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Dow Jones stays under strong pressure on Thursday and extended sharp fall from the previous day to fresh nearly one month low at 20477. The index fell 1.62% on Wednesday, marking the biggest one-day loss since 09 Sep 2016, driven by political turmoil in the US after the story about US president Trump's advisors ties with Russian officials during the campaign broke out. Strong negative sentiment hit stock markets and US benchmarks registered heavy losses. Dow penetrated deeply into thick daily cloud that was acting as good support and retraced 76.4% of 20310/21007 rally at 20477. Near-term focus turned focus lower after yesterday's strong bearish acceleration broke below 20760/21007 consolidation range, formed after repeated failures at psychological 21000 barrier. Daily studies are turning into bearish setup, with today's close below 20576 (broken Fibo 61.8% of 20310/21007) needed to signal further downside, for test of 100SMA/daily cloud base supports at 20455/20437 and possible return to key support at 20310 (19 Apr low) in extension. Some corrective action could be expected as 4-hr studies are strongly oversold and from profit-taking, however, upside attempts were so far very limited, as overall negative sentiment continues to weigh.

Res: 20576; 20660; 20742; 20839

Sup: 20477; 20455; 20400; 20310

Daily Pivots: (S1) 1.1104; (P) 1.1133 (R1) 1.1187; More....

With 4 hour MACD crossed below signal line, a temporary top is formed at 1.1170 in EUR/USD. Intraday bias is turned neutral for consolidation. Downside of retreat should be contained by 1.1020 resistance turned support and bring another rise. Above 1.1170 will extend recent rally to 138.2% projection of 1.0339 to 1.0828 from 1.0569 at 1.1245, which is close to 1.1298 key resistance. For now, we'd be cautious on strong resistance between 1.1245/1298 to limit upside and bring reversal.

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. However, considering bullish convergence condition in weekly MACD, break of 1.1298 will indicate long term reversal. In such case, further rally would be seen back to 1.2042 support turned resistance next.

Daily Pivots: (S1) 0.9942; (P) 0.9980; (R1) 1.0003; More.....

Intraday bias in USD/CHF remains on the downside for the moment. Current fall from 1.0342 would extend to 100% projection of 1.0342 to 0.9860 from 1.0099 at 0.9617 on breaking of lower trend line support. On the upside, above 0.9849 minor resistance will turn bias neutral and bring consolidation before staging another decline.

In the bigger picture, USD/CHF is bounded in medium term range of 0.9443/1.0342 for the moment. Consolidative trading would likely continue and medium term outlook remains neutral. Break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the pair. Meanwhile, downside attempts should be contained by 0.9443 key support level.

Daily Pivots: (S1) 110.02; (P) 111.57; (R1) 112.37; More...

Intraday bias in USD/JPY remain son the downside for the moment. Firm break of 61.8% retracement of 108.12 to 114.36 at 110.50 will bring deeper fall to 108.12 low. In that case, the whole decline from 118.65 would likely extend through 108.12 to 61.8% retracement of 98.97 to 118.65 at 106.48. On the upside, above 111.41 minor resistance will turn intraday bias neutral first. We'll assess the structure of subsequent rebound to decide whether fall from 114.36 is completed in that case.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Daily Pivots: (S1) 1.2919; (P) 1.2955; (R1) 1.3004; More...

GBP/USD's soars to as high as 1.3047 so far today. Intraday bias remains on the upside as current rise would target 1.3444 key resistance. At this point, price actions from 1.1946 are still viewed as a corrective pattern. Hence, we'd expect upside to be limited below 1.3444 to complete the correction. Though, break of 1.2844 support is needed to indicate short term topping. Otherwise, further rise would be in favor in case of retreat.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term reversal yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Dollar is attempting a recovery today but stays weak against Japanese Yen. Risk aversion remains the main theme in the global financial markets with all major European indices trading in red at the time of writing. US futures also point to lower open. Upbeat economic data from US provide little support to the greenback as traders stay deeply concerned with US President Donald Trump's political turmoil. Initial jobless claims dropped 4k to 232k in the week ended May 13, better than expectation of 240k. That's also the lowest level in more than 28 years since 1973. Claims has now stayed below 300k handle for 115 straight week, longest stretch since 1970. Continuing claims dropped 22k to 1.9m in the week ended May, lowest since 1988. Continuing claims also stayed below 2m level for the fifth straight week. Philly Fed survey rose to 38.8 in May, beating expectation of 18.5.

Sterling jumps after retail sales

Sterling surges today after much better than expected sales data. Headline sales rose 2.3% mom in April, beating expectation of 1.10% mom. That's also a notable improve over March's figure of -1.4%. GBP/USD finally gathers momentum to resume recent rally and surges past 1.3 handle. Nonetheless the Pound is still trading down against Euro, Swiss Franc and Japanese Yen for the week. A key to outlook of Sterling remains on BoE expectations. It's now rather clear that the central bank would tolerate overshooting inflation before having a clear picture on the result of Brexit negotiation.

Also, there are criticism that BoE's forecasts of 1.9%, 1.7% and 1.8% growth in 2017, 2018 and 2019 are too optimistic. The projections were based on the assumption of a very smooth Brexit, which is seen as unlikely. According to a Reuters Poll, 50 out of 60 economists surveyed are less optimistic than BoE about growth prospect for this year. And for 2018, 47 out of 58 economists are less upbeat.

ECB: June a good time to start considering exit

As indicated in the accounts of April 27 ECB monetary policy meeting, officials have indicated that June would be a good timing to start considering exit from stimulus. The accounts noted that "it was felt that the Governing Council's communication should be adjusted in a very gradual and cautious manner as, the current juncture, monetary and financial conditions were particularly sensitive to changes in communication." And, "after a long period of very accommodative monetary conditions, even small and incremental changes in communication could have strong signalling effects when interpreted as heralding a change in the monetary policy stance."

Nonetheless, ECB governing council member Bostjan Jazbec warned that "none of us dares to declare the victory yet." He used an analogy that "you don't go skiing immediately after you took off the cast of your last skiing accident." Also, he mentioned the so called "taper tantrum" in US back in mid-2013 when the talk of Fed tapering triggered violent market reactions. And he noted that "any abrupt changes to our measures, which all work in combination, would not be welcomed by the European economy".

Elsewhere...

Japan GDP rose 0.5% qoq in Q1, above expectation of 0.4% qoq. GDP deflator dropped -0.8% yoy, below expectation of -0.7% yoy. Australia employment grew 37.4k in April, above expectation of 5.0k. Unemployment rate dropped to 5.7%, below expectation of 5.9%. Consumer inflation expectation rose 4.0% in May.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2919; (P) 1.2955; (R1) 1.3004; More...

GBP/USD's soars to as high as 1.3047 so far today. Intraday bias remains on the upside as current rise would target 1.3444 key resistance. At this point, price actions from 1.1946 are still viewed as a corrective pattern. Hence, we'd expect upside to be limited below 1.3444 to complete the correction. Though, break of 1.2844 support is needed to indicate short term topping. Otherwise, further rise would be in favor in case of retreat.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term reversal yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Economic Indicators Update

USD/CHF - 0.9793

Original strategy :

Sell at 0.9870, Target: 0.9770, Stop: 0.9905

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9870, Target: 0.9770, Stop: 0.9905

Position : -

Target :  -

Stop : -

As dollar has recovered after intra-day marginal fall to 0.9764, suggesting minor consolidation above this level would be seen and recovery to 0.9850 cannot be ruled out, however, reckon 0.9870 would limit upside and bring another decline later, below said support at 0.9774 would extend early selloff from 1.0344 top towards 0.9735-40 (76.4% retracement of 0.9550-1.0344), however, near term oversold condition should prevent sharp fall below 0.9700, risk from there is seen for a rebound to take place later. 

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 0.9870 should limit upside. Above 0.9900 would defer and risk rebound to 0.9925-30 but upside should be limited to 0.9950 and price should falter well below previous support at 0.9987, bring another decline.

GBP/USD - 1.3016

New strategy  :

Buy at 1.2945, Target: 1.3045, Stop: 1.2910

Position : -

Target :  -

Stop : -

Current rally above indicated psychological resistance at 1.3000 confirms recent upmove has resumed and bullishness is seen for further gain to 1.3050, then 1.3075-80, however, near term overbought condition should prevent sharp move beyond 1.3100-10, risk from there has increased for a retreat to take place later.

In view of this, would not chase this rise here and would be prudent to buy cable on pullback as support at 1.2933 should limit downside and bring another upmove. Below 1.2900-10 would abort and signal top is formed instead, bring weakness towards support at 1.2866, however, price should stay above said support at 1.2844. 

EUR/USD - 1.1111

Original strategy  :

Buy at 1.1065, Target: 1.1185, Stop: 1.1030

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1065, Target: 1.1185, Stop: 1.1030

Position : -

Target :  -

Stop : -

As the single currency has eased after rising to 1.1172, suggesting minor consolidation would be seen and pullback to 1.1100 and possibly support at 1.1081 cannot be ruled out, however, reckon 1.1060-65 would limit downside and bring another rise later, above said resistance at 1.1172 would extend recent rise towards 1.1205-10 (1.618 times projection) but reckon 1.1250 would hold from here, bring retreat later.

In view of this, would not chase this rise here and we are looking to buy euro on pullback as 1.1065-70 should limit downside. Below previous resistance at 1.1025 (now support) would defer and suggest top is possibly formed instead, risk test of another previous resistance at 1.0990 first. 

USD/JPY - 110.72

Original strategy  :

Sell at 112.05, Target: 110.85, Stop: 112.40

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 111.85, Target: 110.45, Stop: 112.20

Position :  -

Target :  -

Stop : -

As the greenback has recovered again after falling to 110.24, suggesting consolidation above this level would be seen and test of resistance at 111.42 cannot be ruled out, however, reckon upside would be limited to 111.75-85 and bring another decline, below said support at 110.24 would extend selloff from 114.37 top to 110.00 but loss of near term downward momentum should prevent sharp fall below 109.70-75, bring rebound later.

In view of this, would not chase this fall here and would be prudent to sell dollar on subsequent recovery as 111.85-90 should limit upside and bring another decline. Above 112.05-10 would would defer and risk a stronger rebound to 112.45-55.