Sample Category Title

The euro picked up from yesterday's gains as today's European session got underway. Its advance was temporarily halted though after anonymous sources out of the European Central Bank made reference to markets overinterpreting the ECB President Mario Draghi's comments the day before. Investors were also paying close attention to the ECB's forum in Sintra, Portugal, as major central bank heads, including Bank of England Governor Mark Carney, were participating in a panel discussion. Some remarks by Carney led sterling post gains similar to those recorded by the euro yesterday.

Draghi's comments yesterday continued to lift the euro during today's European session, pushing it to the one-year high versus the greenback. However, sources saying that that ECB head did not intend to strike a hawkish tone, but merely communicate that weak inflation ahead should not be of concern, led the single currency tumbling. Specifically, when these ECB sources from individuals who spoke on condition of anonymity became public, euro/dollar fell to 1.1291, its lowest for the day. Before the news, the pair was trading at 1.1374. Euro/dollar managed to recoup its losses afterwards, hitting a fresh high of 1.1390. It last traded a 0.3% up on the day.

Turning to sterling, the currency jumped with the release of BoE Governor's introductory remarks at the ECB forum in Portugal making reference to "some removal of monetary stimulus" likely becoming "necessary". Pound/dollar reached a three-week high of 1.2972 following the comments. It was last up more than 1.0% on the day. The British currency also posted gains relative to the euro, more than making up for yesterday's decline by 0.7%. Euro/pound last traded below the 0.88 handle, while earlier in the day it recorded a seven-and-a-half-month high of 0.8879.

In terms of data, pending home sales out of the US attracted most attention. Those fell 0.8% month-on-month in June, faring worse than the expected 0.8% gain and below the revised drop of 1.7% in May (from -1.3% before). This is the third consecutive month of declines for pending home sales. Versus the yen, the greenback ignored this worse-than-expected data point, posting a modest gain.

The dollar index traded 0.4% down on the day towards the end of the European session, close to the seven-month low of 95.97 it posted today. Dollar/yen was at 112.16. It started the day at 112.36.

In other notable forex market movements today, dollar/loonie hit a four-month low of 1.3049. The pair was last down 1.0% on the day with the Canadian dollar looking set for its third straight day of gains versus its US counterpart. The loonie was helped by hawkish comments by Bank of Canada Governor Stephen Poloz made during the day, which led market participants to revise upwards their expectations for a rate hike by the Bank in July.

Concluding with commodities, the Energy Information Administration's (EIA) weekly report showed US crude inventories rising by 118,000 barrels in the week to June 23, compared with forecasts for a decrease of 2.6 million barrels. By contrast, gasoline inventories fell by 894,000 barrels. This exceeded the expected decline of 583,000 barrels. WTI oil immediately fell after the report but posted a rebound soon after. It last traded 1.0% up on the day, at $44.70 a barrel. Brent crude was also up 1.0%, at $47.14 a barrel. Turning to gold, the precious metal gained today on the back of dollar weakness. It last traded at $1250.00 an ounce.

The British pound has posted considerable gains in the Wednesday session. In North American trade, GBP/USD is up 0.94%, trading at 1.2730. BoE Governor Mark Carney addressed the ECB Forum of Central Bankers, and British Nationwide HPI jumped 1.1%. In the US, Pending Home Sales declined 0.8%, well short of the forecast of +0.9%. On Thursday, the US releases Final GDP and unemployment claims.

The markets continue to keep a close watch on events in Sintra, Portugal. The picturesque city is hosting the ECB Forum, as central bankers have stepped in as market-movers this week. On Tuesday, the euro posted strong gains after ECB President Mario Carney sounded upbeat about the eurozone economy and shrugged off concerns about low inflation. On Wednesday, it was BoE Governor Mark Carney's turn in the limelight, as his comments have sent the pound higher. 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, has been solidly against a rate increase.

Investors are awaiting the Final GDP report out of the US on Thursday, and a weaker reading than expected could have a chilling effect on the US dollar. Preliminary GDP, which was released in May, came in at 1.2%, and this is the estimate for the upcoming GDP report. Recent economic data has been softer than expected, notably construction and manufacturing reports. US durable goods releases were weak in May. Core Durable Goods broke a streak of two straight declines, but the weak gain of 0.1% missed expectations. Durable Goods declined 1.1%, its sharpest decline since June 2016. The slowdown in orders of business equipment could weigh on second quarter growth. Construction numbers have been mixed, and Pending Home Sales disappointed on Wednesday, posting a third straight decline in the May report.

USD/JPY is trading quietly on Wednesday, as the pair trades at 112.20 in the North American session. On the release front, BoJ Governor Haruhiko Kuroda addresses the ECB Forum of Central Bankers in Sintra, Portugal. Later in the day, Japan releases Retail Sales, which is expected to drop to 2.6%. In the US, Pending Home Sales declined 0.8%, well short of the forecast of +0.9%. On Thursday, the US releases Final GDP and unemployment claims. It's a busy day in Japan as well, with the release of Tokyo Core CPI and Household Spending.

If recent communications from the BoJ are any indication, investors should not expect anything dramatic when BoJ Governor Kuroda participates on a panel at the ECB Forum. The bank has been very consistent in its message that the ultra-loose accommodative policy will stay in place until inflation levels rise closer to the BoJ's target of 2.0%. Despite years of stimulus from the BoJ, the inflation target remains elusive. However, rather than lower the target, the rigid bank has insisted that it's only a matter of time before the improved Japanese economy triggers higher inflation. At the same time, the bank is mindful that there is growing speculation that better economic conditions could translate into the bank winding up its stimulus package. In the bank's Summary of Opinion, released earlier this week, board members acknowledged that it was important for the BoJ to clearly communicate to the markets that the bank has no plans withdraw monetary stimulus anytime soon. Will Kuroda surprise the markets at the ECB forum and hint at a change in monetary policy?

It's report card day for the US economy on Thursday, as the US releases Final GDP for the first quarter. Preliminary GDP, which was released in May, came in at 1.2%, and this is the forecast for the upcoming GDP report. Recent economic data has been softer than expected, notably construction and manufacturing reports. US durable goods releases were weak in May. Core Durable Goods broke a streak of two straight declines, but the weak gain of 0.1% missed expectations. Durable Goods declined 1.1%, its sharpest decline since June 2016. The slowdown in orders of business equipment could weigh on second quarter growth. Construction numbers have been mixed, and Pending Home Sales disappointed, posting a third straight decline in May. If Final GDP falls short of the modest estimate of 1.2%, the dollar could respond with losses.

USD/CHF - 0.9614

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9613

Kijun-Sen level                    : 0.9617

Ichimoku cloud top                 : 0.9687

Ichimoku cloud bottom              : 0.9685

Original strategy :

Sell at 0.9645, Target: 0.9545, Stop: 0.9680

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9655, Target: 0.9555, Stop: 0.9690

Position : -

Target :  -

Stop : -

As the greenback has recovered after falling to 0.9579, suggesting minor consolidation would be seen and recovery to 0.9635-40 cannot be ruled out, however, reckon upside would be limited to 0.9655-60 and bring another decline, below said support at 0.9579 would signal the decline from 0.9771 top is still in progress and may extend weakness to 0.9550 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 previous support at 0.9676 should turn into resistance and cap dollar’s upside, bring another decline. Above another previous support at 0.9692 would defer and risk a stronger rebound to 0.9715-20 but only break of resistance at 0.9738-43 would signal low is formed. 

GBP/USD - 1.2926

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2883

Kijun-Sen level                    : 1.2865

Ichimoku cloud top              : 1.2747

Ichimoku cloud bottom        : 1.2743

Original strategy :

Bought at 1.2845, met target at 1.2945

Position : -  Long at 1.2845

Target :  - 1.2945

Stop : -

New strategy  :

Buy at 1.2860, Target: 1.2970, Stop: 1.2825

Position : -

Target :  -

Stop : -

As cable did rally after breaking resistance at 1.2861 (now support) on active cross-buying in sterling, adding credence to our bullish view that recent upmove from 1.2589 low is still in progress and may extend further gain to 1.2980-85 (1.618 times projection of 1.2589-1.2760 measuring from 1.2706), then towards psychological resistance at 1.3000, however, reckon upside would be limited to 1.3025-30 and price should falter below 1.3050 today. 

In view of this, we are looking to buy cable again on pullback as previous resistance at 1.2861 should limit downside. Below 1.2830-35 would defer and suggest an intra-day top is formed instead, risk weakness towards support at 1.2794 but 1.2760 (previous resistance turned support) should remain intact. 

EUR/USD - 1.1357

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1342

Kijun-Sen level                  : 1.1333

Ichimoku cloud top             : 1.1242

Ichimoku cloud bottom      : 1.1234

Original strategy  :

Buy at 1.1280, Target: 1.1395, Stop: 1.1245

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1275, Target: 1.1395, Stop: 1.1240

Position : -

Target :  -

Stop : -

The single currency retreated after rising to 1.1389-91, suggesting consolidation below this level would be seen and pullback to 1.1275-80 cannot be ruled out, however, reckon the upper Kumo (now at 1.1242) would hold and bring another rise later, above said resistance at 1.1389-91 would extend recent upmove to 1.1400-05 (61.8% projection of 1.0839-1.1296 measuring from 1.1119), then towards 1.1430 but overbought condition should prevent sharp move beyond 1.1450-60 and price should falter below 1.1500.

In view of this, would not chase this rise here and would be prudent to buy euro on pullback as 1.1275-80 should limit downside. Below 1.1245-50 would defer and risk test of previous resistance at 1.1220 but break there is needed to confirm top is formed instead, bring correction towards 1.1180-85 later. 

Sterling surged after BoE's governor Carney, speaking at European Central Bank conference in Portugal, said Bank of England is likely to raise interest rates as the British economy comes closer to operating at full capacity and will debate this in the coming months.

Pound eventually broke above thick daily close in fresh bullish acceleration and came close to pre-UK election high at 1.2977, posted on 08 June. Fresh bulls are also looking for retest of psychological 1.3000 barrier, after mid-May probes above were short-lived and stalled at 1.3047.

Renewed near-term bullish sentiment is reinforced technical studies which are entering full bullish setup on daily chart and supportive for further advance.

Also, close above daily cloud will be strong bullish signal.

However, hesitation on approach to strong resistance zone between 1.2977 and 1.3047 could be anticipated, with rising daily cloud expected to ideally contain.

Extended pullback should find support above converged 30/55SMA at 1.2836.

Res: 1.2977; 1.3000; 1.3047; 1.3125

Sup: 1.2900; 1.2863; 1.2836; 1.2800

USD/JPY - 112.14

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 112.13

Kijun-Sen level                  : 112.15

Ichimoku cloud top             : 111.73

Ichimoku cloud bottom      : 111.61

Original strategy  :

Buy at 111.80, Target: 112.80, Stop: 111.45

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 111.70, Target: 112.70, Stop: 111.35

Position :  -

Target :  -

Stop : -

The greenback has maintained a firm undertone after this week’s rally on active cross-selling in yen, adding credence to our bullishness and signal the rise from 108.82 low is still in progress, hence further gain to 112.75–80 (61.8% projection of 108.82-111.79 measuring from 110.95) would be seen, however, loss of momentum should limit upside and price should falter below 113.00-10 today, risk from there is seen for a retreat later.

In view of this, would not chase this rise here and we are looking to buy dollar on pullback as 111.70-80 should limit downside. Below minor support at 111.46 would defer and suggest top is possibly formed, risk weakness to 111.10-15, break there would confirm, then test of support at 110.95 would follow.

• Trading in most markets remained very volatile as investors pondered the impact of yesterday's 'hawkish' comments from ECB's Draghi. Rumours that the ECB president was misinterpreted caused an temporary reversal in yields and the euro, but the jury is still out where this move will end. European equities declined early this morning but reversed part of the early losses, currently trading with losses of less than 0.5%. US equities are in better shape and regain part of yesterday's loss in volatile trade.
• Italy's CPI fell by 0.2 % M/M in June. Today's preliminary reading marks a pullback from the revised 0.1% decline in May. On the year, prices rose by 1.2%, down from the 1.6% rise in May. Food and energy were the main reasons for the decline.
• Macron's cabinet will approve a broad outline of changes to the labour code and asks parliament for the authority to negotiate the details over the summer with unions and business groups. The government plans to introduce the new code in September by decree, to avoid getting tangled up in a long parliamentary debate.
• The UK's housing market regained some momentum in June, according to Nationwide's latest house price survey. This uptick was not enough to stop quarterly price growth slowing markedly. Average prices in Q2 were 2.8% higher than the same period last year, compared to 4.1% growth in Q1. London and the south-east suffered most.
• Britain's markets' watchdog announced radical changes to the country's asset management industry, seeking to improve transparency and value for money for customers. The proposed change is met with resistance from the industry, which is already under pressure because of Brexit and cheaper index-tracking funds stealing market share.

Rates

Draghi's comments contested

Mr. Draghi's comments yesterday continued to dominated markets and media, resulting in a volatile sideways oriented morning session. The Bund set a new low at 162.78, but traded sideways afterwards. The Bund spiked higher in the afternoon after sources stated that markets had misinterpreted Draghi's remarks yesterday. Investors didn't buy into the move after which return action occurred. Comments by BoE governor Carney, who said that the BoE may need to remove stimulus as slack erodes, helped reversing the core bond gains. A similar, but opposite, move occurred in EUR/USD.

The ECB might have been flabbergasted by yesterday's sharp reaction to Mario Draghi's comments, as it runs against the suggested prudent gradual turn. If the euro and yields surge significantly higher while equities fall, it tightens financial conditions even without any ECB action and makes the central bank's turn superfluous. We think Mario Draghi prepared a cautious turn in policy and the ECB now tries to control the sharp market reaction.

In a daily perspective, German yields fell between 0.5 (10-yr) and 2.5 (2-yr) bps, erasing a small part of yesterday's increase. The US yield curve steepened with yield changes ranging between -1.2 bps (2-yr) and +2.1 bps (30-yr). On the intra-EMU bond markets, yield spreads versus Germany narrow up to 2 bps with Spain (-6 bps) and Portugal (-7 bps) outperforming. The narrowing occurred mainly between the Bloomberg article was published.

The second tier data releases didn't impact trading in a lasting way, but nicely describe the current economic situation. On the activity side, French consumer confidence boomed, while M3 lending data confirmed a steady recovery of lending activity. On the other hand, Italian inflation (June) and German import prices (May) were down on the month, declined on a yearly basis and printed below expectations. The US trade deficit was near expectations and inventories above consensus.

Currencies

Draghi comments continue to spook EUR/USD

Yesterday's Draghi comments remained the dominant factor for EUR/USD trading. The pair extended yesterday's rally this morning, moving to the high 1.13 area. Market comments/rumours that the ECB-president was misinterpreted caused an intraday setback causing EUR/USD to trade in the 1.1360 area again. USD/JPY hovers around 112 on conflicting influences.

This morning, Asian equities traded with modest losses as the US Tech sell-off weighed. At the same time, yields remained under upward pressure. The oil rebound struggled. EUR/USD held near the rally highs in the mid 1.13 area. USD/JPY tried to sustain north of 112, but the momentum eased as correction of equities tended to support the yen.

There were few EMU eco-data with market-moving potential. FX traders continued to adapt positions to yesterday's developments (Draghi comments, delay US healthcare vote, Yellen comments…). Initially, European markets followed yesterday's trends in the US. European equities corrected further south, but the euro extended its Draghi-induced rebound. European yields held close to the recent highs, but the interest rate differentials between the dollar and the euro didn't narrow anymore. Still, EUR/USD touched a new correction top in the 1.1388 area. USD/JPY initially traded in the 112.40 area but gradually ceded ground as equity sentiment weighed.

At the onset of the US session, markets were wrong-footed by comments indicating that the ECB considered the market having misjudged yesterday's Draghi comments. The rumours triggered a sharp setback. European yields and the euro tumbled. EUR/USD filled bids below the 1.13 mark. Equities rebounded, reversing most of the intraday losses. EUR/USD staged a cautious rebound this afternoon, but the move accelerated as BoE's Carney also indicated that some removal of policy stimulation might be warranted. EUR/USD trades currently in the 1.1350/60 area in volatile trade.

USD/JPY showed no clear reaction as the intraday rebound in equities and the decline in core yields kept each other in balance. USD/JPY trades currently in the low 112.20 area. We are a bit surprised by the sharp reaction of the euro on what is currently nothing more than 'rumours'. We keep monitoring the speeches from the ECB in Portugal.

Sterling jumps on Carney U-turn

It was a calm session for GBP trading…. for most of the day. Cable held a sideways range in the lower half of the 1.28 big figure. BoE's Cunliffe indicated that the BoE had time to consider whether a rate hike is appropriated. His comments confirm the rift within the BoE, but the market reaction was limited. The price moves in EUR/GBP were in the first place driven by the swings in the euro in the wake of yesterday's Draghi comments. EUR/GBP traded in the 0.8870/80 area early this morning, but gradually lost a few ticks as sentiment on risk turned less negative. Early afternoon, the pair tumbled to the low 0.88 on the rumours that Draghi was misinterpreted by markets.

At the time of writing a new plot for sterling trading is popping up as BoE's Carney indicated that some tightening might be warranted if the growth/inflation trade-off lessens. Quite a big U-turn from recent comments of the BoE governor. Sterling is jumping sharply higher. Cable is currently trading north of 1.29 and EUR/GBP has returned below the 0.88 handle.

EUR/GBP - 0.8780

 
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

Original strategy  :

Bought at 0.8800, Target: 0.8900, Stop: 0.8760

Position : - Long at 0.8800

Target :  - 0.8900

Stop : - 0.8760

New strategy  :

Exit long entered at 0.8800,

Position : - Long at 0.8800

Target :  -

Stop : -

 
Despite intra-day brief rise to 0.8882, lack of follow through buying on break of previous resistance at 0.8866 and current sharp retreat suggest top is possibly formed and downside risk has increased for test of 0.8763 support, 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 exit long entered at 0.8800 and stand aside for now. Above 0.8845-50 would bring a retest of 0.8882 but break there is needed to signal recent upmove from 0.8304 low has once again resumed and extend further gain 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.