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The dollar fell after the release of a weak set of US data that would be disappointing for the Federal Reserve, which is expected to deliver a 25-basis point rate hike later today. The broadly weaker greenback helped sterling erase losses made from weak UK wage data.

Both US CPI and retail sales numbers for May came in short of expectations, which resulted in the dollar index falling to a seven-month low of 96.32 after having risen to as high as 97.11. Against the yen, the dollar slid to 108.94 yen from 110.33, the lowest since April 21.

Headline CPI was weaker than expected at -0.1% month-on-month in May, reversing a prior increase of 0.2%. It was expected to remain flat. Meanwhile, year-on-year CPI rose 1.9% versus a prior 2.2%. The further deceleration in core inflation to 1.7% year-on-year was the lowest since May 2015. It was forecast to match the prior 1.9% rise.

The US retail sales data showed a 0.3% month-on-month decline in the headline number last month from the prior 0.3% rise. Retail sales ex-autos were also down by the same amount and the control group (ex auto, gasoline, food service and building materials) was flat on the month. There were some minor upward revisions to April's figures but not enough to offset the shortfall in May.

Despite today's weak data, the markets are still expecting the Fed to hike rates after concluding a two-day policy meeting today. The data likely isn't weak enough for them to not deliver, however, it wouldn't be surprising if the communication is dovish regarding the pace of future hikes particularly given the recent weakness in core CPI. It is widely expected that the Fed will deliver a 25 basis-point increase to the Fed funds target rate to between 1.00% to 1.25%.

Sterling reversed earlier session losses made after a disappointing UK employment report and rose briefly above the key $1.2800 level. The pound slipped against the dollar to $1.2722 on weaker-than-expected UK earnings data which showed average weekly earnings rose 2.1% year-on-year in April and just 1.7% year-on-year for the ex-bonus number, the lowest in more than two years. The disappointing data add to concerns that low wage growth will dampen UK consumer spending amid rising inflation. The data reinforce those expecting that the Bank of England will not change monetary policy at tomorrow's policy meeting.

The euro rose to its highest in seven months against the greenback to hit $1.1295, after the dollar broadly weakened on the release of the soft US data. There was little impact earlier in the session to Eurozone industrial production data which rose 0.5% month-on-month in April, as expected. March was revised higher to a reading of 0.2%.

The loonie extended gains today, pressuring the USD/CAD pair to a low of C$1.3163, down from Friday's C$1.3537 high after comments from Bank of Canada officials this week that hinted to a rate increase later this year.

Gold jumped to a peak of $1279.37 an ounce from $1264.18, driven by a broadly weaker dollar.

Oil prices fell after the report from the Energy Information Administration showed US crude inventories declined last week as refineries increased output. WTI crude slid to $45.08 a barrel immediately after the data from an earlier high of $46.45.

USD/JPY has posted considerable losses on Wednesday, as the pair is down 0.70 percent. In the North American session, the pair is trading at 109.25. On the release front, Japanese Revised Industrial Production rebounded strongly in April, posting a gain of 4.0 percent. This was just shy of the forecast of 4.1 percent. In the US, consumer data was weak, as retail sales and CPI posted declines of 0.3% and 0.1%, respectively. Later in the day, the Federal Reserve announces its benchmark rate, which is expected to increase by 25 basis points to 1.25 percent. On Thursday, the US releases unemployment claims, with an estimate of 241 thousand.

In recent months, Federal Reserve policymakers have been sending out broad hints that a rate hike is on the way, and the markets expect the Fed to make a move later on Wednesday. The markets have priced in a rate hike at close to 100%, but there is still plenty of anticipation in the air, as analysts will be focusing on the language of the rate statement. Analysts are predicting that the Fed will deliver a "dovish hike", meaning that together with the rate increase, the Fed rate statement will be cautious in tone, and dovish regarding additional rate hikes. Earlier in the year, three rate hikes in 2017 seemed almost a given, but currently, the odds of a September move are just 28%. There are two key items which could affect the US dollar. First, the Fed's Economic Projections will detail forecasts of inflation, growth and unemployment, and most importantly, the rate hike path. With the US economy performing better in the second quarter, there's a strong likelihood that the Fed will not moderate its rate hike projections,which is good news for the dollar. Secondly, the markets will be looking for details regarding its plan to lower the $4.2 trillion balance sheet. If the Fed outlines a plan to reduce its holding in H2, the dollar could respond positively. Another variable is the Fed's view of the political paralysis which has engulfed Washington. With the Trump administration spending most of its energy on damage control, little progress is being made with regard to Trump's agenda of tax reform and major spending on infrastructure. The markets are becoming more skeptical about Trump's ability to work with Congress, and if this sentiment is shared by the Fed, it is likely to sound dovish regarding rate hikes in September or December.

The BoJ will be in the spotlight on Thursday, as it releases a rate statement, followed by a press conference with BoJ Governor Haruhiko Kuroda. The BoJ has maintained an ultra-loose monetary policy in order to prop up inflation and domestic demand. Although the economy has recently received a boost from stronger global demand, inflation remains well below the central bank's 2.0% target, and consumer demand has been soft. The BoJ is unlikely to shift directions and tighten policy anytime soon, but analysts will be combing through the rate statement and Kuroda's follow-up comments, looking for nuances in BoJ language. A key component of the BoJ's policy has been bond purchases, but the bank has slowly been reducing these purchases, and could make reference to the slowdown in the bond-buying program on Thursday. If the central bank's tone is more hawkish than expected, the yen could respond with gains.

USD/CHF - 0.9654

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9677

Kijun-Sen level                    : 0.9677

Ichimoku cloud top                 : 0.9695

Ichimoku cloud bottom              : 0.9682

Original strategy :

Sold at 0.9720, Target: 0.9620, Stop: 0.9715

Position : - Short at 0.9720

Target :  - 0.9620

Stop : - 0.9715

New strategy  :

Hold short entered at 0.9720, Target: 0.9620, Stop: 0.9715

Position : - Short at 0.9720

Target :  - 0.9620

Stop : - 0.9715

Dollar’s retreat after meeting resistance at 0.9728 late last week has retained our bearishness and consolidation with mild downside bias remains for weakness to indicated level at 0.9640, however, break there is needed to signal the rebound from 0.9613 has ended, bring retest of this level first. A break below this level would extend recent decline to 0.9600-05 (50% projection of 1.0100-0.9692 measuring from 0.9808) later.

In view of this, we are holding on to our short position entered at 0.9720. Above said resistance at 0.9728 would abort and signal a temporary low has been formed at 0.9613 last week instead, bring a stronger rebound to 0.9761 resistance but price should falter below resistance at 0.9808.

GBP/USD - 1.2772

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2768

Kijun-Sen level                    : 1.2761

Ichimoku cloud top              : 1.2709

Ichimoku cloud bottom        : 1.2689

Original strategy :

Sell at 1.2850, Target: 1.2750, Stop: 1.2885

Position : - 

Target :  -

Stop : -

New strategy  :

Sell at 1.2850, Target: 1.2750, Stop: 1.2885

Position : -

Target :  -

Stop : -

As the British pound has surged again after staged a strong rebound yesterday, suggesting further consolidation above last week’s low at 1.2635 would be seen and initial upside risk remains for gain to 1.2815-20, however, reckon 1.2845-50 (61.8% Fibonacci retracement of 1.2978-1.2635) would hold from here, bring retreat later, below 1.2720-25 would bring weakness to 1.2680-85 but break of latter level is needed to signal the rebound from 1.2635 has ended, then fall to 1.2650 would follow.

In view of this, we are looking to sell cable on recovery as 1.2845-50 should limit upside. Above 1.2870-80 would suggest recent decline has ended at 1.2635 instead, risk a stronger rebound to 1.2905-10 and possibly 1.2930 but price should falter well below resistance at 1.2978. 

EUR/USD - 1.1278

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 1.1247

Kijun-Sen level                  : 1.1244

Ichimoku cloud top             : 1.1207

Ichimoku cloud bottom      : 1.1199

Original strategy  :

Buy at 1.1235, Target: 1.1335, Stop: 1.1200

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1235, Target: 1.1335, Stop: 1.1200

Position : -

Target :  -

Stop : -

The single currency has rallied in US opening on dollar’s broad-based weakness and indicated resistance at 1.1285 was breached, adding credence to our bullish view that recent upmove has resumed, hence upside bias remains for further gain to previous chart resistance at 1.1300, break there would encourage for headway to 1.1340-45 and later towards chart point at 1.1366.

In view of this, we are looking to turn long on pullback. Below 1.1195-00 would abort and prolong choppy trading below 1.1285, risk weakness to 1.1185, then towards said support at 1.1166 which is likely to hold from here. 

Missing expectations, headline and core CPI extended the recent deceleration of year-over-year trends. Today's softening performance may color today's FOMC policy statement and impact outlook projections.

Energy Weighs on the Headline

Following a 0.2 percent rise in April, the headline Consumer Price Index (CPI) missed expectations, slipping 0.1 percent in May - the second decline in three months. The primary driver of the headline's decline was a 2.7 percent contraction in energy prices, as a 6.4 percent drop in gasoline prices more than offset gains in electricity and natural gas (0.3 percent and 1.9 percent, respectively). Consumer food prices increased for the fifth consecutive month, up 0.2 percent.

Excluding food and energy, core CPI came in tamer than expected, rising just 0.1 percent on the month. Shelter costs increased 0.2 percent in May as the rent index and the index for owners' equivalent rent both advanced by a similar amount. This monthly performance was lower than that seen in April, but still keeps the year-over-year pace of shelter costs elevated above 3 percent. Several sectors within the core CPI contracted, tempering the aforementioned gains. Apparel dropped 0.8 percent, its third consecutive monthly decline, while airline fares, motor vehicles, communication and medical care services also posted lower readings. Medical care, education and recreation were all flat on the month.

Collectively, the trend of weakness in the core CPI continues. This is clearly evident in the three-month annualized pace which fell to a zero reading from 0.6 percent in April and a 3.0 percent pace in February. As seen in the middle chart, this deteriorating performance suggests that the annual pace of core CPI could continue to fall below its current two-year low of 1.7 percent in the coming months.

Still Enough for the Fed?

No doubt, the performance of consumer inflation has been soft relative to expectations at the start of the year. Year-over-year rates of headline and core CPI inflation have pulled back substantially in recent months, raising concerns over the likelihood of reaching the Fed's 2.0 percent target (note, the Fed's preferred measure of consumer inflation is the PCE deflator). Coming into today's CPI report and the June FOMC meeting, most Fed officials have characterized the softening inflation performance as "transitory." Interest will be high as to whether this assessment continues in the updated policy statement and with officials' inflation outlook. There is certainly now a higher probability that the Fed may include more dovish language in the policy statement over the current inflation performance as well as trim its inflation projections. A 25 bps federal funds rate hike is still expected at the conclusion of today's FOMC meeting, but clearly officials will be mindful of incoming inflation trends in the coming months before greater confidence can be made with second half of the year policy normalization plans.

USD/JPY - 109.12

Most recent candlesticks pattern   : N/A

Trend                      : Down

Tenkan-Sen level              : 109.65

Kijun-Sen level                  : 109.65

Ichimoku cloud top             : 110.22

Ichimoku cloud bottom      : 110.03

Original strategy  :

Sell at 109.70, Target: 108.70, Stop: 110.05

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 109.60, Target: 108.60, Stop: 109.95

Position :  -

Target :  -

Stop : -

The greenback ran into renewed selling interest at 110.35 and has dropped sharply in NY morning, current breach of 109.63 and 109.38 support signal recent decline from 114.37 top has resumed an bearishness remains for this move to extend further weakness to 108.85-90 (1.236 times projection of 110.81-109.63 measuring from 110.35), however, near term oversold condition should limit downside to 108.40-45 (1.618 times projection) today and price should stay well above previous chart support at 108.13. 

In view of this, we are looking to sell dollar on recovery as 109.63 (previous support turned resistance) should limit upside. Above 109.95-00 would defer and prolong consolidation but only break of resistance at 110.35 would signal an intra-day low is formed instead, bring another bounce to 110.50, then towards said resistance at 110.81. 

Retail sales surprised in May by declining 0.3 percent with some of the decline coming from lower gasoline prices. However, the weakness was not circumscribed only to gasoline sales.

Retail Sales Hit Hard by Gasoline and Electronic Stores

Retail and food services sales for May declined 0.3 percent versus expectations of a flat reading after an increase of 0.4 percent in April, unrevised. Most of the decline came from a 2.4 percent drop in gasoline sales as gasoline prices decreased during the month. However, the May report was weak overall, which means that other sectors were not able to overcome the weakness in gasoline sales. The largest month-on-month drop was reported in electronics & appliances stores sales with a decline of 2.8 percent. However, this sector is much smaller than gasoline sales, which makes the decline less impactful on the overall retail sales number. Meanwhile, motor vehicles & part dealers' sales were down 0.2 percent after a strong, 0.5 percent increase in April.

Interestingly enough, clothing & clothing store sales, a sector that has been weak in the past several years, posted a growth rate of 0.3 percent after an increase of 0.2 percent in April. Sales of sporting goods, hobby, book and music stores were down 0.6 percent in the month after increasing 0.4 percent in April while sales at general merchandise stores were down 0.3 percent. Within this last sector, department stores sales were down 1.0 percent, continuing the trend we have seen over the last several years.

Bucking the weak trend in May were sales of non-store retailers increasing 0.8 percent after a strong 0.9 percent increase in April and furniture & home furniture stores, up 0.4 percent after a decline of 0.3 percent in April. Meanwhile, building material & garden equipment & supplies dealers' sales took a breather in May, as they remained flat after an increase of 0.6 percent in April.

The service side of the retail report, food services & drinking places, was also weak during the month, declining 0.1 percent after a decline of 0.2 percent in April. However, the goods cousin of this sector, food & beverage store sales, was up 0.1 percent in May. Meanwhile, health and personal care store sales were flat in May after increasing strongly, up 0.8 percent, in April.

Control Group Sales Flat in May

Although control group retail sales, which go directly into the calculation of GDP, were flat in May, they were revised up strongly in April, from an original print of 0.2 percent to an increase of 0.6 percent, which means that the second quarter of the year started on a relatively strong footing for personal consumption expenditures (PCE).

Furthermore, the fact that the retail report is in nominal terms while inflation has been slowing down considerably will help real numbers remain strong during the second quarter of the year. While this does not help retailers wanting more revenues, it will help real economic activity during the second quarter of the year.

EUR/GBP - 0.8831

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term up

Original strategy  :

Buy at 0.8750, Target: 0.8880, Stop: 0.8710

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8690, Target: 0.8880, Stop: 0.8650

Position : -

Target :  -

Stop : -

 
Euro’s retreat after marginal rise to 0.8866 earlier this week suggests consolidation below this level would be seen and pullback to 0.8745-50 cannot be ruled out, however, reckon 0.8690-00 would attract renewed buying interest and bring another rise later, above said resistance would extend recent erratic upmove from 0.8304 low to 0.8880, then 0.8900, having said that, as broad outlook remains consolidative, reckon current c leg of larger degree wave b should be limited to 0.8950 and price should falter well below 0.9000, bring retreat later this week.

In view of this, we are looking to buy euro on subsequent pullback but one should exit on such rise. Below 0.8680 would defer and risk test of 0.8650-55 support but break there is needed to signal top is formed instead, bring further fall to 0.8620, then 0.8600 which is likely to hold from here.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

Traders welcome back for the US updates. We can see nice move up on EURUSD towards 1.13000 after some bad US data. It appears that euro may hit a new high here, but again there is an important "Trump Level" coming in at 1.13 from Nov 09 2016 when Trump won the US elections. Back then 1.13 played out an important role from where price fell sharply so it appears that it will be tested during another important event; FOMC because of a potential new change in rates. technically speaking a decline may follow after the FED today, especially if our new count will prove correct; an ending diagonal which remains valid as long as 1.1350 is not breached.

EURUSD,1H