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The FOMC meets on June 13 - 14 concluding the two-day monetary policy meeting with a statement, followed by a press conference. The FOMC will also be publishing fresh quarterly forecasts.

Economists are broadly in agreement that the June rate hike of 25-basis points (bps) is a done deal. This would effectively bring the Fed's short-term interest rates to 1.0% - 1.25%. The rate hike will also be the fourth time the Fed will be raising interest rates.

The last rate hike was in March 2017.

Fed’s short-term interest rates set to rise by 25 basis points

While the above decision is almost a done deal, the question of what the Fed will do next will be of importance. The rate hike has already been priced in, with the 30-day Fed-funds futures closing at 98.965 as of Friday.

CME Group: 30-day Fed funds futures (ZQ)

Roughly translated, this is 1.14 (100-) suggesting that the futures markets are expecting rates to be higher, above 1.0%.

According to a poll by the WSJ, economists have assigned a 93% probability for a rate hike this week. On Friday, the CME Futures, Fed funds rate probability closed at 99.6% The data shows that the markets are broadly prepared for the rate hike. Thus, it is likely to have limited impact on the markets.

Forward guidance will be key for the markets

With the recent string of weak economic reports which suggest that growth might be witnessing slowing momentum, the questions about the next rate hike from the Fed, along with questions on the Fed's intentions to reduce its balance sheet rank high among investors.

The WSJ's poll, also showed that about 54% of economists agree that the Fed will hike interest rates one more time, most possibly in September. 33% expect that this third-rate hike could come in December.

The Fed had previously signaled three rate hikes this year. After the 25bps rate hike in March, policy makers forecasted two more quarter point rate hikes for the rest of the year.

There will be several factors that will influence the decision from the policy makers. Considering that the economic growth has been wobbly so far, the Fed's dot plot will once again get attention.

The markets would like to know if the Fed will project another rate hike for the remainder of the year.

Likewise, there will be interest in more clarity from the Fed about its intentions to shrink its balance sheet. The Fed's balance sheet stands at $4.5 trillion as the central bank purchased massive amounts of mortgage backed securities (MBS) since the aftermath of the 2008 global financial crisis.

A reduction of the balance sheet will send the longer-term interest rates higher.

Making things somewhat complicated will be the fact that the proposed tax cuts and government fiscal spending will also boost inflation, jobs and the GDP.

Questions on balance sheet reduction

Some expect the Fed to be unwinding as early as September, while others suggest this could happen in December.

The unwinding of the Fed’s balance sheet is in some ways considered a form of monetary policy tightening. Thus, it would be quite possible that the Fed will signal its intentions on doing so, while also penciling another rate hike later this year.

Headline inflation in the United States, as seen by the core PCE data has been bucking the trend, staying consistently below the 2% target rate. One of the FOMC members, Lael Brainard, said in late May that the soft trend in inflation is concerning.

“If the soft inflation data persist, that would be concerning and, ultimately, could lead me to reassess the appropriate path of policy,” Brainard said in a prepared statement.

Fed officials are currently thinking of a way to shrink their balance-sheets without disrupting the markets.

It is therefore quite possible that if the mixed signals from the economy continue, the Fed could potentially pause rate hikes but consider cutting back on its balance-sheet.

No matter which way one looks at this, the June FOMC meeting is likely to see a cautious but a confident tone from the central bank.

This could very well translate to some short-term strength in the U.S. dollar.

Besides the Fed’s meeting, the monthly consumer price index (CPI) data will also be coming out this week.

The GBP/USD had sharply fell when its was announced that UK Prime Minister May's gambit didn't go as planned. The result of UK Snap election created a sell-off in the GBP and at this point we can see that GBP is sold on rallies. The current price structure along with the camarilla pivots tell me that this could be a breakaway gap. The breakaway gap indicates that a new trend is about to develop after the gap has formed outside of the previous range. Also the gap is similar to a runaway gap, where the price fails to close the gap and it just proceeds with momentum.

The gap has been formed around W H3/ M H3 pivot extending to W L3 support. The POC zone is 1.2765-85 (38.2, double top, historical sellers) and on rallies the price could drop from the zone too. First target is 1.2715 and if momentum persists we could see 1.2634. Have in mind that breakaway gap is tricky and that we might not even see the close of the gap before W H3 -1.2820 is again broken to the upside.

Daily Pivots: (S1) 1.3412; (P) 1.3473; (R1) 1.3525; More....

Intraday bias in USD/CAD remains neutral for the moment. In case of another recovery, upside should be limited by 1.3570 resistance and bring fall resumption. We're holding on to the view that rise from 1.2968 has completed. And the larger rise from 1.2460 could have finished too. Below 1.3387 will target 1.3222 support first. Break of 1.3222 will affirm our bearish view and target 1.2968 key support level for confirmation. However, break of 1.3570 will turn focus back to 1.3793 high instead.

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 could have completed at 1.3793, ahead of 61.8% retracement of 1.4689 to 1.2460 at 1.3838. Break of 1.3222 should indicate the start of the third leg while further break of 1.2968 should confirm. Nonetheless, sustained trading above 1.3838 would pave the way to retest 1.4689 high.

Daily Pivots: (S1) 0.7514; (P) 0.7529; (R1) 0.7539; More...

Intraday bias in AUD/USD remains neutral for the moment. Further rise is mildly in favor as long as 0.7456 minor support holds. Above 0.7566 will target 0.7748 resistance. In that case, we'll be cautious on topping again as it approaches medium term fibonacci level at 0.7849. On the downside, below 0.7456 minor support will turn bias back to the downside for 0.7328 short term bottom.

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 0.8091) and above.

EUR/USD

The EUR/USD pair closed the week below the 1.1200 level, down within range, as political jitters in the UK helped the greenback advancing. The common currency also suffered a setback from a less hawkish ECB, which downgraded inflation forecasts for this year and the upcoming ones, and announced QE could be extended if needed. Despite removing from its statement the 'lower rates' phrase, suggesting the Central Bank has taken its first step towards tapering easing, the announcement fell short of market's expectations.

This week, the US Federal Reserve its having a 'live' meeting, one of those that includes new revisions and a press conference. The Fed is largely expected to raise rates by 0.25%, although soft data ever since the year started increases the possibility that the Central Bank will pause afterwards. Indeed, the world largest economy is near full employment, but soft inflation and consumption remain as the key issue that could tie policymakers´ hands. A conservative statement, more data-dependent, would see the dollar trimming its latest gains.

The pair traded as low as 1.1166 this Friday, and despite the upward momentum seems to be fading in the longer run, technical readings indicate that the pair is far from changing course. In the daily chart, the price has settled below a now flat 20 DMA, for the first time in almost a month, whilst technical indicators head modestly lower around their mid-lines, but the price also stands well above 1.1120, a strong static support and the 23.6% retracement of the latest bullish run between 1.0569 and 1.1284. In the 4 hours chart, the risk is towards the downside, with the price now below the 20 and 100 SMAs, and technical indicators having turned lower within negative territory. Only below 1.1080, the lowest for the last three weeks, the pair will see a steeper downward move that can extend down to 1.1010, the 38.2% retracement of the mentioned rally.

Support levels: 1.1160 1.1120 1.1080

Resistance levels: 1.1210 1.1250 1.1300

USD/JPY

The USD/JPY pair closed the week pretty much flat at 110.32, despite edging higher on Friday for a third consecutive day. The yen remained strong as US Treasury yields tumbled to their lowest since the US election earlier this week, recovering modestly on Friday, but still near yearly lows. The recovery in yields was a result of a benign former FBI director Comey statement, which did not harm Trump's administration further, adding nothing new to what markets already knew. The week will start with some inflation and industrial data from Japan, although the main market motor will remain to be sentiment. A negative opening in equities amid risk aversion triggered by the UK, should keep the yen on demand. Daily basis, technical readings keep favoring the downside, as indicators hold within bearish territory, whilst the 100 DMA is crossing below the 200 DMA, both now in a tight 20 pips' range around 112.00. In the 4 hours chart, Friday's advance was rejected by selling interest around the 100 SMA, while technical indicators have managed to bounce from their mid-lines, aiming higher but well-below their daily highs, indicating limited buying interest around the pair.

Support levels: 109.85 109.50 109.10

Resistance levels: 110.50 111.00 111.60

GBP/USD

The GBP/USD pair tumbled to its lowest in nearly two months early Friday, after the Conservative leading party ended up losing seats in the House of Commons in the General Election, exactly the opposite result PM May was looking for when she called for snap elections. PM May wanted to reaffirm her leadership ahead of Brexit negotiations, but is now struggling to form a government with a hung Parliament. During the weekend her two top advisers, Nick Timothy and Fiona Hill resigned, taking responsibility for the failure in elections, after failing to communicate properly the policy programme. The Tory manifesto included several cuts in healthcare for children and elderly, and was largely criticized by opposition, as Mrs. May called for 'big, difficult decisions' to keep the country on track. The Pound is set to start the week with a soft tone, and even a gap lower, on the news, as political woes and uncertainty will likely push investors away from the UK currency. The GBP/USD pair stabilized around 1.2740 at the end of the week, but maintains the sour tone, with the daily hart showing that the price has broken well below a now bearish 20 DMA and technical indicators heading sharply lower within bearish territory. In the 4 hours chart, the risk is also towards the downside, as technical indicators have resumed their declines after barely correcting extreme oversold readings, whilst the price remains far below its moving averages. 1.2705, February's high is the immediate support ahead of the 1.2660, where the pair bottomed this past week.

Support levels: 1.2705 1.2660 1.2620

Resistance levels: 1.2756 1.2800 1.2840

GOLD

Gold prices keep retreating on Friday, with spot ending at $1,266.45 a troy ounce after flirting with yearly highs early week, having traded as high as 1,295.90. The bright metal was undermined by resurgent dollar's demand after risk events in the EU ended up weakening local currencies. Furthermore, former FBI director Comey's testimony brought relief to the American currency, as it hardly affected Trump´s administration. The daily chart shows that the commodity settled around its 20 SMA, while technical indicators have turned sharply lower, and are currently nearing their mid-lines, indicating that further declines ahead are likely. In the 4 hours chart, the decline is set to continue, as the 20 SMA turned sharply lower well above the current price, whilst technical indicators resumed their declines near oversold readings. Friday's low of 1,264.61 is the immediate support, with a break below it exposing the 1.245.50 region.

Support levels: 1,264.60 1,253.20 1,245.50

Resistance levels: 1,271.40 1,282.60 1,295.90

WTI CRUDE OIL

Crude oil prices spent Friday consolidating near their weekly lows, with West Texas Intermediate crude futures settling at $46.13 a barrel. Oil edged lower for a third consecutive week, undermined by an unexpected build in US inventories, and news that the number of rigs drilling oil in the country rose for a 21st consecutive week, up by eight to 741, according to the Baker Hughes weekly report. The US benchmark bottomed at 45.46 this last week, and remains at risk of falling further, as in the daily chart, the price remained capped by the 200 DMA, with the 20 DMA gaining downward strength above the current level, as technical indicators hover near oversold readings, with no signs of recovering ground. In the 4 hours chart, a strongly bearish 20 SMA leads the way lower, providing an immediate dynamic resistance around 46.60, while technical indicators have bounced from oversold readings and head up, but within negative territory.

Support levels: 45.40 44.70 44.10

Resistance levels: 46.60 47.20 47.90

DJIA

Wall Street closed mixed on Friday, with the Dow Jones Industrial Average up 89 points and settling at a fresh record high of 21,271.97, whilst the Nasdaq Composite plunged 113 points or 1.80%, to close at 6.207.92, amid a selloff in the technology sector. The S&P closed pretty much unchanged, down 2 points to 2,431.77. Leading the advance in the DJIA was Pfizer, up 3.21%, followed by JP Morgan that added 2.37%. Also up were energy-related equities, as oil prices stabilized after the early week slump. The worst performers were Apple, down 3.88% and Microsoft that shed 2.27%. Holding near its highs, the daily chart for the index shows that it stands above all of its moving averages, while the Momentum indicator remains flat within positive territory, and the RSI indicator heads north around 67, maintaining the risk towards the upside. In the shorter term, and according to the 4 hours chart, the DJIA presents a neutral-to-bullish stance, holding above a horizontal 20 SMA, and with technical indicators bouncing modestly from their mid-lines.

Support levels: 21,228 21,170 21,125

Resistance levels: 21,303 21,350 21,400

FTSE100

The FTSE 100 reversed course on Friday and advanced sharply on a plunging Pound, ending the week anyway in the red at 7,527.33. The index added 78 in the last day of the week as it's made up of multinationals that benefit from a weaker sterling, also underpinned by rising mining-related equities. Smurfit Kappa was the best performer, up by 5.03%, followed by Fresnillo and Antofagasta that added 3.60% and 3.51% respectively. Taylor Wimpey led decliners with a 3.27% lost, followed by Babcock International that shed 2.92%. The daily chart shows that the recovery stalled around a flat 20 DMA, while technical indicators turned north, but stand around their mid-lines, not enough at this point to support additional gains, although a break above 7,540, the immediate resistance area, would favor so. In the shorter term, the risk is also towards the upside, technical indicators head north above their mid-lines, although the price is also stuck around moving averages, in line with the longer term perspective.

Support levels: 7,482 7,445 7,405

Resistance levels: 7,541 7,588 7,620

DAX

The German DAX added 102 points or 0.80%, settling for the week at 12,815.72. European equities closed higher, backed by a modest bounce in oil prices, and after the ECB on Thursday upgraded its growth forecast for the region, while reaffirming the need of monetary easing. Within the DAX BASF was the best performer, adding 2.15%, followed by Deutsche Lufthansa that added 2.01%. On the losing side were RWE AG that closed 1.84% lower, followed by SAP that lost 1.24%. The daily chart for the German benchmark presents a neutral-to-bullish stance, as despite seesawing all through the week, it held above a flat 20 DMA, while technical indicators have bounced modestly from their mid-lines, although lacking enough momentum to confirm additional gains ahead. In the shorter term, and according to the 4 hours chart, the risk is also towards the downside, as the index stands above all of its moving averages, whilst technical indicators have bounced modestly from their mid-lines, still holding below Friday's highs.

Support levels: 12.734 12,671 12,620

Resistance levels: 12,791 12,834 12,881

EUR/USD – 1.1222

EUR/USD:   Wave (c) of 2 ended at 1.3993 and wave 3 of III has commenced for weakness to 1.0411 (1.236 of wave 1), then 1.0000.

The single currency retreated after meeting resistance at 1.1285, suggesting consolidation below this level would be seen, however, reckon downside would be limited to 1.1160-65 and support at 1.1109 would hold, bring another rise later, above said resistance at 1.1285 would extend recent upmove from 1.0340 low to previous resistance at 1.1300 but only a daily close above there would retain bullishness and signal medium term downtrend has ended and headway to another previous resistance at 1.1366 would follow, having said that, near term overbought condition should prevent sharp move beyond 1.1430-35 and price should falter below 1.1500, bring retreat later. 

Our preferred count on the daily chart remains that a wave (II) from 1.2329 ended at 1.5145 with A-leg ended at 1.4720, followed by wave B at 1.2457, the wave C from there was also a 3 legged move and is labeled as (a): 1.3739, (b): 1.2885, the wave iii of the 5-waver (c) from 1.2885 has ended at 1.4339 and wave iv is a triangle ended at 1.3878 and wave v formed a top at 1.5145. The decline from there is a 5-waver (C) with minor wave (i) of I of (C) ended at 1.4218 with wave (ii) ended at 1.4580, wave (iii) ended at 1.3267 and wave (iv) ended at 1.3692 and wave (v) ended at 1.1876, this is also the low of wave I of (C) and wave II ended at 1.4940, hence wave III is now in progress with a diagonal wave 1 ended at 1.2042, the breach of previous support at 1.1876 (wave I trough) adds credence to our view that the wave 2 has ended at 1.3993, wave 3 has commenced for further weakness to 1.0411, then towards 1.0000.

On the downside, although initial pullback to 1.1160-65 cannot be ruled out, reckon downside would be limited and bring another rise later. Below said support at 1.1109 would abort and suggest a temporary top is possibly formed, bring test of previous resistance at 1.1025 but a daily close below there is needed to provide confirmation, bring retracement of recent rise to 1.0975-80 but downside should be limited to 1.0900 and support at 1.0839 should remain intact, bring rebound later.

Recommendation: Buy at 1.1210 for 1.1410 with stop below 1.1110. 

Euro's long-term uptrend started from 0.8228 (26 Oct 2000) with an impulsive structure. The rise from 0.8228 to 0.9593 (5 Jan 2001) is labeled as wave I, the retreat to 0.8352 (6 Jul 2001) is wave II and the rally to 1.3670 (31 Dec 2004) is wave III. Wave IV from there ended at 1.1640 (15 Nov 2005), the subsequent upmove to 1.6040 (July 15, 2008) is treated as wave V, the major selloff from the record high of 1.6040 to 1.2329 (October 27, 2008) signals a reversal has taken place with (I) leg ended at 1.2329 and once (II) ended at 1.5145, wave (III) itself is an extended move with I: 1.1876 and complex wave II ended at 1.4902, wave III has commenced with wave 1 and 2 ended at 1.2042 and 1.3993 respectively, wave 3 of III is now unfolding for weakness towards parity.

USD/JPY - 109.99

USD/JPY – Wave V of larger degree circle V has possibly ended at 75.31 and major correction has commenced and already met indicated target at 125.00.

The greenback recovered after falling to 109.11 last week, suggesting consolidation above this level would be seen and corrective bounce to 111.10-15 (38.2% Fibonacci retracement of 114.39-109.11) cannot be ruled out, however, reckon upside would be limited to 111.71-75 (previous resistance and 50% Fibonacci retracement) would hold and bring another decline later. Below said support at 109.11 would extend the fall from 114.39 to 108.80, however, loss of downward momentum should prevent sharp fall below previous chart support at 108.13 and bring rebound later.

Our preferred count is that, triangle wave IV (with circle) ended at 101.45 and the circle wave V brought dollar down to the record low of 75.31 in 2011 and the subsequent rebound signal major correction has commenced with A leg ended at 84.19, followed by wave B at 77.14 and impulsive wave C is now unfolding (indicated upside target at 125.00 had been met) for gain towards 127.00 level. In the event dollar drops below support at 99.01, this would confirm medium term decline from 125.86 top (2015 high) has resumed for subsequent weakness to 98.00 and possibly 97.00.

Under this count, this wave C is unfolding as impulsive waves with (1) (2), 1 2 ended at 80.67, 79.07, 82.84 and 81.69 respectively, hence the extended wave 3 has ended at 103.74 and wave 4 correction of recent upmove should bring weakness to 92.57, then towards 90.88 but psychological support at 90.00 should limit downside and bring another rally later in wave 5, indicated target at 125.00 had been met and gain to 127.00 cannot be ruled out but reckon price would falter below 130.00.

On the upside, whilst initial recovery to 110.80 and then 111.10-15 (38.2% Fibonacci retracement of 114.39-109.11), however, indicated level at 111.71-75 should hold an bring another decline. Above resistance at 112.13 would suggest low is formed instead and bring a stronger rebound to 112.35-40 (61.8% Fibonacci retracement) and possibly towards 113.00 but price should falter well below said resistance at 114.39, bring another decline later this month.

Recommendation: Sell at 111.50 for 109.50 with stop above 112.50.

On the monthly chart, we have changed our preferred count that an impulsive wave is unfolding with major wave III with circle ended at 79.75, then followed by wave IV with circle and is labeled as a triangle with A: 147.64 (11 August, 1998), B: 101.25, C: 135.20, D: 101.67 and E leg ended at 124.14 to end the wave IV with circle. Hence, wave V with circle commenced from there and hit a record low of 75.31, however, the subsequent strong rebound signals this circle wave V has possibly ended there, hence gain to (indicated upside target at 122.00 and 125.00 had been met), the retreat from 125.86 suggests wave A of major correction has ended there and wave B correction back to 99.00, then 95.00 would be seen, however, reckon downside would be limited to 90.00, bring another rebound in wave C next year.

Daily Pivots: (S1) 1.1162; (P) 1.1199 (R1) 1.1231; More....

Intraday bias in EUR/USD remains neutral with focus 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.

Daily Pivots: (S1) 1.2598; (P) 1.2775; (R1) 1.2915; More...

With 1.2802 minor resistance, intraday bias in GBP/USD remains on the downside. We're favoring the case that consolidation pattern from 1.1946 has completed at 1.3047 already. Break of 1.2614 resistance turned support would confirm our bearish view and target a test on 1.1946 low next. On the upside, above 1.2802 will bring turn bias neutral and bring recovery. But outlook will remain bearish as long as 1.2977 resistance holds.

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.

'The subdued performance in the economy throws the political turmoil of a hung parliament into sharp relief.' — Jagjit Chadha, NIESR

British manufacturing and industrial production rose less than expected in April but broke, following three consecutive months of declines. The Office for National Statistics reported on Friday that manufacturing production climbed 0.2% on a seasonally adjusted basis in April, falling behind expectations for a 0.8% rebound and following the preceding month's drop of 0.6%. On a yearly basis, manufacturing production remained unchanged in the reported month, after climbing 2.2% in March. Friday's report also showed that industrial production in Britain advanced 0.2% month-over-month in April, compared to the previous month's fall of 0.5%, although analysts anticipated an increase of 0.7%. On an annual basis, industrial production declined 0.8% during the reported month, following the preceding month's climb of 1.4%. Other report released by the ONS on Friday showed that the country's goods trade gap narrowed to £10.4B in April, whereas the prior month's trade deficit of £13.4B was revised down to £12.0B. The narrowing of the gap was driven mainly by lower imports that dropped more than 5% in April.