eFXplus DATA

• Touch firmer after closing little changed, despite intraday volatility
• U.S. trade chief to talk with EU, Japan on Chinese subsidies
• A bilateral approach to China trade issues could ease the current friction
• Momentum studies flat line, 5, 10 & 21 daily, weekly and monthly MAs fall
• Strong trending setup targets a 1.1110 break - the April and 2019 low
• 1.1150 410M, 1.1180 1.4BLN and 1.1200 300M close strikes likely contain

• Pair hovers just above last week's low during NY trading
• Downside progress hampered on upbeat risk; stocks & AUD/JPY rally
• AUD/USD below 10- & 21-DMAs, RSIs drop but cannot break to new s-t lows
• Downside risks present but price action not reflecting them
• Pair might hold 0.6850-0.7075 range until a new catalyst comes along

Barclays Research discusses EUR/USD tactical outlook into the European elections.

"We expect EUR/USD to remain heavy into the European Parliament (EP) elections (23-26 May), which likely will reinforce concerns about Europe's medium-term outlook. Yet, without significant surprises, we think it is unlikely that the election results will roil markets," Barclays argues. 

"In that context, the roughly 25bp breakeven move priced into EUR/USD options over the election dates appears broadly fair. This is not to say that the bad news is in the price, but rather that EUR faces 'realization' risk as market fears of the interaction between Europe's increasing political fracture and rising threats to near-term growth and to long-run stability are confirmed.

Furthermore, the skew around realization clearly is to the downside, in our view: a worse performance by 'alternative' parties is unlikely to benefit the EUR, but stronger-than-expected gains will accentuate markets' concerns and engender knock-on electoral risks in Italy that have negative implications for the EUR,"Barclays adds. 

• Early NY lift after data , Brexit lifts further
• Quick spike up near 1.1190 as EUR/USD follows GBP/USD Brexit gains
• Brexit effect quickly fades though, EUR/USD dips below 1.1160 late
• Pair sits near flat on the day, doji candle forms suggests indecision
• RSIs are biased down & pair below 10- & 21-DMAs, suggests downside risks
• Bears have the upper hand but progress will be hard fought

USD/JPY's recovery has found fuel in the stabilization of the yuan nL4N22X1AL nL4N22W13J after the Chinese currency fell on rising trade tensions between Washington and Beijing earlier this month. Traders watched USD/CNY as it neared the key 7 resistance level the PBOC has defended in the past, but CNY/JPY's rebound away from May lows by the 61.8% Fib of 2019's 15.291-16.761 range at 15.852 also highlights room for yen weakening.
That Fibo support was probed last week, but breaches were limited and it didn't close below it.
Greater yuan stability in recent days and the U.S. decision to ease some Huawei restrictions, tamped down market trade war fears and demand for the haven yen .
If CNY/JPY can clear prior lows and the broken 50% Fibo near 16.026, the highly positively correlated USD/JPY will also retrace more of its April-May slide.
At a minimum, USD/JPY is likely to fill the 111.08-10.96 gap from May 3-6 when the U.S. announced tariff hikes.
CNY/JPY may not be able to fill its gap, though, without trade talks restarting.

Danske Research discusses EUR/USD EUR/USD outlook in the near-term (1-3 months) and in the medium-term (6-12 months). 

"A key trigger for a higher EUR/USD is the return of global growth optimism, which likely requires policy action on the trade war and/or monetary policy. Neither looks probable in the short term, which creates downside risks to our 1M and 3M EUR/USD forecasts of 1.12 and 1.13, respectively.

We think there are good arguments for EUR/USD to rise to 1.17 in 12M. However, a 5% increase from the current level hinges on policy action on different levels. A combination of a US-China trade deal and/or monetary policy easing in US and China are key prerequisites for the market starting to reverse its short position in," Danske argues.  

"In the short term, we expect EUR/USD to stay range bound...We stay neutral on EUR/USD, with a negative bias, until we begin to see an end to the policy deadlock," Danske adds. 

The initial shock from the escalation of U.S.-China trade tensions appears to be wearing off, based on the ability of risk gauge USD/JPY to establish a floor for now. The fact that it has some upside potential, reinforced by attractive U.S. yields and a steady Fed outlook, bolsters this perception.
Last Monday's 109.02 nadir left prices oversold and ripe for the rebound that today convincingly cleared 38.2% Fibo of the April-May slide at 110.31 after a 110.32 high yesterday.
A close above the 100-DMA at 110.51 will put in play 50% and 61.8% Fibo retracements at 110.71/1.11. Also boding well for USD/JPY: Risk reversals bottomed out by January flash crash lows, IMM spec longs capitulated in the week to May 14 and a 161.8% Fibo-projected target off the 109.02-110.31 base by 2019's 112.40 peak.
Firmer Treasury-JGB spreads provide bullish macro impetus after T-note yields held above March's low, as does the revival of yen-funded carry trades after the U.S. eased Huawei restrictions that had boosted haven flows yesterday.

TD Research discusses the latest market conditions amid the recent heightened trade tensions.

"Global trade wars have abruptly resurfaced as the most salient issue in markets. There are two elements that are disrupting the price action with different timelines. First, the market was not positioned for the second act of the trade war, causing the quick shift in sentiment. MSCI China remains on the best performing asset on a rolling 3m basis but has dropped around 13% from the recent high.

The second factor is is more critical as it underscores whether the shock to confidence sends the global economy into a tailspin. That depends on the extent and longevity of Act Two. Still, we don't see a repeat of last year where fiscal stimulus and corporate repatriation shielded US assets.," TD notes. 

"The backdrop remains one in which we think market stress increases the prospects of a compromise. In the short-run the rising risk premium favors selling China proxies like TWD and SGD (crossing CAD offers oil exposure and carry). We still like EURGBP topside and prefer GBPJPY downside as a hedge against the heavy June risk calendar", TD adds. 

EUR/USD is closing in on massive levels not traded in almost two years, though with traders short and option vols very low, a continuing grind lower is far more likely than an accleration.
Big buying is guaranteed and a bounce is getting more likely and when it comes, it should far outpace the decline .
It has taken almost a year for EUR/USD to drop 400 pips from the 1.1510 low that first traded in June 2018.
The rough 33 pips per month is similar to the 29 pips earned each month by those short via interest rates.
Clean breaks below 1.1300 and 1.1200 evolved over months and 1.1100 is likely to prove equally tough to break free from.
1.1000 is a much more heavily traded option level with long-term tech support at 1.0940, the base of monthly Ichimoku cloud.
A huge amount of fresh selling will be required to drive EUR/USD through or even close to these massive levels.
The bigger shorts grow the faster the potential squeeze.

EUR/USD looks set to break through 1.1100 options but may rebound soon after.
A trade war that should have jolted EUR/USD traders out of bearish bets didn't and the downtrend's resilience to a potential major disruption has intensified bearish sentiment triggering more selling.
On this attempt option traders are less likely to expend as much as they did in April to defend 1.1100, upping risk for a break.
But, 1.1100 is the base of expected ranges and while option demand may be reduced, a lot more selling is still required to break lower forcing speculators to add to already substantial shorts.
Shorts can do one of two things, hold or take profit.
For bears to hold near such a massive point they need rapid follow through below.
Traders only need to look at low vols and the months it's taken to grind down from 1.15 to know that won't happen.
A bounce is likely and 1.1285, minimum requirement for a technical correction of this year's fall, is a plausible target.

• 1.2688 = 18-week low for cable after stops tripped on the break below 1.2700
• Simultaneous EUR/GBP rise to fresh three-month high of 0.8788
• GBP continues to suffer on the back of heightened fears of a no-deal Brexit
• Those fears primarily derive from concern about who will replace May as PM
• See: nL5N22T1Y9. Cable may drop to 1.20 if Johnson becomes PM
• More GBP/USD stops may be sheltering under 1.2670 (Jan 15 low, MV1 day)

• USD/JPY upside has been limited near the 110.31 Fibonacci level
• 110.31 Fibo is a 61.8% retrace of the 112.40-109.02 (EBS) drop
• Market only marginally broke that Fibo to leave a top at 110.32 on Monday
• Tenkan and kijun lines are negatively aligned, could have a bear resumption
• Bulls need to register a daily close above 110.31 Fibonacci level
• EUR/JPY range has been 122.79-123.10. Previous USD/JPY update

• Price trying to base in the low 1.27s but bounces small and fade quickly
• Trend now has 11 consecutive bear closes, a rare thing
• Conditions over heating somewhat to the downside and rebounds a major risk
• Previous low at 1.2773 from Feb 14 a pivotal point topside
• To the downside potential to the 1.2670 low from January
• Lift back inside 30DMA Bolli envelope, 1.2732, to alleviate some o/s heat

• RBA's Lowe - dovish, suggests unless jobs surprise, RBA to cut nS9N21I00V
• AUD off 15pts on the speech, but the soft outlook should cap any AUD bounce
• Boost to the housing sector by easing mortgage criteria nL4N22W4W7
• RBA minutes confirm the clear easing bias - jobs pivotal nRUALGEF5Q
• Rifinitiv RBAWATCH OIS prices a June cut at 72% from 60.9% pre Lowe
• Charts - momentum studies base, 5, 10 & 21 daily, weekly, monthly MAs fall
• Bearish setup - close above 0.6937 10 DMA would undermine downside bias

EUR/USD: 

24-HOUR VIEW: EUR is expected to trade sideways, likely within a 1.1150/1.1190 range. EUR rebounded after touching a 2-week low of 1.1148 yesterday. The combination of dissipating downward momentum and oversold conditions suggests limited downside risk for now. From here, EUR is deemed to have moved into a consolidation phase and is expected to trade sideways to slightly higher, likely within a 1.1150/1.1190 range.

1-3 WEEKS VIEW: Focus is at 1.2670. We indicated last Friday (17 May, spot at 1.2795) that a “NY close below 1.2775 could lead to acceleration lower to 1.2670”. GBP subsequently cracked 1.2775 and plunged to 1.2714 before ending the week down by a whopping -2.20%, the largest 1-week decline since Oct 2017. From here, the focus is at 1.2670 even though shorter-term conditions are severely oversold any further weakness would likely be at a slower pace. In view of the oversold conditions, the prospect for further extension to next support at 1.2630 is not that high for now. On the upside, the ‘key resistance’ has moved lower to 1.2840 from 1.2900.

GBP/USD:

24-HOUR VIEW: GBP is expected to continue to trade sideways, likely within a 1.2710/1.2760 range. GBP consolidated its steep loss from last week as it traded in a relatively narrow range of 1.2715/1.2757 yesterday before settling at 1.2721. The consolidation phase appears incomplete and GBP is expected to continue to trade sideways for now, likely within a 1.2710/1.2760 range.

1-3 WEEKS VIEW: Focus is at 1.2670. We indicated last Friday (17 May, spot at 1.2795) that a “NY close below 1.2775 could lead to acceleration lower to 1.2670”. GBP subsequently cracked 1.2775 and plunged to 1.2714 before ending the week down by a whopping -2.20%, the largest 1-week decline since Oct 2017. From here, the focus is at 1.2670 even though shorter-term conditions are severely oversold any further weakness would likely be at a slower pace. In view of the oversold conditions, the prospect for further extension to next support at 1.2630 is not that high for now. On the upside, the ‘key resistance’ has moved lower to 1.2840 from 1.2900.

AUD/USD: 

24-HOUR VIEW: AUD is expected to trade sideways, likely between 0.6895 and 0.6945. AUD gapped up upon opening yesterday and subsequently held on to its gain as it traded sideways. While the downside risk appears to be limited, it is too early to expect a sustained rebound. AUD is more likely to consolidate and trade sideways for now, likely between 0.6895 and 0.6945.

1-3 WEEKS VIEW: Prospect for a move to 0.6835 has diminished. AUD dropped to a 3-1/2 low of 0.6865 last Friday (17 May) before opening with a gap higher yesterday (20 May). While the ‘key resistance’ for our negative phase at 0.6975 is still intact, the strong bounce suggests AUD may not be ready to challenge 0.6835 just yet. That said, only a move above the 0.6975 ‘key resistance’ would indicate that a short-term bottom is in place. In order to reinvigorate the flagging momentum, AUD has to move and stay below 0.6895 within these 1 to 2 days or the prospect for a move to 0.6835 would diminish further. To put it another way, the negative phase that started in late April could be close to ending unless AUD can move and stay below 0.6895 within these few days.

NZD/USD: 

24-HOUR VIEW :NZD is expected to trade sideways, likely within a 0.6525/0.6560 range. NZD opened on a strong note yesterday and subsequently traded sideways. The current price action is viewed as part of a consolidation phase and NZD is expected to continue to trade sideways for now, likely within a 0.6525/0.6560 range.

1-3 WEEKS VIEW: NZD is expected to test the rising weekly trend-line at 0.6500. No change in view from last Friday, see reproduced update below. Note that NZD touched 0.6514 during late-NY hours on Friday but opened on a strong note yesterday. We have maintained the same narrative since last Wednesday (08 May, spot at 0.6560) wherein NZD is expected to “test the rising weekly trend-line at 0.6500”. After trading sideways for several days, NZD finally staged a relatively strong decline of -0.41% yesterday (close at 0.6536). From here, the risk of a break of 0.6500 has increased and if NZD were to move clearly below this level, the focus would then shift to 0.6465 followed by the 2018 low near 0.6425. All in, there is no early sign that the current negative phase that started earlier this month would end any time soon. Only a move above 0.6600 (‘key resistance’ previously at 0.6630) would indicate that a short-term bottom is in place.

USD/JPY: 

24-HOUR VIEW: A retest of 110.30 would not be surprising. USD touched 110.31 early yesterday but eased off quickly. Despite the pull-back, the underlying tone remains positive and another test of the 110.30 level would not be surprising. That said, a sustained move beyond this level appears unlikely (next resistance is at 110.50). On the downside, only a move below 109.70 would indicate the current mild upward pressure has eased (minor support is at 109.90).

1-3 WEEKS VIEW: USD has moved into a sideway-trading phase. We highlighted last Friday that the negative phase in “USD appears to be close to ending” and added, “USD is poised to move into a sideway-trading phase”. USD subsequently took out the ‘key resistance’ at 110.10, which indicates that the current movement is the early stages of sideway-trading phase. That said, the immediate bias is tilted to the upside but for now, any USD strength is unlikely to move significantly above the top of the expected 109.40/110.80 range.

• Off 10pts, as RBA minutes that confirmed the clear easing bias nRUALGEF5Q
• Refinitiv RBAWATCH has an RBA June cut priced at 58% and July 99%
• Jobs data are pivotal and last week's rise in unemployment suggests a cut
• Charts - momentum studies base, 5, 10 & 21 daily, weekly, monthly MAs fall
• Bearish setup - close above 0.6937 10 DMA would undermine downside bias
• Asian 0.6906/0.6929 range are initial support/resistance

• +0.2% after closing up 0.6% on the market friendly miracle election
• Boost to the housing sector by easing mortgage criteria nL4N22W4W7
• Financial stocks received a major boost on the mortgage news nL4N22X04L
• Charts - momentum studies base, 5, 10 & 21 daily, weekly, monthly MAs fall
• Bearish setup - close above 0.6937 10 DMA would undermine downside bias
• Asian 0.6906/0.6929 range are initial support/resistance

• Shade firmer after closing up 0.08%, but a fifth lower daily high and low
• 1.1110/1.1265 range in place since mid April continues to hold
• Momentum studies flat line, 5, 10 & 21 daily, weekly and monthly MAs fall
• Strong trending setup targets a 1.1110 break - the April and 2019 low
• 1.1156 NY low, then 1.1150 356M strikes initial support - tight range likely
• Yesterday's 1.1174 high in NY, then Friday's 1.1184 top first resistance

• US$ & US rate complex generally soft, Chi Fed downside miss adds weight
• USD/CNH holds below 6.940 for most of NY, AUD/USD above 0.6910 in NY hours
• Slides in copper HGv1 & iron-ore futures DCIOc2 help limit the topside
• Looming RBA minutes & speech by RBA's Lowe keep action limited in NY
• Options favor bears but they might not have total control now

Citi Research discusses the latest Brexit developments.

"Chances for an orderly Brexit wane following the end of cross-party Brexit talks in UK without an agreement. This means the opposition labor party is even less likely to abstain in the next Meaningful Vote, thus precipitating PM May's departure in June which would then likely elevate hard Conservative Brexiteer Boris Johnson's chance to be next UK PM (he has repeatedly favored a 'No Deal'," Citi argues. 

"Citi analysts' base case is that PM May's successor is likely to be anti-EU but without a majority, and thus a snap general elections could come but with a very uncertain outcome - a Jeremy Corbyn led Labor Party victory would likely be negative for sterling," Citi adds.