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USD/CAD Hike or Disappointment?

We have a busy day as the Bank of Canada will publish the Overnight Rate, as you already know, the economists have forecasted an increase from 0.50% to 0.75%. A rate hike will help the Loonie to stay higher and to try to increase versus its rivals.

We'll see what will happen because the rate hike could be priced in and the USD/CAD could ignore this big event. Price is trading in the green and is fighting hard to 1.2943 yesterday's high, has climbed above a broken support, but unfortunately is still under massive selling pressure.

Maybe will be better to stay away this pair later because we may have a huge volatility and you could suffer a heavy loss. I want to say that a disappointment coming from the BOC will send the USD/CAD much higher on the short term.

Is struggling to increase after the massive sell-off, has found support right above the median line (ML) of the major descending pitchfork, signalling that is too oversold to drop further. Actually we have a false breakdown below the confluence area formed by the median line (ml) of the minor descending pitchfork with the second warning line (wl2) of the former minor ascending pitchfork.

Technically, we should have another leg higher on the short term after the failure to reach the ML and after the false breakdown, but we'll see how will react after the BOC. The next upside target will be at the 23.6% retracement level, 1.3047 static resistance and at the upper median line (uml) of the minor descending pitchfork.

USD/JPY Rejected by Resistance Area

Looks like that the minor upside momentum is completed and now we could have a minor decrease on the short term. Has decreased today also because the Nikkei stock index has slipped lower today to test and retest the 20058 static support (resistance turned into support).

The USD/JPY continues to move sideways after the failure to stabilize above the 114.00 psychological level, also dropped below the 113.50 level. Will increase further only if the JP225 index will have enough energy to stay above the 20058 and to climb towards the 20320 previous high.

USD/JPY founded strong resistance right above the short term 23.6% retracement level and now plunged much below the long term 23.6% retracement level. Is approaching the upside line of the former symmetrical triangle, where he could find support again, could only retest the chart pattern before will increase again. A larger increase will be confirmed only after a valid breakout above the WL3.

EUR/GBP Targeting New Peaks

Price rallied in the yesterday's session and broken above a strong dynamic resistance and looks like that we have confirmation that will increase further in the upcoming weeks.

Has found temporary resistance at 0.8948 today and could decrease to test and retest the wl2 broken resistance before will climb much higher. Price has finally escaped from the extended sideways movement, the major upside targets are at the 0.9226 level and at the upper median line (UML) of the ascending pitchfork.

The Greenback was neatly packaged and delivered to bears during Tuesday's trading session, following reports of emails that show President Donald Trump's eldest son met with a Kremlin-linked Russian lawyer prior to the US general elections last November. This fresh revelation has added to the political uncertainty in Washington and may delay the proposed tax reforms & infrastructure spending plans. With the Dollar Index under intense selling pressure on the daily charts, Dollar bullish investors are likely to search for fresh inspiration to support prices from Janet Yellen's Congress testimony later today.

Yellen is scheduled to testify on the economy before the House Financial Services Committee this afternoon; her remarks will be closely scrutinized for clues on when the Federal Reserve plans to raise rates. While markets expect Yellen to reiterate her hawkish remarks and upbeat outlook on the US economy, this may not be enough to support the US Dollar. Investors not only need fresh insight on when the Federal Reserve plans to raise rates, but also require greater clarity on the timings and magnitude of the balance sheet reduction. It will also be very interesting to hear Yellen's thoughts on falling inflation rates and tepid wage growth, and how these may impact the Fed's path to monetary policy normalization.

A situation where nothing new is brought to the table may punish the vulnerable Greenback further. From a technical standpoint, the Dollar Index is pressured on the daily charts. A breakdown below 95.50 may open a direct path towards 95.00.

Sterling gifted a lifeline

Sterling bulls were offered a lifeline on Wednesday following a mixed UK employment report that slightly eased some Brexit-related concerns. The UK employment market continued to display resilience against Brexit, with the unemployment rate falling to 4.5% for the three months to May, marking a landmark 42-year low. Despite the encouraging jobs picture, wage growth disappointed, signalling another fall in total earnings. With inflation outpacing wage growth, British consumers are seeing their spending power diminish and as such, may fuel concerns over the longevity of the UK's consumer-driven economic growth. This simply takes us back to the question - will the Bank of England be willing to raise interest rates during such fragile economic conditions? Markets may pay very close attention to the UK's macro fundamentals, political developments in Westminster and Brexit talks for further clues on what actions the BoE may take.

The Bank of Canada is widely expected today (10:00 am EDT) to raise its benchmark policy rate for the first time in seven years. It would be a strong signal from policy makers that the Canadian economy is on the path to recovery after years of tepid growth following the global slump in commodities.

The majority who expect a rate hike of +25 bps to +0.75% cite the bullish shift in central bank communications about the outlook and data signalling Canadian output is expanding at its fastest pace in nearly three years.

However, inflation is not pressing, but most G7 economies indicate that they can live with interest rates a tad higher than they are at present and still generate solid growth.

Not all agree that a rate rise is warranted today, if the BoC fails to deliver, given weak inflation and wage gains, and uncertainty that remains over the Trump administration's trade policy, watch how quickly the loonie (C$1.2921) gets sold off.

Nevertheless, if Poloz fails to hike would be irresponsible, given the recent rhetoric, and definitely lead to more market confusion about the effectiveness of BoC's communication policies.

Fed Chair Janet Yellen will also begin two days of testimony before Congress, with traders focusing on her assessment of financial conditions.

Note: The only major central banks expected to have moved to +1% base rate over the next year are the Fed and BoC.

1. Global Stocks encounter thin trading

In Japan, the Nikkei shed -0.5% while the broader Topix dropped -0.4% in thin trade before Fed's Janet Yellen's comments later today. A stronger yen (¥113.40) in the wake of a fresh controversy for U.S President Trump's administration hit exporters.

In Hong Kong, the Hang Seng rallied +0.6% for the third straight day to a two-year closing high, boosted by China fund flows and investors' bargain hunting.

In China, stocks ended lower overnight as investors paused for breath ahead of Ms. Yellen's address to Congress. The blue-chip CSI300 index fell -0.3%, while the Shanghai Composite Index shed -0.2%. The “Nifty 50” hit a 23-month high before edging -0.2% lower.

In Europe, stocks have opened higher and are maintaining momentum. On the FTSE 100 energy stocks are being supported by an increase in oil prices.

U.S stocks are set to open little changed (+0.03%).

Indices: Stoxx50 +0.6% at 3,484, FTSE +0.8% at 7,387, DAX +0.4% at 7,384, CAC-40 +0.8% at 5,180, IBEX-35 +0.4% at 10,495, FTSE MIB +0.8% at 21,280, SMI +0.7% at 8,935, S&P futures +0.03%.

2. Oil gets a lift from inventory levels

Oil prices are better bid ahead of the U.S open in response to a fall in U.S fuel inventories and a cut in the U.S government's forecast for crude output next year which raised hopes that a supply glut is easing.

Note: API data yesterday indicated that U.S crude inventories fell by -8.1m barrels. Official inventory data from the EIA is due at 10:30 am EDT.

Also supporting prices, the EIA said yesterday it expected U.S. crude oil production to rise by less than previously forecast next year due to a lower price outlook.

Brent crude is up +86c, at +$48.38 a barrel, while U.S light crude (WTI) has gained +93c to +$45.97.

Crude 'bears' believe that despite further upside could be expected in the short term amid the speculations of a cut in U.S production, theses gains may be limited by the firm oversupply dynamics of the markets.

Note: Brent prices are -17% below their 2017 opening despite a deal OPEC to cut production from January. U.S oil production has risen over +10% since mid-2016 to +9.34m bpd.

Yesterday, Gold registered its biggest intraday percentage gain since June 23 and silver registered its biggest intraday percentage rise in over a month. Currently, the yellow metal is little changed at +$1,217.97 an ounce and silver is +0.4% higher at +$15.80.

3. Yields curves look for further guidance

Fed Chair Janet Yellen is likely to reinforce the message of her June meeting's press conference, guiding the market toward an announcement of balance sheet normalization and a rate-rise by end-2017.

Comments from Fed's Mester (hawkish, non-voter) overnight noted reversing QE sooner rather than later is preferable, while the Fed's Brainard (voter) indicated it was appropriate to reduce balance sheet soon if economic data holds up and that policy makers should move cautiously on further rate increases to help boost inflation back to +2% target.

Ahead of the open, U.S 10-year note yields have dropped -1 bps to +2.36%. The yield on Aussie 10-year bonds have fallen -3 bps to +2.72%, halting five days of gains. In Japan, the BoJ again raised outright purchases of 3 and 5-year government notes to contain the recent increase in medium-term yields.

In Germany, this morning's 10-year Bund auction (4B, 2027) posted the highest funding cost since an auction in January 2016. The average yield was +0.59% with a bid-to-cover ratio of +1.4.

4. Sterling's whippy price action

The pound came under pressure; printed new week lows (£1.2812), when the Bank of England Deputy Governor Ben Broadbent said he was not yet ready to vote for a rise in the key interest rate, citing the many uncertainties surrounded the outlook for the economy.

However, the it has since recouped its losses and then some (£1.2862, €0.8911) after U.K data showed that three-month wage growth came in above expectations and higher than in the previous quarter.

Average earnings ex-bonuses rose +2% in the three-months to May, more than the +1.8% expected.

The better-than-expected data is supportive for BoE 'hawks' that have suggested interest rates should rise this year.

5. Eurozone Industrial Output Picks Up Speed

Data this morning showed that Eurozone's factories, mines and utilities output rose at the fastest annual pace in more than five years in May (+1.3% m/m and +4% y/y). The market was expecting a rise of +0.8% m/m, and +3.6% y/y – It's further proof that the regions recovery has picked up Q2.

Note: The Eurozone economy grew at the fastest rate in two years during Q1, outpacing the U.S, the U.K. and Japan.

Notes/Observations

European Equities rise, FTSE outperforms on dovish BoE Broadbent comments

EURGBP rises to 8 month highs

UK jobs number slightly better than expected; Real wages in 3 month to May fall to the lowest in 3 years

Eurozone data continues its improving trend

Overnight

Asia:

Chinese and Hong Kong banks rose again for the second day after the PBOC injected funds through OMO for the second day after an extended stretch of no action

Europe:

UK Jobs numbers were largely in line with expectations with a slight beat in Weekly earnings ex bonus. Real wages ex Bonus in 3 months to May fall 0.7%, the lowest since August 2014.

UK BoE member Broadbent not ready to support a rate hike yet noting too many imponderables to back a rate hike

Euro Zone industrial data ahead of expectations continuing the recent bout of better data

Americas

US Fed Chair Yellen to give testimony later today

Comments from Fed’s Mester (hawkish, non-voter) overnight noting reversing QE sooner rather than later is preferable

Fed’s Brainard (Voter) made overnight comments saying appropriate to reduce balance sheet soon if economic data holds up; should move cautiously on further rate increases to help boost inflation back to 2% target

Oil

(SA) Saudi Oil exports to fall to lowest level this year at 6.6M bpd; To cut oul shipments to customers by more than 600K bpd in August due to rise i demand at home - press

(IR) Iran Deputy Petroleum Minister Zamaninia: Expects to reach oil output of 4M b/d by the end of 2017

Economic Data

(UK) MAY AVERAGE WEEKLY EARNINGS 3M/Y/Y: 1.8% V 1.8%E; WEEKLY EARNINGS (EX BONUS) 3M/Y/Y: +2.0% V 1.9%E

(UK) JUN JOBLESS CLAIMS CHANGE: 6.0K V 7.3K PRIOR; CLAIMANT COUNT RATE: 2.3% V 2.3% PRIOR

(EU) EURO ZONE MAY INDUSTRIAL PRODUCTION M/M: 1.3% V 1.0%E; Y/Y: 4.0% V 3.5%E

(UK) May ILO Unemployment Rate 3M/3M: 4.5% v 4.6%e

(DE) GERMANY JUN WHOLESALE PRICE INDEX M/M: 0.0% V -0.7% PRIOR; Y/Y: 2.5% V 3.1% PRIOR

(CZ) CZECH JUN CPI M/M: 0.0% V 0.0%E; Y/Y: 2.3% V 2.3%E

Fixed Income Issuance:

(IT) Italy Debt Agency (Tesoro) sells €6.75B vs. €6.75B indicated in 12-month Bills; Avg yield: -0.352% v -0.351% prior; Bid-to-cover: 1.65x v 1.58x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 +0.6% at 3,484, FTSE +0.8% at 7,387, DAX +0.4% at 7,384, CAC-40 +0.8% at 5,180, IBEX-35 +0.4% at 10,495, FTSE MIB +0.8% at 21,280, SMI +0.7% at 8,935, S&P futures +0.03%]

Market Focal Points/Key Themes: European stocks opened higher and maintained momentum; Burberry helped support luxury stocks; energy stocks supported by an increase in oil prices; better data didn't offset political concerns in terms of risk sentiment; UK Serious Fraud Office opens investigation into Amec Foster Wheeler, impacting stock performance of John Wood Group, though both companies say probe won't affect merger; attention on central bank policy; upcoming US earnings include NRG, Fastenal and Barnes & Noble

Equities

Consumer discretionary [Stora Enso STERV.FI +3.2% (analyst action), Pearson PSON.UK -5.0% (analyst action), Burberry BRBY.UK +2.8% (earnings), Bang & Olufsen BO.DK -6.5% (earnings)]

Energy [Premier Oil PMO.UK +30.8% (discovery), Amec Foster Wheeler AMFW.UK -8.0% (SFO probe)]

Financials [DNB DNB.NO 4.0% (earnings), Amundi AMUN.FR +1.1% (analyst action), Banca Carige CRGI.IT -1.4% (asset sale, potential merger)]

Healthcare [Barratt Developments BDEV.UK 0.8% (trading update), Lundbeck LUN.DK 3.4% (analyst action)]

Industrials [Valeo FR.FR +2.3% (asset sale), Bilfinger Berger GBF.DE +1.9% (profit waring)]

Technology [Siltronic WAF.DE +2.9% (outlook), Ordina ORDI.NL +2.0% (results)]

Speakers

(UK) BOE's Broadbent: Not ready to support a rate hike; too many imponderables to back a rate hike - Scottish press

(IR) Iran Deputy Ptroleum Minister Zamaninia: Expects to reach oil output of 4M b/d by the end of 2017

Currencies

GBPUSDrecovers from 2 week lows at 1.2810 after initial weakness from BoE Broadbent comments, Cable currently trades at 128.57 after a fall in the jobless rate. EURGBP pulls back to 0.8911 after trading an 8 month high of 0.8949 this morning.

EUR/USD trades 1.1459 off the overnight high of 1.1488 which marked the highest level seen since August 2016. Dealers look to 1.1480 initially to retest the high, with 1.16 the next target, May 2016 high.

Fixed Income

Bund futures trade at 161.09 up 21 ticks and back towards Monday’s high. Resistance lies near the 161.50 level followed by 162.10. A break of the 160.00 support level could see lows target 159.25 followed by 157.50.

Gilt futures trade at 125.42 higher by 2 ticks and off the session highs following Weekly Average Earnings decline and lowest ILO unemployment rate since 1975. Price finds key support at the 124.42 support level. An acceleration lower could test the 122.88 region. Resistance remains the noted 126.00 region, followed by 126.72.

Wednesday’s liquidity report showed ECB €258M borrowed in overnight loan facility vs. €153M prior; €621.4B parked in deposit facility vs. €629.7B prior

Corporate issuance saw $10.5B come to market via 5 issuers headlines by Bank of Nova Scotia $1.5B 2-part senior unsecured offering and Banque Federative du Credit Mutuel $2.5B 4-part senior unsecured notes

Looking Ahead

06:00 (PT) Portugal Jun CPI M/M: No est v -0.2% prior; Y/Y: No est v 1.5% prior

07:00 (US) MBA Mortgage Applications w/e July 7th: No est v +1.4% prior

08:00 (IN) India Jun CPI Y/Y: No est v 2.2% prior

08:00 (IN) India May Industrial Production Y/Y: No est v 3.1% prior

08:00 (BR) Brazil May Retail Sales M/M: No est v 1.0% prior; Y/Y: No est v 1.9% prior

08:00 (PL) Poland Jun CPI Core M/M: %e v -0.1% prior; Y/Y: %e v 0.8% prior

08:30 (CA) Canada Jun Teranet/National Bank HPI M/M: No est v 2.2% prior; Y/Y: No est v 13.9% prior

08:30 (CL) Chile Central Bank's Traders Survey

09:00 (RU) Russia May Trade Balance: $8.8Be v $8.0B prior

09:00 (MX) Mexico May Industrial Production M/M: No est v -0.3% prior; Y/Y: No est v -4.4% prior

10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to raise Interest Rates by 25bps to 0.75%

10:00 (CA) Bank of Canada (BOC) releases July Monetary Policy Report

10:30 (US) Weekly DOE Crude Oil Inventories

12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report

14:00 (US) Beige Book

The GBP/JPY dropped for more than 200 pips yesterday during the BOE's Ben Broadbent speech in Aberdeen. However today's UK data has favored the GBP and the pair could see another push to the upside from the POC zone 145-50-65 (D L4, 50.0, trend line W L4, ATR pivot). MACD also shows a positive momentum change impending so 146.06 should be next. If the pair makes a 1h/4h close above 146.06 next should be 146.50-70. Continuation above 146.70 targets 147.18.

The breakout out of the descending triangle pattern did not occur to the downside. Instead the EUR/USD currency exchange rate has jumped. The currency pair signalled that it will move to the upside, as it slowly moved out of the triangle and fluctuated below the 55-hour SMA. Afterwards, the Euro appreciated sharply against the US Dollar until the pair reached the 1.1490 mark. Due to the fact that during the just described move the pair broke the first weekly resistance, which is located at the 1.1458 mark, the rate is set for additional gains. The next resistance, which is going to be targeted, will be the second weekly resistance level at the 1.1513 level. However, the 1.15 mark might prove itself as a psychological level.

The low volatility apparent on Tuesday morning shifted tremendously when the GBP/USD currency pair surged and tested the weekly PP at 1.2926. Subsequently, it fell down to the bottom channel boundary circa 1.2840. The sudden plunge that started at 0600GMT today pushed the rate in the strongly oversold territory and even past the weekly S1 at 1.2828. This level is unlikely to hold; thus, the Sterling should be forced to make a U-turn. Upside risks may guide the pair towards a resistance area formed by the 55-hour SMA and the weekly PP near 1.2880 or even higher if bulls remain active thorough this session. By and large, significant fundamentals scheduled for today are very likely to disrupt technical predictions and push the pair either direction.

Contrary to expectations, the US Dollar failed to overcome the 114.50 level on Tuesday. As a result, the American currency was driven by strong downside risks until Wednesday morning when the weekly PP and the 200-hour SMA circa 113.40 were reached. In case the US Dollar breaches the latter and reverses near the 113.10 mark, it will confirm the existence of a broadening wedge pattern. From technical point of view, the rate should try to form retracement from the bottom channel boundary in the 113.80/114.00 area. Thus, it is more likely that the rate tests the monthly R1 at 113.94 and remains slightly below the given level until Wednesday morning. Nevertheless, traders should be very attentive in this session due to important fundamentals that are likely to pressure the rate.

The forecasted scenario of a surge of the yellow metal has become reality. As it was expected, an ascending short term pattern has revealed itself. In accordance with the pattern the commodity price is set to continue the surge. Meanwhile, in the near future, the bullion's price is set to be supported by the 55 and 100-hour SMAs, respectively, at 1,213.26 and 1,217.12 marks. However, during the reveal of the pattern the metal bounced off the resistance of the monthly S1, which is located at the 1,220.50 mark. During Wednesday's trading session the course of the metal is quite unclear, as it is set to decline down to the lower trend line of the ascending channel. Although, the course of the upcoming short lived bullion's fall is quite hard to pinpoint due to the existence of the various moving support levels

GOLD Targeting support at 1195.

Gold's is trading lower towards strong support given at 1214 (09/05/2017 low). Hourly resistance can be found at 1258 (23/06/2017 high). Expected to show continued weakness.

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1392 (17/03/2014) is necessary ton confirm it, A major support can be found at 1045 (05/02/2010 low).

SILVER Short-squeeze.

Silver is bouncing higher from hourly support at 15.18 (10/07/2017 low). Key resistance is given at a distance at 17.75 (06/06/2017 high). The road seems wide open for further decline.

In the long-term, the death cross indicates that further downsides are very likely. Resistance is located at 25.11 (28/08/2013 high). Strong support can be found at 11.75 (20/04/2009).

CRUDE OIL Renewed bullish pressures.

Crude oil is trading above $44. Hourly support is given at 43.65 (10/07/2017 low). Expected to show continued short-term bullish improvement.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. Strong support lies at 35.24 (05/04/2016) while resistance can now be found at 55.24 (03/01/2017 high).