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USD/CHF Bearish breakout.

USD/CHF has finally broken support given at 0.9692 (22/05/2017 low). Strong resistance is given at 1.0107 (10/04/2017 high). Expected to show continued weakness towards hourly support at 0.9692.

In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

USD/CAD Growing short-term bullish momentum.

USD/CAD is trading around 1.3500. The pair has exited downtrend channel. Hourly support can be found at 1.3424 (28/05/2017 low) then 1.3388 (25/01/2017 high). Expected to show very short-term bullish pressures,

In the longer term, there is now a death cross with the 50 dma crossing below the 200 dma indicating further downside pressures. Strong resistance is given at 1.4690 (22/01/2016 high). Long-term support can be found at 1.2461 (16/03/2015 low).

AUD/USD Bearish pressures are strong.

AUD/USD is pushing lower. Hourly support is given at 0.7329 (09/05/2017 low). As long as prices remain below resistance at 0.7608 (17/04/2017 high), there are strong downside risks. Expected to remain below 0.7400.

In the long-term, we are waiting for further signs that the current downtrend is ending. Key supports stand at 0.6009 (31/10/2008 low) . A break of the key resistance at 0.8295 (15/01/2015 high) is needed to invalidate our long-term bearish view.

EUR/USD Moving higher.

EUR/USD is pushing higher towards strong resistance given at 1.1300 (09/11/2017 high). Hourly support is given at 1.1110 (22/05/2017 low) has been broken. Stronger support lies at 1.0842 11/05/2017 low) and key support is given at 1.0494 (22/02/2017 low). Expected to show continued bullish pressures.

In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD Failed to monitor support at 1.2757.

GBP/USD is bouncing around support given at 1.2757 (21/04/2017 low). Hourly resistance lies at 1.3046 (18/05/2017 high). Expected to show renewed bearish pressures.

The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY Continued weakness.

USD/JPY has exited the symmetrical triangle and keeps pushing lower. Hourly support is given at 110.24 (18/05/2017 low). Stronger support is located at 108.13 (17/04/2017 low). Other key supports lie at a distant 106.04 (11/11/2016 low). The road is wide-open for further decline.

We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

Per the latest 'poll of polls' released yesterday May 31, conducted by the Press Association based on a 7-day rolling average of all published polls, approval ratings for the Conservative and Labour Parties are 44% and 35% respectively. The Conservatives' lead is 9% which is higher than the previous shocking low 5% lead.

Currently the breakdown of the 650 seats in the House of Commons are: The Conservative Party has 330 seats, the Labour Party has 229 seats, the SNP has 54 seats, the Liberal Democrats has 9 seats and “other” parties have 28 seats.

Notably, per the latest prediction conducted by YouGov, the Conservative Party will likely win 310 seats, Labour 257, SNP 50 and the Liberal Democrats 10. That said, it is likely that none of the parties will win more than half of the 650 seats, which is at least 326 seats.

The reason behind the snap election decision was to increase the Conservatives' dominance in Parliament. However, now it looks ironic that the Conservatives will likely have 20 seats less than their present 330 after the election, and Labour will likely gain nearly 30 seats.

If the YouGov's prediction is correct Theresa May might face the crisis of stepping down which would likely result in a GBP sell-off. The Conservative Party now must do the final sprint before June 8th to win 16 seats more (326 – 310) for a modest victory.

If none of the parties win more than half of the seats, then it will result in a Hung Parliament. In this situation, the majority party must consider whether to remain as a narrow majority or to unite with other smaller parties. After the 2010 general election, the Conservative Party chose to unite with the Liberal Democrats.

On Wednesday, GBP/USD weakened and tested the significant support line at 1.2800 again, hitting a 5-week low of 1.2768. It was followed by a robust rebound, testing the near term major resistance level at 1.2900, hitting a 3-day high of 1.2920, then corrected by around 80 points. In early trading on Thursday June 1st. GBP/USD is at 1.2875. Be aware that before the election outcome is released increased uncertainty will likely pose downward pressure to GBP.

US Pending home sales (YoY) released yesterday saw a 3.3% drop in April from a 0.8% growth in March, marking the biggest drop since June 2014. After the release of the data, USD weakened across the board.

The dollar index hit a 1-week low of 96.78, marking a 0.35% intra-day fall. USD/JPY hit a 2-week low of 110.47. The weakening of USD pushed gold up, spot gold rallied 0.46%, hitting a 5-week high of 1274. EUR/USD rallied 0.5%, hitting a 1-week high of 1.1255. GBP/USD hit a 3-day high of 1.2920. USD rebounded in US afternoon session. On Thursday in early European session, the dollar index bounces and tests the 97.00 resistance level.

The crucial US ISM manufacturing PMI for May will be released this afternoon at 15:00 BST. It has remained above 50 since October 2016, however, seeing a falling trend over the past three months. Be aware that it will likely cause volatility for USD and USD crosses.

'That should allow the ECB to continue to stress that underlying inflation pressure in the euro area remains weak, despite strengthening growth, when it meets next week.' - Cathal Kennedy, RBC Capital Markets

Inflation in the Euro zone decelerated during the fifth month of the year, official figures revealed on Wednesday. Eurostat reported that its Flash Consumer Price Index for the 19-country bloc came in at 1.4% year-over-year in May, following the preceding months gain of 1.9% and missing expectations for an increase of 1.5%. Meanwhile, the so-called core inflation rate climbed 0.9% on an annual basis, compared to April's climb of 1.2%, whereas analysts anticipated a rise of 1.0%. Most of the fall in headline inflation came on account of tumbling energy prices. According to the report, the energy price advanced 4.6% in May after surging 7.6% in the prior month. Analysts suggested that the European Central Bank would likely delay its monetary stimulus reduction amid unstable inflation growth. Earlier in the week, the ECB President Mario Draghi acknowledged improving economic growth but stated that the Bank's stimulus should remain in place. According to economists, the Banks is unlikely to raise interest rates or withdraw some of its stimulus until inflation stabilises around the 2% target level.

'If we continue to get growth numbers like this, absent trade policy risks, it's going to be tougher for the Bank of Canada to avoid rate hikes at some point in the distance.' - Derek Holt, Scotiabank

The Canadian economy performed better than expected during the March quarter amid strong consumer spending and business investment. Statistics Canada reported on Wednesday that the domestic economy expanded at an annualised pace of 3.7% in the Q2 of 2017, following the preceding quarter's upwardly revised rate of 2.7% but slightly missing expectations for a 3.9% growth pace. Within March, the economy grew 0.5% after holding steady in February, whereas analysts expected the economy to expand at a 0.3% pace during the reported month. Analysts suggested that the economy's stronger-than-expected performance would move the Bank of Canada closer to raising interest rates. According to economists, the Bank is set to remain on hold until 2018. Following the release, some analysts revised up their forecasts for Canadian economic growth. According to them, the economy is expected to grow 2.7% this year. Strong GDP growth was mainly driven by higher business investment, which rose 3.7%, and higher consumer spending, which climbed 1.1% during the reported quarter.

'It's good to see the bounce-back but we don't expect to see a repeat as underlying consumption growth is still weak.' - Su-Lin Ong, RBC Capital

Australian retail sales rebounded markedly in April, fresh figures showed on Wednesday. The Australian Bureau of Statistics reported that retail sales climbed 1.0% in April on a seasonally adjusted basis, following the preceding month's downwardly revised drop of 0.2% and topping analysts' expectations for a 0.3% gain. April marked the first retail trade rise in the past four months. However, the increase was mainly attributed to temporary factors. The stronger-than-expected data release is set to please the Reserve Bank of Australia, which was concerned about surging real estate prices. The café, restaurants and take away food services sector posted a 1.1% sales increase. A 1.2% sales climb was seen in food retailing, whereas department stores posted a 2.5% sales rise during the reported month. Sales of clothing and footwear advanced 0.3%, whereas sales of household goods increase 0.4%, following two consecutive months of declines. Analysts suggested that April's rebound was the answer to March's cyclone that hit the Queensland State. Sales in Queensland jumped 2.4% in April after five straight months of drops.

Russia: Upside pressures on the currency

In an effort to stabilize the ruble, Russia is looking to expand its Foreign-Exchange reserves (including Gold). Today, Russia will disclose this amount for the period ending 26 of May. Russia’s Central Bank has already made clear that one of its primary objectives is to increase those reserve holdings up to $500 billion as stated by Elvira Nabiullina, head of the central bank.

The reserves currently amount to $405 billion. By the way, Russian gold reserves could officially be above China gold reserves by year end. Regarding the state of the Russian economy, Nabiullina said the economy has been resilient regarding international sanctions. As a result she hinted that interest rates may go even lower. The key rate is standing at 9%.

Data-wise, inflation is collapsing, the last release printed at 4%. We recall that it was at an astonishing 16+% two years ago and the consumer prices growth is now standing at 4%. The unemployment rate is also on its way down and is now reaching 5.2%. However, real disposable income should continue its decline in May after the strong decline in April of -7.6%. We reload our RUB short position against the dollar for some more time and we target 57 ruble for one dollar in the short-term.

USD oversold

The data from the US continues to provide evidence that economic activity is improving from a soft 1Q. The ADP labor report and initial claims (180k and 238k respectively) are expected to indicate that labor markets remain strong and suggests a solid payroll read on Friday. In addition ISM manufacturing and construction spending (54.7 and 0.5% respectively) should indicated that growth is strengthening.

In the mid and long term we remain bearish on USD, however we currently see USD positioning oversold. European / US interest rates differentials have spread excessively wide in our view indicating a probable correction should the economic data force repricing of the Fed interest rate hikes. Today's Final EU PMI is unlikely to provide real insight into the European outlook.

We are constructive on the USD against G10 currencies in the short term. GBP continues to be driven by political uncertainty rather than economic fundamentals. Despite the fact that Theresa May missed a party leaders' debate and select polling results, bookmakers still assign a low probability of Labour ousting the Conservatives from power. Should the Conservatives hold on to power we anticipate a move to 1.30 on the reduction of domestic political concerns.

Brazil GDP expected to grow 1%q/q in the first quarter

Over the last couple of weeks, the Brazilian real has been mostly driven by political jitters rather than economic developments. The panic sell-off that took place after the alleged corruption of President Michel Temer is definitely over as market participants continued to discount an impeachment, in the short-term at least.

The real recovered partially from the sell-off with USD/BRL back below 3.25, compared to more than 3.40 exactly two weeks ago. Implied volatility eased substantially - 1m gauge fell to 14.74%, compared to 23.50% 2-weeks ago - suggesting that investors are confident again holding Brazilian assets.

On the fundamental side, the BCB cut the Selic rate by 1% yesterday. The decision was broadly expected by investors and had no effect on the currency. According to the latest BCB’s week survey, economists expect the Selic rate to reach 8.50% by year-end, while the main inflation gauge should stabilised 50bps below the central bank’s mid-point target of 4.50%.

As long as the political mess doesn’t escalate, we remain constructive on the real as investors mostly seized the opportunity to enter into long BRL positions at a discount. First quarter GDP growth is due for release later today. Growth is expected to have reached 1%q/q during the March quarter. A positive reading should accelerate the BRL recovery.

'The EUR/USD pair came under selling pressure in Asia, as risk-on trades gathered steam amid higher oil and Asian equities, which undermines the sentiment around the funding currency Euro.' – Dhwani Mehta (based on FX Street)

Pair's Outlook

EUR/USD was trading in a small range below the weekly R1 at 1.12480 since mid-Wednesday. Being at an eight-month high, traders may be cautious in terms of further appreciation, thus pushing the rate lower. As a result, the morning session can be characterised by weak volatility. It might be expected that the pair fails to trade above 1.1248, changing the situation in favour of the Euro bears. The closest support at 1.1204 is a rather distant target for today; thus, the price may halt somewhere in between the 1.1248/04 territory. Moreover, traders should be aware of fundamentals scheduled for today that may alter the pair's direction.

Traders' Sentiment

SWFX traders are bearish, as 60% of open positions are short. Meanwhile, pending orders remain neutral today.

'The narrowing in the polls has clearly dented sterling's performance and continues to weigh on the currency, and is probably likely to do so in the near term.' – Barclays (based on Business Recorder)

Pair's Outlook

For the third consecutive day yesterday the British currency was able to avoid losses and outperform the US Dollar, continuously retesting the wedge's support line. The Pound, however, is now expected to allow the Greenback to take the upper hand, which arises the risk of the wedge's lower boundary getting pierced today. Technical studies are still unable to confirm this possibility, meaning that the wedge's support could still succeed in limiting the losses; if not, the cluster around 1.2730 is likely to fulfil that task. We should also not rule out the possibility of another leg up, with the 1.2950 handle expected to be the intraday high.

Traders' Sentiment

There are 51% of traders holding long positions (previously 52%), but 57% of all pending orders are to buy the Sterling, up from 51%.

'The near-term balance of risk appears to favor JPY strength.' – Scotiabank (based on FXStreet)

Pair's Outlook

The USD/JPY pair's behavior fell in line with expectations yesterday, as the exchange rate remained relatively unchanged and no level of significance was pierced. Technically, the Greenback should rebound today, with the weekly S1 providing the required bullish momentum, but with the immediate resistance, namely thee 55-day SMA and the weekly PP, still remaining intact. On the other hand, technical indicators suggest the given pair is to decline today, which would make it the fifth consecutive drop. Poor ADP figures today could be the catalyst for a possible loss, however, it should not exceed 50 pips.

Traders' Sentiment

There are 53% of traders holding short positions today, compared to 57% on Wednesday. At the same time, the share of sell orders edged significantly higher, namely from 45 to 70%.