Sample Category Title

• USDJPY remains below 157.70
• Uptrend line acts as strong support
• Momentum oscillators show contradicting signs

USDJPY is still developing below the 157.70 resistance level and well above the medium-term ascending trend line, failing to have a notable movement after the US CPI data and the Fed decision on Wednesday.

The technical oscillators are showing some mixed signals. The RSI is pointing upwards above the neutral threshold of 50, while the stochastic is heading south, posting a bearish crossover within its %K and %D lines in the overbought area, suggesting an overstretched market.

A successful jump above the 157.70 barrier could open the way for a test of the 159.13 level, which is the 161.8% Fibonacci extension level of the down leg from 151.95 to 140.20. Even higher, the 160.00 round number could be a crucial resistance zone for traders as the market failed to have a closing session above this level, but it recorded a spike towards 160.20.

Alternatively, a drop below the 20-day simple moving average (SMA) could send the pair until the immediate 23.6% Fibonacci retracement level of the upward move from 140.20 to 160.20 at 155.50, which overlaps with the 50-day SMA. Steeper decreases may take the market until the 154.50 and 153.55 levels.

All in all, USDJPY is looking neutral in the near term as it has been moving sideways within 154.50-157.70 over the last month. In the broader outlook the pair is still positive as long as it stands above the uptrend line.

The second consecutive decline in the US core consumer price index caused a sharp drop in the American currency across the board. For instance, the GBP/USD pair rose by 120 points within a couple of hours, attempting to strengthen above 1.2800. The EUR/USD pair closed Monday's “price gap” and tested 1.0850, while the USD/JPY pair briefly traded below 156.00. However, a change in medium-term trends remains highly uncertain. The Fed meeting and the publication of an updated economic forecast by the US regulator allowed the dollar to quickly recover some losses.

From yesterday's Fed statement:

• The target range for the federal funds rate remains at 5.25–5.50%;
• The median forecast by FOMC members suggests one and a half rate cuts for the federal funds rate (compared to three in the March forecast).

From the published data, it can be inferred that the Fed maintains a fairly hawkish stance, which could support buyers of the US currency.

GBP/USD

The GBP/USD pair fell just short of updating the current year's high at 1.2895 by several dozen points. Technical analysis of the GBP/USD pair indicates that the price has returned to the multi-day flat corridor of 1.2820-1.2700. If GBP buyers fail to hold 1.2800 as support, the price may drop to 1.2750-1.2700. Updating the yearly highs could lead to a test of 1.3000. Factors that may influence the pair’s price include:

• Today at 15:30 (GMT +3:00) - Initial US jobless claims;
• Today at 19:00 (GMT +3:00) - Speech by US Treasury Secretary Janet Yellen;
• Today at 15:30 (GMT +3:00) - US Producer Price Index (PPI).

USD/JPY

The pair almost tested the announced levels yesterday and is trading near 157.00 again. Technical analysis of the USD/JPY pair on the H4 timeframe shows the formation of a “bullish engulfing” pattern, which may lead to a test of the 157.70-157.40 range. This pattern would be invalidated if the price drops below yesterday's low of 155.70.

Prepare for increased volatility in the pair tomorrow morning: at 06:00 (GMT +3:00), the Bank of Japan will announce its rate decision.

Trade over 50 forex markets 24 hours a day with FXOpen. Take advantage of low commissions, deep liquidity, and spreads from 0.0 pips. Open your FXOpen account now or learn more about trading forex with FXOpen.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Daily Pivots: (S1) 1.0745; (P) 1.0799; (R1) 1.0862; More....

Intraday bias in EUR/USD is turned neutral again first with current retreat. On the upside, firm break of 1.0915 will resume whole rise from 1.0601. On the downside, break of 1.0718 will resume the fall from 1.0915 instead.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern, which might still be in progress. Break of 1.0601 will target 1.0447 support and possibly below. Nevertheless, on the upside, firm break of 1.1138 will argue that larger up trend from 0.9534 (2022 low) is ready to resume through 1.1274 high.

Daily Pivots: (S1) 1.2733; (P) 1.2796; (R1) 1.2862; More...

Near term outlook in GBP/USD will stay bullish as long as 1.2687 support holds. Rise from 1.2298 should target 1.2892 resistance. Decisive break there will strengthen the case that correction from 1.3141 has completed, and bring further rally to retest this high.

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) 0.8897; (P) 0.8940; (R1) 0.8988; More….

Intraday bias in USD/CHF remains neutral as range trading continues between 0.8880/8987On 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) 155.84; (P) 156.61; (R1) 157.49; More...

Intraday bias in USD/JPY remains neutral first as range trading continues inside 154.53/157.70.On the downside, break of 154.53 will turn bias to the downside for 151.86 support and possibly below, as the third leg of the corrective pattern from 160.20. On the upside, break of 157.70 will resume the whole rise from 151.86 and target 160.20 high.

In the bigger picture, a medium term top should be formed at 160.20. As long as 55 W EMA (now at 147.77) holds, fall from 160.20 is seen as correcting the rise from 140.25 only. However, sustained break of 55 W EMA will argue that larger correction is possibly underway, and target 146.47 support next.

Daily Pivots: (S1) 0.6605; (P) 0.6655; (R1) 0.6713; More...

Despite strong rebound, AUD/USD failed to break through 0.6713 resistance and retreated sharply. Intraday bias remains neutral at this point. 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 cluster support (38.2% retracement of 0.6361 to 0.6713 at 0.6579) will bring deeper fall to 61.8% retracement at 0.6495 instead.

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.

Markets

The Fed kept the policy rate unchanged at 5.25-5.5% yesterday. The expected decision was accompanied by a statement that mentioned “modest” further progress towards the 2% inflation objective instead of the “lack” of it in the May edition. It’s the only change and feels like a post-CPI addition. The dot plot entailed bigger changes though and moved from three cuts to just one this year – be it narrowly. The 2025 median forecast shifted from three to four (to 4-4.25%) with the 2026 prediction at an unchanged 3-3.25%. The neutral rate shifted further north from 2.56% to 2.75%. It takes just one more participant to adjust his/her view to 3% to tilt the general balance towards this level. That would surely have drawn more market attention than yesterday’s upgrade did. Inflation forecasts were revised higher for 2024 (2.6% headline, 2.8% core) and 2025 (both 2.3%), reflecting in part the negative surprises from Q1. Chair Powell during the presser referred to the predictions as being conservative. They changed little to nothing to growth and unemployment forecasts. Based on the dots and Powell’s comments, the first rate cut and follow-ups are more than anything else just a matter of timing. Demand is cooling and the labour market has moved back towards a pre-Covid state. But the chair said the inaugural move is a consequential one and before deciding on it they want to gain more confidence first. US yields jumped in the wake of the Fed but that had more to do with the low starting point, caused by slower-than-expected CPI numbers (0.0% m/m headline, 0.2% core) hours earlier. Net daily changes eventually amounted to losses of -6.2 (30-yr) to -10.2 bps (5-yr). Given current market pricing for 2024 & 2025 and with few important economic data in the next two weeks or so, we think US rates are likely to trade sideways for the time being. Yesterday’s intraday lows (front end and back end) mark a solid bottom. The dollar pared some of the sharp losses in the wake of the Fed. EUR/USD returned from a high around 1.085 to 1.081, still up from the 1.074 at the open. DXY opened at 105.27, found support at 104.26 and finished at 104.64 from an 105.27. Today’s PPI’s and weekly jobless claims in the US may trigger some volatility but are unlikely to move the needle permanently. The 30-yr USD 22bn bond auction tonight follows Tuesday’s strong 10-yr one. The dust seems to have settled a bit in Europe after the elections and Macron’s political gamble. But uncertainty will continue to linger in coming weeks. We continue to keep a close eye on peripheral and (semi-) core swap spreads which continued to increase slightly in the case of France yesterday. The euro’s upside is capped short term, allowing for some correction lower within the 1.06-1.09 trading range. EUR/GBP is trying to recoup some of the heavy losses incurred over the previous days. Technically, though, the picture remains challenging.

News & Views

Solid Australian labour market data for the month May bolster the Reserve Bank of Australia’s case for its higher-for-longer strategy. The economy added 39.7k jobs (vs +37.4k in April). While close to consensus, it’s interesting to see that full time occupations accounted for a 41.7k increase, with part-time jobs sliding by 2.1k. Last month it was the other way around. The unemployment rate ticked lower, from 4.1% to 4% with a stable (following upward revision to April figures) participation rate of 66.8%. The head of the Australian Bureau of Statistics said that "The employment-to-population ratio and participation rate both continue to be much higher than their pre-pandemic levels. Together with elevated levels of job vacancies, this suggests the labour market remains relatively tight, though less than in late 2022 and early 2023”. The Aussie dollar failed to profit from the numbers with AUD/USD currently changing hands around 0.6650 after yesterday’s volatile session (including test of YTD top near 0.67).

The UK RICS’s monthly net balance of house prices fell to -17 in May, the lowest level since January, from a downwardly revised -7 in April. The gauge of new buyer enquiries fell to the lowest since November (-8 from -1). New instructions (16 from 25) and agreed sales (-13 from 4) also recorded steep drops. RICS commented that the recent recovery across the UK housing market appears to have slipped into reverse of late, with buyer demand losing momentum slightly on the back of the upward moves seen in mortgage rates over the past couple of months. Nevertheless, expectations point to this delaying, rather than derailing, a modest improvement going forward. Sales expectations indeed rose from 0 to 6 with price expectations broadly unchanged at -12.

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. The German 10y yield set a new YtD top at 2.7%.

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 remains stuck in the 4.3/4.7% trading range.

EUR/USD

EUR/USD is trapped 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 Bank of England is focused at the timing of rate cuts. Slower than expected April disinflation and a surprise general election on July 4 suggest that a June cut in line with the ECB looks improbable. Sterling gained momentum with money markets now discounting a Fed-like scenario. EUR/GBP tested the 2023 & 2024 lows near 0.85. Euro weakness eventually pulled the trick after French president Macron called snap elections following a weak showing in EU elections.

Daily Pivots: (S1) 1.3682; (P) 1.3722; (R1) 1.3764; More...

Despite steep retreat, USD/CAD recovered strongly ahead of 1.2662 support. Intraday bias stays neutral first. On the upside, above 1.3790 will resume the rebound from 1.3589 to retest 1.3845 high. Firm break there will resume larger rally. Nevertheless, break of 1.3662 will turn bias to the downside to extend the corrective pattern from 1.3845 with another falling leg.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern. In case of another fall, strong support should emerge above 1.2947 resistance turned support to bring rebound. Firm break of 1.3976 will confirm up resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149.

While Dollar had a sharp decline following US consumer inflation data overnight, the selloff was short-lived. The greenback stabilized and recovered after FOMC projections indicated that only one rate cut is likely this year. Stock and bond markets showed little reaction to Fed's announcement. Attention now turns to upcoming US PPI and jobless claims data for further market direction.

In the broader forex market, Japanese Yen remains the weakest currency of the week. BoJ's policy decision tomorrow is unlikely to offer much support. However, Yen's selloff is somewhat contained as traders remain cautious about risks of intervention. Dollar is the second weakest, followed by Euro, which continues to grapple with political instability in France and the EU.

On the other hand, New Zealand Dollar is the strongest performer this week. Australian Dollar is the second strongest, but showed little reaction to slightly better-than-expected employment data. British Pound ranks third, benefiting additionally from Euro's weakness. Swiss Franc and Canadian Dollar are positioned in the middle.

Technically, S&P 500's up trend appears to be finally picking up momentum with yesterday's post-CPI rise. Further rally is now expected as long as 5327.25 support holds. Next target is 61.8% projection of 4103.78 to 5263.95 from 4953.56 at 5670.55. On the downside, break of 5327.25 will bring consolidations first before staging another upmove.

In Asia, Nikkei fell -0.44%. Hong Kong HSI is up 0.40%. China Shanghai SSE is down -0.21%. Singapore Strait Times is up 0.54%. Japan 10-year JGB yield is down -0.0133 at 0.976. Overnight, DOW fell -0.09%. S&P 500 rose 0.85%. NASDAQ rose 1.53%. 10-year yield fell -0.109 to 4.295.

Fed's balanced projections have something for both hawks and doves

S&P 500 and NASDAQ extended their record runs overnight, but that was mainly fueled by softer-than-expected May US CPI data. Market reaction to FOMC's rate decision was indeed subdued, reflecting the balanced nature of the new economic projections and dot plot, which offered something for both hawks and doves.

On the hawkish side, the median projection now indicates only one rate cut this year, a sharp shift from the three cuts anticipated back in March. The balance of the dot plot showed 11 members favoring one or no cuts versus 8 members advocating for two cuts, indicating a significant hurdle for those seeking more aggressive rate reductions.

Although some argue that not all FOMC members vote on policy decisions, potentially making the actual voting balance more dovish, it's clear that Fed will require further encouraging inflation data, similar to the yesterday's May CPI figures, before considering any policy easing.

Another hawkish signal was the increase in the long-run "neutral" rate from 2.6% to 2.8%. This rate has now risen by more than a quarter of a percentage point over Fed's last two sets of projections. That suggests officials believe inflation will be more challenging to control in the future. However, Fed Chair Jerome Powell downplayed the significance of this increase, noting that it does not necessarily influence short-term rate projections.

On the dovish side, no FOMC members projected another rate hike, compared to two who had previously indicated the possibility of one more hike. This consensus suggests that all policymakers prefer to maintain the current interest rate level to combat inflation rather than tightening further, which should reassure most investors.

Going forward, Powell emphasized that Fed would make decisions based on the totality of incoming data rather than pre-determining future actions. He elaborated, "it's going to be not just the inflation readings. It's going to be the totality of the data, what's happening in the labor market, what's happening with the balance of risks, what's happening with the forecasts, what's happening with growth."

Currently, Fed funds futures indicate a 61% chance of a rate cut in September, even lower than the 69% chance a week ago before the release of strong non-farm payroll data. The odds would likely continue to fluctuate in the current range until significant progress is seen in disinflation.

Australia's employment rises 39.7k, labor market remains relatively tight

Australia's labor market demonstrated resilience in May, with employment increasing by 39.7k, slightly surpassing expectations of 39.0k. Full-time jobs saw a significant rise of 41.7k, while part-time jobs experienced a slight decline of -2.1k.

Unemployment rate decreased from 4.1% to 4.0%, aligning with market forecasts. Key labor metrics, such as the employment-to-population ratio and the participation rate, remained steady at 64.1% and 66.8%, respectively. However, monthly hours worked dipped by -0.5% on a month-over-month basis.

Bjorn Jarvis, ABS head of labor statistics, highlighted that the number of unemployed people, though nearing 600k, is still about 110k fewer than in March 2020, before the pandemic.

Additionally, both the employment-to-population ratio and participation rate are significantly higher than pre-pandemic levels. Jarvis pointed out that these factors, along with sustained high job vacancy levels, indicate that the labor market "remains relatively tight, though less so than in late 2022 and early 2023."

Looking ahead

Swiss PPI and Eurozone industrial production will be released in European session. Later in the day, US will publish PPI and jobless claims.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3682; (P) 1.3722; (R1) 1.3764; More...

Despite steep retreat, USD/CAD recovered strongly ahead of 1.2662 support. Intraday bias stays neutral first. On the upside, above 1.3790 will resume the rebound from 1.3589 to retest 1.3845 high. Firm break there will resume larger rally. Nevertheless, break of 1.3662 will turn bias to the downside to extend the corrective pattern from 1.3845 with another falling leg.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern. In case of another fall, strong support should emerge above 1.2947 resistance turned support to bring rebound. Firm break of 1.3976 will confirm up resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149.

Economic Indicators Update