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Global Markets:

• Asian stock markets: Nikkei down 0.15 %, Shanghai Composite and ASX 200 gained 0.15 %, Hang Seng rose 0.10 %
• Commodities: Gold at $1260 (-0.20 %), Silver at $17.26 (-0.95 %), WTI Oil at $49.35 (-0.60 %), Brent Oil at $51.95 (-0.55 %)
• Rates: US 10 year yield at 2.22, UK 10 year yield at 0.99, German 10 year yield at 0.29

News & Data

• China Manufacturing PMI 51.2 vs 51.0 expected
• China Non-Manufacturing PMI 54.5 vs 54.0 previous
• Japan Industrial Production 4.0 % vs 4.3 % expected
• South Korea Retail Sales m/m 0.7 % vs -0.1 % previous
• South Korea Industrial Production m/m -2.2 % vs 0.8 expected
• South Korea Industrial Production y/y 1.7 % vs 5.0 % expected
• New Zealand ANZ Business Confidence 14.9 vs 11.0 previous
• Australia Private Sector Credit m/m 0.4 % vs 0.4 % expected
• Asia stocks rise as China factories see steady growth, sterling soft – RTRS
• China factory PMI growth holds up in May, steel sector activity speeds up – RTRS
• Oil falls as rising Libyan, U.S. output undermines cuts – RTRS

Markets Update:

The British Pound came under further pressure after polls showed that UK Prime Minister May's lead is decreasing. GBP/USD was clearly rejected at 1.2880 resistance, and while 1.2775 support held, further losses seem likely in the near-term. The uncertainty around the UK election surprised the markets a bit, which were expecting that May's lead will continue to hold.

The Euro recovered slightly, but is struggling to gain momentum. Resistance is seen at 1.12 and 1.1230, while key support lies at 1.11. A break sub-1.11 would suggest losses could extend to 1.10 soon.

Traders are now looking forward to the Euro Zone inflation figures, which will be released this morning at 10:00 BST. There have speculations that the ECB might signal a shift in their monetary policy soon amid improving economic conditions. A higher than expected inflation print could further fuel that and boost the Euro.

USD/JPY bounced amid broad USD strength and a solid performance of global equity markets. However, the pair will need a clear break above 112 to gather some momentum.

Upcoming Events:

• 07:00 BST – German Retail Sales
• 07:45 BST – French CPI
• 08:55 BST – German Unemployment Rate
• 10:00 BST – Euro Zone CPI
• 10:00 BST – Euro Zone Unemployment Rate
• 13:30 BST – Canadian GDP
• 14:45 BST – US Chicago PMI
• 15:00 BST – US Pending Home Sales

For the 24 hours to 23:00 GMT, the AUD rose 0.27% against the USD and closed at 0.7458.

LME Copper prices declined 1.1% or $63.0/MT to $5608.0/MT. Aluminium prices declined 0.3% or $6.5/MT to $1943.5/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7449, with the AUD trading 0.12% lower against the USD from yesterday's close.

Early morning data indicated that Australia's private sector credit climbed 0.4% on a monthly basis in April, at par with market expectations. The private sector credit had registered a revised similar rise in the prior month.

Elsewhere, in China, Australia's largest trading partner, the NBS manufacturing PMI remained unchanged at a level of 51.2 in May, compared to market expectations for a drop to a level of 51.0. Moreover, the nation's NBS non-manufacturing PMI advanced to a level of 54.5 in May, after recording a level of 54.0 in the previous month.

The pair is expected to find support at 0.7420, and a fall through could take it to the next support level of 0.7391. The pair is expected to find its first resistance at 0.7477, and a rise through could take it to the next resistance level of 0.7505.

Going ahead, traders would keep a close watch on Australia's retail sales data for April, set to be released tomorrow.

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

For the 24 hours to 23:00 GMT, the EUR rose 0.33% against the USD and closed at 1.1173.

On the data front, Germany's preliminary consumer price index (CPI) climbed less-than-expected by 1.5% on an annual basis in May, rising at its slowest pace in six months, thus supporting the European Central Bank's (ECB) notion that underlying inflation in the common currency region still lacks sustainable uptrend. Meanwhile, markets expected the CPI to advance 1.6%, following a gain of 2.0% in the previous month.

Separately, the Euro-zone's final consumer confidence index rose to a level of -3.3 in May, meeting flash estimates and compared to a revised reading of -3.6 in the previous month.

Macroeconomic data indicated that personal spending in the US grew at its quickest pace in four months, after it rose 0.4% on a monthly basis in April, meeting market expectations, thus underscoring expectations that the world's largest economy is poised to rebound after a lacklustre growth in the first quarter. In the prior month, personal spending had registered a revised rise of 0.3%. Further, the nation's personal income recorded a rise of 0.4% MoM in April, in line with market expectations. Personal income had registered a rise of 0.2% in the previous month.

In other economic news, the US CB consumer confidence index unexpectedly fell to a three-month low level of 117.9 in May, defying investor consensus for an advance to a level of 119.5. In the prior month, the index had recorded a revised reading of 119.4. Also, the nation's Dallas Fed manufacturing business index surprisingly rose to a level of 17.2 in May, compared to a level of 16.8 in the previous month, while markets anticipated the index to ease to a level of 15.0.

Meanwhile, the Federal Reserve (Fed) Governor, Lael Brainard, stated that an interest rate hike is likely coming soon, but warned that if the recent slowdown persists, it could cause the Fed officials to reassess the path of monetary policy trajectory.

In the Asian session, at GMT0300, the pair is trading at 1.1175, with the EUR trading slightly higher against the USD from yesterday's close.

The pair is expected to find support at 1.1122, and a fall through could take it to the next support level of 1.1068. The pair is expected to find its first resistance at 1.1217, and a rise through could take it to the next resistance level of 1.1258.

Looking ahead, market participants will focus on the Euro-zone's unemployment rate and inflation data, both for May along with Germany's jobs report for May and retail sales data for April, slated to release in a few hours. Additionally, the US Fed Beige Book report and pending home sales data for April, will keep investors on their toes.

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

For the 24 hours to 23:00 GMT, the GBP declined 0.1% against the USD and closed at 1.2807.

In the Asian session, at GMT0300, the pair is trading at 1.2829, with the GBP trading 0.17% higher against the USD from yesterday's close.

Overnight data revealed that UK's GfK consumer confidence index unexpectedly improved to a level of -5.0 in May, notching its highest level in four months and confounding market expectations for a drop to a level of -8.0. In the previous month, the index had registered a reading of -7.0.

The pair is expected to find support at 1.2785, and a fall through could take it to the next support level of 1.274. The pair is expected to find its first resistance at 1.2881, and a rise through could take it to the next resistance level of 1.2932.

Ahead in the day, traders would keep a close watch on UK's net consumer credit and mortgage approvals data, both for April.

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

For the 24 hours to 23:00 GMT, the USD declined 0.38% against the JPY and closed at 110.84.

In the Asian session, at GMT0300, the pair is trading at 111.17, with the USD trading 0.3% higher against the JPY from yesterday's close.

Overnight data indicated that Japan's preliminary industrial production rebounded 4.0% on a monthly basis in April, surging to its highest level since June 2011. Markets were expecting industrial production to climb 4.2%, after recording a fall of 1.9% in the prior month.

The pair is expected to find support at 110.81, and a fall through could take it to the next support level of 110.46. The pair is expected to find its first resistance at 111.38, and a rise through could take it to the next resistance level of 111.60.

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

For the 24 hours to 23:00 GMT, the USD declined 0.31% against the CHF and closed at 0.9758.

On the macro front, Switzerland's KOF leading indicator fell more-than-anticipated to a level of 101.6 in May, compared to market expectations for a fall to a level of 105.8. In the prior month, the leading indicator had recorded a revised reading of 106.3.

In the Asian session, at GMT0300, the pair is trading at 0.9756, with the USD trading marginally lower against the CHF from yesterday's close.

The pair is expected to find support at 0.9726, and a fall through could take it to the next support level of 0.9696. The pair is expected to find its first resistance at 0.9797, and a rise through could take it to the next resistance level of 0.9838.

Looking ahead, market participants await the release of Switzerland's UBS consumption indicator for April, slated in a few hours.

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

For the 24 hours to 23:00 GMT, the USD slightly declined against the CAD and closed at 1.3469.

On the macro front, Canada's current account deficit widened more-than-expected to a level of C$14.1 billion in 1Q 2017, from a revised deficit of C$11.8 billion in the previous quarter. Markets were anticipating the country's deficit to rise to a level of C$12.0 billion.

In the Asian session, at GMT0300, the pair is trading at 1.3461, with the USD trading 0.06% lower against the CAD from yesterday's close.

The pair is expected to find support at 1.3439, and a fall through could take it to the next support level of 1.3416. The pair is expected to find its first resistance at 1.3495, and a rise through could take it to the next resistance level of 1.3528.

This afternoon will bring a crucial Canadian release, namely gross domestic product (GDP) for March and first quarter.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

Daily Pivots: (S1) 0.8667; (P) 0.8686; (R1) 0.8717; More...

EUR/GBP recovers after dipping to 0.8654 but it's staying below 0.8750. Intraday bias remains neutral first and some more consolidations could be seen. But near term outlook will remain mildly bullish as long as 0.8602 support holds and further rally is expected. Above 0.8750 will target 0.8786 resistance first. Break of 0.8786 would pave the wave for retesting 0.9304 high. Break of 0.8602, however, will argue that the rebound from 0.9312 has completed and turn bias back to the downside for 0.8529 first.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. The leg from 0.9304 should have completed after taking 0.8332 structural support. But it's too early to say that larger rise from 0.6935 is resuming. Rejection from 0.9304 will extend the consolidation with another falling leg. Meanwhile, firm break of 0.9304 will target 0.9799 (2008 high). In case of another decline, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside and bring rebound.

Sterling weakens mildly as a new poll indicates that Prime Minister Theresa May's Conservative could fall short of an overall majority in the upcoming election on June 8. According to a new modelling by YouGov for the Times, it predicts that the Conservative would get 310 seat in the parliament, down from the prior 330 seat. On the other hand, Labour would get 257 seats, up from prior 229 seat. As the required majority is 326 seats, it now means that a hung parliament is a realistic possibility.

Technically, the British Pound is staying generally bearish. GBP/USD's near term trend is likely reversed after hitting 1.3047 earlier in the month. And deeper fall is expected to test on 1.2614 support as long as 1.2926 minor resistance holds. Near term outlook in EUR/GBP also stays bullish with 0.8602 support intact. Upside momentum in EUR/GBP could accelerate on firm break of 0.8786/8851 resistance zone. More decline is in favor in GBP/JPY with 143.35 minor resistance intact, but we'd be cautious on support from 140.35 fibonacci level.

Dollar rebound lacks momentum

In US, Fed Governor Lael Brainard suggested that she expected a further Fed rate hike soon, but cautioned that "if the soft inflation data persist, that would be concerning and, ultimately, could lead me to reassess the appropriate path of policy". Separately, Dallas Fed President Robert Kaplan indicated at an interview that CNBC that the economy would expand by about 2%. According to Kaplan, "two things drive GDP: growth in the labor force and growth in productivity... The problem is labor force growth is very sluggish... It's going to continue to be sluggish the next 10 years because the population is aging and labor force growth therefore is slowing".

Dollar index's recovery from 96.97 is clearly corrective looking. It's so far struggling to stay above 4 hour 55 EMA. It's also limited well below 38.2% retracement of 99.88 to 96.75 at 97.97. Hence, we'd expect recent decline to resume sooner or later. The near term bearishness in dollar index is in line with the cautiously bullish outlook in EUR/USD and the bearish outlook in USD/JPY.

China PMIs show stabilizing in the slowdown

In China, the National Bureau of Statistics PMI manufacturing, the official one, was unchanged at 51.2 in May. While that stayed at the lowest level in six months, it was above expectation of 51.0. Looking at the details, new orders was unchanged at 52.3, export orders rose 0.1 to 50.7. Production dropped to 53.4, down from 53.8. Employment rose to 49.4 from 49.2. Input price dropped to 49.5 from 51.8. Output prices dropped to 47.6 from 48.7. The official PMI services rose to 54.5, up from 54.0. Overall, the set of data at least showed no further deterioration in growth momentum. Nonetheless, the picture will still be closely monitored by economists in the coming months. The impact from Moody's downgrade of China's credit ratings for the first time in nearly 30 years is yet to be seen.

New Zealand businesses upbeat

New Zealand ANZ business confidence rose to 14.9 in May, up from 11.0. ANZ noted that "the economy's excellent adventure continues". And, "firms are upbeat, and prepared to hire and invest. That's an economic expansion that is still going full steam. Survey indicators are elevated but not stratospheric, consistent with the economy evolving into a mature stage of the expansion; we're growing nicely off a good base, as opposed to lifting rapidly off a low level."

Eurozone CPI to highlight the day

Elsewhere, Japan industrial production rose 4.0% mom in April. UK Gfk consumer confidence rose to -5 in May, BRC shop price dropped -0.4% yoy. Eurozone inflation will be a main focus in European session. Headline Eurozone CPI is expected to slow to 1.5% yoy in May while core CPI is expected to slow to 1.0% Yoy. Germany will release retail sales and unemployment. Swiss will release UBS consumption indicator. UK will release mortgage approvals and M4. Later in US session, Canada will release GDP. US will release Chicago PMI, pending home sales and Fed's Beige Book report.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8667; (P) 0.8686; (R1) 0.8717; More...

EUR/GBP recovers after dipping to 0.8654 but it's staying below 0.8750. Intraday bias remains neutral first and some more consolidations could be seen. But near term outlook will remain mildly bullish as long as 0.8602 support holds and further rally is expected. Above 0.8750 will target 0.8786 resistance first. Break of 0.8786 would pave the wave for retesting 0.9304 high. Break of 0.8602, however, will argue that the rebound from 0.9312 has completed and turn bias back to the downside for 0.8529 first.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. The leg from 0.9304 should have completed after taking 0.8332 structural support. But it's too early to say that larger rise from 0.6935 is resuming. Rejection from 0.9304 will extend the consolidation with another falling leg. Meanwhile, firm break of 0.9304 will target 0.9799 (2008 high). In case of another decline, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside and bring rebound.

Economic Indicators Update

Overnight data fails to spark oil as Gold is starting to possibly look overextended in the short term.

Gold

Gold's listless trading continued overnight with a more bearish tone in early Asia trading to start the day following its overnight failure to close above 1270 for the third day in a row. Holiday markets aside, the extended short term long positioning and a lack of upside momentum may be signalling that a correction lower may be on the cards. At least in the near term.

Gold traded up to 1270.50 overnight but then fell to finish 1262.80, down some -0.5 percent. Gold is presently 1261.40 in early Asia, just above rising trend line support at 1260 with a break targeting 1253 followed by the key 1245 region.

Resistance continues to be in the 1270/1272 area, which has contained gold for all of May. We will need to see a daily close above this level to signal more gold strength in the short term.

Silver

Silver looks a little ominous as well, failing at the 100-day moving average and yesterday's high at 17.4750. The 200-day moving average is just above here as well at 17.6000, meaning silver has some wood to chop at those levels.

In the bigger picture, the technicals show silver continuing to trade constructively but a break of near term support at 17.2000, yesterday's low, may have a few traders questioning this view. A break of the next support at 16.9000 could see more short-term long positioning retreating to the sidelines.

OIL

Oil prices weakened slightly overnight but overall, both contracts appear to be in a consolidation range. A lack of news and a listless dollar contributed to the becalmed nature of Brent and WTI with the street now looking ahead to tomorrow night's U.S. Crude Inventory Report. With an expected drawdown of minus 3 million barrels, the main risk will be a lower than expected drop which would see crude prices come under pressure again.

Brent spot opened at 52.00 this morning, unchanged from its New York close. Initial resistance is at 52.70 and 53.00 with support at 51.30 and 50.70.

WTI spot is also unchanged at 49.40 in early trading. Resistance is at 50.00 where it failed on Monday followed by 50.60 its 100-day moving average. Support is at 48.75 followed by the more important 48.85 region.