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GBP/CHF – 1.2615

  




GBP/CHF – Circle wave v ended at 0.9106 and major correction has commenced for subsequent gain to 1.5547.




Despite rising to 1.3069 earlier this month, the subsequent sharp retreat together with the breach of support at 1.2729 suggest top has possibly been formed there and consolidation with downside bias is seen for the fall from there to bring at least a retracement of recent rise to 1.2550-55, then 1.2490-00, however, break of support at 1.2440-45 is needed to add credence to this view and extend further fall to another previous support at 1.2285 but price should stay above 1.2215 support.



To recap the larger degree count, the selloff from 2.4965 (July 2007) is the beginning of wave V with circle and is labeled as 1: 2.3760, 2: 2.4425, wave 3 extension ended at 1.1470, followed by wave 4 at 1.5547, the quick rebound from 0.9106 suggests wave 5 as well as entire circle wave V could have ended there, hence consolidation with mild upside bias is seen for major correction to take place, bring initial test of 1.5547 (previous 4th of a lesser degree).


On the upside, whilst recovery to 1.2690-00 cannot be ruled out, reckon 1.2790-00 would limit upside and bring another decline later. Above 1.2860-65 would suggest first leg of decline from 1.3069 has ended, bring a stronger rebound to 1.3000 but said resistance at 1.3069 should remain intact.  



Recommendation: Sell at 1.2800 for 1.2500 with stop below 1.2900.

On the Monthly chart, the longer-term count is that major downtrend is under way with circle wave I at 2.8645 (Sep 1.978), then wave II with circle at 4.6175 (Feb 1981), the wave III with circle ended at 1.7425 (Nov 1995) and followed by wave IV with circle at 2.4965 (July 2007 with a short wave C) and wave V with circle has possibly ended at 0.9106. A monthly close above 1.5547 would add credence to this view, bring major correction to 1.7000, then towards psychological level at 2.0000.

'German Chancellor Angela Merkel described the shared currency as 'too weak.' – Alexandria Arnold and Dennis Pettit, Bloomberg

Pair's Outlook

After the fundamental move of the Euro against the US Dollar, which broke the medium term ascending channel pattern, the currency exchange rate continued to trade near the 1.1250 mark on Tuesday morning. The pair is most likely going to reach the 1.13 mark soon, as it faces no resistance up to that level. Meanwhile, from a fundamental perspective markets are grasping the comments of the German Chancellor in regards to the ECB and the weakening of the Euro. However, the bottom line is that Merkel does not like how the ECB has weakened the common currency.

Traders' Sentiment

SWFX traders remain with an unchanged opinion, as 60% of open positions remain short. Meanwhile, 58% of trader set up orders are to buy the Euro.

'Bulls would be eyeing for a follow through momentum beyond 1.3040-50 immediate hurdle, above which the pair is likely to aim towards reclaiming the 1.3100 handle and head towards testing 1.3125-30 resistance area, marking 38.2% Fibonacci retracement level of post-Brexit downslide.' – Haresh Menghani (based on FX Street)

Pair's Outlook

Monday ended with the Sterling remaining completely unchanged against the US Dollar, with the pair attempting to return into its consolidation trend's borders. In order for this to be confirmed the British Pound is required to close in the red zone today, below the weekly pivot point as well. The second closest support lies only around 1.2930, formed by the 20-day SMA and the weekly S1. However, technical indicators suggest the bullish momentum is likely to prevail; in case it does, the Cable is likely to reach the 1.31 mark within the next two weeks.

Traders' Sentiment

Traders are still neutral towards the Pound, holding 51% of short and 49% of long positions. At the same time, the share of purchase orders inched down from 60 to 56%.

'USD/JPY-slightly bearish. We expect the pair may move towards 110.80.' – Fullerton Markets (based on Investing.com)

Pair's Outlook

The USD/JPY pair has been trading rather calmly since last week's sharp decline, managing to retain its positions above the 111.00 major level. The given pair now appears to be contained within a specific trading range, with the 55-day SMA and the weekly PP representing the upper border, and the monthly PP with the lower Bollinger band-the lower one. Additionally, strong demand rests around the 110.00 mark, which should limit any deeper losses should the immediate support fail. Meanwhile, technical indicators imply the Greenback is to outperform the Yen again, but due to lack of impetus the nearest resistance is likely to remain intact today.

Traders' Sentiment

There are 60% of traders holding short positions, while 55% of all pending orders are to acquire the US Dollar.

'We suspect that gold will respond more forcefully going into Tuesday's session as geopolitical tensions start to rise again.' – Edward Meir, INTL FCStone (based on Reuters)

Pair's Outlook

During the early hours of Tuesday's trading session the yellow metal's price fluctuated near the 1,260 mark without a clear direction. However, on a larger scale it can be understood that the bullion is still in the surge, which began after reaching the support cluster near the 1,250 level. Due to that fact it can be assumed that the commodity price eventually will reach the nearest technical resistance, which is near the 1,270 mark, as at that level there is a resistance cluster made up of three various levels of significance.

Traders' Sentiment

Traders sentiment remains firm, as 51% of open positions are short, and 67% of trader set up orders are long.

EUR/USD

Current level - 1.1243

The upmove is still underway, targeting 1.1300 major resistance. Initial intraday support lies at 1.1210 and crucial on the downside is 1.1160 low.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 110.99

Despite the neutral bias, the outlook here remains positive, for a rise towards 11.90, en route to 113.00 area.

GBP/USD

Current level - 1.2988

A break through the static 1.3050 will challenge directly 1.3120 area. Crucial support on the downside is projected at 1.2830

Recently Trump's leak scandal has been leading the USD move instead of economic performance. Last week USD had its biggest weekly fall since the US presidential election because of the scandal.

The markets are concerned it will result in Trump's plans not being able to be executed and worsen the economic slowdown. In addition, North Korea launched its second ballistic missile towards Japan on Sunday further lifting regional tension.

The dollar index hit a new post presidential low of 96.68 on Monday, due to extended market concerns over the FBI investigation on Trump's Russia leak scandal. On Tuesday, during early European session, it rebounded, however then followed by a retracement after testing the resistance level at 97.00.

On Tuesday, EUR/USD hit a new high of 1.1267 last seen on November 9. Per CFTC data released last Friday Euro long positions have reached a 3-year high. Gold has rebounded over the past two trading sessions touching a 3-day high of $1263.64 this morning.

The next move of USD will likely depend on the FOMC, the progress of the FBI investigation into Trump's Russia leak scandal, and upcoming economic data. If there are further adverse findings from the FBI's investigation USD will likely see a further fall. Conversely, without further adverse findings, we will likely see a rebound of USD.

Despite the Trump scandal and soft economic data, per the CME FedWatch tool, the probability for a rate hike in June only saw a modest drop to 78.5%. That said, markets are assuming the Fed will stick to its rate hike pace regardless of political turmoil and economic slowdown. The FOMC May Meeting Minutes will be released at 19:00 BST on Wednesday May 24, we will likely get further clues about a June rate hike and economic outlook.

We will see a set of US economic data to be released between 14:45 – 15:00 BST this afternoon. It will likely affect USD and USD crosses.

The common European currency extended its recent gains yesterday, following some remarks from German Chancellor Angela Merkel. Speaking about the causes of Germany's large trade surplus, she indicated that the euro is 'too weak' due to the ECB's policy, which makes German products relatively cheaper. Even though such rhetoric is not particularly new coming from Germany, considering that Finance Minister Schauble has repeatedly made similar comments, it was enough to add further fuel to the recent bullish sentiment surrounding the euro.

Moving forward, we stick to our guns that the near-term path of the least resistance for the euro is to the upside. Diminished political risks in the Eurozone, prospects for a more optimistic tone by the ECB at one of its upcoming meetings, and continued strength in the bloc's economic data support our view. Our favorite proxy for further euro gains remains EUR/USD. Political risks remain elevated in the US, generating market skepticism over Trump's ability to push his tax plans through Congress, something evident by the decline in both US Treasury yields and the recent plunge in 5y5y inflation expectations. In addition, given the elevated expectations for a June rate hike (78.5% according to the Fed funds futures), we think that near-term risks surrounding the USD from monetary policy may be asymmetrical. Any signs the Fed may not hike in June could generate a bigger negative market reaction than the corresponding positive one in case policymakers raise rates.

EUR/USD surged from near the 1.1170 (S2) support territory after Merkel's comments, breaking above the resistance (now turned into support) level of 1.1230 (S1), before finding fresh sell orders near 1.1270 (R1) and subsequently pulling back somewhat. Given that the price structure on the 4-hour chart remains higher peaks and higher troughs, we would expect the bulls to seize control again soon and push the rate higher for another test near 1.1270 (R1). If they manage to overcome that resistance level, they could initially aim for the 1.1300 (R2) area, marked by the peak of the 9th of November.

Today's highlights:

During the European day, we get the preliminary manufacturing and services PMIs for May from many European nations and the Eurozone as a whole. Most of these indices are expected to have remained unchanged or to have ticked down, but to still remain at elevated levels. Thus, despite some marginal declines, such prints could indicate that the bloc's economic recovery remains on track, and may enhance further speculation regarding an increasingly more optimistic ECB. Something like that could bring the euro under renewed buying interest.

EUR/JPY spiked higher after the German Chancellor's remarks as well, to break above the resistance (now turned into support) obstacle of 124.60 (S1). The rate hit resistance at 125.30 (R1) and then retreated. In case the PMIs are encouraging today, we could see the pair surge and perhaps test the 125.30 (R1) zone again, where a decisive break could pave the way for the 125.80 (R2) resistance territory.

We also get Germany's Ifo survey for May. The forecast is for both the current conditions and the expectations indices to have risen, albeit marginally. The case for an increase in these figures is supported by similar upticks in the ZEW indices for the month. Coming on top of potentially encouraging PMIs, this could be another factor that enhances the case for Draghi & Co. to shift to a more hawkish tune soon.

In the US, the preliminary Markit manufacturing PMI for May and new home sales for April are due out, though neither of these indicators is usually a major market mover.

We have three speakers on the agenda: BoE Governor Mark Carney, ECB Executive Board member Benoit Coeure and Minneapolis Fed President Neel Kashkari.

EUR/USD

Support: 1.1230 (S1), 1.1170 (S2), 1.1100 (S3)

Resistance: 1.1270 (R1), 1.1300 (R2), 1.1340 (R3)

EUR/JPY

Support: 124.60 (S1), 124.00 (S2), 123.00 (S3)

Resistance: 125.30 (R1), 125.80 (R2), 126.50 (R3)

'On the cost of living, what I want to see is building a strong economy with higher paid jobs.' - Theresa May, British Prime Minister

On Monday, the British Prime Minister Theresa May had an interview with the BBC channel's Andrew Neil. The interviewer asked the UK Prime Minister why the Conservative Party included a social care cap in its campaign, while it refused to do so at the very beginning of the rally, but May said she was honest with the nation and just wanted to clarify what the Party put in its manifesto. During the interview, the British PM stated that people wanted to see the stronger economy that could pay for the National Health Service and the public services. As to rising inflation, frozen in-work benefits and falling living standards, the UK PM said she would create higher paid jobs and put control on energy prices to help people pay bills. Andrew Neil noted that the Tories failed to lower migration and end the budget deficit by 2015; however, Theresa May stated that the Conservatives would continue working on the following issues if they wing the June 8 Election, highlighting the Labour Party's intentions to increase borrowing and ignore the country's debt and the budget deficit.

CHF immune to lacklustre trade data

Swiss trade data came on the soft side in April, highlighting the negative effects of a high level of political uncertainty that stemmed from the French elections and Brexit talks. Exports contracted 2.5% m/m in April compared to a downwardly revised reading of 1.8% in the previous month. On the contrary, imports rose 2.6% from 0.6% a month earlier. Accordingly, the trade balance printed at CHF 1.97 billion, the lowest level since December 2014 when it came in at CHF 1.51 billion.

After a short but encouraging recovery in March, the Swiss Watch industry experienced rough market conditions in April. Exports contracted 5.7% y/y as the demand from Hong Kong and the USA, the two largest importers, contracted significantly: -16.8% and -19% respectively. On a more positive note, the exports to mainland China and the United Kingdom kept their positive momentum, thereby limiting the damage. The disappointing April trade figures are a good reminder that a unified and stable European Union is a necessary ingredient for a successful Swiss economy.

EUR/CHF was treading water at around 1.0935 this morning. From a technical standpoint, the 200dma currently lying at 1.0784 remains the strongest short-term support, while on the upside the 1.10 psychological threshold will act as resistance.

Canada: OPEC rumours send the loonie higher

Canada's central bank will decide about its rate tomorrow and financial markets expect it to remain unchanged at 0.50%. The cost of borrowing should then stay low for some more time and underpin the housing bubble. Since 2009, the average price of a home has increased by more than 40% in nominal terms. In terms of economic data, annualised inflation (1.6%) is declining and is still below the central bank's target midpoint. Retail sales (excluding Auto) is also on the soft side with -0.2% y/y performance.

We believe that the major CAD drivers are US President Donald Trump and OPEC. The market is pricing in more difficulties for Trump to achieve its reforms. There are now more downside pressures on the US dollar. The loonie has been strengthening since the start of this month and is now trading around one-month highs against the US dollar below 1.35. However, there are rumours that OPEC may continue to cut production beyond June, and for the next nine months, so this is also sending the loonie higher. There is definitely more downside risk on the USDCAD pair.

Carry looks solid

Volatility continued to decline as political concerns fade into the background. VIX is now at levels seen before the James Comey memo rocked equity markets. Despite the nervousness in markets we anticipate investors will become numb to the scandal plaguing President Trump's administration as investigations tend to be protracted events.

In the absence of Trump-fuelled political risks, carry trade has again become attractive. USDJPY remain the barometer for investors should President Trump's problems escalate. USDJPY's move off 110.24 indicates easing of political uncertainties. Sentiment around the greenback has weakened and it will take a significant upside surprise in economic data to give yields the necessary push higher to boost USD.

Dovish commentary from the Feds Evans and Brainard (both voters) has lowered expectation for the FOMC minutes being released tomorrow. Both speakers highlighted the lack of strong price pressures and a historical pattern of inflation to undershoot the 2% target. Yet strong data leading up to the June rate decision could quickly shift USD bias.

Today's US PMI and new homes sales could provide further clarity on US economic uncertainties. In addition, Fed Kashkari (voter) will speak. We see the current balanced environment positive for EM FX - specifically MXN, INR and IDR.