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On the hourly chart of GBP/USD at FXOpen, the pair started a decent increase above the 1.2850 resistance. The British Pound even cleared the 1.2900 barrier against the US Dollar.

The pair is now trading above the 1.2930 level and the 50-hour simple moving average. On the upside, the first major resistance is near 1.2965. If there is a clear upside break above the 1.2965 resistance, the pair could rise toward the 1.3000 level in the near term.

The next key resistance sits near the 1.3040 level, above which the GBP/USD pair might gain bullish momentum and revisit the 1.3200 zone.

On the downside, the first major support is near a connecting bullish trend line at 1.2930. The main support is forming near the 1.2850 level, below which the pair might move lower toward the 1.2760 support.

Daily Pivots: (S1) 1.3209; (P) 1.3253; (R1) 1.3274; More....

Intraday bias in USD/CAD stays neutral at this point as it's recovering after hitting 1.3202 support. On the upside, break of 1.3386 and sustained trading above 55 D EMA (now at 1.3358) will argue that whole corrective pattern from 1.3976 has completed with three waves down to 1.3115. Further rally should then be seen to 1.3653 resistance next. Nevertheless, firm break of 1.3202 support will bring retest of 1.3115 low instead.

In the bigger picture, price actions from 1.3976 are viewed as a correction to up trend from 1.2005 (2021 low) only. Hence, the up trend is in favor to resume through 1.3976 at a later stage. Nevertheless, another fall below 1.3115 will extending the decline from 1.3976 to 61.8% retracement of 1.2005 to 1.3976 at 1.2758, and raise the chance of bearish trend reversal.

Daily Pivots: (S1) 0.6660; (P) 0.6677; (R1) 0.6704; More...

AUD/USD edged higher to 0.6740 but quickly retreated. Intraday bias remains neutral first. On the downside, break of 0.6594 will resume the decline from 0.6898 to 0.6457 support next. Nevertheless, firm break of 0.6740 resistance will turn bias back to the upside for stronger rebound.

In the bigger picture, price actions from 0.7156 are seen as a correction to the rebound from 0.6169 only, rather than part of larger down trend from 0.8006 (2021 high). Break of 0.6457 could cannot be ruled out but downside should be contained above 0.6169. Meanwhile, nevertheless, break of 0.6898 resistance will argue that rise from 0.6169 is ready to resume through 0.7156.

Daily Pivots: (S1) 139.86; (P) 140.66; (R1) 141.16; More...

USD/JPY's fall from 145.06 is in progress today and intraday bias stays on the downside for 137.90 resistance turned support. Decisive break there will confirm the larger bearish case. On the upside, above 142.06 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another fall.

In the bigger picture, current downside acceleration, as seen in daily MACD, argues that fall from 145.06 is already the third leg of the corrective pattern from 151.93 (2022 high). Sustained break of 137.90 resistance turned support should confirm this case and target 127.20 (2023 low) and below. For now, this will remain the favored case as long as 145.06 resistance holds.

Daily Pivots: (S1) 0.8766; (P) 0.8822; (R1) 0.8851; More...

While further decline could be seen in USD/CHF, strong support is expected from 0.8756 to contain downside. On the upside, break of 0.8900 support turned resistance will turn intraday bias back to the upside for rebound. However, decisive break of 0.8756 will carry larger bearish implication.

In the bigger picture, fall from 1.1046 (2022 high) is seen as a leg in the long term range pattern from 1.0342 (2016 high). While further decline cannot be ruled out, strong support is expected from 0.8756 long term support to bring reversal. Firm break of 0.9146 resistance should confirm medium term bottoming.

Daily Pivots: (S1) 1.0981; (P) 1.1004; (R1) 1.1031; More...

EUR/USD's rally continues today and intraday bias stays on the upside. Current rally from 1.0634 is on track to retest 1.1094 high. Decisive break there will resume larger up trend from 0.9534 to 1.1273 fibonacci level. On the downside, below 1.0976 minor support will turn intraday bias neutral first. But further rally will remain in favor as long as 1.0834 support holds.

In the bigger picture, as long as 1.0515 support holds, rise from 0.9534 (2022 low) would still extend higher. Sustained break of 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 will solidify the case of bullish trend reversal and target 1.2348 resistance next (2021 high).

Markets

The up-move in US yields took a breather this week. Friday’s slightly softer than expected payrolls probably don’t change the Fed’s assessment on further tightening. However, with key resistance ahead (5.10% area 2-y; 4.09% area 10-y yield) it was time for bond shorters to reduce positions. On Monday, the NY Fed Survey on consumer expectations indicated that short term inflation expectations continued to fall 3.8% in June (from 4.1%). This might have accelerated the correction in yields going into today’s US June CPI release. US yields yesterday again ceded between 0.6 bps (5-y) and 2.5 bps (30-y). At the same time, European yields didn’t follow the setback in the US. German yields added between 0.9 bps (10-y) and 2.7 bps (2-y). At 3.32%, the German 2-y yield is closing in on the March top (3.38%). The 10-y yield is holding in the 2.65% area. The softening in US yields this time again supported a return higher in US and European equities. The S&P 500 and the Eurostoxx 50 gained about 0.7%. Brent oil ($79.5 p/b) cleared the $78 resistance, but for now this apparently isn’t a huge source of concern for (global) markets. On FX markets, the dollar continued to fight an uphill battle. This loss of momentum partially can be explained from softer US yields and a better risk sentiment post-payrolls . However, the US currency last week also failed to profit from a set of strong US eco data. EUR/USD closed at 1.101, nearing the June 22 top, the last hurdle for a retest of the 1.1095 YTD top. DXY yesterday closed at 101.73 to be compared with a ST top at 103.57 touched last week. The yen is also building an impressive comeback (USD/JPYU close 140.36, EUR/JPY 154.18). Sterling yesterday profited from a solid UK labour market report. The unemployment rate rose from 3.8% tot 4.0% and the June payrolls growth slightly disappointed. However, the 3M job growth to May (102 k) and especially higher than expected wage growth (7.3% Y/Y ex-bonus) is keeping pressure on the BoE to act decisively. The UK 2-y yield (5.42%, +5.6 bps) is holding near the cycle peak. Sterling fully profited with EUR/GBP (close 0.8512) at risk of sustainably breaking the 0.8518 YTD low.

This morning, Asian equities are trading mixed. The dollar stays in the defensive (DXY 101.42, EUR/USD 1.103). The yen continues its outperformance (USD/JPY 139.5). Later today, the Bank of Canada policy decision (25 bps hike to 5.0% expected) and the Fed Beige Book are interesting, but the market focus is on the US June CPI. Headline inflation is expected to decline from 4.0% to 3.1%. Core might ease to 5.0% from 5.3%. Despite the Fed recently indicating a likely further tightening, the ST market dynamics apparently hopes that a softer figure might reopen the debate on the amount of Fed tightening. We hold to the view that core inflation over time with justify the higher for longer paradigm. However, a softer than expected June figure still might extended the post-payrolls dynamics (‘technical correction’) in US yields in the dollar. The EUR/USD 1.1095 top might come on the horizon.

News and views

The Reserve Bank of New Zealand as expected kept the policy rate steady at 5.5%. Spending and inflation pressure are being constrained by the level of interest rates, but policy will need to be restrictive for the foreseeable future to ensure inflation returns to the 1-3% target range. Price pressures retreated from a 22-year high of 7.3% in 2022Q2 to a still much too high 6.7% in 2023Q1. Employment remains above its maximum sustainable level but the RBNZ is seeing signs of labour market pressures dissipating. Businesses meanwhile are reporting slower demand, including from abroad, and weak investment intentions. Domestic spending has eased but the ongoing recovery in tourism spending is supporting aggregate demand. The central bank left no clues for any potential further tightening. Instead it hinted at reaching the peak as projected by the May forecasts, provided inflation eases as expected. New Zealand money markets now see a stable rate through 2024Q2. The kiwi dollar quickly recovered from a kneejerk downleg to trade higher against a generally weak USD. NZD/USD trades comfortably above 0.62(2).

Hungary’s central bank deputy governor Virag in an interview with Inforadio yesterday said the MNB plans to stick to its 100 bps/month cut of the emergency rate, which currently stands at 16%. The cautious approach is needed to preserve forint stability, which is also critical in the fight against inflation. Virag expects price pressures to slow “on a very steep path until the end of the year” with single digits possible already in the autumn. The Hungarian currency since July had a bad run with EUR/HUF nearing the 390 barrier Friday last week. Since then, a US payrolls induced turnaround kicked in, with the pair currently trading around 378 again.

The US dollar extended losses after breaking a long-term ascending channel base yesterday. The British pound rallied on yet another stronger than expected wages growth data released yesterday morning. Average weekly earnings excluding bonuses increased 7.3% in the three months to May. And although the unemployment rate ticked up to 4%, it was because more Brits started looking for jobs, and not because people lost the jobs they had.

But don’t be jealous of Brits that get such a good jump in their pay because UK inflation is still too hot. The average mortgage rate rose to 6.6%, the highest since 2008, inflation in Britain is sitting at 8.7%, and according to truflation, prices grow at a speed that’s faster than 11%. The thing is, the robust wages growth partly explains why the Bank of England (BoE) is having so much pain fighting inflation, and that’s why yesterday’s data fueled the expectation of another 50bp hike from the BoE at its next meeting. The BoE’s policy rate is seen peaking at the 6.5/7% range by the Q1 of next year as predicted by many analysts. Cable hit 1.2970 level, the highest since last April, but whether this really could continue will depend on 1. where the US dollar will be headed after today’s CPI data in the short run, and 2. where the UK economy is headed if the BoE hikes rates to 6.5/7% range in the long run. Because the BoE hikes will continue pressuring the British housing market, and growth, and that could limit Cable’s topside potential following a kneejerk positive reaction.

Lower US CPI won’t be enough to soften the Fed hawks’ hand

The consumer price index in the US is expected to have fallen to 3.1% from 4% printed a month earlier. But unfortunately, it won’t be enough to prevent the Fed from further rate hikes, because the further fall in headline inflation to 3% is due to a favourable base effect on energy prices, while core inflation is expected to remain sticky at around the 5% mark - still more than twice the Federal Reserve’s (Fed) 2% policy target.

Plus, the rebound in oil prices hints that the risk of an uptick in headline inflation is building stronger for the coming months. The barrel of American crude rallied past the 100-DMA yesterday and is flirting with the $75pb level this morning. Trend and momentum indicators remain positive, and we are not in overbought territory just yet, meaning that this rally could further develop. The next natural target for the oil bulls stands at the 200-DMA, at $77pb level. In percentage terms, we are talking about a 12% rally since the start of the month, and the rebound is a response to the further production restriction from Riyadh and Moscow that are determined to push oil prices to at least $80pb level, and also Beijing’s stepping up efforts to boost the Chinese economy by fresh monetary and fiscal stimulus.

But despite the lower OPEC supply and news of fresh monetary and fiscal stimulus from China, US crude should see a solid resistance into $77/80 range as, yes, in one hand, OPEC+ is cutting supply to boost prices, and their supply cuts will dampen the global oil glut in H2 - even more so if China finally achieves a healthier recovery. But on the other hand, the Chinese recovery is not a won game just yet, while increased oil output outside the cartel helps keeping price pressure contained. American crude production is on track for a record year this year, and half of the new crude is coming from the US where companies like Devon Energy that deliver strong output thanks to improved efficiencies.

RBNZ stays pat, BoC to deliver a final 25bp hike

The Reserve Bank of New Zealand (RBNZ) kept its policy rate unchanged at 5.5%. Later today, the Bank of Canada (BoC) is expected to announce a final 25bp hike in this tightening cycle. The Fed however is seen hiking two more times as the strength of the US jobs data, combined with solid economic data, and little pain on US housing market thanks to life-long mortgages.

Therefore, it's interesting that the US dollar depreciates while there is nothing that hints at softening in the Fed’s hawkish policy stance. That, and the fact that we will soon be flirting with oversold market conditions in the US dollar hint at a rebound in the greenback, if backed with robust core inflation and strong economic data.

• As expected, the OCR remains at 5.5 %.
• The RBNZ displayed confidence and comfort with the level of the OCR.
• The RBNZ sees the balance of risks around its inflation forecasts as balanced.
• There was little in the RBNZ commentary for the hawks or the doves.
• Westpac still sees a 5.75 % OCR in August

The Reserve Bank left the Official Cash Rate unchanged at 5.5 % as universally expected by market analysts and as largely priced by financial markets.

The tone of the accompanying statement and MPC minutes displayed confidence and comfort with the level of the OCR. There were no indications of a change in view from that presented in the May Monetary Policy Statement where the RBNZ indicated that the OCR would remain on hold until the second half of 2024.

The RBNZ appears more confident in its forecasts, noting that "monetary conditions are constraining domestic spending as expected" and that the risks around the inflation outlook were evenly balanced. There appears to be some upgrade in the RBNZ's view on house prices which are now seen as "more balanced" compared to their previous forecasts of some further small fall in prices. On the other hand, the RBNZ acknowledges the growth outlook in China has weakened and that March quarter GDP was a bit weaker than forecast. It seems that the net of these factors has left their view unchanged and hence the stance of policy is seen as appropriate. Migration trends are assessed to have evolved as expected and are supporting the housing market, although interest rates are seen to be managing risks of a significant increase in prices.

There is little here for either the hawks or the doves. The kiwis are comfortably resting in the nest. The commentary was short, indicating a less controversial discussion at the MPC, and indeed there was a consensus for unchanged rates this time around. Keeping the commentary short probably also reflected a desire to not say anything that might disturb expectations, as we had indicated would be likely in our MPR preview.

Westpac remains of the view that the OCR will be increased by 25 basis points to 5.75 % at the August Monetary Policy Statement. As we noted in our MPR preview, there wasn't enough data since the May Statement to significantly shift the RBNZ's strong view for a protracted period of unchanged rates. However, the month ahead will see some key information in the form of the June quarter Consumers Price Index and Labour market report that should tell us more on the persistence of core inflation pressures and the strength of the labour market, and hence prospects for falling GDP through the second half of this year. Partial indicators suggest the labour market has not cracked yet. This raises the potential that the RBNZ will need to upgrade their growth forecasts for this year closer to those of our own, which will add some upside risks to the inflation outlook and would lengthen the already protracted period over which inflation will take to return to the target range. The kiwi may need to get a waddle on yet although the hurdle to get it moving is pretty high!

• 4-week of decline has almost reached 31,530 key medium-term support
• Oversold condition with the formation of hourly bullish “Hammer” Japanese candlestick
• Key intermediate resistances will be at 32,730 and 33,200

This is a follow-up analysis of our prior report, “Nikkei 225 Technical: Minor corrective decline in progress” published on 6 July 2023.

The price actions of the Japan 225 Index (a proxy of the Nikkei 225 futures) have extended its minor corrective decline within its medium-term uptrend phase and almost met the 31,530 support as per defined in our earlier report. It printed a current intraday low of 31,769 in today, 12 July Asian session at this time of the writing.

Interestingly, several positive elements have emerged that advocate for a potential bullish reversal in price actions at least in the short-term horizon.

The drop in price actions has reached the medium-term ascending channel support

Fig 1:  Japan 225 short-term & medium-term trends as of 12 Jul 2023 (Source: TradingView, click to enlarge chart)

The four weeks decline of -6.6% from its 16 June 2023 high of 34,015 has almost reached the lower boundary of the medium-term ascending channel in place since the 15 March 2023 low of 26,449 that is now acting as a support at 31,530.

The aforementioned 31,530 support also confluences closely with the 23.6% Fibonacci retracement of the medium-term uptrend from the 15 March 2023 low to the 16 June 2023 high and the 1.236 Fibonacci extension of the minor decline from the 16 June 2023 high to the 27 June 2023 low projected from 3 July 2023 high.

Oversold condition with bullish Japanese candlestick

The four weeks decline in the price actions has led the 4-hour RSI oscillator into an extremely oversold level of 23.3 level on 6 July 2023 which was the lowest oversold reading since the 15 March 2023 level of 20.9 that coincided with the start of the current medium-term uptrend phase of the Index.

Secondly, the current intraday price actions have also formed an hourly bullish “Hammer” Japanese candlestick pattern which suggests a potential change in sentiment from negative to positive on the short-term horizon.

These two elements (oversold reading in the 4-hour RSI coupled with hourly bullish “Hammer” Japanese candlestick) have taken shape right above the medium-term ascending channel support of 31,530 and the upward-sloping 50-day moving average.

Watch the 31,530 key medium-term pivotal support to maintain a potential bullish reversal with the next resistances coming in at 32,730 and 33,200 (also the 20-day moving average).

However, a break below 31,530 invalidates the bullish tone to expose the next support at 30,720.