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Daily Pivots: (S1) 1.1862; (P) 1.1993; (R1) 1.2088; More...

GBP/USD's down trend is still in progress and intraday bias stays on the downside. Next near term target is 100% projection of 1.2666 to 1.1932 from 1.2405 at 1.1671. Break could prompt further downside acceleration to 161.8% projection at 1.1217. On the upside, break of 1.2164 minor resistance will delay the bearish case and turn intraday bias neutral first.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2666 resistance holds. Next target is 1.1409 low. However, firm break of 1.2666 will bring stronger rise back to 55 week EMA (now at 1.3103).

Daily Pivots: (S1) 1.0406; (P) 1.0435 (R1) 1.0452; More...

EUR/USD's down trend continues today and intraday bias stays on the downside for 1.0090 long term projection level. Break there will target 100% projection of 1.1184 to 1.0348 from 1.0773 at 0.9937, which is close to parity. On the upside, above 1.0276 minor resistance will turn intraday bias neutral and bring consolidations first. But recovery should be limited below 1.0614 resistance to bring another fall.

In the bigger picture, the break of 1.0339 long term support (2017 low) indicates resumption of whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. Sustained break there will pave the way to 100% projection at 0.8694. In any case, outlook will stay bearish as long as 1.0786 resistance holds, in case of recovery.

Selloff in Euro continues today, as it's marching towards parity against the greenback. Some noted that it's a perfect storm for the common currency, with stagflation risks, gas crisis, a prolonged war and fragmentation. Sterling is not too far behind with political uncertainties over Prime Minister Boris Johnson again, while Swiss Franc is also weak. Yen is staying is the strongest one, but Dollar is losing momentum to Aussie and Kiwi.

Technically, there are a couple of developments to watch. USD/JPY is still range bound but risk is growing for a break through 134.25 support to start a short to medium term correction. USD/CAD, on the other hand, is on the verge of breaking through 1.3077 to extend the medium term up trend. However, AUD/USD is resiliently holding on to 0.6762 support, and could stage a strong rebound through 0.6918 resistance to confirm near term reversal. It's unsure which ways these pairs could go and shape the next move in general.

In Europe, at the time of writing, FTSE is up 1.66%. DAX is up 1.35%. CAC is up 1.59%. Germany 10-yaer yield is down -0.113 at 1.071, heading back to 1%. Earlier in Asia, Nikkei dropped -1.20%. Hong Kong HSI dropped -1.22%. China Shanghai SSE dropped -1.43%. Singapore Strait Times dropped -0.01%. Japan 10-year JGB yield rose 0.0316 to 0.250.

BoE Pill unpacks MPC's most recent communications

In a speech, BoE Chief Economist Huw Pill unpacked the MPC's most recent communication about the outlook for monetary policy decisions.

The latest statement widened the discussions beyond the interest rate decision at August meeting. It reflected the "uncertainties" and "likelihood that we will have to take finely-balanced decisions over rates not just in August but also beyond that, in the face of two-sided risks to the economic outlook into next year."

By referring to "'any further increases in Bank Rate", the BoE talked about rate increases, not decreases. But at the same time, the reference to "any" increases "allows for the possibility of remaining on hold".

The focus on "indications of more persistent inflationary pressures" places emphasis on " identifying potential second-round effects in price and wage setting behavior". Thar prioritizes "the more persistent component of inflation developments over the headline spot measure."

By signaling preparedness to 'if necessary act forcefully in response' to indications of greater persistence in inflation, the statement reflected "both my willingness to adopt a faster pace of tightening than implemented thus far in this tightening cycle".

BoE Cunliffe sees signs UK economy is already slowing

BoE Deputy Governor Jon Cunliffe told BBC Radio today, "What we expect is, the cost of living squeeze will hit people's spending, and that will start to cool the economy. We can see signs that the economy is already slowing."

"We forecast over the next year or so that economic growth will be essentially flat," he said. "That's a very different picture to the picture we saw from 2009 to 2011. It's a picture of a slowing economy where people cut back on spending."

"It's our job to make sure that as this inflationary shock passes through the economy, at a time when we have also have a tight labor market, we don't find that a combination of a strong shock from abroad and energy prices combines with domestic factors and leaves us inflation being the new normal," he said. "People can have confidence that we will act to make sure that doesn't happen."

UK PMI construction dropped to 52.6, gloomy business outlook and worsening consumer demand

UK PMI Construction dropped from 56.4 to 52.6 in June, below expectation of 55.2. S&P Global noted that it's the weakest rise in construction output since September 2021. House building declined for the first time since May 2020. Business optimism dropped for the fifth month running.

Tim Moore, Economics Director at S&P Global Market Intelligence, said: "The gloomy UK business outlook and worsening consumer demand due to the cost of living crisis combined to put the brakes on construction growth in June. Commercial construction saw a considerable loss of momentum as clients exercised greater caution on new spending, while long-term infrastructure projects ensured a relatively resilient trend for civil engineering activity."

Eurozone retail sales rose 0.2% mom in May, EU flat

Eurozone retail sales rose 0.2% mom in May, below expectation of 0.4% mom. Volume of retail trade increased by 1.2% for non-food products, while it decreased by -0.2% for automotive fuels and by -0.3% for food, drinks and tobacco.

EU retail sales was unchanged for the moment. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were registered in Cyprus (+9.0%), Croatia (+1.7%) and Portugal (+1.5%). The largest decreases were observed in Ireland (-6.5%), Finland (-2.8%) and Austria (-2.2%).

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0406; (P) 1.0435 (R1) 1.0452; More...

EUR/USD's down trend continues today and intraday bias stays on the downside for 1.0090 long term projection level. Break there will target 100% projection of 1.1184 to 1.0348 from 1.0773 at 0.9937, which is close to parity. On the upside, above 1.0276 minor resistance will turn intraday bias neutral and bring consolidations first. But recovery should be limited below 1.0614 resistance to bring another fall.

In the bigger picture, the break of 1.0339 long term support (2017 low) indicates resumption of whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. Sustained break there will pave the way to 100% projection at 0.8694. In any case, outlook will stay bearish as long as 1.0786 resistance holds, in case of recovery.

Economic Indicators Update

The British Pound started a fresh decline from the 1.2165 resistance against the US Dollar. The GBP/USD pair traded below the 1.2100 support zone to enter a bearish zone.

The pair even declined below 1.2000 and the 50 hourly simple moving average. A low was formed near 1.1898 and the pair is now correcting losses. It climbed above the 1.1935 resistance level.

The first major resistance sits near the 1.2000 zone. If there is a clear upside break above the 1.2000 resistance, the pair could rise steadily towards the 1.2030 level in the near term. The next major resistance sits near the 1.2050 level.

On the downside, an initial support is near 1.1920 on FXOpen. The main support is forming near the 1.1900 level. A break below the 1.1900 support could even push the pair below the 1.1850 support.

Cable remains at the back foot but holding just above new 28-month low (1.1898) hit after Tuesday’s 1.37% drop).

Fresh bears cracked former low at 1.1933 (June 14) and 1.1930 (Oct 2016 low) but failed to register a daily close below on a first attempt.

Sterling was dragged by weakening Euro and pressured by recession fears and political turmoil in Britain, as two ministers of the Johnson’s cabinet resigned on Tuesday that increased odds that Boris Johnson will be replaced as Prime Minister before 2023.

Technical studies, in addition to negative fundamentals, remain bearish and support the action, though psychological 1.20 is still providing headwinds, with sustained break lower to signal continuation of a larger downtrend which was paused since 2016.

Break of 1.20/1.1930 support zone will open way towards pandemic low at 1.1409 (Mar 2020), with stronger acceleration to risk drop towards 1.10 and possibly unmask parity level, as many analysts already talk about such scenario.

Falling 10DMA (1.2134) should cap upticks and keep bears in play.

Res: 1.2000; 1.2045; 1.2114; 1.2170.
Sup: 1.1898; 1.1822; 1.1751; 1.1697.

Gold collapsed more than 2.3% in trading on Tuesday, the second steepest daily drop a year after falling 2.5% on June 13. The sharp decline yesterday was due to a combination of several negative factors.

The most obvious factor is the sharp rise in the Dollar on forex, where the DXY index (a basket of the world’s six most popular currencies) has renewed its highs over the last twenty years. Gold often acts as an “anti-dollar with leverage” for investors, so it was unsurprising to see such a market reaction yesterday.

The second possible explanation is a bearish signal, the “death cross”. The 50-day Moving Average fell below the 200-day MA on Monday, but we saw a full-swing market reaction only after liquidity returned after the long weekend in the USA.

The third factor was the continuing sell-off in industrial metals and the drop in Silver due to the worsening global economic outlook. Silver dipped below $19 an ounce on Wednesday morning, the lowest since July 2020.

The price of Gold is now at its low since late last year. This position simultaneously shows us buyer strength and tremendous potential for a decline.

That said, the fundamental factors behind Gold’s weakness are still in place, from a sharp tightening of monetary policy to weak demand for Gold from central banks and investors whose spending has increased significantly in recent months.

A critical intermediate stage in the Gold price decline looks to be the $1730 area, where a 61.8% correction from the 2018-2020 rally, from where Gold gets good demand from last August to September, is taking place.

A double top is forming on the long-term Gold charts, showing the inability of bulls to consolidate the price above $2000/oz the last cycle. A ‘double top’ pattern would form with consolidation below $1700, the March local lows. The final downside target in case of a double top could be the $1300 area, which could take up to six quarters to reach.

EURJPY extended Tuesday’s 1.3% loss to a new three-week low of 138.25 during the early European trading hours on Wednesday as the bearish technical signals remained well intact.

The RSI has further stretched its downfall below its 50 neutral mark, justifying negative sentiment in the market. Likewise, the MACD keeps decelerating below its red signal line, while the falling Stochastics are still above their 20 oversold level, signaling that the latest decline in the price is not overdone yet.

Despite the bearish vibes, the 50-day simple moving average (SMA) and the tentative ascending trendline drawn from the March low of 1.2438 could still act as a safety net against further depreciation today around 139.00. Such hopes could evaporate if the price slides below June’s low of 137.87, bringing the 38.2% Fibonacci retracement of the 124.38 – 144.24 uptrend into view at 136.65 instead. Falling below the latter, the pair could tumble towards the 50% Fibonacci of 134.31.

In order to eliminate negative risks and reinstate confidence in the bullish trend, the price will need to reclaim the 139.55 – 140.00 zone, where the 23.6% Fibonacci is also placed. If efforts prove successful, the bulls will push for a close above the 20-day SMA and the 142.00 level once again after failing to breach them this week. A durable move above those boundaries is expected to provide direct access to the crucial triple top at 144.20. Even higher, the door will open for the strong resistance line seen around 146.70 if the 145.00 psychological mark gives way.

Summarizing, EURJPY’s short-term outlook has turned gloomier following Tuesday’s plunge. A clear close below the trendline and the 50-day SMA could further bolster selling appetite.

The British pound has edged lower today after a massive slide of 1.18% yesterday. GBP/USD is trading at 1.1944 in the European session, down 0.14% on the day. Today’s highlight is the FOMC minutes from the June meeting – investors will be interested in what Fed policy makers had to say about inflation and upcoming rate hikes.

The US dollar enjoyed broad gains on Tuesday and sent the pound below the 1.1900 line for the first time since March 2020. Risk appetite has been waning, with jittery investors flocking to the safety of the US dollar. There were two developments on Tuesday which led to the pummelling of the British pound.

Bailey, Norway strike weighing on sterling

First, Bank of England Governor Bailey, speaking after the release of the BoE Financial Stability Report, warned that the economic outlook for the UK and the rest of the world had “deteriorated materially”, mainly due to the war in Ukraine. Bailey didn’t sugarcoat his message, stating that households and businesses were “vulnerable to further shocks” over the coming months. The BoE’s rate-hike cycle is yet to make a dent in inflation, with no signs of an inflation peak. One could make a strong argument that the BoE has raised the white flag on inflation, which certainly won’t enhance confidence in the central bank.

As well, Norway’s oil and gas workers announced a strike. This would have serious ramifications for the UK, which imports about a third of its gas needs from Norway. This resulted in a spike in gas prices in the UK yesterday and raised the spectre of an energy crisis. With the markets already worried about the UK headed for a recession, the news of the Norway strike soured investors on the pound. The Norwegian government has announced that it has ended the strike by imposing a settlement on both sides, but this could prove to be a temporary solution only.

GBP/USD Technical

• There is resistance at 1.2137 and 1.2243
• GBP/USD continues to test support at 1.1940. Below, there is support at 1.1870

Bulls are taking a breather under new two-decade high, following Tuesday’s 1.3% rally, sparked by fresh risk aversion on recession fears, while the greenback remains underpinned by expectations aggressive Fed, as the US central bank has more opportunities to continue policy normalization than other major central banks.

Markets are taking a breather ahead of release of FOMC June policy meeting minutes later today, which are expected to provide more clues about the central bank’s tightening path, with markets betting on Fed’s increasingly hawkish stance.

Profit-taking on stretched conditions is expected to push the price to the better levels to re-join bullish market.

Immediate support lays at 106.06 (broken upper 20-d Bollinger band) which so far holds today’s action, with more significant points at 105.54 (former top of June 15) and 105.04 (former top of May 13) and parallel-running ascending 10/20DMA’s at 104.76/50 respectively (also Fibo 61.8% of 103.18/106.56 upleg), where dips should find solid ground.

Res: 106.56; 106.81; 107.60; 108.47.
Sup: 106.06; 105.54; 105.04; 104.76.

Eurozone retail sales rose 0.2% mom in May, below expectation of 0.4% mom. Volume of retail trade increased by 1.2% for non-food products, while it decreased by -0.2% for automotive fuels and by -0.3% for food, drinks and tobacco.

EU retail sales was unchanged for the moment. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were registered in Cyprus (+9.0%), Croatia (+1.7%) and Portugal (+1.5%). The largest decreases were observed in Ireland (-6.5%), Finland (-2.8%) and Austria (-2.2%).

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