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European stocks are rebounding on Wednesday after Tuesday’s steep sell-off. Stocks are on the rise, however, there is an air of caution amid concerns over slowing economic growth and rising Delta cases.

European indices have been on a tear as successful vaccine programmes have seen economies re-opening, boosting sentiment and economic growth. However, a few signs are emerging that this growth could be starting to wane, which could begin to put brakes on the relentless move higher in recent months.

Yesterday, German ZEW sentiment slipped lower and factory orders tumbled, while US ISM services PMI missed forecasts, suggesting the re-opening peak may have been reached.

Today, concerns surrounding the economic outlook are being overshadowed by upbeat corporate updates as oil major Shell announced it will step up its distributions to shareholders. Heavyweight SAP also had its target price lifted to EUR125 by Bank of America, a 25% upside from Tuesday’s close.

Looking ahead, US futures are climbing higher, once again led by the tech-heavy Nasdaq. The Nasdaq struck a fresh all-time high in the previous session, while the Dow Jones, which is more closely tied to value stocks, closed lower. The rotation back into high-growth stocks and out of value is taking hold as US treasury yields fall. The high-growth tech sector often outperforms cyclicals when yield curves flatten, particularly longer-dated rates, as this boosts tech stock valuations, and therefore their appeal.

All eyes will be on the FOMC minutes due to be released later today. The minutes are from the mid-June Fed meeting, which saw the US central bank adopt a more hawkish stance. At the June meeting, the Fed announced it expects two rate hikes in 2023, as opposed to nothing until 2024 previously. Should the minutes have a strong hawkish tilt, they could unnerve investors. However, this meeting was three weeks ago and could be now considered stale, particularly in light of the tick higher in unemployment in the June employment report and yesterday’s weaker ISM services data.

FX – USD treads water ahead of FOMC minutes and jobs data

The US dollar is treading water ahead of the release, holding gains from the previous session. The minutes could well be considered stale, but even so, investors will be scrutinising them to draw a parallel with some of the more hawkish comments from Fed speakers since the meeting.

Prior to the minutes, attention will fall on the JOLTS job opening data, which could well show a new record 9.388 million vacancies in May, greater than the 9.28 million in April. Given the tick higher in unemployment, a new record number of vacancies will raise more questions than it gives answers.

Daily Pivots: (S1) 110.43; (P) 110.71; (R1) 110.89; More...

No change in USD/JPY's outlook and intraday bias remains neutral first. On the downside, firm break 110.41 support will indicate short term topping. Intraday bias will be turned back to the downside for 55 day EMA (now at 109.77). On the upside, sustained break of 111.71 will carry larger implication. Next target is 61.8% projection of 102.58 to 110.95 from 107.47 at 112.64.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. Though, as notable support was seen from 55 day EMA, rise from 102.58 is mildly in favor to extend higher. Decisive break of 111.71/112.22 resistance will suggest medium term bullish reversal. Rise from 101.18 could then target 118.65 resistance (Dec 2016) and above. However, sustained break of 55 day EMA would revive some medium term bearishness, and open up deep fall to 61.8% retracement of 102.58 to 110.95 at 105.77 and below.

The forex markets are generally range bound as traders await FOMC minutes. The main focus will be on discussions on the timing of tapering, which wasn't clearly indicated in the statement and economic projections. Dollar's rise appears to be losing steam as global sentiments stabilized today. DOW futures point to a recovery while S&P 500 and NASDAQ might be ready to resume record runs. Commodity currencies are currently the stronger for today while Yen is the weakest.

Technically, we'd reiterate again that Dollar was held below near term levels against most major currencies, despite yesterday's rally attempt. The levels include 1.1806 support in EUR/USD, 1.3730 support in GBP/USD, 0.7443 support in AUD/USD, 0.9275 resistance in USD/CHF. Return of risk appetite today could push the greenback further away from these levels. Meanwhile, extended weakness in yields could give Yen some support. Happening together, such developments could send USD/JPY through 110.41 short term support decisively.

In Europe, at the time of writing, FTSE is up 0.40%. DAX is up 0.95%. CAC is up 0.03%. Germany 10-year yield is down -0.027 at -0.293. Earlier in Asia, Nikkei dropped -0.96%. Hong Kong HSI dropped -0.40%. China Shanghai SSE rose 0.66%. Singapore Strait Times dropped -1.54%. Japan 10-year JGB yield dropped -0.0097 to 0.037.

IMF: Monetary policy should tighten where inflationary pressures are high

In a note for G20 Finance Ministers and Central Bank Governors' Meetings later in the week, IMF said that "global growth has progressed broadly in line with projections, with clear signs of divergence.". It urged "immediate action" by G20 to "arrest the rising human and economic toll of the pandemic".

Additionally, IMF said policy support should be "tailored to the stage of the crisis, avoiding abrupt transitions." Monetary policy should "remain accomodative in most economies". In particular, where "inflation expectations are anchored, " continued monetary accommodation is warranted".

However, in economies "furthest ahead in the recovery", "communicated policy intentions will keep inflation expectations well-anchored and avoid adverse spillovers to weaker economies." "Where inflationary pressures are high and expectations not firmly anchored, monetary policy should tighten."

EU and Eurozone growth and inflation forecasts upgrade

In the Summer 2021 Interim Economic Forecast, European Commission upgraded EU and Eurozone GDP growth forecast for 2021 and 2022 respectively. EU GDP growth is projected to be at 4.8% in 2021 (prior 4.2%) and 4.5% in 2022 (prior 4.4%). Eurozone GDP growth is projected to be at 4.8% in 2022 (prior 4.3%) and 4.5% (prior 4.4%).

EU inflation is projected to be at 2.2% in 2021 (prior 1.9%) and 1.6% in 2022 (prior 1.5%). Eurozone inflation is projected to be at 1.9% in 2021 (prior 1.7%) and 1.4% in 2022 (prior 1.3%).

Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People said: "The European economy is making a strong comeback with all the right pieces falling into place. Our economies have been able to reopen faster than expected thanks to an effective containment strategy and progress with vaccinations"

Paolo Gentiloni, Commissioner for Economy said: "The EU economy is set to see its fastest growth in decades this year, fuelled by strong demand both at home and globally and a swifter-than-expected reopening of services sectors since the spring. Thanks also to restrictions in the first months of the year having hit economic activity less than projected."

Release in European session, Germany industrial production dropped -0.3% mom in may versus expectation of 0.5% mom. France trade deficit widened to EUR -6.8B in May, versus expectation of EUR -6.0B. Italy retail sales rose 0.2% mom in May, versus expectation of 2.3% mom. Swiss foreign currency reserves rose to CHF 941B in June.

Australia AiG services dropped to 57.8, question on filling positions to fill orders

Australia AiG Performance of Services index dropped to 57.8 in June, down from 61.2. Sales dropped -2.5 pts to 66.1. Employment dropped -2.4 pts to 54.2. New orders dropped sharply by -11.7 to 56.6. Input prices dropped -2.7 to 65.4. Selling prices dropped -9.9 to 53.5. Average wages rose 2.9 to 66.0.

Ai Group Chief Executive, Innes Willox, said: "Some adverse impacts on demand and supply chains were associated with the COVID lockdowns and restrictions imposed by other states and territories. Businesses were also constrained by an inability to fill positions required either to maintain existing levels of activity or to expand to meet higher demand. Wages growth accelerated in June and input prices continued to rise although at a more moderate rate than in the previous month. The healthy rise in new orders came on top of the sharp rise in the previous month and points to strong demand over coming months. A key question for many businesses will be whether they can fill positions required to fill these orders."

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 110.43; (P) 110.71; (R1) 110.89; More...

No change in USD/JPY's outlook and intraday bias remains neutral first. On the downside, firm break 110.41 support will indicate short term topping. Intraday bias will be turned back to the downside for 55 day EMA (now at 109.77). On the upside, sustained break of 111.71 will carry larger implication. Next target is 61.8% projection of 102.58 to 110.95 from 107.47 at 112.64.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. Though, as notable support was seen from 55 day EMA, rise from 102.58 is mildly in favor to extend higher. Decisive break of 111.71/112.22 resistance will suggest medium term bullish reversal. Rise from 101.18 could then target 118.65 resistance (Dec 2016) and above. However, sustained break of 55 day EMA would revive some medium term bearishness, and open up deep fall to 61.8% retracement of 102.58 to 110.95 at 105.77 and below.

Economic Indicators Update

In a note for G20 Finance Ministers and Central Bank Governors' Meetings later in the week, IMF said that "global growth has progressed broadly in line with projections, with clear signs of divergence.". It urged "immediate action" by G20 to "arrest the rising human and economic toll of the pandemic".

Additionally, IMF said policy support should be "tailored to the stage of the crisis, avoiding abrupt transitions." Monetary policy should "remain accomodative in most economies". In particular, where "inflation expectations are anchored, " continued monetary accommodation is warranted".

However, in economies "furthest ahead in the recovery", "communicated policy intentions will keep inflation expectations well-anchored and avoid adverse spillovers to weaker economies." "Where inflationary pressures are high and expectations not firmly anchored, monetary policy should tighten."

Full note here.

The USD tended to gain against a number of its counterparts yesterday, while gold prices continued to rise for a sixth day in a row and the US stockmarkets sent some mixed signals with Dow Jones retreating while Nasdaq reached new record highs. The market's attention turns to the release of the Fed's latest meeting minutes in search for further clues regarding the bank's stance. The meeting of the Fed mid-June had a notable shift in the bank's outlook, with the possible date of a rate hike being moved earlier as its projections reflected a higher GDP growth rate and an accelerating inflation. Fed's Chairman Powell in his remarks at the press conference following the release, had mentioned that it was time to "retire" the notion of "talking about talking about tapering," as the Fed's policymakers had allready begun making thoughts for the timing of a tightening of the bank's QE program. In the minutes, we expect some clarification of what the prerequisites would be for “substantial further progress” towards the Fed's goals, that would actually signal the possibility of the Fed starting to taper its QE program. Hence, should the hawks prevail in their comments, we may see the USD getting some support as tightening expectations would increase, while if some cautiousness is expressed by Fed's policymakers still, we may see the USD weakening.

USD/CAD rose yesterday breaking the 1.2400 (S1) resistance line, now turned to support and tested the 1.2470 (R1) resistance level. The stabilisation of the pair during today's Asian session was noted yet we suspect that the bulls are still not done. The RSI indicator below our 4-hour chart is between the readings of 50 and 70, implying that the bulls have a slight advantage. Should the buyers continue to guide USD/CAD, we may see the pair breaking the 1.2470 (R1) resistance line and aim for the 1.2560 (R2) level. Should a selling interest be displayed by the market, we may see the pair reversing course aiming if not breaking the 1.2400 (S1) support line and aim for lower grounds.

Oil prices steady after wide drop

WTI prices steadied on Wednesday's Asian session after a steep drop the previous day, as negotiations broke down within the OPEC+ oil producing group and that tended to increase expectations that major oil producing countries, would increase the supply of the commodity to the global markets. The rift between Saudi Arabia, which favored a controlled and low increase of oil production and the United Arab Emirates (UAE), which was against extending supply curbs seemed to remain wide enough to prevent the group from reaching consensus regarding oil production levels. Thus, the market seemed to price-in the possibility that the UAE would split from the agreement, increase its production levels, also given its wide investment to increase production capacity and its wide openings to Asian clientele.

WTI prices tumbled yesterday breaking the 75.00 (R2) and the 73.40 (R1) support lines, both now turned to resistance, like a hot knife through butter. We tend to maintain a bearish outlook for the commodity's prices given its wide drop, albeit some signs of stabilisation seems also to be in place. It should be noted that the RSI indicator below our 4-hour chart is between the readings of 50 and 30, which could imply that the bears maintain the initiative over WTI's prices. Should the bears actually maintain control over WTI's direction as expected, we may see the commodity's prices breaking the 71.70 (S1) support line and aim for the 69.75 (R2) support level. Should the bulls take over, we may see the pair reversing course, breaking the 73.40 (R1) resistance line and aim for the 75.00 (R2) resistance level.

Other economic highlights today and the following Asian session:

Today we note Germany's industrial output for May, UK's Halifax House prices for June, the US JOLTS job openings for May, Canada's Ivey PMI for June and the US weekly API oil inventories figure.

USD/CAD H4 Chart

Support: 1.2400 (S1), 1.2320 (S2), 1.2230 (S3)
Resistance: 1.2470 (R1), 1.2560 (R2), 1.2650 (R3)

WTI H4 Chart 

Support: 71.70 (S1), 69.75 (S2), 68.10 (S3)
Resistance: 73.40 (R1), 75.00 (R2), 76.75 (R3)

Crude oil price rallied further towards the $76.40 zone before it faced sellers against the US Dollar. The price started a downside correction below $76.00 and $75.00.

The price even broke the $74.00 support zone and it settled below the 50 hourly simple moving average. There was also a break below a major bullish trend line with support near $75.00 on the hourly chart. It traded as low as $72.41 on FXOpen and it is now showing a few bearish signs.

An initial resistance on the upside is near the $73.35 level. A clear break above the $73.35 and $73.50 levels could start a major increase in the near term.

On the downside, an initial support is near the $72.50 level. The first major support is near the $72.20 level, below which there is a risk of more losses. In this case, the price could even test $70.00 in the near term.

The Canadian dollar has steadied on Wednesday, after sharp losses a day earlier. In the North American session, USD/CAD is trading at 1.2440, down 0.13% on the day. USD/CAD jumped 0.94% on Tuesday, its strongest one-day performance since February. The pair also rose to its highest level since late April. Oil prices fell by 2% on Tuesday, which weighed heavily on the commodity-based Canadian dollar.

On the fundamental front, Canada releases Ivey PMI later in the day (12:3o GMT). The PMI, which covers all sections of the Canadian economy, has looked sharp, with four straight readings at the 60-level or higher. This is well into expansionary territory, as the 50-level separates contraction from expansion. Another strong reading would be bullish for the Canadian dollar.

The US dollar made gains against the majors on Tuesday and pummelled the Canadian dollar. USD/CAD jumped 0.94%, its largest one-day gain since February. Investors gave the US dollar a thumbs-up after PMI data indicated that the service sector continues to expand.

The ISM Non-Manufacturing PMI for June dropped to 60.1, down from 64.0 in May. However, given that the May reading was a new record, US dollar bulls were clearly not deterred by the deceleration. It is worth noting that the ISM employment component contracted, another indication that employers continue to have difficulty finding employees, despite a surge in the unemployment rate. The Markit Services PMI was revised lower, from 64.8 to 64.6 points. The services sector remains strong, but these releases are unlikely to make the Fed reconsider tapering earlier than planned in 2022.

In the US, the FOMC releases the minutes from its June policy meeting (18:00 FOMC). The Fed has shown a hawkish bend of late, particularly when it shocked the markets and brought up the timeline for interest rate hikes to 2023, up from 2024. However, with the June employment report showing a surge in the unemployment rate and weak wage growth, a taper in QE seems more distant. The minutes are the key event risk of the week, and we could see some volatility from the US dollar during the North American session.

USD/CAD Technical

With little change in USD/CAD, the weekly support and resistance levels are unchanged:

• There is resistance at 1.2423, followed by resistance at 1.2517
• On the downside, there is support at 1.2261. Below, there is support at 1.2143

Wednesday has been a quiet day for the euro. In European trade, EUR/USD is trading at 1.1828, down 0.04% on the day.

German industrial production declines

The German economy continues to show weakness in production data. Industrial Production for May MoM came in at -0.3%, identical to the April reading. This missed the consensus of 0.5%. Granted, on an annualized basis the data looks better, with a 17.3% gain compared to May 2020. However, a year ago, much of the industrial sector was shut down due to Corona, such the large gain is a deviation. Analysts are more interested in a comparison with pre-Covid levels (early 2020) and currently, industrial production is some 5% lower than prior to Covid.

The weak reading comes on the heels of Factory Orders for May, which declined -3.7%, down from 1.2% in April, and well below the consensus of 1.0%. The weak reading is attributable to shortages in supply chains, which have become acute as demand far outstrips capacity.

This problem of demand exceeding supply is not limited to Germany; it is a global problem as economies reopen and businesses and consumers are in a spending mode, looking for things to buy. The unleashing of pent-up demand following months of strict lockdowns is causing inflationary pressures much to the consternation of the major central banks. In the US, the surge of inflation raised expectations of interest rates and the Federal Reserve to make a U-turn and surprised the markets by announcing that it now expects to raise rates twice in 2023. This, after months of reassuring the markets that inflation was transient and that there were no plans to raise rates before 2024.

Investors will be keeping a close eye on the FOMC minutes, which will be released later today (18:00 GMT).

EUR/USD Technical

• EUR/USD has support at 1.1800, which has held since April. Below, there is support at 1.1734
• There is resistance at 1.1938 and 1.2010

GBPJPY in recent sessions found some footing a tad below the 50.0% Fibonacci retracement of the up leg from 149.04 until 156.06 but the positive traction off the 152.32 level has yet to gain speed. The dipping simple moving averages (SMAs) are contesting positive developments in the pair.

That said, the converged Ichimoku lines and the short-term oscillators are endorsing upside momentum. The Ichimoku lines are currently flat, reflecting weak negative pressures, while the technical indicators are conveying an increase in price’s bullish mood. Presently in bearish territory, the MACD is turning up and the RSI is improving from the 30 levels, together with signaling that buyers are countering dampening forces. In the oversold zone, the stochastic %K line has overlapped the %D line but has yet to confirm a bullish demeanor in the price.

If buyers are able to sustain the push above the 50.0% Fibo of 152.55, initial upside limitations may emanate from a zone between the red Tenkan-sen line at 153.18 and the 38.2% Fibo of 153.40. Breaching the 50-period SMA and recouping more of yesterday’s plunge could guide the price to test the resistance zone of 153.75-154.00. Moreover, conquering yesterday’s intraday high of 154.06 may then encourage buyers to challenge the durable boundary of 154.21-154.52, which has curbed improvements over the last week.

If sellers retake the wheel, immediate support could arise from the 50.0% Fibo of 152.55 and the nearby low of 152.32. If the pair remains heavy, the next barrier to the downside is the 61.8% Fibo at 151.72. Subsequently, for negative pressures to rule, sellers would need to break down the foundation formed between the 151.30 trough and the lows around the end of April and beginning of May.

Concluding, GBPJPY is exhibiting a somewhat neutral-to-bearish tilt. Yet, only a close below 150.86 could accelerate the downfall. However, a break above the minor downtrend line, pulled from the multi-year peak of 156.06, could boost a bullish bias.

The US dollar index is in a quiet mode on Wednesday, ahead of release of Fed minutes.

Tuesday’s rebound reversed the most of shallow two-day pullback from new three-month high (92.75), suggesting that near-term bias remains with bulls.

The greenback was deflated on partial profit-taking after solid US jobs data signaled the labor sector remains on recovery track that prompted traders to push the price lower and get better levels to re-enter bullish market.

The minutes of Fed’s June policy meeting are in focus today, as investors expect to get more hints about the timing of any stimulus reduction, as well as information about possible earlier than expected interest rate increase.

Any hawkish shift would be supportive for the greenback, while dovish tone from the US central bank would be dollar-negative.

Daily moving averages remain in full bullish setup, but evident loss of positive momentum warns that bulls might be losing traction.

Rising 10DMA which tracks the ascend for one month, offers solid support at 92.18, followed by broken Fibo 61.8% of 93.45/89.50 at 91.94, with loss of these supports to weaken near-term structure and risk test of 91.50 zone breakpoint (late June higher base / 200DMA), break of which would signal reversal.

Bullish scenario sees eventual close above cracked Fibo 76.4% of 93.45/89.50 fall (92.52) as a trigger for acceleration towards 93.45 (2021 high, posted on Mar 31).

Res: 92.75, 93.00, 93.45, 94.00.
Sup: 92.39, 92.18, 91.94, 91.70.