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Daily Pivots: (S1) 0.8612; (P) 0.8631; (R1) 0.8664; More...

Intraday bias in EUR/GBP remains on the upside as current rise from 0.8132 extends to as high as 0.8660 so far. Further rally is expected to be seen to 0.8786 resistance next. Note again that 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. For now, break of 0.8523 support is needed to indicate completion of the rebound form 0.8312. Otherwise, near term outlook will remain mildly bullish in case of retreat.

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.

Euro stays firm against Dollar and Sterling in Asian session but is losing some momentum against commodity currencies. Strength of the common currency is built upon optimism on Eurozone's economic outlook. And Euro will look into a string of data for further strength today, including PMIs and German IFO business climate. Meanwhile, Sterling stays as the weakest major currency as markets UK election and Brexit negotiation with EU are both approaching. Dollar, on the hand, stays soft too and didn't follow the rebound in stocks and yield. US President Donald Trump's first budget will also be a major focus today but it's unlikely to be inspirational.

Pounds stays weak as May halt election campaign

Sterling continues to trade as the weakest major currency for the week as markets are already starting to get cautious ahead of the election next month. Prime Minister Theresa May halted her campaign after suspected terrorist attack in Manchester. May was criticized as having a U-turn on one of her key policies, a now called "dementia tax" on elderly people. It was originally widely expected that the Conservatives would have a landslide victory in the election on June 8. But latest poll, which showed only a lead of 9 pts over Labour, suggested that the margin was not as strong as it's thought to be. And that would potentially give May a much weaker hand in Brexit negotiation.

EU is "ready and well-prepared" for Brexit talk

EU's Brexit negotiator Michel Barnier said that the EU has agreed on its Brexit negotiating stance and he hoped that the first round of talk would begin in the week of June 19. Barnier said that "from the day the UK decided to leave, the EU has gone through an intense preparatory process," and, "we are ready and well-prepared." The "negotiating directives" were agreed unanimously at a meeting of 27 EU ministers yesterday. Here are some highlights of the 18 page document:

• UK will leave EU on March 30, 2019 unless EU27 agrees unanimously to extend the talks
• Status of EU citizens is the top priority and the Brexit agreement must ensure "effective, enforceable, non-discriminatory and comprehensive guarantees" for the 4.7m people and their families affected.
• EU and UK have to agree on a "single financial settlement" covering EU budget and UK contributions to European Investment Bank and other common funds. But there was no amount mentioned.
• On the island of Ireland, EU would hope to avoid a hard border while respective its legal order.
• EU emphasizes future UK governments can be held to account for failing to uphold the Brexit agreement. And EU proposes "an institutional structure to ensure an effective enforcement of the commitments" and refers to the importance of the European Court of Justice.

Euro supported by Merkel's comments

Speaking in Berlin, German Chancellor Angela Merkel noted that the Euro is too weak, evidenced by the country's strong trade surplus. She attributed the single currency's weakness to ECB's ultra--accommodative monetary policy. Separately, Bundesbank President Jens Weidmann suggested that domestic price pressures were currently 'muted', but reiterated his forecast that they would increase "with the continued economic upswing and the gradual decline in unemployment in the Eurozone".

Dallas Fed Kaplan reiterated "gradual and patient" rate path

In US, Dallas Fed President Robert Kaplan retained his view over a "gradual and patient" path on rates. While describing the recent dataflow as "disappointing", he reaffirmed that it is "an appropriate baseline case for the near-term path of the federal funds rate". On inflation, Kaplan noted that the "progress toward our 2% inflation goal has been slow and, at times, uneven". Yet, he noted patience is needed "in critically assessing upcoming data to evaluate whether we are continuing to make progress in reaching our inflation objective".

Fed Governor Lael Brainard said that policy makers "aren't seeing much progress on core inflation". Instead, "if anything the last few months we've seen some stalling out of core inflation." And, she urged Fed officials to look deeper into the employment market and see how different demographic groups are doing. She emphasized that "understanding these barriers and efforts to address them is vital in assessing maximum employment as well as potential growth." While Brainard didn't touch on monetary policy directly, her comments suggested that she's not totally convinced by a more hawkish path.

Looking head...

US President Donald Trump's administration will deliver the first full budget today. According to the budget documents from the White House, the US economy is projected to grow at 3% in 2021 and continue at that pace afterwards. That's a pace never seen since 2005 and is significantly higher than the Congressional Budget Office's 1.9% potential. US will also release PMI manufacturing and services, as well as new home sales.

Earlier in European session, Eurozone, Germany and France PMI manufacturing and services will be featured. Germany will also release Q1 GDP final and Ifo business climate. Swiss will release trade balance while UK will release CBI reported sales.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8612; (P) 0.8631; (R1) 0.8664; More...

Intraday bias in EUR/GBP remains on the upside as current rise from 0.8132 extends to as high as 0.8660 so far. Further rally is expected to be seen to 0.8786 resistance next. Note again that 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. For now, break of 0.8523 support is needed to indicate completion of the rebound form 0.8312. Otherwise, near term outlook will remain mildly bullish in case of retreat.

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

STOCKS

Dow (20894.83, +0.43%) and Dax (12619.46, -0.15%) are almost stable trading slightly lower than the previous close. Dow is testing decent support just below current levels and could either bounce back or continue to trade sideways in the near term while Dax has come off from important resistance and could have some more room on the downside before any reversal is seen. A fall towards 12400-12300 is possible in the near term in Dax while Dow may try to move up towards resistance at 21000-21200. Both looks bearish for the medium term.

Shanghai (3072.46, -0.10%) is in a perfect channel visible on the 3-day and weekly candle charts. The channel support has held well and could help Shanghai bounce back towards 3200 in the next couple of weeks. While support near 3000 holds, we could negate bearishness for the near term.

Nikkei (19653.96, -0.12%) looks bearish while resistance at 20000 holds. If not an immediate fall, the index could trade sideways within the 19400-20000 region before moving down.

Nifty (9438.25, +0.11%) is holding well above 9350 support but at the same time is not able to move above 9530 just now. Some more sideways consolidation is possible for the next couple of sessions before some directional clarity is visible.

COMMODITIES

While Dollar Index (96.78) is well on its course towards 96 with no sign of strength yet, Bullion has strengthened against Dollar yesterday. Gold (1262) and Silver (17.16) are trading well above their crucial support at 1247 and 16.93 and trading at their respective highs. But we would like to be on selling side while gold is trading below 1280 and silver below 17.50 levels due to their short term overbought condition.

Copper (2.58) has found resistance at 2.62 levels. Only above 2.62, higher resistances of 2.68-72 can come into consideration. In the medium term 2.55 are going to be a strong support now but a close below that could open up 2.44-35 levels as well.

We have been tracking the resistance of 54.20 in Brent and 51.20 in WTI for the last few days and they have held, driving the energy pack down as expected. Both Brent (53.60) and WTI (5.73) have already lost approx 20 pips in the opening hour and the chances of more sideways movement in the range of 52.50-51.20 for Brent and 49.17-51.20 for WTI are stronger now. Both Brent and WTI are overbought in short term time frame thus chances of a fall towards their respective supports can’t be ruled out.

FOREX

Dollar Index (96.89) remains extremely weak as it gets closer to our target/support of 96.50-00 which is expected to be met this week. On the other hand, a strong Euro (1.1249) is not far away from our initial target/resistance of 1.1300. If any profit booking is seen in Euro either near 1.1300-30 or near the higher long term resistance of 1.1400-50, then corresponding short covering can be expected in Dollar near 96.50 or 96.00. Better to watch them as a pair at this point.

Dollar Yen (111.18) shows no intention to make any significant move as it continues to trade sideways in the range of 110-112 which may extend for the rest of the week.

Pound (1.2984) is in an interesting position as the trend remains up but the upward momentum is still lacking. The chances of a sudden sharp rise to 1.3200 can’t be ruled out while the probability of further sideways consolidation in the range of 1.2850-1.3050 remains in consideration too. Wait for clarity but no bearish scenario can be considered while above 1.2850.

Aussie (0.7494) is testing the resistance of 0.7500 above which the downside target of 0.7300 will be negated and higher upside targets of 0.7550-0.7600 may open up.

Dollar Rupee (64.55) broke below 64.50 but the intraday bounce from the interim support of 64.42 and closing above 64.50 raises suspicion about the bearish scenario. Any bounce to 64.67-72 may rob all clarity and bidirectional possibilities may be revived. We prefer to wait for clear signals.

INTEREST RATES

The US yields could remain near current levels in the coming sessions with a preference of upside in the near term. Overall yields look bullish for the medium term.

The UK-US (-1.16%) has come off slightly but the previous resistance could now act as an important support which could possibly indicate an upside for the yield spread in the medium term. If that happens, we could turn bullish for Pound in the longer run.

The German-US 10 Yr (-1.85%) is headed towards resistance near -1.75% and while it moves up, Euro could test 1.13 or higher in the medium term.

Short Term Elliott Wave view in FTSE suggests the rally from 4/20 low (7096.6) is unfolding as a zigzag Elliott Wave structure where Minute wave ((a)) ended at 7302.57 and Minute wave ((b)) ended at 7197.28. Subdivision of Minute wave ((a)) unfolded as an impulse where Minuttte wave (i) ended at 7134.53, Minutte wave (ii) ended at 7104.22, Minutte wave (iii) ended at 7290.82, Minutte wave (iv) ended at 7262.32, and Minutte wave (v) of ((a)) ended at 7302.57. The Index then pullback and ended Minute wave ((b)) at 7197.28

Minute wave ((c)) unfolded as an ending diagonal where Minutte wave (i) ended at 7280.7, Minutte wave (ii) ended at 7222.81, Minutte wave (iii) ended at 7460.20, and Minutte wave (iv) ended at 7435.64. Index has reached 1.618 extension of the Minute ((a)) – ((b)) and thus cycle from 4/20 low is mature and we are calling Minor wave 1 completed at 7533.7. Minor wave 2 decline from there is proposed complete at 7389.26. The Index has since resumed the rally higher and near term, while pullbacks stay above 7389.26, and more importantly above 7096.6, expect FTSE to extend higher. A break above Minor wave 1 at 7533.7 is needed to confirm the next leg higher has started. Until then, a double correction in Minor wave 2 can’t be ruled out. We don’t like selling the proposed pullback.

If FTSE breaks below 7389.26, this suggests the Index is still correcting within Minor wave 2 as a 7 swing structure and this would open extension to the downside to the next 100% – 123.6% in 7 swing. In the event that this happens, the Index remains favored to continue the rally higher again after the 7 swing correction is completed as far as pivot at 7096.6 low remains intact.

FTSE 1 Hour Elliott Wave Chart

All aboard the Euro train

Equity investors for the most part investors remained chiefly on the sidelines with no major data releases with few disruptive headlines with the S&P nudging higher at the close and all but filled last Wednesday market gap.But there was animated action on the currency markets when dealers focalized on the Euro. And losing no time, traders rushed to top side expose after Angela Merkel told a Berlin audience that the strong Euro makes German products cheaper, implying euro was too weak due to ECB monetary policy and as investors continue to brood about the political developments in the US and thereby shying away from buying the dollar.

Despite the political overhang, the general market temperament suggests that that investors are killing on on the outcomes of the ECB meeting and what the FOMC has in store for the markets. Currently, markets are pricing in a ~70% probability of a rate hike in June but only 60% for one more rate hike in 2017. If it becomes clear that the FOMC are keen to move on interest rates beyond June, there remains some decent scope for year end Fed repricing which should prop the dollar. IN the meantime, I suspect the markets will continue to be hostage to shifting headlines

Thankfully there’s been a pleasant reprieve for the Comey/Trump headlines, but the melodrama is expected to pick up after Memorial Day ( US) and Spring Bank Holiday ( UK) when Trump returns to Washington after his first official trip abroad.

Euro

The overhang from weak US economic data and the ComeyTrump saga has dealers shunning the greenback which continues to promote demand for the Euro. Merkel’s comments added fuel to this fire in a market that is fully entrenched in buy the dip mode. After touching an intraday high above 1.1260, short term traders took profit as the FOMC side of the calculus has yet to play out. With minutes on Wednesday and a plethora of Fed speakers still to come. Regardless, with the market playing the Euro from the long side, last week’s aggressive breakout suggests a test of 1.1300 is in the offing.As markets are looking for any excuse to load up on Euro’s

Japanese Yen

While yesterday’s UsdJpy sell off after another NK missile test is short lived, But Yen traders continue to eye the Korean geopolitical landscape and correctly so. North Korea appears dead set on launching its first intercontinental ballistic as they continue to make technological advancements within their missile regime. But for the time being with US political tension easing, and despite little reason to sell Yen, the market still views selling USDJPY at current levels as low-risk reward trade ahead of the FOMC. Rather they the prefer to move into EURJPY which offers the path of least resistance on short JPY.

Australian Dollar

It’s a huge week for commodity currencies heading into May OPEC meeting Metal and Energy markets continued to trade positively with wTI trading north of 50.00 per barrel as the markets is convinced r the nine-month extension to go through, while reports are even suggesting even deeper cuts. With the Aussie basing last week after easing in June US rate hike probability and a bounce in Iron ore with OPEC looming price action and momentum suggest we push toward the 7500 level. But there is potential for a catchup move on a clear break.

Gold has moved higher at the start of the week. In Monday's North American session, spot gold is trading at $1262.45 an ounce. There are no economic releases out of the US on Monday. The markets are keeping an eye on the Federal Reserve, as four FOMC members will be making appearances. On Tuesday, the US releases New Home Sales.

When the US dollar is in trouble, safe-haven gold is often the beneficiary. This was the case last week, as the political chaos which gripped the Trump administration last week took a toll on the dollar. Gold responded with strong gains of 2.2% and reached its highest levels in 3 weeks. Nervous investors ditched US-denominated assets in favor of gold and other safe-haven assets, and the trend could continue if the crisis continues. Last week, Trump's administration was rocked by reports that he had asked former FBI director James Comey to end an investigation into connections between Russia and the Trump campaign team during the US election. If these accusations are true, Trump could be charged with committing obstruction of justice. Trump couldn't pack fast enough for his first official trip overseas, and he has been warmly received in Saudi Arabia and Israel. With Democrats smelling blood and the noxious term of 'impeachment' being thrown around, Trump may face a chilly reception in Congress when he returns from his trip abroad.

Trump Sticks to Script on Saudi Visit

A lack of fundamental data on Monday has given the markets an opportunity to focus on the Federal Reserve, with four FOMC members delivering speeches during the day. The Fed is expected to announce a rate hike at its June 14 meeting, but the markets are having a tough time pricing in a rate hike, as the odds of a hike have been constantly changing. Just one month ago, a rate hike was priced in at 50%. The odds have jumped higher in May but continue to show movement. Currently, the markets have priced in a hike at 78%, up from 73% on Friday. If the likelihood of a June move continue to fluctuate, gold prices could follow suit, as gold prices are inversely linked to interest rate moves.

Saudi Arabia's oil minister made a trip to Iraq Monday and shored up support for a 9-month quota extension. On Monday, the kiwi was the top performer while the pound lagged. A speech from the Fed's Brainard later could be telling. There are 5 Premium trades currently open.

Saudi's Al-Falih traveled to Iraq amidst reports that Baghdad, Oman and Kuwait only wanted a six month extension to OPEC quotas. His plan worked and late in the day, Iraqi officials said they were on board.

What's puzzling is that Iraq has been one of the worst violators of the initial production levels as it seeks to recover lost ground due to war. Al-Falih was confident a nine-month deal is coming so that could move the discussion towards deeper cuts in what's a possible upside risk on Thursday when the decision is due.

The wildcard remains Iran. Leaders there have been less-enthusiastic about cuts and the government wants to regain market share. On the topic of oil, the Fed's Kaplan talked about US share on Monday and he was highly optimistic about the amount of investment and potential yield from technological improvements in US shale. He also hinted that breakeven points are coming down. A huge risk for 2018 is that US supply continues to climb and it forces OPEC to pump flat-out.

On monetary policy, Kaplan's comments where characterized as typically-hawkish by the newswires but it was a mischaracterization. Indeed he said he still favors 2 more hikes this year but he repeatedly warned that inflation numbers had raised warning signs and that he will be watching closely.

At the moment, the Fed calendar until the June 3 blackout is quiet in terms of heavyweights. That's likely to change as talks are added but at the moment, the only Fed governor on the schedule is Brainard, who speaks at 2330 GMT today. She's a dove but s also one of the first policymakers who tipped the March hike. If she drops any hawkish hints, it could send the dollar skyward.

USD/JPY is showing little movement at the start of the week. In Monday's North American session, the pair is trading at the 111 line. On the release front, Japan's trade surplus narrowed to JPY 0.10 trillion in April, short of the estimate of JPY 0.25 trillion. In the US, we'll hear from four FOMC members, and the markets will be looking for clues as to the Fed's plans with regard to future rate hikes. On Tuesday, the US will publish New Home Sales.

The US dollar posted broad losses last week and the Japanese yen took full advantage, gaining 1.9 percent. The safe-haven yen has become an attractive asset for nervous investors, as the political turmoil which has gripped Washington has soured investors on the stock markets and the greenback. The yen's gains mirror continuing trouble for the Trump administration, which is lurching from crisis to crisis. Last week Trump's administration was rocked by reports that he had asked former FBI director James Comey to end an investigation into connections between Russia and the Trump campaign team during the US election. If these accusations are true, Trump could be charged with committing obstruction of justice. Trump couldn't pack fast enough for his first official trip overseas, as he has been warmly received in Saudi Arabia and Israel. With Democrats smelling a bona fide scandal and the noxious term of "impeachment" being thrown around, Trump may face a chilly reception in Congress when he returns from his trip abroad.

What's next for the Federal Reserve? With no data out of the US or Japan on Monday, the markets will have a chance to focus on the Federal Reserve, with four FOMC members delivering speeches. The Fed has been keeping the markets guessing in recent weeks regarding a rate hike. The central bank is expected to announce a rate hike at its June 14 meeting, but the odds of a hike have shown strong volatility. In late April, a rate hike was priced in at just 50%. The odds jumped higher in May but continue to show movement. Currently, the markets have priced in a hike at 78%, up from 73% on Friday. If the likelihood of a June move continue to fluctuate, the US dollar could also show some movement, as a rate hike will make US-dollar assets more attractive to investors.

Not a very good week for us, the choppy movement in sterling tripped most of our stops in GBP/USD and GBP/JPY, however, we were able to enter a long position in EUR/GBP at 0.8530 and our upside target at 0.8630 was just met today.

A long position was also entered in USD/CAD and the position is still holding at the moment. 

No position was entered among other currency pairs.

In short, 5 positions were entered last week with total loss of 70 points and the positions are listed below.
 

17 May : GBP/USD - Short at 1.2920, exited at 1.2970 (- 50 points)
18 May : GBP/JPY - Long at 144.50, exited at 143.90 (- 60 points)
18 May : EUR/GBP - Long at 0.8530, exited at 0.8630 (+ 100 points)
19 May : GBP/USD - Long at 1.2995, exited at 1.2935 (- 60 points)
22 May : USD/CAD - Long at 1.3530,

|                 AUD          EUR/JPY           EUR/GBP         CAD          GBP         GBPJPY
Jan             - 15             -275                - 35            -120
Feb           + 140            -17                  - 40             +11
Mar            - 20            +115                +132           - 19
Apr             + 30                                  - 40           +120                              + 45
May                             - 55                  +100                                     -65       -60         
Jun           
Jul            
Aug          
Sep              
Oct           
Nov         
Dec                                                                                                                                               
Y-T-D        + 135           - 232               +117            + 158             -65            - 15

We apologize for our poor result last week, all positions entered in EUR/USD, USD/JPY and GBP/USD were stopped, we were basically on the wrong side for the entire week.

In short, 6 positions were entered among all 4 currency pairs with total loss of 175 points and the positions are listed below:

16 May : EUR/USD - Short at 1.1000, exited at 1.1035 (- 35 points)
17 May : USD/JPY - Long at 112.35, exited at 112.00 (- 35 points)
17 May : GBP/USD - Short at 1.2925, exited at 1.2960  (- 35 points)
19 May : GBP/USD - Long at 1.2945, exited at 1.2910 (- 35 points)
19 May : GBP/USD - Short at 1.2990, exited at 1.3025 (- 35 points)
22 May : USD/CHF - Long at 0.9700,

|                 JPY             EUR             CHF            GBP

Jan          + 167             - 85              - 10            + 50
Feb          + 200            +150             +93            - 59
Mar              -23              -70               -23            - 35
Apr             + 65            + 93             + 50            - 40
May            - 30             - 35                                 -140
Jun          
Jul           
Aug         
Sep             
Oct         
Nov        
Dec                                                                                               
Y-T-D       + 378            + 48               +110           -224