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Crude prices fell 5% as traders sold-the-fact on a 9-month supply cut extension. The US dollar was the top performer while the Australian dollar lagged. Japanese CPI is due up next.

Management is the art of communication and that extends to market management as well. A month ago, a nine-month extension of OPEC/non-OPEC supply cuts would have been a welcome surprise in the energy market.

Instead, stories began to circulate about a six-month extension. That was followed by talk of a nine-month extension and it was eventually capped off by speculation about a 12-month extension or deeper cuts. By the time today's nine-month extension was announced it underwhelmed and WTI crude fell to $48.80 from $52.00. Brent had a similar 5% fall.

The challenge now is to separate the disappointment trade from the fundamentals. At current levels, oil is well below the Dec-Feb range and is nearing the March bottom at $47-48. It's still far above May's $44.00 low.

An offshoot of the oil trade is USD/CAD. That pair rose 65 pips on Thursday but that's less than the bulls would have hoped given the 100 pip drop the day before. You have to wonder if CAD has been hit by so much bad news – and with such a massive net short – that there is no fuel left for the bears.

Switching gears, the week winds down for Asia-Pacific traders with a Japanese CPI as the main highlight. The April numbers are due at 2330 GMT and expected to be up 0.4% year-over-year but flat excluding fresh food and energy.

Another event to watch is a speech from the Fed's Bullard at 0200 GMT. He's said previously that he doesn't think another hike is necessary but wouldn't be opposed to one more.

Finally, the RBA's Richards is in a panel presentation at 0430 GMT.

USD/JPY has posted slight gains in the Thursday session. In North American trade, the pair is trading just below the 112 level. On the release front, US unemployment claims edged up to 234 thousand, lower than the forecast of 238 thousand. Japan will release a host of inflation indicators, led by Tokyo Core CPI, which an estimate of 0.0%. On Friday, leaders of the G-7 nations meet in Sicily. The US will release revised GDP for the first quarter, which is expected at 0.9%, compared to the initial GDP release, which came in at 0.7%. Other key US indicators include Core Durable Goods Orders and UoM Consumer Sentiment.

The currency markets have shown little response to the Federal Reserve's minutes from the May policy meeting. Traders hoping for confirmation of a June rate hike came away disappointed, as the minutes conveyed a less hawkish tone than the markets had expected. Policymakers were careful in their message, saying that a rate hike was coming "soon". Does that mean a move at the June policy meeting? The markets clearly expect a rate hike, as Fed funds futures for a June increase remained at 78% after the minutes were released. At the same time, the Fed has given itself some wiggle room, and could opt to delay a hike until the second quarter if inflation or consumer indicators take an unexpected nosedive. The minutes stated that policymakers wanted to see additional evidence that the recent slowdown in the economy was temporary before raising rates. As for additional hikes in 2017, the markets remain skeptical. The odds for a September rate stand at just 37%. This pessimism is a result of a weak performance from the US economy in Q1, as well as doubts that President Trump, who is facing congressional investigations over his connections with the Russian government, will be able to pass his agenda of cutting taxes and government spending. Gone are the heady days at the end of 2016, when a red-hot US economy had analysts predicting four rate hikes in 2017. At the same time, a strong improvement in economic data could quickly change the cautious tone of the Fed and revive discussion of four rate hikes this year.

The White House presented President Trump's 2018 budget proposal to lawmakers in Congress this week, but will it be dead-on-arrival? Trump has promised to slash government spending, and much of the funds for the budget would come from huge cuts to the Medicaid health program and food stamps. The budget proposes slashing more than $600 billion from Medicaid and over $192 billion from food stamps over a decade. Trump has promised to balance the budget within 10 years, claiming this can be achieved through tax cuts and annual growth of 3 percent. However, experts are at odds as to whether the economy can reach and maintain such levels of growth, which is much higher than current economic expansion. The budget proposal is unlikely to remain in its present form for very long on Capitol Hill. Democrats will want nothing to do with it, and Republicans will not want to make drastic cuts to federal programs that will incur the wrath of voters. Still, the Trump administration, which has been in damage-control mode for weeks over the firing of FBI director James Comey, can point to the budget as a step forward in trying to implement Trump's pro-business agenda.

USD/CHF - 0.9718

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9718

Kijun-Sen level                    : 0.9739

Ichimoku cloud top                 : 0.9749

Ichimoku cloud bottom              : 0.9733

Original strategy :

Bought at 0.9700, Target: 0.9800, Stop: 0.9700

Position : - Long at 0.9700

Target :  - 0.9800

Stop : - 0.9700

New strategy  :

Hold long entered at 0.9700, Target: 0.9800, Stop: 0.9700

Position : - Long at 0.9700

Target :  - 0.9800

Stop : - 0.9700

As the greenback has retreated after meeting resistance at 0.9777 yesterday, as long as support at 0.9692 holds, further consolidation would take place and prospect of another rebound remains, above said resistance at 0.9777 would add credence to our view that temporary low is formed, bring retracement of recent decline to 0.9800, then 0.9819-25 (38.2% Fibonacci retracement of 1.0025-0.9692 and previous resistance) but price should falter below resistance at 0.9851 (also just below 50% Fibonacci retracement at 0.9858), bring another decline later.

In view of this, we are holding on to our long position entered at 0.9700. Below said support at 0.9692 would signal recent decline has resumed and extend weakness to 0.9670-75 but reckon downside would be limited to 0.9650 and 0.9620-25 should hold, bring another rebound later. 

GBP/USD - 1.2950

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2977

Kijun-Sen level                    : 1.2971

Ichimoku cloud top              : 1.2998

Ichimoku cloud bottom        : 1.2986

Original strategy :

Bought at 1.2960, Target: 1.3060, Stop: 1.2925

Position : - Long at 1.2960

Target :  - 1.3060

Stop : - 1.2925

New strategy  :

Hold long entered at 1.2960, Target: 1.3060, Stop: 1.2925

Position : - Long at 1.2960

Target :  - 1.3060

Stop : - 1.2925

Failure to extend intra-day rebound and current retreat from 1.3015 suggest caution on our long position entered at 1.2960 but as long as yesterday’s low at 1.2926 holds, prospect of another rebound remains, above said intra-day high would bring test of strong resistance at 1.3043-48, however, break there is needed to confirm early upmove has resumed and extend headway to 1.3075-80 and possibly towards 1.3100-10 later.

In view of this, we are holding on to our long position entered at 1.2960. Below said support at 1.2926 would abort and risk weakness to 1.2900 but break of indicated support at 1.2889 is needed to signal top has been formed at 1.3048 earlier, bring retracement of recent upmove to 1.2850-55 first.

EUR/USD - 1.1214

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 1.1222

Kijun-Sen level                  : 1.1209

Ichimoku cloud top             : 1.1217

Ichimoku cloud bottom      : 1.1198

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although the single currency has rebounded after holding above previous support at 1.1161 and retest of this week’s high at 1.1268 cannot be ruled out, break there is needed to signal recent upmove has resumed and extend further gain to 1.1280-85 (61.8% projection of 1.0839-1.1172 measuring from 1.1076) and possibly towards 1.1300-10. If said resistance continues to hold, then further consolidation would take place.

On the downside, below 1.1195-00 would bring another corrective fall to 1.1161-68 support but break there is needed to signal top has been formed at 1.1268, bring retracement of recent upmove to 1.1130 but reckon downside would be limited to 1.1100-05 (38.2% Fibonacci retracement of 1.0839-1.1268) and price should stay well above support at 1.1076, bring rebound later.

USD/JPY - 111.81

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 111.77

Kijun-Sen level                  : 111.81

Ichimoku cloud top             : 111.70

Ichimoku cloud bottom      : 111.46

Original strategy  :

Bought at 111.50, Target: 112.50, Stop: 111.15

Position :  - Long at 111.50

Target :  - 112.50

Stop : - 111.15

New strategy  :

Hold long entered at 111.50, Target: 112.50, Stop: 111.15

Position :  - Long at 111.50

Target :  - 112.50

Stop : - 111.15

Although the greenback retreated after meeting resistance at 112.13 yesterday, reckon the lower Kumo (now at 111.46) would limit downside and bring another rebound, above said resistance would extend the erratic rise from 110.24 low to 112.36 (100% projection of 110.4-11174 measuring from 110.86) and then 112.45-50 (61.8% Fibonacci retracement), however, reckon 112.75-80 would limit upside.

In view of this, we are holding on to our long position entered at 111.50. Below the lower Kumo (now at 111.46) would risk weakness to 111.25-30 but break of indicated support at 110.86 is needed to signal top is formed and suggest the rise from 110.24 has ended, then further fall to 110.50-55 would follow.

Latest EIA data recorded a 4.43mn barrel decline in inventories for the latest week. WTI traded higher this morning, hitting the highest level of 51.96, last seen on April 19.

However, it was followed by a retracement after OPEC announced the existing output cut agreement to be extended for 9 months, as markets have largely priced in the expectations. The announcement was in line with the consensus.

The price rebounded after testing the significant support line at 50.00, where provide a stronger support.

Some OPEC member states exempted from the agreement, such as Iran, Libya, and Nigeria, have been increasing their production. Some non-OPEC oil producers, such as Russia and Ka-zakhstan, also attempt to enlarge their production.

In addition, the US shale oil industry has seen a marked recovery since February last year be-cause of higher oil prices. The US Baker Hughes data (that records the number of new Oil Rigs) is showing additional Rigs added every week.

In general, the oil supply remains high, which has and will offset OPEC's output cut effort to an extent.

The price will likely consolidate above the level at 50.00. It is not likely to see subsequent strong bullish momentum to boost the price further up.

The resistance level is at 51.20, followed by 51.50 and 52.00.

The support line is at 50.50, followed by 50.00 and 49.60.

The France CAC 30 continues to have a quiet week. This lack of movement has continued on Thursday, with French banks closed for Ascension Day. Early in the North American session, the CAC is trading at 5342.65 points. On the release front, there are no economic releases out of France or the eurozone. OPEC members are holding a meeting in Vienna, and the markets will be keeping a close eye on oil prices. On Friday, heads of states from the G-7 nations meet in Sicily. As well, the US will release revised GDP for the first quarter, which is expected at 0.9%, compared to the initial GDP release, which came in at 0.7%.

Fresh after his decisive election win, French President Emmanuel Macron has set his sights on a strong showing in parliamentary elections in June. Macron appears to be well on his way, as a recent poll for Sud Radio found that Macron's center party would win a third of the seats in the first round of the vote, ahead of all other parties. Macron is keen to deepen relations with Germany, which is France's largest trading partner, with 16% of French exports going to Germany. The closeness of Franco-German relations was highlighted by Macron's visit to Berlin just days after winning the presidency. Macron should be able to work well with German chancellor Angela Merkel, both of whom are firm supporters in European integration. The EU is facing difficult challenges, notably Britain's departure from the club and Donald Trump's protectionist agenda.

There were no dramatic statements in the Federal Reserve minutes. Policymakers were careful in their message, saying that a rate hike was coming "soon". To disappointed markets, this sounded like a "definite maybe". Does that mean a move at the June policy meeting? The markets believe so, as Fed funds futures for a June hike remained at 78% after the minutes were released. At the same time, the Fed has given itself some wiggle room, and could opt to delay a hike until the second quarter if inflation or consumer indicators take an unexpected nosedive. The minutes stated that policymakers wanted to see additional evidence that the recent slowdown in the economy was temporary before raising rates. As for additional hikes in 2017, the markets remain skeptical. The odds for a September rate stand at just 37%. This pessimism is a result of a weak performance from the US economy in Q1, as well as doubts that President Trump, who is facing congressional investigations over his connections with the Russian government, will be able to pass his agenda of cutting taxes and government spending. Gone are the heady days at the end of 2016, when a red-hot US economy had analysts predicting four rate hikes in 2017. At the same time, a strong improvement in economic data could quickly change the cautious tone of the Fed and revive discussion of four rate hikes this year.

The Aussie dollar fell again on Thursday after the third consecutive upside rejection, as recovery rally from 0.7328 (09 May low) shows signs of fatigue, following repeated failures to sustain break above 0.7500 barrier, where weekly cloud top, reinforced by weekly Kijun-sen capped rallies. Additional pressure is building on reversal of slow stochastic from overbought zone border. Wednesday's low at 0.7742 (also Fibo 38.2% of 0.7328/0.7517 upleg) marks lower trigger, break of which is expected to spark stronger correction which may extend towards next Fibo supports at 0.7423 and 0.7400 (50% and 61.8% retracement respectively) Break below 0.7400, which is also the base of 4-hr cloud is needed to confirm reversal and lower top at 0.7517. Expect prolonged consolidation phase while the pair holds between 0.7442 and 0.7517 congestion.

Res: 0.7500; 0.7517; 0.7530; 0.7555

Sup: 0.7460; 0.7442; 0.7423; 0.7400

EUR/GBP - 0.8651

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term up

Original strategy  :

Buy at 0.8575, Target: 0.8675, Stop: 0.8535

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8575, Target: 0.8675, Stop: 0.8535

Position : -

Target :  -

Stop : -

 
Although the single currency rebounded after finding support at 0.8603 yesterday, break of this week’s high at 0.8675 is needed to confirm the erratic rise from 0.8312 low has resumed and extend gain to 0.8700, having said that, loss of upward momentum should prevent sharp move beyond resistance at 0.8735, risk from there is seen for a retreat later. If said resistance at 0.8675 continues to hold, then further consolidation would take place and risk of another retreat to 0.8600-05 cannot be ruled out but reckon downside would be limited to 0.8570-75 and bring another rise later.

In view of this, would not chase this rise here and would be prudent to buy euro again on pullback as 0.8575-85 should limit downside. Below 0.8550 would defer and suggest top is possibly formed, bring subsequent test of said support at 0.8524, once this level is penetrated, this would provide confirmation.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.