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It continues to be an uneventful week for USD/JPY. In Thursday's North American session, the pair is down 0.9% and is trading at 111.30. On the release front, US unemployment claims rose to 241 thousand, matching the forecast. Later in the day, Japan releases Flash Manufacturing PMI, which is expected to improve to 53.4 points. On Friday, the US publishes New Home Sales.

Recent statements from the Bank of Japan indicate that when it comes to monetary policy, markets can expect more of the same. BoJ Governor Haruhiko Kuroda has insisted that the bank's ultra-loose policy would continue until inflation has reached the 2% target. Although the bank shows no signs of exiting its quantitative easing scheme, the BoJ has reduced its purchase of bonds. If this continues, bond purchases could slow to JPY 60 billion/year, down from the current 80 billion/year. In the April rate statement, the BoJ was more upbeat in its economic appraisal. This was an acknowledgement of a stronger Japanese economy, which grew at annualized rate of 1.0% in the first quarter, as exports and consumer spending strengthened. On Wednesday, the BoJ released the minutes of the April meeting. Policymakers noted that under the bank's asset-purchase program, the amount of government debt purchases would fluctuate, but that this did not pose a problem. The minutes also noted that members were optimistic about exports and industrial production.

The Federal Reserve has surprised the markets with its hawkish stance, as underscored by its 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.

• Brent oil price rose slightly and rebounded north of $45 after multiple daily losses since the end of May. Despite this small rise, European stocks are heading for a third daily decline. US stocks opened mixed, while gold and silver advance. Treasury yields are little changed.
• Britain's manufacturers are enjoying their healthiest pipeline of orders in nearly thirty years, the CBI survey for June showed. Export orders, supported by the weak pound, and overall demand are at their highest level since 1995 and 1988. This means a UK growth recovery in Q2 after the slowdown in Q1 is becomes more likely.
• Norway's central bank kept the policy rate unchanged but removed the easing bias in its meeting statement. It eliminated the prospect of a future cut and pencilled in a first increase in the beginning of 2019. As a result, the krone jumped 0.6% compared to the euro and settled a little lower at EUR/NOK 9.48 later in the day.
• The US weekly jobless claims figure of 241k was only slightly above the consensus of 240k. This followed a slightly upwardly revised 238k in the previous week, which was initially reported at 237k.
• EMU consumer confidence in June came in higher than consensus at -1.3. After close today in the US, the Fed will release the results of part one of its annual bank stress test.

Rates

German 2-yr yield near key levels

The Bund and US Note future traded uneventful today. Recovering commodity/oil markets, small losses on equity markets and close to consensus US weekly jobless claims didn't impact trading. The underperformance at the front end of the German yield curve continued during European dealings. Comments by ECB chief economist Praet partly explain the move. He said that prices will rise sooner or later and that this will bring about a change in monetary policy. "There is a light at the end of the tunnel". Moreover, his comments fit in the globally changing monetary policy stance. It's becoming clearer that the peak in dovish central bank talk is behind us. The Fed is the most obvious example, but other central banks are also gradually turning the corner. The ECB's change to its forward guidance, last week's dissent in the Bank of England, the co-ordinated comments by the chair and vice-chair of the Bank of Canada, upbeat comments on economic growth by the RBA, the slightly more optimistic view on inflation by the RBNZ overnight and the Norges Bank dropping its easing bias this morning… The correction at the front end of the German curve, the most extremely positioned market, suggests that markets started picking up the signals. The German 2-yr yield moved above -0.63% resistance, painting an inverse head and shoulders formation on the charts. A break above -0.6% would have important technical implications. The 2-yr yield is at its highest level since November 2016. During US dealings, bonds found new vigour, partly undoing European moves.

At the time of writing, changes on the German yield curve range between +0.8 bps (2-yr) and -1.9 bps (30-yr). The US yield curve shifts -0.8 bps (30-yr) to -2.2 bps (5-yr) lower. On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrowed up to 3 bps (Spain/Ireland) with Greece and Portugal slightly underperforming.

Currencies

USD desperately waiting for 'real news'

There is still no big story to tell on the dollar. The decline of the oil price and the potentially negative impact on interest rates weighed slightly on the dollar this morning. However, the decline of oil halted, at least temporary, and so did the dollar. The data were no able to case any intraday dynamics. EUR/USD trades in the 1.1155/60 area. USD/JPY hovers around 111.25.

Overnight, Asian markets opened with a positive bias as the tech sector rebound continued. The positive momentum dwindled as the session proceeded though. Brent oil held below the $45/barrel level. The decline in oil prices and ongoing low core yields kept USD/JPY in the defensive. USD/JPY traded in the low 111 area. The dollar also traded marginally softer against the euro (EUR/USD 1.1170 area).

European equities failed to join the tech rally from the US and Asia and opened with modest losses. However, there was again little fallout from this poor start of equities on bonds or on the dollar. The correction also eased quite soon. USD/JPY dropped again to the 111 area, but the 110.65 correction low stayed well out of reach. EUR/USD still didn't show a clear trend and held stable in the 1.1175 area. Changes in interest rate differentials were negligible.

US jobless claims printed bang in line with expectations (241 000), offering no guidance for USD trading. USD/JPY trades currently in the 111.15 area. EUR/USD is changing hands in the 1.1160/65 area.

The Norges bank kept its policy rate unchanged at 0.5%, but left its easing bias. The Norwegian Crown strengthened from EUR/NOK 9.52 to EUR/NOK 9.46 (currently 9.48) even as the oil price struggles to prevent further losses.

EUR/GBP holds near the 0.88 pivot

After yesterday's Haldane inspired swings, sterling shifted in wait-and see modus. The political crisis isn't solved, but there was no additional negative news. A similar story can be told on Brexit. EUR/GBP settled in a tight range close to, mostly slightly above the 0.88 barrier. The CBI trends orders were again stronger than expected, but with no noticeable impact on sterling trading. EUR/GBP trades currently in the 0.8810/15 area. Cable holds an extremely tight range in the 1.2675 area.

GBP/USD - 1.2672

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2671

Kijun-Sen level                    : 1.2672

Ichimoku cloud top              : 1.2702

Ichimoku cloud bottom        : 1.2650

Original strategy :

Sold at 1.2695, Target: 1.2595, Stop: 1.2710

Position : -  Short at 1.2695

Target :  - 1.2595

Stop : - 1.2710

New strategy  :

Hold short entered at 1.2695, Target: 1.2595, Stop: 1.2710

Position : - Short at 1.2695

Target :  - 1.2595

Stop : - 1.2710

Although cable staged a strong rebound after yesterday’s brief fall to 1.2589, as long as 1.2710 holds, mild downside  bias remains for another decline, below 1.2635-40 would bring another fall towards said support but break there is needed to retain bearishness and signal recent decline has resumed for weakness towards 1.2550, however, oversold condition should limit downside to 1.2520-25. 

In view of this, we are holding on to our short position entered at 1.2695. Only above 1.2720-25 would abort and suggest low has been formed instead, bring a stronger rebound to 1.2755-60 and possibly 1.2780 but price should falter below indicated strong resistance at 1.2818.

EUR/USD - 1.1162

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 1.1165

Kijun-Sen level                  : 1.1154

Ichimoku cloud top             : 1.1166

Ichimoku cloud bottom      : 1.1141

Original strategy  :

Sell at 1.1190, Target: 1.1090, Stop: 1.1225

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1200, Target: 1.1100, Stop: 1.1235

Position : -

Target :  -

Stop : -

The single currency has rebounded again after holding above this week’s low at 1.1119, suggesting further consolidation would be seen and near term upside risk remains for retracement to 1.1185-90 (38.2% Fibonacci retracement of 1.1296-1.1119), however, upside should be limited and price should falter below 1.1207-13 (50% Fibonacci retracement and previous resistance), bring another decline later, below 1.1135-40 would suggest the rebound from 1.1119 has ended, brig retest of this level, below there would confirm recent decline has resumed for further weakness to previous support at 1.1109, then towards 1.1075-80 but loss of near term downward momentum should prevent sharp fall below 1.1050.

In view of this, we are looking to sell euro on recovery as 1.1195-00 should limit upside. Only above 1.1213 resistance would defer and risk a stronger rebound to 1.1230-35 but upside should be limited to 1.1260-70, bring another decline later.

USD/JPY - 111.25

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 111.17

Kijun-Sen level                  : 111.35

Ichimoku cloud top             : 111.37

Ichimoku cloud bottom      : 111.35

Original strategy  :

Buy at 110.65, Target: 111.65, Stop: 110.30

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 110.65, Target: 111.65, Stop: 110.30

Position :  -

Target :  -

Stop : -

As the greenback slipped again after faltering below recent high at 111.79, retaining our view that further consolidation below this level would be seen and pullback to 110.80 is likely, however, reckon previous support at 110.65 would limit downside and bring another rise later, above 111.45-50 would bring retest of 111.79 but break there is needed to confirm the rise from 108.82 low has resumed and extend headway to 111.90-95 (50% projection of 108.82-111.42-110.65), however, upside should be limited to resistance at 112.13 and 112.25 (61.8% Fibonacci retracement of 114.37-108.82 and 61.8% projection) should hold.

In view of this, would not chase this rise here and we are looking to buy dollar on pullback as 110.65 support should limit downside. Below 110.30-35 (50% Fibonacci retracement of 108.82-111.79 and previous resistance turned support) would abort and signal a temporary top has been formed instead, risk weakness towards 109.95-00 (61.8% Fibonacci retracement).

EUR/GBP - 0.8814

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

Trend: Near term up

Original strategy  :

Buy at 0.8660, Target: 0.8860, Stop: 0.8620

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8660, Target: 0.8860, Stop: 0.8620

Position : -

Target :  -

Stop : -

 
Although the single currency rebounded to 0.8846 yesterday, the subsequent retreat has retained our view that further consolidation below recent high at 0.8866 would be seen and another corrective fall to 0.8740-50 cannot be ruled out, however, downside should be limited to support at 0.8652, bring another rise later. Above said resistance at 0.8846 would signal the retreat from 0.8866 has ended, bring retest of this last week’s high but break there is needed to confirm recent erratic upmove from 0.8304 low has resumed and extend further gain to 0.8880, then 0.8900, having said that, as broad outlook remains consolidative, reckon current c leg of larger degree wave b should be limited to 0.8950 and price should falter well below 0.9000 psychological level.

In view of this, we are looking to buy euro on subsequent pullback but one should exit on such rise. Below 0.8650 would defer and risk test of 0.8620, a break below there would signal top is formed instead, bring further fall to 0.8620, then 0.8600 which is likely to hold from here.

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

Highlights:

• Nominal retail sales rose 0.8% despite a 1.0% drop in motor vehicle and parts sales.
• Sales volumes rose but by a more modest 0.3% as higher prices accounted for much of the nominal increase.
• 'E-commerce' sales, not all of which are included in the headline retail sales numbers, surged 42% from a year ago in April and are up 40% year-to-date.

Our Take:

The Canadian economy appears to have continued to improve in April, building on a strong run that has left growth well above its 'trend' rate over the last three quarters. The rise in April retail sale volumes - the ninth increase in the last ten months - followed earlier reported gains in wholesale and manufacturing sale volumes. On balance, the data is suggesting April GDP rose 0.2% to build on a 0.5% jump in March even with the fire-related shutdown of a major oil sands producer in April. Strength in household spending is not new with both consumer spending and residential investment at a record share of GDP last year. More encouraging recently have been signs that business investment is also starting to pick up again. Equipment investment rose sharply in Q1 2017 and April machinery import volumes and domestic manufacturer machinery sale volumes are pointing to another, albeit smaller, increase in Q2.

USDCAD is falling strongly away 1.3350 region, where higher degree wave four correction was labeled. As such we now see drop as a suggestion that bears are taking over and that a five wave move is unfolding for the final blue wave v.

USDCAD, 1H

Daily Pivots: (S1) 1.1141; (P) 1.1154 (R1) 1.1182; More....

Intraday bias in EUR/USD remains neutral as it's still bounded in range of 1.1109/1295. On the upside, decisive break of 1.1298 key resistance will carry larger bullish implication and target 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 1.0932). 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.

USD/CAD - 1.3251

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

Trend:  Near term down

 
Original strategy       :

Sell at 1.3365, Target: 1.3130, Stop: 1.3425

Position: -

Target:  -

Stop: -

 
New strategy             :

Sell at 1.3295, Target: 1.3130, Stop: 1.3355

Position: -

Target:  -

Stop:-

As the greenback has retreated after running into resistance at 1.3348, suggesting top has possibly been formed there and consolidation with downside bias is seen for weakness to 1.3191 support, however, break there is needed to signal the rebound from 1.3165 low has ended, bring retest of this support later. Looking ahead, a break below there is needed to confirm recent decline from 1.3794 top has resumed and extend fall to 1.3100-10 and later towards previous support at 1.3078.

In view of this, we are looking to sell on minor recovery as 1.3300 should limit upside. Only break of said resistance at 1.3348 would defer and risk a stronger rebound to previous support at 1.3387 (now resistance), however, still reckon upside would be limited to 1.3420-25 and price should falter well below resistance at 1.3471, bring another decline later.

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