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Daily Pivots: (S1) 1.1162; (P) 1.1190 (R1) 1.1210; More....

EUR/USD rises sharply today with focus on 1.1298 key resistance. Decisive break there will carry larger bullish implication and extend the up trend from 1.0339 to 1.1615 resistance next. On the downside, break of 1.1109 support will indicate short term topping and rejection from 1.1298. In such case, intraday bias will be turned to the downside for 1.0838 support.

In the bigger picture, the case for medium term reversal continues to build up with EUR/USD staying far above 55 week EMA (now at 1.0941). Also, bullish convergence condition is seen in weekly MACD. Focus will now be on 1.1298 key resistance. Rejection from there will maintain medium term bearishness and would extend the whole down trend from 1.6039 (2008 high). However, firm break of 1.1298 will indicate reversal. In such case, further rally would be seen back to 1.2042 support turned resistance next.

Euro surges sharply today on optimistic comments from ECB President Mario Draghi, who also hints at policy tweaks ahead. EUR/USD jumps through 1.28 level and is now having key resistance at 1.1298 in sight. EUR/JPY resumes larger rise from April low at 114.84 and takes out 126.09 key resistance. EUR/GBP is also having focus back on 0.8851/65 key resistance zone and could be resuming larger rise from 0.8312. Meanwhile, Yen remains the weakest one as broad based selloff continues. Strength in Euro is now making dollar vunlerable to downside breakout against Swiss Franc and Canadian Dollar.

Upbeat ECB Draghi hints at policy tweaking

Regarding the economy, Draghi said that "all the signs now point to a strengthening and broadening recovery in the euro area". And, "political winds are becoming tailwinds." He noted there is "newfound confidence in the reform process, and newfound support for European cohesion, which could help unleash pent-up demand and investment." On inflation, Draghi said that 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." That is, Draghi tried to talk down recent slowing in inflation and believed that's just temporary.

More improtantly, Draghi said that "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." That is, Draghi is hinting that monetary policy in 2018 will be less accomoodative. And he's paving the way to tweaking policies ahead. It's affirming the view that ECB will annouce scaling back of asset purchase, at least, in September.

BoE requires banks to raise capital requrements on Brexit risks

In UK, BoE told banks to raise capital requirment by GBP 11.4b to protect them from Brexit related economic risks and external shocks. In the Financial Stability Report published today, the central bank said that "the Financial Policy Committee (FPC) is increasing the U.K. countercyclical capital buffer (CCB) rate to 0.5 percent, from 0 percent." And, "absent a material change in the outlook, and consistent with its stated policy for a standard risk environment and of moving gradually, the FPC expects to increase the rate to 1 percent at its November meeting." Re;eased from UK, CBI realized sales rose to 12 in June.

Fed speakers to feature

San Francisco Fed President John Williams spoke again today and urged fiscal policymakers to invest in education, job training, infrastructure and research and development to boost output. He noted that "monetary policy will be severely challenged to achieve stable prices, well-anchored inflation expectations, and strong macroeconomic performance." Meanwhile, he saw tht advanced economist will be stuck in slwo growth over the long term without help from fiscal policies.

More Fed officials will speak today including Fed Chair Janet Yellen, Philadelphia Fed President Patrick Harker, and Minneapolis Fed President Neel Kashkari.

New Zealand trade data positive despite narrowing surplus

New Zealand trade surplus narrowed to NZD 103m in May, down from NZD 536m and missed expectation of NZD 420m. Exports rose 8.7% yoy to NZD 4.95b and hit the highest level since March 2014. Dairy exports continued its strong run and rose for an eighth straight month and led exports overall. Imports jumped 15% yoy to NZD 4.85b, left by 65% increase in crud oil shipments. Economists believed that the robust imports and continued export growth showed underlying strength in the New Zealand economy.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1162; (P) 1.1190 (R1) 1.1210; More....

EUR/USD rises sharply today with focus on 1.1298 key resistance. Decisive break there will carry larger bullish implication and extend the up trend from 1.0339 to 1.1615 resistance next. On the downside, break of 1.1109 support will indicate short term topping and rejection from 1.1298. In such case, intraday bias will be turned to the downside for 1.0838 support.

In the bigger picture, the case for medium term reversal continues to build up with EUR/USD staying far above 55 week EMA (now at 1.0941). Also, bullish convergence condition is seen in weekly MACD. Focus will now be on 1.1298 key resistance. Rejection from there will maintain medium term bearishness and would extend the whole down trend from 1.6039 (2008 high). However, firm break of 1.1298 will indicate reversal. In such case, further rally would be seen back to 1.2042 support turned resistance next.

Economic Indicators Update

EURUSD: With the pair seen rallying on Tuesday following its Monday price reversal, more strength is envisaged in the days ahead. Resistance comes in at 1.1300 level with a cut through here opening the door for more upside towards the 1.1350 level. Further up, resistance lies at the 1.1400 level where a break will expose the 1.1450 level. Its daily RSI is bullish and pointing higher suggesting further strength. Conversely, support lies at the 1.1250 level where a violation will aim at the 1.1200 level. A break of here will aim at the 1.1150 level. All in all, EURUSD faces further upside pressure.

World stocks were mostly mixed on Tuesday as markets braced for an intense trading session dominated by the financial heavyweights ECB Mario Draghi, BoE Mark Carney and Fed head Janet Yellen all in focus. Asian shares turned in a mixed performance amidst an air of caution while the absence of appetite for risk punished European equities. With jitters over depressed oil prices still weighing on risk sentiment and investors adopting a defensive stance, Wall Street could come under selling pressure this afternoon.

Draghi optimism boosts Euro

Euro Bulls sprinted into action on Tuesday after European Central Bank President Mario Draghi displayed fresh optimism over the health of the European Economy. With "all signs now pointing to a strengthening and broadening recovery in the euro area," expectations are likely to mount over the central bank tapering in the future. Although Draghi still highlighted that despite the impressive growth in the euro area, the inflation dynamics remained muted, this was overshadowed by comments of "deflationary forces being replaced by reflationary ones". While monetary policy may remain accommodative in the short to medium term as the European economy stabilizes, the growing signs that the factors currently hindering inflation are transitory could support speculations of the ECB tapering QE in the longer term.

From a technical standpoint, the EURUSD lurched to its highest level in over a week at 1.1265 following Draghi's upbeat comments with bulls securing control above the 1.1230 resistance. This dynamic resistance could transform into a solid support that supports a further incline towards 1.3000.

BoE Financial Stability Report in focus

Sterling turned erratic on Tuesday with prices violently swinging between losses and gains after the Bank of England stated that there were some areas of risk which required attention in its Financial Stability report. As insurance, capital requirements for UK lenders were increased by £11.4 billion in the event of an economic downturn, while the counter-cycle capital buffer rate was raised to 0.5% from zero. The central bank expects to increase the rate further to 1% in November to cover potential losses if the economy decelerates.

The GBPUSD was searching for direction after the FSR report showed prices still slightly pressured below 1.2775. Technical traders could make use of the 1.2775 resistance level on the GBPUSD to drive the pair lower towards 1.2600.

Will Yellen inspire Bulls again?

The Greenback has found itself under intense selling pressure ahead of an address by Federal Reserve Chair Janet Yellen this evening where she is expected to reiterate her hawkish rhetoric and optimism over the US economy. With Dollar bullish investors lacking the inspiration to support the Greenback amid soft economic data, today may be critical in ensuring that the Dollar Index remains above 96.50. Investors will be waiting to see if Yellen repeats herself in saying that low inflation remains "transitory" while offering further clues on rate hike timings this year. A firmly hawkish Yellen could provide Dollar bulls a lifeline to keep above 96.50 in the short term. On the other hand, if markets still remain unconvinced over the Federal Reserve's ability to raise US rates after Yellen's speech then the Dollar Index is at risk of breaking below 96.50.

GBP/JPY – 142.70





 

GBP/JPY – Wave 5 as well as wave (III) has possibly ended at 116.85





 

Despite retreating to 139.85 last week, sterling found renewed buying interest there and has rebounded again, suggesting near term upside risk remains for the corrective rise from 138.70 low to bring retracement of recent decline from 148.10 top, hence gain to 143.50 and possibly towards resistance at 143.95 cannot be rule out, however, reckon upside would to be limited to 144.90-00 and resistance at 145.40 should remain intact, bring another decline later.

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.


 


On the downside, whilst pullback to 142.00 is likely, reckon downside would be limited to 141.45-50 and support at 140.50 should hold, bring another rebound later. Only a drop below indicated support at 139.85 would revive bearishness and signal the rebound from 138.70 has ended, then further fall to 139.00-10 would follow but said support at 138.70 should hold on first testing. Looking ahead, only break of 138.70 would extend the fall from 148.10 top to 137.50-60, then 136.95-00, however, prevent sharp fall below 136.00-10 should not be repeated and price should stay well above support at 135.60.





Recommendation: Stand aside for this week.

The long-term downtrend from 570.99 (29 Feb 1980) is labeled as an impulsive wave with III with circle ended at 129.77 (20 Apr 1995) and the corrective rebound to 251.12 (20 Jul 2007) is treated as wave IV with circle and the wave V with circle selloff from 251.12 has possibly ended at 116.80 (almost reached our indicated target at 116.00) and major correction has commenced from there and indicated upside target at 183.90-00 (50% Fibonacci retracement of 251.10-116.85) had been met, reckon upside would be limited to 199.80-90 (61.8% Fibonacci retracement) and bring wave (V) decline in later part of 2017.

GBP/USD – 1.2759

 
GBP/USD – Wave 4 is unfolding as an (A)-(B)-(C) and could have ended at 1.7192

 
Although cable did resume recent decline and fell to as low as 1.2589, the subsequent rebound has deferred our bearishness and further consolidation above said support would be seen, however, as long as resistance at 1.2818 holds, bearishness remains for the fall from 1.3048 top to resume after initial sideways trading, below 1.2650-55 would signal the rebound from 1.2589 has ended, bring retest of this level. Once this support is penetrated, this would extend the aforesaid fall for retracement of recent upmove to 1.2550, having said that, reckon downside would be limited to 1.2500 and price should stay above 1.2440-50. 

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 possibly ended at 1.7192, below support at 1.4232 would add credence to this count, then further fall to 1.4000 level would follow but reckon downside would be limited to 1.3655 support and price should stay above previous support at 1.3500.

On the upside, expect recovery to be limited and as long as said resistance at 1.2818 holds, prospect of another decline remains. Above 1.2885-90 would suggest low is possibly formed, bring a stronger rebound towards resistance at 1.2978 which is likely to hold from here. Looking ahead, only a break above 1.2978 would signal the correction from 1.3048 top has ended, bring retest of tis level later. A break above there would extend recent upmove from 1.1986 low to 1.3140-50 (38.2% Fibonacci retracement of 1.5018-1.1986) and possibly 1.3200.  
 

Recommendation: Hold short entered at 1.2800 for 1.2550 with stop above 1.2800.

 
Longer term - Cable's rise from 1.0520 (Feb 1985) to 2.0100 (September 1992) is seen as [A], the decline to 1.3682 is labeled as (B) and (C) wave rally has ended at 2.1162 (9 Nov, 2007) which is also the top of larger degree wave B with circle. The selloff from there is a 5-waver with wave (A) ended at 1.3500 (23 Jan 2009), wave (B) itself is labeled as A: 1.6733, triangle wave B: 1.4813 and wave C as well as top of wave (B) ended at 1.7192 (2014), hence the selloff from there is an impulsive wave (C) with wave I : 1.4566, wave II 1.5930, an extended wave III is unfolding and already exceeded our downside target at 1.3500 and 1.3000, hence weakness to 1.2500 and possibly 1.2000 cannot be ruled out, however, price should stay well above psychological level at 1.0000.

Bond Yields rise on upbeat Inflation talk from ECB's Draghi

Notes/Observations

European Equity markets fall and Bond yields rise following ECBs Draghi upbeat remarks on the economic recovery and inflation.

German 2 year Schatz yields post 11 month highs

Schaeffler shares fall sharply following profit warnings

Overnight

Asia:

China Premier Li spoke at World Economic Forum, pleding to maintain policy settings amid steady growth expectations in Q2; Unemployment seen at 4.9% - China profit growth accelerates to 16.7% from 14.0%, while Liabilities growth slows to 6.5% from 6.7% in May.

New Zealand posts 3rd straight trade surplus; Exports in line with estimates and Imports higher than expected; Shipments of Dairy spike over 40% y/y to NZ$1.2

Brazil Prosecutor confirms proceeding with corruption charges against Pres Temer.

Europe:

Bond Yields and the Euro rise after ECBs Draghi comments on inflation noting that temporary factors are impacting inflation which the ECB can look through. Efforts slowed by a combination of external price shocks, more slack in labor market.

Schaeffler shares dive after announcing a profit warning weighing on industrial names

Neilsen reported UK Supermarkets saw strong sales growth in the past month rising 4% buoyed by the hot summer

UK PM May offers to protect benefits of EU citizens living in the UK

Americas:

White House spokesman Spicer noted that Pres Trump is 'very pleased' with healthcare bill developments; continues to support ways to strengthen it

Fed's Williams reiterates it sees inflation to hit 2% in next year or so

Economic Data

(IT) ITALY JUN CONSUMER CONFIDENCE INDEX: 106.4 V 105.8E; MANUFACTURING CONFIDENCE: 107.3 V 106.7E

Sweden May Trade Balance (SEK): +2.8B v -2.5Be

Sweden May PPI M/M: 0.0% v -0.3% prior; Y/Y: 7.2% v 7.2% prior

(FI) Finland Jun Consumer Confidence: 23.9 v 24.1 prior; Business Confidence: 9 v 8 prior

Fixed Income Issuance:

Non seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -0.5% at 3,547, FTSE -0.2% at 7,432, DAX -0.6% at 12,700, CAC-40 -0.5% at 5,267, IBEX-35 +0.1% at 10,705, FTSE MIB flat at 21,000, SMI -0.4% at 9,081, S&P 500 Futures -0.1%]]

Market Focal Points/Key Themes: European stocks opened down and continued losses following comments by ECB Chief Draghi; Markets waiting on comments from Fed Chair Yellen later in the day; Automakers underperforming; Gold continued to recover from yesterday's unusual trade, supporting materials stocks; oil continued to support energy stocks; German materials under pressure following outlook cut by Schaeffler (SHA.DE); Stada Arzneimitte (SAZ.DE) under pressure following takeover bid from Bain Capital failing to garner enough shares; upcoming US earnings include Darden Restaurants and KB Home

Equities

Consumer discretionary [Carpetright CPR.UK +11.1% (earnings), Debenhams DEB.UK -2.8% (earnings)]

Energy [Petrofac PFC.UK -2.4% (trading update)]

Financials [Bankia BKIA.ES +4.0% (merger agreement)]

Healthcare [Stada Arzneimittel SAZ.DE +2.0% (takeover fails)]

Industrials [Schaeffler SHA.DE-12% (cuts outlook), GKN GKN.UK -2.6% (cuts outlook)]

Telecom [Deutsche Telekom DTE.DE -2.2% (media speculation regarding T-mobile deal)]

Technology [Playtech PTEC.UK -3.2% (secondary share placing)]

Speakers

(EU) ECB Chief Draghi: Sees Factors impacting inflation being temporary and typically ones which the central bank can look through

Efforts slowed by a combination of external price shocks, more slack in labor market

Considerable degree of stimulus still needed, and ECB needs persistence in monetary policy

May change policy to keep stance unchanged, but not to tighten

(US) Fed's Williams (moderate, non-voter): Sees US wage growth picking up to 3-3.5%

Growth outlook for the U.S. is likely to stand at around 1.5%

Reiterates it sees inflation to hit 2% in next year or so

Currencies

EUR/USD takes at two week highs following comments from ECB Draghi which helped the Euro spike 70 pips. A break of 1.1294 would mark 8 month highs. GBP/USD rises being dragged higher by the Euro with the pair approaching yesterdays high.

Fixed Income

Bund futures trade at 164.65 falling sharply testing 164.63 support with yields rising to a one week high following comments from ECB's Draghi. Schatz yields rose to -0.58% marking an 11 month high.

Tuesday's liquidity report showed Monday's excess liquidity rose to €1.621T a rise of €9B from €1.612T prior. Use of the marginal lending facility jumped to €486M from €339M prior.

Corporate issuance saw $3.7B come to market via 7 deals, bringing month to date issuance to $73B.

Looking Ahead

05:30 (ZA) South Africa Q1 Non-Farm Payrolls Q/Q: No est v 0.2% prior; Y/Y: No est v 0.9% prior

06:00 (UK) Jun CBI Retailing Reported Sales: 5e v 2 prior, Total Distribution: 15e v 18 prior

07:00 (BR) Brazil Jun FGV Construction Costs M/M: 1.4%e v 0.1% prior

09:00 (US) Apr S&P / Case-Shiller 20-City M/M: 0.50%e v 0. 87% prior; Y/Y: 5.90%e v 5.89% prior; House Price Index (HPI): No est v 195.39 prior

09:00 (US) Apr S&P / Case-Shiller (overall) HPI Y/Y: No est v 5.75% prior, House Price Index (HPI): No est v 186.95 prior

09:00 (MX) Mexico May Trade Balance: $0.3Be v $0.6B prior

09:30 (BR) Brazil May Current Account: $1.9Be v $1.2B prior; Foreign Direct Investment (FDI): $3.0Be v $5.6B prior

10:00 (US) Jun Consumer Confidence: 116.0e v 117.9 prior

10:00 (US) Jun Richmond Fed Manufacturing Index: 7e v 1 prior

The CAC index has reversed directions and lost ground in the Tuesday session. Currently, the index is down 0.50% and trading at 5268.80. For a second straight day, with no eurozone or French numbers on the schedule. ECB President Mario Draghi addressed the ECB Forum on Central Banking in Sintra, Portugal, and will speak again on Wednesday.

ECB President Mario Draghi sent out a familiar message on Tuesday, as he addressed a gathering of central bankers at an ECB forum in Portugal. Draghi acknowledged that economic indicators were pointing to a broad recovery in the eurozone. Draghi even had something positive to say about inflation, noting that 'deflationary forces have been replaced by reflationary ones'. Draghi defended the bank's loose accommodative policy, saying that it had pushed inflation higher, but stimulus was needed until inflation becomes 'durable and self-sustaining'. Draghi's message to the markets and his critics is that 'we're on the right path, but please show some patience'. The ECB has maintained its loose monetary policy for quite some time, and not everyone is pleased with Brussels. Germany, the eurozone's largest economy, has called for tighter monetary policy, which is a better fit for the robust German economy. Clearly, however, the ECB under Draghi's stewardship has no intentions of altering current policy until inflation moves closer to the ECB's target of 2 percent.

On Monday, European stock markets reacted positively to news that the Italian government would wind down two banks, Banca Popolare di Vicenza and Veneto Banca. This deal will cost the Italian taxpayer 5.2 billion euros, and the government provided additional guarantees of 12 billion euros. Italy has already agreed to bail out another Italian bank, Monte dei Pashci di Siena, for up to 6.6 billion euros. The Italian government has set aside 20 billion euros to bail out struggling banks, and potentially may have used up the entire amount for these bailouts, depending on how the actual size of the bailouts. These moves remove a major headache for European regulators and should strengthen the fragile Italian banking sector, which has been a sore spot in the eurozone banking sector. Financial stocks on the CAC moved higher, as Credit Agricole and BNP Paribas posted gains.

The euro climbed to its highest in nearly two weeks following remarks by European Central Bank President, Mario Draghi, who expressed confidence in the Eurozone economy's recovery and the threat of deflation receding.

At the ECB's annual policy forum in Sintra, Portugal, Draghi specifically stated that 'Deflationary forces have been replaced by reflationary ones', signaling his optimism for the euro area economy's outlook. In addition, he didn't appear to be worried about recent weak inflation data, partly attributing them to global factors. He did communicate, however, that 'considerable' central bank support is still needed as inflationary pressures are 'not yet durable'.

Turning to reaction in the forex markets, euro/dollar jumped to reach the near two-week high of 1.1236 within a ten-minute time frame of Draghi starting to give his speech. The pair managed to maintain positive momentum to hit a fresh high of 1.1264 later in the day. It was trading at 1.1186 before the speech.

The positive comments by Draghi will add to speculation that the ECB is soon to start discussing its plan to normalize policy as it exits its monetary stimulus program. The central bank currently props up markets by engaging in monthly asset purchases to the tune of 60 billion euros. In its monetary policy meeting earlier in the month, the Bank maintained its accommodative stance but dropped its promise to cut interest rates should conditions worsen. The Bank will hold its next policy meeting on July 20.

Spot Gold extended bounce from six-week low at $1236, posted after sharp fall on Monday and peaked at $1253 on Tuesday.

Fall was contained by 200SMA and subsequent reversal and close above former low at $1240, partially offset strong negative impact on Monday's strong bearish acceleration.

Immediate downside risk has been sidelined as bounce broke above 100SMA ($1247) and 10SMA (1251) barriers, retracing so far 76.4% of Monday's $1258/$1236 fall.

Recovery may extend for possible attack at pivotal $1258 barrier (double upside rejection / 55SMA), while the price holds above 100SMA.

However, bearish daily studies keep the downside under pressure, as daily Tenkan-sen in steep descend capped so far recovery action and maintains bearish pressure, along with descending thick 4-hr cloud.

Thin daily cloud (spanned between $1245/48) marks pivotal support, close below which would generate negative signal.

Res: 1253, 1255, 1258, 1261
Sup: 1247, 1244, 1240, 1236