Sample Category Title

The Yen traded slightly lower against the Dollar early on Thursday, after the BoJ kept interest rates on hold and pushed the deadlinefor it to reach its inflation target for another six months. As widely anticipated the central bank kept key policy rates at -0.1% and a 10-year government bond yield target of around 0%.

The Yen's losses were limited as the BoJ raised its GDP forecast slightly for the current and next fiscal year, but it is becoming obvious that Japan's policy makers are not willing to join the tightening course followed by other central banks. The BoJ has pushed back the inflation target for the sixth time since announcing the expansion of asset purchases in April 2013.Now they expect the 2% target will be reached in 2020, given that the deadline is not further postponed. This indicates that theBoJ will be the last central bank to tighten its policy, thus keeping the Yen under pressure.

Traders are more interested in ECB's meeting today. Despite the central bank beingexpected to keep policy unchanged, every single word will be closely scrutinized from President Mario Draghi. The Euro has already appreciated by 3% since Draghi hinted on June 27 that the ECB could adjust its policy tools as economic prospects improve. However, ECB policy makers were fast to claim that markets misunderstood their Chief, asmarkets continued to buy the single currency. Today he will be given another chance to elaborate on his previous statements.

Given the improvement in the Eurozone economy, Mr. Draghi is in the same boat as Yellen, Poloz and Carney. The QE program expires by end of this year and the recent selloff in European bonds suggests that the €60 billion bond buying rate per month, is about to get reduced. Today's €60 billion question is, how can the central bank signal reduction in the program without tightening financial conditions?

The last thing the ECB wants is a strong Euro and tightened financial conditions for now. It is a complicated process to start normalizing policy without disrupting markets, so while Draghi wants to prepare investors for a gradual wind-down of asset purchases, he is likely to hint that the pace will be gradual and easing options will remain open. The trickiest part is how to deliver a confident message without leading to further selloffs in bonds and stocks and additional appreciation in the Euro. Even if today's statement seemsmore dovish, I would still prefer to buy the Euro on dips then selling on rallies.

Sunrise Market Commentary

• Rates: ECB meeting takes center stage
  Any comments in the direction of policy normalization at today's ECB meeting could be sufficient to put the Bund under new selling pressure. We think that the upside potential for the Bund is small even if Draghi plays a dovish card. It's not a matter of if the ECB will make an announcement on winding down APP, but when they will make it.
• Currencies: Will Draghi be soft enough to prevent further euro gains?
  Yesterday, the EUR/USD rebound took a breather. Today, the Draghi comments at the ECB meeting will hold to key for the next directional move of the euro. We expect the ECB president to keep a balanced/soft approach. This might cap further euro gains. Of course, this doesn't remove the recent USD negatives that are needed for a sustained EUR/USD correction

The Sunrise Headlines

• Energy and tech propelled the S&P 500 and Nasdaq to new closing highs. Asian markets follow WS on the way up.
• The Bank of Japan kept its monetary stimulus programme and interest rate target unchanged and pushed back the timing for reaching 2% inflation for a 6th time. It pledged to maintain the yield-curve control programme and asset purchases.
• The Australian unemployment rate stabilised, in line with expectations, at 5.6% in June. Employment rose by 14k, just shy of the 15k consensus forecast (38k in May), as full time jobs increased more than part time jobs declined.
• Senate legislation to undo Obamacare would increase the number of uninsured Americans by 32m in 2026 and cause premiums on individual plans to roughly double, the Congressional Budget Office concluded.
• Brent oil prices firmed further to above $49.6 as data from the EIA showed US crude oil and gasoline inventories dropped more than expected.
• US-China talks got off to a tense start as US Commerce Secretary upbraided China over the trade imbalance. Both nation did agree to start “constructive cooperation” to narrow the trade deficit, China's foreign ministry said.
• The eco-calendar is dominated today by the ECB policy meeting. Other data of interest include the US initial jobless claims, the Philadelphia Fed Business Outlook and the UK retail sales.

Currencies: Will Draghi Be Soft Enough To Prevent Further Euro Gains?

Will Draghi 'prevent' further euro gains?

USD trading returned to some kind of normal yesterday after Tuesday's USD selloff. The inability of the US government to amend Obamacare moved to the background as a driver for trading and there was no other high profile market theme. EUR/USD settled roughly between 1.1550/10, slightly off Tuesday's correction top (1.1583). USD/JPY traded with a cautious negative bias, but the move was technically insignificant. USD/JPY closed the session at 111.97, marginally lower from Monday's close at 112.07.

The BoJ kept its policy rate unchanged at -0.1% this morning. It will continue controlling the yield curve and keep the yield of 10-year JGB's near 0.0%. The BOJ raised its growth forecast for 2017/2018, but again delayed to timing of reaching the inflation target. The yen weakened slightly on the prospect that the BoJ will lag the Fed and the ECB on the way to policy normalisation. USD/JPY returned north of 112. Australian labour data were solid. AUD/USD initially jumped to the 0.7989 area, but couldn't maintain the gains. The pair trades again in the 0.7940 area. EUR/USD (1.1510 area) is losing a few more ticks as investors take partial profit on the recent rally ahead of the ECB policy decision.

There are second tier eco data in Europe and in the US (Jobless claims and Philly Fed business outlook) on today's calendar. However, the focus for FX trading will be on the ECB's policy decision. ECB Draghi is expected to keep a soft tone. Any concrete details on a reduction of asset purchases will probably be delayed till September. Even in such a scenario, the (FX) market might be sensitive to nuances, but it should be enough to slow the recent euro rally. If the ECB president gives already more specific guidance on policy normalisation, further euro gains are possible, but we think that the ECB currently wants to avoid this scenario. The recent euro rebound might take a breather if our scenario on a cautious ECB approach materializes. A modest correction is maybe possible. USDnegatives that affected trading of late are not out of the way yet. The recent euro rally might peter out, but we wait for a clear technical sign to position for an outright correction.

In a broader perspective, mediocre US wage growth, Yellen's focus on the recent setback in inflation and soft eco data made markets question the pace of future Fed normalisation which weighed on USD. EUR/USD finally broke the 1.1489/1.15 resistance this week on the failure to replace Obamacare. The market discounts very little Fed policy normalisation in a longer term perspective. At some point this might lend the dollar support. However, in a day-to-day perspective, there is no reason to try to catch the falling USD. The dollar needs high profile good news and that isn't available at this stage.

USD: technical picture worsened

EUR/USD rebounded above the 1.1300/66 resistance at the end of June. The payrolls and other recent data were not good enough to trigger a sustained USD rebound. Finally EUR/USD broke beyond the 1.1489/1.15 resistance, paving the way to the LT-correction tops at 1.1616/1.1714. A break would end the long consolidation that followed the sharp decline of EUR/USD in 2014/early 2015. Such a key area is not easy to break. We don't preposition for a break, but the pressure is mounting. Return action below 1.13 would be a first indication of a loss in upside momentum. EUR/USD 1.1119/10 is the next support.

The USD/JPY rally ran into resistance in May and the pair returned lower in the 108.13/114.37 range. The post-Fed USD rebound pushed the pair above the 112.13 correction top, but follow-through gains remain modest. USD/JPY 114.37 resistance was tested, but the test was rejected. This suggests a pause in the recent USD/JPY uptrend. We stay cautious on USD/JPY long positions despite the recent decent performance.

EUR/USD: euro rally takes a breather ahead of ECB meeting

EUR/GBP

UK retail sales: a temporary support for sterling?

Sterling trading calmed down yesterday after Tuesday's inflation-driven sell-off. There were no UK eco data and we also didn't see Brexit headlines with market moving potential. EUR/GBP basically hovered in the mid 0.88 area. The modest decline in EUR/USD helped blocking the topside in EUR/GBP. The pair finished the session at 0.8842. Trading in cable was also order-driven and without a clear trend. The pair closed the session at 1.3022 (from 1.3040).

The focus will be on the UK retail sales today. The series was very volatile over the previous months. A modest rebound of 0.4% M/M and 2.5% Y/Y is expected after a steep decline in May. The BoE (and markets) will look out whether the erosion in disposable income due to the decline of sterling is becoming a real threat for spending. The consensus expectation isn't that high given the May setback. A positive surprise is possible. This might be temporary supportive for sterling, but a really big overshoot is probably needed to trigger any sustained sterling gains. We also keep an eye at the Brexit negotiations in Brussels. However, it is probably too early to expect concrete results.

From a technical point of view, EUR/GBP recently broke above the 0.8854/66 resistance (2017 top) to set a new correction top north of 0.89, but the move fell prey to profit taking (sterling short squeeze). A break below 0.8720 would suggest that upside momentum is easing. For now, we see the sterling rebound as technical in nature and don't expect it to last very long. We still look to buy EUR/GBP on more pronounced dips. For that to happen, EUR/GBP probably needs some help from a correction in EUR/USD.

EUR/GBP: consolidation near recent top

Download entire Sunrise Market Commentary

USDCAD has retreated considerably since reaching 1.3793 – the seventeen-month high from May 5th. Yesterday the pair recorded a fourteen-and-a-half-month low of 1.2578.

Turning to the Ichimoku analysis, the negative alignment when the Tenkan-sen line (red) crossed below the Kijun-sen (blue) in late May remains in effect, suggesting a bearish market bias. Regarding the RSI, it is in oversold territory at 24 and currently maintains a moderately positive slope (i.e. it is heading higher). This might hint that momentum in the very short-term is positive on the margin.

Should price action maintain the overall downside momentum from recent weeks, the area around yesterday’s low of 1.2578 might provide support. Further down, the focus would shift to the twenty-four-and-a-half-month low of 1.2460 from May 3 for additional support.

If on the other hand the price advances, the area around the current level of the Tenkan-sen at 1.2760 could act a resistance. Additional gains would turn the attention to the Kijun-sen at 1.2962 and the 1.30 handle – a rather congested area recently – for additional resistance.

Moving to the medium-term picture, the pair recorded a bearish cross last week when the 50-day moving average (MA) moved below the 200-day one. This is a medium-term negative signal which is supported by price action taking place below both MAs, as well as below the Ichimoku cloud.

USD/CHF - 0.9654

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9556

Kijun-Sen level                    : 0.9548

Ichimoku cloud top                 : 0.9591

Ichimoku cloud bottom              : 0.9558

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As the greenback has recovered again after holding above this week’s low at 0.9523, retaining our view that further consolidation above this level would be seen and corrective bounce to 0.9575 (38.2% Fibonacci retracement of 0.9659-0.9523) is likely, however, reckon upside would be limited to previous support at 0.9595 and reckon 0.9605-10 (61.8% Fibonacci retracement) would hold, price should falter well below resistance at 0.9635, bring another decline later.

On the downside, below said support at 0.9523 would extend recent selloff to 0.9500 and possibly towards 0.9475-80, however, loss of near term downward momentum should prevent sharp fall below latter level and reckon 0.9440-50 would hold from here, risk from there is seen for another rebound later. As near term outlook is mixed, would be prudent to stand aside for now.

GBP/USD - 1.3024

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.3024

Kijun-Sen level                    : 1.3032

Ichimoku cloud top              : 1.3066

Ichimoku cloud bottom        : 1.3050

Original strategy :

Sell at 1.3090, Target: 1.2990, Stop: 1.3125

Position : - 

Target :  -

Stop : -

New strategy  :

Sell at 1.3090, Target: 1.2990, Stop: 1.3125

Position : -

Target :  -

Stop : -

Cable has continued trading narrowly and further sideways trading is in store, however, as the retreat from 1.3126 suggests temporary top is possibly formed, reckon upside would be limited to 1.3090-00 and bring another retreat, below support at 1.3005 would add credence to this view, bring retracement of recent upmove to 1.2965-70 (50% Fibonacci retracement of 1.2812-1.3126), then test of previous resistance at 1.2955 but reckon 1.2930-35 (61.8% Fibonacci retracement) would limit downside and support at 1.2912 should remain intact.

In view of this, we are looking to sell cable on recovery as 1.3090-00 should limit upside. Only break of said this week’s high at 1.3126 would signal recent upmove has resumed and extend gain to 1.3150-60 but upside should be limited to 1.3190-00, bring retreat later.

EUR/USD - 1.1521

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1519

Kijun-Sen level                  : 1.1526

Ichimoku cloud top             : 1.1546

Ichimoku cloud bottom      : 1.1509

Original strategy  :

Buy at 1.1495, Target: 1.1595, Stop: 1.1460

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1475, Target: 1.1575, Stop: 1.1440

Position : -

Target :  -

Stop : -

As euro’s retreat from 1.1583 has kept price under pressure, retaining our view that further consolidation below this level would be seen and downside risk remains for pullback to 1.1500-05 (38.2% Fibonacci retracement of 1.1370-1.1583), however, reckon previous resistance at 1.1475-90 would limit downside and bring another upmove later, above said resistance at 1.1583 would extend recent upmove to 1.1600-10 and then 1.1630 but loss of upward momentum should prevent sharp move beyond 1.1650-60.

In view of this, we are looking to buy euro on further pullback as previous resistance at 1.1475 should turn into support and contain downside, bring another rise. Below 1.1451 (61.8% Fibonacci retracement of 1.1370-1.1583) would defer and signal top is formed, risk correction to support at 1.1435 first. 

Markets were, for the most part, little changed on Wednesday as traders waited for today's Bank of Japan and ECB rate decisions. Earlier today the Bank of Japan maintained its heavy monetary stimulus and gave signs that it is in no hurry to rein in stimulus, unlike many of its Central Bank counterparts. The US Energy Information Administration report on Wednesday showed a draw of -4.7 million barrels in US commercial inventories. Along with the Baker Hughes report, showing no new Oil Rigs had been added since the last report, both reports gave some respite to the recent edgy Oil market. The upward move may be short-lived as Ecuador announced its plans to abandon OPEC's production cut deal and boost production to boost its finances. The timing of Ecuador's decision will further concern the markets as they wait for the next meeting of OPEC and Russian energy ministers next week that many believe will result in an announcement of deeper production cuts. The markets are now waiting for the ECB meeting later today and any hints from President Draghi that the ECB maybe less inclined to increase the size, or duration, of its asset-purchase program.

EURUSD retreated from its highest close since August 2015 as the market looked toward the ECB's plans for stimulus measures and the possibility of a change of tone when the decision is announced later today. Currently EURUSD is trading around 1.1512

JPY weakened slightly after the BOJ pushed back its projected timing for hitting its 2% inflation target, as it cut price forecasts until fiscal year 2020. Currently USDJPY is trading around 112.12

GBPUSD was virtually unchanged from its opening price to last nights close as many are awaiting the release of UK Retail Sales today to gauge if the Bank of England's monetary policy is working, or if a rise in interest rates is required. Currently GBPUSD is trading around 1.3022

AUD remains strong against USD gaining nearly 0.4% yesterday and adding to recent highs reaching 0.7955 on the Wednesday – a level not seen since March 2015. Currently AUDUSD is trading around 0.7942

Oil reacted with yesterday's release of US Oil inventories that showed a larger than expected drawdown of -4.727 million compared to the expected -3.214 million. Following the release WTI traded up 1.6% to reach a high on Wednesday of $47.36pb. Currently WTI is trading at $47.32pb

Gold remains buoyed by USD weakness but traded in a narrow range on Wednesday. Gold is currently trading around $1,239

At 9:45 BST UK Retail Sales (MoM) (Jun) will be released with many expecting a better performance of 0.4% compared to the previous poor -1.2%. Consumer spending in the UK is expected higher during the summer months and will clearly impact inflation which, in turn, will impact the likelihood, and timing, of future interest rates hikes.

At 12:45 BST the ECB Interest Rate decision will be announced followed at 13:30 BST with the ECB Monetary policy statement and press conference. Markets are not expecting any change in ECB monetary policy but any “comments” will likely be interpreted as “hawkish” or “dovish” for future changes in Eurozone interest rates.

At 13:30 BST the US Department of Labour will release Initial Jobless Claims (Jul 14). The consensus is for an improvement to 245K from the previous reading of 247K. Markets will be looking to see if the US Labour market is continuing to strengthen. Any dramatic change in this number will impact USD.

USD/JPY - 112.09

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 112.00

Kijun-Sen level                  : 111.89

Ichimoku cloud top             : 112.28

Ichimoku cloud bottom      : 112.02

Original strategy  :

Sell at 112.70, Target: 111.70, Stop: 113.05

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.

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

Intraday bias in EUR/USD remains neutral for consolidation below 1.1582 temporary top. But overall, outlook will remain bullish as long as 1.1312 support holds. Above 1.1582 will target 1.1615 key resistance. 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.

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

GBP/USD is staying in consolidation below 1.3125 temporary top. Intraday bias remains neutral for the moment. Another rise would be seen as long as 1.2811 support holds. 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.