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Global Markets:

• Asian stock markets: Nikkei up 0.40 %, Shanghai Composite lost 0.10 %, Hang Seng rose 0.05 %, ASX 200 lost 0.20 %
• Commodities: Gold at $1245 (-0.10 %), Silver at $16.55 (-0.15 %), WTI Oil at $43.50 (+0.20 %), Brent Oil at $46.15 (+0.25 %)
• Rates: US 10-year yield at 2.14, UK 10-year yield at 1.01, German 10-year yield at 0.25

News & Data

• New Zealand Trade Balance m/m NZ$103mln vs NZ$420mln expected
• New Zealand Trade Balance y/y -NZ$3.75bln vs -NZ$3.40bln expected
• New Zealand Exports 4.95bln vs 4.93bln expected
• New Zealand Imports 4.85bln vs 4.48bln expected
• Australia ANZ Roy Morgan Weekly Consumer Confidence Index June 25: 111.8 (Prev 112.4)
• Japanese stocks edge towards two-year high, dollar supported before Yellen – RTRS
• Oil little changed after three-day gain, supply glut weighs – RTRS

Markets Update:

The focus overnight was on the USD/JPY. The pair briefly broke above 112, although momentum waned quickly. Nevertheless, it is likely to retest the level again, and a clear break above would signal that the rally could extend to 113 in the near-term. This will also depend on the general risk sentiment in the markets. While US stocks came slightly under pressure, Asian stocks are mostly up on the day.

EUR/USD continues to consolidate around 1.12. There are no major European data releases until Thursday, so it could remain quiet until then. GBP/USD reached a high of 1.2750, but political uncertainties are likely to keep the pair under pressure and prevent larger gains.

AUD/USD is struggling with the resistance between 0.76 and 0.7630, but has remained well bid overall. A clear break above 0.7630 would confirm that the short-term uptrend remains intact, and signal a move towards 0.7750.

Upcoming Events:

• 07:45 BST – French CPI
• 15:00 BST – US CB Consumer Confidence
• 15:00 BST – US Richmond Manufacturing Index

Short term EURJPY Elliott Wave view suggests the decline to 122.35 on 6/15 low ended Intermediate wave (X). Rally from there is unfolding as a double three Elliott Wave structure where Minute wave ((w)) ended at 124.46 and Minute wave ((x)) ended at 123.62. Minute wave ((y)) is in progress and also unfolding as a double three. Near term focus is on 125.42 – 125.68 to complete Minutte wave (w) of ((y)). Afterwards, pair should pullback in Minutte wave (x) of ((y)) in 3, 7, or 11 swing before turning higher again, provided pivot at 123.6 low stays intact. We don’t like selling the pair.

EURJPY 1 Hour Elliott Wave Chart

STOCKS

Dow (21409.55, 0.07%) has been stuck in the very narrow range of 21330-530 for the last 8-9 sessions and a downward break from that range for lower levels of 21200 may be expected this week. In case the support of 21200-150 holds, then the larger uptrend may resume for new highs.

Dax (12770.83, +0.29%) remains trapped in a corrective mode but as long as the support 12650-30 holds, the chances of a fresh high at 12900-13000 remain open.

Shanghai (3183.47, -0.06%) has achieved the immediate target of 3180 already and now faces the resistance of 3200-10 which, if not overcome immediately, may initiate a correction to 3160-50 in the next few sessions.

Nikkei (20213.62, +0.30%) has hit a fresh 23-month high at 20250 and may register higher highs near 20500 if the support of 20000 holds.

Nifty (9574.95, -0.57%), contrary to expectations, broke below the support of 9600. The 4-week long support of 9560-50 may determine the near term path as it must hold for the bulls but a breakdown may sub-9500 levels. It is not clear if the support will hold or not in this expiry week.

COMMODITIES

Gold (1244) and Silver (16.53) are going nowhere as they keep trading in the narrow range of 1233-1248 and 15.93-16.77 respectively. Global cues are not in favor of gold and silver too as the break above 99.70 for Dollar Index (97.13) could be resulted further losses for bullion. If 1233 for gold and 16.45 for silver fail to hold for the current week then gradual selling for the target of 1195 and 15.93 can’t be ruled as seller will take every bounce as a further opportunity for selling.

Copper (2.65) moved higher in line with our expectation and trading within a range of 2.60-65. Only above 2.65 higher resistances of 2.69 can come into consideration. In the medium term 2.55-57 are going to be a strong support and we will remain bullish while it is trading above those levels.

Brent (46.12) and WTI (43.45) closed higher and trading as per our recommended levels. We will remain bullish in extreme short term time frame while Brent and WTI are trading above 46 and 43 levels. We have weekly U.S. crude inventory data tomorrow and a deficit could help Brent and WTI to move towards 46 and 48 regions respectively.

FOREX

No conclusive Dollar direction yet but a sharp move can be expected later in the week.

Dollar Index (97.40) is yet to rally for our higher targets of 98.10-40 but the slow correction and the recovery from the support zone of 97.10-96.90 in the last session keeps the possibility of the larger uptrend resuming still open.

Euro (1.1187) has been facing rejection from the immediate resistance of 1.1210-30 repeatedly but the bears still need a break below 1.1160 to bring up bearish momentum. A break below 1.1160 may invite 1.1100 and lower levels.

Dollar-Yen (111.90) has achieved our initial target of 112.00 and may meet our next target 113.00 in a few more sessions. Any interim correction may be limited to 110.90-70.

Pound (1.2720) keeps trading in the range of 1.2540-1.2820 as expected and the rangebound movement may continue for a few more days. With the bounces coming slower than the declines, the downtrend remain in force.

Aussie (0.7588) has bounced back from 0.7530 levels, well short of our downside support of 0.7490 but face resistance near 0.7620-35.

Dollar-Rupee (64.52) spent another quiet session to end the week inside the range 64.10-75. This collapse in volatility may see expansion in the coming 5-7 days and trigger a breakout from the range. Till then, play the range.

INTEREST RATES

The US yields are falling but might get support at current levels due to oversold condition in the near term. The near term yields had stopped falling while the longer end yields have been falling over the last 1-2 weeks, flattening the yield-curve.

The US 10-5Yr (0.39%) had broken the downward channel support and could test 0.375% on the downside. We think 0.375 is going to hold as US 10Y yield at 2.12,is highly oversold and could bound back towards 2.19 levels within a few days of time.

Daily Pivots: (S1) 111.34; (P) 111.64; (R1) 112.16; More...

USD/JPY's rally from 108.81 resumed by taking out 111.78 temporary top and reaches as high as 112.07 so far. Intraday bias is back on the upside for channel resistance (now at 112.99). Sustained break there will suggest that whole pull back from 118.65 has completed at 108.12 already. In such case, further rise should be seen to 114.36 resistance for confirmation. On the downside, however, break of 110.94 support will argue that rebound from 108.81 has completed and turn bias back to the downside.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

The developments in the forex markets look as if traders are in risk seeking mode. Commodity currencies including Canadian Dollar, Australian Dollar and New Zealand Dollar trade broadly higher since the start of the week. Meanwhile, Japanese Yen and Swiss Franc are the weakest ones. However, this picture is not reflected in other markets. DOW jumped to to 21506.21 overnight but failed to break recent historical high at 21503.03. The index closed up just 0.07% at 21409.55 after paring initial gains. S&P 500 also rose a mere 0.03% to close at 2439.07. But NASDAQ lost -0.29% to close at 6247.15.

Weakness is seen in long term US treasury yield as 30 year yield dropped -0.018 to close at 2.696, extending recent down trend. 10 year yield stayed in recent range and lost -0.007 to close at 2.137. On the other hand, Asian equities are mixed with Nikkei trading up 0.3% at the time of writing. Hong Kong HSI is up 0.1% but China SSE composite is down -0.15%. Australia all ordinaries is down -0.3%. Gold tumbled to as low as 1236.5 yesterday and is still struggling to regain 1250 handle. WTI crude oil continues with its consolidation and is trading in range at around 43.50.

Central bankers to highlight a light day

Half-year end subdued trading will probably keep volatility low. With a relatively light economic calendar today, traders will look into speeches of central bankers for inspirations. The list include RBA Deputy Governor Guy Debelle, ECB President Mario Draghi, BoE Governor Mark Carney, Fed Chair Janet Yellen, Philadelphia Fed President Patrick Harker, and Minneapolis Fed President Neel Kashkari. Meanwhile, on the data front, BoE will release financial stability report, US will release S&P Case Shiller house price and Conference Board consumer confidence.

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.

NZD/JPY is one of the strongest pairs for the month. The rise from April low at 75.65 extends to as high as 81.68 so far. Near term outlook will remain bullish as long as 80.11 support holds. And such rally is expected to head for a test on 83.76 high next. At this point, it's uncertain whether the whole rise from 2016 low at 68.88 is developing into an medium term impulsive or correct move. Key focus will be on the reaction to 61.8% projection of 68.88 to 83.76 from 75.65 at 84.84.

USD/JPY Daily Outlook

Daily Pivots: (S1) 111.34; (P) 111.64; (R1) 112.16; More...

USD/JPY's rally from 108.81 resumed by taking out 111.78 temporary top and reaches as high as 112.07 so far. Intraday bias is back on the upside for channel resistance (now at 112.99). Sustained break there will suggest that whole pull back from 118.65 has completed at 108.12 already. In such case, further rise should be seen to 114.36 resistance for confirmation. On the downside, however, break of 110.94 support will argue that rebound from 108.81 has completed and turn bias back to the downside.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Economic Indicators Update

Despite weak data from thr US, it was dovish comments from Draghi and hawkish comments from the Fed which helped lift the Dollar.

Speaking to students in Lisbon, Draghi once again lowered expectations of ECB tightening to send the Euro lower and support the Greenback. This helped to erase losses seen from weak durable goods and manufacturing data, which was extended further once Fed members continued their hawkish commentary.

Durable goods and manufacturing sentiment added to the long list of weak data from the US, to weight on the Greenback despite further hawkish comments from Fed members. Durable goods declined -1.1% compared with -0.8% prior and -0.6% expected. This makes it the 2nd month of contraction which has helped drag the YoY rate to just 2.7%. Excluding transportation durable goods managed to squeeze a 0.1% expansion in June, yet does not quite claw back the -0.5% contraction in May. The YoY% rate however is at a slightly heathier level of 5.5% and the underlying index is just below 3 year highs.

GDP data for Q1 will be revised this week, although the real concern going forward is that data so far for Q3 is also below par and leading sentiment indicators aren't reviving hopes of a rebound. If we continue to see PMI surveys soften and hard data such as durable goods, inflation or growth struggle to rebound then it essentially kills off any need for the Fed to raise. Markit PMI data also disappointed on Friday and these reads can lead the rise of fall of GDP by 6-12 months on average.

For the foreseeable future, we doubt the US Dollar Index will be able to break out of the 96.50 - 97.88 range. Whilst the Fed continue with their hawkish narrative to help support the Dollar, the data which is presented prevents it from breaking higher. This also means we doubt we'll see significant trends develop unless we see either of these opposing forces switch to the other's side (dovish fed with weak data, or hawkish fed with strong data).

D1 closed with a bullish piercing pattern to warn of near-term strength, although at current levels the rewards to risk ratio may be undesirable to trade D1 as we are too close to the monthly pivot (black line). Moreover, the rally from the bullish pinback may be part of a correction higher which also limits the potential upside form here. So, we may want to monitor for signs of weakness below 97.881 to aid timing a long position on EURUSD. An alternative scenario (and least favoured under the current climate) I for an inverted head and shoulders pattern to materialise. We would need to see a form close above 97.88 (neckline) and if successful it projects an approximate target around 99.50.

A more bullish scenario appears to be forming with USDJPY. We highlighted the minor pullback above 11080 last week and we have now seen a bullish follow-through. If we can clear the 112.10 resistance level then we find ourselves in an area which has relatively little in the way of resistance towards the 114.38 target. If we are to see a decent close above 112.10 then the odds of a direct rally towards target is increased. Yet if we are to falter around current levels and return to 110.80, then we must consider a deeper pullback and frustratingly slower journey towards the eventual target.

CRUDE OIL - The commodity continues to retain its upside pressure on correction. On the downside, support resides at the 43.00 level where a break will expose the 42.50 level. A cut through here will set the stage for a run at the 42.00 level. Further down, support resides at the 41.50 level. Its daily RSI is bullish and pointing higher suggesting further strength. On the upside, resistance resides at the 44.00 level. Further out, resistance comes in at the 44.50 level. A break above here will aim at the 45.00 level and then the 45.50 level followed by the 46.00 level. All in all, CRUDE OIL remains biased to the upside on further strength.

A Slow Burn

Slow start to the week for markets with so many countries out on holiday (on account of Eid or local holidays), As well, investors remain extremely tentative ahead of this week’s star-studded cast of central bankers hitting the airwaves. In addition to the ECB Forum (the equivalent to Jackson-Hole schmooze fest ) being held in Sintra, Portugal this week., Dr Yellen makes an appearance in London later today. But despite the plethora of central bankers on tap, it’s unlikely there will be any revelations on monetary policy forthcoming.And given the proximity to the recent FOMC, there will certainly be no backpedalling from Dr Yellen. However, the week could turn interesting, yet highly inconclusive, as currency markets get knocked to and fro driven by month/quarter/half year end flows this week, so best not to bring out the summer desk pillow just yet.

While it’s difficult to put much trust in current price action ( using overnight Gold price as an example) risk sentiment seems improved. And with few negatives hitting the airwaves, dealers were left to assume the age-old adage of no news is good news. Equities are trading in the green ever so slightly, oil prices are moving higher, and FX has followed correspondingly

Japanese Yen

The beneficiary of the positive shift in risk sentiment is the USDJPY which has been trading in sympathy with Oil and equities. With the price of oil back from the dead, it provided the overnight fillip for the dollar-yen bulls. After a slow burn higher throughout the NY morning, an afternoon NY gap took out the 110.80 level (100 days moving average), and the markets are now within striking distance of the psychological 112.00 level. With the JPY crosses trading well, a push higher looks in the cards.

British Pound

The pound appears to have returned to its post-election happy valley between 1.2700-1.2750 although the markets have quite been quiet with volumes well below average. Even a new deal with Northern Ireland’s DUP party failed to animate. It seems that any optimism remains short lived these days, after all, that’s to rejoice about the possibility of another election and ongoing Brexit uncertainty. Not to mention rising inflation, weak wage growth and a negative shift in recent economic data is hardly a confidence builder for the Pound

Australian Dollar

The Australian dollar is firmer on the back of higher Iron ore and oil prices. The uptick in oil prices has buoyed risk sentiment, and global investors are expressing some pockets, small mind you, of interest in both commodity based and higher yielding currencies overnight. Despite the positive risk vibe, there will likely be some hesitation to breach the .7600 level with Dr Yellen on tap as there’s little chance of policy back peddling and if anything she may reaffirm her for FOMC hawkish view.

The Canadian dollar started the week gaining versus the US dollar. The comments from Bank of Canada (BoC) policy makers on June 11 had pushed the loonie higher against the greenback, but the Fed turned up the rhetoric last week to even things out. Fed members were mixed in their endorsement/criticism of the aggressive rate hike path, but most were in agreement that the central bank needs to start shrinking its massive balance sheet. The trillions of dollars which were accumulated as part of the Fed's quantitive easing program and are still in the books of the CB need to be sold in a gradual manner for true normalization to be achieved.

The week started with few economic indicators to guide the market. New orders for US durable goods in May fell by 1.1 percent month to month, removing transportation items also disappointed with a 0.1 percent gain when 0.4 percent was expected. Second quarter growth has proven sluggish and the durable goods data hit the USD to the downside. The main champion for the dollar has been the Fed and this week there will be plenty of fedspeak to digest with three Federal Open Market Committee (FOMC) members due to speak on Tuesday.

Oil prices are higher on the North American session than last week. This all could change with the release of the US crude inventories on Wednesday at 10:30 am EDT. The OPEC oil production cut agreement has failed to spark a rally in energy prices when US and other non-agreement producers are ramping up their supply keeping the crude glut in place.

The USD/CAD lost 0.253 percent in the last 24 hours. The currency pair is trading at 1.3237 after a disappointing US durable goods number early on Monday. The final reading of the US second quarter GDP will be released on Thursday, June 28 at 8:30 am EDT with growth now expected to be lower than the 1.2 percent gain reported last month.

Bank of Canada (BoC) Governor Stephen Poloz will be in Europe this week to attend the European Central Bank (ECB) Forum in Portugal. He will be joined in a panel by the heads of the Bank of England (BoE), Bank of Japan (BOJ) and the host. At this stage the BOJ stands apart as the other have made hawkish statements about their respective economies being on the mend with rate hikes and end of QE programs to start this year. In Canada the comments from Deputy Governor Carolyn Wilkins in Winnipeg put a rate hike firmly on the table for this year. The weak inflation data on Friday is not expected to derail an upcoming hike, but it could have pushed it further back towards the fourth quarter or later.

Crude gained 0.799 percent in the last 24 hours. West Texas Intermediate is trading at $43.27 near daily highs after a slow start to the week. Energy prices managed to trade above the $43 price line awaiting the weekly inventory data that tells the score between the Organization of the Petroleum Exporting Countries (OPEC) production cuts and the US ramp up of supply.

Energy prices touched 7 month lows last week and market sentiment is expecting another drop, specially if inventories of crude or gasoline in the US show another large buildup. US production has grown by about 10 percent with Brazil and Canada also increasing output, while the OPEC is now considering further cuts to keep prices from falling further.

Market events to watch this week:

Tuesday, June 27
10:00 am USD CB Consumer Confidence

Wednesday, June 28
10:30 am USD Crude Oil Inventories

Thursday, June 29
8:30 am USD Final GDP q/q
8:30 am USD Unemployment Claims

Friday, June 30
4:30 am GBP Current Account
8:30 am CAD GDP m/m

The British pound has started the trading week quietly. In North American trade, GBP/USD has ticked higher and is trading at 1.2730. On the release front, British BBA Mortgage Approvals dipped to 40.3 thousand, matching the forecast. In the US, durable goods orders missed expectations, disappointing the markets. Core Durable Goods came in at 0.1%, missing the forecast of 0.4%. Durable Goods Orders declined 1.1%, short of the forecast of -0.5%. On Tuesday, we’ll get a look at CB Consumer Confidence and Fed Chair Janet Yellen will speak at an event in London.

It’s been a rough few weeks for British Prime Minister Theresa May, who suffered a major setback in the recent election, as she lost 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 unhappy with Britain ditching their club. There was finally some good news on Monday for the embattled May, who reached an agreement with the DUP, a small Irish party. The DUP will not formally enter 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.

There was positive news last week from the US construction industry. On Friday, New Home Sales jumped to 610 thousand, above the forecast of 599 thousand. Earlier in the week, Existing Home Sales improved to 5.62 million, beating the estimate of 5.54 million. There had been concerns about construction numbers, as Building Permits and Housing Starts both missed expectations in the May releases. Later in the week, the economy receives a report card, with the release of Final GDP for the first quarter. Preliminary GDP, which was released in May, came in at 1.2%, and this is the forecast for Final GDP. Will weak inflation and consumer spending result in a weaker than expected GDP report? If so, the US dollar could be a casualty and lose ground against its rivals.