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Daily Pivots: (S1) 1.4643; (P) 1.4699; (R1) 1.4727; More...

EUR/AUD's fall from 1.5226 resumed after brief consolidation. The break of 1.4669 support argues that rise from 1.3624 is completed at 1.5226 already. Intraday bias is back on the downside. Break of 38.2% retracement of 1.3624 to 1.5226 at 4614 will pave the way to 61.8% retracement at 1.4236 and possibly below. On the upside, above 1.4754 minor resistance will turn bias neutral and bring recovery first.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a corrective pattern. Such correction should be completed at 1.3624 after defending 1.3671 key support. Rise from 1.3642 would extend to 61.8% retracement of 1.6587 to 1.3624 at 1.5455. Sustained break there will pave the way to retest 1.6587. However, sustained break of 1.4669 support will dampen this bullish view. We'll assess the outlook later after looking at the structure and depth of the pull back.

Brazilian real struggles to recover despite easing uncertainties

The Brazilian real was unable to recover completely from the panic sell-off that took place after the alleged corruption of President Michel Temer. After spiking USD/BRL to 3.40, the real stabilised at between 3.25-3.30, far above the 3.10 level prior to the revelations. However, several indicators suggest that the level of uncertainty has decreased substantially.

First, interest rates erased almost completely gains with the 2-year swaps rates easing to 9.22% compared to 11% on May 15th. On the longer end of the curve, the move is similar as the 10-year sovereign yields eased to 10.37% compared to 11.73%. However, the only black mark is on the CDS rates side. CDS rates on Brazilian sovereign debt have not return to their pre-revelation levels yet - the 5-year and 10-year are still higher by 40bps and 46bps, respectively - suggesting that investors are still worried about further turmoil in the political landscape. We believe it is just a matter of time.

Secondly, the level of implied volatility has been decreasing over the last few weeks. 1-month ATM implied volatility on USD/BRL has returned to 12.6% on Monday compared to more than 23.3% a month ago. Furthermore, the 1-month 25-delta risk reversal measure, which measures the difference between the price of a call and a put, has eased to 2.51% from more than 5% in mid-May, suggesting that the market is not anticipating further upside in USD/BRL.

Overall, it seems that the market still needs time to digest the latest political developments in Brazil. We believe that the real has room to appreciate against the greenback and we anticipate that USD/BRL has only one way to go: down.

Swiss economy: Low inflation is still a concern for Bern

A week after the SNB kept rates unchanged, the State Secretariat for Economic Affairs in Bern has issued economic forecasts for Switzerland. The GDP growth in 2018 is expected to reach 1.9% y/y (currently at 0.9%). In the same time, the SECO is forecasting exports to reach 3.7% (currently below 3%). Imports are also expected to take a jump to 3.8%. Consumer prices forecasts are the one weak point and the SECO sees consumer prices declining by 0.3% a year from now.

The strong franc has not prevented the SECO from showing its optimism on the Swiss economy. We tend to believe that current levels are still sustainable for the Helvetic country. In the same time, FX reserves are reaching almost CHF 700 billion which shows the massive effort to stabilise the CHF. We do not believe that the central bank will diminish its intervention and the balance sheet is set to stay very large.

Upside pressures on the CHF will likely continue. The currency is very dependent on the ECB monetary policy. In the medium-term, markets seem to expect the ECB to provide some hints about a further tightening path, which would provide some relief to the currency. For the time being, we remain long CHF.

Daily Pivots: (S1) 141.46; (P) 141.89; (R1) 142.48; More....

GBP/JPY continues to stay in range below 142.75 resistance and intraday bias remains neutral first. We'd still prefer to see break of 142.75 to confirm near term reversal. In that case, intraday bias will be turned back to the upside for 148.09 resistance. On the downside, break of 138.65 will resume the decline from 148.09. But in that case, we'd look for bottoming signal around 135.58, which is close to 135.39 fibonacci level, to bring rebound.

In the bigger picture, while the fall from 148.09 is deeper than expected, we're not bearish in the cross yet. Price action from 148.42 is possibly developing into a sideway pattern with fall from 148.09 as the third leg. Deeper decline could be seen but we're looking for strong support from 135.58 and 50% retracement of 122.36 to 148.42 at 135.39 to contain downside. Rise from 122.36 is still mildly in favor to resume at a later stage. However, sustained break of 135.58/39 will confirm reversal and target a retest on 122.36 low.

Daily Pivots: (S1) 0.8731; (P) 0.8755; (R1) 0.8775; More...

Intraday bias in EUR/GBP remains neutral at this point as consolidation from 0.8865 continues. In case of another fall, we'd expect strong support from 0.8639 to contain downside and bring rise resumption. Decisive break of 0.8851 resistance will pave the way to retest 0.9304 high. However, break of 0.8639 support will now indicate near term topping and bring deeper pull back 0.8529 resistance turned support and below.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. The leg from 0.9304 should have completed after testing 0.8332 structural support. But it's too early to say that larger rise from 0.6935 is resuming. Rejection from 0.9304 will extend the consolidation with another falling leg. Meanwhile, firm break of 0.9304 will target 0.9799 (2008 high). In case of another decline, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside and bring rebound.

The Aussie dollar climbed back above 0.7600 after overnight's dips were contained at 0.7585 (Monday's low / broken Fibo 61.8% of 0.7749/0.7328 descend). The pair maintains bullish bias with near-term action in consolidation mode on repeated failure at 0.7630 zone.

Technical studies on daily chart remain firmly bullish and supportive for further advance.

The price is currently riding on the third wave of five-wave pattern from 0.7328 (09 May low) which met its 138.2% Fibonacci expansion at 0.7634 and could travel to its FE 161.8% at 0.7677.

Bullish cross of 10/100SMA's underpins the action with rising 10SMA / Tenkan-sen at 0.7570/74, tracking the rally and expected to hold corrective dips.

Res: 0.7635, 0.7650, 0.7679, 0.7700
Sup: 0.7585, 0.7570, 0.7556, 0.7539

Daily Pivots: (S1) 124.08; (P) 124.29; (R1) 124.52; More...

Intraday bias in EUR/JPY stays mildly on the upside for 125.80/126.09 resistance zone. Decisive break of 126.09 will extend the whole rebound from 109.03 to 100% projection of 109.03 to 124.08 from 114.84 at 129.89. In case of another fall as consolidation from 125.80 extends, we'd still expect strong support from 38.2% retracement of 114.84 to 125.80 at 121.61 to bring rebound and then rise resumption.

In the bigger picture, focus is staying on 126.09 support turned resistance. Decisive break there will confirm completion of the down trend from 149.76. And in such case, rise from 109.20 is at the same degree and should target 141.04 resistance and above. Meanwhile, rejection from 126.09 and break of 114.84 will extend the fall from 149.76 through 109.20 low.

The pair extended strong rally from Monday and came ticks ahead strong barriers at 111.80/84 (daily cloud base / 100SMA) on Tuesday. The dollar was boosted by comments from Fed’s Dudley and Monday’s strong rally broke above pivotal barriers at 110.93 (Fibo 38.2% of 114.36/108.80 downleg) and 111.29 (daily Kijun-sen), ending day in long bullish candle and generating strong bullish signal.

Break above 111.80/84 barriers would extend rally towards next important resistances at 112.20/24 (daily cloud top / Fibo 61.8% of 114.36/108.80).

Bulls may take a breather before probing into cloud as strongly overbought slow stochastic on daily chart suggests correction.

Session low at 111.48 marks immediate support, followed by broken 30 SMA at 111.28 and broken 55SMA at 111.02 which is expected to contain extended dips.

Res: 111.84, 112.12, 112.24, 113.05
Sup: 111.48, 111.28, 111.02, 110.67

The US dollar gained yesterday, following some hawkish remarks from New York Fed President William Dudley. The influential policymaker noted that even though inflation is lower than what the Fed would like, it is expected to pick up again, boosted by accelerating wages as the labor market continues to tighten. He added he is 'very confident' there is still a long way to go in this economic expansion. His comments echoed a similar message as Chair Yellen last week, that there's no reason for the Fed to pause with its hiking plans.

USD/JPY edged north yesterday on Dudley's hawkish remarks, after it hit support near the 110.80 (S2) zone to stop near the 111.70 (R1) obstacle, marked by the peak of the 2nd of June. Following the break above the downside resistance line taken from the peak of the 10th of May, the price structure suggests that the short-term outlook has turned positive. As such, even if we experience a setback due to profit taking on yesterday's up-leg, we expect the bulls to remain in the driver's seat. A clear break above 111.70 (R1) is possible to initially aim for our next resistance of 112.15 (R2).

Overall, what we consider most interesting is the growing divide within the Fed, between policymakers who are confident slowing inflation is transitory (Yellen, Dudley), and officials who have called for caution and a rebound in the data before acting again (Kashkari, Kaplan, Evans). The market seems to be on the side of caution as it continues to expect a pause before the next rate hike, which is fully priced in for June 2018. Considering that market pricing is already very pessimistic, we see the risks surrounding the dollar's future path as asymmetric. We think that any upside reaction in case of accelerating inflation is likely to be larger than the corresponding negative one in case of further slowdown in prices.

Today, we will hear from Fed Vice Chairman Fischer, who tends to be on the same page with Yellen and Dudley in his views. Should he echo similar comments that slowing inflation is transitory, USD could gain a bit further.

RBA minutes: No fireworks

Overnight, the minutes of the RBA's June policy meeting contained no surprises. Policymakers appeared slightly more upbeat on jobs, but they reiterated that developments in the labor and housing markets continue to warrant careful monitoring. Looking ahead, we think the Bank is likely to sound more optimistic when it meets again on the 4th of July, mainly because the latest jobs report that was released after the June gathering was stellar, which is likely to alleviate some of the RBA's labor market concerns.

AUD/USD slid yesterday ahead of the minutes after it found resistance slightly below the 0.7635 (R1) barrier and fell below the upside support line drawn from the low of the 2nd of June. The bulls' failure to aim for a higher high and the subsequent dip below the aforementioned upside line make us switch to flat for now with regards to the short-term picture. We prefer to wait for a decisive close above 0.7635 (R1) before we get confident on further advances again. On the downside, a break below the 0.7565 (S1) support will probably signal the completion of a double top formation and perhaps bring a short-term trend reversal.

Today's highlights:

The economic calendar is very light today. From Europe, we get Sweden's unemployment rate for May and Germany's PPI data for the same month. In the US, the current account balance for Q1 is due out. From New Zealand, we get the GDT (Global Dairy Trade) index, but no forecast is available. That said, the event that will probably keep NZD traders on the edge of their seats in the following days is the RBNZ policy meeting on Thursday.

We have six speakers on the agenda. In the US, besides Fischer, Dallas Fed President Robert Kaplan, and Boston Fed President Eric Rosengren speak as well. Elsewhere, we will get remarks from SNB Chair Thomas Jordan, ECB Executive Board member Benoit Coeure and BoE Governor Mark Carney. In light of last week's surprisingly hawkish BoE rate decision, we think Carney's comments will be closely followed for any hints as to whether a policy action is indeed as likely as the hawkish dissents would lead one to believe.

USD/JPY

Support: 111.40 (S1), 110.80 (S2), 110.30 (S3)

Resistance: 111.70 (R1), 112.15 (R2), 112.50 (R3)

AUD/USD

Support: 0.7565 (S1), 0.7515 (S2), 0.7500 (S3)

Resistance: 0.7635 (R1), 0.7675 (R2), 0.7700 (R3)

Daily Pivots: (S1) 1.0857; (P) 1.0882; (R1) 1.0901; More...

In the bigger picture, the price actions from 1.1198 are seen as a corrective move. Such correction could have completed after defending 38.2% retracement of 0.9771 to 1.1198 at 1.0653. Decisive break of 1.0999 resistance will target a test on 1.1198 high. For now, this will be the preferred case as long as 1.0791 support holds.

Investor concerns, that low US inflation could deter the Federal Reserve from raising interest rates further this year, were somewhat abated last night after New York Fed President William Dudley stated “that the tightening in the labour market should help drive up inflation”. Dudley’s comments reinforced last weeks Fed message and helped to give a boost to USD.

In early Asian trading USDJPY rose to 111.783 reaching its strongest level since May 26th which is nearly 2.8% above the 2 month low set on June 14th of 108.81. Currently USDJPY is trading at 111.60. Technical Analysis indicates key resistance levels just above 112.10 which may tempt market bulls to test.

Additional gains for USD against JPY may also arise following the comments made last week by the Bank of Japan Governor Kuroda; “the BOJ would be in no hurry to dial back its massive stimulus program”

USD strength saw the Dollar Index September Future trading as high as 97.29 in early trading – it’s highest level since May 30th – currently trading at 97.25 for the September Future.

Domestic politics and the UK’s economic future (the Brexit negotiations began yesterday) have caused downward pressure on GBP. After reaching a high on Monday of 1.2814 GBPUSD is trading below 1.2690 this morning. There may be some hope for GBPUSD to recover with speeches expected today form Bank of England Governor Mark Carney and British finance minister Philip Hammond.

Oil continues to be under selling pressure as there is clear evidence that crude oil production is rising in the US, Nigeria & Libya. These increases are undermining the efforts of OPEC to curb production. Add to that a 22nd consecutive month of increases in new US Oil rigs and it becomes less of a surprise to see WTI trading below $44.70 and Brent trading below $47.35 a barrel in early trading this morning – both close to 5 month lows.

As global risk sentiment has improved Gold has lost some of its shine hitting a 1 month low of $1,242.75 before retracing higher to currently trade close to $1,247.