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Currency pair GBP/USD

The UK general parliamentary election took place yesterday on Thursday 8th of June 2017 and the election results indicate that the Conservative Party has lost its parliamentary majority. The Prime Minister Theresa May fails to increase her majority, as originally intended when calling for new elections in April, but also falls short of the 326 seats needed to keep its current majority.

The GBP/USD reacted bearish to the election results as the likelihood of a hung parliament (no party having a majority) increased during the election night. Price broke support (dotted green) and managed to reach the bottom of the consolidation (purple box) and the Fibs of wave 4 (orange). The other wave scenario is outlined via the wave 123 (red) structure, which becomes more likely if price manages to break below the support trend line (blue) and reach the 161.8% target of wave 3.

The GBP/USD bearish price action was strong as the UK election results were announced during the night. At this moment it is unclear whether the bearish momentum is part of a larger correction (wave 4 orange) or a new downtrend (wave 3 red). A break below 1.27 would favour a new downtrend.

Currency pair EUR/USD

The EUR/USD was unable to break the 100% Fib resistance level at 1.13 and slightly pushed below the support zone at 1.12.The failure to break the 1.13 invalidation level keeps the current wave structure intact.

The EUR/USD will also need to break below support (blue) before a wave 3 (blue) indeed becomes a more likely scenario.

Currency pair USD/JPY

The USD/JPY has bounced at the 78.6% Fibonacci level of wave B (brown) but it remains to be seen on lower time frames if this is a reversal upwards or a correction for more bearish price action.

The USD/JPY is in a bullish channel (blue/yellow), which has reached the 50% Fibonacci level. A bullish break above the 50% Fibonacci level indicates that the wave B (brown) has most likely been completed at the low.

Revised short term AUDUSD Elliott Wave view suggests the rally from 5/9 low is unfolding as a leading diagonal Elliott Wave structure. Up from 5/9 (0.7325) low, Minute wave ((i)) ended at 0.7517, Minute wave ((ii)) ended at 0.7368, and Minute wave ((iii)) ended at 0.7566. Minute wave ((iv)) pullback is currently in progress to correct cycle from 6/1 low in 3, 7, or 11 swing before pair resumes higher again.

Pair has currently reached 100% from 5/9 low thus cycle from 5/9 low is mature and may end soon. However, pair still has scope to extend one more leg higher in Minute wave ((v)) as far as pivot at 6/1 low (0.7368) stays intact before ending cycle from 5/9 low as a leading diagonal. As cycle from 5/9 low has reached 100%, it’s not a good idea to chase strength at this stage. We don’t like selling the pair either as higher degree trend is bullish and expect pair to correct cycle from 5/9 low in 3, 7, or 11 swing after it completes one more leg higher in Minute wave ((v)).

AUDUSD 1 Hour Elliott Wave Chart

Global Markets:

• Asian stock markets: Nikkei up 0.55 %, Shanghai Composite gained 0.05 %, Hang Seng lost 0.15 %, ASX 200 rose 0.20 %
• Commodities: Gold at $1277 (-0.15 %), Silver at $17.31 (-0.60 %), WTI Oil at $45.60 (-0.10 %), Brent Oil at $47.80 (-0.15 %)
• Rates: US 10-year yield at 2.19, UK 10-year yield at 1.04, German 10-year yield at 0.25

News & Data

• Australia Home Loans m/m -1.9 % vs -1.0 % expected
• China CPI m/m -0.1 % vs -0.2 % expected
• China CPI y/y 1.5 % vs 1.5 % expected
• China PPI y/y 5.5 % vs 5.7 % expected
• Sterling shaken by UK election shock, fallout limited elsewhere – RTRS
• FTSE futures, gilt yields fall as odds improve on Corbyn-led government – RTRS
• China's easing factory gate prices hint at broader economic slowdown – RTRS

Markets Update:

The British Pound collapsed overnight, as projections showed that the ruling party of Theresa May will fall short of an overall majority. A “hung parliament” – where no party has a majority – would be the worst scenario for markets as it would make the Brexit negotiations with the EU much more difficult.

GBP/USD fell from 1.2950 to a low of 1.2693 in Asia. The pair has recovered slightly since then, but volatility will remain high until the result has arrived. From a technical perspective, 1.27 and 1.30 are the key levels to watch. Should GBP/USD have a clear break below 1.27, a decline towards 1.25 seems likely.

The Euro came under pressure as well, although the ECB did not have much of an impact. The central bank left rates & QE unchanged, hiked their economic forecasts and decreased their inflation forecast, just as expected. In the near-term, further consolidation seems likely.

While every FX trader is watching the Pound, volatility in the other currency pairs is relatively low. AUD/USD lost some momentum, but is still holding above 0.75 support. USD/JPY recovered amid a rally in equity markets. A break above 110.50 could signal a rally towards 112.

Upcoming Events:

• 07:00 BST – German Trade Balance
• 07:45 BST – French Industrial Production
• 09:30 BST – UK Manufacturing Production
• 09:30 BST – UK Industrial Production
• 13:30 BST – Canadian Employment Change
• 13:30 BST – Canadian Unemployment Rate

For the 24 hours to 23:00 GMT, the AUD declined 0.16% against the USD and closed at 0.7534.

LME Copper prices rose 1.3% or $72.0/MT to $5647.5/MT. Aluminium prices declined 0.05% or $1.0/MT to $1902.5/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7535, with the AUD trading slightly higher against the USD from yesterday's close.

Overnight data indicated that, in China, Australia's largest trading partner, the consumer price index (CPI) climbed 1.5% on an annual basis in May, meeting market expectations. In the previous month, the CPI had registered a rise of 1.2%. Meanwhile, the nation's producer price index PPI advanced 5.5% YoY in

May, less than market expectations for a rise of 5.6%. In the prior month, the PPI had registered a rise of 6.4%.

The pair is expected to find support at 0.7521, and a fall through could take it to the next support level of 0.7508. The pair is expected to find its first resistance at 0.7551, and a rise through could take it to the next resistance level of 0.7568.

Looking ahead, investors will closely monitor Australia's unemployment rate, NAB business confidence as well as Westpac consumer confidence indices, all slated to release next week.

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 declined 0.52% against the USD and closed at 1.1199, after the European Central Bank (ECB) trimmed its inflation forecasts for the next three years.

The ECB, at its latest monetary policy meeting, maintained the benchmark interest rate steady at 0.00%, as widely expected. In a post meeting statement, the ECB President, Mario Draghi reiterated that the ECB would continue to pump stimulus into the region's economy and that the central bank could increase the size or duration of its quantitative easing programme if needed. Further, the ECB, reduced its forecast for inflation this year to 1.5%, down from 1.7% predicted in March, while the forecast for 2018 and 2019 was cut to 1.3% and 1.6% respectively as against 1.6% and 1.7% estimated earlier. Nevertheless, the central bank slightly raised its growth projection for the next few years, now expecting the region's economy to expand 1.9% this year, 1.8% in 2018 and 1.7% in 2019, citing stronger growth momentum in the region.

On the economic front, the Euro-zone's seasonally adjusted final gross domestic product (GDP) was revised higher to 0.6% on a quarterly basis in the first quarter of 2017, pushing the region's economic growth to its fastest pace in two years. In the previous quarter, GDP had risen by a revised 0.5%, while the preliminary print indicated an expansion of 0.5%.

Separately, Germany's seasonally adjusted industrial production rebounded more-than-expected by 0.8% on a monthly basis in April, painting a fairly bright picture of the health of the nation's industrial sector. Industrial production had recorded a revised drop of 0.1% in the prior month, while markets were expecting for a gain of 0.5%.

The greenback gained ground against a basket of currencies, as investors found that the testimony of former FBI Director, James Comey, had no major surprises that could affect Donald Trump's Presidency.

The US Dollar added to gains after data revealed that initial jobless claims in the US dropped to a level of 245.0K in the week ended 03 June 2017, pointing to a tighter labour market despite a recent slowdown in job growth. In the previous week, initial jobless claims had registered a revised level of 255.0K, while markets anticipated for a fall to a level of 240.0K.

In the Asian session, at GMT0300, the pair is trading at 1.1195, with the EUR trading marginally lower against the USD from yesterday's close.

The pair is expected to find support at 1.1160, and a fall through could take it to the next support level of 1.1124. The pair is expected to find its first resistance at 1.1250, and a rise through could take it to the next resistance level of 1.1304.

Moving ahead, investors will look forward to Germany's trade balance figures for April, slated to release in a few hours.

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

For the 24 hours to 23:00 GMT, the GBP declined 1.39% against the USD and closed at 1.2776, after an exit poll indicated that the British Prime Minister, Theresa May is losing her parliamentary majority in Britain’s election, a development that would spark political turmoil in the nation and delay Brexit talks.

In the Asian session, at GMT0300, the pair is trading at 1.2740, with the GBP trading 0.28% lower against the USD from yesterday’s close, with the UK election results pointing towards a hung parliament.

The pair is expected to find support at 1.2631, and a fall through could take it to the next support level of 1.2521. The pair is expected to find its first resistance at 1.2914, and a rise through could take it to the next resistance level of 1.3087.

Ahead in the day, investors will await the outcome of UK’s general election along with Britain’s trade balance, industrial, manufacturing and construction output data, all for April.

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

For the 24 hours to 23:00 GMT, the USD rose 0.22% against the JPY and closed at 110.00.

In economic news, data showed that Eco-Watchers Survey for the current situation rose to a level of 48.6 in May, compared to a reading of 48.1 in the prior month. Markets were anticipating it to advance to a level of 48.6. Further, the nation's Eco-Watchers Survey for the future outlook unexpectedly climbed to a level of 49.6 in May, compared to a level of 48.8 in the prior month, while markets anticipated it to ease to a level of 48.5.

In the Asian session, at GMT0300, the pair is trading at 110.26, with the USD trading 0.24% higher against the JPY from yesterday's close.

Earlier today, data revealed that the nation's tertiary industry index rebounded more-than-expected by 1.2% MoM in April, following a drop of 0.2% in the preceding month.

The pair is expected to find support at 109.63, and a fall through could take it to the next support level of 109.01. The pair is expected to find its first resistance at 110.63, and a rise through could take it to the next resistance level of 111.01.

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 0.39% against the CHF and closed at 0.9684.

On the macro front, Switzerland's seasonally adjusted unemployment rate surprisingly remained steady at a level of 3.2% in May, while market participants were expecting unemployment rate to climb to 3.3%. Moreover, the nation's consumer price index rose by 0.2% in May. The CPI had advanced 0.2% in the previous month.

In the Asian session, at GMT0300, the pair is trading at 0.9688, with the USD trading a tad higher against the CHF from yesterday's close.

The pair is expected to find support at 0.9653, and a fall through could take it to the next support level of 0.9617. The pair is expected to find its first resistance at 0.9711, and a rise through could take it to the next resistance level of 0.9733.

Next week, traders would focus on the Swiss National Bank's (SNB) interest rate decision.

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

For the 24 hours to 23:00 GMT, the USD slightly rose against the CAD and closed at 1.3515.

On the data front, Canada’s seasonally adjusted housing starts dropped more-than-expected to a level of 194.7K in May, compared to market expectations of a fall to a level of 202.0K. In the prior month, housing starts had recorded a revised level of 213.5K. On the other hand, the nation’s new housing price index advanced 0.8% MoM in April, more than market expectations for a rise of 0.2%. The index had registered a rise of 0.2% in the prior month.

In the Asian session, at GMT0300, the pair is trading at 1.3515, with the USD trading flat against the CAD from yesterday’s close.

The pair is expected to find support at 1.3487, and a fall through could take it to the next support level of 1.3458. The pair is expected to find its first resistance at 1.3542, and a rise through could take it to the next resistance level of 1.3568.

Ahead in the day, traders would keenly await Canada’s unemployment rate data for May, to gauge strength in the nation’s labour market.

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

Daily Pivots: (S1) 0.7528; (P) 0.7541; (R1) 0.7558; More...

A temporary top is in place at 0.7566 with 4 hour MACD crossed below signal line. Intraday bias in AUD/USD is turned neutral first. Further rise is still 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.