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Sterling attracted a school of sellers during early trading on Friday, following the disappointing 1.8% decline in U.K retail sales in March that rekindled fears of Brexit impacting the U.K economy. U.K retail sales posted their largest quarterly fall in seven years in the first quarter of 2017, as accelerating prices and a Brexit-fueled Sterling selloff pressured consumers. With wage growth lagging behind inflation, concerns may continue to heighten over the longevity of the U.K's prized consumer-driven economic growth. The Pound remains gripped by the Brexit developments as they continue moving forward and heightened political uncertainty created from the snap general election shocker should limit extreme upside gains.

From a technical standpoint, although the sustainability of the Sterling rebound can be questioned, the GBPUSD remains undeniably bullish on the daily timeframe. The decisive breakout above 1.2775 could encourage a further incline higher towards 1.3000.

On the other hand, if the bearish Brexit fundamentals inspire sellers, then repeated weakness below 1.2775 could open a path lower back towards 1.2600.

French presidential election countdown begins

The French presidential elections remain a major event risk that has the ability to send serious shockwaves across the financial markets. With recent polls indicating a fierce battle between the four candidates in the first round and millions of voters still undecided, uncertainty remains the name of the game. Although Emmanuel Macron has been labelled as favorite to become the next French President, an unexpected Marine Le Pen victory could deal a symbolic blow to the unity of the European Union and ultimately create a tidal wave of risk aversion. Investors should remain diligent as we enter the weekend, and be prepared to expect the unexpected when dealing with the elections' repercussions on the Euro.

From a technical standpoint, the EURUSD has struggled to close above the 1.0750 level, with pre-election jitters exposing the Euro to downside risks. If anxiety continues to heighten, then Euro bears may be inspired to send prices lower towards 1.06850 or lower.

Commodity spotlight – Gold

Jitters surrounding the forthcoming French presidential elections and the ongoing tensions engulfing North Korea have supported Gold this week, with prices balancing around $1280 as of writing. Risk aversion remains rife amid the political risk, with uncertainty accelerating the flight to safe haven investments. Bulls remain in control on the daily charts and the decreased probability of a U.S interest rate increase in June could provide a foundation for buyers to attack. If the mounting concerns over Trump's ability to push through with fiscal spending continue to pressure the Dollar further, then Gold may target $1300 and potentially higher. Much attention will also be directed towards the French elections this weekend and could spark a wave of risk aversion if the results of the first round rekindle Frexit concerns. From a technical standpoint, Gold bulls remain in control above $1260, with $1300 acting as the next key level of interest

US oil is on track for strong bearish weekly close (the first one after three weeks in green) signaling extension of pullback from $53.74 high, posted on 12 Apr.

The price found temporary footstep at $50.06, low of Wednesday’s strong fall, with downside being reinforced by daily Kijun-sen line, currently at $50.40.

Yesterday’s close below thin daily cloud maintains bearish pressure, however, oil price may hold in extended consolidation while above $50.06 low.

Limited upside attempts are expected, with daily cloud (spanned between $50.74 and $51.15) offering initial resistance and extended upticks expected to hold below daily Tenkan-sen line at $51.90.

Eventual break below psychological $50.00 support would open immediate target at $49.62 (Fibo 61.8% of $47.07/$53.74) and may accelerate to $48.70 (weekly Kijun-sen) in extension.

Oil price remains under pressure on fears that increased US shale oil production may offset OPEC attempts to support prices by reducing oil production.

Res: 50.74, 51.15, 51.36, 51.90
Sup: 50.40, 50.06, 49.62, 48.70

EU Mid-Market Update: Major European Manufacturing PMIs remain at multi-year highs; UK retail sales miss expectations

Notes/Observations

Major European Apr PMI Manufacturing data beats expectations to multi-year highs

ISIS claims responsibility for Paris shooting on eve of 1st round of Presidential election (6th terrorist attack in last three years)

The market likely unwilling to take on much risk ahead of French elections

US Congress returns from its spring break on Monday; has only a few days to resolve the debt ceiling issue before the current continuing resolution expires

Overnight:

Asia:

BOJ's Kuroda reiterated view to continue to pursue powerful easing until 2% inflation target achieved. Believe Japan had gained the global community's understanding when we say we do not target currency when guiding monetary policy. No comment on President Trump's remark that the USD was too strong; cautioned against unwinding free trade

Japan Fin Min Aso: No issue with US President Trump's comments that USD was too strong; Discussed Japan efforts to raise potential growth rate and global economy at recent G20

Europe:

Police responded to shots fired near Champs Elysee in Paris, France; one policeman killed with several others wounded. Gunman subsequently shot dead by French police; Islamic State claimed responsibility for attack

German Bundesbank's Dombret (ECB SSM member): Germany surplus was not Germany's fault. Situation could not be controlled as country did not have its own currency

Americas:

Treasury Sec Mnuchin: Tax reform will be passed before end of 2017; will put forward a sweeping plan very soon; Infrastructure remains a big priority

Economic Data

(NO) Norway Mar Trade Balance (NOK): 22.7B v 23.5B prior

(NO) Norway Q1 Industrial Confidence: +1.1 v -0.2 prior

(NL) Netherlands Mar House Price Index M/M: 1.1% v 0.3% prior; Y/Y: 7.3 v 6.7% prior

(FR) France Apr Preliminary Manufacturing PMI (beat): 55.1 v 53.1e (7th month of expansion and and highest since Apr 2011), Services PMI: 57.7 v 57.0e, Composite PMI: 57.4 v 56.2e

(ES) Spain Feb Trade Balance: No est v -€3.1B prior

(DE) Germany Apr Preliminary Manufacturing PMI (beat): 58.2 v 58.0e (just off 6-year highs), Services PMI: 54.7 v 55.5e, Composite PMI: 56.3 v 56.8e

04:00 (EU) Euro Zone Apr Preliminary Manufacturing PMI: 56.8 v 56.0e (46th month of expansion and highest since Apr 2011), Services PMI: 56.2 v 55.9e, Composite PMI: 56.7 v 56.4e

(EU) Euro Zone Feb Current Account (Seasonally Adj): €37.9B v €26.1B prior; Current Account NSA (unadj): €27.9B v €3.1B prior

(UK) Mar Retail Sales (Ex Auto Fuel) M/M: -1.5% v -0.5%e; Y/Y: 2.6% v 3.8%e

(UK) Mar Retail Sales(Including Auto/Fuel) M/M: -1.8% v -0.5%e; Y/Y: 1.7% v 3.3%e

(HK) Hong Kong Mar CPI Composite Y/Y: 0.5% v 0.5%e

(HK) Hong Kong Mar Unemployment Rate: 3.2% v 3.3%e

Fixed Income Issuance:

(IN) India sold total INR150B vs. INR150B indicated in 2024, 2029, 2033 and 2051 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.5% at 3,425, FTSE +0.1% at 7,124, DAX flat at 12,025, CAC-40 -0.8% at 5,040, IBEX-35 -0.4% at 10,336, FTSE MIB -0.4% at 19,763, SMI -0.2% at 8,541, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading mixed but generally lower as market participants remain cautious after the recent terror attack in Paris, and ahead of the highly anticipated first round of the presidential elections in France on Sunday; Banking stocks generally higher in the Eurostoxx with shares of SocGen and BNP Paribas leading the sector gains; shares of Koninklijke Philips also trading notably higher in the index as shares of its spin-off company Philips Lighting reported higher y/y results; shares of Danone the notable laggard in the index despite releasing higher y/y sales results and raising their FY outlook; Commodity and mining stocks trading notably higher in the FTSE 100 as copper prices trade higher intraday; energy stocks in the index trading negative as oil prices consolidate near weekly lows; shares of Reckitt Benckiser the notable laggard in the index after reporting lower than expected LFL sales results.

Upcoming scheduled US earnings (pre-market) include General Electric, Gentex, Honeywell International, Interpublic Group, Kansas City Southern, Manpowergroup, NextEra Energy, Rockwell Collins, Steven Madden, Schlumberger, SunTrust Banks, Stanley Black & Decker, WABCO Holdings, and Webster Financial.

Equities (as of 09:50 GMT)

Consumer Discretionary: [WS Atkins ATK.UK +5.1% (Reached agreement on the terms and conditions on acquisition by SNC-Lavalin for £20.80/shr in cash)]

Consumer Staples: [Danone BN.FR -2.2% (Q1 sales, raises outlook)]

Financials: [Deutsche Bank DBK.DE +0.1% (to pay a penalty of $157M to Federal Reserve for violating forex trading and Volcker)]

Healthcare: [Reckitt Benckiser RB.UK -1.2% (Q1 sales)]

Industrials: [Philips Lighting LIGHT.NL +2.2% (Q1 results), SSAB SSABA.SE +8.8% (Q1 results)]

Technology: [Software SOW.DE +7.0% (prelim Q1 results)]

Speaker

France Presidential candidate Le Pen (Far right): France must immediately reinstate border checks; Expel foreigners who are on the watch lists of intelligence services.

China Foreign Ministry Lu Kang: China and US have improved mutual understanding on North Korea issue. China upholds using dialogue to resolve North Korea issue

Currencies

FX markets were relatively quiet in the session. Market appeared to be unwilling to take on much risk ahead of the French 1st round of the Presidential election. Consensus expect a market-friendly outcome and likely strengthen EUR currency pairs and provide opportunity to buy USD/JPY.

EUR/USD little changed in the session despite better PMI data for the major countries. Pair staying above the 1.07 level and off its multi-week highs registered earlier in the week

GBP/USD was slightly softer after Mar Retail Sales came in below expectations. UK Mar Retail Sales fell steeply fueled by the pound's sharp post-Brexit vote depreciation caused Britons to rein in spending. Pair hovering around 1.28 just ahead of the NY morning.

Fixed Income

Bund futures trade at 162.81 up 7 ticks consolidating below 163 on generally upbeat PMI data out of Germany and France. Futures target support at 162.52 yesterday low initially followed by 162.25. Resistance moves to 163.44 followed by 163.99.

Gilt futures trade at 128.61 up 23 ticks trading towards day highs after weaker than expected March retail sales figures out of the UK. Continuation higher targets yesterday high at 128.66 then 128.76 followed by 129.14. Short Sterling curve is flattening with the fronts flat to up 2bp, with Jun17Jun18 flattening to 9bp choice.

Friday's liquidity report showed Thursday's excess liquidity rose to €1.568T a rise of €2B from €1.566T prior. Use of the marginal lending facility rose to €223M from €206M prior.

Corporate issuance saw no activity yesterday, with issuance for the week just below $24B.

For the week ending April 19th Lipper fund flows reported IG funds net inflows of $1.45B bringing YTD inflows to $43.34B. High yield funds reported out flows of $362.2M bringing YTD outflows of $4.27B.

Looking Ahead

(UR) Ukraine Mar Industrial Production M/M: -2.5%e v -2.2% prior; Y/Y: -1.3%e v -4.6% prior

06:00 (UK) DMO to sell combined £2.0B in 1-month, 3-month and 6-month bills (£0.5B, £0.5B and £1.0B respectively)

06:00 (IE) Ireland Mar PPI M/M: No est v 0.0% prior; Y/Y: No est v 2.4% prior

06:45 (US) Daily Libor Fixing

07:30 (IN) India Weekly Forex Reserves

08:00 (PL) Poland Central Bank (NBP) Apr Minutes

08:15 (UK) Baltic Dry Bulk Index

08:30 (CA) Canada Mar CPI M/M: 0.4%e v 0.2% prior; Y/Y: 1.8%e v 2.0% prior; Consumer Price Index: No est v 129.7 prior

08:30 (CA) Canada Mar CPI Common Core Y/Y: 1.3%e v 1.3% prior; CPI Medium Core Y/Y: No est v 1.9% prior; CPI Trim Core Y/Y: No est v 1.6% prior

09:00 (MX) Mexico Mar Unemployment Rate (Seasonally Adj): 3.5%e v 3.5% prior; Unemployment Rate (unadj): 3.2%e v 3.4% prior

09:45 (US) Apr Preliminary Manufacturing PMI: 53.7e v 53.3 prior, Services PMI: 53.2e v 52.8 prior, Composite PMI: No est v 53.0 prior

10:00 (US) Mar Existing Home Sales: 5.60Me v 5.48M prior

11:00 (EU) Potential sovereign ratings expected after European close:

(NO) Norway Sovereign Debt to be rated by S&P

(PL) Poland Sovereign Debt to be rated by S&P

(EG) Egypt Sovereign Debt to be rated by Moody's

(RO) Romania Sovereign Debt to be rated by Moody's

(CY) Cyprus Sovereign Debt to be rated by Fitch

(IT) Italy Sovereign Debt to be rated by Fitch

(AT) Austria Sovereign Debt to be rated by Canadian rating agency DBRS

(PT) Portugal Sovereign Debt to be rated by Canadian rating agency DBRS

13:00 (US) Weekly Baker Hughes Rig Count data

15:00 (CO) Colombia Feb Economic Activity Index (Monthly GDP) Y/Y: 1.5%e v 1.2% prior

EUR/JPY - 116.72




EUR/JPY: Wave v as well as larger degree wave (C) ended at 94.11 and first leg of larger degree wave C upmove has possibly ended at 149.79 and wave 2 correction has possibly ended at 109.49.




Although the single currency extended recent decline to 114.85, as euro found good support there and has rebounded, suggesting consolidation above this level would be seen with initial upside bias for recovery to 118.00-10, however, reckon upside would be limited to 118.70-80 and bring another decline later, below 115.75-80 would bring another fall to 114.85 support but break there is needed to confirm the decline from 124.10 top has resumed for further fall to 113.72 (previous support0 and possibly towards 113.00-10 but price should stay above previous chart support at 112.61.

The daily chart is labeled as attached, early selloff from 169.97 (July 2008) to 112.08 is wave (A) of B instead of end of entire wave B and then the rebound from there to 139.26 is wave (B), hence, wave (C) has possibly ended at 94.12 with a diagonal triangle as labeled in the daily chart, hence upside bias is seen for further gain. Recent rally above indicated retracement level at 116.69 (50% Fibonacci retracement of the intermediate fall from 139.26-94.12) adds credence to this view and signal major reversal has commenced but first leg of this wave C has possibly ended at 149.79, hence wave 2 has commenced with wave A ended at 126.09, followed by wave B at 141.06, wave C commenced and could have ended at 109.49, above 125.00 would add credence to this view. 



On the upside, whilst initial recovery to 117.30-40, then 118.00 cannot be ruled out, reckon upside would be limited to 118.70-80 and bring another decline later. Above previous support at 119.32 would defer and suggest low is possibly formed, risk a stronger rebound to 119.80-85 but only a daily close above indicated resistance at 120.44 would provide confirmation, bring a stronger rebound to 120.90-00 and possibly 121.30-35 but price should falter well below resistance at 121.84. 



Recommendation: Sell euro at 118.80 for 116.00 with stop above 119.80.

To re-cap the corrective upmove from the record low of 88.93 (18 Oct 2000), the wave A from there is subdivided as: 1:88.93-113.72, 2:99.88 (1 Jun 2001), 3:140.91 (30 May 2003), 4:124.17 (10 Nov 2003) and 5 ended at record high of 169.97 (21 Jul 2008). The brief but sharp selloff to 112.08 is viewed as a-b-c x a-b-c wave (A) of B. The subsequent rebound to 139.26 is (B) of B and (C) of (B) has possibly ended at 94.12 and in any case price should stay well above previous chart support at 88.93, bring rally in larger degree wave C towards 150.00.

USD/CHF –  0.9987

 
USD/CHF – Wave IV ended at 1.1730 and wave V has possibly ended at 0.7068

 
Although the greenback has retreated after meeting resistance at 1.0108 earlier this month and consolidation with initial downside bias is seen for weakness to 0.9940-45, if our view that low has  been formed at 0.9813 is correct, downside should be limited to 0.9900-05 and bring another rebound later. A daily close above 1.0065-70 would suggest the retreat from 1.0108 has ended, bring test of this level, having said that, price should falter below resistance at 1.0171, bring retreat later. In the event dollar breaks above said resistance at 1.0171, this would revive our bullish view for the erratic rise from 0.9861 to extend further gain to 1.0200 and possibly test of resistance at 1.0248, however, a daily close above there is needed to signal the retreat from 1.0344 has ended at 0.9861, bring eventual retest of 1.0344.

Our preferred count on the daily chart is that early selloff to 0.9630 is an end of the larger degree wave III and major correction is unfolding from there with a leg ended at 1.2298 (Nov 2008 with (a): 1.0625, (b):1.0011 and (c):1.2298), wave b ended at 0.9910 with (a): 1.0370, (b): 1.1967, (c): 0.9910. The rise from there to 1.1730 is the wave c which also marked the end of wave IV and wave V has possibly ended at 0.7068.


On the downside, whilst pullback to 0.9940 cannot be ruled out, reckon downside would be limited to 0.9900 and bring another rise later. Below 0.9850-60 would suggest the rebound from 0.9813 has ended instead bring another fall towards said support at 0.9813. Looking ahead, only a break below this level would confirm another leg of major fall from 1.0344 top is underway for further fall to 0.9735-40, however, oversold condition should prevent sharp fall below 0.9675-80 and price should stay well above 0.9600, bring rebound later.
 
Recommendation: Buy at 0.9905 for 1.0105 with stop below 0.9805

Dollar's long-term downtrend started from 2.9343 (Feb 1995) and it was unfolding as a (A)-(B)-(C) with (A): 1.1100, (B): 1.8310 (26 Oct 2000), then followed by another impulsive wave (C) with wave III ended at 0.9630 (Mar 2008). Under this count, correction in wave IV has possibly ended at 1.1730 and wave V already broke below support at 0.9630 and met indicated downside target at 0.7500 and 0.7400. The reversal from 0.7068 suggests the wave V has possibly ended and the breach of resistance at 0.9595 add credence to this view and indicated upside target at 1.0000 had been met, however, the sharp retreat from 1.0296 to 0.7401 suggests choppy trading would be seen but price should stay above said record low at 0.7068.

The Aussie remains constructive on Friday and extends recovery rally from 0.7490 low, following Thursday's close above initial barrier at 0.7521 (100SMA) that generated bullish signal. However, bulls were so far capped by daily Tenkan-sen line (0.7540) which was cracked on yesterday's spike to 0.7545, but without sustained break. Bullishly aligned hourly studies are supportive but mixed setup of 4-hr indicators and overall bearish structure on daily chart suggest limited recovery before fresh push lower. Extended upticks should remain capped under 200SMA (0.7548) to keep bears intact. Otherwise, further retracement of 0.7608/0.7489 downleg could be expected. Sustained break above 200SMA would open 0.7565 (Fibo 61.8%, reinforced by falling 20SMA) and confirm reversal on break higher.

Res: 0.7540, 0.7550, 0.7565, 0.7580
Sup: 0.7521, 0.7513, 0.7490, 0.7471

Key points

• Elections in Europe come against the backdrop of the global business cycle looking to lose momentum.
• First round of French presidential elections too close to call.
• Relief rally expected if mainstream candidates go to second round.
• A run-off between Marine Le Pen and Jean-Luc Mélenchon cannot be precluded and could set off a major market correction.
• The UK election is likely to strengthen Theresa May's hand in the upcoming Brexit negotiations

This week is dominated by political headlines in Europe. The first round of the French presidential election is upon us on Sunday. It has been awaited (or feared) for months, or basically since last year's surprise Brexit outcome and Donald Trump's victory, which served as a reminder that populist movements are taking hold in western politics. Also, as if the political calendar was not crowded enough already, UK Prime Minister Theresa May has called a general election for 8 June. In the midst of this frantic European political calendar, economic data releases and central bank views are almost taking a backseat to political events. Hence, the title of our FX Forecast Update this week: Political risks are in charge. However, before turning to the likely outcome and market implications of these key political events, it is worth taking a look at our latest take on the global business cycle.

Our global business cycle model points to weakening growth momentum ahead

Our leading macroeconomic model MacroScope this week pointed to further weakening momentum in the global business cycle in the period ahead. The model paints a picture of the underlying macro environment on a three- to six-months horizon. While the underlying macro environment is getting more bullish, the market has already rallied and is in neutral to slightly overbought territory now. This points to a rising risk that we are moving into a scenario that tends to entail more frequent corrections in risk markets. In other words, the sensitivity to external shocks such as perceived adverse political events will increase

Stakes are high and outcomes unpredictable ahead of first round of the French presidential election

Although Macron seems set to be the likely winner of the French presidential elections, none of the leading four candidates can be written off at this time. The race between the four leading candidates Marine Le Pen, Emmanuel Macron, François Fillon and Jean-Luc Mélenchon has narrowed over the past month and the outcome is likely to be tight (see French Election Monitor No. 3: Markets hold their breath as first election round draws near, 21 April). Also, the terror event in Paris last night may swing some voters towards Le Pen. Recent weeks have seen a surge in the polls of the far left-wing candidate after a strong performance in the TV debates. Although a run-off on 7 May between Le Pen and Macron still seems to be the most likely outcome according to the polls, the other two major candidates cannot be written off, especially as almost a quarter of the voters are still undecided and the turnout is expected to be low due to widespread dissatisfaction with the established political class. Also, as we know from last year's elections, some caution should be taken with regard to polls.

The different election outcomes could have widespread implications for France and the EU more generally. Both Mélenchon and Le Pen share a similar EU-sceptic and antiglobalisation stance. Mélenchon wishes to renegotiate EU treaties and hold a subsequent EU referendum on the result as well as ending the independence of the ECB. Both candidates support expansionary fiscal policies with little regard to the EU deficit rules. They also liken a ‘France-first' to public procurement and investment policies. On the other hand, a victory by Fillon and to some extent Macron would be likely to be followed by a reform drive in the French economy and the EU more generally.

We have divided the range of possible outcomes into three scenarios: a ‘low-risk' scenario entailing no EU-sceptic candidates making it to the second round; a ‘mediumterm' risk scenario where an EU-sceptic candidate makes it to the second round but an established candidate looks likely to be the winner; and a ‘high-risk' scenario, where Le Pen and Mélenchon face each other in the second round or if one of them receives much stronger than expected support in the first round (30-49% of the votes), increasing the chances that they will beat either Macron or Fillon in the second round.

What is the initial market reaction following the first round likely to be? In the ‘lowrisk' scenario, we will probably see a relief rally, sending equities and the EUR up, while fixed income markets would be likely to see some sell-off. In the ‘medium-risk' scenario, we expect the market reaction to be fairly modest, as markets are most likely positioned for this already. However, in the high-risk scenario, we may easily see a sharp equity market sell-off given possible ramifications for the French economy and the EU as well as the euro. We think there will be a sell-off in French government bonds. We see the EUR/USD falling to the lower part of the current range of 1.04-1.10 in this scenario.

UK election likely to strengthen Theresa May's hand in the upcoming Brexit negotiations

The surprise of the week was the decision by UK Prime Minister Theresa May to call snap elections scheduled for 8 June. This move is no doubt an attempt to strengthen her powers both within and outside the conservative party, as the polls point to a solid victory for the Conservative Party. Such a victory, increasing the party's majority in parliament beyond the current 330 seats (32 seats required for majority), would make her less vulnerable during the upcoming Brexit negotiations to the threat from fractions within the Conservative Party that either want a tougher line in the Brexit negotiations (e.g. UKIP) or seeking to soften terms or even to reverse the Brexit decision. Such a scenario is by no means guaranteed, as the Conservative Party may fail to clinch as strong a victory as expected (leaving a status quo situation) or we could even see Labour, the Liberal Democrats and possibly the SNP forming some sort of a coalition that would allow them to reverse the Brexit decision. The market is clearly positioning for a weakening of the Brexit terms as the GBP has strengthened on the back of the news. Short term, the general election means there is one more uncertainty factor for the GBP, as the sample space for UK-EU relations has suddenly widened again, with a chance now that Brexit may be softened (or cancelled altogether should the May government be ousted). However, our base case remains that May will stay in power and negotiate a ‘decent Brexit' (neither too hard nor too soft). This would mean a level shift higher for EUR/GBP post the June election. However, the probability of other outcomes has clearly risen

EUR/JPY - 117.77

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

Original strategy:

Sell at 118.40, Target: 116.40, Stop: 119.00

O.C.O.

Buy at 115.80, Target: 117.80, Stop: 115.20

Position: -
Target: -
Stop: -

New strategy :

Sell at 118.40, Target: 116.40, Stop: 119.00

O.C.O.

Buy at 115.80, Target: 117.80, Stop: 115.20

Position: -
Target:  -
Stop:-

As the single currency has finally retreated after rising to 117.82 yesterday, suggesting consolidation below this level would be seen and pullback to 116.00-10 cannot be ruled out, however, if our view that a temporary low formed at 114.85 is correct, downside should be limited to 115.70-75 and bring another rebound later, above said resistance would extend the rebound from 114.85 to 118.00-10 but reckon upside would be limited to 118.40-50 and bring retreat later.

In view of this, whilst we are looking to turn long on dips, we would also sell euro on subsequent rebound towards 118.40-50. Only below said support at 114.85 would signal recent entire fall from 124.10 top is still in progress and downside risk remains for further weakness to 114.40-50, then towards 114.00-10, however, near term oversold condition should prevent sharp fall below latter level and risk from there is seen for a much-needed rebound to take place later.

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).

AUD/USD – 0.7522

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term down

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

Although aussie fell quite sharply this week and dropped to as low as 0.7491, the subsequent recovery from there suggests consolidation would be seen, above 0.7550 would bring another bounce to 0.7570-75 but price should falter well  below resistance at 0.7611, bring another decline later.

Below said support at 0.7491 would bring test of indicated previous support at 0.7473, however, break there is needed to retain bearishness and extend the fall from 0.7750 top to 0.7450-55 (50% Fibonacci retracement of 0.7158-0.7750) but oversold condition should limit downside to 0.7380-85 (61.8% Fibonacci retracement), risk from there is seen for a rebound later. As near term outlook is mixed, would be prudent to stand aside in the meantime.

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

EUR/USD is showing little movement in the Friday session. Currently, the pair is trading just above the 1.07 line. On the release front, Eurozone and German Manufacturing PMIs both beat their estimates, and the Eurozone current account surplus was much higher than expected. In the US, today's key event is Existing Home Sales, which is expected to climb to 5.61 million. On Saturday, US Treasury Secretary Robert Mnuchin will speak at the International Monetary Fund meeting in Washington. On Sunday, France goes to the polls for the first round of the presidential election.

Sunday is Election Day across France, which holds the first round of the presidential election. The election campaign has been divisive and charged, so perhaps it's fitting that the four front-runners (in a crowded field of 11) are all within a few percentage points of one another. Given the tightness of the race, final opinion polls have become market-movers. An opinion poll on Thursday showed centrist Emmanuel Macron with 25% of the vote, just ahead of far-right candidate Marie Le Pen with 22%. Le Pen's platform includes sharp curbs on immigration and a referendum on France's membership in the European Union. If Le Pen does better than predicted, investor sentiment could sour and send the euro sharply lower. A shooting in Paris on Thursday which killed a policeman and a tourist have stretched taught nerves even further, as security and the terrorism threat remain one of the key issues in the campaign. The markets are expecting more volatility ahead of and following the election, and French banks will be staffed throughout Sunday night in order to respond quickly to developments in the currency markets after the election results.

OANDA's Senior Currency Analyst Alfonso Esparza provides further analysis of the election in French Presidential Election Outcome Raising Market Anxiety.

PMI reports for March from the eurozone, France and Germany all pointed to expansion in the services and manufacturing sectors, underscoring an improving eurozone economy. Manufacturing data was particularly encouraging, as Eurozone and German Manufacturing PMIs came in at 56.8 and 56.2 respectively, as both readings beat their estimates. The strong PMI numbers have helped support the euro on Friday, as cautious investors keep a close eye on Sunday's vote in France. There was more positive news as the eurozone's current account surplus jumped to EUR 37.9 billion, well above the estimate of EUR 26.3 billion.

The Federal Reserve has broadly hinted that it will gradually raise rates in 2017, but it's unclear how many times Janet Yellen will press the rate trigger. Most analysts are expecting two more moves this year, but there have been calls from some Fed policymakers for three more hikes. However, soft retail sales and CPI numbers in March are likely to make the Fed more dovish, and on Tuesday, the Atlanta and New York Federal Reserve lowered their outlook for US economic growth for the first quarter. The Fed can point to a labor market that is close to capacity as well as strong consumer confidence, but surprisingly, this has not translated into stronger consumer spending, a key driver of economic growth. Will the Fed raise rates in June? The odds of a June move are showing a surprising amount of volatility, and the latest CME Group reading shows the likelihood a 1/4 point hike have jumped to 58%, up from 45% earlier this week.