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Will the Fed pull the trigger?

Global equities went through the roof yesterday amid hints from Mario Draghi that the ECB was ready to launch another round of stimulus should inflation fails to accelerate. The EuroSTOXX 50 jumped as much as 2.60% to 3,458 points, the highest level since early May, while US equities were also better bid with the S&P 500 hitting 2,930 points, up 1.40% on the session as investors speculate that the Federal Reserves would follow on the ECB’s footsteps.

Over the last few months, Donald Trump has put significant pressure on Fed Chair Jerome Powell as he blamed him for derailing the US economy by unnecessarily tightening monetary conditions. Interestingly enough, the trade war against China, which was triggered by President Trump, worsened the situation as it accelerated the global economic slowdown and forced the Fed to pause its quantitative tightening as well as further rate cut. Now, it looks like Trump would get those rate cuts in the end. The single currency fell across the board with EUR/USD falling 0.40% to below 1.1181 but stabilised around 1.12. The limited downside size move in EUR/USD suggests that market participants anticipates the Fed would also turn more dovish than at its May meeting.

However, according to Reuters, it looks like Mario Draghi’s colleagues did not expected such a dovish speech and said that the possibility of a rate cut or the extension of quantitative asset purchases have been mentioned but that there was no consensus. Therefore, we anticipate that Powell would introduce a dovish twist but nothing significant. Indeed, the current economic conditions do not justify going in full easing mode, especially as it would spread panics among investors.

BoE should trigger a GBP rally

Not much has changed in the Bank of England rhetoric. Despite investors pricing in a rate cut by year-end amid slowing manufacturing activity, Brexit uncertainy, and dragging trade discords, BoE policymakers still maintain their hawkish bias, favoring rising rates at a faster pace than financial markets would consider. It is therefore very likely that the BoE statement or policy minutes from Thursday monetary policy meeting will continue to hint towards further tightening, most likely giving British pound a boost. Yet probability of an up-move is still less reasonable under current circumstances.

Despite manufacturing PMI in contraction territory at 49.4 for the first time since July 2016 and y/y industrial production hitting -1% in April and in negative territory for the first time this year, real wage growth excluding bonuses increased 3.4% while unemployment remains at historical bottom, supporting the BoE’s stance. Yet the release of second quarter GDP in 28 June should give investors a good view where the UK economy is heading. Although domestic consumption most likely improved, a fall in fixed asset investments due to potential hard Brexit risk should ultimately weigh on the GDP figure. Accordingly, the likelihood of seeing the BoE raising rates this year is rather low as Brexit scenarios (deal, no-deal and article 50 extension) are still opened following 31 October 2019 deadline.

GBP/USD is expected to gain support amid Fed, BoE monetary policy meetings. Heading along 1.2606 short-term.

The euro has remained weak against the US dollar during the European trading session as market participants await another key speech from ECB President Mario Draghi later this afternoon. EURUSD bulls need to move price above the 1.1245 level, while sellers need to break the 1.1170 support level. Major weekly technical support is found at the 1.1150 level, which if broken could prompt an attack towards the 1.1100 level.

The EURUSD pair is heavily bearish while trading below the 1.1200 level, key technical support is found at the 1.1170 and 1.1150 levels.

If the EURUSD pair trades above the 1.1200 level, buyers may test the 1.1245 and 1.1290 levels.

The US dollar is trapped in a limited trading range against the Japanese yen currecy as traders remain cautious ahea dof today’s FOMC rate decision. Buyers will be looking to target the 109.00 level, while sellers will be looking a for a clean break of the 107.70 support level. The USDJPY pair is likely to move on the FOMC monetary policy statement, rather than actual interest rate decision.

The USDJPY pair is only bearish while trading below the 108.00 level, key support remains at the 107.70 and 106.80 levels.

If the USDJPY pair trades above the 108.60 level, key technical resistance remains at the 108.80 and 109.00 levels.

The US dollar fell slightly against the basket of major currencies before the Fed meeting. Financial market participants expect the regulator to keep the interest rate at the current level of 2.25-2.5%. However, it is possible that in July the Fed will reduce the interest rate due to the deteriorating situation in the global economy. The US dollar index #DX closed in the negative zone (-0.25) yesterday.

Yesterday, at the annual ECB forum, the head of the regulator, Mario Draghi, said that the Eurozone economy would need new expansionary actions if its future growth and inflation forecasts turned out to be just as weak. The ECB is ready to reduce interest rates and resume asset purchases. US President Donald Trump blamed the ECB, and at the same time, the Chinese government, in an attempt to weaken their national currencies to gain a competitive advantage over the United States.

The British pound is still under pressure due to the possibility of "hard" Brexit. The sentiment of financial markets will depend on the upcoming economic events. Today, the consumer price index will be published in the UK, and tomorrow the Bank of England will decide on the interest rate.

The "black gold" prices are consolidating after a significant increase the day before. At the moment, futures for the WTI crude oil are testing the mark of $54.00 per barrel. At 17:30 (GMT+3:00), a report on crude oil inventories will be published in the US.

Market Indicators

• Yesterday, the bullish sentiment was observed in the US stock market: #SPY (+1.05%), #DIA (+1.39%), #QQQ (+1.45%).
• The 10-year US government bonds yield rose slightly. Currently, the indicator is at the level of 2.06-2.07%.

The news feed on 2019.06.19:

• Statistics on inflation in the UK at 11:30 (GMT+3:00);
• Core consumer price index in Canada at 15:30 (GMT+3:00);
• Fed interest rate decision at 21:30 (GMT+3:00).

Daily Pivots: (S1) 135.62; (P) 135.94; (R1) 136.51; More...

Intraday bias in GBP/JPY is turned neutral with a temporary low formed at 135.38. Some consolidations could be seen but upside should be limited by 138.32 resistance to bring fall resumption. On the downside, break of 135.38 will extend recent fall from 148.87 to retest 131.51 low.

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.

Daily Pivots: (S1) 120.98; (P) 121.47; (R1) 121.87; More....

Intraday bias in EUR/JPY remains on the downside at this point. Decisive break of 120.78 support will resume the larger decline from 127.50 will target 118.62 low next. On the upside, above 122.17 minor resistance delay the bearish case, turn intraday bias neutral and bring more consolidations first.

In the bigger picture, down trend from 137.49 is still in progress with the cross staying inside long term falling channel. Break of 118.62 will extend the fall to 109.48 (2016 low). On the upside, break of 127.50 resistance is needed to be the first sign of medium term reversal. Otherwise, outlook will remain bearish in case of strong rebound.

Daily Pivots: (S1) 0.8892; (P) 0.8934; (R1) 0.8958; More...

A temporary top is in place at 0.8974 with the current retreat. Intraday bias in EUR/GBP is turned neutral for some consolidations first. Further rise is expected as long as 0.8871 minor support holds. Above 0.8974 will target 0.9101 key resistance next. However, considering bearish divergence condition in 4 hour MACD, break of 0.8871 minor support will indicate short term topping and bring deeper pull back towards 55 day EMA (now at 0.8772).

In the bigger picture, medium term decline from 0.9305 (2017 high) is seen as a corrective move. No change in this view. Current development argues that it might have completed with three waves down to 0.8472, just ahead of 38.2% retracement of 0.6935 (2015 low) to 0.9306 at 0.8400, after hitting 55 month EMA (now at 0.8527). Decisive break of 0.9101 resistance will confirm this bullish case. Nevertheless, as EUR/GBP is still staying inside long term falling channel, correction from 0.9305 could still extend to 0.8400 fibonacci level before completion, if upside is rejected by 0.9101.

Daily Pivots: (S1) 1.6219; (P) 1.6336; (R1) 1.6395; More...

EUR/AUD's break of 1.6298 minor support suggests temporary topping at 1.6448. Intraday bias is turned neutral for some consolidations first. Downside of retreat should be contained well a above 1.6052 support to bring rise resumption. On the upside, break of 1.6448 will target 100% projection of 1.5683 to 1.6262 from 1.6052 at 1.6631 next.

In the bigger picture, as long as 1.5346 support holds, outlook will still remain bullish. Up trend from 1.1602 (2012 low) is expected to resume sooner or later. Break of 1.6765 will target 61.8% retracement of 2.1127 (2008 high) to 1.1602 at 1.7488 next. However, firm break of 1.5346 key support will indicate trend reversal, with bearish divergence condition in weekly MACD, and turn outlook bearish.

The common European currency versus the Japanese Yen bounced off the lower boundary of a descending channel pattern at 121.09 on Tuesday. As a result, the currency pair gained about 0.46% in value.

As for the near future, it is likely that the EUR/JPY exchange rate could aim for a resistance level formed by the 50-hour simple moving average at 121.61.

If the 50-hour SMA holds, a decline towards the lower boundary of a descending channel pattern could follow.

On the other hand, if the currency exchange rate passes the resistance line, a surge towards the weekly PP at 122.17 could be today's target for bullish traders.

The Australian Dollar appreciated about 50 base points against the US Dollar on Tuesday. The currency pair tested the upper boundary of a descending channel pattern at 0.6877 during the morning hours of Wednesday's trading session.

Currently, the 100-hour simple moving average provides resistance for the exchange rate at 0.6879.

If the resistance level as mentioned earlier holds, a decline towards the monthly S1 at 0.6848 is likely to occur.

However, if the AUD/USD currency exchange rate breaks the descending channel pattern, the pair might end this week's trading sessions on bullish momentum.