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Key Points:

• Despite recent losses, the pair may not have shaken its long-term bias.
• Numerous technical readings are now bullish.
• If we don’t see a reversal, losses could extend to the 0.95 handle.

The Swissy has been routing for a number of weeks now and, understandably, this has raised questions over whether or not the long-term technical bias is now shifting to bearish. However, we still have one vital support level left before we break what has been an uptrend lasting more than a year. As a result, it’s now make or break time for the bulls as, if they don’t fight back soon, losses may extend to the 0.95 level and beyond.

As shown below, even though the pair has been in decline since December last year, it has remained broadly bullish over the past 12 months. Additionally, without the unexpected effect of the ‘Trump bump,’ gains might have continued to follow the gentle uptrend that began back in April of 2016. This would have prevented the panicked sell-off that now has so many worried that the pair is destined to move to the downside in the long-term

As a result of this, the suggestion that the bulls have entirely given up is rather unfair as they seem to have simply retreated to a robust zone of support, from which, they can stage a comeback. In fact, a number of technical indicators are now shifting to signal that a reversal is on the cards. In particular, the highly oversold stochastics will be giving the bears pause for thought – especially given that the RSI readings are on the verge of reaching a similar conclusion.

What’s more, whilst it is currently bearish, the Parabolic SAR will invert if we see even a mild upswing which will go a long way in rallying the bulls. Furthermore, when combined with the presence of the trend line and the oversold readings, this reading would certainly suggest that a sizable correction to the upside is now warranted. However, the question remains, how far can we expect to see the pair recover in the medium-term?

Using Fibonacci retracement, we can forecast that the rally is likely to run short of steam at around the 0.9818 mark. This coincides with the 38.2% retracement (typically one of the more robust levels) and also a historical reversal point. Moreover, the 100 day moving average should be generating some dynamic resistance at this price which will mean the pair is facing some fairly strong headwinds as it extends.

Ultimately, don’t rule out the chances of the Swissy remaining bullish in the long-term – as tempting as it might be in the wake of the nearly 500 pip rout seen over the past few weeks. As mentioned, the presence of that trend line and the handful of bullish technical readings should be more than enough to encourage the pair to turn around in the absence of a major fundamental upset. Nevertheless, if the USDCHF does slide below the trend line, be prepared to see it test support as low as the 0.95 handle.

Key Points:

• Price action reaches a key supply zone.
• Watch for momentum to stall and price to decline in the days ahead.
• Downside move back towards 0.7055 likely in the coming week.

The past month has been almost meteoric for the venerable Kiwi Dollar as the currency has continued to rally to its current position at 0.7190. However, despite the strong bullishness, the various technical indicators are signalling that a change could be in the wind for the pair. In particular, price action is nearing a key reversal/supply zone which could be suggesting that a decline is likely in the coming days.

The most concerning factor is the looming supply zone and its relative historical validity in signalling potential reversals. Subsequently, the looming supply zone (0.7214-0.7245) is likely to result in price action's rise stalling and a rapid depreciation occurring once the bulls exit the market. Lending additional weight to the bearish contention is the fact that the RSI Oscillator is also within overbought territory which suggests that the price action will need to decline, or at a minimum moderate, to relieve the pressure on the oscillator.

Fundamentally, the New Zealand Dollar has benefitted from the ongoing strength in the global dairy markets as well as the recent 3.2% gain in the ANZ Commodity price indicator. However, the Kiwi Dollar is still relatively at the behest of the U.S. Federal Reserve's looming rate hike decision. At this stage, it remains unclear whether the central bank will hike rates at its coming FOMC meeting but the reality is that the NZDUSD is likely to be struck with a range of volatility regardless of the outcome. Subsequently, this is likely to result in a change in tack for the pair and, if the central bank hikes rates, will lead to a significant depreciatory period.

Ultimately, the most likely scenario for the pair revolves around a failure to penetrate through the current supply zone starting at 0.7214. This would potentially lead to a sharp decline as the upside momentum falls away and price action starts to move back towards the initial downside target at 0.7055. In addition, any move by the U.S. Federal Reserve to raise rates, or take a hawkish tone in the looming meeting could also cause depreciation for the Kiwi Dollar. Subsequently, there are plenty of factors to suggest that the pair could be in for a rough week ahead given both the technical and fundamental aspects.

Short Term AUDUSD Elliott Wave view suggests the rally from 5/9 low is unfolding as a double three Elliott Wave structure. Up from 5/9 (0.7325) low, Minute wave ((w)) ended at 0.7517 and Minute wave ((x)) ended at 0.7368. Pair has since broken above 0.7517, adding validity that the next leg higher has started. From 0.7368 low, the rally is also unfolding as a double three Elliott Wave structure. Minutte wave (w) ended at 0.7498 and Minutte wave (x) ended at 0.7453. Near term, pair has reached 100% from 5/9 low therefore cycle from 5/9 low is mature and could end any moment. However, short term extension higher to 0.76 area is still possible before pair ends cycle from 0.7368 low while pullbacks stay above 0.7452. As cycle from 5/9 low has reached the minimum target, 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 profit taking to take place soon in 3, 7, or 11 swing to correct cycle from 5/9 low.

AUDUSD Elliott Wave 1 Hour Chart

STOCKS

Stocks are almost stable. We could expect some ranged movement in the near term before they resume their up-trend.

Dow (21173.69,+0.18%) has been almost stable. Some movement is expected within 21000-22000 but while resistance near 21200 holds, there is some scope of coming off towards 21000.

Dax (12672.49, -0.14%) could get some support from 12600 and if that holds, could move up towards 13000 in the medium term. A break below 12600 if seen, could take it lower towards 12500 before resuming the uptrend.

Shanghai (3134.32, -0.19%) looks bullish and could be headed towards 3150-3170 in the coming sessions.

Nikkei (19990.55, +0.03%) could be headed towards 20500 in the next few sessions while above 19700. If not an immediate rise, some sideways movement is possible in the coming sessions.

Nifty (9663.90, +0.28%) tested 9630 on the downside yesterday and could remain stable just now. Some consolidation in the 9600-9700 region is possible before it resumes its rally towards 9800. Overall near to medium term looks bullish.

COMMODITIES

Gold (1284) is trading at lower levels and may test the support zone of 1275. The bullish momentum is still intact, though the chances of downside can't be fully negated. In case a break below 1275 takes place in the coming sessions, we may have to consider lower levels of 1247 . But till the sub 1270-75 fall really materializes, we prefer to stay as buyer.

On the other hand, Silver (17.59) is sustaining the higher levels comfortably irrespective of the overbought condition. Thus we recommend caution at the higher levels for Silver longs. A failure to sustain above 17.50-60 levels may trigger a sharp fall towards 16.91 regions.

Copper (2.54) is hovering around its pivot at 2.55 of the trading range of 2.44-2.66. Only above 2.66, higher resistances of 2.72-80 can come into consideration. In the medium term 2.44 are going to be a strong support now but a close below that could open up 2.40-35 levels.

We had clearly mentioned in our yesterday's morning briefing that “The short term oversold condition has been rectified with this upward movement” and “ At the same time it could be prudent to be prepared for a sudden turnaround to the downside if there is a mismatch between forecast figure and the actual outcome”.

Yesterday Brent (48.18) and WTI (45.83) fell almost 4.8% as U.S weekly crude oil inventory rose by +3.3M barrels against the expectation of -3.1M Barrels. At present Brent and WTI are trading within the range of 47.40-50.20 and 44.20-47.50 respectively. We think 47.40 (Brent) and 44.20 (WTI) are going to be a strong support as both Brent and WTI are within short term oversold zone.

FOREX

All three of UK election, ECB policy decision and ex-FBI chief Comey's testimony will take place today and can be a short term decider for the markets.

Dollar Index (96.72) bounced back to 97.00 from our support of 96.50-25 but an upside reversal would be confirmed only a break above 97.10. So at this point, Dollar stands in the middle of the bullish breakout levels of 97.10 and bearish breakdown level of 96.25. The near term direction may be clear by tomorrow.

Euro (1.1260) saw some volatility yesterday as it tested 1.1200 before recovering most of the intraday loss. Both the ECB statement and Comey testimony may affect it today and make it clear how far it can rise inside the resistance cluster of 1.1300-1.1450. Repeat, if Euro really weakens from the higher levels, Dollar may bounce back from its support of 96.50-25. Please note, the Euro trend remains up and Dollar trend remains down till now but we stay prepared for the possibility of a sudden trend reversal, which at the moment has 45-50% probability.

Dollar Yen (109.85) has been supported by the Dollar Index resilience and any further global Dollar strength may push it up to 111.20 but to negate the downside risk, it requires a break above 111.70. Till then, the trend remains down.

Pound (1.2956) has risen a bit towards the upper end of the range of 1.2750-1.3050 but till the election result comes, no moves can be trusted. We prefer to wait and watch in which direction the range breaks post result. An upside break may push it to 1.3300 and a downside break may drag it down towards 1.2600.

Aussie (0.7543) is sustaining the higher levels but the advance may be limited to 0.7600-10 this week as Crude and Iron Ore weakened considerably (Check Commodities section).

Dollar Rupee (64.33) remained almost indifferent to the RBI policy announcement as it didn't register any fresh high or low for the week and closed above the support of 64.30, just like the earlier sessions of the week. It remains to be seen if the multiple global events today can bring it out of the range of 64.30-70.

INTEREST RATES

The US yields are rising again and may move up a little more in the next few sessions. The 10Yr (2.18%) could move towards 2.25% while the 30Yr (2.84%) could try to test 2.92% in the near term. The 10-5 Yr (0.44%) may bounce from support at current levels and move back to 0.45%.

The UK yields have started to move down and could re-test supports below current levels. The 20Yr (1.56%) could bounce back from 1.50% while the 5Yr (0.45%) has some more room on the downside towards 0.35%.

The Japan yields have risen sharply and suddenly. The 5Yr, 10Yr and 30Yr are trading at -0.07%, 0.06% and 0.82% from previous levels of -0.09%, 0.046% and 0.80% respectively. There could be some more rise over today and tomorrow followed by some corrective dip in the near term.

The German yields are trading low and looks bearish for the medium term. the 5YR , 10Yr and 30YR are trading at -0.45%, 0.26% and 1.12% respectively.

Crude Inventories crush oil whilst silver may provide an early indicator of a deeper gold correction.

Oil

There is missing on forecasts, and there is coming in at too shallow an angle, bouncing off the atmosphere and spinning into outer space. Such was the U.S. DOE Crude Inventories overnight, coming in at a 3.3 million barrel surplus against and expected 3.5 million barrel draw down. With such a huge miss the effect was predictable with Brent plunging -3.60% and WTI collapsing by -4.30% to end the New York session.

OPEC and Non-OPEC may well have to face some stark choices at their review in July now, as, despite intra-day volatility since rolling over their production cut, oil has now fallen nearly 12%. An unpalatable option of increasing the daily production cut target may have to be seriously put onto the table instead of being talked about in sound bites.

Brent spot trades slightly higher at 48.25 in early Asia on short-term profit taking. It has resistance at 48.75 and then 50.00. It has support initially at 47.75 with a break of this level opening up the May lows of 46.30.

WTI spot is trading at 45.90 in early Asia. Resistance is at 46.50 initially and then 48.00. Support appears just below current levels at 45.50 with a break of this level opening a retest of the May panic liquidation lows at 43.50.

Precious Metals

Gold gave back some of its previous day';s gains overnight, falling -0.50% to close around 1286.75 in New York. An easing of political tensions with Comey';s first testimony published ahead of the first hearing, and the Saudi';s allowing food and medicine shipments to Qatar across their land border may have played a part. The double top at 1296 could have initiated technical based traders to engage in some profit taking as well.

At these levels, gold may already have a lot of today';s event risk built into its price. Especially as the last poll ahead of the U.K Election from YOUGOV suggests, the Conservative';s lead has widened just ahead of the polls themselves. That said, with the results coming out during the Asian session tomorrow morning, the downside for gold is likely to be limited as we run into the weekend even if the 1296/1300 region appears to be quite formidable resistance for now.

Gold has support around 1282 and then 1279 with a break of the latter implying a potential technical move to the 1260 region, especially if the election passes without drama.

Traders may well want to take their cue from Silver in fact, which is hovering at 17.6000 this morning, just above it';s 100 and 200-day moving averages at 17.5550 and 17.5200. A break of 17.5000 implies a much deeper correction for silver and may signal a correction lower in gold as well.

AUDUSD - The pair continues to retain its upside pressure rallying further on Wednesday. On the downside, support resides at the 0.7500 level where a breach will aim at the 0.7450 level. Below that level will set the stage for a run at the 0.7400 level with a cut through here targeting further downside pressure towards the 0.7350 level. On the upside, resistance lies at the 0.7600 level. A cut through here will turn attention to the 0.7650 level and then the 0.7700 level where a violation will set the stage for a retarget of the 0.7750 level. On the whole, AUDUSD remains biased to the upside on further bullishness.

What was expected to be a lull before the storm turned anything but as Forex markets went into a tizzy on some unexpected headlines. All the while risk sensitivity remained fair-minded and stable ahead of the major events., ECB, UK election, and Comey testimony.

Oil prices are back on the slippery slope down with WTI crude slumping 5% to just under USD46/bbl after greased by the EIA s Crude Stocks Change which rose last week, breaking a run of eight consecutive weeks of decline, and predictably oil linked currencies continue to underperform.However, prices have based in early APAC futures trade as level heads start to consider this build will likely reverse next week significantly influenced by the holiday weekend surge in demand.

However, it was the early release of ex-FBI Director James Comey's testimony that has calmed investor's nerves and returned a bid to risk sensitive USDJPY.The long and short of ti was the letter offered no smoking gun or impeachment worthy bombshells and only repeated what the market had already known.

Euro

Euro bulls were sent into a panic when reports emerged citing unnamed “officials” suggesting that the European Central Bank would lower the Eurozone inflation forecast to 1.5% from 1.7% for 2017, 2018, and 2019. EURUSD dropped like a stone from 1.1275 to 1.1205. The overreaction was more due to new weaker Long EUR positioning as short-term traders have been building and Euro ahead of the ECB, as the opportunity to catch an ECB turn in policy is just too enticing. The move was short-lived as the market remains in full buy the EURUSD dip and the single currency finished the day where it started

Japanese Yen

USDJPY price action was just a lively a the dealers boarded the Yen roller coaster amidst risk aversion trades and headlines which suggested the BOJ could upgrade its economic assessment by month end.It certainly appeared a test of 109 level was on the card, but the release of ex-FBI director Comey letter to the Senate Select that had investors smiling and a strong bid returned to USDJPY. But we are not out of the weeds just yet as risk sentiment remains fragile

British Pound

Sterling continues to perform well with final opinion polls pointing to a comfortable Conservative win. Price action this week has reflected this consensus as long Sterling continues to be favoured in the election. I suspect it now turns to what size of the majority will the Tories have with anything about 50 seats likely to see GBPUSD test the 1.3200 level.

Australian Dollar

Price action post a surprisingly robust domestic GDP suggests the market was positioning for the miss in GDP after contributing inputs released earlier this week hinted the data might come in on the weaker side. However, volumes have been rather tepid as G10 focuses on EUR and GBP as we head into event risk with the ECB and UK elections tomorrow.

The market was getting comfortable with a bearish Aussie bias, and we're likely witnessing little more than a clear out of newly minted weaker shorts given the improving domestic data and the fact the RBA statement provided little ammunition to sell the Aussie

The Canadian dollar is trading lower after the sudden drop in oil prices following the release of weekly US crude inventory data. The higher than expected buildup of 3.3 million barrels when a drawdown was expected drove the price of oil more than 4 percent lower. The high correlation between crude prices and the Canadian dollar dragged the currency lower despite the anxiety surrounding the testimony of former FBI director James Comey. Trump fired Comey and is now being called to clarify the request from the President to end the investigation into Mike Flynn and his possible connections to Russia.

Canadian economic data has been mixed so far this week. The Ivey PMI was lower than expected at 53.8 and building permits contracted 0.2 percent in April but less than the two previous months. Canadian real estate has been on a surprising uptrend that could be reaching its peak as provincial governments have moved to stabilize prices following affordability concerns and high levels of household debt. Housing starts are due Thursday, June 8 at 8:15 am EDT anticipated to come in at 205,000 with the New Housing Price Index (NHPI) to follow at 8:30 am EDT forecasted at 0.3 percent increase. The Bank of Canada (BoC) will release the Financial System Review at 10:30 am EDT with a press conference hosted by BoC Governor Stephen Poloz at 11:15 am EDT. Given the recent development with Home Trust Group, the concerns about rising household debt and the downgrading by Moody's of the six major banks for their exposure to housing risks the market is anticipating some guidance from the central bank.

The USD/CAD gained 0.366 in the last 24 hours. The currency pair is trading at 1.3506 after the freewill in oil prices put the CAD under pressure. The USD also got some support from former FBI director James Comey's statement addressing his meetings with President Donald Trump for which he is going to testify before a special committee of the US senate. Risk aversion was subdued ahead of the UK elections and the investigation in Washington but the loonie could not get any traction as the US crude inventories jumped 3.3 million barrels last week and sent the price of oil tumbling more than 4 percent.

The USD/CAD has been caught in a range of 1.3440 and 1.3540 as geopolitics in the US and UK have closed with oil prices and political turmoil in the Middle East. The rift between Arab states and Qatar could have dire consequences for the Organization of the Petroleum Exporting Countries (OPEC) agreement on cutting production and threaten the existence of the organization going forward.

Oil lost 4.799 in the last 24 hours. The West Texas Intermediate is trading at $45.70 after the surprise buildup of US crude inventories this morning. Oil inventories rose 3.3 millions barrels when the forecast called for a drop of 3.5 million barrels. Gasoline inventories also gained as part of a worrisome trend that has seen demand stagnate ahead of the US driving season and putting more pressure on oil prices.

Increasing production from US shale producers has all but offset the best efforts from the Organization of the Petroleum Exporting Countries (OPEC) and other major producers that banded together to extend the production cut agreement until March 2018. The diplomatic situation with Qatar has also raised concerns on how solid is the group as internal rifts are reemerging.

Gold lost 0.52 percent on Wednesday. The yellow metal is trading at $1,287.50 ahead of major geopolitical events. Gold has risen after the Trump administration started losing political capital in 2017. The metal was lower in November as the President-elect made huge promises to reform the taxes and spend on modernizing infrastructure around the US. The pro-growth policies have not yet arrived as the administration was embroiled in healthcare reform and immigration policies that have resulted in major backlash and driven the price of safe havens higher.

Gold traders will be following the testimony before the Senate special committee as well as tuning in the UK elections in case of an upset to the polls forecasting a Conservative majority win.

Market events to watch this week:

Thursday, Jun 8
All Day GBP Parliamentary Elections
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
8:30am USD Unemployment Claims
Tentative USD Former FBI Director Testimony

Friday, Jun 9
4:30am GBP Manufacturing Production m/m
8:30am CAD Employment Change
8:30am CAD Unemployment Rate

ECB meeting gets second billing as geopolitics to guide market

The USD is mixed against major pairs but has managed to regain some traction against the EUR, CHF, JPY and CAD as the statement from former FBI director James Comey gave the greenback some room ahead of the testimony before the Senate special committee. Comey's statement recounts what he recalls was said between him and President Trump in various occasions when the issues of Russia, Mike Flynn and loyalty. The markets await the questions and answers that will come during Comey's testimony for guidance on the potential impact on major currency pairs.

A conservative majority is the forecasted outcome of Thursday's elections in the United Kingdom. A large majority would boost the pound and validate the decision by Prime Minister Theresa May to call for the snap elections. A small victory would not be so positive for the pound with a hung parliament and a Labour parliament the scenarios that bring more uncertainty to the Brexit negotiations and have a deeper negative connotation for the GBP in the short term. Opinion polls do not have the greatest track record with UK elections having missed in 2015 with the elections, 2016 with Brexit and now facing another considerable test in 2017. The first exit poll is expected at 5:00 pm EDT.

The European Central Bank (ECB) will release its rate statement on Thursday, June 8 at 7:45 am EDT and a press conference to follow at 8:30 am EDT. There is no change in the benchmark rate or the quantitative easing program, but it is expected the central bank cuts its inflation forecast while delivering a dovish statement. The ECB needs to balance a stronger economy with lower inflation expectations and could launch a taper of stimulus while raising rates at the same time.

The EUR/USD lost 0.173 percent in the last 24 hours. The single pair is trading at 1.1254 after the statement from former FBI director prior to his testimony tomorrow let off some pressure form the USD. Bloomberg also reported on sources within the ECB saying that the central bank would be downgrading its inflation forecast while at the same time praising European growth in the first quarter. The USD appreciated while the euro fell ahead of the ECB rate statement due tomorrow.

European data has been mixed with service PMIs across the region coming close to estimates with France being the lone exception by missing the forecast. Retail sales underwhelmed and German factory orders fell by 2.1 percent as foreign investment demand is slowing down after a strong start to 2017.

Gold lost 0.52 percent on Wednesday. The yellow metal is trading at $1,287.50 ahead of major geopolitical events. Gold has risen after the Trump administration started losing political capital in 2017. The metal was lower in November as the President-elect made huge promises to reform the taxes and spend on modernizing infrastructure around the US. The pro-growth policies have not yet arrived as the administration was embroiled in healthcare reform and immigration policies that have resulted in major backlash and driven the price of safe havens higher.

Gold traders will be following the testimony before the Senate special committee as well as tuning in the UK elections in case of an upset to the polls forecasting a Conservative majority win.

Oil lost 4.799 in the last 24 hours. The West Texas Intermediate is trading at $45.70 after the surprise buildup of US crude inventories this morning. Oil inventories rose 3.3 millions barrels when the forecast called for a drop of 3.5 million barrels. Gasoline inventories also gained as part of a worrisome trend that has seen demand stagnate ahead of the US driving season and putting more pressure on oil prices.

Increasing production from US shale producers has all but offset the best efforts from the Organization of the Petroleum Exporting Countries (OPEC) and other major producers that banded together to extend the production cut agreement until March 2018. The diplomatic situation with Qatar has also raised concerns on how solid is the group as internal rifts are reemerging.

Market events to watch this week:

Thursday, Jun 8
All Day GBP Parliamentary Elections
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
8:30am USD Unemployment Claims
Tentative USD Former FBI Director Testimony

Friday, Jun 9
4:30am GBP Manufacturing Production m/m
8:30am CAD Employment Change
8:30am CAD Unemployment Rate

After the previous EUR/AUD resistance zone was broken and the trade no longer valid, I wanted to take a step back and just highlight the way that price has been acting.

On an obvious bullish tear, we’ve seen the following textbook perfect pattern:

“Break higher > Pullback > Retest previous resistance as support > Repeat”

Just look at the EUR/AUD daily chart and things are pretty self explanatory:

EUR/AUD Daily:

With the most recent pullback highlighted by Aussie dollar strength, the way that the daily candle wasn’t able to close below support shows just how bullish this pair is and keeps the pattern in tact.