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Daily Pivots: (S1) 134.66; (P) 135.33; (R1) 135.90; More...

Intraday bias in USD/JPY remains neutral as consolidation from 136.99 is extending. Considering bearish divergence condition in 4 hour and daily MACD, a correction could be imminent. On the downside, break of 134.25 support will confirm short term topping at 136.99. Intraday bias will be back on the downside for 131.34 support resistance turned support. Nevertheless, firm break of 136.99 will resume larger up trend to 100% projection of 114.40 to 131.34 from 126.35 at 143.29.

In the bigger picture, current rally is seen as part of the long term up trend from 75.56 (2011 low). Next target is 100% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 149.26, which is close to 147.68 (1998 high). This will remain the favored case as long as 126.35 support holds.

Daily Pivots: (S1) 0.9543; (P) 0.9593; (R1) 0.9644; More...

Intraday bias in USD/CHF remains neutral for the moment. Price actions from 1.0063 are still seen as a consolidation pattern. On the upside, break of 0.9731 resistance will argue that such consolidation has completed and bring stronger rally back to retest 1.0063 high. However, another fall below 0.9493 will dampen this view and target 0.9459 resistance turned support.

In the bigger picture, down trend from 1.0342 (2016 high) should have completed with three waves down to 0.8756 (2021 low) already. Rise from 0.8756 is likely a medium term up trend of its own. Next target is 1.0237/0342 resistance zone. This will remain the favored case as long as 0.9471 resistance turned support holds. However, sustained break of 0.9471 will extend long term range trading with another falling leg.

Daily Pivots: (S1) 1.1990; (P) 1.2087; (R1) 1.2197; More...

Intraday bias in GBP/USD remains neutral at this point. Further fall is mildly in favor with 1.2187 minor resistance intact. Break of 1.1932 will resume larger down trend from 1.4248. However, on the upside, above 1.2187 minor resistance will turn bias back to the upside for 55 day EMA (now at 1.2467) instead.

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 1.31403).

Swiss CPI rose 0.5% mom in June, above expectation of 0.3% mom. The monthly rise was due to several factors including rising prices for fuel, heating oil, and fruiting vegetables. Over the 12-month period, CPI accelerated from 2.9% yoy to 3.4% yoy, above expectation of 3.2% yoy. That's also the highest level since July 2008.

Looking at some more details, core inflation rose 0.2% mom, 1.9% yoy. Domestic products inflation rose 0.3% mom, 1.7% yoy. Imported production inflation rose 1.2% mom, 8.5% yoy.

Full release here.

Markets

Fears on a potential sharp setback in (US and global) growth again outweighed persistent high inflation as a driver for trading on Friday. The flash preliminary EMU CPI printed higher than expected at 0.8% M/M and 8.6% Y/Y (was 8.1% in May) even as German inflation was softer than expected due to a one-off price decline on some transportation fees. Core inflation eased slightly to 3.7% from 3.8%, but with no indication of a profound trend reversal yet. Bonds even started a new up-leg in US dealings, reaching a new recovery top as a disappointing US manufacturing ISM questioned the room for the Fed (and other CB’s) to continue their anti-inflation campaign. The headline ISM eased from 56.1 to 53.0. Production held up well (54.9), but forwarding look sub-indices including new orders (49.2) and backlog of orders (53.2 from 58.7) suggest a further slowdown ahead. Employment also dropped further in contraction territory (47.4). After a new spike higher, bonds slightly eased off intra-day peak levels but still finished the day with impressive gains. US yields declined 16 bps (5-y), 13,2/12 bps for 10 and 2-y yields and 8 bps for the 30-y. The Bund curve showed a similar picture easing 13.9/13.2 bps (5/2-y) to 5.1 bps (30-y). Despite a fragile risk sentiment, intra-EMU spreads versus Germany continue to narrow (10y Italy minus 7 bps). Equities closed off intraday lows (EuroStoxx -0.2%, US indices even gained about 1% on lower yields). Still, the technical picture remains hesitant, at best. The decline in US yields also capped further USD gains. DXY stayed away from the 105.78 correction top (close 105.14). The yen even slightly outperformed (USD/JPY close 134.12). EUR/USD temporary dropped below the 1.04 handle, but the real test of the key 1.0350/41 area was again avoided (close 1.0414). The gradual but protracted EUR/GBP uptrend stayed in place (close 0.8616).
 
Markets will probably take a slow start to the week as US markets are closed of the 4^th of July holiday. The eco calendar is Europe is thin. Asian markets show a mixed picture despite Friday’s WS rebound. For the German 10-y yield the 1.19%/1.15% area (previous top/38% retracement) serves as a key support. The dollar rally slowed (both in DXY and USD/JPY and EUR/USD). However, if uncertainty on global growth/risk-off persists or intensifies (quid earnings season?), a sustained rebound in the likes of EUR/USD isn’t evident. A retest of the 1.0341 level remains a decent possibility. Later this week, we keep a closed eye at the RBA interest rate decision (Tuesday), the US Services ISM and the Minutes of the June Fed meeting (Wednesday) and the US payrolls on Friday.

News Headlines

The European Central Bank is looking into changing the parameters of outstanding targeted longer-term refinancing operations (TLTRO). The loans, with maturities of three years were offered from September 2019 onwards at a quarterly basis. Currently, there’s still some €2.2tn outstanding. The rate on the loans is calculated as the average price over their three-year life. Initially, they were available at -0.5%, but that changed during the pandemic to -1%. Since last month, that discount is removed again with the deposit rate returning as the reference. Even if the ECB embarks on a tightening cycle, there is a strong incentive to keep TLTRO’s until maturity rather than repay them early given the pick-up between the average cost and the higher actual deposit rate. Sources close to the ECB suggest this windfall, estimated at around €14bn, is politically unacceptable.
 
Czech President Zeman said he thinks that new board members of the Czech National Bank – installed by Zeman – lack any inclination towards dramatic rate hikes. He added that raising rates is not a way to suppress cost inflation as interest rates are one of the cost items. Zeman also pointed to the gap between negative ECB rates and the CNB policy rate of already 7%. The August 4 meeting is the first following the dovish rotation at the CNB. Money markets discount only a small additional hike to fend off 16% Y/Y inflation and are even thinking about rate cuts on a 12-month horizon. CNB since June defends the CZK from weakening beyond EUR/CZK 24.75 through FX interventions..

Appetite in Asia was mixed. US futures gave back a part of Friday’s gains, but FTSE and European futures hint at a positive start despite escalating tensions in Ukraine after the fall of Lysychansk in the hands of Russians. So, gains are probably fragile.

Australia decided to ban Russian gold along with some other G7 nations including the US, Britain, Canada and Japan, a decision which has no influence on the course of the war.

Gold is up this morning, after having tipped a toe to $1784 on Friday. Rising geopolitical tensions and the sharp fall in the US yields are supportive of a short-term rebound. In the medium run, the death cross formation on the daily chart hints that we should see a strong resistance into the $1850 mark.

Interestingly though, crude oil is slightly down this morning, trading below the $110pb mark. We certainly saw a rebound after hitting the $105pb level last week following the OPEC decision, or more relevantly, the recession fears.

JP Morgan warns that crude prices could hit $380 per barrel, if Russia cuts output as a response to Westerns sanctions and mounting tensions. Yet, the global demand could hardly keep up, if the price of a barrel got multiplied by two or, by four from the actual levels.

Looking at the price dynamics, it’s more likely we see the barrel of crude fall below $100 than rise above $200.

Dollar gains

The US dollar index starts the week on a strong footage. The greenback reversed losses it recorded during the second half of June, and the dollar index is again very close to the 20-year peak it hit on June 15th, above 105 level.

The EURUSD is under a decent selling pressure. The pair fell to 1.0365 on Friday. We now see a triple bottom formation around the 1.0350/60 region, which could point at a possible rebound above the 1.05 level. But breaking the 1.0350 support will likely send the pair surfing lower on stops, and get the euro bears to target parity, again.

A further fall in the EURUSD would be justified by the expectation that the European Central Bank (ECB) won’t be able to catch up with the speed of tightening of other central banks, as the Europeans must make sure that raising the rates wouldn’t trigger a renewed debt crisis in the middle of a continent ravaged by pandemic, war and a serious energy crisis.

Elsewhere, the Reserve Bank of Australia (RBA) is expected to raise the rates by 50bp at its meeting tomorrow. But the AUDUSD remains under a decent selling pressure below the 70 cents mark, and the sharp fall in iron ore prices, due to the recession fears, doesn’t play in favour of a stronger Aussie these days.

Daily Pivots: (S1) 1.0366; (P) 1.0428 (R1) 1.0489; More...

EUR/USD is still holding in range above 1.0339/58 support zone and intraday bias remains neutral first. Further decline is expected as long as 1.0614 resistance holds. On the downside, sustained break of 1.0339/48 will resume larger down trend. Next target is long term projection level at 1.0090. On the upside, above 1.0614 will turn bias back to the upside for 1.0786 resistance instead.

In the bigger picture, focus stays on 1.0339 long term support (2017 low). Decisive break there will resume 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. However, firm break of 1.0805 support turned resistance will delay this bearish case, and bring stronger rebound first.

It's a rather slow start to the week, with major pairs and crosses stuck inside Friday's range. Trading could remain subdued for the day with the US on holiday. But there are lots of events to look forward to, starting from RBA's rate hike tomorrow. Minutes of Fed and ECB meeting might not reveal anything new. Instead, important data like ISM services and non-farm payroll would provide more guidance to the markets.

Technically, Dollar is in upper hand against both Euro and Sterling. Yet, both EUR/USD and GBP/USD are still held above recent lows at 1.0358 and 1.1932 respectively. These two levels will be the main focuses for the week as the US publishes important economic data.

In Asia, at the time of writing, Nikkei is up 0.68%. Hong Kong HSI is flat. China Shanghai SSE is up 0.35%. Singapore Strait Times is up 0.74%. Japan 10-year JGB yield is flat at 0.221.

Australia expects resource and energy export earnings to make successive records this year and next

Australia's Department of Industry, Science and Resources said in a new quarterly report that resources and energy exports earnings are expected deliver two successive record years in 2021-2022 and 2022-2023, before falling slightly in 2023-24 to a third highest ever figure.

Resources and energy export earnings are estimated to be at AUD 405B in 2021-22, AUD 419B in 2022-23, and then notably lower at AUD 338B in 2023-24. The growth was mainly driven by higher prices as volume would remain below 2019-20 high throughout the forecast period.

CHF/JPY topped in short term, but up trend intact

CHF/JPY's up trend should have passed its climax for the near term. It has been lifted by buying in Swiss Franc on SNB's hawkish rate hike in June, while BoJ is still standing firm by its ultra loose monetary policy. But recent pull back in benchmark treasury yields is giving Yen a lift. Meanwhile, as for the Franc, the pull back could be deeper if EUR/CHF manages to rebound firmly from 0.9970 long term support.

Technically, a short term top should be in place at 143.74, on bearish divergence condition in 4 hour MACD. Deeper correction cannot be ruled out for now. But downside should be contained by 137.77 cluster support (38.2% retracement of 127.48 to 143.73 at 137.52) to bring rebound. The overall long term up trend in CHF/JPY is still in healthy shape to retest 151.22 high (2014 high, the spike after SNB removed the EUR/CHF floor).

RBA to hike 50bps, Fed and ECB to publish minutes, NFP featured too

RBA is widely expected to raise interest rate by 50bps to 1.35% this week. A 75 bps was ruled out by Governor Philip Lowe, as he said only the 25bps and 50bps options were on the table. The central bank should also maintain tightening bias, setting the stage for more rate hikes down the road. Lowe has indicated in an interview that it's reasonably to get the cash rate to 2.50% at some point. Nevertheless, the path would be data dependent. Fed and ECB will publish meeting minutes too.

The economic data calendar is also very busy. US ISM services and non-farm payroll report are the main focuses. But attention will also be on Eurozone Sentix, China PMI services, Swiss CPI, and Canada employment.

Here are some highlights for the week:

• Monday: Japan monetary base; Australia MI inflation gauge, building approvals; Germany trade balance; Swiss CPI; Eurozone Sentix investor confidence, PPI; Canada PMI manufacturing, BoC business outlook survey.
• Tuesday: Australia AiG construction, retail sales, RBA rate decision; China Caixin PMI services; France industrial production, Eurozone PMI services final; UK PMI services final; Canada building permits; US factory orders.
• Wednesday: Germany factory orders; UK PMI construction; Eurozone retail sales; US ISM services, FOMC minutes.
• Thursday: Australia AiG services, trade balance; Japan leading indicators; Swiss unemployment rate, foreign currency reserves; Germany industrial production; ECB meeting accounts; US ADP employment, jobless claims, trade balance; Canada trade balance, Ivey PMI.
• Friday: Japan household spending, current account; France trade balance; Italy industrial production; Canada employment; US non-farm payrolls.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0366; (P) 1.0428 (R1) 1.0489; More...

EUR/USD is still holding in range above 1.0339/58 support zone and intraday bias remains neutral first. Further decline is expected as long as 1.0614 resistance holds. On the downside, sustained break of 1.0339/48 will resume larger down trend. Next target is long term projection level at 1.0090. On the upside, above 1.0614 will turn bias back to the upside for 1.0786 resistance instead.

In the bigger picture, focus stays on 1.0339 long term support (2017 low). Decisive break there will resume 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. However, firm break of 1.0805 support turned resistance will delay this bearish case, and bring stronger rebound first.

Economic Indicators Update

CHF/JPY's up trend should have passed its climax for the near term. It has been lifted by buying in Swiss Franc on SNB's hawkish rate hike in June, while BoJ is still standing firm by its ultra loose monetary policy. But recent pull back in benchmark treasury yields is giving Yen a lift. Meanwhile, as for the Franc, the pull back could be deeper if EUR/CHF manages to rebound firmly from 0.9970 long term support.

Technically, a short term top should be in place at 143.74, on bearish divergence condition in 4 hour MACD. Deeper correction cannot be ruled out for now. But downside should be contained by 137.77 cluster support (38.2% retracement of 127.48 to 143.73 at 137.52) to bring rebound. The overall long term up trend in CHF/JPY is still in healthy shape to retest 151.22 high (2014 high, the spike after SNB removed the EUR/CHF floor).

Australia's Department of Industry, Science and Resources said in a new quarterly report that resources and energy exports earnings are expected deliver two successive record years in 2021-2022 and 2022-2023, before falling slightly in 2023-24 to a third highest ever figure.

Resources and energy export earnings are estimated to be at AUD 405B in 2021-22, AUD 419B in 2022-23, and then notably lower at AUD 338B in 2023-24. The growth was mainly driven by higher prices as volume would remain below 2019-20 high throughout the forecast period.

Full report here.