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Sunrise Market Commentary

• Rates: German 10-yr yield ready for test of 0.5%
  EMU inflation could beat expectations, suggesting that the sell-off of the Bund can continue at least until the German 10-yr yield tests 0.5% resistance. Risks for the US PCE deflator are on the downside of consensus. If so, it will be interesting to see whether US Treasuries can profit or not. The current repositioning and Fed Yellen's credibility might hamper gains.
• Currencies: Dollar cannot find its composure
  EUR/USD continued its rally and is now closing in on the key resistance zone which, if broken, would end the 3-yr sideways trading that followed the downtrend of the pair. We think it is too early for such a break though and thus remain cautious about the possibility of substantial short term further EUR/USD gains.

The Sunrise Headlines

• US stock markets slid around 0.8% in a rising yield environment with Nasdaq underperforming as a selloff in tech stocks accelerated (-1.44%). Asian stock markets also lose up to 1% (Japan underperforming)
• UK PM May won parliamentary approval for her legislative program after being forced into a concession on abortion rights to stave off a defeat. This episode showed just how vulnerable May is and how quickly she can capitulate.
• Brexit is hurting sentiment, with both UK consumers and businesses expressing doubts about the outlook. GfK's consumer-confidence dropped to -10 in June (–5 in May) amid political uncertainty and declining spending power.
• Japanese inflation reading disappointed and remain very low, both the national May readings and the Tokyo June outcomes. The June Tokyo CPI ex-fresh food and energy even returned to negative territory (-0.2% Y/Y).
• Japan's unemployment rate rose to 3.1% in May, hitting its highest level this year while the ratio of jobs to applicants continued to rise from 1.48 to 1.49 (above expectations of a stabilisation).
• China's official manufacturing PMI came in at 51.7 (consensus 51). The services measure also rose, to 54.9 from 54.5. Economic activity is more robust than expected, giving China room to focus on financial risks and the property sector.
• Inflation readings are key today with Eurozone CPI (German data surprised positively yesterday) and US PCE deflator. Chicage PMI, Michigan consumer confidence (final), UK Q1 GDP (final),German unemployment and German retail sales are also on the calendar.

Currencies: Dollar Cannot Find Its Composure

Dollar can't find its composure in repositioning

The repositioning after Mr. Draghi turn towards the start of normalisation on Tuesday continued in various markets. The euro profited, helped by narrowing yield differentials, strong EMU economic sentiment data and higher than expected German inflation. Even equity weakness (Europe & US) favoured the euro yesterday. US eco data were near consensus and ignored. EUR/USD opened around 1.1380 and closed near the intraday highs at 1.1440. The fate of USD/JPY was different. European equity weakness had initially little impact on the pair, as higher US yields and wider rate differentials trumped weak equities and benefited the dollar. USD/JPY reached an intraday high at 112.93, but the safe haven motive took the driver's seat when WS hit the skids, allowing the yen to recover and leaving the pair little changed in the close at 112.18 (versus 112.30 previously).

Overnight, Asian equities lose up to 1%. Japanese equities underperform on weak Japanese eco data and modest safe haven-related yen strength. Chinese PMI's were better than expected, which confirms the economic improvement. However, will markets take notice during the great repositioning? USD/JPY weakened somewhat and trades just below 112. EUR/USD is nearly unchanged at 1.1440.

The US Personal income and spending report (May) will attract a lot of attention. The market expects a weak 0.1% M/M, which would be disappointing, but nevertheless keeps spending on track for 2.5%+ growth in Q2. Given the decline in May CPI, we might also see a small drop in the (core) PCE deflator, which might not gone unnoticed and is dollar negative. The Chicago PMI for May reached its highest level in more than 2 years (59.4). Given some weakening of the orders component, we expect a somewhat lower overall outcome for June (consensus: 58) The final Michigan consumer sentiment might be slightly revised higher from the preliminary 94.5 (based on a strong conference board confidence). Following higher than expected German (and Spanish) inflation figures, the risks for the EMU HICP inflation is on the upside of expectations (1.2% Y/Y for the headline and 1% Y/Y for the core).

The US eco data won't support the dollar, but higher EMU inflation may already have been partially (?) discounted after the upward surprise of German (and Spanish). Is the re-positioning on the possible change in the EMU and global turn to a more normal monetary policy over and thus will rate differentials stabilize? In that case, dollar weakening against the euro may be in for a pause/correction. We wouldn't pre-emptively position for such a scenario as the momentum in EUR/USD is still intact. The US dollar desperately needs good news (both on activity and price data) for markets to focus again more on the Fed's policy normalisation process. The dollar could perhaps get more support next week, with the payrolls and ISM.

Yesterday's intraday price development in USD/JPY was again disappointing. Core yields and yield differentials primed in the morning to the benefit of the dollar, before yen favourable equity weakness drove the action in the US session. We remain cautious on USD/JPY longs.

Technical picture: Euro prevails, USD struggles

Poor US data, US political upheaval and strong EMU eco data propelled EUR/USD higher since April, but a first test of the 1.1300/66 ahead of the FOMC decision was rejected. A combination of hawkish ECB comments and weaker eco data pushed EUR/USD this week above the 1.1300/66 resistance area with a new high at 1.1448 reached yesterday. We want a weekly close above the key resistance to consider it really broken. However, the key resistance area to watch out for is now the 1.15 area with eventual extensions to previous test of this zone at the 1.1616/1.1714 LT correction tops. This would end the long consolidation period that followed the sharp decline of EUR/USD in 2014/early 2015. Such a key area will be difficult to break for now. A drop below 1.1119 would suggest the pair enters calmer waters.

EUR/USD nears key resistance that if broken would make the LT trend euro positive. Difficult for now

EUR/GBP

No post-Carney follow-through gains for sterling

Following wide swings on comments by Draghi and Carney in previous days, the EUR/GBP cross rate was an area of perfect calm yesterday. The pair was locked in a very narrow range close to the 0.88 pivot. Cable followed EUR/USD higher and closed at the 1.30 level. Overnight the pair tried to force its way to the ST key resistance at 1.3048, but it retreated back to the 1.30 level where it is staying now.

Consumer confidence declined quite sharply in June, according to the GfK report published overnight. The Lloyds business barometer, on the contrary, improved to 30 in June from 27 previously. The report won't leave traces in the European session. Later today, the UK final Q1 GDP report will be released together with the current account, the index of services and total investment. We don't think these will affect sterling trading much. Sterling might get direction from the main crosses. All in all, we see EUR/GBP staying below the key resistance of 0.8854/66 and cable's fate will depend on EUR/USD. If the cross would move higher, cable may test the 1.3048 resistance but a break looks unlikely.

From a technical point of view, EUR/GBP set a minor top north of the 0.8854/66 resistance (2017 top), but a sustained break didn't occur. Recent setbacks will probably block further gains ST. A return below the 0.8655 correction low would indicate easing pressure on sterling. Such a break lower will be difficult. A EUR/GBP buy-on-dips approach remains favoured.

EUR/GBP: EUR/GBP topside test rejected, but danger new test not excluded. Prefer buy-on-dip

Download entire Sunrise Market Commentary

Weekly
    •    Last Candlesticks pattern: Shooting doji
    •    Time of formation: 02 May 2016
    •    Trend bias: Up

Daily
    •    Last Candlesticks pattern: Bearish engulfing
    •    Time of formation: 5 May 2017
    •    Trend bias: Up


USD/CAD – 1.2992

 




The greenback has tumbled after meeting renewed selling interest at 1.3348 and decline has accelerated after breaking below previous support at 1.3165 (now resistance), signaling the decline from 1.3794 top is still in progress and downside bias remains for this move to extend further weakness to previous support at 1.2969, however, a sustained breach below this level is needed to retain bearishness and signal early erratic rise from 1.2461 has ended there, bring further fall to 1.2900-10 and later towards 1.2850 but reckon support at 1.2822 would hold and price should stay well above support at 1.2763.

On the upside, whilst initial recovery to 1.3050-55 and possibly towards 1.3100 cannot be ruled out, reckon upside would be limited and price should falter below previous support 1.3165 (now resistance), bring another decline later. A daily close above this level would defer and bring a stronger rebound to 1.3180-85 and then test of previous support at 1.3208 but price should falter below the Kijun-Sen (now at 1.3267) and bring another decline later.

Recommendation: Sell again at 1.3100 for 1.2850 with stop above 1.3200.

 


On the weekly chart, this week’s selloff after breaking  below support at 1.3165 looks set to form another long black candlestick and bearishness remains fort the fall from 1.3794 top to extend weakness to previous support at 1.2969, however, a sustained breach below this level is needed to retain bearishness and signal the entire recovery from 1.2461 low (2016 low) has ended at 1.3794, then further fall to 1.2900 and then 1.2850 would follow but support at 1.2822 should limit downside and price should stay above another previous support at 1.2763 due to near term oversold condition. 

On the upside, although initial recovery to 1.3070-80 cannot be ruled out, reckon 1.3100-10 would limit upside and bring another decline later. A weekly close above said previous support at 1.3165 would defer and risk a stronger recovery to 1.3200-10 but still reckon 1.3270-75 would limit upside and price should falter below resistance at 1.3348 and bring another selloff next month.

USD/CHF - 0.9575

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9666

Kijun-Sen level                    : 0.9575

Ichimoku cloud top                 : 0.9648

Ichimoku cloud bottom              : 0.9592

Original strategy :

Sell at 0.9645, Target: 0.9545, Stop: 0.9680

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9645, Target: 0.9545, Stop: 0.9680

Position : -

Target :  -

Stop : -

As the greenback has recovered after marginal fall to 0.9552, suggesting minor consolidation would be seen and recovery to 0.9600-10 is likely, however, reckon resistance at 0.9647 would limit upside and bring another decline later, below said support would signal recent decline from 0.9771 top is still in progress, hence further weakness to 0.9545-49 (2 times extension of 0.9771-0.9676 measuring from 0.9738) would follow but reckon downside would be limited to 0.9525-30 (50% projection of 1.10100-0.9613 measuring from 0.9771) and 0.9500 should hold, price should stay above 0.9470 (61.8% projection), bring rebound later. 

In view of this, would not chase this fall here and we are looking to sell dollar on recovery as resistance at 0.9647 should limit upside. Only above previous support at 0.9676 (now resistance) would defer and suggest a temporary low is formed, risk test of another previous support at 0.9692. 

GBP/USD - 1.3016

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.3015

Kijun-Sen level                    : 1.2992

Ichimoku cloud top              : 1.2917

Ichimoku cloud bottom        : 1.2846

Original strategy :

Buy at 1.2895, Target: 1.2995, Stop: 1.2860

Position : - 

Target :  -

Stop : -

New strategy  :

Buy at 1.2920, Target: 1.3020, Stop: 1.2885

Position : -

Target :  -

Stop : -

As cable has continued trading with a firm undertone after this week’s rally, adding credence to our bullish view that recent upmove is still in progress and may extend further gain towards recent high 1.3048, however, loss of near term upward momentum should prevent sharp move beyond 1.3075-80 today and reckon 1.4100 would hold on first testing, risk from there has increased for a retreat to take place later. 

In view of this, we are looking to buy cable again on pullback as support at 1.2916 should limit downside and bring another rally. Below 1.2890-95 would defer and risk test of previous resistance at 1.2861, break there would suggest a temporary top is formed instead, risk weakness to 1.2830-35 but support at 1.2794 should remain intact.

Currency pair GBP/USD

The GBP/USD could build a potential break, pullback, and continuation pattern after breaking the resistance trend line (dotted red), which could be explained by the potential wave 3, 4 and 5 (orange).

The GBP/USD seems to be in the final waves 5 of wave 3 (orange). Price action seems to be building a rising wedge chart pattern (red/blue lines), which could start a reversal if price breaks below support. A potential wave 4 (orange) could see support and a new bullish bounce at the Fibonacci levels of wave 4 vs 3.

Currency pair EUR/USD

The EUR/USD bullish continuation is part of a wave 3 (green). Price action is moving towards the Fibonacci targets of wave 5 vs 1+3 in a bullish channel.

The EUR/USD is in a wave 5 channel indicated by the trend lines (blue/red). Once wave 5 (orange) is completed, price will probably retrace back to the Fibonacci levels of wave 4 (brown).

Currency pair USD/JPY

The USD/JPY seems to have completed wave 5 (purple), which is most likely part of a wave 1. The retracement for wave 2 (orange) could use the Fibonacci levels for a bounce but a break below the 100% Fib level at 1.0881 invalidates the wave 2.

The USD/JPY could be building an ABC (purple) within wave 2 (orange).

EUR/USD - 1.1423

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1433

Kijun-Sen level                  : 1.1417

Ichimoku cloud top             : 1.1376

Ichimoku cloud bottom      : 1.1300

Original strategy  :

Buy at 1.1335, Target: 1.1435, Stop: 1.1300

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1350, Target: 1.1450, Stop: 1.1315

Position : -

Target :  -

Stop : -

As the single currency has maintained a firm undertone after recent rally, adding credence to our bullish view that recent rise is still in progress and may extend further gain to 1.1455-60 (61.8% projection of 1.1119-1.1389 measuring from 1.1292), then 1.1480, however, overbought condition should prevent sharp move beyond 1.1500, risk from there has increased for a retreat later.

In view of this, would not chase this rise here and would be prudent to buy euro on pullback as 1.1350-55 should limit upside. Below 1.1315-20 would defer but only break of indicated support at 1.1292 would signal a temporary top is formed, bring correction to 1.1255-60 later.

A note on lower timeframe confirming price action...

Waiting for lower timeframe confirmation is our main tool to confirm strength within higher timeframe zones, and has really been the key to our trading success. It takes a little time to understand the subtle nuances, however, as each trade is never the same, but once you master the rhythm so to speak, you will be saved from countless unnecessary losing trades. The following is a list of what we look for:

• A break/retest of supply or demand dependent on which way you're trading.
• A trendline break/retest.
• Buying/selling tails ... essentially we look for a cluster of very obvious spikes off of lower timeframe support and resistance levels within the higher timeframe zone.
• Candlestick patterns. We tend to only stick with pin bars and engulfing bars as these have proven to be the most effective.

We typically search for lower-timeframe confirmation between the M15 and H1 timeframes, since most of our higher-timeframe areas begin with the H4. Stops are usually placed 1-3 pips beyond confirming structures.

EUR/USD

The single currency, as you can see, continued to advance during yesterday's segment. Shaped by three near-full-bodied daily bullish candles, price is seen driving deeper into the upper limits of a major weekly supply at 1.1533-1.1278. On the daily timeframe, the unit is currently trading within touching distance of a major Quasimodo resistance level coming in at 1.1464.

Looking over to the H4 timeframe, it's clear to see that the 1.14 handle provided support and lifted price up to just ahead of the mid-level resistance at 1.1450 going into the close. 34 pips above this number sits a supply area drawn from 1.1529-1.1484, which along with the daily Quasimodo resistance level mentioned above at 1.1464, is the last remaining areas of structure within the aforementioned weekly supply.

Our suggestions: Although we believe the bears will react to the H4 supply area should the candles connect today, we're a tad wary of shorting given the bullish strength displayed over the past three days. With that in mind, our desk will humbly take a back seat and reassess price action going into the new month.

Data points to consider: German Retail sales figures at 7am, EUR CPI flash estimate at 10am. US Core PCE price index report at 1.30pm, followed by Chicago PMI at 2.45pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

GBP/USD:  

The GBP/USD is an interesting market at the moment, especially from a technical standpoint. The H4 timeframe shows that price recently crossed the large psychological boundary 1.30, which, as you can see, is currently being retested as support. To the left of current price, notice that we have drawn a mini down trendline. This is to represent what we believe to be consumed supply i.e. no active supply. So, with this, we should expect the pair to continue northbound? If only it were that easy!

On the bigger picture we have a weekly supply area at 1.3120-1.2957, and a partner supply seen on the daily timeframe at 1.3058-1.2979 in play right now. Therefore, although H4 price is showing potential to the upside, one has to remain cognizant of the surrounding environment.

Our suggestions: While a long is tempting from the 1.30 region today, we are going to hold fire. Buying into higher-timeframe supplies usually ends in tears!

Data points to consider: UK current account figures at 9.30am. US Core PCE price index report at 1.30pm, followed by Chicago PMI at 2.45pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

AUD/USD

In recent trading, the AUD/USD pushed higher for a second consecutive day, breaking through a H4 resistance at 0.7676 which is now being retested as support. The next upside target from this number is the 0.77 handle. While the bulls are displaying clear strength at the moment, there could be trouble ahead!

The weekly timeframe clearly shows the bulls heading into an oncoming trendline resistance extended from the high 0.7835. In addition to this, the daily timeframe reveals that a Quasimodo left shoulder at 0.7719 intersects beautifully with the said weekly trendline! Couple this with the nearby 0.77 psychological boundary and we have a feasible sell zone at hand.

Our suggestions: Basically, we will be watching the behavior of H4 price action once/if it connects with the 0.7719/0.77 area. Should a reasonably sized H4 bearish candle form within the walls of this zone, preferably in the shape of a full-bodied candle, then our team would certainly consider shorts and target H4 support at 0.7676 as an initial take-profit zone.

Data points to consider: Chinese manufacturing PMI at 2am. US Core PCE price index report at 1.30pm, followed by Chicago PMI at 2.45pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 0.7719/0.77 ([waiting for a reasonably sized H4 bear candle – preferably a full-bodied candle – to form before pulling the trigger is advised] stop loss: ideally beyond the candle's wick).

USD/JPY:  

Along with the US equity market, the USD/JPY also tumbled lower going into the early hours of yesterday's US segment. This, as you can see on the daily timeframe, has possibly saved the resistance area at 111.35-112.37, which remains intact despite suffering an aggressive whipsaw.

While daily bears appear to have gained some traction, the H4 candles are currently seen testing the 112 handle. A break beyond this number could lead to a move down to April's opening level at 111.41, shadowed closely by May's opening level at 111.29. Note also that these monthly levels converge with a trendline support etched from the low 110.64.

Our suggestions: A close below 112, followed by a retest and a lower-timeframe sell signal (see the top of this report) could be something to consider today, targeting the said H4 monthly levels. Buying from these barriers, however, even though it boasts trendline confluence, is risky given the position of daily price at the moment. So, as much as we'd like to long from here, we'll pass.

Data points to consider: US Core PCE price index report at 1.30pm, followed by Chicago PMI at 2.45pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Watch for H4 price to engulf 112 and then look to trade any retest seen thereafter ([waiting for a lower-timeframe sell signal to form following the retest is advised] stop loss: dependent on where one confirms this level).

USD/CAD

During the course of yesterday's sessions, H4 price challenged the 1.30 region and for the best part, held firm. However, in recent hours the unit has broken lower and is now trading at 1.2989. Beyond the 1.30 boundary, the next area of interest is a H4 demand base pegged at 1.2910-1.2923.

Moving over to the daily timeframe, we see little active demand in this market until we reach 1.2822-1.2883. On the weekly timeframe, however, the path south currently looks free all the way down to support coming in at 1.2538!

Our suggestions: When all three timeframes are trading in unison, our job is easy: follow the flow! Should H4 price close below 1.30 and then retest the underside of this number as resistance, as well as print a H4 bearish candle (preferably a full-bodied candle), we would have no hesitation in shorting this market, targeting the aforementioned H4 demand, and quite possibly much lower.

Data points to consider: US Core PCE price index report at 1.30pm, followed by Chicago PMI at 2.45pm. Canadian GDP m/m data at 1.30pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (Stop loss: N/A).
• Sells: Watch for H4 price to engulf 1.30 and then look to trade any retest seen thereafter ([waiting for a H4 bearish candle to form following the retest is advised] stop loss: ideally beyond the candle's wick).

USD/CHF

As highlighted in Thursday's report, the 0.9546/0.9581 green area painted on the H4 chart, which is comprised of weekly and daily support levels, continues to be a zone our desk favors for potential longs. However, what we also made clear was that in order to confirm buyer intent within the walls of this zone, a H4 bullish rotation candle in the shape of a full or near-full-bodied candle is needed.

As you can see from the H4 chart, a H4 bullish candle that closed near its highs was just recently penciled in. This, to us, is a valid buy signal, with the likelihood of price now rallying up to at least the 0.96 handle.

Our suggestions: Based on the notes above, our desk has entered long at 0.9567, with a stop positioned below the daily support (0.9546) at 0.9544.

Data points to consider: US Core PCE price index report at 1.30pm, followed by Chicago PMI at 2.45pm GMT+1.

Levels to watch/live orders:

• Buys: 0.9567 ([live] stop loss: 0.9544).
• Sells: Flat (stop loss: N/A).

DOW 30:  

Trade update: long from 21164 was stopped out at 21298 for a handsome profit.

Despite suffering an aggressive whipsaw, the H4 support level coming in at 21268 has managed to remain in the game. We believe this was also likely because of the daily demand area seen below at 21192-21254, and a H4 61.8% Fib support level at 21275 taken from the low 21108 as well as a H4 127.2% Fib ext. point 21237 drawn from the high 21541.

Our suggestions: Following the large H4 bull candle that formed off the current H4 support, our team took another long position in this market at 21323, with the stop-loss order positioned at 21188. Ultimately, we do not have an immediate target, but will certainly be watching closely once/if price connects with the 21492 neighborhood, and possibly reduce risk to breakeven.

Data points to consider: US Core PCE price index report at 1.30pm, followed by Chicago PMI at 2.45pm GMT+1.

Levels to watch/live orders:

• Buys: 21323 ([live] stop loss: 21188).
• Sells: Flat (stop loss: N/A).

GOLD

It's reasonably easy to see who's been in control on the weekly timeframe over the past few weeks. Since tapping the area comprised of two weekly Fibonacci extensions 161.8/127.2% at 1313.7/1285.2 taken from the low 1188.1 (green zone), the bears have, albeit apart from one week, put on a rather dominant performance. The next downside target in the firing range can be seen at 1194.8-1229.1: a demand zone.

On the other side of the field, however, the daily candles remain trading around a resistance area at 1247.7-1258.8. Yet, before the bears get too excited, the next area of concern can be seen nearby in the form of a channel support extended from the low 1180.4 that intersects with the said weekly demand base.

Yesterday's action on the H4 timeframe shows that price drove below April's opening level at 1248.0 and has remained there since. In recent hours, nonetheless, the metal has been seen trading within a few pips of this line and will eventually test this barrier's strength we believe. Shorting from here is not something we are interested in, since a far more appealing area exists above in green between 1261.4/1258.1.

Our suggestions: Comprised of the following structures, 1261.4/1258.1 is a reasonably strong area for shorts, which could eventually bring the unit all the way down to the top edge of weekly demand at 1229.1:

H4 resistance at 1259.1.

Two H4 trendline resistances taken from lows of 1245.9/1252.9.

H4 50.0% retracement value at 1258.1 taken from the high 1281.1.

H4 AB=CD (black arrows) 127.2% ext. at 1260.4.

Located within the upper limits of a daily resistance area at 1247.7-1258.8.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 1261.4/1258.1 ([waiting for a reasonably sized H4 bear candle – preferably a full-bodied candle – to form before pulling the trigger is advised if you want to help avoid a potential fakeout] stop loss: ideally beyond the candle's wick)

Daily Pivots: (S1) 1.2978; (P) 1.3010; (R1) 1.3035; More....

USD/CAD fall continues and reaches as low as 1.2971 so far, just inch above 1.2968 cluster support, 61.8% retracement of 1.2460 to 1.3793 at 1.2969. There is no sign of bottoming yet and intraday bias remains on the downside. As noted before, corrective rise from 1.2460 has completed at 1.3793. Sustained break of 1.2968/69 will pave the way to retest 1.2460 low. On the upside, above 1.3045 minor resistance will argue that a short term bottom could be in place after drawing support from 1.2968/69. In such case, intraday bias will be turned back to the upside for recovery back to 1.3164 support turned resistance.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. Rise from 1.2460 is seen as the second leg and has completed at 1.3793, ahead of 61.8% retracement of 1.4689 to 1.2460 at 1.3838. Break of 1.3222 should now indicate the start of the third leg while further break of 1.2968 should confirm. In that case, USD/CAD should decline through 1.2460 support to 50% retracement of 0.9406 to 1.4869 at 1.2048.

Global equities tumbled broadly while treasury yields surged as investors are preparing themselves to enter into an era of monetary stimulus removal. DOW lost -0.78% to close at 21287.03, S&P 500 down -0.86% to 2419.70, and NASDAQ dropped -1.44% to 6144.35. That was preceded by the -0.51% fall in FTSE, -1.83% fall in DAX and -1.88% fall in CAC. US 10 year yields followed global yields higher and closed up 0.046 at 2.267, breaking 2.229 near term resistance. In Asian markets, Nikkei followed by losing -1.06% to 20006.88, just barely hold on to 20000 handle. In currency markets, Yen and Dollar recovered mildly but are still set to end the week as the weakest major currencies. Sterling, Canadian and Euro remained the strongest ones and supported by respective hawkish central banks.

We've pointed out in Wednesday's report that NASDAQ is starting the third leg of the correction pattern from 6341.70. And it's happening now despite Thursday's recovery. Focus stays on 55 day EMA (now at 6119.60). Sustained break there will also have medium term channel support taken out. That will bring deeper fall to 38.2% retracement of 5034.31 to 6341.70 at 5842.31. Such development will also drag on other indices. DOW also looks vulnerable considering bearish divergence condition in daily MACD. Near term focus is also on 55 day EMA (now at 12075.12). Firm break there would bring deeper pull back to 20379.55 support.

US economy clouded by political drama

Outlook of the US economy and markets are clouded by political drama. There are just so many distractions that doubts are high on whether US President Donald Trump can push through his economic policies. The so called "watered-down" travel ban 2.0n took effect yesterday. But just an hour ahead of that, the state of Hawaii filed an emergency motion in the federal court to contest the plan. Meanwhile, it seems like Senate Republicans are still working on voting on the healthcare act before the Fourth of July recess. But, no good news is heard by the market regarding this so far. And businesses and investors are awaiting the completion of the healthcare act so that Trump administration can finally start working on passing the tax reforms.

On the data front

In Japan, National CPI core rose to 0.4% yoy in May, up from 0.3% yoy and met expectations. But that's still way off BoJ's 2% target. Tokyo CPI core, on the other hand, dropped to 0.0% yoy in June, down from 0.1% yoy and missed expectation of 0.2% yoy. Also from Japan, unemployment rate rose to 3.1% in May, household spending dropped -0.1% yoy, industrial production dropped -3.3% mom, housing starts dropped -0.3% yoy. Saying in Asia pacific, New Zealand building permits rose 7.0% mom in May.

Elsewhere, German retail sales rose 0.5% mom in May. UK Gfk consumer confidence dropped to -10 in June. Swiss KOF leading indicator, German unemployment and UK Q1 GDP final will be released in European session. But main focus will be on Eurozone CPI flash. Later in the day, Canada will release GDP, IPPI and RMPI. US will release personal income and spending and Chicago PMI.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2978; (P) 1.3010; (R1) 1.3035; More....

USD/CAD fall continues and reaches as low as 1.2971 so far, just inch above 1.2968 cluster support, 61.8% retracement of 1.2460 to 1.3793 at 1.2969. There is no sign of bottoming yet and intraday bias remains on the downside. As noted before, corrective rise from 1.2460 has completed at 1.3793. Sustained break of 1.2968/69 will pave the way to retest 1.2460 low. On the upside, above 1.3045 minor resistance will argue that a short term bottom could be in place after drawing support from 1.2968/69. In such case, intraday bias will be turned back to the upside for recovery back to 1.3164 support turned resistance.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. Rise from 1.2460 is seen as the second leg and has completed at 1.3793, ahead of 61.8% retracement of 1.4689 to 1.2460 at 1.3838. Break of 1.3222 should now indicate the start of the third leg while further break of 1.2968 should confirm. In that case, USD/CAD should decline through 1.2460 support to 50% retracement of 0.9406 to 1.4869 at 1.2048.

Economic Indicators Update

GMT	Ccy	Events	Actual	Forecast	Previous	Revised
22:45	NZD	Building Permits M/M May	7.00%		-7.60%	-7.40%
23:01	GBP	GfK Consumer Confidence Jun	-10	-7	-5
23:30	JPY	Jobless Rate May	3.10%	2.80%	2.80%
23:30	JPY	Household Spending Y/Y May	-0.10%	-0.50%	-1.40%
23:30	JPY	National CPI Core Y/Y May	0.40%	0.40%	0.30%
23:30	JPY	Tokyo CPI Core Y/Y Jun	0.00%	0.20%	0.10%
23:50	JPY	Industrial Production M/M May P	-3.30%	-3.00%	4.00%
1:00	CNY	Manufacturing PMI Jun	51.7	51	51.2
1:00	CNY	Non-manufacturing PMI Jun	54.9		54.5
5:00	JPY	Housing Starts Y/Y May	-0.30%	-0.70%	1.90%
6:00	EUR	German Retail Sales M/M May	0.50%	0.30%	-0.20%
7:00	CHF	KOF Leading Indicator Jun		102.5	101.6
7:55	EUR	German Unemployment Change Jun		-10k	-9k
7:55	EUR	German Unemployment Rate Jun		5.70%	5.70%
8:30	GBP	Current Account (Pounds) Q1		-16.5B	-12.1B
8:30	GBP	GDP Q/Q Q1 F		0.20%	0.20%
8:30	GBP	GDP Y/Y Q1 F		2.00%	2.00%
8:30	GBP	Index of Services 3M/3M Apr		0.30%	0.20%
9:00	EUR	Eurozone CPI Estimate Y/Y Jun		1.20%	1.40%
9:00	EUR	Eurozone CPI - Core Y/Y Jun A		1.00%	0.90%
12:30	CAD	GDP M/M Apr		0.20%	0.50%
12:30	CAD	Industrial Product Price M/M May			0.60%
12:30	CAD	Raw Materials Price Index M/M May			1.60%
12:30	USD	Personal Income May		0.30%	0.40%
12:30	USD	Personal Spending May		0.10%	0.40%
12:30	USD	PCE Deflator M/M May		-0.10%	0.20%
12:30	USD	PCE Deflator Y/Y May		1.50%	1.70%
12:30	USD	PCE Core M/M May		0.10%	0.20%
12:30	USD	PCE Core Y/Y May		1.40%	1.50%
13:45	USD	Chicago PMI Jun		58	59.4
14:00	USD	U. of Michigan Confidence Jun F		94.5	94.5

 

USD/JPY - 112.06

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 111.95

Kijun-Sen level                  : 112.33

Ichimoku cloud top             : 112.21

Ichimoku cloud bottom      : 111.97

New strategy  :

Sell at 112.40, Target: 111.40, Stop: 112.75

Position :  -

Target :  -

Stop : -

Although the greenback rose to as high as 112.93 yesterday, the subsequent sharp retreat signals top has been formed there and consolidation with downside bias is seen for weakness to 111.46 support, a firm break below there would add credence to this view, brig further fall towards 111.15-20 but support at 110.95 should remain intact, bring rebound later.

In view of this, we are looking to sell dollar on recovery as 112.40-45 should limit upside and bring another decline. Above 112.70-75 would risk retest of said resistance at 112.93 but break there is needed to confirm recent upmove has resumed for headway to 113.15-20.