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In this technical blog we’re going to take a quick look at the Elliott Wave charts of EURNZD published in members area of the website. As our members knew, we’ve been favoring the long side in EURNZD since it broke above May 12, 2022 high. Break of May 12, 2022 high created an incomplete bullish sequence in the pair up from April 5, 2022 low against June 3, 2022 low. EURNZD cycle from June 3, 2022 low ended at June 29, 2022 peak and it started pulling back. This pull back took the form of Elliott Wave Zig Zag pattern and members knew it was nothing more than another buying opportunity. In the remainder of the article, we are going to explain the Elliott Wave Pattern and talk about the blue box buying area.

Before we take a look at the real market example, let’s explain Elliott Wave Zigzag.

Elliott Wave Zigzag is the most popular corrective pattern in Elliott Wave theory . It’s made of 3 swings and is sub-divided as 5-3-5. Inner swings are labeled as A,B,C where A =5 waves, B=3 waves and C=5 waves. That means A and C can be either impulsive waves or diagonals. (Leading Diagonal in case of wave A or Ending in case of wave C) . Waves A and C must meet all conditions of being 5 wave structure, such as: having RSI divergence between wave subdivisions, ideal Fibonacci extensions and ideal retracements etc. Wave B could be a triangle, FLAT, Zigzag or a double three structure.

EURNZD 30 June, 2022 1 Hour Elliott Wave Update

Current view suggests EURNZD is doing black pull back against the June 3, 2022 (1.6348) low. First leg from the peak was in 5 waves which has been labelled as wave A. Bounce was corrective and completed wave B. We have already seen a new low below wave A which makes it an incomplete sequence against June 30, 2022 peak. Current view suggests C leg is in progress toward 1.6672 – 1.6564 area (highlighted with a blue box).

We don’t recommend selling the pair against the main bullish trend. Strategy is waiting for the price to reached marked blue box zone, before buying the pair again. As the main trend is bullish we expect buyers to appear at the blue box for 3 waves bounce at least. Once bounce reaches 50 Fibs against red B high, we will make long position risk free by either moving stop loss to entry position or taking partial profits and putting stop on remaining position below the low within the blue box. Invalidation for the trade would be break of marked invalidation level at 1.6564. As our members know, Blue Boxes are no enemy areas , giving us around 80% or a higher chance to get 3 waves bounce at least from the blue box.

EURNZD 01 July, 2022 1 Hour Elliott Wave Update

Chart below shows EURNZD made proposed leg down as we expected. The pair has found buyers at the Blue Box area and we are getting good reaction from there. Pull back completed at1.6662 low as a Zig Zag pattern. The rally from the blue box has already made a new high above June 29, 2022 low. Consequently, members who have taken the long trades at the blue box now enjoying profits in a risk free trades. As dips hold above 1.6662 low, expect the pair to continue higher and resume the rally.

EURNZD 04 July, 2022 1 Hour Elliott Wave Update

Chart below shows pair completed 5 waves up from 1.6662 low and pulled back in 3 waves. Pull back has held above 1.6662 low and now pair has scope to continue higher in wave 3. In case of a break below the recent low at 1.6706, wave (1) could be moved to July 1, 2022 peak (1.6967), 1.6706 low would become wave W and the bounce from 1.6706 low will become wave X. New low below 1.6706 should be part of wave Y of (2) and we should see buyers entering the market again at 100 – 161.8 Fibonacci extension area of W-X cycles. We will show the area with a blue box if market follows this path.

Keep in mind that market is dynamic and presented view could have changed in the mean time. You can check most recent charts in the membership area of the site.

• EURAUD reversed from resistance level 1.5315
• Likely to fall to support level 1.5070

EURAUD recently reversed down from the key resistance level 1.5315 (which has been repeatedly reversing the pair from the start of March).

The resistance level 1.5315 was further strengthened by the upper daily Bollinger Band and by the 50% Fibonacci correction of the earlier downward impulse from the start of February.

EURAUD can be expected to fall further toward the next support level 1.5070 (low of the previous short-term correction 4 from the end of June).

• GBPAUD reversed from strong resistance level 1.7790
• Likely to test support level 1.7570

GBPAUD recently reversed down from the strong resistance level 1.7790 (former strong support from the start of March) , located near the upper daily Bollinger Band and the 61.8% Fibonacci correction of the earlier downward impulse from March.

The downward reversal from the resistance level 1.7790 stopped the previous minor ABC correction (ii).

Given the clear daily downtrend, GBPAUD can be expected to fall further toward the next support level 1.7570 (previous minor reversal low from the end of June).

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Business optimism ticked lower but remained elevated in the second quarter of 2022, according to the Bank of Canada Business Outlook Survey (BOS). The BOS indicator, a statistical summary of survey results, remained elevated at 4.85 in 2022Q2, though down from 5.01 in 2021Q1.

Businesses generally expect solid sales growth over the next twelve months. However, it is expected to moderate, reflecting a return to more normal demand conditions. Firms with expectations of slowing sales growth were mainly linked to housing, natural resources and transportation. On the other hand, firms in high-touch industries heavily impacted by the pandemic expect their sales to grow faster, reflecting eased restrictions and pent-up demand.

The number of firms reporting supply chain bottlenecks remained high at 43%, though down slightly from the first quarter's record level. Meanwhile, labour shortages remain a huge challenge, with the share of firms reporting shortages as impeding their ability to meet demand remaining very high.

Both investment and hiring intentions were elevated, with the former supported in part by the need to improve productivity amid labour shortages, and by increased investment in the energy sector.

Tight labour markets (and a desire to reflect cost of living increases) have firms continuing to expect rising wages. Expected wage growth was at 5.8% - by far a survey high. Expectations remain that firms will pass on some of higher costs to customers, with the share of firms expecting output prices to increase significantly at a record high of 36%.

Businesses also expect inflation to be high for longer. Most business anticipate that inflation will be more than 3% on average over the next two years. Meanwhile, nearly one-quarter of firms expect inflation to stay well above 2% for three years or more, marking a significant increase from 2022Q1.

Key Implications

Today's BOS results delivered a dose of good news in that business optimism remained quite elevated heading into the summer, reflected in a well-above average reading on the BOS indicator. In addition, hiring and investment intentions remained healthy. However, the survey was conducted in May, before recession talk really started to ramp up.

We are getting some signs that the Canadian economy is beginning to cool. Manufacturing sentiment eased in June. In addition, we had a surprising drop in GDP during May (according to Statcan's flash estimate). Some slowdown in economic growth is required to bring inflation to heel. However, it still remains uncomfortably high. Price pressures are broadening, and today's BOS results showed an uptick in wage growth and in the share of firms anticipating inflation to remain higher for longer. As such, we look for another aggressive move by the Bank of Canada at their next rate announcement on July 13th.

While the calendar’s second half of the year started last Friday, it will probably not begin in the markets until the upcoming US jobs data is released this Friday. It is worth sorting out where the US currency currently stands on the forex market.

The Dollar Index has climbed to a 20-year high in the middle and at the end of June after a 12-month upward move. That’s an impressive age for a currency market, but it still takes more than old age to change a direction.

To assess the chances of a trend reversal in the USD, investors and traders should now pay closer attention to the labour market data and the Fed’s reaction. Weak employment growth data could confirm the current level of the Dollar Index as unbreakable. However, we shall still have to wait for data assessments from the Fed to confirm this.

However, another option is more likely. High inflation could stimulate the recovery of the labour market as more and more people will look for earning opportunities. This would pave the way for another 75-point key rate hike by the Fed in the second half of July, allowing interest rates to reach neutral levels in the next 6-8 months. That is much faster than developed country competitors will do, forming the conditions for further strengthening the Dollar.

Another attempt to take the 105 level by storm will likely be more successful. A corrective pullback in May from these heights was followed by a much shallower retreat in June, reflecting a strengthening of the bulls’ position. As has been the case over the last year, significant technical support is the 50-day moving average.

Should the week’s outcome follow the first bearish scenario, investors and traders should keep an eye on the 103.5 area. A sharp pullback below that would be a significant reversal signal. However, the index will likely touch new highs before the reversal.

The Gold prices reached stability on Monday not far from $1,812 per troy ounce. The strong American currency still puts much pressure on the precious metal.

Despite the significant market turbulence, demand for Gold as a “safe haven” asset is close to zero because US bonds are rallying and attracting much more attention. Unlike bonds, Gold doesn’t generate its own profitability.

Another factor that makes Gold less attractive to investors in the anticipation of another rate hike by the US Federal Reserve System.

Also, the Gold price is being pressured by news from India, which raised its import fee for the precious metal from 7.5% с 12.5% to reduce the foreign trade deficit. This move will decrease the demand for Gold in the country – the news is very important for market players because India is the second biggest consumer of Gold on the planet.

As we can see in the H4 chart, after completing the first descending structure at 1805.05, along with the correction up to 1857.10, XAU/USD has rebounded from the latter level; right now, it is falling again with the short-term target at 1764.00. Later, the market may start a new correction to test 1811.77 from below and then resume trading downwards towards 1704.88. From the technical point of view, this scenario is confirmed by the MACD Oscillator: its signal line is moving below 0 and may soon update its lows.

In the H1 chart, Gold has finished the descending wave at 1784.22, along with the correction to test 1812.40 from below; right now, it is consolidating below the latter level. Possibly, the metal may break this range to the downside and resume falling with the short-term target at 1764.00. From the technical point of view, this scenario is confirmed by the Stochastic Oscillator: after breaking 50 downwards, its signal is expected to continue falling and reach 20.

ECB Vice President Luis de Guindo said the "the headwinds from high energy costs, the deterioration of terms of trade and the adverse impact of high inflation on disposable income pose elevated risks to our medium-term growth outlook."

"Elevated inflation will remain with us for some time," he added. "The risks surrounding inflation are on the upside."

"In the coming months, we will have to navigate this challenging combination of shocks which is reducing growth and pushing up inflation," he said.

The Reserve Bank of Australia is expected to raise interest rates by another 50 basis points when it concludes its meeting at 04:30 GMT Tuesday. Markets assign an 80% probability for such an action, so the aussie could enjoy some upside if the central bank executes. That said, any relief rally is unlikely to last long in an environment dominated by recession worries and cooling commodity prices. 

Chugging along

The Australian economy is in pretty good shape. Unemployment is at a five-decade low, participation is at a record high with more people working than ever before, and consumers are swimming in savings they’ve accumulated over the last couple of years.

Of course inflation is very hot already and with the jobs market so tight, the Reserve Bank is worried that inflationary pressures could become a persistent phenomenon as workers demand higher wages. Hence, it has slammed on the brakes, raising interest rates with urgency to cool demand and prevent this wage-price spiral from materializing.

While the situation looks good domestically, the risks for the Australian economy come from abroad. Australia’s entire business model relies on exporting commodities like metals abroad, usually to China. With the Chinese property sector in deep trouble and worldwide concerns about a recession growing stronger, the growth outlook has started to turn darker.

Single or double? 

The question for traders heading into this meeting is really the size of the rate increase - will the RBA stick to 50bps moves or will it get cold feet and deliver a smaller 25bps hike? Admittedly, the bigger move seems more sensible.

Risks surrounding economic growth might be on the rise but that hasn’t been reflected in the ‘hard’ data yet, which allows the central bank to keep going strong as it attempts to tame inflationary pressures. Since interest rates are still far below what policymakers consider ‘neutral’, the RBA would simply be removing stimulus, not choking the economy.

Market pricing currently suggests that a 25bps move is a done deal and there is an 80% chance for a 50bps hike. Thus, the aussie stands to gain if the central bank truly delivers a 50bps hike. In this case, aussie/dollar is likely to encounter initial resistance around the 0.6920 region.

FX market 

In the bigger picture, what happens with monetary policy is secondary to how the global environment. Recession worries are currently in the driver’s seat, simultaneously putting pressure on risk sentiment and commodity prices, both harmful for the Australian dollar. In this kind of regime, any relief rallies in the aussie are likely to remain shallow.

There is also the risk that market pricing around the RBA has gone too far. The central bank is currently expected to raise rates at every single meeting until early next year, but if growth begins to stall, that may no longer be feasible.

Overall, it’s just difficult to be optimistic about the aussie in this climate and the charts tell the same story, with aussie/dollar sinking to new post-pandemic lows lately. Further declines could see the pair challenge the 0.6850 zone initially.

Some positive catalyst is required to change this gloomy narrative, for example a ceasefire in Ukraine or China abandoning its harsh lockdown strategy - calming nerves around global growth. Until then, the trend remains negative.

Markets

A sigh of relief went through markets today as the first full trading week of July marked a stark difference to the volatile mood swings witnessed in June. The first part of that month was all about central banks raising the inflation alarm. The second part was all about markets sounding the recession alarm. A near empty eco calendar, a more balanced (rate) market positioning and the absence of US investors because of Independence Day all resulted in a calm opening session with bond, stock and FX markets creating some breathing space around key technical levels. The first German monthly trade deficit in three decades grabbed some headlines but did little to unnerve trading. Exports fell by 0.5% M/M (to €125.8bn) while imports rose by 2.7% M/M (to €126.7bn), creating a €1bn deficit. Imported energy inflation is the main culprit of this evolution. Simultaneously, the German export sector is under influence of (Chinese) Covid-lockdowns and restricted business with Russia. The deteriorating current account balance is a phenomenon visible in other EMU countries as well. Turning to the market performances, European stocks gain 0.5% to 1% with the likes of the EuroStoxx50 moving marginally away from the key 3400 support zone. German yields rise around 10 bps across the curve with the German 10-yr yield bouncing off 1.19%/1.16% support after last week’s test. 10-yr yield spreads vs Germany widen by up to 4 bps for Portugal and Italy. The (trade-weighted) dollar trades a tad weaker at 104.90 (from an 105.15 open) which is mirrored by EUR/USD’s marginal gains from 1.0425 to 1.0450. Sterling catches a break by the less volatile and more optimistic market environment with EUR/GBP testing the downside of the upward trend channel since mid-April at around 0.86. Later this week, we eye minutes from the previous Fed & ECB meetings, US non-manufacturing ISM and US payrolls.
 
News Headlines

The ECB will take further steps to incorporate climate change into its monetary policy operations. The tilt applies to its corporate bond purchases, its collateral framework, the disclosure requirements and risk management. The measures will be designed in full accordance with the primary objective of price stability. Amongst other steps, the Eurosystem aims to gradually decarbonize its corporate bond holdings by increasing the share of reinvestments towards issuers with a better climate performance. The ECB will also limit the share of assets with a high carbon footprint that can be pledged by individual counterparties and will consider climate risk when reviewing haircuts to corporate bonds used as collateral. Probably from 2026, the Eurosystem will only accept marketable assets and credit claims from companies and debtors that comply with the Corporate Sustainability Reporting Directive (CSRD) as collateral. To improve the external assessment of climate-related risks, the Eurosystem will urge rating agencies to be more transparent about how they incorporate climate risks into their ratings and to be more ambitious in their disclosure requirements on climate risks.

Even Swiss inflation continues to surprise on the upside. At 0.5% M/M and 3.4% Y/Y, inflation for the fifth consecutive month surpassed the 0%-2% SNB target, reaching the highest level in more than 29 years. Core inflation rose from,1.7% to 1.9% Y/Y. Transportation costs jumped 2.5% M/M. Leisure goods and Horeca also added to price rises. Prices for goods rose 0.8% M/M. Price increases for services remain more modest at 0.3%. The higher than expected inflation adds to expectations that the SNB will raise rates further after it unexpectedly raised the policy rate from -0.75% to -0.25% last month. The Swiss franc didn’t profit even as the SNB recently indicated that a strong currency helps to contain inflationary pressures. EUR/CHF returned back north of parity (1.004). On the other extreme of the inflation spectrum, Turkish inflation in June rose 4.95% M/M and 78.65% Y/Y (from 73.50%).The market still expected an even higher figure. Producer prices printed at 138% Y/Y, the fifth consecutive reading north of 100%. The CBTR kept the policy rate unchanged at 14% since December last year, leaving the real rate deeply negative. The Turkish lira today is losing modest ground with EUR/TRY rising from  17.50 to 17.60