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• GBPUSD broke key resistance level 1.2675
• Likely to rise to resistance level 1.2880

GBPUSD currency pair recently broke above the key resistance level 1.2675 (which stopped the previous sharp upward impulse wave (iii) at the start of May).

The breakout of the resistance level 1.2675 accelerated the C-wave of the active ABC correction (2) from the end of last year.

Given the strong daily uptrend and massive USD sales after Federal Reserve announced the rate hike pause, GBPUSD can be expected to rise further toward the next resistance level 1.2880 (target for the completion of the active impulse wave C).

• Gold reversed from support level 1940.00
• Likely to rise to resistance level 1980.00

Gold recently reversed up from the pivotal support level 1940.00 (which has been reversing the price from the middle of March).

The support level 1940.00 was strengthened by the lower daily Bollinger Band and by the 50% Fibonacci correction of the sharp upward impulse from March.

Given the clear daily uptrend, Gold can be expected to rise further toward the next resistance level 1980.00 (top of wave B from the end of last month).

• Brent reversed from key support level 72.00
• Likely to rise to resistance level 78.00

Brent crude oil recently reversed up from the key support level 72.00 (which has been repeatedly reversing the price from the middle of March), coinciding with the lower daily Bollinger Band.

The upward reversal from the support level 72.00 started the active minor impulse wave (iii).

Given the strength of the nearby support level 72.00, Brent crude oil can be expected to rise further toward the next resistance level 78.00 (which has been reversing the price from the end of May).

US stocks held onto losses after a data dump didn’t really give a clear signal about the economy.  Wall Street is suffering from a Fed hangover that won’t go away anytime soon as the economy will remain vulnerable as further tightening seems likely.  The US consumer remains robust, the labor market is slowly weakening, and the manufacturing sector is full of mixed signals.  This morning’s data won’t move any Fed members, but if we continue to see healthy spending throughout the summer, the Fed will need to deliver on that dot plot forecast that has penciled in two hikes. 

Now that we’ve seen so many mega-cap tech stocks overextend themselves, traders are reassessing some of the high-flying stocks, like Tesla. Tesla’s 13-day surge couldn’t last forever and that is leading to some profit-taking. Tesla’s pullback may have been triggered by the Fed’s hawkish pause, but it could also be a sign that some momentum behind the AI boon could be running out of steam for now. 

US Data

Retail spending is not cooling and should keep Wall Street nervous that the disinflation process could struggle going forward.  Strong buying confirms what everyone knows about the job market… it is too strong.  Retail sales in May rose 0.3%, much better than the expected decline of 0.2%.  Americans are buying everything from cars, furniture, electronics, and building materials. 

Weekly jobless claims were unchanged at 262,000, a high print compared to the consensus estimate range of 230-268K.  The labor market is still slowly weakening here. 

A couple Fed regional surveys painted a mixed picture.  The Empire manufacturing report posted an impressive rebound, while the Philly Fed outlook remained deeply in contraction territory.  The manufacturing part of the US economy is stabilizing here, but not at a level that is triggering inflation worries for goods pricing. 

FX

The Japanese yen is approaching the danger zone as FX traders anticipate the BOJ will disappoint in tightening when compared to the US.  Betting on the yen has been painful and if dollar-yen falls to 145, that could trigger action by Japan.

ECB

THE ECB raised rates by a quarter percentage point and raised their inflation forecasts for the next couple of years.  The statement noted that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary.  They confirmed that they will discontinue the reinvestments under the asset purchase program. 

The euro initially rallied on the raised inflation forecasts but that doesn’t change expectations that they are getting close to the end of this rate hiking campaign.  Lagarde signaled a hike in July and more importantly a determination to get inflation down.  The euro is now trending above all three key (200-, 100-, and 50-day) SMAs.  Critical resistance doesn’t emerge until 1.10 region.  

Markets

The ECB as expected lifted its key policy rates by 25 bps. The deposit rate now stands at 3.5%. The opening statement starts with the observation that inflation has been coming down combined with the confession that it is projected to remain too high for too long. Inflation forecasts faced a new upward revision compared to March. Changes to the headline figure are tiny: 5.4% for this year (from 5.3%), 3% next year (from 2.9%) and 2.2% for 2025 (from 2.1%). This hides a forceful increases in underlying core inflation though, which is the needle in the ECB’s compass: 5.1% for this year (from 4.6%), 3% for next year (from 2.5%) and 2.3% (from 2.2%) for 2025. In both cases, the ECB doesn’t expect inflation to drop sustainably to/below its 2% inflation target. Upside risks to inflation remain via both energy/food (Russia-related), wage agreements and rising inflation expectations while lower demand could have a dampening effect. The Governing Council remains inclined to extend its tightening cycle. Future decisions will ensure that key rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-target and will be kept at those levels for as long as necessary. Higher for longer is also for the ECB the key message. “Are we done? Have we finished the journey? No we’re not at our destination! We have more ground to cover! In the base scenario, we will hike the policy rate again by 25 bps in July.” ECB President Lagarde didn’t want to namedrop the September meeting yet, given the updated monetary policy report they’ll be receiving by then. “The terminal rate is something we’ll now once we’ll get there. The ultimate goal is bringing inflation down to 2%”. All else equal, we believe another 25 bps rate hike is our base case. To take attention away from the upwardly revised inflation path, the ECB said that past rate increases are being transmitted forcefully, that growth in loans is slowing and that tighter financial conditions will increasingly dampen demand.

European and US yields were rising in the wake of yesterday’s hawkish skip by the Fed and following the upward ECB CPI revisions. During the Q&A session, the tide turned completely. ECB Lagarde kept to the expected script (she had already pre-announced the July move back in May) but we think that especially mixed US eco data are to blame. Rising weekly jobless claims (2^nd week running) left a sour taste while import and export prices fell faster than expected. EUR/USD accelerated its upleg, closing in on 1.09. US Treasuries outperform German Bunds.

News & Views

Dutch TTF gas prices (€42/MWh) since June have started to bottom out from the lowest levels since April 2021 between €20-25/MWh. Air-conditioning demand has risen sharply as Europe continues to be in the grip of a heatwave. Today’s price surge of more than 30% at some point, however, was supply driven. The Netherlands is set to close Europe’s biggest gas field from October 1, Bloomberg reported citing sources. The field has been a critical source of gas, especially since Russia basically cut off all supplies in response to western sanctions. Closing it means one option less to ramp up flows should the energy crisis resurface next winter. The decision isn’t fully irrevocable though, the people said. In case of high need, wells can be reopened in about two weeks. The gas field has long been controversial as its extraction caused earthquakes and damaged homes in the area. PM Rutte just one week ago narrowly survived a vote of no-confidence with his handling of the topic at the center of the debate.

Switzerland’s State Secretariat for Economic Affairs (SECO) said consumer prices will rise 2.3% this year, after 2.8% in 2022. The new prediction is a tad lower than the 2.4% in March but nevertheless above the 2% target of the Swiss National Bank. It sees inflation easing to 1.5% in 2024 while the economy should grew at a 1.1% and 1.4% clip this year and the next. The Swiss National Bank meets next week (June 22). Its president Jordan was quoted in an interview published last Saturday as saying that the fight against inflation is not over yet and further tightening of monetary policy cannot be excluded. The SNB has raised the policy rate from -0.75% to 1.5% currently. Markets expect at least a 25 bps move next week with a 40% chance discounted for a hike double that size. On the Swiss franc, Jordan said the SNB has already allowed CHF to strengthen but he doesn’t want it “to appreciate too much”. EUR/CHF since May traded a tight range between 0.97/0.98.

Daily Pivots: (S1) 139.50; (P) 139.89; (R1) 140.49; More...

USD/JPY retreats notably in early US session. But further rally is still expected as long as 139.27 support holds. Current rise from 127.20 should now target 142.48 fibonacci level next. Nevertheless, break of 139.27 will now indicate short term topping and turn bias back to the downside.

In the bigger picture, rise from 127.20 is seen as the second leg of the corrective pattern from 151.93 high. Stronger rally would be seen to 61.8% retracement of 151.93 to 127.20 at 142.48. Sustained break there will pave the way back to retest 151.93. On the downside, however, decisive break of 137.90 resistance turned support will now be the first indicate that this rebound from 127.20 has completed already.

Daily Pivots: (S1) 0.8965; (P) 0.9012; (R1) 0.9059; More...

USD/CHF's fall from 0.9146 resumed after brief recovery and intraday bias is back on the downside for 0.8818 support. For now, strong support is still expected from 0.8756 to bring reversal. But risk will stay on the downside as long as 0.9146 resistance holds, in case of recovery.

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), which might have completed at 0.8818 already, just ahead of 0.8756 long term support. Sustained trading above 0.9058 support turned resistance should confirm medium term bottoming. Further break of 0.9439 resistance will confirm bullish trend reversal.

Daily Pivots: (S1) 1.2609; (P) 1.2654; (R1) 1.2707; More...

GBP/USD's rally continues today and the firm break of 1.2678 resistance should confirm resumption of whole up trend from 1.0351. Intraday bias stays on the upside for 1.2759 fibonacci level, and then 61.8% projection of 1.1801 to 1.2678 from 1.2306 at 1.2848. On the downside, below 1.2628 minor support will turn intraday bias neutral first.

In the bigger picture, as long as 1.2306 support holds, rise from 1.0351 medium term bottom (2022 low) is expected to extend further. Sustained break of 61.8% retracement of 1.4248 (2021 high) to 1.0351 at 1.2759 will add to the case of long term bullish trend reversal. However, firm break of 1.2306 will indicate rejection by 1.2759, and bring deeper decline, even as a correction.

Daily Pivots: (S1) 1.0783; (P) 1.0823; (R1) 1.0872; More...

EUR/USD's rally from 1.0634 short term bottom continues today and intraday bias stays on the upside. Corrective fall from 1.1094 could have completed already. Further rally would be seen back to retest 1.1094 high. On the downside, though, below 1.0773 minor support will mix up the outlook and turn intraday bias neutral first.

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).