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The mood across financial markets is set to remain cautious as investors find comfort on the sidelines ahead of several major central bank decisions over the coming days.

When factoring in how the US Federal Reserve, the Bank of England and the Bank of Japan will all be under the spotlight this week, market players will prefer to sit on the sidelines and await the outcome of these meetings in anticipation, before deciding what move to make in their portfolios.

Persistent US-China trade tensions, heightened geopolitical risks in the Middle East, Brexit uncertainty and concerns over decelerating global growth are clearly the enemies of central banks at present. The increased potential of another round of central banks easing monetary policy to counter a global slowdown continues to offer investors something to fall back on, but the key question is - for how long?

Global equity markets have overall performed well in June, although the gains have been built on shaky foundations.

Should central bank policymakers sound less downbeat than the market is expecting and soften speculation of monetary easing, stock markets face the risk of tumbling like a house of cards.

Dollar bulls to be tested by Federal Reserve

Where the Dollar concludes this week will be heavily influenced by the outcome of the Federal Reserve policy meeting scheduled over the next two days.

While it is widely expected that US interest rates will be left unchanged this month, investors should not be quick to label this policy meeting as a non-event. Markets will be closely scrutinizing the meeting for confirmation of an interest rate cutoccurring as early as next month. Should the Federal Reserve disappoint those expectations, or create a frenzy by not offering any hints about upcoming action to be taken in spite of persistent global headwinds, King Dollar should make a return and will look to shoot to the moon.

Currency spotlight – GBPUSD

Investors who were looking for a fresh opportunity to attack the Pound were given the thumbs up yesterday on rising concerns that the leading candidate Boris Johnson, risks steering Britain towards the path of a no-deal Brexit should he become Prime Minister.

The past few days have certainly not been kind to the battered Pound which tumbled to a fresh 2019 low below 1.2520 earlier this morning. With the terrible combination of Brexit uncertainty and political risk in the UK haunting investor attraction towards Sterling, the path of least resistance points south.

Taking a look at the technical picture, the GBPUSD is under intense selling pressure on the daily charts. A breakdown below 1.2500 is seen opening a path towards 1.2430.

ECB President Mario Draghi emphasized in a speech that "monetary policy remains committed to its objective and does not resign itself to too-low inflation... forever or even for now." Also, he reiterated monetary policy is "patient, persistent and prudent".

He added: "Patient, because faced with repeated negative shocks we have had to extend the policy horizon. Persistent, because monetary policy will remain sufficiently accommodative to ensure the sustained convergence of inflation to our aim. And prudent, because we will pay close attention to underlying inflation dynamics and to risks and will adjust policy appropriately."

Draghi also reiterated risks remains "tilted to the downside" and indicators point to "lingering softness". And he warned, "in the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required." The options on further measures were "raised and discussed" at ECB's last meting.

The measures including enhancing the forward guidance on bias and conditionality. Also, "Further cuts in policy interest rates and mitigating measures to contain any side effects remain part of our tools". And, "the APP (asset purchase program) still has considerable headroom."

Full speech here.

Euro drops notably after the comments.

Pivot (invalidation): 52.35

Our preference Short positions below 52.35 with targets at 51.35 & 51.05 in extension.

Alternative scenario Above 52.35 look for further upside with 52.85 & 53.25 as targets.

Comment As Long as 52.35 is resistance, likely decline to 51.35.

Pivot (invalidation): 14.8800

Our preference Short positions below 14.8800 with targets at 14.7600 & 14.7100 in extension.

Alternative scenario Above 14.8800 look for further upside with 14.9500 & 15.0000 as targets.

Comment The RSI is mixed and calls for caution.

Pivot (invalidation): 1343.50

Our preference Short positions below 1343.50 with targets at 1337.00 & 1333.50 in extension.

Alternative scenario Above 1343.50 look for further upside with 1346.50 & 1350.00 as targets.

Comment The RSI is mixed and calls for caution.

• Growth recovery to be delayed by further trade war escalation. However, stimulus is set to cushion the drag from higher uncertainty. We look for growth to fall to 6.2% in 2019 from 6.6% in 2018. In 2020 we expect the economy to grow 6.1%.
• We look for a trade deal in H2, which should pave the way for a recovery in Q4. Uncertainty is elevated, though, and an all-out trade war that runs into 2020 would delay any lift to growth.
• We expect more policy stimulus with a further cut in the RRR and subsidies for consumer goods. USD/CNY to rise to 7.10 over the next quarter.
• China is set to face some headwinds from production moving to other Asian countries and US export controls in tech. China's likely response will be more focus on self-reliance, even more investments in the tech industry and new efforts to create a better business environment for foreign companies in order to attract FDI.
• China has stepped up measures to support the private sector and continues to highlight 'reform and opening'. We expect China to stay on a catching-up path and to surpass the US economy by 2030.

Full report in PDF.

Pivot (invalidation): 2871.50

Our preference Long positions above 2871.50 with targets at 2910.00 & 2935.00 in extension.

Alternative scenario Below 2871.50 look for further downside with 2851.50 & 2823.00 as targets.

Comment The RSI lacks downward momentum.

• Demand has been slowing in Japan. A record fiscal budget will keep the economy afloat in 2019, along with hoarding effects in the run-up to the VAT hike in October. From 2020 onwards, the economy will have to find support abroad to keep growing. We expect GDP growth of 1.0% in 2019 and 0.5% in 2020 and 2021.
• With a shrinking population, exports are key to growth, even if the Japanese economy is quite closed. A rebound in global growth therefore remains paramount to the outlook.
• The VAT hike poses a risk to domestic demand, although the impact should be much smaller than after previous tax hikes. Future trade negotiations between the US and Japan could also cause some turbulence.
• The inflation outlook still looks modest and we expect the Bank of Japan to remain on hold through 2021.

Full report in PDF.

Pivot (invalidation): 12130.00

Our preference Short positions below 12130.00 with targets at 12043.00 & 12000.00 in extension.

Alternative scenario Above 12130.00 look for further upside with 12180.00 & 12225.00 as targets.

Comment The RSI is mixed.

Pivot (invalidation): 5.8940

Our preference Short positions below 5.8940 with targets at 5.8480 & 5.8300 in extension.

Alternative scenario Above 5.8940 look for further upside with 5.9250 & 5.9580 as targets.

Comment As Long as the resistance at 5.8940 is not surpassed, the risk of the break below 5.8480 remains high.