EUR/USD - 1.1294

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1244

Kijun-Sen level                  : 1.1240

Ichimoku cloud top             : 1.1196

Ichimoku cloud bottom      : 1.1180

Original strategy  :

Buy at 1.1260, Target: 1.1360, Stop: 1.1225

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1260, Target: 1.1360, Stop: 1.1225

Position : -

Target :  -

Stop : -

The single currency has rallied today and just broke above previous resistance at 1.1296, confirming recent upmove has resumed and bullishness is seen for further gain to 1.1335-40 (50% projection of 1.0839-1.1296 measuring from 1.1119), then towards 1.1360, however, near term overbought condition should prevent sharp move beyond 1.1400 (61.8% projection), risk from there is seen for a retreat later.

In view of this, would not chase this rise here and would be prudent to buy euro on pullback as 1.1250-60 should limit downside. Below the Kijun-Sen (now at 1.1240) would defer and risk test of previous resistance at 1.1220 but break there is needed to confirm an intra-day top is formed, bring correction towards 1.1180-85 later. 

USD/JPY - 112.26

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 111.88

Kijun-Sen level                  : 111.83

Ichimoku cloud top             : 111.47

Ichimoku cloud bottom      : 111.41

Original strategy  :

Buy at 111.60, Target: 112.60, Stop: 111.25

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 111.60, Target: 112.60, Stop: 111.25

Position :  -

Target :  -

Stop : -

The greenback has surged again today on active cross-selling in yen, adding credence to our bullishness and signal the rise from 108.82 low is still in progress, hence further gain to 112.40-45 (50% projection of 108.82-111.79 measuring from 110.95) and possibly 112.75-80 (61.8% projection) would be seen, however, price should falter below 113.00-10 today, 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 dollar on pullback but at a higher level as 111.50-60 should limit downside. Below minor support at 111.46 would defer and suggest top is possibly formed, risk weakness to 111.10-15, break there would confirm, then test of support at 110.95 would follow.

EUR/GBP - 0.8843

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term up

Original strategy  :

Buy at 0.8660, Target: 0.8860, Stop: 0.8620

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8800, Target: 0.8900, Stop: 0.8760

Position : -

Target :  -

Stop : -

 
As the single currency has rebounded again after brief pullback, suggesting a retest of recent high at 0.8866 would be seen, however, break there is needed to confirm recent erratic upmove from 0.8304 low has resumed and extend further gain to 0.8880, then 0.8900, having said that, as broad outlook remains consolidative, reckon current c leg of larger degree wave b should be limited to 0.8950 and price should falter well below 0.9000 psychological level.

In view of this, we are looking to buy euro on pullback as 0.8800 should limit downside but one should exit on such rise. Below 0.8763 support would defer and prolong consolidation, risk weakness to 0.8730-35, however, reckon downside would be limited to 0.8719 support and bring another rebound later. 

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.3190

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700

Trend:  Near term down

 
Original strategy       :

Sold at 1.3295, Target: 1.3130, Stop: 1.3355

Position: - Short at 1.3295

Target:  - 1.3130

Stop: - 1.3355

 
New strategy             :

Hold short entered at 1.3295, Target: 1.3130, Stop: 1.3265

Position: - Short at 1.3295

Target:  - 1.3130

Stop:- 1.3265

As the greenback has dropped again today and broke below indicated support at 1.3191, adding credence to our view that the rebound from 1.3165 low has ended at 1.3348 last week, hence consolidation with downside bias remains for a retest of this support later. Looking ahead, a break below there is needed to confirm recent decline from 1.3794 top has resumed and extend fall to 1.3100-10 and later towards previous support at 1.3078.

In view of this, we are holding on to our short position entered at 1.3295. Above 1.3260-65 would risk test of resistance at 1.3308, break there would prolong consolidation and risk another bounce to 1.3348. Only a break of said resistance at 1.3348 would defer and risk a stronger rebound to previous support at 1.3387 (now resistance), however, still reckon upside would be limited to 1.3420-25 and price should falter well below resistance at 1.3471, bring another decline later.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

Gold has steadied on Tuesday, posting slight gains. In the North American session, spot gold is trading at $1247.95 per ounce. In economic news, CB consumer confidence rose to 118.9, beating the forecast of 116.1.

Investors are casting a nervous glance towards Thursday, as the US releases Final GDP for the first quarter. Preliminary GDP, which was released in May, came in at 1.2%, and this is the same estimate for the upcoming GDP report. Recent economic data has been softer than expected, notably construction and manufacturing reports. US durable goods releases were weak in May. Core Durable Goods broke a streak of two straight declines, but the weak gain of 0.1% missed expectations. Durable Goods declined 1.1%, its sharpest decline since June 2016. The slowdown in orders of business equipment could weigh on second quarter growth. Last week, it was the turn of construction numbers to disappoint, as Housing Starts and Building Permits both missed expectations. Consumer spending has also been softer than expected, and if Final GDP falls short of the modest estimate of 1.2%, the dollar could respond with losses.

Gold started the week with considerable losses, as risk appetite was strong. One reason for investor optimism is the positive tone emanating from the Federal Reserve. This month's rate statement was surprisingly upbeat and the optimistic sentiment about the economy has since been reiterated by Fed policymakers. The odds of a rate hike in December have risen to 62%; early last week, the odds were hovering 50%. The likelihood of a September rate hike, however remains low, at just 13%. The Fed has all but promised one more rate hike in 2017, but if the economy slows down and the Trump administration remains paralyzed by scandals, then the Fed could get cold feet and delay a rate hike until 2018. The GDP release later next week will be a key test for the economy, and the likelihood of a December hike could sag if GDP misses expectations.

The forex market was mostly driven by central bank speeches in today's European session. The euro was boosted on the optimistic remarks by the European Central Bank President Mario Draghi. The pound advanced following the release of the Financial Stability Report and the speech by Bank of England Governor Mark Carney. The dollar firmed up on the strong consumer confidence data, as markets await Janet Yellen's talk later today.

The ECB President's bullish stance on the recovery in the Eurozone and the prospects of rising inflation have helped the euro. Building on the strong momentum post the talk, euro/dollar broke above the 1.1300 handle, reaching a seven-and-a-half-month high, in late European trading session. Meanwhile, euro/pound climbed to an intra-day high of 0.8847. These positive comments may also add to speculation that the ECB is soon to start discussing its plan to normalize policy as it exits its monetary stimulus program.

Sterling got a lift against the greenback following the release of the Financial Stability Report. The BoE tightened its controls on bank credit by increasing its counter-cyclical capital buffer from 0% to 0.5% and it expects to further raise the buffer to 1% in November. While markets assume that the tighter fiscal policy may bring tighter monetary policy as well, the Governor said "Monetary policy is the last line of defence to address financial stability issues. In that regard, we don't need monetary policy to do our job." Pound/dollar rose to 1.2766, a one-week high as the European trading session was coming to a close.

The dollar index, a broader gauge of the US currency's strength, was last down 0.66% on the day. The greenback initially weakened against the yen in late European session amid the softer-than-expected home-prices data, though it quickly recovered all the losses after the release of the strong consumer confidence data. US consumer confidence in June rose to 118.9, above the expected 116.0 and May's 117.9. This pushed dollar/yen above the 112.00 handle and to a one-month high of 112.16.

Looking at commodities, gold managed to recover some of yesterday's losses, following a large sell order that hit the market. The commodity last traded at $1248.13 an ounce. This compares to yesterday's one-month low of $1235.84 an ounce.

WTI oil futures (August 2017 contract) continued to gain for the fourth consecutive day, last trading at $44.33 a barrel in late European hours.

Looking ahead, Fed Chair Janet Yellen is scheduled to give a speech at 17:00 GMT.

The British pound has posted slight gains in the Tuesday session. In North American trade, GBP/USD is trading at 1.2760. On the release front, British CBI Realized Sales impressed with a gain of 12 points, crushing the estimate of 4 points. As well, the BoE released its Financial Stability report.

British Prime Minister Theresa May gambled and lost, as she squandered her majority in parliament. May has had to deal with domestic critics, some who have been blistering in their attacks on her poor performance in the election. With the Brexit talks finally underway, May has to deal with European leaders who are still fuming at Britain's decision to depart the European Union. There was finally some good news on Monday for the embattled May, who reached an agreement with the DUP, a small Irish party, after weeks of negotiations. The DUP will not formally join the government, but has committed to support the government on its legislative agenda, Brexit and the budget. In return, May will provide Northern Ireland with an additional one billion pounds over the next two years. The deal should provide May with some breathing room in parliament, allowing her to shift gears from damage control and focus on the economy and the Brexit negotiations.

It's report card on Thursday, as the US releases Final GDP for the first quarter. Preliminary GDP, which was released in May, came in at 1.2%, and this is the forecast for the upcoming GDP report. Recent economic data has been softer than expected, notably construction and manufacturing reports. US durable goods releases were weak in May. Core Durable Goods broke a streak of two straight declines, but the weak gain of 0.1% missed expectations. Durable Goods declined 1.1%, its sharpest decline since June 2016. The slowdown in orders of business equipment could weigh on second quarter growth. Last week, it was the turn of construction numbers to disappoint, as Housing Starts and Building Permits both missed expectations. Consumer spending has also been softer than expected, and if Final GDP falls short of the modest estimate of 1.2%, the dollar could respond with losses.

• European stocks markets lost up to 0.75% today. They managed to overcome an initial downleg, but eventual grinded lower on the back of a stronger euro and higher European rates. US stock markets opened nearly unchanged with Nasdaq again underperforming (-0.5%, correction tech rally).
• German bunds dropped and the euro shot higher following comments from ECB president Draghi that the euro area economic recovery remained on track, with signs of resurgent reflationary pressures (as opposed to the deflationary pressures previously). Still, Draghi did stress that caution in normalising monetary policy was warranted
• The BoE's Financial Stability Report set out plans to increase capital requirements for UK lenders to tackle risks posed by the recent rapid growth in consumer credit and prepare for the uncertain outcome of Brexit talks. Additionally, next month the BoE will publish new guidelines for consumer lending to ensure risks are managed.
• The IMF has cut US growth forecasts to 2.1% for 2017 and 2018 (previously 2.3% and 2.5%), calling the Trump budget proposal forecasts unrealistic. It suggested the US to stay open to trade and to skilled based immigration. It also stressed the importance of the financial regulation and of an independent Fed to continue raising interest rates.
• US eco data surprised on the upside of forecasts. Consumer confidence increased from 117.6 to 118.9 while consensus expected a decline to 116. The "expectations" component disappointed though. The Richmond manufacturing Fed index improved from 1 to 7 in June (vs 5 expected).
• Italy's consumer and manufacturing confidence surprised to the upside and stayed at elevated levels, boding well for the Q2 hard data to come.

Rates

Sharp correction lower of core bonds on Draghi

Just when traders were at risk of falling asleep after days of directionless trading, ECB president Draghi surprised them by explaining how the ECB could gradually unwind its non-conventional stimulus measures. It was clearly a turnaround of the ECB president, even if he remained very cautious and suggested that policy changes should be very gradually and depending on improving dynamics in the economy. "As the economy continues to recover, a constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments -- not in order to tighten the policy stance, but to keep it broadly unchanged." While Mario Draghi repeated that the governing council needs to be patient in letting inflation pressures build, his remarks should be considered as an early signal that policy will be adapted with a formal announcement of tapering likely at the September meeting, if the economy and inflation evolve as expected. He sounded also rather at ease with the recent low inflation readings which he attributed to energy effects and which don't ask for an immediate ECB reaction. "Our analysis suggests that the drivers of low oil prices at present are mainly supply factors, which a central bank can typically look through. And even if supply factors affect the path of inflation for some time, with inflation expectations secure, they should not ultimately affect the inflation trend". Draghi added that deflation is off the table and reflationary forces are working their way through the economy.

The Bund turned south and continued its march lower, gradually but surely. The euro gained more ground, equities fell, while US Treasuries followed Bunds. The German yield curve increased by 4.5 (2-yr) to 8 bps (5-yr). US yields rose 3.5 to 4.4 bps the belly slightly underperforming. The underperformance of the 5-yr clearly suggests the significance for the monetary policy outlook. On the intra-EMU bond market, yield spreads versus Germany were little changed.

Currencies

Draghi propels EUR/USD close to the 1.13 resistance

Modestly hawkish comments from ECB Draghi drove trading in the major FX cross rates today. EUR/USD started a protracted intraday uptrend and trades currently in the high 1.12 area. The 1.13 resistance is within reach. USD/JPY dropped temporary lower as sentiment turned risk-off. However, the pair returned to the high 112 area, supported by a rise in core bonds yields.

Asian equities traded mixed this morning. USD/JPY held near the recent highs hovering in the high 111 area. However a test of the 112.13 resistance didn't occur. EUR/USD settled in the 1.11 area. The recent sideways trading persisted.

European equities opened in a cautious risk off modus. Mid-morning, the headlines of a speech of ECB's Draghi at the ECB forum in Portugal triggered volatility across markets. The ECB president repeated that the EMU economy still needs ample monetary stimulation. However, he also mentioned that deflationary forces in the economy were replaced by reflationary ones. He also indicated that very gradual changes to the ECB stimulation might occur. EUR/USD moved to the 1.13 area and USD/JPY to 112, even as European equities were left with decent losses.

There was no new drivers to guide trading at the start of the US session. Traders keep a cautious wait-and-see modus ahead of Fed Yellen's speech later today.

UK government deal no big help for sterling

Two factors dominated sterling trading today: the comments from ECB president Draghi at the ECB forum in Sintra and the BoE's Financial stability report. The Draghi comments propelled the euro across the board. EUR/GBP jumped to the 0.8820 area . However, there were also modest positive spill-over effects on cable. The pair trended higher in the 1.27 big figure. In the financial stability report, the BOE showed some discomfort with easing credit standards UK banks are applying for consumer credit. The bank increased the cyclical capital buffer from June 2018 to address this issue. These measures can be considered as some kind of monetary tightening. In the end it might make a rate high (slightly) less probable. As such it can also be considered sterling negative. Especially EUR/GBP remained well bid after the publication of the financial stability report. EUR/GBP is trading in the 0.8845 area. 0.8854/66 resistance is within reach. The impact on cable was far less obvious as the pair mostly followed the EUR/USD rebound. The pair trades currently in the 1.2770/80 area.

USD/JPY is trading quietly in the Tuesday session. In North American trade, the pair is trading at the 112 level. On the release front, there are no Japanese events on the schedule. In the US, CB Consumer Confidence XX . On Wednesday, Bank of Japan Governor Haruhiko Kuroda will address the ECB Forum of Central Bankers in Sintra, Portugal.

The Bank of Japan didn't stray from its message in the Summary of Opinions from its June policy meeting. Policymakers said that inflation would likely remain at low levels for an extensive period, and the bank's ultra-loose accommodative policy would stay in place until a stronger economy pushed up prices. The BoJ has been consistent in this message, but is mindful that a stronger Japanese economy has increased speculation that the bank might be planning an exit strategy from its stimulus program. In the summary, board members acknowledged that it was important for the BoJ to clearly communicate to the markets that the bank has no plans withdraw monetary stimulus anytime soon. Lower oil prices have contributed to weak inflation levels in Japan, and Governor Kuroda has reiterated that the BoJ will not tighten policy until inflation moves closer to the bank's target of 2.0%.

Investors are casting a nervous glance at Thursday, when the US releases Final GDP for the first quarter. Preliminary GDP, which was released in May, came in at 1.2%, and this is the forecast for the upcoming GDP report. Recent economic data has been softer than expected, notably construction and manufacturing reports. US durable goods releases were weak in May. Core Durable Goods broke a streak of two straight declines, but the weak gain of 0.1% missed expectations. Durable Goods declined 1.1%, its sharpest decline since June 2016. The slowdown in orders of business equipment could weigh on second quarter growth. Last week, it was the turn of construction numbers to disappoint, as Housing Starts and Building Permits both missed expectations. Consumer spending has also been softer than expected, and if Final GDP falls short of the modest estimate of 1.2%, the dollar could respond with losses.

USD/CHF - 0.9647

New strategy  :

Sell at 0.9680, Target: 0.9580, Stop: 0.9715

Position : -

Target :  -

Stop : -

The greenback met renewed selling interest at 0.9738 and has dropped sharply on dollar’s broad-based weakness vs European currencies, suggesting the decline from 0.9771 top is still in progress and bearishness remains for further weakness towards recent low at 0.9613, however, break there is needed to provide confirmation that downtrend has resumed for further fall to 0.9575-80 and later towards 0.9550.

In view of this, we are looking to sell dollar on recovery as previous support at 0.9676 should turn into resistance and limit dollar’s upside, bring another decline. Above another previous support at 0.9692 would defer and risk a stronger rebound to 0.9715-20 but only break of resistance at 0.9738-43 would signal low is formed.