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Highlights:

• Canadian GDP rose by an on-consensus 0.2% in April to build on a 0.5% gain in March.
• Goods-producing industries were flat while services activity rose 0.3%.
• Growth was broadly-based: 14 of 20 subsectors grew in April and 17 of 20 saw higher output relative to a year ago.
• A fire-related shutdown at an oil sands producer weighed on oil and gas extraction in April. An 11% increase in support activities for mining, oil and gas offset that decline.
• Arts, entertainment and recreation jumped 2.8% thanks to five of seven Canadian NHL teams making the playoffs.
• Manufacturing disappointed with a 0.9% decline in April. The earlier-released manufacturing sales data showed volumes rose 0.5% in the month. Output in the sector was still up 2% year-over-year.

Our Take:

Canadian GDP posted a solid 0.2% increase in April and there was further evidence of broadening growth across sectors which has been a significant factor in the Bank of Canada's recently rosier take on the economy. Decent momentum to start Q2 fits with our forecast for 2.7% growth in the quarter. That would be consistent with recent comments from BoC Governor Poloz that growth likely moderated relative to Q1's 3.7% pace but remained above trend. There was also further evidence of recovery in the energy sector, supporting the bank's contention that adjustment to lower oil prices is largely complete. Overall, today's GDP report is consistent with the Bank of Canada's recent narrative that broadly-based growth is steadily eroding excess capacity in the economy and that 2015's rate cuts have "done their job." The bank's more hawkish tone has markets pricing in about 70% odds of a rate hike as soon as July. April's GDP, if matched by an upbeat Business Outlook Survey later this morning, should reinforce market expectations.

Daily Pivots: (S1) 1.1394; (P) 1.1419 (R1) 1.1465; More.....

A temporary top is in place at EUR/USD with 4 hour MACD crossed below signal line. Intraday bias is turned neutral for consolidation. Downside of retreat should be contained by 1.1291 minor support to bring rise resumption. Break of 1.1444 will extend the larger up trend from 1.0339 to 1.1615 medium term resistance next.

In the bigger picture, the break of 1.1298 resistance further affirm medium term reversal. That is an important bottom was formed at 1.0339 on bullish convergence condition is seen in weekly MACD. Further rise would be seen to 55 month EMA (now at 1.1776). Sustained break there will pave the way to 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 next. This will now remain the favored case as long as 1.1118 support holds.

Daily Pivots: (S1) 0.9542; (P) 0.9571; (R1) 0.9586; More.....

A temporary low is in place at 0.9551 with 4 hour MACD crossed above signal line. Intraday bias is turned neutral for consolidation. Upside of recovery should be limited below 0.9770 resistance and bring another decline. Below 0.9551 will target 0.9548 support and below. We'd start to look for bottoming signal again as it approaches 0.9443 key support level.

In the bigger picture, USD/CHF is still 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. However, sustained break of 0.9443 will carry larger bearish implication and target 0.9 handle.

Daily Pivots: (S1) 111.67; (P) 112.29; (R1) 112.79; More...

Intraday bias in USD/JPY remains neutral for consolidation below 112.91 temporary top. Near term outlook stays cautiously bullish as long as 110.94 support holds. Sustained break of the near term channel resistance argue that whole pull back from 118.65 has completed at 108.12 already. In such case, further rise should be seen to 114.36 resistance for confirmation. However, break of 110.94 will argue that rebound from 108.81 has completed and will turn bias back to the downside for this support instead.

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) 1.2947; (P) 1.2978; (R1) 1.3036; More...

A temporary top is in place at 1.3029 as GBP/USD lost upside moment, with 4 hour MACD crossed below signal line. Intraday bias is turned neutral for some consolidations. Downside of retreat should be contained by 1.2849 support to bring another rally. Above 1.3029 will target 1.3047 resistance first. Break of 1.3047 will target 61.8% projection of 1.2108 to 1.3047 from 1.2588 at 1.3168.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern. Pull back from 1.3047 has completed after failing to sustain below 1.2614 resistance turned support. It argues that the corrective pattern from 1.1946 is still in progress for another high above 1.3047. But still, outlook remains bearish as long as 1.3444 key resistance holds. Larger down trend from 1.7190 is expected to resume later after the correction completes.

The forex markets are turning into profit taking consolidation mode as the half year end approaches. News from Eurozone are generally positive but the common currency pares back some of this week's sharp gain against Dollar and Yen. One the other hand, Canadian Dollar is still working hard to break through 1.3 handle against Dollar, following the rebound in oil prices. The Loonie is set to end June as the strongest one, followed by Aussie and than Kiwi. While Sterling surges this week on hawkish BoE turn, it's yet to recover the post UK election lost and would end as the third weakest one for the month, following Dollar and then Yen.

St Louis Fed Bullard: Fed can afford to wait and see

St Louis Fed President James Bullard said today that "the Fed can afford to wait and see what comes out of the political process". He acknowledged that some of US President Donald Trump's policies can provide growth but emphasized that "they've got to get them through Congress". Meanwhile, he noted that "the data has not been that great considering that we got going on this three hike process in December, March and June". And added that "you'd like to make a move like that on the back of pretty strong data for the U.S. economy but the consumption number was not that great."

Released in US session, US personal income rose 0.4% in May, above expectation of 0.3%. Personal spending rose 0.1%, in line with consensus. Headline PCE slowed to 1.4% yoy, below expectation of 1.5% yoy. Core PCE slowed to 1.4% yoy, meeting expectation. From Canada, GDP rose 0.2% mom in April, same as forecast. IPPI dropped -0.2% mom in May while RMPI dropped -1.8% mom.

ECB Lautenschlaeger: Should prepare for stimulus exit

ECB Governing Council member Sabine Lautenschlaeger said today that "although inflation is not yet on a stable path towards our objective, all the conditions are in place. And it's "just a question of time and patience" for ECB to remove policy accommodations. She urged that "this is why monetary policy should already be making preparations of a return to normal stance. And it should adapt its communications accordingly".

In Eurozone, headline CPI flash slowed to 1.3% yoy in June, down from 1.4% yoy but beat expectation of 1.2% yoy. Core CPI, however, jumped to 1.2% yoy, up from 0.9% yoy, and beat expectation of 1.0% yoy. German Retail sales rose 0.5% mom in May, above expectation of 0.3% mom. German unemployment rose 7k in June, worse than expectation of -10k fall. Unemployment rate was unchanged at 5.7%.

Also from Europe,UK GDP growth was finalized at 2.0% oy in Q1, unrevised. Index of services rose 0.2% 3mo3m in April. UK Gfk consumer sentiment dropped to -10 in June. Swiss KOF leading indicator rose to 105.5 in June.

BoJ JGB buying hit lowest since 2014

In Japan, BoJ bought only JPY 24.4T of JGBs in the three months to June, down from JPY 27.1T in the previous quarter. That's also the smallest amount since July-September quarter of 2014, when BoJ bought JPY 19.0%. Formally, BoJ is still aiming to buy JPY 80T of assets annually. But the figure may changed based on its "yield curve control" framework.

Released from Japan, national CPI core rose to 0.4% yoy in May, up from 0.3% yoy and met expectations. But that's still way off BoJ's 2% target. Tokyo CPI core, on the other hand, dropped to 0.0% yoy in June, down from 0.1% yoy and missed expectation of 0.2% yoy. Also from Japan, unemployment rate rose to 3.1% in May, household spending dropped -0.1% yoy, industrial production dropped -3.3% mom, housing starts dropped -0.3% yoy.

Staying in Asia pacific, New Zealand building permits rose 7.0% mom in May. China official PMI manufacturing rose to 51.7 in June. Non-manufacturing PMI rose to 54.9.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2947; (P) 1.2978; (R1) 1.3036; More...

A temporary top is in place at 1.3029 as GBP/USD lost upside moment, with 4 hour MACD crossed below signal line. Intraday bias is turned neutral for some consolidations. Downside of retreat should be contained by 1.2849 support to bring another rally. Above 1.3029 will target 1.3047 resistance first. Break of 1.3047 will target 61.8% projection of 1.2108 to 1.3047 from 1.2588 at 1.3168.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern. Pull back from 1.3047 has completed after failing to sustain below 1.2614 resistance turned support. It argues that the corrective pattern from 1.1946 is still in progress for another high above 1.3047. But still, outlook remains bearish as long as 1.3444 key resistance holds. Larger down trend from 1.7190 is expected to resume later after the correction completes.

Economic Indicators Update

EUR/GBP - 0.8799

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term up

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

 
Euro’s retreat after brief rise to 0.8882 earlier this week suggests a temporary top is possibly formed there and few days of consolidation would be seen with mild downside bias for a test of indicated support at 0.8763, break there would add credence to this view, bring retracement of recent upmove to 0.8730-35, however, still reckon downside would be limited to 0.8719 support.

In view of this, would be prudent to stand aside for now and look to turn short on recovery as 0.8840-50 should limit upside. Above 0.8882 would revive bullishness and extend recent upmove from 0.8304 low to 0.8900-10, having said that, as broad outlook remains consolidative, reckon current c leg of larger degree wave b should be limited to 0.8950 and price should falter well below 0.9000 psychological level.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.2986

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700

Trend:  Near term down

 
Original strategy       :

Sell at 1.3150, Target: 1.2980, Stop: 1.3210

Position: -

Target:  -

Stop: -

 
New strategy             :

Sell at 1.3115, Target: 1.2915, Stop: 1.3175

Position: -

Target:  -

Stop:-

As the greenback has recovered after falling to 1.2946 today, suggesting minor consolidation would be seen and corrective bounce to 1.3045-50 and possibly 1.3080 is likely, however, reckon 1.3115-20 would limit upside and bring another decline later, below said support would extend the fall from 1.3794 top (wave c of larger degree wave b top) to 1.2920, however, near term oversold condition should limit downside to 1.2900 and reckon 1.2870 would hold from here, risk from there has increased for a rebound later.

In view of this, would not chase this fall here and would be prudent to sell the pair again on recovery as 1.3115-20 should limit upside. Above 1.3160-70 would defer and suggest low is formed, bring a stronger rebound to 1.3215-20 and possibly towards 1.3260-65 but only break there would abort and signal a temporary low is formed instead, then test of resistance at 1.3308 would follow.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

The CAC index has edged upwards in the Friday session. The index is currently trading at 5181.50 and is up 0.48% on the day. On the release front, French consumer spending impressed with a 1.0% gain, beating the estimate of 0.5%. On the inflation front, French Preliminary CPI edged lower to 0.0%, matching the forecast. In the eurozone, CPI Flash Estimate edged lower to 1.3%, but this was above the estimate of 1.2%.

There was positive news on Friday, as consumer spending beat expectations and climbed 1.0% in June. This was the indicator's strongest gain since January 2015. A recent INSEE survey pointed to renewed consumer confidence, and it the renewed optimism has translated into stronger spending, a significant sign that the French economy continues to improve. INSEE also revised upwards its estimate for France's GDP for the first quarter to 0.5%, up from 0.4% earlier in June. Still, inflation levels remain stubbornly low, as underscored by French Preliminary CPI, which dropped to a flat 0.0%.

This week's ECB forum for central bankers in Sintra, Portugal was the talk of the markets. The meeting turned into the market-mover of the week (if not of the month), as the euro jumped 1.9%, while the pound soared 2.1%. The currencies posted the sharp gains after hawkish comments from Draghi and BoE Governor Mark Carney. Draghi was upbeat about the eurozone economy and put a positive spin on inflation, stating that "deflationary forces have been replaced by reflationary ones". Draghi said that the ECB's stimulus program was needed for now, but would be gradually withdrawn once inflation moved higher. The markets read Draghi's comments as a declaration that the ECB was planning to tighten policy. After the euro jumped, the ECB tried to dampen the stampede to snap up euros, with ECB sources saying that the markets had "misjudged" Draghi's remarks. This impeded the euro's rally, but only briefly. There was a similar reaction from the pound, which jumped above the 1.30 level for the first time since May after Carney left the door open for a rate hike. Carney appeared to backtrack from remarks last week, when he warned against rate increases in the near future. The impressive rallies by the euro and the pound could signal increased coordination among central banks, acccording to Stephen Innes, senior trader at OANDA:

"A game changer of a week as hawkish central bank commentary steamrolled the markets"… traders are now contemplating who will be next to join the lineup. No one wants to miss out on this party realising there's a co-ordinated policy shift afoot and the chance to catch the removal of an easing bias is far too seductive for traders to ignore."

The US economy slowed down in the first quarter, but there was some good news on Thursday, as the revised GDP reading was raised to 1.4%, better than the initial estimate of 1.2% in May. The improvement was attributed to stronger consumer spending and an increase in exports. Earlier in the year, the markets were braced for a very poor quarter, with the first estimate in April projecting a gain of only 0.7%. Will we see better numbers in the second quarter? That may be a tall order, as consumer spending and manufacturing numbers in Q2 have missed expectations. Housing numbers have been mixed, and inflation remains below the Fed's target of 2 percent. At the same time, the US labor markets remains very tight, with the unemployment rate at a 16-year low of 4.3%. Stronger global economic conditions have increased the demand for US products, boosting the export sector.

USD/CHF - 0.9583

Original strategy :

Sell at 0.9645, Target: 0.9545, Stop: 0.9680

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9645, Target: 0.9545, Stop: 0.9680

Position : -

Target :  -

Stop : -

As the greenback has recovered after marginal fall to 0.9552, suggesting minor consolidation would be seen and recovery to 0.9600-10 is likely, however, reckon resistance at 0.9647 would limit upside and bring another decline later, below said support would signal recent decline from 0.9771 top is still in progress, hence further weakness to 0.9545-49 (2 times extension of 0.9771-0.9676 measuring from 0.9738) would follow but reckon downside would be limited to 0.9525-30 (50% projection of 1.10100-0.9613 measuring from 0.9771) and 0.9500 should hold, price should stay above 0.9470 (61.8% projection), bring rebound later. 

In view of this, would not chase this fall here and we are looking to sell dollar on recovery as resistance at 0.9647 should limit upside. Only above previous support at 0.9676 (now resistance) would defer and suggest a temporary low is formed, risk test of another previous support at 0.9692.