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Sunrise Market Commentary

• Rates: Range trading with US/UK markets closed
  Today's market calendar is extremely thin. US and UK markets are closed, suggesting low volume and sentiment and technically-driven trading. EMU M3 Money data are no market mover while ECB Draghi's speech in European Parliament is a wildcard if he would prepare markets for the June 8 ECB meeting.
• Currencies: Is enough USD softness discounted?
  At the end of last week, the dollar decline slowed even as US eco data were mixed. Today, USD trading might take a slow start with US/UK markets closed. Later this week, key US data including the payrolls and manufacturing ISM might decide whether enough USD softness is discounted.

The Sunrise Headlines

• US stock indices ended nearly unchanged last Friday. The S&P 500 closed for the 20th time this year at a new record level. Overnight, risk sentiment marginally deteriorated with Japanese stocks outperforming.
• North Korea launched a ballistic missile from a military base on its east coast in the latest show of force from the regime in Pyongyang. The missile is North Korea's 12th launch so far this year.
• Europe can no longer completely rely on other countries, Chancellor Merkel said, underlining her frustration with US President Trump at a G7 meeting of world leaders over the weekend. G7 leaders agreed to keep trade fair and fight protectionism, but the US took a separate position on climate change.
• SA President Zuma survived a bid by some members of the ANC's top leadership to order his removal from office, according to sources. The decision increases the odds that he will survive a no-confidence motion in parliament.
• OPEC and non-members led by Russia decided last Thursday to extend cuts in oil output by nine months to March 2018 as they battle a global glut of crude after seeing prices halve and revenues drop sharply in the past three years.
• SF Fed Williams said three interest-rate increases this year makes sense as the central bank takes gradual steps to tighten monetary policy and shrink its balance sheet to prevent the economy from overheating.
• Today calendar is extremely thin with only EMU M3 money data. ECB President Draghi speaks in front of European Parliament. US and UK markets are closed.

Currencies: Is Enough USD Softness Discounted?

Tentative signs of USD bottoming?

At the end of last week, the dollar showed no clear trend. The US currency lost slightly ground on Wednesday evening and on Thursday as US yields declined after the publication of the FOMC Minutes. Dollar trading became again more balanced towards the end of the week. In technical trade, USD/JPY remained in the defensive, but at same time EUR/JPY and EUR/USD also faced selling pressure. The move wasn't really due to risk aversion. US data were mixed and US equities traded stable near the all-time highs. USD/JPY finished the week at 111.33. EUR/USD closed the session at 1.1183

Overnight, Asian equities lose slightly ground with Japan outperforming. SF Fed Williams defended the case for three rate increases this year (including March), as he sees “the US economy is as close to the Fed's dual mandate goals as we' ve ever been”. He also advocates a very gradual reduction of the balance sheet. The comments are marginally supportive for the dollar, but there is no clear directional move. EUR/USD is trading in the 1.1165 area. USD/JPY hovers in a tight range in the 111.20/50 area.

Today, US markets are closed in observance of Memorial Day. In EMU, the M3 money supply data will be published, but they have usually only a limited impact on (FX) trading. ECB's Nowotny speaks at an Austrian Central Bank conference and ECB's Draghi talks before the European Parliament. Looking forward to next week's ECB policy decision, markets will look for an indication on a change in the ECB's forward guidance and on hints of scaling back policy stimulation. Of late, Draghi was very cautious on policy normalisation. The ECB president might give some subtle hints, but we expect him to maintain a balanced approach as the debate within the ECB is ongoing. Such a scenario might be neutral, maybe slightly euro negative in a daily perspective

Of late, the dollar traded soft. Recent US data were a bit disappointing and markets turned more cautious on the ability of Trump's administration to execute its pro-growth agenda. This weighed especially on LT-term US yields and kept the dollar in the defensive. At the same time, the euro was well bid as markets assume that ECB policy could gradually become less easy further out this year. This picture hasn't changed, but last week, there were tentative signs that the dollar decline could slow. Is enough USD softness discounted? The jury is still out.

We start the week with a more neutral bias on the dollar, especially against the euro. If US data don't surprise on the negative side, the dollar decline might bottom out. This week's payrolls and manufacturing ISM might be important in this assessment.

Technical picture

The USD/JPY rebound ran into resistance early May. A mini-sell-off/re-break below the 112.20 previous top aborted the uptrend and made the short-term picture negative even as US equities held up well. Return action lower in the 108.13/114.37 range is possible. Last week, the USD/JPY decline took a breather, but the global picture didn't change fundamentally.

Earlier this month, it looked that EUR/USD could revisit 1.0821/1.0778 support (gap). However, poor US data and political upheaval finally propelled EUR/USD north of the 1.1023 range top. The pair reached a short-term correction top at 1.1268. The correction top at 1.1300/1.1366 is next resistance. We think that USD sentiment will have to be extremely negative to clear this hurdle short-term. Further ST EUR/USD gains will become tougher. A return below 1.1023 would indicate that the upside momentum has eased.

EUR/USD rally running into resistance. This week's US eco data might decide on a possible USD rebound

EUR/GBP

Sterling suffers as PM May's lead in the polls declines

At the end of last week, sterling remained in the defensive. In technical trade, cable suffered more for a cautious USD rebound than the euro. Sterling also suffered from polls indicating that the lead of PM May's conservative party in the June 08 parliamentary election might be less big than assumed of late. EUR/GBP regained the 0.8700 big figure and closed the session at 0.8731. Cable finished the session at 1.2804. So, the test of the 1.30+ area is rejected.

UK markets are closed today for the Spring Bank Holiday. Technical trading in thin market conditions might be on the cards. A further erosion in the lead of the PM May's conservative party in the opinion polls might keep sterling in the defensive. Cable also looks more vulnerable to a rebound of the dollar compared to EUR/USD.

EUR/GBP rally continues even as euro global euro rebound slows

Download entire Sunrise Market Commentary

Market movers today

It is a relatively quiet start on the data front to a week that brings us important inflation releases in the US on Tuesday and in the eurozone on Wednesday.

Today in the eurozone we get figures for the M3 money supply and loan growth. M3 growth continues to hover around the 5% level with 5.3% growth in March. We expect a similar figure for April. More interestingly, loan growth was very strong in March. Both households and NFCs saw increases of respectively EUR16bn and EUR18bn in loans, leading to yearly growth rates of 2.4% and 2.3%. The figures should have been good news for the ECB as they show how well the monetary accommodation is transmitting to the economy.

In Sweden, we are set to receive both the Riksbank April financial market statistics, including household credit growth, and Statistics Sweden’s April trade balance data.

Selected market news

The Asian equity markets have had a mixed session amid modest trading volume this morning as the US, the UK and Chinese mainland markets are closed today. Japan and South Korea saw modest gains, while others posted small losses.

The oil price fell modestly this morning as WTI dropped below USD50. In the fixed income markets 10Y US Treasuries are trading at the 2.25% level, while 10Y JGBs continue to be kept in a tight range around 0%.

San Francisco Federal Reserve president John Williams stated in a speech in Singapore this morning that the US economy is strong enough to withstand three to four hikes from the Federal Reserve. There will be more speeches from Federal Reserve members this week ahead of the Fed meeting in June.

Asia Mid-Session Market Update: North Korea conducts another missile test; China industrial profits slow further

Friday US Session Highlights

(US) Q1 PRELIMINARY GDP ANNUALIZED Q/Q: 1.2% V 0.9%E; PERSONAL CONSUMPTION: 0.6% V 0.4%E

(US) APR PRELIMINARY DURABLE GOODS ORDERS: -0.7% V -1.5%E; DURABLES EX TRANSPORTATION: -0.4% V 0.4%E

(US) Q1 PRELIMINARY GDP PRICE INDEX: 2.2% V 2.3%E; CORE PCE Q/Q: 2.1% V 2.0%E

(US) MAY FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 97.1 V 97.5E; 5-10 year inflation expectations tick higher

(US) Atlanta Fed lowers Q2 GDP to 3.7% from 4.1% on 5/16

Politics

(US) Pres Trump: I suggest that we add more dollars to Healthcare and make it the best anywhere. ObamaCare is dead - the Republicans will do much better! - tweet

(JP) Japan PM Abe's Cabinet approval rating falls 4pts to 56% - Japan press

(ZA) South Africa President Zuma said to survive a proposal by the ANC NEC to have him removed – financial press

(CN) Since the start of 2016, China Pres Xi replaced 20 of Communist Party's 31 provincial secretaries and 27 governors - The Economist

Key economic data:

(CN) CHINA APR INDUSTRIAL PROFITS Y/Y: 14.0% V 23.8% PRIOR; YTD 24.4% V +28.3% PRIOR

(CN) China Ministry of Commerce (MOFCOM) reports Apr non-financial outbound direct investment $5.83B, -70.8% y/y

Asia Session Notable Observations, Speakers and Press

Asian equity markets are mixed and volatility is low with mainland China on holiday for Dragonboat Festival. US market holiday on Monday is adding to tepid price action across all assets. Friday's trading session was highlighted by improvement in US Q1 GDP thanks to better than initially reported consumption, though US Treasuries did not budge much and outlook for Fed rate hike next month remained just above 80%. On the flip side, Atlanta Fed lowered its Q2 GDP target to 3.7% from 4.1%.

G7 concluded its meeting in Italy with merely a vague commitment to existing exchange rate arrangements, pledge to "fight protectionism" and reduce global imbalances to support growth. Climate change friction amid speculated intentions by US Pres Trump to pull out of Paris Accord was among the more noteworthy developments, as leaders failed to bridge differences on the issue. The focus now turns to China-EU investment agreement taking place next weekend, as Europe appears to pivot toward greater cooperation with the East

Australia index is a notable decliner amid weakness in Energy and Mining sectors, while Korea's Kospi continues to outperform with its 8th consecutive gaining session to reach record high above 2,360. Geopolitical concerns have not deterred the rally in the index, as North Korea fired another projective deemed to be a scud missile from the east coast. The launch sparked another stern rebuke from regional leaders - Japan PM Abe went as far as to state that concrete measures will be taken by US/Japan in response to ongoing provocations.

Economic docket was also extremely light with only data releases coming out of China over the weekend. Industrial profit growth slowed to 14.0% from 23.8% in Apr, though Stats Bureau said the slowing is "reasonable considering the fast growth experienced earlier this year." In further evidence of deceleration in activity/sentiment however, MOFCOM announced Apr non-financial outbound direct investment over the weekend plunging by over 70% to $5.83B.

China

(CN) China is "strongly dissatisfied" with the G7 statement on the East and South China Seas, and has requested they "stop making irresponsible remarks"

(CN) Assistant China Commerce Minister Li Chenggang: China is committed to open its markets and promoting China-EU investment agreement - press

(CN) China’s Securities regulator (CSRC) to make it more difficult for major shareholders to sell their stakes – US financial press

Japan

(JP) According to analysts, Asian investors appear to be neutral or underweight on J-REITs, amid concern a large influx of new properties from 2018 will create an oversupply in the market

Australia/New Zealand

(AU) The last time the Australia - US 10-year yield spread was so low (16bps as of Fri) in Mar 2001, AUD/USD traded below $0.50 - AFR

(AU) Swaps markets now pricing in about 5bps in interest rate reduction by RBA by November, nearly double from last month - press

(NZ) Westpac: Latest GDP projections in New Zealand budget may be overly optimistic - press

Korea

(KR) North Korea said to fire unidentified projectile from east coast – South Korean Press

(KR) Japan PM Abe: Japan and US to take concrete steps on North Korea following latest missile launch; Will consider specific response options - press

(KR) South Korea to sternly respond to North Korea missile launch - Korean press

(KR) South Korea may announce measures to stabilize the property market - South Korean Press

Asian Equity Indices/Futures (00:00ET)

Nikkei +0.2%, Hang Seng +0.2%, Shanghai closed, ASX200 -0.5%, Kospi +0.5%

Equity Futures: S&P500 +0.1%; Nasdaq +0.1%, Dax flat, FTSE100 closed

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

EUR 1.1160-1.1185; JPY 111.15-111.45; AUD 0.7430-0.7450; NZD 0.7040-0.7065; GBP 1.2795-1.2825

June Gold -0.1% at 1,266/oz; July Crude Oil -0.3% at $49.64/brl; July Copper -0.3% at $2.56/lb

(US) Weekly Baker Hughes US Rig Count: 908 v 901 w/w (+0.8%) (19th straight weekly rise)

iShares Silver Trust ETF daily holdings fall to 10,605 tonnes from 10,635 tonnes prior; 2nd straight decline

(AU) Australia MoF (AOFM) sells A$500M in 3.75% 2037 bonds; avg yield 3.0701%; bid-to-cover 2.37x

(KR) South Korea MOF sells 20-yr bonds;avg yield 2.385%

Asia equities/Notables/movers

Australia

Pepper Group (PEP) +4.4%; KKR said to be interested in Pepper to expand its Australian lending, unclear if an approach has been made - AFR

BHP -0.5%, RIO -1.8%; Western Australia Govt expected to ask BHP and Rio to buyout iron ore lease rental fee, which may amount to billions of dollars - AFR

Domino's Pizza Enterprises (DMP) -5.2%; Cut at Morgans

Hong Kong

China Evergrande (3333) +23.6%; Investing CNY85B into 13 hospitals under strategy to increase profits

Shui On Land (272) +7.9%; To sell majority stake in Chongqing Shui On Tiandi Real Estate to Vanke for CNY4.13B

Qinhuangdao (3369) +0.8%; Guides H1

Japan

Toshiba (6502) +3.2%; Western Digital said to be open to taking a smaller stake in Toshiba chip unit - Japan press

Nintendo (7974) +2.1%; Strength attributed to announcement of additional games for Switch device due out Aug 25th

Sharp (6753) +0.8%; Guides FY17/18 Net ¥59.0B, Op Profit ¥90.0B, Rev ¥2

Sony (6758) +0.8%; Affirms FY17/18 Op ¥500B; Targets ROE +10% - investor slides

ANA (9202) +0.5%; Will introduce in-flight Wi-Fi on all flights between Japan and the US by 2020 - Nikkei

Currency pair EUR/USD

The EUR/USD failed to break above the 1.1250 resistance zone so far which is a major decision zone for either a bullish breakout or a bearish reversal. The critical level is the 100% Fibonacci at 1.1268: a break above this resistance top invalidates wave 2 (blue) whereas a break above 1.13 invalidates another bearish wave 2 (green). A bearish reversal, however, could see price break below support (blue).

The EUR/USD seems to have completed a wave 2 (blue) but a break below the support trend line (blue) is needed before a wave 3 (blue) could unfold. A break above the resistance line (red) invalidates the current bearish wave structure. At the moment the EUR/USD is either building a bull flag continuation chart pattern or the start of a bearish reversal, which will depend on the direction of the breakout.

Currency pair GBP/USD

The GBP/USD broke below the support trend line (dotted green) and reached the 161.8% Fibonacci target of wave 3 (blue). Price could still fall towards lower Fib targets if price can extend its decline.

The GBP/USD could be building a 5 wave (orange) expansion within wave 3 (blue). The wave 4 (orange) retracement Fibonacci levels could act as resistance but a break above the 61.8% makes 4th wave unlikely.

Currency pair USD/JPY

The USD/JPY is in a triangle formation with support (blue) and resistance (orange) nearby. A bearish break could see price fall towards the Fibonacci retracement levels of wave B (blue).

The USD/JPY could be in wave 4 (purple) unless price breaks above the bottom of wave 1 (orange line).

EURUSD

The EURUSD was indecisive last week. Price attempted to push higher topped at 1.1267 but whipsawed to the downside and closed lower at 1.1177. The bias is neutral in nearest term but overall I still prefer a bullish scenario. As you can see on my H1 chart below price is testing the H1 EMA 200 located around 1.1160. A clear break below that area could trigger further bearish pressure testing 1.1080 support area which is a good place to buy with a tight stop loss. Immediate resistance is seen around 1.1200. A clear break above that area could trigger further bullish pressure retesting 1.1267 area which need to be clearly broken to the upside to continue the bullish scenario testing 1.0300 – 1.0350 region.

GBPUSD

The GBPUSD had a bearish momentum last week bottomed at 1.2775 following a break below the trend line support as you can see on my H1 chart below. The bias is bearish in nearest term but 1.2780 area remains a good place to buy with a tight stop loss as a clear break below that area would expose at least 1.2700 region. Immediate resistance is seen around 1.2860. A clear break above that area could lead price to neutral zone in nearest term testing 1.2900/25 area.

USDJPY

The USDJPY was indecisive yesterday. The bias is neutral in nearest term but as long as stay below the trend line resistance and 112.00 I still prefer a bearish scenario at this phase targeting 108.00 region. Immediate support is seen around 110.85. A clear break below that area could trigger further bearish pressure testing 110.25 or lower. On the upside, a clear break and daily close above the trend line resistance and 112.00 area would nullify the bearish bias and activate my wait and see mode.

USDCHF

The USDCHF was indecisive last week. The bias is neutral in nearest term probably with a little bullish bias testing 0.9780 – 0.9815 resistance area which remains a good place to sell with a tight stop loss. Immediate support is seen around 0.9730. A clear break below that area could trigger further bearish pressure testing 0.9700 – 0.9650 area. On the upside, a clear break and daily close above 0.9815 would interrupt the bearish bias and activate my wait and see mode.

A note on lower timeframe confirming price action...

Waiting for lower timeframe confirmation is our main tool to confirm strength within higher timeframe zones, and has really been the key to our trading success. It takes a little time to understand the subtle nuances, however, as each trade is never the same, but once you master the rhythm so to speak, you will be saved from countless unnecessary losing trades. The following is a list of what we look for:

• A break/retest of supply or demand dependent on which way you're trading.
• A trendline break/retest.
• Buying/selling tails ... essentially we look for a cluster of very obvious spikes off of lower timeframe support and resistance levels within the higher timeframe zone.
• Candlestick patterns. We tend to only stick with pin bars and engulfing bars as these have proven to be the most effective.

We typically search for lower-timeframe confirmation between the M15 and H1 timeframes, since most of our higher-timeframe areas begin with the H4. Stops are usually placed 1-3 pips beyond confirming structures.

EUR/USD

Weekly gain/loss: – 29 pips

Weekly closing price: 1.1178

Over the course of last week's trading, we saw the single currency come up to within striking distance of a formidable weekly supply area coming in at 1.1533-1.1278. The zone has managed to cap upside since May 2015, so it's not a base one should overlook. What's also interesting is the recently formed weekly selling wick, also known as a bearish pin bar. In the event that the bears continue to push lower this week, the next downside target can be seen at 1.0873: the 2016 yearly opening line.

Glued to the underside of the said weekly supply area is a daily supply zone visible at 1.1327-1.1253. This zone, as you can see, held firm last week and has consequently placed the daily candles just ahead of a support level drawn from 1.1142. Therefore, it may be prudent to wait for price to engulf this daily line before contemplating selling the bearish weekly pin bar.

A quick recap of Friday's movement on the H4 timeframe shows that the 1.12 handle was taken out. This move, influenced by upbeat US Prelim GDP figures, ended with price challenging the lower limits of demand pegged at 1.1161-1.1189. Although this demand has effectively held ground, the main interest remains around the H4 mid-level support seen below at 1.1150. What makes this level attractive is the converging H4 AB=CD (see black arrows) 127.2% Fib ext. at 1.1140 taken from the high 1.1268, and the daily support mentioned above at 1.1142. Together, this forms a small, yet high-probability, buy zone (green rectangle).

Our suggestions: While we do expect to see a bounce from the 1.1142/1.1150 neighborhood, there are two cautionary points to consider here. Firstly, let's remember that weekly sellers produced a bearish selling wick just beneath the weekly supply zone last week, which could imply further selling in this market. Secondly, the current H4 demand could potentially act as a nearby resistance once consumed.

Should you consider 1.1142/1.1150 to be a valid buy zone, we would strongly recommend adopting aggressive trade management from here, since getting caught on the wrong side of weekly flow would not be a pleasant experience.

Data points to consider: ECB President Draghi speaks at 2pm GMT+1. US banks are closed in observance of Memorial Day.

Levels to watch/live orders:

• Buys: 1.1142/1.1150 ([potential buy zone – strict trade management advised] stop loss: a few pips below 1.1142).
• Sells: Flat (stop loss: N/A).

GBP/USD

Weekly gain/loss: – 228 pips

Weekly closing price: 1.2805

Try as it might, the GBP/USD could not muster enough strength to breach weekly supply at 1.3120-1.2957 last week. This saw the pair subsequently selloff (erasing the prior week's gains) and challenge weekly support at 1.2789 going into the close.

Daily support at 1.2843 was wiped out during Friday's session, allowing price to shake hands with the above noted weekly support level. Should this weekly barrier give way, the next downside target on the daily timeframe is a support fixed at 1.2673. With this level having provided strong resistance on several occasions in the past, there's a good chance this line will offer support should it be tested.

A brief look at recent dealings on the H4 chart shows multiple tech supports were erased throughout Friday's segment. The selloff was strengthened by both upbeat US Prelim GDP numbers and the latest UK election poll results. As of writing, the Conservative party's lead has significantly narrowed from previous weeks.

H4 Price pierced the 1.28 handle, and just missed tapping the nearby Quasimodo support at 1.2769, before concluding the week marginally closing back above 1.28.

Our suggestions: Although H4 price did indeed manage to close back above 1.28, it, in our opinion, lacks staying power as the candle was able to print a minor bearish correction. Supposing that we witness a more decisive close form above 1.28, it's highly likely that the market will look to target the H4 mid-level resistance at 1.2850 (sits just above daily resistance marked at 1.2843).

Also of interest would be a test of the aforementioned H4 Quasimodo support. The stops taken from 1.28 would likely provide enough liquidity for the big boys to begin buying this market. What's more, let's remember that we are also trading from a weekly support at the moment.

Therefore, we believe this Quasimodo level, as well as a reasonable H4 close forming above 1.28, is stable enough price action to consider buy trades.

Data points to consider: Both UK (in observance of Spring Bank Holiday) and US (in observance of Memorial Day) banks are closed.

Levels to watch/live orders:

• Buys: Buys are possible following a more decisive H4 bullish close above 1.28 (stop loss: ideally beyond the trigger candle's tail). 1.2769 region ([pending order] stop loss: 1.2748).
• Sells: Flat (stop loss: N/A).

AUD/USD

Weekly gain/loss: – 11 pips

Weekly closing price: 0.7445

Kicking this morning's report off from the weekly timeframe, it's clear to see that the sellers have stamped in some authority within the resistance area planted at 0.7524-0.7446. This produced a reasonably strong-looking selling wick last week that could imply further downside may be on the cards. Neighboring support rests in the form of a nearby trendline support etched from the low 0.6827.

Turning our attention to the daily candles, price topped just ahead of a supply base coming in at 0.7556-0.7523, which happens to be situated directly above the said weekly resistance area. We do not see much in the way of support on this scale until we reach the support zone marked at 0.7284-0.7326 (fuses nicely with the aforementioned weekly trendline support).

Bouncing over to the H4 timeframe, we can see that the mid-level support at 0.7450 was taken out and later on retested as resistance on Friday which was a noted move to watch for in Thursday's report. Based on 0.7450 holding firm, we feel price may look to target the 0.74 handle today. Granted, we do have a H4 demand lurking nearby marked with a green arrow around 0.7420, which may produce a minor reaction. The more appealing area, however, remains around the 0.74 level, since it merges with a 61.8% Fib support taken from the low 0.7328 and a H4 Quasimodo support at 0.7394.

Our suggestions: Personally, we would wait for a second retest of 0.7450 to take shape and then look to assess the response. If price chalks up a reasonably sized H4 bearish rejection candle (a full-bodied candle would be perfect), then a short would be permitted from here with an initial target objective set at 0.74.

Data points to consider: US banks are closed in observance of Memorial Day.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 0.7450 ([waiting for a reasonably sized H4 bear candle to form is advised] stop loss: ideally beyond the candle's wick).

USD/JPY

Weekly gain/loss: + 4 pips

Weekly closing price: 111.30

Weekly bears remain in a relatively strong position after pushing aggressively lower from supply registered at 115.50-113.85. We know there's a lot of ground to cover here, but this move could possibly result in further downside taking shape in the form of a weekly AB=CD correction (see black arrows) that terminates within a weekly support area marked at 105.19-107.54 (stretches all the way back to early 2014).

In conjunction with weekly flow, daily price continues to defend the resistance area penciled in at 111.35-112.37. The next area on the hit list falls in at 107.15-107.90: a support zone that's glued to the top edge of the said weekly support area.

Casting our lines over to the H4 timeframe, price has been busy forming an ascending channel (110.23/111.72). On Friday, the channel support came into play (tied in nicely with the 111 handle) and marginally bounced price into the closing bell. As of writing though, the bulls are having difficulty breaching May/April's opening levels at 111.29/111.41. This, of course, could have something to do with where price is currently positioned on the bigger picture.

Our suggestions: Although price has bounced from a confluent H4 channel support, we believe this will be short lived. With that being the case, our team is watching for a H4 close to form below 111 today. Not only would this imply bearish strength from the higher-timeframe structures, it would also clear the runway south down to at least the H4 mid-level support at 110.50. To take advantage of this potential move, one could either sell the breakout or conservatively wait for price to retest 111 as resistance and sell with lower-timeframe confirmation (see the top of this report). We prefer the latter.

Data points to consider: US banks are closed in observance of Memorial Day.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Watch for H4 price to engulf 111 and then look to trade any retest seen thereafter ([waiting for a lower-timeframe signal to form following the retest is advised] stop loss: dependent on where one confirms this level).

USD/CAD:  

Weekly gain/loss: – 62 pips

Weekly closing price: 1.3446

The USD/CAD sustained further losses last week, which saw weekly price whipsaw through the 2017 yearly opening level at 1.3434 and test demand based at 1.3223-1.3395. By and of itself, this could force the unit back up to retest 1.3588 as resistance.

On the other side of the field, daily support at 1.3450 looks as though it's under pressure. With this level consumed, there'd be little stopping the unit from challenging support at 1.3272, which happens to tie in beautifully with two trendline supports (1.2968/1.3027).

Moving across to the H4 timeframe, the candlesticks remain loitering around a mid-level support drawn from 1.3450. Entering long from this number would be difficult knowing that the said daily support is struggling to hold firm. By the same token, a short would also be just as risky given the weekly structures in play right now.

Our suggestions: Be patient. There is an area which has taken our fancy, but there's a fair bit of ground to cover before it's worthy of attention. 1.3272/1.3312: the green shaded zone on the H4 timeframe holds the following structures:

Daily support at 1.3272.

H4 AB=CD (black arrows) 161.8% Fib ext. at 1.3292 taken from the high 1.3540.

1.33 handle.

March/April's opening levels at 1.3310/1.3312.

Daily trendline support confluence.

As you can see, this zone holds a reasonable amount of confluence. Also of note is this area is seen lodged within the lower limits of the aforementioned weekly demand!

Data points to consider: US banks are closed in observance of Memorial Day.

Levels to watch/live orders:

• Buys: 1.3272/1.3312 ([waiting for a reasonably sized H4 bull candle to form – preferably a full-bodied candle – is advised] stop loss: ideally beyond the candle's tail).
• Sells: Flat (stop loss: N/A).

USD/CHF:  

Weekly gain/loss: + 16 pips

Weekly closing price: 0.9743

The USD/CHF market was pretty much unchanged last week, consequently forming a weekly indecision candle. From the weekly timeframe, the next downside target can be seen at 0.9639: a Quasimodo support level.

As can be seen from the daily chart, the pair spent the week hovering directly above a Quasimodo support taken from 0.9678, which happens to be located just above the said weekly Quasimodo support.

Since the 22nd May the H4 candles have been entrenched within a range fixed between the 0.97 handle and resistance pegged at 0.9774. Directly above this consolidation sits the 0.98 handle, whereas below we can see the daily Quasimodo support level mentioned above at 0.9678. Personally, shorting from either the top edge of this range or 0.98 is not really something we'd be comfortable with since there's no higher-timeframe structure supporting these levels.

A fakeout through 0.97 that connects with the aforementioned daily Quasimodo support, however, is a valid long, in our opinion. The reason being is there are likely a truckload of sell stops lingering just below 0.97. These stops, when filled, become sell orders, and thus give the big boys liquidity to buy into from the daily Quasimodo!

Our suggestions: Should price whipsaw through 0.97, test 0.9678, and close back above 0.97, we will look to enter long, targeting the top edge of the H4 range.

Data points to consider: US banks are closed in observance of Memorial Day.

Levels to watch/live orders:

• Buys: 0.97 region ([wait for price to fakeout beyond the 0.97 handle – touch 0.9678 – and then close back above 0.97, before looking to commit to a position] stop loss: ideally beyond the candle's tail).
• Sells: Flat (stop loss: N/A).

DOW 30

Weekly gain/loss: + 272 points

Weekly closing price: 21082

Over the course of last week's trading, we've seen price close above the weekly consolidation fixed around record highs of 21170 between 20425/21000. From this scale, this could very well point toward further buying in the coming week.

The story on the daily chart shows that the unit recently drove through the resistance area at 21022-20933, which should effectively now act as a support area. With this area consumed, we do not see any structure on this timeframe stopping the index from achieving fresh record highs.

Over on the H4 timeframe, nevertheless, the candles are seen confined between a supply zone marked at 21139-21101 and a support area drawn from 21048-21015. Technically speaking, this is the last remaining supply standing in the way of this instrument achieving fresh highs.

Our suggestions: Although the bulls look incredibly determined at this time, entering long expecting price to reach new highs would still be a risk, in our opinion. Waiting for the H4 supply mentioned above at 21139-21101 to be taken out is likely the safer route, before considering hunting for longs. Therefore, until we see a decisive close above this area, our desk will remain patiently waiting on the sidelines.

Data points to consider: US banks are closed in observance of Memorial Day.

Levels to watch/live orders:

• Buys: Watching for H4 price to close above H4 supply at 21139-21101 before looking to long this market.
• Sells: Flat (stop loss: N/A).

GOLD

Weekly gain/loss: + $11.6

Weekly closing price: 1266.9

The yellow metal rallied for a second consecutive week after bouncing beautifully from weekly demand coming in at 1194.8-1229.1. This move could encourage further buying into the market and pull the unit back up to the two weekly Fibonacci extensions 161.8/127.2% at 1313.7/1285.2 taken from the low 1188.1 (green zone).

Looking down to the daily timeframe, nonetheless, we can see that the resistance area at 1265.2-1252.1 was slightly breached on Friday. Supposing that the bulls remain in a strong position here, the next upside hurdle on this scale falls in at a supply drawn from 1288.1-1278.3. Also noteworthy on this timeframe is the potential AB=CD bearish pattern that terminates a tad beyond the Quasimodo resistance at 1307.8. But for this pattern to come to fruition, the above noted supply would obviously need to be consumed beforehand.

Swinging over to the H4 timeframe, price is currently finding a pocket of offers from just beyond supply at 1268.3-1262.7. Between the top edge of this zone, the AB=CD 127.2% Fib ext. at 1268.6 (taken from the low 1245.9), and May's opening level at 1270.5, this small green area is a reasonably confluent sell zone. The only grumble, of course, is the fact that the weekly chart shows room to advance higher and the daily candles just recently took out a resistance zone.

Our suggestions: However tempted we are to short the above noted H4 base, we are going to hold fire. Selling against potential weekly and daily buyers is just too much of a risk for our desk at this point. For that reason, we'll remain on the sidelines and reassess going into tomorrow's open.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

Global Markets:

• Asian stock markets: Nikkei up 0.15 %, Hang Seng rose 0.10 %, ASX 200 declined 0.45 %, Shanghai Composite closed for holiday
• Commodities: Gold at $1266 (-0.15 %), Silver at $17.34 (+0.15 %), WTI Oil at $49.65 (-0.30 %), Brent Oil at $52.40 (-0.25 %)
• Rates: US 10-year yield at 2.25, UK 10-year yield at 1.01, German 10-year yield at 0.33

News & Data

• Asia stocks edge up on firmer Wall Street, pound nurses losses – RTRS
• Oil falls as U.S. drilling undermines drive to tighten markets – RTRS

CFTC Positioning Data:

• EUR long 65K vs 38K long last week. Longs increased 27K
• GBP short 24K vs 33K short last week. Shorts trimmed 9K
• JPY short 52K vs 60K short last week. Shorts trimmed 8K
• CHF short 20K vs 21K short last week. Shorts trimmed 1K
• CAD short 99K vs 98K short. Shorts increased 1K
• AUD long 3K vs 6K long. Longs trimmed 3K
• NZD short 9K vs 12K short last week. Shorts trimmed 3K

Markets Update:

Markets remained quiet overnight amid a lack of economic data releases and Chinese markets closed due to a public holiday.

EUR/USD started the trading week around 1.1175 and declined to 1.1160. Support at 1.1160 is looking increasingly vulnerable, and a break below would signal a move towards 1.11. GBP/USD opened around 1.2795 and recovered to 1.2825 in Asia. However, the currency is likely to remain under pressure ahead of the UK elections.

USD/JPY began the trading day at 111.20 and rose to 111.45 before it lost momentum. Key support is seen at 110.80 and 110.50, while resistance lies ahead of 112.

Markets are likely to remain quiet today, with a speech by ECB President Draghi the only notable event and UK & US markets closed for a holiday.

Upcoming Events:

14:00 BST – ECB President Draghi speaks

The Week Ahead:

Tuesday, May 30th

• 00:30 BST – Japanese Household Spending
• 00:30 BST – Japanese Unemployment Rate
• 02:30 BST – Australian Building Approvals
• 07:00 BST – German Import Price Index
• 07:45 BST – French GDP
• 10:00 BST – Euro Zone Consumer Confidence
• 10:00 BST – Euro Zone Business Climate
• 13:00 BST – German CPI
• 13:30 BST – US Personal Spending
• 13:30 BST – US Personal Income
• 13:30 BST – Canadian Current Account
• 15:00 BST – US CB Consumer Confidence

Wednesday, May 31st

• 00:00 BST – RBNZ Governor Wheeler speaks
• 02:00 BST – Chinese Manufacturing PMI
• 02:00 BST – Chinese Non-Manufacturing PMI
• 02:30 BST – Australian Private Sector Credit
• 07:00 BST – German Retail Sales
• 07:45 BST – French CPI
• 08:55 BST – German Unemployment Rate
• 10:00 BST – Euro Zone CPI
• 10:00 BST – Euro Zone Unemployment Rate
• 13:30 BST – Canadian GDP
• 14:45 BST – US Chicago PMI
• 15:00 BST – US Pending Home Sales

Thursday, June 1st

• 00:30 BST – Australian AIG Manufacturing Index
• 01:10 BST – FOMC Member Williams speaks
• 02:30 BST – Australian Retail Sales
• 02:45 BST – Chinese Caixin Manufacturing PMI
• 06:45 BST – Swiss GDP
• 08:15 BST – Swiss Retail Sales
• 08:45 BST – Italian Manufacturing PMI
• 08:50 BST – French Manufacturing PMI
• 08:55 BST – German Manufacturing PMI
• 09:00 BST – Euro Zone Manufacturing PMI
• 09:30 BST – UK Manufacturing PMI
• 13:15 BST – US ADP Non-Farm Employment Change
• 14:45 BST – US Markit Manufacturing PMI
• 15:00 BST – US Construction Spending
• 15:00 BST – US ISM Manufacturing PMI
• 16:00 BST – US Crude Oil Inventories

Friday, June 2nd

• 09:30 BST – UK Construction PMI
• 13:30 BST – US NFP
• 13:30 BST – US Unemployment Rate
• 13:30 BST – US Trade Balance
• 13:30 BST – Canadian Trade Balance

Key Points:

• Cable has a torrid session on Friday following GDP shock.
• UK Preliminary GDP surprises market at 0.2% (0.3% exp).
• Watch for continued bearish activity in the week ahead.

The Cable was under pressure last week following news that the UK Q1 GDP would be revised lower to 0.2%. This was a relatively large surprise, and along with the ongoing political turmoil ahead of the general election, saw the pair collapse by over 130 pips during Friday's session to close the week out around the 1.2803 mark. However, it remains to be seen if this trend will continue in the coming days…so let's review last week's events with a view to assessing the week ahead.

The Cable experienced a highly negative week following the release of the latest UK GDP figures for Q1 which showed a decline to 0.2% from the estimate 0.3% print. This was a relatively significant negative result and caught the market largely by surprise, which saw the support drop away and price action decline over 130 pips for the session. In addition, the ongoing turmoil around the UK general election is also impacting the pair with the conservative government currently hanging on to a five seat majority based on the latest polls. Subsequently, the pair ended the week sharply lower around the 1.2803 mark which coincides with the 100 day MA.

Looking ahead, there are some important economic events due out for the Cable in the week ahead with the UK Manufacturing PMI and U.S. NFP data due for release. The Manufacturing PMI is likely to be relatively closely watched given the recent successive returns which have fallen into the growth range. The estimate has the PMI result coming in at the 56.5 mark which should prove to be relatively accurate for the pair. In addition, there is a bevy of U.S. economic data due for release with the Non-Farm Payroll figures likely to prove the most contentious data point. Most economists have the result coming in at 185k but, as always, predicting the correct result is akin to winning the lottery given some of the underlying measurement issues. Subsequently, expect volatility as the final NFP numbers are released and the market takes stock of their implications.

From a technical perspective, last week's sharp fall has taken price action lower to test the 100 day MA. However, the decline is likely not finished yet with the RSI Oscillator still within neutral territory indicating that there is plenty of room to move on the downside. In addition, there remains a bearish divergence on the 4-hour MACD which may be suggesting further downside moves ahead. Subsequently, our initial bias for the week ahead remains bearish considering the aforementioned factors. Support is currently in place for the pair at 1.2775, 1.2625, and 1.2512. Resistance exists on the upside at 1.3045, 1.3282, and 1.3440.

Ultimately, the coming week is likely to test the bounds of near term support, especially given the bearish disposition and the fact that the oscillators still have plenty of room to move on the downside. However, there are also plenty of fundamental risk events pending in the week ahead so there could be volatility to be seen. Regardless, the Cable's likely to continue depreciating over the next few days as the pair stabilises post GDP shock.

Key Points:

• A bullish Kiwi Dollar could continue to rally in the week to come.
• The technical bias has shifted to bullish.
• The RBNZ is worth keeping an eye on.

The NZDUSD was one of the winners of last week and closed out Friday substantially higher despite many other crosses experiencing mixed degrees success. As a result, the question is now whether the pair can maintain its current momentum or if we are going to see it slip back to the downside. To delve into this question, we need to look at both what was driving the NZD's recent performance and what is likely to by in the driving seat next week.

Starting with last week's performance, the Kiwi Dollar was bullish for all but one session, a clear response to the broadly better NZ economic data and some less than buoyant US numbers. Particularly of note were the NZ trade figures which included a Trade Balance outcome of 578M – a figure more than double its forecasted result. Additionally, whilst it was somewhat underwhelming, the NZ Annual Budget threw some money around which was little surprise given the recent government surplus but it still managed to generate some positive sentiment for the NZD. The net effect of the generally solid week of fundamentals saw the pair close all the way up at 0.7061.

Moving on to what on the agenda for the week to come, there is an excellent range of economic news releases coming down the line but one stands out in particular. Namely, the RBNZ's Financial Stability report is due out Tuesday and could set the tone for the rest of the week. Importantly, given that it comes in the wake of a rather lacklustre budget which barely tackles the housing crisis in NZ, we could see the bank taking a less optimistic tone than is usual. Furthermore, the worsening situation in the Australian and Canadian housing markets is, no doubt, heightening the RBNZ's concerns that the nation's asset bubble could be in danger of bursting.

Looking to the technical readings, last week's strong performance has, for the most part, pushed the pair's readings into bullish territory. Notably, the NZDUSD is now not only sitting comfortably above its 100 day EMA but the 12 and 20 day averages are also in a bullish configuration. What's more, we have a highly bullish parabolic SAR reading which would typically suggest that the uptrend will remain in place. The only major factor that would militate against further gains would be the stochastic oscillator which is overbought.

Ultimately, we have a fairly optimistic view for the week to come but this is somewhat tempered by expectations of a tonal shift from the RBNZ. However, the shift in the technical bias could definitely counteract some of the effect of a particularly grim release from the RBNZ which is worth considering. As a result, it may be wise to wait on the central bank's announcement before attempting to form a bias – irrespective of how well the pair has performed in the lead up.

STOCKS

Dow (21080.28, -0.01%) is almost stable near previous levels and could head towards resistance near 21170 as mentioned last week. The index could trade within the 21170-21000 region for at least the next couple of sessions before any sharp directional move is seen.

Dax (12602.18, -0.15%) is now in a pause mode and is trying to attempt some lower levels. Overall 12400 continues to remain the downside limit for the near term while 12800-12850 is an important near term resistance which could hold for sometime. View remains sideways to bearish for the near term.

Shanghai (3110.06, +0.07%) has scope on the upside and could move up in the medium term. While support near 3000-3020 holds, medium to long term looks bullish.

Nikkei (19713.21, +0.13%) is trading higher today. Immediate support seen near 19600-19400 which could keep the index higher in the coming sessions. A period os sideways consolidation is possible for the near term.

Nifty (9595.10, +0.90%) saw a sharp rally as expected. We may look for levels near 9700-9800 in the medium term.

COMMODITIES

Today U.S market will remain close due to Memorial Day thus we may witness less volatility in the commodities section. We are doubtful about the sustainability of Gold (1266) beyond 1275 levels. If Gold could not hold its ground beyond these levels, it could fall towards its crucial support of 1249, which could be a level where the price action has to be checked to assess the chances of further fall to 1230 regions. A failure to hold 1249 could keep the price range-bound in the 1220-1250 regions for a short term time period.

Similar kind of trading pattern has been seen in Silver (17.35) also. The recent trading range could be 17.02-17.75 and a close below 17 levels could open up 16.50 levels as well.

Copper (2.53) has found resistance at 2.62 levels and trading within the narrow range of 2.45-2.55 levels. Only above 2.62, higher resistances of 2.67-72 can come into consideration. In the medium term 2.44 are going to be a strong support now but a close below that could open up 2.40-35 levels as well.

Brent (52.12) and WTI (49.76) are holding their respective supports of 51.20 and 49.50 but the same is not implying strength. We will be assured of strength only when a firm and sustainable closing above 54.60 and 53 are made by both Brent and WTI respectively. A daily close below the respective supports could open up 49.50 levels for Brent and 48 for WTI as well.

FOREX

Volatility may be very low today due to the markets closed in US, UK and China today. It remains to be seen if the ECB president Draghi’s speech in European Parliament today can trigger any significant moves in Euro.

Euro (1.1165) remains in the normal corrective mode. While the major support 1.1100-1.1075 is expected to trigger a turnaround to the upside, if the interim support zone of 1.1150-40 holds, then the recovery may come sooner and in a sharper manner.

A recovery in Euro in the next couple of days may weaken Dollar Index (97.48) again which is trading above our resistance of 97.45 but the strength is suspect so far. If it fails to sustain above 947.45-55 in a firm manner, then a reversal towards 97.00 can be seen once again.

Dollar Yen (111.37) has been consolidating sideways in line with expectations in the narrow range of 110.80-112.00. As discussed last week, while above important support at 110, there is scope for an upmove towards 114.0-114.5 in the medium term. Keep an eye on the immediate support of 110.80 which if holds, can push the price up sharply in the next few sessions. EURJPY (124.33) needs to hold above the support of 124.00 to aid Euro and weaken Yen.

Pound (1.2814) is feeling the UK election jitters as the June 8 vote nears. A sharp crash came in the last session as the gap between the conservative party and the opposition Labour party shrank to 5 points only from the 24 points seen early in the month. The bulls need the major support 1.2750-00 to hold but it will need the Conservative party lead to widen again. The polls can keep the currency volatile till June 8.

Aussie (0.7443) has weakened as expected and may trade sideways for 2-3 sessions in the range of 0.74-0.75.

Dollar Rupee (64.44) may remain in a consolidative mode. Further strength in Nifty could take Rupee towards 64.00 else a bounce back towards 64.70 is expected.

INTEREST RATES

The Japanese yields are moving lower and could test support below current levels. If the supports hold, the yields may bounce back to higher levels in the coming sessions. Medium term looks bullish.

The UK yields are also trading low and could move down further in the near term. Thereafter the yields may go into a sideways mode for a few sessions before bouncing back to higher levels.

The German-US 2Yr (-2.02%) and the German-US 10Yr (-1.91%) are coming off from the medium term resistances and while that holds, the yield spreads could come down further possibly pulling down Euro also to lower levels. In that case, further upside for Euro could be limited just now.

The US yields are trading sideways and could remain stable near current levels for sometime. On a medium term, there could be some rise from current levels.