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USDJPY firmed further on Monday and partially offset warning from long upper shadow of Friday’s daily candle, as fresh strength looks for retest of pivotal Fibo resistance at 158.22 (76.4% of 160.19/151.85) which capped Friday’s rally.

Firm break here to open way towards targets at 160.00/19 (psychological/2024 high, posted on Apr 29).

Technical picture on daily chart is bullish, although with warning of increased headwinds expected at 158.22 Fibo barrier, as stochastic continues to fluctuate around the borderline of overbought territory.

Near-term bias to stay with bulls while the action stays above 157.00 (broken Fibo 61.8% level.

Res: 158.22; 158.43; 159.00; 160.00.
Sup: 157.16; 157.00; 156.63; 156.00.

• EURUSD drops to a fresh 1-month low after violating SMAs
• Quickly recoups some losses and challenges 61.8% Fibo
• Oscillators suggest that bearish forces are strengthening

EURUSD has undergone some volatile sessions in the past few days, eventually dipping beneath both its 50- and 200-day simple moving averages (SMAs), to a fresh one-month low. Also, the pair broke below its descending trendline in place since December further deteriorating the technical outlook

Should the recent weakness persist, the price could challenge its one-month bottom of 1.0666. A break below that zone could pave the way for 1.0595, which is the 78.6% Fibonacci retracement of the 1.0447-1.1138 upleg. Failing to halt there, the pair could descend towards the October 2023 low of 1.0447.

Alternatively, if the price manages to surpass the 61.8% Fibo of 1.0711, initial resistance could be found at the 50.0% Fibo of 1.0793. Higher, the bulls could attack the 38.2% Fibo of 1.0874. Should that barricade also fail, attention could shift to the 23.6% Fibo of 1.0975, a region that curbed the pair’s advance in March.

In brief, EURUSD has come under some selling pressure lately, which led to a fresh one-month bottom. Moving forward, a failure to jump back above the restrictive medium-term trendline could increase the bears’ appetite for more downside.

Daily Pivots: (S1) 1.0666; (P) 1.0705; (R1) 1.0743; More....

Intraday bias in EUR/USD remains on downside for the moment. Fall from 1.0915 is seen as another leg in the larger corrective pattern. Deeper decline would be seen to 1.0601 low first. Firm break there will target channel support at 1.0510 next. On the upside, above 1.0744 minor resistance will turn intraday bias neutral again first.

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) 1.2640; (P) 1.2702; (R1) 1.2748; More...

Intraday bias in GBP/USD remains on the downside at this point. Fall from 1.2859 short term top would target 1.2633 resistance turned support first. Firm break there will argue that whole rise from 1.2298 has completed, and target 1.2445 and below. On the upside, above 1.2737 minor resistance will turn intraday bias neutral first. But for now, risk will be on the downside as long as 1.2859 resistance holds, in case of recovery.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern. Fall from 1.2892 is seen as the third leg which might have completed already. Break of 1.2892 resistance will argue that larger up trend from 1.0351(2022 low) is ready to resume through 1.3141. Meanwhile, break of 1.2445 support will extend the corrective pattern with another decline instead.

Daily Pivots: (S1) 0.8876; (P) 0.8921; (R1) 0.8946; More….

USD/CHF is still bounded in range above 0.8880 and intraday bias stays neutral. On the downside, sustained break of 0.8883 fibonacci level will carry larger bearish implications and bring deeper decline. On the upside, firm break of 0.8987 support turned resistance will argue that correction from 0.9223 has completed, after drawing support from 0.8883 fibonacci level. Intraday bias will be back on the upside for 0.9157/9223 resistance zone.

In the bigger picture, price actions from 0.8332 medium term bottom are tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Rejection by 0.9243 resistance, followed by sustained break of 38.2% retracement of 0.8332 to 0.9223 at 0.8883 will strengthen this case, and maintain medium term bearishness. However, decisive break of 0.9243 will argue that the trend has already reversed and turn medium term outlook bullish for 1.0146.

Daily Pivots: (S1) 156.73; (P) 157.50; (R1) 158.23; More...

Intraday bias in USD/JPY remains neutral for the moment. Further rally would remain in favor as long as 154.53 support holds. Break of 158.25 will resume the choppy rise from 151.86 towards 160.20 high. But upside should be limited there, at least on first attempt.

In the bigger picture, price actions from 160.20 medium term top are seen as a corrective pattern to rise from 150.25 only. Another rally is still expected at a later stage through 160.02 to resume the larger up trend. However, decisive break of 150.87 will argue that larger correction is possibly underway, and target 146.47 support next.

Daily Pivots: (S1) 0.6590; (P) 0.6617; (R1) 0.6643; More...

No change in AUD/USD's outlook and intraday bias stays 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.

Australian Dollar declines broadly today, as markets brace for the upcoming RBA rate decision. With the cash rate expected to hold steady at 4.35%, speculation is rife about RBA's future monetary policy direction. Although the central bank maintains an open stance on rate adjustments, indicating that hikes are still possible, market consensus suggests that further increases are unlikely due to the subdued consumption climate. That's the base case until second-quarter CPI data presents significant upside surprises, which would make the next meeting in August live. Meanwhile, predictions for a rate cut are being deferred. While some economists anticipate a possible rate cut as early as the fourth quarter, others foresee this moving into the early next year.

In broader currency market movements, New Zealand Dollar also showed weakness, but this trend extended to Yen and Swiss Franc, suggesting that these shifts are not tied to changes in risk sentiment. On a more positive note, Euro is on a recovery path, while Dollar, Canadian Dollar, and British Pound are appearing slightly stronger.

From a technical analysis perspective, several key resistance levels in Euro pairs are being closely watched to determine if Euro's recovery can sustain and extend. These include 1.0744 minor resistance in EUR/USD, 0.8482 resistance in EUR/GBP, and 0.9603 minor resistance in EUR/CHF. Break of these levels might not necessarily signal a full reversal for Euro. But it would at least indicate that the recent selling climax is over, setting the stage for more stable, consolidative trading in the near term.

In Europe, at the time of writing, FTSE is down -0.16%. DAX is up 0.12%. CAC is up 0.27%. UK 10-year yield is up 0.046 at 4.106. Germany 10-year yield is u 0.069 at 2.432. Earlier in Asia, Nikkei fell -1.83%. Hong Kong HSI fell -0.02%. China Shanghai SSE fell -0.55%. Singapore Strait Times fell -0.81%. Japan 10-year JGB yield fell -0.0064 to 0.932.

ECB's Lane confidence on inflation, cautions on interpreting data noise

ECB's Chief Economist Philip Lane expressed "a lot, a fair amount of confidence" today that Eurozone inflation is on track to return to 2% target by the latter half of next year.

In his remarks, Lane highlighted the importance of judiciously interpreting incoming economic data, emphasizing the need to "differentiate the noise and the signal."

Lane's confidence stems from anticipated "muted" cost pressures in the coming year. However, he underscored the critical need for a reduction in "domestic services inflation momentum" as a necessary condition for achieving the inflation targets.

SECO slightly upgrades Swiss economic forecasts, but below-average growth persists

The State Secretariat for Economic Affairs said that Swiss economic forecasts remain largely unchanged, with growth expected to stay below average this year. The Expert Group on Business Cycles projects a modest growth rate of 1.2% for the Swiss economy in 2024, slightly up from March forecast of 1.1%.

Challenges such as low capacity utilisation in industrial production and high financing costs are likely to curb investments. However, exports will provide some support, aided by the recent depreciation the Swiss Franc. More significantly, growth will be driven by private consumption, buoyed by rising employment and a stable inflation rate, which is expected to average 1.4% for the current year, a slight decrease from the March forecast of 1.5%.

Looking ahead, GDP growth for 2025, adjusted for sporting events, is projected to reach 1.7%, with inflation at 1.1%. Both were unchanged from prior forecasts.

NZ BNZ services falls to 43, unprecedented contraction

New Zealand's BusinessNZ Performance of Services Index dropped significantly from 46.6 to 43.0 in May, marking the lowest level of activity for a non-COVID lockdown month since the survey's inception in 2007.

BusinessNZ Chief Executive Kirk Hope described the May result as "as bad as it can get" for the sector, with contraction levels surpassing those seen during the Global Financial Crisis of 2008/09.

Examining the details, key metrics reveal a stark downturn. Activity/sales fell from 46.0 to 40.9, employment dropped from 47.0 to 46.0, new orders/business decreased from 46.6 to 42.6, stocks/inventories declined from 46.2 to 42.4, and supplier deliveries slid from 47.5 to 46.1.

The proportion of negative comments in May (65.4%) remained similar to April (66.3%), indicating persistent concerns about the economic downturn.

BNZ's Senior Economist Doug Steel noted, "the speed of decline is as worrisome as its size over the past three months. There is weak and then there is very weak. Overall, this tells of a services sector in reverse, at pace."

China's industrial production up 5.6% yoy in May, misses exp 6.0% yoy

China's industrial production increased by 5.6% yoy in May, falling short of the expected 6.0% yoy and slowing from April's 6.7% yoy. Despite this overall slowdown, the equipment and high-tech manufacturing sectors showed robust growth, with outputs rising 7.5% yoy and 10% yoy, respectively.

Fixed asset investment grew by 4.0% year-to-date yoy, slightly below the anticipated 4.2%. Within this sector, property development investment notably declined by -10.1%, reflecting ongoing challenges in China's real estate market.

On a positive note, retail sales rose by 3.7% yoy, surpassing the expected 3.0%. This indicates resurgence in the consumer sector, which could provide a buffer against the broader economic slowdown.

AUD/USD Mid-Day Report

Daily Pivots: (S1) 0.6590; (P) 0.6617; (R1) 0.6643; More...

No change in AUD/USD's outlook and intraday bias stays 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.

Economic Indicators Update

• Gold surrendered Friday’s gains as a retest of $2300 gains momentum.
• US dollar index (DXY) rises but faces stern resistance at 105.63.
• Geopolitics remains on the back burner for now, but risks remain.

Fundamental Overview and Week Ahead

Gold prices began the week on the backfoot, with a slight gap to the downside at the open. This has seen the precious metal falter to trade below the $2320 heading into the European open. A quiet weekend on the Geopolitical front also added downward pressure on gold prices as any safe haven appeal has, at least for now, disappeared.

Last week saw some real whipsaw price action as markets first digested the potential of “higher rates for longer’ before the PPI data which followed painted a different picture.Following the PPI data however, the prospect of two rate cuts from the US Federal Reserve remains on the table.

US Federal Reserve Interest Rate Probabilities

Source: LSEG Eikon

The US Dollar for its part has started the week on the front foot. The US Dollar Index (DXY) advanced on Friday toward the May 9 high before a pullback to end the day below the key resistance area at 105.63.

US Treasury yields remain supported suggesting that the potential of ‘higher rates for longer’ continues to linger on the minds of market participants. This in turn is also hampering gold prices as market participants opt for US Treasuries thereby driving flows away from the precious metal.

US Dollar Index (DXY) Daily Chart,Jun 17, 2024

Source: TradingView.com (click to enlarge)

The Week Ahead: Central Banks, Geopolitics and Fed Policymakers

Looking ahead to the rest of the week, US data may take a backseat. We have four Central Bank meetings scheduled from Australia, UK , Norway and Switzerland. Given the volatile political developments in France and the heavy European Central Bank calendar the US dollar story may be relegated to spectator status this week.

We do have US retail sales data for May due out on Tuesday and anything but a significant beat or miss is unlikely to have a major impact on market movements. Federal Reserve Policymakers are scheduled to speak this week with the Fed’s Williams and Harker set to kick things off on Monday. Market participants will no doubt be keeping an eye on the comments and the tone of policymakers following the PPI release and Fed meeting last week. The week is rounded off by the S&P global PMI data on Friday, which in a similar vein to the retail sales data is unlikely to have a major or lasting impact on market moves.

On the Geopolitical front, developments in the Middle East are ongoing with news this morning that Israeli Prime Minister Benjamin Netanyahu has dissolved his war cabinet. As more news of this filters through, the next steps taken by Israel could prove to be key. Escalation remains the biggest risk to markets as market participants weigh the impacts of a wider war in the Middle East. Any increase in tensions, particularly with Hezbollah on the Lebanese border could see the safe haven appeal return and gold rise back toward the $2400 mark.

Gold (XAU/USD) Technical Outlook

Looking at Gold from a technical perspective, and the precious metal is coming off its best week in four. A bullish engulfing candle off a key support area adds further confluence that a rise in gold prices may be on the horizon.

Dropping down to the daily time frame and things get a bit more tricky. On the Daily we appear to have printed a head and shoulder pattern with the neckline resting around 2320-2325 (see chart below).

Gold (XAU/USD)  Daily Chart – June 17, 2024

Source: TradingView.Com (click to enlarge)

On the H4 time frame, price of the precious metal has been range bound for the since last Tuesday. The range between 2333 and 2300 remains pertinent and could come back into play early this week.

Gold (XAU/USD)  H4 Chart – June 17, 2024

Source: TradingView.Com (click to enlarge)

Key Levels to Consider:

Support:

-2300 (Psychological Level)

-2287

-2276

Resistance:

-2333

-2350

-2400 (Psychological Level)

The Australian dollar is steady on Monday. AUD/USD is trading at 0.6605 in the European session, down 0.14% on the day. Last week, the Australian dollar rose as much as 1.8% but pared most of these gains.

RBA expected to hold rates

The Reserve Bank of Australia will deliver its rate announcement early Tuesday and is widely expected to hold rates for a fifth straight time. All four major Australian banks expect the RBA to stay on the sidelines. The RBA has kept rates at a 12-year high of 4.35% and doesn’t feel confident enough to start lower rates due to sticky inflation. First-quarter inflation was stronger than expected, rising 3.6% y/y. This was down from 4.1% in Q4 2023 but above the market estimate of 3.4%.

The RBA has maintained a hawkish hold stance and Governor Bullock reiterated last week that the central bank could raise rates if inflation does not fall as expected. A rate hike is an unlikely scenario, given that the economy has been weakening, but the fact that a rate hike is on the table means that a rate cut is not around the corner and could be delayed until 2025.

Besides sticky inflation, another factor which complicating plans to lower rates is the tight Australian labor market. Unemployment is under 4% and swelling immigration means that job vacancies remain tight.

In the US, the UoM consumer sentiment index fell for a third successive month to 65.6 in June. This was down from 69.1 in May and shy of the market estimate of 72. Inflation expectations remained unchanged at 3.3%, another signal that inflation remains sticky and the Fed will have a tough time bringing inflation down to the 2% target.

AUD/USD Technical

• AUD/USD is testing resistance at 0.6617. Above, there is resistance at 0.6643
• 0.6590 and 0.6564 are the next support level