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Daily Pivots: (S1) 0.8872; (P) 0.8924; (R1) 0.9017; More

EUR/GBP's strong rise and break of 0.8948 indicates resumption of whole rebound from 0.8312. Intraday bias is turned back to the upside. Current rise would now target a test on 0.9304 high. On the downside, break of 0.8742 support is needed to indicate short term topping. Otherwise, further rise is in favor even in case of retreat.

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.

Daily Pivots: (S1) 1.4474; (P) 1.4561; (R1) 1.4701; More...

EUR/AUD's strong rebound indicates short term bottoming at 1.4421, after hitting 100% projection of 1.5226 to 1.4625 from 1.4472. The development also suggests completion of the correction from 1.5226, with three waves down to 1.4421. Intraday bias is back on the downside. Sustained trading above 55 day EMA (now at 1.4744) will target 1.5073 resistance. Break there will indicate resumption of whole rise from 1.3624. On the downside, below 1.4585 minor support will turn focus back to 1.4421 instead.

In the bigger picture, we're holding on to the view that corrective decline from 1.6587 medium term has completed at 1.3624. Rise from 1.3624 is expected to resume to retest 1.6587. The corrective structure of the fall from 1.5226 is affirming this view. Above 1.5226 will target a test on 1.6587 key resistance. However, further downside acceleration will dampen our view and would drag EUR/AUD lower to retest key support zone around 1.3624.

Euro surged broadly overnight as markets took ECB President Mario Draghi's comments positively. EUR/USD is now in an important medium term resistance zone of 1.1615/1713 and is maintaining solid upside momentum. The coming weeks will be important for the common currency. Sustained break of the current resistance zone would build up the base for a take on 1.2 handle by the end of the year. Against others, EUR/GBP also took out 0.8948 resistance and is now resuming the rise from 0.8312 towards 0.9304 key resistance. EUR/AUD also showed strong rebound which could have marked the completion of whole correction pattern from 1.5226 at 1.4421.

Elsewhere in the forex markets, Aussie is the next biggest mover after cautious comments from RBA Deputy Governor Guy Debelle regarding neutral rate. Sterling remains the weakest one for the week as rate bet cooled after weaker than expected inflation data released earlier in the week. Dollar closely followed as markets continue to doubt the whether Fed is ready to raise interest rate again if US President Donald Trump cannot push through his economic policies. Canadian Dollar will look into today's CPI and retail sales data for fuel to extend recent rally.

Euro surges as Draghi promised QE discussions

ECB kept the main refi rate, the marginal lending rate and the deposit rate unchanged at 0%, 0.25% and -0.4% respectively. The central bank also affirmed that the QE program would be maintained at the monthly pace of 60B euro, which is "intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim". While leaving the policies and statement unchanged, Draghi promised QE discussions to begin in autumn. However, he refused to comment whether it means the September 7 meeting. That is seen as the main driver of Euro's rally. More in EURUSD Rallied to Fresh 14-Momnth High as Draghi Promised QE Discussions in Autumn

RBA Delle: Don't read too much into neutral rate discussions

RBA Debelle urged the markets not to read too much into the board's discussion on neutral rate. He said that "no significance should be read into the fact the neutral rate was discussed at this particular meeting" And, "most meetings, the board allocates some time to discussing a policy-relevant issue in more detail, and on this occasion it was the neutral rate." He also emphasized that "other central banks increase their policy rates does not automatically mean that the policy rate here needs to increase."

Looking ahead, UK will release public sector net borrowing in European session. Canada will release CPI and retail sales in US session.

EUR/AUD Daily Outlook

Daily Pivots: (S1) 1.4474; (P) 1.4561; (R1) 1.4701; More...

EUR/AUD's strong rebound indicates short term bottoming at 1.4421, after hitting 100% projection of 1.5226 to 1.4625 from 1.4472. The development also suggests completion of the correction from 1.5226, with three waves down to 1.4421. Intraday bias is back on the downside. Sustained trading above 55 day EMA (now at 1.4744) will target 1.5073 resistance. Break there will indicate resumption of whole rise from 1.3624. On the downside, below 1.4585 minor support will turn focus back to 1.4421 instead.

In the bigger picture, we're holding on to the view that corrective decline from 1.6587 medium term has completed at 1.3624. Rise from 1.3624 is expected to resume to retest 1.6587. The corrective structure of the fall from 1.5226 is affirming this view. Above 1.5226 will target a test on 1.6587 key resistance. However, further downside acceleration will dampen our view and would drag EUR/AUD lower to retest key support zone around 1.3624.

Economic Indicators Update

Revised short term DXY (USD Index) Elliott Wave view suggests the decline from 6/20 peak (97.87) is unfolding as a double three Elliott wave structure. Down from 97.87 high, decline to 95.47 ended Minor wave W, and bounce to 96.51 high ended Minor wave X. Wave Y is unfolding as another double three Elliott wave structure of a smaller degree where Minute wave ((w)) ended at 94.47 and Minute wave ((x)) ended at 95.17. The Index has broken below 94.47 suggesting Minute wave ((y)) lower has started. Down from 94.47, Minutte wave (w) ended at 94.09, and Minutte wave (x) is in progress to correct cycle from 7/20 peak before Index resumes lower. We don’t like buying the proposed bounce and expect sellers to appear after Minutte wave (x) bounce is complete in 3, 7, or 11 swing as far as pivot at 95.17 stays intact.

DXY 1 Hour Elliott Wave Chart

STOCKS

Dow (21611.78, -0.13%) could inch up gradually towards resistance near 21800 in the coming sessions before seeing another leg of sharp correction towards 21600. Near term looks bullish.

Dax (12447.25, -0.04%) is stuck just above the near term channel support and while that holds, a ounce could be expected in the next couple of sessions. Only on a break below the support levels of 12400, we would shift our focus to lower levels of 12300-12200.

Shanghai (3237.94, -0.21%) has come off a bit after testing resistance near 3250 and while that holds, a short dip towards 3220 is possible before resuming the rally towards 3260 again.

Nikkei (20093.46, -0.25%) is stuck in the 19900-20200 region since the beginning of the month. While Dollar Yen trades lower, it would be difficult to see a sharp rise in Nikkei and we could possibly see some movement in the 19900-20200 for the next few sessions too. A break below 19900 could initiate some corrective dip in the medium term.

Nifty (9873.30, -0.27%) could see a sharp correction in the coming sessions after testing important resistance of 10000-10050 levels maybe next week itself. The correction from 10000 could take it lower to levels near 9800-9700 over the medium term. This is our preferred view for now.

COMMODITIES

Gold (1245) and Silver (16.33) are hovering around the second crucial Resistance of 1246 and 16.50 respectively. A break above 1245 is necessary for gold to remain bullish towards 1260 for the near term else a fall below 1230 could take it lower towards 1220. Silver is trading within the range of 16.20-16.50 and a close above 16.50 could open up 16.90 levels as well.

Muted price action had been seen in Copper (2.71) for last couple of trading sessions. It is trading within a range of 2.66-78. Only above 2.78, higher resistances of 2.80 can come into consideration. In the medium term 2.55-57 are going to be a strong support and we will remain bullish while it is trading above those levels.

Both Brent (49.25) and WTI (46.80) are trading within the ranges of 48-50.20 and 45.80-48.30 respectively. We will remain bullish in near term while Brent and WTI are trading above 48 and 46 on a weekly closing basis. Only a close below those levels could bring the near term bearish possibilities into consideration

FOREX

Sharp 200 pip upmove in the Euro after the ECB meeting and press conference as Draghi said that in September, the ECB will start discussing tapering the ongoing QE which is expected to run till December at least. The market is building in chances of the Taper starting from Jan '18 itself.

The Euro (1.1625) rose to 1.158, a little short of the 1.1713 horizontal Resistance, which was the high seen in Aug '15. If this Resistance continues to hold, we could see a dip towards 1.1450 again over the next couple of weeks. A straight rise past 1.1713 is also a possibility and will trigger a lot of stop loss buying if it happens. We will wait and watch.

Resultant weakness in the Dollar Index (94.30) now targets 93 over the next couple of weeks. This has pulled down Dollar-Yen (111.97) with it, with chances of testing 111.00 next week. Strong bounce possible from the 111.00-110.50 region, though.

The Aussie (0.7880) has retreated quite a bit from the high of 0.7988 seeen yesterday, in line with the "couple of days of rest" suggested yesterday. This could bring the Aussie down to 0.7800 next week. We shall have to assess its fresh direction from there.

Strength in the Euro has caused Dollar-Rupee to open lower near 64.35, after having peeped up above 64.40 yesterday.

INTEREST RATES

Draghi indicated a continuation of the asset purchase programme which is likely to continue at least till December and further said that they would discuss on when to wind it up in the September meeting of the ECB.

The German yields continue to fall and have least reacted to the ECB meeting yesterday. The 10YR is trading at 0.53% compared to 0.55% yesterday and could come off a little more towards 0.49% before pausing.

The US yields are also headed downwards as expected. The 30Yr (2.83%) is headed towards 2.80% while the 10Yr (2.27%) could come off towards 2.20/23%.

The US-Japan 10Yr (2.19%) has little room on the downside just now and could bounce back in the early sessions next week possibly pulling up Dollar Yen along with itself. 2.16% could act as a decent near term support.

The German-US 10Yr (-1.74%) is testing immediate support and while that holds, it could bounce back to higher levels.

EURUSD

The EURUSD continued its bullish momentum yesterday topped at 1.1658. The bias is bullish in nearest term testing 1.1712 (2015 high). Immediate support is seen around 1.1580. A clear break below that area could lead price to neutral zone in nearest term testing 1.1500 region but as long as stay above 1.1285 key support I remain bullish and any downside pullback should be seen as a good opportunity to buy. On the upside, a clear break and daily/weekly close above 1.1712 would expose 1.1870 – 1.2000 region next week.

GBPUSD

The GBPUSD had a bearish momentum yesterday bottomed at 1.2932. The bias remains bearish in nearest term as a part of the bearish scenario after formed a bearish pin bar at 1.3100 resistance area as you can see on my daily chart below. Note that the trend line support and 1.2935/00 area is a good support which need to be clearly broken to the downside to continue the bearish scenario testing 1.2810/00 area. Immediate resistance is seen around 1.3000 – 1.3030 region. A clear break above that area could lead price to neutral zone in nearest term retesting 1.3100 key resistance which need to be clearly broken to the upside to stop the bearish scenario and reactivate my bullish mode.

USDJPY

The USDJPY was volatile but indecisive yesterday. The bias is neutral in nearest term. Although we haven’t seen a nice and convincing bullish run, as long as stay above 111.45 key support, the bullish pin bar scenario should remain intact testing 112.75 area. A clear break and daily/weekly close above that area would expose 113.50 – 114.50 region next week. On the downside, a clear break and daily/weekly close below 111.45 would expose 110.25/00 region or lower. Overall I remain neutral.

USDCHF

The USDCHF attempted to push higher yesterday topped at 0.9618 but closed lower at 0.9513. We have a bearish pin bar (continuation) formation as you can see on my daily chart below suggests a potential bearish view after a rejection to move above 0.9620 resistance area. The bias is bearish in nearest term testing 0.9450 which remains a good place to buy with a tight stop loss as a clear break and daily/weekly close below that area would expose 0.9250 region next week. Immediate resistance is seen around 0.9550 followed by 0.9620.

• Draghi still keen to keep policy options open as far as possible
• Healthier activity suggests autumn announcement of reduction in policy support
• ECB confidence that inflation will head higher contrasts with latest Fed concerns
• Is today's FX market reaction to Draghi a form of 'taper tantrum'?
• Euro exchange rate could become a hot topic in holiday thinned markets

There was little expectation that the ECB would announce any major policy shift today, but there was some anticipation that it might move away from a commitment to step up its asset purchase programme if conditions were to weaken (it didn't alter this) and there was also the possibility that it would provide some clarity as to when and what actions might be taken to scale back its current 'very substantial degree of monetary accommodation' (Mr Draghi set out not to do this either).

In the event, Mr Draghi said little new. While he did promise the ECB would have 'significant discussions' on its policy stance in the autumn, his repeated calls for 'patience and persistence' suggest a strong desire to prevent the market from anticipating any early or dramatic policy shift from the ECB.

Unfortunately for Mr Draghi, even the not surprising suggestion that policy would be reviewed in the months ahead prompted FX markets to push the Euro higher against other major currencies. Given that Mr Draghi noted that the Euro's firmer tone of late 'received some attention' at today's Governing Council meeting, a further strengthening of the currency was probably not tintended outcome. There is little question that the ECB wants to give the current upswing in the Euro area more time to strengthen and spread. However, the main reason for Mr Draghi's caution today relates to persistently low inflation and the risk that a premature policy tightening or the market's anticipation of such a move would push inflation even further from target. Arguably, the most notable comment from today's press conference was the ECB president's assertion that 'the last thing the governing council wants is an unwarranted tightening of financial conditions that slows down or jeopardises the convergence of inflation' towards the ECB target.

Unfortunately for the ECB, even a relatively innocuous if upbeat assessment of the Euro area's economic prospects is likely to strengthen the Euro on FX markets, particularly on a day when the Bank of Japan downgraded its economic outlook and at a time when there is significant uncertainty about policymaking in the US- whether that relates to recent Federal Reserve concerns about below target inflation or broader issues such as Mr Trump's difficulties in pursuing his domestic legislative agenda. This meant that even though interest rate markets moved little in response to Mr Draghi's pronouncements, the Euro rose to its highest level against the US dollar in two and a half years.

There is little question that the ECB is increasingly confident about the persistence of the current momentum of activity in the Euro area. As the diagram below suggests, this simply reflects the current reality. If we exclude the early 2015 figures swollen by outsized and unrepresentative step-changes in Irish GDP, the current pace of growth is the strongest in six years.

Today's press statement recognises this and highlights 'a continued strengthening of the economic expansion in the euro area, which has been broadening across sectors and regions'. It goes on to refer to a global recovery that 'should increasingly lend support to trade and euro area exports'. Perhaps of greater significance, it adds to previously cited supports for consumer spending such as employment gains, an additional factor in the shape of 'increasing household wealth'.

We draw attention to the addition of a reference to wealth effects for a couple of related reasons. First of all, these wealth effects reflect strong and broadly gains in both house prices and equity markets that serve to reinforce Mr Draghi's contention that 'financial conditions remain broadly favourable'. Arguably, of greater significance for future policy considerations is that at some point such wealth effects could come to be seen as threatening from a financial stability perspective. This is not to suggest the ECB is currently concerned about these developments but they are clearly on its radar and may eventually encourage a desire to 'lean against the wind' by introducing a less expansionary policy stance.

If Mr Draghi was keen to emphasise the good news on economic activity, he was notably more restrained in relation to inflation but, here too, it could be argued that he was perhaps a little less dovish than might have been envisaged. The text of the ECB press statement emphasises that 'measures of underlying inflation remain overall at subdued levels' although the addition of the word levels might serve to acknowledge a slight pick-up in core inflation in recent months which is evident in the diagram above. Mr Draghi instead focussed on the current level of inflation, indicating that it 'is not where we want to be'. However, he also stated the belief that the factors holding back inflation 'will last for some time' but they're 'not permanent'. He further asserted that the ECB is confident that the inflation will reach its target in light of the strength of growth even if progress is gradual.

In terms of interest rate markets, the ECB's assessment of the inflation outlook is comforting as it implies the ECB can implement a reasonably slow and orderly pace of policy adjustment. Again, however, from an FX market perspective, the confidence with which Mr Draghi set out his expectations for modestly higher inflation stands in clear contrast to today's revised Bank of Japan projection that now sees its inflation target being hit during fiscal 2019 rather than 2018 as it envisaged three months ago.

It could also be argued that Mr Draghi's assessment is more confident in tone than several recent pronouncements from the US Federal Reserve that reflect a measure of surprise at a softer trend in US inflation of late. For these reasons, it is not entirely surprising that the exchange rate of the Euro has moved higher today although the scale of move likely owes something to holiday thinned trading conditions in FX markets.

How enduring today's currency moves prove to be and whether market interest rates follow may depend on how investors eventually assess Mr Draghi's indication that the ECB would have 'discussions in full' on the economic and inflation outlook as well and the implications for policy 'in the autumn' . In response to a persistent line of questioning, he refused to clarify whether this timeframe referred to the ECB governing council's next policy meeting on September 10th, nor would he provide any guidance on what specific policy options might be considered at that point. He repeatedly answered that the ECB had not discussed when or what the ECB might alter its current stance or even signal an intention to do so. Clearly, Mr Draghi is eager to keep all options open for now.

Our sense is that upcoming data are likely to confirm the increasing strength of the upswing in activity and may also suggest a tentative firming of inflation. In such circumstances, it could be expected that, at its September meeting, the ECB would signal an intention to taper, or in its language to 'recalibrate', its asset purchase programme and Mr Draghi could even provide some indications in this regard when he speaks at the high profile Federal Reserve Jackson Hole conference in late August. Of course, a more uncertain backdrop could push these announcements back to the following ECB governing council meeting on October 26th.

In the interim, however, the ECB is likely to pay even more attention to the performance of the Euro on FX markets. ECB research suggests that a 1% change in the currency alters inflation by about 0.1% in the opposite direction within twelve months and by about 0.3% over three years. This would threaten to push inflation further away from the ECB's target. Of course, the restraint offered by a higher exchange rate would be partly offset by the boost coming from stronger growth at present but, on balance, inflation would likely stay uncomfortably below the ECB's desired level.

More immediately, we have a strong sense that the ECB may be experiencing a bout of 'taper tantrums' today. However, unlike the US precedent in 2013, this is being seen in the potentially more volatile and more difficult to manage FX markets rather than in the bond market. Mr Draghi and his colleagues may not get the quiet summer they so clearly want.

The ECB kept unchanged policy rates, its QE programme, its forward guidance and QE easing bias. Hence, the ECB is still signalling its readiness to increase the size and/or duration of the QE purchases. The unchanged QE easing bias was perceived as dovish, as 47% of economists in a Bloomberg survey had expected the ECB to remove the reference to its readiness to increasing the size of the QE programme.

According to President Mario Draghi, the Governing Council was unanimous in setting no precise date for when to discuss changes to the QE programme but argued 'our discussion should take place in the autumn'. Additionally, Draghi said the ECB has not tasked its staff to look into QE options after December 2017. This suggests the ECB is not ready to make an announcement at the September meeting on how QE purchases will continue next year. We maintain our view that the ECB will continue its QE purchases but at a reduced pace of EUR40bn per month in H1 18 and now believe this will be announced at the October meeting (previously September).

Today's decisions from the ECB reflect its increased focus on the inflation outlook versus the economic recovery compared with what was communicated in Draghi's speech at the ECB forum in Sintra. First, Draghi did not repeat that in a situation where the economy continues to recover, a monetary policy tightening could be needed in order to keep the policy stance 'broadly unchanged'. Second, he reiterated that higher inflation is conditional on the monetary stimulus and that the ECB needs to be 'persistent and patient and prudent'.

On a more hawkish note, Draghi argued the financing conditions remain broadly supportive. This judgement was based on yields being low by historical standards, sovereign and corporate spreads being tighter and bank lending rates being at very supportive levels dominating the repricing of the exchange rate, which had received some attention among ECB members. That said, the ECB still has an eye on the conditions, as Draghi said a financial tightening was 'the last thing' the ECB needs.

It will be very interesting to see whether Draghi's main focus will be on his belief in the Phillips curve (i.e. the economic recovery will eventually lift wage inflation) at Jackson Hole when he is together with other global central bank governors. Given today's communication, this seems less likely, as he argued the ECB is waiting for more information (including the updated projections in September) but this could change ahead of Jackson Hole.

The euro generally gained during Draghi's press conference and EUR/USD still trades in overbought territory, in our view. Hence, we see risks skewed on the downside in the near term. In particular, we note that EUR/USD price actions contrast with European fixed income markets, where, for example, 2Y EUR swap interest rates fell back after the press conference, while EUR/USD remained higher. Our short-term financial models cannot fully explain the move higher in EUR/USD (given lower interest rates). Moreover, positioning and other short-term technical measures such as the RSI also indicate that the risk of correction lower in EUR/USD is high. However, we maintain the view that any dips in EUR/USD are likely to prove short-lived and, strategically, we still like to buy the cross on dips. Longer term, we still see the cross higher, targeting 1.18 in 12M. See FX Strategy: Healthcare failure lifts EUR/USD to overbought territory, 18 July.

EUR/GBP further increase expected

The price increased significantly in the yesterday's session and climbed much above the 0.8948 previous high, should increase further because is trading inside the buyers territory. Has rallied aggressively after a false breakdown on Monday.

The Euro increased significantly versus all its rivals and could climb towards fresh new highs despite the dovish ECB. As you already know, the European Central Bank maintained the interest rate at the 0.00% historical minimum, but we may have another QE next year.

EUR/GBP jumped much higher after the false breakdown below the median line (ML) of the major ascending pitchfork, I've said in the previous analysis that will jump much higher if will stabilize above the 100% Fibonacci level and above the second warning line (wl2) of the minor descending pitchfork.

The next upside target will be at the 50% Fibonacci line (ascending dotted line), but most likely will approach the upper median line (UML) of the of the ascending pitchfork.

The Cable dropped also versus the USD even if the Retail Sales have increased by 0.6% in June, more versus the 0.4% estimate.

Price is strongly bullish on the short term, technically should approach also the 0.9226 static resistance, where he may find strong resistance again.

Could move sideways between the 0.9226 and the 76.4% retracement level in the upcoming months because I don't believe that will have enough energy to breakout from this range and to make a larger move.

EUR/CHF another breakout attempt

Price increased sharply in the yesterday's session and erased the last day's losses, looks determined to reach new highs, but is facing a tough resistance on the Daily chart.

Maintains a bullish perspective on the Daily chart despite the last day's minor correction, will climb much higher is will stay above the 1.1050 psychological level.

Price jumped above the upper median line (UML) of the major ascending pitchfork, a valid breakout will signal a further increase. Only a false breakout will send the rate down again, the perspective remains bullish as long is trading within the minor ascending pitchfork's body because a breakdown will signal a broader drop.

Brent Oil in the buyers territory

Price slips lower after the aggressive breakout above the 50% retracement level, could come down to retest the static support (resistance turned in support). We may have a buying opportunity if will retest the 50% level, the next upside target will be at the sliding line (descending dotted line).

Yen still sluggish post BOJ

We had some volatility on the USD/JPY today, has dropped in the morning and has touched some important support levels, remains to see in the upcoming days because a further Nikkei increase will send the Yen much lower versus all its rivals.

USD/JPY stays above the 111.90 level, even if the USDX is under massive selling pressure after the USDX’s drop. The greenback and the Yen have lost significant ground versus the other major currencies. As you already know, the BOJ keeps the policy unchanged, the BOJ Policy Rate remains steady at -0.10%, matching expectations.

The Yen has taken a hit also from the Japanese Trade Balance, which has dropped from 0.12T to 0.08T in the previous month, much below the 0.12T estimate, while the All Industries dropped by 0.9% in May, much versus the 0.8% estimate.

Aussie plunged on Australian data

The Australian dollar dropped significantly in the morning after the economic data was released, the Employment Change decreased from 38.0K to 14.0K, much below the 14.4K estimate, while the Unemployment Rate remains steady at 5.6% for the second month in June

The Aussie has managed to recover versus the USD in the second part of the day as the USDX plunged aggressively. AUD/USD maintains a bullish perspective on the Daily chart, could hit new highs if the US data will continue to disappoint in the upcoming days.

Euro rallies despite dovish ECB

The European currency has appreciated aggressively versus all its rivals in the afternoon, even if the European Central Bank has maintained the Minimum Bid Rate steady at 0.00%, matching expectations. Euro reached new highs versus the greenback, Yen, Cable and versus the Swiss Franc and could resume the upside movement in the upcoming period because the pairs are located in the buyer’s territory.

USD – the buyers have disappeared

The US dollar continues to drop despite the mixed US data, is going down after the speculation that the FED will delay another rate hike. The greenback wasn’t impressed by the Unemployment Claims impressive drop, have dropped from 248K to 233K in the previous month, much below the 245K estimate, the CB Leading Index increased by 0.6%, beating the 0.4% estimate, but wasn’t able to save the dollar from downside.