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USD/CHF Growing demand.

USD/CHF has ended its consolidation above 0.9900. The volatility is getting higher. The shortterm technical structure is turning positive as long as prices remain below the hourly resistance at 1.0171 (07/03/2017). Monitor strong support given at 0.9814 (27/03/2017 low).

In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

USD/CAD Strong buying pressures.

USD/CAD has broken key resistance given at 1.3599 (28/12/206 high). The pair keeps on pushing higher. Hourly support can be found at 1.3411 (24/04/2017 high) then 1.3353 (20/01/2017 high). Expected to show continued bullish pressures as long as the pair remains above 1.3411.

In the longer term, there is a golden cross with the 50 dma crossing the 200 dma indicating further upside pressures. Strong resistance is given at 1.4690 (22/01/2016 high). Long-term support can be found at 1.2461 (16/03/2015 low).

AUD/USD Ready for another leg higher.

AUD/USD is consolidating after the break of support at 0.7473 (12/04/2017 low). As long as prices remain below the resistance at 0.7608 (17/04/2017 high), the short-term technical structure is negative. Key resistance stands at 0.7681 (30/03/2017 high). Expected to show further weakness.

In the long-term, we are waiting for further signs that the current downtrend is ending. Key supports stand at 0.6009 (31/10/2008 low) . A break of the key resistance at 0.8295 (15/01/2015 high) is needed to invalidate our long-term bearish view.

EUR/USD Consolidating.

EUR/USD is trading sideways. Hourly support is given at 1.0852 (27/04/2017 low) then 1.0682 (21/04/2017 base). Stronger support can be found at 1.0494 (22/02/2017 low). Hourly resistance is given at 1.0951 (26/04/2017 high). Expected to show another leg higher towards 1.10.

In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD Ready to target 1.3000.

GBP/USD keeps pushing higher. Resistance at 1.2905 (18/04/2017 low) has been broken. The pair has exited the short-term bearish momentum. Hourly support can be found at 1.2757 (21/04/2017 low). An unlikely break of this support would indicate further weakness.

The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY Testing 112.20.

USD/JPY is consolidating. Strong resistance can be found at 112.20 (31/03/2017 high). Closest support can be located at 108.13 (17/04/2017 low). Other key supports lie at a distant 106.04 (11/11/2016 low). Expected to show continued bullish pressures.

We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

During the Asian morning Tuesday, the RBA will announce its rate decision. When they last met, policymakers highlighted the softness in labor market indicators, and that the recently announced supervisory measures with regards to lending could ease financial stability risks. Back then, this led us to understand that once these measures take effect, officials would be more flexible to cut rates again if needed.

Nevertheless, expectations are for no action at this gathering, a view that we share. The latest jobs report showed a strong recovery in March, while the nation's inflation data for Q1 indicated that the headline CPI rate returned back within the RBA's inflation target range of 2-3%. The trimmed mean rate rose notably as well, to just a tick below the lower end of the target range. With these in mind, we think that the statement accompanying the decision may be relatively more upbeat than previously, something that could reverse some of AUD's recent losses.

AUD/USD traded somewhat higher on Friday and during the early European morning Monday, it is testing the 0.7490 (R1) resistance level. A somewhat more optimistic statement tonight could encourage the bulls to overcome that barrier and perhaps set the stage for extensions towards the next resistance of 0.7520 (R2). However, the price structure on the 4-hour chart still suggests a short-term downtrend. The rate is trading below the downside resistance line drawn from the peak of the 30th of March and as such, we would treat any recovery in the aftermath of the RBA meeting as a corrective phase.

Eurozone's inflation data lift the euro

The euro surged on Friday, following the release of Eurozone's preliminary CPI data for April. Both the headline and the core CPI rates rose by more than anticipated, with the all-important core rate reaching its highest level since mid-2013. In our view, this progress in the profile for inflation is in line with the prospect of the ECB appearing more optimistic at its upcoming meetings, as has been suggested by media reports recently.

Speculation on this subject could keep the euro supported in the near-term, but we think that the main determinant of the Bank's language at the June meeting will probably be the CPI data for May, due to be released on the 31st of the month. Until then, the case for some near-term euro gains is also supported by French election polls, which continue to show Macron being safely ahead of Le Pen.

EUR/USD spiked higher on Friday after Eurozone's CPI data came out. Nevertheless, the rate hit resistance slightly below the 1.0955 (R2) hurdle and then it pulled back. Even if the rate continues to retreat for a while, we still believe that the outlook is cautiously positive. The pair continues to trade above the prior downtrend line taken from the peak of the 3rd of May 2016, and also above the upside support line drawn from the low of the 3rd of January.

Today's highlights:

During the European day, the economic calendar is empty. Markets will remain closed in the UK, Germany, France, Switzerland, Sweden, and Norway, in celebration of Labor Day.

Nevertheless, later during the day, we will get loads of US data. Let's kick off with personal income and spending for March. Income is expected to have slowed, while spending is forecast to have accelerated. We also get the core PCE price index for the month, which we think is likely to slow on a yearly basis.

Finally, the ISM manufacturing PMI for April is forecast to have declined. Such discouraging US data could help EUR/USD to turn up again, break above 1.0915 (R1), and perhaps aim for another test near 1.0955 (R2).

As for the rest of the week:

On Tuesday, the RBA will announce its rate decision, as we outlined above. On Wednesday, all eyes will be turned to the FOMC rate decision, where the forecast is for borrowing costs to be kept unchanged. We expect policymakers to maintain a more or less balanced tone, with risks skewed towards a more cautious narrative than previously. As for the US data, we get the ADP employment report and the ISM non-manufacturing PMI, both for April. On Thursday, the Norges Bank decides on interest rates and then on Friday, the main event will the US employment report for April. Canada's jobs data for the same month are also due out.

AUD/USD

Support: 0.7475 (S1), 0.7440 (S2), 0.7390 (S3)

Resistance: 0.7490 (R1), 0.7520 (R2), 0.7560 (R3)

EUR/USD

Support: 1.0855 (S1), 1.0825 (S2), 1.0800 (S3)

Resistance: 1.0915 (R1), 1.0955 (R2), 1.1000 (R3)

Notes/Observations

European Markets closed for May Day holiday

US congressional negotiators said to have hammered out a bipartisan agreement on a spending package to keep the federal government funded through the end of the current fiscal year on Sept. 30th

Fed will meet on Wednesday this week, with no policy change expected

Overnight:

Asia:

China Apr Manufacturing PMI (Govt official) hits a 6-month low (51.2 v 51.6e); Non-Manufacturing also at 6-month low (54.0 v 55.1 prior

Japan Apr Final PMI Manufacturing confirmed its 8th straight month of expansion (52.7 v 52.8 prelim

South Korea Apr Trade Balance registered its 63rd consecutive month of surplus ($13.3B v $8.6Be; as exports rose for the 6th straight month. South Korea Fin Min Yoo noted that it was already working with US on reducing trade surplus

US National Security Advisor McMaster said to have spoken with South Korea chief Kim Kwan-jin and assured him that US would pay for THAAD system deployment Summary of EU Leader Summit on Brexit

EU sets out its core positions on Brexit ; backed a phased approach to negotiations

Wants Britain agreeing to settle its outstanding liabilities to the EU and other divorce issues before talks turn to trade

Calculates the UK could owe it €55-60B to settle commitments made to the EU budget but not yet paid.

PM May: Britain won't agree to pay an exit bill for leaving the European Union without also agreeing a new trade deal with the block

Europe:

UK PM May to impose new restrictions on corporate takeover to better protect worker pensions

UK ORB Poll: Ssupport for UK's Conservatives at 42%; Labour's 31%

Former-PM Renzi wins Italy's Democratic Party primaries; regains party leadership

S&P affirmed Germany sovereign rating at AAA; outlook Stable

S&P affirmed UK sovereign rating at AA; outlook remains Negative

Fitch affirmed Netherlands sovereign rating at AAA, Outlook Stable

Americas:

(US) Congress negotiators from both parties said to have reached a tentative deal on $1.1T omnibus spending bill to fund the govt through Sept 30th

(US) President Trump signed Congressional stopgap funding to keep the govt open until Friday, May 5th

House Rules committee to meet on Tuesday, May 2nd to consider spending bill

Energy:

Weekly Baker Hughes US Rig Count: 870 v 857 w/w (+1.5%) (15th straight weekly rise)

Economic Data

(JP) Japan Apr Domestic Vehicle Sales Y/Y: 5.4 v 13.8% priori

(PE) Peru Apr CPI M/M: -0.3% v 0.0%e; Y/Y: 3.7% v 4.0%e

(NL) Netherlands Apr Manufacturing PMI: 57.8 v 57.8 prior (45th month of expansion)

(CH) Swiss Mar Real Retail Sales Y/Y: 2.1% v 0.7% prior

(DK) Denmark Apr PMI Manufacturing Survey: 46.4 v 56.3 prior (1st contraction since 2014)

Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

European markets closed for May Day holiday

Speakers

EU Commission President Juncker said to be more skeptical on Brexit talks after meeting UK PM May in London last week; Commission sees over 50% change that negotiations will fail. PM May showed no willingness to compromise and has unrealistic expectations on how the negotiations would proceed

PBOC official Xu Zhong (research bureau chief): China should deleverage properly; excessive economic stimulus is harmful for the country and could lead to high leverage ratio. China should maintain prudent and neutral monetary policy and play down GDP target

Japan PM Abe: Will take step toward constitutional reform for right of collective self-defense in 2017

North Korea said to be planning to speed up steps to bolster nuclear deterrence in response to higher US pressure against the country. To continue to bolster its military capabilities for self-defense and preemptive nuclear attack unless the US withdraws its hostile policy

Currencies

The FX markets were quiet as numerous markets were closed in both the Far East and Europe for the May Day holiday.

The USD was trying to re-find its mojo after losing some luster last week. EUR/USD was off its recent 5-month highs of 1.0950 established last week. The pair was hovering just under the 1.09 handle as the NY morning approached . Dealers noted that solid European inflation data currently was underpinning the euro price action and could prompt the ECB to take a more hawkish tone in its June statement.

The USD/JPY pair was edging closer towards the 112 area. Dealers continued to watch for any developments around North Korea that could bring some perceived safe-haven flows to the yen

Looking Ahead

07:00 (CA) Canada Mar MLI Leading Indicator M/M: No est v 0.4% prior

08:30 (US) Mar Personal Income: 0.3%e v 0.4% prior; Personal Spending: 0.2%e v 0.1% prior; Real Personal Spending: +0.3%e v -0.1% prior

08:30 (US) Mar PCE Deflator M/M: -0.2%e v +0.1% prior; Y/Y: 1.9%e v 2.1% prior

08:30 (US) Mar PCE Core M/M: -0.1%e v +0.2% prior; Y/Y: 1.6%e v 1.8% prior

09:30 (CA) Canada Apr Manufacturing PMI: No est v 55.5 prior

09:45 (US) Apr Final Markit Manufacturing PMI: 52.8e v 52.8 prelim

10:00 (US) Apr ISM Manufacturing: 56.5e v 57.2 prior; Prices Paid: 67.5e v 70.5 prior

10:00 (US) Mar Construction Spending M/M: 0.5%e v 0.8% prior

11:30 (US) Treasury to sell 3-Month and 6-month Bills

16:00 (US) Weekly Crop Progress Report

Still bullish UK

The market continues to make speculative negative bets on the eventual effect of Brexit on the UK economy. We remain optimistic based on Europe and UK mutual beneficial relationships that the end-result will be significantly less severs then a “hard” Brexit. Within a historical context Europe-UK relationship has always had ups-and-downs but interactions have always been a constant. That will not change now. Second, both parties benefit equality from relationship (including bilateral trade), so threats are really meaningless. UK domestic demand has slowed (annual retail sales ex auto fuel rose 2.6% vs. 3.8% exp from 4.1%) after a strong rally post Brexit with many pointing to fears over punitive relocation in the financial sectors and its low productively growth as the culprit. In addition, the rally in the GBP has removed some currency advantage for exporters and lure for foreign buyers.

We agree uncertainty will clearly keep investment subdued yet the outright collapse or relocation of the UKs vital financial sectors is overblown. Also, other key fundamentals remain healthy. UK economy rose faster than many G10 nations, as 1Q GDP expanded 0.3% (pessimist point to the fact that pace was slowest since before referendum) with annual rate at 2.1%. The break down was still optimistic with manufacturing sectors rising 0.5%, construction grew by 0.2% and even the service sector increased by 0.3%. We remain optimists that the final outcome will be “soft” Brexit and effect to the UK economy will be manageable.

Swiss retails sales

Swiss annual real retail sales in March surge to 2.1% from 0.6% indicating that the domestic growth remains a solid contributor to economic acceleration. This is good news for the Alpine nation as domestics demand has stagnated for much of 2016 (February saw expansion). This strong recover will be viewed positive by the SNB which has struggled to keep CHF form further overvalued. We anticipated the SNB Foreign Currency Reserves to have further increased (abate at a slower pace) following the market friendly results of the French elections. We expect with Macron in clear control of the French presidential race EURCHF should remain well supported alleviating pressure from the SNB to intervene.

Fed to indicate rate tightening path

After the ECB last week, we have a very loaded week in terms of Central Banks. The Fed, RBA, Norges Bank will decide about their rates. Investors are now expecting the Fed to show some hints regarding its tightening path. For the time being, US financial markets are clearly driven by Trump. The US president promises that his fiscal reform to be the “largest ever”. We nonetheless remain suspicious as the failure of the Obamacare reform indicates strong difficulties for Trump to apply his program. Markets seem anyway quite confident about this reform (The corporate tax should be lowered to 15% from 35%) and the US equity market is trading around its all-time high levels (below 2’400 points for the S&P 500).

Regarding fundamentals, US first quarter data printed lower than expected, growth 0.7% q/q vs 2.1 expected and retail consumption have disappointed 0.3% versus 3.5 at Q4 2016. There is anyway one motive of satisfaction, business spending is trending higher and the US central bank may be very cautious by not raising rates too early. We do not forget that the US debt is so massive that increasing rates above 2% may prevent the country to service its debt. For the time being inflation is on the rise (2.4% y/y) is very useful to kill the debt.

At the moment, we are reloading our Eurodollar bullish position, the time for the Fed to provide markets with a strong hawkish signal.

The euro has started the week quietly, as EUR/USD trades at the 1.09 line. German and French banks and stock markets are closed for the May 1 holiday, so we can expect the lack of movement to continue during the day. In the US, Treasury Secretary Steven Mnuchin will speak at a conference in Los Angeles. On the economic front, the US will release Personal Spending and ISM Manufacturing PMI.

Eurozone inflation data remains at high levels. A Eurostat flash estimate indicated that CPI will improve to 1.9% in April, compared to 1.5% in March. Although this figure is close to the ECB inflation target of about 2 percent, the markets are not expecting Mario Draghi & Co. to make any monetary moves just yet. Last week, the ECB held rates at a flat 0.0%, and Draghi sent a dovish message out to the markets, saying that the ECB’s inflation forecast remained unchanged. The current ultra-loose policy, which includes a quantitative easing program of EUR 60 billion/mth, has been in place since 2008. Draghi acknowledged that the eurozone is in better shape, noting that economic conditions had improved and downside risks had decreased. There had been speculation that the ECB might taper or bring forward its asset-purchase program, which runs until December. The ECB holds its next meeting in June, and the markets will again be looking for some tightening from the ECB.

The French presidential election is in full swing, but the euro showed little movement last week. Will the trend change this week? Voters will be back at the ballot boxes on Sunday, and the markets have priced in a victory by Emmanuel Macron over Marie Le Pen. A major reason for the euro’s lack of activity is that opinion polls before the first round were fairly accurate, correctly forecasting that Macron would win 24% of the vote and Le Pen 22%, with both advancing to the May 7 runoff. The markets are thus relying on the polls for the second round, which continue to show Macron with a comfortable lead of 60-40. Le Pen is a heavy underdog, compounded by the fact that some candidates from the first round as well as former President Francois Hollande have publicly called for voters to support Macron. At the same time, any changes in opinion polls could quickly translate into volatility for EUR/USD.

After some feverish negotiations on Capitol Hill, lawmakers have reached a deal which averts a partial government shutdown. The short-term spending deal, which has bipartisan support, provides funding for government services until September 30th. The deal does not include any funding for a border wall with Mexico, marking a clear concession on the part of President Trump. Still, after a rocky 100 days in office, Trump could ill afford the embarrassment of the federal government running out of funds so early on his watch.

The Aussie extends recovery from fresh multi-month low at 0.7438, posted on Thursday and probes above 0.7500, round-figure barrier.

The first layer of strong barriers 0.7510/13 (falling daily Tenkan-sen 10SMA) comes under pressure, followed by 0.7523/27 (100SMA / Fibo 61.8% of 0.7582/0.7438, reinforced by falling 20SMA) which guards the upper breakpoint at 0.7549 (200SMA / the upper trendline of falling wedge).

Firm break above the latter is needed to confirm reversal and turn focus towards highs at 0.7582 and 0.7608 (24 / 17 Apr highs respectively).

Otherwise, current rally could be seen as correction of larger downtrend which should be ideally capped under 0.7527 barrier, ahead of fresh attempts lower.

Return to 0.7438 low would risk extension towards target at 0.7384 (Fibo 61.8% of 0.7159/0.7747 ascend).

Res: 0.7510, 0.7527, 0.7549, 0.7558
Sup: 0.7464, 0.7438- 0.7384, 0.7329

'This weakness is likely to be blamed on Brexit. That is probably fair.' - Alan Clarke, Scotiabank

The British economy expanded at a slower than expected pace in the three-month period to March, as consumers began feeling the impact of rising inflation amid the sharp fall in the value of the Pound. The Office for National Statistics Reported on Friday that the economy grew 0.3% in the Q1 of 2017, compared to a 0.7% growth pace posted in the final quarter of 2016. Meanwhile, market analysts expected the economy to expand at a 0.4% rate in the reported quarter. Friday's data confirmed an economic slowdown driven by the country's decision to leave the European Union. Some analysts suggested that the upcoming UK General Election also added to economic weakness. Therefore, according to their forecasts, the British economy is set to expand 0.2% in the Q2 of 2017. Since Britain's decision to withdraw from the EU inflation rose to 2.3% and many analysts expect it to reach 3% in the upcoming months. On an annual basis, the economy expanded 2.1%, up from a 1.9% pace registered in the Q4. That marked the strongest pace of growth since the Q2 of 2015. Both Bank of England and IMF expect the economy to grow 2.0% this year, while the majority of analysts see weaker growth this year. The services sector, which account for 70% of GDP, grew 0.3% in the Q1, the weakest since 2015.

'It is a soft month in an otherwise solid quarter. Some moderation was expected after the torrid pace of growth in January.' - Derek Holt, Scotiabank

Canada's economic growth remained flat in February as growth in the services sector was offset by weakness in the goods sector. Statistics Canada reported on Friday that GDP growth was flat in the second month of the year, following January's surge of 0.6% and falling behind market analysts' expectations for a 0.1% gain. Data showed that the service-providing industries climbed 0.2% in February, with the largest gains registered in the real estate and rental and leasing sector, as well as the finance and insurance sector. However, the 0.2% rise was offset by a 0.3% decline posted by the goods-producing industries, with manufacturing, mining, quarrying and oil and gas extraction contributing the most to the following drop. Back in 2015, the Bank of Canada cut its key interest rates twice amid the strong downside risks. However, the Bank predicted Q1 annualised growth to hit 3.8%. In the meantime, Statistics Canada reported that thanks to January's gain of 0.6% annualised economic growth would likely come in at 4.2% in the Q1 of 2017 even if economic growth remains flat in March. However, even if Q1 GDP growth meets Statistics Canada's projections the Central bank will probably remain on hold amid the high degree of uncertainty coming from the US and low capacity utilisation.

'There is enough reason to doubt the growth slowdown for the Fed to stay the course on tightening, especially with a bigger-than-expected pop in employment costs.' - Chris Low, FTN Financial

The US economy expanded at its weakest pace since the Q1 of 2014 in the three-month period to March, as consumer spending barely rose; however, a rise in business investment and improving pay growth held out hopes that the economy would regain momentum in the upcoming quarters. The Department of Commerce reported on Friday that the economy grew at a 0.7% annual pace in the Q1, following the preceding quarter's 2.1% and falling behind expectations for a 1.3% climb. The March quarter growth raised doubts over the Trump administration's ability to boost GDP growth and deliver economic reforms. Consumer spending, the largest contributor to US economic growth, advanced just 0.3%, the weakest since 2009. The Q1 economic slowdown was partially driven by the unusually warm weather, high volatility in inventories and the strong US Dollar. However, Friday's data showed a pickup in both wage and business investment growth. Therefore, analysts suggest that economic growth will likely rebound in the upcoming months. Moreover, the report showed a jump in inflation that would probably please the Federal Reserve and force it to raise rates at a quicker than expected pace. The next interest rate hike is largely expected to come in June.