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Trendless markets as investors seek new drivers

More than a week after the FOMC lifted borrowing costs in the US, financial markets - particularly the equity market - have been treading water as investors struggle to find a new driver. Both the Euro STOXX 50 and S&P 500 are about to close the week flat. In the bond market, the picture is quite similar as US treasury yields erased last week's gains, which were made on the back of a surprisingly hawkish Fed statement. Only the pound sterling, which is subject to a lot of uncertainty due to the Brexit situation, has created some excitement. This morning, GBP/USD extended gains as it returned to 1.2735; however on the longer-term it continues to trade within its monthly downtrend channel.

After a very light week in terms of economic data, the US dollar has started Friday on the backfoot with the dollar index falling 0.30%. A bunch of soft economic indicators are due for release later today - manufacturing, services and composite PMIs - but we believe investors won't pay much attention to those as they are looking for longer term drivers.

For now, investors do not expect a Fed interest rate hike in September but leave the door wide open for December. On the political side, the President Trump impeachment story is losing momentum. Against this backdrop, the yellow metal initiated a small rally as it rose to $1256 from $1240. Should this trendless situation remain, gold should have legs to extend gains.

Canadian inflation in spotlight

Markets have completely priced in a 25bp rate hike by the Bank of Canada by the end of 2017 leaving room for economic disappointment. We believe it's too early for the BoC to be thinking about higher rates. With front-end yields at the near term high, we doubt that CAD will have much more upside. In the longer term, the weakness and sustained negative outlook for oil prices will likely drag Canadian growth and pressure inflation dynamics.

It was BoC Governor Poloz speech which included a hawkish signal shift that drove policy tightening expectations. Yet commodity weakness will force members to easy back on arguments for normalisation. While uncertainty over US economic policy and NAFTA renegotiations will linger, markets will be focused on today's Canadian inflation data for May.

While this read fails to take into account crude sharp drops, it should help steer expectations. We suspect risks are asymmetrical, with significant downside should CPI disappoint and traders fade BoC hawkishness. Annual Core CPI is expected to come in at 1.4% from 1.3%. Although market sentiment on USDCAD is bearish, we remain constructive on pair.

The pair remains in red on Friday and extends pullback from Wednesday high at 0.8845.

Completion of Doji reversal pattern signals further downside.

Fresh bears are pressuring strong support at 0.8765 (Fibo 61.8% of 0.8719/0.8845 upleg / bull-trendline off 0.8383 low), with break and close below here to generate another strong bearish signal for possible retest of key near-term support at 0.8719 (16 June trough).

Broken 10SMA (0.8788) now acts as strong resistance which is expected to cap and maintain bearish pressure.

Res: 0.8788, 0.8828, 0.8845, 0.8865
Sup: 0.8765, 0.8738, 0.8719, 0.8681

EURUSD

The EURUSD didn’t make significant movement yesterday. The bias remains neutral in nearest term. Price is still in a bearish phase after the false breakout above 1.1285 last week, but still respects the H4 EMA 200 and 1.1080 key support as you can see on my H4 chart below. Immediate resistance is seen around 1.1200. A clear break above that area could trigger further bullish pressure retesting 1.1285 key resistance which needs to be clearly broken to the upside to continue the bullish scenario targeting 1.1350 – 1.1425 area. On the downside, a clear break and daily/weekly close below 1.1080 would interrupt the bullish scenario testing 1.0900 and the major trend line support next week.

GBPUSD

The GBPUSD didn’t make significant movement yesterday. The bias remains neutral in nearest term. The double top bearish scenario remains valid and I still prefer a bearish scenario at this phase but needs a clear break below 1.2635 to continue the bearish phase testing 1.2500 area. Immediate resistance is seen around 1.2710. A clear break above that area could trigger further bullish pressure testing 1.2760 – 1.2815 region. Overall I remain neutral.

USDJPY

The USDJPY had another indecisive movement yesterday, formed another Doji on daily chart suggests a consolidation phase. The bias remains neutral in nearest term. Price is still in a bullish phase after broke above the trend line resistance as you can see on my H4 chart below but need a clear break above 111.78 – 112.00 key resistance area to continue the bullish phase targeting 113.00 area.  On the downside, 110.65 remains a key support. A clear break below that area would interrupt the bullish outlook testing 110.00 or lower.

USDCHF

The USDCHF was indecisive yesterday. The bias remains bearish in nearest term testing 0.9695. A clear break below that area could trigger further bearish pressure testing 0.9650 region. Immediate resistance is seen around 0.9750. A clear break above that area could lead price to neutral zone in nearest term testing 0.9815 key resistance which remains a good place to sell with a tight stop loss as a clear break above 0.9815 would interrupt the bearish outlook testing 0.9900 region.

The pair remains in red in early Friday's trading but holding above initial support at 111.00 (55SMA) as Thursday's long-tailed Doji signaled strong downside rejection.

Bearish signal comes from slow stochastic which reversed from overbought zone and shows a plenty of room for further downside for extension towards a cluster of supports provide by daily MA, starting from 110.90 (200SMA), 110.82 (10SMA) and 110.64 20 SMA/Fibo 38.2% of 108.80/111.78). The latter is required to contain extended dips and keep focus at the upside, as thin daily cloud may attract for fresh attacks.

Conversely, firm break below 110.64 pivot would risk deeper correction of 108.80/111.78 upleg.

Res: 111.42, 111.78, 112.12, 112.24
Sup: 111.16, 111.00, 110.90, 110.64

Trading in USD was relatively flat on Friday ahead of economic indicators released next week in the US, which will provide further insight into the US economy – specifically inflation.

Following last week's FOMC decision to raise interest rates, the USD Index hit a 1 month high on Tuesday of 98.871. Since then trading has been in a narrow range as the markets await new US data to 'analyse'.

With US inflation data released next week the markets will be keen to see if the recent slump in crude oil has impacted the US inflation outlook.

US data releases next week will include; June consumer confidence indicator, pending home sales, crude oil inventories, revised first quarter GDP and the PCE price index. However, USD will likely react to wages & inflation data and moreso the July Non-Farm Payroll report in 2 weeks' time.

USD is set to post weekly gains of 0.4% against both USDJPY & EURUSD. USDJPY is trading around 111.25 below the 1 month high it set on Tuesday of 111.79. EURUSD is holding relatively steady around 1.1181.

Oil made small recoveries yesterday from 10 month lows, with WTI trading around $42.95 and Brent trading around $45.55 in early trading this morning. Therefore Commodity Currencies have benefited with USDCAD rallying 0.75% on Thursday and currently trading around 1.3220. CAD also benefitted from strong domestic retail sales which added to the markets expectations for an interest rate hike in July from the Bank of Canada.

GBPUSD was higher trading around 1.2735 as Kristin Forbes, Bank of England Policy Maker, stated 'a 'lift off' of UK interest rates should not be delayed any longer'. Such a statement is contrarian to comment made by Bank of England Governor Carney. This week GBPUSD experienced a sell off from Monday's high of 1.2814 to a 2-month low set on Wednesday of 1.2589.

Markets will be keen to hear the tone of speeches from FOMC members; Bullard, Mester and Powell today at 16:15 BST, 17:40 BST and 19:15 BST respectively.

EUR/USD

Majors saw very limited action this Thursday, with the EUR/USD pair setting around 1.1150 after peaking at 1.1177 during Asian trading hours. There were no relevant macroeconomic releases but consumer confidence improved in the EU according to June preliminary estimates improved to -1.3 from previous -3.3 and beating expectations of -3.0. In the US, weekly unemployment claims ticked higher, reaching 241K for the week ended June 16th, slightly worse than the 240K expected, while the April Housing Price index advanced 0.7% in the month, unchanged from March's final reading.

In the news, Fed's Bullard said that the projected rate path was "unnecessarily aggressive," but also that the Central Bank should begin shrinking its balance sheet "sooner rather than later," hardly a surprise coming from him, while GOP leaders released their Obamacare replacement bill that still needs to pass the Congress and already has opposition among Republicans. Indeed, dark clouds ahead for Mr. Trump, and therefore for the greenback.

In the meantime, the pair continues trading uneventfully near the lower end of its last five-week range, lacking directional strength. Technically, the risk remains towards the downside, although intraday readings maintain a neutral stance, given that in the 4 hours chart, the price is hovering around the 20 and 200 SMAs, both converging around 1.1150, while technical indicators head modestly lower around their mid-lines. There's a strong support in the 1.1110/20 region, where the pair has relevant lows alongside with the 23.6% retracement of its latest bullish run, with a stronger one at 1.1075. Below this last, the pair has scope to extend its decline towards the 1.1000 critical support.

Support levels: 1.1110 1.1075 1.1030

Resistance levels: 1.1220 1.1260 1.1300

USD/JPY

The USD/JPY pair closed flat for a second consecutive day in the 111.30 region, although daily basis, it posted a lower high and a lower low, indicating that the risk remains towards the downside. There were no major news coming from Japan this Thursday, while in the US, slightly weaker-than-expected weekly unemployment claims limit chances of dollar's gains. Claims in the week ended June 16th came in at 241K from a previously revised 238K. During the upcoming Asian session, Japan will release its June preliminary Nikkei Manufacturing PMI, expected to tick higher from May's figures. If that's the case that JPY may get an additional boost. In the meantime and from a technical point of view, the chart shows that the price has been contained below its 100 DMA ever since the week started, but also that the momentum indicator heads higher within positive territory, as the RSI stands flat around its mid-line. In the 4 hours chart the price is stuck around its 200 SMA, while technical indicators remain flat around mid-lines, giving no clear directional clues.

Support levels: 111.25 110.80 110.50

Resistance levels: 111.60 112.00 112.45

GBP/USD

The Sterling lost its upward momentum this Thursday, with the GBP/USD pair ending the day marginally lower in the 1.2660 region, as enthusiasm over a rate hike in the UK triggered by BOE's Haldane cooled down. PM Theresa May was in Brussels, exposing to EU leaders her plan on EU citizens' rights in the UK after the split, but EU diplomats clearly rolled the ball saying that negotiations are on to Michel Barnier. In the meantime, May is still struggling to form a government, with the latest news showing that the DUP broke off talks with Theresa May for this week as it told her to spend £2billion in Northern Ireland if she wants the party to prop up her minority Conservative Government. From a technical point of view, the 4 hours chart shows that the pair has been trading below a bearish 20 SMA, unable to extend beyond it, but holding nearby ever since the day started. In the same chart, technical indicators have advanced within negative territory, but pared gains around their mid-lines, not enough to confirm a new leg higher. Nevertheless, a break above 1.2710/20, the immediate resistance, could favor an advance for this Friday.

Support levels: 1.2635 1.2590 1.2560

Resistance levels: 1.2715 1.2750 1.2795

GOLD

Spot gold advanced at the beginning of the day to trade at $1,254.63 a troy ounce, but trimmed most of its daily gains to settle at 1,249.20. The early advance was supported by broad dollar's weakness, and easing long-term US Treasury yields that led to the yield-curve to flatten to an almost 10-year low on Wednesday. Also, helping gold were persistent weakness in equities during the Asian and European sessions alongside with political uncertainty. The commodity advanced modestly for a third consecutive day, but the technical picture keeps favoring the downside as in the daily chart, the price was unable to advance beyond a horizontal 100 SMA, while technical indicators continue heading south within bearish territory. In the 4 hours chart, the price has settled above a horizontal 20 SMA while technical indicators have bounced modestly from their mid-lines, but remain below previous daily highs limiting chances of a stronger recovery.

Support levels: 1,241.95 1,230.90 1,222.80

Resistance levels: 1,257.20 1,265.90 1,273.90

WTI CRUDE OIL

Crude oil prices recovered modestly with West Texas Intermediate crude futures settling 0.5% higher daily basis at $42.70 a barrel. There were no fresh market headlines affecting the commodity, with the movement seem due to traders locking some profits after Wednesday's sharp slide that led to a fresh 10-month low. The technical picture remains bearish, given that in the daily chart, the price held far below a bearish 20 DMA, while the Momentum indicator keeps heading south within oversold readings as the RSI consolidates around 24. Additionally, the price hovered at the lower half of its previous day's range. Shorter term, and according to the 4 hours chart, intraday advances met selling interest around a bearish 20 SMA, currently offering a dynamic resistance around 43.35, whilst technical indicators have bounced partially, but remain well below their mid-lines, in line with further declines ahead.

Support levels: 42.10 41.65 41.10

Resistance levels: 43.35 43.80 44.50

DJIA

US indexes closed mixed this Thursday, with the DJIA and the S&P down, and the Nasdaq Composite barely up, despite a rally in health care equities following the release of the new US healthcare projected bill, and a bounce in oil prices. The Dow settled 12 points lower at 21,397.29, while the S&P lost 1 point or 0.05%, to 2,434.50. The Nasdaq, on the other hand, gained 2 points to 6,236.69. Republicans presented a 142-page draft of their bill to repeal Obamacare, but still needs to pass the Congress. Within the Dow, Merck & Co. was the best performer, up 0.86%, followed by United Health Group that added 0.85%. Goldman Sachs led decliners with a 1.22% lost. The DJIA trades at the lower end of its weekly range, but the downside potential remains limited, as the index continues trading well above all bullish moving averages, whilst technical indicators pared their previous decline and turned flat well above their mid-lines. In the 4 hours chart, and for the short term, however, the risk is towards the downside given that the index is developing below a horizontal 20 SMA, whilst technical indicators turned south within negative territory.

Support levels: 21,389 21,351 21,303

Resistance levels: 21,449 21,495 21,542

FTSE100

The FTSE 100 closed the day at 7,439.29, down 8 points, but off its daily low as oil´s bounce helped the benchmark trim early losses. Nevertheless, more members closed down, with WM Morrison Supermarkets being the worst performer, down 270%, followed by TUI that shed 2.17%. Shire on the other hand led advancers, adding 3.72%, followed by Provident Financial that added 3.64%. Commodity-related equities managed to recover some ground amid an advance in gold prices, with Randgold Resources up 1.22% and Antofagasta adding 1.18%. Overall, Brexit jitters continued dominating the Pound and the Footsie, with a high degree of political uncertainty keeping investors in cautious mode. The daily chart for the London benchmark shows that the index is down for a third consecutive day, extending below a now bearish 20 DMA, and with technical indicators heading further lower within negative territory, in line with further slides ahead. In the shorter term, and according to the 4 hours chart, the risk is also towards the downside, with the Momentum heading south within negative territory, the RSI indicator turning lower around 40, and the benchmark still developing below its 20 and 100 SMAs.

Support levels: 7,403 7,376 7,327

Resistance levels: 7,499 7,541 7,584

DAX

European equities closed mixed, but off their daily lows, with the German DAX managed to add 19 points, to close at 12,794.00, as commodity-related equities pared losses on oil's shallow bounce, also helped by a recovery in health stocks. ThyssenKrupp extended its bullish run, leading winners' list for a third consecutive session, up by 4.29%, followed my Merck that added 2.53%. Among the worst performers were Linde, down 1.39% and Heidelberg Cement that shed 0.84%. The daily chart for the index shows that if bounced from a horizontal 20 DMA for a second consecutive day, but remain nearby, while technical indicators keep retreating within positive territory, with limited bearish strength, rather indicating more range trading ahead than suggesting an upcoming downward move. In the 4 hours chart, the index remained contained by selling interest around its 20 SMA, now at 12,805 while technical indicators head south within negative territory, indicating limited buying interest around the benchmark, probably amid increasing political uncertainty.

Support levels: 12,719 12,653 12,605

Resistance levels: 12,805 12,851 12,892

The Euro is maintaining bullish tone in early European trading on Friday and probing above Thursday's high / 10SMA at 1.1177, after downside attempts were repeatedly contained by widening hourly cloud.

Broader bulls are looking for extended upside action which requires break above 10/20 SMA's at 1.1177/1.1201 respectively, to confirm higher base and open way for fresh attack at 1.1300 zone targets.

Corrective dips should hold above 1.1160 (hourly cloud top, reinforced by hourly Tenkan-sen / Kijun-sen bull cross) to keep near-term bullish bias in play.

Otherwise, renewed downside risk towards 1.1140/45 (Wed/Thu lows and key supports at 1.1121/09.

Mixed PMI data Eurozone, Germany and France offered mild support the pair.

Res: 1.1180, 1.1201, 1.1228, 1.1268
Sup: 1.1160, 1.1140, 1.1121, 1.1109

The EUR/USD currency exchange rate did not bounce off the resistance of the 200-hour SMA, as it was forecasted on Thursday. However, the pair began a decline without the help of the resistance level. Moreover, by the end of the day's trading session the surge of the Euro against the US Dollar was resumed. Due to that reason a more in-depth analysis was done. As a result of the closer look, a short term ascending channel pattern was mapped. Although in accordance with the channel the pair should surge at least to the 38.20% Fibonacci retracement level at the 1.1188 mark, it is highly possible that the 200-hour SMA, which on Friday was located at the 1.1176 level, will force the currency pair to change its direction sooner than expected.

During the last trading session, the Sterling demonstrated solid appreciation against the US Dollar, crossing the 20– and 100-hour SMAS along the way. The pair has approached a short-term down-trend near the 1.2710 mark, reinforced by the 200-hour SMA and the 23.6% Fibo at 1.2717 and 1.2720, respectively. The pair has been trading below the given SMA for most of the down-trend, suggesting that this may serve as a stopping point in this session, as well. Technical indicators are generally bearish, demonstrating that the down-trend may, in turn, be respected. Thus, it is likely that the Pound tests the 1.2717 level prior to edging lower mid-day. The subsequent fall might be stopped by the 55-day SMA located circa 1.2660. On the contrary, an upward breakout would put the monthly S1 at 1.2758 to the test.

Despite being pressured to the downside early Thursday, USD/JPY made a U-turn and moved closer the upper channel boundary. The given level, however, was not reached, allowing some room for further appreciation up to 111.42. Yesterday's trading session resulted in a death cross of the 55– and 100-hour SMAs, thus flashing bearish signals. Other technical indicators likewise support a possible fall down to the 111.05/10 territory. As no significant fundamental events are scheduled for today, the pair may continue its movement sideways, setting the aforementioned 111.42 and 111.05 as a possible trading range. In case of strong upward risks, the US Dollar should cap at the 111.80 mark where the monthly PP is located.