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EUR/USD

The EUR/USD is building a triangle chart pattern, which is probably part of a larger WXY (pink) correction within wave B (purple).

Daily chart:

The EUR/USD seems to be building a bearish ABC (purple) correction within wave B (red).

Weekly chart:

The EUR/USD has completed wave A (red) and price is most likely retracing to the Fibonacci levels of wave B (red).

Monthly chart:

GBP/USD

The GBP/USD is in a downtrend channel but the bullish momentum makes an ABC (blue) zigzag pattern likely.

Daily chart:

The GBP/USD has probably started the bearish wave 5 after price has completed a wave 4 (light purple) correction.

Weekly chart:

The GBP/USD bearish breakout is probably indicating the start of wave 5 (purple) whereas a bullish break above resistance (red) indicates that a different wave pattern is valid.

Monthly chart:

USD/JPY

The USD/JPY seems to have completed 5 bearish waves (orange) of a larger ABC correction (red). Price could now be building an ABC (orange) within wave B (red).

Daily chart:

The USD/JPY could be building an ABCDE triangle (light purple) within wave B (red).

Weekly chart:

The USD/JPY is in the wave D (light purple) of the triangle pattern.

Monthly chart:

Daily Pivots: (S1) 110.79; (P) 111.02; (R1) 111.26; More...

Intraday bias in USD/JPY remains neutral for consolidation above 110.58 temporary low. As long as 111.53 minor resistance holds, correction from 113.17 could extend lower. Below 110.58 will turn bias to the downside. But we'd expect strong support from 38.2% retracement of 104.62 to 113.17 at 109.90 to bring rebound. On the upside, break of 111.53 will turn bias to the upside for retesting 113.17 high.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.36 support holds.

The EUR/USD is testing the support trend line (blue) of the triangle pattern, which is a bounce or break spot. There is also a critical 78.6% Fibonacci level of wave B vs A. A bullish bounce is more likely when taking into account the potential ABC (blue) zigzag pattern. A break below the 100% Fibonacci level invalidates the bullish ABC pattern.

The EUR/USD seems to have completed 5 bearish waves (orange) as part of bearish wave C (green) of wave B (blue). Price could now be building a wave 1-2 (green) as long as price stays above the 100% Fibonacci level of wave 2 vs 1, otherwise this wave pattern is invalidated.

The GBP/USD has reached a critical 50% Fibonacci level of the potential wave B (blue), which could be a bullish bouncing spot. For the moment, we are expecting a larger bullish ABC zigzag (blue) pattern within wave Y (purple) unless price breaks the support trend line with strong bearish momentum.

The GBP/USD bullish ABC (blue) is confirmed when price manages to break above the resistance trend line (red) of the bearish channel whereas the pattern is invalidatedif price breaks below the 100% Fibonacci level of wave B vs A.

The GBP/USD seems to have completed 5 bearish waves (orange) within a wave A (green) of a larger ABC correction in wave B (blue). The path of least resistance seems to indicate that price will break above the resistance trend line (orange) and then turn at the Fibonacci levels of wave B (green) for a new low to complete wave B (blue).

Market movers today

The calendar has a slow start today to an otherwise busy week. The Bank of Japan (Tue) and Bank of England (Thur) meetings will be particularly interesting and we expect the BoE to hike rates. The Fed is due to meet on Wednesday, but this is likely to be quite uneventful.

Later this week, euro area inflation, GDP, unemployment, US inflation, the labour report (NFP) and Chinese PMIs are due, to name but a few.

Today in the majors, we will get the German and Spanish releases ahead of tomorrow's euro area HICP print. Swedish GDP is the main event in the Scandies today. We expect 0.5% q/q and 2.6% y/y.

Selected market news

One of the key events for the Japanese markets and the global bond markets is the Bank of Japan meeting, which started today with the policy announcement tomorrow. Last week, the BoJ announced twice that it would buy an unlimited amount of bonds. The last one on Friday was conducted when the 10-year JGB yield hit 0.10%. However, there has not been a bond purchase announcement this morning despite 10-year yields being marginally above the 0.10% yield level target. We still hold the view that the BoJ will not change the yield target this week, as the risk of a stronger JPY would be clearly counterproductive for it to reach the inflation target. That said, a policy adjustment (fine-tuning) in Q3 has increased significantly. USD/JPY has been stable this morning. We wrote about the BoJ meeting and our view including the impact on global bond markets in Bank of Japan Review- risk of JPY appreciation keeps the BoJ sidelined .

On Friday, the key event was the US GDP report for Q2. GDP came in at annual rate of 4.1% q/q, driven mainly by a strong contribution from private consumption, which was up by a rate of 4.0% q/q. Inventories contributed negatively by one percentage point, whereas fixed investments were decent with a one percentage point contribution. Given the focus on the US trade deficit, note that net exports were a positive 1.1 percentage point. All in all, the US economy is doing fine despite GDP growth coming in one-tenth below consensus. PCE core index also came in lower than expected but should not change much for the Fed, which still seems on track to deliver two more hikes this year.

US yields edged slightly lower on the release and US equites were already under pressure from disappointing news from Intel in the morning. All the major indices ended Friday in the red, with Nasdaq down 1.46%. Asian stock markets are also in the red this morning.

We also have the Bank of England meeting this week (Thursday). Like consensus, we expect a hike in the Bank Rate from 0.50% to 0.75%, as activity indicators have rebounded and as the unemployment rate is low. Importantly, we do not expect more rate hikes his year and only one next year, as Brexit looms and as the neutral rate stays low. See our BoE preview to the right. Finally, the Fed has a meeting on Wednesday. We expect no change and it is one of the small meetings without a press conference. The press release typically changes little from meeting to meeting.

For the 24 hours to 23:00 GMT, the EUR rose 0.16% against the USD and closed at 1.1660 on Friday.

On the data front, in France, Euro-zone’s second largest economy, preliminary gross domestic product (GDP) climbed 0.2% on a quarterly basis in the second quarter of 2018, less than market expectations for an advance of 0.3%. In the previous quarter, GDP had registered a similar rise.

The US dollar declined against a basket of currencies, following weaker-than-expected GDP growth.

In the US, data showed that the US flash annualised gross domestic product (GDP) advanced 4.1% on a quarterly basis in Q2 2018, undershooting market expectations for a rise of 4.2%. In the preceding quarter, GDP had risen 2.0%. Meanwhile, the nation’s final Reuters/Michigan consumer sentiment index dropped less than initially estimated to a 6-month low level of 97.9 in July. In the prior month, the index had recorded a reading of 98.2. The preliminary figures had indicated a decline to a level of 97.1.

In the Asian session, at GMT0300, the pair is trading at 1.1651, with the EUR trading 0.08% lower against the USD from Friday’s close.

The pair is expected to find support at 1.1626, and a fall through could take it to the next support level of 1.1602. The pair is expected to find its first resistance at 1.1670, and a rise through could take it to the next resistance level of 1.1690.

Moving ahead, investors will await Euro-zone’s consumer confidence index, business climate indicator and economic confidence index, all for July, slated to release in few hours. Later in the day, the US pending home sales data for June and the Dallas Fed manufacturing activity for July, will garner significant amount of investor attention.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the GBP rose marginally against the USD and closed at 1.3110 on Friday.

In the Asian session, at GMT0300, the pair is trading at 1.3100, with the GBP trading 0.08% lower against the USD from Friday’s close.

The pair is expected to find support at 1.3078, and a fall through could take it to the next support level of 1.3057. The pair is expected to find its first resistance at 1.3126, and a rise through could take it to the next resistance level of 1.3153.

Looking forward, investors will closely monitor UK’s net consumer credit and mortgage approvals, both for June, set to release in a few hours. Also, the Gfk consumer confidence index and Lloyds business barometer, both for July, due to be released overnight, will be on investors radar.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD declined 0.21% against the JPY and closed at 110.98 on Friday.

In the Asian session, at GMT0300, the pair is trading at 111.09, with the USD trading 0.10% higher against the JPY from Friday's close.

Overnight data revealed that, Japan's retail trade jumped 1.8% on a yearly basis in June, more than market expectations for an advance of 1.7%. In the previous month, retail trade had climbed 0.6%. Moreover, large retailer's sales rebounded 1.5% on a monthly basis in June, following a drop of 2.0% in the previous month. Market participants had anticipated large retailer's sales to record a rise of 1.6%.

The pair is expected to find support at 110.84, and a fall through could take it to the next support level of 110.60. The pair is expected to find its first resistance at 111.29, and a rise through could take it to the next resistance level of 111.50.

Going forward, investors will keep an eye on Japan's crucial interest rate decision along with jobless rate and industrial production data, both for June, set to release overnight.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD traded flat against the CHF and closed at 0.9942 on Friday.

In the Asian session, at GMT0300, the pair is trading at 0.9954, with the USD trading 0.12% higher against the CHF from Friday’s close.

The pair is expected to find support at 0.9931, and a fall through could take it to the next support level of 0.9909. The pair is expected to find its first resistance at 0.9977, and a rise through could take it to the next resistance level of 1.0001.

Trading trend in the Swiss Franc will be determined by the KOF leading indicator for July, scheduled to release in a while.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD declined 0.09% against the CAD and closed at 1.3061 on Friday.

In the Asian session, at GMT0300, the pair is trading at 1.3079, with the USD trading 0.14% higher against the CAD from Friday’s close.

The pair is expected to find support at 1.3054, and a fall through could take it to the next support level of 1.3030. The pair is expected to find its first resistance at 1.3091, and a rise through could take it to the next resistance level of 1.3104.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.