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Daily Pivots: (S1) 1.1886; (P) 1.2046; (R1) 1.2158; More...

A temporary low is formed at 1.1932, after hitting 61.8% projection of 1.3297 to 1.2154 from 1.2666 at 1.1960. Intraday bias in GBP/USD is turned neutral first. But outlook will stay bearish as long as 1.2666 resistance holds. Sustained break of 1.1932/600 will target 100% projection at 1.1523 next.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2666 resistance holds. On resumption, next target is 1.1409 low.

Daily Pivots: (S1) 1.0382; (P) 1.0434 (R1) 1.0470; More...

Intraday bias in EUR/USD remains neutral for the moment. Risk stays on the downside as long as 1.0786 resistance holds. Below 1.0396 will target 1.0339 long term support. Decisive break there will resume larger down trend. Next target is long term projection level at 1.0090.

In the bigger picture, focus stays on 1.0339 long term support (2017 low). Decisive break there will resume whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. However, firm break of 1.0805 support turned resistance will delay this bearish case, and bring stronger rebound first.

The forex markets are generally staying inside yesterday's range so far today. Stocks in Europe and US futures are recovering while treasury yields retreat. Traders are clearly turning cautious ahead of FOMC rate decision. The question is whether Fed would deliver 75bps hike as markets priced in, or stick to its 50bps per meeting plan. Euro's recovery attempt was brief as ECB delivered nothing special after the ad hoc meeting on fragmentation.

Technically, focuses remain on some levels to confirm Dollar's underlying strength, if it attempts to rally after FOMC. The levels include 1.0348 in EUR/USD, 0.6828 support in AUD/USD, 1.0063 resistance in USD/CHF and 1.3075 resistance in USD/CAD.

In Europe, at the time of writing, FTSE is up 0.99%. DAX is up 0.97%. CAC is up 0.78%. Germany 10-yaer yield is down -0.132 at 1.620. Earlier in Asia, Nikkei dropped -1.14%. Hong Kong HSI rose 1.14%. China Shanghai SSE rose 0.50%. Singapore Strait Times dropped -0.10%. Japan 10-year JGB yield dropped -0.0008 to 0.256.

Some readings on Fed:

• Could a 50-bps Fed Hike (Inadvertently) Weigh on Sentiment? AUD/JPY
• Fed to hike by 75bps? 10-year yield heading to 4%?
• Fed Policy Meeting: Switching to Sharper Rate Hikes?
• FOMC Meeting Preview – The Meeting the World is Watching
• Heads Up: Brace for a Hawkish FOMC Meeting
• FOMC Preview: Could the Committee Hike 75bps?

US retail sales dropped -0.3% mom in May, ex-auto sales up 0.5% mom

US retail sales dropped -0.3% mom to USD 672.9B in May, worse than expectation of 0.2% mom rise. Ex-auto sales rose 0.5% mom, below expectation of 0.8% mom. Ex-gasoline sales dropped -0.7% mom. Ex-auto, ex-gasoline sales rose 0.1% mom. Retail trade sales were down -0.4% mom.

For the 12-month period, retail sales rose 8.1% yoy. Gasoline station jumped 43.2% yoy. Food & beverage stores rose 7.9% yoy.

Also released, import price index rose 0.6% mom in May, versus expectation of 1.1% mom. Empire State Manufacturing index rose from -11.6 to -1.2, below expectation of 5.0.

ECB to apply flexibility in PEPP reinvestment, design new anti-fragmentation instrument

ECB said the Governing Council in an ad hoc meeting today to "exchange views on the current market situation" and reiterated the pledged to "act against resurgent fragmentation risks".

The council decided to "apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism".

Also, it decided to "mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument".

Eurozone industrial production rose 0.4% mom in Apr, EU up 0.3% mom

Eurozone industrial production rose 0.4% mom in April, below expectation of 0.5% mom. Production of energy rose by 5.4%, intermediate goods by 0.7%, non-durable consumer goods by 0.4% and durable consumer goods by 0.2%, while production of capital goods fell by -0.2%.

EU industrial production rose 0.3% mom. Among Member States for which data are available, the highest monthly increases were registered in the Netherlands (+5.6%), Finland (+3.5%) and Luxembourg (+3.2%). The largest decreases were observed in Ireland (-9.6%), Greece (-7.4%) and Lithuania (-7.1%).

Eurozone goods exports rose 12.6% yoy in Apr, imports rose 39.4% yoy

Eurozone goods exports rose 12.6% yoy in April to EUR 223.9B. Imports rose 39.4% yoy to EUR 256.4B. Trade deficit came in at EUR -32.4B. Intra-Eurozone trade rose 20.8% yoy to EUR 212.1B.

In seasonally adjusted term, exports rose 1.5% mom to EUR 229.7B. Imports rose 7.1% mom to EUR 261.4%. Trade deficit widened to EUR -31.7B, much larger than expectation of EUR -14.5B. Intra-Eurozone trade rose slightly from 211.2B to 215.1B.

SECO downgrades Swiss GDP forecasts, upgrades inflation

Swiss SECO downgraded 2022 GDP growth forecasts (sport event adjusted) from 2.8% to 2.6%. 2023 GDP growth was also lowered from 2.0% to 1.9%. On the other hand, CPI forecast for 2022 was raised from 1.9% to 2.5%. CPI for 2023 was also raised from 0.7% to 1.4%. Unemployment rate forecast was left unchanged at 2.1% in 2022 and 2.0% in 2023.

SECO said: "The Swiss economy made a solid start to the year, but prospects for the international environment have waned. In particular, the global economy is at risk from the war in Ukraine and developments in China."

It also warned: "The Swiss economy would be significantly affected if its key trading partners were to suffer a major economic downturn. This could happen, for example, as a result of widespread short-falls in energy supplies from Russia... In the face of rising interest rates, the risks associated with the surge in international debt levels are intensifying. There is an increased probability of financial market corrections."

Australia Westpac consumer sentiment dropped to 86.5, on inflation and interest rate

Australia Westpac Consumer Sentiment dropped from 90.4 to 86.5 in June. Over the 46-year history of the survey, the reading was only at or below this level during "major economic dislocations", including during COVID-19, the Global Financial Crisis, early 90s recession, mid-80s slowdown and early 80s recession.

Westpac said: "The survey detail shows a clear picture of a slump in sentiment being driven by rising inflation; an associated lift in interest rates; and a loss of confidence around the economic outlook, both here and abroad."

Regarding RBA policy, Westpac expects another 50bps rate hike in July, as the central bank needs to move quickly in the early stages in a tightening cycle when interest rates are clearly below neutral and risk of over-tightening is moderate.

China industrial production rose 0.7% yoy in May, retail sales down -6.7% yoy

China industrial production rose 0.7% yoy in May, much better than expectation of -1.0% yoy decline. Retail sales dropped -6.7% yoy, above expectation of -7.3% yoy. Fixed asset investment rose 6.2% ytd yoy, above expectation of 6.0%.

The National Bureau of Statistics said the economy "showed a good momentum of recovery" in the month, "with negative effects from Covid-19 pandemic gradually overcome and major indicators improved marginally."

Still, it warned, "we must be aware that the international environment is to be even more complicated and grim, and the domestic economy is still facing difficulties and challenges for recovery."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0382; (P) 1.0434 (R1) 1.0470; More...

Intraday bias in EUR/USD remains neutral for the moment. Risk stays on the downside as long as 1.0786 resistance holds. Below 1.0396 will target 1.0339 long term support. Decisive break there will resume larger down trend. Next target is long term projection level at 1.0090.

In the bigger picture, focus stays on 1.0339 long term support (2017 low). Decisive break there will resume whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. However, firm break of 1.0805 support turned resistance will delay this bearish case, and bring stronger rebound first.

Economic Indicators Update

US retail sales dropped -0.3% mom to USD 672.9B in May, worse than expectation of 0.2% mom rise. Ex-auto sales rose 0.5% mom, below expectation of 0.8% mom. Ex-gasoline sales dropped -0.7% mom. Ex-auto, ex-gasoline sales rose 0.1% mom. Retail trade sales were down -0.4% mom.

For the 12-month period, retail sales rose 8.1% yoy. Gasoline station jumped 43.2% yoy. Food & beverage stores rose 7.9% yoy.

Full release here.

ECB said the Governing Council in an ad hoc meeting today to "exchange views on the current market situation" and reiterated the pledged to "act against resurgent fragmentation risks".

The council decided to "apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism".

Also, it decided to "mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument".

Full statement here.

The British Pound started a fresh decline from the 1.2550 resistance against the US Dollar. The GBP/USD pair traded below the 1.2420 support zone to enter a bearish zone.

The pair even declined below 1.2200 and the 50 hourly simple moving average. It is now showing bearish signs below a bearish trend line with resistance near 1.2050 on the hourly chart.

The next major resistance sits near the 1.2120 and the 50 hourly simple moving average. If there is a clear upside break above the 1.2120 resistance, the pair could rise steadily towards the 1.2200 level in the near term. The next major resistance sits near the 1.2250 level on FXOpen.

On the downside, an initial support is near the 1.2000 level. The main support is forming near the 1.1950 level. A break below the 1.1950 support could even push the pair below the 1.1880 support.

AUDUSD has been experiencing a sharp downtrend after it failed to jump above the 0.7282 level in early June. Although the pair has managed to find its feet in the last couple of four-hour sessions, the descending 50-period simple moving average (SMA) is closing the gap with the 200-period SMA, where a potential violation could reinforce the case of a sustained downside trajectory.

The momentum indicators reflect a cautiously positive near-term bias. Specifically, the stochastic oscillator is ascending steeply, while the MACD histogram has jumped above its red signal line but remains in the negative area.

Should buying interest intensify, the pair might encounter initial resistance at the recent peak of 0.6970. Jumping above this region, the bulls could then aim for the 0.7033 barrier, which has acted both as support and resistance in the past two months. Further upside moves could then stall at 0.7135 before the spotlight turns to the 0.7245 hurdle.

On the flipside, if the pair fails to rebound and continues its descent, 0.6892 may act as the first line of defense. Should that floor collapse, the recent reversal point of 0.6850 could prove a tough obstacle for the bears to overcome. A violation of the latter could pave the way for the two-year low of 0.6828.

Overall, AUDUSD has recently managed to cease its downfall but there is a long way till its short-term picture turns back to bullish. Therefore, a break beneath the 0.6850 floor could revive sellers’ hopes for the resumption of the recent downtrend.

The Australian dollar has reversed directions on Wednesday and climbed sharply. In the European session, AUD/USD is trading at 0.6937, up 0.98% on the day.

If your fancy is a currency with wild swings, then stay put and don’t change the channel. The Australian dollar continues to fluctuate and is up sharply today after a nasty 5-day slide, in which the Aussie plunged almost 400 points. Just yesterday I wrote how risk appetite was nowhere to be found and the Australian dollar was taking it on the chin. Fast forward 24 hours, and the markets have regained their bullish outlook, sending equities and risk currencies like the Australian dollar sharply higher.

If anything, the sharp swings are reflective of the nervous markets, ahead of the Federal Reserve meeting. The ECB grabbed the spotlight earlier today, announcing an emergency meeting today. This has raised speculation that the ECB could take a dovish pivot and suspend rate hikes, which has the markets in a positive mood.

Will the Fed hike by 75 basis points?

The markets have priced in a massive 75-bp hike from the Federal Reserve at virtually 100%, with some voices calling for a nuclear salvo of 100-bp. The Fed hasn’t hiked by 75-bp since 1994 and such a move should be bullish for the US dollar, even though it has been priced in. The extent of the rate hike will be closely watched, as will Fed Chair Powell’s rate statement. Hold onto your seats for what could be a volatile North American session.

With market attention squarely on the Fed, investors completely ignored a sharp decline in Australia’s consumer confidence, which declined by 4.50% in June, after a -5.60% reading in May. Following the Fed announcement, Australia releases inflation expectations and the May employment report.

AUD/USD Technical

• AUD/USD is testing resistance at 0.6902. Above, there is resistance at 0.6973
• There is support at 0.6765 and 0.6654

The dollar eases on Wednesday, as traders collected profits from the past four-day rally but also look for better levels to -re-enter bullish market, as outlook for the dollar, according to latest expectations for tomorrow’s Fed decision, remains very bullish.

The greenback rallied strongly after last week’s US inflation report which showed that prices continue to rise and inflation hit new highest in over four decades, increasing pressure on the central bank to take more aggressive steps in attempts to curb soaring inflation.

The latest polls show dramatic rise in expectations that the Fed will raise interest rates by 0.75% (the biggest increase since 1994) instead of previously dominating expectations for 0.5% hike. The notion is supported by statistics which show that bets for 0.75% increase rose to 89%, compared to last week’s 4%, while expectations for 0.5% hike dropped to 11% from last week’s wide expectations.

Higher than expected rate hike is likely to push the dollar higher, in extension of steep rally in past months, fueled by previous rate hikes and strong safe-haven demand due to growing uncertainty over the consequences from the war in Ukraine.

The index is holding just under new 2022 high (105.45) also the highest in two decades and could extend towards Fibo projections at 106.50/107, with possible stronger bullish acceleration to threaten 108/110 zone.

However, traders remain cautious as overbought studies warn, while also consider that strong rate hike or decision to stick to initial 0.5% hike, may disappoint markets and trigger the ‘buy the rumors – sell the facts’ scenario.

Res: 105.19; 105.45; 105.93; 106.48.
Sup: 104.47; 104.24; 103.86; 103.31.

Eurozone goods exports rose 12.6% yoy in April to EUR 223.9B. Imports rose 39.4% yoy to EUR 256.4B. Trade deficit came in at EUR -32.4B. Intra-Eurozone trade rose 20.8% yoy to EUR 212.1B.

In seasonally adjusted term, exports rose 1.5% mom to EUR 229.7B. Imports rose 7.1% mom to EUR 261.4%. Trade deficit widened to EUR -31.7B, much larger than expectation of EUR -14.5B. Intra-Eurozone trade rose slightly from 211.2B to 215.1B.

Full release here.