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'The ISM index provides further evidence that the prospects for the manufacturing sector remain bright.' - Andrew Hunter, Capital Economics.

US manufacturing activity rose more than expected last month, official figures showed on Monday. The Institute for Supply Management reported its Purchasing Managers' Index for the manufacturing sector increased to 57.8 in June, up from 54.9 registered in the preceding month. That marked the strongest reading since August 2014, reflecting improvements in economic conditions both within the country and abroad. The report showed that 15 of 18 sectors tracked by the ISM expanded in June. Moreover, the New Orders Index jumped to 63.5 last month from 59.5 in May, while production surged to 62.4. Furthermore, the Prices Paid Index fell to this year's lowest level of 55.0, though, the reading above 50 point level still indicated higher prices of raw materials. Overall, the ISM survey suggested that the US economy would show a sharp rebound for the June quarter. After the release, the Atlanta Fed raised its second-quarter GDP growth forecast to a 3.0% annual rate, up from 2.7% expected earlier. In addition, experts suggest that higher overseas demand is likely to support rising confidence in the global economic outlook.

'Notwithstanding, the last two retail trade prints have been particularly encouraging and suggest that consumer spending should post a healthy lift in the second quarter.' - Gareth Aird, CBA

Australian retail sales increased more than expected over the course of May, a fresh release showed on Monday. The Australian Bureau of Statistics reported that the country's retail sales surged at a seasonally adjusted pace of 0.6% in May, following the preceding month's gain of 1.0%, which was the strongest in nearly two years. The survey showed the reading topped market forecasts for a modest 0.3% increase, suggesting that consumer spending was recovering after a sluggish start this year. Moreover, yearly growth in Australian retail sales advanced to 3.2%, with gains posted by household goods, food retailing, department stores and catering. However, some experts suggested that May's data were partially supported by the weather-related, temporary factors. Separately, other economic indicators pointed to a likely consumer spending rebound amid strong data on tourism, the labour market and new car sales. To assist further economic expansion, the Reserve Bank of Australia decided to keep its key interest rates at a record low of 1.50% and monetary policy unchanged as anticipated.

EUR/USD

Current level - 1.1355

The outlook remains bearish below 1.1385 minor resistance, for a tight test of 1.1290 support area. Crucial on the upside is 1.1425 and only a violation of the latter will signal a renewal of the general uptrend for 1.1610.

USD/JPY

Current level - 112.90

The uptrend is still intact despite intraday's pullback from 113.45 and crucial on the downside is 111.70. Initial target projection lies at 114.35.

GBP/USD

Current level - 1.2944

The intraday bias is negative, for a slide towards 1.2860, Key resistance lies at 1.2990.

EUR/JPY - 128.60

Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79

Trend: Near term up

Original strategy:

Buy at 127.00, Target: 129.00, Stop: 126.40

Position: -
Target: -
Stop: -

New strategy :

Buy at 127.00, Target: 129.00, Stop: 126.40

Position: -
Target:  -
Stop:-

Although the single currency resumed recent upmove, lack of follow through buying on break of previous resistance at 128.83 (last week’s high) suggests consolidation would be seen and pullback to 128.00-05 cannot be ruled out, however, reckon downside would be limited to 127.40-45 and renewed buying interest should emerge around 127.00, bring another rise later, above 129.00 would extend recent upmove to 129.50-60 but near term overbought condition should prevent sharp move beyond psychological level 130.00. 

In view of this, we are looking to reinstate long on pullback as 127.00 should limit downside. Below support at 126.49 would defer and suggest top is possibly formed, risk correction to 126.00 and later towards 125.40-50.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

The Aussie dollar fell sharply on Tuesday after RBA kept interest rates unchanged at record low at 1.5%, as widely expected, but following rate statement disappointed markets. RBA kept neutral bias, showing no hurry to hike, while markets expected more hawkish wording after ultra hawkish comments from former board member Edwards last week, who signaled possibility of very aggressive approach in 2018/19. The Australian dollar fell to 0.7604 (Fibo 61.8% of 0.7535/0.7712 upleg) on strong post-RBA bearish acceleration from session high at 0.7682, extending pullback into second straight day.

Monday's strong close in red confirmed reversal pattern, as today's fresh bearish acceleration turned near-term focus lower and south-heading daily RSI/slow stochastic showing more room at the downside.

Fresh bearish signal could be expected on close below 0.7600 that would expose a cluster of MA supports below, starting with 20SMA at 0.7588, followed by 100SMA at 0.7553 and 30SMA at 0.7543, which guard key near-term support at 0.7535 (22 June trough/daily cloud top / Kijun-sen line).

At the upside, broken daily Tenkan-sen marks initial resistance at 0.7623, followed by broken Fibo 38.2% at 0.7644 and session high at 0.7682.

Res: 0.7623, 0.7644, 0.7682, 0.7694
Sup: 0.7604, 0.7588, 0.7577, 0.7553

AUD/USD – 0.7608

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term up

New strategy :

Sell at 0.7635, Target: 0.7500, Stop: 0.7685

Position: -
Target:  -
Stop:-

Aussie’s retreat after rising to 0.7712 suggests top has possibly been formed there and consolidation with mild downside bias is seen for test of 0.7575-80, however, break there is needed to signal a temporary top has been formed, bring further all to 0.7535 support but break there is needed to add credence to this view, bring correction of recent rise to 0.7500. 

In view of this, we are looking to sell aussie on recovery as 0.7635-40 should limit upside. Above 0.7655-60 would risk test of intra-day resistance at 0.7683 but only break there would signal the retreat from 0.7712 has ended instead, bring retest of this level later. 

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

GBPUSD paused a strong rally that took the pair to a high of 1.3029 on June 30. The near-term bullish phase has not shifted yet despite a pullback from this high as the market remains above the daily Ichimoku cloud. Meanwhile, other technical indicators are positively aligned, adding to the assertion that the short-term bullish bias is still intact.

There is not much scope for a sustained decline since the RSI is still in bullish territory above 50 and the recent downturn in the indicator has stalled, suggesting a weakening in GBPUSD’s downside momentum.

Moreover, the Tenkan-sen line (red) has crossed above the Kijun-sen (blue) -a bullish signal- while the 50-day moving average (MA) made a bullish crossover above the 200-day MA on May 12.

Support is expected by the top of the Ichimoku cloud at 1.2907. Should the price contract below this level, the 50-day MA at 1.2872 is likely to provide additional support.

To the upside, a rebound in GBPUSD from current levels could see a retest of the May 18 high of 1.3046 with scope to target the September 2016 high of 1.3120.

Looking at the bigger picture, the market maintains a bullish to neutral structure following a rise from the March 14 low of 1.2108. Since rising above the 200-day MA, the pair has been neutral between 1.2580 and 1.3050.

The Australian dollar came under pressure against the greenback on the unchanged cash rate by the Reserve Bank of Australia. Meanwhile, the yen got a lift amid geopolitical concerns induced by another North Korea missile test. The euro and sterling were broadly steady against the US dollar.

The RBA left its cash rate unchanged at a historic low of 1.5% during its policy meeting earlier today. While this was widely expected by the markets, the aussie was under pressure against the greenback during the Asian session, having dropped 0.7% to 0.7606. In the global context, Australia's central bank is diverging from its peers that are being increasingly more hawkish. This could have led to a disappointment among investors.

The yen was boosted against the US dollar by geopolitical concerns after news of another North Korean missile test during early hours in Asia. Dollar/yen broke below the 113 level as the Asian trading session was coming to a close. This comes after yesterday's high of 113.46, its strongest since mid-May.

The dollar index that gauges the greenback against a basket of six major currencies inched down, last trading at 96.147.

The euro was steady against the dollar for most of the Asian session, however it came under pressure in early European trading hours on lower than expected change in Spanish unemployment. A data point that measures the unemployed individuals in Spain has fallen by 98,300 in June, below the expected level of 120,300 and May's figure of 111,900. Euro/dollar was last trading at 1.1361.

Sterling was edging higher against the dollar, trading in the range of $1.2922-$1.2958 during the Asian session. All eyes will be on the construction PMI (to be released at 8:30 GMT), which is expected to temper to 55 from May's 56. Any positive surprise to this could lend a boost to the pound.

Looking at commodities, oil prices were under pressure, trending down after eight days of consecutive gains. US crude was last trading at $46.94 a barrel, while Brent crude inched down to $49.53.

Gold was trending higher on dollar weakness, reaching $1,225.30 an ounce, after yesterday's one-and-a-half-month low of $1,1218.45.

Looking ahead, not many events are scheduled that could move the forex market significantly. ECB Executive Board member Peter Praet will be speaking later in the day. His speech might give more colour on the ECB thinking. The US markets will be closed for the July 4th holiday.

Weekly
    •    Last Candlesticks pattern: Long white candlestick
    •    Time of formation: 16 Jan 2017
    •    Trend bias: Down

Daily
    •    Last Candlesticks pattern: Long white candlestick
    •    Time of formation: 18 Apr 2017
    •    Trend bias: Near term up

GBP/USD – 1.2945

Cable’s rise from 1.2589 turned out to be much stronger than expected, suggesting the correction from 1.3048 has ended there and consolidation with upside bias is seen for a retest of said resistance, however, break there is needed to retain bullishness and signal recent erratic upmove from 1.1986 low has resumed and extend gain to 1.3100, then 1.3140-45 (38.2% Fibonacci retracement of 1.5018-1.1986), however, reckon upside would be limited to 1.3200-10 and price should falter well below 1.3300, risk from there is seen for a retreat later.

On the downside, whilst initial pullback to the Tenkan-Sen (now at 1.2842) cannot be ruled out, reckon downside should be limited to the Kijun-Sen (now at 1.2810) and 1.2760 (previous minor resistance) should hold, bring another rise later. Below 1.2700-10 would abort and prolong consolidation, risk weakness to 1.2650 and possibly towards 1.2600 but said support at 1.2589 should remain intact, bring rebound later. Only a drop below 1.2589 would signal recent decline from 1.3048 top has resumed and extend fall to 1.2550, then 1.2500 support but price should stay well above key support at 1.2365, bring rebound later.

Recommendation: Stand aside for this week 

On the weekly chart, last week’s stronger-than-expected rebound formed a long white candlestick, signaling the pullback from 1.3048 has ended and break there would extend recent rise from 1.1986 low (2017 low) for retracement of early decline to 1.3090-00, then towards 1.3140-50 (38.2% Fibonacci retracement of 1.5018-1.1986) but reckon upside would be limited to 1.3200-10 and price should falter below 1.3300, bring retreat later this month.

On the downside, expect pullback to be limited to 1.2850-60 and the Tenkan-Sen (now at 1.2819) should hold, bring another rise later. A drop below 1.2760 would suggest the rebound from 1.2589 has ended instead and prolong choppy trading, bring weakness to 1.2640-50 but said support at 1.2589 should remain intact. Only a break of said support at 1.2589 would signal the fall from 1.3048 top is still in progress for correction of early upmove to 1.2550, however, still reckon downside would be limited and previous support at 1.2515 should remain intact, price should stay well above previous support at 1.2365, bring rebound later.



Daily Pivots: (S1) 1.1336; (P) 1.1381 (R1) 1.1408; More.....

EUR/USD's retreat from 1.1444 extends lower but it's staying above 1.1291 support. Intraday bias remains neutral first. More consolidative trading could be seen. But downside should be contained by 1.1291 support to bring rise resumption. Break of 1.1444 will extend the rally from 1.0339 low to 1.1615 resistance 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 1.1776). 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.