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Focus on Thursday's ECB decision and UK Parliamentary elections

Notes/Observations

Whit Monday holiday keeps European participation light (markets closed in Germany, Denmark, Austria, Switzerland and Norway). Bank Holidays in a number of others (France included)

Week's main focus will be on the ECB and the outcome of the British General election

Major European Services PMI data remains in expansion (Beats: Euro Zone, Germany, Russia; misses: UK; France, Italy)

Oil rises after a Saudi-led alliance cut diplomatic ties with Qatar and moved to close off access to the Gulf country

Overnight

Asia:

China May Caixin PMI Services hits a 4-month high (52.8 v 51.5 prior)

China PBOC deputy Gov Chen Yulu: To maintain a monetary policy that is "neither too tight or too loose"

North Korea fully rejected latest US/UN sanctions; to continue firing missiles and will pursue its nuclear program

US Defense Sec Mattis: North Korea had increased pace of pursuing nuclear weapon; US will take further steps to protect homeland from North Korean threat

Europe:

London armed police responded to incidents on Saturday of vehicle driving into pedestrians at London Bridge and stabbings in Borough Market (7 people were killed and 48 injured in the attacks).

PM May stated after the latest terror incident that "enough was enough"; things needed to change when it came to taking on extremism. Could not defeat ideology through military intervention alone and stressed that there was too much tolerance of extremism in UK; hade disrupted five terror plots since Manchester attack. Election campaigns would resume on Monday

Islamic State claimed responsibility for the attacks in the UK on Saturday

ECB's Visco (Italy): Italy needed jobs to revive economy, must focus on medium-long term policies

Recent UK election Polls:

Survation/Mail poll on Parliamentary elections: Support for UK Conservatives at 40% (-6 ppt); Labour at 39% (+5 ppt)

Daily Yougov model on upcoming Parliamentary elections; suggests 14-seat majority for PM May but 18 seats short of 326-seat majority. Conservative: 42% (-1) with 308 seats (313 prior poll); Labour: 38% (+2) with 261 seats (257 prior poll) Opinium/Observer: Conservatives 43% (-2); Labour 37% (+2) ComRes: Conservatives 47% (+1); Labour 35% (+1) ORB/Telegraph: Conservatives 45% (+1); Labour 36% (-2) ICM: Conservatives 45% (-1); Labour 34% (+2)

Energy:

Saudi Arabia, UAE, Bahrain, and Egypt said to have cut diplomatic relations with Qatar after leaked tape where Qatari Emir Tamim bin Hamad al-Thani criticized Gulf rhetoric against Iran. Saudi Arabia accused Qatar of supporting "terrorism" and financing "groups" linked to Iran. Planned to shut down Sea, Airspace, Land crossings with Qatar

Economic Data

(IN) India May PMI Services: 52.2 v 50.2 prior (4th month of expansion and highest since Oct), PMI Composite: 52.5 v 51.3 prior

(RU) Russia May PMI Services: 56.3 v 55.6e (16th month of expansion), PMI Composite: 56.0 v 55.3 prior

(SE) Sweden May PMI Services: 57.9 v 60.3 prior

(TR) Turkey May CPI M/M: 0.5% v 0.4%e; Y/Y: 11.7% v 11.7%e; CPI Core Y/Y: 9.4% v 9.6%e

(ZA) South Africa May PMI (Whole Economy: 50.2 v 50.3 prior

(ES) Spain May Services PMI: 57.3 v 57.5e, Composite PMI: 57.2 v 57.1e

(IT) Italy May Services PMI: 55.1 v 55.3e (12th month of expansion), Composite PMI: 55.2 v 55.7e

(FR) France May Final Services PMI: 57.2 v 58.0e (11th month of expansion),, Composite PMI: 56.9 v 57.6e

(DE) Germany May Final Services PMI: 55.4 v 55.2e (confirms 47th month of expansion), Composite PMI: 57.4 v 57.3e

(EU) Euro Zone May Services PMI: 56.3 v 56.2e (confirms 47th month of expansion), Composite PMI: 56.8 v 56.8e

(UK) May Services PMI: 53.8 v 55.0e (10th month of expansion), Composite PMI: 54.4 v 55.5e

Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -0.3% at 3579, FTSE -0.2% at 7530, DAX Closed, CAC-40 -0.6% at 5312, IBEX-35 -0.5% at 10850, FTSE MIB -1.0% at 20724, SMI Closed, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes European Indices trade slightly lower in light trade with German Markets shut for observance of Whit Monday. Reaction to this weekends terror attacks in London are having little impact, although travel and leisure names seeing downside with Easyjet and International Consolidated Airlines down over 1.5%. Elsewhere shares of Sponda is higher by over 20% after its to be acquired by funds managed by Blackstone, whilst Banco Populare is lower after reportedly will meet with the ECB to boost liquidity. Looking ahead looking out for earnings from Jinkosolar as well as Supercom.

Equities

Consumer discretionary [Ocado [OCDO.UK] +5.2% (First customer for OSP), ICG [IAG.UK] -1.5%, Easyjet [EZJ.UK] -1.8% (London Terror attack)]

Industrials: [Cape [CIU.UK] +1.3% (Contract win, Raised outlook), Royal Mail [RMG.UK] +1.4% (Awarded contracts of sale of two plots on the Nine Elms site for £101M in cash), BBA Aviation [BBA.UK] -1.7% (CEO steps down)]

Financials: [Banco Populare [POP.ES] -8% (To discuss option with ECB for options to boost liquidity), Sponda [SDA1V.FI] +20% (To be acquired for €5.19/shr)]

Speakers

S&P analyst Kraemer: UK sovereign rating depended on Brexit negotiations and not the election outcome

Russia said not to see any cause for alarm from an energy point of view regarding the Qatar diplomatic row

Russia to spend RUB2.1B/day buying FX during Jun 7th thru July 6th period; Expected extra oil/gas revenues of RUB41.2B in June

Indonesia Energy Min Djuraid: To reactivate OPEC membership (as expected)

Currencies

USD consolidated some of its recent losses after declines following the US jobs data last Friday. The USD tested its lowest level since Nov 8th as non-farm payrolls underwhelmed. FX markets seemed to ignore that US unemployment rate was its lowest level in 16 years

The week's main focus will be on the ECB decision and the outcome of the British General election

EUR/USD softer by 0.2% in quiet trading at 1.1265. Dealers were looking ahead to Thursday's ECB meeting. The ECB may take out its easing bias when meeting in Tallinn, but Draghi will continue emphasizing inflation downside risks. Analysts were bullish on Europe noting that the Euro currency had become more positively correlated with growth and political uncertainty has diminished

UK election uncertainties have risen with some opinion polls seeing the Conservatives lead narrowing to only around 1-4% points ahead of Labour. GBP/USD was fractionally softer at 1.2875. Softer-than-expected May Serviced PMI data provided some headwinds foe the GBP in the session.

Fixed Income

Bund futures trade at 164.49 down 17 ticks, after improving Chinese Caixin PMI data. Resistance lies near the 165.95 level followed by 167.79. A break of the 162.65 support level could see lows target 159.96 followed by 157.50.

Gilt futures trade at 128.62 lower by 22 ticks, off the lows of the day following disappointing UK PMI Services reading. Last week's decline fell back below both the 129.00 handle and the 129.14 April 18th high. Price finds key support at the 128.27 support level. An acceleration lower could test the 127.43 region. Resistance remains the noted 129.00/129.14 region, then 129.75 followed by 130.28.

Monday's liquidity report showed Friday's excess liquidity dropped lower to €1.656T a decline of €11B from €1.667T prior. Use of the marginal lending facility fell to €262M from €327M prior.

Corporate issuance saw $27.55B issued last week, ahead of last week's forecast of $20B. For the week ahead, analysts eye issuance to come in around $25B.

In Euro denominated issuance €28.27B came to market last week.

Looking Ahead

06:45 (US) Daily Libor Fixing - 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

07:25 (BR) Brazil Central Bank Weekly Economists Survey

08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming auctions

08:30 (CH) Swiss Government question time in Parliament

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Q1 Final Nonfarm Productivity: -0.2%e v -0.6% prelim; Labor Cost: 2.5%e v 3.0% prelim

08:30 (CL) Chile Apr Economic Activity Index (monthly GDP) M/M: +0.2%e v -0.2% prior; Y/Y: 0.9%e v 0.2% prior

08:50 (FR) France Debt Agency (AFT) to sell combined €5.0-6.2B in 3-month, 6-month. 9-month and 12-month BTF Bills

09:00 (BR) Brazil May PMI Services: No est v 50.3 prior, PMI Composite: No est v 50.4 prior

09:00 (MX) Mexico May Consumer Confidence: No est v 83.8 prior

09:00 (MX) Mexico Mar Gross Fixed Investment: No est v -3.1% prior

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

09:45 (US) May Final Markit Services PMI: No est v 54.0 prelim, Composite PMI: No est v 53.9 prelim

10:00 (US) May ISM Non-Manufacturing Composite: 57.0e v 57.5 prior

10:00 (US) Apr Factory Orders: -0.2%e v +0.2% prior; Factory Orders (Ex Transportation): No est v -0.3% prior

10:00 (US) Apr Final Durable Goods Orders: No est v -0.7%prelim; Durables Ex Transportation: No est v -0.4% prelim, Capital Goods Orders (Non-defense ex aircraft): No est v 0.0% prelim, Capital Goods Shipments (Non-defense/ex-aircraft): No est v -0.1% prelim, Durables Ex-Defense: No est v -0.8% prelim

10:00 (SE) Sweden Central Bank (Riksbank) Jochnick

11:30 (PT) Portugal Central Bank Gov Costa in Parliament

11:30 (US) Treasury to sell 3-Month and 6-month Bills

20:00 (CO) Colombia May CPI M/M: 0.3%e v 0.5% prior; Y/Y: 4.5%e v 4.7% prior, CPI Core M/M: No est v 0.6% prior, Y/Y: No est v 5.6% prior

WTI oil extended recovery rally from last Friday's spike low at $46.74 and hit session high at $48.40 in early Monday's bullish acceleration.

Oil price accelerated higher on fresh geopolitical instability in the Middle East after unexpected action of Saudi Arabia, The United Arab Emirates, Bahrain and Egypt which severed their diplomatic ties with Qatar, accusing it of supporting terrorism.

Oil price was so far unable to sustain break above $48.00 barrier, as action was capped by falling hourly cloud.

However, rising uncertainty over geopolitical situation in the Gulf region would further boost oil price. Additional support comes from long-tailed daily candle left on Friday, which signaled strong downside rejection and failure to clearly break below lower pivot at $46.89 (Fibo 61.8% of $43.74/$51.98 upleg).

Extended recovery needs close above $48.74 (Fibo 38.2% of $51.98/$46.74 downleg) to generate stronger reversal signal and open way for further retracement of $51.98/$46.74 downleg., towards a cluster of strong MA barriers between $49.00 and $49.66.

Session low at $47.65 marks solid support which is expected to hold dips and keep near-term focus at the upside.

Break below here and extension below $47.40 would signal an end of recovery rally from $46.74 and shift near-term focus lower.

Res: 48.18, 48.40, 48.74, 49.00
Sup: 47.76, 47.65, 47.40, 46.89

GBP/USD – 1.2896

Recent wave: Wave V of larger degree wave (III) has ended at 1.1986 and major correction has commenced from there for gain to 1.3000 and 1.3140-50

Trend: Near term up

Original strategy :

Sold at 1.2920, Target: 1.2770, Stop: 1.2920

Position: - Short at 1.2920
Target:  - 1.2770
Stop: - 1.2920

New strategy :

Hold short entered at 1.2920, Target: 1.2770, Stop: 1.2920

Position: - Short at 1.2920
Target:  - 1.2770
Stop:- 1.2920

The British pound has remained confined within recent established range and further consolidation is in store, however, as long as indicated resistance at 1.2921 holds, mild downside bias remains for another retreat, below 1.2830-40 would signal the rebound from 1.2769 has ended, bring weakness to 1.2800, then retest of said support, break there would extend recent decline from 1.3048 to support at 1.2757 which is likely to hold on first testing.

Our preferred count on the daily chart is that cable's rebound from 1.3500 (wave (A) trough) is unfolding as a wave (B) with A ended at 1.7043, followed by triangle wave B and wave C as well as wave (B) has ended at 1.7192, the subsequent selloff is the larger degree wave (C) which is still unfolding with minor wave (III) of larger degree wave 3 ended at 1.1986, hence wave (IV) correction is in progress which could either be a triangle wave (IV) of a complex formation but upside should be limited to 1.3500 and price should falter well below 1.4000, bring another decline in wave (V) of 3 for weakness to 1.1500, then 1.1200.

On the upside, above 1.2921-26 (said resistance and previous support) would defer and suggest low has been formed instead, risk a stronger rebound to 1.2965-70 and possibly towards 1.3000 but only break of resistance at 1.3015 would signal the retreat from 1.3048 has ended.

GBP/JPY - 142.60

Recent wave: Medium term low formed at 120.50 and (A)-(B)-(C) major correction has commenced with (A) leg ended at 148.45, hence wave (B) is unfolding for retreat to 131.00-10.

Trend: Near term up

Original strategy:

Sold at 143.65, Target: 141.65, Stop: 144.00

Position: - Short at 143.65
Target: - 141.65
Stop: - 144.00

New strategy :

Hold short entered at 143.65, Target: 141.65, Stop: 143.45

Position: - Short at 143.65
Target:  - 141.65
Stop:- 143.45

Sterling met renewed selling interest at 143.95 and the pair has slipped on Friday, retaining our bearishness and below 141.85-90 would signal the rebound from 141.50 has ended, bring retest of this level. Looking ahead, below said support at 141.50 would extend the selloff from 148.10 top to 141.00 but loss of momentum should limit downside to 140.50-55 and price should stay above psychological support at 140.00, bring rebound later. 

In view of this, we are holding on to our short position entered at 143.65. Above 143.40 would risk another test of 143.95-00, however, only break there would signal low has been formed instead, bring a stronger rebound to 144.50 but upside would still be limited to 145.00 and price should falter well below said resistance at 145.45, bring another decline later.

Our preferred count is that larger degree wave V with circle is unfolding from 251.12 with wave (I) 219.34, (II): 241.38 and wave (III) is subdivided into 1: 192.60, 2: 215.89 (23 Jul 2008) and wave 3 ended at 118.87 earlier in 2009. The correction from there to 162.60 is wave 4 which itself is a double three and is labeled as first a-b-c ended at 151.53, followed by wave x at 139.03, 2nd a ended at 162.60, 2nd b at 146.75 and 2nd c leg of wave 4 ended at 163.00. Therefore, the decline from 163.00 to 116.85 is now treated as wave 5 which also marked the end of larger degree wave (III), hence wave (IV) major correction has commenced for retracement of the wave (III) from 241.38 and upside target at 183.95-00 (50% Fibonacci retracement of the wave (II) from 241.38) had been met, a drop below 160.00 would suggest wave (IV) has ended at 195.85, bring decline in wave (V) for initial weakness to 130 (already met) and 120.


The US labor market cooled somewhat in May, data showed on Friday. Nonfarm payrolls rose by 138k, notably less than the consensus of 185k, while last month's figure was revised down to 174k from 211k previously. The unemployment rate ticked down, but that decline was probably owed to a drop in the labor force participation rate. This suggests that people may have been discouraged and perhaps stopped looking for a job altogether, resulting in fewer registered unemployed people. Meanwhile, average hourly earnings slowed to +0.2% mom in line with expectations from +0.3% mom, though that kept the yearly rate unchanged at +2.5%.

USD/JPY tumbled on Friday following the softness in the US jobs data. The rate slid after it hit resistance near 111.70 (R2) to find support at the 110.30 (S1) barrier, marked by the low of the 18th of May. The price structure on the 4-hour chart suggests a short-term sideways range, between that obstacle and the resistance territory of 112.15 (R3). As a result, given our proximity to the lower bound of the range, we think the pair could rebound somewhat today and recover some of Friday's losses.

Despite the softness in these data, the Fed remains on track to raise borrowing costs next week, evident by market pricing for a June hike, which at the time of writing rests at roughly 95% according to the Fed funds futures. Given that a rate increase is almost fully priced in, we believe that market focus on the day will be on any signals the Committee's sends with regards to future hikes. Specifically, we will look for clues on whether or not the FOMC will deliver a “dovish hike”, communicating that the recent softness in the data could lead to slower hikes in the future. Indeed, slowing inflation, falling inflation expectations and flat wage growth, are all strong arguments in support of a relatively cautious tone by policymakers.

RBA policy gathering in focus

During the Asian morning Tuesday, the RBA policy decision will be in focus and the forecast is for the Bank to keep its policy unchanged. The minutes of the latest gathering showed that the Bank is still concerned about employment, noting that it is “carefully monitoring” developments around the labor market. Nonetheless, April's employment data that were released after that meeting were particularly strong, and we think that the Bank is likely to acknowledge this progress.

That said, we expect policymakers to refrain from appearing too upbeat. Even though Australian data are improving, some forward-looking indicators of the Chinese economy suggest economic activity there is cooling. Specifically, the Caixin manufacturing PMI entered the contractionary territory in May, which is likely to be worrisome news for the RBA, considering Australia's heavy trade exposure to China. What's more, the fact that iron ore prices have continued to slide since the latest RBA meeting enhances the case for a balanced tone by policymakers. Bearing these in mind, we think that AUD could gain if officials acknowledge the progress of the jobs market, but we do not expect any such reaction to be major.

AUD/USD rebounded on Friday after it hit support at 0.7375 (S3), near the upside support line taken from the low of the 9th of May. Although the rate is trading above that line, it remains below the downside resistance line drawn from the peak of the 17th of April. Therefore, we consider the short-term outlook to be flat for now. We would like to see a clear move above 0.7475 (R1) before we get confident on further upside extensions. Something like that could initially aim for our next resistance of 0.7515 (R2).

Today's highlights:

During the European day, the UK services PMI for May is due out and the forecast is for a decline. Even though this could hurt sterling somewhat, we maintain the view that market focus is likely to remain on incoming polls as we draw closer to Election Day on Thursday.

From the US, we get the ISM non-manufacturing PMI for May and the consensus is for the index to have slid somewhat. However, such a decline would still leave the figure at a very elevated level, consistent with strong growth in the non-manufacturing sector. Therefore, we doubt that such a pullback will materially alter investors' expectations regarding the Fed's hiking plans from June onwards, and thus, we expect it to not hurt USD much.

Markets will remain closed in Germany, France, Switzerland, Norway and Sweden in celebration of Whit Monday.

As for the rest of the week, we have a very busy schedule that is packed with potential market-moving events. On Tuesday, the RBA will announce its rate decision as we outlined above. On Wednesday, the only event that could attract some market attention is Australia's GDP for Q1. Meanwhile on Thursday, the UK General Election, the highly anticipated ECB policy meeting, and a testimony by former FBI Director Comey before the US Senate are all likely to keep investors on the edge of their seats. Finally on Friday, we will get China's CPI and PPI data, as well as Canada's employment figures, all for May.

USD/JPY

Support: 110.30 (S1), 109.70 (S2), 109.35 (S3)

Resistance: 111.25 (R1), 111.70 (R2), 112.15 (R3)

AUD/USD

Support: 0.7420 (S1), 0.7395 (S2), 0.7375 (S3)

Resistance: 0.7475 (R1), 0.7515 (R2), 0.7550 (R3)

'A sustained rebound in residential building provides an encouraging sign that the recent soft patch for property values has not deterred new housing supply.' — Tim Moore, IHS Markit

Construction activity rose at the fastest pace since the end of 2015 last month, a private survey showed on Friday. Markit/CIPS reported that its Purchasing Managers' Index for the UK construction sector came in at 56.0 in May, following the preceding month's 53.1. Meanwhile, market analysts anticipated a decline to 52.7 points during the reported month. The construction sector accounts only for about 6% of the UK economy. Nevertheless, May's construction and manufacturing PMI survey suggested that the economy gained positive momentum in the second quarter. Friday's data showed that housebuilding climbed at its fastest pace since December 2015, with commercial construction rising at the strongest rate since March 2016. Markit also highlighted that British builders employed more people and ordered more raw materials to cope with surges in order inflows. Despite the stronger-than-expected PMI for both construction and manufacturing sector, Monday's release of the PMI for the services sector will provide a clearer picture of the British economy, as services activity accounts for about 70% of the economy.

• Sterling slides ahead of close election
• USD strengthened by safe haven flows
• Heavy data week awaits us

After deranged murderers went on a rampage in central London and were thankfully put down by the police before further carnage, there is a growing acceptance that tolerance of these extremist views cannot be excused any more. Hate and violence is no less acceptable when shrouded with pseudo-faith overtones than it is when the perpetrator is any other kind of lunatic. It is impossible for any sane person not to feel so very sad for those who perished or were injured and so very sorry for their families and friends, but also for anyone who saw such unthinkable acts of violence. All have had their world changed by just a few seconds of madness. I really hope Theresa May meant it when she said 'Enough is enough'. Actions are now needed to fulfil the Government's primary objective – to keep the people safe. It will be too late for the victims in Manchester and London, but there are 65 million or more who need that certainty.

On Friday, the US employment report was a disappointment and the US Dollar weakened as a result. It did bounce back after the UK attacks, as investors reacted by buying safe haven US treasuries. That is a common reaction and the unwinding of that knee-jerk reaction is also fairly standard fayre.

Aside from the weekend's horrific events, and rather cruelly it seems, the rest of the world carries on. For the UK financial markets, the major event happens this week. If the pollsters have got their sums right (no certainty of that, of course) Thursday's UK general election is a much tighter affair than anyone would have predicted a month ago. Each new poll tugs the Pound around, but it is inevitable that Sterling will remain weak as we approach Thursday and the result in the early hours of Friday will have a significant impact.

The general rule of thumb suggests that a result of no overall majority will knock Sterling down like a straight right from Anthony Joshua. The resolution of that situation into a coalition or a minority government wouldn't really help the Pound much. A small majority for the Tories would allow the Pound to bounce back a little; and the removal of the uncertainty an election brings would do that in any event. A significant majority for the Conservatives would, it would seem from the reactions to various polls, considerably boost Sterling. I cannot find any pollsters who predict a Labour victory, but they got the Brexit result wrong, the Scottish Independence result wrong, and the last election wrong, so who knows? The current odds being offered by Coral's are 'twelve to one on' for a Tory win and thirteen to two for a Labour one. Have you ever seen a broke bookie?

For fear of being a parochial one-story reporter, I must mention the other news of the week. We will get a shower of Service Sector Sentiment Indices in the early part of the week. These come from the EU, UK and US; and a number of other countries besides. Later in the week we get the National Institute of Economic and Social Research (NIESR) estimate for UK Gross Domestic Product (GDP) growth in May (a slight improvement is forecast) and we'll get Chinese Inflation data, Canada's Employment report, which is forecast to be a little more positive. CAD buyers; like most GBP sellers, may wish to act before the election to avoid the risk of a weaker Pound anyway.

As well as the UK election, Thursday brings the European Central Bank (ECB) interest rate decision. The decision will be to leave everything on hold, so little change is forecast from that.

There is a lot more besides and I will cover that throughout the week, but for now I will leave you with some of the more bizarre news headlines ever seen. These include the comprehensive 'Son of Westboro Baptist Church Leader attacked on live TV by naked 500lb man who burst out of the bathroom, sat on him and shouted "Who's your daddy now?"' No further text is required for that one. The other one that makes you read it twice is ' Woman in sumo wrestler suit assaulted her ex-girlfriend in gay pub after she waved at a man dressed as a Snickers bar.' And this is not funny but the headline reads, 'One-armed man applauds the kindness of strangers'. Finally, 'Psychics predict the world didn't end yesterday.'

Thank you

A thank you to all the men and women in and out of uniforms who run toward danger so that we can run away. Thank you to all the health workers who arrive at a scene of devastation and deal with each individual as though they were the only thing that matters. And a thank you to their loved ones for supporting them in what they do. It is only at times like these that we see the true value of their valour and expertise.

'Taken with the downward revisions, [report] suggests a continuation of the combination of slow GDP growth and weak productivity growth, emphasising the need for structural reforms in tax, regulatory, and entitlement policies.' — Douglas Holtz-Eakin, American Action Forum

US companies created less new positions than expected last month, whereas the jobless rate dropped unexpectedly. The US Department of Labour reported on Friday that the US private sector added 138K new jobs to the economy in May, following the preceding month's downwardly revised reading of 174K and falling behind expectations for a 181K gain, while the ADP Report showed Thursday that private payrolls rose 253K in May. Meanwhile, the unemployment rate dropped unexpectedly to 4.3% during the same month, while analysts expected the rate to remain unchanged at 4.4% last month. The jobless rate fall was mainly driven by the nation's drop in the labour force participation rate to 62.7%, the lowest since May 2001. Apart from that, average hourly earnings climbed 0.2% in May, in line with analysts' forecasts. In the meantime, April's increase of 0.3% was revised down to a 0.2% gain. Despite Friday's weak figures, the odds for a rate hike in June remained high at 93.5%. However, some analysts suggested that if inflation growth remains unstable it would be hard for the Federal Reserve to continue raising rates.

EURUSD maintains a bullish market structure. The market is consolidating in the near-term after a strong rally from the 1.0840 area that started in early May. Prices hit a fresh six-month high of 1.1284 last Friday but the rally stalled here as the market is close to overbought levels. This is indicated by the RSI being near 70.

The bias remains on the upside, with focus on key resistance at 1.1300. A decisive break of this level would strengthen the bullish bias and target the June 2016 high of 1.1427. From here, there is scope to target the 1.1600 handle.

A move lower would target support at 1.1075 (May 18 low). This level is close to the 23.6% Fibonacci retracement level of the rise from 1.0340 (January 3 low) to the June 2 high of 1.1284. Below this, next support comes into view at 1.0810. This support is defined by the 50% Fibonacci as well as the 200-day moving average.

Looking at the bigger picture, the bullish medium-term market structure continues to build, as the market is carving out higher highs and higher lows since January. MACD is rising, while the bullish crossover of the 50-day MA with the 200-day MA on May 22 also highlights the bullish bias.

'The Bank of Canada has been looking for that for the length of 2016 but has been largely disappointed, but maybe it is starting to materialise as we move into 2017.' - Paul Ferley, Royal Bank of Canada

The Canadian trade deficit narrowed in April but less than expected, as imports growth offset exports growth. Statistics Canada reported on Friday that country's trade gap narrowed to C$0.4B in April, following the previous month's deficit of C$0.9B. Meanwhile, analysts anticipated a shortfall of just C$70M. Canadian exports advanced 1.8% in April to C$47.7B, compared to March's gain of 3.2%. Shipments of motor vehicles and parts climbed 4.4%, whereas exports of energy rose 2.5%. Canadian imports rose for the fifth consecutive month in April, posting a 0.6% gain to C$48.1B amid higher shipments of consumer goods, electronic and electrical equipment and parts. Exports to the country's southern neighbour, the United States, which accounted for 75.7% of all exports in April, surged 5.4%, whereas imports rose just 1.1%. Thus, the Canadian trade surplus with the US rose to C$5.0B, the biggest since May 2014, from March's C$3.4B. Separately, Statistics Canada reported that the labour productivity of businesses increased 1.4% in the March quarter.