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Daily Pivots: (S1) 122.73; (P) 123.23; (R1) 123.67; More...

EUR/JPY is still staying in the consolidation pattern from 125.80 and intraday bias remains neutral. Deeper decline cannot be ruled out. But in that case, downside should be contained by 38.2% retracement of 114.84 to 125.80 at 121.61 to bring rise resumption. We're staying mildly bullish in the cross. And, break of 126.09 key resistance will extend the whole rebound from 109.03 to 100% projection of 109.03 to 124.08 from 114.84 at 129.89. Nonetheless, firm break of 121.61 will dampen our bullish view and bring deeper fall to 61.8% retracement at 119.02.

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.

'Monetary policy must also anticipate the road ahead.' - Carolyn Wilkins, Bank of Canada

The Bank of Canada Senior Deputy Governor Carolyn Wilkins said on Monday that the Bank would discuss whether monetary policy stimulus was still required. The Governor noted that the economy showed impressive growth, whereas the share of sectors posting employment gains was increasing. She also said that Canada, being one of the biggest exporters of oil, managed to adapt to low oil prices. The 2014 oil price drop forced the Central bank to cut rates twice in 2015 to 0.50% in order to support economic growth. The BoC's next meeting is scheduled for July 12. The majority of analysts suggest that the Bank will remain on hold until 2018; however, some market participants predict a rate hike already this year. Wilkins said that inflation growth remained of central importance to policymakers. Thus, the Governor stated that the Bank's policymakers would take necessary measures in order to meet the 2% inflation target. She also pointed to excess capacity, subdued wage growth and the high degree of uncertainty coming from the United States, Canada's main trading partner.

'The wedge between confidence and conditions is likely a reflection of the heightened uncertainty around the outlook, although the degree to which this reflects global versus domestic factors is difficult to gauge.' - National Bank of Australia

The mood of Australian businesses deteriorated markedly last month, official figures showed on Tuesday. According to the National Australia Bank's May business survey, the overall NAB Business Confidence Index dropped to 7 in May from the preceding month's 13 points. However, the Index remained above its long run average of 5 points. Furthermore, the NAB noted that despite the fall in confidence the general outlook for the Australian economy among businesses remained optimistic. In the meantime, the Business Conditions Index fell just 1 point to 12 during the reported month. Last week, the Australian Bureau of Statistics reported that the domestic economy expanded at a 0.3% rate on a quarterly basis in the three-month period to March, following the previous quarter's expansion of 1.1% and raising concerns over a possible rate cut by the Reserve Bank of Australia. Tuesday's data also showed that the slight fall in the Business Conditions Index was mainly driven by construction, finance, property and business services. The Australian Dollar was little changed following the release of the survey results.

S&P500 is trading bullish since November of 2016, when wave II was completed. From there price continued strongly higher into wave III, which is known as the strongest and steepest wave. We see now wave III trading in final stages, specifically in sub-wave 5 which can see limited upside around the Fibonacci ratio of 161.8/261.8 That said, once wave 5 of III unfolds a new three wave reversal into wave IV can follow with a support zone around 2318/2345 level.

S&P500, Daily

GBP/USD – 1.2692

 
GBP/USD – Wave 4 is unfolding as an (A)-(B)-(C) and could have ended at 1.7192

 
As the British pound ran into heavy offers at 1.2978 late last week and has dropped sharply, price then broke below support at 1.2769, suggesting top has been formed at 1.3048 earlier and consolidation with mild downside bias is seen for the retreat from there to bring retracement of recent upmove to previous resistance at 1.2616 (tentatively wave i top), a break below there would bring correction of recent upmove to 1.2550, then towards 1.2500 which is likely to hold on first testing due to near term oversold condition. 

Our preferred count on the daily chart is that cable's rebound from 1.3500 (wave (A) trough) is unfolding as a wave (B) with A ended at 1.7043, followed by triangle wave B and wave C as well as wave (B) has possibly ended at 1.7192, below support at 1.4232 would add credence to this count, then further fall to 1.4000 level would follow but reckon downside would be limited to 1.3655 support and price should stay above previous support at 1.3500.

On the upside, although recovery to 1.2700, then 1.2750-60 cannot be ruled out, reckon resistance at 1.2803 (Friday’s high) would limit upside and bring another decline later. Above 1.2885-90 would suggest low is possibly formed, bring a stronger rebound towards resistance at 1.2978 which is likely to hold from here. Looking ahead, only a break above 1.2978 would signal the correction from 1.3048 top has ended, bring retest of this level later. A break above there would extend recent upmove from 1.1986 low to 1.3140-50 (38.2% Fibonacci retracement of 1.5018-1.1986) and possibly 1.3200.  
 

Recommendation: Sell at 1.2800 for 1.2550 with stop above 1.2900.

 
Longer term - Cable's rise from 1.0520 (Feb 1985) to 2.0100 (September 1992) is seen as [A], the decline to 1.3682 is labeled as (B) and (C) wave rally has ended at 2.1162 (9 Nov, 2007) which is also the top of larger degree wave B with circle. The selloff from there is a 5-waver with wave (A) ended at 1.3500 (23 Jan 2009), wave (B) itself is labeled as A: 1.6733, triangle wave B: 1.4813 and wave C as well as top of wave (B) ended at 1.7192 (2014), hence the selloff from there is an impulsive wave (C) with wave I : 1.4566, wave II 1.5930, an extended wave III is unfolding and already exceeded our downside target at 1.3500 and 1.3000, hence weakness to 1.2500 and possibly 1.2000 cannot be ruled out, however, price should stay well above psychological level at 1.0000.

GBP/JPY – 139.90






GBP/JPY – Wave 5 as well as wave (III) has possibly ended at 116.85






As sterling met renewed selling interest at 143.95 earlier this month and bearishness remains for the decline from 148.10 top to extend weakness to 137.50-60,  then 136.95-00, however, near term oversold condition should prevent sharp fall below there and price should stay well above support at 135.60, risk from there has increased for a rebound to take place later this month. Looking ahead, a sustained breach below support at 135.60 would signal another leg of decline from 148.45 top is underway for retracement of early upmove to 134.90-00, then towards 134.35-40 (50% Fibonacci retracement of 120.50-148.45) which is likely to hold from here.



Our preferred count is that larger degree wave V with circle is unfolding from 251.12 with wave (I) 219.34, (II): 241.38 and wave (III) is subdivided into 1: 192.60, 2: 215.89 (23 Jul 2008) and wave 3 ended at 118.87 earlier in 2009. The correction from there to 162.60 is wave 4 which itself is a double three and is labeled as first a-b-c ended at 151.53, followed by wave x at 139.03, 2nd a ended at 162.60, 2nd b at 146.75 and 2nd c leg of wave 4 ended at 163.00. Therefore, the decline from 163.00 to 116.85 is now treated as wave 5 which also marked the end of larger degree wave (III), hence wave (IV) major correction has commenced for retracement of the wave (III) from 241.38 and upside target at 183.95-00 (50% Fibonacci retracement of the wave (II) from 241.38) had been met, a drop below 160.00 would suggest wave (IV) has ended at 195.85, bring decline in wave (V) for initial weakness to 130 (already met) and 120.


 


On the upside, although initial recovery to 139.40-50 and possibly 140.00 cannot be ruled out, reckon upside would be limited to 140.40-50 and price should alter below 141.50, bring another decline later. Only break of resistance at 142.75-80 would abort and suggest low is formed instead, risk a stronger rebound to 143.10 but price should falter well below resistance at 143.95-00, bring another decline later.  



Recommendation: Sell at 141.40 for 138.40 with stop above 142.40.

The long-term downtrend from 570.99 (29 Feb 1980) is labeled as an impulsive wave with III with circle ended at 129.77 (20 Apr 1995) and the corrective rebound to 251.12 (20 Jul 2007) is treated as wave IV with circle and the wave V with circle selloff from 251.12 has possibly ended at 116.80 (almost reached our indicated target at 116.00) and major correction has commenced from there and indicated upside target at 183.90-00 (50% Fibonacci retracement of 251.10-116.85) had been met, reckon upside would be limited to 199.80-90 (61.8% Fibonacci retracement) and bring wave (V) decline in later part of 2017.

Four major central banks are meeting this week: the Federal Reserve, Bank of England, the Swiss National Bank, and Bank of Japan. The Fed is the only central bank poised to hike rates for the second time this year; meanwhile, all other central banks will remain on a standstill.

Traders are expecting a 100% chance of a rate increase according to CME's Fedwatch tool, so another 25-basis points hike seems a done deal, but whether the U.S. dollar moves higher or lower after the announcement on Wednesday depends on a couple of factors.

Economic Outlook

Despite unemployment rate falling to a 16-year low, U.S. job growth slowed in May and the gains in April and March were revised lower. However, the three-month average is still above 120,000 jobs which is sufficient to keep up with the working-age population growth, so not too much to worry about. Interestingly the tight labor market is still not accelerating wage growth, meaning the Fed will not be forced to tighten aggressively, and the long run U.S. yields are likely to remain under pressure. Consumer prices and retail sales are due to be released tomorrow before the announcement, and although it won't affect the decision, these figures will impact the timing of the following rate hikes. The Fed's quarterly projections on growth, unemployment, and inflation will be released along with the statement on Wednesday, so markets will closely monitor any changes in the projections.

Guidance

The dots on the dot plot are unlikely to change much. The previous chart showed two more rate hikes in 2017, with nothing significant occurring to alter this view. We'll be left deciphering Janet Yellen's tone to determine whether a rate hike will be considered a dovish or hawkish hike. Another key element that's expected to move the U.S. dollar is any signs of when and how the Fed will start reducing the $4.5 trillion balance sheet. Selling assets on its balance sheet will provide a much stronger signal than just choosing not to reinvest the proceeds of treasuries and mortgage-backed securities.

Although the Fed is the only major central bank tightening monetary policy, the Greenback had been in a downtrend since the beginning of the year and fell below post-election levels. This explains that monetary policy, although having substantial influence on currencies' direction, is still one of many factors. If in the long run U.S. treasuries remain under pressure, it means investors do not believe that inflation is returning, and more importantly, it's a clear signal that market participants are growing more skeptical towards the reflation trade, hence keeping the U.S. dollar under pressure.

Daily Pivots: (S1) 1.0842; (P) 1.0853; (R1) 1.0864; More...

EUR/CHF's pull back from 1.0986 is still in progress and deeper fall could be seen. But we'd expect strong support from 1.0791/0872 support zone, probably around 55 day EMA (now at 1.0831) to complete the correction from 1.0986. Break of 1.0902 minor resistance will turn bias back to the upside for 1.0986/0999. Overall, rise from 1.0629 is expected to resume later.

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.

EUR/JPY - 123.51

Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79

Trend: Near term up

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

The single currency continued trading inside near term established range and further sideways trading is in store, whilst recovery to 124.10-20 cannot be ruled out, a break of 124.70-75 is needed to signal the retreat from 125.81 has ended, bring a stronger rebound to 125.00 but resistance at 125.31 should remain intact, bring retreat later.

On the downside, below indicated strong support at 122.56-63 would signal another leg of corrective decline from 125.82 top is underway for retracement of early upmove to 122.00, then towards 121.25-30 but oversold condition should limit downside and reckon latter level would remain intact, bring rebound later.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

Daily Pivots: (S1) 1.1186; (P) 1.1209 (R1) 1.1227; More....

EUR/USD is staying in consolidation below 1.1284 temporary top and intraday bias remains neutral. 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 1.0922). 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.