Sample Category Title

• GBPCHF reversed from round support level 1.2000
• Likely to reach resistance level 1.22

GBPCHF recently reversed up from the key round support level 1.2000 (which has been repeatedly reversing the pair from the end of May) .

The support zone near the support level 1.2000 was strengthened by the lower daily Bollinger Band.

Having just broken above the key resistance 1.2110 (which has stopped all advances at the end of May), GBPCHF can be expected to rise further toward the next resistance level 1.22 (top of wave (ii) from last month).

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USD/JPY powers through 131.34 resistance as 10-year yield reclaims 3% handle. Medium term up trend in USD/JPY is resuming and should target 61.8% projection of 114.40 to 131.34 from 126.35 at 136.81 first.

More importantly, sustained trading above a long term projection level at 61.8% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 130.04 will pave the way to 100% projection at 149.26, which is close to 147.68 (1998 high).

But of course, that would likely need 10-year yield to break through 3.167 with some conviction too. There is no hints on that happening yet. Let's see.

Oil was bought during the downturns on Thursday and Friday, with most buying activity during the US trading session. On Thursday and Friday, buying in US trading took the price out of the initial drawdown, closing the day near intraday highs.

Interestingly, this did not trigger stop orders during Asian trading, indicating an impressive supply in Asia and Europe.

There is news that Saudi Arabia has raised selling prices for Asia next month. Typically, this news causes a steady rise in quotations, but this time the opening spurt failed to hold, and at the time of writing, WTI and Brent are losing around 1.6% since the start of the day.

Weekly inventory and production data indicate that the US is in no hurry to ramp up production. Friday’s data from Baker Hughes noted the number of drilling rigs operating at 574, the same as a week earlier and two lower than three weeks ago: an apparent stagnation, contrary to high prices, the looming road trip season and high prices.

Even earlier last week, the official EIA report noted the third week of declining commercial inventories with the continued sell-off in oil reserves, which are already at their lowest level since 1987. The USA is not yet in a hurry to increase production, which further fuels the local price increase.

Today Biden is expected to unveil a new support package for alternative energy. The continued focus on clean energy in the world’s largest economy will deter oil producers from investing heavily in conventional production.

The higher rate of OPEC+ quota increases suggests that the cartel considers current levels attractive for raising its share. In this environment, it will not be surprising if we see more inclination to increase production from conventional oil producers in the coming weeks.

Cable bounces from the dangerous 1.2470 zone (Fibo 38.2% of 1.2155/1.2866 upleg / converged 20/30DMA’s) but remains within a narrowing congestion which extends into fourth straight day, awaiting the key event today – a confidence vote on UK Prime Minister Boris Johnson.

Johnson faces a huge problems as so called ‘Partygate’ scandal angered lawmakers and soured the mood in his Conservative Party as many questioned PM’s authority, after he organized alcohol-fueled parties when the Britain was under strict lockdowns in attempts to bring the latest waves of coronavirus under control.

The scandal showed the depth of anger within the Conservative Party, but it could be also a top of an iceberg and Johnson is also heavily criticized by party’s lawmakers for not having a longer-term plan, while skyrocketing prices on soaring inflation hit households and risk of the economy sliding into recession is rising.

At least 180 of 359 Conservative lawmakers need to against Johnson to remove him, as many from the party share the opinion that the main question is when and not if.

On the other side, the voters will face a sort consequences and possible crisis if they vote against Johnson, due to the lack of obvious successor, as a number of names of potential successors has been already listed.

The vote is due later today and results to be released shortly after.

The pound could take a hit if lawmakers vote to remove Johnson, as the decision would add to persisting uncertainty that would partially offset positive tone on hawkish BoE, while it may reduce still existing downside risk if Johnson wins the vote and stay afloat on expectations for more aggressive rate hikes, however, darkening economic outlook would weigh on the overall mood.

Res: 1.2567; 1.2589; 1.2616; 1.2666
Sup: 1.2470; 1.2458; 1.2411; 1.2350

The European Central Bank will conclude its meeting at 11:45 GMT Thursday. With inflation raging, it is almost certain to end asset purchases and telegraph a rate increase for next month. For the euro, the question is whether the ECB is comfortable with rate hikes of 50 basis points or whether it will stick to smaller 25bp moves. The most likely outcome is a ‘slow and steady’ message, which could disappoint the single currency.  

Stepping stone

The Eurozone economy has been incredibly resilient in recent months, absorbing the dramatic spike in food and energy prices without any serious injuries. The unemployment rate is at its lowest since the euro came into existence, business surveys point to solid growth this quarter, and inflation expectations remain historically elevated.

Pent-up demand from consumers loaded with savings after the lockdowns has been enough to ‘mask’ the negative impact from the cost of living crisis so far. However, not everything is rosy. Business and consumer confidence metrics have fallen sharply while demand for European exports is dwindling with the Chinese economy going downhill.

Hence, even though the sun is still shining, storm clouds are gathering and the time window to tighten monetary policy is limited. ECB officials would likely have preferred to raise interest rates immediately at this meeting with inflation still firing up, but doing so would violate their own forward guidance, so it is extremely unlikely.

Instead, this meeting will probably be used as a stepping stone to prepare the markets for a rate increase in July.

Meeting playbook

The ECB has telegraphed its intentions well. Asset purchases will end this month, before interest rates are increased next month. President Lagarde even said that the central bank intends to exit negative interest rates by the end of September.

As usual, traders seem to have gone too far with pricing in the tightening. Market pricing currently implies a one-in-four chance of a rate increase this week, which is almost impossible based on the forward guidance and recent commentary. A rate hike of 25 basis points is fully priced in for next month, and there’s an additional 35% probability for a bigger, 50 basis points move.

Therefore, if rates are kept unchanged, the initial reaction in the euro will likely be negative. The secondary reaction will depend on Lagarde’s press conference and whether traders sense that 50bps moves are possible.

Admittedly, there’s no real incentive to signal bigger moves are coming. Raising rates with brute force after asset purchases have stopped would risk panic in bond markets, making the ECB’s job even harder. The last thing the central bank wants is to have to choose between fighting inflation or saving the Italian bond market from a crisis. ‘Slow and steady’ is the name of the game.

Big picture

All told, the risks surrounding the euro remain tilted to the downside. The single currency has recovered recently but this seems mostly like a relief bounce following a sharp decline, not the beginning of a new uptrend.

For starters, the market might be pricing in too many rate increases from the ECB considering the fragility in the economy. Once the reopening momentum fades, there could be a sharp economic slowdown, especially if energy prices remain so elevated. Overall, the euro typically needs a booming global economy and rising stock markets to perform well, neither of which is likely for now.

There are three catalysts that could trigger a trend reversal in euro/dollar. The Fed pauses its tightening cycle, the war in Ukraine ends, or China abandons its zero-covid strategy. A combination of these would be even more powerful. Until then, it’s difficult to call for a revival in the euro.

Taking a technical look at euro/dollar, any declines could encounter immediate support around the 1.0640 region.

On the upside, the first barrier for buyers to overcome would be the 1.0780 hurdle.

Spot gold regained traction on Monday, but gains were limited, retracing the small part of Friday’s 1% drop.

Near-term action lack direction but is expected to keep overall positive bias while holding above key supports at $1840 zone (200DMA/Fibo 38.2% of $1786/$1874 upleg/trendline support). Bulls need to break above $1867/$1874 pivots (Fibo 38.2% of $1998/$1786/last Friday’s high) to signal continuation of recovery leg from $1786 (May 16 low).

Bullish daily studies support the action, but markets await US inflation data (due on Friday) for fresh signals, as the yellow metal is seen as a hedge against inflation, although higher interest rates would also boost demand for the metal which yields no interest.

Strong supports lay at $1840 zone and $1828 (June 1 low/the floor of near-term range) break of which would weaken the structure and risk deeper drop on completion of double-top pattern.

Res: 1857; 1864; 1874; 1889.
Sup: 1847; 1840; 1828; 1820.

Daily Pivots: (S1) 130.03; (P) 130.50; (R1) 131.32; More...

No change in USD/JPY's outlook as intraday bias stays on the upside for 131.34 resistance. Decisive break there will confirm larger up trend resumption. Next target is 61.8% projection of 114.40 to 131.34 from 126.35 at 136.81. On the downside, below 129.50 minor support will delay the bullish case and turn intraday bias neutral first.

In the bigger picture, current rally is seen as part of the long term up trend form 75.56 (2011 low). Sustained trading above 61.8% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 130.04 will pave the way to 100% projection at 149.26, which is close to 147.68 (1998 high). For now, this will remain the favored case as long as 126.35 support holds.

Daily Pivots: (S1) 0.9575; (P) 0.9609; (R1) 0.9661; More...

Range trading continues in USD/CHF and intraday bias remains neutral. Strong support is expected at 61.8% retracement of 0.9193 to 1.0063 at 0.9525 to complete the pull back from 1.0063. On the upside, above 0.9763 minor resistance will turn bias back to the upside for retesting 1.0063 high. However, sustained break of 0.9525 will bring deeper decline to 0.9193 support.

In the bigger picture, down trend from 1.0342 (2016 high) should have completed with three waves down to 0.8756 (2021 low) already. Rise from 0.8756 is likely a medium term up trend of its own. Next target is 1.0237/0342 resistance zone. This will remain the favored case as long as 0.9471 resistance turned support holds. However, sustained break of 0.9471 will extend long term range trading with another falling leg.

Daily Pivots: (S1) 1.0695; (P) 1.0729 (R1) 1.0755; More...

Range trading continues in EUR/USD and intraday bias remains neutral. On the downside, break of 1.0626 minor support will indicate rejection by 55 day EMA, and turn bias back to the downside for retesting 1.0348. On the upside, break of 1.0786, and sustained trading above 55 day EMA (now at 1.0757) will target 1.0935 resistance next.

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 medium term corrective rebound first.