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Global Markets:

• Asian stock markets: Nikkei down 0.60 %, Shanghai Composite fell 0.45 %, Hang Seng declined 1.05 %
• Commodities: Gold at $1269 (-0.20 %), Silver at $17.12 (-0.60 %), WTI Oil at $46.05 (+0.50 %), Brent Oil at $48.40 (+0.50 %)
• Rates: US 10-year yield at 2.22, UK 10-year yield at 1.00, German 10-year yield at 0.26

News & Data:

• Japan Core Machinery Orders m/m -3.1 % vs 0.5 % expected
• Japan Core Machinery Orders y/y 2.7 % vs 7.3 % expected
• Japan PPI m/m 0.0 % vs 0.1 % expected
• Japan PPI y/y 2.1 % vs 2.2 % expected
• Sterling steadies as British PM scrambles after poll shock, dollar awaits Fed – RTRS

CFTC Positioning Data:

• EUR long 74K vs 73K long last week. Longs increased 1K. Largest long position since 2007
• GBP short 37K vs 30K short last week. Shorts increased by 7K
• JPY short 55K vs 52K short last week. Shorts increased by 3K.
• CHF short 17K vs 19K short last week. Shorts trimmed by 2K
• CAD short 94K vs 98K short. Shorts trimmed by 4K. Near record levels still.
• AUD square vs 3K long. Shorts trimmed 3K
• NZD short 2K vs 5K short last week. Shorts trimmed 3K

Markets Update:

Markets had a relatively quiet start into the new trading week. The Euro consolidated in a 1.1200-10 range, while GBP/USD traded between 1.2710 and 1.2770. The Pound is likely to suffer from the political uncertainty in the near-term, and selling interest on larger rallies will be high. Strong resistance is seen at 1.2820 and ahead of 1.29.

USD/JPY is slightly lower amid a decline in Asian stock markets. The pair fell from 110.45 to 110.15 in Asia. The short-term outlook is mixed. Should USD/JPY fail to break above 111 resistance soon, a retest of 109 seems likely.

AUD/USD consolidated in a 10 pips range overnight. Important support lies at 0.75. A break below would suggest that momentum is still too weak, and that a return to 0.7380 support is likely.

Overall, volatility in the FX market is likely to remain low ahead of the Fed meeting on Wednesday. The central bank is expected to increase interest rates, but the focus will be on the FOMC projections and statement. A cautious Fed could bring the Dollar under additional pressure.

Upcoming Events:

• 09:00 BST – Italian Industrial Production
• 09:30 BST – RBA Assistant Governor Debelle speaks

The Week Ahead:

Tuesday, June 13th

• 02:30 BST – Australian NAB Business Confidence
• 07:00 BST – German WPI
• 09:30 BST – UK CPI
• 10:00 BST – German ZEW Economic Sentiment
• 10:00 BST – Euro Zone ZEW Economic Sentiment
• 13:30 BST – US PPI
• 23:45 BST – New Zealand Current Account

Wednesday, June 14th

• 01:30 BST – Australian Westpac Consumer Sentiment
• 03:00 BST – Chinese Industrial Production
• 03:00 BST – Chinese Retail Sales
• 07:00 BST – German CPI
• 09:30 BST – UK Unemployment Rate
• 09:30 BST – UK Average Earnings
• 09:30 BST – UK Claimant Count Change
• 10:00 BST – Euro Zone Industrial Production
• 13:30 BST – US CPI
• 13:30 BST – US Retail Sales
• 19:00 BST – Fed Interest Rate Decision
• 19:30 BST – FOMC Press Conference
• 23:45 BST – New Zealand GDP

Thursday, June 15th

• 02:30 BST – Australian Employment Change
• 02:30 BST – Australian Unemployment Rate
• 07:45 BST – French CPI
• 08:15 BST – Swiss CPI
• 08:30 BST – SNB Rate Decision
• 08:30 BST – SNB Press Conference
• 09:00 BST – Italian CPI
• 09:30 BST – UK Retail Sales
• 10:00 BST – Euro Zone Trade Balance
• 12:00 BST – Bank of England Rate Decision
• 12:00 BST – Bank of England Meeting Minutes
• 13:30 BST – US Philadelphia Fed Manufacturing Index
• 14:15 BST – US Industrial Production
• 14:15 BST – US Manufacturing Production
• 15:00 BST – US NAHB Housing Market Index

Friday, June 16th

• 07:30 BST – Bank of Japan Press Conference
• 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

Key Points:

• Buying pressure has been notable but may subside over the coming days.
• Mixed fundamental forecast should see some of last week's rally eroded.
• Near-term losses may not preclude further gains in the medium to long-term.

The Kiwi Dollar had an excellent past week of gains but the longevity of its rally is now coming into question. Specifically, a mixed technical bias and some fundamental uncertainty could prevent the pair from pushing higher over the coming sessions. Indeed, recent upsides already seem to have been pushing the envelope so to speak which might mean a correction or moderation is now in order. Due to this, it may be worth taking a closer look at what caused last week's rally and how this ties in with the fundamental and technical biases moving forward.

Starting with last week's performance, the Kiwi Dollar was in the market's good graces over the past 7 days which resulted in the pair making its way all the way back to the 0.7208 handle by the end of Friday. The rather consistent buying pressure was largely attributable to the disappointing US data sprinkled throughout the week – including both a -0.2% contraction in US Factory Orders and a weaker than expected Unemployment Claims result of 245K. However, one session proved to be particularly bullish as a result of the sixth consecutive uptick in the GDT Price Index (this time of around 0.6%) which saw the NZD claim nearly 50 pips on Tuesday.

Going forward, the question will be whether or not we can expect to see similarly supportive data or if the economic news is going to slap the pair lower. Well, Wednesday will see both the quarterly and yearly NZ GDP figures posted which could provide the necessary buoyancy if they come in on or above targets.

The two prints are forecasted at around 0.7% and 2.7% respectively and, given the general recovery of the nation's dairy industry and the increased tourist arrivals over the past year, we are very likely to see these estimates achieved.

On the face of it, the likelihood of us seeing strong GDP numbers should mean our default bias is going to be bullish. Nevertheless, any positive sentiment could be drowned out by the deluge of US Retail Sales data and the Fed's interest rate decision – both of which are due out just prior to the GDP numbers.

Due to this, we can't quite put forward an argument for further gains purely on fundamental grounds and we may have to take a look at the technicals to get a clearer picture.

When delving into the technical side of things, it becomes clear that the Kiwi Dollar remains broadly bullish but we might begin to see momentum slow as it is now challenging a vital resistance level. Specifically, whilst the EMA bias is highly bullish, the Parabolic SAR remains firmly below price action, and the ADX is signalling that a strong trend is in play, the pair is now highly overbought. Indeed, both stochastics and RSI are signalling that it may be time for the bulls to take a break which might see the historical zone of resistance around the 0.7232 remain intact.

Ultimately, the combination of the mixed technical and fundamental outlooks means that we are likely to see price action moderate this week – potentially leading the NZD to retreat to the 0.7129 mark. However, this may not be the end of the overall uptrend and, instead, it might simply be a bit of a cooling-off period prior to the bulls making another attempt at surging higher. As a result of this, cautious optimism may be well founded in the long-run but the bears may be in the driving seat for the next week at least

Key Points:

• Cable facing volatility as Bank of England and FOMC decision looms.
• Watch for sharp volatility following the risk events.
• Expect further political risk until Theresa May can form a government.

The Cable had a particularly rough week as the currency pair reacted to a surprising result from the UK election which saw the conservatives lose enough seats to cause a “hung parliament”. Subsequently, the market was shocked and the pair collapsed back below the 1.28 handle to close the week at 1.2741. Subsequently, it makes sense to review last week’s chaotic events with a view to assessing the looming risks as the FOMC gets ready to rule.

Last week was particularly volatile for the Cable as the UK general election result brought with it a sharp surprise for the markets. Rather than a victory for the Theresa May led conservative government, it actually proved to be a veritable rout and resulted in a “Hung Parliament”. This subsequently caused the Cable to decline sharply by around 200 pips and resulted in the pair closing the week well down at 1.2741. Ultimately, it still remains to be seen if Theresa May will be able to form a government in the coming week and this means plenty of volatility for the Cable moving forward.

Looking ahead, besides the ongoing political risk, there is plenty of volatility looming for the Cable in the week ahead. In particular, both the Bank of England and the U.S. Federal Reserve are getting set to determine their interest rates and this could bring with it some surprises. The U.S. Federal Reserve’s FOMC has proved relatively poor at setting expectations ahead of the meeting so it is currently anyone’s guess as to whether the central bank will follow through on their recent rhetoric and lift interest rates. However, given some of the recently poor U.S. economic figures, the risk of further dovishness is relatively high. In contrast, the Bank of England is dealing with rising inflation rates and, although they are unlikely to lift rates, there could be some relatively hawkish rhetoric following the event. Subsequently, it’s highly likely that the Cable will suffer some bouts of volatility as those decisions are released.

From a technical perspective, last week’s sharp fall likely suggests that the consolidation from the 1.30 handle has ceased and we are now moving towards further downside momentum. In addition, the RSI Oscillator still remains within neutral territory and has further space to move before becoming oversold. Subsequently, our initial bias remains on the downside for the coming week with the caveat to watch for volatility from the FOMC decision. Support is currently in place for the pair at 1.2707, 1.2632, and 1.2512. Resistance exists on the upside at 1.2906, 1.2977, and 1.3045.

Ultimately, fundamental and political risk is likely to dictate the Cable’s near term trend as the Fed and BOE both get set to meet to determine their respective interest rates. Subsequently, the pair is likely to have a relatively bumpy week, until these events are ironed out, so monitor the results closely as they are released.

STOCKS

Dow (21271.97, +0.42%) is trading above 21200 and while that continues, it could be headed towards 21500-21600 in the next few sessions. Near term looks bullish.

Dax (12815.72, +0.80%) indeed tested 12800 last week and if it is able to break above 12850, we could see a sharp rise towards 12900-13000 this week.

Shanghai (3153.55, -0.15%) could possibly dip to 3130-3125 once before again rising up towards 3175-3200 levels. There is enough scope to rise on the upside in the medium term while the long term support near 3020 holds.

Nikkei (19944.14, -0.35%) has bounced from the 21-day MA acting as a god support near 19825. While it acts as immediate support, we could see a bounce towards 20000-20100 again in the coming sessions.

Nifty (9668.25, +0.22%) rose sharply, ending last week on a positive note. We may expect a re-test of 9700 in the next few sessions followed by a sharp break on the upside. Else the consolidation within 9700-9600 may continue for some more time before the upward rally resumes.

COMMODITIES

Gold (1266) remains in a slow corrective move which may take it to the support of 1242 but if the support holds, a quick bounce towards 1307can't be ruled out. Silver (17.14) also continues to weaken and may decline to 16.90 in the coming days. We might see less volatility in the market ahead of FOMC meeting ( on 14th June 2017), which may add further directional clarity.

Copper (2.63) is trading within the narrow range of 2.56-2.67. Only above 2.67, higher resistances of 2.84 can come into consideration. We will remain bullish on copper while it is trading above 2.55 regions.

Brent (48.40) and WTI (46.09) had tested their respective supports of 47.40 and 44.20, and bounced a little, keeping the upside possibility of 50.22 (Brent) and 47.50 (WTI) open. If Brent and WTI manage to close above 50.30 and 47.50 in the next couple of sessions, another attempt for 52 and 49.55 can be seen. Bearish possibilities will come in consideration in case 47.40 for Brent and 44.20 for WTI break down.

FOREX

While keeping the rates unchanged as expected, ECB trimmed Inflation expectations through 2019, driving Euro lower. The Comey testament has been brushed off by the investors, boosting Dollar and UK is headed for a hung parliament, weakening the Pound. Overall Dollar strength.

The initial signal of an upside reversal in Dollar Index (97.30) is visible now and it may rise to 97.60-80 in a day or two. A break above 97.80 may fully confirm a near term reversal and open up higher levels of 98.40 and above. The bias turns bullish now with the support of 96.50 holding firm.

Euro (1.1195) has weakened from the higher levels exactly as discussed for the last few days. Technically it may decline further to the support of 1.1125-15 before any bounce can be considered but the German-US 2Yr (-2.08%) keeps the possibility of a recovery still open (Check Interest Rates section). Bias bearish but not with full conviction yet.

Dollar Yen (110.26) has bounced in line with expectations and may rise to 111.20 but as discussed yesterday, to negate the downside risk, it requires a break above 111.70. Till then, the larger trend remains down.

Pound (1.2746) has taken a major hit from the unexpected UK election results. With the initial shock digested, it may either grind in the range of 1.2700-1.2850 for a few sessions or continue the decline towards 1.2600 immediately. It may take one more trading session which is the more probable path.

Aussie (0.7532) remains indifferent to all the global events and untouched even by the general Dollar strength today. It may end the week in the range of 0.7500-0.7600.

Dollar Rupee (64.21) broke the range of 64.30-70 to the downside and now we have to watch crucial Support at 64.10. If that holds, there could be chances of sharp rise to 64.40-50 again. A break below 64.10, on the other hand, could lead to lower levels near 63.90

INTEREST RATES

The US yields have risen as expected. The 5YR (1.76%), 10Yr (2.20%) and the 30Yr (2.85%) are up from previous levels of 1.74%, 2.18% and 2.84% respectively.

The UK 10YR (1%) is testing support near current levels and could bounce back in the coming sessions to levels near 1.05%.

The Japan 5YR (-0.068%) has been rising sharply compared to the other longer term yields and looks bullish in the near term. The 10Yr (0.06%) could test 0.07-0.08% over today and tomorrow before coming off again in the medium term.

The German-US 10Yr (-1.94%) is almost stable just above immediate support levels and unless that breaks on the downside, there could still be some possibility of a bounce back in euro. But on the other hand if we look at the 2Yr yield spread (-2.11%), it has broken sharply below the support levels indicating a weaker Euro in the coming sessions. We would now have to look closely at the 10Yr yield spread for any indication of a break below support levels to get a better directional cue for the Euro.

USDCHF - With the pair continuing to retain its downside pressure, more decline is envisaged despite price hesitation. However, we a close higher seen the past week, further bullishness is likely. On the downside, support lies at the 0.9650 level. A turn below here will open the door for more weakness towards the 0.600 level and then the 0.9550 level. On the upside, resistance resides at the 0.9750 level where a break will clear the way for more strength to occur towards the 0.9800 level. Further out, resistance comes in at the 0.9850 level. All in all, USDCHF faces further bearishness but with caution

EURUSD - With the pair continuing to retain its upside pressure, more strength is envisaged though hesitating the past week. Resistance comes in at 1.1250 level with a cut through here opening the door for more upside towards the 1.1300 level. Further up, resistance lies at the 1.1350 level where a break will expose the 1.1400 level. Conversely, support lies at the 1.1150 level where a violation will aim at the 1.1100 level. A break of here will aim at the 1.1050 level. All in all, EURUSD faces further recovery threats in the new week.

The Aftermath

The markets will continue to rethink the Tories diminished Brexit directive, and possible party backlash after May's snap election wager ultimately backfired and sent parliament into complete disarray.So we should expect much more discussion about and rethinking of the UK's Brexit position. With May's leadership teetering on the brink, the UK steps ever so closer to the calamitous Brexit cliff edge scenario.

As for the pound, it remains deadlocked in the 1.2700-50 zone as traders muddle through the election aftermath looking for directional clues. Certainly, prolonged uncertainty would argue for a deeper correction on Sterling as May's diminished Brexit mandate scenario plays out. However, there are cooler heads in play suspecting the only real option left is the more market-friendly outcome where the UK adopts a European Economic Area styled agreement. A settlement widely perceived as the least ruinous opportunity for the UK and the rest of the bloc. So, expect markets to struggle in the vortex of near-term possibilities clashing with longer term probabilities.

NASDAQ  made the Friday afternoon lowlight reel when tech shares pivoted lower driven in part by an apparent flash crash on Amazon shares which dipped nearly 8 % at one point all the while the Dow Jones climbed to record highs.  A clear sign of sector rotation in play as opposed to any real shift in fundamentals. While the street was abuzz with talk of a resurgent 'Trump on trade 'as both financial and energy stocks gained by week's end,  we remain jaded and pessimistic as that shifting narrative falls a bit too soon and far too optimistic at this stage of the game.

Japanese Yen

The USDJPY was trading resiliently and showing little signs of post-UK election panic that was until the Friday afternoon swoon on the NASDAQ which .sent the pair toppling over 60 points from intraday highs as risk turned jittery heading into the weekend. I suspect traders opted to play the defensive strategy given weekend headline risk

We‘re left picking up the pieces this morning after Friday's rollercoaster. While some focus remains on last week's BoJ QE exit headlines, we view this little more than the BoJ floating an 'exit” trial balloon.

Risk, on the other hand, has not rebounded in early APAC trade suggesting the markets is sitting tight awaiting more concrete news on the UK political landscape. So far no silver lining in sight as USDJPY trades with an early offered bias and the Nikkei slides

Euro

The Euro remains stuck in the mud after the ECB was broadly in line with economists expectations last week. However, with the market anticipating something more on the hawkish side, we could see some more focus on that after the UK election banter fades and EURGBP demand abates.There was a high build up in EURUSD long positioning heading into last week's ECB, so we could see more near-term EURUSD weakness as ECB hawkish narrative continues to unwind

Australian Dollar

Very tight ranges to close the week as the market's major focus remained on the UK election.But traders are eyeing support holding at .7500-.7525 which bodes will after a solid performance of late. Iron Ore, however, continues to look for a floor which suggests seller will appear on rallies above .7550.

Overall inflation expectations and the employment data have proven supportive of late and another positive print on the Jobs report this week will corroborate the RBA view to look past Q1 weakness and should be supportive for the Aussie.

Six month ago Macron was an underdog to win the Presidency but his improbable surge has continued after a massive win in the first round of French parliamentary elections. The Australian dollar was the top performer last week while the pound sterling lagged. CFTC positioning data saw GBP shorts pile in ahead of the election. A new Premium video on the existing Premium trades will be posted mid Monday Asia morning.

Macron's La Republique En Marche won 415-455 seats in the first round of voting, out of a total of 577. The vote for the right wing National Front faded to only 1-5 seats and former President Hollande's Socialist party was decimated, winning only 10-20 seats.

The theme of 2016 in elections was a shift to populism but in 2017 it has turned into more of a shift to the fringes and away from establishment parties and candidates. Corbyn's ability to turn out the vote is as shocking as anything over the past year and may inspire leftist candidates elsewhere.

That sets up years of political drama and the specter of wildly divergent policies in a fragmented world. At the moment, a badly wounded May is attempting to hang on with the backing of the DUP but the knives are out. If she's toppled, the uncertainty will be a fresh reason to sell the pound.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR +74K vs +73K prior GBP -37K vs -30K prior JPY -55K vs -52K prior CHF -17K vs -19K prior CAD -94K vs -98K prior AUD 0K vs +3K prior NZD -2K vs -5K prior

The moves of committment of traders were modest this week but at least a few traders got short GBP ahead of Thursday's election and rode that to a quick profit. EUR longs inched to a fresh high dating back to 2007 and CAD shorts remain near a record, highlighting to vulnerability of the pair after another strong jobs report on Friday.

EUR/USD stays in consolidation below 1.1298 key resistance last week. Retreat was so far shallow and contained above 1.1109 support. Outlook is unchanged. Initial bias remains neutral this week first, with focus on 1.1298. 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.

In the long term picture, the case for completion of down trend from 1.6039 (2008 high), and long term bottoming at 1.0339, is starting to build up. Decisive break of 1.1298 will bring rise back to 1.2042 as first resistance. And in that case, we should at least see rally back to 38.2% retracement of 1.6039 to 1.0339 at 1.2516.

USD/JPY dived to 109.11 last week but rebounded since then. Structure of such rebound is still correctively looking and there is no clear sign of reversal. Initial bias remains neutral this week first. As long as 111.70 resistance holds, near term outlook stays mildly bearish for deeper fall. Below 109.11 will target 108.12 low first. Break will extend the whole corrective fall from 118.65 to 61.8% retracement of 98.97 to 118.65 at 106.48. We will look for bottoming sign there. Meanwhile, break of 110.70 will suggest near term reversal and turn bias back to the upside for 114.36 resistance instead.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

In the long term picture, the rise from 75.56 long term bottom to 125.85 medium term top is viewed as an impulsive move. Price actions from 125.85 are seen as a corrective move which could still extend. But, up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.