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The Euro remains at the back foot on Tuesday and extends weakness into third consecutive day. Monday's strong close in red signaled reversal after double upside rejection at 1.1445. Slow stochastic reversed from overbought territory and shows room for deeper correction. Pivotal support at 1.1320 (Fibo 38.2% of 1.1118/1.1445) is under pressure and break here would generate stronger bearish signal. Extension towards next pivot at 1.1243 (20SMA/Fibo 61.8%) seen on break below 1.1320/00. Tops at 1.1445 now mark strong offers. US is closed today for Independence Day and quiet trading is expected.

Res: 1.1376, 1.1400, 1.1426, 1.1445
Sup: 1.1336, 1.1320, 1.1300, 1.1243

AUDUSD is displaying a strong bearish structure away from 0.7711 level where a high has been found. Current structure we can count as a bigger three wave move in the making, with blue waves one and two already completed, which means current sharp fall is part of blue wave three. Ideally we will see more weakness develop this week.

AUDUSD, 1H

GBP/USD – 1.2927

Recent wave: Wave V of larger degree wave (III) has ended at 1.1986 and major correction has commenced from there for gain to 1.3000 and 1.3140-50

Trend: Near term up

Original strategy :

Buy at 1.2870, Target: 1.3020, Stop: 1.2810

Position: -
Target:  -
Stop: -

New strategy :

Buy at 1.2870, Target: 1.3020, Stop: 1.2810

Position: -
Target:  -
Stop:-

Sterling’s retreat after faltering below last week’s high at 1.3030 has retained our view that minor consolidation below this level would be seen and pullback to support at 1.2916 is likely, however, reckon previous resistance at 1.2861 would turn into support and limit cable’s downside, bring another rise later, above said resistance at 1.3030 would extend the rise from 1.2589 low towards recent high at 1.3048 but break there is needed to retain bullishness and bring subsequent headway towards 1.3090-00. 

Our preferred count on the daily chart is that cable's rebound from 1.3500 (wave (A) trough) is unfolding as a wave (B) with A ended at 1.7043, followed by triangle wave B and wave C as well as wave (B) has ended at 1.7192, the subsequent selloff is the larger degree wave (C) which is still unfolding with minor wave (III) of larger degree wave 3 ended at 1.1986, hence wave (IV) correction is in progress which could either be a triangle wave (IV) of a complex formation but upside should be limited to 1.3500 and price should falter well below 1.4000, bring another decline in wave (V) of 3 for weakness to 1.1500, then 1.1200.

On the downside, whilst initial pullback to 1.2900 is likely, reckon 1.2861 (previous resistance turned support) and bring such a rise. Below support at 1.2794 would abort and signal top is formed instead, risk further fall to 1.2750, then towards 1.2706 support.

The Reserve Bank of Australia left its cash rate unchanged at +1.50% today. In the statement accompanying the decision, the Bank stated that indicators of the labor market remain mixed. It acknowledged that employment growth has been stronger over recent months, but it expressed concerns with regards to wage growth.

AUD/USD came under selling interest at the time of the release as the bank was not as upbeat as expected following the latest two stellar employment reports. The pair fell after it hit resistance at 0.7680 (R2), to break below the support (now turned into resistance) of 0.7635 (R1). Nevertheless, the slide was stopped by the short-term uptrend line taken from the low of the 2nd of June. In our view, a clear break below that line is needed before we get confident on further downside extensions. Something like that is possible to pave the way for our next support obstacle of 0.7580 (S1).

Looking forward, we expect the Bank to maintain a balanced tone in the months to come and try not to tip the scale in any direction. Given that the quick cuts in 2016 reignited the housing market, we believe that officials will be reluctant to lower rates in coming months as concerns of potential financial stability risks may prevail again. On the other hand, the prospect of an extended period of labor market slack and inflation weakness are far from favoring a hike.

Overall, bearing in mind the latest hawkish signals from several G10 central banks, like the ECB, the BoE, and the BoC, we expect the Aussie to underperform against their respective currencies. We would avoid to exploit any further Aussie weakness against the US dollar, given investors’ expectations that the Fed may not proceed with another rate increase this year. We see EUR/AUD as a better proxy, given that the common currency has been supported by the latest ECB hints that the era of ultra-loose monetary policy is probably behind us.

Riksbank may appear more optimistic this time

During the European day, the central bank torch will be past to the Riksbank. The forecast is for the world’s oldest central bank to remain on hold. At its latest gathering back in April, the Bank extended the duration of its QE program by 6 months to December 2017 and pushed somewhat further out the timing for its first planned rate hike.

A few weeks after that meeting, the Bank announced plans to move away from its strict 2% inflation target and to introduce a target range of 1% from 2%. This implies that policymakers may be more tolerant of subdued inflation, which reduces the likelihood for any further easing measures. What’s more, European political risks have dissipated notably following the French election, something that could be reflected in the meeting statement. The combination of these factors makes us believe that the Bank is likely to appear more optimistic this time. In fact, we would not rule out the prospect that the Riksbank follows in the recent footsteps of the Norges Bank and the ECB, by also removing its interest rate easing bias.

USD/SEK edged north yesterday after it hit support fractionally above 8.4000 (S1). Nevertheless, following the break below 8.6200 (R3), which has been the lower bound of the short-term sideways range that contained the price action from 16th of May until the 27th of June, we see a negative short-term picture. A more-sanguine-than-previously Riksbank today may prove the trigger for another leg down and the continuation of the newborn near-term downtrend. If the Riksbank does not disappoint market expectations, we expect the bears to take charge and aim for another test near 8.4000 (S1). A break below that barrier could set the stage for extensions towards our next support of 8.3370 (S2).

As for the rest of today’s events:

In the UK, the construction PMI for June is due out. Expectations are for the index to have slid to 55.0 from 56.0 in May. The manufacturing PMI for the month fell by more than anticipated, enhancing the case for the construction index to follow suit and perhaps decline by more than it is forecasted. Something like that could pour some cold water on expectations regarding a BoE rate hike at one of the upcoming meetings. From Eurozone, we get PPI data for May and expectations are for the rate to have declined.

Besides the RBA and Riksbank Governors Philip Lowe and Stefan Ingves, we have two more speakers scheduled during the day: ECB Executive Board members Peter Praet and Yves Mersch.

AUD/USD

Support: 0.7580 (S1), 0.7535 (S2), 0.7515 (S3)

Resistance: 0.7635 (R1), 0.7680 (R2), 0.7710 (R3)

USD/SEK

Support: 8.4000 (S1), 8.3370 (S2), 8.2800 (S3)

Resistance: 8.5000 (R1), 8.5500 (R2), 8.6200 (R3)

GBP/JPY - 146.40

Recent wave: Medium term low formed at 120.50 and (A)-(B)-(C) major correction has commenced with (A) leg ended at 148.45, hence wave (B) is unfolding for retreat to 131.00-10.

Trend: Near term up

Original strategy:

Buy at 144.30, Target: 146.30, Stop: 143.70e

Position: -
Target: -
Stop: -

New strategy :

Buy at 145.15, Target: 147.15, Stop: 144.55

Position: -
Target:  -
Stop:-

As sterling has eased after rising marginally to 146.90, suggesting minor consolidation below this level would be seen and pullback to 145.65-70 cannot be ruled out, however, reckon previous support at 145.15 would limit downside and bring another rise later to 147.10 (previous resistance), having said that, loss of near term upward momentum should prevent sharp move beyond 147.50-60 and price should falter below recent high at 148.10, risk from there is seen for a retreat later. 

In view of this, would not chase this rise here and we are looking to buy sterling on subsequent pullback as support at 145.15 should limit downside. Below 144.60-70 would defer and risk test of previous resistance at 144.20, break there would abort and signal a temporary top is formed, bring correction of recent rise to 143.90-00 but support at 143.30 should remain intact. 

Our preferred count is that larger degree wave V with circle is unfolding from 251.12 with wave (I) 219.34, (II): 241.38 and wave (III) is subdivided into 1: 192.60, 2: 215.89 (23 Jul 2008) and wave 3 ended at 118.87 earlier in 2009. The correction from there to 162.60 is wave 4 which itself is a double three and is labeled as first a-b-c ended at 151.53, followed by wave x at 139.03, 2nd a ended at 162.60, 2nd b at 146.75 and 2nd c leg of wave 4 ended at 163.00. Therefore, the decline from 163.00 to 116.85 is now treated as wave 5 which also marked the end of larger degree wave (III), hence wave (IV) major correction has commenced for retracement of the wave (III) from 241.38 and upside target at 183.95-00 (50% Fibonacci retracement of the wave (II) from 241.38) had been met, a drop below 160.00 would suggest wave (IV) has ended at 195.85, bring decline in wave (V) for initial weakness to 130 (already met) and 120.


As it was expected, the bullion's price continued to plummet during Monday's trading ssession. However, the situation changed on Tuesday morning. The commodity price found support at the first monthly support level, which is located at the 1,220.50 mark. For this reason, the metal seems to have a rather larger range for the consolidation period, which seems to be beginning. Meanwhile, the 55- and 100-hour SMAs are moving in from the upside at 1,235.38 and 1,241.65, respectively. The SMAs are too distant to be considered a notable resistance on Tuesday. However, additional clues in regards to closer resistance levels could be observed on the daily chart.

USD/JPY was driven by strong upside momentum that resulted in the rate breaking the down-trend on Monday. The rate halted near the 113.40 mark and retraced back to the given line. Near-term technical indicators are bearish, suggesting that the US Dollar may trade lower. A possible stopping point may be the 100-hour SMA at 112.45. In case of a U-turn at this level, this move may confirm the formation of a minor ascending channel. The next support of importance is the 200-hour SMA circa 112.00. The monthly R1 at 113.94 should be the upside limit for today. On the contrary, the given move above the down-trend may likewise be a false breakout, thus requiring to re-adjust the given line. In this scenario, the rate is expected to test the aforementioned 200-hour SMA.

The Pound responded negatively to weak UK Manufacturing PMI mid-Monday, thus pushing the rate through the bottom channel boundary. The subsequent action did not form any distinctive direction and resulted in slight volatility sideways. The 100-hour SMA was breached to the downside with little hindrance; however, it did continue to function effectively as a resistance level. It seems that the bearish sentiment may prevail in the upcoming hours prior to edging higher late Tuesday. Immediate support is formed by the 100– and 55-hour SMAs at 1.2958 and 1.2983, respectively. Nevertheless, the main upside limit is considered to be circa 1.3029, as the Sterling had already failed to overcome this level for two consecutive sessions, thus forming a double top.

On Tuesday morning, the common European currency had retreated below the 1.1350 mark against the US Dollar. However, the combined support of the weekly and monthly pivot points at 1.1348 and 1.1331, respectively, proved strong enough to force the currency exchange rate for a rebound. It can be expected that the pair regains some of the lost ground before it faces a notable resistance level. Most likely the resistance will be provided by the 23.60% Fibonacci retracement level at the 1.1388 mark. The retracement level is set to be reinforced by the resistance of the 55- and 100-hour SMAs, which were located at 1.1396 on Tuesday morning. It could be clearly observed that the simple moving averages will approach the pair from the upside.

'While growth slowed in June, the average of the past three surveys pointed to the fastest rate of quarterly growth in the sector for three years.' — George Nikolaidis, EEF

Manufacturing activity in Britain slowed unexpectedly last month, a private survey showed on Monday. Markit report showed that its PMI for the UK manufacturing sector came in at 54.3 points in June, falling to a three-month low from a downwardly-revised figure of 56.3 in the preceding month. However, analysts expected a smaller decline to 56.4 for the month from May's originally reported 56.7. Growth of the country's manufacturing output slowed as businesses showed smaller increases in demand for new domestic orders, while export orders marked the weakest pace of growth in five months. Though, some economists expect the UK economy to show stronger growth in the Q2 with stronger competitiveness boosted by the weak Sterling. However, export orders are set to put downward pressures on further economic expansion. Meanwhile, overall confidence weakened to a seven-month low amid the beginning of the Brexit talks and more uncertainties surrounding the UK outlook. Opposite to Britain's faltering manufacturing sector, manufacturing activity in other EU countries rose to its highest level in six years in June.