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Daily Pivots: (S1) 152.64; (P) 152.99; (R1) 153.57; More...

GBP/JPY's break of 153.14 resistance now suggests that corrective fall from 156.05 has completed with three waves down to 150.64, on bullish convergence condition in 4 hour MACD. Intraday bias is back on the upside for retesting 155.13/156.05 resistance zone next. On the downside, though, break of 152.38 minor support will dampen the bullish case and turn bias neutral first. In this case, correction from 156.05 might still extend with another falling leg.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). Focus remains on 156.59 resistance (2018 high). Sustained break there should confirm long term bullish trend reversal. Next target is 61.8% retracement of 195.86 (2015 high) to 122.75 at 167.93. On the downside, break of 149.03 support is needed to be the first sign of completion of the rise from 123.94. Otherwise, outlook will remain bullish even in case of deep pull back.

Yen decline continues overnight and stays soft on the back of solid risk-on markets. DOW closed just shy of 35k handle overnight, but the three major indexes ended at record highs nonetheless. Solid buying is also seen in Asia, with Hong Kong HSI staging and impressive rebound. Australian and New Zealand Dollar are currently the stronger ones, followed by Sterling. Dollar is the second weakest, next to Yen.

Technically, developments in both EUR/JPY and GBP/JPY suggest that stronger rally is underway. One focus is now on 82.80 support turned resistance in AUD/JPY. Firm break there will indicate short term bottoming at 81.30, on bullish convergence condition in 4 hour MACD. Stronger rise would then be seen back to 84.17 resistance and above. Such development would solidify the reactions in forex markets to broad based risk-on sentiment, and signal more downside in Yen elsewhere.

In Asia, at the time of writing, Nikkei is up 0.71%. Hong Kong HSI is up 1.87%. China Shanghai SSE is up 0.24%. Singapore Strait Times is up 0.62%. Japan 10-year JGB yield is down -0.0031 at 0.026. Overnight, DOW rose 0.36%. S&P 500 rose 0.35%. NASDAQ rose 0.21%. 10-year yield rose 0.007 to 1.363.

Australia NAB business confidence dropped to 11, conditions dropped to 24

Australia NAB Business Confidence dropped from 20 to 11 in June. Business Conditions dropped from 36 to 24. Trading conditions dropped from 45 to 35. Profitability conditions dropped from 39 to 25. Employment conditions dropped from 25 to 17.

"After reaching a record high last month, business conditions pulled back in the month. The decline in conditions was broad-based across states but led by a significant decline in Victoria coming off the back of the lockdown that started in late May but was eased, in a series of steps, over June" said NAB.

"Confidence took a hit in the month with the survey undertaken in the week of the NSW lockdown and with some overlap to brief shutdowns in the smaller capitals. The threat of closing borders also appears to have weighed everywhere".

China exports rose 32.2% yoy in June, imports rose 23.1% yoy, trade surplus widened to USD 51.5B

In USD terms, China's total trade rose 34.2% yoy to USD 511.3B in June. Exports rose 32.2% yoy to USD 281.4B, versus expectation of 23.1% yoy. Imports rose 36.7% yoy to USD 229.9B, versus expectation of 30.0% yoy. Trade surplus widened to USD 51.5B, above expectation of USD 44.4B.

Year-to-June, total trade with EU rose 37.0% yoy to USD 388.2B. Exports to EU rose 35.9% yoy to USD 233.0B. Imports from EU rose 38.8% yoy to USD 155.2B. Trade surplus came in at USD 78B.

Year-to-June, total trade with US rose 45.7% yoy to USD 340.8B. Exports to US rose 42.6% yoy to 252.9B. Imports from US rose 55.5% yoy to USD 87.9B. Trade surplus came in at USD 165B.

Year-to-June, total trade with Australia rose 35.0% yoy to USD 107.4B. Exports to AU rose 30.0% yoy to 29.7B. Imports from AU rose 37.0% yoy to AUD 77.7B. Trade deficit came in at USD -48B.

Fed Williams: Clearly, right not, we have not achieved substantial further progress

New York Fed President John Williams said Fed has a "very clear market" that "substantial further progress" needed to be achieved before tapering asset purchases. "That's where I'm focused, clearly, right now we have not achieved that," he said.

"This is a time of very high uncertainty," he noted, adding that "I'm not going to give a forecast of when the committee will come to a decision around changing the pace of asset purchases." He preferred completing tapering before raising interest rates but "that's way off in the future for me".

Looking ahead

Germany and France CPI final, Swiss PPI will be featured in European session. Main focus would be on US CPI to be released later in the day.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 152.64; (P) 152.99; (R1) 153.57; More...

GBP/JPY's break of 153.14 resistance now suggests that corrective fall from 156.05 has completed with three waves down to 150.64, on bullish convergence condition in 4 hour MACD. Intraday bias is back on the upside for retesting 155.13/156.05 resistance zone next. On the downside, though, break of 152.38 minor support will dampen the bullish case and turn bias neutral first. In this case, correction from 156.05 might still extend with another falling leg.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). Focus remains on 156.59 resistance (2018 high). Sustained break there should confirm long term bullish trend reversal. Next target is 61.8% retracement of 195.86 (2015 high) to 122.75 at 167.93. On the downside, break of 149.03 support is needed to be the first sign of completion of the rise from 123.94. Otherwise, outlook will remain bullish even in case of deep pull back.

Economic Indicators Update

Short term Elliott Wave view in Dow Futures (YM) shows the rally from June 21, 2021 low is unfolding as a 5 waves impulse Elliott Wave structure. Up from June 21 low, wave 1 ended at 34755 and pullback in wave 2 ended at 34004. Internal subdivision of wave 2 unfolded as a zigzag structure. Down from wave 1, wave ((a)) ended at 34241, rally in wave ((b)) ended at 34595, and final leg lower wave ((c)) ended at 34006. This completed wave 2 in higher degree.

Index has broken above wave 1 at 34755, suggesting the next leg higher in wave 3 has started. Up from wave 2, wave (i) ended at 34375, and pullback in wave (ii) ended at 34140. Index resumes higher in wave (iii) towards 34796, and pullback in wave (iv) ended at 34548. Expect Index to soon end wave (v) which should also complete wave ((i)). It then should pullback in wave ((ii)) to correct cycle from July 8 low before the rally resumes. Near term, dips is expected to find support in 3, 7, or 11 swing against July 8 low (34006) for further upside.

Dow Futures (YM) 45 minutes elliott wave chart

In USD terms, China's total trade rose 34.2% yoy to USD 511.3B in June. Exports rose 32.2% yoy to USD 281.4B, versus expectation of 23.1% yoy. Imports rose 36.7% yoy to USD 229.9B, versus expectation of 30.0% yoy. Trade surplus widened to USD 51.5B, above expectation of USD 44.4B.

Year-to-June, total trade with EU rose 37.0% yoy to USD 388.2B. Exports to EU rose 35.9% yoy to USD 233.0B. Imports from EU rose 38.8% yoy to USD 155.2B. Trade surplus came in at USD 78B.

Year-to-June, total trade with US rose 45.7% yoy to USD 340.8B. Exports to US rose 42.6% yoy to 252.9B. Imports from US rose 55.5% yoy to USD 87.9B. Trade surplus came in at USD 165B.

Year-to-June, total trade with Australia rose 35.0% yoy to USD 107.4B. Exports to AU rose 30.0% yoy to 29.7B. Imports from AU rose 37.0% yoy to AUD 77.7B. Trade deficit came in at USD -48B.

Key Highlights

• GBP/USD found support near 1.3740 and recovered above 1.3850.
• It surpassed a key bearish trend line with resistance near 1.3835 on the 4-hours chart.
• EUR/USD must clear 1.1900 to start a decent recovery wave.
• The US CPI could increase 4.9% in June 2021 (YoY), down from the last 5%.

GBP/USD Technical Analysis

The British Pound remained in a bearish zone below the 1.4000 handle against the US Dollar. GBP/USD traded as low as 1.3731 before starting an upside correction.

Looking at the 4-hours chart, the pair was able to correct above the 1.3800 resistance level. There was a break above a key bearish trend line with resistance near 1.3835.

The pair even traded above the 50% Fib retracement level of the main drop from the 1.4008 swing high to 1.3731 low. There was also a spike above the 100 simple moving average (red, 4-hours), but the pair failed to clear the 1.3900 resistance

It also struggled near the 61.8% Fib retracement level of the main drop from the 1.4008 swing high to 1.3731 low. If the pair stays below the 1.3900 resistance, it could resume its decline.

The first key support is near 1.3820, below which the pair could retest the 1.3740 support. Any more losses may possibly lead GBP/USD towards the 1.3650 level.

On the upside, the first key resistance is near the 1.3900 level. The next major resistance is near the 1.3940 level. Any more gains could lead the pair towards the main 1.4000 resistance.

Looking at EUR/USD, the pair must settle above the 1.1900 resistance zone to start a decent recovery. The next major resistance sits at 1.1975.

Economic Releases

• German Consumer Price Index for June 2021 (YoY) – Forecast +2.3%, versus +2.3% previous.
• German Consumer Price Index for June 2021 (MoM) – Forecast +0.4%, versus +0.4% previous.
• US Consumer Price Index for June 2021 (MoM) – Forecast +0.5%, versus +0.6% previous.
• US Consumer Price Index for June 2021 (YoY) – Forecast +4.9%, versus +5.0% previous.
• US Consumer Price Index Ex Food & Energy for June 2021 (YoY) – Forecast +4.0%, versus +3.8% previous.

STOCKS

Dow and DAX are close to their crucial resistances. Dow will have to breach 35100 to become bullish for a rise to 36000. DAX has to break 15800 to see 16000-16200. The price action on these two indices in the coming days will need a close watch. Nikkei has room to move up towards 29000-29500. Shanghai can rise within its 3500-3625 range. Sensex and Nifty can also retain their 52000-53000 and 15600-15900 range respectively and can move up within this range in the coming days. Eventually we expect these ranges to be broken on the upside and see a fresh rise going forward.

Dow (34996.18, +126.02, +0.36%) has risen and come close to the crucial 35000-35100 resistance zone. As we have been mentioning for some time, a strong rise past 35100 is needed to boost the bullish momentum and rise further to 36000. Else a fall back to 34500 and even lower levels is possible again. The price action in the next few days will be crucial and needs a close watch.

DAX (15790.51, +102.58, +0.65%) has come up towards the upper end of its 15300-15800 range. The chances are looking high for it to break 15800 and rise to 16000 and 16200 – the next important resistances in the coming days. From a long-term picture, DAX will need to rise past 16200 to become extremely bullish.

Nikkei (28794.73, +225.71, +0.79%) sustains well above 28000 and is heading up towards 29000-29500 in line with our expectation. Nikkei will have to break 29500 decisively and then a subsequent rise past 30000 in order to become strongly bullish again.

Shanghai (3562.26, +14.42, +0.41%) is moving up within its 3500-3625 range in line with our expectation. We expect this range to remain intact. A bullish breakout above 3625 and a rise to 3700-3800 is likely to be seen eventually over the medium-term.

Sensex (52372.69, −13.50, -0.03%) and Nifty (15692.60, +2.80, +0.02%) had come-off from their day highs to close flat for the day. We expect the 52000-53000 (Sensex) and 15600-15900 (Nifty) range to remain intact. Within this range, the indices can move up on the back of the rise in the global indices. The broader bias is bullish to see an upside breakout of these ranges eventually and see a rise to 54000 (Sensex) and 1600-16200 (Nifty) going forward.

COMMODITIES

Commodities continue to trade higher today. Crude prices rally towards resistance near $77/78 with Brent having scope to test $80 before a sharp decline is seen. Gold and Silver are bullish towards 1820/40 and 26.50/27.0 respectively while Copper has risen within the range of 4.15-4.40 and could hold within this range for the near term.

Brent (75.30) and WTI (74.24) have risen well and may continue to rise towards $77/78 before declining from there. On Brent there is scope for a test of $80 on the upside which is a crucial resistance and can hold for the medium term. Immediate view is bullish towards respective resistances from where a sharp decline looks likely.

Gold (1810.70) is rising towards 1820 and while the upward momentum is intact a break above 1820 is possible taking the price towards 1840 in the near term. Immediate view is bullish.

Silver (26.39) has risen as expected and could test 26.50 soon. A break above 26.50, if seen would take the price higher towards 27. Immediate view is bullish on Silver too.

Copper (4.3375) has risen a bit instead of coming off sharply. The range of 4.15-4.40 (revised from 4.10-4.40) may hold for some more time.

FOREX

Dollar Index is heading towards support a 92 and need to see if it sustains or paves way for a fall to 91.80/60. Euro, EURJPY, Aussie and Pound look bullish for the near term. USDCNY has come down and a break below 6.46 can take it lower towards 6.44. USDINR can break below 74.40 to head towards 74.20-74.00 soon while immediate upside is likely to be limited at 74.60. Dollar-Yen needs to fall from current levels else a rise to 110.60/80 is likely in the very near term.

Dollar Index (92.15) is stable and has dipped from 92.40. It is important to see if the index manages to bounce back from 92 or head lower towards 91.80-91.60 to indicate strength in most other currencies. Watch price action closely near 92.

Euro (1.1872) trades higher and can test crucial level of 1.19 in the near term. We need to wait and watch to see if 1.19 holds or produces a decline back towards 1.1850/1.180. Watch price action near 1.19.

EURJPY (131.03) has risen above 131 and can rise to 131.50 or higher in the near term while it sustains above 131. Immediate view is bullish.

Dollar-Yen (110.35) is trading higher. It can test 110.60/80 in the near term before seeing a dip. Failure to decline from 110.60/80 can take the pair higher towards 111 or higher again in the longer run.

Aussie (0.7495) has risen and could test 0.75. We need to wait and watch of 0.75 holds and produces a decline or paves way for further rise towards 0.7520/40.

Pound (1.39) is holding its upward momentum strong and can rise towards 1.3950-1.40 if it manages to break above 1.39 and sustain the rise. Immediate view is bullish above 1.39.

USDCNY (6.4663) has dipped as expected and could test immediate near term support near 6.46 which if breaks can take the pair down towards 6.45/44 in the next few sessions before a bounce is seen in the medium term. Immediate view can be bearish if it does not sustain above 6.46.

USDINR (74.5750) tested 7440 as expected and bounced to close higher but the pair cannot sustain the bounce for long as the upside is likely to be limited to 74.60. An eventual fall back towards 74.40/20 is possible in the near term. Very near term view would be to see a ranged trade between 74.60-74.40 before falling towards 74.20-74.00 in the medium term. View is bearish for USDINR in the medium term.

INTEREST RATES

The US Treasury yields remain stable. A corrective rise is possible in the coming day while they sustain above their crucial supports that had held very well last week. The German yields remain bearish and have room to fall further from current levels. The 10Yr GoI has risen above 6.2% and is bullish to test 6.3% from where it can reverse lower again.

The US 2Yr (0.23%), 5Yr (0.80%), 10Yr (1.37%) and 30Yr (2%) Treasury yields have inched 1 bps each across tenors. Our view remains the same. 1.25%-1.2% (10Yr) and 1.9% (30Yr) are important support that has held very well for now. A corrective bounce to 1.45%-1.5% (10Yr) and 2.1%-2.2% (30Yr) is possible in the coming days while above these supports.

The German 2Yr (-0.68%), 5Yr (-0.60%), 10Yr (-0.30%), 30Yr (0.20%) remains stable. The outlook is bearish to see a fall to 0.10%-0.8% on the 30Yr and -0.45% / -0.50% on the 10Yr in the coming weeks.

The 10Yr GoI (6.22%)has broken the 6.1%-6.2% range on the upside. While this break sustains the outlook is bullish to see a further rise to 6.3%-6.32% in the coming days. The 6.3%-6.32% is a strong resistance zone from where we can expect the 10Yr GoI to reverse lower again.

Economic developments since the June meeting suggest that BOC would still maintain an upbeat tone and taper further at this week’s meeting. Policymakers will, however, maintain the forward guidance that the first rate hike would come in 2H22. The staff will also release the latest economic projections. The GDP growth outlook will be kept largely unchanged but inflation forecasts should be upgraded significantly.

The disappointing GDP data in the first quarter is not a concern for policymakers. Recall that GDP expanded grew at an annualized +5.7% q/q in 1Q21, missing BOC’s forecast of +7%. Despite this, Deputy Governor Timothy Lane noted on June 10 that the report was “quite encouraging” as household consumption came in strong than expected. GDP contracted -0.3% in April, following 11 consecutive monthly increases. The reading came in better than the initial estimate of -0.8%. Preliminary information indicates a decrease in real GDP of approximately 0.3% in May.Strong market sentiment, solid employment data, together with satisfactory vaccination rollout signaled that optimism is warranted. As suggested in BOC’s Business Outlook Survey (BOS), the BOS indicator hit a record high of 4.17 in 2Q21, compared with 2.95 previously. The strong improvement was not only driven base effects, but also by less uncertainty from the pandemic. Meanwhile, the Survey of Consumer Expectations revealed that consumers expected +3% inflation across all time horizons. Meanwhile, 86% of businesses expected inflation to exceed +2% over the next 2 years, with a record 35% above +3%.
On the job market, the unemployment rate dropped -0.4 ppt to 7.8% in June. The participation rate increased to 65.2% from May’s 64.6%, signaling higher confidence over the employment market. The number of payrolls increased +230.7K, beating consensus of a +195K addition and May’s decline of 68K.

Encouraging economic developments support the BOC’s tapering plan. We expect policymakers to further reduce weekly asset purchases to CAD 2B, from CAD 3B previously. In June, the central bank projected the first rate hike 2H22. This should remain intact in July.

Australia NAB Business Confidence dropped from 20 to 11 in June. Business Conditions dropped from 36 to 24. Trading conditions dropped from 45 to 35. Profitability conditions dropped from 39 to 25. Employment conditions dropped from 25 to 17.

"After reaching a record high last month, business conditions pulled back in the month. The decline in conditions was broad-based across states but led by a significant decline in Victoria coming off the back of the lockdown that started in late May but was eased, in a series of steps, over June" said NAB.

"Confidence took a hit in the month with the survey undertaken in the week of the NSW lockdown and with some overlap to brief shutdowns in the smaller capitals. The threat of closing borders also appears to have weighed everywhere".

Full release here.

New York Fed President John Williams said Fed has a "very clear market" that "substantial further progress" needed to be achieved before tapering asset purchases. "That's where I'm focused, clearly, right now we have not achieved that," he said.

"This is a time of very high uncertainty," he noted, adding that "I'm not going to give a forecast of when the committee will come to a decision around changing the pace of asset purchases." He preferred completing tapering before raising interest rates but "that's way off in the future for me".

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