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Currency pair GBP/USD

The GBP/USD broke sturdily above the previous top which is indicated by the dotted red trend line. The breakout candle is showing strong momentum, which could indicate that the Cable could continue towards the Fibonacci targets of wave 5 vs 1+3.

The GBP/USD is in a wave 3 (purple) momentum which could see a retracement develop within the wave 4 (purple) before price continues with the wave 3 (grey) of a higher degree. The Fibonacci levels of wave 4 vs 3 are therefore potential support levels that can be used for a bullish bounce. The broken resistance could also become potential support.

Currency pair EUR/USD

The EUR/USD is at a key decision spot: a bullish breakout above 1.15, the resistance trend line (red) would indicate and the 138.2% Fibonacci level would indicate a likely continuation of wave 3 (green). A bearish bounce however could confirm the wave X (purple) correction within a larger wave 4 (green).

The EUR/USD has either completed an ABC (brown) correction or is showing a continuation of the uptrend. An important factor for this structure are the trend lines (red/blue). A break above resistance or below support could indicate the potential direction.

Currency pair USD/JPY

The USD/JPY is either in a new bearish trend (123 orange) or is building a bearish correction within a larger uptrend. A break below the support trend line (blue) is a first clue of a larger bearish reversal but price will need to reach at least the 161.8% Fib target of wave 3 vs 1.

The USD/JPY could be in a wave 4 (purple) as long as price does not break above the 61.8% Fibonacci level of wave 4 vs 3 and the resistance trend line (red).

Key Points:

• The NZD could be poised to rally further this week.
• GDT Prices are likely to be the driving force behind further upsides.
• Technicals are also hinting at another bullish week.

The NZDUSD was under the control of the bulls last week and it completely recovered from recent losses. However, what was driving the move isn't immediately apparent given the general lack of much in the way of NZ economic news. Moreover, the NZ data that was seen was fairly disappointing – the opposite of what we would expect given the strength of the overall upswing. As a result, it's worth taking a closer look at what was influencing the pair last week and what is likely to be impacting it moving forwards.

Starting with last week's performance, the Kiwi Dollar was under pressure from the get go, declining more than 50 pips by the end of Tuesday as the market reacted to a disappointingly flat NZ Electronic Card Retail Sales result. However, interestingly, this selling pressure proved to be rather fleeting and, from Wednesday onwards, the NZD surged higher which, ultimately, saw it close Friday at a fresh high for 2017 around the 0.7345 mark.

By the looks of it, the momentum for the upswing stemmed from a number of factors, most notably Janet Yellen's rather dovish testimony to Congress. This being said, the softer US CPI data and the 0.2% contraction in US Retail Sales also played a heavy hand in fuelling buying pressure as the week drew to a close. Regardless of what played the bigger role, the combination of these factors offset not only the early losses but also the effects of the broadly weaker NZ economic news seen throughout the rest of the week – resulting in a net gain for the pair.

As for what is coming next, given how sensitive the pair was to fundamentals last week, the impending NZ CPI numbers and the GDT Price Index are definitely worth a look in going forward. The CPI results are expected to be somewhat softer than last time at 1.9% y/y and 0.2% q/q which could see the pair moderate some of its recent gains. Nevertheless, any movement could be rather subdued given the general dearth of US data and the fact that many traders will be waiting for the GDT figure before making a move.

It is worth noting here that we have had two consecutive contractions in global dairy prices which could see a bout of panic selling for the NZD should we see a significantly negative result. Conversely, a suitably positive outcome will see the markets breathe a sigh of relief – potentially encouraging the Kiwi Dollar to extend last's week's rally.

Moving on to the technical bias for the week ahead, the Kiwi Dollar is actually fairly well positioned to continue with recent bullishness. Indeed, with the exception of the stochastics, most other technical indicators are signalling that further gains are on the way. Nevertheless, the Parabolic SAR and the MACD readings warrant a closer look given their particularly strong hints of additional upsides. Specifically, the Parabolic SAR inverted twice last week – effectively renewing its longer-term bullish bias. As for the MACD oscillator, it is on the cusp of a signal line crossover which could see the bears back on the defensive moving forward. If the pair tracks higher, resistance is in place around the 0.7352, 0.7406, and 0.7480 levels.

Ultimately, the outlook for the Kiwi Dollar is looking fairly good this week and the pair could extend recent gains. Indeed, the NZD could be on a path to challenge last year's highs which might mean that the 0.75 handle and beyond are now firmly in the bulls' sights. However, even a week of poor fundamentals could put this uptrend in jeopardy which is worth keeping in mind moving ahead.

Key Points:

• Chinese GDP Growth rockets to 6.9% y/y.
• Industrial Production also increases to 7.6% y/y.
• However, credit impulse is not yet evident in latest GDP figures.

Markets largely got a shock overnight as China released its latest iteration of GDP growth and Industrial Production figures. Surprisingly, the data showed that the Chinese economy grew by over 6.9% y/y in the second quarter whilst Industrial Production rose to an exceedingly strong 7.6% y/y. Subsequently, the momentum remained in place for the manufacturing powerhouse but it remains to be seen if the trend continues given some of the headwinds facing the economy.

The reason the result is so surprising is the fact that the Chinese economy has undergone some significant shocks in the past three months, which have included a national deleveraging, real estate slow down, and sinking macro indicators. Subsequently, the consensus view was that the major economic indicators would, again, provide a sharp beat and confirm the domestic softness that many have speculated over in the past few weeks.

However, instead we received a July surprise with even Retail Sales figures rising sharply to 11.0% but you would be forgiven for questioning the veracity of the data given that 'economic data management' has been known to occur. The narrative around the current results seem to imply that the Asian powerhouse is currently awash in credit and that much of the recent expansion is being driven by consumer demand (as well as exports).

Certainly, the current expansion could be seen as positive or negative depending on your view around the mounting risks of loose and cheap credit. However, it should be noted that China's recent drive towards fixing some of the financial risk issues within the economy is yet to flow through to the wider macroeconomic indicators.

Subsequently, we are likely to see a lagged response to the latest campaign/credit impulse and this will inexorably impact GDP in the near term. However, it's relatively clear that the deleveraging process has been successful for Beijing and was particularly well timed. What's less clear is what role fiscal policy is playing in the broader economic sense given that it has previously been an important part in recent growth figures.

At the time of writing, there has been little impact on the Yuan but Chinese equities have soared in response to the data dump. However, it remains to be seen in the near term if the sentiment remains in place and, subsequently, buoys the Yuan. Ultimately, the impact of the risk deleveraging is likely to flow through to the wider economy over the next few months and it will absolutely affect the positive view that most analysts have taken following the release of the 'mother of all data dumps'.

China's macroeconomic data for 2Q17 surprised to the upside. China's GDP expanded +6.9% y/y in 2Q17, same pace as the prior quarter but above consensus of +6.8%. Economic activities in June continued to improve. Industrial production growth accelerated to +7.6% y/y in June, beating consensus of and May's +6.5%. Retail sales expanded +11% y/y in June, up from +10.7% a month ago. The market had anticipated mild deceleration to +10.6%. Fixed asset investment in urban areas grew +8.6% y/y in the first half of the year, same pace as in the first five months of the year. The government acknowledged that the country's economy continued to improve. It appears that the country's growth is on track to meet the government target of “around +6.5%”.

Renminbi extended its recent strength against the US dollar after the releases. Onshore USDCNY fell to as low as 6.7644 at one point, only modestly above the 7-month low of 6.7598. The government has aggressively fixed the currency at 6.7562 against the greenback, down from 6.7774 on Friday. Today's fixing marks the lowest since November 2016.

Xi Highlighted Risks and Regulations at National Financial Work Conference

In his first address at the National Financial Work Conference, which is held once every five years, over the weekend, Chinese President Xi Jinping affirmed that the PBOC would play a stronger role in defending against risks, calling for more work on safeguarding the financial system and modernizing its regulatory framework. Interestingly, the word “risk” appeared 31 times in the meeting note, followed by “regulation”, which appeared 28 times, signaling that implementation of “regulations” to prevent financial system “risks” is the key direction of the government's policy.

PBOC Warned of Risks and Pledged to Regulate

Indeed, the PBOC in its financial stability report, released on July 4, summarized six major risks to domestic economy, namely, downward pressure on growth, high leverages of non-financial corporate, rapid rise in non-performing loans, high risks of informal debt operations in certain local governments, elevated property prices in first and second tier cities and high inventory levels in tier 3 and 4 cities, and unregulated development of financial products. The central bank pledged that it, together with other regulatory bodies, would endeavor to curb risks involved in shadow banking, real estate financing, local government financing platforms, internet financing and illegal fundraising activities. The institutions would increase supervision over outbound investment and prevent shocks from external challenges.

PBOC, for the first time on record, unveiled that the total size of commercial banks off-balance-sheet asset was at RMB 254 trillion by the end- 2016. This marks 109% of the total on-balance-sheet asset. The central bank cautioned over possible contagious risks to on-balance sheet assets.

We expect the government would continue its tightening policy targeting specific asset classes (including Bitcoin and real estate). With the momentum of economic growth in line with the government's full-year target, the monetary policy would be more likely tighter than looser from the current conditions.

For the 24 hours to 23:00 GMT, the AUD rose 1.2% against the USD and closed at 0.7825 on Friday.

LME Copper prices declined 0.8% or $44.0/MT to $5858.0/MT. Aluminium prices declined 0.4% or $7.0/MT to $1904.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7816, with the AUD trading 0.12% lower against the USD from Friday's close.

Earlier today, data showed that China's, Australia's largest trading partner, gross domestic product (GDP) rose more-than-expected by 6.9% YoY in the second quarter of 2017, aided by a pick-up in industrial output and strong investment. The GDP had recorded a similar rise in the prior quarter, while market participants anticipated for an expansion of 6.8%. Further, the nation's industrial production gained 7.6% on an annual basis in June, exceeding market expectations for a rise of 6.5%. In the previous month, industrial production had climbed 6.5%. Also, the nation's retail sales grew more-than-anticipated by 11.0% YoY in June, rising at its fastest pace since December 2015. In the previous month, retail sales had advanced 10.7%.

The pair is expected to find support at 0.7756, and a fall through could take it to the next support level of 0.7696. The pair is expected to find its first resistance at 0.7855, and a rise through could take it to the next resistance level of 0.7894.

Looking ahead, the Reserve Bank of Australia's recent meeting minutes, slated to release in the early hours of tomorrow, will be eyed by traders.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR rose 0.63% against the USD and closed at 1.1469 on Friday.

On the data front, the Euro-zone's seasonally adjusted trade surplus widened less-than-expected to a level of €19.7 billion in May, following a revised surplus of €18.6 billion in the previous month, while markets were anticipating the region's trade surplus to expand to a level of €20.2 billion.

The greenback lost ground against its major counterparts on Friday, on the back of disappointing US inflation and retail sales data that fuelled fresh doubts over the Federal Reserve's (Fed) ability to increase interest rates for a third time this year.

Data indicated that the US consumer price index (CPI) remained flat on a monthly basis in June, compared to market expectations for a rise of 0.1% and following a drop of 0.1% in the previous month. Meanwhile, on an annual basis, the CPI climbed less-than-expected by 1.6% in June, posting its smallest gain since October 2016. In the previous month, the CPI had gained 1.9%, while investors had envisaged for an advance of 1.7%. Additionally, the nation's advance retail sales unexpectedly dropped 0.2% on a monthly basis in June, declining for a second straight month and defying market consensus for a rise of 0.1%.

In the prior month, advance retail sales had fallen by a revised 0.1%. Further, the nation's preliminary Reuters/Michigan consumer sentiment index fell to a 9-month low level of 93.1 in July, surpassing market expectation for a drop to a level of 95.0, as consumers lost confidence in faster growth prospects in the US under the Trump administration. The index had registered a reading of 95.1 in the prior month.

Another set of economic data revealed that the US industrial production rose 0.4% on a monthly basis in June, topping market expectations for an advance of 0.3%. In the prior month, industrial production had risen by a revised 0.1%. Also, the nation's manufacturing production rebounded 0.2% MoM in June, at par with market expectations and after recording a drop of 0.4% in the prior month. Moreover, the nation's business inventories rose 0.3% in May, meeting market expectations. Business inventories had dropped 0.2% in the prior month.

In the Asian session, at GMT0300, the pair is trading at 1.1463, with the EUR trading a tad lower against the USD from Friday's close.

The pair is expected to find support at 1.1418, and a fall through could take it to the next support level of 1.1372. The pair is expected to find its first resistance at 1.1492, and a rise through could take it to the next resistance level of 1.1520.

Going ahead, traders will look forward to the Euro-zone's final consumer price index data for June and the German Bundesbank monthly report, both slated to release in a few hours. Additionally, the US New York Empire State Manufacturing index for July, scheduled to release later today, will be on investors' radar.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP rose 1.27% against the USD and closed at 1.3105 on Friday.

In the Asian session, at GMT0300, the pair is trading at 1.3102, with the GBP trading marginally lower against the USD from Friday's close.

Overnight data indicated that Britain's Rightmove house price index rebounded 0.1% on a monthly basis in July, following a drop of 0.4% in the previous month.

The pair is expected to find support at 1.2990, and a fall through could take it to the next support level of 1.2878. The pair is expected to find its first resistance at 1.3164, and a rise through could take it to the next resistance level of 1.3226.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 0.74% against the JPY and closed at 112.54 on Friday.

In the Asian session, at GMT0300, the pair is trading at 112.62, with the USD trading 0.07% higher against the JPY from Friday's close.

The pair is expected to find support at 112.10, and a fall through could take it to the next support level of 111.59. The pair is expected to find its first resistance at 113.30, and a rise through could take it to the next resistance level of 113.99.

On account of a holiday in Japan today, investor sentiment will be governed by global macroeconomic news.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD declined 0.38% against the CHF and closed at 0.9636 on Friday.

In the Asian session, at GMT0300, the pair is trading at 0.9642, with the USD trading 0.06% higher against the CHF from Friday’s close.

The pair is expected to find support at 0.9614, and a fall through could take it to the next support level of 0.9585. The pair is expected to find its first resistance at 0.9686, and a rise through could take it to the next resistance level of 0.9729.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 0.67% against the CAD and closed at 1.2648 on Friday.

In the Asian session, at GMT0300, the pair is trading at 1.2656, with the USD trading 0.06% higher against the CAD from Friday's close.

The pair is expected to find support at 1.2615, and a fall through could take it to the next support level of 1.2574. The pair is expected to find its first resistance at 1.2722, and a rise through could take it to the next resistance level of 1.2788.

Ahead in the day, investors will closely monitor Canada's existing home sales data for June.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.