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EURUSD

The EURUSD was corrected lower yesterday bottomed at 1.1175. The bias is bearish in nearest term. Price broke below a trend line support as you can see on my H1 chart below suggests a potential bearish pullback especially if price able to make a clear break below 1.1175 testing the H1 EMA 200 located around 1.1110 but overall I remain bullish and any downside pullback should be seen as a good opportunity to buy. Immediate resistance is seen around 1.1210. A clear break above that area could lead price to neutral zone in nearest term testing 1.1265 area which need to be clearly broken to the upside to continue the bullish scenario targeting 1.1300 – 1.1350 area.

GBPUSD

The GBPUSD attempted to push higher yesterday topped at 1.3033 but closed lower at 1.2960. The bias remains neutral in nearest term probably with a little bearish bias testing the trend line support and 1.2925/00 support area as you can see on my H1 chart below, which is a good place to buy with a tight stop loss. Immediate resistance is seen around 1.2985. A clear break above that area could trigger further bullish pressure testing 1.3050 key resistance which needs to be clearly broken to the upside to continue the bullish scenario testing 1.3185 area.

USDJPY

The USDJPY attempted to push lower yesterday bottomed at 110.86 but whipsawed to the upside and closed higher at 111.78 and hit 111.99 earlier today in Asian session. The bias is bullish in nearest term testing the trend line resistance and 112.00 area as you can see on my H4 chart below, which remains a good place to sell with a tight stop loss targeting 108.00 region. Immediate support is seen around 111.50. A clear break below that area could lead price to neutral zone in nearest term testing 111.00 or lower. On the upside, a clear break and daily close above 112.00 and the trend line resistance would activate my wait and see mode as direction would become unclear.

USDCHF

The USDCHF attempted to push lower yesterday bottomed at 0.9701 but whipsawed to the upside and closed at 0.9760. The bias is bullish in nearest term testing 0.9815 which is a good place to sell with a tight stop loss targeting 0.9650 as a part of the false breakout bearish scenario as you can see on my H4 chart below. Immediate support is seen around 0.9730. A clear break below that area could lead price to neutral zone in nearest term testing 0.9650 area.

Spot Gold is holding within $1245/$1265 congestion for the fifth day. Repeated upside rejection under $1265 and strong bearish close on Tuesday, turned near-term focus lower and signal possible retest of strong $1245 support. Support is provided by daily cloud base and Fibo 38.2% of $1214/$1265 upleg, reinforced by 200SMA and rising 10SMA which is attempting to form Golden Cross on break higher. In addition, 55SMA at $1247 and 20SMA at $1242, reinforce support zone, which marks the lower breakpoint. Bullish near-term bias could be expected while $1245 holds, however, lift above daily cloud ($1257) is seen as minimum requirement for extension and retest of $1265 pivot (double upside rejection / Fibo 61.8% of $1295/$1214 descend) break of which is needed to confirm bullish continuation. Alternatively, strong bearish signal could be expected on firm break below $1245 which would trigger extension towards $1233 (Fibo 61.8% of $1214/$1265). Gold may stay within narrow range ahead of FOMC minutes due later today, which may give stronger direction signals, depending on Fed's tone about next rate hike.

Res: 1253, 1257, 1263, 1265
Sup: 1247, 1245, 1242, 1239

Overnight Moody's downgraded China by one notch from Aa3 to A1 – the first downgrade since 1989 (see link). It changed the outlook from negative to stable.

The rationale behind the downgrade is rising debt and Moody's expectation of a continuing increase in leverage in coming years, which will erode China's financial strength. Moody's also highlights that the growth target the government is pursuing in the Five-Year Plan will rely on continued stimulus and rising leverage. ‘Taken together, we expect direct government, indirect and economy-wide debt to continue to rise, signalling an erosion of China's credit profile, which is best reflected now in an A1 rating.'

The move by Moody's does not seem to relate to the recent bouts of financial stress but is based more on a long-term sustainability analysis.

S&P could soon follow, as it now has a one-notch higher rating than both Moody's and Fitch.

Our take on China's financial risks

We expect focus to return to China's financial risks this year, as growth slows down. We continue to see downside risks to Chinese growth based on the policy tightening already done and the current stress in bond markets. We do not expect a big financial crisis in the short term (next one to two years), as we believe China is likely to take a step back on regulatory tightening if stress gets too high and threatens the economy ahead of the 19th National Congress of the Communist Party in the autumn.

Nevertheless, we expect China to be an increasing drag on global growth and risk appetite this year. On a three- to five-year horizon, we still see a 50% risk of a financial crisis in China or a lost decade of growth (Japan scenario) as the economy deleverages

Our concern does not relate only to the rapid rise in corporate debt that has taken place but also to it happening alongside a rapid growth in shadow banking, where the safety net is much smaller than in the traditional banking system. Shadow banking is all intermediation between savers and borrowers that takes place outside the traditional banking system.

A lot of China's debt has been intermediated through wealth management products (WMP), which have seen average growth of 50% since 2012. In order to deliver the promised return, WMP invest in higher risk loans. However, Chinese households putting money into WMP expect them to be government guaranteed. If losses start to mount in some of these loans, the promised returns will not be delivered and households could quickly pull their money out of these products again, leading to a liquidity crisis where companies struggle to roll debt, which could trigger a negative spiral of higher yields, rising defaults, economic slowdown, even more bankruptcies and so on.

The development in China's financial system needs close monitoring and we expect it to become an increasing focus this year when growth slows down.

The medium-term risks and structural downside pressure on growth are the main reasons we continue to look for a continued gradual weakening of the CNY versus both the USD and EUR over the coming years and recommend to hedge CNY receivables.

GBP/USD – 1.2963

Recent wave: Wave V of larger degree wave (III) has ended at 1.1986 and major correction has commenced from there for gain to 1.3000 and 1.3140-50

Trend: Near term up

New strategy :

Look to buy lower

Position: -
Target:  -
Stop:-

Cable continued meeting resistance just below last week’s high at 1.3048, retaining our view that further consolidation below this level would be seen before recent upmove resumes, above said resistance would extend recent rise for further gain to 1.3075-80, then 1.3100-10 but near term overbought condition should limit upside to 1.3050-60 and price should falter well below 1.3100-10.

Our preferred count on the daily chart is that cable's rebound from 1.3500 (wave (A) trough) is unfolding as a wave (B) with A ended at 1.7043, followed by triangle wave B and wave C as well as wave (B) has ended at 1.7192, the subsequent selloff is the larger degree wave (C) which is still unfolding with minor wave (III) of larger degree wave 3 ended at 1.1986, hence wave (IV) correction is in progress which could either be a triangle wave (IV) of a complex formation but upside should be limited to 1.3500 and price should falter well below 1.4000, bring another decline in wave (V) of 3 for weakness to 1.1500, then 1.1200.

On the downside, whilst pullback to 1.2940 is likely, reckon 1.2920-25 would limit downside and bring further consolidation. Only below said support at 1.2889 would signal top has been formed at 1.3048 and bring retracement of recent upmove to 1.2866, then towards previous support at 1.2844 which is likely to hold from here.

The euro continues to have a quiet week, as EUR/USD continues stays close to the 1.12 line. Currently, EUR/USD is trading at 1.1190. In economic news, German Consumer Climate improved to 10.4, beating the estimate of 10.2 points. The ECB released its semi-annual Financial Stability Review, which was generally positive. Later in the day, ECB President Mario Draghi will speak at an event in Madrid. In the US, today’s highlight is the Federal Reserve minutes from the May policy meeting. As well, Existing Home Sales is expected to dip to 5.65 million. On Thursday, the US releases unemployment claims.

German indicators continue to point upwards, indicative of a healthy German economy. On Tuesday, Consumer Climate improved to 10.4, its highest level in over a decade. Stronger consumer confidence should translate into increased consumer spending, a key driver of economic growth. Final GDP for the first quarter remained at 0.6%, unchanged from the Preliminary GDP reading. Business confidence and manufacturing PMI reports also improved in May. An improvement in the global demand has boosted the German export and manufacturing sectors, and Germany is on track for a solid second quarter, which is good news for the euro-area.

Will the Federal Reserve raise rates in June? The markets think so, as the odds of a rate hike have increased to 83%, according to the CME Group. Just last week, the likelihood of a rate increase stood at 73%. Still, Fed policymakers are playing it safe, at least in their public statements. On Tuesday, Philadelphia Fed President Patrick Harker said that a June move was a 'distinct possibility', but cautioned that a weak inflation report could delay a rate hike. Earlier in the week, Robert Kaplan, President of the Dallas Fed, stated that three interest increases in 2017 was 'appropriate'. The Fed minutes are expected to underscore support for a June move, but may not shed much light on what happens after that. Still any clues about the Fed’s rate plans could shake up the listless EUR/USD.

On Tuesday, the White House presented Trump’s 2018 budget proposal to lawmakers in Congress. Trump is eager to pick up the axe and slash government spending, and the budget proposes major cuts to the Medicaid health program, disability benefits and food stamps. Trump has outlined an ambitious program to cut government spending by $3.6 trillion in the next 10 years and achieving a balanced budget by 2020. The budget includes $25 billion for paid leave after childbirth and some $200 billion for infrastructure programs. Trump’s budget will face tough opposition on Capitol Hill, with both Democrats and Republicans likely to demand changes. Still, with the Trump administration beset by Congressional investigations, the White House can point to the budget as a step forward in his agenda to slash government spending.

• US futures and USD flat ahead of FOMC minutes;
• Oil climbs ahead of inventory data on anticipation of output extension;
• China downgrade shrugged off by markets.

We're expected a relatively flat open on Wall Street on Wednesday, as traders await the minutes from the FOMC meeting earlier this month having already strongly priced in a rate hike in June, with a second in December looking less certain.

While the dollar's performance in recent months would suggest otherwise, traders have become increasingly convinced that we'll see a rate hike in June, the second this year, but questions are being asked about where the Fed will go from there. A lot of the expectation in the final couple of months of the year came from the expectation that President Donald Trump would announce huge spending and tax reform plans but as of yet, that's not happened.

The result is that the rally in both equity markets and the dollar have stalled, with other currencies making up ground as central banks elsewhere turn a little less dovish. The S&P and the Dow on the other hand have been range bound over the last few months and have failed each time they've tested their highs. While the Dow remains a little off its highs, the S&P appears to be eyeing another test having rebounded convincingly following last Wednesday's tumble.

Brent and WTI crude are both trading in the green once again today and are headed for a sixth consecutive day of gains as we await the latest oil inventory data from EIA and the decision on whether there'll be an extension, and possible increase, to the output cut that came into effect this year. The rally in recent weeks would certainly suggest traders have bought into it already, leaving oil WTI and Brent very vulnerable to the downside should participating members fail to come to an agreement. With Saudi Arabia and Russia appearing on board though, the chance of a deal not materialising seems slim. The bigger question is whether they'll live up to market expectations. Another small reduction in inventories is expected to be reported today, in line with what API reported on Tuesday.

Markets have largely shrugged off Moody's downgrade of China's credit rating overnight, with even Chinese stocks and the yuan being relatively unfazed. We saw some initial weakness in Chinese stocks and the currency immediately following the announcement but both quickly reversed the moves to trade positive on the day. This sentiment has been shared by investors elsewhere who have also shrugged off the downgrade, with the possible surprise factor being offset by the fact that concerns about Chinese debt and growth are not exactly new.

While the FOMC minutes will likely attract the most attention today, we'll also get existing home sales data from the US and hear from a couple of Fed officials, with Robert Kaplan and Neel Kashkari both due to appear for the second time this week.

GBP/JPY - 144.93

Recent wave: Medium term low formed at 120.50 and (A)-(B)-(C) major correction has commenced with (A) leg ended at 148.45, hence wave (B) is unfolding for retreat to 131.00-10.

Trend: Near term up

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

Sterling found support at 143.80 and has rebounded again, suggesting further consolidation above previous support at 143.40 would be seen and another bounce to 145.35-40 cannot be ruled out, however, break there is needed to bring a stronger retracement of the fall from 148.10 to resistance at 145.90-95, having said that, break there is needed to confirm low has been formed, bring further subsequent gain to 146.30-35 but resistance at 147.10 should remain intact.

On the downs8de, below 144.30 would bring weakness to 144.00 but only break of 143.80 support would revive bearishness, bring retest of 143.40. Only a drop below this level would signal the decline from 148.11 top has resumed for correction of early upmove to 143.00, then 142.30-35 which is likely to hold from here.

Our preferred count is that larger degree wave V with circle is unfolding from 251.12 with wave (I) 219.34, (II): 241.38 and wave (III) is subdivided into 1: 192.60, 2: 215.89 (23 Jul 2008) and wave 3 ended at 118.87 earlier in 2009. The correction from there to 162.60 is wave 4 which itself is a double three and is labeled as first a-b-c ended at 151.53, followed by wave x at 139.03, 2nd a ended at 162.60, 2nd b at 146.75 and 2nd c leg of wave 4 ended at 163.00. Therefore, the decline from 163.00 to 116.85 is now treated as wave 5 which also marked the end of larger degree wave (III), hence wave (IV) major correction has commenced for retracement of the wave (III) from 241.38 and upside target at 183.95-00 (50% Fibonacci retracement of the wave (II) from 241.38) had been met, a drop below 160.00 would suggest wave (IV) has ended at 195.85, bring decline in wave (V) for initial weakness to 130 (already met) and 120.


The growing optimism over big oil-producing countries extending output cuts to mitigate oversupply woes propelled WTI Crude to a fresh monthly high at $51.76 on Wednesday. Although OPEC and Non-OPEC members have, on repeated occasions, exploited oil’s sensitivity to generate speculative boosts in prices, this may come at a heavy cost if oil markets fail to rebalance. While WTI Crude is likely to appreciate higher if OPEC and Non-OPEC producers extend the current output cut deal by another nine months, the question remains of how U.S Shale will react.

I believe that U.S Shale is a significant threat to the OPEC deal, especially when considering how the surging output from the U.S has seizedmarket share from other OPEC members. With the production cut agreement still not legally binding and no punishments in place for those who don’t adhere to its stipulations, there remains a strong temptation for individual countries to cheat in a bid to gain more market share. The bearish sentiment towards oil remains intact amid the oversupply concerns with the “prisoner’s dilemma” between OPEC and U.S Shale limiting upside gains. While it may be too early to say that this is the end of OPEC, U.S Shale has considerably weakened the cartel's grip on the global markets.

From a technical standpoint, WTI Crude has staged an incredible rebound on the daily charts with prices breaking above $51.50. Intraday bulls could exploit the upside momentum to send oil prices higher towards $52.

Fed meeting minutes in focus

The Greenback experienced a technical bounce on Tuesday with prices trading towards 97.40 as investors offloaded bearish positions ahead of the anticipated Federal Reserve meeting minutes this evening. A sense of uncertainty over Trump’s ability to implement the proposed fiscal policies has left investors on edge with questions being raised over the potential impacton the Federal Reserve. While most expect the pending minutes to reinforce expectations of a June rate hike, investors will be searching for further clues on when, or if, a third rate hike is still on the table. With economic data in the States becoming increasingly mixed and the Trump jitters returning with a vengeance, the prospects of a third U.S interest rate increase in 2017 could come under threat.

From a technical standpoint, the Dollar Index remains under pressure on the daily charts. A breakdown back below 97.00 should encourage a further depreciation lower towards 96.00.

Sterling searching for direction…

The fact that Sterling has struggled to maintain gains above 1.3000 on repeated occasions despite the Dollar’s weakness continues to highlight how the currency remains gripped by Brexit uncertainty. With soft economic data from the UK and anxiety over Brexit weighing heavily on investor sentiment, Sterling remains at risk of depreciating sharply if bulls fail to conquer 1.3000. Investors may direct their attention towards the second estimate for the first quarter GDP report released on Thursday which should provide some further insight to how Brexit has impacted the UK economy. An unexpected decline in the second estimate will most likely invite Sterling bears. From a technical standpoint, a breakdown below 1.2900 on the GBPUSD may open a path lower towards 1.2775.

Commodity spotlight – Gold

Gold prices edged lower on Tuesday as the combination of profit taking and a slightly appreciating Dollar attracted short-term bears to attack. Regardless of the recent declines, Gold remains supported on the daily charts with the persistent Trump uncertainties limiting downside losses. While Gold could face some punishment this evening if the Federal Reserve minutes cement expectations of a June rate hike, the Trump jitters should instill enough encouragement for bulls to remain in control in the medium to longer term. From a technical standpoint, Gold bulls need to break above $1260 for a further incline towards $1275.

GOLD Consolidating above 1250.

Gold's retracement seems to end up. Hourly support is located at 1246 (18/05/2017 low). Stronger support is given at 1195 (10/03/2017 low). Expected to show further upside pressures.

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1392 (17/03/2014) is necessary ton confirm it, A major support can be found at 1045 (05/02/2010 low).

SILVER Short-term bullish.

Silver increases. Strong support is given at 15.63 (20/12/2017 low). Closest support is given at 16.20 (04/05/2017 low). Key resistance is given at a distance at 19.00 (09/11/2017 high). Expected ton increase until 50% Fibonacci retracement around 17.30.

In the long-term, the death cross indicates that further downsides are very likely. Resistance is located at 25.11 (28/08/2013 high). Strong support can be found at 11.75 (20/04/2009).

CRUDE OIL Strong demand.

Crude oil continues to bounce on shortsqueeze move. Support is given at a distance 43.76 (05/05/2017 low). Demand is very strong and the road is wide-open for further increase.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. Strong support lies at 24.82 (13/11/2002) while resistance can now be found at 55.24 (03/01/2017 high)

AUD/USD Short-term bullish.

AUD/USD is pushing higher since the pair reached hourly support at 0.7329 (09/05/2017 low). As long as prices remain below the resistance at 0.7608 (17/04/2017 high), there are strong downside risks.

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/GBP Growing demand.

EUR/GBP is strengthening. The technical has turned positive since the pair has broken resistance at 0.8530 (25/04/2017 low). Support can be found at 0.8304 (05/12/2017 low). Expected to see further continued increase towards 0.8700.

In the long-term, the pair has largely recovered from recent lows in 2015. The technical structure suggests a growing upside momentum. The pair is trading above from its 200 DMA. Strong resistance can be found at 0.9500 psychological level.

EUR/CHF Selling pressures increase.

EUR/CHF is trading lower. We believe that the medium-term pattern suggests us to see continued bearish pressures towards key support that can be found at 1.0623 (24/06/2016 low).

In the longer term, the technical structure is mixed. Resistance can be found at 1.1200 (04/02/2015 high). Yet,the ECB's QE programme is likely to cause persistent selling pressures on the euro, which should weigh on EUR/CHF. Supports can be found at 1.0184 (28/01/2015 low) and 1.0082 (27/01/2015 low).