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Good day everyone!

In today's post I want to take a look at USDJPY more closely which I believe has some very interesting pattern unfolding since last week. What really caught my eye is that move up from 108.80 area that occurred for a second time from that important »Gap Zone« made in April. These gaps will normally act like a magnet to be filled, and once they are a new turn may occur. And this is exactly what we see on 4h chart. In fact, bounce occurred very aggressive from 108.80 last week and took out a channel resistance line connected from 114.37. Normally that's indication of a change in trend, so I expect higher USDJPY especially if we consider the Elliott Wave look which shows a potential completion of a corrective set-back from May high. Reason for a bullish view is also an impulsive bounce on hourly chart which shows nice zone of support for this week around 110.00-110.50 zone.

USDJPY, 4H

Daily Pivots: (S1) 1.1154; (P) 1.1177 (R1) 1.1217; More....

EUR/USD is still bounded in range of 1.1109/1295 and intraday bias remains neutral first. Focus stays on 1.1298 key resistance. Decisive break there 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.

Daily Pivots: (S1) 1.2746; (P) 1.2775; (R1) 1.2801; More...

GBP/USD is staying in consolidation above 1.2633 and intraday bias remains neutral first. With 1.2977 resistance intact, we're still favoring the bearish case. That is, consolidation pattern from 1.1946 has completed at 1.3047 already. Break of 1.2614 resistance turned support should confirm our bearish view and target a test on 1.1946 low next. However, break of 1.2977 will dampen our view and turn bias back to the upside for 1.3047 and above.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. Price actions from 1.1946 medium term low are seen as a consolidation pattern, which could have completed after hitting 55 week EMA. Break of 1.1946 low will target 61.8% projection of 1.5016 to 1.1946 from 1.3047 at 1.1150 next. In case the consolidation from 1.1946 extends, outlook will stay remain bearish as long as 1.3444 resistance holds.

Daily Pivots: (S1) 0.9724; (P) 0.9740; (R1) 0.9755; More.....

USD/CHF is still staying in consolidation above 0.9613 and intraday bias remains neutral first. As long as 0.9807 resistance holds, near term outlook remains bearish as deeper fall is expected. Below 0.9613 will extend the whole decline from 1.0342 to 0.9548 support and below. We'd start to look for bottoming signal again as it approaches 0.9443 key support level. However, considering bullish convergence condition in 4 hour MACD, break of 0.9807 will indicate near term reversal and turn outlook bullish for 1.0099 resistance next.

In the bigger picture, USD/CHF is still bounded in medium term range of 0.9443/1.0342 for the moment. Consolidative trading would likely continue and medium term outlook remains neutral. Break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the pair. Meanwhile, downside attempts should be contained by 0.9443 key support level. However, sustained break of 0.9443 will carry larger bearish implication and target 0.9 handle.

Daily Pivots: (S1) 110.52; (P) 110.97; (R1) 111.29; More...

Intraday bias in USD/JPY remains on mildly the upside as rise rebound from 108.81 is expected to continue to near term channel resistance (now at 113.05). Sustained break there will suggest that whole pull back from 118.65 has completed at 108.12 already. In such case, further rise should be seen to 114.36 resistance for confirmation. On the downside, below 110.63 minor support will turn intraday bias neutral. Break of 108.81 will extend the fall from 118.65 through 108.12 low before completion.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Dollar strengthens mildly in early US session after positive comments from New York Fed President William Dudley. He didn't sound much concerned with low inflation. Instead, he noted that the US is "pretty close to full employment. And if labor market continues to tighten further "wages will gradually pick up". And with that "inflation will gradually get back to 2%". Regarding the economy, Dudley also expressed that he is "confident" that the expansion has "quite a long way to go". USD/JPY could be revisiting last week's high at 111.41. But the EUR/USD is holding well above 1.1109 support which keeps it mildly bullish. Overall, the forex markets are staying inside Friday's range.

Leading business groups urged soft Brexit

As the negotiation between UK and EU formally starts today, five leading Business groups sent an open letter to the government urging it to soften the approach. The joint letter came from the British Chambers of Commerce, Confederation of British Industry, EEF, Federation of Small Businesses, and Institute of Directors. The emphasized that the government should "put the economy first" and maintain the "economic benefits" of access to the EU single market. Meanwhile, Chancellor of the Exchequer Philip Hammond said that "no deal would be a very, very bad outcome for Britain". And that's in sharp contrast to Prime Minister Theresa May's no deal is better than a bad deal stance.

The formal Brexit negotiations starts in European Commission buildings in Brussels today. UK's Brexit Secretary David Davis said that there is a "long road ahead" but that will lead to a "deep and special partnership", "a deal like no other in history". He also pledged to approach the difficulties in a "constructive way". The negotiations would start with EU's top priorities including the divorce bill, rights of citizens and border of Ireland. Meanwhile, EU's chief negotiator Michel Barnier would report in October this year on whether there are sufficient progress to move on to phase two of trade agreements. And it's expected that the whole talks would last until October 2018 before making an agreement. Davis and Barnier would be meeting for one week every month and return to their base to develop the positions.

ECB Smets concerned with low inflation expectations

ECB Governing Council member Jan Smets expressed his concerns that "inflation expectations are remaining pretty low" even though core inflation is going up. And he emphasized the need of "solid re-anchoring of these inflation expectations". Wage growth is something that ECB will be looking at closely too. Regarding what to do after the current EUR 60b asset purchase program ends, Smets said that "we'll not wait until New Year's Eve to tell what will happen on Jan.1" And, ECB will look into the matter in the "next months".

IMF Lipton: Not the time for BoJ to discuss exit strategy

IMF first deputy managing director David Lipton said that it's premature for BoJ to discuss exit strategy. He noted that "right now there's a need for continued accommodation because the inflation rate in Japan remains well below target". And, "there's need for the reflation effort to become more advanced." He also hailed that the move from a fixed target of JPY 80T per annum bond purchase to yield curve control is a "useful" switch. He noted that the strategy to "focus on price rather than a focus on quantity" is "likely to be a sustainable one". But he also emphasized the third arrow of Abenomics, structural policies, have to be strengthened.

Japan trade surplus narrowed to JPY 0.13% in May, below expectation of 0.35T. Export growth was flat monthly at 0.0% mom. But annually, exports jumped 14.9% yoy, highest since 2015. Nevertheless, that was below expectation of 18.2% yoy. It's also overshadowed by the 0.3% mom, 17.8% yoy rise in imports.

RBA Lowe expects stronger economy ahead

RBA Governor Philip Lowe said in a speech in Canberra that growth in Australia over the next couple of years will be "a bit stronger than it has been recently". And, the "pick-up in the global economy is helping us". He noted that monetary policy continues to provide support to the economy and "survey-based measures of business conditions have improved noticeably". He also added that "employment growth has also strengthened over recent months." But he also warned that wage growth is "unusually low" and averages hours worked have "declined". Also, the "nature of employment is changing" while there are higher debt levels for households. He emphasized the need to watch these issues carefully.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 110.52; (P) 110.97; (R1) 111.29; More...

Intraday bias in USD/JPY remains on mildly the upside as rise rebound from 108.81 is expected to continue to near term channel resistance (now at 113.05). Sustained break there will suggest that whole pull back from 118.65 has completed at 108.12 already. In such case, further rise should be seen to 114.36 resistance for confirmation. On the downside, below 110.63 minor support will turn intraday bias neutral. Break of 108.81 will extend the fall from 118.65 through 108.12 low before completion.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Economic Indicators Update

USD/CHF - 0.9731

Original strategy :

Bought at 0.9705, Target: 0.9805, Stop: 0.9670

Position : - Long at 0.9705

Target :  - 0.9805

Stop : - 0.9670

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 retreated after rising to 0.9771 late last week, retaining our view that minor consolidation below this level would be seen, however, reckon 0.9690-95 would contain downside and bring another rise later, above said resistance at 0.9771 would extend recent rise from 0.9613 low to resistance at 0.9808 but reckon previous resistance at 0.9825 would hold from here due to near term overbought condition, bring retreat later.

In view of this, we are holding on to our long position entered at 0.9705. Below 0.9680-90 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.

GBP/USD - 1.2770

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

The British pound has traded narrowly after faltering below resistance at 1.2818, retaining our view that further sideways trading would be seen and cable needs to penetrate said resistance at 1.2818 to signal the erratic rise from 1.2635 low is still in progress and may extend gain to 1.2845-50 (61.8% Fibonacci retracement of 1.2978-1.2635) but upside should be limited to 1.2870-80 and price should falter below 1.2900, bring another decline later. 

In view of this, would not chase this rise here and would be prudent to sell cable on further subsequent recovery, Below 1.2720-25 would suggest an intra-day top is formed, bring test of indicated support at 1.2690 but break there is needed to revive bearishness and signal the rebound from 1.2635 has ended, bring further fall to 1.2650, then towards said support at 1.2635.

EUR/USD - 1.1185

Original strategy  :

Sell at 1.1235, Target: 1.1135, Stop: 1.1270

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1235, Target: 1.1135, Stop: 1.1270

Position : -

Target :  -

Stop : -

As the single currency has continued trading with a firm undertone and near term upside risk remains for the rebound from 1.1132 (last week’s low) to extend gain towards 1.1230-35 (61.8% Fibonacci retracement of 1.1296-1.1132), however, if our view that top has been formed at 1.1296 is correct, upside should be limited and bring retreat later, below 1.1155-60 would bring retest of 1.1132, break there would extend recent decline from 1.1296 top to previous support at 1.1109. 

In view of this, we are looking to sell euro on further recovery as 1.1230-35 (61.8% Fibonacci retracement of 1.1296-1.1132) should limit upside and bring another decline. Above 1.1260-70 would defer and risk a stronger rebound but price should falter well below said resistance at 1.1296, bring another decline later.

USD/JPY - 111.20

Original strategy  :

Buy at 110.35, Target: 111.35, Stop: 110.00

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 110.35, Target: 111.35, Stop: 110.00

Position :  -

Target :  -

Stop : -

Dollar’s retreat after meeting resistance at 111.42 has retained our view that consolidation below this level would be seen and pullback to 110.30-35 (50% Fibonacci retracement of 109.27-111.42) cannot be ruled out, however, renewed buying interest should emerge there and bring rebound later, above 111.25-30 would bring retest of 111.42 but break there is needed to confirm the rise from 108.82 low has resumed for retracement of recent decline from 114.37 to 111.60 (50% Fibonacci retracement of 114.37-108.82) and then test of previous resistance at 111.71 but price should falter well below another resistance at 112.13. 

In view of this, we are looking to buy dollar on pullback but one should exit on next rise. Below 110.05-10 (61.8% Fibonacci retracement of 109.27-111.42) would abort and signal top has been formed, bring further fall to 109.85-90 and possibly towards 109.50 but support at 109.27 should remain intact.