GBP/USD stayed in consolidation above 1.2633 temporary low last week. Upside of recovery is limited well below 1.2977 resistance so far. 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.

In the longer term picture, no change in the view that down trend from 2.1161 is still in progress. On resumption, such decline would extend deeper to 100% projection of 2.1161 to 1.3503 from 1.7190 at 0.9532.

USD/CHF's recovery from 0.9613 extended higher last week but it stays below 0.9807 resistance so far. Initial bias remains neutral this week first. Further decline is still expected as long as 0.9807 holds. Below 0.9613 will extend the whole fall 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.

AUD/USD's reaches as high as 0.7635 last week as the rebound from 0.7328 extended. Further rally is expected this week as long as 0.7523 support holds. At this point, there is no clear sign of range breakout at. Hence, we'd be cautious on topping again as it approaches medium term fibonacci level at 0.7849. Meanwhile, break of 0.7523 will argue that rebound from 0.7328 is possibly completed. In that case, intraday bias will be turned back to the downside for 0.7370 support.

In the bigger picture, we're still treating price actions from 0.6826 low as a corrective pattern. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seen to 55 month EMA (now at 0.8116) and above.

In the longer term picture, while the down trend from 1.1079 might extend lower, we're not anticipating a break of 0.6008 (2008 low) yet. We'll look for bottoming above there to reverse the medium term trend.

USD/CAD's sharp fall last week and break of 1.3222 support affirmed our bearish view. That is, corrective rise from 1.2460 has completed at 1.3793 already. With a temporary low in place at 1.3164, initial bias is neutral this week first. In case of another recovery, upside should be limited by 1.3387 support turned resistance and bring another decline. Break of 1.3164 will target 1.2968 cluster support, 61.8% retracement of 1.2460 to 1.3793 at 1.2969.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. Rise from 1.2460 is seen as the second leg and has completed at 1.3793, ahead of 61.8% retracement of 1.4689 to 1.2460 at 1.3838. Break of 1.3222 should now indicate the start of the third leg while further break of 1.2968 should confirm. In that case, USD/CAD should decline through 1.2460 support to 50% retracement of 0.9406 to 1.4869 at 1.2048.

In the longer term picture, rise from 0.9056 (2007 low) is viewed as a long term up trend. It's taking a breath after hitting 1.4689. But such rise expected to resume later to test 1.6196 down the road.

EUR/AUD's pull back from 1.5226 extended lower last week and broke 38.2% retracement of 1.3980 to 1.5226 at 1.4750. It's pressing 1.4669 support. At this point, we're expecting strong support around 1.4669, near term 55 days EMA at 1.4685, to contain downside and bring rebound. Break of 1.4897 minor resistance will turn bias back to the upside for retesting 1.5226 high first. However, sustained break of 1.4669 will argue that rise from 1.3642 is completed and bring deeper pull back to 1.4309 resistance turned support.

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.

In the longer term picture, the rise from 1.1602 long term bottom isn't over yet. We'll keep monitoring the development but there is prospect of extending the rise to 61.8% retracement of 2.1127 to 1.1602 at 1.7488 and above. However, sustained trading below 1.3671 should confirm trend reversal and target 1.1602 long term bottom again.

EUR/GBP edged higher to 0.8865 last week but failed to sustain above 0.8851 resistance and retreated. Initial bias stays neutral this week first. At hits point, while consolidation from 0.8865 might extend, we'd still 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.

In the long term picture, firstly, price action from 0.9799 (2008 high) is seen as a long term corrective pattern and should have completed at 0.6935 (2015 low). Secondly, rise from 0.6935 is likely resuming up trend from 0.5680 (2000 low). Thirdly, this is supported by the impulsive structure of the rise from 0.6935 to 0.9304. Hence, after the correction from 0.9304 completes, we'd expect another medium term up trend to target 0.9799 high and above.

EUR/JPY dipped to 122.39 but drew support from 55 day EMA and rebounded. Initial bias stays mildly on the upside this week 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.

In the long term picture, medium term decline from 149.76 is seen as part of a long term sideway pattern from 88.96. We're not seeing any sign of an established long term trend yet. Hence, we'll be cautious on strong support at 94.11 in case of another fall. Also, there could be strong resistance at 149.76 in case of a medium term rise.

GBP/JPY edged lower to 138.65 last week but rebounded since then. The break of near term falling channel suggests reversal but it's limited by 142.75 resistance so far. Initial bias remains neutral this week with focus on 142.75. Break will indicate that fall from 148.09 has completed and turn bias back to the upside for this 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.

In the longer term picture, based on the impulsive structure of the decline from 195.86 to 122.36, such fall should not be completed yet. But we will now pay close attention to the structure of the rise from 122.36 to determine whether it's a corrective move, or an impulsive move. That would decide whether a break of 116.83 low would be seen.

EUR/CHF's recovery last week argues that pull back from 1.0986 has completed at 1.0837. But the cross lost momentum after hitting 1.0907. Initial bias is neutral this week first. On the upside, above 1.0907 will confirm our view and target a test on 1.0986/0999 resistance zone. Below 1.0837 will extend the correction lower. Still, we'd expect strong support from 1.0791/0872 support zone to contain downside and bring rebound.

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.

Central banks were back in the driving seats in the forex markets last week. Four central banks, Fed, BoE, SNB and BoJ, delivered their monetary policy decisions. But they were all overshadowed by comments from BoC that indicated the next move would be a hike. Canadian dollar ignored the extended selloff in oil price and ended the week as the strongest major currency. Aussie and Kiwi closely followed and took the second and third places. Sterling was boosted by the surprise that three policy makers voted for a rate hike in BoE MPC meeting and closed the week up against Dollar, Euro and Yen. Dollar followed as Fed, after raising interest rate by 25bps, maintained the forecast of a total of three hikes this year. Meanwhile, Yen and Swiss Franc ended as the weakest major currencies as markets were starting to price in an era of monetary policy stimulus exit.

Doubts on whether US is ready for another hike

While Dollar and Sterling were both firm last week, we found the strength in them rather unconvincing. There are a lot of doubts in the markets on whether growth in US could withstand another Fed hike. Also, the slow down in inflation is seen as a concern of some policy makers, other than Fed Chair Janet Yellen. Dallas Fed President Robert Kaplan indicated on Friday that the decisions to hike was a tough one. He pointed out that "inflation of late has been more muted". And, more evidence on inflation path to 2% target is needed before another hike. Minneapolis Fed President Neel Kashkari, who voted against the hike, also said on Friday that "if we base our outlook for inflation on these actual data, we shouldn't have raised rates this week."

Weak recovery in TNX

The market's hesitation to bet on Fed's projected rate path was seen rather clearly in treasury yield. 10 year yield dropped sharply to as low as 2.103 after CPI disappointment. But then, TNX recovered after FOMC announcement. The recovery has been very week so far and barely kept TNX above 38.2% retracement of 1.336 to 2.612 at 2.130. It's also held well below 2.229 resistance and thus maintained bearish outlook for for the near term. We'd still expect further decline in TNX, probably not this week though, to 50% retracement at 1.978.

Dollar index also lacked follow through momentum

Similar picture is also seen in Dollar index. It breached 61.8% retracement of 91.91 to 103.82 at 96.46 but recovered. Upside is limited below 97.77 near term resistance so far and thus, outlook stays bearish. Further fall is still expected and sustained trading below 96.46 could push the DXY further lower to key cluster level at 91.91, 38.2% retracement of 72.69 (2011 low) to 103.82 (2016 high) at 91.93), before getting enough support for sustainable rebound. Break of 97.77 will confirm short term bottoming but not reversal yet, with focus back to 98.85 support turned resistance.

Dollar stays bearish agains Euro, Swiss Franc and Canadian

With the exception of USD/JPY, there was no sign of near term reversal in Dollar. EUR/USD was held above 1.1109 near term support and chance still favors a break out through 1.1298 key resistance. USD/CHF was also held below 0.9807 resistance and maintains bearish outlook for extending recent fall from 1.0342. USD/CAD is held well below 1.3387 near term resistance and continue to expect deeper medium term fall through 1.2968. AUD/USD is on course for 0.7740 resistance despite brief retreat. Nonetheless, GBP/USD stays bearish and we're still expecting another fall through 1.2614 support level to confirm underlying downside momentum.

More BoE members joined hawk camp

Two more BoE MPC policy makers Michael Saunders and Ian McCafferty, joined Kristin Forbes in voting for a rate hike last week. That made it a 5-3 vote to keep interest rate unchanged at 0.25%. Concerns over rising inflation were evidence in the minutes. Policymakers acknowledged that CPI inflation has been "pushed above the 2% target by the impact of last year's sterling depreciation". It "reached 2.9% in May, above the MPC's expectation". Policymakers noted that "inflation could rise above 3% by the autumn, and is likely to remain above the target for an extended period as sterling's depreciation continues to feed through into the prices of consumer goods and services". The members also raised concerns over currency depreciation on inflation. They noted that "2.5% fall in the exchange rate since the May Inflation Report, if sustained, will add to that imported inflationary impetus".

Political uncertainties limit Sterling strength

In spite of that, the markets hesitated to jump into Sterling long because of political uncertainties. Theresa May somewhat survived the disastrous election and stayed as the Prime Minister of UK. But she's now entering into Brexit negotiation with EU in a much weaker position. Formal negotiation will start as scheduled on Monday while May has already conceded to EU's plan of settling the divorce bill first. Locally, May has been facing a lot of calls for a softer approach on Brexit, as well as cross-party involvement in the negotiation. Any wrong step with EU would pull May back into risk of being ousted.

Impact of Pound depreciation on FTSE faded

FTSE stayed somewhat resilient as it drew support from 55 day EMA and recovered, after the post BoE selloff. Upside momentum has been diminishing clearly with bearish divergence condition in daily MACD. And the wedge like structure also indicates the same thing. It should be noted that current up trend started back at 5788.74, on the sharp selloff in Sterling following Brexit referendum. The last leg of rise started after PM May called for a snap election. It's starting to look like that impact of Pound depreciation on corporate earnings could be starting to fade. That is, if we should seen persistent positive correlation between Sterling and FTSE, it could be the indication of the start of real trouble in the UK economy.

Sterling stays bearish against Euro, Dollar and Swiss Franc

Technically, Sterling also maintained near term bearish outlook against Dollar, Euro and Swiss France. GBP/USD was held well below 1.2977 resistance while EUR/GBP stayed above 0.8639 support. GBP/CHF recovered ahead of 1.2213 key support level last week but upside was limited well below 1.2537 resistance so far. We're maintaining our view that corrective pattern from 1.1635 has completed with three waves up to 1.3067 already. Deeper decline is expected in the cross as long as 1.2977 holds. Break of 1.2213 should confirm our view and target a new low below 1.1635.

Trading strategy: Hold USD/CAD Short and EUR/GBP Long

Regarding trading strategy, we're holding on to USD/CAD short (sold at 1.3510). The anticipated downside breakout finally happened as the pair dived to as low as 1.3164 and took out initial target 1.3222. We're holding on to the view that corrective rise from 1.2460 is already finished at 1.3793. Fall from there is resuming larger pattern from 1.4689. That is, break of 1.2460 is anticipated in medium term. However, from a near term perspective, USD/CAD might find strong support from 1.2968 (61.8% retracement of 1.2460 to 1.3793 at 1.2969) to bring rebound, before extend the medium term trend. Therefore, we will now lower the stop to 1.3400 and target to take profit at 1.3000, then sell USD/CAD again later.

EUR/GBP failed to sustain above 0.8851 resistance last week and retreated. As the cross dipped to 0.8718, our buy at 0.8740 was filled. The retreat from 0.8851 is corrective looking so far and was held well above 0.8639. Hence, we'll stay long in the cross, with stop unchanged at 0.8640. We're expecting further rally to retest 0.9304 high. And, we'll look at the momentum of the next rise to determine the chance of a break of 0.9304 in medium term.

GBP/JPY Weekly Outlook

GBP/JPY edged lower to 138.65 last week but rebounded since then. The break of near term falling channel suggests reversal but it's limited by 142.75 resistance so far. Initial bias remains neutral this week with focus on 142.75. Break will indicate that fall from 148.09 has completed and turn bias back to the upside for this 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.

In the longer term picture, based on the impulsive structure of the decline from 195.86 to 122.36, such fall should not be completed yet. But we will now pay close attention to the structure of the rise from 122.36 to determine whether it's a corrective move, or an impulsive move. That would decide whether a break of 116.83 low would be seen.