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'The greenback, lower versus most of its G-10 peers, was down for a fourth day, with the Bloomberg dollar index nursing losses of about 0.2 percent after dropping to its lowest since April 26.' – Alexandria Arnold and Dennis Pettit, Bloomberg

Pair's Outlook

Tuesday ended with the EUR/USD currency pair breaching the ascending channel's resistance line with ease, opening the door for more bullish potential. However, the Euro does have a rather tough resistance area on its path, represented by the upper Bollinger band, the weekly R2 and the 61.80% Fibo, while the second supply cluster lies around 1.12. On the other hand, we should not rule out the possibility of a bearish correction, which would preserve the channel pattern, as technical indicators are giving mixed signals today.

Traders' Sentiment

There are 62% of traders holding short positions today, compared to 63% on Tuesday. At the same time, all pending orders became equally divided between the buy and the sell ones.

'If you get a poorer retail sales number and worry about what unemployment will do, you might see some of these gains reversed and take us back down toward $1.28, maybe even toward $1.27 in the shorter-term.' – Chris Beauchamp, IG (based on MarketWatch)

Pair's Outlook

Another day ended with the GBP/USD pair remaining relatively flat, with the bullish momentum prevailing only slightly, despite an upbeat UK inflation reading. The Cable is now likely to edge further up, due to the immediate support being stronger than before. The pair is also expected to encounter resistance at 1.30, where the weekly R1, the upper Bollinger band and the consolidation trend's upper border form a tough supply zone. Overall, the British Pound is to remain unchanged again, with a possible close near 1.2950. Meanwhile, technical indicators support the possibility of a rally.

Traders' Sentiment

Traders retain a neutral outlook towards the Sterling, being that 51% of all open positions are long and the remaining 49% are short. The share of purchase orders inched up from 49 to 53%.

'At the very least the view is that Trump's economic policies will be delayed over this [latest US political turmoil], and the dollar is being sold.' – Matsui Securities (based on The Business Times)

Pair's Outlook

As was anticipated, the USD/JPY currency pair found support near 112.90 yesterday, where the monthly R1 and the 100-day SMA rest. The Buck remains under pressure today as well, which suggests a close is likely to occur below this demand area, paving the way towards a drop to the 112.00 major level. Support around that area is expected to be sufficient to limit the intraday losses, even though technical studies are unable to confirm this scenario. Furthermore, there are no solid market movers present today and with demand for the safe-haven currency higher, no other factor should cause a sudden recovery.

Traders' Sentiment

Bears keep pushing further, with 66% of all open positions being short now. Meanwhile, the portion of orders to acquire the US Dollar lost three percentage points over the day, having fallen to a total of 49%.

'The rise in gold is largely a dollar play, with the dollar weakening because of Trump. There's still more downside risk to gold in the long run, but in the short-term, given what the North Koreans are doing and what Trump is doing, the dollar is inherently weak.' – Oversea-Chinese Banking Corp. (based on Bloomberg)

Pair's Outlook

The XAU/USD cross has been recovering since it touched the broadening rising wedge's support line one week ago. Gold has little room left before it could be forced to make a potential U-turn, as there is a substantial resistance cluster located around 1,246.50, formed by the monthly S1, the weekly R2, the 20, 55 and 200-day SMAs. A successful breach of this resistance is likely to allow the yellow metal to keep appreciating until the 10-month down-trend could be reached. Assuming this down-trend is overcome, the metal would have the potential to approach the wedge's resistance, but that all depends on this week's performance.

Traders' Sentiment

Today 54% of all open positions are long (previously 52%), whereas 66% of all pending orders are to buy the gold.

It was widely reported that President Trump shared highly sensitive information with the Russia Ambassador at a recent meeting at the White House putting further pressure on USD. During today's early European session the dollar index hit the lowest level of 97.74 last seen November 09 2016, EUR/USD traded as high as 1.1121 a level last seen November 09 2016. In line with the continued weakness in USD, spot gold had a fifth day of gains trading at a 2-week high of 1244.91.

To date the dollar index has almost given up all of the post presidential election rally, retracing about 1.4% over the past 4 trading sessions. Per CFTC data (Commodity Futures Trading Commission), Hedge funds' USD long positions have reduced to the lowest level since August 2016.

Japanese Q1 GDP first reading will be released at 00:50 BST on Thursday. The Japanese economy has seen a recovery since last year. The global economy also saw a recovery, helping exports. However, as inflation has not yet seen a stable upswing the Japanese economic recovery is still fragile. The performance of the Q1 GDP will likely affect JPY and the JPY crosses.

USD/JPY has retraced in the past week as a result of the weakening of USD. USD/JPY hit a 1-week low of 112.24 on Wednesday during early European session.

There are two upcoming events that will likely affect oil markets; firstly, the Iran presidential election will be held this Friday, May 19th and secondly the OPEC meeting will be held on May 25. The result of the Iran presidential election and the associated geo-political risks will likely affect its oil supply. Iran has greatly increased its oil output after the US sanction was removed.

The US shale oil industry has seen a marked recovery since February last year because of higher oil prices. The US Baker Hughes data (that records the number of new Oil Rigs) is showing additional Rigs added every week. The increase in shale oil supply has offset OPEC's recent output cut effort to an extent.

However, the Saudi Arabia Oil Minister, Khalid al-Falih, stated on May 8th at the Asia Oil and Gas Conference in Malaysia that “the output cut could be extended another 6 months or even further into 2018”. OPEC will hold a meeting in Vienna on May 25 where the decision whether to extend the output cut agreement will likely be announced.

Oil prices have retraced substantially around 12.88% since April 12th and have experienced a 3.74% rebound since May 5th. Last Wednesday's EIA crude oil inventory data saw a drop of 5.247 million barrels hitting the lowest level this year helping push oil prices higher.

WTI and Brent crude oil will likely see selling pressure at $50 and $53 respectively. The US EIA Crude Oil Inventories data (for the week ending May 12) will be released at 15:30 BST this afternoon. Please be advised that this release is likely to cause significant volatility in oil prices.

The pair remains in red for the second day and broke below strong support at 112.86, provided by 100SMA, in extended bearish acceleration after political turmoil in the US negatively impacted the dollar.

Break below another support at 112.67 (broken Fibo 61.8% of 115.49/108.11 descend) and penetration into daily cloud (cloud top lies at 112.54), sees risk of further weakness.

Bears are looking for extension towards strong supports at 112.00 zone (rising 20SMA at 112.12 and Fibo 38.2% of 108.11/114.36 recovery rally at 111.97) which is expected to ideally contain correction of larger uptrend and keep overall bulls in play.

Slow stochastic on daily chart in steep descend and approaching oversold zone that supports scenario of pausing current bear-leg and fresh recovery attempts.

Former strong supports at 113.30/112.86 (10SMA / 100SMA) now act as pivotal barriers, break above which is needed to confirm reversal.

Otherwise, increased downside risk could be expected on firm break below 112.00 handle for extension of pullback from 114.36 towards 111.25 (30SMA/ daily Kijun-sen) and 110.50 (Fibo 61.8% of 108.11/114.36 rally).

Res: 112.67, 112.86, 113.25, 113.75
Sup: 112.12, 111.97, 111.56, 111.25

The greenback extended its recent losses yesterday, amid renewed political turmoil in Washington DC. The latest media reports suggest that President Trump asked former FBI Director Comey to drop an investigation regarding ties between Trump's prior security advisor Michael Flynn and Russia. Considering that Trump recently fired Comey, this development raises a lot of questions, and thus uncertainty for investors. Can the President be impeached over this? Even if not, does this diminish some of Trump's political capital, thereby making it less likely that he manages to push his tax-reform agenda through Congress?

Thus, will the dollar continue to feel the heat of all this turmoil?

In our view, even though we may see the greenback recovering some of its losses today following its sharp tumble, we think that it is likely to remain on the back foot over the next few days. This view is supported by the fact that there are no major US indicators on the economic calendar this week, and very few Fed speakers to distract market participants from the political front. Our favorite proxy for further USD weakness remains EUR/USD, bearing in mind the continued strength in Eurozone data, and speculation that the ECB may appear slightly more optimistic at its upcoming meeting in June.

EUR/USD surged yesterday, breaking above the psychological zone of 1.1000 (S2). At the time of writing, the rate looks to be headed for a test near the 1.1130 (R1) resistance zone, where a clear breach is possible to pave the way for our next obstacle of 1.1240 (R2). Nevertheless, given that the rally appears too steep, we would stay mindful that a corrective setback may be on the cards before the bulls decide to take charge again.

USD/JPY tumbled and fell below the support (now turned into resistance) of 113.10 (R1). Now, the rate is testing the 112.35 (S1) support obstacle, which lies slightly above the upper bound of the medium-term downside channel that contained the price action from December until the beginnings of May.

Although we expect the dollar to remain weak against the euro, here we prefer to stay neutral for now as there is the possibility of a rebound from near the aforementioned line. We prefer to wait for a dip below 111.90 (S2) before we get confident on larger bearish extensions. Something like that will bring the pair back within the abovementioned channel and is possible to initially aim for the 111.00 (S3) support zone.

Today's highlights:

During the European day, the UK employment data for March are coming out and the forecast is for the unemployment rate to have held steady. Average weekly earnings excluding bonuses are expected to have risen at the same pace as previously, while the figure including bonuses is forecast to have accelerated. Our own view is that both of the earnings rates may have risen, considering the UK services PMI for the month, which showed that firms reported stronger salary pressures. In case nominal UK wages accelerate, real wages could turn back positive given the steady inflation rate during the month.

Something like that could ease some of the BoE's concerns regarding falling real wages and thereby bring GBP under renewed buying interest.

In Eurozone, the final CPI for April is due out, but as the final figure is expected to confirm the preliminary estimate, the reaction in EUR may remain muted.

From Canada, we get manufacturing sales for March. The forecast is for a rebound, something that may support CAD somewhat.

We have only one speaker on the agenda: BoE MPC member Andy Haldane.

EUR/USD

Support: 1.1070 (S1), 1.1000 (S2), 1.0960 (S3)

Resistance: 1.1130 (R1), 1.1240 (R2), 1.1300 (R3)

USD/JPY

Support: 112.35 (S1), 111.90 (S2), 111.00 (S3)

Resistance: 113.10 (R1), 113.80 (R2), 114.35 (R3)

Asian and European equity indices are lower on yet more alleged U.S. political concerns, but this may not be the real story.

Another day another potential scandal coming out of Washington D.C. This time the President has allegedly spilt intelligence to the Russians and has Trumptation'ed allegedly, the now ex FBI Director into dropping their investigation of ex-National Security Advisor Flynn's ties with Russia. The street has blamed 'alleged fatigue' on the fall of the U.S. Dollar which is slightly unfair to Mr.Trump.

I would agree the constant train of gaffs is eroding his support in Congress and making it ever harder to enact his legislative agenda including tax reform. The real reason for the U.S. Dollars demise and the weakening of equities from near record highs the day before is much simpler. Most U.S. data of late has consistently come in below expectations, including yesterday's Housing Starts numbers. This is mollifying expectations on the Federal Reserve rate hike front, and with European data, in particular, coming in consistently stronger, U.S yields have been dropping, and the yield spread differentials have closed up.

Secondly, oil prices were crushed last night on higher than expected API Crude Inventories undoing much of the OPEC-led 'forward guidance' rhetoric of the last few days. Combined with breathtaking levels in most equity indices it probably wouldn't have taken a lot to see traders rush to take some risk of the board and flip into other G-10 currencies and gold.

Following the sell-off in the S and P mini in early Asia, regional bourses have followed suite with Europe likely to do so initally as well.

S&P 500

The S&P has now formed a double top on the daily charts at 2406 with a total of five failures in the 2400/2406 area. In the near term this all time high will form fairly solid short-term resistance against a backdrop of political uncertainty in the U.S,

The index hovers just above a triple bottom at 2380 and then a double bottom at 2377. From a technical perspective, a close below the latter could open up a correction to the 100-day moving average sitting in the 2337 region.

ASX 200

The resource-heavy ASX has followed the lead of the S&P today, helped along by lower oil prices. The index closing down 0.8% for the session. It seems to be open hunting season for the large domestic banks in Australia at the moment as well with calls for an enquiry into their lending rate setting processes following on from the 'levy' they received in the recent Federal budget. The four majors have a very large weighting in the ASX and could continue to provide headwinds for the index, in general, going forward.

The ASX closed near its lows at 5787 which is right on the double bottom support level on the daily chart and just above the 100-day moving average at 5773, which it just avoided closing below. A break here could open up a move to the 23.6% Fibonacci retracement at 5741. Beyond this, the next support appears in the 5670 area.

Resistance is at today's open at 5857 followed by 5920 and 5960.

Nikkei 225

Another to finish precariously perched above support. The Nikkei has followed USD/JPY lower over the course of the day to finish 0.60% down as a stronger Yen leads to the selling of exporter facing sectors in the index.

The Nikkei is floating just above the short term pivot level of 19,713, a previous triple top. A close below heard could set the tone for a move lower to the area of the 100-day moving average at 19,255.

Resistance is stacked above at the psychological 20,000 level with the 9th May high at 20,014 just behind.

DAX 30

The German Dax 30 is the darling of global stock markets at the moment. The primary beneficiary of much improved European data and a heavy rotation of money from the U.S. Dollar into the Euro. It would be a brave man to pick the top in the DAX in the medium term looking at the daily chart. However in the short term at least, following on from the U.S. overnight the technical picture is a little more cloudy.

We have a triple top in place now around the all-time high of 12,845 which may prove a tough nut to crack in the near term.

Support rests at the nearby double bottom at 12,655 with a daily close below implying a possible move to the 12,400 regions.

Euro Stoxx 50

Another index that only a brave man would try to pick the absolute highs on in the medium term based on the charts. However, it to had a rather more clouded short term picture.

Resistance lies above at 3652 which has multiple failures in the last week. Above here, the 18-month high at 3690 provides another level of resistance.

Support lurks just below at 3595 followed by the March low at 3553. A close below the latter could imply a deeper correction is on the cards.

Summary

Whilst the latest temptations of Trump episode is blamed for today's U.S. Dollar weakness and the sell-off in the major stock indices, this may be a case of fitting the latest news to the price action. Consistently weaker U.S. data, falling U.S. yields and a narrowing of the rate differentials is far more likely to be the underlying cause.

Admittedly the constant stream of 'news' from Washington D.C. and its longer term effect on enacting economic policy will no doubt hurt sentiment. However, from a purely technical perspective, the real reason may be as simple as most major indices forming short-term topping patterns anyway over the last week meaning traders don't need a lot of excuses to head for the exit door with stocks at such elevated levels.

'We remain convinced that the market is underestimating the further upside for inflation from here.' - Alan Clarke, Scotiabank

UK consumer inflation climbed more than expected last month amid the sharp fall in the value of the Pound caused by Britain's decision to leave the European Union. The Office for National Statistics reported on Tuesday that its CPI rose 2.7% on an annual basis in April, following the preceding month's gain of 2.3% and surpassing analysts' expectations for a 2.6% increase. British inflation is set accelerate further due the recent rebound in oil prices and the weak Sterling. In the meantime, core consumer prices advanced 2.4% in April, up from the prior month's 1.8% climb and above forecasts for a 2.2% rise. Later in the day, the Labour Party pointed to rising inflationary pressures, promising voters to lower oil prices and boost wage growth. Despite the post-Brexit vote pickup in inflation, the Bank of England left its monetary policy and key interest rates unchanged last week, claiming that were no signs of overheating in the economy. April's inflation climb was mainly driven by higher airfares, influenced by the timing of the Easter holiday. However, apparel, car taxes, food prices and the weak Pound also fuelled inflation pressures.

'There is not much to complain about the economy as housing and manufacturing are improving and the labor market remains tight. The economy is getting stronger.' - Joel Naroff, Naroff Economic Advisors

US homebuilding activity dropped in April; however, revisions of the preceding month's readings suggested that homebuilding activity continued improving. The Census Bureau reported on Tuesday that housing starts declined 2.6% to a seasonally adjusted annual pace of 1.17M units last month, following March's upwardly revised 1.28M-unit pace and falling behind expectations for a 3.7% rise to a 1.26M-unit pace. Analysts suggested that a slowdown in homebuilding activity had been driven by unusually rainy weather in California. On an annual basis, housing starts were up 10.5% compared to the same period a year ago. Meanwhile, building permits fell 2.5% to a seasonally adjusted pace of 1.23M units, whereas analysts anticipated a slight climb of 0.2% to a 1.27M-unit pace in April. With building permits higher than housing starts, homebuilding activity is set to rebound in the upcoming months. Later in the day, the Federal Reserve reported that industrial production in the United States rose 1.0% in April, the largest gain since February 2014, while analysts expected industrial output to climb just 0.4%.