FX Market s' Predisposition To Buy EUR/USD

Market Movers Today

In the euro area, the most important data release today is money supply and private sector bank lending. In June, lending to households and non-financial corporations continued their upward t rend, meaning t he ECB's accommodative monetary policy is feeding through to the private sect or. This should eventually generate higher inflation but t he ECB's is being challenged current ly by a stronger euro, which is a strong headwind to inflation.

US core capital goods orders are due for release and consensus is for another modest increase. Over the past months, the figure has disappointed, implying that fixed investments growth did not look like a strong contributor to GDP growth in Q2. As private consumption is also growing at a slower pace than anticipated, this paints a more modest picture for GDP growth than we had expected.

In scandi markets, we will get the release of the Norwegian LFS and Swedish unemployment rates together with the Swedish Economic Tendency Survey and household lending. Otherwise, focus will remain on Swedish politics.

Selected Market News

As expected, the Fed kept interest rates unchanged yesterday, leaving all eyes on the statement. Overall, our interpretation of the statement was that it was a little dovish even if we did not get that much new information apart from two phrases. The first was on the process of unwinding the balance sheet , which may st art ‘relatively soon' instead of ‘this year', which in fact is not new as it reflects the choice of words Fed Chair Janet Yellen used during the press conference in June. More significantly, the Fed stated t hat inflation is now running ‘below' 2% (before ‘somewhat below'), which supported FX market s' predisposition to buy EUR/USD, sending the cross above the multi-year top from 2015. Overall, we think the Fed statement supports our call that the Fed will make an announcement on quantitative tightening at the next meeting in September and on the back of a strong belief in the Phillips curve, st ill hike rates in December. Importantly, we think risks are skewed towards the Fed pausing its hiking cycle further into 2018. For more information, see our full FOMC review here.

Yesterday's EIA data showed a larger-than-expected drop in US oil inventories, which aided Brent crude temporarily above USD 51/bbl for the first time since early June. The rebound in the oil price has supported the traditional oil currencies including the NOK. Despite the latest NOK rally, however, we see positioning, technicals and short -term valuation as increasing headwinds. As such, even if we remain medium- to long-term bullish on the NOK, we do see a risk of a temporary setback over the next month.

In Sweden, the four Alliance Parties said they will request a vote of confidence for three of the Red/Green governments SDP ministers (infrastructure, interior and defence) because of their wrong handling of the IT scandal in the Swedish Transport Agency, which has had big implicat ions for possible leaks about national security. The ministers have also been criticised for not giving this information to the Riksdag. Prime Minister Stefan Lövfven has announced a press conference today at 10:00 CET. He basically has four opt ions: (1) to dismiss the three ministers, (2) to dismiss the infrastructure minister but let the other two stay (supported by the Left Party), (3) to announce an elect ion and (4) the government resigns, letting the Riksdag speaker look for a government constellation (could be the same, could be a new). None of these are particularly appealing. Either way, we see no reason for a significant market reaction.

For the 24 hours to 23:00 GMT, the AUD rose 0.71% against the USD and closed at 0.7996.

LME Copper prices climbed 1.4% or $88.0/MT to $6238.0/MT. Aluminium prices rose 0.8% or $15.5/MT to $1912.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.8048, with the AUD trading 0.65% higher against the USD from yesterday's close.

Earlier today, data showed Australia's import price index unexpectedly eased 0.1% QoQ in 2Q 2017, compared to an advance of 1.2% in the previous quarter and defying market consensus for a gain of 0.7%. Moreover, the nation's export price index fell more-than-expected by 5.7% on a quarterly basis in 2Q 2017, compared to a revised rise of 8.8% in the previous quarter.

Elsewhere, in China, Australia's largest trading partner, industrial profits rose 19.1% an annual basis in June, after recording a rise of 16.7% in the prior month.

The pair is expected to find support at 0.7934, and a fall through could take it to the next support level of 0.7819. The pair is expected to find its first resistance at 0.8107, and a rise through could take it to the next resistance level of 0.8165.

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

For the 24 hours to 23:00 GMT, the EUR rose 0.71% against the USD and closed at 1.1729.

In economic news, Italy's consumer confidence index unexpectedly advanced to a level of 106.7 in July, compared to market expectations of a fall to a level of 106.2. In the prior month, the index had registered a reading of 106.4.

On the other hand, French consumer confidence index surprisingly dropped to a level of 104.0 in July, after rising to a decade high level of 108.0 in the prior month, while markets expected the index to record an unchanged reading.

The greenback lost ground against a basket of major currencies, after the Federal Reserve (Fed) hinted that it may start rolling back its $4.5 trillion balance sheet as soon as September and expressed concerns on subdued inflation.

The Federal Open Market Committee (FOMC) decided to leave interest rates unchanged, keeping its overnight lending rate at 1.00% to 1.25% as it remained slightly concerned about recent inflation trends. However, the central bank stated that it expects to start winding down its massive balance sheet “relatively soon”, provided that the economy evolves broadly as anticipated.

On the macro front, new home sales in the US climbed 0.8% on a monthly basis, to a level of 610.0K in June, while investors had anticipated for it to rise to a level of 615.0K. New home sales had registered a revised reading of 605.0K in the previous month. Moreover, the nation's MBA mortgage applications rose 0.4% in the week ended 21 July 2017, after recording a gain of 6.3% in the previous week.

In the Asian session, at GMT0300, the pair is trading at 1.1745, with the EUR trading 0.14% higher against the USD from yesterday's close.

The pair is expected to find support at 1.1656, and a fall through could take it to the next support level of 1.1567. The pair is expected to find its first resistance at 1.1791, and a rise through could take it to the next resistance level of 1.1837.

Going ahead, investors will look forward to Germany's GfK consumer confidence index for August, slated to release in a few hours. Additionally, in the US, initial jobless claims as well as flash durable goods orders, advance goods trade balance and flash wholesale inventories, all for June, slated to release later in the day, will keep investors on their toes.

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

For the 24 hours to 23:00 GMT, the GBP rose 0.66% against the USD and closed at 1.3116.

Macroeconomic data indicated that Britain's preliminary gross domestic product (GDP) advanced 0.3% on a quarterly basis in the second quarter of 2017, meeting market expectations and compared to an advance of 0.2% in the prior quarter, suggesting that Brexit continues to damage the nation economically and politically.

Meanwhile, the nation's BBA mortgage approvals dropped less-than-anticipated to a level of 40.2K in June, compared to a revised level of 40.3K in the prior month, while markets anticipated it to ease to a level of 40.0K.

In the Asian session, at GMT0300, the pair is trading at 1.3144, with the GBP trading 0.21% higher against the USD from yesterday's close.

The pair is expected to find support at 1.3046, and a fall through could take it to the next support level of 1.2949. The pair is expected to find its first resistance at 1.3195, and a rise through could take it to the next resistance level of 1.3247.

Moving ahead, traders will look forward to Britain's GfK consumer confidence index for July, slated to release overnight.

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

For the 24 hours to 23:00 GMT, the USD declined 0.64% against the JPY and closed at 111.16.

Macroeconomic data revealed that Japan's small business confidence index registered a rise to a level of 50.0 in July, exceeding market expectations for an advance to a level of 49.8. In the previous month, the index had registered a reading of 49.2.

In the Asian session, at GMT0300, the pair is trading at 110.89, with the USD trading 0.24% lower from yesterday's close.

The pair is expected to find support at 110.45, and a fall through could take it to the next support level of 110. The pair is expected to find its first resistance at 111.77, and a rise through could take it to the next resistance level of 112.64.

Looking ahead, Japan's jobless rate, national consumer price index, retail trade and large retailers' sales, all for June, slated to release overnight, will be on investors' radar. Additionally, a summary of opinions of the Bank of Japan's July meeting, will also be eyed by traders.

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

For the 24 hours to 23:00 GMT, the USD declined 0.13% against the CHF and closed at 0.9515.

In economic news, data indicated that Switzerland's ZEW economic expectations index climbed to a level of 34.7 in July. In the prior month, the index had registered a reading of 20.7. Moreover, the nation's UBS consumption indicator rose to a level of 1.38 in June, compared to a revised level of 1.32 in the prior month.

In the Asian session, at GMT0300, the pair is trading at 0.9506, with the USD trading 0.09% lower against the CHF from yesterday's close.

The pair is expected to find support at 0.9472, and a fall through could take it to the next support level of 0.9437. The pair is expected to find its first resistance at 0.9568, and a rise through could take it to the next resistance level of 0.9629.

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

For the 24 hours to 23:00 GMT, the USD declined 0.46% against the CAD and closed at 1.2453.

In the Asian session, at GMT0300, the pair is trading at 1.2434, with the USD trading 0.15% lower against the CAD from yesterday’s close.

The pair is expected to find support at 1.2384, and a fall through could take it to the next support level of 1.2334. The pair is expected to find its first resistance at 1.2514, and a rise through could take it to the next resistance level of 1.2594.

In absence of any macroeconomic releases in Canada today, investor sentiment will be governed by global macroeconomic factors.

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

Daily Pivots: (S1) 145.42; (P) 145.91; (R1) 146.35; More

The breach of 146.42 minor resistance argues that pull back from 147.76 has completed at 144.01, after being supported by 55 day EMA. Intraday bias is now mildly on the upside for 147.76/148.42 key resistance zone. Break there will resume larger rebound from 122.36. ON the downside, break of 144.01 will extend the sideway pattern from 148.20 with another fall back to 135.58/65 support zone.

In the bigger picture, rise from medium term bottom at 122.36 is expected to continue to 38.2% retracement of 196.85 to 122.36 at 150.43. Decisive break there will carry long term bullish implications and pave the way to 61.8% retracement at 167.78. In case the sideway pattern from 148.42 extends, we'd be looking for strong support from 135.58 and 50% retracement of 122.36 to 148.42 at 135.39 to contain downside.

Daily Pivots: (S1) 129.51; (P) 130.04; (R1) 130.84; More...

Intraday bias in EUR/JPY remains neutral as consolidation from 130.76 is still in progress. In case of another fall, downside should be contained by 127.43 cluster support (38.2% retracement of 122.39 to 130.76 at 127.56) and bring rebound. Above 130.76 will extend the larger rally to next key fibonacci level at 134.20.

In the bigger picture, the down trend from 149.76 (2014 high) is completed at 109.03 (2016 low). Current rally from 109.03 should be at the same degree as the fall from 149.76 to 109.03. Further rise is expected to 61.8% retracement of 149.76 to 109.03 at 134.20. Sustained break there will pave the way to key long term resistance zone at 141.04/149.76. Medium term outlook will remain bullish as long as 124.08 resistance turned support holds.

Daily Pivots: (S1) 0.8913; (P) 0.8934; (R1) 0.8963; More

EUR/GBP is staying in consolidation below 0.8994 temporary top and intraday bias remains neutral first. Downside of retreat should be contained by 0.8828 minor support to bring another rally. Break of 0.8994 will extend the whole rise from 0.8312 towards 0.9304 high. here is no clear sign of up trend resumption yet. Hence, we'll be cautious on strong resistance from 0.9304 to limit upside and bring another fall.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. It's uncertain whether it is finished yet. But in case of another fall, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside and bring rebound. Whole up trend from 0.6935 is expected to resume after consolidation from 0.9304 completes.