Sample Category Title

GBP/USD - 1.3043

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.3037

Kijun-Sen level                    : 1.3066

Ichimoku cloud top              : 1.3076

Ichimoku cloud bottom        : 1.3029

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 : -

Although the British pound rose briefly to 1.3126, the subsequent retreat suggests temporary top is possibly formed and consolidation below this level would be seen with mild downside bias, 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 yesterday’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 - 1.1529

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1525

Kijun-Sen level                  : 1.1547

Ichimoku cloud top             : 1.1534

Ichimoku cloud bottom      : 1.1497

Original strategy  :

Buy at 1.1495, Target: 1.1595, Stop: 1.1460

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1495, Target: 1.1595, Stop: 1.1460

Position : -

Target :  -

Stop : -

As the single currency has retreated after surging to 1.1583 yesterday, suggesting consolidation below this level would be seen and pullback to 1.1500-05 (38.2% Fibonacci retracement of 1.1370-1.1583) cannot be ruled out, however, reckon previous resistance at 1.1490 would contain 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 1.1490 should turn into support and contain downside, bring another rise. Below 1.1475-76 (another previous resistance and 50% Fibonacci retracement of 1.1370-1.1583) would defer and signal top is formed, risk correction to 1.1450-55 (61.8% Fibonacci retracement) and then test of support at 1.1435 which is likely to hold from here. 

Today's European session was a relatively quiet day as no major data releases were reported. US figures pointing to healthy construction activity and crude oil inventories were the main figures of the day. The dollar continued sliding against the yen while sterling and the euro were under some pressure against the greenback.

US homebuilding rebounded more than expected in June after declining for three consecutive months. However, this pick-up did little for the second quarter expansion that remained subdued when compared to the prior two quarters. Housing starts rose 8.3% relative to the previous month, standing at 1.215 million units. This was above the expected rate of 5.8%. The rise in construction activity was broad-based. At a monthly rate of 7.4%, building permits increased as well to reach a total amount of 1.254 million. This was well above the expected growth rate of 3% and the estimated number of issued permits of 1.2 million. Even though the figures came in above expectations, builders' sentiment slid to an eight-month low. An industry report released yesterday showed that homebuilders in the US have lost their post-election enthusiasm as rising costs for materials started to pinch and there are no signs of expected deregulation and tax-reform to help growth.

Looking at the forex markets, the dollar ignored the upbeat figures released today and fell further against the yen. Dollar/yen was last trading at 111.62.

The euro was under some pressure against the greenback today ahead of the European Central Bank meeting tomorrow. It will be ECB President Mario Draghi's first public appearance following the meeting in Sintra, Portugal. Market participants are eager to get his latest thinking on the outlook for monetary policy in the eurozone and potential for monetary tightening from this autumn. Euro/dollar was last trading at 1.1516.

Sterling was also under pressure against the dollar during the day, to last trade at $1.3017.

The loonie reacted positively on upbeat manufacturing sales data out of Canada. Manufacturing sales rose 1.1% in May relative to the previous month, coming in above expectations of 0.8%. Sales in the transportation equipment and chemical manufacturing industries drove the gain. However, this boost was also helped by a downwardly revised figure for April (down to 0.4% from 1.1%). Dollar/loonie slid to 1.2585 following the release.

Oil prices surged on a bigger than expected fall in US crude inventories for the week ending July 14, a report by the US Energy Information Administration showed. The draw was 4.727 million barrels, against expectations of 3.214 million barrels. Brent was up 1.3% to last trade at $49.46 a barrel, while WTI was up 1.4% to last trade at $47.03 a barrel.

Gold was under pressure today with the precious metal trading at $1,241.03 an ounce as the European session was about to close.

USD/JPY - 111.70

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 111.88

Kijun-Sen level                  : 111.89

Ichimoku cloud top             : 112.50

Ichimoku cloud bottom      : 112.20

Original strategy  :

Sell at 112.70, Target: 111.70, Stop: 113.05

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 112.70, Target: 111.70, Stop: 113.05

Position :  -

Target :  -

Stop : -

As the greenback has remained under pressure after recent selloff, suggesting the decline from 114.50 top is still in progress and bearishness remains for further weakness to 111.50, then 111.20-25, however, reckon 111.00 would hold from here due to loss of downward momentum, risk from there has increased for a rebound to take place probably tomorrow.

In view of this, would not chase this fall here and would be prudent to sell dollar on subsequent recovery as 112.70-75 should limit upside. 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.

FTSE100 index regained traction on Wednesday and retested previous high at 7378 (07 July high) after strong indecision was signaled on Tuesday when trading ended in long-legged Doji. Today's rally probed above another pivotal barrier at 7367 (Fibo 38.2% of 7587/7232, 02/30 June downleg) but so far without clear break higher, after several attempts above this resistance failed in recent days. The index price is holding at the breakpoint (barriers are reinforced by daily Kijun-sen line) clear break of which would trigger further retracement of 7587/7232 descend and expose next key barrier at 7451 (daily cloud top/Fibo 61.8%). Near-term price action remains well supported by daily cloud top, reinforced by daily Tenkan-sen, which holds congestion of past few days. Mixed outlook on daily technicals (MA's are bullishly aligned while indicators hold below their midlines) suggesting that break of either side of near-term range (7300/7380) would give clearer signals for near-term direction.

Res: 7378; 7387; 7409; 7451
Sup: 7337; 7310; 7291; 7235

• European equity indices got a lift from corporate results (Euro Stoxx 50 +0.42%), with room to rally after a strong lead-in from Asia picked up the mood. American equities opened on the same positive footing with the Nasdaq again outperforming (+0.47%).
• Construction output in the Eurozone shrunk by 0.7% M/M in May (+0.3% in April), marking the second contraction in the last three months. Output rose by 2.6% Y/Y, a decline from the 3.3% (revised) figure of April. Output fell in Germany, France and Spain in May but grew in Italy – the bloc's third largest economy.
• Amid deepening concern in the EU over an undermining of the Polish supreme court's independence, the European Commission said it is considering whether to ask other countries in the bloc to issue a formal warning against Warsaw's steps to erode the rule of law.
• US housing starts and permits both surprised to the upside. Housing starts rose from an upwardly revised 1122k in May (-2.8% M/M) to 1215k in June (8.3% M/M) while 1160k was expected (6.2%M/M). Building permits increased from 1168k (-4.9% M/M) to 1254k (7.4% M/M), 53k above the consensus (2.8% M/M).

Rates

Listless trading ahead of ECB meeting

Global core bonds (and most other assets) traded uneventful in a news poor, holiday-thinned and order-driven trading session. The price action occurred in a tight range, slightly above opening levels. The Bund evolved between 161.61 and 161.90 and changes hands now at 161.85, about 20 ticks above opening levels. News agencies ran articles about the ECB, mentioning that staff were examining options for the APP programme, but no details were given and they added that these options would not be subject of decision tomorrow. The sole EMU data release was May construction output. It disappointed, but triggered no reaction. US Treasuries moved sideways too , after a small dip in Asian trading, between 125-30 to 106-03. Even better than expected US housing starts and building permits were unable to bring some excitement. However, as the T-Note didn't drop on stronger starts/permits, it might have been the trigger for some (temporary buying) afterwards which brought the T-Note future to opening levels and the Bund to the intraday highs.

At the time of writing, German yields are nearly unchanged (flat to -1.3 bps). Changes on the US yield curve range between flat (2-yr) and +0.6 bps (30-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany are negligible (0-to-1 bp).

Regarding tomorrow's ECB meeting, we don't expect important new decisions. That's for the September meeting when new projections are available. Mario Draghi will likely be prudent in his comments, as after his Sintra comments, bonds sold off and the euro strengthened. That was maybe intended as investors need to be prepared, but repeating it too fast might trigger too strong market moves. Nevertheless, we expect the press to pressure Draghi on his recent rhetoric. Draghi might stress that the ECB will change policy gradually and keep a high grade of accommodation available. That should cap the rise of the euro and rates. There is nevertheless a minor chance that the forward guidance will again be tweaked to arrive at a complete neutral bias. More particularly, the ECB may skip the possibility that the ECB will buy more assets in case financial conditions worsen too much.

The German Finanzagentur started this week's EMU bond supply with a 30-yr Bund auction (€1B 2.5% Aug2046). Total bids amounted €1.43B, which is bank in line with the average at the previous 4 30-yr Bund auction. The Bundesbank set aside €0.195 for secondary market operations resulting in an official bid cover of 1.8 (real bid cover 1.4). The auction tailed 1 cent. The auction yield (1.29%) was the highest since the end of 2015.

Currencies

Dollar decline halts, at least temporary

Trading in in the major USD cross rates shifted into holiday modus after yesterday's steep USD losses. The inability of the US government to amend Obamacare returned to the background as a driver for USD trading and there was no other high profile market theme available. EUR/USD hovered close to, mostly slightly below 1.1550. USD/JPY initially didn't go anywhere holding near the 112 big figure, but EUR/JPY finally pushed USD/JPY to the 111.65 area.

Overnight, Asian equities rebounded as the tensions due to the Obamacare stalemate ebbed. The dollar stabilized slightly off yesterday's lows.

A lacklustre sentiment persisted in Europe. The dollar traded with a tentative positive bias, but the gains were negligible compered to recent losses. EUR/USD hovered close to, mostly slightly below the 1.1550 barrier. Interest rate differentials re-widened marginally, but the move was too small to trigger directional position taking just one day before the ECB (and BOJ) policy meetings. USD/JPY was almost paralyzed near the 112 level.

US housing starts and permits rebounded more than expected after several disappointing readings over the previous months. However, it didn't inspire USD trading. In technical trading, EUR/USD lost a few more ticks and trades currently in the 1.1525/30 area. USD/JPY even returned below 112. Stop-loss EUR/JPY selling (currently 128.75) is also weighing on USD/JPY headline pair.

Sterling going nowhere

Calm also returned for sterling trading after yesterday'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 also helped blocking the topside in EUR/GBP. The pair trades in the 0.8850 area. Trading in cable was also order-driven and without a clear trend (currently 1.3030). Tomorrow, the UK retail are quite interesting input for the BoE . Will the erosion in disposable income due to the decline of sterling continue to weigh on spending?

Highlights:

• Manufacturing shipments rose 1.1% in May, the third consecutive monthly increase. April's 0.4% gain was revised down from a previously-reported 1.1% increase.
• The gain was widespread with higher sales in 16 of 21 sub-industries. The transportation sector and chemical manufacturing posted the largest contributions.
• Machinery sales posted a fifth consecutive monthly increase and were up 22% from a year ago. The increase reflects both stronger exports and improving M&E investment at home.
• Price movements were not a factor on net as sales volumes also rose 1.1% in May.
• With some drawdown in inventories, we don't expect the entire 1.1% gain in sales volumes will be captured in May's manufacturing GDP that more closely reflects new production. We look for a slightly smaller 1/2% increase on a GDP basis.

Our Take:

A resurgent goods-producing sector is part of the broadening growth picture that was a factor in the Bank of Canada raising their trend-setting interest rate a week ago. While a rebound in goods production has been led by the energy mining industry, stronger manufacturing activity has also helped boost Canada's GDP growth. Today's manufacturing report points to that trend continuing with shipment volumes rising at their fastest year-over-year pace since the end of 2014. We look for a 1/2% gain in manufacturing GDP to add to May's output figures, though that increase is expected to be swamped by a drag from the construction sector reflecting a week-long strike in Quebec. Even with overall activity expected to be flat in the month, a solid trend to start Q2 supports our forecast for a 2.7% annualized increase in GDP in the quarter.

Homebuilders made up for previous months' contractions breaking ground on 1215k units in June - the highest level since February. This surprised to the upside, with expectations for a 1160k print. Compounding this is the healthy reading for building permits that also surpassed expectations and clocked in at 1254k on the month, the highest level since March.

Single family homebuilding accounted for the bulk of the growth, rising by 50k from last month, while the volatile multi-family segment wasn't far behind at 43k. This is enough to leave the quarter with a net gain of 25k in the construction of single-family units. Activity in the multifamily segment was largely unchanged in the quarter.

Permits surpassed expectations, with the single family segment posting the strongest gain since December 2016, rising by 32k in June. Multi-family permits also increased by a strong 54k on the month. These are welcome developments, suggesting further strength in homebuilding will follow.

The Northeast saw the strongest growth in starts (+72k) since the first half of 2016 while the Midwest also saw activity expand by a robust 37k. In contrast, the South added to a string of consecutive declines in activity as starts fell by 21k in June. Activity in the West was little changed (+5k).

Key Implications

After a dismal start to Q2, homebuilding activity finally picked up in June to end the quarter with a net gain in housing starts. While costs for homebuilders have increased amid land supply constraints, labor shortages, and rising building material costs - with softwood lumber prices, already under upward pressure from softwood lumber tariffs, rising further as a result of the fires in British Columbia - builders have so far passed on the costs to consumers. Overall, builders are maintaining confidence as demand has remained strong with this sentiment echoed in the July NAHB survey that indicated optimism amongst builders.

Strong demand from homebuyers will continue to underpin construction activity as rising incomes offset any drag from rising mortgage rates. This notion is corroborated by the fact that the less volatile single-family segment accounted for the bulk of the increase, with permitting activity boding well for near-term starts.

While today's report erases the contraction in starts at the beginning of the quarter, the level of activity during the second quarter still remained below that in the first quarter with residential construction expected to be a drag on growth in the second quarter, which should still clock in at a relatively healthy 2.7%. The strong handoff into the third quarter suggests that residential investment should once again become supportive of economic growth in the third quarter.

Canadian manufacturing sales increased 1.1% in May, bettering market expectations for a 0.8% gain, but came with a downward revision to April sales which increased 0.4% (prev. reported as 1.0%). After accounting for price swings the volume of sales was up an even more impressive 1.1% on the month. But again, this came atop of downward revision to the previous month, where the 0.5% gain was revised to a 0.2% decline.

The gain was entirely due to durables, which advanced 2.2% in May. Amongst durables, it was motor vehicles (+8.6%), motor vehicle parts (+5.7%), miscellaneous mfg. products (+5.7%) and electrical equipment (4.5%) that led the way. On the other hand, nondurables were little changed (-0.3%) as gains in chemicals (+2.4%) and paper (+1.8%) were offset by declines in petroleum & coal products (-3.4%),) and food (-1.2%).

Regionally, manufacturing sales were up in six provinces, led by N.S. (+3.7%), Ontario (+2.6%), B.C. (+1.8%). Shipments increased by 1.3% in both Alberta and N&L, while P.E.I. (-12.9%) and N.B. (-1.7%) exhibited the largest losses.

Inventories were down 0.2% on the month, with the inventory-to-sales ratio down slightly to 1.35. Forward looking indicators were disappointing with new and unfilled orders down 3.6% and 1.5%, respectively in May.

Key Implications

While May marked a good month for Canadian manufacturing, the downward revisions to April's sales in both value and volume terms have dampened our enthusiasm somewhat. Still, the solid volume print in May suggests healthy activity during the second quarter, with the performance supportive of economic growth which should come in close to 3% during the second quarter.

This performance is not likely to last however. Leading indicators, such as new and unfilled orders, were largely disappointing with both metrics down sharply during the month, although some solace is to be had in industrial production in the U.S. manufacturing and auto sector, which advanced 0.2% and 0.7%, respectively, in June.

Overall, while continued U.S. growth should remain supportive of Canadian manufacturing activity, the recent spike in the loonie's value on account of tighter monetary policy by the Bank of Canada will likely pose some downside to growth. The sectoral outlook may be further complicated by the upcoming NAFTA renegotiations, with the U.S. Trade Representative publishing rather stringent objectives this week. Discussions will likely begin in mid-August and are likely to last for some time given significant sticking points.

Daily Pivots: (S1) 1.1488; (P) 1.1536 (R1) 1.1600; More.....

A temporary top is in place at 1.1582 in EUR/USD. Intraday bias is turned neutral first for some consolidations. 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.