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Central Banks Remain in Focus

After a somewhat sluggish start to the week, Fed Dudley views on inflation confirm a unified Fed willing to look through the soft Q1 inflation print provided a spark to the dollar bulls. But given that Dudley’s public edict is almost always fully in sync with that of Yellen, anything other would have been the shocker. While the markets remain dollar bid tentatively, there remains an air of uncertainty on this move as the USD reality check is likely only one bad US economic data print away.

What had the makings of a very productive trading week for the Aussie dollar was dealt a blow after Moody’s downgraded a group of the leading Australian banks. Discussion around the downgrade has overshadowed this morning RBA minutes and with the USD trading buoyant on hawkish Fed speak, theses external developments should continue to weigh on near-term sentiment

Nonetheless, the Aussie remains supported on the dips as the downgrade reaction was far from an off the cliff scenario. And while credit rating agency negative downgrades can have a short-term impact, they seldom have a lasting influence on currency markets even more so given the market’s recent pivot to all things central banks which should remain the centre of attention throughout the day

Risk appetite appears to be holding firm after Wall Street’s strong performance overnight in Tech stocks and investors overall enthusiasm over the state of the US economy. This

Nothing too worrisome for Aussie bulls in this morning RBA minutes as the Central Bank’s views remain consistent and steady but worth noting the minutes did not take into consideration their views of the bumper Jobs report last week

USDJPY - The pair continues to face upside pressure as it closed higher on Monday. On the downside, support comes in at the 111.00 level where a break if seen will aim at the 110.50 level. A cut through here will turn focus to the 110.00 level and possibly lower towards the 109.50 level. On the upside, resistance resides at the 112.00 level. Further out, we envisage a possible move towards the 112.50 level. Further out, resistance resides at the 113.00 level with a turn above here aiming at the 113.50 level. On the whole, USDJPY looks vulnerable to the downside.

After having watched GBP/USD retest this support/resistance level for a week now, price action is looking like giving us the bearish confirmation we have been looking for.

Bringing up a Cable daily chart on your MT4 platform, you can see that price has failed to make any significant break higher and after printing a couple of indecision candles within the resistance zone, we have most recently closed with both a long wick and bearish body:

GBP/USD Daily:

From here, I want you to zoom into an intraday chart and start to think about the trading opportunity that this higher time frame resistance level has presented us.

Can you see any pull backs into short term support turned resistance? How are you looking to trade this level and is it even from the short side?

Posting intraday levels on this blog starts to flirt within the domain of trade recommendations, which obviously is NOT what this blog is all about. I want to help identify the major levels to look out for and then open up the intraday levels to discussion on social media.

These intraday levels have to come from you!

Dudley Do-Right for the dollar bulls

In the absence of any meaningful economic data overnight, the market’s focus was on Fed member Dudley who bolstered the case for Fed policy normalisation. Hitting the right chords and sounding dismissive about the recent slowdown in inflation, an unrepentantly hawkish Dudley provided the USD bulls with enough fodder to re-engage dollar longs tentatively. DXY moved back towards last week’s highs as US 10y yields based and pivoted higher throughout the NY session, and Gold predictably pointed lower on the stronger USD

Risk sentiment held well as NDX was the big gainer closing at +1.6 % as buyers resurfaced after selling dominated for the expiry on Friday.

US Dollar

After a somewhat sluggish start to the week, Fed Dudley views on inflation confirmed a unified Fed willing to look through the soft Q1 inflation print, provided a spark to the dollar bulls. But given that Dudley’s public edict is almost always fully in sync with that of Yellen, anything other would have been the shocker. While the markets remain dollar bid tentatively, there remains an air of uncertainty on this move as the USD reality check is likely only one bad US economic data print away.

Japanese Yen

USDJPY continues rallying in early APAC trade after Fed member Dudley comments struck a chord with investors Even Russia’s threat to target US warplanes in Syrian airspace failed to ruffle sentiment or cause any risk averse demand for JPY. Given the markets are still short USD, the headlines are likely to create a bit of discomfort as the short term momentum is tentatively USD bullish as a unified Fed is steers the policy ship

British Pound

The market remains wrapped around the on-going Brexit negotiations. There remain many obstacles and hurdles for the UK economy, and the initiation of the negotiations will be substantial, but the general tone at this stage is what’s key.

The Canadian dollar traded in a tight range on Monday. Last week the loonie touched 18 month highs after Bank of Canada (BoC) Deputy Governor Carolyn Wilkins and Governor Stephen Poloz made comments suggesting the central bank could be ready to hike interest rates sooner than the market was anticipating. The statements were made one day apart in usually non-eventful business school setting and a radio interview. The CAD ended the week on a positive note, despite the U.S. Federal Reserve raising the benchmark rate for the second time this year. Political uncertainty offset the gains even though Fed Chair Janet Yellen was hawkish on growth.

Fed members will be one of the market highlights during a week that features few major economic releases. New York Fed President Dudley supported the decision from the US central bank and expects further rate hikes, despite the softening of inflation.

Oil is trading lower ahead of Wednesday’s US crude inventories report. The rise of US production has all but cancelled the benefits to the price of crude that the Organization of the Petroleum Exporting Countries (OPEC) and other producers wished to achieve with their historic production cut agreement.

The USD/CAD gained 0.054 percent on Monday. The currency pair is trading at 1.3220 as the USD is showing signs of life after a difficult week where despite the Fed hiking rates the uncertainty surrounding the Trump Administration made it impossible for the greenback to capitalize on the hawkish rhetoric.

Oil prices fell by 0.701 percent in the last 24 hours. The price of West Texas Intermediate is trading at $44.33 after news that Nigeria and Libya are soon to come back to full production following several disruptions in supply. The two OPEC members were not part of the production cut agreement given the problems they had with their production pipeline. The return of the two producers to full force could be temporary given the fragile stability in both nations, but in the short term could hurt crude prices driving them even lower.

Last week the weekly inventories of crude in the US fell by 1.7 million when a 2.3 million drawdown had been expected. The biggest surprise came in a large buildup of gasoline when a contraction was expected. The oil market has been guided by the weekly inventory numbers as the best efforts of the OPEC to reduce supply appear to have reached their limit as the US has ramped up production and keeps investing in new technology.

Market events to watch this week:

Tuesday, June 20
2:30 am CHF SNB Chairman Jordan Speaks
4:45 am CHF SNB Chairman Jordan Speaks

Wednesday, June 21
10:30 am USD Crude Oil Inventories
4:00 pm NZD RBNZ Rate Statement
5:00 pm NZD Official Cash Rate

Thursday, June 22
8:30 am CAD Core Retail Sales m/m
8:30 am USD Unemployment Claims

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

Gold has started the new trading week with losses. In North American trade, XAU/USD is down 0.49%, with spot gold trading at $1248.74 per ounce. On the release front, there are no economic indicators. The sole events on the schedule are comments from FOMC members William Dudley and Charles Evans.

Gold prices dipped last week after the Fed's hawkish rate statement, and the metal has started the week with losses, again courtesy of the FOMC. Earlier in the day, Federal Reserve of New York President Charles Dudley cautioned the Fed against halting its current tightening cycle. Dudley said that the economy was performing well, and reiterating the sentiment expressed in the rate statement, Dudley said that he was not concerned with inflation levels, which are at 1.5 percent (well below the Fed's target of 2.0%). Dudley's upbeat remarks have boosted the dollar and have pushed gold prices to their lowest level since May 15.

Friday's US releases were a disappointment, as construction and consumer confidence reports missed expectations. Building Permits dropped to 1.17 million, its lowest level since August 2016. Housing Starts were also week, as the reading of 1.09 million marked the lowest since November 2016. There is concern that the soft construction numbers could weigh on second-quarter growth. There was more bad news from UoM Consumer Sentiment, which dipped to 94.7 in May, marking a 7-month low. This is significant, as it is the indicator's lowest reading since President Trump took office, and points to consumer unease with how the US economy is being handled. There are troubling signs that the June UoM report could be even lower, coming after the Comey testimony which has damaged Trump's credibility even further.

The market is seemingly saying, 'we've been burned by this before' as the dollar reluctantly rises on optimism from the Fed. USD led the way on Monday while the yen lagged. The central bank calendar is busy in the day ahead. CADJPY Premium trade will be kept as is but members are free to adjust the stop.

The Fed's Dudley took center stage on Monday as the market struggles to anticipate what's next from the FOMC. The market is pricing in just a 21% chance of a hike in Sept and 43.5% in December. According to the NY Fed chief, the outlook is far rosier than that. He said he was 'very confident' in the economic expansion forecast wage growth would quicken. He showed none of the caution we heard from Kaplan Friday.

The dollar initially climbed 15 pips on his comments but a steady bid continued through the day that pushed USD/JPY up 66 pips and EUR/USD down to 1.1150. Both moves were enough to erase Friday's action.

The slow grind underscores the acrimonious history the market has with Fed hawks. The Fed has overestimated growth and inflation every year since the crisis. To start the year, the in-vogue trade was reflation but it's been a dud.

So the question is to bet on recent history and or bet on the Fed getting it right this time. The lack of conviction in both camps is going to make it a back-and-forth battle as the data rolls in.

What's especially interesting is that other central banks have increasingly similar views as the Fed. The minutes of the June RBA meeting are due at 0130 GMT and are likely to highlight a similar stance. At that meeting, Lowe brushed aside a weak Q1 and forecast better growth ahead. AUD has been a strong performer since.

The minutes are part of a day with a heavy central bank focus. The PBOC's Zhou will speak 30 minutes earlier and later highlights include Carney's Mansion House speech along with the Fed's Fischer and Rosengren.

2 positions were entered last week with total profit of 200 points and the positions are listed below.
 

  9 Jun : USD/CAD - Short at 1.3500, exited at 1.3300 (+ 200 points)
16 Jun : GBP/USD - Short at 1.2750,

|                 AUD          EUR/JPY           EUR/GBP         CAD          GBP         GBPJPY
Jan             - 15             -275                - 35            -120
Feb           + 140            -17                  - 40             +11
Mar            - 20            +115                +132           - 19
Apr             + 30                                  - 40           +120                              + 45
May                             - 55                  +100          - 60               -65              -60         
Jun            + 1                                      + 10          +20                              +200
Jul            
Aug          
Sep              
Oct           
Nov         
Dec                                                                                                                                               
Y-T-D        + 136           - 232               +127            +298             -65            +185

5 positions were entered among all 4 currency pairs with total loss of 45 points and the positions are listed below:

 9 Jun : USD/CHF - Short at 0.9720, exited at 0.9715 (+ 5 points)
12 Jun : EUR/USD - Short at 1.1230, exited at 1.1240 (- 10 points)
15 Jun : USD/JPY - Short at 109.60, exited at 109.90 (- 30 points)
15 Jun : GBP/USD - Short at 1.2790, exited at 1.2800 (- 10 points)
19 Jun : USD/CHF - Long at 0.9705,

|                 JPY             EUR             CHF            GBP

Jan          + 167             - 85              - 10            + 50
Feb          + 200            +150             +93            - 59
Mar              -23              -70               -23            - 35
Apr             + 65            + 93             + 50            - 40
May            - 65             - 35             + 100          -175
Jun            - 65               -10                + 5            + 90
Jul           
Aug         
Sep             
Oct         
Nov        
Dec                                                                                               
Y-T-D       + 278            + 38               +215           -159     

USD/JPY has pushed higher in the Monday session, as the pair trades at 111.30 in the North American session. On the release front, Japan's trade surplus improved to 0.13 trillion, but this was well short of the estimate of JPY 0.35 trillion. In the US, the only releases are speeches from FOMC members Dudley and Evans. On Tuesday, the BoJ will release the minutes of the April policy meeting.

The Bank of Japan sounded upbeat on the economy in its rate statement on Friday, but the positive spin didn't seem to impress the markets, as USD/JPY lost ground. The BoJ indicated that it had no plans to reduce its ultra-accommodative monetary policy, which includes negative (short term) interest rates and an asset-purchase program of JPY 80 billion/year. The rate statement took note of the stronger Japanese economy, stating that private consumption was showing "increased resilience". This was more hawkish than the April statement, when the bank said that private consumption was "resilient". The economy has shown improvement in 2017, as stronger global demand has boosted the Japanese manufacturing and export sectors. At the same time, inflation remains stubbornly low, well below the bank's target of 2.0 percent. At a press conference, BoJ Governor Haruhiko Kuroda would not say when the bank might exit its current monetary policy. There have been calls for the bank to lower its inflation goal, but Kuroda said that the ultra-loose policy would continue until the 2% target is achieved.

The US wrapped up the week on a sour note, as construction and consumer confidence reports missed expectations. Building Permits dropped to 1.17 million, its lowest level since August 2016. Housing Starts were also week, as the reading of 1.09 million marked the lowest since November 2016. There is concern that the soft construction numbers could weigh on second-quarter growth. There was more bad news from UoM Consumer Sentiment, which dipped to 94.7 in May, marking a 7-month low. This is significant, as it is the indicator's lowest reading since President Trump took office, and points to consumer unease with how the US economy is being handled. There are troubling signs that the June UoM report could be even lower, coming after the Comey testimony which has damaged Trump's credibility even further.