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• Will there be any substance to BoC hawkish warnings?
• Central bank policy makers scheduled to appear throughout the week;
• Oil pares losses but remains under pressure;
• Yen stumbles again after weaker data, with BoJ bond buying also weighing.

Central banks are likely to remain a key focus for investors this week, with the sudden hawkish shift among a number of them in recent weeks pushing bond yields higher and weighing on risk appetite.

This sudden and seemingly coordinated move from a number of central banks including the ECB, Bank of England and Bank of Canada, caught investors a little off-guard, forcing them to start pricing in a tightening of monetary policy that previously appeared very unlikely. We’ll see just how much substance there is to these comments on Wednesday, when the BoC announces its latest decision, with investors now expecting a 25 basis point increase.

It’s not exactly clear why we’ve seen a sudden change of heart from central banks all of a sudden but it seems clear that something has spooked them into action and should they follow through, further tightening may need to be priced in. While the impact of this hasn’t weighed too heavily on equity markets so far, it does appear to have taken the edge off the rally and may continue to do so in the coming months.

A number of policy makers across the major central banks are scheduled to appear throughout the week, which under the circumstances will likely draw a lot of attention. Monday will be a little quiet though on that front, with only John Williams of the Federal Reserve – a non-voter this year – scheduled to appear. Instead we’ll have to focus on the data, with eurozone investor confidence and US labour market conditions and consumer credit numbers due to be released.

Oil has started the week on a positive note, trading around 1% higher overnight, although this is perhaps nothing more than a little profit taking with Brent and WTI falling that 7% from last week’s high at one stage. The yen is under pressure once again, with softer machinery orders and current account data chipping away at the currency. This also comes after the Bank of Japan took the opposite stance to other central banks and increased its bond buying last week in an attempt to offset higher yields.

For the 24 hours to 23:00 GMT, the AUD rose 0.22% against the USD and closed at 0.7600 on Friday.

LME Copper prices declined 0.3% or $19.5/MT to $5809.0/MT. Aluminium prices declined 0.3% or $5.5/MT to $1920.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7612, with the AUD trading 0.16% higher against the USD from Friday's close.

Earlier today in China, Australia's largest trading partner, the consumer price index (CPI) advanced 1.5% on an annual basis in June, lower than market expectations for an advance of 1.6%. The CPI had registered a similar rise in the prior month. Moreover, the nation's producer price index (PPI) rose 5.5% YoY in June, meeting market expectations and compared to a similar rise in the prior month.

The pair is expected to find support at 0.7582, and a fall through could take it to the next support level of 0.7551. The pair is expected to find its first resistance at 0.7633, and a rise through could take it to the next resistance level of 0.7653.

Going ahead, market participants will focus on Australia's NAB business confidence index for June, slated to release overnight.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR declined 0.18% against the USD and closed at 1.1401 on Friday.

On the economic front, Germany's seasonally adjusted industrial production rose 1.2% on a monthly basis in May, advancing by the most since February 2017 and surpassing market expectations for a gain of 0.2%. In the previous month, industrial production had registered a revised rise of 0.7%.

The greenback gained ground against most of its major counterparts, following robust non-farm payrolls data in the US.

Non-farm payrolls indicated that the US economy added 222.0K jobs in June, adding the most number of jobs since February, signalling that strength in the nation's labour market is strong enough to warrant one more interest rate hike this year by the Federal Reserve. Non-farm payrolls had recorded a revised increase of 152.0K in the previous month, while markets had expected for an advance of 178.0K. However, the nation's average hourly earnings of all employees climbed less-than-expected by 0.2% MoM in June, highlighting that wage growth remains anaemic despite strong hiring in the world's largest economy. Investors had anticipated average hourly earnings of all employees to gain 0.3%, following a revised rise of 0.1% in the previous month. Also, the nation's unemployment rate nudged up to 4.4% in June, while markets participants had envisaged the unemployment rate to remain steady at 4.3%.

In the Asian session, at GMT0300, the pair is trading at 1.1405, with the EUR trading marginally higher against the USD from Friday's close.

The pair is expected to find support at 1.1377, and a fall through could take it to the next support level of 1.1348. The pair is expected to find its first resistance at 1.1437, and a rise through could take it to the next resistance level of 1.1468.

Moving ahead, investors will look forward to the Euro-zone's Sentix investor confidence index for July and Germany's trade balance figures for May, slated to release in a few hours. Moreover, the US labour market conditions index for June, set to release later in the day, will be eyed by traders.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the GBP declined 0.64% against the USD and closed at 1.2886 on Friday, following dismal economic data in the UK that offered multiple signs of slowdown in Britain's economic momentum.

Data indicated that UK's industrial production unexpectedly dropped 0.1% MoM in May, defying market expectation for a rise of 0.5% and compared to an advance of 0.2% in the prior month. Further, the nation's manufacturing production surprisingly eased 0.2% on a monthly basis in May, confounding market consensus for a rise of 0.5%. Manufacturing production had advanced 0.2% in the prior month. Additionally, the nation's construction output unexpectedly declined 1.2% MoM in May, compared to market expectations for an advance of 0.7% and following a revised fall of 1.1% in the previous month.

Moreover, the nation's total trade deficit widened more-than-expected to a level of £3.1 billion in May, following a revised deficit of £2.1 billion in the prior month. Markets were expecting the nation's total trade deficit to rise to a level of £2.5 billion. Also, the nation's Halifax house price index recorded an unexpected drop of 1.0% in June, declining for the first time in 5 months and compared to a revised advance of 0.3% in the previous month. Markets were expecting the index to climb 0.2%.

On the other hand, NIESR estimated that UK's gross domestic product (GDP) climbed 0.3% in the three months to June 2017. NIESR estimated UK's economy expanded 0.2% in the March-May period.

In the Asian session, at GMT0300, the pair is trading at 1.2896, with the GBP trading 0.08% higher against the USD from Friday's close.

The pair is expected to find support at 1.2851, and a fall through could take it to the next support level of 1.2805. The pair is expected to find its first resistance at 1.2958, and a rise through could take it to the next resistance level of 1.3019.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD rose 0.7% against the JPY and closed at 113.92 on Friday.

On the data front, Japan's preliminary leading economic index climbed more-than-expected to a level of 104.7 in May, compared to a level of 104.2 in the prior month. Moreover, the nation's flash coincident index eased to a level of 115.5 in May, at par with market expectations. In the prior month, the index had registered a reading of 117.1.

In the Asian session, at GMT0300, the pair is trading at 114.12, with the USD trading 0.18% higher against the JPY from Friday's close.

Overnight data indicated that Japan surprisingly posted a higher-than-expected trade deficit (BOP basis) of ¥115.1 billion in May, compared to a surplus of ¥553.6 billion recorded in the preceding month, while investors had envisaged the nation to register a deficit of ¥45.0 billion. Also, the nation's machinery orders surprisingly declined 3.6% in May, compared to a fall of 3.1% in the previous month and confounding market consensus for a gain of 1.7%.

The pair is expected to find support at 113.68, and a fall through could take it to the next support level of 113.24. The pair is expected to find its first resistance at 114.38, and a rise through could take it to the next resistance level of 114.64.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.34% against the CHF and closed at 0.9639 on Friday.

In economic news, Switzerland's seasonally adjusted unemployment rate remained steady at 3.2% in June, at par with market expectations.

In the Asian session, at GMT0300, the pair is trading at 0.9639, with the USD trading flat against the CHF from Friday's close.

The pair is expected to find support at 0.9611, and a fall through could take it to the next support level of 0.9584. The pair is expected to find its first resistance at 0.9660, and a rise through could take it to the next resistance level of 0.9682.

With no major economic releases in Switzerland today, investors will look forward to global events for further direction.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 0.69% against the CAD and closed at 1.2888 on Friday.

The Canadian Dollar gained ground against the USD, following robust Canadian jobs report that cemented expectations of an interest rate hike later this week.

Data indicated that Canada's unemployment rate unexpectedly dropped to 6.5% In June, compared to market expectations of an unchanged reading. In the previous month, the unemployment rate had registered a reading of 6.6%. Further, the net number of people employed in Canada sharply climbed by 45.3K in June, following an increase of 54.5K in the previous month, while markets anticipated for a rise of 10.0K.

In the Asian session, at GMT0300, the pair is trading at 1.2881, with the USD trading slightly lower against the CAD from Friday's close.

The pair is expected to find support at 1.2829, and a fall through could take it to the next support level of 1.2778. The pair is expected to find its first resistance at 1.2963, and a rise through could take it to the next resistance level of 1.3046.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

Global Markets:

• Asian equity markets: Nikkei up 0.75 %, Shanghai Composite rose 0.10 %, Hang Seng rallied 0.85 %, ASX 200 gained 0.60 %
• Commodities: Gold at $1210 (+0.10 %), Silver at $15.50 (+0.30 %), WTI Oil at $44.60 (0.80 %), Brent Oil at $47.10 (+0.90 %)
• Rates: US 10 year yield at 2.39, UK 10 year yield at 1.31, German 10 year yield at 0.57

News & Data:

• China CPI (Y/Y) Jun: 1.50% (Est 1.60%, Prev 1.50%)
• China PPI (Y/Y) Jun: 5.50% (Est 5.50%, Prev 5.50%)
• Japan Machine Orders (M/M) May: -3.60% (Est 1.70%, Prev -3.10%)
• Japan Machine Orders (Y/Y) May: 0.60% (Est 7.60%, Prev 2.70%)
• PBoC Fixes USDCNY Reference Rate At 6.7964 (Prev 6.7914)
• BoJ Gov Kuroda: Will Maintain QQE With Yield Curve Control For As Long As Needed To Achieve 2% Inflation In Stable Manner
• BoJ Gov Kuroda: Japan's Economy Expected To Continue Expanding Moderately

CFTC Positioning Data:

• EUR long 77K vs 59K long last week. Longs increased by 18K
• GBP short 28K vs 39K short last week. Shorts trimmed by 11K.
• JPY short 75K vs 61K short last week. Shorts increased by 14K
• CHF short 0K vs 5K short last week. Shorts trimmed by 5K
• CAD short 39K vs 49K short. Shorts trimmed by 10K.
• AUD long 32k vs long 20k last week. Longs increased by 12K.
• NZD long 29K vs 25K long last week. Longs increased by 4K

Markets Update:

Asian stock markets rose overnight, as risk appetite increased. In FX, the US Dollar failed to sustain the momentum from Friday and fell against most major currencies except the Japanese Yen.

USD/JPY looks quite bullish. It is back above 114 and a test of 115.50 resistance seems likely. The reason why the Yen has been underperforming is that the BoJ is maintaining its loose monetary policy while many other central banks are signaling changes. Therefore, JPY weakness is likely to persist.

The Euro managed to get back above 1.14 in Asia. Demand remains strong for the currency. Should it break above 1.1450, there is little resistance until 1.16.

The Canadian Dollar rallied on Friday after better than expected employment data. The market is speculating that the Bank of Canada might hike interest rates this week. This week should decide the near-term direction for USDCAD. A rate hike and hawkish BoC could send the currency pair towards 1.26, while a disappointment would trigger a short squeeze and pave the way for a 1.32 retest.

Upcoming Events:

• 07:00 BST – German Trade Balance
• 09:30 BST – Euro Zone Sentix Investor Confidence

The Week Ahead

• Tuesday: US JOLTs Job Openings
• Wednesday: UK employment data, Bank of Canada rate decision, Fed Chair Yellen testifies
• Thursday: US PPI
• Friday: US CPI & Retail Sales

Key Points:

• USDJPY continues to trend towards near term resistance.
• Japanese economic data continues to worsen.
• Watch for an upside break above resistance in the coming week

The USDJPY was strongly bullish through most of last week as the pair reacted to the strong US ISM Manufacturing PMI and Non-Farm Payroll figures. Subsequently, there was a relatively strong sentiment swing towards the greenback which saw the pair close the week sharply higher at 113.89. However, it remains to be seen if the pair can retain its bullish predilection in the week ahead. So let’s take a look at which events could shape its near term trend

The USDJPY continued to triumph over the past week as the pair was buoyed by some encouraging U.S. economic results. In particular, the U.S. ISM Manufacturing PMI figures surprised the market, coming in well above forecasts at 57.8, which saw the pair catch a long and steady bid. Additionally, the exceedingly strong Non-Farm Payroll figures also played a role in seeing the pair gain some traction with the benchmark posting a solid 222k gain. Subsequently, the sentiment swing towards the greenback was relatively strong and this saw the pair closing the week out around the 113.89 mark. In fact, the strong U.S. results meant that evidence of a gain in Japanese wage inflation was largely ignored by the broader market.

The coming week is likely to largely focus upon the Japanese Tertiary Industry Activity Index and the U.S PPI results. However, the forecast for the former isn’t positive with most economists predicting that the Tertiary Industry Activity is likely to fall sharply to -0.6% m/m. In contrast, the PPI, and to a lesser extent the Core CPI, figures are expected to post robust returns which support the narrative of a U.S. recovery. Subsequently, it’s difficult to see much in the way of bullish fundamental drivers for the JPY in the week ahead.

From a technical perspective, the bullish trajectory is likely to continue in the week ahead with price action making an almost linear drive towards the 114.35 high. In addition, price action currently retains its position above support at 112.88 and there appears to be no sign of topping yet. However, the RSI Oscillator has just ticked into oversold and will now a period of reprieve at some stage. Subsequently, our bias is bullish with the caveat to watch for a potential short period of consolidation. Support is currently in place for the pair at 112.88, 111.80, and 110.50. Resistance exists on the upside at 114.36, 114.94, and 115.49.

Ultimately, the pair is likely to continue its ascent of the recent high in the coming week especially given the depth of despair that appears to be the trend for the Japanese economic data. Subsequently, keep a close watch for a breakout above near term resistance around 114.40 as this is likely to signal the start of an additional bullish leg.

Key Points:

• Despite a rough week, the NZD may not be moving into a downtrend just yet.
• Fears over falling dairy prices may be somewhat overblown.
• The technical bias suggests that support should remain intact.

The Kiwi Dollar declined rather sharply as last week opened and then remained rather depressed in the following sessions. As a result, questions over what is next for the pair are now circling as some fear that the NZD could be moving into a medium to long-term downtrend. However, if we take a closer look at what was fundamentally behind last week's tumble and also the broader technical bias, the bulls may have some reason to remain optimistic.

The Kiwi Dollar was slammed straight out of the gate last week, coming under heavy selling pressure as the Greenback roared higher. Of course, most of the blame for this move can be laid at the feet of the ISM Manufacturing PMI which saw an uptick from its prior print of 54.9 to 57.8. However, the rest of the week's performance largely reflected deeper concerns over the pair's recent rally given that we saw yet another slip in the GDT Price Index, this time, of around -0.4%. This broader pessimism prevented the NZD from making much use of the sudden shift in sentiment away from the USD on Thursday following a dismal ADP NFP result of 158K (185k exp).

One thing worth pointing out here is the fact that this general pessimism may be somewhat of an overreaction. Whilst it is true we have now has two consecutive (albeit slight) contractions in the GDT Index, it pays to remember that dairy prices are still at the highest that they have been in over two years. As a result, fears that falling dairy prices are going to be sending the NZD into retreat in the medium-term are a little overblown and may subside moving forward. What's more a quick look at the technical bias reveals that the pair may have more support than it at first appears

Specifically, although the Kiwi Dollar is fairly neutral technically, it at least looks as though support could limit any further losses. This is primarily due to the presence of the old declining trendline which is now likely to be a source of support for the pair.  This support could prevent the NZD from sinking too much lower and thereby avoid an inversion of the Parabolic SAR to bearish. Additionally, the EMA bias remains highly bullish and we have trended out of overbought territory which leaves the upside open to exploitation should impending economic news proves to be supportive.

Overall, even if the NZDUSD isn't looking particularly bullish this week, at least its support seems to be relatively intact. Additionally, as the initial shock factor of the GDT data wears off, the Kiwi Dollar should regain its footing and remain buoyant – even if it doesn't stage a recovery just yet.