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• Oil Slides as Producers Extend Cuts By Nine Months;
• GBP Tumbles Again as Labour Cuts Tory Lead to Just 5 Points;
• GBPUSD Breaks Below 1.29 as Bullish Momentum Fades.

European equity markets are expected to open a little softer on Friday, weighed down a little by losses in oil which plunged on Thursday after oil producers delivered the bare minimum cut that markets had priced in.

Oil fell more than 5% on Thursday after a meeting of OPEC and non-OPEC producers ended in an agreement to extend the 1.8 million barrels per day of cuts for an additional nine months. It's believed that this will be more than sufficient to bring the oil market back into balance, by which they mean bring oil stocks back down to their five year average.

While traders weren't necessarily questioning the suitability of the cut, it was fully priced in in the weeks leading up to the meeting and therefore the path of least resistance was clearly lower. Whether oil prices can remain at these levels or press higher will now depend on compliance with the agreement and the extent to which the US ramps up its productions to take advantage of these prices.

Sterling fell again overnight after a poll showed the gap between Theresa May's Conservatives and Jeremy Corbyn's Labour party has narrowed again. The lead – which only a few weeks ago stood at around 20 points – has fallen dramatically to just five according to this YouGov poll. With this kind of momentum and almost two weeks to go until the vote, not only is this not going to be the breeze that May anticipated when she called the snap election last month, it could yet turn into a humiliating defeat for the Conservative leader and her party.

Coming on the back of losses yesterday, it's turning into a rotten end to the week for the pound. What's more, with it having broken below 1.29 against the dollar overnight, it could be facing further misery in the near-term. The pair had been grinding higher for the last month and while it did manage to briefly penetrate 1.30 on a few occasions, the moves were always lacking conviction which suggested markets weren't happy at these levels. The break of 1.29 may well be the trigger for a correction in the pair, with 1.28 and 1.2750 being notable levels below.

With no data due from Europe today, the focus will be on the US this afternoon as we get the first GDP revision, durable goods orders and the latest consumer data from University of Michigan.

Daily Pivots: (S1) 0.8642; (P) 0.8655; (R1) 0.8673; More...

EUR/GBP's rally resumed after brief consolidation and reaches as high as 0.8699 so far. Intraday bias is back on the upside and the rise from0.8312 should target 0.8786 resistance next. As noted before, price actions 0.9304 are viewed as a medium term corrective pattern that is extending. Break of 0.8786 would now pave the way to retest 0.9304 high. On the downside, below 0.8602 minor support will turn intraday bias neutral again. But near term outlook will remain mildly bullish as long as 0.8529 resistance turned support holds.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. In case of deeper fall, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Rise from 0.6935 (2015 low) will resume at a later stage to 0.9799 (2008 high). However, sustained break of 0.8116 could bring deeper decline to next key support level at 0.7564 before the correction completes.

Developments in the financial markets in the last 24 hours were rather mixed. Firstly, oil prices reversed after the announcement of extension of production cut from oil producers. WTI crude oil dropped to as low as 48.21, comparing to this week's high at 52.00. Canadian Dollar followed lower but the sell off is limited so far. Secondly, US equities market strengthened overnight with S&P 500 gaining 0.44% to 2415.07. NASDAQ also rose 0.69% to close at 6205.26. Both indices made new record highs. DOW closed at 21082.95, 0.34%, inches below record high at 21169.11. US yields, on the other hand, stays soft with 10 year yield closed down -0.011 at 2.255. Gold is steady in range around 1250. Meanwhile, in the currency markets, Sterling plunged broadly after the downward revision in Q1 GDP released yesterday. Also, traders continue to lighten up positions as UK election in June approaches. Yen jumps broadly as Asian markets are in mild risk aversion. Dollar recovers but there is no sign of reversal yet as dollar index struggles below 97.50.

Impact of oil production cut limited

Here is what OPEC/non-OPEC has decided: The OPEC and the 11 non-members, including Russia, agreed to extend the output cut of 1.8M bpd further nine months, until March 2018. The decision had been widely anticipated. As Saudi Oil Minister Khalid Al-Falih noted, the producers have produced to "do whatever is necessary". He added that the decision to extend the deal for 9 months is to avoid a potential "seasonal build [of supply] in the first quarter [of 2018]" what could "undo what we've done". However, indications from OPEC/non-OPEC producers that they would extend production cut for 18 months had revived optimism over the past week. Oil prices, as a result, gained more than +8% over the past two weeks. Indeed, such rally had been overdone as the production cut implemented this January helped lift prices but also encouraged US producers to expand. The net positive impact, if any, in the demand/supply fundamental is limited.

St. Louis Fed Bullard: Inflation trend worrisome

In US, St. Louis Fed President James Bullard warned that the trend in US inflation since 2012 was "worrisome". He noted that US inflation is now 4.6% below the price level path established from 1995 to 2012. While it isn't "as severe as the 1990s Japanese experience", it is worrisome. Meanwhile, he saw little impact on long term bond yields should Fed starts shrinking the balance sheet. San Francisco Fed President John Williams complained that "I had some hope or expectation that some of the fiscal or other federal policies would become more clear; that has not happened." And, the bigger question market now for the economy is on fiscal policy. Williams still penciled in "modest fiscal stimulus of some kind" in 2018 and 2019. Tax cuts should be more than enough to offset negative impacts of spending cuts.

On the data front...

Released in Asian session today, Japan national CPI core rose 0.3% yoy in April, up from 0.2% yoy but missed expectation of 0.4% yoy. Tokyo CPI core rose 0.1% yoy in May, up from -0.1% yoy and beat expectation of 0.0% yoy. Corporate service price index rose 0.7% yoy in April. US GDP revision, durable goods orders will be featured later in the day.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8642; (P) 0.8655; (R1) 0.8673; More...

EUR/GBP's rally resumed after brief consolidation and reaches as high as 0.8699 so far. Intraday bias is back on the upside and the rise from0.8312 should target 0.8786 resistance next. As noted before, price actions 0.9304 are viewed as a medium term corrective pattern that is extending. Break of 0.8786 would now pave the way to retest 0.9304 high. On the downside, below 0.8602 minor support will turn intraday bias neutral again. But near term outlook will remain mildly bullish as long as 0.8529 resistance turned support holds.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. In case of deeper fall, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Rise from 0.6935 (2015 low) will resume at a later stage to 0.9799 (2008 high). However, sustained break of 0.8116 could bring deeper decline to next key support level at 0.7564 before the correction completes.

Economic Indicators Update

For the 24 hours to 23:00 GMT, the AUD declined 0.63% against the USD and closed at 0.7453.

LME Copper prices marginally rose or $2.5/MT to $5665.0/MT. Aluminium prices rose 0.51% or $10.0/MT to $1954.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7432, with the AUD trading 0.28% lower against the USD from yesterday’s close.

The pair is expected to find support at 0.7398, and a fall through could take it to the next support level of 0.7364. The pair is expected to find its first resistance at 0.7491, and a rise through could take it to the next resistance level of 0.7550.

Moving ahead, Australia’s AiG performance of manufacturing index, building approvals and HIA new home sales data, all scheduled to release in the coming week, will garner a lot of market attention.

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

For the 24 hours to 23:00 GMT, the EUR declined 0.10% against the USD and closed at 1.1211.

On macro front, Italy's industrial orders fell 4.2% on a monthly basis in March, compared to a revised gain of 5.2% in the prior month. On the other hand, the nation's industrial sales advanced 0.5% MoM in March, from a 2.0% rise reported in the previous month.

In the US, data indicated that the number of people applying for fresh jobless claims rose slightly to a level of 234.0K in the week ended 20 May 2017, but still remained at historically low levels. Market participants were anticipating initial jobless claims to rise to a level of 238.0K, compared to a revised level of 233.0K in the previous week.

Additionally, the nation's advance goods trade deficit widened to $67.6 billion in April, from a revised deficit of $65.1 billion in the prior month. Investors had expected the trade deficit to decrease to $64.5 billion.

Moreover, US wholesale inventories unexpectedly fell by 0.3% in April, against market expectations for it to rise by 0.2%. The preliminary March estimate was revised lower to 0.1% from the initially estimated rise of 0.2%.

Meanwhile, the Federal Reserve (Fed) Board Governor, Lael Brainard, stated that risk to the US economy has lowered due to brighter global economic outlook.

In the Asian session, at GMT0300, the pair is trading at 1.12, with the EUR trading 0.10% lower against the USD from yesterday's close.

The pair is expected to find support at 1.1173, and a fall through could take it to the next support level of 1.1147. The pair is expected to find its first resistance at 1.1238, and a rise through could take it to the next resistance level of 1.1277.

Trading trends in the pair today are expected to be determined by the release of annualised GDP growth data in the US for the first quarter of 2017, along with durable goods orders for April and the Michigan consumer sentiment index for May, due later in the day.

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

For the 24 hours to 23:00 GMT, the GBP declined 0.31% against the USD and closed at 1.2931, after macroeconomic data showed that UK's economic growth in the first quarter was slower than previously estimated, raising concerns about the health of the UK economy ahead of general election on 8 June and the start of Brexit negotiations with the EU.

The nation's gross domestic product (GDP) was revised down to 0.2% in the three months to March 2017, recording its weakest pace of growth since the first quarter of 2016, from the prior estimate of 0.3% growth, as rising inflation took its toll on consumer spending. The GDP had recorded a rise of 0.7% in the prior quarter.

Additionally, the number of mortgage approvals in the UK declined to 40.75K in April, compared to a revised level of 40.87K reported in the previous month. Markets were expecting mortgage approvals to ease to 40.80K.

In the Asian session, at GMT0300, the pair is trading at 1.2888, with the GBP trading 0.33% lower against the USD from yesterday's close.

The pair is expected to find support at 1.2832, and a fall through could take it to the next support level of 1.2777. The pair is expected to find its first resistance at 1.2979, and a rise through could take it to the next resistance level of 1.3071.

Going ahead, investors will look forward to the Markit manufacturing and construction PMI data, GfK consumer confidence index and mortgage approvals for the UK, all due for release next week.

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

For the 24 hours to 23:00 GMT, the USD rose 0.15% against the JPY and closed at 111.77.

Overnight data showed that Japan's national consumer price index (CPI) rose 0.4% YoY in April, mainly driven by higher energy prices, after reporting an advance of 0.2% in the previous month. Moreover, the core CPI also inched up by 0.3%, but missed analysts' estimate of a 0.4% increase.

In the Asian session, at GMT0300, the pair is trading at 111.56, with the USD trading 0.19% lower against the USD from yesterday's close.

The pair is expected to find support at 111.42, and a fall through could take it to the next support level of 111.29. The pair is expected to find its first resistance at 111.82, and a rise through could take it to the next resistance level of 112.09.

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

For the 24 hours to 23:00 GMT, the USD marginally declined against the CHF and closed at 0.9730.

In the Asian session, at GMT0300, the pair is trading at 0.9735, with the USD trading a tad higher against the CHF from yesterday’s close.

The pair is expected to find support at 0.9708, and a fall through could take it to the next support level of 0.9682. The pair is expected to find its first resistance at 0.9753, and a rise through could take it to the next resistance level of 0.9772.

Investors will now keep a close eye on Switzerland’s GDP figures, KOF leading indicator, UBS consumption indicator, ZEW’s survey on expectations and real retail sales, all slated to release next week.

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

For the 24 hours to 23:00 GMT, the USD rose 0.57% against the CAD and closed at 1.3488.

In the Asian session, at GMT0300, the pair is trading at 1.3489, with the USD trading marginally higher against the CAD from yesterday’s close.

The pair is expected to find support at 1.3419, and a fall through could take it to the next support level of 1.3349. The pair is expected to find its first resistance at 1.3528, and a rise through could take it to the next resistance level of 1.3567.

With no economic release in Canada today, traders will now closely await nation’s GDP growth figures for the first quarter as well as March, along with manufacturing PMI data for May, all scheduled to release next week.

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

EURUSD

The EURUSD was indecisive yesterday. Price is moving sideways between 1.1265 – 1.1175 as you can see on my H1 chart below suggest a consolidation phase. The bias is neutral in nearest term. Immediate support is seen around 1.1175 – 1.1150 (H1 EMA 200). A clear break below that area could trigger further bearish pullback testing 1.1075 but overall I still prefer a bullish scenario at this phase and any downside pullback should be seen as a good opportunity to buy. On the upside, we need a clear break above 1.1265 to continue the bullish scenario targeting 1.1300 – 1.1350 area.

GBPUSD

The GBPUSD attempted to push higher yesterday, topped at 1.3013 but closed lower at 1.2940 and hit 1.2866 earlier today in Asian session. Price broke below the trend line support as you can see on my H1 chart below suggests a bearish correction phase targeting 1.2830 – 1.2780 key support area which is a good place to buy with a tight stop loss. Immediate resistance is seen around 1.2925/50. A clear break above that area could lead price to neutral zone in nearest term testing 1.3000 – 1.3050 key resistance area.

USDJPY

The USDJPY didn’t make significant movement yesterday. The bias is neutral in nearest term but as long as price stay below the trend line resistance (see my H4 chart below) and 112.00 area I still prefer a bearish scenario at this phase targeting 108.00 region. Immediate support is seen around 111.46 (yesterday’s low). A clear break below that area could trigger further bearish pressure testing 111.00 or lower. On the upside, 112.00 region remains a key resistance and good place to sell with a tight stop loss as a clear break above that area would nullify the bearish bias.

USDCHF

The USDCHF was indecisive yesterday. The bias is neutral in nearest term but overall price is still in a bearish phase as a part of the false breakout scenario as you can see on my H4 chart below with nearest target seen at 0.9650. Immediate resistance is seen around 0.9780 – 0.9815 area which remains a good place to sell with a tight stop loss.