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The Canadian Dollar (CAD) saw volatile movement on Thursday due to mixed US economic data and a lack of domestic updates. With Canada absent from the economic calendar until Friday's GDP report, the CAD was influenced by US figures. Markets are now focused on the upcoming US Personal Consumption Expenditure (PCE) Price Index, a critical inflation measure for the Federal Reserve, set for release on Friday. This US inflation data is expected to overshadow the Canadian GDP figures in terms of market impact. Traders are anticipating significant market reactions to the US price growth data at the end of the trading week.

EURCAD – H1 Timeframe

I know you’re tempted to interpret the 1-hour EURCAD chart above as a bearish trend, however, let’s break it down critically before you do. Here, we see the moving averages in a bearish array, but you see the wick-ed reaction from the Daily timeframe demand zone at the bottom of the chart tells a different story. And as a result of that rejection from the demand zone, we’ve seen a bullish break of structure and a trendline support created. Should the trendline support hold when tested, the bullish sentiment would be explicitly confirmed.

Analyst’s Expectations:

• Direction: Bullish
• Target: 1.47430
• Invalidation: 1.46082

AUDCAD – H2 Timeframe

The first horizontal arrow from the left of the attached AUDCAD 2-hour chart marks the bullish break of structure. The impulse originated from the highlighted demand zone, which has been retested twice already. The most recent rejection formed a SBR (Sweep-Break-Retest) pattern, which means that we’re simply now waiting for price to retest the demand zone at the 76% region of the Fibonacci retracement tool in order to find confirmation for our bullish sentiment.

Analyst’s Expectations:

• Direction: Bullish
• Target: 0.91415
• Invalidation: 0.90493

• GBPJPY posts several green days
• RSI and stochastics are overstretched

GBPJPY is recording the tenth consecutive green day, posting a fresh 16-year high of 203.57. The market is looking positive, but the technical oscillators are suggesting overstretched momentum. The RSI is flattening near the 70 level, while the stochastic is moving horizontally above the 80 level.

More increases would drive the pair towards the 261.8% Fibonacci extension level of the downward wave from 188.65 to 178.80 at 204.70. Even higher, the next round numbers such as 205.00 and 206.00 may halt bullish actions.

However, a downside correction may initially find support at the 201.64 level, which is the previous peak. Below this, the 20-day simple moving average at 200.80 and the 198.90 barrier, which lies near the long-term uptrend line, may be the next returning point.

Summarizing, GBPJPY is extending its bullish structure, but the technical oscillators indicate negative retracement.

GBP/USD declined below the 1.2670 support zone. USD/CAD is rising and might aim for more gains above the 1.3735 resistance.

Important Takeaways for GBP/USD and USD/CAD Analysis Today

• The British Pound started a fresh decline from the 1.2700 resistance zone.
• There is a key bearish trend line forming with resistance at 1.2640 on the hourly chart of GBP/USD at FXOpen.
• USD/CAD is showing positive signs above the 1.3675 support zone.
• There is a major bullish trend line forming with support at 1.3705 on the hourly chart at FXOpen.

GBP/USD Technical Analysis

On the hourly chart of GBP/USD at FXOpen, the pair started a fresh decline from the 1.2700 zone. The British Pound traded below the 1.2670 support to move into further a bearish zone against the US Dollar.

The pair even traded below 1.2640 and the 50-hour simple moving average. Finally, the bulls appeared near the 1.2625 level. A low was formed at 1.2621 and the pair is now consolidating losses below the 23.6% Fib retracement level of the downward move from the 1.2670 swing high to the 1.2621 low.

Immediate resistance on the upside is near a key bearish trend line at 1.2645. The trend line is close to the 50% Fib retracement level of the downward move from the 1.2670 swing high to the 1.2621 low.

The first major resistance is near the 1.2655 zone. The main hurdle sits at 1.2670. A close above the 1.2670 resistance might spark a steady upward move. The next major resistance is near the 1.2700 zone. Any more gains could lead the pair toward the 1.2740 resistance in the near term.

Initial support on the GBP/USD chart sits at 1.2625. The next major support sits at 1.2600, below which there is a risk of another sharp decline. In the stated case, the pair could drop toward 1.2550.

USD/CAD Technical Analysis

On the hourly chart of USD/CAD at FXOpen, the pair formed a strong support base above the 1.3640 level. The US Dollar started a fresh increase above the 1.3675 resistance against the Canadian Dollar.

The bulls pushed the pair above the 1.3685 and 1.3700 levels. The pair cleared the 50-hour simple moving average and climbed above 1.3720. A high was formed at 1.3734 and the pair is now consolidating gains.

Initial support is near a major bullish trend line at 1.3705. The trend line is close to the 23.6% Fib retracement level of the upward move from the 1.3621 swing low to the 1.3734 high.

The next major support is near 1.3675 or the 50% Fib retracement level of the upward move from the 1.3621 swing low to the 1.3734 high on the same USD/CAD chart. The main support sits near the 1.3640 zone.

A downside break below the 1.3640 level could push the pair further lower. The next major support is near the 1.3620 support zone, below which the pair might visit 1.3550.

If there is another increase, the pair might face resistance near the 1.3735 level. A clear upside break above 1.3735 could start another steady increase. The next major resistance is the 1.3750 level.

A close above the 1.3750 level might send the pair toward the 1.3800 level. Any more gains could open the doors for a test of the 1.3850 level.

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Daily Pivots: (S1) 1.0678; (P) 1.0703; (R1) 1.0728; More....

Range trading continues in EUR/USD and intraday bias remains neutral. Outlook stays bearish with 1.0760 resistance intact. Decline from 1.0915 is seen as another leg in the larger corrective pattern. Firm break of 1.0667 will target 1.0601 and below. However, decisive break of 1.0760 will turn intraday bias back to the upside for stronger rebound.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern that's still in progress. Break of 1.0601 will target 1.0447 support and possibly further to 100% projection of 1.1274 to 1.0447 from 1.1138 at 1.0311. For now, this will remain the favored case as long as 1.0915 resistance holds, in case of rebound.

Daily Pivots: (S1) 1.2612; (P) 1.2641; (R1) 1.2670; More...

No change in GBP/USD's outlook and further decline is expected with 1.2702 resistance intact. Sustained trading below 1.2633 resistance turned support will argue that whole rise from 1.2298 has completed, and target 1.2445 and below. On the upside, however, firm break of 1.2702 resistance will argue that pull back from 1.2859 has completed, and bring retest of this high instead.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern that is still in progress. Break of 1.2445 support will confirm that another falling leg has started and target 1.2036 cluster support again (38.2% retracement of 1.0351 (2022 low) to 1.3141 at 1.2075. Nevertheless, break of 1.2892 resistance will argue that larger up trend from 1.0351is ready to resume through 1.3141.

Daily Pivots: (S1) 0.8968; (P) 0.8979; (R1) 0.9000; More…

The break of 0.8992 resistance now argues that fall from 0.9223 has completed as a three-wave corrective move to 0.8825. Intraday bias is back on the upside for channel resistance (now at 0.9043). Firm break there will target 0.9157 resistance next. On the downside, below 0.8947 minor support will turn intraday bias neutral gain first.

In the bigger picture, price actions from 0.8332 medium term bottom are seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Rejection by 0.9243 resistance affirms this case, and maintains medium term bearishness. While more range trading could be seen between 0.8332/0.9243 first, downside break out is mildly in favor at a later stage.

Daily Pivots: (S1) 160.43; (P) 160.63; (R1) 160.98; More...

USD/JPY's rally continues today and intraday bias stays on the upside. Next target is 161.8% projection of 151.86 to 157.70 from 154.53 at 163.97. On the downside, below 60.27 minor support will turn intraday bias neutral again first. But outlook will stay bullish as long as 157.70 resistance turned support holds.

In the bigger picture, there is no sign of long term trend reversal yet. Further rally is expected as long as 151.86 support holds. Decisive break of 160.02 will target 100% projection of 127.20 to 151.89 from 140.25 at 164.94.

Markets

The US Treasury sell-off from Tuesday and especially Wednesday, ended with the early US eco data yesterday. Disappointing and weak durable goods orders (especially the series used for GDP calculations) and a significant downward revision for personal consumption (1.5% Q/Qa instead of 2%) in the final release of Q1 GDP directed a bid into Treasuries. The final US debt sale of the week ($44bn 7-yr note auction) was strong and offered no way back for US T’s. Overnight, they showed some marginal signs of weakness again during the Biden/Trump debate. The onus wasn’t on atmospheric fiscal trajectories (as warned by the IMF as well; see below), but on Biden’s (physical) performance. It seems that the president was thrown under the bus. A dismal performance in the next election poll could pave the way for eventually putting someone else’s name on the Democratic ticket.

US May PCE deflators today kick-off a string of important US eco numbers. Following earlier released CPI data, we can expect a benign outcome. Headline and core CPI respectively were flat and 0.2% higher on the month, coming in below consensus and significantly slowing the paces recorded in the first four months of the year. Personal income and spending data are also worth watching. Especially spending given recent weakness in retail sales. Data might thus be supportive for US Treasuries and core bonds in general. Some final end-of-quarter repositioning and a preference to err on the safe side going into this weekend’s first round of French parliamentary elections also support that view. The combination of both suggests that USD losses in case of weaker figures could be balanced by both euro caution and a tricky risk sentiment. After today’s PCE deflators, ISM surveys, ADP employment change and US payrolls are lining up next week. Following some labour market warnings by top Fed officials this week (Daly, Cook), risks turn asymmetric for the labour figures with any signs of weakness likely resulting in markets pushing harder for a September rate cut and a faster path downward in 2025. National EMU CPI data (France, Italy, Spain) will set the tone for EMU figures out Tuesday.

News & Views

The Czech National Bank yesterday cut its policy rate by 50 bps, bringing the two-week repo rate at 4.75% with 5 members supporting the decision while two MPC members preferred a 25 bps reduction. Analyst expectations in the run-up to the meeting also split between continuing with a 50 bps or downscaling to a 25 bps cut. The CNB indicated that the fight against inflation isn’t over even as it started lowering rates. Policy must remain tight to keep inflation close to the target in the long term. After yesterday’s decision, real yields remain significantly positive, dampening inflation. Czech inflation returned to 2% in February and since moved back up in the upper halve of the 1% tolerance band around the 2% target. As rates gradually approach neutral levels, the CNB will likely slow the pace of moderation of policy restriction at the meetings ahead or keep rates unchanged for some time if necessary. The MPC will base its decisions on an assessment of newly available data and their implications for the inflation outlook. Markets interpreted the decision as tilting to the dovish side. The Czech 2-y swap yield declined 6 bps. The Czech koruna weakened from near EUR/CZK 24.91 to close the session at 25.06.

In a regular review under an article IV consultation, the IMF assessed that the US economy has proven to be robust, dynamic and adaptable to changing global conditions. Activity and employment continue to exceed expectations and the disinflation process has been considerably less costly than many had feared. At the same time, the Fund concludes that the fiscal deficit is too large, creating a sustained upward trajectory for the public debt-GDP ratio. Specifically, under current policies, the general government debt is expected to rise steadily and exceed 140% of GDP by 2032. To put debt-to-GDP on a clear downward trajectory, a frontloaded fiscal adjustment will be needed that shifts to a general government primary surplus of around 1% of GDP (an adjustment of around 4% of GDP relative to the current baseline). In order to reach this, policies will need to go beyond finding efficiencies in discretionary, non-defense federal spending. Policymakers will need to carefully consider raising indirect taxes, progressively increasing income taxes eliminating a range of tax expenditures, and reforming entitlement programs, the Fund assesses.

Graphs

GE 10y yield

The ECB cut its key policy rates by 25 bps at the June policy meeting. A more bumpy inflation path in H2 2024, the EMU economy gradually regaining traction and the Fed’s higher for longer US strategy make follow-up moves difficult. Markets are coming to terms with that. For the time being, though, the political narrative (France) dominates. After hitting a new YtD top at 2.7%, the German 10-yr yield corrected lower on safe haven bids.

US 10y yield

The Fed is seeking more evidence than just one slower-than-expected (May) CPI is providing. Upgraded inflation forecasts and a higher neutral rate complicate the exact timing of a first cut further. June dots suggest one move in 2024 followed by four more next year. Markets are positioned more aggressively, turning the recent low in yields into a technical support zone. The US 10-y yield is testing the downside of the 4.2/4.7% trading range.

EUR/USD

EUR/USD is stuck in the 1.06-1.09 range. The desynchronized rate cut cycle with the ECB exceptionally taking the lead, strong US May payrolls and a swing to the right in European elections pulled the pair away from 1.09 resistance. The Fed meeting balanced the weaker than expected US CPI outcome. Euro fragility makes a return to the 1.06 downside more likely than not.

EUR/GBP

Debate at the BOE is focused at the timing of rate cuts. May headline inflation returned to 2%, but core measures weren’t in line with inflation sustainably returning to target any time soon. Still some BoE members at the June meeting appeared moving closer to a rate cut. This might cap further sterling gains. At the same time, the euro remains vulnerable to political event risk going into the French elections. EUR/GBP 0.84 is becoming solid support.

Swiss KOF Economic Barometer rose from 102.2 to 102.7 in June, surpassing expectations of 100.5. According to KOF, the Swiss economy is projected to "continue to recover little by little over the coming months."

This increase is largely driven by a more favorable outlook for foreign demand. Additionally, the hospitality industry is expected to see stronger benefits. The indicators for manufacturing, construction, and private consumption remained virtually unchanged in June. However, the outlook for financial and insurance services, along with other service sectors, has slightly dimmed.

Full Swiss KOF release here.

Daily Pivots: (S1) 0.6634; (P) 0.6654; (R1) 0.6667; More...

AUD/USD is still extending sideway consolidation from 0.6713 and intraday bias remains neutral. Further rally is in favor with 0.6578 cluster support (38.2% retracement of 0.6361 to 0.6713 at 0.6579) intact. On the upside, firm break of 0.6713 will resume whole rise from 0.6361 to 0.6870 resistance next. However, sustained break of 0.6578 will dampen this bullish view, and bring deeper fall to 61.8% retracement at 0.6495.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which could have completed at 0.6269 already. Rise from there is seen as the third leg which is now trying to resume through 0.6870 resistance.