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Dollar retreats mildly today but remains the strongest major currency for the week. The greenback is firmly supported by expectation of a June Fed hike. And comments from Fed officials indicate that they are looking through the weakness in Q1 and maintain their preference on the policy path for the year. A total of three rate hikes is the base case and Fed will start shrinking the balance sheet by the end of the year. This expectation is also reflected in treasury yields. 10 year yield rose 0.031 to close at 2.407 overnight, above 2.391 near term resistance. The development now opens up the case for a retest of March high at around 2.62. Meanwhile, Swiss Franc and Japanese Yen remain the weakest ones as political risks in Europe eased.

Kansas City Fed George and Dallas Fed Kaplan support more accommodation removal

Kansas City Fed President Esther George said yesterday the US economy is on track to grow at "a slightly above-trend rate". And, weakness in Q1 didn't change her view on that. She noted that "all told, while the recent GDP report and auto sales may be flashing yellow, numerous other indicators remain solid green." Hence, "continuing the gradual removal of monetary accommodation is the appropriate course for the Fed." Also, FOMC "must begin to adjust the size and composition of its securities holdings" later in the year. And, "once it begins, however, the runoff in the portfolio should be on autopilot and not reconsidered at each subsequent Fed meeting."

Dallas Fed President Robert Kaplan said that "the base case for removal of accommodation is three times this year". He also noted that he is "very cognizant of the fact that inflation pressures have been more muted." But he sees risks as "pretty balanced" and "it could easily be the case that the economy will unfold in a stronger way than I expect and we could do more."

NIESR: No BoE move before completing Brexit deal

In UK, the National Institute of Economic and Social Research said that BoE won't chance its monetary policies before conclusion of Brexit negotiation with EU. NIESR head of macroeconomic modeling and forecasting Simon Kirbay said that "we assume that interest rates remain unchanged until we exit the European Union." And, "if the chance of a transitional deal does begin to materialize, it might well be that the Bank of England brings forward the point at which it raises interest rates, but at the moment, that doesn't appear to be on the cards." In a report published today, NIESR left 2017 and 2018 UK growth forecast unchanged, at 1.7% and 1.9% respectively. Inflation is projected to peak at 3.4% at the end of 2017. BoE will have its Super Thursday tomorrow and is widely expected to keep monetary policies unchanged.

BoJ might release calculations on impact of stimulus exit

BoJ Governor Haruhiko Kuroda said today that BoJ might release the details of the study of stimulus withdrawal and the impact on its balance sheet. And he emphasized that "it is very important to explain in easy-to-understand terms how monetary policy could affect the BOJ's financial health". Regarding monetary policies, Kuroda said that he's "not thinking about changing the policy mix right now". And "the amount of our bond purchases may vary depending on financial market conditions at the time. But this has no implications for monetary policy going forward." Regarding the economy, Kuroda said that "while global economic growth is gaining momentum, various uncertainties remain".

China CPI accelerated

China's headline CPI accelerated to 1.2% yoy in April, up from 0.9% a month ago, as mainly driven by the recovery of food disinflation. Food price contracted -3.5% yoy, following a -4.4% drop in March. Non-food inflation rose to 2.4% yoy in April from 2.3% a month ago. Core inflation (excluding food and energy) improved to 2.1% yoy 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.

GBP/JPY Daily Outlook

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.

Economic Indicators Update

Key Points:

• WTI benchmark prices remain under pressure around $46.11 a barrel.
• Nigerian production likely to expand with refinery investment.
• OPEC needs to determine an effective strategy lest oil continues to decline.

Crude oil has had to travel a highly rocky path over the past few weeks as the commodity has been beset by ongoing concern over the growing glut of supply.Subsequently, WTI prices have slumped fairly convincingly over the past few weeks with the benchmark currently trading around the $46.11 a barrel mark. However, with both sides of the battle readying for action, things could be about to get a lot worse for crude prices.

A war between OPEC and U.S. shale producers has clearly been brewing for some time with the upstart shale plays attempting to eat into the cartel's market share. At the time, OPEC's primary strategy was to run out the clock on the shale industry by increasing supply and pushing prices below their marginal cost of extraction and thereby make much of the sector unprofitable. However, as proof that the law of unintended consequences reigns supreme, the U.S. oil industry responded by increasing R&D budgets and finding new, and cheaper, alternatives to extracting shale oil. Subsequently, OPEC now faces fighting a rear guard action as the Shale Industry continues to increase their rig count and productive output.

In addition, the latest market news seems to suggest that Nigeria, Africa's largest oil producer, is now building new refineries to revitalise their industry and allow Lagos to increase their supply output. This poses an additional nail in OPEC's strategy of cohesion and supply reduction and further complicates the cartels direction on cuts.

The reality is that with shale oil's marginal extraction costs constantly falling the time is now for OPEC to pounce and drive some concerted action to rebalance the oil market. In fact, rather than cutting prices, which only seeks to shed market share to the U.S. and Canadian producers, the cartel needs to rapidly expand production and drive the price to historic lows. As difficult as such a move would be, it would cause havoc within the U.S. and Canadian sectors and force an urgent re-balancing of markets.

Obviously, any such move would be fraught with the danger of splintering amongst the various OPEC members, as well as adding to global deflationary pressures. Additionally, there is also plenty of political risk given that many of the Middle Eastern nations rely upon buoyant oil revenues to effectively balance their books. However, without some drastic action the cartel will only continue to diminish in power and it's hard to see how they can effectively fight of the technologically superior shale and oil sand sector.

Ultimately, whichever way OPEC chooses to go will be a difficult battle but it's clear that the war has started and won't let up until either side fires their last shot. Regardless, depressed crude oil prices are likely here to stay for at least the medium term whilst the battle continues to rage.

Key Points:

• Post-election rally is running short on momentum.
• Technical bias is moving towards bearish.
• Losses could extend to the 1.09 handle.

Some strong buying pressure over the past 48 hours has put the EURCHF in a rather precarious position which suggests a correction is now on the cards. Indeed, we are seeing a number of important technical signals beginning to shift to bearish which could see even the 1.09 handle challenged within a number of sessions.

Firstly, and probably most obviously, the proximity of the pair to the 1.0979 mark should have a few alarm bells ringing for the bulls. This price has repeatedly proven itself to be a point of inflection for the EURCHF and we have no real reason to doubt that this latest challenge will be met with a similar fate to those seen previously. What’s more, the presence of the long-term descending trend line is bound to work against the bulls and encourage the bears to wrest control back from their counterparts.

However, we can also look to a number of other instruments to support our bias as they are also highly suggestive of a near-term slide for the EURCHF. In particular, the stochastic and RSI oscillators paint a clear picture of what is likely to be next. Specifically, both instruments are deeply overbought territory which would typically indicate that selling pressure is set to pick up as the bulls exhaust themselves. Moreover, the Bollinger bands are highly divergent which drastically limits chances of a second breakout taking place.

Once momentum has reversed, we expect to see losses extend to around the 1.09 handle within a week or so. Currently, expectations are that this support remains intact in the absence of a major fundamental upset for a number of reasons. For one, it coincides with the 23.6% Fibonacci level. However, a more compelling reason to suggest that the level will hold is due to the fact that this price has also been a historical reversal point on numerous occasions.

Ultimately, upside risks are looking very limited moving forward and the downside risks are multiplying at a notable rate. Furthermore, given the recent uptick in volatility, any correction to the downside could be more severe than we would normally forecast so don’t get caught out by being late to the party or by ignoring the deteriorating technical bias.

For the 24 hours to 23:00 GMT, the AUD declined 0.49% against the USD and closed at 0.7347.

LME Copper prices rose 0.6% or $30.0/MT to $5496.0/MT. Aluminium prices declined 0.3% or $5.0/MT to $1874.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7353, with the AUD trading 0.08% higher against the USD from yesterday's close.

On the macro front, in China, Australia's largest trading partner, the consumer price index (CPI) advanced 1.2% on an annual basis in April, exceeding market expectations for a gain of 1.1%. In the previous month, the CPI had registered a rise of 0.9%. Meanwhile, the nation's producer price index (PPI) climbed less-than-expected by 6.4% YoY in April, compared to market consensus for an increase of 6.7%. The PPI had risen 7.6% in the previous month.

The pair is expected to find support at 0.7330, and a fall through could take it to the next support level of 0.7306. The pair is expected to find its first resistance at 0.7373, and a rise through could take it to the next resistance level of 0.7392.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the EUR declined 0.39% against the USD and closed at 1.0880.

On the economic front, Germany's seasonally adjusted trade surplus widened more-than-expected by €25.4 billion in March, as both exports and imports surged to a record high level, thus pointing towards robust overseas and domestic demand. The nation registered a revised surplus of €20.0 billion in the previous month, while markets expected the nation's surplus to widen to a level of €21.5 billion. Additionally, the nation's exports rose more-than-anticipated by 0.4% on a monthly basis in March, compared to a revised rise of 0.9% in the previous month. Further, imports sharply rebounded by 2.4% MoM in March, compared to a drop of 1.6% in the previous month.

On the other hand, the nation's seasonally adjusted industrial production fell 0.4% MoM in March, lower than market expectations for a fall of 0.7%. Industrial production had registered a revised rise of 1.8% in the prior month.

Macroeconomic data released in the US indicated that JOLTs job openings climbed more-than-expected to a level of 5743.0K in March, compared to a revised reading of 5682.0K in the prior month, while investors had envisaged for a rise to a level of 5725.0K. Moreover, the nation's final wholesale inventories surprisingly climbed 0.2% in March, compared to a drop of 0.1% in the preliminary print. In the prior month, the wholesale inventories had registered a rise of 0.4%. Meanwhile, the nation's NFIB small business optimism index eased less-than-anticipated to a level of 104.5 in April, compared to a level of 104.7 in the previous month.

In the Asian session, at GMT0300, the pair is trading at 1.0891, with the EUR trading 0.1% higher against the USD from yesterday's close.

The pair is expected to find support at 1.0857, and a fall through could take it to the next support level of 1.0823. The pair is expected to find its first resistance at 1.0929, and a rise through could take it to the next resistance level of 1.0967.

Going forward, market participants will draw their attention to a speech by the European Central Bank (ECB) President, Mario Draghi, in Dutch Parliament, scheduled in a few hours. Also, the US monthly budget statement for April and MBA mortgage applications data, slated to release later today, will garner significant amount of market attention.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the GBP rose 0.08% against the USD and closed at 1.2947.

In the Asian session, at GMT0300, the pair is trading at 1.2943, with the GBP trading slightly lower against the USD from yesterday’s close.

The pair is expected to find support at 1.2909, and a fall through could take it to the next support level of 1.2875. The pair is expected to find its first resistance at 1.2968, and a rise through could take it to the next resistance level of 1.2993.

With no economic releases in Britain today, investors will look forward to the Bank of England’s interest rate decision, scheduled tomorrow.

The currency pair is trading above its 20 Hr moving average and showing convergence with its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD rose 0.41% against the JPY and closed at 113.72.

In the Asian session, at GMT0300, the pair is trading at 113.78, with the USD trading a tad higher against the JPY from yesterday's close.

A summary of opinions from the Bank of Japan's (BoJ) April meeting showed that board members agreed on maintaining the central bank's current accommodative policy due to downside risks from overseas. Further, they decided that as Japan's exports and production were showing positive signs, it was appropriate to raise the nation's economic assessment.

The pair is expected to find support at 113.18, and a fall through could take it to the next support level of 112.58. The pair is expected to find its first resistance at 114.35, and a rise through could take it to the next resistance level of 114.92.

Moving ahead, Japan's trade balance figures for March and Eco-watchers survey for April, slated to release tomorrow, will be on investors' radar.

The currency pair is trading between its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.81% against the CHF and closed at 1.0066.

On the economic front, Switzerland’s seasonally adjusted unemployment rate remained steady at 3.3% in April, meeting market expectation.

In the Asian session, at GMT0300, the pair is trading at 1.0066, with the USD trading flat against the CHF from yesterday’s close.

The pair is expected to find support at 0.9999, and a fall through could take it to the next support level of 0.9931. The pair is expected to find its first resistance at 1.0112, and a rise through could take it to the next resistance level of 1.0157.

Amid a lack of economic releases in Switzerland today, trading trend in the CHF is expected to be determined by global macroeconomic factors.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.07% against the CAD and closed at 1.3705.

On the data front, Canada's building permits unexpectedly eased 5.8% on a monthly basis in March, defying market expectations for it to climb 2.8%. In the preceding month, building permits had registered a revised fall of 2.8%.

In the Asian session, at GMT0300, the pair is trading at 1.3705, with the USD trading flat against the CAD from yesterday's close.

The pair is expected to find support at 1.3665, and a fall through could take it to the next support level of 1.3624. The pair is expected to find its first resistance at 1.3749, and a rise through could take it to the next resistance level of 1.3792.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

Short Term Elliott Wave view in SPX suggests the rally from 3/27 low (2322.2) is unfolding as a leading diagonal Elliott Wave structure where Minute wave ((i)) ended at 2378.36, Minute wave ((ii)) ended at 2328.95, Minute wave ((iii)) ended at 2398.16, and Minute wave ((iv)) ended at 2379.75. The Index has broken above previous Minute wave ((iii)) and thus it has met the minimum requirement in the number of swing to end cycle from 3/27 low as a leading diagonal. However, while near term pullbacks stay above 2380, further upside in one more leg still can’t be ruled out before cycle from 3/27 low ends. Near term, Minute wave (v) is proposed to be unfolding as a zigzag Elliott Wave structure where Minutte wave (a) ended at 2403.8 and Minutte wave (b) ended at 2392.4. While pullbacks stay above 2392.4, and more importantly above 2380, Index has scope to extend one more leg higher. We don’t like selling the Index.

SPX 1 Hour Elliott Wave Chart