The USD has been on a bullish trend for more than a year, with the FED the only major central bank to be on a tightening cycle. But, last week we saw a sharp reversal in the USD as the economic data from different sectors of the US economy kept coming in pretty weak. The odds of the FED hiking interest rates again this week diminished, which sent the USD tumbling lower against most major currencies. Although, the rest of the globe is in a worse position than the US, so the USD has turned bullish again today. But we will see if this will last.

• Italian Industrial Production – The industrial production was on a declining trend at the end of last year as the global economy was weakening and the Italian economy was in recession. But, industrial production turned positive in the first two months of this year as the global economy started recovering. However, the economic weakness returned again and last month’s report showed a 0.9% decline which was revised lower to -1.0% today. For April, expectations were for a 0.2% increase in production, but today’s report showed a 0.7% decline, so the Italian economy is back in decline.
• UK GDP MoM – The UK GDP shrank by 0.4% in December but it turned positive again in January and it grew in February as well. Although, the report released last month showed another decline of 0.1% in the GDP. Today’s report was expected to show yet another decline of 0.1%, but it missed expectations, showing a 0.4% contraction in April.
• UK Manufacturing and Industrial Production – The industrial and manufacturing production also declined at the end of last year. But they turned positive again in the first three months of this year as companies were stockpiling ahead of Brexit. Although, today’s reports were expected to show yet another reversal and a decline for April. Manufacturing production was expected to shrink by 1.1% while industrial production was expected to fall by 0.7%. Well, the decline was much larger with the manufacturing production declining by 3.9% that in April, while industrial production fell by 2.7%.
• UK Construction Output – The construction output also declined in December by 2.8% but increased in the first couple months of this year. Although, the construction output turned turned negative again in March, before the other sectors of the British economy and declined by 1.9% that month, as the report released last month showed. Today’s report was expected to show a 0.6% increase in the construction output for April, but we saw yet another decline of 0.4%.
• Oil Talk – Russia’s Siluanov said earlier that if OPEC+ doesn’t reach an agreement, oil price may fall to $40. The Saudi oil minister popped up a bit later saying that he is satisfied with cooperation with Russia within OPEC+. They’re working to take preventive steps not to allow sharp fall in oil prices.
• UK Tory Leader Candidate Speaking on Brexit – One of the main candidates to take Theresa May’s post, Dominic Raab, commented this morning that the UK should leave EU on 31 October even if they have to leave on WTO terms. He would make best final offer to the EU to replace the backstop

US Session

• NIESR GDP Estimate – The NIESR GDP estimate for March and April came at 0.4% but April was revised lower to 0.3% today. For May, the NIESR GDP estimate came at 0.1% today, but NIESR said that the UK economy is on course to shrink by 0.2% in Q2.
• Canadian Housing Starts – The Canadian housing starts weakened in the fist couple of months this year and by February they fell to 177k. But the trend started increasing again and last month housing starts increased by 230k. Today’s report was expected to show a 220k increase but it missed expectations and came at 202k.
• Trump Speaking on China – The US President, Donald Trump, was on an interview earlier saying that the China deal is going to work out because of tariffs. He continued: China is getting absolutely devastated, China is going to make a deal because they have to make a deal. Companies are leaving China and going elsewhere, including to the US and “tariffs are a beautiful thing”. We talked about Mexico deal for months but we couldn’t get there until the tariffs, Mexico took 30% of our automobile companies, they would all move back if we put on tariffs. As soon as I put tariffs on the table, it was done. China has lost many trillions of dollars on tariffs. From my standpoint, tariffs are a ‘no brainer’. Our Fed is very, very disruptive to us. The tariffs are putting us at a tremendous advantage. China devalues its currency, something has to be done, China currency moves nullified tariffs to some extent. The Fed raised interest rates far too tightly. We got everything we wanted from Mexico. If China doesn’t come to G20, tariffs will go on immediately; but I think we’re scheduled for a meeting. We’re expecting to meet Xi at G20. No deal with China would mean more tariffs. China wants to make a deal much more than I want to. A lot of people think Q1 GDP was 1 pp stronger because of tariffs. Huawei could be part of US trade deal with China

Bearish GBP/USD

1. The trend has turned bearish again
2. The 100 SMA has turned into resistance
3. Fundamentals are bearish

The 100 SMA has turned into resistance now

GBP/USD has been on a bearish trend all this year, but it turned bullish last week on the back of increased USD weakness. But the retrace higher is complete and the bearish trend has resumed again as fundamentals are pretty dovish for the GBP. This pair tried to turn hawkish again about two hours ago, but the 100 SMA (red) turned into resistance immediately after being broken to the downside, so the bearish momentum is continuing.

In Conclusion

The sentiment has turned in favour of the US Dollar today after being in a strong bearish momentum for more than a week. USD/JPY opened with a gap higher last night, which indicates a small improvement in the sentiment that is continuing since this pair is still trading at the opening levels.