Sample Category Title

GBP/USD – 1.2822

Recent wave: Wave V of larger degree wave (III) has ended at 1.1986 and major correction has commenced from there for gain to 1.3000 and 1.3140-50

Trend: Near term up

Original strategy :

Buy at 1.2710, Target: 1.2910, Stop: 1.2650

Position: -
Target:  -
Stop: -

New strategy :

Buy at 1.2710, Target: 1.2910, Stop: 1.2650

Position: -
Target:  -
Stop:-

Although cable found support at 1.2772 earlier this week and recovered, a break above indicated resistance at 1.2859 is needed to signal the pullback from 1.2906 has ended instead, bring further gain to 1.2870, then retest of 1.2906. If said resistance continues to hold, then further consolidation would take place and risk of another corrective fall to 1.2757 (38.2% Fibonacci retracement of 1.2515-1.2906) remains, however, reckon 1.2710 (50% Fibonacci retracement as well as 100% projection of a leg from1.2906) would limit downside and bring another rise later. We are keeping our view that the wave c as well as larger degree wave B has ended at 1.2109, hence impulsive wave C has commenced from there with wave i of C ended at 1.2616, follow by a correction to 1.2365 (end of wave ii) and wave iii rally is unfolding, hence further gain to 1.2940-50 and possibly psychological resistance at 1.3000 would be seen, however, near term overbought condition should limit upside to 1.3050-60. 

Our preferred count on the daily chart is that cable's rebound from 1.3500 (wave (A) trough) is unfolding as a wave (B) with A ended at 1.7043, followed by triangle wave B and wave C as well as wave (B) has ended at 1.7192, the subsequent selloff is the larger degree wave (C) which is still unfolding with minor wave (III) of larger degree wave 3 ended at 1.1986, hence wave (IV) correction is in progress which could either be a triangle wave (IV) of a complex formation but upside should be limited to 1.3500 and price should falter well below 1.4000, bring another decline in wave (V) of 3 for weakness to 1.1500, then 1.1200.

On the downside, whilst initial pullback to 1.2750-55 is likely, reckon downside would be limited and 1.2700-10 (50% Fibonacci retracement of 1.2515-1.2906) should contain weakness and bring another rally later. Below 1.2690-00 would defer and risk correction to 1.2660-65 but another previous resistance at 1.2616 (wave i top) should remain intact.

GBP/JPY - 142.55

Recent wave: Medium term low formed at 120.50 and (A)-(B)-(C) major correction has commenced with (A) leg ended at 148.45, hence wave (B) is unfolding for retreat to 131.00-10.

Trend: Near term up

New strategy :

Buy at 141.70, Target: 143.70, Stop: 141.00

Position: -
Target:  -
Stop:-

Sterling found renewed buying interest at 140.10 and has rallied, the breach of previous resistance at 142.10 confirms recent upmove from 135.60 has resumed and upside bias remains for this move to extend further gain to 143.40-50, then towards 144.00-10, however, near term overbought condition should prevent sharp move beyond latter level and reckon previous chart resistance at 144.75 would remain intact, bring retreat later.

In view of this, would not chase this rise here and would be prudent to buy sterling on pullback as 141.60-70 should limit downside. Below 141.10-20 would defer and suggest top is possibly formed, risk correction to 140.55-60 but only break of said support at 140.10 would provide confirmation, bring retracement of recent rise instead. 

Our preferred count is that larger degree wave V with circle is unfolding from 251.12 with wave (I) 219.34, (II): 241.38 and wave (III) is subdivided into 1: 192.60, 2: 215.89 (23 Jul 2008) and wave 3 ended at 118.87 earlier in 2009. The correction from there to 162.60 is wave 4 which itself is a double three and is labeled as first a-b-c ended at 151.53, followed by wave x at 139.03, 2nd a ended at 162.60, 2nd b at 146.75 and 2nd c leg of wave 4 ended at 163.00. Therefore, the decline from 163.00 to 116.85 is now treated as wave 5 which also marked the end of larger degree wave (III), hence wave (IV) major correction has commenced for retracement of the wave (III) from 241.38 and upside target at 183.95-00 (50% Fibonacci retracement of the wave (II) from 241.38) had been met, a drop below 160.00 would suggest wave (IV) has ended at 195.85, bring decline in wave (V) for initial weakness to 130 (already met) and 120.


Global equity indexes have continued their rally that started the week on renewed confidence in Eurozone stability and strong earnings data expectations. This newfound confidence has global yields backing up and the 'big' dollar in demand for a third consecutive day.

President Trump is expected to unveil his tax plan tomorrow that would cut the upper corporate rate to +15%. If he is short on detail and lacks substance, this market will quickly reverse course.

Other risks remain as investors await central bank meetings tomorrow from the BoJ and ECB. Tensions around North Korea continue to simmer, while in China, concerns of a crackdown from regulators have left the world's second-largest equity market trading atop its 2017 low.

1. Asian stocks near two-year high on U.S optimism, Europe mixed

Asian stocks extended their gains for a fifth consecutive day overnight, as renewed optimism about the U.S economy has brightened the outlook for risky assets.

In Japan, the Nikkei share average closed at a one-month high, lifted by a weaker yen (¥111.17) and a record high for the Nasdaq Composite. The index is up +3.6% for the week, and climbed +2% last month. The broader Topix index rose +1.2%, climbing for a fifth straight session for the longest winning streak this year.

Australia's S&P/ASX 200 Index added +0.7% and New Zealand's S&P/NZX 50 Index increased +1.6%, the most in six-months, as both markets reopened after ANZAC day.

In China, the Shanghai Composite Index added +0.2% after climbing a similar amount yesterday.

In Europe, equity indices are trading mixed as market participants await President Trump's tax reform plans. Banking stocks are generally lower across the board adding to losses on the Eurostoxx, while commodity and mining stocks are trading mixed in the FTSE 100.

U.S stocks are set to open small down (-0.1%).

Indices: Stoxx50 -0.2% at 3,577, FTSE flat at 7,277, DAX flat at 12,465, CAC-40 +0.1% at 5,280, IBEX-35 -0.2% at 10,758, FTSE MIB -0.6% at 20,687, SMI +0.2% at 8,793, S&P 500 Futures -0.1%.

2. Oil price slips on bulging U.S stocks, ample global supplies

Oil prices have weakened further overnight as yesterday's U.S inventory data showed a rise in crude stocks. Coupled with record supplies in the rest of the world is casting further doubt over OPEC's ability to control output and tighten the market.

Brent crude futures have eased -3c to +$52.07 per barrel, down around -8.5% below this months peak. U.S West Texas Intermediate (WTI) is trading down -4c at +$49.52 per barrel, after gaining +0.7% in yesterday's session. The WTI price has fallen for seven of the past eight sessions.

API inventory data, issued late Tuesday, is weighing on prices. Not only did the report show crude oil stocks rising +897k barrels in the week to April 21 (vs. an expected drawdown of -1.71m barrels), but it also showed a large build in gasoline stocks, unusual for this time of the year.

Should these figures be mirrored by today's EIA report (10:30 am EST), expect the weaker bulls to offload some of their long contract positions.

Ahead of the U.S open, gold prices have dipped to a new two-week low (-0.2% to +$1,261.36 per ounce) as increased investor appetite for 'risk' has dulled the demand for safe-haven assets. The current rally in 'real' interest rates should see the yellow metal come under further short-term pressure.

3. Global yields back up on Trump expectations

Across the curve, gains in U.S interest rates are expected if the Trump's tax plan includes reductions on repatriated earnings. Investors can expect the short end to harden the quickest, more in anticipation of corporate treasuries' divestment of short product ahead of any repatriation.

Yesterday's U.S Treasury bill auction results: +$60B four-week bill auction draw was +0.735%, bid-to-cover was 3.32; +$20B 52-week bills draw was 1.060%, BTC 3.23 – four-week +21.8% allotted at the high – 52-week +7.2% allotted at the high.

The yield on U.S 10's is little changed at +2.33%, after climbing for five straight sessions.

Elsewhere, Aussie 10-year debt saw yields back up +3 bps to +2.63%, French 10-year yields have fallen -1 bps to +0.90%, after advancing +7 bps yesterday.

Note: The bearish sentiment in 10-year German Bunds is not expected to subside until yields rise above +0.4%. Fears of reduced ECB accommodation are still at play. Bund yields have surged from a low of +0.156% before the French vote last week to +0.385%.

4. Dollar partially in vogue

The USD is a tad firmer heading into the U.S open. The markets focus now turns to the details on the Trump administration's tax reform plan.

The demand for dollars got a boost late yesterday as reports indicated that Trump would provide an incentive to repatriate accumulated foreign profits for U.S companies.

The EUR (€1.0900) outright did manage to print a fresh six-month high overnight at €1.0950, mostly aided by receding concerns about the risks posed by the French presidential election. The ECB sets its monetary policy tomorrow. With officials indicating little chance of a policy change, the focus will be on any signals from President Mario Draghi that the ECB is starting to discuss an exit from its extraordinary stimulus.

USD/JPY has continued its winning streak, as the yen has slipped -0.3% to ¥111.45, after dropping -1.2% yesterday. The currency is down -2.7% from a five-month high reached last week. The BoJ is expected to keep the settings on its monetary easing program unchanged at the end of a two-day policy meeting tonight.

5. Australia CPI returns to RBA target range

The AUD (A$0.7497) was volatile in the overnight session following the mixed Q1 CPI data. The headline year-on-year moved back into the RBA's +2-3% target range for the first time in two-years, however, it missed expectations.

Q1 CPI – Q/Q: +0.5% vs. +0.6%e; Y/Y: +2.1% (highest since Q2 of 2014) vs. +2.2%e.

Analysts noted that much of the price increase was in auto fuel and housing, which may suggest that living costs are outpacing wage gains. Consensus does not expect an RBA rate cuts after the data, but believe that when CPI is consistently above +2% Aussie policy makers would signal a policy shift.

EUR/CHF : 1.0686







EUR/CHF: Major wave 5 trough ended at 0.8426 and correction has commenced from there for subsequent gain towards 1.1400-1.1500.



Although the single currency fell to as low as 1.0656 early last week, euro found decent demand there and has rallied, the pair opened higher this week and surged to as high as 1.0870, suggesting low has been formed at 1.0631 (Feb low) and consolidation with upside bias is seen for further gain to previous resistance at 1.0898, break there would provide confirmation and encourage for headway to 1.0950, then test of previous resistance at 1.0977 which is likely to hold on first testing. 
 


To recap our preferred count, the decline from 1.6828 (end wave (B)) is labeled as the beginning of wave (C) which should unfold as an impulsive move with 1: 1.5326, 2: 1.6377 and wave 3 is sub-divided into (i): 1.4300, (ii): 1.5880 and wave (iii) is still unfolding with (1): 1.4577, (2): 1.5448 and wave (3) is an extended 3rd with i: 1.5006, ii: 1.5383, wave iii: 1.3073, then wave iv ended at 1.3925 and wave v at 1.3073, wave (4) ended at 1.3925 and wave (5) has ended at 1.2765 which also marked the low of wave (iii) and wave (iv) has ended at 1.3835 and wave (v) as well as larger degree wave 3 has ended at 1.0075. The selloff from 1.2650 signals wave 4 has ended there and we are taking a view that the wave 5 could also have ended 0.8426, hence consolidation is seen with mild upside bias for rebound to 1.1000 first, then towards 1.1400.
 


On the downside, whilst pullback to 1.0800 cannot be ruled out, reckon 1.0760-70 would limit downside and bring another rise later. Only below previous minor resistance at 1.0720 would abort and suggest top is formed instead, risk weakness towards said support at 1.063. Looking ahead, a drop below previous support at 1.0622 is needed to confirm early erratic decline from 1.1201 (2016 high) has resumed, bring subsequent selloff to 1.0550 and possibly towards 1.0500.

Recommendation: Buy euro at 1.0770 for 1.0970 with stop below 1.0670.

 
The long-term downtrend started from 1.9626 (Apr 1985) to 1.4166 (Sep 1995) is treated as wave (A) with A:1.6285 (Dec 1987), B: 1.9342 (May 1992) and C: 1.4166, then wave (B) ended at 1.6828 with A: 1.7147 (Feb 1997), B: 1.4398 (Sep 2001), C: 1.6828 (Nov 2007), therefore, wave (C) is now in progress with the breakdown indicated as above. This wave (C) already met indicated downside target at 1.1455/60 and 1.1300, it could have ended at 0.8426, consolidation with mild upside bias is seen for gain to 1.1000 and later towards 1.2000.

FXTM Research Analyst Lukman Otunuga comments on Sterling ahead of the UK general election and Trump's anticipated “phenomenal” tax reforms and the Dollar.

The Brexit-related jitters may return with a vengeance in the coming weeks if complications arise from the European Union government toughening their negotiation positions. Official Brexit talks have yet to commence, but the EU has already dished out fresh demands, focusing on residency rights and even limits on financial services. While Theresa May continues to suggest that a Conservative victory in the UK general elections in June may bolster her negotiating powers, the repeated demands from the European Union indicates otherwise with the bloc looking to play hardball. May is scheduled for a preliminary Brexit showdown with the President of the European Commission, Jean-Claude Juncker, and the EU's Chief Brexit Negotiator, Michel Barnier, this evening which could be an early test. With the topic of the £50 billion Brexit bill likely to be key in the meeting, this Downing Street dinner could be one to remember.

Sterling/Dollar remains trapped in a range on the daily charts, but repeated weakness back below 1.2775 could open a path lower towards 1.2600. In an alternative scenario, a daily close above 1.2875 may open a path towards 1.3000.

Trump tax announcement in focus

A feeling of anticipation has gripped financial markets today as investors prepare for Trump's big announcement clarifying how and when his “phenomenal” tax reforms will play out. The proposed tax cuts in the States have attributed to the impressive stock market rally with Trump expected to trim corporate income tax rate from 35% to 15%. Although there is the possibility of the Dollar stabilizing in the short term if Trump delivers, concerns still linger over the plan being light on details. Even if Trump offers markets the eagerly anticipated insight on tax reforms, recent reports from the US Congress Joint Committee on Taxation suggest that tax reform may reduce government revenues by $2 trillion over the next 10 years, which may weigh on sentiment. The possibility of corporations actually paying more from the tax cuts may encourage participants to carefully re-evaluate Trump's tax reforms.

Commodity spotlight – Gold

The renewed appetite for risk has left safe-haven investments in the dust with Gold losing some of its safe-haven glimmers this week. Sellers have exploited the risk-on trading environment to install heavy rounds of selling on the yellow metal with prices hovering around $1260 as of writing. Although geopolitical tensions and overall uncertainty may support the yellow metal in the longer term, short term bears could reclaim control below $1260. If the Macron-inspired risk-on rally persists this week, then Gold may be exposed to further losses. From a technical standpoint, the yellow metal is coming under increasing selling pressure on the daily charts. A breakdown and daily close below $1260 should encourage a further decline towards $1240. In an alternative scenario, bulls need to keep above $1260 for a further incline back towards $1280.

AUD/USD     –  0.7493




AUD/USD – Wave 5 of C and (B) has possibly ended at 1.1081




Although aussie staged another rebound, renewed selling interest emerged at 0.7592 on Monday and price has retreated again, retaining our bearishness for a retest of 0.7473, break there would extend the fall from 0.7750 top for at least a strong correction of the rise from 0.7158 (Dec 2016 low), initial downside target is seen at 0.7450-55 (50% Fibonacci retracement of 0.7158-0.7750), then towards 0.7380-85 (61.8% Fibonacci retracement), however, near term oversold condition should prevent sharp fall below 0.7300-10 and reckon 0.7280-85 would hold from here, bring rebound later. 


We are keeping our count that top has been formed at 1.1081 (wave 5 of V) and major correction (A-B-C-X-A-B-C) has commenced, indicated downside targets at 0.7945 (61.8% Fibonacci retracement of entire rise from 0.6007-1.1081) and 0.7750 had been met and downside bias is seen for further weakness to 0.6800, then 0.6700 but reckon 0.6500 would hold from here.



Our preferred count is that the rally from 0.6007 to 0.7270 (7 Jan 2009) is marked as wave A, the retreat to 0.6248 (2 Feb 2009) is wave B and the subsequent upmove is labeled as wave C with wave (iii) and wave (iv) ended at 0.8265 and 0.7700 respectively and wave (v) as well as 3 ended at 0.9407, then wave 4 ended at 0.8066 (instead of 0.8578). The wave 5 has met our indicated projection target of 1.1060 and could ended at 1.1081, this level is now treated as the peak of wave (C) as well as larger degree wave B, hence major fall in wave C has commenced, our initial downside target at psychological support at 0.7000 has just been met and further weakness to 0.6500 would be seen later.



On the upside, expect recovery to be limited to 0.7540-50 and bring another decline. Only above this week’s high at 0.7592 would risk test of previous resistance at 0.7611, once this level is penetrated, this would suggest low is formed, risk a stronger rebound to 0.7640-45 but break of resistance at 0.7680 is needed to confirm and suggest the fall from 0.7750 has ended instead, 



Recommendation: Hold short entered at 0.7570 for 0.7390 with stop lowered to break-even

Our alternate count on the daily chart treated the top formed in 2008 at 0.9851 could be a larger degree wave I and was followed by a deep and sharp correction in wave II to 0.6007 and wave III is unfolding from there.

The long-term uptrend started from 0.4775 (2 Apr 2001) with an impulsive structure. Wave I is labeled as 0.4775 to 0.9851 (15 Jul 2008), wave II has ended at 0.6007 (Oct 2008) and wave III is still in progress which may extend further gain to 1.1265.

Notes/Observations

Focus on Trump administration's tax reform plan

Overnight:

Asia:

Australia Q1 CPI data was a slight miss but annual inflation has risen to RBA's 2-3% target range in 2 years (YoY: 2.1% v 2.2%e). **Insight: RBA focuses more closely on core inflation

Japan Fin Min Aso reiterated view that regional economies were experiencing moderate recovery; still heightened sense of caution due to geopolitical risks. Extremely important to ensure continuous wage increases to spur consumption and investment

South Korea Defense Ministry: Confirmed that some elements of THAAD missile defense system had been moved to the planned site

Europe:

UK may face EU budget payments until 2020 following Brexit negotiations to secure favorable Brexit transition deal

Greece PM Tsipras: govt will legislate additional austerity sought by creditors in 2019 and 2020 but will only implement them if there is a debt relief deal

France IFOP daily presidential poll: Second round poll: Macron 61.0%; Le Pen 39%

Americas:

President Trump's tax plan said to reduce rate for pass-through businesses (category said to include mom-and-pop grocers and also hedge funds) to 15% from 39.6%; proposes 10% tax on some $2.6T in earnings that US companies have booked offshore. Tax plan to include 15% tax rate for corporations but no border-adjustment proposal.

Commerce Sec Ross: Trade national security probes could extend to semiconductors and aluminum. Considering ramping up free-trade talks with EU, Japan and UK. UK bilateral trade pact unlikely to come soon

Energy:

Weekly API Oil Inventories: Crude: +0.9M v -0.8M prior; first buld in 4 weeks

Economic Data

(NL) Netherlands Apr Producer Confidence: 8.3 v 7.8 prior

(FR) France Apr Consumer Confidence: 100 v 100e

(SE) Sweden Apr Consumer Confidence: 103.4 v 103.5e; Manufacturing Confidence: 123.2 v 113.4e, Economic Tendency Survey: 112.8 v 109.5e

(PL) Poland Mar Unemployment Rate: 8.1% v 8.2%e

(CH) Swiss Apr Credit Suisse Expectation Survey: 22.2 v 29.6 prior

Fixed Income Issuance:

(ES) Spain Debt Agency (Tesoro) opened its book to sell Nov 2027 Inflation-linked bonds; guidance seen -94 to -92 bps vs. linker SPGB

(IN) India sold total INR140B vs. INR140B indicated in 3-month and 12-month Bills

(SE) Sweden sold SEK10B in 3-month bills; Avg Yield: -0.6795% v -0.6714% prior; bid-to-cover: 2.75x v 2.36x prior

(NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 2027 Bonds; Avg Yield: 1.65% v 1.70% prior; Bid-to-cover: 2.22x v 2.30x prior

(IT) Italy Debt Agency (Tesoro) sold €6.0B vs. €6.0B indicated 6-month Bills; Avg Yield: -0.326% v -0.294% prior; Bid-to-cover: 1.86x v 1.59x prio

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.2% at 3,577, FTSE flat at 7,277, DAX flat at 12,465, CAC-40 +0.1% at 5,280, IBEX-35 -0.2% at 10,758, FTSE MIB -0.6% at 20,687, SMI +0.2% at 8,793, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes: European equity indices are trading mixed after a raft of corporate earnings premarket, and as market participants await US President Trump's tax reform plans; Asian equity indices ending positive across China and Japan; Banking stocks generally lower across the board adding to losses seen in the heavily peripheral lender weighted FTSE MIB and IBEX indices; shares of Deutsche Bank however trading notably higher; shares of GKN the notable laggard in the FTSE 100 after releasing a trading update; shares of LSE trading higher in the index after releasing Q1 results; Commodity and mining stocks trading mixed as copper prices open higher but trade lower intraday.

A plethora of upcoming scheduled US earnings (pre-market) include Alaska Air, Anthem, Amphenol Corp, Avery Dennison, Axalta Coating Systems, Boeing, Baxter International, BCE, Brink's Company, Bloomin' Brands, Cullen/Frost Bankers, Cenovus Energy, Dr Pepper Snapple, DTE Energy, Entergy, FLIR Systems, General Dynamics, WR Grace, Hess, Hershey Foods, Huntsman, Ingersoll-Rand, Coca-Cola FEMSA, Lear, Magellan Health Services, M/I Homes, NASDAQ OMX, Northrop Grumman, Norfolk Southern, New York Community Bancorp, Owens Corning, Oshkosh, Penske Auto, Pepsico, Procter & Gamble, Restaurant Brands, Rockwell Automation, Rollins, Sonic Automotive, Santander Consumer USA, Silgan Holdings, State Street, Seagate Technology, TE Connectivity, Timken, Thermo Fisher Scientific, Tri Pointe Homes, Twitter, United Therapeutics, United Technologies, Vantiv, Waste Management, Westrock, and Wyndham Worldwide.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Air Liquide AI.FR +0.8% (Q1 sales), Boohoo.com BOO.UK -3.2% (FY16/17 results), Dufry DUFN.CH +1.5% (HNA Group exceeds 15% holding), XXL XXL.NO -3.0% (Q1 results)]

Financials: [Banco Santander SAN.ES -0.5% (Q1 results), Credit Suisse CSGN.CH +2.5% (Q1 results, job cuts), London Stock Exchange LSE.UK +1.1% (Q1 results), Standard Chartered STAN.UK +4.5% (Q1 results)]

Industrials: [Antofagasta ANTO.UK -0.1% (Q1 production), Assa Abloy ASSAB.SE +0.8% (Q1 results), Daimler DAI.DE -0.5% (Q1 results, raises outlook), GKN GKN.UK -1.4% (trading update), Kloeckner & Co KCO.DE +0.8% (Q1 results), PSA UG.FR -1.9% (Q1 sales), Saab SAABB.SE +5.5% (Q1 results), Wartsila WRT1V.FI -3.1% (Q1 results), Yara YAR.NO -5.5% (Q1 results)]

Materials: [Fresnillo FRES.UK -0.9% (Q1 production)]

Technology: [Cap Gemini CAP.FR +1.3% (Q1 sales), Dassault Systems DSY.FR -5.5% (Q1 results)]

Telecom: [Royal KPN KPN.NL +1.3% (Q1 results)]

Utilities: [Iberdrola IBE.ES -0.7% (Q1 results)]

Speakers

Brexit Sec Davis: Compromise will be needed by both sides in upcoming negotiations. UK will not take "divide and rule" approach

Russia Foreign Min Lavrov: Use of force in North Korea would have catastrophic consequences

China Foreign Ministry continued to oppose deployment of THAAD in South Korea; Urging US and South Korea to withdraw system

Saudi Oil Min Al-Falih reiterated view that Saudi Arabia was interested in continuing talks to stabilize oil prices between OPEC and non-OPEC members

Currencies

The USD was firmer heading into the NY morning with focus turning to details on the Trump administration's tax reform plan. The greenback was firmer as reports indicated that Trump would provide an incentive to repatriate accumulated foreign profits for US companies

EUR/USD did hit fresh 5-1/2 month at 1.0950 during the Asian session aided by receding concerns about the risks posed by the French presidential election. The pair moved off its best levels ahead of the US open.

USD/JPY continued its winning streak after hitting a 5-month low of 108.13 back on April 17th. The Nikkei225 Index registered its 4th straight 1% gain a feat last done back in Mid-2013. The Trump trade aiding the pair.

Fixed Income

Bund futures trade at 161.01 up 3 tick recovering from earlier losses as Equities reverse earlier gains to trade slightly lower for the day in what has been a busy day for corporate earnings. Continued downside targets yesterday low at 160.65 followed by 160.15. Resistance moves to 161.12 followed by 161.63 with eventual target of 162.52 gap fill.

Gilt futures trade at 128.14 down 7 ticks consolidating above the 128 level. Continuation with the downward trend eyes 127.94 followed by 127.74. Resistance stands at 128.58 then 128.81 followed by 129.14. Short Sterling futures trade flat with Jun17Jun18 remaining at 12.5/13bp.

Wednesday's liquidity report showed Tuesday's excess liquidity rose to €1.604T a rise of €28B from €1.576T prior. Use of the marginal lending facility fell to €120M from €207M prior.

Corporate issuance saw $3.33B come to market via 2 issuers in another quiet day. Issuance comprised of Kaiser 2 part 2.08B offering and Nextera Energy $1.25B 10 year. Monthly issuance tops $62B, almost half of the issuance seen in March.

Looking Ahead

(UK) EU's Juncker to visit UK PM May in London

(IT) Italy PM Gentiloni in Parliament on Brexit - 05:30 (ZA) South Africa Mar PPI M/M: 0.6%e v 0.6% prior; Y/Y: 5.5%e v 5.6% prior

05:30 (UK) DMO to sell £800M in 1.8% 2046 I/L Gilts

06:00 (FI) Finland to sell €1.5B in 2022 and 2047 RFGB bonds

06:00 (CZ) Czech Republic to sell 2020, 2025 and 2030 bonds

06:00 (RU) Russia to sell combined RUB45B in OFZ bonds

06:45 (US) Daily Libor Fixing

07:00 (US) MBA Mortgage Applications w/e Apr 21st: No est v -1.8% prior

07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave Benchmark Repurchase Rate unchanged at 8.00% (all key rates unchanged)

07:00 (BR) Brazil Apr FGV Consumer Confidence: No est v 85.3 prior

07:00 (BR) Brazil Apr FGV Construction Costs M/M: 0.0%e v 0.4% prior

07:00 (UK) PM May weekly question Time in House of Commons

07:30 (CL) Chile Central Bank's Traders Survey

08:15 (UK) Baltic Dry Bulk Index

08:30 (CA) Canada Feb Retail Sales M/M: 0.0%e v 2.2% prior; Retail Sales Ex Auto M/M: -0.3%e v +1.7% prior

09:00 (MX) Mexico Feb Retail Sales M/M: +0.6%e v -1.1% prior; Y/Y: 3.0%e v 4.9% prior

09:30 (BR) Brazil Mar Total Outstanding Loans (BRL): No est v 3.07T prior; M/M: No est v -0.1% prior

10:00 (US) Revisions: Retail Sales

10:00 (TR) EU Parliament debates situation in Turkey

10:30 (US) Weekly DOE Crude Oil Inventories

11:30 (US) Treasury to sell 2-Year Floating Rate Notes

12:00 (FR) France Mar Net Change in Jobseekers; -13.8Ke v -3.5K prior, Total Jobseekers: 3.447Me v 3.46M prior

12:00 (CA) Canada to sell 10-Year Bonds

13:00 (US) Treasury to sell 5-Year Notes

The DAX has edged lower in the Wednesday session, as the index is currently trading at 12,462. It’s another quiet day on the release front, with no German or Eurozone indicators on the schedule. The markets will have some data to digest on Thursday, as Germany releases Consumer Confidence and Preliminary CPI As well, the ECB will make an interest rate announcement.

The ECB will set interest rates on Thursday, with the markets expecting more of the same. The benchmark rate has been pegged at a flat 0.0% since March 2016, and no changes are expected. With the eurozone showing stronger inflation and growth numbers in the first quarter, there has been speculation that the ECB might taper its asset-purchase program, which runs until December, ahead of schedule. However, the ECB appears in no rush to make any monetary moves, particularly with the current French election and the German election in September.

Investors cheered the results of the first round of the French presidential election. The first round winners, centrist Emmanuel Macron and far-right Marie Le Pen, will face off on May 7, with the winner becoming president. French voters will have a crystal-clear choice between the candidates, who want to take France in very different directions. Macron served as a minister under President Francois Hollande. He favors deregulation and is a staunch supporter of the European Union. Le Pen, who heads the National Front, has campaigned on a ‘France first’ platform, vowing to curb immigration and take France out of the eurozone. Hollande and Francois Fillon, who ran in the first round, have thrown their support behind Macron and asked voters to reject ‘extremism’. Macron is a heavy favorite to win the second round and become president, with polls giving him a comfortable lead of above 60%. Since opinion polls were accurate ahead of the first round of voting, the markets appear to relying on the current polls as well, meaning that the markets have priced in a Macron victory. Unless this sentiment drastically changes during the week, the election will be a non-event for the market. At the same time, nothing is a sure thing in politics, as underscored by the Brexit vote and the election of Donald Trump, two events which stunned the markets and triggered strong market movement.

President Trump will have to reach out to the Democrats in order to avoid a shutdown of the federal government on Saturday. Congress must pass a spending bill which will fund the government until October, but the bill requires the backing of 60 senators. This means that the Republicans (who control 52 seats) will need the support of 8 Democrats. This has led to bipartisan negotiations, and it’s reasonable to expect that these talks could go down to the wire, as both sides try to stick to their positions and try not to blink first. The last shutdown was in 2013, lasting 17 days. Another shutdown would be embarrassing for Trump, as it would start on his 100th day in office and would cast doubts on his ability to push his budget and tax plan through Congress.

EUR/JPY - 121.11

Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79

Trend: Near term down

New strategy :

Buy at 120.20, Target: 122.20, Stop: 119.60

Position: -
Target:  -
Stop:-

As the single currency surged again yesterday and broke above previous resistance at 120.88, suggesting the rise from 114.85 low (wave c trough) is still in progress and upside bias is seen for further gain to resistance at 122.26, above there would encourage for headway to 122.50-60 but loss of momentum should prevent sharp move beyond 123.00-10, risk from there is seen for a retreat to take place later.

In view of this, would not chase this rise here and would be prudent to buy euro on pullback as 120.20-30 should limit downside. Only below 119.45-50 would abort and suggest top is formed instead, risk weakness to support at 118.92, break there would add credence to this view and suggest at least the first leg of 114.85 has ended, bring weakness to 118.40-50 first. 

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

The GBP/JPY has been bought on dips after Macron won the first round of French elections. Our Session Recap setup went as expected and now we see a continuation. Equities went bullish and GBP/JPY followed, reaching 143.00 zone. At this point we see a huge MACD divergence which might drop the pair towards POC zone. POC 141.60-90 (D L3, ATR low, trend line, 50.0) could spike the price towards 142.50, 143.00 and 143.80. If we don’t see an entry within POC zone watch for 4h close above 143.30. That should also be a sign for continuation towards above mentioned targets.