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Daily Pivots: (S1) 1.3005; (P) 1.3028; (R1) 1.3047; More...

GBP/USD's pull back from 1.3125 extends lower today but it's staying well above 1.2811 support. Intraday bias remains neutral and another rise is still in favor. Break of 1.3125 will target 61.8% projection of 1.2108 to 1.3047 from 1.2588 at 1.3168. Overall, choppy rebound from 1.1946 is seen as a corrective pattern, hence, we'd be cautious on strong resistance from 1.3168 to limit upside. But firm break of 1.3168 will bring further rise towards 1.3444 key resistance. Meanwhile, break of 1.2811 support will be the first sign of reversal and will turn bias to the downside to target 1.2588 key support next.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern that is still in progress. While further upside is expected, overall outlook remains bearish as long as 1.3444 key resistance holds. Larger down trend from 1.7190 is expected to resume later after the correction completes. And break of 1.2588 will indicate that such down trend is resuming.

USD/CHF - 0.9566

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although the greenback staged a strong rebound to 0.9622, the subsequent quick retreat after faltering below indicated resistance at 0.9635 suggests further choppy trading would be seen and weakness to 0.9540-45 cannot be ruled out, however, break of support at 0.9523 is needed to confirm recent decline has resumed for weakness to 0.9500, then towards 0.9475-80 later.

On the upside, above 0.9600 would bring another test of 0.9622 but only break of said resistance at 0.9635 would confirm low is formed instead, bring a stronger rebound to resistance at 0.9659 which is likely to hold on first testing. As near term outlook is mixed, would be prudent to stand aside for now.

Prudent and patience remains the theme

The big news out of the European Central Bank (ECB) so far this morning is that it is keeping the window open for more QE.

The ECB said it "could increase QE in size, duration if the outlook worsens," when many expected that language to be removed from its statement.

Press Comments:

Draghi

• Information Confirms Strengthening Econ Expansion
• Risks to Growth Outlook Broadly Balanced
• Economic Expansion Not Yet Translated to Stronger Inflation
• Headline Inflation Dampened by Energy
• Underlying Inflation Still Subdued
• Very Substantial Degree of Accommodation Still Needed
• Stand Ready to Increase Asset Purchases If Needed
• Data Point to Solid Broad-Based Growth in Period Ahead
• Private Consumption Supported by Employment Gains
• Global Recovery Should Support Exports
• Growth Prospects Dampened by Slow Pace of Structural Reforms
• Current Positive Momentum Increases Chances of Stronger Upswing
• Downside Risks Primarily from Global Factors Still Exist
• Headline Inflation at Current Levels in Coming Months
• Measures of Underlying Inflation Still Low
• Private Sector Loan Recovery Is Proceeding
• Pass Through of Policy Measures Support Borrowing Conditions
• Need Substantial Step Up of Structural Reforms
• No Convincing Sign of Pick Up in Underlying Inflation
• We Need to Be Persistent and Patient, 'We Aren't There Yet'
• We Were Unanimous in Communicating No Change to Guidance
• We Were Unanimous in Setting No Precise Date on When to Discuss Changes
• Our Discussions Should Take Place in the Autumn
• Financing Conditions Broadly Supportive for Achieving Inflation Goal
• Re-pricing of Exchange Rates Has Received Some Attention
• We Are Confident It Will Get There, But It's Not There Yet
• Will Stay in Market for Long Time
• Serious Progress in Greece in Last Several Months

Net result: The market does not see Mario Draghi as "dovish" enough in the press conference, which is sending the EUR higher – last trades up +0.4% versus the U.S. dollar at €1.1561

Draghi is now expected to use the Jackson Hole Federal Reserve conference in August (24-26) to prepare the ground for a bond-buying program tapering announcement in September. Why? The ECB wants to keep the market guessing for another month so that it could manage expectations better.

USD/JPY has posted slight gains in Thursday trading. In the North American session, the pair is trading at 112.12, up 0.15% on the day. On the release front, the Bank of Japan maintained rates at 0.00%, but extended the timeline for its inflation target. In the US, indicators were mixed. Unemployment claims dropped to 233 thousand, marking a 9-week low. As well, the Philly Fed Manufacturing Index slowed down to 19.5, its weakest reading since November 2016.

There were no surprises from the Bank of Japan, which maintained its ultra-loose monetary policy. The bank kept interest rates at 0.00%, and maintained its inflation target at 2.0%. However, in light of persistently low inflation levels, the BoJ extended the timeline for the inflation target by one year, saying it expected inflation to reach 2% by fiscal year 2020. The BoJ has kept in place its inflation timeframe of 2% since 2013, and has had to postpone it six times, as the bank's radical asset-purchase program has failed to end deflation. BoJ Governor Haruhiko Kuroda has insisted that the inflation target is feasible, and blamed low inflation on external factors, such as low oil prices. The bank was more upbeat in its economic forecast than in June, but with the bank stubbornly clinging to its inflation target, the markets don't expect any withdrawal of stimulus until 2018 at the earliest.

It's been another brutal week for the Trump administration, which is sorely in need of a legislative victory in Capitol Hill. One of Trump's flagship projects has been replacing Obamacare, but that goal may have been dashed this week. Trump's health care bill has stalled in the Senate before lawmakers even had a chance to vote on the proposal. With some conservative Republicans coming out against the bill, it's questionable if the Republicans can pass another version before Congress takes a recess in August. Trump had promised to pass a health care before the summer break, so his credibility and popularity will take another hit if he's unable to produce. Trump has been in office for six months, but has been unable to get Congress to pass any significant bills, even though the Republicans enjoy a majority in both houses of Congress. With this latest setback, there is growing skepticism as to whether Trump will be able to convince Congress to pass other key parts of his agenda – tax reform and fiscal spending. This paralysis on Capitol Hill has deepened investor pessimism about Trump's legislative agenda and is weighing on the US dollar.

GBP/USD - 1.2975

Original strategy :

Sell at 1.3090, Target: 1.2990, Stop: 1.3125

Position : - 

Target :  -

Stop : -

New strategy  :

Sell at 1.3010, Target: 1.2915, Stop: 1.3045

Position : -

Target :  -

Stop : -

Cable has dropped after breaking support at 1.3005, suggesting top has been formed at 1.3126, hence consolidation with mild downside bias is seen for weakness to 1.3930-32 (61.8% Fibonacci retracement of 1.2812-1.3126), then test of previous support at 1.2912, however, break of latter level is needed to retain bearishness and extend the fall from 1.3126 top to 1.2880-85 first. 

In view of this, we are looking to sell cable on recovery but at a lower level as 1.3005-10 should limit upside. Only break of resistance at 1.3062 would abort and signal an intra-day low is formed instead, bring a stronger rebound towards 1.3090-00 but resistance at 1.3126 should remain intact. 

Daily Pivots: (S1) 1.1498; (P) 1.1526 (R1) 1.1544; More...

EUR/USD rebounds strongly in early US session but it's kept below 1.1582 temporary top. Intraday bias remains neutral and the consolidation from 1.1582 could extend. In case of another fall, downside should be contained by 1.1444 resistance turned support to bring rise resumption. Above 1.1582 will target 1.1615 key resistance first. Decisive break there will pave the way to 1.2 handle next.

In the bigger picture, the firm break of 1.1298 resistance further affirm medium term reversal. That is, an important bottom was formed at 1.0339 on bullish convergence condition in weekly MACD. Further rise would be seen to 55 month EMA (now at 1.1756). Sustained break there will pave the way to 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 next. This will now remain the favored case as long as 1.1118 support holds.

Euro trades mildly highly on cautious but optimistic comments from ECB President Mario Draghi after the central left monetary policy unchanged. But it's staying in range against Dollar, Yen and even the weak Sterling. EUR/USD dipped to 1.1478 earlier today but is now back at 1.1550. Though, it's held below temporary top at 1.1582. EUR/JPY and EUR/GBP are trading in recent range below 130.76 and 0.8948 respectively. Sterling remains the weakest major currency for the week as weighed down by weaker than expected inflation data even though retail sales surprised on the upside today. Dollar regains some ground today but follows Pound as the second weakest major currency.

ECB Draghi cautious, but still confident and optimistic

ECB kept key interest rate at 0.00% and deposit rate at -0.4% as widely expected. There was also no change in the quantitative easing program as the central bank will continue to buy EUR 60b of assets per month till the end of the year. In the post meeting press conference, ECB president Mario Draghi sounded cautious and said that "while the ongoing economic expansion provides confidence that inflation will gradually glide toward levels in line with the inflation aim, it has yet to translate into stronger inflation dynamics." And he maintained that "a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up."

Draghi emphasized that policy makers "need to be persistent and patient and prudent". He explained that while there were continued improves in growth momentum, the "inflation rate is still subdued". Overall, to us, Draghi sounds confident and optimistic even though he's still cautious. And as he said, ECB is just "not there yet". Focus will turn to September meeting for more solid stance on tapering next year.

Brexit negotiations concluded with clarifications needed

Staying in Europe, at this end of the second week of Brexit negotiations, EU's chief negotiator Michel Barnier said that "we require this clarification on the financial settlement, on citizens' rights, on Ireland - with the two key points of the common travel area and the Good Friday Agreement - and the other separation issues where this week's experience has quite simply shown we make better progress where our respective positions are clear." And Barnier emphasized that citizen rights should be backed by the Court of Justice of the EU. And he added that there was also disagreement over "the rights of future family members, or the exports of certain social benefits".

On the other hand, UK's Brexit Secretary David Davis said that "we both recognise the importance of sorting out the obligations we have to one another, both legally and in a spirit of mutual cooperation." And, "we have had robust but constructive talks this week. Clearly there's a lot left to talk about and further work before we can resolve this. Ultimately, getting to a solution will require flexibility from both sides."

BoJ pushed back the projected timing for achieving the inflation target

BoJ left its monetary stance unchanged in July. The central bank voted 7-2 to keep its target for 10-year JGBs at around 0% and its short-term deposit rate at -0.1% as expected. It also maintained the measure to buy government bonds at an annual rate of 80 trillion yen. What is more dovish is that the central bank now forecasts it would take longer than previously anticipated for the economy to achieve the 2% inflation target. It is the 6th time that the central bank pushed back the projected timing for achieving the inflation target.

The latest economic projections by BOJ unveiled that the timing for achieving its 2% inflation target has been delayed to sometime during fiscal 2019, from fiscal 2018 previously. Note that BOJ has turned more confident over the GDP growth outlook. At the accompanying statement, BOJ noted that the economy is 'expanding moderately', compared with June's reference that economy was 'turning toward a moderate expansion'. More in BOJ Left Rates and Asset Purchases Unchanged. Pushed Back Timing to Reach +2% Inflation

In the post meeting press conference, BoJ Governor Haruhiko Kuroda said that "European and U.S. central banks have also repeatedly delayed the projected timing for hitting their price targets. Part of the reason was the sharp decline in oil prices, along with other factors beyond the central banks' control. It's unfortunate that we had to push back the timing many times, but our forecasts must be an appropriate one that reflects economic and price developments at the time."

But he sounded confidence that "the momentum for hitting our price target remains intact and can be sustained under the current policy framework." He also emphasized that "the current policy framework is a very flexible one that can respond to economic, price and financial developments at the time. It's also a highly sustainable framework. Once inflation expectations heighten, real interest rates fall further and the stimulus effect of our policy heightens."

Aussie enjoyed brief lift by solid job data

Aussie is lifted earlier today by solid job data but is seen losing momentum. Headline job data showed 14k growth in June, slightly below expectation of 15k. Prior month's figure was revised down from 42k to 38k. Unemployment rate was unchanged at 5.6%. Looking at the details, full-time jobs rose 62k while partly offset by -48k fall in part-time jobs. Australia NAB business confidence was unchanged at 7 in Q2.

Aussie jumped sharply this week as RBA noted that the neutral nominal rate is now at 3.5%. But with reduction in risk aversion and/or increase in trend growth rate, the neutral real interest rate could rise back from current 1.0% to 1.5%. And that indirectly implies that the neutral nominal rate could also follow and rise. Australia Prime Minister Malcolm Turnbull tried to calm the market and said that RBA is only "sending a signal, which is probably prudent, which is to say ... rates are more likely to go up than go down."

On the data front

US initial jobless claims dropped 15k to 233k in the week ended July 15. That matched the lowest second lowest level since the global financial crisis and hovered near a 44 year low. Initial claims stayed below 300k handle for the 124 straight weeks, longest streak since early 1970s. Continuing claims rose 28k to 1.98m in the week ended July 8. And it stayed below 2m level for 15 straight week, best streak since 1973. Also from US, Philly Fed manufacturing index dropped to 19.5 in July, below expectation of 23.7. From Eurozone, current account surplus widened to EUR 30.1b in May. German PPI rose 0.0% mom, 2.4% yoy in June. UK retail sales rose 0.6% mom in June. Swiss Trade surplus narrowed to CHF 2.81b in June. Japan trade surplus narrowed to JPY 0.08T in June. All industry activity index dropped -0.9% mom in May.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1498; (P) 1.1526 (R1) 1.1544; More...

EUR/USD rebounds strongly in early US session but it's kept below 1.1582 temporary top. Intraday bias remains neutral and the consolidation from 1.1582 could extend. In case of another fall, downside should be contained by 1.1444 resistance turned support to bring rise resumption. Above 1.1582 will target 1.1615 key resistance first. Decisive break there will pave the way to 1.2 handle next.

In the bigger picture, the firm break of 1.1298 resistance further affirm medium term reversal. That is, an important bottom was formed at 1.0339 on bullish convergence condition in weekly MACD. Further rise would be seen to 55 month EMA (now at 1.1756). Sustained break there will pave the way to 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 next. This will now remain the favored case as long as 1.1118 support holds.

Economic Indicators Update

EUR/USD - 1.1560

Original strategy  :

Buy at 1.1475, Target: 1.1575, Stop: 1.1440

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1540, Target: 1.1640, Stop: 1.1505

Position : -

Target :  -

Stop : -

The single currency only slipped to 1.1479 (just missed our long entry at 1.1475) before finding renewed buying interest and current rally signals the pullback from 1.1583 has ended there, hence consolidation with mild upside bias is seen for retest of said resistance, break there would confirm recent upmove has resumed and extend further gain to 1.1600-10 and then 1.1630-40 but reckon 1.1660-65 would hold from here. 

In view of this, we are looking to buy euro on dips as 1.1530-40 should limit downside. Only below said support at 1.1479 would abort and signal top has been formed instead, bring retracement of recent upmove to 1.1450-55 (61.8% Fibonacci retracement of 1.1370-1.1583) and later test of support at 1.1435. 

USD/JPY - 112.13

Original strategy  :

Sell at 112.80, Target: 111.80, Stop: 113.15

O.C.O.

Buy at 111.80, Target: 112.80, Stop: 111.45

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 112.80, Target: 111.80, Stop: 113.15

O.C.O.

Buy at 111.80, Target: 112.80, Stop: 111.45

Position :  -

Target :  -

Stop : -

As the greenback has rebounded after marginal fall to 111.55 yesterday, suggesting a daily of consolidation above this level would be seen with mild upside bias for retracement to 112.50, then towards previous resistance at 112.87 where renewed selling interest should emerge and bring another decline later. Below said support at 111.55 would signal the decline from 114.50 top is still in progress and extend further weakness to 111.20-25, however, reckon 111.00 would hold from here.

In view of this, whilst we are still looking to sell dollar on subsequent recovery, we would also turn long on dips for such a rebound. A firm break above resistance at 112.87 would defer and risk a stronger rebound to 113.10-20 but price should falter below resistance at 113.58, bring another selloff later.

Mario Draghi, President of the ECB,
Vítor Constâncio, Vice-President of the ECB,
Frankfurt am Main, 20 July 2017

INTRODUCTORY STATEMENT

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today's meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the current monthly pace of €60 billion, are 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. The net purchases are made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme.

Our monetary policy measures have continued to secure the very supportive financing conditions that are necessary to make continuous progress towards a sustained convergence of inflation rates to levels below, but close to, 2% over the medium term. The incoming information confirms a continued strengthening of the economic expansion in the euro area, which has been broadening across sectors and regions. The risks to the growth outlook are broadly balanced.

While the ongoing economic expansion provides confidence that inflation will gradually head to levels in line with our inflation aim, it has yet to translate into stronger inflation dynamics. Headline inflation is dampened by the weakness in energy prices. Moreover, measures of underlying inflation remain overall at subdued levels. Therefore, a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up and support headline inflation developments in the medium term. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and/or duration.

Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.6%, quarter on quarter, in the first quarter of 2017, after 0.5% in the last quarter of 2016. Incoming data, notably survey results, continue to point to solid, broad-based growth in the period ahead. The pass-through of our monetary policy measures is supporting domestic demand and has facilitated the deleveraging process. The recovery in investment continues to benefit from very favourable financing conditions and improvements in corporate profitability. Private consumption is supported by employment gains, which are also benefiting from past labour market reforms, and by increasing household wealth. Moreover, the global recovery should increasingly lend support to trade and euro area exports. However, economic growth prospects continue to be dampened by a slow pace of implementation of structural reforms, particularly in product markets, and by remaining balance sheet adjustment needs in a number of sectors, notwithstanding ongoing improvements.

The risks surrounding the euro area growth outlook are broadly balanced. On the one hand, the current positive cyclical momentum increases the chances of a stronger than expected economic upswing. On the other hand, downside risks primarily relating to global factors continue to exist.

Euro area annual HICP inflation was 1.3% in June, down slightly from 1.4% in May, mainly due to lower energy price inflation. Looking ahead, on the basis of current futures prices for oil, headline inflation is likely to remain around current levels in the coming months. At the same time, measures of underlying inflation remain low and have yet to show convincing signs of a pick-up, as domestic cost pressures, including wage growth, are still subdued. Underlying inflation in the euro area is expected to rise only gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion and the corresponding gradual absorption of economic slack.

Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 5.0% in May 2017, after 4.9% in April. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 9.3% in May 2017, unchanged from April.

The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations remained stable at 2.4% in May 2017, while the annual growth rate of loans to households increased to 2.6%, from 2.4% in April. The euro area bank lending survey for the second quarter of 2017 indicates that credit standards for loans to enterprises and loans to households for house purchase have further eased and that loan growth continues to be supported by increasing demand. The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households and credit flows across the euro area.

To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for a continued very substantial degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2%.

In order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively to strengthening the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost productivity growth. Regarding fiscal policies, all countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalances procedure over time and across countries remains essential to bolster the resilience of the euro area economy.

We are now at your disposal for questions.