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EURUSD is making a nice move up to 1.0690/1.0700 area where upside can be limited as we see pair in wave c now, final stages of a complex corrective price action. However a turn down should be seen back below 1.0650 to confirm bearish price moves ahead.

EURUSD, 1H

PM May wants to hold snap election on 8 June

Very surprisingly, PM Theresa May has announced she wants a snap election on 8 June, as the other political parties (and 'unelected members of the House of Lords') oppose the government's Brexit plan. Holding an election now exploits the fact that the serious part of the Brexit negotiations will not start until after the German election in September and it means that the new term will cover both the Brexit negotiations and probably also the transitional phase after April 2019+. Due to the fixed-term elections system, PM May needs a two-thirds majority of the Commons to call for a snap election, see also Wikipedia. Tomorrow PM May will move a motion in the House of Commons calling for a general election. We think it is likely that most parties will support the motion. In her statement, PM Theresa May repeated that Brexit is going to happen and 'there can be no turning back'.

Based on the most recent opinion poll, the Conservative lead is +21pp over Labour, see chart below. Due to the UK's 'first past the post' system, this means that the Conservatives will likely increase their majority lead in the Commons. If the opinion polls are right, this means that PM Theresa May will be less vulnerable in the Brexit negotiations, as the result would consolidate her power within the Conservative party (both against 'hard Brexiters' and 'Bremainers'). That said, one should be cautious relying too heavily on the opinion polls, as they have been quiet, which may also change through the election campaign.

EUR/GBP traded lower on the election announcement and given that very short non-commercial GBP positioning, EUR/GBP could decline further in the very near term driven by short covering caused by higher uncertainty. As such, a new test, and potentially a break of the post Brexit lows around 0.83 should not be ruled out. Short-term, the general election means there is one more uncertainty factor for GBP, as the sample space for UK-EU relations have suddenly widened again with notably a chance now that Brexit may be softened (or cancelled altogether should the May government be ousted). Given May's lead in the polls the most likely outcome is that she will receive the more broad-based backing she is seeking heading into the negotiations on Brexit, due to start for real post the German election in the autumn. Our base case remains that May will stay in power and negotiate a 'decent Brexit' (neither too hard nor too soft), but the probability of other outcomes has clearly risen with today's election call. Hence, in our main scenario that May resumes negotiations EUR/GBP should be in for a level shift higher post a June election.

After two solid months of homebuilding activity (supported by unseasonably warm weather to start the year), housing starts lost momentum in March. Starts fell to 1215k units from an upwardly revised 1303k in February, disappointing market expectations that had predicted a 1250k stamp for the month.

Both single-family and multifamily building retrenched in March from upwardly revised February readings. The single-family building segment contracted by 54k units to 821k while the volatile multifamily segment fell by 34k units to 394k. Weak permitting activity for multifamily units in February predicated a decline in the sector, but the weakness in single-family starts is more likely a consequence of colder weather as permits advanced in February.

Building permits surprised to the upside, up 44k to 1260k but the increase was a result of the volatile multifamily segment that posted a 53k gain to total 437k for the month. The single-family segment saw permits fall by 9k to tally up to 823k on the month.

The sole region to post an increase in activity was the Northeast (+15k), while homebuilding activity fell strongly in the West (-54k), coming off of a strong reading from the prior month. The South (-19k) and the Midwest (-30k) also posted subpar readings that likely reflect a return to cooler temperatures.

Key Implications

The upward revisions to February's housing starts make today's decline easier to stomach, especially following a strong start to the year amid warmer weather. The single-family segment of the market, which is a better indicator of economic activity, is still hovering around its cyclical high reached in the previous month. This strength is a consequence of healthy demand, supported by rising incomes as the labor market gains traction. The slight pullback in activity in today's report is likely to be recouped as the weather turns warmer, bolstered by persistently strong job gains.

Builders will continue to be enticed by strong home price growth, helped by low inventory levels. Despite a dip in the NAHB's Housing Market Index for April to 68, it remains within the range of pre-recession highs, indicating renewed interest in home building even as interest rates rise. This is also reflected in the rise in permits for the month that should lead to a healthier April reading.

Rising long-term interest rates will likely put a cap on housing demand, with the Fed on track to raise rates twice more this year. Still, rising income and job gains should provide an offset. Taken with the strong start to the year, today's report supports our view that the housing market will remain an important contributor to economic growth.

Highlights:

• Housing starts fell short of market expectations in March, dropping to 1,215k annualized units from February's upwardly revised 1,303k pace (was 1,288k).
• Single and multi-unit starts both recorded declines in March but were up for the quarter as a whole. Single unit starts were at a cycle high in Q1.
• Building permits rebounded to 1,260k in March but are still running slightly short of the pace of housing starts over the last six months, limiting near-term upside risk for starts.
• Residential investment is expected to have increased by an annualized 10% in Q1, roughly matching the previous quarter's 9.6% gain.

Our Take:

US housing activity continues to trend higher although as today's data show the pattern isn't always smooth. The unexpectedly large decline in March housing starts follows an upwardly revised February reading with some activity likely having been pulled forward into the first two months of this year when temperatures were unseasonably mild. For Q1 as a whole starts edged up to a fresh cycle high. Other housing data have also improved early this year - home resales are rising and multi-unit construction spending has increased strongly quarter-to-date - supporting our forecast for a 10% annualized increase in Q1 residential investment. That will provide key offset to a slowdown in consumer spending that is expected to limit GDP growth to 1.5% in the quarter. While consumers are expected to re-emerge as the main source of growth going forward, residential investment is forecast to continue to make a solid contribution to economic activity as many of the factors that support consumer spending (particularly strong labour market conditions and buoyant confidence) should also boost demand for housing. While some choppiness can be expected, we think housing starts will continue to move higher throughout 2017 to extend the upward trend that has been in place since 2011.

Daily Pivots: (S1) 135.94; (P) 136.45; (R1) 137.33; More...

GBP/JPY's strong break of 137.51 indicates short term bottoming at 135.58, ahead of 135.39 fibonacci level. The consolidation pattern from 148.82 could have completed today. Intraday bias is turned back to the upside for 140.08 resistance first. Break will affirm this case and target a test on 148.42 resistance next. For now, outlook will stays cautiously bullish as long as 135.58 support holds.

In the bigger picture, price actions from 122.36 medium term bottom are still seen as a corrective pattern. As long as 50% retracement of 122.36 to 148.42 at 135.39 holds, another rising leg would be seen to 38.2% retracement of 195.86 to 122.36 at 150.42 and possibly above. However, firm break of 135.39 will bring retest of 122.36, with prospect of resuming the larger down trend from 195.86.

EUR/GBP - 0.8393

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term down

Original strategy  :

Sell at 0.8590, Target: 0.8460, Stop: 0.8630

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.8485, Target: 0.8355, Stop: 0.8535

Position : -

Target :  -

Stop : -

 
The single currency has dropped again after intra-day brief bounce to 0.8512, adding credence to our bearish view that recent decline from 0.8788 is still in progress and bearishness remains for further weakness to 0.8350, then towards 0.8320-25, however, near term oversold condition should prevent sharp fall below 0.8300, risk from there has increased for a rebound to take place later.

In view of this, would not chase this fall here and would be prudent to sell euro on recovery as 0.8490-00 should limit upside. Above said resistance at 0.8512 would suggest low is formed instead, risk a stronger rebound to 0.8545-50 but resistance at 0.8580 should remain intact, bring another decline later.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.3360

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700

Trend:  Near term up

 
Original strategy       :

Sold at 1.3320, Target: 1.3120, Stop: 1.3380

Position: - Short at 1.3320

Target:  - 1.3120

Stop: - 1.3380

 
New strategy             :

Exit short entered at 1.3320,

Position: -

Target:  -

Stop:-

Although the greenback did retreat after meeting resistance at 1.3338, as renewed buying interest emerged at 1.3262 and the pair has staged a strong rebound today, dampening our bearishness and near term upside risk remains for the rebound from 1.3223 to extend further gain to 1.3400, then 1.3425-30, however, only break of resistance at 1.3456 would revive bullishness and signal the correction from 1.3535 has ended, bring further gain towards this level later.

In view of this, would not chase this rise here and would be prudent to stand aside in the meantime. Below 1.3310-15 would suggest an intra-day top is possibly formed, bring test of said support at 1.3262 but break there is needed to signal the rebound from 1.3223 has ended, bring retest of this level first. Looking ahead, a break of 1.3223 would signal the erratic fall from 1.3535 has resumed for weakness to 1.3180-85 (61.8% Fibonacci retracement of 1.2969-1.3535), then towards 1.3120-25. 

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

Daily Pivots: (S1) 0.8456; (P) 0.8473; (R1) 0.8486; More...

EUR/GBP's decline accelerates to as low as 0.8389 so far today. The break of 0.8402 should confirm completion of the consolidation pattern from 0.8303 at 0.8786. And, the correction from 0.9304 should have started the third leg. Intraday bias remains on the downside for 0.8303 support and below. At this point, we'd expect strong support from 0.8116/20 cluster support to complete the correction from 0.9304. But for now, break of 0.8511 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Such decline is likely ready to resume and should make a new low below 0.8303. At this point, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Rise from 0.6935 (2015 low) will resume at a later stage to 0.9799 (2008 high). However, sustained break of 0.8116 could bring deeper decline to next key support level at 0.7564 before the correction completes.

Daily Pivots: (S1) 1.0605; (P) 1.0638 (R1) 1.0674; More....

EUR/USD's rebound form 1.0569 resumed and broke 1.0668 resistance. The development dampened our immediate bearish view. Fall from 1.0905 is completed and intraday bias is back on the upside for 1.0905 resistance. Nonetheless, price actions from 1.0339 are still viewed as a correction and thus, we'll look for topping signal above 1.0905 to complete the correction. On the downside, break of 1.0569 will revive that case that such correction from 1.0339 is completed and turn bias to the downside for 1.0494 support.

In the bigger picture, as long as 1.1298 key resistance holds, whole down trend from 1.6039 (2008 high) is still expected to continue. Break of 1.0339 low will send EUR/USD through parity to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. However, considering bullish convergence condition in weekly MACD, break of 1.1298 will indicate term reversal. this would also be supported by sustained trading above 55 week EMA.

Daily Pivots: (S1) 1.0015; (P) 1.0035; (R1) 1.0060; More.....

Intraday bias in USD/CHF remains neutral for the moment. Near term outlook is unchanged. That is, corrective from 1.0342 has completed with three waves down to 0.9812. And, rise from 0.9548 is resuming. On the upside, break of 1.0107 will turn bias to the upside for 1.0169 resistance. Break there should confirm our bullish view and should target a test on 1.0342 key resistance next. However, below 0.9980 will dampen this bullish case and turn bias back to the downside for 0.9812 low.

In the bigger picture, we're still maintaining that firm break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the cross. However, the corrective nature of the fall from 1.0342 to 0.9812 is starting to give the medium term outlook a bullish favor. Hence, in stead of looking for topping signal around 1.0342, we'd now pay closer attention to upside acceleration as USD/CHF approaches this level again.