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Investors remain cautious ahead of key week

Financial markets tend to favor the greenback following the recent release of strong US job data. There is therefore little upside potential for the single currency as market participants are waiting for Fed Governor Jerome Powell testimony on Capitol Hill, which should confirm that the Federal Reserve will remain patient on cutting interest rates, thus putting additional pressures on EUR. The release of Eurozone’s largest economy output and trade data also had a limited impact on the currency as investors expect the ECB to implement a significant reduction in interest rates as well as potential new quantitative easing measures.

EUR weakness is likely to sustain as the single market fundamentals remain on a downward trend. Despite an uptick in German production of 0.30% in May compared to prior month, hope of a gradual return to normal is questionable as the recent increase follows a major slump of -2%, a level not seen since August 2014. Similarly, the recent rise in May month-on-month exports to 1.10% (prior: -3.70%) is also more of a counterbalance, as the weakness of production orders is still being felt, pointing to a slight shrinkage of 2Q GDP. Under current circumstances, EUR is likely to remain under pressure, as the US is likely to slap tariffs on the EU by the end of this summer while the ECB will be launching a new series of targeted long-term refinancing operations in September.

EUR/USD is currently trading at 1.1198, approaching strong support at 1.1194 (18/06/2019 low) and heading along 1.1190 short-term.

EUR downside momentum persists

Financial markets tend to favor the greenback following the recent release of strong US job data. There is therefore little upside potential for the single currency as market participants are waiting for Fed Governor Jerome Powell testimony on Capitol Hill, which should confirm that the Federal Reserve will remain patient on cutting interest rates, thus putting additional pressures on EUR. The release of Eurozone’s largest economy output and trade data also had a limited impact on the currency as investors expect the ECB to implement a significant reduction in interest rates as well as potential new quantitative easing measures.

EUR weakness is likely to sustain as the single market fundamentals remain on a downward trend. Despite an uptick in German production of 0.30% in May compared to prior month, hope of a gradual return to normal is questionable as the recent increase follows a major slump of -2%, a level not seen since August 2014. Similarly, the rise in May month-on-month exports to 1.10% (prior: -3.70%) is also more of a counterbalance, as the weakness of production orders is still being felt, pointing to a slight shrinkage of 2Q GDP. Under current circumstances, EUR is likely to remain under pressure, as the US is likely to slap tariffs on the EU by the end of this summer while the ECB will be launching a new series of targeted long-term refinancing operations in September.

EUR/USD is currently trading at 1.1198, approaching strong support at 1.1194 (18/06/2019 low) and heading along 1.1190 short-term.

Since the past 24 hours, the common European currency has appreciated about 61 base points against the Japanese Yen. The currency pair tested a resistance cluster formed by the combination of the 200-hour simple moving average and the weekly pivot point at 122.16 during the morning hours of today's trading session.

Most likely, the EUR/JPY exchange rate could make a pullback within this session. The potential downside target will be near the border of an ascending channel pattern at 121.60.

However, the 100-hour SMA at 121.73 could provide support for the currency exchange rate today.

The AUD/USD currency pair has depreciated about 0.71% in value since yesterday's trading session. The pair is currently testing a support level formed by the weekly S1 at 0.6944.

If this support level holds, the Australian Dollar could make an upside reversal against the US Dollar during the following trading session.

However, if the currency exchange rate breaks the weekly S1, bearish traders could drive the pair further south today.

Technical indicators demonstrate that bears might continue their dominance in the market within this session.

Since Monday's trading session, the US Dollar has appreciated about 80 base points against the Canadian Dollar. The currency pair breached both the 50-, 100– and 200– hour SMAs during yesterday's session.

Everything being equal, it is likely that the USD/CAD exchange rate could aim for the 1.3195 area within this session.

However, the currency exchange rate needs to surpass a resistance line formed by the weekly R1 at 1.3137 during the following trading session.

Meanwhile, technical indicators suggest that the pair might make a downside reversal today.

After the NZD/USD currency pair tested a resistance cluster formed by the combination of the weekly and the monthly pivot points near 0.6653, the New Zealand Dollar made a U-turn south.

From a theoretical point of view, the exchange rate could aim for the lower boundary of a descending channel pattern at 0.6579 during the following trading session.

On the other hand, the currency exchange rate might reverse from the current price level at 0.6607 and breach the descending channel pattern within this session.

Corrective pullback is developing on the revaluation of the Fed's monetary policy. Friday's Nonfarm Payrolls are still influencing the investors' sentiments. This report forced market participants to doubt that the Fed would take aggressive measures towards reducing interest rates in July. As a result, key stock indices are losing ground for the second day in a row. On the contrary, the dollar is in demand.

It is important to note that several speeches by the Fed's representatives are set to take place this week. These are going to affect the markets virtue of making the additional adjustments to the investors' sentiment. Today, Jerome Powell will talk about the stress testing, while tomorrow he will present a semi-annual monetary policy report to Congress. Meanwhile, the FOMC minutes will also be published that day. In all of these statements, market participants will look for hints of the early rate cut readiness and will also try to understand the current position of the Fed in assessing the latest Nonfarm Payrolls report.

Stocks

Futures on the S&P500 fell for the second day in a row, retreating by 1.3% from historic highs around 3000 and settling at 2963. Revaluation of market participants' expectations launched a process of profit-taking after touching the peak levels a few trading days ago. Asian indices are retreating more actively, losing more than 3% of the gained positions at the beginning of last week.

EURUSD

The single currency is reaching close to 1.1200. The pair was rejected at these marks on Friday, but is currently running near them, in anticipation of subsequent signals from the Fed. At the same time, the dynamics have shifted downwards. From the side of technical analysis, each subsequent intraday high has been lower than the previous one since July 1– reflecting the prevalence of sellers. A quiet, slow trend could continue on a course until it reaches 1.1100, where EURUSD has received support several times since April. This promises to be an important fight between bulls and bears, and there are more advantages for the latter so far.

Apple

Shares lost more than 2% at the end of the Monday session, pulling the key US stock indices down, as well as causing pressure on the supplier companies shares in Japan and China. The reason for the weakening is the revision of recommendations to sell shares on possible problems with the new iPhone model demand. This failure is still difficult to consider as the beginning of a big sale. From the side of technical analysis, stocks remain above MA(50) and MA(200), as well as below the overbought area. Nevertheless, the general alert tone of investors may put pressure on the quotes.

Dollar jumps broadly today as markets continue to re-adjust their expectations on a Fed July cut. After last week's string of data, in particular solid NFP, 50bps cut is basically priced out. But many, like us, are very skeptical on the need for delivering the insurance cut now. To us, US-China trade war just "halted" escalations. Thing could turn bad again any time and it's better for Fed to save that bullet for now.

Fed chair Jerome Powell will deliver opening remarks on the topic of "stress testing" at the Federal Reserve Board Conference today. It's unsure if he will save the comments on monetary policy for tomorrow's Congressional testimony. In any case, traders are already fastening their seat belts. Staying in the currency markets, Swiss Franc, Euro and Yen are the strongest ones. In particular, risk aversion is helping both Yen and Swiss Franc. Australian Dollar is the weakest so far, followed by Sterling.

Technically, AUD/USD's break of 0.6956 minor support should have confirmed completion of rebound from 0.6831. Deeper decline should be seen to retest this low.

AUD/JPY's decline today also put focus back to 75.13 minor support. Firm break will indicate completion of corrective rise from 73.94 and bring retest of this low too.

WTI crude oil futures have been underperforming over the last couple of days, remaining within the short-term moving averages and the Ichimoku cloud in the 4-hour chart. The RSI and the MACD oscillator are moving sideways near the 50 and the zero lines respectively, suggesting a neutral performance on price action.

Should oil price manage to strengthen its positive momentum and jump above the 40-simple moving average (SMA), immediate resistance could come around the 23.6% Fibonacci of the low of 50.60 to the high of 60.27 around 58.00. A break above this level would touch the 58.50 resistance and then 59.40, taken from the peak on July 2, while also exiting from the cloud.

However, if prices are unable to break the upper surface of the Ichimoku cloud in the next few sessions, the risk would shift to the downside, with the 38.2% Fibo of 56.56 coming into focus. A decline below it would hit the 56.00 mark, taken from the latest lows. This action would create a narrow range of 56.00 – 58.50 in the oil market and only a close below the aforementioned obstacle (56.00) could turn the bias to negative.

Over the last month, WTI is trying to post some gains, however, the bounce off the five-week high of 60.27 delayed this scenario. Traders should be waiting for the price to exit from the Ichimoku cloud for a clear direction.

• Dollar remains buoyant as investors re-evaluate Fed rate cut bets
• Focus on Fed as FOMC minutes and Powell testimony eyed for clarity on rates
• Pound slips to fresh 6-month lows ahead of key UK data amid slowdown fears

Dollar edges higher on fading expectations of an aggressive Fed

The US dollar was heading towards three-week highs against a basket of currencies on Tuesday as investors pared back their expectations that the Federal Reserve would soon embark on an aggressive easing cycle. Following the upbeat US jobs report on Friday, the odds of a 50-basis points rate cut have tumbled from around 20% to just 2.5%. And while some analysts are doubtful whether the Fed will act at all at the July meeting, most traders think a rate cut later this month is a done deal.

But with risk assets having rallied since June on the back of rising expectations of sharp rate cuts, global equities continued to be weighed by the prospect of a more modest policy easing by the Fed. US stocks ended the day in the red on Monday, with the Nasdaq Composite suffering the most (-0.8%). The tech-heavy index was pulled lower by a 2% slump in Apple shares, which came under pressure after the broker Rosenblatt Securities downgraded the company to “sell” on forecasts of lower iphone and ipad sales.

In the currency markets, the risk-sensitive Australian and New Zealand dollars extended their losses, falling to two-week lows. The safe-haven yen didn’t fare any better as it was under pressure from another deterioration in Japanese wages in May, which increased the chances of the Bank of Japan expanding its massive stimulus programme in the coming months. The dollar advanced to fresh one-month high of 108.89 yen at the start of European trading.

Markets braced for an overdose of Fed speakers

Fed Chairman Jerome Powell will kick off a busy week for Fed speakers. He will deliver opening remarks at an event organized by the Boston Federal Reserve at 12:45 GMT. It’s unclear whether he will comment on monetary policy today but he will certainly be talking about the economy and the rate path when he testifies before Congress on Wednesday and Thursday.

Also speaking later today are St. Louis Fed President James Bullard (14:10 GMT), Atlanta Fed President Raphael Bostic (18:00 GMT) and Boston Fed President Randal Quarles (18:00 GMT).

Another chance to gauge the probability of a July rate cut could come from Wednesday’s FOMC minutes of the June meeting when the Fed made a dramatic shift to a more dovish stance. With the Fed seeming unlikely to signal big rate cuts at this point, the dollar looks set to maintain its bullish bias, especially if other central banks such as the ECB announce looser policies at their upcoming meetings.

Pound hits 6-month low ahead of UK data

That’s one factor weighing on the euro currently, as the single currency struggles to hold onto the $1.12 handle. The ECB next meets on July 25 and many traders are expecting that the central bank will set the stage for more stimulus for the Eurozone’s flagging economy.

The pound also remains on the backfoot, slipping to a fresh six-month low of $1.2469 today. UK data on monthly GDP growth and industrial output will be watched tomorrow for signs whether the British economy contracted in the second quarter. The Bank of England could be forced to follow its counterparts in moving towards more accommodative policy if the data disappoints.

EUR/USD

Current level - 1.1211

The pattern below 1.1250 is corrective and an eventual break through 1.1180 could challenge 1.1110 lows. Crucial on the upside is 1.1320.

USD/JPY

Current level - 108.75

The uptrend is intact heading towards 109.80 hurdle. Crucial on the downside is 108.25 low.

GBP/USD

Current level - 1.2502

Still bearish below 1.2550, for 1.2440 lows. Crucial on the upside is 1.2600 area.