bp of cuts price in through to Dec (most dovish pricing this year) so the Aussie could find support

Our base view remains that the RBA is likely to wait for further improvements in the domestic economy with the CPI print at the end of next month to be the chief agitator for a change in rhetoric. Even then, our view remains steady as RBA is likely to remain on hold through the remainder of 2017

Overall the Australian dollar continues to recover well post Friday weaker NFP print, despite iron ore prices slumping.

Daily Pivots: (S1) 1.3453; (P) 1.3477; (R1) 1.3495; More....

USD/CAD dips mildly today but stays in range above 1.3387 support. Intraday bias remains neutral first. In case of another recovery, upside should be limited by 1.3570 resistance and bring fall resumption. We're holding on to the view that rise from 1.2968 has completed. And the larger rise from 1.2460 could have finished too. Below 1.3387 will target 1.3222 support first. Break of 1.3222 will affirm our bearish view and target 1.2968 key support level for confirmation. However, break of 1.3570 will turn focus back to 1.3793 high instead.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. Rise from 1.2460 is seen as the second leg and could have completed at 1.3793, ahead of 61.8% retracement of 1.4689 to 1.2460 at 1.3838. Break of 1.3222 should indicate the start of the third leg while further break of 1.2968 should confirm. Nonetheless, sustained trading above 1.3838 would pave the way to retest 1.4689 high.

Daily Pivots: (S1) 1.1231; (P) 1.1256 (R1) 1.1279; More....

With 1.1109 support intact, further rise is still expected in EUR/USD. Decisive break of 1.1298 key resistance will carry larger bullish implication and target 1.1615 resistance next. Nonetheless, we'd stay cautious on rejection from 1.1298. Break of 1.1109 will indicate short term topping and turn bias back to the downside.

In the bigger picture, the case for medium term reversal continues to build up with EUR/USD staying far above 55 week EMA (now at 1.0888). Also, bullish convergence condition is seen in weekly MACD. Focus will now be on 1.1298 key resistance. Rejection from there will maintain medium term bearishness and would extend the whole down trend from 1.6039 (2008 high). However, firm break of 1.1298 will indicate reversal. In such case, further rally would be seen back to 1.2042 support turned resistance next.

Daily Pivots: (S1) 1.2856; (P) 1.2898; (R1) 1.2945; More...

The break of 1.2926 minor resistance dampens our bearish view. Also, GBP/USD is supported above 55 day EMA so far. Intraday bias is turned back to the upside for 1.3047 resistance. Break there will extend the corrective pattern from 1.1946 for 1.3444 key resistance. On the downside, below 1.2768 will turn bias back to the downside for 1.2614 resistance turned support. Break there will likely resume the larger down trend through 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. The rejection from 55 week EMA is maintaining bearishness in the pair. Also, at this point, as long as 1.3444 resistance holds, fall from 1.7190 is still expected to continue. Break of above mentioned 1.2614 support will affirm this bearish case.

Daily Pivots: (S1) 0.9627; (P) 0.9645; (R1) 0.9670; More.....

No change in USD/CHF's outlook. Intraday bias remains on the downside and current fall would likely pass through 100% projection of 1.0342 to 0.9860 from 1.0099 at 0.9617. But we'd start to look for bottoming signal again as it approaches 0.9443 key support level. On the upside, above 0.9669 minor resistance will turn intraday bias neutral first. But near term outlook will stay bearish as long as 0.9807 resistance holds.

In the bigger picture, USD/CHF is still bounded in medium term range of 0.9443/1.0342 for the moment. Consolidative trading would likely continue and medium term outlook remains neutral. Break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the pair. Meanwhile, downside attempts should be contained by 0.9443 key support level. However, sustained break of 0.9443 will carry larger bearish implication and target 0.9 handle.

Market movers today

We face the quietest day on the data calendar this week as focus turns to eurozone investor confidence, eurozone goods consumption and Scandinavian house prices.

In the euro area, Sentix investor confidence, retail sales and ECB QE details are due for release today. Sentix has climbed to levels not seen since 2007 with a figure of 27.4 in May and we expectit to rise further to 28.1 in June. We estimate retail sales will show another monthly increase of 0.3% in April, as consumer confidence rose in April and Easter is likely to have supported higher retail sales. Finally, the ECB is due to release the monthly QE details, which will not least at t ract at tention in Fixed Income markets (see page 2).

In Scandinavia, focus will be on house price statistics for Denmark and not least Norway. In Norway, Real Estate Norway's release may well show the first fall m/m since February last year. The combination of more restrictive bank lending practices and an increased supply of properties has brought a better balance in the housing market , including in Oslo. From a policy perspective, however, itis important to remember th at Norges Bank anticipated a stabilisation in housing prices back in March, so a slight correction will primarily ease upward pressure on interest rates rather than add a downward pressure.

Selected market news

Market sentiment has suffered somewhat at the beginning of the week with most major equities indices trading in red territory as we approach the key session on Thursday, with not least the ECB meeting, the UK parliamentary election and James Comey testifying to Congress. Also, the oil price has erased its gains following the diplomatic crisis in the Middle East between Qatar and a coalition led by Saudi Arabia accusing Doha of supporting terrorism.

Yesterday's economic data releases out of the US generally disappointed market expectations with the final estimates for Service PMIs and durable goods being revised lower. While the first release of the May ISM non-manufacturing still points to a healthy expansion, the release did disappoint slightly at 56.9 (consensus 57.1, previous 57.5). Also, the details revealed a deterioration in new orders. Meanwhile, the employment component reached a new high but 'prices paid' dropped to a sub-50 level, indicating prices fell for the first time in 13 months.

In the UK, May Service PMIs disappointed market expectations. On the slowdown in the new order book, respondents not least referred to uncertainties ahead of the Parliamentary election and general economic uncertainty. This underpins the importance of Thursday's parliamentary election where polls pointed recent ly to a much tighter race than expected previously. We do, however, stress thatin general one should be careful not to rely too much on the UK polls. First, polls did not foresee the absolute majority win for the Conservatives in the latest general election in May 2015. Moreover, it is difficult to predict the distribution of seats among the political parties because of the 'first -past -the-post ' system. Irrespective, markets and not least the GBP will continue to react to new polls as we approach Thursday.

As expected, the Reserve Bank of Australia this morning kept policy rates unchanged. The released statement had few changed but was on some points somewhat more upbeat on the domestic out look. AUD/USD is t rading a little higher following the announcement.

For the 24 hours to 23:00 GMT, the AUD rose 0.52% against the USD and closed at 0.7487.

LME Copper prices rose 0.49% or $27.0/MT to $5586.5/MT. Aluminium prices rose 0.05% or $1.0/MT to $1917.5/MT.

Overnight macro data showed that Australia’s seasonally adjusted current account deficit narrowed to A$3.1 billion in 1Q 2017, following a revised current account deficit of A$3.5 billion in the prior quarter. However, the data missed market expectations for a drop to a level of A$0.5 billion.

In the Asian session, at GMT0300, the pair is trading at 0.7470, with the AUD trading 0.23% lower from yesterday’s close.

Early today, the Reserve Bank of Australia (RBA) left the official cash rate unchanged at a record low 1.50% for the 10th consecutive month, as widely expected, while noting that some economic indicators such as wages showed signs of lagging.

The pair is expected to find support at 0.7444, and a fall through could take it to the next support level of 0.7418. The pair is expected to find its first resistance at 0.7497, and a rise through could take it to the next resistance level of 0.7524.

The currency pair is trading between its 20 Hr and 50 Hr moving averages.