Sample Category Title

Key Points:

• Despite recent bullishness, the AUD could be about to tumble.
• Overarching chart pattern signals that the bears are on the verge of a comeback.
• Losses could extend to 0.7376.

The AUD has been on the offensive again this week, advancing almost 100 pips since Monday. As a result, hopes of the pair bursting through the long-term trendline are beginning to circulate and the bulls are gearing up for yet another push higher. However, this may all be a set up for a major slump that could erase the entirety of the rally seen over the prior two months.

More precisely, a messy double top/head and shoulders structure seems to be taking shape which indicates that the bears may be about to stage a comeback in a big way. Indeed, selling pressure could drag the pair as low as the 0.7376 handle by late August – even if a brief interruption is expected around the neckline as a result of the 100 day EMA. However, we will need to see some further confirmation in the form of a retreat below the 0.7634 mark before committing to this long-term view.

On that note, there is actually a fairly good technical argument for a confirmatory retreat. For one thing, despite the recent surge higher, the Parabolic SAR remains bearish and this will certainly be capping upsides to a significant degree. Additionally, the presence of the long-term trendline won’t have gone unnoticed and this could also provide an effective cap on upsides even in the event that the Parabolic SAR inverts. One final thing to consider is the movement of the stochastics into overbought territory as this is going to see selling pressure build as the week draws to an end.

Overall, the near-term outlook is rather bearish which should help the rest of the broader structure to form. Nevertheless, one important thing to remember is that the neckline is likely to be somewhat asymmetrical as a result of the 100 day moving average. Moreover, the overall pattern is likely to be more of a head and shoulders rather than a simple double top due to a potential reversal around the 38.2% Fibonacci level. However, once the pair has broken through that 100 day EMA, the plunge could be rather rapid so keep a close eye on the AUD moving forward.

Key Points:

• Fed Chair Yellen takes a dovish tone before congress.
• Central bank likely to rely mainly upon QE taper rather than multiple rate hikes.
• Equity and bond markets likely to be strongly impacted by any QE taper.

The markets have been relatively consigned to the fact of a cycle of interest rate tightening from the U.S. Federal Reserve in the coming year given the historic expectation setting that has occurred of late. However, the venerable Fed Chair, Janet Yellen, has tendered some testimony to congress which appears to take a significantly more dovish tone and has caused sentiment to swing sharply away from the greenback. Subsequently, markets have been left wondering just which direction the central bank will head in the coming months.

However, it wasn't really a surprise that there are many within the FOMC that are now backing away from an ever delayed cycle of significant tightening. The central bank's main problem is the abject lack of price inflation within the U.S. economy despite a strengthening labour market. Subsequently, given that inflation is running at around 1.4% (if you believe the official measure), it isn't a surprise that Yellen's comments indicate that the Fed is near to a neutral interest rate. Presently, the FFR sits at around 0.75% with a target rate of between 1.00% and 1.25%. So the central bank's contention is that an additional hike would take interest rates to a neutral level for the economy.

However, the real reason that the Fed is moving away from the rhetoric of a multiple rate hike tightening cycle is their balance sheet. The central bank has signalled their intention to start a balance sheet taper sometime in 2017 and this is likely to have a relatively strong impact on equity and bond markets. The current view is that the Fed will be looking to gradually offload around $4.5 trillion in bonds from their balance sheet and this is likely to have the same impact as further tightening in interest rates. Subsequently, equity markets could be in for a fairly rough ride once the QE removal process starts and some fairly rapid capital flows occur.

Additionally, if there are any further ripples in the global economy the Fed also faces the prospect of little in the way of macroeconomic tools to respond to recessionary pressures. Interest rates have a limited distance from the zero lower bound and the Fed is likely to still be carrying significant amounts on their balance sheet as any taper will likely not be rapid.

Regardless, the central bank has a job to do and they might have finally realised that the low inflation recovery has largely hampered their ability to respond to any form of crisis and, as such, are now looking at ways to normalise within relying upon strong rate hike cycles. Subsequently, we are left with the view that the Fed will likely hike 25bps in the remaining part of 2017 whilst slowly unwinding some of the bonds on their balance sheet. Ultimately, this means we are not likely to see the rampantly bullish U.S. Dollar that was largely expected with the planned multiple hikes.

EURGBP hit a ten-month high of 0.8948 in yesterday’s trading before declining to finish the day 0.8% lower.

The RSI indicator is theoretically in bullish territory at 57 but it is heading lower, hinting to a negative short-term momentum currently in place.

Should the price rise, the area around 0.89, a potential psychological level, might act as a barrier to further advancing. Stronger gains would bring into scope the area around yesterday’s ten-month high of 0.8948 for additional resistance.

If the price declines, the area around the 23.6% Fibonacci level (April 18 – July 12 upleg) at 0.8798 could provide support. Additional declines would shift focus to the 38.2% Fibonacci mark, which also currently happens to coincide with the 50-day moving average, as another support area.

Concluding with the medium-term outlook, it remains bullish as a result of significant advancing over the last three months.

USDCHF has followed a downward path since the middle of December when it managed to peak above the psychological level of 1.000 for the second time in 2016. Currently, the price is hovering around the 8-month low of 0.9551, reached in the end of June, but the short-term bias is less bearish now.

After the pair crossed below the 50-day and the 200-day moving average (MA) on May 15, the RSI broke into bearish area, while the MACD deepened into negative territory, pointing to a short-term risk to the downside. However, the bearish bias has softened as both indicators have been recently moving closer to neutral ground.

Should the price decline, the swing-low of 0.9551 of the Fibonacci retracement from December to June, would provide an immediate support. Further declines would shift focus first to the area around the psychological level of 0.9500 and second to the area near 0.9400 which were of significance in the past.

Alternatively, if prices go up, a resistance would be found at the latest high of 0.9695. Further up, the 23.6% Fibonacci mark of 0.9737 could be an additional resistance, while a steeper increase would meet the 38.2% Fibonacci of 0.9852.

Looking at the medium-term picture, the outlook seems neutral as the pair has been moving in a range since the end of 2015. Yet, if the pair falls below 0.9400 then the outlook would turn bearish as the market action would lead to a resumption of the longer-term downtrend.

The dollar eased against the yen on Wednesday, following Federal Reserve Chair Janet Yellen's dovish speech. The dollar index fell 0.23% during the Asian session today, confirming weakness in the US currency. The euro gained, erasing most of yesterday's losses on the back of falling bond yields.

Janet Yellen started her two-day testimony to Congress yesterday with a more dovish take on monetary policy that sent the greenback plunging below the 113 level. The Fed Chair anticipates interest rates hikes to be gradual and that the Fed may not be able to raise rates by “all that much”. This induced a drop in US Treasury yields, which was subsequently reflected in dollar/yen weakening 0.7% yesterday and by a further 0.2% to 112.91 during the Asian session. Janet Yellen is scheduled to continue her testimony today, starting at 14:00 GMT.

Led by increasing Australia-US 10-year bond spread, the aussie gained today for the fifth consecutive day. Aussie/dollar rose to 0.7713 during the Asian session. Additionally, strong trade data out of China boosted the Australian dollar against its US counterpart. China's exports in June grew 11.3% year-on-year, above the expected 8.7%, while imports rose 17.2% vs. the 13.1% forecast.

The euro recovered most of yesterday's losses during the Asian session today. Following the Fed Chair testimony, the euro fell as yields on government bonds across the EU slid. However, the euro managed to recover during Asian trading, raising to $1.1450. Final inflation figures for the major EU economies were released ahead of the European session, confirming the flash data and hence without significant impact on the euro.

In the UK, divergence of opinions on the country's monetary policy is remerging as Bank of England member Ian McCafferty expressed a stronger hawkish take. He said in an interview to the Times that the BoE should consider tapering its quantitative easing program earlier than planned. Mr. McCafferty, who was one of three voting members for an interest rate hike during last month's policy meeting, confirmed that he plans to mirror his decision in the upcoming meeting. By contrast, BoE deputy governor Ben Broadbent was more dovish in his recent speech. Sterling rose for the second consecutive day against the greenback, reaching $1.2934. On the political front, the UK government is expected to publish its Brexit Repeal Bill today, a landmark law set to pave the path for UK's exit from the EU. At the same time, the Bill will be a major area of dispute among the MPs in the coming months.

The loonie continued gaining during Asian trading, following yesterday's significant uplift due to the interest rate hike by the Bank of Canada. Dollar/lonnie fell to 1.2730, a 13-month low, ahead of the European open.

Oil prices managed to remain above the $45 level, despite some pressure today. WTI was last trading at $45.40 a barrel while Brent was at $47.62.

Gold continued to strengthen as a weaker US currency lifted demand for the precious metal. Gold was last trading at $1,222.84 an ounce.

EUR/USD

It was a really bad day for the greenback, but the common currency was unable to benefit from its rivals' weakness, plunging with the strong momentum triggered in worldwide equities by Fed's Yellen. The chief of the American central bank testified before the Congress, with her statement released 90 minutes before the event. The document was seen as dovish, as policymakers noted uncertainty surrounding inflation, and while reaffirming that they are still in the tightening path, it won't take much more rate hikes to reach what they consider 'normal.' After the statement and the Q&A, market players reconsidered that Yellen was not that dovish after all, but the dollar remained under pressure anyway, as news coming from different fronts, such as Canada rising rates, or strong employment data in the UK, fueled demand for high yielding currencies.

The EUR/USD pair closed the day above the 1.1400 figure, having reached a fresh 2017 high of 1.1489 at the beginning of the day, and despite the sharp intraday retracement, the downward potential remains limited according to the 4 hours chart, as the price settled a few pips above a still bullish 20 SMA, whilst technical indicators are currently bouncing from their mid-lines, after correcting overbought conditions reached earlier on the day. The pair has an immediate support in the 1.1380/90 region, where buying interest surged ever since the week started, followed by a daily ascendant trend line currently around 1.1340.

Support levels: 1.1385 1.1340 1.1290

Resistance levels: 1.1460 1.1490 1.1525

USD/JPY

The USD/JPY pair plunged to 112.92, down for a second consecutive day on softening US Treasury yields following Yellen's latest remarks. The head of the Fed gave her semi-annual monetary policy testimony before the Congress, and while the statement was not actually dovish, it stalled short from backing the greenback, as she suggested that, while still in the tightening path, rates won't rise much more during the upcoming years. Stocks and bonds surged, leading to a sharp decline in yields, the main motor for yen crosses. Now trading around 113.20, the 4 hours chart shows that the decline accelerated after the price broke below the base of the daily ascendant channel that led the way since early June, while technical indicators pared their declines, holding near oversold readings. In the same chart, the price remains above its 100 and 200 SMAs, with the shortest now in the 112.50 region, offering a key intraday support, as below it the bearish momentum will likely accelerate.

Support levels: 112.85 112.50 112.10

Resistance levels: 113.60 114.00 114.40

GBP/USD

The Pound surged against the greenback reverting its early weekly losses, getting a boost from solid UK employment data, as in the three months to May, there were 32.01 million people in work, 175K more than in the previous three months, while the unemployment rate fell to its lowest since 1975, down to 4.5%. Wages grew by 2% in June, against an expected 1.9% rate of expansion, and above a revised 1.8% in May, but lag when compared to inflation. The GBP/USD pair settled a few pips below the 1.2900 level, bouncing from a daily low of 1.2811, level achieved after BOE's Broadbent said that he is not ready to hike rates. The pair bounced by the pip from the 50% retracement of its latest rally, recovering also above the 38.2% retracement of the same rally at 1.2860, the immediate support. In the 4 hours chart, the price has settled above a flat 20 SMA, while technical indicators are now stuck around their mid-lines, with no clear directional strength, limiting chances of a steeper recovery, as long as the price remains below 1.2925, the next Fibonacci resistance and this week's high.

Support levels: 1.2860 1.2810 1.2770

Resistance levels: 1.2895 1.2925 1.2960

GOLD

Spot gold advanced for a third consecutive session to close the day at $1,220.20 a troy ounce, albeit gains were once again modest, as despite Fed's Yellen was less hawkish than expected, she confirmed the US Central Bank plans to keep on rising rates and start shrinking its balance sheet later this year. The commodity posted a daily high of 1,225.63 before retreating, and the overall outlook keeps favoring the downside, as the recovery was rejected from its 200 DMA, with technical indicators in the daily chart still heading modestly higher within negative territory, and the 20 DMA extending its slide well above the current level. In the 4 hours chart, spot met intraday buying interest around a horizontal 20 SMA whilst technical indicators lost upward momentum and turned lower, still holding within positive territory. Below 1,212.80, the risk turns towards the downside, with scope then to extend its slide pass the 1,2000 threshold.

Support levels: 1,212.80 1,204.75 1,194.95

Resistance levels: 1,225.60 1,236.50 1,242.50

WTI CRUDE OIL

West Texas Intermediate crude oil futures closed the day down at $45.50 a barrel after peaking at 46.45 on a surprise drawdown in US crude stockpiles. The EIA weekly report showed that US crude stockpiles fell by 7.6 million barrels in the week ended July 7th, with the headline sending the price higher. The report, however, also showed that total local crude production edged up by 59,000 barrels a day to 9.397 million barrels in the same week. Additionally, gasoline stockpiles fell by 1.6 million barrels, but distillate stockpiles climbed by 3.1 million barrels. In the news, the OPEC said it will hold an extraordinary meeting on July 17th. Daily basis, the commodity was unable to sustain gains beyond 46.60, the 38.2% retracement of its latest decline still trading above a flat 20 SMA but far below bearish 100 and 200 SMAs, whilst technical indicators have turned lower, lacking clear directional strength right above their mid-lines. In the 4 hours chart, technical indicators head north within positive territory, with the price still below a bearish 200 SMA.

Support levels: 45.10 44.60 43.70

Resistance levels: 45.90 46.60 47.25

DJIA

Wall Street soared, with the Dow Jones Industrial Average reaching an all-time high and ending the day 123 points higher at 21,532.14. The Nasdaq Composite added 67 points or 1.10% to end at 6,261.17 while the S&P closed the day at 2,443.25, up 17 points. Gains were a result of Fed's Chair Janet Yellen semi-annual testimony before the Congress, as she said the Central Bank is likely to start reducing its massive $4.5 trillion portfolio sometime this year, but also that won't take much more rate hikes to reach a neutral level, providing the exact dose of confidence in the local economy, without overwhelming investors with higher rates. Within the Dow, only JP Morgan edged lower, ending the day -0.36%, while El du Pont was the best performer, up 2.89%, followed by Microsoft which gained 1.63%. The daily chart for the Dow shows that the index extended its recovery beyond its 20 DMA, whilst technical indicators aim north within positive territory, with plenty of room to extend their advances. In the 4 hours chart, the index stands far above all of its moving averages, with the 20 SMA now advancing above the 100 SMA, and technical indicators losing upward strength, retreating modestly from overbought levels.

Support levels: 21,499 21,451 21,406

Resistance levels: 21,527 21,581 21,640

FTSE100

London equities benefited from rising oil prices and the positive mood triggered by US Fed's Yellen among stocks' traders, as a slower pace or rate hikes usually supports demand for high-yielding assets. The Footsie added 88 points or 1.19% to settle at 7,416.93, accelerating north ahead of the close as US equities jumped to record highs. Pharmaceuticals and miners led the advance, with Mediclinic up 4.72%, followed by Burberry Group that gained 3.16% and Antofagasta that gained 3.14%. Micro Focus International was the worst performer, down 8.10%, followed by Pearson that shed 4.73%. The technical picture becomes to look more constructive in the daily chart, as the index advanced above its 20 and 100 DMAs, whilst technical indicators extended their advances, now entering positive territory. In the 4 hours chart, technical indicators began easing from near overbought levels, whilst the index is stuck around its 100 and 200 SMAs, but above a bullish 20 SMA, limiting chances of a bearish movement.

Support levels: 7,386 7,345 7,302

Resistance levels: 7,439 7,482 7,529

DAX

The German DAX closed at 12,626.58, up 192 points or 1.52%, as European equities soared after Fed's Chair Yellen cooled down expectations of more than a few rate hikes in the next few years. European indexes were already in the rise ahead of the announcement, back by energy and mining-related equities' gains. Within the DAX, only banks closed lower, with Commerzbank shedding 1.10% and Deutsche Bank down 0.72%. Automakers and pharmaceuticals were on the winning side also, but the best performer was Deutsche Post, up 2.67%, followed by Infineon Technologies that added 2.61%. The index advanced further in after-hours trading, following the lead of Wall Street, gaining upward potential in the daily chart, as the index recovered above its 20 DMA whilst technical indicators extended its advance, still below their mid-lines. In the 4 hours chart technical indicators have pared gains in overbought territory, whilst the index is now struggling around its 100 and 200 SMAs. Further gains seem likely for this Thursday, particularly if stocks' traders maintain the positive mood in Asia.

Support levels: 12,617 12,565 12,521

Resistance levels: 12,689 12,732 12,774

EUR/USD seems exhausted

The currency pair increased in the morning, trying to recover after the yesterday's drop, is approaching an important confluence area, where could find resistance again. Price increases as the USDX is under massive selling pressure, the index is approaching the 95.50 psychological level, a drop below the 95.45 previous low will invalidate a rebound at this moment.

I've said in the last days that the USDX could continue to drop on the short term because could still be attracted by a major dynamic support before will really have enough bullish energy to start a broader upside movement.

The German Final CPI rose by 0.2%, matching expectations, while the French Final CPI may increase by 0.0%. We have a busy calendar today, so will be better to keep an eye on it as the US is to release high impact data, which will bring life on the EUR/USD.

Price increased and is very close to reach the confluence formed by the median line (ML) with the 1.1466 static resistance, we could have a trading opportunity from there. A valid breakout through this area will accelerate the rally, while a rejection will bring us a very good selling opportunity. Technically, another leg lower is favored after another false breakout above the median line (ML) and above the sliding line (sl). A strong selling opportunity will come if the Rising Wedge pattern will be confirmed.

EUR/GBP breakout needs confirmation

EUR/GBP dropped sharply in the yesterday's session and now is pressuring a broken dynamic resistance, this could be confirmed as a strong support if will hold. We may have a buying opportunity these days if the price stays much above the previous extended sideways movement.

Is pressuring the broken warning line (wl2), so we still need a confirmation that will resume the upside movement. We could have a buying opportunity if the rate will come down to test the confluence area formed by the median line (ML) with the warning line (wl2). The upside targets are at the 50% Fibonacci line (ascending dotted line), at the 0.9226 swing high and at the upper median line (UML) of the ascending pitchfork.

EUR/CHF upside paused

EUR/CHF decreased in the yesterday's trading session and could come back down to test and retest some important support levels before will try to climb towards new peaks. Has found strong resistance at a confluence area and now is into a corrective phase. The current retreat is natural after the impressive rally, dropped as much as 1.0997 level, but now is trading much above the 1.1000 psychological level.

Was rejected by the confluence formed by the upper median line (UML) with the median line (ml), could retest the WL1 and the lower median line (lml) of the ascending pitchfork in the upcoming days. The outlook remains bullish on the short term despite the minor retreat.

US equities continued upward on Wednesday, with the DJ30 improving 0.5% on the day and trading to an all-time high of 21,576.90. The impetus behind this was Fed Chair Yellen's testimony to Congress that she had confidence in the US economy and suggesting that US inflation will not force the Fed's hand. In other words, there will be no rush to tighten monetary policy (aka raise interest rates). USD fell against the majors and gold as the markets are still digesting the release of emails from Donald Trump Jr. regarding his controversial meeting with a Russian lawyer during last year's presidential campaign. The 'scandal' could delay US fiscal stimulus initiatives, which would hold back many corporations spending plans. As expected the Bank of Canada raised interest rates for the first time in 7 years, increasing the overnight rate from 0.5% to 0.75%. The interest rate increase had been widely expected after senior Bank of Canada officials signaled recently that lower rates had done their job, and the Canadian economy was performing well with growth for 2017 expected to improve to 2.8%.

USDJPY lost 0.4% on the day trading from an early high of 113.714 to a low on the day of 112.922. USDJPY is currently trading around 113.00.

EURUSD gave up some of its early gains after hitting a 14-month high of 1.14791. Currently EURUSD is trading around 1.1448.

Better than expected UK Payroll data, and UK Unemployment falling to a 43 year low of 4.5%, saw GBPUSD climb off early lows to trade as high as 1.29069 on the day. Similarly, EURGBP backed off from early highs giving up 0.5% on the day. However, wage growth continued to fall behind inflation which could result in interest rate increases being delayed as the UK Monetary Policy Committee have made it clear that they would want to see a 'firming' in wage growth before voting to raise rates. Currently, GBPUSD is trading around 1.2900 and EURGBP is around 0.8875.

With the expected 0.25% interest rate rise by the Bank of Canada, USDCAD continued its recent downward path with USD giving up over 1.6% on Wednesday to trade as low as 1.26955. The markets are expecting further growth in the Canadian economy which may lead to further rate increases before the end of 2017. USDCAD is currently trading around 1.2748.

Gold extended its recent gains gaining 0.5% on the day to trade as high as $1,225.60. Gold is currently trading around $1,223.70.

WTI rose above $46.50pb on Wednesday as data of declining inventories in the US raised hopes that the glut is easing. The U.S. Energy Information Administration reported that domestic crude supplies dropped 7.6 million barrels for the week ended July 7. However, OPEC stated on Wednesday that its oil production rose in June and forecasts that world demand for its crude will decline next year as rivals pump more, pointing to a market surplus in 2018 despite an OPEC-led output cut. WTI is currently trading around $45.55pb.

At 13:30 BST US Initial Jobless Claims (Jul 7) will be released. A reduction from the previous 248K to 245K is expected. If the continuing downward trend is maintained it will give further credence to a tightening labour market and improved economic growth.

Fed Chair Yellen continues her testimony to congress at 15:00 BST – markets are looking for further clues as to when the Federal Reserve will start reducing its balance sheet.

Equity investors across the globe welcomed Chair of the Federal Reserve, Janet Yellen's testimony with open arms.

The Dow Jones Industrial Average jumped 123 points on Wednesday – a record high. The S&P 500 and Nasdaq Composite rallied 0.7% and 1.1% respectively. Meanwhile, the positive sentiment spread into Asian stocks, with all major indices surging across the board.

Although Yellen did not diverge from her statement at the most recent FOMC meeting by remaining committed to raising rates and reducing the Fed's balance sheet as the U.S. economy continues to grow, she was apparently worried about the inflation outlook.

U.S. monetary policy makers have been trying to convince the markets that the incline in inflation is temporary. However, Yellen's statement that "the Fed stands ready to adjust policy if it appears the inflation undershoot appears consistent" suggests that September rate hikes might be off the table for now and rates will not go much higher in the longer run.

The uncertainty about the course of inflation and the less hawkish tone from the Fed's Chair sent yields on long-term bonds lower, which dragged the dollar index down. The combination of low yields, a weak dollar and untightened financial conditions is welcomed by equity investors, thus expect to see a continuation of the equities rally, especially if earnings season does not disappoint.

Currency traders will need to watch today's U.S. PPI and tomorrow's CPI figures very carefully. Inflation data will likely be the dominant influence on the dollar's direction, and if prices do not show signs of strength, we are likely to see new lows on the greenback.

The most recent shift in statements from the central banks were translated yesterday, with Bank of Canada raising rates for the first time in nearly seven years. Markets are trying to figure out who is next in line to remove the extreme accommodative policies. Will it be Bank of England, European Central Bank, Sweden's Riksbank or Norges Bank? The bottom line here is central banks are no longer diverging from the Fed, and albeit on different trajectories, it seems a coordinated move towards tighter policies, which is likely to narrow the spreads in fixed income markets and keep the dollar under pressure.

EUR/USD

Current level - 1.1443

Despite yesterday's dip to 1.1390, the outlook remains bullish, for a rise towards 1.1550, en route to 1.1610. Crucial on the downside is 1.1380.

USD/JPY

Current level - 112.94

The bias remains bearish, for a break through 112.80, towards 111.75 zone. Initial resistance lies at 113.50.

GBP/USD

Current level - 1.2896

Yesterday's dip to 1.2810 should be considered a completion of the whole slide from 1.3025 and my outlook here is bullish, for a break through 1.2920 crucial high, towards 1.3050 resistance. Initial intraday support lies at 1.2860.