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USDCAD stretched the bearish wave towards 1.3100 on Thursday, the lowest level reached in 4 ½-months, but the RSI and the Stochastics suggest that it’s time for an upside correction as both indicators are currently fluctuating near oversold territory.

The 1.3165 mark could potentially provide immediate resistance if the market attempts to recover. Breaking that line, the bulls should breach the 1.3200-1.3228 area to take the rally towards the 200-day simple moving average (SMA) and the 1.3300 level.

On the downside, the bears would push efforts to clear the 1.3100 handle and meet the January trough of 1.3067. A tougher barrier however is standing between 1.3000 and 1.2970, which if broken could trigger a more aggressive sell-off, turning the medium-term picture even more bearish.

Summarizing, the short-term risk is skewed to the upside, while in the medium-term the outlook remains bearish as long as the pair trades below 1.3300.

• Markets in cautiously optimistic mood ahead of crucial Trump-Xi meeting
• Reports that US and China have agreed to tentative truce over trade lift sentiment
• Dollar edges up but most pairs stuck in narrow ranges as G20 outcome awaited

Modest hopes of positive talks buoys risk appetite

Signs that the US and China were moving close to reaching some sort of a truce over their trade dispute lifted market sentiment on Thursday. According to a Chinese newspaper report, the US and China have tentatively agreed to a trade truce, setting the ground for Presidents Trump and Xi to hold a much-anticipated meeting on Saturday on the sidelines of the G20 summit in Japan.

The agreement reportedly involves the US putting off any additional tariffs on Chinese imports. However, the report has not been confirmed by the Chinese government and in an interview with Fox Business yesterday, Trump maintained his threat of imposing tariffs on the remaining $325 billion worth of imports from China if no deal is reached.

Nevertheless, the overall tone from both sides has become m0ore positive in the lead up to the summit, with President Trump saying “It’s absolutely possible” to get a good deal.

The US dollar extended its recovery, it’s testing the 108 level versus the yen and climbing to a near one-week high against a basket of currencies. Equities were also bolstered, with Japan’s Nikkei 225 index closing 1.2% higher and S&P 500 futures pointing to gains of 0.5%.

Expectations of aggressive Fed rate cuts continue to ease

Declining odds that the Fed will opt for a 50-basis points rate reduction instead of a 25-bps cut at its July meeting is the other driver of the dollar’s rebound this week. Fed Chairman Jerome Powell tempered expectations of aggressive reductions in borrowing costs when he spoke earlier this week, leading to a partial reversal in the greenback’s fortunes.

However, the dollar’s recovery has been more prominent against the safe-havens yen and Swiss franc, which are being additionally weighed by the easing risk aversion. Gold has also lost some of its allure, at least in the short term, as investors adjust the pace of rate cuts by the Fed. The yellow metal came close to breaching the $1400 today, though it remains not too far from the 6-year highs scaled earlier this week.

But other majors as the euro, loonie, aussie and kiwi have held on to most of their recent gains. One exception is the pound, which has come under renewed pressure, slipping back below $1.27, on fears that the next person who becomes the UK’s prime minister will take the country out of the EU without a deal.

Dollar rebound fails to dent loonie, aussie and kiwi rally

The commodity-linked Australian, New Zealand and Canadian dollars have all been able to extend their gains even after the Fed cast doubt on big rate cuts in the coming months. Although, both the RBA and RBNZ have clearly signalled that more rate cuts are likely, the Fed has more room to slash rates, which potentially creates a bigger downside scope for US yields and the dollar versus Australian and New Zealand yields.

The loonie, meanwhile, is benefiting from paring back of expectations that the Bank of Canada will lower rates and could even hike rates as the economy rebounds from a soft patch. Higher oil prices are also supporting the Canadian currency. WTI and Brent crude jumped yesterday on an unexpected plunge in US crude oil inventories. However, prices fell back today amid caution ahead of the July 1-2 meeting of OPEC and non-OPEC countries when major producers will decide whether to extend the current deal to cap output.

The pair is holding near one week high at 108.16 in early European trading on Thursday, following overnight's bullish acceleration on news that US and China have a tentative deal.

Extension of Wednesday's rally broke above important Fibo barrier at 107.98 (61.8% of 108.72/106.78) and cracked falling 20SMA (108.09), looking for fresh bullish signal on close above these levels.

Rising momentum is about to break into positive territory and supporting the advance, along with north-heading RSI and stochastic.

Bulls eye key barriers at 108.80/92 (11 June high/Fibo 38.2% of 112.40/106.78 descend), violation of which would generate initial reversal signal. Solid supports lay at 107.75 (daily Tenkan-sen) and 107.52 (5SMA).

Talks between US President Trump and Chinese President Xi Jinping on G20 meeting (28/29 June) will be closely watched.

The greenback would receive fresh boost if two leaders reach a deal of not imposing more tariffs that would also put on hold Fed's decision to cut interest rates, while opposite scenario on failure of trade talks would keep the door open for rate cuts and increase pressure on dollar.

Res: 108.16, 108.26, 108.57, 108.80
Sup: 107.88, 107.75, 107.52, 107.24

Gold posted declines on Wednesday as the precious metal fell by over 1% on the day. This came right after prices tested a new six-year high. The declines came despite the economic data from the US showing a weak durable goods orders report. Headline durable goods orders fell 1.3% on the month in May while core durable goods orders managed to rise 0.3%.

Will XAUUSD Correct Lower?

The precious metal is testing the initial support at 1404.30. With the Stochastics oscillator in the oversold levels, there is scope for price to rebound to the upside. However, failure to post higher highs could signal short term weakness in price. This will eventually see gold prices easing back to the 1404.30 level. A break down below this support will push gold prices lower to the 1350 handle.

Crude oil prices posted modest gains on Wednesday. Price gained 0.62% on the day after the Energy Information Administration’s weekly crude oil inventory report. The report showed that US stockpiles posted a drawdown of 12.79 million barrels for the week ending June 21. This followed the earlier report from API which showed a decline in the inventory as well.

Will Crude Oil Prices Continue Higher?

The current gains in WTI crude oil have pushed the commodity higher. Oil prices broke past the initial resistance level of 57.50. This came after prices remained flat for nearly two days. Following the breakout above this resistance, oil prices are likely to test the 61.00 handle in the near term. This marks a retest of the price level that previously served as support. If resistance is formed here, we expect oil prices to post modest declines back to 57.50.

The German Gfk consumer confidence survey report released yesterday saw the consumer confidence falling to 9.8 against expectations of 10.0. This was down from 10.1 in May. Gfk consumer confidence is in a steady decline since the past few months. The euro was trading flat on the day, logging gains of 0.02%.

EURUSD to Remain Flat in the Short Term

The declines in the common currency come after the previous rally sent price higher to test the 1.1400 handle. Since then, the currency pair has been drifting sideways briefly testing the support near 1.1339. We expect this sideways range to be maintained in the near term. A breakout from this level could signal a possible move in the next leg of the direction.

The EUR/AUD has formed a strong resistance at 1.6271 zone. However, fresh selling could be possible if the price gets to the POC zone

Today the only news concerning EUR is the German CPI. It represents Change in the price of goods and services purchased by consumers and it could be important for the overall direction of the EUR/AUD currency pair. However, the news is categorized as a medium- impact so only a high deviation from the forecast could impact the price in the more volatile manner.

1.6305-24 is the POC zone where the price might react but only if the cluster of resistance breaks. A rejection will aim for 1.6271 and 1.6225. The final target is 1.6189.

Pivot (invalidation): 58.65

Our preference Long positions above 58.65 with targets at 59.50 & 59.90 in extension.

Alternative scenario Below 58.65 look for further downside with 58.20 & 57.70 as targets.

Comment The RSI calls for a rebound.

Pivot (invalidation): 15.3500

Our preference Short positions below 15.3500 with targets at 15.1600 & 15.1000 in extension.

Alternative scenario Above 15.3500 look for further upside with 15.4000 & 15.4700 as targets.

Comment The RSI is mixed to bearish.

Pivot (invalidation): 1415.00

Our preference Short positions below 1415.00 with targets at 1402.00 & 1396.50 in extension.

Alternative scenario Above 1415.00 look for further upside with 1423.00 & 1430.00 as targets.

Comment As Long as 1415.00 is resistance, look for choppy price action with a bearish bias.