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The Euro is consolidating within narrow range, after hitting fresh over one-year high at 1.1445 in early Friday, just ahead of target at 1.1455 (50% retracement of 1.2567/1.0340 descend).

The pair is looking for round-figure barrier at 1.1500 and may extend higher to fully retrace 1.1614/1.0340 (05 May 2016 / 03 Jan 2017 bear-leg), as firmly bullish technicals and sentiment are supportive.

Meanwhile, corrective action may precede fresh upside as daily studies are strongly overbought, but so far did not generate firmer bearish signal.

Also, profit-taking on strong three-day rally may add pressure on pair’s near-term action.

Corrective dips will face initial supports at 1.1424/00, followed by thick hourly cloud (spanned between 1.1383/08) and former strong barriers at 1.1290 zone, reinforced by converged daily Tenkan-sen/Kijun-sen, where deeper corrective action should find strong support.

Res: 1.1455, 1.1500, 1.1511, 1.1550
Sup: 1.1424, 1.1400, 1.1383, 1.1320

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

USDJPY jumped to 112.91 but failed to break through near term channel resistance and retreated. A temporary top is formed and intraday bias is turned neutral first. Near term outlook stays cautiously bullish as long as 110.94 support holds. Sustained break of the 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.

EURJPY edged higher in the previous five trading days, while it yesterday recorded a sixteen-and-a-half-month high of 128.82. The price has been consistently above the 50- and 200-day moving averages (MAs) since late April.

The positive alignment when the Tenkan-sen line (red) crossed above the Kijun-sen (blue) earlier this week is hinting to a positive near-term bias. However, it should be noted that the Kijun-sen is flat at the moment, perhaps suggesting that the bullish momentum has lost its steam. The RSI indicator is projecting a similar picture, as it is on the one hand well into bullish territory at 72, but on the other hand it is currently trending downwards from overbought levels.

Yesterday's high of 128.82, combined with the 129.00 handle, are likely to form a resistance area on the upside. A successful break above this area, would divert attention to the 130.00 level, a psychological level that could potentially act as a barrier to further up movements. A more sustained rally is likely to follow should the price climb above 130.00.

On the downside, another potential psychological level, namely the 127.00 mark, might act as support. Further down, additional support could come from the Tenkan-sen, currently at 126.23.

Looking at the medium-term outlook, it looks bullish at the moment with the price comfortably above the 50- and 200-day MAs. Moreover, both MAs are currently upward sloping, albeit the 200-day is only moderately positively sloped. Also, the considerable divergence between the price and the 200-day MA could be a sign of an overextended rally

Daily Pivots: (S1) 0.7594; (P) 0.7619; (R1) 0.7662; More...

AUD/USD retreats after hitting as high as 0.7711. Intraday bias remains on the upside for 0.7748 resistance and above. At this point, there is no clear sign of medium term range breakout yet. Hence, we'd be cautious on topping again as it approaches medium term fibonacci level at 0.7849. On the downside, below 0.7653 minor support will turn bias neutral and bring consolidations first. But near term outlook will remain bullish as long as 0.7534 support holds.

In the bigger picture, we're still treating price actions from 0.6826 low as a corrective pattern. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seen to 55 month EMA (now at 0.8116) and above.

On Thursday, the US Commerce Department released GDP (Annualized QoQ) showing a 1.4% annual rate compared to the 1.2% posted in the previous month. This slight increase shows that the US economy slowed less sharply in Q1 than expected, due to higher consumer spending and an increase in exports, which suggests a better growth outlook for the year. US Consumer spending rose to 1.1%, the weakest reading since Q2 of 2013 but almost double the 0.6% reported in May.

The underlying trend of a tightening labour market was reinforced by the latest US Labor Department report of the number of Americans filing for unemployment benefits last week rising slightly to 244K.

EUR surged to its highest in over a year on Thursday, whilst GBP, bond yields and global equities also climbed, as a plethora of hawkish comments from central bankers signaled the era of easy money might be coming to an end. EURUSD surged to as high as $1.1444 overnight, its strongest since May 2016. Currently EURUSD is trading around 1.1420.

USD weakness against JPY continued with data showing Japanese core consumer prices rose 0.4% in May from a year earlier in its fifth straight month of gains, although inflation remains well below the central bank’s 2% target. USDJPY fell to 111.727 overnight, after losing 0.2 percent on Thursday. It was heading for a 1.2 percent gain for the month, but is down 4.2% this year. Currently USDJPY is trading just above 112.00.

Bank of England Chief Economist Haldane mirrored the comments made on Wednesday by BoE Governor Carney by stating “the BoE needs to look seriously at hiking rates”. These comments added to recent GBP strength pushing GBPUSD to 1.30292 in early trading today. This is the first time in 5 weeks that cable has been above 1.30 and close to its highest levels in 9 months. GBPUSD is currently trading around 1.3010.

Having slipped to a 10-month low last week Oil has rebounded more than 7% as a weekly decline in US production eased concerns of a deepening global over supply. WTI and Brent were both up over 0.5% on the day, touching highs of $45.42pb and $48.04pb respectively. In early trading WTI is currently trading around $45.34pb and Brent is currently trading around $47.92pb.

Benefitting from USD weakness has seen Gold rise, hitting an early Friday high of $1,248.10 before retracing back to trade currently near $1,243.

U.S. inflation remains in focus today with the favorite Fed measure: the core PCE deflator. The markets are expecting the month-over-month number to ease to 0.1% for May and the annual rate slowing to 1.4%. Personal income and spending are also forecast to have grown more slowly than the 0.4% rise seen in April.

The US dollar continued to post losses yesterday as EURUSD and GBPUSD breached 1.1400 and 1.3000 levels respectively. The bearish sentiment in the market for the U.S. dollar was clearly evident by the rally that has maintained a strong momentum so far.

Yesterday, the final Q1 GDP report showed that the US economy advanced 1.4%. This was the third upward revision since the preliminary report. Despite the upbeat data, corporate profits declined. For the markets, the focus was all about central bank officials and the intention to tighten monetary policy.

Looking ahead, the economic data today will include UK's final revised quarterly GDP while Canada's monthly GDP numbers are coming out. The US PCE data is also due with core PCE expected to rise 0.1% on the month, slower than 0.2% previously. Weaker PCE alongside consumer spending and income could continue to add to the bearish sentiment for the US dollar.

EURUSD intraday analysis

EURUSD (1.1440): EUR/USD continued to surge higher with the current rally posting three consecutive days of gains. Price action has clearly breached the 1.1400 price level with support on the daily chart seen at 1.1200. On the 4-hour chart, the momentum remains strongly biased to the upside with 1.1450 likely to be the next target. Any reversals will need to show a strong confirmation alongside fundamentals that could validate the reversal in price. In the near term, buying dips in EURUSD remains the major theme. Immediate support at 1.1357 is seen followed by a dip to 1.1300. As long as EURUSD remains within this support zone, we could expect to see short-term gains continuing in the currency pair.

GBPUSD intraday analysis

GBPUSD (1.3021): GBPUSD has breached the 1.3000 level and is also strongly positioned to the upside. Support on the daily chart is seen at 1.2975 which could offer a near-term decline for prices. A daily close below 1.2975 could, however, signal a decline towards the next lower support level seen at 1.2800 - 1.2780. On the 4-hour chart, the GBPUSD price action shows a strong risk of correction with no support being tested between 1.2800 and the current levels of 1.3000. Therefore, long positions above 1.2976 should be cautious as this exposes the risk of a correction in prices.

USDJPY intraday analysis

USDJPY (111.88): USDJPY has managed to trade above 112.00 level, but price action closed with a doji yesterday. A bearish close today could potentially signal a correction to the downside. On the 4-hour chart, price action is seen testing the 111.72 level which marks the top of the bull flag pattern. Bounce off this level is required and a close above 112.44 for further continuation towards 113.36. Failure to break above the previous high could result in USDJPY staying range bound. In this case, the support at 111.72 remains critical as it could potentially break and confirm the downside in USDJPY.

EUR/JPY - 128.00

Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79

Trend: Near term up

Original strategy:

Buy at 127.45, Target: 129.45, Stop: 126.85

Position: -
Target: -
Stop: -

New strategy :

Buy at 127.00, Target: 129.00, Stop: 126.40

Position: -
Target:  -
Stop:-

As the single currency has eased after rising to 128.83 yesterday, suggesting consolidation below this level would be seen and pullback to 127.50 is likely, however, reckon 127.00 would limit downside and bring another rise later, above said resistance at 128.83 would extend recent upmove to 129.00-10, however, near term overbought condition should prevent sharp move beyond 129.50-60 and reckon psychological level 130.00 would hold from here, risk from there has increased for a retreat later. 

In view of this, we are looking to reinstate long on pullback as 127.00 should limit downside. Below support at 126.49 would defer and suggest top is possibly formed, risk correction to 126.00 and later towards 125.40-50.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7675

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term up

Original strategy :

Bought at 0.7595, Target: 0.7745, Stop: 0.7555

Position: - Long at 0.7595
Target:  - 0.7745
Stop: - 0.7555

New strategy :

Exit long entered at 0.7595

Position: - Long at 0.7595
Target:  -
Stop:-

Although aussie extended recent upmove to 0.7712, current retreat suggests consolidation below this level would be seen and pullback to 0.7645-50 is likely, however, reckon previous resistance at 0.7625 would limit downside and price should stay above 0.7575-80, bring another upmove probably next week.

In view of this, would be prudent to exit long entered at 0.7595 and look to reinstate long on pullback. Above said resistance at 0.7712 would extend recent upmove to chart resistance at 0.7750 but overbought condition should limit upside and price should falter below 0.7785-90.

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

Weekly
    •    Last Candlesticks pattern: Window
    •    Time of formation: 24 April 2017
    •    Trend bias: Up

Daily
    •    Last Candlesticks pattern: Hammer
    •    Time of formation: 18 May 2017
    •    Trend bias: Up



EUR/JPY – 128.19




As the single currency has surged this week and broke above previous resistance at 125.82, adding credence to our bullish view that medium term rise from 109.49 low is still in progress, hence upside bias remains for this move to extend further gain to 129.00-10, then 129.45-50 (100% projection of 109.49-124.10 measuring from 114.85), however, near term overbought condition should prevent sharp move beyond psychological resistance at 130.00 and reckon 130.50-60 would hold from here, risk from there has increased for a retreat to take place later.

On the downside, whilst initial pullback to 127.45-50 cannot be ruled out, reckon downside would be limited to 126.90-00 and the Tenkan-Sen (now at 126.25) would hold, bring another upmove later to aforesaid upside targets. A daily close below the Kijun-Sen (now at 125.62) would defer and suggest a temporary top is possibly formed instead, risk correction to 125.00-10, then 124.45-50, however, reckon downside would be limited to 124.00-10 and price should stay above support at 123.66, bring another upmove next month.

Recommendation: Buy at 127.00 for 129.50 with stop below 126.00.

On the weekly chart, this week’s rally above previous resistance at 125.82 looks set to form a long white candlestick, suggesting the medium term rise from 109.49 low has resumed and bullishness remains for this move to extend further gain to 129.00, then 129.45-50 (100% projection of 109.49-124.10 measuring from 114.85), however, reckon upside would be limited to psychological level at 130.00 and 131.00 should hold, the single currency should falter well below previous chart resistance at 132.33), risk from there is seen for a retreat to take place later.

On the downside, although initial pullback to 127.00-10 cannot be ruled out, reckon 126.50 would limit downside and euro shall head north again from there to aforesaid upside targets. A drop below said previous resistance at 125.82 (now support) would defer and risk correction to 125.00, then towards 124.50, however, still reckon downside would be limited to 124.00 and support at 123.66 should remain intact, bring another rally in Q3.

Sunrise Market Commentary

• Rates: German 10-yr yield ready for test of 0.5%
  EMU inflation could beat expectations, suggesting that the sell-off of the Bund can continue at least until the German 10-yr yield tests 0.5% resistance. Risks for the US PCE deflator are on the downside of consensus. If so, it will be interesting to see whether US Treasuries can profit or not. The current repositioning and Fed Yellen's credibility might hamper gains.
• Currencies: Dollar cannot find its composure
  EUR/USD continued its rally and is now closing in on the key resistance zone which, if broken, would end the 3-yr sideways trading that followed the downtrend of the pair. We think it is too early for such a break though and thus remain cautious about the possibility of substantial short term further EUR/USD gains.

The Sunrise Headlines

• US stock markets slid around 0.8% in a rising yield environment with Nasdaq underperforming as a selloff in tech stocks accelerated (-1.44%). Asian stock markets also lose up to 1% (Japan underperforming)
• UK PM May won parliamentary approval for her legislative program after being forced into a concession on abortion rights to stave off a defeat. This episode showed just how vulnerable May is and how quickly she can capitulate.
• Brexit is hurting sentiment, with both UK consumers and businesses expressing doubts about the outlook. GfK's consumer-confidence dropped to -10 in June (–5 in May) amid political uncertainty and declining spending power.
• Japanese inflation reading disappointed and remain very low, both the national May readings and the Tokyo June outcomes. The June Tokyo CPI ex-fresh food and energy even returned to negative territory (-0.2% Y/Y).
• Japan's unemployment rate rose to 3.1% in May, hitting its highest level this year while the ratio of jobs to applicants continued to rise from 1.48 to 1.49 (above expectations of a stabilisation).
• China's official manufacturing PMI came in at 51.7 (consensus 51). The services measure also rose, to 54.9 from 54.5. Economic activity is more robust than expected, giving China room to focus on financial risks and the property sector.
• Inflation readings are key today with Eurozone CPI (German data surprised positively yesterday) and US PCE deflator. Chicage PMI, Michigan consumer confidence (final), UK Q1 GDP (final),German unemployment and German retail sales are also on the calendar.

Currencies: Dollar Cannot Find Its Composure

Dollar can't find its composure in repositioning

The repositioning after Mr. Draghi turn towards the start of normalisation on Tuesday continued in various markets. The euro profited, helped by narrowing yield differentials, strong EMU economic sentiment data and higher than expected German inflation. Even equity weakness (Europe & US) favoured the euro yesterday. US eco data were near consensus and ignored. EUR/USD opened around 1.1380 and closed near the intraday highs at 1.1440. The fate of USD/JPY was different. European equity weakness had initially little impact on the pair, as higher US yields and wider rate differentials trumped weak equities and benefited the dollar. USD/JPY reached an intraday high at 112.93, but the safe haven motive took the driver's seat when WS hit the skids, allowing the yen to recover and leaving the pair little changed in the close at 112.18 (versus 112.30 previously).

Overnight, Asian equities lose up to 1%. Japanese equities underperform on weak Japanese eco data and modest safe haven-related yen strength. Chinese PMI's were better than expected, which confirms the economic improvement. However, will markets take notice during the great repositioning? USD/JPY weakened somewhat and trades just below 112. EUR/USD is nearly unchanged at 1.1440.

The US Personal income and spending report (May) will attract a lot of attention. The market expects a weak 0.1% M/M, which would be disappointing, but nevertheless keeps spending on track for 2.5%+ growth in Q2. Given the decline in May CPI, we might also see a small drop in the (core) PCE deflator, which might not gone unnoticed and is dollar negative. The Chicago PMI for May reached its highest level in more than 2 years (59.4). Given some weakening of the orders component, we expect a somewhat lower overall outcome for June (consensus: 58) The final Michigan consumer sentiment might be slightly revised higher from the preliminary 94.5 (based on a strong conference board confidence). Following higher than expected German (and Spanish) inflation figures, the risks for the EMU HICP inflation is on the upside of expectations (1.2% Y/Y for the headline and 1% Y/Y for the core).

The US eco data won't support the dollar, but higher EMU inflation may already have been partially (?) discounted after the upward surprise of German (and Spanish). Is the re-positioning on the possible change in the EMU and global turn to a more normal monetary policy over and thus will rate differentials stabilize? In that case, dollar weakening against the euro may be in for a pause/correction. We wouldn't pre-emptively position for such a scenario as the momentum in EUR/USD is still intact. The US dollar desperately needs good news (both on activity and price data) for markets to focus again more on the Fed's policy normalisation process. The dollar could perhaps get more support next week, with the payrolls and ISM.

Yesterday's intraday price development in USD/JPY was again disappointing. Core yields and yield differentials primed in the morning to the benefit of the dollar, before yen favourable equity weakness drove the action in the US session. We remain cautious on USD/JPY longs.

Technical picture: Euro prevails, USD struggles

Poor US data, US political upheaval and strong EMU eco data propelled EUR/USD higher since April, but a first test of the 1.1300/66 ahead of the FOMC decision was rejected. A combination of hawkish ECB comments and weaker eco data pushed EUR/USD this week above the 1.1300/66 resistance area with a new high at 1.1448 reached yesterday. We want a weekly close above the key resistance to consider it really broken. However, the key resistance area to watch out for is now the 1.15 area with eventual extensions to previous test of this zone at the 1.1616/1.1714 LT correction tops. This would end the long consolidation period that followed the sharp decline of EUR/USD in 2014/early 2015. Such a key area will be difficult to break for now. A drop below 1.1119 would suggest the pair enters calmer waters.

EUR/USD nears key resistance that if broken would make the LT trend euro positive. Difficult for now

EUR/GBP

No post-Carney follow-through gains for sterling

Following wide swings on comments by Draghi and Carney in previous days, the EUR/GBP cross rate was an area of perfect calm yesterday. The pair was locked in a very narrow range close to the 0.88 pivot. Cable followed EUR/USD higher and closed at the 1.30 level. Overnight the pair tried to force its way to the ST key resistance at 1.3048, but it retreated back to the 1.30 level where it is staying now.

Consumer confidence declined quite sharply in June, according to the GfK report published overnight. The Lloyds business barometer, on the contrary, improved to 30 in June from 27 previously. The report won't leave traces in the European session. Later today, the UK final Q1 GDP report will be released together with the current account, the index of services and total investment. We don't think these will affect sterling trading much. Sterling might get direction from the main crosses. All in all, we see EUR/GBP staying below the key resistance of 0.8854/66 and cable's fate will depend on EUR/USD. If the cross would move higher, cable may test the 1.3048 resistance but a break looks unlikely.

From a technical point of view, EUR/GBP set a minor top north of the 0.8854/66 resistance (2017 top), but a sustained break didn't occur. Recent setbacks will probably block further gains ST. A return below the 0.8655 correction low would indicate easing pressure on sterling. Such a break lower will be difficult. A EUR/GBP buy-on-dips approach remains favoured.

EUR/GBP: EUR/GBP topside test rejected, but danger new test not excluded. Prefer buy-on-dip

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