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The US dollar gave up some of the gains on Friday as investors booked profit after the markets digested the hawkish statement from the Fed. The FOMC's meeting last week saw the central bank raising the short term interest rates and also giving forward guidance to the markets about its intentions to unwind its massive balance sheet.

Economic data on Friday saw the building permits and housing starts numbers rising less than expected and slower than the previous month. The University of Michigan's consumer sentiment index also dipped from a revised 97.1 to 94.5, which added to the weakness.

Looking ahead, the lack of any clear economic data today will most likely see the markets trading flat. Fed speeches include FOMC member Dudley and Evans. Across the pond, the EU and the UK are scheduled to being the Brexit negotiations today which could add some volatility to the markets.

EURUSD intraday analysis

EURUSD (1.1194): EURUSD closed bearish yesterday with price action expected to continue to decline. The technical support level at 1.1171 was breached yesterday, and this suggests further downside in price. EURUSD could be expected to continue to slip towards 1.1018 - 1.0995 support level over the medium term. On the daily chart, there is potential for a short term retracement to occur. This could see EURUSD retesting 1.1171 price level where the broken support could turn to resistance in the near term. The bias shifts to the upside only on a close above this level.

GBPUSD intraday analysis

GBPUSD (1.2772): GBPUSD is seen trading below the 1.2800 resistance level. We can expect this price level to be tested in the near term, following which if it fails to breakout above this level, the bias shifts to the downside. The target at 1.2600 remains in place for GBPUSD, which could be tested in the near term. There is also a potential for price action to extend the declines down to 1.2400. On the 4-hour chart, we see the descending triangle pattern in place. This also coincides with the head and shoulders pattern from the daily chart, suggesting the downside in GBPUSD.

USDJPY intraday analysis

USDJPY (110.97): USDJPY closed with a doji pattern on Friday and a bearish close today could signal a reversal. If this happens, the reversal would occur below the resistance level of 111.61 and could keep USDJPY range bound within this resistance and support at 108.32. On the 4-hour chart, support is seen at 110.52. If we see a reversal at this level, then USDJPY will suggest near-term upside in price. This could send price testing the resistance level at 111.70. Alternately, failure to hold the declines at 110.52 will see USDJPY decline towards 109.50.

The euro was supported by news that French President Emmanuel Macron won a majority in Sunday's legislative elections. Sterling was steady ahead of the start of Brexit talks in Brussels today.

In terms of economic data, Japan had a surprise trade deficit in May. The overall trade balance was -203.4 billion yen last month, missing the 76.0 billion yen surplus expected and was below the prior 481.7 billion yen surplus.

The yen weakened after the Japanese data. This helped the dollar bounce slightly to 111.19 yen, to recover some of Friday's losses on the back of disappointing US data that took the pair down to 110.63 yen. The dollar index traded to as low as 97.11 in Asia. Data on Friday showed US homebuilding declined for a third month in May to the lowest in eight months, while another report showed consumer sentiment in the US unexpectedly dropped in early June. The market's focus today will be on a speech by New York Fed President William Dudley who kicks off a busy week of Fed speeches.

The euro was steady against the dollar, not making any notable moves despite news that President Emmanuel Macron's Republic on the Move (REM) party is heading for a victory following the final round of the legislative elections in France that took place last Sunday. This should give him a powerful mandate to push through pro-business reforms, which is seen as positive for the euro. The single currency tested the key $1.1200 level and traded within a range in Asia, between $1.1188 and $1.1204.

Sterling traded in a range against the dollar during the Asian session, between $1.2758 and $1.2783. Investors are being cautious as the Brexit negotiations are due to being in Brussels today. The UK's Brexit Secretary David Davis will be meeting the EU's negotiator Michel Barnier. In the aftermath of the UK elections which resulted in Prime Minister Theresa May losing her majority government, it would be interesting to see if her hard Brexit stance will prevail or if the UK will aim for a soft Brexit.

In commodities, spot gold touched a 3-1/2-week low in the Asian session, reaching $1,249.65 an ounce. WTI oil futures lingered near six-week lows and continued to trade below $45 a barrel on concerns of a global supply glut.

GBPNZD has been in a downtrend since the May 11 high of 1.8958 and prices have been falling in a descending channel to reach a low of 1.7438 last week.

Immediate support levels can be found at the June 14 low of 1.7438, followed by 1.7140 (March 1) and then at an important swing low at 1.6827.

A break above the 200-day moving average and a sustained move above the range high of 1.7766 (June 12) would target resistance provided by the base of the Ichimoku cloud at 1.8008.

The technical indicators are bearish, with oscillators like the RSI below 50 and MACD below zero. The market does not look like it can push any higher in the near term as prices are capped by the 200-day moving average at 1.7685.

Other technical studies are pointing to a bearish picture, as the market trades below the daily Ichimoku cloud. The tenkan-sen crossed below the kijun-sen line in May, giving a bearish signal and keeping the bias to the downside.

In the near-term, it appears prices are consolidating just below the 200-day moving average but the bias is skewed to the downside in the short-term. Looking at the bigger picture, there is no clear trend in the medium-term. Only a rise back above the cloud at 1.8580 would give a more bullish outlook.

EURUSD

The EURUSD was indecisive last week. The bias is neutral in nearest term. Overall I remain bullish, but need a clear break above 1.1285 to continue the bullish scenario targeting 1.1350 – 1.1425 region. Immediate support is seen around 1.1160, but key support remains at 1.1080 which is a good place to buy with a tight stop loss as a clear break below that area would continue the false breakout (above 1.1285) bearish pullback scenario, testing 1.0900 region and the major trend line support as you can see on my H4 chart below.

GBPUSD

The GBPUSD was indecisive last week. The bias is neutral in nearet term probably with a little bullish bias. The bullish pin bar on H4 chart still suggests a potential bullish scenario from here, but need a clear break above 1.2780 and the H4 EMA 200 (1.2820) to confirm the bullish scenario targeting 1.2900 – 1.3000/50 region. On the downside, only a clear break below 1.2635 would nullify the bullish bias testing 1.2500 region.

USDJPY

The USDJPY was indecisive last week. Price attempted to push lower, bottomed at 108.82 but whipsawed to the upside and closed higher at 110.85 and hit 111.13 earlier today in Asian session. The bearish scenario is no longer valid as price broke above the trend line resistance as you can see on my H4 chart below, but I am not bullish yet. The bias is bullish in nearest term testing 111.70 – 112.15. Immediate support is seen around 110.65/35. A clear break back below that area could lead price to neutral zone in nearest term but would give the bearish scenario another chance.

USDCHF

The USDCHF continued its bullish correction last week topped at 0.9770. The bias is bullish in nearest term testing 0.9815 key resistance which is a good place to sell with a tight stop loss targeting 0.9600 – 0.9550 area. Immediate support is seen around 0.9715. A clear break below that area could lead price to neutral zone in nearest term testing 0.9680/50 region. On the upside, a clear break and daily close above 0.9815 would end the bearish outlook testing 0.9900 area or higher.

Last week central bankers took many traders by surprise. It started with the Federal Reserve's monetary decision on Wednesday. The 25-basis points interest rate hike was fully priced in for several weeks nbut many market participants expected a dovish statement due to the softness in recent economic data. However, the statement was hawkish and Janet Yellen seemed to be confident in the path of economic growth. Similarly, for the BoE after the surprise election results the U.K. was left with a hung parliament and economic data sending warning signals. The expectation was for unanimous decision to keep rates unchanged but three out of the eight Monetary Policy Committee members voted for a rate increase. This indicates that policymakers are becoming more concerned about higher inflation though the economy is not moving in the right direction.

The dollar's reaction was mixed suggesting that investors are somewhat skeptical about the trajectory of the Fed's interest rates and the reduction of $4.2 trillion in Treasury bonds and mortgage-backed securities. The USD ended the week higher against JPY and EUR, lower against commodity currencies, and almost unchanged against GBP. The U.S. Treasury bonds also sent a similar message as yields declined across the curve. Investors have the right to be skeptical, especially after a series of weak economic data releases including retails sales, consumer prices, housing starts and consumer confidence. None of these reports justifies tighter monetary policy.

While only PMI surveys and home sales figures due to release from the U.S. the week ahead. The USD will likely take its cue from the Fed official talks. Six Fed members are scheduled to speak, including Lael Brainard, John Williams, Robert Kaplan, Patrick Harker, William Dudley, and Jerome Powell. If their tone seemed to be aligned with Janet Yellen then probably there's something the Fed knows which we don't and will be positive for the dollar. However, I think there's a high chance we'll get mixed messages thus making it hard to take a one-way bet on the greenback.

On the other side of the Atlantic, politics will be the key driver for the pound. While there's no tier one economic data on the U.K. calendar, official talks on the Brexit process will kick off on Monday and unfortunately May is not in a strong position as a hung parliament will make the negotiations more complicated. Although I believe the pound is fundamentally undervalued the currency may still face downside risks depending on how tough will be the EU stance.

Sunrise Market Commentary

• Rates: Slow start to trading week, with wildcard Dudley
  Today's eco calendar is empty suggesting low volume neutral trading in tight ranges. Fed governor Dudley speaks and is a wildcard for dealings. Dudley is a bellwether and close ally to Fed chairwoman Yellen. US yields (10y, 30y) remain close to key support levels, even as the Fed held on to the blueprint of its future tightening cycle last week.
• Currencies: USD looking for new impetus as post-Fed rebound stalls
  On Friday, the dollar returned part of its post-Fed gains as US eco data disappointed. The dollar needs strong eco data or positive Fed comments to regain more ground. These factors probably won't be available today. Sterling hovers off the recent lows as the Brexit negotiations formally start.

The Sunrise Headlines

• Asian stocks rose on Monday, shaking off Wall Street's uninspiring performance on Friday. The yen slumped against all its major peers. Oil continued to retreat, trading near the lowest level since November.
• Macron's party won an absolute parliamentary majority in France (likely 350 out of 577 seats). Macron's majority gives him a free hand to push through his program of liberalizing France's labour market closer European integration.
• Fitch confirmed the Portuguese BB+ rating, but raised its outlook to positive from stable, giving the country the perspective to regain its investment grade status that it lost in 2011. Positive fiscal developments supported the decision.
• Fed Kashkari explained his dissenting vote at the FOMC meeting. He stressed the lower core inflation readings and inflation expectations and preferred the risk of not raising rates too soon, as lower core inflation might not be transitory.
• Fed Kaplan, voter & firmly in moderate camp, said the Fed must be cautious and patient in raising rates further. He wants to see more progress on achieving the 2% target and wants more evidence of that before taking the next step. This suggests there is doubt within the Fed on the timing of the next move.
• Rumours suggest pressure on PM May within her own party has increased as constituency party bosses, especially remain-voters, have called on ministers and MPs to force May from power through a no-confidence vote..
• The eco-calendar is wafer-thin today with the only event of significance being the Business Roundtable of NY Fed president Dudley

Currencies: USD Looking For New Impetus As Post-Fed Rebound Stalls

USD rally hesitates

On Friday, EUR/USD reversed part of Thursday post-Fed decline as the two day global dollar rebound stopped. Poor US housing data and weaker than expected US consumer confidence hit the dollar. USD/JPY was initially better supported by a constructive equity sentiment, but the momentum also eased later on. EUR/USD closed the session at 1.1198. USD/JPY finished the week at 110.88.

Overnight, Asian equities show moderate gains between. The Japanese trade surplus narrowed more than expected, but it was due to a sharp rise in both imports (17.8% Y/Y) and exports (14.9%). The report is an indication of better domestic demand. However, the impact on the yen is limited. USD/JPY trades in the 111 area. The kiwi dollar extended its recent rebound on better than expected consumer confidence and improvement in the services sector. NZD/USD trades in the 0.7280 area. For now, the positive risk sentiment is barely helping the dollar. EUR/USD is changing hands close to 1.12.

There are no data with market moving potential today. Political events, technical considerations and global risk sentiment on will have to guide USD trading. The party of the French president Macron secured a solid majority. Sentiment on risk is constructive at the start of the new trading week. The tech correction that weighed on global equities last week is apparently easing. Is this set-up enough to support a USD rebound? First indications from Asian show no rush to buy the dollar.

After last week's relative hawkish Fed statement, the topside in EUR/USD looked better protected and a cautious sell-on upticks approach was advised. We hold on to that view. However, sustained USD gains need better US eco data, supportive Fed comments and/or higher US yields. It's unlikely to happen today. An equity comeback might be slightly USD supportive, but we don't expect big USD progress. in this respect we keep a close eye on USD/JPY. Recently the USD/JPY performance was mediocre even as several equity indices are trading near record levels.

Technical picture

The USD/JPY rally ran into resistance in early May. A mini sell-off pushed the pair below the previous top (112.20), making the short-term picture negative and driving the pair further down in the 108.13/114.37 range. The post-Fed USD rebound pushed the pair beyond a first minor resistance at 110.81. However, there are still no follow-through gains. If the break higher is confirmed, it suggests that the USD/JPY downside momentum is easing. For now, were remain cautious to forecast a U-turn.

Early May, EUR/USD failed to break below the 1.0821/1.0778 support (gap). Poor US data and US political upheaval propelled EUR/USD north of the 1.1023 range top to a corrective top in the 1.12 area. The pair tested the 1.1300 area going into the FOMC decision, but the test is rejected. So the Trump top/correction top at 1.1300/1.1366 proved to be a solid resistance. USD sentiment will have to become very negative to clear this hurdle. A return below 1.1023 would indicate that the upside momentum has eased.

EUR/USD: test off 1.1300/66 resistance rejected, but correction remains limited for now

EUR/GBP

Sterling off recent lows as Brexit-talks start

On Friday, sterling entered calmer waters, as . However, there was no followthrough sterling buying after Thursday's BoE vote. EUR/GBP rebounded slightly off the correction low (0.8720 area), but this move mostly mirrored a modest rebound of the euro after yesterday's EUR/USD decline. The pair closed the session at 0.8760. Cable also gained a few ticks and finished the week at 1.2783.

Overnight, Rightmove House prices declined more than expected at -0.4% M/M and + 1.8% Y/Y. The focus for sterling trading will remain on the political scene. PM May still tries to find support for a minority government, while at the same time, the official Brexit talks will start. There is growing support even from a part of May's party for a softer Brexit. That should be sterling supportive, but it contains the risk of more division in the conservative party and thus global UK political uncertainty. We don't bet on a sustained sterling rebound as long as political uncertainty remains as high as it is.

From a technical point of view, EUR/GBP extensively tested the 0.8854 area (2017 top), but a real break didn't occur. Some consolidation might be on the cards after last week's post BoE EUR/GBP correction. However, the broader technical picture hasn't changed. A return below the 0.8655 correction low would be an indication that the pressure on sterling is easing. Such a break will be difficult. A EUR/GBP buy-on-dips approach is still favoured

EUR/GBP shows no clear trend as Brexit negotiations formally start

Download entire Sunrise Market Commentary

USD/CHF - 0.9731

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9736

Kijun-Sen level                    : 0.9739

Ichimoku cloud top                 : 0.9744

Ichimoku cloud bottom              : 0.9706

Original strategy :

Buy at 0.9705, Target: 0.9805, Stop: 0.9670

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9705, Target: 0.9805, Stop: 0.9670

Position : -

Target :  -

Stop : -

As the greenback has retreated after rising to 0.9771 late last week, retaining our view that minor consolidation below this level would be seen and pullback to 0.9720 cannot be ruled out, however, reckon support at 0.9703 would limit downside and bring another rise later, above said resistance at 0.9771 would extend recent rise from 0.9613 low to resistance at 0.9808 but reckon previous resistance at 0.9825 would hold from here due to near term overbought condition, bring retreat later.

In view of this, we re looking to buy dollar on pullback as 0.9700-05 should limit downside. Below 0.9680 would defer and risk weakness towards said support at 0.9641 but only break there would abort and revive bearishness, this would also suggest the rebound from 0.9613 has ended instead, bring retest of this level later.

GBP/USD - 1.2778

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2772

Kijun-Sen level                    : 1.2782

Ichimoku cloud top              : 1.2756

Ichimoku cloud bottom        : 1.2754

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

The British pound has traded narrowly after faltering below resistance at 1.2818, retaining our view that further sideways trading would be seen and cable needs to penetrate said resistance at 1.2818 to signal the erratic rise from 1.2635 low is still in progress and may extend gain to 1.2845-50 (61.8% Fibonacci retracement of 1.2978-1.2635) but upside should be limited to 1.2870-80 and price should falter below 1.2900, bring another decline later. 

In view of this, would not chase this rise here and would be prudent to sell cable on further subsequent recovery, Below 1.2720-25 would suggest an intra-day top is formed, bring test of indicated support at 1.2690 but break there is needed to revive bearishness and signal the rebound from 1.2635 has ended, bring further fall to 1.2650, then towards said support at 1.2635.

Friday US Session Highlights

(US) MAY HOUSING STARTS: 1.09M V 1.22ME (lowest since Sept); BUILDING PERMITS: 1.17M V 1.25ME (lowest since Aug)

Amazon to acquire Whole Foods Market for $42/shr in cash in $13.7B deal

(US) JUN PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 94.5 V 97.0E

(US) May Labor Market Conditions Index Change: 2.3 v 3.0e

Politics

(JP) Japan PM Abe intends to refresh his cabinet in Aug/Sept amid approval rating decline but expected to keep Fin Min Aso and top spokesman Suga - Nikkei

(JP) Japan PM Abe's cabinet approval rating declines by 12 pct points to 49%; First time below 50% in over a year - Yomiuri; Support also declines in polls from Mainichi, Nikkei and Asahi'

(AU) Australia's opposition Labor party leads ruling Coalition by 53% to 47% margin in the latest survey - Australian press

(FR) President Macron’s "En Marche" party (with centrist ally) said to take 361 out of the 577 seats in the National Assembly following 2nd round of parliamentary elections – Ipsos Sopra-Steria

Key economic data:

(CN) CHINA MAY PROPERTY PRICES M/M: RISE IN 56 OUT OF 70 CITIES VS 58 PRIOR; Y/Y: RISE IN 69 OUT OF 70 CITIES V 69 PRIOR

(JP) JAPAN MAY TRADE BALANCE: - ¥203B (first deficit in 4 months) V + ¥43BE; ADJ TRADE BALANCE: ¥134B V ¥346BE

(NZ) NEW ZEALAND MAY PERFORMANCE OF SERVICES INDEX: 58.8 V 53.2 PRIOR

(NZ) NEW ZEALAND Q2 WESTPAC CONSUMER CONFIDENCE: 113.4 V 111.9 PRIOR; 8-month high

(KR) SOUTH KOREA MAY PPI M/M: -0.2% V -0.2% PRIOR; Y/Y: 3.5% V 3.8% PRIOR

Asia Session Notable Observations

Weekend activity quiet as investors continue to process last week's FOMC hike and reconcile Fed's expectations of transitory nature of inflation retreat against the less rosy market-based view.

Key political developments include the 2nd round of French parliamentary elections, giving Macron's En Marche party a comfortable margin to govern with absolute majority. In Japan, approval ratings for PM Abe's cabinet dipped below 50% for the first time in over a year on allegations of favoritism over plans to establish a veterinary school in a government-designated special zone for deregulation. Cabinet officials indicated Abe is willing to reshuffle his cabinet, but likely to retain Fin Min Aso and Spokesperson Suga.

In economic data, Japan May Trade fell into deficit for the first time in 4 months - export growth at 15% was below 16% consensus, while Import grew by 18% - higher than 15% expected. Shipments to Asia, China, US, and Europe were all up double digits. In China, annualized property price growth continued to slow to 10.4% across top 70 cities vs 10.7% prior.

Speakers and Press

China

(CN) S&P: China property sector may see a cyclical downturn in H2 of this year

(CN) China regulators said to have loosened trade zone restrictions - Chinese press

(CN) China National Development and Reform Commission (NDRC) wants banks in Beijing to cancel the interest rate floor for corporate loans, lowering loan costs – financial press

(CN) China’s National Development and Reform Commission (NDRC) to allow some coal miners to increase capacity – financial press

(CN) China may cancel restrictions on futures investment by financial companies – Chinese Press

Japan

(JP) Japan PM Abe's cabinet approval rating declines by 12 pct points to 49%; First time below 50% in over a year - Yomiuri; Support also declines in polls from Mainichi, Nikkei and Asahi

(JP) Japan cabinet spokesperson Suga: Not swayed by movements in opinion polls; PMs have the right to reshuffle cabinets - press

Australia / New Zealand

(AU) RBA Gov Lowe: Economy is capable of stronger growth and Australia will fall behind without sharp focus on reforms

Korea

(KR) South Korea's FTC to push for a meeting with top four conglomerates - press

(KR) South Korea President Moon reiterates plan to phase out nuclear power

(KR) South Korea to limit mortgage limits to 60% (current 70%) of mortgage value in Seoul and cities showing heavy buying; effective July 3rd

Asian Equity Indices/Futures (00:00ET)

Nikkei +0.7%, Hang Seng +0.9%, Shanghai +0.7%, ASX200 +0.3%, Kospi +0.4%

Equity Futures: S&P500 +0.2%; Nasdaq +0.4%, Dax +0.2%, FTSE100 +0.2%

FX ranges/Commodities/Fixed Income (00:00ET)

EUR 1.1190-1.1210; JPY 110.75-111.15; AUD 0.7615-0.7630; NZD 0.7250-0.7300; GBP 1.2760-1.2780

Aug Gold -0.2% at 1,255/oz; July Crude Oil -0.3% at $44.83/brl; July Copper +0.1% at $2.57/lb

(US) Weekly Baker Hughes US Rig Count: 933 v 927 w/w (+0.6%) (22nd straight weekly rise)

(CN) PBOC SETS YUAN MID POINT AT 6.7972 V 6.7995 PRIOR

(CN) PBOC to inject combined CNY120B v CNY290B prior in 7-day, 14-day and 28-day reverse repos

(AU) Australia sells A$400M in 3.75% 2037 bonds; avg yield 3.0158%; bid-to-cover 2.96x

(KR) South Korea MOF sells 10-yr bonds; avg yield 2.170%

Asia equities/Notables/movers

Hong Kong

Chevalier International Holdings (25) +3.6%; Issues positive profit alert for FY17

Yuan Heng (332) -1.5%; Issues profit warning, citing stiff market competition

Man Wah (1999) -2.6%; Comments on Muddy Waters report, says it stands by the 2017 annual report

Wanjia (401) -2.9%; Reports FY17 Net loss HK$25.8M v loss HK$13.8M y/y, Rev HK$985.9M v HK$1.32B y/y

Australia

AWE Lted (AWE) +9.6%; Reports primary and secondary targets were intersected at Waitsia

Australian Finance Group (AFG) +7.9%; Guides FY17 Net A$37.0-37.8M v A$26Me

ANZ (ANZ) +0.8%; Said to value its Wealth unit at about A$5B - Australian press

Japan

Toshiba (6502) +2.7%; Expected to finalize sale of chip unit to Bain-led group - Japanese Press

NEC (6701) +2.1%; Guides Q1 Op profit ¥100B v loss ¥29.9B y/y - Japanese Press

For the 24 hours to 23:00 GMT, the AUD rose 0.5% against the USD and closed at 0.7624 on Friday.

LME Copper prices rose 0.3% or $18.5/MT to $5655.5/MT. Aluminium prices declined 0.2% or $3.0/MT to $1861.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7622, with the AUD trading a tad lower against the USD from Friday's close.

Overnight, the Reserve Bank of Australia's (RBA) Governor, Philip Lowe, remained upbeat over Australian economy, stating that Australia's economic growth over the next couple of years will be a bit stronger than it has been recently.

The pair is expected to find support at 0.7589, and a fall through could take it to the next support level of 0.7555. The pair is expected to find its first resistance at 0.7643, and a rise through could take it to the next resistance level of 0.7663.

Moving ahead, market participants will focus on the Reserve Bank of Australia's (RBA) June meeting minutes, scheduled to release tomorrow.

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