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GBP/USD has recorded small losses in the Tuesday session. In North American trade, the pair is trading at 1.2930. On the release front, British Construction PMI, softened in June, with a reading of 54.8. This was slightly below the estimate of 55.0. Later in the day, the UK releases the BRC Shop Price Index. In the US, there are no events, as US markets are off for Independence Day. On Wednesday, the Federal Reserve will publish the minutes of its June policy meeting.

The European forum of central bankers usually plays second fiddle to the Fed's Jackson Hole meeting, but this year's European forum won't be forgotten anytime soon. Last week's meeting in Portugal triggered sharp rises from the euro and British pound, following hawkish remarks from Mario Draghi and Mark Carney. The pound jumped 2.4%, last week, boosted by hawkish comments from BoE Governor Mark Carney. Carney said that the BoE would have to consider removing monetary stimulus, and the markets jumped on his comments as a possible sign that he was not adamantly opposed to rate hikes in the near future. BoE policymakers have waged a public debate about rate policy, with Carney stating last week that he was opposed to hikes, only to be contradicted by MPC member Ande Haldane, who said he had been close to voting in favor of a rate hike at the June rate meeting. The vote at the meeting was 5-3 in favor of maintaining rates, surprising the markets, which had predicted a 7-1 vote to keep rates at current levels. Although there are renewed fears that Brexit will take a toll on the British economy, inflation is running close to 3%, well above the BoE's target of 2 percent. A rate increase would help lower inflation, but Carney, who has voiced concerns about Brexit's negative ramifications since the vote last June, had been solidly against a rate increase.

The Federal Reserve has sent out the message that it plans to raise interest rates one more time in 2017, but the markets are becoming more skeptical. The odds of a rate hike in December have fallen to 47%, down from 53% last week, according to the CME Group. With the US economy giving a mediocre performance in the first quarter, and inflation levels remains low, there are Fed policymakers who are currently lukewarm to the idea of raising rates again this year. Key economic indicators have not looked particularly sharp in the second quarter, notably housing and consumer spending numbers. If inflation numbers do not improve and GDP reports for Q2 remain soft, the odds of a December hike will drop even further, which could translate into broad losses for the US dollar.

USD/JPY has steadied on Tuesday, after posting considerable gains in the Monday session. In the North American session, the pair is trading slightly at 113.20. On the release front, BOJ Core CPI edged up to 0.3%, matching the forecast. There are no US releases, as US markets are closed for the Fourth of July holiday.

An improved global economy has translated into stronger demand for Japanese products, boosting Japan's manufacturing and export sectors. Still, consumer spending and inflation remain sore points. Japanese retail sales slowed to just 2.0% in May, compared to 3.2% a month earlier. The weak figure points to a Japanese consumer who is pessimistic about the economy and hesitant to open the purse strings. Wages have been stagnant, which has hampered consumer spending. Inflation is stuck below 1 percent, well below the BoJ's target of 2 percent. Tokyo Core CPI, the primary gauge of consumer inflation, edged down to 0.0%, below the estimate of 0.2%. The index has posted just one gain in the past 18 months, underscoring that despite the BoJ's ultra-loose monetary policy, inflation levels remain well below the bank's target of 2 percent.

The Federal Reserve has all but signed in writing that it would raise interest rates three times in 2017, but the markets are becoming more skeptical. The odds of a rate hike in December have fallen to 47%, down from 53% last week, according to the CME Group. With the US economy giving a mediocre performance in the first quarter, and inflation levels remains low, there are Fed policymakers who are currently lukewarm to the idea of raising rates again this year. Key economic indicators have not looked particularly sharp in the second quarter, notably housing and consumer spending numbers. If inflation numbers do not improve and GDP reports for Q2 remain soft, the odds of a December hike will drop even further, which could translate into broad losses for the US dollar.

It was a relatively quiet forex trading session for Europe on Tuesday, as the 4th of July holiday in the US brought down volumes and overall activity.

The main news of the day was the test of a long-range missile by North Korea, which led investors to seek the safety of havens such as the yen and gold. The gains by both the yen and gold were relatively modest however, suggesting that the North Korean action did not unsettle investors too much. Dollar/yen fell to as low as 112.84 but managed to recover to 113.23, while gold traded in the $1223-1225 an ounce range. Both gold and the yen were under pressure during the previous days.

The dollar was up both against the pound and the euro, but did not manage to benefit much from the positive momentum of the previous day's better-than-expected ISM manufacturing PMI. Euro/dollar fell to 1.1343 and pound/dollar fell to 1.2925.

In other economic news, the ECB's Chief Economist, Peter Praet, sounded a cautious note with respect to potential interest rate increases in the Eurozone. Low interest rates were a key condition of the plan to raise inflation to the ECB's 2% target, according to Praet. The speech moderated the optimism of some market participants that the ECB would shift to an outlook of gradual tightening in the near future.

In the UK, construction PMI for June came in close to expectations at 54.8. Analysts had forecasted 55.0 whereas the previous month's figure was at 56. UK manufacturing PMI was disappointing the previous day, which had weighed on sterling.

The Australian dollar managed to stabilize versus the US dollar around the 0.76 mark after suffering a significant drop following the release of the Reserve Bank of Australia's policy statement during Asian trading. The central bank was not as hawkish as some had expected and there was little in the statement that pointed in the direction of a rate hike soon.

The Riksbank in Sweden announced that it was now less likely to cut rates further, although it also did not completely rule out more easing. Sweden's policy rate currently stands at -0.50%. The Swedish Krona lost ground versus the euro to trade around 9.6760 compared with 9.6442 at the close of US trading the previous day.

Crude oil was under some pressure during Tuesday's Asian session, but managed to recover to cross above the $47 a barrel mark (WTI contract) to $47.23. This also had a positive effect on the Canadian dollar as USD/CAD fell below 1.2946.

Looking ahead, the bi-weekly dairy auction results were eagerly expected by kiwi traders. With respect to the remaining days of the week, Wednesday's Fed meeting minutes and Friday's employment report out of the US were the two highlights for the US dollar.

USD/CHF - 0.9655

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9641

Kijun-Sen level                    : 0.9640

Ichimoku cloud top                 : 0.9602

Ichimoku cloud bottom              : 0.9591

Original strategy :

Buy at 0.9590, Target: 0.9690, Stop: 0.9555

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9600, Target: 0.9700, Stop: 0.9565

Position : -

Target :  -

Stop : -

As the greenback staged a strong rebound after finding good support at 0.9552, suggesting a temporary low has been formed there and consolidation with mild upside bias is seen for this move to bring retracement of recent decline, hence gain to 0.9667-76 (61.8% Fibonacci retracement of 0.9738-0.9552 and previous support turned resistance) is likely, however, reckon upside would be limited to 0.9700 and price should falter below resistance at 0.9738.

In view of this, we are looking to turn long on pullback as the lower Kumo (now at 0.9591) should limit downside and bring another rise later. Below 0.9565-70 would abort and signal intra-day top is formed, risk retest of 0.9552 first.

GBP/USD - 1.2931

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2937

Kijun-Sen level                    : 1.2941

Ichimoku cloud top              : 1.2987

Ichimoku cloud bottom        : 1.2985

Original strategy :

Buy at 1.2865, Target: 1.3000, Stop: 1.2830

Position : - 

Target :  -

Stop : -

New strategy  :

Buy at 1.2865, Target: 1.3000, Stop: 1.2830

Position : -

Target :  -

Stop : -

Cable’s retreat after faltering below last week’s high of 1.3030 suggests consolidation below this level would be seen, hence weakness to 1.2916 support cannot be ruled out, however, reckon downside would be limited to 1.2865-70 and bring another upmove later, above said resistance at 1.3030 would signal recent upmove is still in progress and may extend further gain towards recent high 1.3048 but loss of near term upward momentum should prevent sharp move beyond 1.3075-80 today and reckon 1.3100 would hold on first testing. 

In view of this, would not chase this rise here and we are looking to buy cable again on pullback as 1.2900 should limit downside and bring another rally. Below previous resistance at 1.2861 would suggest a temporary top is formed instead, risk weakness to 1.2830-35 (50% Fibonacci retracement of 1.2640-1.3030) but support at 1.2794 should remain intact.

EUR/USD - 1.1345

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1357

Kijun-Sen level                  : 1.1357

Ichimoku cloud top             : 1.1404

Ichimoku cloud bottom      : 1.1392

Original strategy  :

Buy at 1.1300, Target: 1.1400, Stop: 1.1265

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1300, Target: 1.1400, Stop: 1.1265

Position : -

Target :  -

Stop : -

As euro’s retreat from last week’s high of 1.1446 has kept the single currency under near term pressure, suggesting initial downside risk remains for retracement of recent upmove to 1.1325-30 (38.2% Fibonacci retracement of 1.1139-1.1446), however, reckon support at 1.1292 (as well as 50% Fibonacci retracement) would hold and bring another rise, above 1.1400-10 would bring retest of said resistance at 1.1446, break there would extend recent rise to 1.1455-60 (61.8% projection of 1.1119-1.1389 measuring from 1.1292), then 1.1480.

In view of this, would not chase this rise here and would be prudent to buy euro on pullback as 1.1292 (previous support as well as 50% Fibonacci retracement of 1.1139-1.1446) should limit downside, bring rebound. Below 1.1270 would abort and signal a temporary top is formed, bring correction to 1.1250-55 first.

USD/JPY - 113.19

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 113.02

Kijun-Sen level                  : 113.11

Ichimoku cloud top             : 112.62

Ichimoku cloud bottom      : 112.40

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Although the greenback retreated after rising to 113.47 and consolidation below this level would be seen, reckon downside would be limited to the upper Kumo (now at 112.62) and 112.40 should hold, bring another rise later, above said resistance at 113.47 would signal recent upmove is still in progress for headway to 113.75-80 but loss of momentum should prevent sharp move beyond 114.00, bring retreat later.

In view of this, would not chase this rise here and would be prudent to stand aside for now. Below the lower Kumo (now at 112.40) would suggest top is possibly formed but break of 111.90-95 is needed to add credence to this view, bring test of 111.73 support first.

• European stocks opened lower as the Asian risk-off momentum carried over into European trading, but equities found their composure and recovered most of the opening losses. Oil's multi-day rally stalled after OPEC production increased as member exempt from supply guts boosted output. There is no trading in the US today because of the 4th of July holiday.
• ECB Board member Praet sounded dovish as he said patience and persistence is needed. Patience as inflation convergence with the target needs more time to show in the data and underlying price pressures continue to be subdued. Persistence as future inflation remains contingent on the current accommodative monetary policy.
• BoE's Ian McCafferty, who voted for a rate hike in the last policy meeting, confirmed his backing for a hike as the economy has not slowed as feared after the Brexit vote and inflation has been high.
• Sweden's Riksbank, long noted for its extreme dovishness despite the country's buoyant economy, has kept the benchmark interest rate on hold at -0.5%, and indicated it's in no hurry to change course. It did however, as expected, weaken the easing bias in its statement slightly.
• The number of people registered with Spain's unemployment offices dropped by 98.3K in June to 3.36M, the lowest number in eight years. The declines was lower than the expected 114.9K and lower than the previous decline of 111.9K.
• UK construction is still growing, but momentum appears to have slowed a little, with the latest PMI for the sector stumbling to 54.8 in June, from 56 in May, and just shy of forecasts. Survey respondents saw renewed risk aversion among clients reflecting concerns about the economic outlook and heightened political uncertainty.
• The BOE's regulatory authority (PRA) said the resilience of consumer-credit portfolios is reducing due to the combination of growth, lower pricing, falling average risk weights in internal-ratings models and increased high risk lending. Therefore, the PRA will require all regulated firms to provide evidence that these concerns are addressed.

Rates

Dull trading in the absence of US traders

German bonds opened higher, as Asian trading turned risk-off on geopolitical tensions, but soon shifted sideways as the risk off sentiment eased in European bond and other markets. At noon, the Bund tried to rally higher but the move missed panache. By 14h, the Bund hit the opening levels again. ECB Peter Praet spoke in the afternoon, but couldn't give bonds direction. In very low volumes (see graph), the Bund again failed to stay further away from the key support levels (see graph). At best, some bottoming out process has started. Worst case, it is only a temporary pause awaiting key US eco data later this week. Praet sounded more dovish than his boss recently, but markets have not forgotten that he asked his colleagues at the Governing Council to wait as long as possible before discussing the ECB exit policy in the media. The Austrian small auction of 1.5% 2047 bonds and the German auction of 0.5% IL 2030 Bund passed without disturbing the overall market. At the time of writing, the German yield curve steepened with yields ranging from -2 bps (2-yr) to +1.5 bp (30-yr). On intra-EMU bond markets, 10-yr yield spread narrowed again modestly for the peripherals.

ECB Praet called for persistence and patience because inflation convergence needs more time to show through convincingly in the data. He was optimistic that, when economic prospects brighten, inflation would converge to the 2% objective. He pointed to subdued core inflation and wanted to see the entire distribution of inflation expectations shift a fair distance to the right. He hailed the effectiveness of the ECB's APP programme and said the inflation outlook is contingent on easy financial conditions.

Currencies

Dollar extends cautious rebound

In Asia, it looked like a risk-off sentiment would hamper yesterday's USD rebound. However, European markets ignored the Asian tensions though. In a market deprived of important eco news, the dollar found its composure and continued an, albeit very gradual, rebound. EUR/USD trades in the 1.1340 area. USD/JPY is changing hands at around 113.25.

Overnight, risk sentiment deteriorated in Asia. Especially Hong Kong stocks were hit. A new North Korean missile test raised political uncertainty and spoiled investors sentiment. The yen profited slightly. USD/JPY dropped to the 113 area. EUR/USD also lost a few ticks and dropped to the mid 1.13 area. (EUR/JPY driven?).

European equities declined about 0.5% in the open. USD/JPY dropped to the 112.75 area. EUR/USD filled bids at around 1.1340. However, most of the zquity opening losses were almost immediately reversed.

European investors had no intention at all to join the Asian-inspired risk-off trade. European equities settled in a tight range close to, mostly slightly below yesterday's closing levels. The US currency kept a positive intraday bid, to some extent continuing yesterday's rebound. EUR/USD held a tight range in the mid 1.1350 area, close to this week's low. USD/JPY regained the 113 barrier.

With US markets closed, there was no big impetus for USD trading from the other side of the Atlantic this afternoon. ECB's Praet kept a soft tone. The euro lost marginal ground on his comments. US equity futures are trading with modest gains, the Nasdaq outperforming. Asian geopolitical concerns are far again, only US President Trump may still act and add fuel to the flames and put pressure on China? Whatever, the dollar remains well bid. EUR/USD trades in the 1.1340/45 area. USD/JPY is changing hands in the 113.25 area.

Sterling declines on USD softness

There was no big story to tell on GBP trading today. Cable and EUR/USD drifted south in lockstep, mirroring a cautious intraday USD rise. The UK construction PMI dropped slightly more than expected from 56.00 to 54.8, without any lasting impact on sterling trading. On the other hand, BoE's McCafferty in an interview reiterated his view that a rate hike would be prudent. His view is no surprise as he already voted for a rate hike in June. The impact on sterling trading today was limited. Even so, the internal debate within the Bank of England continues. EUR/GBP trades in the 0.8780 area. Cable drifted to the 1.2920 area.

4 positions were entered last week with total profit of 375 points and the positions are listed below.
 

21 Jun : AUD/USD - Long at 0.7595, exited at 0.7675 (+ 80 points)
21 Jun : EUR/JPY - Long at 123.80, exited at 125.30 (+ 150 points)
23 Jun : USD/CAD - Short at 1.3295, exited at 1.3130 (+ 165 points)
28 Jun : EUR/GBP - Long at 0.8800, exited at 0.8780 (- 20 points)
 

|                 AUD          EUR/JPY           EUR/GBP         CAD          GBP         GBPJPY
Jan             - 15             -275                - 35            -120
Feb           + 140            -17                  - 40             +11
Mar            - 20            +115                +132           - 19
Apr             + 30                                  - 40           +120                              + 45
May                             - 55                  +100          - 6                 -65             -60         
Jun            + 81           +150                - 10           +185             -120           +205
Jul            
Aug          
Sep              
Oct           
Nov         
Dec                                                                                                                                               
Y-T-D        + 216           - 82               +107            +463             -185            +190

3 positions were entered among all 4 currency pairs with total profit of 30 points and the positions are listed below:

28 Jun : GBP/USD - Long at 1.2845, exited at 1.2945 (+ 100 points)
29 Jun : USD/JPY - Long at 112.40, exited at 112.05 (- 35 points)
 3 Jul : USD/JPY - Short at 112.60, exited at 112.95 (- 35 points)

|                 JPY             EUR             CHF            GBP

Jan          + 167             - 85              - 10            + 50
Feb          + 200            +150             +93            - 59
Mar              -23              -70               -23            - 35
Apr             + 65            + 93             + 50            - 40
May            - 65             - 35             + 100          -175
Jun            -100               -10                - 10          +175
Jul             - 35
Aug         
Sep             
Oct         
Nov        
Dec                                                                                               
Y-T-D       + 208            + 38               +200           - 74