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

Intraday bias in GBP/USD remains on the downside as medium term down trend is in progress. Next near term target is 100% projection of 1.2666 to 1.1932 from 1.2405 at 1.1671. Break could prompt further 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).

Recession fear is currently the main theme in the markets, with Euro and Sterling hardest hit in the currency markets. Canadian Dollar is somewhat a distant third weakest, as dragged down by oil prices. Nevertheless, Aussie and Kiwi are relatively resilient. Yen and Dollar are at par in strength for now. But they could soon decide which one would be the runner winner. Also, some focuses will turn to US ISM services and FOMC minutes today. But overall sentiment will remain the key driver in the markets.

Technically, one focus is now on 134.25 minor support in USD/JPY. Break of this level is the first sign that 136.99 is a medium term top on bearish divergence condition in daily MACD. In this case, USD/JPY should have a deeper correction back into 126.35/131.34 support zone. If happens, that would be a signal of a larger, broad based come back of Yen, after being sold of for nearly the whole of the first half of the year.

In Asia, at the time of writing, Nikkei is down -1.04%. Hong Kong HSI is down -1.88%. China Shanghai SSE is down -1.48%. Singapore Strait Times is down -0.04%. Japan 10-year JGB yield is up 0.328 at 0.251. Overnight, DOW dropped -0.42%. S&P 500 rose 0.16%. NASDAQ rose 1.75%. 10-year yield -0.08 to 2.809.

BoE Tenreyro: QT won't have material impact on economy

BoE MPC member Silvana Tenreyro said "I wouldn't expect the effect of the unwind, of QT (quantitative tightening), to have a material impact on the economy. So far our experience with the beginning of the shrinking of the portfolio is consistent with that."

"We have been shocked by the biggest shock imaginable. Not only the pandemic but the build up to the war, the war itself, new waves of Covid affecting supply. These are called shocks because they are not anticipated. They are deviations from the model," she noted.

"Even if it would have been possible to predict the evolution of the pandemic, the war and so on I would not have thought we would have struck a materially different policy. Policy has to address the trade off."

WTI oil breaches 100, heading to 93 and below

Oil prices tumbled sharply this week, together with some commodities, on as recession fears mounted. WTI crude oil price have briefly breached 100 handle and remains soft.

Technically, the fall in oil price is not a surprise. Decline from 124.12 is seen as the third leg of the corrective pattern from 131.82. For now, as long as 55 day EMA (now at 110.15) holds, more downside is expected to 93.47 support, and possibly through 55 week EMA (now at 91.22).

Nevertheless, strong support should be seen at around 85.92 resistance turned support, which is close to 100% projection of 131.82 to 94.37 from 124.12 at 85.77 to complete the correction.

Looking ahead

Germany factory orders, Eurozone retail sales and UK PMI construction will be released in European session. Later in the day, US ISM services and FOMC minutes will take center stage.

GBP/USD Daily Outlook

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

Intraday bias in GBP/USD remains on the downside as medium term down trend is in progress. Next near term target is 100% projection of 1.2666 to 1.1932 from 1.2405 at 1.1671. Break could prompt further 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).

Economic Indicators Update

Oil prices tumbled sharply this week, together with some commodities, on as recession fears mounted. WTI crude oil price have briefly breached 100 handle and remains soft.

Technically, the fall in oil price is not a surprise. Decline from 124.12 is seen as the third leg of the corrective pattern from 131.82. For now, as long as 55 day EMA (now at 110.15) holds, more downside is expected to 93.47 support, and possibly through 55 week EMA (now at 91.22).

Nevertheless, strong support should be seen at around 85.92 resistance turned support, which is close to 100% projection of 131.82 to 94.37 from 124.12 at 85.77 to complete the correction.

BoE MPC member Silvana Tenreyro said "I wouldn't expect the effect of the unwind, of QT (quantitative tightening), to have a material impact on the economy. So far our experience with the beginning of the shrinking of the portfolio is consistent with that."

"We have been shocked by the biggest shock imaginable. Not only the pandemic but the build up to the war, the war itself, new waves of Covid affecting supply. These are called shocks because they are not anticipated. They are deviations from the model," she noted.

"Even if it would have been possible to predict the evolution of the pandemic, the war and so on I would not have thought we would have struck a materially different policy. Policy has to address the trade off."

DXY:

On the H4, with RSI moving along an ascending trendline and prices moving along the ascending trendline, we have a bullish bias that prices will drop and rise from 1st resistance at 105.794 where the pullback resistance, 38.2% fibonacci retracement and 78.6% fibonacci projection are to 2nd resistance at 108.455 in line with 100% fibonacci projection and 100% fibonacci projection. Alternatively, price may break 1st resistance structure and drop to 1st support at 103.401 where the horizontal swing low support, -27.2% fibonacci expansion and 50% fibonacci retracement are.

Areas of consideration:

• H4 time frame, 1st resistance at 105.794
• H4 time frame, 1st support at 103.401

XAU/USD (GOLD):

On the H4, with prices moving below the ichimoku indicator and along a descending trendline, we have a bearish bias that prices will drop to our 1st support at 1760.80 where the horizontal swing low support and 127.2% fibonacci extension are. Once we have downside confirmation of price breaking 1st support structure, we would expect bearish momentum to carry price to 2nd support at 1721.41 in line with swing low support, 78.6% fibonacci projection and 161.8% fibonacci extension. Alternatively, price could rise to our 1st resistance at 1781.88 in line with overlap resistance and 23.6% fibonacci retracement.

Areas of consideration:

• H4 time frame, 1st Resistance at 1781.88
• H4 time frame, 1st Support at 1760.80

GBP/USD:

On the H4, with prices moving below the ichimoku indicator and within the descending channel, we have a bearish bias that price will drop to our 1st support at 1.19313 where the horizontal pullback support and -27.2% fibonacci expansion are. Once we have downside confirmation that price has broken 1st support structure, we would expect bearish momentum to carry price to our 2nd support at 1.18163 where the 161.8% fibonacci extension, -61.8% fibonacci expansion and 100% fibonacci projection are. Alternatively, price could rise to intermediate resistance at 1.19762 in line with the pullback resistance and 38.2% fibonacci retracement. Should price break intermediate resistance structure, we would have a bullish bias that price will rise to 1st resistance at 1.21637 where the 50% fibonacci retracement and swing high resistance are.

Areas of consideration:

• H4 1st resistance at 1.21637
• H4 1st support at 1.19313

USD/CHF:

On the H4, with price moving above the ichimoku cloud, we have a bullish bias that price will rise from our 1st support at 0.96375 where the horizontal pullback support is to our 1st resistance at 0.97334 in line with the horizontal swing high resistance and 38.2% Fibonacci retracement. Alternatively, price may break 1st support and head for 2nd support at 0.95817 where the horizontal pullback support.

Areas of consideration

• 1st support level at 0.96375
• 1st resistance level at 0.97334

EUR/USD :

On the H4, with price moving in a descending trendline and below the ichimoku cloud, we have a bearish bias that price will continue to drop from the 1st resistance at 1.03615 at the pullback resistance in line with the 61.8% fibonacci projection to the 1st support at 1.01838 in line with the 161.8% fibonacci extension and 100% fibonacci projection. Alternatively, price may reverse and break the resistance to rise to the 2nd resistance at 1.05951 at the pullback swing high in line with the 61.8% fibonacci retracement and 61.8% fibonacci projection.

Areas of consideration :

• H4 1st resistance at 1.03615
• H4 1st support at 1.01838

USD/JPY:

On the H4, with price breaking out from an ascending channel and moving below the ichimoku indicator, we have a bearish bias that price will drop to our 1st support at 134.292 in line with the swing low support and 23.6% fibonacci retracement. Once there is downside confirmation that price has broken past the 1st support, we would expect bearish momentum to carry price to our 2nd support at 131.255 where the 50% fibonacci retracement and overlap support are. Alternatively, price may rise to 1st resistance at 136.706 in line with the swing high resistance, 127.2% fibonacci extension and 78.6% fibonacci projection.

Areas of consideration:

• H4 time frame, 1st resistance at 136.706
• H4 time frame, 1st support at 134.292

AUD/USD:

On the H4, with price moving below the ichimoku cloud, ina descending trendline and in a descending trend channel, we have a bearish bias that price will drop from the 1st resistance at 0.67647 at the swing low in line with the 100% and 61.8% fibonacci projections to the 1st support at 0.66648 in line with the -61.8% fibonacci extension and 100% fibonacci projection. Alternatively, price may reverse off the 1st resistance and rise to the 2nd resistance at 0.68884 in line with the swing high and 78.6% fibonacci retracement.

Areas of consideration

• H4 1st resistance at 0.67647
• H4 1st support at 0.66648

NZD/USD:

On the H4, with price moving below the ichimoku cloud, in a descending trendline and in a descending trend channel, we have a bearish bias that price will drop from the 1st resistance at 0.61243 at the swing low in line with the 78.6% fibonacci projection to the 1st support at 0.60146 in line with the 161.8% fibonacci extension and 100% fibonacci projection. Alternatively, price may reverse off the 1st resistance and rise to the 2nd resistance at 0.62470 in line with the swing high and 61.8% fibonacci retracement.

Areas of consideration:

• H4 time frame, 1st support at 0.60146
• H4 time frame, 1st resistance at 0.61243

USD/CAD:

On the H4, with price moving above the ichimoku cloud, we have a bullish bias that price will rise from our 1st support at 1.30064 where the horizontal pullback support is to our 1st resistance at 1.30799 in line with the horizontal swing high resistance. Alternatively, price may break 1st support and head for 2nd support at 1.29529 where the horizontal pullback support and 50% Fibonacci retracement.

Areas of consideration:

• H4 time frame, 1st resistance at 1.30799
• H4 time frame, 1st support at 1.30064

OIL:

On the H4, with price moving below the ichimoku cloud, we have a bearish bias that price will drop to our 1st support at 97.63 where the horizontal swing low support and 127.2% Fibonacci extension are from our 1st resistance at 114.09 in line with the horizontal pullback resistance and 38.2% Fibonacci retracement. Alternatively, price may break 1st resistance and head for 2nd resistance at 104.61 where the horizontal pullback resistance and 50% Fibonacci retracement is.

Areas of consideration:

• H4 time frame, 1st resistance of 114.09
• H4 time frame, 1st support of 97.63

Dow Jones Industrial Average:

On the H4, with price expected to reverse off the ichimoku cloud, we have a bearish bias that price will drop to our 1st support at 30422 where the horizontal swing low support and 61.8% Fibonacci retracement are from our 1st resistance at 31216 in line with the horizontal swing high resistance and 50% Fibonacci retracement. Alternatively, price may break 1st resistance and head for 2nd resistance at 31866 where the horizontal swing high resistance and 61.8% Fibonacci retracement is.

Areas of consideration:

• H4 time frame, 1st resistance of 31216
• H4 time frame, 1st support of 30422

Short term Elliott Wave view in Nasdaq suggests the decline to 11068.5 ended wave (3). Wave (4) corrective rally ended at 12261.78 with internal subdivision as a zigzag Elliott Wave structure. Up from wave (3), wave A ended at 11678.25 and pullback in wave B ended at 11320.50. Final leg higher wave C ended at 12261.78 which also completed wave (4). The Index has turned lower in wave (5), but it still needs to break below wave (3) at 11068.5 to rule out a double correction.

Internal subdivision of wave (5) is unfolding as a 5 waves impulse structure. Down from wave (4), wave ((i)) ended at 11971 and wave ((ii)) rally ended at 12174.25. Index then resumes lower in wave ((iii)) towards 11564.50 and wave ((iv)) rally ended at 11749. Final leg lower wave ((v)) ended at 11351 and this completed wave 1. Wave 2 rally is now in progress to correct cycle from 6/26/2022 high before it resumes lower. Up from wave 1, wave ((a)) ended at 11749 and pullback in wave ((b)) ended at 11389.25. Expect wave ((c)) of 2 to end soon and Index to turn lower. Near term, as far as pivot at 12261.78 stays intact, expect rally to fail in 3, 7, 11 swing for further downside.

Nasdaq 60 Minutes Elliott Wave Chart

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Gold's decline resumes today on broad based Dollar strength. Next target is 61.8% projection of 1998.23 to 1786.65 from 1878.92 at 1748.16. Outlook will stay bearish as long as 1814.06 minor resistance holds, in case of recovery.

Fall from 2070.06 is seen as the third leg of the corrective pattern from 2074.84 (2020 high). Based on current structure, while break of 1748.16 cannot be ruled out, downside should be contained above 1682.60 support (38.2% retracement of 1046.27 to 2074.84 at 1681.92).

Speculation that the US economy may already be in a recession is running rife so the latest jobs report released on Friday (12:30 GMT) will play a crucial role in heightening or allaying those concerns. Ahead of that, the Federal Reserve is more likely than not to stoke recession anxiety as the minutes of the June FOMC meeting out on Wednesday (18:00 GMT) are expected to reinforce policymakers’ resolve to get a grip on soaring inflation. All the panic about an economic downturn is bolstering the safe-haven US dollar, though its rally versus the Japanese yen has cooled lately.

A slowdown or a recession?

It wasn’t that long ago that a recession in America was merely a low-risk threat and a mild slowdown was the more realistic scenario. But key economic pointers have started to deteriorate rather rapidly lately and the ISM non-manufacturing PMI due Wednesday could be the next data point to turn ugly in June. Serious doubts are now emerging about whether the Fed can bring inflation under control without triggering a recession.

Personal consumption – long considered the primary growth engine of the US economy – appears to be slowing, and in real terms, it fell by 0.4% m/m in May. What is more worrying is that real wage growth has been negative for the past year and without any fresh stimulus checks, Americans have been drawing down on their savings as the price spikes of gasoline and other essential goods have started to bite. Exacerbating the squeeze on consumers are the mounting year-to-date losses on Wall Street and the slowdown in the housing market, which are eroding household wealth for many Americans.

Wage growth not keeping up with inflation

A pickup in wage growth could go a significant way in restoring consumer confidence (a closely watched gauge slumped to a 16-month low in June). But despite the ongoing shortages in some sectors and an overall still very tight labour market, there has been no out-of-control wage-price spiral and the rise in average hourly earnings has been relatively contained, averaging around 5.5% y/y in the first five months of the year. In fact, wage growth seems to be losing some steam and is expected to have moderated for the third straight month to 5.0% y/y in June.

On the plus side, the economy continues to churn out jobs at a healthy clip and nonfarm payrolls are expected to have risen by 268k in June, down from 390k in May. The unemployment rate likely held steady at 3.6% during the month.

Fed tightening expectations are being pared back

Any disappointment in the headline NFP figure would add to worries about the health of the economy, further dampening Fed rate hike expectations, which have been sharply scaled back since mid-June. Investors have roughly priced out about 75 basis points of rate increases for next year and are even betting that the Fed will begin slashing rates in the second half. The recent easing in oil and other commodity prices and subsequent drop in inflation expectations back the markets’ reassessment of central bank tightening amid all the alarm of a looming recession.

But as far as the Fed is concerned, Powell & Co have signalled that they won’t be altering course unless inflation is on a sure path towards falling to their 2% target. Hence, the June meeting minutes pose an upside risk for the dollar on Wednesday as the Fed will probably reiterate its message that it remains committed to reducing inflation.

Is there more fuel in the dollar rally?

The greenback brushed a 24-year high of 136.99 yen last week but has since eased back a little. Renewed positive momentum would bring the 137-yen handle back within scope, while a successful crack above it would revive market talk of the 140 level being breached, especially if the lift comes from surprisingly strong jobs numbers.

But with investors on edge about a faltering outlook, a smaller-than-expected increase in payrolls could pressure the dollar versus the safe-haven yen, though it may boost it against other riskier currencies. A big jobs miss would likely fuel recession fears, sparking a flight to safety and dragging Treasury yields lower.

Narrowing spreads between US and Japanese government bonds could push the dollar below the recent support of the 161.8% Fibonacci extension of the May downtrend at 134.42 yen, paving the way for the 132-yen level. This would consequently take the pair dangerously close to the 50-day moving average, which lies slightly below the 132 mark.

Spot gold lost ground on Tuesday and fell through psychological $1800 support (after two rejections on May 16 and July 1) hitting new 2022 low in the biggest one-day loss since Jun 13.

Growing expectations on aggressive rate hikes in the near future, with the US Federal Reserve being particularly hawkish, due to the situation of soaring inflation that caused the domino-effect on the entire economy.

Rising uncertainty on signals that major economies are sliding into recession, fueled demand for US dollar and additionally pressure the yellow metal.

Fresh weakness adds to signals of a double-top ($2070/74) and pressure key monthly higher base at $1680 zone (also Fibo 38.2% of $1046/$2074 rally), loss of which would undermine a larger bullish structure on confirmation of a double-top pattern and reversal of the uptrend from $1046 (Dec 2015 low).

Negative daily techs and today’s massive bearish daily candle are expected to weigh heavily on near-term action, with $1800 level now acting as solid resistance.

Res: 1784; 1800; 1805; 1812
Sup: 1766; 1721; 1700; 1680