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Daily Pivots: (S1) 1.0000; (P) 1.0045; (R1) 1.0118; More.....

Intraday bias in USD/CHF remains on the upside for 1.0107 resistance. Current development revived the case that correction from 1.0342 is already completed at 0.9812. Break of 1.0107 will bring a retest on 1.0342 high. On the downside, below 1.0037 minor support will turn bias neutral and bring consolidation first before staging another rise.

In the bigger picture, we're still maintaining that firm break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the pair. However, the corrective nature of the fall from 1.0342 is starting to give the medium term outlook a bullish favor. Hence, in stead of looking for topping signal around 1.0342, we'd now pay closer attention to upside acceleration as USD/CHF approaches this level again.

Daily Pivots: (S1) 113.30; (P) 113.82; (R1) 114.50; More...

Intraday bias in USD/JPY remains on the upside for 115.49 resistance next. Outlook remains unchanged that correction from 118.65 has completed with three waves down to 108.12. Break of 115.49 will resume larger rally from 98.97 to 125.85 high. On the downside, below 113.04 minor support will turn bias neutral and bring consolidations before staging another rally.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Meanwhile, break of 115.49 resistance will extend the rise from 98.97 to retest 125.85. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Currency pair EUR/USD

The EUR/USD broke the support trend line (dotted blue) of the rising wedge (RW) reversal chart pattern (red/blue). The bearish breakout could be part of a larger reversal, which is reflected in the 1-2 wave count (brown). The alternative scenario would be a bearish retracement within a larger uptrend continuation, which at the moment would require a break above the top.

The EUR/USD wave 4 (blue) respected the shallow Fibonacci level of 23.6% before breaking support (dotted blue) and price has reached the 61.8% Fibonacci target of wave 5 (blue). Price could either retrace as part of wave 2 on 4 hour chart or break the bottom and continue with 5 (blue).

Currency pair GBP/USD

The GBP/USD is moving higher in an uptrend channel which is indicated by the support (green) and resistance (red) trend lines. A bullish break could see price move towards the Fibonacci targets of wave 5 (purple) whereas a bearish break could start a reversal.

The GBP/USD tested the previous top (green) of wave 1 (grey) but did not break and therefore the wave 4 (grey) could still be valid. A break above resistance (orange) could see a bullish break for wave 5 (grey).

Currency pair USD/JPY

The USD/JPY is building an uptrend channel which is indicated by the support (blue) and resistance (red) trend lines and moving towards the Fib targets of wave 5 (brown).

The USD/JPY is extending the bullish 5th wave (brown/orange) with another 5 waves (grey). The wave 4 (grey) is invalidated if price breaks below the 61.8% Fibonacci level.

Daily Pivots: (S1) 0.7315; (P) 0.7357; (R1) 0.7384; More...

Intraday bias in AUD/USD remains on the downside for the moment. Current fall from 0.7748 is expected to target a test on 0.7144/7158 support zone. We'll be cautious on bottoming there as there is no clear sign of larger down trend resumption yet. On the upside, above 0.7425 minor resistance will turn bias neutral and bring consolidations first.

In the bigger picture, we're still treating price actions from 0.6826 low as a correction pattern. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seen to 55 month EMA (now at 0.8115) and above.

Daily Pivots: (S1) 1.3674; (P) 1.3714; (R1) 1.3757; More....

Intraday bias in USD/CAD remains neutral as it's staying in consolidation below 1.3793 temporary top. Rise from 1.2460 is seen as a corrective pattern. Hence, in case of another rally, we'll be cautious on topping at around 1.3838 fibonacci level. Meanwhile, consider bearish divergence condition in 4 hour MACD, break of 1.3534 support will argue that rise from 1.2968 is already completed. In such case, intraday bias will be turned back to the downside for 1.3222 support.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. Rise from 1.2460 is seen as the second leg and would end at around 61.8% retracement of 1.4689 to 1.2460 at 1.3838. Break of 1.3222 should indicate the start of the third leg while further break of 1.2968 should confirm. Nonetheless, sustained trading above 1.3838 would pave the way to retest 1.4689 high.

Daily Pivots: (S1) 123.55; (P) 124.04; (R1) 124.45; More...

No change in EUR/JPY's outlook despite diminishing upside moment as seen in 4 hour MACD. Further rally is expected with 122.92 minor support intact. Firm break of 124.08 resistance will confirm resumption of whole rise from 109.20. In that case, EUR/JPY would target 126.09 resistance first. Break there will pave the way to 100% projection of 109.03 to 124.08 from 114.84 at 129.89. On the downside, below 122.92 minor support will turn bias to the downside and bring pull back.

In the bigger picture, focus is back on 126.09 support turned resistance. Decisive break there will confirm completion of the down trend from 149.76. And in such case, rise from 109.20 is at the same degree and should target 141.04 resistance and above. Meanwhile, rejection from 126.09 and break of 114.84 will extend the fall from 149.76 through 109.20 low.

Market movers today

With a thin global calendar, focus is on Scandinavia inflation with the release of the Danish and Norwegian figures for April. The Danish figure should be unchanged but the Norwegian print is more interesting after weak inflation in recent months has prompted markets to shift the spot light from oil and growth to inflation. We estimate core inflation climbed to 1.9% y/y, well below Norges Bank's projections in its last monetary policy report (2.1%) but this could still allay some of the fears that inflation will fall far enough to trigger further rate cuts.

In Sweden, the Riksbank minutes from the last monetary policy meeting will be released. The minutes will be followed closely as they cover the meeting when the Riksbank surprisingly decided to extend the QE programme. The Swedish Prospera inflation expectations are also due for release today.

ECB president Draghi is scheduled to speak in the Dutch parliament in the afternoon and focus will be on whether the latest jump in core inflation as well as Macron winning the French presidency have changed the ECB's monetary policy stance. In our view, the elimination of the Frexit risk has paved the way for a more hawkish communication at the next ECB meeting in June, but regarding the inflation out look, we expect the ECB to await more information in judging whether the latest rise is due to the timing of Easter or higher underlying price pressure.

Selected market news

Former French prime minister, Manuel Val ls, has reported he wants to run under president-elect Macron's new political movement i n th e upcoming parliamen tary election. Macron aims to put candidates up in all 577 constituencies and the candidates are expected to be announced on Thursday. the election out come will be decisive for how much of Macron's policy proposals he can actually implement and the risk remains that Macron's parliamentary majority will be unstable and fragmented, see Research France: Clouds lift over Europe after Macron wins presidency, 8 May.

Chinese PPI and CPI inflation figures have been released this morning and confirm our view that some of the engines fuelling reflation are losing steam. PPI inflation fell sharply to 6.4% y/y in April from 7.6% in March and below consensus expectations at 6.7%. Hence, it seems PPI inflation peaked at the beginning of the year when it was quite high due to the big increases in commodity prices in 2016. The peak in commodity price inflation was one of the reasons we believed the reflation theme was fading, see Research: Global reflation set to lose steam, 3 April.

US President Trump has fired FBI director James Comey at a time when the agency was investigating Russia's i nterference in l ast year's election, see Bloomberg. Democrats alleged it was an effort to cut short the Russia probe and demanded a special prosecutor to carry the process forward.

• Fading political uncertainty implies the way has been paved for more hawkish communication from the ECB at the meeting in June, bringing renewed market focus to the ECB's exit strategy.
• The ECB has many other options than removing the ‘or lower levels' phrase in its forward guidance on policy rates and in order to avoid a tightening of financial conditions a more cautious approach seems likely.
• The ECB's key challenge is a lack of wage pressure and as long as there are no signs of improvement in the underlying price pressure, the ECB seems to stick to its policy stance in terms of policy rates, QE purchases and forward guidance.

Market's attention could again turn to the ECB's exit strategy

The political risk in the euro area has been reduced considerably with Macron winning the French presidency and market's attention could again turn to the ECB's exit strategy. In our view, the way has been paved for a more hawkish communication at the next meeting on 8 June when the ECB will also have the next inflation print for May and updated inflation projections. In our view, a more hawkish wording should not be seen as a sign of near-term actually tightening. Instead, it should reflect there are a lot of soft words in the introductory statement (see next page), which need to be taken out gradually before actually tightening the monetary policy. Related to this, we still believe the ECB will extend its QE purchases by EUR40bn per month going into next year as the underlying price pressure remains weak. This also implies it is premature to believe in rate hikes any time before 2019, in our view.

There has been a lot of discussion about whether the ECB will change its forward guidance on policy rates and remove the ‘or lower levels' phrase at the upcoming meeting in June. The Governing Council discussed such a change at the meeting in March after which the market priced in a 10bp deposit rate hike from the ECB already this year. If the ECB makes this change to its forward guidance, it is likely to have considerable market implications with the pricing of policy rate hikes again being moved forward. However, such a price action does not seem to be what the ECB wants already, as the communication from prominent ECB members turned much more dovish in an attempt to dampen the speculation about rate hikes after the meeting in March.

Another argument against the ECB changing its forward guidance should be that the ECB communicates it has not seen sufficient evidence to change its assessment about the inflation outlook. Related to this, Draghi has said that ’before making any alterations to the components of our stance – interest rates, asset purchases and forward guidance – we still need to build sufficient confidence that inflation will indeed converge to our aim’. Hence, the question should be whether the reduced political uncertainty changes the ECB’s inflation outlook. While there could be some positive impact on economic sentiment and hence activity, the past year’s experiences are that the economic situation is resilient to political uncertainty. Added to this, a better economic outlook is not yet enough to generate higher underlying price pressure as there is a large amount of slack in the labour market. In light of this, it is key for the ECB to get wage growth up, see Euro area wage growth should stay subdued, not supporting core inflation significantly..

The ECB has other options than changing forward guidance

Instead of changing the forward guidance when it remains unclear whether the inflation outlook has improved, the ECB is in our view more likely to again remove some of its dovish wording. So far this has been the strategy from the ECB, as it at the meeting in March removed a sense of urgency in taking further actions as the introductory statement no longer included ‘if warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate’. Likewise, at the meeting in April the ECB moved in a slightly more hawkish direction as it described the risks surrounding the growth outlook as still being tilted to the downside but moving in a more balanced configuration after characterising these downside risks as being less pronounced in March.

Hikes are premature as the ECB will follow its forward guidance

We have continuously argued it is premature to price hikes from the ECB as we expect the ECB to stick to its sequencing entailed in the forward guidance, thereby not hiking rates before having ended QE. Given our expectation of a QE extension of at least six months this should at the earliest happen in the second half of next year. In line with this, prominent ECB members have recently attempted to explain the reasoning behind the sequencing of the exit strategy. In a dovish speech Draghi argued that ‘in a multi-country monetary union such as the euro area made up of segmented national financial markets, asset purchases are inevitably more difficult to calibrate, more complex to implement and more likely to produce side-effects than other instruments. So it is natural that we turned to them only after other, more conventional options were becoming exhausted. Similarly, lowering interest rates into negative territory in a largely bank-intermediated financial system was a step into uncharted waters’. Along the same lines, ECB’s Chief economist Peter Praet argued that ’our policy instruments act as strong complement. For instance, the downward pressure that APP exerts on term premia is strengthened by the negative interest rate policy and the rate forward guidance that offers an expected horizon for continuing that policy in the near term’.

An argument behind the speculation about ECB hikes could reflect a perception that the ECB felt a need to support the banking sector, which should be suffering after the long period of negative policy rates. However, the ECB does not seem to consider bank profitability as a big problem as Draghi has recently said: ‘As household deposit rates have been sticky at zero, banks’ net interest rate margins have fallen somewhat. However, the impact on bank profitability has been offset by the positive effects of easier financial conditions on the volume of lending and the reduction in loan-loss provisions, as monetary policy has lifted economic prospects’. During the latest press conference he reiterated this message by saying that ‘the negative rates in conjunction with the other elements of our easing package have turned out to be powerful in terms of easing financial conditions and the potential negative side effects have so far been limited.”

A question remains whether the ECB could later change its sequencing strategy. On this issue executive board member Benoît Cæuré said: ‘The choice of sequencing of policy instruments will be the outcome of our regular assessment of the medium-term price stability outlook, reflecting the state-dependent nature of our expectations of the horizon over which our policy instruments are likely to be maintained’. However, his view is not shared by Praet who later said: ‘A deviation from the path of policy that is consistent with our past communication is not only costly in terms of policy credibility in general. It would also scale back an important source of stimulus that is behind the performance of the economy that we observe today’.

China's headline CPI accelerated to +1.2% y/y in April, from +0.9% a month ago, as mainly driven by the recovery of food disinflation. Food price contracted -3.5% y/y, following a -4.4% drop in March. Nonfood inflation rose to 2.4% y/y in April from +2.3% a month ago. Core inflation (excluding food and energy) improved to +2.1% y/y from +2% in March. Such level should be in line with the government's target.

PPI moderated to +6.4% in April from +7.6% in March. The deceleration came in more than expectations. A key contributor to the slowdown was commodity prices which slowed further in April as low base effects dissipated. Global prices also pulled back after the strong rally earlier in the year.

Import growth decelerated

China's trade surplus widened to US$ 38.05B in April, from US$ 23.93B a month ago. This also came in higher than expectations of US$ 35.5B. However, the reading was down -4.5% from the same period last year. Exports expanded +8% y/y while imports were up +11.9%, moderating from the +16.4% and +20.3% growth in March, respectively. Both readings came in below consensus.

Note that this is the first month since last October that China's headline import growth was worse than expectations. In renminbi terms, exports grew +14.3% y/y, while imports jumped +18.6%, during the period. Both were higher than market expectations.

The market was focused on the import growth, of which the slowdown was mainly driven by diminished commodity demand, especially in iron ore, copper and crude oil. Import growth shrank in both value and volume terms, signaling not only commodity prices, but also domestic demand, were the causes. We believe the Chinese government's tightening measures has played an important role in causing such phenomenon.

FX reserve rose for a third consecutive month

PBOC's FX reserve rose for a third consecutive month to US$3.03 trillion in April, marking a +US$21B increase from a month ago. The State Administration of Foreign Exchange attributed the increase to balanced foreign exchange supply and demand and renminibi's appreciation against US dollar. The market estimated that the reserve increased US$ 15-25B after adjusting for valuation effect.

China's FX reserve slumped over the past two years after reaching a peak of US$ 3.99 trillion in mid-2014, as the government struggled to rescue the severe depreciation of renminbi by selling foreign currencies. Over 2015 and 2016, the country's FX reserve contracted –US$ 0.83 trillion while USDCNY soared +12%. The reserved broke below US$ 3 trillion in January 2017 before stabilizing. For the first four months of this year, renminibi's movement has been steady. Note that PBOC's FX position and SAFE flow data should also be considered to monitor China's underlying FX flow situation.

Government to adopt tighter measures

The Chinese government would maintain its 'prudent and neutral' monetary policy, adopting tighter measures so as to prevent overheating in certain industries. As such, the overall growth momentum might continue to moderate in coming months, while the financial sector would face challenges over the tighter regulatory measures. Yet, the government would stay cautious to ensure the growth target would be achieved.

Daily Pivots: (S1) 146.62; (P) 147.25; (R1) 148.06; More....

GBP/JPY's rally extends to as high as 147.86 so far and intraday bias remains on the upside for 148.20 resistance. As noted before, whole rally should 122.36 is resuming. Break of 148.20 will target 150.42 long term fibonacci level first. Break there will pave the way to 100% projection of 122.36 to 148.42 from 135.58 at 161.64. On the downside, below 145.64 minor support will turn bias neutral and bring consolidation before staging another rise.

In the bigger picture, based on current momentum, rise from 122.36 bottom should be developing into a medium term move. Break of 38.2% retracement of 195.86 to 122.36 at 150.42 should pave the way to 61.8% retracement at 167.78. This will now be the favored case as long as 135.58 support holds.