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'It was supposed to be a year of risk that could lead to a break up of the euro. It's turning out to be the best year in a decade for the shared currency.' – Stefania Spezzati, Bloomberg

Pair's Outlook

During the early hours of Friday's trading session the common European currency traded against the US Dollar just above the strong support cluster near the 1.1190 level. It is almost exactly where this week's trading session began. Due to that factor the situation remains almost unchanged. From the downside the rate is supported by the combined support of the 61.80% Fibonacci retracement level and the monthly R2 at the already mentioned level. From the upside the pair faces the resistance of the upper Bollinger band at 1.1310 and the weekly R1 at 1.1306. The only difference, compared with Monday, is the fact that the Bollinger band has moved higher.

Traders' Sentiment

Traders remain bearish on the pair, as 61% of open positions are short. Meanwhile, 53% of trader set up orders are to sell the Euro.

'I think the pressure is on here. We could see a significant move lower (in sterling) provided these uncertainties [the upcoming elections in the UK] in the polls persist.' – Stephen Innes, OANDA (based on Reuters)

Pair's Outlook

Yesterday, once again the Cable remained relatively unchanged, experiencing a small decline, which caused the consolidation trend to be preserved for another day. Risks are still skewed to the downside, but with the GBP/USD pair having a strong support at 1.2850, formed by the lower Bollinger band, the consolidation trend's lower boundary and the broadening rising wedge's support line. Losses are unlikely to exceed this area, although volatility lower is quite possible. Meanwhile, technical studies are unable to confirm either scenario, as they retain mixed signals.

Traders' Sentiment

Market sentiment remains relatively neutral, as 52% of all open positions are short and the remaining 48% are short. At the same time, the share of buy orders inched slightly up, namely from 52 to 53%.

'The rise in Treasury yields is supporting the dollar. It appears that speculative buying of Treasuries has run its course, with Trump concerns and geopolitical risks no longer fresh news.' – Daiwa Securities (based on Reuters)

Pair's Outlook

The Greenback successfully outperformed the Japanese Yen on Thursday, causing another setback in the anticipated decline towards 111.00. Treasury yields keep weighing on the Buck, thus, a negative outcome is most likely today, despite technical indicators being unable to confirm this possibility. The weekly PP and the 55-day SMA now form immediate support, but are likely to fail at holding the losses. The main target at the moment is the 111.00 handle, but a drop that low is yet uncertain, as fundamental data could have a bullish effect on the USD/JPY pair today, in which case intraday losses have a solid chance of completely being erased.

Traders' Sentiment

Traders remain bearish towards the US Dollar, with 58% of all open positions being short. Purchase orders take up 52% of the market.

'China's net gold imports via main conduit Hong Kong dropped 33.5 percent in April from the previous month.' – Vijaykumar Vedala, Reuters

Pair's Outlook

On Friday morning the yellow metal's price remained below the 1,260 mark, as it failed to reach for the levels near the 1,270 level. However, during Thursday's and Friday's trading the commodity price did not need to retreat for support of the cluster near the 1,250 mark. Which means that a bullish momentum persists in the bullion. Moreover, the 55-day SMA seems to be moving away from the mentioned support cluster to provide support higher. These small factors combined allow to keep in force the forecast of the yellow metal reaching the 1,270 mark in the near future.

Traders' Sentiment

SWFX market sentiment remains unchanged, as 51% of open positions are short. However, 71% of pending commands are to buy the bullion.

GBP/JPY - 143.00

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

Trend: Near term up

New strategy :

Sell at 143.65, Target: 141.65, Stop: 144.25

Position: -
Target:  -
Stop:-

Sterling met renewed selling interest at 145.45 and has tumbled from there, price just broke below previous support at 143.40, confirming the selloff from 148.10 top has resumed, hence bearishness is seen for this move to extend further weakness to 142.10-15, however, break there is needed to retain bearishness and bring subsequent fall to 141.50-60 which is likely to hold on first testing due to near term oversold condition.

In view of this, we are looking to sell euro on recovery as 143.60-70 should limit upside and bring another decline later. Above 144.00 would risk a stronger rebound to 144.50 but upside would still be limited to 145.00 and price should falter well below said resistance at 145.45, bring another decline later.

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


On Thursday, OPEC announced that the existing output cut agreement will be extended for an additional 9 months, which was in line with market expectations.

However, the scale of output cut remains the same at 1.8 million barrels a day. Besides, no new OPEC member states will join the agreement extension. In addition, the market witnessed some profit-taking pressure which weighed on oil prices resulting in a drop of 5%.

On early Friday morning, WTI spot and Brent crude spot hit a 2-week low of 48.31 and 51.17 respectively. The drop was followed by a rebound this morning.

The next meeting of OPEC and non-OPEC oil producers is schedule 30 November.

OPEC member states, Iran, Libya, and Nigeria are still exempted from the output cut agreement and have been increasing their production. Some non-OPEC oil producers, such as Russia and Kazakhstan have also attempted to boost their production.

The US shale oil industry has seen a marked recovery since February last year due to the rebound in oil prices. The US Baker Hughes data (that records the number of new Oil Rigs) is showing additional Rigs added every week.

In general, the oil supply remains high which has, and will, offset OPEC's output cut effort to an extent. In the long term, oil prices are still under pressure.

On early Friday morning, we have seen USD weakening with the dollar index currently testing the support line at 97.00.

US durable goods, core durable goods (Apr) and Q1 GDP second reading will be released at 13:30 BST this afternoon. The first Q1 GDP reading indicated a mere 0.7% growth, which was the slowest growth in three years. If we see a higher second reading, it will likely provide USD support.

JPY stronger as investors switch to risk-off mode

The Japanese yen gained momentum on the last trading day of the week as it rose 0.85% and 0.63% against the pound and the Aussie respectively. USD/JPY fell as much as 0.53%, down to 111.25, as investors switched to risk-off mode ahead of the weekend. Gold inched higher and rose $5.5 to 1,262.30 during the Asian session, while the Swiss franc rose 0.15% against the greenback.

During the early morning session, the Ministry of Internal Affairs published the inflation figures for the month of April. There was no big surprise. Inflation accelerated in the last month with the headline measure rising 0.4% y/y, matching forecast, up from 0.2% a month earlier. The BoJ favourite measure of core inflation climbed to a 2-year high of 0.3% y/y versus 0.2% in March and 0.4% median forecast. The measure that excludes fresh food and energy costs printed at 0.0%, highlighting the fact that the pickup in inflation was mostly driven by higher food and energy prices. With crude oil prices back in the doldrums, it is very unlikely that we will see further momentum in headline inflation. We still wonder how the BoJ will reach its 2% target before April. They will have to delay further as upside pressures in the core measure are inexistent.

USD/JPY is currently breaking the 111.25 support level (Fibonacci 50% on April’s rally). If broken, the closest support can be found at 110.51 (Fibo 61.8%). On the upside, a resistance lies at around 112.

United States: Markets expect data to be on the soft side

Markets will look towards the US today as a set of data is expected to be released with Q1 GDP likely showing decent growth. Markets estimate a GDP increase of 0.9%. But when looking deeper at the fundamentals, the economic recovery may not be as strong as it seems.

April's durable goods orders are also expected to take a hit at -1.5% from March when data had been revised higher at 1.7% m/m. Inventories have also declined in April and the trade deficit has widened. Exports of goods declined in April while imports grew. First quarter personal consumption data is also going to be released today and should show a continued increase but far from the Q4 level when it increased by 3.5%. EUR/USD is still trending higher and has broken 1.1200. Equity markets are still on the rise, the S&P 500 is trading at all-time highs. The bullish breakout needs to show some follow-through though. Despite the economic uncertainty, we believe there is now room for dollar strengthening.

In our view, investors’ sentiment is more correlated to the equity markets (and central banks underpinning stocks with free money) than the real economic fundamentals which are showing softness in the recovery.

US oil is in recovery mode in early Friday and returned above $49.00 handle after suffering heavy losses the day before. Oil price fell sharply on Thursday, losing 5% for the day after OPEC announced agreement for nine-month extension of production cut.

OPEC decision disappointed markets that were expecting stronger action, prompting traders out of long positions that triggered sharp sell-off.

Oil price registered the biggest one-day fall since 08 Mar on Thursday that turned near-term focus lower after daily close below a cluster of supports at $49.76/$49.44, formed by 10/200 and 55SMA’s, as well as $48.83 (Fibo 38.2% of $43.74/$51.98 rally).

Daily 20SMA at $48.47 was cracked on Friday’s extension to $48.24 low, but is still acting as valid support which may hold for corrective rally on strongly oversold 4-hr studies.

Near-term action is biased lower on fresh bearish sentiment and may extend losses towards $47.86 (daily Kijun-sen / 50% retracement) after correction which should be capped under psychological $50.00 barrier, reinforced by daily Tenkan-sen.

Res: 49.23, 49.67, 50.00, 50.55
Sup: 48.83, 48.24, 47.86, 47.35

EUR/JPY - 124.71




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.




As the single currency has surged again after finding renewed buying interest at 122.56 last week, suggesting recent upmove from 109.49 low is still in progress and bullishness remains for this move to extend further gain to resistance at 126.47 and possibly 127.50-60, however, reckon upside would be limited to 128.17 resistance and price should falter well below 129.00 (61.8% Fibonacci retracement of 141.06-109.49), risk from there has increased for another retreat to take place later.

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 downside, whilst initial pullback to 124.40-50 and possibly 124.00 cannot be ruled out, reckon downside would be limited to 123.00-10 and 121.60-65 (38.2% Fibonacci retracement of 114.85-125.82) should hold, bring another rise later. A daily close below 121.60-65 would defer and suggest top is formed instead, risk correction to 121.00 and possibly towards support at 120.60 but reckon 120.30-35 (50% Fibonacci retracement) would limit downside and psychological level at 120.00 should hold.


Recommendation: Buy at 121.60 for 124.50 with stop below 120.60.

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.

EUR/USD

Current level - 1.1212

The corrective pattern below 1.1270 peak is still underway, so I favor a break through 1.1170 to challenge 1.1080 area. Crucial resistance lies at 1.1300.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 111.30

The intraday bias is negative after the second failure at 112.00, for a slide towards 110.80, en route to 110.20.

GBP/USD

Current level - 1.2878

The intraday bias is bearish, for a break through 1.2830, towards 1.2705 zone. Initial resistance lies at 1.2930.