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Daily Pivots: (S1) 110.12; (P) 110.49; (R1) 110.70; More...

USD/JPY lost upside momentum after hitting 110.84 and intraday bias is turned neutral. Overall outlook is unchanged that price actions from 111.39 are developing into a corrective pattern. Below 109.18 will start the third leg to 108.10 and possibly below to complete the pattern. Above 110.84 will bring retest of 111.39 first. Break will resume the whole rebound from 104.62.

In the bigger picture, at this point, we're slightly favoring the case that corrective decline from 118.65 (2016 high) has completed with three waves down to 104.62. Above 111.39 will affirm this view and target 114.73 for confirmation. However, it should be noted that USD/JPY is bounded in medium term falling channel from 118.65 (2016 high). Sustained break of 61.8% retracement of 104.62 to 111.39 at 107.20 will likely resume the fall from 118.65 through 104.62 low.

Daily Pivots: (S1) 0.9832; (P) 0.9863; (R1) 0.9887; More...

No change in USD/CHF's outlook as it's staying in tight range of 0.9787/9911. Intraday bias remains neutral for the moment. On the upside, break of 0.9911 minor resistance will suggest that the corrective pull back from 1.0056 is already completed. Intraday bias would then be turned back to the upside for retesting 1.0056 first. On the downside, below 0.9787 will extend the correction. But we'd expect strong support from 0.9724 fibonacci level to contain downside and bring rebound.

In the bigger picture, medium term decline from 1.0342 has completed with three waves down to 0.9186. Rise from there is currently viewed as a leg inside the long term range pattern. Hence, while further rally would be seen, we'd be cautious on strong resistance from 1.0342 to limit upside. For now, further rise is expected as long as 38.2% retracement of 0.9186 to 1.0056 at 0.9724 holds. However, sustained break of 0.9724 will dampen this bullish view and would at least bring deeper fall to 61.8% retracement at 0.9518.

Daily Pivots: (S1) 1.3323; (P) 1.3362; (R1) 1.3416; More...

GBP/USD recovers after dipping to 1.3307 and intraday bias is turned neutral again. Below 1.3307 will reaffirm the case that corrective rise from 1.3203 has completed. Retest of 1.3203 should then be seen. Break will resume the fall from 1.4376 to 50% retracement of 1.1946 to 1.4376 at 1.3161 first, and 61.8% retracement at 1.2875 next. Nonetheless, above 1.3424 minor resistance will extend the corrective rise through 1.3471 before completion.

In the bigger picture, current development suggests that whole medium term rebound from 1.1936 (2016 low) has completed at 1.4376 already, with trend line broken firmly, on bearish divergence condition in daily MACD, after rejection from 55 month EMA (now at 1.4223). 61.8% retracement of 1.1936 (2016 low) to 1.4376 at 1.2874 is the next target. We'll pay attention to the reaction from there to asses the chance of long term down trend resumption. For now, outlook will stay bearish as long as 1.3617 resistance holds, even in case of strong rebound.

Daily Pivots: (S1) 1.1745; (P) 1.1773 (R1) 1.1822; More.....

Outlook in EUR/USD remains unchanged. It's staying in tight range of 1.1713/1839 and intraday bias remains neutral. On the upside, break of 1.1839 will extend the rebound from 1.1509. But as it's seen as a correction, upside should be limited by 1.1995 resistance to bring reversal. On the downside, break of 1.1713 will argue that such correction is finished. Intraday bias would then be turned back to the downside to resume larger fall from 1.2555, through 1.1509 to 50% retracement of 1.0339 to 1.2555 at 1.1447.

In the bigger picture, current development suggests that EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. And, a medium term top was formed at 1.2555 already. Decline from there should extend further to 61.8% retracement of 1.0339 to 1.2555 at 1.1186 and below. For now, even in case of rebound, we won't consider the fall from 1.2555 as finished as long as 1.1995 resistance holds.

Dollar got a very brief lift overnight as Fed delivered a hawkish rate hike. But it quickly lost steam as weighed down by concern over trade war between US and China. For today, the greenback is only trading slightly better than Australian Dollar, which is weighed down by its down job data and China data. Euro, on the other hand, is picking up a little bit of strength today as focus now turns to ECB rate decision and press conference. Sterling is mixed despite yesterday's CPI miss as focus will turn to retail sales.

Technically, EUR/USD is holding in tight range above 1.1713 minor support and there is prospect of extending the near term rebound from 1.1509. 1.1839 resistance is the level to watch in EUR/USD. USD/JPY lost much momentum after hitting 110.84 and focus is back on 109.18 minor support. EUR/GBP is still resiliently held below 0.8844 resistance as range trading continue. But ECB meeting could provide the trigger for a breakout.

Fed delivered hawkish rate hike and projections

Fed delivered the widely expected rate hike overnight, with hawkish statement and economic projections. FOMC raised the Fed funds rate by +25 bps to a range of 1.75-2.00%. In a technical adjustment, it also lifted the interest rate paid on required and excess reserve balances, by +20 bps, to 1.95% so as to maintain the trading in the fed funds market at rates well within the FOMC's target range.

The members are more upbeat on the economic developments since the last meeting, noting "solid" growth, compared with "moderate" growth in the prior meeting. The staff upgraded the GDP growth forecast for this year and inflation outlook for this year and 2019. The median dot plot suggests 2 more rate hikes, one more than projected in the prior meeting.

More in Fed Raised Policy Rate in June. Two More to Come amidst Upbeat Economic Developments

Also on Fed:

• Dollar jumps on hawkish Fed projections, four hikes in total this year
• FOMC Recap: Hawkish Statement And Projections, Hesitant Powell
• FOMC Review: Four Hikes More Likely After Removal Of Soft Wordings
• FOMC Raises Funds Rate Target, Alters Forward Guidance
• FOMC Raises the Fed Funds Rate to Range of 1¾ to 2 Percent
• Fed Raises Rates, Drops Forward Guidance in Pared Down Statement

Dollar gains capped by trade war concerns

The concern of trade war is a main factor that's weighing down the greenback. It's reported that Trump is ready to snap tariffs on USD 50B of Chinese imports. The original list consists of around 1300 product lines. Trade advisor Peter Navarro's comments suggested that the tariffs could be on a "subset" of the original list. The decision would be made on Thursday today, and the final list of products would be unveiled on Friday.

To recap, that's the action under section 301 investigation in response to forced transfer of U.S. technology and intellectual property. It's different from the section 232 steel and aluminum tariffs against the world. The section 301 tariffs solely targeted at China.

South Korean Moon approved the result of Kim-Trump summit

South Korean President Moon Jae-in met with US Secretary of State Mike Pompeo today and gave a nod to what the US has done in the Kim-Trump summit. Moon said that "there have been many analyses on the outcome of the summit but I think what's most important was that the people of the world, including those in the United States, Japan and Koreans, have all been able to escape the threat of war, nuclear weapons and missiles."

Pompeo said that "we're hopeful that we can achieve that in the 2-1/2 years," referring the major nuclear disarmament in North Korea. And he tweaked the meaning of "complete" and said it "encompasses verifiable and irreversible" denuclearization. But no one asked him when the word "complete" started including those extra meaning.

In Japan, the Yomiuri newspaper reported that Prime Minister Shinzo Abe is arranging a meeting with North Korean Leader Kim Jong-un, possibly in Pyongyang around August.

Australian Dollar lower on job and China data

Australian Dollar is trading as the weakest one today as pressured by its own data miss as well as weaker than expected China data. Australia employment rose 12k seasonally adjusted in May, below consensus of 19.2k. Unemployment rate dropped to 5.4%, as participation rate also dropped to 65.5%.

From China, retail sales rose 8.5% yoy in May, slowed from 9.4% yoy and missed expectation of 9.6% yoy. Industrial production slowed to 5.8% yoy, down from 7.0% yoy and missed expectation of 7.0% yoy. Fixed asset investment slowed to 6.1% yoy, down from 7.0% yoy and missed expectation of 7.0% yoy.

High expectation on ECB but beware of dovish tweak

ECB rate decision and press conference is the biggest focus today. Expectations is high after chief economist Peter Praet said it's a "judgement call" this week on the EUR 30B/month asset purchase program, which is going to end in September. With Eurozone inflation picked up again in May, ECB should be much more comfortable to end the asset purchase program this year.

However, the tricky point is, if they don't end the program after September, it doesn't make much sense to taper it for another three months till December. If ECB extends the tapered program for six months, it will push away the timing of the first rate hike, which will be Euro negative. Stopping the program right after September is certainly Euro positive. But are they confident enough to do so? It's doubtful. Adding to that, it's still possible for ECB to wait until July to make that judgement. Hence, there could be some dovish tweaks out of the meeting.

Here are some suggested readings on ECB:

• ECB: More Upbeat, But June May be Too Early for QE Commitment
• ECB Ready To Map The End Of APP
• ECB Preview – Members to Discuss QE Tapering This Week, Attention Moves to Rate Hike Path and Forward Guidance

On the data front - UK and US retail sales watched

UK retail sales will also be a focus in European session while Germany will release May CPI final. US retail sales will catch most attention later in the day, when import price index, jobless claims and business inventories will also be featured. Canada will release new housing price index.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1745; (P) 1.1773 (R1) 1.1822; More.....

Outlook in EUR/USD remains unchanged. It's staying in tight range of 1.1713/1839 and intraday bias remains neutral. On the upside, break of 1.1839 will extend the rebound from 1.1509. But as it's seen as a correction, upside should be limited by 1.1995 resistance to bring reversal. On the downside, break of 1.1713 will argue that such correction is finished. Intraday bias would then be turned back to the downside to resume larger fall from 1.2555, through 1.1509 to 50% retracement of 1.0339 to 1.2555 at 1.1447.

In the bigger picture, current development suggests that EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. And, a medium term top was formed at 1.2555 already. Decline from there should extend further to 61.8% retracement of 1.0339 to 1.2555 at 1.1186 and below. For now, even in case of rebound, we won't consider the fall from 1.2555 as finished as long as 1.1995 resistance holds.

Economic Indicators Update

Australian Dollar is trading as the weakest one today as pressured by its own data miss as well as weaker than expected China data. Australia employment rose 12k seasonally adjusted in May, below consensus of 19.2k. Unemployment rate dropped to 5.4%, as participation rate also dropped to 65.5%.

From China, retail sales rose 8.5% yoy in May, slowed from 9.4% yoy and missed expectation of 9.6% yoy. Industrial production slowed to 5.8% yoy, down from 7.0% yoy and missed expectation of 7.0% yoy. Fixed asset investment slowed to 6.1% yoy, down from 7.0% yoy and missed expectation of 7.0% yoy.

EUR/AUD is a top mover today and is displaying strength across time frames.

EUR/AUD action bias table also shows some promising near term upside momentum.

This could be seen clearly in the H and 6H action bias charts too.

However, a look at D action bias chart sees that EUR/AUD has just come out of a near term down trend. While the near term rebound is impressive, it doesn't warrant a trend reversal yet.

So, we would not suggest chasing the rally. In particular, there is an high profile risk in ECB policy decision and press conference today.

South Korean President Moon Jae-in met with US Secretary of State Mike Pompeo today and gave a nod to what the US has done in the Kim-Trump summit.

Moon said that "there have been many analyses on the outcome of the summit but I think what's most important was that the people of the world, including those in the United States, Japan and Koreans, have all been able to escape the threat of war, nuclear weapons and missiles."

Pompeo said that "we're hopeful that we can achieve that in the 2-1/2 years," referring the major nuclear disarmament in North Korea. And he tweaked the meaning of "complete" and said it "encompasses verifiable and irreversible" denuclearization. But no one asked him when the word "complete" started including those extra meaning.

In Japan, the Yomiuri newspaper reported that Prime Minister Shinzo Abe is arranging a meeting with North Korean Leader Kim Jong-un, possibly in Pyongyang around August.

STOCKS

Stocks have dipped a bit after the FED hiked rates by 25bps. Almost all the stock indices mentioned below have dipped a bit but could soon recover by early next week.

Dow (25201.20, -0.47%) is trading lower and has fallen from levels near 25320 seen yesterday. If the index fails to rise from current levels, it could come off to re-test lower support of 25000. A bounce back from 25200 would be bullish on the other hand, increasing chances of testing 25700 on the upside.

Dax (12890.58, +0.38%) tested low of 12800 and bounced back to close higher at 12890. There is some room on the upside towards resistance zone of 13000-13100. Downside could be capped at 12600 for the near term.

Nikkei (22862.73, -0.45%) is trading above 22800 and while the index remains above this near term support, there is scope for a rise towards 23200-23400 in the coming sessions. But keep an eye on Dollar Yen; if Dollar Yen comes off in the next few sessions, it would limit the rise in Nikkei and keep it ranged for some time.

Shanghai (3046.20, -0.11%) also came off a bit from levels near 3070. Sideways range in the 3025-3080 region may continue for now. A break on either side of 3025 or 3100 would be important to decide further direction in the index.

10900 is a decent resistance on the daily Nifty (10856.70, +0.13%) candle charts and while that holds, there could be some chance of a dip towards 10800 or lower in the next few sessions. In case the index remains above 10850, it could again attempt to move up towards 10900-10950 by early next week.

COMMODITIES

Brent (76.57) and WTI (66.67) are trading a bit higher today. As mentioned yesterday, we look for a rise towards 79-80 in Brent in the coming sessions and while WTI trades above 66.50, it too can rise higher targeting 68 in the next few sessions. Near term looks bullish.

Gold (1298.12) is stable as usual. A gradual rise towards 1300 and higher is on the cards for the coming sessions. Silver (16.91) is down from 17.10 and could test 16.80 on the downside before bouncing up again.

Copper (3.2394) is in a correction phase just now and the price could come off towards 3.20 as we have been mentioning for quite a few sessions now.

FOREX

Dollar index (93.55): The Fed’s 25 bps rate hike and its hawkish policy tone did pull the Dollar Index to a high near 94.03 yesterday, but it has fallen back towards 93.5 today. It probably reflects the fact that such hawkishness was already factored in by the markets. However, the ECB meet later today (expected to be hawkish as well) could have more impact. From the charts, Dollar Index looks like it could dip towards the 8 weeks MA near 93.2. A break below 93 could be very bearish.

Euro (1.1792): Markets seem unsure of whether ECB will indicate the end of its asset purchase programme (by year end) in its statement today. If that happens, Euro might breach the 8 weeks MA near 1.183 and as per our earlier stated forecast, rise towards crucial resistance near 1.1875-1.1900.

Dollar Yen (110.31): Dollar Yen touched a high of 110.85 yesterday and has come off from there towards a low of 110.09 today. If the ECB meet brings in weakness for the Dollar today, Dollar Yen might dip further. In that case, 110.85 might be proven as a top. A break below 109.5 could finally bring in medium term Yen strength.

Euro Yen (130.09): Keeping a target of 1.180-1.185 for the Euro in the next 1-2 sessions and a target near 110 for Dollar Yen, we get 130 on Euro Yen. It could range near 129-130 for few more sessions before dipping from resistance on the 3 day candles.

Pound (1.3376): As expected, Pound saw a low near 1.3309 yesterday but has moved up again. We have been saying that Pound looks bearish in this week towards levels near 1.33-1.32. However, if the ECB meet leads to Dollar weakness, that view could get negated. Let’s wait and watch.

Dollar Rupee (67.6475): Dollar rupee traded within 67.50-67.70 yesterday and may extend on either side towards 67.85 or 67.35 respectively. We prefer a test of downside levels near 67.35 at least once before the price moves higher.

INTEREST RATES

The US Fed hiked rates by 25 bps as expected. However, the language in the policy statement was clearly more hawkish than previous statements - reflected in the fact that the phrase about keeping rates low to boost the economy was dropped. The likelihood of 2 more rate hikes this year has increased beyond 50% for the first time this year. However the impact of this hawkishness hasn’t yet translated into a rise past 3% for the 10 Year yield.

The attention now turns to the ECB meet today wherein the market awaits any indication from the ECB about the end of its asset purchase programme. Even a hint of any decisiveness in ending the asset purchases could lead to a rise in German bond yields(German 10 Year near 0.48% currently).. Whether that means an outflow from US debt to European debt and therefore a rise in US yields, would have to be seen.

Current yields: US 10 year (2.9645%), 30 Year (3.0815%), 5 Year (2.835%), 2 Year (2.565%)

The 10-2 Year spread has dropped below 0.40% for the first time in 8 years. There is long term support near these levels and it needs to be seen if it holds. A decisive break below 0.40% might imply an impending slowdown in the US economy.

The US Retail Sales data release later today could also have an impact on US yields. Last month a higher Retail Sales figure had led to a rise to 3.125% for the US 10 Year yield.

Fed delivered the widely expected rate hike overnight, with hawkish statement and economic projections. FOMC is now projecting two more rate hikes this year, a total of four, and another three next year. But Dollar is failing to extend it's gain despite the announcement. The greenback is indeed trading down against all but Australian and New Zealand Dollar in Asian session.

The concern of trade war is a main factor that's weighing down the greenback. It's reported that Trump is ready to snap tariffs on USD 50B of Chinese imports. The original list consists of around 1300 product lines. Trade advisor Peter Navarro's comments suggested that the tariffs could be on a "subset" of the original list. The decision would be made on Thursday today, and the final list of products would be unveiled on Friday.

To recap, that's the action under section 301 investigation in response to forced transfer of U.S. technology and intellectual property. It's different from the section 232 steel and aluminum tariffs against the world. The section 301 tariffs solely targeted at China.

The Fed raised the target range by 25bp to 1.75%-2.00% as expected (the interest rate on excess reserves was only lifted by 20bp to 1.95% in order to keep the effective Fed funds rate closer to the mid of the range) as the Fed is still bullish on the economy.

The median 'dot' for this year was lifted from signalling a total of three hikes to four hikes although only one member lifted his or her dot. The Fed has decided to remove many soft sentences making the statement shorter, as Powell wants more flexibility now the Fed funds rate is close to neutral. The FOMC no longer says that it is monitoring inflation 'carefully', that it expects 'further gradual [rate] increases' and perhaps most importantly that the Fed funds rate 'is likely to remain, for some time, below levels that are expected to prevail in the longer-run'. Powell said during the press conference the latter was because the target range is now close to neutral (so basically in line with what we expected, although we thought the change would be made where the Fed states that 'monetary policy is accommodative'). This is slightly more hawkish than we had expected and we now think it is more likely than not the Fed is going to hike both in September and December (previously only in December) although it is still a close call. The committee remains divided between three and four.

The Fed still signals three hikes in 2019. The longer-run dot was unchanged at 2.875%, so we are only four hikes away from neutral, where monetary policy is neither expansionary nor contractionary. The Fed still signals the target range is moving slightly above neutral over the next few years (so still says it is time to gently hit the brakes to avoid an overheating).

Powell said during the press conference that the Fed will not 'overreact' to PCE core inflation moving above 2% and that 'it is too early to declare victory over inflation'. One could argue that the Fed has de facto shifted to some sort of partial price level targeting but Powell said that the formal discussions are 'not in the calendar right now'.

Powell confirmed he will hold a press conference at every meeting starting from January (projections are still updated on a quarterly basis). This is positive, at it means we will get more information at the small meeting. Powell continues to be more explicit and direct than Yellen, which is positive, as it increases transparency.

EUR/USD fell on impact but partially erased the initial move as Powell stressed that an inflation overshoot will be allowed (USD negative) and as a WSJ story separately reported on the more concrete plans for US tariffs on Chinese goods. In any case, today's confirmation that the Fed is on autopilot, underlines the 'carry appeal' of USD, which should ensure demand for the greenback for some time still. Next up is the ECB, and while it is a close call, we are looking for the ECB to refrain from putting an end date on QE and thus expect EUR/USD to drop on announcement and edge a bit higher on some nonetheless hawkish comments as Draghi starts speaking. Bottomline: Fed and ECB in combination halting the recent EUR/USD rebound and the cross should remain broadly within the 1.15-1.21 range on a 6M horizon