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Daily Pivots: (S1) 1.3193; (P) 1.3259; (R1) 1.3306; More....

USD/CAD drops further to as low as 1.3211 so far as the decline from 1.3793 extends. Intraday bias remains on the downside with focus on 1.3222 support, which is close to medium term channel support. As noted before, we're holding on to the view that whole choppy rise from 1.2460 has completed at 1.3793. Decisive of 1.3222 will affirm our bearish view and target 1.2968 key support for confirmation. On the upside, above 1.3285 minor resistance will turn bias neutral and bring recovery. But upside should be limited by 1.3387/3537 resistance zone to bring another decline.

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. In that case, USD/CAD should decline through 1.2460 support to 50% retracement of 0.9406 to 1.4869 at 1.2048.

US markets regained strength overnight with DOW and S&P 500 closed at record highs as selloff in tech stocks stabilized. DOW gained 92.8 pts, or 0.44% to end the day at 21328.47. S&P 500 rose 10.96 pts, or 0.45% to close at 2440.35. However, no strength was seen in treasury yields as 10 year yield lost -0.006 to close at 2.207, staying well below 2.297 resistance and maintains near term bearish outlook. In the currency markets, Canadian Dollar remains the strongest one as boosted by hawkish twist in BoC officials' rhetorics. Meanwhile, Dollar is trading as the weakest major currency for the week. The development argues that traders could be quite concerned with a dovish FOMC hike today.

Fed to hike but focus on projections and vote

FOMC meeting is the major focus of the day. Fed is widely expected to raise the federal fund rate by 25bps to 1.00-1.25%. Markets are pricing in near 100% chance of that and there is little chance for Fed to give us a surprise there. But traders are very cautious as it's now getting more unsure on whether Fed will hike again in September. The new economic projections to be released today will probably hold the first key to this. The vote split for today's decision will be another hint on how divided the committee is regarding the economic outlook. Fed chair Janet Yellen will likely release more information on Fed's plan to shrink its balance sheet too.

Dollar selling might accelerate if EUR/USD breaks 1.13 firmly

Technically, dollar is staying generally bearish except versus Sterling. EUR/USD is holding above 1.1109 support and is mildly in favor to take out 1.1298 key resistance, which would carry larger bullish implications. USD/JPY is holding below 111.70 resistance, which suggests that fall from 114.36 is still in progress for 108.12 and below, to extend the larger decline from 118.65 (Dec high). USD/CAD breached 1.3222 key support level which now further affirms the case of medium term reversal and puts1.3 handle into focus. Overall, the greenback will be vulnerable if Fed hints at a rate path that is slower than originally planned. And a strong break of 1.13 in EUR/USD could trigger accelerated selloff in the greenback.

PM May said Brexit negotiation to start next week

In UK, Prime Minister Theresa May confirmed that the negotiation with EU on Brexit will formally start on January 19 as originally planned. May announced while she was meeting with French President Emmanuel Macron that "the timetable for the Brexit negotiation remains on course and will begin next week." And she emphasized that "we have been very clear we want to maintain a close relationship and a close partnership with the EU and individual member states into the future, including in the areas we've discussed this evening."

While the negotiation may really start next week, UK's stance on it is still very unclear after last week's election. There were calls for a multi-party negotiation team and a softer Brexit approach. Meanwhile, Labour has indicated that they will not agree a Brexit consensus with the Conservatives until May ditches her "no deal is better than a bad deal" rhetoric.

On the data front

China industrial production rose 6.5% yoy in May, fixed assets investments rose 8.6% yoy, retail sales rose 10.7% yoy. Japan industrial production was finalized at 4.0% mom in April. Australia Westpac consumer confidence dropped -1.8% in June. New Zealand current account balance turned into NZD 0.24b surplus in Q1.

German CPI was finalized at -0.2% mom, 1.5% yoy in May. UK employment data will be a key focus in European session. Sterling will look into the data for more upside momentum while traders await tomorrow's BoE announcement. Eurozone will release industrial production and employment.

While FOMC rate decision and press conference is the major focus, Dollar will first face the test of CPI in early US session. Retail sales and business inventories will also be released.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3193; (P) 1.3259; (R1) 1.3306; More....

USD/CAD drops further to as low as 1.3211 so far as the decline from 1.3793 extends. Intraday bias remains on the downside with focus on 1.3222 support, which is close to medium term channel support. As noted before, we're holding on to the view that whole choppy rise from 1.2460 has completed at 1.3793. Decisive of 1.3222 will affirm our bearish view and target 1.2968 key support for confirmation. On the upside, above 1.3285 minor resistance will turn bias neutral and bring recovery. But upside should be limited by 1.3387/3537 resistance zone to bring another decline.

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. In that case, USD/CAD should decline through 1.2460 support to 50% retracement of 0.9406 to 1.4869 at 1.2048.

Economic Indicators Update

For the 24 hours to 23:00 GMT, the AUD declined 0.11% against the USD and closed at 0.7536.

LME Copper prices declined 1.6% or $93.0/MT to $5659.0/MT. Aluminium prices declined 0.6% or $11.0/MT to $1877.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7537, with the AUD trading slightly higher against the USD from yesterday's close.

Earlier in the session, data showed that Australia's Westpac consumer confidence index fell to a level of 96.2 in June, dropping for a third consecutive month, compared to a reading of 98.0 in the prior month.

Elsewhere, in China, Australia's largest trading partner, industrial production climbed 6.5% on an annual basis in May, beating market expectations for an advance of 6.4%. Industrial production had registered a similar rise in the previous month. Moreover, the nation's retail sales climbed 10.7% YoY in May, in line with market expectations. In the prior month, retail sales had registered a similar rise.

The pair is expected to find support at 0.7519, and a fall through could take it to the next support level of 0.7502. The pair is expected to find its first resistance at 0.7559, and a rise through could take it to the next resistance level of 0.7582.

Going ahead, Australia's unemployment rate data for May, and consumer inflation expectations for June, due to release tomorrow, will be on investors' radar.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages

For the 24 hours to 23:00 GMT, the EUR rose 0.07% against the USD and closed at 1.1209, after the Euro-zone's ZEW economic sentiment index climbed to a level of 37.7 in June, notching its highest level in nearly two years, as investors remained upbeat about the region's growth prospects after recent data indicated renewed vigour in the common currency bloc. The index had registered a level of 35.1 in the previous month.

Separately, mood amongst German investors surprisingly weakened in June, after data showed that the economic sentiment index registered an unexpected drop to a level of 18.6, compared to market expectations of a rise to a level of 21.8. The index had registered a reading of 20.6 in the previous month. On the other hand, the nation's current situation index advanced to a nearly six-year high level of 88.0 in June, surpassing market expectations for the index to increase to a level of 85.0 and following a level of 83.9 in the previous month.

In economic news, the US NFIB small business optimism index surprisingly remained steady at a level of 104.5 in May, while market participants had envisaged for a rise to a level of 105.2.

In the Asian session, at GMT0300, the pair is trading at 1.1212, with the EUR trading slightly higher against the USD from yesterday's close.

The pair is expected to find support at 1.1190, and a fall through could take it to the next support level of 1.1167. The pair is expected to find its first resistance at 1.1230, and a rise through could take it to the next resistance level of 1.1247.

Looking ahead, investors will concentrate on the Euro-zone's industrial production data for April and Germany's final consumer price inflation figures for May, both slated to release in a few hours. Later today, all eyes would be on the Federal Reserve's (Fed) monetary policy decision, as the central bank is widely expected to announce an interest rate hike.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the GBP rose 0.66% against the USD and closed at 1.2752, after recent data indicated a more-than-expected rise in UK's inflation.

Britain's consumer price index (CPI) advanced more-than-expected by 2.9% on an annual basis in May, surging to a four-year high level, thus exerting further pressure on the Bank of England (BoE) to try and limit spiking inflation. In the previous month, the CPI had risen 2.7%, while markets anticipated for it to gain 2.7%.

In the Asian session, at GMT0300, the pair is trading at 1.2750, with the GBP trading slightly lower against the USD from yesterday's close.

The pair is expected to find support at 1.2676, and a fall through could take it to the next support level of 1.2601. The pair is expected to find its first resistance at 1.2791, and a rise through could take it to the next resistance level of 1.2831.

Moving ahead, traders would keep a close watch on Britain's ILO unemployment rate for the three months to April, slated to release in a few hours.

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

For the 24 hours to 23:00 GMT, the USD rose 0.19% against the JPY and closed at 110.06.

In the Asian session, at GMT0300, the pair is trading at 110.04, with the USD trading a tad lower against the JPY from yesterday's close.

Earlier in the session, Japan's final industrial production rebounded 4.0% on a monthly basis in April, confirming the flash estimate. Industrial production had fallen 1.9% in the previous month.

The pair is expected to find support at 109.88, and a fall through could take it to the next support level of 109.73. The pair is expected to find its first resistance at 110.23, and a rise through could take it to the next resistance level of 110.43.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD traded flat against the CHF and closed at 0.9688.

In the Asian session, at GMT0300, the pair is trading at 0.9686, with the USD trading marginally lower against the CHF from yesterday’s close.

The pair is expected to find support at 0.9665, and a fall through could take it to the next support level of 0.9644. The pair is expected to find its first resistance at 0.9704, and a rise through could take it to the next resistance level of 0.9722.

Amid no economic releases in Switzerland today, investor sentiment would be governed by global macroeconomic factors.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 0.63% against the CAD and closed at 1.3235.

The Canadian Dollar gained ground, after the Bank of Canada (BoC) Governor, Stephen Poloz signalled that the BoC could raise interest rates sooner than estimated, after he stated that the central bank's 2015 interest rate cuts “have largely done their work” and economic recovery from weak oil prices appeared to be broadening.

In the Asian session, at GMT0300, the pair is trading at 1.3228, with the USD trading slightly lower against the CAD from yesterday's close.

The pair is expected to find support at 1.3195, and a fall through could take it to the next support level of 1.3163. The pair is expected to find its first resistance at 1.3277, and a rise through could take it to the next resistance level of 1.3327.

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

Key Points:

• The recent rout seems to have lost its momentum.
• Support is relatively robust around the current level.
• The EMA bias remains staunchly bullish.

The EURAUD is worth a look in this week as a decent, albeit simple, reversal set up seems to be forming which could see some gains back on the menu. Any subsequent recovery is unlikely to erode all of the losses seen over the past week or so but the resulting gains could still be worth considering for those looking sidestepping some of the FOMC volatility.

Taking a closer look at exactly what is going on, the first thing to note is that selling pressure has been decelerating over the last few sessions and now seems to have stalled at the 1.4853 support. Nevertheless, this isn’t entirely surprising given the presence of the 23.6% Fibonacci retracement around this price and the movement of stochastics into oversold territory. As for what this means going forward, we can expect that the current support acts as a cap on downside risks and we should also see the bulls wade back into the fray – potentially pushing the pair higher once more.

Indeed, future upside action is looking rather likely which is due in no small part to the EMA bias. Specifically, despite the more than 300 pip rout from the 1.52 handle, the moving averages remain staunchly bullish. As illustrated, the 12 and 20 day averages have yet to crossover and both of these remain well and truly above the 100 day average. Combined with the robust zone of support already discussed, it looks as though there is little where for the pair to go but up – from a technical perspective at least.

In the event that we do see this rally take hold, we don’t quite expect it to entirely erase the last few weeks’ losses but it will go a long way in recovering some the slip. In particular, we suspect that upsides may run into some stiff resistance at the 1.5099 handle which represents a historical turning point. Furthermore, the parabolic SAR bias remains above price action which would suggest that we may have actually entered a medium-term downtrend that could also help to prevent a full recovery from taking place.

Overall, the outlook is somewhat in the bulls favour moving ahead but they may lose out to the bears in the medium to long-run. As a result, pay particular attention to the technical readings and the fundamentals as the EURAUD reaches that 1.5099 handle has it could prove to be the start of yet another slide for the pair.

Key Points:

• Price action trending within an ascending channel.
• RSI oscillator is showing divergence.
• Watch for the bullish channel to breakdown ahead of the FOMC vote.

The New Zealand Dollar has been a net beneficiary from the building uncertainty around the U.S. Federal Reserve’s forward path on rate hikes. Subsequently, the currency pair has rallied relatively strongly, within an ascending channel, over the past month to its current level at 0.7220. However, the upward momentum could be coming to an end as some interesting technical signals suggest a pullback could be on the cards in the coming days.

In particular, the 4-hour timeframe provides some illuminating clues as to what is potentially looming for the Kiwi Dollar. Currently, price action has reached some lofty heights above the 72 cent handle but the momentum has seemingly stalled and we are now moving in a sideways direction. However, this sideways movement is placing the lower extremity of the channel at risk of which a breach could commence a steady decline. Additionally, there are some signs of divergence between price action and the RSI Oscillator with the later currently trending lower despite price action moving sideways.

Subsequently, there are plenty of reasons to suggest that the Kiwi Dollar might be preparing for a break lower in the coming days. This is especially prescient given the fundamental risk event that is looming for the pair in the coming session with the FOMC getting ready to revisit their interest rate regime. Any hawkish moves by the central bank could lead to a significant downside momentum shift for the NZD and potentially see the currency pair slipping back below the 70 cent handle in the short term. Additionally, the RBNZ has already said that they view the Kiwi Dollar as overvalued and this adds plenty of credence to the view that the pair is ready for a decline.

Ultimately, the next few days are likely to be relatively critical for Kiwi Dollar with a range of downside risks, both fundamental and technical, looming on the horizon. Subsequently, the most likely scenario is price action breaking below the lower channel constraint at 0.7194 and moving steadily towards support around the 71 cent handle and possibly as low as 0.7050 in extension. Subsequently, it would pay to monitor price action in the coming hours because the move will be fairly rapid following the potential breakdown. However, watch for volatility around the FOMC decision because the very nature of central banking makes it highly unpredictable.