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Key Points:

• Fed likely to remain on course for further rate hikes in 2017.
• Industrial demand for silver remains buoyant.
• Silver likely to remain bullish in the short term but watch for Fed action.

Silver has continued to see concerted selling pressure as price action remains trapped within the confines of a sideways channel. Subsequently, the past few days has seen price action trending strongly towards the lower channel constraint where, historically, the metal has reversed. However, given the risk of near term action by the U.S. Federal Reserve, it remains to be seen if the metal will discover a bottom or continue to fall through the support structure.

In particular, the metal could potentially be facing a relatively large rout as the US economy continues to gear up for a range of monetary tightening. The risk of the Fed normalising rates was always ever present but as we move towards sustained economic growth and job gains it becomes relatively clear that the central bank will need to continue their cycle of tightening sooner, rather than later. Subsequently, the market is likely to focus upon the near term risk that a cycle of potential interest rate hikes pose.

Any such move by the Fed would potentially send Silver reeling from its current level and forward forecasting shows that 75bps of hikes to the FFR, over the next year, would see the metal trading around the $14.00 an ounce mark. However, that risk might yet to be reflected within the Silver futures curve which is still showing rising prices throughout most of 2017 and 2018. Subsequently, we could see a definite correction if the Fed actually follows through on their recent threats of further rate hikes in 2017.

Fortunately, the one fundamental factor which appears to be holding strong is the industrial demand for Silver. Physical demand continued to soar throughout most of 2016 which bodes well for the overall trend direction and may be what much of the futures curve is based on. However, this assumes that the silver market remains fair and there is plenty of evidence that this may not quite be the case with paper derivatives.

Ultimately, Silver is in for a rough few months ahead as the volatility is likely to be fairly severe when the Fed tightening cycle again commences. That rate hikes are coming is patently inevitable, especially given some of the recent gains in the job market, which suggests that it would pay dividends to position appropriately now before the rout commences in the medium term. However, for the short term at least, Silver is likely to reverse course and trend higher within its current channel.

Key Points:

• Bearishness could end within the next week or so.
• A breakout above the 100 day EMA is like to signal the resumption of the uptrend.
• Gains should be capped around the 113.00 handle.

The Dollar Yen's resurgence has been moderated over the past few days by the presence of the 100 day EMA but the pair's underlying bullishness may shine through shortly. Indeed, a number of technical developments are signalling that a breakout above the 100 day average may be seen inside of a week – potentially leading to the upside of the broader pennant being tested.

Firstly, it's worth taking a look at why last week's strong uptrend has seemingly run out of steam before addressing why the rally may yet be saved. As shown below, the key culprit in capping upsides has been the 100 day EMA which has proven to be a source of dynamic resistance once again. However, we can't ignore the influence of the stochastics whose overbought reading has also been putting pressure on the Dollar Yen. Aside from these technicals, there isn't actually much suggesting that a reversal is warranted which leaves the bulls in a fairly good position to take back control of the pair moving ahead.

What's more, there are numerous readings indicating that the bulls are very much on the cusp of pushing past the 100 day EMA and beginning the next leg of the broader uptrend. For one thing, the 12 and 20 day moving averages have seen a crossover – potentially heralding a shift in the medium-term bias for the USDJPY. Additionally, the Parabolic SAR is well below price action which would typically suggest that the rally remains intact and that we can expect further upsides in the coming days.

As for where we can expect gains to extend to, currently, we forecast that the long-term pennant will remain in play which will likely provide us with our eventual reversal point. This should mean that upsides are limited to around the 113.00 mark even if we see a decent shift in the fundamental bias back to bullish. Nevertheless, do keep half an eye on the news feed as any particularly buoyant results could see the rally run its course faster than currently predicted.

Overall, keep an eye on the pair moving ahead as it could be an interesting few sessions. As mentioned, that shifting technical bias should be felt and this could see the bulls emboldened – potentially leading to a rally back to the top of that pennant. The key moment to look for will be a move above the 100 day moving average as this signals that the bears have finally yielded.

EURGBP - The cross continues to retain its short term uptrend as it looks to resume upside pressure. Support lies at the 0.8800 level where a violation will turn focus to the 0.8750 level. A break will expose the 0.8700 level. Resistance resides at the 0.8850 level where a violation if seen will turn risk towards the 0.8900 level. Further up, resistance resides at 0.8950 level followed by the 0.9000 level. Its daily RSI is bearish and pointing lower suggesting further weakness. All in all, EURGBP remains biased to the upside on recovery.

One for the Gold bugs today, with daily trend line support looking to hold.

XAU/USD Daily:

As you can see, price is still hovering around the level where we identified that the heard wants to short Gold. Draw in some horizontal lines touching the key swing highs/lows and you see that we're hovering around quite a significant level.

But it's the daily trend line support that is key here. This is the third touch of the level and if it holds, will be the key going forward in terms of looking to get long.

Zoom into an intraday chart and look at the short term resistance turned support that price bounced off overnight. It's this higher and lower time frame confluence that is key in finding good entries.

White Knights and Nervous Nellies

Falling oil prices continue to temper sentiment in global macro markets and while the Nervous Nellies take solace as oil prices base overnight, don’t get too comfortable as the Oil patch narrative will likely be the primary catalyst in the coming months

As the North American market segues into summer, there’s been little change in the broader markets overnight, and for the most part, currency traders had another peaceful day.

On the Fed speak front, Bullard was his usual dovish self, arguing that current FOMC projections for a 3.0% fed funds rate over the next 2.5 years are “unnecessarily aggressive” and “inappropriate” but the market completely ignored.

On the US political front, Republican Senators have released their revised healthcare bill. Investors seemed to like the news as the sector rallied but offset by weakness in financials leaving the indexes virtually unchanged.Welcome to the summer doldrums in equity markets.

WTI

There was a relief rally in Oil overnight after WSJ headlines suggested that Saudi is targeting a $60 barrel oil price.While a great story line but let’s face it unless the Saudi’s step up to the plate and wear a larger share of production cuts, talking up oil prices, given OPEC’s diminishing position may do little more than providing opportunities for the Bears prowling the oil patch to sell at better levels.

Canadian Dollar

Another stellar showing for the CAD as the high retail sales print supports the Bank of Canada’s recent hawkish shift in rhetoric. But the Loonie was ready to lift off when rumours circulated and then headlines finally hit that Warren Buffet is the beleaguered alternative mortgage lender Home Capital Group Inc “ white knight “ in shining armour. .Buffett’s Berkshire Hathaway unit has agreed to l buy a 38 per cent stake for about $400 million (US$302 million) and provide a $2 billion credit line to buffer to Home Capital

The Loonie is on firm footing heading into Friday’s Key CPI, and while the inflation print will be very significant for the BoC outlook, the latest macro and financial headlines from Bay Street are very encouraging for Canadian investors. Nonetheless, an above consensus print on Friday’s CPI will likely make the July BoC rate decision live, and the Canadian dollar will take flight again as traders rework the BoC rate hike probabilities

A hawkish Central bank, improving macro storyline and a white knight galloping down Bay Street will put a smile on CAD bulls.

Australian Dollar

The fall in oil has created an uncertain environment in the commodity block pressuring the Aussie dollar which continues to underperform on the crosses. While the Aud continues to underperform traders have been nimbly buying the dips around the .7530-40 level, but so far they have little to show as the recovery has been limited despite a minor retracement in oil prices.

The Aud remains trapped in risk-averse market conditions. The next move will likely come at the vagary of Oil traders With the markets still in buy the AUD dip mode another aggressive leg lower in WTI should see the Aussie move to the .7515 breakout zone where a combination of stops and momentum selling could point to a deeper correction in the coming days

Japanese Yen

Surprisingly more volume going through than price action suggests. Two main storylines are creating this battle zone. On the one hand, we have the global markets signalling risk aversion as WTI trades below 45.00 suggesting a move to 110. ON the other, we have traders banking on the Global Central Bank shift towards hawkishness as the near-term catalyst for a weaker JPY which suggests buying the dip is the path of least resistance. However, given how weak investor sentiment is in the Oil patch, a convincing break of 42.00 WTI will likely see the 111 USDJPY give way and with near term stops lurking below the 110.80 are we could see a deeper move into the 110’s. Best be nimble best be quick is the way to trade USDJPY these days

Norwegian Krone

Another Hawkish Central Bank was providing music to STIRT and Spot traders ears overnight when the Norges Bank held interest rates but removed their easing bias.Although the Nok rallied aggressively on the news, an air of caution persists given the current pressure on energy prices.

The Canadian dollar rose on Thursday after the release of retail sales data showed a gain of 0.8 percent and an even bigger jump when excluding auto sales. Core retail sales surged 1.5 percent validating the view of the Bank of Canada (BoC) on economic growth. Second quarter growth appears solid and is well within what is needed for a rate hike before the end of the year. Inflation data out on Friday, June 23 at 8:30 am EDT will give freighter insight into the state of the Canadian economy.

Canadian policy makers have been worried about the rise of household debt and the retail sales gain is mixed news for that reason. Housing and auto expenditures have risen with Canadian personal debt up to 166 percent of income. Core inflation will be an important data point for the central bank governor to decide when to pull the trigger on what appears is an impending interest rate move upwards. The loonie also benefited from gains in oil prices and the news that Berkshire Hathaway will provide a C$2 billion loan to Home Trust Capital and take a 38 percent stake in the troubled mortgage lender.

Oil prices bounced back slightly on Thursday after hitting 10 month lows. Energy prices are facing a losing battle with oversupply. The Organization of the Petroleum Exporting Countries (OPEC) and other major producers production cut has only stabilized prices, but as the US and others not part of the deal ramp up production prices have begun to slide down. Rifts between OPEC members are anticipated to escalate which could end up ending not only the agreement but the cooperation of the group as a whole.

Canadian Prime Minister Justin Trudeau commented on steel exports to the US. The Trump administration is researching the probability of steel exports posing a risk to the security of the US. Trudeau said it was “silly” for Canada to be on that list. Trade topics will begin to heat up as NAFTA renegotiations talks are expected to begin in mid August.

The USD/CAD lost 0.624 percent in the last 24 hours. The pair is trading at 1.3236 after the release of the Canadian retail sales and a bounce in oil prices boosted the loonie. The USD was held back by Fed member Bullard, a known policy dove, who called the projected rate path unnecessarily aggressive. He did say that the central bank should be reducing its balance sheet soon.

Retail sales painted a solid picture of the Canadian economy and it is now up to the inflation release on Friday to corroborate the optimistic view of the Bank of Canada (BoC) top policymakers.

Oil gained 0.299 percent on Thursday. The price of West Texas Intermediate is trading at $42.53 after touching lows of $42.05 earlier in the session. The price of oil continues to be caught between the OPEC oil production cut and the ramp up in production from other producers. Demand is proving to be a tie breaker as it remains subdued creating a glut even as some of the world’s largest producers are reducing their output. Compliance to the OPEC deal was 106 percent in May. Saudi Arabia has been the main driving force of the deal and has done the heavy lifting by over cutting when needed. The change in leadership in the kingdom could also signal a shift away from that role, or vice versa become even more vocal on the role of the OPEC and oil prices.

Market events to watch this week:

Friday, June 23
8:30 am CAD CPI m/m

Gold has posted slight gains in the Thursday session. In North American trade, spot gold trading at $1248.63 per ounce. In economic news, US unemployment claims rose to 241 thousand, matching the forecast. On Friday, the US publishes New Home Sales.

The Federal Reserve has surprised the markets with its hawkish stance, as underscored by last week’s rate statement. The statement mentioned that the Fed plans to reduce its balance sheet later in 2017, although it did not provide further specifics. The balance sheet has ballooned to $4.5 trillion, which accumulated after the 2008 financial crisis, when the Fed went on a bond-buying spree to stimulate the economy. The reduction will be gradual, but still marks an important change in direction for the central bank. On Wednesday, FOMC member Patrick Harker said that he was in favor of the reduction commencing in September. The Fed has hinted at one more rate hike in the second half of 2017, and the markets have circled December as the most likely date for a rate move. The CME Group has pegged the odds of a September hike at just 13%, compared to 18% a week ago. However, the odds for a December increase are at 49%, and this could increase if Fed policymakers continue to wax positive about the economy.

Although gold prices have struggled recently, the growing uncertainty over Brexit has prevented gold from falling even lower. It’s been a rough few weeks for British Prime Minister Theresa May, who gambled by calling an election earlier this month and squandered her majority in parliament. May is trying to cobble together so her political situation remains precarious. May will attend an EU summit in Brussels on Thursday, and will brief the Europeans on how Britain plans to treat EU citizens living in the UK after Brexit. It will be interesting to see the reception she receives from the European leaders. There is plenty of bad blood between the parties, and the players on both sides will need to control their egos and tempers in order to keep the divorce process amicable. Formal negotiations between the UK and the EU began this week, and both sides agreed that the first round of talks was held in a constructive atmosphere. However, if the negotiations fall apart, the repercussions could send shock waves in the markets, and gold could be the big winner.

The Canadian dollar surged again Thursday after a strong retail sales report but the real question is when the Bank of Canada will hike. The AUD and EUR were laggards in the otherwise low-key day. The June Japan manufacturing PMI is up next.

Canadian retail sales rose 0.8% compared to 0.3% expected. Excluding autos, sales were up 1.5% compared to 0.7% expected. The strong numbers have been ongoing for months and household consumption is now forecast to rise 5% this year.

In a surprise turn, the Bank of Canada shifted gears last week and shifted to a hawkish stance after remaining stubbornly neutral for months. USD/CAD is down 3 cents since including more than a cent on Thursday.

In that same timeframe, the chance of a BOC hike on July 12 has risen to 50/50 from 5%. Poloz has a reputation as someone who doesn't mind surprising the market.

But let's recap. All that Wilkins said is that the BOC “will assess whether all the stimulus in place as economic growth continues and, ideally, broadens further.” There is no urgency in that statement and a good retail sales report isn't enough to add any. Meanwhile, oil is down nearly 20% in a month.

The BOC will also have noted the recent decline in Toronto home prices. According to a preliminary realtor report released Wednesday, prices have tumbled 12% since April. By hiking, the BOC would be risking popping a bubble that's already deflating.

So come July 12, the trade will likely be to sell CAD ahead of the headlines but until then, it's tough to bet against an economy that's cranking out good numbers.

Another economy that's done well this year is Japan. The calendar is generally quiet in Asia-Pacific trading Friday but the Nikkei Japan PMI due at 0030 GMT could get some attention. The prior reading was 53.1.

Major currencies were mostly range-bound in a relatively quiet session due to a light news flow and few data releases.

The UK published the CBI industrial orders expectations data for June, which rose to +16 versus an expectation for a fall to +7 from a reading of +9. This was the highest number in 30 years, reflecting strength across most sectors of the economy. A weaker pound since the Brexit vote has helped. Meanwhile, UK Prime Minister Theresa May went to Brussels today for the EU Summit, where she will talk about the rights of EU citizens after the UK leaves the EU. However, any detailed Brexit-related discussion with EU leaders is discouraged during the Summit.

Sterling was barely impacted by today's data and was trading slightly below $1.2700, consolidating gains made after rising on hawkish comments by Bank of England policymaker Andrew Haldane on Thursday.

From the US, weekly unemployment claims figures and April's housing price index (HPI) data were out. Initial jobless claims rose by 3000, to 241,000 for the week ending June 17, versus a rise of 2,000 to 240,000 that was expected. The prior week's claims were revised higher to 238,000. HPI rose 0.7% versus a 0.5% rise expected. The dollar was trading above the 111-yen level in the later half of the European session.

Canada reported April retail sales data which boosted the loonie, helping offset some of the weakness from the drop in crude oil prices recently. Retail sales beat on both the headline and core numbers, which would be good news for the Bank of Canada. Headline sales in April rose by 0.8% month-on-month versus 0.3% expected. However, the prior month was revised down to show a 0.5% gain from a prior 0.7%. The core figure was strong and was up +1.5% month-on-month, more than twice that of the 0.7% forecast. Focus shifts to Friday's CPI data which will be more important for the BoC's outlook. USD/CAD fell after the data from C$1.3300 to $1.32166.

The kiwi extended gains following the RBNZ's positive outlook on the economy at its policy meeting today. NZDUSD rose to as high as $0.7272 during the European session.

In commodities, spot gold bounced higher to $1254 an ounce, while oil prices made some recovery today, halting a 3-day decline that took WTI crude to $42.05 a barrel on Wednesday as investors were concerned about a supply glut.

USD/CHF - 0.9721

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9728

Kijun-Sen level                    : 0.9733

Ichimoku cloud top                 : 0.9744

Ichimoku cloud bottom              : 0.9731

Original strategy :

Bought at 0.9705, Target: 0.9805, Stop: 0.9690

Position : - Long at 0.9705

Target :  - 0.9805

Stop : - 0.9690

New strategy  :

Hold long entered at 0.9705, Target: 0.9805, Stop: 0.9690

Position : - Long at 0.9705

Target :  - 0.9805

Stop : - 0.9690

As the greenback has slipped again after meeting resistance at 0.9766, suggesting further consolidation below said last week’s high at 0.9771 would be seen, however, as long as support at 0.9695 holds, bullishness remains for recent upmove to resume after initial sideways trading, break of said resistance at 0.9771 would confirm recent rise from 0.9613 low has resumed for test of resistance at 0.9808 but reckon previous resistance at 0.9825 would hold from here due to near term overbought condition.

In view of this, we are holding on to our long position entered at 0.9705. Below said support at 0.9695 would defer and risk weakness towards said support at 0.9641 but only break there would abort and revive bearishness, this would also suggest the rebound from 0.9613 has ended instead, bring retest of this level later.