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For the 24 hours to 23:00 GMT, the USD rose 0.14% against the CAD and closed at 1.3254.

The Canadian Dollar lost ground, after Canada's existing home sales dropped 6.2% MoM in May, recording its biggest decline in nearly five years. In the prior month, existing home sales had fallen 1.7%.

In the Asian session, at GMT0300, the pair is trading at 1.3261, with the USD trading a tad higher against the CAD from yesterday's close.

The pair is expected to find support at 1.3227, and a fall through could take it to the next support level of 1.3194. The pair is expected to find its first resistance at 1.3301, and a rise through could take it to the next resistance level of 1.3342.

The currency pair is trading between its 20 Hr and 50 Hr moving averages.

Weekly
    •    Last Candlesticks pattern: Hammer
    •    Time of formation: 19 Sep 2016
    •    Trend bias: Down

Daily
    •    Last Candlesticks pattern: Doji
    •    Time of formation: 28 Mar 2017
    •    Trend bias: Near term up



EUR/JPY – 123.39




 

Although the single currency traded lower yesterday and initial downside risk remains for the erratic decide from 125.82 top to extend weakness to 122.00, reckon downside would be limited to 121.60-65 (38.2% Fibonacci retracement of 114.85-125.82) where renewed buying interest should emerge, bring another rise later, above 124.00-05 would suggest low is possibly formed, bring rebound to 124.70-75, break there would add credence to this view, then further gain to 125.31 would follow. Having said that, only a break of previous chart resistance at 125.82 would confirm recent upmove has resumed and extend subsequent headway to 126.50-60, then 127.00-10.

On the downside, whilst initial weakness to 122.40-50 and then 122.00-10 cannot be ruled out, reckon downside would be limited to 121.60-65 (38.2% Fibonacci retracement of 114.85-125.82) and bring another upmove later to aforesaid upside targets. Below indicated previous support at 120.60 would abort and signal a temporary top has been formed, bring retracement of recent entire rise to 120.30-35 (50% Fibonacci retracement) and then 120.00 but reckon downside would be limited to 119.40-50 and price should stay above indicated support at 118.92, bring rebound later. 

Recommendation: Buy at 121.60 for 124.60 with stop below 120.60.




On the weekly chart, as the single currency traded narrowly after meeting resistance just below recent high of 125.82, retaining our view that further consolidation below this level would be seen, however, reckon downside would be limited to 122.00 and 121.50-60 should hold, bring another rise later, above 125.82 would extend the erratic rise from 109.49 low to 126.45-50, then towards 127.40-50 but reckon another previous resistance at 128.23 would limit upside and price should falter below 129.60-65 (50% Fibonacci retracement of 149.79-109.49) and price should falter below psychological resistance at 130.00, bring retreat later this month.

On the downside, although initial pullback to 122.40-50 and possibly 122.00 cannot be ruled out, reckon downside would be limited and renewed buying interest should emerge around 121.60-65 and bring another rise later. Only below support at 120.60 would defer and risk weakness to the Kijun-Sen (now at 120.34) and then 120.00 which is likely to hold on first testing. Looking ahead, euro needs to penetrate indicated support at118.92 to shift risk to the downside for further fall to 118.00, however, downside should be limited to previous resistance at 117.82 and bring rebound later. A weekly close below 117.82 would suggest first leg of rebound from 114.85 has ended, bring weakness to 117.00 but price should stay above 116.20-25, bring another rebound later.

Weekly
    •    Last Candlesticks pattern: Shooting doji
    •    Time of formation: 02 May 2016
    •    Trend bias: Up

Daily
    •    Last Candlesticks pattern: Bearish engulfing
    •    Time of formation: 5 May 2017
    •    Trend bias: Up



USD/CAD – 1.3262

 




Although the greenback did drop in line with our bearish expectation and our short position entered at 1.3540 finally reached our downside target at 1.3340 (with 200 points profit), as the pair found support at 1.3165 and has rebounded, a doji star was formed on the daily chart, suggesting consolidation above this level would be seen and test of the Tenkan-Sen (now at 1.3354) cannot be ruled out, however, reckon upside would be limited to 1.3400 and bring another decline later. Above previous support at 1.3425-30 would defer and suggest a temporary low is formed instead, risk test of the Kijun-Sen 9now at 1.3468) but a daily close above there is needed to add credence to this view, bring test of resistance at 1.3542 first.

Below said support at 1.3165 would signal the fall from 1.3794 top has once again resumed and extend weakness to 1.3100-10,  however, break of support at 1.3056 is needed to retain bearishness and add credence to our view that recent entire rise from 1.2461 has ended at 1.3794 earlier, bring further fall to 1.3009 support which is likely to hold on first testing and oversold condition should keep price above 1.2969 (previous chart support).


Recommendation: Short position entered at 1.3540 met target at 1.3340 with 200 points profit and sell again at 1.3380 for 1.3180 with stop above 1.3480.


On the weekly chart, although this week’s anticipated selloff after breaking previous support at 1.3387 adds credence to our view that top has been formed at 1.3794 earlier, as the greenback found support at 1.3165 and has rebounded, suggesting consolidation above this level would be seen initially and recovery to 1.3340-50 cannot be ruled out, however, said previous support should turn into resistance and limit upside, bring another decline later. Below said support at 1.3165 would extend the fall from 1.3794 top to 1.3080-85 and later towards 1.3000-10, however, near term oversold condition should limit downside to previous chart support at 1.2969, bring rebound later.

On the upside, although initial recovery to 1.3380-85 cannot be ruled out, reckon upside would be limited to 1.3425-30 and bring another decline. Only a weekly close above the Tenkan-Sen (now at 1.3480) would defer and suggest first leg of decline from 1.3794 top has ended, risk a stronger rebound towards 1.3547 resistance but still reckon upside would be limited to 1.3600-10, bring another decline. Above 1.3635-40 would defer and risk a stronger rebound to 1.3690-00 but still reckon upside would be limited and price should falter well below said resistance at 1.3794, bring another decline.

A note on lower timeframe confirming price action...

Waiting for lower timeframe confirmation is our main tool to confirm strength within higher timeframe zones, and has really been the key to our trading success. It takes a little time to understand the subtle nuances, however, as each trade is never the same, but once you master the rhythm so to speak, you will be saved from countless unnecessary losing trades. The following is a list of what we look for:

• A break/retest of supply or demand dependent on which way you're trading.
• A trendline break/retest.
• Buying/selling tails ... essentially we look for a cluster of very obvious spikes off of lower timeframe support and resistance levels within the higher timeframe zone.
• Candlestick patterns. We tend to only stick with pin bars and engulfing bars as these have proven to be the most effective.

We typically search for lower-timeframe confirmation between the M15 and H1 timeframes, since most of our higher-timeframe areas begin with the H4. Stops are usually placed 1-3 pips beyond confirming structures.

EUR/USD

Across the board yesterday, we saw the US dollar advance for a second consecutive day, consequently forcing the dollar index to cross swords with H4 resistance at 97.47. As a result of this, the EUR also ran through the 1.12 handle and ended the day closing marginally below the H4 mid-level support at 1.1150.

For those who read Thursday’s report you may recall that we showed interest in buying from 1.1150 should a reasonably sized H4 bull candle (preferably a full-bodied candle) take shape. This is due to the following converging structures:

• A H4 trendline support etched from the low 1.1075.
• A H4 61.8% Fib support at 1.1159 drawn from the low 1.1074.
• A H4 78.6% retracement level pegged at 1.1149 penciled in from the low 1.1109.
• A daily support level seen at 1.1142.

As you can see though, H4 price has yet to print any noteworthy bullish intent, so we’re still watching this area as we write. Ideally, we’d like to see H4 price pop back above the aforementioned H4 trendline here.

Our suggestions: Basically, the reason for requiring additional H4 confluence around the 1.1150 neighborhood is due to the weekly sellers showing strength from the underside of a major supply coming in at 1.1533-1.1278!

Data points to consider: EUR Final CPI y/y at 10am. US Housing data at 1.30pm, US Prelim UoM consumer sentiment at 3pm, FOMC member Kaplan speaks at 5.45pm GMT+1.

Levels to watch/live orders:

• Buys: 1.1150 region ([waiting for a reasonably sized H4 bull candle – preferably a full-bodied candle – to form before pulling the trigger is advised] stop loss: ideally beyond the candle’s tail).
• Sells: Flat (stop loss: N/A).

GBP/USD

In spite of the GBP/USD ranging over 100 pips yesterday, the pair, once again, ended the day with little change. Looking over to the daily chart, this caused the unit to form a clear-cut indecision candle. Indecision is not really something one want’s to see when price recently bounced from, what we’d consider, a daily buy zone: 1.2602/1.2698 (a daily area marked in pink). This zone is comprised of a daily support level coming in at 1.2673, a daily 61.8% Fib support at 1.2625 (taken from the low 1.2365) and a daily AB=CD (black arrows) 127.2/161.8% ext. completion point seen at 1.2602/1.2698 (drawn from the high 1.3047).

While the H4 candles appear to be trying to establish a support around the mid-level number 1.2750, let’s keep in mind that weekly price recently tagged the underside of resistance pegged at 1.2789. With this level having provided both support and resistance since mid-2016, this is not a barrier one should overlook.

Our suggestions: A difference of opinion is clearly being seen on the higher timeframes (see above). And, as we said in Thursday’s report, judging direction can be tricky in situations like this. For that reason, our team has concluded that remaining on the sidelines for the time being is probably the best position to adopt.

Data points to consider: US Housing data at 1.30pm, US Prelim UoM consumer sentiment at 3pm, FOMC member Kaplan speaks at 5.45pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

AUD/USD

H4 action, as you can see, appears to be chiseling out a consolidation between April’s opening level at 0.7632 and the H4 support area coming in at 0.7571-0.7557. With no top-tier Aussie data on the docket today, the pair could potentially remain within this range into the week’s end. Technically speaking, however, we could eventually see the commodity currency turn lower.

Our reasoning lies within the higher-timeframe structure. On the weekly timeframe, the unit recently pierced above supply coming in at 0.7610-0.7543, likely filling a huge amount of buy stops in the process. Looking down to the daily candles, nonetheless, price managed to hold below the 61.8% Fib resistance at 0.7588 taken from the high 0.7747 for a second consecutive day, despite chalking in yet another aggressive whipsaw wick that almost tagged the underside of supply seen at 0.7679-0.7640.

Our suggestions: Traders may have also noticed that directly below the daily Fib level sits a daily support area coming in at 0.7556-0.7523. Therefore, although the higher-timeframes indicate that the bears may still have a hand in this fight, downside potential could be limited. And so, even if H4 price closes below the current H4 support area, there is little space for price to run as the top edge of the said daily support zone sits just 1 pip below this area! Given that, we’ll remain flat today and look to reassess structure going into Monday’s open.

Data points to consider: US Housing data at 1.30pm, US Prelim UoM consumer sentiment at 3pm, FOMC member Kaplan speaks at 5.45pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

USD/JPY:  

Weekly bears continue to remain in a relatively strong position after pushing aggressively lower from supply registered at 115.50-113.85. We know there’s a fair bit of ground to cover here, but this move could possibly result in further downside taking shape in the form of a weekly AB=CD correction (see black arrows) that terminates within a weekly support area marked at 105.19-107.54 (stretches all the way back to early 2014). Down on the daily chart, we can see that price is within striking distance of a resistance area drawn from 111.35-112.37. This base has been in play since the end of November 2016, so a bounce, at the very least, is expected to take form here.

Looking across to the H4 chart, the mid-level barrier 109.50 managed to hold firm yesterday and attracted fresh buyers into the market just ahead of London’s lunchtime. Consequent to this, a number of resistances were taken out with H4 price now seen trading between the 111 handle and June’s opening level at 110.83.

Our suggestions: Based on the above notes, our team has their eye on April/May’s opening levels seen above current price at 111.41/111.29. This is simply because these levels are collectively positioned nicely around the underside of the said daily resistance area! Given that 111.41/111.29 is rather small, nonetheless, we would advise waiting for lower-timeframe confirmation (see the top of this report) before pulling the trigger. This will help avoid any fakeout seen here.

Data points to consider: US Housing data at 1.30pm, US Prelim UoM consumer sentiment at 3pm, FOMC member Kaplan speaks at 5.45pm. BoJ Monetary policy statement and press conference at 7.30am GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 111.41/111.29 ([waiting for lower-timeframe confirming action to form before pulling the trigger is advised] stop loss: dependent on where one confirms this area).

USD/CAD

Although the USD/CAD bounced from daily support at 1.3212 on Wednesday, the bulls have struggled to muster enough strength to breach the daily resistance at 1.3272, which happens to converge with a daily trendline resistance extended from the low 1.2968. On a more positive note, weekly action remains trading around the lower edge of demand at 1.3223-1.3395, despite a whipsaw below this base taking place earlier on in the week.

A closer look at price action on the H4 chart shows that the unit recently whipsawed above the 1.33 handle, and came within a cat’s whisker of clipping March/April’s opening levels at 1.3312/1.3310. Managing to hold firm from here, the loonie is currently trading back below support registered at 1.3263, which could now potentially act as resistance going forward.

Our suggestions: Given the uncertainty surrounding the weekly demand area, and daily price showing that the bears may have the upper hand at the moment, we may consider shorting should a H4 close print below the current H4 support level, targeting the 1.32 neighborhood.

A H4 close below 1.3263 followed up with a retest and a reasonably sized bearish candle (preferably a full-bodied candle) would, in our opinion, be enough evidence to validate the short.

Data points to consider: US Housing data at 1.30pm, US Prelim

Levels to watch/live orders:

• Buys: Flat (Stop loss: N/A).
• Sells: Watch for H4 price to engulf 1.3263 and then look to trade any retest seen thereafter ([waiting for a reasonably sized H4 bearish candle to form before pulling the trigger is advised] stop loss: ideally beyond the candle’s wick).

USD/CHF

While the H4 green area at 0.9774/0.9750 could potentially hold prices lower today, there’s also a chance that H4 price may extend up to supply coming in at 0.9825-0.9801.

0.9774/0.9750 is comprised of a H4 resistance level at 0.9774, a H4 AB=CD 127.2% ext. at 0.9760 taken from the low 0.9613, a H4 trendline resistance etched from the low 0.9691 and a H4 mid-level resistance drawn from 0.9750. The H4 supply above, however, houses a H4 AB=CD 161.8% ext. at 0.98 taken from the low 0.9613 and the round number 0.98.

The interesting thing here is the lower (green) H4 area has no higher-timeframe convergence, whereas the H4 supply positioned above is located around the upper edge of daily supply marked at 0.9825-0.9786.

Our suggestions: In light of the above notes, our desk has decided to hold fire and wait and see if H4 price can extend up to supply seen at 0.9825-0.9801. Should price strike this area today, we would, dependent on the time of day, look to sell from here at market, with stops sited at 0.9827, targeting 0.9750 as an initial take-profit zone.

Data points to consider: US Housing data at 1.30pm, US Prelim UoM consumer sentiment at 3pm, FOMC member Kaplan speaks at 5.45pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 0.98 (stop loss: 0.9827).

DOW 30:  

As can be seen from the H4 chart, US equities retested 21268 as support and recently clocked a fresh record high of 21392.

For those who have been following our reports over the past few days you may recall that our desk had recently taken a small long position at 21164 and initially placed stops below the H4 support area (21139-21101) at 21097. The position is still active, but we have liquidated 50% of the trade around the 21234 neighborhood.

Fortunately, the index has continued to push higher, as we are now looking to trail this market with the remainder of our position. The stop-loss order has been moved to 21247, a few points below the current H4 support, putting our overall gain into respectable numbers.

In Thursday’s report, we also noted to watch for possible long opportunities from 21268 should a reasonably sized H4 bull candle take shape from here. As you can see, this did occur, so well done to any of our readers who jumped on board here!

Our suggestions: Personally, we are looking for price to continue rallying into the week’s end, as we intend on trailing this trend long term.

Data points to consider: US Housing data at 1.30pm, US Prelim UoM consumer sentiment at 3pm, FOMC member Kaplan speaks at 5.45pm GMT+1.

Levels to watch/live orders:

• Buys: 21164 ([live] stop loss: 21247).
• Sells: Flat (stop loss: N/A).

GOLD:  

Gold prices continued to decline in value yesterday as the dollar remained in a bullish stance. As can be seen from the weekly timeframe, the bears continue to hold this market lower after connecting with an area comprised of two weekly Fibonacci extensions 161.8/127.2% at 1313.7/1285.2 taken from the low 1188.1 (green zone). From this scale, there’s room for the precious metal to continue pumping lower until we reach the demand base coming in at 1194.8-1229.1.

Daily price is still seen teasing the demand base coming in at 1247.7-1258.8, but looks vulnerable. Pressure from weekly sellers could see this area consumed, which in turn would likely bring the candles down to the channel support taken from the low 1180.4 (intersects with the above said weekly demand base).

Over on the H4 candles, the unit broke below the trendline support etched from the low 1249.3 and retested the barrier as resistance. The next level of interest below is April’s opening level at 1248.0.

Our suggestions: Buying from within the current daily demand or from April’s opening level is not something we’d feel comfortable with given the position of weekly price at the moment. And likewise, selling, although you’d be trading in line with weekly flow, is not advisable given the daily demand and April’s monthly opening level in view.

With that being the case, for us personally, we’re going to continue taking the side of caution and remain on the sidelines for the time being.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

Currency pair USD/JPY

The USD/JPY has strongly bounced at the 88.6% Fibonacci level of wave B (brown) and price managed to break above the resistance trend line (red) as well. Price has most likely completed wave B (brown) and is building bullish momentum (orange 3) within wave C (brown).

The USD/JPY broke above resistance (dotted red) and could be building a wave 3 (purple) within a wave 3 (orange).

Currency pair EUR/USD

The EUR/USD is still trapped in between strong support (blue) and resistance (red) and would need to break these levels before a potential trend could start.

The EUR/USD indeed completed a wave 4 (blue) and broke below the trend line support (dotted blue). The bearish momentum is most likely a wave 3 (purple) and the triangle (red/blue) could be part of the wave 4 (purple). The potential 5th wave (purple) would most likely complete wave 1 (brown).

Currency pair GBP/USD

The GBP/USD stopped at the 50% Fibonacci level of wave 2 (blue) after completing an ABC zigzag (orange). A bearish breakout below support (blue) could confirm wave 3 (red) whereas the wave 2 of the GBP/USD is invalidated if price breaks above the 100% Fibonacci level of wave 2 (red).

The GBP/USD needs to break below support (blue/green) to confirm a potential wave 3 (blue). The Fibonacci levels of wave 2 (blue) could act as resistance.

Global Markets:

• Asian stock markets: Nikkei up 0.80 %, Shanghai Composite fell 0.25 %, Hang Seng rose 0.50 %, ASX 200 gained 0.20 %
• Commodities: Gold at $1255 (+0.05 %), Silver at $16.70 (-0.10 %), WTI Oil at $44.50 (+0.05 %), Brent Oil at $46.95 (+0.05 %)
• Rates: US 10-year yield at 2.17, UK 10-year yield at 1.04, German 10-year yield at 0.29

News & Data

• Bank of Japan Interest Rate -0.10 % vs -0.10 % expected
• New Zealand Business NZ PMI 58.5 vs 56.8 previous
• Asia stocks steady after Wall St tech rout, dollar holds gains – RTRS
• BOJ holds policy steady, upgrades view on consumption, global growth – RTRS
• Dollar firms on upbeat data, on track for weekly gains – RTRS
• Oil sits near half-year lows as global supply overhang weighs – RTRS

Markets Update:

The Bank of Japan left rates and their QE programme unchanged, as expected. Traders are now waiting for the BoJ press conference. There has been speculation that BoJ Governor Kuroda could discuss a QE exit plan. This could give the Yen a boost. If Kuroda does not mention it at all, USD/JPY is likely to extend gains to 112 soon.

The US Dollar strengthened slightly against most major currencies. Gains against the Pound were limited though. The Bank of England meeting surprised traders, with only 5 of the 8 MPC members voting to keep rates unchanged. Inflation continues to rise, and so does the pressure on the central bank. The key level to watch in GBP/USD is 1.2830. A clear break above it would signal a recovery for the Pound.

The Euro fell to 1.1130 yesterday, but remains well bid overall. However, a break below 1.11 support would signal that further losses are ahead.

AUD/USD consolidated in a 0.7575-0.76 range overnight. The broad Dollar strength has slowed momentum, but the charts suggest that the AUD/USD could rise towards 0.77 in the near-term.

Upcoming Events:

• 10:00 BST – Euro Zone CPI
• 13:30 BST – US Housing Starts
• 13:30 BST – US Building Permits
• 15:00 BST – US Michigan Consumer Sentiment

STOCKS

Dow (21359.90, -0.07%) was almost stable but has the potential to move up towards 21600 by mid of next week. The rise could be eventual and slow but overall near term looks bullish.

Dax (12691.81, -0.89%) has come off sharply and while below the important resistance of 13000, there is some scope of re-testing 12500-12400 in the medium term before possibly stating another leg of an upward rally.

Shanghai (3128.27, -0.13%) is also trading lower and could possibly test 3100 before again trying to move up. Immediate trend looks bearish.

Nikkei (19917.73, +0.43%) has the potential to move up towards 20100 in the next 2-3 sessions. Momentum could be slow but an eventual rise is expected while above 19700.

Nifty (9578.05, -0.42%) could find some support near 9550-9530 today from where it could bounce back to higher levels in the near term. Only on a break below 9530, if seen would force us to change our current bullish view on Nifty.

COMMODITIES

Gold (1255) is trading at lower levels and may test the support zone of 1245. As the dollar index is inching towards 98.30 levels, the bullish momentum is slowly evaporating. In case a break below 1245 takes place in the coming sessions, we may have to consider lower levels of 1230. Thus 1245 could be a level where the price action has to be checked to assess the future price direction.

Similar kind of trading pattern has been seen in silver (16.71) also. The recent trading range could be 16.50-16.95. we think 16.50 would provide good support due to short term oversold condition

Copper (2.57) is hovering around its support at 2.55 of the trading range of 2.55-2.67. Only above 2.66, higher resistances of 2.72-80 can come into consideration. In the medium term 2.55 are going to be a strong support now but a close below that could open up 2.40-35 levels as well.

Taking a look at the energy section, a bounce back could be expected for both Brent (46.93) and WTI (44.45) due to near term oversold condition. Brent could be headed towards 51.25 and WTI towards 47. Immediate supports are poised at 45.42 for Brent and 44 for WTI respectively.

FOREX

Dollar Index (97.43) made a fresh high at 96.84 before coming back near 97.40. As we had said yesterday that the technical picture hasn’t changed much as the upside reversal chances remain open but requires a break above 97.20-30 to confirm it and a close above 98.10 could be a trend reversal.

Euro (1.1149) had registered a fresh low at 1.1132. It is now trading within the range of 1.1198-1.1120. Yesterday it had faced stiff rejection at the higher levels, imply inherent weakness which would be confirmed on a break below 1.1120 levels.

Dollar-Yen (111.09) was rejected exactly from the support of 109 to a fresh high at 110.97 and the sharp recovery suggests that the Dollar bulls are still at play. The downside looks limited to 108.00 and as we had mentioned yesterday, a break above 110.35 took it to 111.00 already and open up the next resistance of 113.00.

Pound (1.2774) could possibly remain stable today. 1.26/25 is an immediate support for the near term. The currency pair could be ranged within 1.25-1.28 for a couple of sessions before trying to break on either side..

Aussie (0.7592), has been testing levels near 0.7635 for the last 2-sessions but has not been able to sustain above 0.76.Either a fall to 0.7520 is on the card before a ounce to levels above 0.76 or the currency pair may just move up sharply towards 0.7635-0.7650 over the next few sessions.

Dollar-Rupee (64.54) is trading at 64.54 in the NDF right now. Repeat - the support of 64.30-20 is expected to hold and push it back to 64.60-80.

INTEREST RATES

The US yields have moved up and could head higher in the coming sessions. The 5YR, 10YR and 30YR are trading higher and could head towards 1.81%, 2.25% and 2.90% respectively.

The Japanese yields are also moving up and could be headed to higher levels in the near term.

The UK and German yields are almost stable and could initiate some fresh movements next week.

We have got a more hawkish FOMC and BOE this week. For the former, policymakers raised the policy rate by +25 bps, as expected, and laid out detailed plans to unwind the balance sheet. For the latter, BOE left the Bank rate unchanged at a record low of 0.25%. Yet, the members' division on the monetary policy widened the most in 6 years with Michael Saunders and Ian McCafferty joining Kristin Forbes in support of a rate hike of +25 bps. The tug of war on interest rate differential results in higher volatility in GBPUSD. After BOE's announcement, GBPUSD erased earlier loss from an intra-day low of 1.2688 and rallied to 1.2795, before retreating again. The selloff of EURGBP widened with the pair plunging to a one-week low of 0.8721. ECB earlier this month refrained from talking about tapering and reaffirmed that it would extend QE purchases, if necessary.

FOMC

As widely anticipated, FOME raised the Fed funds rate by +25 bps to 1-1.25%. The latest median dot plot continues to signal one more rate hike 2017. This is followed by three hikes in both 2018 and 2019. On the economic projections, the staff upgraded the GDP growth outlook to +2.2% from +2.1% previously. The staff, however, revised lower the core PCE to +1.7% in 2017, but left those for 2018 and 2019 unchanged at +2%. Meanwhile, the unemployment rate was revised lower to 4.3% in 2017 and 4.2% in 2018-19. The long-run unemployment rate was revised down, by one-tenth, to 4.6%.

What caught the most attention was the release of an addendum to the 'Policy Normalization Principles and Plans' which provides guidelines on the process of balance sheet normalization. The Fed indicated that the process would begin this year 'provided that the economy evolves broadly as expected'. To our, and most market participants', surprise, policymakers have discussed the arrangement, including start size, timing, and the rate of increase and limit) in great details. Initial caps were set at US$ 6B per month for Treasuries and US$ 4B per month for mortgages, increasing in steps of US$ 6B and US$ 4B respectively for Treasuries and mortgages every three months, until the caps reach US$ 30B and US$ 20B, respectively. The Fed expects that, after reaching the maximum runoff rate, 'holdings will continue to decline in a gradual and predictable manner until the Fed judges that the central bank is holding no more securities than necessary to implement monetary policy efficiently and effectively'. The Fed also added that it would be prepared to resume reinvestment of principal payments 'if a material deterioration in the economic outlook were to warrant a sizable reduction in the Committee's target for the federal funds rate'. We expect a formal announcement of the plan would be made in September, followed by implementation in October. We believe the economic developments have to deteriorate very significantly to alter the Fed's plan

BOE

As expected, BOE left its Bank rate unchanged at 0.25% in June, at a 5-3 vote. Michael Saunders and Ian McCafferty joined Kristin Forbes in voting for an immediate interest rate rise to fight against rising inflation. the central bank unanimously decided to leave the bond purchase program at 435B pound for UK gilts and 10B pound for non-financial GBP investment-grade corporate bonds. 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'.

Sterling rallied against US dollar and the euro shortly after the announcement. Rate hike speculations heightened as three members, compared with one previously, voted for a 25bp rate increase. Meanwhile, the statement mentioned that 'the continued growth of employment could suggest that spare capacity is being eroded, lessening the trade-off that the MPC is required to balance and, all else equal, reducing the MPC's tolerance for above-target inflation'.

Despite heightened expectations, we expect the central bank to leave the interest rates unchanged for the rest of the year. Conservatives' loss of majority in the general election and the hung parliament have increased uncertainty in the Brexit negotiations between the UK and the EU. Policymakers would have to be more cautious in their moves.

It really wasn't that long ago that we were talking about NZD/USD breaking support!

The daily swing lows from December had broken back in May on the back of the RBNZ holding interest rates steady and the intraday price action was conducive to day trading.

Fast forward back into the present day and take a look at the NZD/USD daily chart we've featured below:

NZD/USD Daily:

Price ripped off support and 4500 pips later, has been halted by trend line resistance. A nice higher time frame resistance point.

Zoom into an intraday 15 minute chart and lets have a look at the price action:

NZD/USD 15 Minute:

After a higher time frame level holds, we want to trade in that direction. In this case short.

Take a look at how price has reacted to each short term support level and cleanly held it as resistance.

Will this trend continue?

Draining the Punch Bowl

The markets continue to digest the latest signals from the Federal Reserve Board who are now actively discussing how and when to pare back the balance sheet. But just as significantly the investors are now coming to grips with the notion that perpetual global central bank gravy train may be coming to an end in the wake of policy pivots from both the BoC and BoE and the overly hawkish musings from the Federal Reserve Board

The Central Bank's money printing machines and bloated balance sheet have not had the inflationary effects anticipated, and perhaps it's time to err on the side of caution as concerns over possible financial market distortions driven by easy money policy come to the fore. Market distortions ultimately lead to market failures, so perhaps the Federal Reserves and other global CB's are growing concerned with investors hubris and signalling it's time to reign in risk.

Not too unexpectedly in the wake of the surprising policy pivots from BoC and BoE, the market is now wondering which central bank will be next to drain the punch bowl. BoJ??

Japanese Yen

Very aggressive dollar buying across all three sessions yesterday has propelled USDJPY above the 111 level but it was the profusion of strong US economic data released yesterday, that corroborated the Fed's view, that was the primary catalyst. BoJ is not expected to shift guidance today, so the markets will focus on whether the bank maintains its JPY 80 turn QE backstop.

Euro

The markets remain in FOMC post-mortem as a dovish ECB and Hawkish Fed has Euro longs squirming but with few catalysts and little to glean from cross asset price action, buying EURUSD on dips gave way to paring back risk.