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Daily Pivots: (S1) 0.9644; (P) 0.9702; (R1) 0.9735; More.....

Intraday bias in USD/CHF remains on the downside as fall from 1.0099 has just resumed. Current decline is part of the whole fall from 1.0342 and should target 100% projection of 1.0342 to 0.9860 from 1.0099 at 0.9617. We'll start to look for reversal signal below there. But in any case, break of 0.9807 resistance is needed to indicate short term bottoming. Otherwise, near term outlook will remain bearish in case of recovery.

In the bigger picture, USD/CHF is 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.

Daily Pivots: (S1) 110.41; (P) 110.82; (R1) 111.16; More...

Intraday bias in USD/JPY is turned neutral as the consolidation from 110.23 should be extending with another rise. Further rebound might be seen to 112.12. But upside should be limited by 61.8% retracement of 114.36 to 110.23 at 112.78 to bring fall resumption. Below 110.23 will turn bias to the downside and will likely resume the fall from 118.65 through 108.12 low. At fall from 118.65 is seen as a correction, we'll look for bottoming signal again at 61.8% retracement of 98.97 to 118.65 at 106.48. However, sustained break of 112.78 will turn focus back to 114.36 resistance instead.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Quick update: Dollar has little reaction to better than expected ISM manufacturing, which rose 0.1 pt to 54.9 in May.

Dollar strengthens mildly in early US session as lifted by solid job data. The ADP report showed impressive growth of 253k in private sector jobs in May, much higher than expectation of 181k. Mark Zandi, chief economist at Moody's Analytics Inc. described the job growth as "rip roaring". And he noted "the current pace of job growth is nearly three times the rate necessary to absorb growth in the labor force. Increasingly, businesses' number one challenge will be a shortage of labor." Moody's helps ADP produce the report.

Initial jobless claims rose 13k to 248k in the week ended May 27, above expectation of 238k. But that's still way below the 300k mark. It's the 117 straight weeks that the data is below this 300k level, longest run since early 1970s. The four week moving average rose 2.5k to 238k, up slightly from prior week's figure which was at a 44-year low. Continuing claims dropped 9k to 1.92m, staying below 2m handle for seven straight week, best streak since 1974.

Dollar index staying bearish

Dollar index is back at 97.2 after tipping to 96.90 earlier today. Nonetheless, there is no change in the bearish outlook, at least, not until a break of 97.77 resistance to indicate short term bottoming.

San Francisco Fed Williams expects 3-4 hike this year

San Francisco Fed President John Williams expressed his optimism on the economy and noted that a total of three rate hikes this year as his base case. Meanwhile, four hikes is also an option if the US economy improves further. He noted that "there is potential for upside occurrences in the economy. One big question mark is if there is big fiscal stimulus or other changes in the outlook that we see the economy is doing better than we thought." And, "in the end we are only moving gradually and to a relatively low level, 3 percent or less," he said.

Fed Governor Powell: balance could be halved by 2022

Fed Governor Jerome Powell said that the USD4.5T balance sheet of Fed could eventually be shrank to between USD2.4T to USD 2.9T by 2022. Nonetheless, that would still be 2-3 times the pre-crisis size at USD 0.9T. Meanwhile Powell showed little concern regarding recent slowdown in inflation and said that could be explained by "transitory factors". He expects strong spending and tightening labor market to pull up wages and prices.

UK Conservative stepping up campaign

In UK, in response to losing lead over Labour, Conservative is stepping up their election campaign on the Internet. A one-minute clip attacking Labour leader Jeremy Corbyn got 5m views on facebook since it was published last Friday and millions on YouTube. The clip focused on things like Corbyn's opposition to anti-terror legislation and push for cut in military spending. The "American style" campaign is seen by as a breakthrough by some analysts as the British used to resist such an approach. While the number of views of the video was impressive, the impact is unsure. The election was predicted to be a landslide victory for Prime Minister Theresa and it's now an open one with realistic possibility of even a hung parliament.

More on UK election in Sterling Volatility Soars Ahead Of Election

UK PMI manufacturing dropped o 56.7 in May, down from 57.3, but beat expectation of 56.5. Markit noted that "the sector should have sufficient momentum to see it through the uncertainty generated by the current unexpected general election and into the start of Brexit negotiations." Meanwhile, "the trend in foreign demand (is) continuing to improve only in fits and starts, despite the assistance of a historically weak sterling exchange rate." Also from UK, Nationwide house price dropped -0.2 mom in May.

Germans urge ECB to discuss changing forward guidance

In Germany, Bundesbank President Jens Weidmann the ECB Governing Council is "beginning to discuss" whether and when to adjust the forward guidance. That is warranted by the "current economic outlook together with the improvement in the balance of risks". Separately, ECB Executive Board member Sabine Lautenschlaeger said that "all ingredients for an appropriate increase in prices are present." And, "against that backdrop, we should prepare to slowly reduce the dose of monetary medicine."

Released from Swiss, GDP rose 0.3% qoq in Q1, below expectation of 0.5% qoq. Retail sales dropped -1.2% yoy in April, below expectation of 2.4% yoy. SVME PMI dropped to 55.6 in May, down from 57.4, below expectation of 57.8. From Eurozone, PMI manufacturing was finalized at 57.0 in May. Italy GDP rose 0.4% qoq in Q1, manufacturing PMI dropped to 55.1. in May.

BoJ Harada: No big long term losses on stimulus exit

BoJ board member Yutaka Harada addressed the concerns of stimulus exit and noted that the central bank won't suffer large long-term losses because of that. Harada said that it's "of course possible" that BoJ would register losses because it will "receive low interest rates while paying high interest rates". But such losses will be temporary. Instead, BoJ will "always make a profit in the long rung as it can buy high-yielding government bonds using cash and current account deposits that carry almost no cost." Regarding the economy, he pointed to the fall in unemployment rate to 2.8% and emphasized that "if this trend continues and the jobless rate falls further, there's no doubt prices will rise".

Released from Japan, capital spending rose 4.5% in Q1, above expectation of 3.9%. PMI manufacturing was finalized at 53.1 in May.

China's manufacturing sector contracted for the first time in almost a year

China's manufacturing activities contracted for the first time in 11 months, as Caixin/Markit's PMI index suggested. The report shows that the manufacturing PMI dropped -0.7 points to 49.6 in May (a reading below 50 signals contraction), compared with consensus of a milder drop to 50.1. While the sub-indices of output and new business remained in the expansionary territory, but both fell to their lowest levels since June last year. Meanwhile, the sub- indices of input costs and output prices drifted to the contractionary territory for the first time since June 2016 and February 2016, respectively. Meanwhile, the sub-index of stocks of purchases showed renewed decline. The rebound in the sub-index of stocks of finished goods suggested that companies stopped restocking as inventory levels increased. More in China's Manufacturing Sector Contracted For First Time In Almost A Year.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 110.41; (P) 110.82; (R1) 111.16; More...

Intraday bias in USD/JPY is turned neutral as the consolidation from 110.23 should be extending with another rise. Further rebound might be seen to 112.12. But upside should be limited by 61.8% retracement of 114.36 to 110.23 at 112.78 to bring fall resumption. Below 110.23 will turn bias to the downside and will likely resume the fall from 118.65 through 108.12 low. At fall from 118.65 is seen as a correction, we'll look for bottoming signal again at 61.8% retracement of 98.97 to 118.65 at 106.48. However, sustained break of 112.78 will turn focus back to 114.36 resistance instead.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Economic Indicators Update

USD/CHF - 0.9707

Original strategy :

Sell at 0.9720, Target: 0.9620, Stop: 0.9755

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9740, Target: 0.9640, Stop: 0.9775

Position : -

Target :  -

Stop : -

Although the greenback did stage the anticipated rebound to 0.9808 (our long position entered at 0.9700 met target at 0.9800), dollar ran into heavy selling pressure at 0.9808 earlier this week and has dropped sharply since, the subsequent breach of previous support at 0.9692 confirms recent decline has resumed and may extend further weakness to 0.9655-60, then 0.9630, however, near term oversold condition should prevent sharp fall below 0.9600-05 (50% projection of 1.0100-0.9692 measuring from 0.9808), bring rebound later.

As we already took profit on our long position entered at 0.9700, we are looking to turn short on recovery as 0.9735-40 should limit upside and bring another decline. Only break of resistance at 0.9761 would abort and suggest a temporary low is possibly formed, risk test of said resistance at 0.9808 but only break there would provide confirmation.

GBP/USD - 1.2865

Original strategy :

Sold at 1.2910, Target: 1.2810, Stop: 1.2900

Position : - Short at 1.2910

Target :  - 1.2810

Stop : - 1.2900

New strategy  :

Hold short entered at 1.2910, Target: 1.2810, Stop: 1.2900

Position : - Short at 1.2910

Target :  - 1.2810

Stop : - 1.2900

Although sterling rebounded after falling marginally to 1.2769 yesterday, as price has retreated after meeting resistance at 1.2921, retaining our bearishness and as long as this level holds, consolidation with mild downside bias is seen for weakness to 1.2800-10, however, said support at 1.2769 should hold from here and bring another rebound later today or tomorrow.

In view of this, we are holding on to our short position entered at 1.2910. Above 12921-26 (said resistance and previous support) would defer and suggest low is formed instead, bring a stronger rebound to 1.2950 but upside should be limited to 1.2990-00.

EUR/USD - 1.1214

Original strategy  :

Bought at 1.1205, Target: 1.1305, Stop: 1.1170

Position : - Long at 1.1205

Target :  - 1.1305

Stop : - 1.1170

New strategy  :

Hold long entered at 1.1205, Target: 1.1305, Stop: 1.1170

Position : - Long at 1.1205

Target :  - 1.1305

Stop : - 1.1170

As the single currency has retreated after marginal rise to 1.1257 earlier today, suggesting consolidation below this level would be seen, however, reckon the upper Kumo (now at 1.1184) would limit downside and bring another rise later, above said resistance at 1.1257 would extend gain to previous resistance at 1.1268, break there would confirm early upmove has resumed and test of another previous chart resistance at 1.1300 would follow, above there would encourage for headway to 1.1340-45, however, overbought condition should limit upside to chart point at 1.1366.

In view of this, we are holding on to our long position entered at 1.1205. Only below support at 1.1164 (yesterday’s low) would abort and suggest a temporary top is formed instead, risk weakness to 1.1140 but said support at 1.1109 should remain intact, bring rebound later. 

USD/JPY - 111.32

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Current breach of indicated resistance at 111.23-24 signals low has indeed been formed at 110.48 and near term upside risk remains for a strong retracement of the fall from 112.13, hence gain to 111.47-50 (another previous resistance and 61.8% Fibonacci retracement of 112.13-110.48), then 111.70 is likely, however, as broad outlook remains consolidative, reckon upside would be limited and resistance at 111.95 should hold from here. 

On the downside, whilst pullback to 111.00-05 cannot be ruled out, reckon downside would be limited to 110.80 and said support at 110.48 should remain intact, bring another rebound later. Only a break below 110.48 would extend recent decline to another previous support at 110.24, below there would bring subsequent selloff to 110.00 which is likely to hold on first testing. As near term outlook is mixed, would be prudent to stand aside in the meantime.

Thursday June 1: Five things the markets are talking about

Capital markets are currently experiencing a number of pressure points that are managing to keep investors on the toes.

Sterling remains soft on investor fears that PM Theresa May could lose control of parliament in next week's U.K General Election (June 8). Yesterday's YouGov poll showed May could be well short of the number of seats needed to form a government, raising the prospect of political turmoil just as formal Brexit talks are about to begin.

In China, equities closed under pressure after a private survey - the Caixin manufacturing gauge - revealed that the country's manufacturing activity contracted last month for the first time in nearly a year. The results differed with yesterday's data that suggested growth remained relatively steady.

In the U.S, aside from Trump's administration being under FBI scrutiny, a decision by the President on whether the U.S will remain in the Paris agreement - global pact to fight climate change - will keep markets and investors on edge (3:00 pm EST).

At 10:00 am EST U.S manufacturing ISM data is expected to show it expanded at a robust pace last month (54.7).

1. Stocks mixed results

In Japan, the Nikkei snapped a four-day losing run (+1.1%) on upbeat data and a weaker yen (¥110.11). Indicators released overnight showed that corporate Japan picked up the pace of capital expenditures Q1. The broader Topix also traded in the black (+1.1%) after trading up +2.4% in May for its biggest monthly gain year-to-date.

In Singapore, the Straits Times Index climbed +0.5%, while down-under, the Aussies S&P/ASX 200 Index rose +0.2% after swinging between gains and losses amidst economic releases from China.

In Hong Kong, the Hang Seng Index climbed +0.5% after completing its fifth consecutive monthly gain.

In China, the Shanghai Composite Index slipped -0.5% percent, after a four-day rally on investor profit taking.

In Europe, indices are trading higher across the board with notable outperformance in Italy, and France. A number of softer corporate earnings and commodity and energy prices are providing slight pressure to the FTSE 100; however, a weaker pound is capping current losses at the moment.

In the U.S, stocks are expected to open in the black (+0.1%).

Indices: Stoxx50 +0.5% at 3573, FTSE +0.3% at 7545, DAX %+0.4 at 12670, CAC-40 +0.8% at 5325, IBEX-35 +0.1% at 10893, FTSE MIB +1.3% at 20993, SMI +0.6% at 9068, S&P 500 Futures +0.1%

2. Oil rises on U.S stockpile draw, doubts over climate accord

Ahead of the U.S open, oil prices are rallying from yesterday's three-week low, mostly supported by expectations that the U.S could pull out of the Paris climate agreement and by yesterday's report that showed U.S stockpiles falling more than expected.

Note: Trump said he would announce at 3:00 pm EST his decision on the agreement.

Brent crude futures are up +58c, or +0.8%, at +$51.34 a barrel - on Wednesday, it fell -$1.53, or -3%, to close at +$50.31 a barrel.

Note: It was Brent's lowest close since May 10 and the contract dropped -2.7%in May, the third monthly decline.

U.S West Texas Intermediate is up +64c, or +0.8%, at +$48.96 a barrel - it dropped -$1.34, or -2.7%yesterday to settle at +$48.32 per barrel.

Note: It was the lowest close since May 12. The U.S benchmark also fell for a third month in May, declining -2%.

API data yesterday showed that crude inventories were down by -8.7m barrels at +513.2m in the week to May 26. The market was expecting a -2.5m drawdown.

Note: The U.S EIA report is due at 11:00 am EDT, delayed by a day because of the Memorial Day holiday this week.

Gold has edged lower overnight (-0.2% at +$1,266.08 per ounce), but held near the five-week highs hit in the previous session, as expectations that the U.S. Federal Reserve will hike interest rates this month weighed on prices but geopolitical concerns provided some support.

3. Global yield curves little changed

U.S Treasuries have rallied this week on month-end buying adding to demand that has been building along with declining inflation expectations.

The yields on U.S 10's settled yesterday at +2.198%, and have backed up +1 bps ahead of the U.S open.

Data on Tuesday showed the Fed's preferred gauge of inflation - PCE - ticked up in April, but on an annual basis, remained stuck below the Fed's +2% target.

Elsewhere, benchmark yields in Australia backed up +1bps to +2.40%.

4. Dollar looking for direction

USD is trying to find its 'sea legs' in the first day of trading in a new month. The next couple of session will see various job-related data (today's ADP at 08:15 am EDT, and tomorrow's non-farm payroll (NFP) report at 08:30 am EDT) dictate the greenbacks rate differential direction.

Elsewhere, the EUR (€1.1227) continues to probe its seven month highs supported by the Bundesbank speak that the current eurozone outlook would suggest that the ECB should start to discuss "whether and when to change forward guidance."

Sterling (£1.2849) trades well under the psychological £1.29 handle as the currency continues to face headwinds ahead of next week's U.K Parliamentary election.

Note: More polls continue to showing PM May's Conservative in front, but her lead continues to dwindle.

Times/YouGov general election weekly poll: Conservatives +42% (-1pts), Labour 39% (+3pts)

Sun/SurveyMonkey general election poll: Conservative Party +44% (unchanged), Labour Party +38% (+2pts)

5. Eurozone Manufacturing PMI Unrevised

Data this morning shows that the manufacturing PMI for the eurozone was unrevised at 57.0 in May, up from 56.7 in April and in line with market expectations - (Beats: Germany, U.K, Spain, Russia, Hungary, Turkey; Misses: France, Italy, Sweden, Norway, Poland).

The measure points to robust growth in the sector, with businesses reporting that they added new workers at the fastest pace in the twenty-year history of the survey.

Digging deeper however, businesses raised their prices at the slowest pace in four-months, an indication that the stronger economic recovery may not lead to a sustained rise in inflationary pressures and would suggest that the ECB remains on the side line in the medium term.

The DAX index has posted small gains in the Thursday session. Currently, the DAX is trading at 12,656.25 points. On the release front, German and the Eurozone Manufacturing PMIs both indicated expansion. German Manufacturing PMI improved to 59.4, a shade under the estimate of 59.5. The Eurozone report rose to 57.0, matching the forecast. The US will release ISM Manufacturing PMI. Employment data is in the spotlight for the remainder of the week. Thursday's releases include ADP Nonfarm Payrolls and unemployment claims. On Friday, the US releases Nonfarm Employment Change, which is expected to drop to 186 thousand.

A solid and reliable German economy has been the backbone of an improved eurozone economy in 2017, but recent consumer spending data is raising concerns that the largest economy in the euro-area is slowing down. In April, retail sales declined 0.2%, compared to a forecast of +0.4%. This marked the third decline in 2017, and if there is further contraction in the second quarter, the eurozone economy could be in trouble. Although the German labor market remains strong, this has not translated into higher inflation, which declined 0.2% in May, after a flat reading of 0.0% in April.

The US labor market remains very strong, boasting an unemployment rate of just 4.4%. Despite healthy employment numbers, the US economy was unable to avert a slowdown in the first quarter of 2017, and it's questionable if we'll see improvement in the second quarter. Still, a rate hike from the Federal Reserve at the June 14 meeting remains very likely, with the odds of a 0.25% hike priced in at 89%. As for the second half of 2017, the likelihood of rate move is significantly lower. The odds for a September rate stand at just 26%, with the markets skeptical as to whether the Fed will make further moves this year if inflation remains below the Fed target. Political concerns are a serious worry, as the Trump administration is embroiled in scandals, with several congressional investigations probing into Trump's alleged connections with Russian politicians. A weakened White House raises doubts if Trump will be able to keep his election promises to lower taxes and cut government spending.

The EUR/JPY has formed a cup with handle pattern (blue rectangle) and currently it is targeting D H4/ 100 % Fibonacci extension confluence. The POC zone serves as a strong support and possible now moment buyers could buy from the zone if we see a retracement into the POC zone. The POC 124.30-50 (EMA 89, trend line, handle top, ATR pivot, 61.8 Fib extension). EUR/JPY is targeting 124.98 and if we see a 1h breakout or 4h close above the level then 125.30 is possible.