Sample Category Title

'Should the yen be bought, if the Korean situation is so nearby? But buying the yen seems to be the established market reaction, and if you've been around long enough, you know you don't go against the market.' – State Street Bank and Trust (based on Reuters)

Pair's Outlook

The USD/JPY currency pair remained relatively unchanged on Friday, retaining its position above the 109.00 mark. However, on Sunday the French election first round's results allowed the risk-on mood to prevail and boosted the US Treasury yields, causing the pair to open with a strong bullish gap today. Despite this gap, a technical correction is likely to take place, with investors taking profit of the recent rally. Technical indicators also suggest the Greenback is to weaken against the Yen today, but price is expected to close above the 110.00 threshold, despite strong downside volatility. The election surge ultimately was a good sign for the USD/JPY, as it preserved the channel pattern.

Traders' Sentiment

There are 69% of traders holding long positions today (previously 72%), whereas only 58% of all pending orders are to acquire the US Dollar.

'Gold fell nearly 1 percent on Monday to its weakest in two weeks after centrist Macron led the first round of voting in the French presidential election.' – Swati Verma, Reuters

Pair's Outlook

On Monday morning the yellow metal was recovering after the low opening and fall caused by the French presidential election. The bullion almost touched the 1,265 mark before it rebounded and surged up to the 1,275 level, where close by two resistance levels are located at. However, the yellow metal's price still remains in the borders of a medium scale ascending channel pattern. The commodity price has touched the lower trend line of the channel, which means that the bullion is likely to surge in the near future.

Traders' Sentiment

SWFX market sentiment remains bearish, as 56% of open positions are short. However, 65% of trader set up orders are to buy.

Weekly

    •    Last Candlesticks pattern: Shooting star 
    •    Time of formation: 03 May 2016
    •    Trend bias: Down

Daily

    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 3 May 2016
    •    Trend bias: Sideways

EUR/USD – 1.0645

Although the single currency retreated initially last week, as euro found renewed buying interest at 1.0602 and has staged a strong rebound above previous resistance at 1.0906, signaling the erratic rise from 1.0340 low is still in progress and may extend gain, above 1.0936 resistance would bring further rise to 1.1000 and then towards 1.1050-60 but upside should be limited to 1.1100 and price should falter well below previous chart resistance at 1.1300, bring selloff later.

On the downside, whilst initial pullback to 1.0775-80 cannot be ruled out, reckon downside would be limited to 1.0740-45 and support at 1.0682 should remain intact, bring another rise later. A daily close below support at 1.0682 would suggest top is possibly formed instead, bring weakness to 1.0635-40 but break of said support at 1.0602 is needed to revive bearishness and extend fall to key support at 1.0570. Looking ahead, once this level is penetrated, this would suggest the erratic rise from 1.0340 has ended, bring further fall to key support at 1.0493 which is likely to hold from here.

Recommendation: Stand aside for this week.

On the weekly chart, as the single currency opened sharply higher after last week’s strong rebound and broke above resistance at 1.0906, suggesting the erratic rise from 1.0340 low is still in progress for retracement of recent decline to 1.1000 and possibly test of the lower Kumo (now at 1.1070), however, reckon upside would be limited to the upper Kumo (now at 1.1161) and price should falter well below previous resistance at 1.1300, risk from there is seen for a retreat to take place later.

On the downside, although initial pullback to 1.0775-80 is likely, reckon downside would be limited to the Tenkan-Sen (now at 1.0716) and support at 1.0682 should hold, bring another rebound later. Only a drop below support at 1.0602 would suggest top is possibly formed, bring test of 1.0570, once this level is penetrated, this would suggest top is formed instead, bring test of indicated pivotal support at 1.0493, break there would signal the rebound from 1.0340 has ended instead, bring further fall to support at 1.0454, a sustained breach below this level would provide confirmation, then further fall to 1.0390-00 and later retest of this January low would follow.

'April's rise in the euro zone composite PMI adds to evidence that the economy is performing well.' - Jennifer McKeown, Capital Economics

Services and manufacturing activity in the Euro zone rose more than expected in April, suggesting that the region's economy started the Q2 of 2017 with solid growth. HIS Markit reported on Friday that its Flash Purchasing Managers' Index for the Euro zone's manufacturing sector came in at 56.8, following March's final reading of 56.2 and surpassing analysts' expectations for 56.1. Furthermore, the Flash Services PMI came in at 56.2 in April, while markets anticipated an unchanged reading of 56.0 during the reported period. Thus, the Flash Composite PMI advanced to 56.7 from March's 56.4, hitting its highest since April 2011. Economists stated that Friday's PMI surveys provided enough evidence to say that the Euro zone economy started the Q2 with strong growth. In the meantime, the Flash Services PMI for the Euro zone's largest economy, Germany, fell to 54.7 in April, down from the prior month's 55.6 and below expectations for 55.5. The Flash Manufacturing PMI for Germany remained virtually unchanged, declining to 58.2 from 58.3 in March. Despite the stronger-than-expected release, the Euro failed to maintain its initial gains against the US Dollar and other major currencies, as investors shifted their attention to the first round of the French presidential election.

'Families are facing the fastest rise in living costs for over three years and they are reining in their spending rapidly.' - Richard Lim, Retail Economics

Friday's data on British retail sales surprised many experts who did not expect such a notable change in March. According to the ONS, sales in the retail sector dropped 1.8% on a seasonally-adjusted basis, while analysts anticipated only a 0.3% decrease. Similarly, on a quarterly basis, retail sales lost 1.4%, which was the first negative contribution to GDP growth since the Q4 of 2013. The following decline was a result of a change in average store prices, which were continuously increasing since January. In fact, in March, consumer prices reached the highest peak since December 2014. In addition, in volume terms, goods bought in most of the sub-sectors, except for department stores and household goods stores, decreased. For instance, the amount of money spent in food stores in March advanced 0.3%, while the amount of purchased goods diminished 0.5% compared to the previous month. In contrast to traditional retail sales, data on online stores showed that British consumers in March spent on average 1.0B pounds per week on online stores, a 19.5% rise compared to the same period a year ago. Retail sales are tightly connected to consumer spending. Thus, weak retail sales combined with rising inflation suggest that consumer spending will unlikely provide a significant support to economic growth.

'I just don't see the talk of rate hikes anytime soon as being credible, anchored in the inflation numbers that we're getting.' - Derek Holt, Scotiabank

Canada's inflation growth slowed last month as food prices dropped for the sixth consecutive month. Statistics Canada reported on Friday that the annual inflation rate declined to 1.6%, down from April's 2.0%. Meanwhile, market analysts anticipated a gain of 1.8%. On a monthly basis, consumer prices rose 0.2% in March, unchanged from the preceding month, whereas analysts expected a climb of 0.4% during the reported period. Transportation costs advanced 4.6% on an annual basis but were offset by weak food prices, which dropped 1.9% year-over-year, and clothing costs. Among the Bank of Canada's core inflation measures, the CPI-common, considered to be the best measure of inflation, remained unchanged at 1.3% last month. The CPI-median, a measure based on the weighted median, dropped to 1.7%, whereas the CPI-trim, which excludes upside and downside outliers, fell to 1.4%. Due to weaker-than-expected inflation data, the Central bank is set to keep its monetary policy unchanged for an indefinite period of time or until the inflation rate hits the BoC's target of 2%. The Bank's key interest rate remained unchanged at 0.50% since July 2015. Friday's figures confirmed the view that inflationary pressures in Canada remained low and the recent boost was driven by the temporary oil price rise.

Friday US Session Highlights

(US) APR PRELIMINARY MARKIT MANUFACTURING PMI: 52.8 V 53.8E; new orders: 53.7 v 54.1 prior (lowest since Sept)

(US) MAR EXISTING HOME SALES: 5.71M V 5.60ME

(US) Fed's Kashkari (dove, dissenting vote): next rate move is not as important in the big picture; what matters in the long term is fiscal policy - comments in Minnesota

(US) New York Fed Nowcast: raises Q1 GDP forecast to 2.7% from 2.6% on 4/14; maintains Q2 GDP forecast at 2.1%, unchanged from 4/14

OPEC Committee reportedly finds that oil supply cut agreement compliance improved in March; calls for 6-month extension to output cuts - press

(US) Fed Vice Chairman Fischer: still feels 3 rate hikes is appropriate this year, but Fed is not tied to 3 rate hikes - CNBC interview

Politics

(FR) With 100% of votes in France Presidential Election counted: Macron 23.75%; Le Pen 21.53%; Fillon 19.91%; Melenchon 19.64%; Macron and Le Pen move on to run-off in 2 weeks

(US) White House and Congress remain at a standstill on funding the govt ahead of a potential shutdown on Friday - Politico

(US) House Speaker Ryan: Spending bill will be ready before the end of the week to avert a potential govt shutdown - press

(UK) According to the latest Comres poll, support for PM May's Conservative party was at 50% - highest since 1991 - press

(DE) Bid by Germany's Co-leader of euro-skeptic AfD party, Frauke Petry, to have a debate on the party's future was scrapped by party delegates - press

Weekend US/EU Corporate Headlines

BCR: Becton Dickinson to acquire Bard for $24B

Key economic data:

(TW) Taiwan Mar Unemployment Rate: 3.8% v 3.8%e

(TH) Thailand Mar Trade Balance: $1.6B v $1.7Be

Asia Session Notable Observations, Speakers and Press

First-round of presidential elections in France has produced the most market-friendly of outcomes, as centrist Macron and far-right Le Pen head for the runoff in 2 weeks. Macron is the heavy favorite and polls most favorably against the anti-euro FN candidate, pulling the single-currency from the precipice of populist revolts observed in US and UK over the past year. With 100% of the vote counted, Macron had 23.71% of the vote, followed by Le Pen at 21.91%. EUR/USD spiked up nearly 2 big figures to 1.09 in early trade before consolidating around 1.0850, USD/JPY rose nearly 150pips above 110.40, and safehaven Gold fell over $15 below $1,270. Indicated yields on the US Treasury 10-yr benchmark were up 8bps to reach 2.3% for the first time in over a week, while S&P futures rose nearly 20 handles above 2,365.

Nikkei225 is the best performing index among the majors thanks to weaker JPY, as Shanghai Composite is notably weaker. Selling attributed to smaller reverse repo injections as well as expectations for more deleveraging measures by regulators. Moody's has also warned about profitability pressure on China banks, while investors shrug positive comments from PBOC Gov Zhou.

Among corporates, Sony and JVC Kenwood in Japan were up over 4% and 8% after raising FY16 guidance following market close on Friday. Australia's Chorus was also lifted by inclusion into ASX200.

Geopolitical focus turns to the Korean peninsula with more saber-rattling by the North along with detainment of a US citizen by Pyongyang authorities. Investors are also watching Washington this week, as Congress and White House standoff on funding for a southern border wall come to a head.

China

(CN) China expected to implement more deleveraging measures - Chinese press

(CN) Moody's: China banks are facing profitability pressure

(CN) PBOC Gov Zhou: China's 2017 GDP target is "within reach"; Financial risks are under control - press

(CN) According to research firm Wind, 66% of China listed companies to report Q1 results saw net profit growth - Chinese press

Japan

(JP) Japan PM Abe's cabinet approval rating is near-flat at 50.4% - Japan press

(JP) Japan Fin MIn Aso: Trade imbalances cannot be fixed through FX adjustments alone - press

(JP) Nomura chief economist: Within the BOJ's inner circle, the willingness to stick to the ¥80T commitment is waning - Nikkei

Australia/New Zealand

(AU) UBS: Australia property prices have likely peaked; Will correct but not collapse - press

Korea

(KR) South Korea Defense Ministry spokesman Moon Sang-gyun: Discussions are underway on whether South Korea and the US Forces will conduct a joint military drill when Carl Vinson

(KR) North Korea state media claims its military was ready to sink USS Vinson in a show of military strength - press

(KR) North Korea has detained another US citizen; Brings the total of Americans held to 3 - US press

(KR) Top Trump administration officials will brief senators on April 26 about North Korean situation - financial press

Asian Equity Indices/Futures (00:00ET)

Nikkei +1.3%, Hang Seng -0.1%, Shanghai Composite -1.6%, ASX200 +0.3%, Kospi +0.2%

Equity Futures: S&P500 +0.8%; Nasdaq +0.8%, Dax -+1.3%, FTSE100 +0.4%

FX ranges/Commodities/Fixed Income (00:00ET)

EUR 1.0820-1.0915; JPY 109.85-110.50; AUD 0.7540-0.7585; NZD 0.7020-0.7050; GBP 1.2780-1.2835

June Gold -0.9% at 1,277/oz; June Crude Oil +0.5% at $49.87/brl; July Copper +0.7% at $2.57/lb

(US) Weekly Baker Hughes US Rig Count: 857 v 847 w/w (+1.2%) (14th straight weekly rise)

OPEC/non-OPEC technical committee meeting said to call for six-month extension to oil output cut agreement - press

SPDR Gold Trust ETF daily holdings rise 4.3 tonnes to 858.7 tonnes

iShares Silver Trust ETF daily holdings fall to 10,119 tonnes from 10,149 tonnes prior; lowest since Apr 10th

(CN) PBOC SETS YUAN MID POINT AT 6.8673 V 6.8823 PRIOR; strongest setting since Apr 19th

(CN) PBOC to inject combined CNY30B v CNY100B prior in 7-day, 14-day and 28-day reverse repos, 5th straight injection

(JP) BOJ reduced 3-5yr maturity JGB purchases to ¥320B from ¥350B

(AU) Australia MoF sells A$300M in 4.5% 2033 bonds; avg yield 3.0205%; bid-to-cover 3.07x

(KR) South Korea MoF sells 20-yr bonds; avg yield 2.34% v 2.30% prior

Asia equities / Notables / movers

Australia

Sirtex Medical (SRX) -14.3%; ARAH Study Shows Statistically Significant Safety, Toxicity and Quality of Life Benefits for SIR-Spheres versus Sorafenib with No Difference in Survival

Worleyparsons (WOR) -0.7%; CEO: Not seeking to be acquired - AFR

Chorus Ltd (CNU) +2.8%; To replace Duet Group in S&P/ASX 200 Index at the open May 2nd

Japan

Toshiba (6502) +0.7%; To split off its four in-house companies into wholly-owned subsidiaries

Mitsubishi Motor (7211) +1.5%; To invest ¥10B to build a plant in China to supply engines for locally built Outlander SUVs - Nikkei

Kobe Steel (5406) -0.3%; FY17 results speculation

Sony (6758) +4.2%; Raises FY16/17 guidance

JVC Kenwood (6758) +8.5%; Raises FY16/17 guidance

Hong Kong

Da Ming International Holdings (1090) +2.3%; Q1 result

Beijing Jingkelong Company (0814) -2.9%; Q1 result

China State Construction Int'l Holdings (3311) -3.4%; Q1 result

Weekly

    •    Last Candlesticks pattern: Marubozu
    •    Time of formation: 14 Nov 2016
    •    Trend bias: Down

Daily

    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 15 Feb 2017
    •    Trend bias: Down

USD/JPY – 109.05

Although the greenback opened higher today and jumped to as high as 110.60, as long as this level holds, consolidation with mild downside bias is seen for weakness to the Tenkan-Sen (now at 109.37), however, a daily close below 108.65-70 is needed to signal the rebound from 108.13 has ended, bring retest of this level later, Looking ahead, only a drop below this level would extend recent decline from 118.66 top to 107.85-90 (61.8% Fibonacci retracement of 101.19-118.66) and possibly 107.40-50 but oversold condition should prevent sharp fall below 106.75-80 (1.236 time projection of 118.66-111.59 measuring from 115.51) and 105.90-00 should hold from here, bring rebound later.

On the upside, above said resistance at 110.60 would suggest a temporary low has been formed at 108.13, bring further gain to 111.00 but a daily close above resistance at 111.58 is needed to signal low has been formed, bring further gain towards resistance at 112.20, however, only a sustained breach above this level would provide confirmation, bring correction of recent entire selloff to 112.90 (previous resistance) and possibly towards another previous resistance at 113.54.

Recommendation : Hold short entered at 110.40 for 108.40 with stop above 110.65.

On the weekly chart, as the greenback opened higher this week and a window was formed, suggesting consolidation above last week’s low at 108.13 would be seen, above 110.60 would extend gain to the upper Kumo (now at 111.37), however, a weekly close above the Tenkan-Sen (now at 111.82) is needed to signal low has been formed, bring further gain towards resistance at 112.20-26. Looking ahead, a sustained breach above 120.20 would extend the rebound from 108.13 to 113.00, then test of 113.54 resistance and possibly 114.00-10 but price should falter well below resistance at 115.51.

On the downside, whilst pullback to 109.40-50 cannot be ruled out, reckon support at 108.88 would limit downside and bring another rebound later. Only a drop below 108.65-70 would suggest the rebound from 108.13 has ended, bring retest of this level, once this last week’s low is penetrated, this would extend recent selloff from 118.66 to 107.85-90 (61.8% Fibonacci retracement of 101.19-118.66), then towards 107.00, however, oversold condition should prevent sharp fall below 106.50-55 (61.8% Fibonacci retracement of 99.01-119.52) and reckon previous resistance at 105.53 (now support) would remain intact.

The euro opened with a large positive gap against its major peers on Monday, following the outcome of the first round of the French presidential election. The two candidates that qualified for the second round are Emmanuel Macron and Marine Le Pen, with their percentages being roughly 24% and 21.5% respectively. The run-off is scheduled on the 7th of May.

The positive reaction in the euro may have been fueled by the fact that in practically every poll for the second round, Macron is leading the Eurosceptic Le Pen by a significant margin. This implies that market participants may have already begun pricing in a Le Pen loss in the run-off and therefore, a lower probability of any 'Frexit' referendum.

EUR/USD gapped up, to open above the key resistance (now turned into support) territory of 1.0800 (S1) and the longer-term downtrend line drawn from the peak of the 3rd of May 2016. Nevertheless, the rate hit 1.0910 (R2) and then retreated to challenge the aforementioned territory as a support this time.

If the pair manages to close the day above that crossroad, we would consider the outlook to have turned positive. The bulls may regain control at some point soon and if they prove strong enough to overcome the 1.0870 (R1) level again, they could aim for another test near 1.0910 (R2).

The euro was not the only asset that responded to the result. Risk appetite dominated the financial community, as European stock indices opened with notable positive gaps, and safe-havens like JPY and gold, started the week on the back foot. We think that this improved sentiment may also spill over to US equity markets, which could open in a similar fashion as their EU counterparts.

EUR/JPY opened with a large positive gap as well, hitting 120.55 (R2) before pulling back. The gap brought the rate above the short-term downtrend line taken from the high of the 13th of March, something that signals a near-term trend reversal in our view. Even if the pair corrects a bit lower, we expect any setback to remain limited above the aforementioned downtrend line. A possible rebound from near that zone is likely to see scope for another test near 120.55 (R2). A clear break above that level may pave the way for the key crossroad between the 121.70 (R3) hurdle and the downside resistance line taken from the peak of the 15th of December.

Moving forward, we see the case for the euro to remain supported on this outcome, at least for a few days. The key risk to our view is any new second-round polls showing Le Pen closing the gap on Macron.

Today's highlights:

During the European morning, the only noteworthy indicator we get is Germany's Ifo survey for April. The consensus is for the current conditions index to have ticked down, while the expectations index is forecast to have risen somewhat. If there is any market reaction on this indicator, we would expect it to be positive for the euro and/or the German DAX, considering that improving expectations may overshadow a slight deterioration in current conditions.

We have only one speaker on today's schedule: Minneapolis Fed President Neel Kashkari.

As for the rest of the week:

On Tuesday, we have no major events on the economic calendar while on Wednesday, we get Australia's CPI data for Q1. On Thursday, we have a very busy day, as both the BoJ and the ECB will announce their rate decisions. Expectations are for both Banks to keep their policy unchanged. We think that investors may focus primarily on the ECB meeting, considering the relatively hawkish signals we received at the latest policy meeting and the subsequent reports showing that investors over-interpreted those signals. Finally on Friday, we get Japan's CPI data for March and Eurozone's preliminary CPI data for April. We also get the first estimate of Q1 GDP from both the US and the UK.

EUR/USD

Support: 1.0825 (S1), 1.0800 (S2), 1.0775 (S3)

Resistance: 1.0870 (R1), 1.0910 (R2), 1.0955 (R3)

EUR/JPY

Support: 119.00 (S1), 118.15 (S2), 117.50 (S3)

Resistance: 119.80 (R1), 120.55 (R2), 121.70 (R3)

Currency pair EUR/USD

The French voters choose novice centrist Macron and far right candidate Le Pen during the first round of the Presidential election in France, which took place on Sunday 23 April. None of the candidates reached the 50% threshold and hence a second round will occur with the two candidates on Sunday 7 May.

The EUR/USD reacted bullishly to the news, most likely due to the prospect of Macron winning the second round of the French Presidential elections. Macron is in favour of the EU and the Euro currency, which is exact opposite position of Le Pen. The EUR/USD broke above 1.09 and thereby changed the wave structure as a larger correction could be taking place.

The EUR/USD is building bullish momentum which could be part of a wave (purple).

Currency pair EUR/USD

The GBP/USD is building a bull flag chart pattern (red/blue lines). A break above it could see price challenge the next Fibonacci level.

The GBP/USD retracement has respected the 38.2% Fibonacci retracement level at 1.2750. A break below the 61.8% Fibonacci level invalidates wave 4 (purple) where a break above the bull flag (red) could see a wave 5 (purple) develop.

Currency pair USD/JPY

The USD/JPY broke above the bear flag chart pattern (dotted orange) and resistance trend line (dotted red). The bullish price action could still be part of larger bearish retracement (waves Y) of the larger time frames.

The USD/JPY bullish momentum could be part of a 5 wave (orange) within wave 3 (brown). The wave 4 (orange) remains valid as long as price stays above the 61.8% Fibonacci level of wave 4 (orange).