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The USD/JPY has bounced more than 100 pips during low volatile sessions after the last NFP result.

The Cup with Handle pattern was successful and the breakout has reached 109.00 zone in a thin trading conditions. However, today the Fed Chief Powell is expected to testify on the Semiannual Monetary Policy Report before the House Financial Services Committee, in Washington DC. Traders will look for cues regarding future monetary policy and possible rate decisions. Today we should have the volatility in markets.

Technically a close above 109.00 implies further bullish continuation towards 109.69 but rejections from the 109.00 zone might retest the POC 108.30-55. A drop below 108.25 should target 107.85 as the first target.

The POC zone is essential for either a bounce or a breakout below.

Markets are focused on Powell’s US congress speech tonight, suggesting that it can give a definitive answer to the question of whether the rate will be cut at the end of this month. The Federal Reserve is actively using the policy of managing expectations in its arsenal, giving hints of further steps. But at the same time, the central bank itself is clearly focused on market expectations. This eliminates surprises and the accompanying explosions of volatility. But it also makes the Fed vulnerable because investors and the current President of the United States are leaning towards a soft monetary policy that feeds the growth of markets. They are like a child who always wants sweets, and their expectations in recent years have always been shifting towards easier money.

Thus, at the moment, the markets are 100% sure of a 25 basis points cut, and suggest a 2% chance of 50 points cut at once, according to the CME FedWatch tool. However, a little more than two weeks ago we saw more than a 40% chance of a 50 point cut in the rate. Such expectations fuelled the growth of stock indices, with their revision engendering a correction of recent days. That is, the markets have slightly softened their expectations against the background of relatively strong labour market data and the easing of US trade rhetoric with China and Mexico.

In this context, Powell’s speech to Congress today and the Fed minutes later in the evening may be a further step in bringing closer the positions between the Fed and the markets. However, the main question is whether Powell will direct the markets or the markets will direct him.

Stocks

US indices managed to reverse to growth on Tuesday evening, interrupting the series of declines during the previous three trading sessions. The driver of growth at the end of the day on Tuesday was the hope that the Fed would strengthen market expectations regarding interest rates cut in late July, focusing on the economic consequences for the US economy from trade disputes.

EURUSD

For the eighth trading session in a row, the single currency shows a decrease in intraday highs against the dollar. Such a downtrend is a clear sign of the bears prevailing pressure. EURUSD declined to 1.1200 - June lows. Since the beginning of the year, the pair is in the lower third of the trading rang. From the technical analysis side, a surge in volatility is more likely only at the approach to 1.1100.

GBPUSD

The pound declined to a two-year low of 1.2440. Below 1.2500 the pair spent about six months up to April 2017 during the period of maximum fears surrounding the Brexit consequences. The current decline under 1.25 occurred for partly the same reasons. The pair is selling off under the pressure of weak economic data, as market participants are increasingly betting on rates cut by the Bank of England.

UK GDP grew 0.3% mom in May, matched expectations. Index of services rose 0.0% mom. Index of production rose 1.4% mom while manufacturing rose 1.4% mom. Construction rose 0.6% mom. Agriculture rose 0.0% mom.

Rolling three month growth from March to May slowed to 0.3%, down from 0.4% from February to April. It's also notably below 0.5% qoq in Q1. Services grew 0.3% in the three-month period, production grew 0.3%, while construction was flat.

Commenting on today's GDP figures, Head of GDP Rob Kent-Smith said: "GDP grew moderately in the latest three months, with IT, communications and retail showing strength. Despite this, there has been a longer-term slowdown in the often-dominant services sector since summer 2018. The economy returned to growth in the month of May, following the fall seen in April. This was mainly due to the partial recovery in car production."

Full release here.

Also released, manufacturing production came in at 1.4% mom, 0.0% yoy versus expectation of 2.2% mom, 1.1% yoy. Industrial production came in at 1.4% mom, 0.9% yoy, versus expectation of 1.5% mom, 0.9% yoy.

Gold prices were trading flat on the day, posting some modest gains. Price action was confined within the range of 1404 and 1383 for the most part of the week. A lack of clear economic data and a flat market sentiment kept the price of the precious metal unchanged.

Will Gold Continue to Trade Flat?

The current sideways price action has been maintained since late last week. With the range being formed, a breakout is evident. The bias remains balanced at the moment. An upside breakout could push gold prices higher, testing the previous highs. However, given the break of the rising trendline, there is scope for the lower end of the range at 1383 to be breached.

WTI Crude oil prices posted modest gains on Tuesday. The gains came on the back of the American Petroleum Institute’s weekly inventory report. API reported a drawdown of 8.129 million barrels for the week ending July 4th. This was a bigger than expected draw. WTI Crude oil prices jumped 1.35% on Tuesday.

Will Oil Prices Trend Higher?

As oil prices reclaimed the support/resistance area of 57.50, the bias is looking to the upside. The bearish flag pattern is starting to be invalidated on the evolving price action. The upside target is now back to the 60.00 handle that was previously tested. Oil prices will need to break past this level to continue maintaining the upside trend.

The common currency remained weak as it extended declines even further on Tuesday. Economic data from the eurozone was confined to Italy’s retail sales. Retail sales were down 0.7% on the month. Meanwhile, the election in Greece has brought out the populist right-wing party as the leader. The euro did not react much to the news.

EURUSD to Continue to Drift Lower

The currency pair has pushed lower since the start of the week. We expect the declines to eventually conclude lower to the 1.1188 level. If the support level here holds, there is scope for the EURUSD to rebound in the short term. But if price breaks past this level, the currency pair is likely to test the previous lows near 1.1140.

Kansas City Fed Esther George said in Helsinki today that inflation expectations "can move quickly". "It doesn't look like it will happen in the near term," but she also emphasized "I never say never... because you don't know how those expectations might shift."

Meanwhile, George also noted the median forecast for long-term interest rates has fallen. And, demographic trends have forced a reassessment of the economy.

Pivot (invalidation): 58.15

Our preference Long positions above 58.15 with targets at 59.10 & 59.45 in extension.

Alternative scenario Below 58.15 look for further downside with 57.75 & 57.40 as targets.

Comment The RSI shows upside momentum.

Daily Pivots: (S1) 135.26; (P) 135.78; (R1) 136.15; More...

Intraday bias in GBP/JPY remains neutral and consolidation from 135.17 might extend. Upside of recovery should be limited by 137.78 resistance to bring fall resumption. On the downside break of 135.17 will resume the fall from 148.87 and target 131.51 low next.

In the bigger picture, current development suggests that GBP/JPY's medium term fall from 156.59 (2018 high) is still in progress. Break of 131.51 will target 122.36 (2016 low). Structure of such decline is corrective looking so far, arguing that it's just the second leg of consolidation from 122.36. Thus, we'd expect strong support from 122.36 to contain downside to bring reversal.

Pivot (invalidation): 15.0200

Our preference Long positions above 15.0200 with targets at 15.1200 & 15.1600 in extension.

Alternative scenario Below 15.0200 look for further downside with 14.9500 & 14.8800 as targets.

Comment A support base at 15.0200 has formed and has allowed for a temporary stabilisation.