USD/JPY Forex Technical Analysis – Strengthens Over 109.761, Weakens Under 109.634

The Dollar/Yen is inching higher early Monday on relatively low volume as many of the major players may have already taken to the sidelines ahead of the Fed announcements on Wednesday.

The Fed’s two-day policy meeting will likely dominate investor behavior in the Dollar/Yen this week.  Although the central bank is not expected to take any action, its forecasts for interest rates, inflation and the economy could move the Dollar/Yen.

At 06:26 GMT, the USD/JPY is trading 109.720, up 0.033 or +0.03%.

In other news, the Bank of Japan is set to keep its money spigots wide open and may extend its pandemic-relief programs this week to support a fragile economic recovery, reinforcing expectations it will lag major counterparts in dialing back crisis-mode policies. The BOJ is set to make its monetary policy announcements late Thursday/early Friday.

Daily USD/JPY

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 109.192 will signal a resumption of the downtrend. A move through 110.329 will change the main trend to up.

The minor trend is 110.329 to 109.192. Its 50% level at 109.761 is resistance.

On the downside, potential support is layered at 109.634, 109.445 and 109.223.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Monday is likely to be determined by trader reaction to the minor pivot at 109.761.

Bullish Scenario

A sustained move over 109.761 will indicate the presence of buyers. If this move is able to generate enough upside momentum then look for a short-term surge into 110.329.

Bearish Scenario

A sustained move under 109.761 will signal the presence of sellers. This could lead to the start of a labored break with potential downside targets lined up at 109.634, 109.445, 109.223 and the main bottom at 109.192. The latter is a potential trigger point for an acceleration into the short-term 50% level at 108.904.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data and Central Bank Chatter Put the EUR, the Loonie, and the Pound in Focus

Earlier in the Day:

It was a quiet start to the week on the economic calendar this morning, with Australian and China markets closed today. Later this morning, the Japanese Yen will be in action, however.

For the Japanese Yen

Through the early hours, the Japanese Yen was down by 0.10% to ¥109.77 against the U.S Dollar. Later this morning, finalized industrial production figures for April are due out.

Barring any marked revisions, however, we don’t expect the numbers to influence.

According to prelim figures, industrial production increased by 2.5%, month-on-month. In March, production had risen by 1.7%.

Elsewhere

At the time of writing, the Aussie Dollar was down by 0.10% to $0.7700, while the Kiwi Dollar was up by 0.13% to $0.7139.

The Day Ahead

For the EUR

It’s a quiet day ahead on the economic data front. April industrial production figures for the Eurozone are due out later today.

Following some disappointing production figures from France and Germany, a weak set of numbers would pin the EUR back.

At the time of writing, the EUR was down by 0.07% to $1.2101.

For the Pound

It’s a particularly quiet day ahead on the economic calendar.

There are no material stats due out of the UK to provide the Pound with direction.

The lack of stats will leave the Pound in the hands of government plans vis-à-vis remaining COVID-19 restrictions and updates from the G7 Summit.

On the monetary policy front, BoE Gov. Bailey is due to speak late in the day and could move the dial…

At the time of writing, the Pound was up by 0.04% to $1.4113.

Across the Pond

It’s also a quiet day ahead on the economic calendar. There are no material stats due out of the U.S to provide the Dollar with direction.

The lack of stats will leave the Greenback in the hands of market sentiment towards this week’s FOMC meet.

At the time of writing, the Dollar Spot Index was up by 0.02% to 90.576.

For the Loonie

It’s a quiet day ahead on the economic data front. Manufacturing sales figures for April are due out late in the day.

With little else to focus on, we can expect some influence from the numbers.

Ultimately, however, market risk sentiment will be the key driver at the start of the week.

At the time of writing, the Loonie was down by 0.01% to C$1.2159 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Fundamental Daily Forecast – BOJ Could Increase Stimulus to Support Fragile Economic Recovery

The Dollar/Yen edged higher last week after posting a choppy, two-sided trade last week. Helping to keep a lid on the Forex pair was a drop in U.S. Treasury yields, while underpinning the market was strong U.S. economic data. Report out of Japan also signaled more weakness for the economy. Essentially, with the Fed moving closer to at least discussing tapering its asset buying program and the Bank of Japan considering new stimulus, the advantage is to the U.S. Dollar.

Last week, the USD/JPY settled at 109.687, up 0.161 or +0.15%.

10-Year Treasury Yield Falls to 3-month Low of 1.43% Despite Inflation Fears

Treasury yields it a 3-month low last week as investors shrugged off the 5% annual jump in inflation reported in the previous session and appeared to buy the Federal Reserve’s argument that the price increases will be temporary.

Reopening US Economy Heats Up Consumer Inflation; Labor Market Recovery Gaining Traction

U.S. consumer prices rose solidly in May, leading to the biggest annual increase in nearly 13 years as a reopening economy boosted demand for travel-related services, while a global semiconductor shortage drove up prices for used motor vehicles.

The pandemic’s easing grip on the economy was also underscored by other data from the Labor Department on Thursday showing the number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 15 months.

Japan Upgrades Q1 GDP on Smaller Hit to Domestic Demand

Japan’s economy shrank less than initially reported in the first quarter on smaller cuts to plant and equipment spending, but the coronavirus pandemic still dealt a huge blow to overall demand.

The economy shrank by an annualized 3.9% in January-March, not as bad as the preliminary reading of a 5.1% contraction, but still posting the first fall in three quarters, Cabinet Office data showed last week. The reading, which beat economists’ forecast for a 4.8% decline, equals a real quarter-on-quarter contraction of 1.0% from the prior quarter, versus a preliminary 1.3% drop.

Weekly Outlook

The Fed’s two-day policy meeting will likely dominate investor behavior in the Dollar/Yen this week.  Although the central bank is not expected to take any action, its forecasts for interest rates, inflation and the economy could move the USD/JPY.

Fed Chairman Jerome Powell speaks to the press after the central bank issues its statement at 18:00 GMT on Wednesday, June 16. He is expected to affirm the Fed’s commitment to easy policy. However, concerns over inflation and how the Fed could react is likely to influence market direction, especially after a hotter-than-expected consumer inflation reading for May was reported last Thursday, CNBC reported.

In Japan, the Bank of Japan is set to keep its money spigots wide open and may extend its pandemic-relief programs this week to support a fragile economic recovery, reinforcing expectations it will lag major counterparts in dialing back crisis-mode policies.

At its two-day policy meeting ending on June 18, the BOJ is set to maintain its yield curve control (YCC) targets at -0.1% for short-term interest rates at 0% for 10-year bond yields.

It is also expected to reaffirm its pledge to buy assets such as bonds and exchange-traded funds (ETFs), though it has been scaling back huge purchases to make its long running stimulus program more sustainable.

THE BOTTOMLINE:  The U.S. consumer price index increased 0.6% last month after surging 0.8% in April, which was the largest gain since June 2009, while in Japan, core consumer prices fell 0.1% in April from a year earlier, marking the ninth straight month of declines and remaining distant from the BOJ’s 2% target. Clearly, the U.S. economy is moving forward faster than the Japanese economy.

For a look at all of today’s economic events, check out our economic calendar.

The Week Ahead – A Busier Economic Calendar and the FED to Keep the Markets Busy

On the Macro

It’s a busier week ahead on the economic calendar, with 60 stats in focus in the week ending 18th June. In the week prior, 45 stats had been in focus.

For the Dollar:

Early in the week, Wholesale inflation and retail sales figures will be in focus.

While inflation figures remain a key area of interest, retail sales will likely be the main focal point.

On Thursday, Philly FED Manufacturing and weekly jobless claim figures will also influence.

Other stats include industrial production, housing sector data, and manufacturing numbers out of NY State. We don’t expect these to have too much influence in the week, however.

On the monetary policy front, it will be the FED’s June monetary policy decision that will be the main event.

The markets are expecting discussions on a tapering to the asset purchasing program to begin. Will there be talk of a shift in sentiment towards interest rates? The projections will hold the key.

In the week, the Dollar ended the week up by 0.46% to 90.555.

For the EUR:

It’s a relatively quiet week on the economic data front.

Eurozone industrial production, trade, and wage growth figures are due out Monday through Wednesday.

With little else for the markets to consider, we can expect the numbers to influence.

Finalized inflation figures for May are also due out for France, Germany, Italy, and the Eurozone.

Barring marked revisions to prelim figures, however, the numbers should have limited impact on the EUR.

The EUR ended the week down by 0.48% to $1.2108.

For the Pound:

It’s a busier week ahead on the economic calendar.

Employment figures are due out on Tuesday. Expect claimant counts and the unemployment rate to be the key numbers.

On Wednesday, inflation figures will also influence ahead of retail sales figures on Friday.

Impressive numbers will fuel speculation of a near-term move by the BoE. Much will depend upon the government’s reopening plans, however.

On the monetary policy front, BoE Gov. Bailey is scheduled to speak in the week. Expect any forward guidance to influence.

The Pound ended the week down by 0.35% to $1.4107.

For the Loonie:

It’s another quiet week ahead on the economic calendar.

At the start of the week, manufacturing sales figures are due out ahead of inflation figures on Wednesday.

Expect the inflation figures to be key.

Crude oil inventory numbers will also influence mid-week.

The Loonie ended the week down 0.61% to C$1.2158 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a quiet week ahead.

Employment figures for May are due out on Thursday. The numbers remain key, with the RBA unwilling to make a move until the slack is removed. Weak numbers would certainly test support levels.

On the monetary policy front, the RBA meeting minutes early in the week will provide direction.

The Aussie Dollar ended the week down by 0.40% to $0.7708.

For the Kiwi Dollar:

It’s also a quiet week ahead.

1st quarter current account and GDP numbers are due out.

Expect the GDP number on Thursday to be key.

Economic data from China will also influence early in the week.

The Kiwi Dollar ended the week down by 1.16% to $0.7130.

For the Japanese Yen:

Finalized industrial production figures are due out at the start of the week. Expect any marked revisions to influence ahead of trade data on Wednesday.

Inflation figures on Friday should have a muted impact, with the BoJ in action at the end of the week.

The Japanese Yen fell by 0.13% to ¥109.66 against the U.S Dollar.

Out of China

Industrial production, retail sales, and fixed asset investments will be in focus.

Following disappointing numbers for April, the markets will be looking for improvement. Weaker numbers would test support for riskier assets on Wednesday.

The Chinese Yuan ended the week down by 0.05% to CNY6.3988 against the U.S Dollar.

Geo-Politics

There are no major risks to consider in the week ahead. Key takeaways from the G7 will likely influence, however.

As always, however, the markets will need to continue monitoring chatter from Capitol Hill and Beijing.

The Iranian presidential election is in the week ahead…

Weekly Technical Market Insight: 14th – 18th June 2021

Charts: Trading View

US Dollar Index (Daily Timeframe):

Last week’s session observed the US dollar—according to the US dollar index—abandon its two-week indecisive phase and establish moderate gains (0.4 percent).

Earlier weekly reports shined the technical spotlight on a descending wedge pattern (a shape exhibiting decreased downside momentum within converging walls [91.43/90.42]). Traders will note both converging lines received at least two tests, yet some textbooks require three to form at the upper base. Nevertheless, the beginning of June had the unit retest the upper boundary of the wedge and develop support, following a breakout higher on May 28th.

Recent analysis also highlighted the following points (italics):

  • Since the DXY topped out at the 93.43 31st March peak, and cooked up reasonably decisive downside movement, the wedge, and subsequent upside breach, is perhaps a reversal signal.
  • The pattern’s upside target rests beneath resistance at 91.36 (red), stationed south of the 200-day simple moving average, circling 91.56. Should pattern bids hold the buck higher this week, price targeting 91.36 is a reasonably logical approach.
  • However, it’s important to note a bearish narrative has clouded the greenback since the early months of 2020, by way of well-defined lower lows and lower highs. Many analysts likely refer to this downward movement as a primary trend, as it’s visible structure from the weekly scale. Consequently, this unlocks the possibility of fresh lower lows beyond 89.34 support over the coming weeks (see black arrows), with sellers taking aim at Quasimodo support from 88.43.

Momentum studies, through the RSI indicator, shows the line elbowed north of the 50.00 centreline last week and finished on the doorstep of indicator resistance at 55.67.

Should an extension to the current pullback materialise, a bearish scenario—in line with the current downtrend—unfolding off 91.36 resistance remains a possible scenario this week. 91.36 is reinforced not only by a nearby 200-day simple moving average (dynamic resistance) at 91.56, but also the wedge pattern’s take-profit target around 91.32. At the same time, failure to maintain gains may result in a dip to support at 89.34, a level which echoes vulnerability and could unlock the door to Quasimodo support at 88.43.

EUR/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Following a three-month retracement, support at 1.1857-1.1352 made an entrance and inspired a bullish revival in April, up 2.4 percent at the close. May also extended recovery gains, trading higher by 1.7 percent. June, however, is off to a mildly rocky start, down 1 percent as of current trade.

April upside—alongside May’s optimism—throws light on the possibility of fresh 2021 peaks in the months ahead, followed by a test of ascending resistance (prior support [1.1641]).

Based on trend studies, the primary uptrend has been underway since price broke the 1.1714 high (Aug 2015) in July 2017. Additionally, price breached major trendline resistance, taken from the high 1.6038, in July 2020.

Daily timeframe:

A closer reading of price action on the daily chart shows the single currency cut away at recent attempts to explore higher.

Quasimodo resistance at 1.2278, as you can see, was left untested in recent weeks, with latest downside tipping the scales in favour of testing dynamic support around 1.1987: the 200-day simple moving average. Technicians will note the aforementioned SMA shares chart space with a 50.00% retracement ratio at 1.1986.

Adding weight to the downside is the RSI indicator. As sellers strengthened their grip Friday, the RSI value brushed aside support at 51.36 in addition to the 50.00 centreline (a 50.00 cross indicates a weakening of upside movement).

H4 timeframe:

Friday’s one-way slide watched the currency pair lock horns with a 61.8% Fib retracement at 1.2094, a horizontal value (green) stationed just north of interesting demand from 1.2044-1.2071. Technically speaking, this area boasts a solid floor to be mindful of this week, overrun with Fibonacci studies, including extension levels, expansion levels and projections.

Space south of demand, however, throws light on support coming in at 1.1990.

H1 timeframe:

Aided by a 1.618% Fib expansion at 1.2095 and a 1.272% Fib projection at 1.2098, the 1.21 figure embraced price action amidst US hours on Friday. Of course, we can also see 1.21 entered the frame at the same time the RSI indicator’s value dipped into oversold territory and shook hands with support at 14.74.

Another point worth highlighting is breakout stops plotted beneath the 1.2104 June 4th low (blue box). Tripping these orders as price greets bids around 1.21 has so far facilitated what’s known as a bear trap. This, therefore, could fuel additional buying as breakout sellers panic and liquidate (forming additional buy orders).

Demand at 1.2075-1.2085, nevertheless, is strategically positioned a touch under 1.21. Overhead, resistance is found at 1.2132, aligning to-the-pip with a 38.2% Fib retracement value.

Observed levels:

Long term:

From the monthly chart, the outlook continues to emphasise a bullish bias, taking aim at 2021 tops around 1.2349 and ascending resistance. Before discovering northerly ground, the daily timeframe argues a test of the 200-day simple moving average (1.1987) and neighbouring 50.00% retracement at 1.1986 may be in store.

Short term:

The combination of the 1.21 figure on the H1 and associated Fib studies, together with the possibility of breakout sellers’ orders being liquidated to form buy orders and a 61.8% Fib retracement on the H4 at 1.2093, signals a possible test of H1 resistance at 1.2132 early week (joined with a 38.2% Fib retracement).

AUD/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Since the beginning of 2021, buyers and sellers have been battling for position south of trendline resistance (prior support – 0.4776 low) and supply from 0.8303-0.8082. Should a bearish scenario unfold, support is featured at 0.7394, with additional pressure targeting demand at 0.7029-0.6664 (prior supply).

Trend studies (despite the trendline resistance [1.0582] breach in July 2020) show the primary downtrend (since mid-2011) remains in play until breaking 0.8135 (January high [2018]).

Daily timeframe:

Technical structure unchanged from previous analysis.

The daily chart’s technical scenery has been a dull affair since April 20th.

Despite a fleeting whipsaw to a low of 0.7645, resistance at 0.7816 and support from 0.7699 continue to outline a defined range (yellow).

Support at 0.7563 is in view as a potential objective in the event sellers take the wheel, deriving additional (dynamic) support from the 200-day simple moving average circling 0.7540. Above 0.7816, supply falls in at 0.8045-0.7985.

With respect to trend, we have been higher since early 2020. However, we must take into account the currency pair has been mostly directionless since the beginning of 2021.

The RSI shows the value engaging with space beneath the 50.00 centreline, unable to penetrate the latter since mid-May. This warns upside momentum could suffer this week and drop in on support from 37.92 and maybe oversold territory.

H4 timeframe:

Leaving Quasimodo resistance at 0.7782 unopposed on Friday, sellers took the reins and extended losses to highlight 0.7632-0.7653 demand this week. Note this was an area that helped facilitate a sizeable rally at the beginning of the month.

H1 timeframe:

Following a test of supply from 0.7783-0.7771 during early Europe Friday (holds H4 Quasimodo resistance within at 0.7782), the early hours of US trading had price test the resolve of 0.77. Helped by a 61.8% Fib retracement (green) nestled just under the round number from 0.7695, a mild recovery occurred. Also reinforcing the 0.77 test is the RSI value dipped a toe in oversold waters and missed support at 19.30 by a whisker before exiting the area into the close.

Resistance at 0.7722 is on the radar, dovetailing closely with a 38.2% Fib retracement at 0.7720, while any sustained movement beneath 0.77 unlocks the door to demand at 0.7634-0.7649 (fixed within the walls of H4 demand at 0.7632-0.7653).

Observed levels:

Long term:

Looking over the monthly and daily charts echoes a bearish vibe. The monthly is contained under major supply and trendline support-turned resistance. The daily timeframe has been carving out a consolidation since mid-April between 0.7816 and 0.7699. Notably, though, June has watched price toy with the lower side of the said range, offering uninspiring bullish intent. With that, daily support at 0.7563 could be targeted.

Short term:

Scope to navigate deeper water on the H4 timeframe until crossing swords with demand at 0.7632-0.7653 signals the 0.77 figure on the H1—despite holding Friday and working with additional 61.8% Fib support from 0.7695—is on the verge of stepping aside and unmasking demand at 0.7634-0.7649 (which as we know is connected with H4 demand at 0.7632-0.7653). However, before any downside attempt takes shape, a 0.7722 resistance test could form—a location sellers may be drawn to early week.

USD/JPY:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Following January’s bullish engulfing candle and February’s outperformance, March concluded up by 3.9 percent and cut through descending resistance, etched from the high 118.66.

Although April finished lower by 1.3 percent and snapped the three-month winning streak, May (+0.2 percent) held the breached descending resistance, echoing potential support for the month of June, currently trading higher by 0.1 percent.

Daily timeframe:

Technical structure largely unchanged from previous analysis.

Alternating between gains and losses, last week wrapped up largely unmoved.

Long-term resistance at 110.94-110.29 (posted under supply at 111.73-111.19) remains centre of attention on the daily timeframe, with downside targeting 108.60ish lows (green oval), followed by supply-turned demand at 107.58-106.85.

Trend studies reveal the pair has been trending higher since the beginning of the year, though discovered a top heading into early April. Subsequent months witnessed a sizeable retracement, followed by attempts to recapture losses.

The RSI continues to oscillate around resistance at 57.00, with the value recently establishing mild bottoms ahead of the 50.00 centreline. Additional structure seen are support from 28.19 and resistance drawn from 83.02.

H4 timeframe:

The emergence of a broad USD bid, along with a risk-on theme, elevated USD/JPY on Friday, consequently maintaining a bullish vibe above demand at 109.02-109.20—an area joining the fight at the beginning of last week.

A key feature to be aware of is not only does the chart demonstrate scope to rally as far north as supply at 110.85-110.46 (houses Fib studies), the noted demand is positioned nearby trendline support, drawn from the low 107.48.

Failure to hold current demand, attention shifts to another layer of proven demand printed at 108.20-108.43.

H1 timeframe:

Arranged by way of the 1.10 figure, resistance at 109.95, a three-drive bearish formation at 109.93 (albeit not perfect), a 100% Fib projection at 109.88, and a 61.8% Fib retracement at 109.89, the 110.00-109.88 area forms relatively dense resistance.

Upstream, 110.18-110.09 supply is in focus (this area is particularly standout due to the momentum derived out of its base which dug below a handful of support points). In fact, this supply is strategically positioned to help facilitate a stop run above 110. Unhinging 110.18-110.09 reveals Quasimodo resistance at 110.41.

109.30 lows, on the other hand, is evident to the downside, closely tailed by familiar demand at 109.07-109.19 (fixed within H4 demand at 109.02-109.20).

On the basis of the RSI indicator, the value pulled away from overbought status Friday and now eyes trendline support, drawn from the low 20.25.

Observed levels:

Long term:

The descending resistance-turned possible support, etched from the high 118.66, belonging to the monthly chart has buyers attempting to take hold. Technically, this places the daily timeframe’s long-term resistance zone at 110.94-110.29 in question and, therefore, may have buyers set up a defence around 108.60 lows if tested.

Short term:

The H4 scale currently trades in unison with the monthly timeframe: scope to approach at least supply at 110.85-110.46.

Lower down, any H1 buying must face a number of notable resistances until Quasimodo resistance at 110.41, which essentially marks the lower boundary of H4 supply.

Therefore, in light of the picture out of both monthly and H4 timeframes, any bearish attempts from the said H1 resistances could be short-lived and promote a bullish scenario to approximately 110.40ish.

GBP/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

The pendulum moved in favour of buyers following December’s 2.5 percent advance, stirring major trendline resistance (2.1161). February subsequently followed through to the upside (1.7 percent).

May, despite diminished volatility during March and April, traded firmly on the front foot, up by 2.8 percent. June, however, is somewhat depressed (down 0.7 percent), albeit recording fresh YTD peaks at 1.4250.

Despite the trendline breach (which could serve as support if retested), primary trend structure has faced lower since early 2008, unbroken (as of current price) until 1.4376 gives way (April high 2018).

Daily timeframe:

Technical structure unchanged from previous analysis.

Sterling against the dollar has emphasised an uneventful picture since May 18th, fluctuating between gains and losses south of Quasimodo resistance at 1.4250.

GBP/USD finished on the ropes for a second straight week amid raised concerns regarding a full reopening, placing support at 1.4003 within reach this week. Demand at 1.3857-1.3940—an important technical area where a decision was made to break above 1.4003 resistance—is also perhaps on the radar.

Trendline support, taken from the low 36.14 on the RSI, recently gave up position, with last week wrapping up within touching distance of the 50.00 centreline.

H4 timeframe:

Since mid-May, the H4 chart has been busy carving out a consolidation between 1.4096 and 1.4219. Interestingly, an additional consolidation pencilled in its presence at the beginning of June between 1.4188 and 1.4083. As you can see, the fact price left the larger upper range at 1.4219 unchallenged informs traders that sellers could be gaining muscle. To confirm this, of course, we would require a breakdown that not only conquers the lower edge of both consolidations (1.4096/1.4083), but also trendline support, drawn from the low 1.3668, consequently unmasking support at 1.4007.

H1 timeframe:

From June onwards, the theme on the H1 chart has been set around the 1.41 and 1.42 figures, along with the 100-period simple moving average, currently circling in between at 1.4146. Also, important areas to recognise are support at 1.4078 and resistance plotted at 1.4246. In fact, 1.4078 served as a substantial floor on Thursday, serving to help more informed traders capitalise on the stop run south of 1.41.

Price action failing to touch gloves with 1.42 since June 7th signals possible moves through 1.41 and support at 1.4078 this week, targeting Quasimodo support from 1.4026.

As you can see, the week ended forming a mild recovery from 1.41, confirmed by the RSI indicator bouncing from oversold space and chalking up what’s known as hidden bullish divergence (essentially signalling price strength despite momentum squeezing lower—these are usually seen as continuation patterns).

Observed levels:

Long term:

The monthly timeframe’s trendline resistance breach in December 2020 underlines a bullish stance. Before buyers change gears, however, touching gloves with support at 1.4003 or demand at 1.3857-1.3940 on the daily timeframe could be in the offing.

Short term:

Shorter term, nonetheless, the H4 timeframe’s ranging action (two clear consolidations exist at 1.4096/1.4219 and 1.4188/1.4083) calls attention to the recent jaded upside. Ultimately, to help validate weakened bulls, price must tunnel below the said range supports and neighbouring trendline support.

Given the H4 timeframe’s picture, 1.41 on the H and support from 1.4078 may deliver little early week and suffer a breach. Should this come to fruition, a 1.4078 break potentially drives moves to H1 Quasimodo support at 1.4026 and the key figure 1.40, which joins closely with daily support from 1.4003.

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The Weekly Wrap – Monetary Policy and Economic Data Accompanied Market Optimism

The Stats

It was a quieter week on the economic calendar, in the week ending 11th June.

A total of 45 stats were monitored, following 80 stats from the week prior.

Of the 45 stats, 23 came in ahead forecasts, with 19 economic indicators coming up short of forecasts. There were just 3 stats that were in line with forecasts in the week.

Looking at the numbers, 29 of the stats reflected an upward trend from previous figures. Of the remaining 16 stats, 15 reflected a deterioration from previous.

For the Greenback, economic data and market anticipation ahead of next week’s FOMC policy decision remained the key drivers. In the week ending 11th June, the Dollar Spot Index rose by 0.46% to 90.5550. In the previous week, the Dollar had risen by 0.12% to 90.136.

Out of the U.S

JOLT’s job openings and trade data were in focus early in the week.

The stats were skewed to the positive. In April openings jumped from 8.288m to 9.286m, with April’s trade deficit narrowing from $75.0bn to $68.9bn.

While the stats were market positive, there was limited impact on the Dollar and the broader markets.

The focus was on the weekly jobless claims and inflation figures due out on Thursday.

Also skewed to the positive, the annual core rate of inflation accelerated from 3.0% to 3.8%. Economists had forecast a pickup to 3.4%.

Core consumer prices and consumer prices continued to rise in the month of May and by more than had been expected.

Month-on-month, core consumer prices increased by 0.7% off the back of a 0.9% rise in April.

Initial jobless claim figures were also positive but perhaps not impressive enough to force the FED into action. In the week ending 4th June, initial jobless claims fell from a revised 405k to 376k. Economists had forecast a decline to 370k.

At the end of the week, prelim consumer sentiment figures wrapped things up.

In June, the Michigan Consumer Sentiment index climbed from 82.9 to 86.4. Economists had forecast a rise to 84.0.

In the equity markets, the Dow fell by 0.80%, while the NASDAQ and the S&P500 saw gains of 1.85% and 0.41% respectively.

Out of the UK

It was a relatively quiet week, GDP, manufacturing and industrial production, and trade data in focus.

The markets had to wait until Friday, however, for the numbers.

In April, the UK economy grew by 2.3% in the month, following 2.1% growth in March.

Trade data for April was also positive. The trade deficit narrowed from £11.71bn to £10.96bn, with the non-EU deficit narrowing from £6.55bn to £5.55bn.

While GDP numbers and trade data were positive, production figures disappointed.

Manufacturing production fell by 0.3% versus a forecasted 1.5% increase. Industrial production declined by 1.3% versus a forecasted 1.2% increase.

In the week, the Pound fell by 0.35% to end the week at $1.4107. In the week prior, the Pound had fallen by 0.22% to $1.4147.

The FTSE100 ended the week up by 0.92%, following a 0.66% rise from the previous week.

Out of the Eurozone

 

It was a busy 1st half of the week on the economic data front.

 

The German economy was in focus.

 

In April, German factory orders (-0.20%) and industrial production (-1.00%) unexpectedly fell, following solid gains from March.

 

A modest increase in Germany’s trade surplus also disappointed, falling short of forecasts.

 

Economic sentiment figures from Germany and the Eurozone were also skewed to the negative. Sentiment towards the German and the Eurozone economies weakened marginally in June.

The numbers were not enough to spook the markets ahead of Thursday’s ECB policy decision and press conference.

 

Providing support in the early part of the week were finalized 1st quarter GDP numbers for the Eurozone.

 

Quarter-on-quarter, the Eurozone economy contracted by a modest 0.3%, revised up from a prelim 0.6% contraction.

 

In the 2nd half of the week, the focus was on the ECB and the all-important press conference.

 

Upward revisions to growth and inflation for this year coupled raised the prospects of a possible nearer-term tapering. Talk of unwavering support through the coming months was therefore key. The ECB’s inflation forecasts also pointed to easing inflationary pressures in 2022 and 2023, which also pegged the EUR back.

For the week, the EUR fell by 0.48% to $1.2108. In the week prior, the EUR had fallen by 0.21% to $1.2167.

The DAX30 ended the week flat, while the CAC40 and the EuroStoxx600 rose by 1.30% and by 1.09% respectively.

For the Loonie

It was a quiet week. Economic data was limited to trade data for April, which was positive for the Loonie.

In April, Canada’s trade balance rose from a C$1.35bn deficit to a C$0.59bn surplus.

A further increase in crude oil prices was also Loonie positive.

The main event, however, was the BoC monetary policy decision on Wednesday.

In line with market expectations, the BoC stood pat on monetary policy. Following May’s more hawkish messaging, the BoC took a more cautious approach, avoiding a Loonie rally.

The key takeaway was that the BoC would continue to deliver extraordinary monetary policy support until the 2% inflation target was sustainably achieved.

In the week ending 11th June, the Loonie declined by 0.061% to C$1.2158. In the week prior, the Loonie had fallen by 0.07% to C$1.2084.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 11th June, the Aussie Dollar fell by 0.40% to $0.7708, with the Kiwi Dollar sliding by 1.16% to $0.7130.

For the Aussie Dollar

It was a quiet week. Business and consumer confidence figures were in focus, with the stats skewed to the negative.

In May, the NAB Business Confidence Index slipped from 23 points to 20 points. The modest decline had a limited impact on the Aussie Dollar.

For June, the Westpac Consumer Sentiment Index fell by a further 5.2%. In May, the index had fallen by 4.8%.

Concerns over the a 2-week lockdown in Melbourne weighed on sentiment in the month. Once more, the Aussie Dollar brushed aside the decline.

Market optimism towards the economic outlook and demand for commodities continued to provide support. A U.S Dollar rally from Friday left the Aussie Dollar in the red for the week.

For the Kiwi Dollar

It was also a quiet week.

Electronic card retail sales and Business PMI numbers were in focus.

In May, electronic card retail sales rose by a further 1.7%, following a 4.4% jump in April.

Also positive was an increase in the Business PMI from 58.4 to 58.6. While the headline figure was positive, a slide in the employment sub-index will have been a cause for concern. A marked increase in new orders, however, raises the prospects of a pickup in hiring in the coming months.

For the Japanese Yen

It was a busier week.

Early in the week, finalized 1st quarter GDP numbers were in focus. Upward revisions from prelim numbers were a positive for the Yen.

In the 1st quarter, the economy contracted by 1.0%, revised up from a prelim 1.3% contraction.

At the end of the week, manufacturing sector data disappointed but had a muted impact on the Yen.

For the 2nd quarter, the BSI Large Manufacturing Conditions Index fell from 1.6 to -1.4.

The Japanese Yen fell by 0.13% to ¥109.66 against the U.S Dollar. In the week prior, the Yen had risen by 0.30% to ¥109.52.

Out of China

Trade data and inflation figures were key areas of focus.

Weaker than expected exports tested support for riskier assets at the start of the week.

Exports were up 27.9% year-on-year, falling short of a forecasted 32.1%. In April, exports had been up by 32.3%.

On the inflation front, wholesale inflationary pressures built up further in May. The annual rate of wholesale inflation accelerated from 6.8% to 9.0%. Economists had forecast a pickup to 8.5%.

In the week ending 11th June, the Chinese Yuan fell by 0.05% to CNY6.3988. In the week prior, the Yuan had fallen by 0.42% to CNY6.3953.

The CSI300 and the Hang Seng ended the week down by 1.09% and by 0.26% respectively.

USD/JPY Weekly Price Forecast – Dollar Choppy Against Yen

The US dollar has gone back and forth during the course of the week, ultimately forming a bit of a neutral candlestick. At this point, the ¥109 level underneath would be an area of support as you can see, but even if we break down below there, I think there is plenty of support near the 200 week EMA, which is also coinciding with the 38.2% Fibonacci retracement level.

USD/JPY Video 14.05.21

In general, this is a market that I think continues to see a lot of choppy behavior regardless of what happens next, but the question here is whether or not we can build a little bit of momentum to finally take out the upside at the ¥111 level. If we can, then that could be the beginning of something rather large, but we are a long way away from doing that. Looking at this chart, you can also make a bit of an argument for a potential bullish flag forming, so we will have to wait and see how that turns out.

Keep in mind that the market is also heading into the summertime, which means that we might see very quiet trading. We certainly have seen that over the last couple of weeks, and we could possibly just settle into some type of range for the next couple of months. We will have to wait and see how this plays out, but essentially what I see here is a range between ¥111 on the outside, and the ¥108 level on the bottom. In other words, we are right about in the middle of it, so this is more or less a “50-50 shot” in either direction just waiting to happen.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Price Forecast – US Dollar Rallies Into the Weekend

The US dollar has rallied a bit during the trading session on Friday as we head into the weekend defending the channel. That being said, the market should continue to go higher, and therefore the market could very well go looking towards the ¥111 level eventually. I think we are going to continue to see the more of a grind higher, following this overall channel, as the summertime trading tends to be relatively quiet anyway. With that being the case, I look at dips as buying opportunities, essentially thinking that of the 50 day EMA is going to be a bit of a trendline.

USD/JPY Video 14.06.21

Even if we break down below the 50 day EMA, then the market probably goes looking towards the ¥108 level, which is where the 38.2% Fibonacci retracement level currently sits. Ultimately, the market is likely to see the 200 day EMA reach towards that area as well, so all of that being taken into account, I think we are still going to look at this as an opportunity to pick up value. However, if we were to break down below the 200 day EMA, then it is very likely that we will continue to see downward pressure, and it is only at that point that I would consider being a seller.

Keep in mind that the pair does tend to be very sensitive to risk appetite, so as long as markets are essentially “happy”, then the pair tends to rise as the Japanese yen is considered to be the ultimate “safety currency.” Keeping that in mind, it looks like we are simply going to grind higher, not only in this market but several other ones.

For a look at all of today’s economic events, check out our economic calendar.

Few FX Pairs Where We Are Still Waiting for a Breakout

First one is the GBPUSD pair, where the price is inside the flag formation, just below crucial long-term highs. Breakout to the upside, will give us a signal to buy.

The USDJPY pair is testing the lower line of the flag. Breakout should activate more sellers.

The EURGBP pair with a descending triangle pattern. Currently aiming its horizontal support.

The EURJPY pair testing the neckline of a big H&S pattern. That can result with a breakout.

The CHFJPY pair with a H&S pattern on a long-term resistance. Possibly an interesting trade for the sellers.

The AUDJPY pair is trying to break the upper line of the triangle but the first attempt looks bad. It is possible that a false breakout is happening right this moment.

The GBPJPY pair showing the beauty of price action. First two pennants and now very clean flag. Breakout to the upside can be a great buy signal.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Fundamental Daily Forecast – Weak Outlook as Fed Likely to Maintain Accommodative Policy

The Dollar/Yen is trading slightly higher early Friday after yesterday’s sell-off. The price action suggests investors may already be positioning themselves ahead of next week’s Federal Reserve monetary policy decisions.

Investors will likely be going into the Fed’s two-day meeting on June 15-16 with a bearish outlook for the U.S. Dollar after yesterday’s consumer inflation report showed that rising prices could be temporary since they were centered in areas impacted by the pandemic.

At 10:04 GMT, the USD/JPY is trading 109.525, up 0.202 or +0.19%.

US Consumer Inflation Recap

U.S. consumer prices (CPI) rose more than expected in May, according to government data. However, the surge in inflation looks to be temporary and should not push the Federal Reserve to tighten policy for now.

The CPI rose 5% in May on a year-over-year basis, the highest since the summer of 2008, when oil prices were skyrocketing. Excluding food and energy, core CPI rose 3.8% year over year, the highest pace since 1992. A third of the increase was attributed to a sharp 7.3% increase in used car and truck prices.

Although the jump in inflation was stronger than expected, the gains were centered in areas related to the pandemic. This plays into the Federal Reserve’s narrative that the rise in inflation is transitory and policymakers won’t feel pressure to tighten policy sooner-than-expected.

BOJ May Extend Pandemic-Aid Schemes to Support Fragile Recovery

The Bank of Japan is set to keep its money spigots wide open and may extend its pandemic-relief programs next week to support a fragile economic recovery, reinforcing expectations it will lag major counterparts in dialing back crisis-mode policies.

While extended state of emergency curbs to combat the coronavirus are weighing on consumption, BOJ policymakers have become cautiously optimistic on the outlook as exports remain solid, sources familiar with its thinking say.

With service industries still suffering from the pandemic, the BOJ may decide on an extension as early as next week’s rate review, the sources said.

But there is a chance the BOJ may put off the decision until next month to scrutinize its “tankan” business survey, due on July 1, or make tweaks to the programs to better target smaller firms in need of help, they said.

Daily Outlook

The focus now shifts to the Fed’s meeting next week, although traders now say there may not be much of a shift in rhetoric which has played down the need to taper stimulus.

At 14:00 GMT, traders will get the opportunity to react to the latest Preliminary University of Michigan Consumer Sentiment report. It is expected to come in at 84.1, up from 82.9.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Forex Technical Analysis – Weakens Under 109.223, Strengthens Over 109.634

The Dollar/Yen is inching higher early Friday as investors continue to digest yesterday’s U.S. consumer inflation report while looking ahead to next week’s two-day Federal Reserve monetary policy meeting.

The U.S. Consumer Price Index (CPI) rose 5% in May on a year-over-year basis, its highest level since the summer of 2008, but the surge in inflation looks to be temporary and should not push the Federal Reserve to tighten policy for now.

This assessment helped drive down U.S. Treasury yields, tightening the spread between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a less-attractive asset.

At 05:56 GMT, the USD/JPY is trading 109.421, up 0.098 or +0.09%.

Daily USD/JPY

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 109.192 will signal a resumption of the downtrend. A move through 110.329 will change the main trend to up.

A move through 109.192 will also turn 109.796 into a new secondary lower top. This will be a sign of increasing selling pressure.

The intermediate range is 110.966 to 107.479. The USD/JPY is currently trading inside its retracement zone at 109.223 to 109.634. Inside this range is a minor pivot at 109.445.

The short-term range is 107.479 to 110.329. If the downtrend continues then look for the selling to extend into its retracement zone at 108.904 to 108.568.

The long-term range is 108.230 to 107.154.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Friday is likely to be determined by trader reaction to the pivot at 109.445.

Bearish Scenario

A sustained move under 109.445 will indicate the presence of sellers. This could lead to a labored break with potential downside targets coming in at 109.223 and 109.192.

If 109.192 fails as support then look for the selling to possibly extend into the short-term retracement zone at 108.904 to 108.568.

Bullish Scenario

A sustained move over 109.445 will signal the presence of buyers. The first upside target is the Fibonacci level at 109.634. Since the main trend is down, sellers could come in on a test of this level.

Overcoming 109.634 could trigger a rally into Thursday’s high at 109.796. Taking out this level could extend the rally into the recent main top at 110.329.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data from the UK Puts the Pound in the Spotlight

Earlier in the Day:

It was a busier start to the day on the economic calendar this morning. The Kiwi Dollar and the Japanese Yen were in action in the early hours.

For the Kiwi Dollar

In May, the Business PMI increased from 58.3 to 58.6. According to the May survey,

  • The production sub-index climbed from 64.2 to 65.3, with the new orders sub-index rising from 61.0 to 63.7.
  • In May, the deliveries sub-index was also on the rise, while the employment sub-index slipped from 52.2 to 51.5. It was a second consecutive monthly decline and a 3rd decline in 5-months.

The Kiwi Dollar moved from $0.71940 to $0.71932 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.14% to $0.7192.

For the Japanese Yen

The BSI Large Manufacturing Conditions Index fell from 1.60 to -1.40 for the 2nd quarter. There was little market reaction in spite of the decline, with Japan’s manufacturing sector continuing to struggle.

The Japanese Yen moved from ¥109.383 to ¥109.377 upon release of the figures. Through the early hours, the Japanese Yen was down by 0.06% to ¥109.40 against the U.S Dollar.

Elsewhere

At the time of writing, the Aussie Dollar was down by 0.03% to $0.7752.

The Day Ahead

For the EUR

It’s another quiet day ahead on the economic data front. Finalized May inflation figures from Spain are due to later today.

We don’t expect the numbers to have a material impact on the EUR, however. Expect further reaction to the ECB press conference, however.

At the time of writing, the EUR was up by 0.12% to $1.2184.

For the Pound

It’s a busy day ahead on the economic calendar.

GDP, industrial and manufacturing production, and trade data for April are due out later this morning.

While the GDP and the manufacturing production figures will be the key drivers, expect continued interest in the trade data.

Away from the economic calendar, any further updates on the UK Government’s plans to full reopen will also be key.

On the monetary policy front, BoE Governor Bailey is also scheduled to speak.

At the time of writing, the Pound was down by 0.01% to $1.4176.

Across the Pond

It’s a quieter day ahead on the economic calendar. Prelim consumer sentiment figures for June will be in focus later today.

With little else for the markets to consider, expect sensitivity to the numbers.

Away from the economic calendar, chatter from the G7 Summit will also need monitoring.

At the time of writing, the Dollar Spot Index was down by 0.06% to 90.019.

For the Loonie

It’s another particularly quiet day ahead on the economic data front, with no major stats to consider.

The lack of stats will leave the Loonie in the hands of market risk sentiment and the IEA monthly report on the day.

At the time of writing, the Loonie was up by 0.05% to C$1.2090 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

June 11th 2021: DXY off Session Peaks After US Inflation Data; Eyes 90.00 Support

Charts: Trading View

EUR/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Following a three-month retracement, support at 1.1857-1.1352 made an entrance and inspired a bullish revival in April, up 2.4 percent at the close. May also extended recovery gains, trading higher by 1.7 percent. June, however, is off to a mildly rocky start, down 0.4 percent as of current trade.

April upside—alongside May’s optimism—throws light on the possibility of fresh 2021 peaks in the months ahead, followed by a test of ascending resistance (prior support [1.1641]).

Based on trend studies, the primary uptrend has been underway since price broke the 1.1714 high (Aug 2015) in July 2017. Additionally, price breached major trendline resistance, taken from the high 1.6038, in July 2020.

Daily timeframe:

Thursday, as you can see, wrapped up in the shape of a doji indecision candle. In light of the candle’s location on the chart (established within a mild range), this portrays a measure of caution in the market.

In terms of where we stand on the chart’s framework, Quasimodo resistance at 1.2278 remains in the light, while, as stated in recent writing, navigating deeper water from current price underlines dynamic support around 1.1985: the 200-day simple moving average.

Activity out of the RSI demonstrates the value attempting to hold on to support from 51.36, action following a deterioration from peaks fashioned just south of overbought status.

H4 timeframe:

In what was a somewhat choppy session—oscillating between gains and losses—EUR/USD ended the day mostly unchanged as the market digested upbeat US inflation data and ECB commentary.

From a technical standpoint, the currency pair remains languishing south of the 61.8% Fib retracement at 1.2206, which made an entrance on Wednesday.

For those who read previous analysis you may note that the aforesaid Fib represents a second take-profit target derived from the recently completed AB=CD formation off the 100% Fib projection at 1.2123 (arranged just south of a 61.8% Fib retracement at 1.2094).

Recent reports also highlighted additional areas to be watchful of on this timeframe: resistance at 1.2244 and demand coming in at 1.2044-1.2071, an area sharing chart space with a 1.618% Fib expansion at 1.2049.

H1 timeframe:

The bulk of yesterday’s movement occurred around the 100-period simple moving average at 1.2176.

This leaves resistance between 1.2211 and 1.22 on the table today (note the area houses the H4 timeframe’s 61.8% [AB=CD] Fib level at 1.2206), with a break perhaps unmasking two Quasimodo resistances at 1.2257 and 1.2241. Moves lower, on the other hand, throw light on 1.2132 support, followed by the psychological figure 1.21.

With regards to the RSI indicator, we are seeing the value explore space under the 50.00 centreline after flirting with peaks around 60.00ish.

Observed levels:

On the basis of short-term charts—H4 and H1—this market continues to echo a downward bias, largely as a result of the recent rejection from H1 and H4 resistances between 1.2211, 1.2206 and 1.22. As aired in Thursday’s technical briefing, this could mean a H1 close south of the 100-period simple moving average around 1.2176, with downside to perhaps hone in H1 support at 1.2132 and, with some oomph, maybe the 100% Fib projection at 1.2123 on the H4 and then the 1.21 figure.

AUD/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Since the beginning of 2021, buyers and sellers have been battling for position south of trendline resistance (prior support – 0.4776 low) and supply from 0.8303-0.8082. Should a bearish scenario unfold, support at 0.7394 is featured to the downside, with additional downside pressure targeting demand at 0.7029-0.6664 (prior supply).

Trend studies (despite the trendline resistance [1.0582] breach in July 2020) show the primary downtrend (since mid-2011) remains in play until breaking 0.8135 (January high [2018]).

Daily timeframe:

Technical structure unchanged from previous analysis.

The daily chart’s technical scenery is tedious.

Since April 20th—despite a fleeting whipsaw to a low of 0.7645—resistance at 0.7816 and support from 0.7699 continues to outline a defined range (yellow).

Support at 0.7563 remains in view as a potential objective should sellers take the wheel, deriving additional (dynamic) support from the 200-day simple moving average circling 0.7538. Above 0.7816, supply falls in around 0.8045-0.7985.

With respect to trend, we have been higher since the early months of 2020. However, we must take into account the currency pair has been mostly directionless since the beginning of 2021.

The RSI shows the value engaging the 50.00 centreline, following last week slicing to 40.00s. North of here, we have trendline resistance, drawn from the peak 79.74.

H4 timeframe:

The US dollar index (ticker: DXY) finished off best levels as recent US inflation data and ECB action failed to spark movement.

Technically, however, AUD/USD derived modest support from 0.7726—Monday’s session low. In the event the market maintains a bid, Quasimodo resistance from 0.7782 is in the offing. Space under 0.7726, on the other hand, could guide price action as far south as 0.7632-0.7653 demand.

H1 timeframe:

For those who read Thursday’s technical briefing you may recall the following (italics):

Made up of a 38.2% Fib retracement at 0.7720, a 1.272% Fib expansion at 0.7723, a 100% Fib projection at 0.7728 and the 100-period simple moving average around 0.7727, the 0.7720-0.7728 area welcomed price movement in recent hours and stirred a bullish vibe (note the hammer formation).

As you can see, the unit held its bid-on-dip scenario from 0.7720-0.7728 support on Thursday, scaling to a high of 0.7763 and highlighting supply at 0.7783-0.7771 (holds H4 Quasimodo resistance within at 0.7782, and is situated under 0.78 [H1]). Territory south of noted Fib structure draws attention to 0.77, a psychological base in the company of a 61.8% Fib retracement at 0.7692.

As for the RSI indicator, overbought space is plotted nearby, possessing obvious resistance from 72.21.

Observed levels:

Prime focus is on H1 supply at 0.7783-0.7771. Recognising the area shares space with H4 Quasimodo resistance at 0.7782, bearish activity could develop from this neighbourhood.

Bearish interest, however, may also want to consider the 0.78 figure. Not only is this a widely watched level, daily resistance is located nearby at 0.7816.

USD/JPY:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Following January’s bullish engulfing candle and February’s outperformance, March concluded up by 3.9 percent and cut through descending resistance, etched from the high 118.66.

Although April finished lower by 1.3 percent and snapped the three-month winning streak, May (+0.2 percent) held the breached descending resistance, echoing potential support for the month of June, currently trading higher by 0.2 percent.

Daily timeframe:

Technical structure largely unchanged from previous analysis.

Long-term resistance at 110.94-110.29 (posted under supply at 111.73-111.19) remains centre of attention on the daily timeframe, with downside flow targeting 108.60ish lows (green oval), followed by supply-turned demand at 107.58-106.85.

Trend studies, nevertheless, reveal the pair has been trending higher since the beginning of April. Subsequent months has witnessed a sizeable retracement, followed by an attempt to recapture higher levels.

The RSI is stationed under resistance at 57.00, yet currently challenging the 50.00 centreline. Should a break lower materialise, oversold might be in store, eyeing support at 28.19.

H4 timeframe:

Although demand at 109.02-109.20 motivated bullish activity at the beginning of the week, USD/JPY came under renewed pressure Thursday and has price loitering within a stone’s throw of the noted demand base. The key point to be mindful of is should we shake hands with this demand once more, trendline support, drawn from the low 107.48 intersects with the upper side of the demand and may trigger another bullish attempt.

Failure to hold the current demand, technical attention shifts to another layer of proven demand printed at 108.20-108.43.

H1 timeframe:

Following an earlier bull trap—movement in which price spiked to highs of 109.79 and deceived breakout bulls north of the previous higher high at 109.67—the technical pendulum swung in favour of sellers, with price toying with space a touch north of demand at 109.07-109.19 (set within H4 demand at 109.02-109.20), which is positioned within striking range of the 109 figure.

Information derived from the RSI informs traders that momentum is on the verge of entering oversold space, a zone between 0 and 30.00 which indicates extreme levels (gone too far in a particular direction according to the indicator) and a place where a reversal could emerge.

Observed levels:

The combination of the 109 figure, H1 demand at 109.07-109.19, H4 demand at 109.02-109.20, and H4 trendline support, extended from the low 107.48, could provide enough technical evidence to encourage a bullish reaction should the aforementioned area be tested today.

What’s also interesting is the H1 and H4 zones are supported by monthly action balancing off descending resistance-turned support.

GBP/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

The pendulum moved in favour of buyers following December’s 2.5 percent advance, stirring major trendline resistance (2.1161). February subsequently followed through to the upside (1.7 percent).

May, despite diminished volatility during March and April, traded firmly on the front foot, up by 2.8 percent. June, however, is somewhat depressed (down 0.2 percent), albeit recording fresh YTD peaks at 1.4250.

Despite the trendline breach (which could serve as support if retested), primary trend structure has faced lower since early 2008, unbroken (as of current price) until 1.4376 gives way (April high 2018).

Daily timeframe:

Technical structure unchanged from previous analysis.

Versus the US dollar, sterling ended Thursday on the front foot, following upbeat inflation data out of the US and recent ECB commentary.

Quasimodo resistance at 1.4250 and support at 1.4003 remain pivotal barriers on the daily chart.

Demand at 1.3857-1.3940—an important technical area where a decision was made to break above 1.4003 resistance—is also perhaps on the radar.

Interestingly, trend in this market has remained to the upside since March 2020.

Trendline support, taken from the low 36.14 on the RSI, gave up position last week with recent action cruising within range of the 50.00 centreline.

H4 timeframe:

Technical structure unchanged from previous analysis.

Since mid-May, the H4 chart has been busy carving out a consolidation between 1.4096 and 1.4219. In spite of a handful of whipsaws (fakeouts beyond range extremes are common), the range remains intact. As evident from the chart, Thursday, although whipsawing the lower side of the aforesaid range, produced an almost one-sided recovery to a high of 1.4178.

Technical structure above the consolidation has daily Quasimodo resistance from 1.4250 in place; below the range, the chart points to trendline support, drawn from the low 1.3668, and support priced in at 1.4007.

H1 timeframe:

Support from 1.4078 welcomed price movement on Thursday, following a rapid push through 1.41 bids. Subsequent action witnessed GBP/USD reclaim 1.41+ status and dethrone the 100-period simple moving average around 1.4148.

Despite mild selling, as we write, resistance could potentially form at 1.42, with a break uncovering additional resistance coming in at 1.4246.

The picture from the RSI shows the value nearing the oversold range, in particular resistance at 71.00ish.

Observed levels:

The 1.42 figure based on the H1, dovetailing closely with the upper side of the H4 range at 1.4219, forms potential resistance. The caveat, of course, is a possible whipsaw forming to test daily Quasimodo resistance at 1.4250.

With scope to pilot higher levels, an alternative short-term scenario to be mindful of is H1 retesting the 100-period simple moving average around 1.4148 and driving moves to 1.42.

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

USD/JPY Price Forecast – US Dollar Continues to Chop

The US dollar has gone back and forth against the Japanese yen, as we continue to see strength in general. That being the case, the market is likely to continue the overall up trending channel, as we have been chopping to the upside for a little bit now. With that being the case, I think we are going to go looking towards the ¥110 level, followed by the ¥110.50 level, and then the ¥111 level. Furthermore, the 50 day EMA underneath should also offer support as it has, almost acting like a bit of a trendline for this channel.

USD/JPY Video 11.06.21

Keep in mind that this pair does tend to move right along with interest rate differential between the two countries and of course risk appetite around the world. The Japanese yen is considered to be a major “safety currency”, so therefore it gets sold off in times of “risk on attitudes.” Obviously, the exact opposite is true, so if there is a lot of concern out there, then this pair does tend to roll over and go looking towards the downside. At this point, I look at the “bottom of the trend” at the ¥107.50 level where we have bounced from, and of course we have the 38.2% Fibonacci retracement level.

With that being said, I do think that it is more likely that we continue to see a “buy on the dip” attitude going forward, as the markets continue to see reasons to celebrate and by assets, perhaps in the simple fear of inflation eroding well. Ultimately, this is a market that I think is one that will simply continue the same action for the rest of the summer.

For a look at all of today’s economic events, check out our economic calendar.

Main Events of the Week!

Transitory versus sustained?

Headline and core prices are expected to jump to 4.7% and 3.5% respectively in the US CPI numbers with base effects being the primary reason for the surge higher. This should be the peak for US prices with the trend starting to come down in June, although some economists still believe they will remain elevated and above target through the rest of the year. But the Fed is in no rush to respond as it is happy to look through the spike in rising prices, especially as the latest US job figures provide a further excuse for its patient stance.

We’ve seen bond markets move already with yields falling steadily all week with the widely-watched US 10-year Treasury now trading below 1.5%, the first time since March. A bumper headline number to the topside of estimates is surely needed to arrest this fall, but bond markets are known to generally lead markets so it will be fascinating to see who is right later today.

USD/JPY has been tracking sideways this week in a narrow range around 109.50. A bumper CPI print would push the pair higher and challenge last week’s highs at 110.32/33 while support rests at the 50-day SMA at 109.10 near this week’s lows.

ECB meeting and taper talk

ECB officials have recently been talking down any mention of tapering bond buys in the emergency ECB programme but there are some expectations that there may be a small change in guidance. This would come in the statement with a shift from “significantly” to “moderately” higher than at the start of the year and see buying cut to €70bn/month versus the current rate of €80bn/month. If President Lagarde does not repeat this “taper on hold” message or there is a communication error, then the risks are skewed to a higher euro as market expectations are generally currently cautious.

EUR/USD has been treading water this week either side of 1.22. Any bullish talk from Lagarde will see the pair push higher towards end of May highs at 1.2266 with the January peak at 1.2349. Last Friday’s low at 1.2103 is support if the ECB gets out its very patient and vigilant card.

By Lukman Otunuga Research Analyst


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

The ECB Press Conference Puts the EUR in the Spotlight, with U.S Inflation also in Focus

Earlier in the Day:

It was a quiet start to the day on the economic calendar this morning. There were no material stats to provide the markets with direction early in the Asian session.

For the Majors

At the time of writing, the Aussie Dollar was down by 0.04% to $0.7728, with the Kiwi Dollar down by 0.14% to $0.7170.

Through the early hours, the Japanese Yen was flat at ¥109.63 against the U.S Dollar, while

The Day Ahead

For the EUR

It’s a quieter day ahead on the economic data front. French nonfarm payrolls for the 1st quarter are due out ahead of the European open.

We don’t expect too much influence from the numbers, with COVID-19 lockdown measures likely to have influenced.

Later in the day, the ECB will deliver it’s June monetary policy decision, which is the main event of the week.

With the markets expecting the ECB to stand pat on policy, any talk of tapering and the ECB’s outlook on inflation and the economic recovery will be key. Ahead of the meeting, the ECB doves had assured the markets that there would be no tapering to the asset purchasing program any time soon.

At the time of writing, the EUR was down by 0.02% to $1.2178.

For the Pound

It’s another quiet day ahead on the economic calendar. There are no material stats due out of the UK to provide the Pound with direction.

Near-term, the Pound remains torn between an optimistic economic outlook and concerns over new strains of the coronavirus.

At the time of writing, the Pound was down by 0.04% to $1.4112.

Across the Pond

It’s a busier day ahead on the economic calendar. May inflation and weekly jobless claims figures will be in focus.

Sensitivity to any marked pickup in inflationary pressures will likely spur demand for the Greenback. A marked fall in jobless claims would also add demand for the Dollar ahead of next week’s FOMC meeting. The willingness to begin discussing a tapering to the asset purchasing program coupled with positive stats would raise the prospects of a nearer-term move by the FED.

Away from the economic calendar, chatter from Capitol Hill will also need monitoring.

The Dollar Spot Index rose by 0.05% to end Wednesday at 90.120.

For the Loonie

It’s a particularly quiet day ahead on the economic data front, with no major stats to consider.

The lack of stats will leave the Loonie in the hands of crude oil prices and OPEC’s monthly report.

At the time of writing, the Loonie was down by 0.01% to C$1.2112 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

June 10th 2021: EUR/USD Flat as Attention Shifts to ECB Meeting

Charts: Trading View

EUR/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Following a three-month retracement, support at 1.1857-1.1352 made an entrance and inspired a bullish revival in April, up 2.4 percent at the close. May also extended recovery gains, trading higher by 1.7 percent. June, however, is off to a mildly rocky start, down 0.4 percent as of current trade.

April upside—alongside May’s optimism—throws light on the possibility of fresh 2021 peaks in the months ahead, followed by a test of ascending resistance (prior support [1.1641]).

Based on trend studies, the primary uptrend has been underway since price broke the 1.1714 high (Aug 2015) in July 2017. Additionally, price breached major trendline resistance, taken from the high 1.6038, in July 2020.

Daily timeframe:

Technical structure largely unchanged from previous analysis.

Ahead of today’s European Central Bank meeting and impending US inflation release, EUR/USD concluded Wednesday notably off session tops. This formed what many will recognise as a shooting start candlestick pattern—a bearish signal.

Technical structure on the daily chart remains fixed on Quasimodo resistance at 1.2278, while navigating deeper water from current price underlines dynamic support around 1.1985: the 200-day simple moving average.

Momentum studies, according to the RSI, reveals the value holding position north of support at 51.36. As long as the indicator maintains this position, momentum could head for overbought status.

H4 timeframe:

For those who have followed our recent technical briefings you may recall the following (italics):

Technically speaking, Tuesday’s retreat shaped just south of a 61.8% Fib retracement at 1.2206. Harmonic traders will note the aforesaid Fib represents a second take-profit target derived from the recently completed AB=CD formation off the 100% Fib projection at 1.2123 (arranged just south of a 61.8% Fib retracement at 1.2094).

As evident from the H4 chart, the 61.8% Fib retracement at 1.2206 made an entrance on Wednesday and effectively took out the second take-profit target from the AB=CD 1.2123 formation.

Areas to be mindful of going forward are resistance at 1.2244 and demand coming in at 1.2044-1.2071, an area sharing chart space with a 1.618% Fib expansion at 1.2049.

H1 timeframe:

In Wednesday’s technical briefing, the report highlighted the following (italics):

Against the backdrop of higher timeframe structure, the space between the 1.22 figure and resistance at 1.2211 on the H1 may still be of interest to lower timeframe traders, which houses the H4 timeframe’s 61.8% (AB=CD) Fib level at 1.2206.

As you can see, short-term action did indeed shake hands with the 1.2211/1.22 neighbourhood on Wednesday and withdrew to within reach of the 100-period simple moving average, currently circling around 1.2165. Support at 1.2132 could call for attention should sellers topple the aforementioned SMA today.

Helping to frame resistance yesterday, of course, was RSI resistance at 78.97, boasting historical significance since early 2021.

Observed levels:

Based on H4 and H1 charts, given both timeframes addressed resistance on Wednesday, short-term direction appears poised to explore lower levels. This could mean a H1 close south of the 100-period simple moving average around 1.2165, with subsequent downside to perhaps hone in H1 support at 1.2132.

AUD/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Since the beginning of 2021, buyers and sellers have been battling for position south of trendline resistance (prior support – 0.4776 low) and supply from 0.8303-0.8082. Should a bearish scenario unfold, support at 0.7394 is featured to the downside, with additional downside pressure targeting demand at 0.7029-0.6664 (prior supply).

Trend studies (despite the trendline resistance [1.0582] breach in July 2020) show the primary downtrend (since mid-2011) remains in play until breaking 0.8135 (January high [2018]).

Daily timeframe:

Technical structure unchanged from previous analysis.

Since April 20th—despite a fleeting whipsaw to a low of 0.7645—resistance at 0.7816 and support from 0.7699 continues to outline a defined range (yellow).

Support at 0.7563 remains in view as a potential objective should sellers take the wheel, deriving additional (dynamic) support from the 200-day simple moving average circling 0.7536. Above 0.7816, supply falls in around 0.8045-0.7985.

With respect to trend, we have been higher since the early months of 2020. However, we must take into account the currency pair has been mostly directionless since the beginning of 2021.

The RSI shows the value engaging the 50.00 centreline, following last week slicing to 40.00s.

H4 timeframe:

The Australian dollar tunnelled lower against a ‘recovering’ USD (US dollar index: ticker DXY) on Wednesday. This led the currency pair to challenge 0.7726—Monday’s session low—which, if a breach comes to pass could guide price action as far south as 0.7632-0.7653 demand.

A 0.7726 recovery, on the other hand, throws light on Quasimodo resistance from 0.7782.

H1 timeframe:

Made up of a 38.2% Fib retracement at 0.7720, a 1.272% Fib expansion at 0.7723, a 100% Fib projection at 0.7728 and the 100-period simple moving average around 0.7727, the 0.7720-0.7728 area welcomed price movement in recent hours and stirred a bullish vibe (note the hammer formation).

Although sellers made a show and we’re now back at the aforementioned support, upside objectives rest at the 38.2% and 61.8% Fib retracement levels at 0.7740 and 0.7750, respectively. Harmonic traders will note these targets are derived from the AB=CD (the 100% Fib projection).

Territory south of the noted Fib structure draws attention to 0.77, a psychological base in the company of a 61.8% Fib retracement at 0.7692.

In terms of where we stand on the RSI, the value registered 40.00 on Wednesday. Knowing we’re plotting space south of the 50.00 centreline—breaking beneath this level suggests weakening upside—oversold territory could be on the cards, targeting support at 19.30.

Observed levels:

Up till now, upside strength echoes a fragile tone off H1 Fib support from 0.7720-0.7728. Moving through the latter today opens the door to a short-term bearish theme, with initial targets arranged around the 0.77 figure and nearby 61.8% Fib retracement at 0.7692. Below here, sellers may also take aim at H1 demand from 0.7634-0.7649, housed within the walls of H4 demand at 0.7632-0.7653.

However, to reach 0.7632-0.7653 involves pushing through the lower side of the daily timeframe’s consolidation at 0.7699.

USD/JPY:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Following January’s bullish engulfing candle and February’s outperformance, March concluded up by 3.9 percent and cut through descending resistance, etched from the high 118.66.

Although April finished lower by 1.3 percent and snapped the three-month winning streak, May (+0.2 percent) held the breached descending resistance, echoing potential support for the month of June, currently trading higher by 0.1 percent.

Daily timeframe:

Technical structure largely unchanged from previous analysis.

Long-term resistance at 110.94-110.29 (posted under supply at 111.73-111.19) remains centre of attention on the daily timeframe, with downside flow targeting 108.60ish lows (green oval), followed by supply-turned demand at 107.58-106.85.

Trend studies reveal the pair has been trending higher since the beginning of 2021.

The RSI remains stationed under resistance at 57.00, though recently rebounded from the 50.00 centreline. Should a break lower materialise, oversold might be in store, eyeing support at 28.19.

H4 timeframe:

For those who’ve been following recent technical reports you may recall the following (italics):

Limited change was observed on Tuesday, though bulls did manage to maintain position north of demand at 109.02-109.20, which, as underlined in previous writing, represents a decision point to initially push above 109.71 tops. Also technically notable is trendline support, drawn from the low 107.48, intersecting with the noted demand base.

Assuming the market remains bid, supply is seen fixed just north of tops (110.33—last Thursday’s peak) at 110.85-110.46, which happens to house a 100% Fib projection at 110.59 and a 1.618% Fib expansion at 110.69.

With USD/JPY eking out modest upside on Wednesday, this reinforces a bullish wind today, targeting the above noted resistance structures.

H1 timeframe:

It was noted in Wednesday’s technical briefing that short-term direction was potentially bound for the 100-period simple moving average around 109.60ish. This followed Monday’s recovery from demand at 109.07-109.19—set within H4 demand at 109.02-109.20.

Going forward, H1 price taking on the said SMA today unlocks the trapdoor to possible follow-through buying towards resistance at 109.95 and the 110 figure.

With reference to the RSI, the value is within a stone’s throw from touching gloves with overbought, following yesterday driving through the 50.00 centreline.

Observed levels:

H1 and H4 demand areas standing ground (109.07-109.19 and 109.02-109.20), in conjunction with monthly action balancing off descending resistance-turned support, brings to light a potential bullish scene above the 100-period simple moving average on the H1 scale around 109.60, targeting 110 (H1).

GBP/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

The pendulum swung in favour of buyers following December’s 2.5 percent advance, stirring major trendline resistance (2.1161). February subsequently followed through to the upside (1.7 percent).

May, despite diminished volatility during March and April, traded firmly on the front foot, up by 2.8 percent. June, however, is somewhat depressed (down 0.7 percent), albeit recording fresh YTD peaks at 1.4250.

Despite the trendline breach (which could serve as support if retested), primary trend structure has faced lower since early 2008, unbroken (as of current price) until 1.4376 gives way (April high 2018).

Daily timeframe:

Technical structure unchanged from previous analysis.

Quasimodo resistance at 1.4250 and support at 1.4003 remain pivotal barriers on the daily chart.

Demand at 1.3857-1.3940—an important technical area where a decision was made to break above 1.4003 resistance—is also perhaps on the radar.

Interestingly, trend in this market has remained to the upside since March 2020.

Trendline support, taken from the low 36.14 on the RSI, gave up position last week and recently witnessed the value cruise towards the 50.00 centreline.

H4 timeframe:

Technical structure unchanged from previous analysis.

Since mid-May, the H4 chart has been busy carving out a consolidation between 1.4096 and 1.4219. In spite of a handful of whipsaws (fakeouts beyond range extremes are common), the range remains intact.

Technical structure above the current consolidation has daily Quasimodo resistance from 1.4250 in place; below the range, the chart points to trendline support, drawn from the low 1.3668, and support priced in at 1.4007.

H1 timeframe:

Technical structure unchanged from previous analysis.

Aside from short-term fluctuations developing around the 100-period simple moving average at 1.4146 this week, focus, as noted in previous reports, remains on the 1.42 and 1.41 figures (the latter joins with a 61.8% Fib), echoing a similar picture to the H4 (see above).

Outside of these levels, emphasis is on support at 1.4078 and resistance formed from 1.4246.

The RSI, however, is trekking just ahead of oversold territory.

Observed levels:

Technical structure unchanged from previous analysis.

Aside from the monthly and daily timeframes showing us price trades near 2021 highs at 1.4250, immediate technical structure on these timeframes is limited for the time being. Despite this, traders are urged to keep an eye on daily Quasimodo resistance at 1.4250 and daily support at 1.4003.

The H4 timeframe’s range between 1.4096 and 1.4219 is likely still on the radar for medium-term traders, looking to fade range extremes. This will see H1 traders hone in on the 1.41/42 figures.

It’s also worth pointing out the technical convergence existing between H4 support at 1.4007 and the key figure 1.40 on the H1 (below current structure—not visible on the screen). The 1.40 zone could actually prove a solid platform to help facilitate a fakeout through H4 trendline support seen just above it around 1.4030ish.

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

USD/JPY Price Forecast – US Dollar Continues to Build Base for Next Move Higher

The US dollar has pulled back ever so slightly during the trading session on Wednesday but as you can see there is support underneath that could come into play rather quickly, in the form of the ¥109 level. Furthermore, we also have the uptrend line from the channel that we have been in for a while, and then of course the 50 day EMA after that. With all that being said, it is very likely that there should be buyers jumping in to push this even higher. However, keep in mind that the market is highly sensitive to the risk appetite in general, as the pair does tend to move higher and lower right along with it.

USD/JPY Video 10.06.21

If we break down below the 50 day EMA, then it is likely that we could go down to the ¥108 level, which is where the 30.2% Fibonacci retracement level sits and of course the bounce that recently happened. By the time we get down there, it is very likely that we could see the 200 day EMA come into the picture as well, so I believe in the short term that is essentially the “major floor” in the market.

To the upside, the ¥111 level is a ceiling that people should be paying close attention to and therefore it should be a bit of a target. That being said, it is not very likely that this is an easy move and therefore it is likely that we would see a lot of choppy behavior but with an upward tilt more than anything else.

For a look at all of today’s economic events, check out our economic calendar.

Without Yield Support, the Dollar Wilts

The JP Morgan Emerging Market Currency Index is edging higher for the fourth consecutive session. The lower yields are not doing equities much good today. Outside of China, the large equity markets in the region fell, and the MSCI Asia Pacific Index is posting back-to-back losses. The three-day rally in Europe’s Dow Jones Stoxx 600 is at risk as most sectors, but health care and real estate, are losing ground. Financials are the largest drag.

US future indices are a little changed to slightly firmer. Oil and other industrial commodities are firmer, and the CRB Index closed yesterday at new six-year highs. Gold is unable to benefit from the weaker dollar and lower interest rates. The upside momentum that had carried it briefly above $1900 fizzled.

Asia Pacific

China reported a smaller than expected rise in last month’s consumer prices but a larger rise in producer prices. Falling food prices helped temper the rise in consumer prices to 1.3% rather than 1.6% that the median in Bloomberg’s survey projected. The decline in pork prices helped keep food prices in check, while non-food prices rose by 0.9%. Producer price inflation accelerated to 9.0% from 6.8%. The median forecast was 8.5%. Oil, metals, and chemicals were the drivers. Beijing is trying to finesse lower producer prices by cracking down on unauthorized activity, but it does not appear sufficient.

Reports suggest it is considering some sort of cap on thermal coal prices before peak summer demand. One proposal would cap the price to the miners, while another proposal was to limit the price at the port. Still, the discussion shows that Chinese officials are still reluctant to allow supply/demand to adjust prices. If thermal coal prices or other commodities are not allowed to move freely, is Beijing really prepared to allow the yuan to be convertible as some are suggesting could take place with the introduction of a digital yuan?

The Reserve Bank of Australia did not adjust policy last week, but comments today suggest it may join the queue of central banks adjusting their stance as the inoculations are gradually allowing some return to normalcy. Former RBA member Edwards said that the RBA would likely scale back its QE next month, which others, including ourselves, had suggested was possible.

The RBA’s Assistant Governor Kent admitted he has been surprised by the strength of the rebound and is optimistic about growth fueling wage increases and inflation. Currently, the RBA targets the April 2024 bond at 10 bp. It is to decide next month whether to switch it to the November 2024 maturity. Targeting the 3-year yield at the cash rate is a way to underscore the lack of intent to raise rates in the interim.

The dollar is trapped in almost a 20-pip range against the yen today in the upper end of this week’s range. It has not been above JPY109.65 so far this week nor below about JPY109.20. There are about $1.2 bln in options in the JPY109.00-JPY109.10 area that roll-off today. The benchmark three-month implied volatility reached almost 5.53% yesterday, its lowest level since February 2020. The Australian dollar is steady, trading inside yesterday’s range, which was inside Monday’s range (~$0.7725-$0.7765). Like the dollar-yen, the Aussie is also in a 20-tick range so far today.

The Chinese yuan rose today, recouping the losses seen in the past two sessions. The dollar reached CNY6.4120 at the end of last week but has consistently recorded lower highs and lower lows this week. The PBOC’s reference rate for the dollar was set at CNY6.3956, spot on expectations. It is beginning to look as if official intent is more about breaking the one-way market that had appeared to develop and stabilize the yuan rather than reverse it. Whether defending a set line, which some have suggested at CNY6.35 or not, still has to be seen.

Europe

The ink G7 finance minister agreement on the minimum corporate tax is hardly even dry, and the first exception is being sought. The UK (and apparently the EU) want to exclude financial services from the new global tax regime. Separately, the US and the EU will have a rapprochement that will resolve the two outstanding disputes: The goal is to resolve the Boeing/Airbus subsidy issue by July 11 and end the steel and aluminum tariffs imposed by the Trump administration on national security grounds by the end of the year. The US has protested but will not escalate the sanctions for the Nord Stream 2 pipeline, and the tax reform would see European countries drop their digital tax initiatives.

Meanwhile, Europe is gradually taking a harder line against China. The EU Parliament is not proceeding with the ratification of the EU-China trade agreement struck at the end of last year. Italy, which was the only G7 country to sign on to the Belt Road Initiative, has blocked Chinese acquisitions under Prime Minister Draghi. Europe has endorsed the US call for new efforts to find the origins of Covid-19, even though the origins are unnecessary to combat virus and protocols to tighten security as labs during such work are necessary regardless of the precise origin.

Germany reported a 15.5 bln euro trade surplus in April, down from 20.2 bln in March. Exports growth slowed to 0.3% after a 1.3% gain previously. Imports fell by 1.7%, more than expected after the March series was revised to show a 7.1% gain (initially 6.5%). The smaller trade surplus translates into a smaller current account surplus (21.3 bln euros vs. 30.0 bln in March).

Unlike what we saw yesterday with the Japanese trade and current account figures, the German current account is driven by the trade balance. In Japan, the current account surplus is driven by foreign earnings, interest, royalties, and licensing fees, not trade in goods and services.

The euro is firm, but it too is trading inside yesterday’s range, which is inside Monday’s range (~$1.2145-$1.2200). There is an option for about 1.14 bln euros at $1.22 that expires today. The market is also circumspect ahead of tomorrow’s ECB meeting, for which a consensus has emerged that it will not return its bond-buying to that which prevailed before March.

We caution that knowing the ECB’s bond-buying plans does not help trade the euro or European rates, both of which have risen since the ECB accelerated its buying. Sterling, too is range-bound with last Friday’s range (~$1.4085-$1.4200). The general consolidative tone looks set to continue.

America

The Bank of Canada meeting is the highlight of the North American session today. At its last meeting in April, it announced it would slow its bond purchases and brought forward the closing of the output gap into H2 22. Since then, Canada has reported back-to-back job losses. The Canadian dollar has appreciated by almost 3.4% since that April meeting. It is the strongest of the major currencies. A decision on whether to proceed with tapering is expected at next month’s meeting, not today.

Yesterday, Canada reported an unexpected trade surplus for April. Exports and imports fell, with motor vehicle trade disrupted by the line shutdowns due to the shortage of semiconductors. Canada’s energy trade balance was in surplus by about C$6.8 bln, while the non-energy balance was in deficit by about C$6.2 bln. Canada had a C$6.4 bln surplus with the US and a C$2.2 bln deficit with China.

The US reports wholesale inventory data today ahead of tomorrow’s May CPI. The focus, however, is shifting to next week’s FOMC meeting. Yesterday, the US sold $58 bln 3-year notes. Although the high yield slipped fractionally, the bid cover ticked up, as did indirect bids. Today, the Treasury sells $38 bln 10-year notes and tomorrow $24 bln 30-year bonds.

Tomorrow’s four and eight-week bill auctions may draw more attention than usual as the earlier bill auctions showed a little uptick as the market anticipates that the Fed may have to tweak the interest it pays on reserves or the zero rate on the reverse repos (demand reached a new record of almost $500 bln yesterday). Separately, the US Senate passed (68-22) the bill to boost US competitiveness, which has some elements that were in the infrastructure bill. The bill now gets taken up by the House.

Mexico reports May CPI figures today. The year-over-year pace is expected to pull back from the 6.08% pace seen in April but not sufficiently to change anything. Moreover, the core rate is expected to quicken a little. Through April, Mexico’s core rate has risen by almost 5% at an annualized rate. The market appears to lean toward a rate hike by the end of the year and as much as four hikes by the middle of 2022. Brazil reports its IPCA inflation today as well.

The year-over-year pace is expected to have accelerated to nearly 8% from about 6.75% in April. The central bank has already indicated it will raise rates next week by 75 bp, the third such move of the year. It would lift the Selic rate above Mexico’s cash target rate after having begun the year at half of it.

A little position squaring yesterday lifted the US dollar to almost CAD1.2120, but it has come back offered today and traded CAD1.2085 in the European morning. This week’s low so far is about CAD1.2055. Key technical support is seen at CAD1.20, while CAD1.2145 marks the upper end of the recent range.

The Mexican peso is rising for the fourth consecutive session, the longest rally in two months. The greenback finished last week near MXN19.96 and is testing MXN19.62 now, its lowest level in five months. The next area of chart support is seen near MXN19.50. The US dollar is also on its 2021 lows against the Brazilian real. It has not been below BRL5.0 since last June.

This article was written by Marc Chandler, MarctoMarket.

Dollar Teeters as Inflation Test Looms

By Tom Westbrook

Investors have piled up bets against the dollar, but are growing nervous about whether the beginning of the end of enormous monetary stimulus is nigh – and worry that interest rate rises could end a 15-month dollar downtrend. [MKTS/GLOB]

Some think tapering could be hastened, and the dollar boosted, if U.S. inflation runs hotter than the 0.4% monthly clip that economists expect. For the ECB, the focus is on any signs of an imminent slowdown to its bond buying programme.

Both are due on Thursday and the anticipation has all but killed volatility in major currencies, as traders assume a wait-and-see stance. The euro was steady at $1.2179 in the Asia session, while the dollar held at 109.47 yen.

Deutsche Bank’s Currency Volatility Index hit its lowest level since February 2020 on Tuesday. The U.S. dollar index was parked at 90.090.

“Markets need reassurance that the global economic recovery isn’t under threat from either dangerous strains of COVID, or from the Fed being forced to change tack (on stimulus) much earlier than expected,” said Societe Generale currency strategist Kit Juckes.

“So far, the vaccines appear to work and while distribution is uneven … it’s still accelerating overall,” he said.

“That’s cause for hope. For markets though, it means that risk assets need regular reassurance that the Fed isn’t going to tighten sooner than expected. And so, we wait for Thursday’s CPI data, then next week’s FOMC.”

The Australian and New Zealand dollars were firmly entrenched in narrow bands, with the Aussie at $0.7741, roughly the middle of the past two months’ range, and the kiwi travelling likewise at $0.7197. [AUD/]

Sterling has also stalled as doubt has crept in over whether rising cases of the coronavirus’ Delta variant in Britain could delay business reopening plans scheduled for June 21. It last bought $1.4155. [GBP/]

BOC, ECB, CPI

Leading in to the U.S. inflation figures, Chinese producer price data for May showed the biggest jump in a dozen years – signalling that factories are not absorbing higher raw material costs and that price pressure is flowing down supply chains.

Canadian dollar traders were also on edge ahead of a central bank meeting on Wednesday. The bank is expected to leave rates on hold but flag further tapering of asset purchases, with any surprises on the size or speed liable to boost the loonie.

However, the week’s major focus is on inflation, and the ECB and traders see both events bringing risks on all sides.

“U.S. economists are expecting a 0.4% month-on-month rise in both the headline and the core inflation numbers – they’re big numbers,” said Commonwealth Bank of Australia currency strategist Joe Capurso.

“I think the risk is they fall short of that,” he said. That could pull down U.S. yields and bring the dollar with them, Capurso added, unless the figure spooked stock markets enough to drive safe-haven flows into the dollar.

The ECB is expected to keep policy settings steady, but the euro is likely to be sensitive to changes in the bank’s economic forecasts or any signal that the pace of bond buying could be reduced in months ahead.

Elsewhere, China’s yuan was steady around the 6.4 per dollar level on Wednesday, as a bill aimed at competing with China cleared the U.S. Senate, damping yuan bulls’ recent enthusiasm.

Bitcoin recovered from a three-week low it hit on Tuesday when signs of institutional investor caution and regulatory attention drove selling. It last bought $32,754.

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Currency bid prices at 444 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.2179 $1.2173 +0.05% -0.32% +1.2185 +1.2172

Dollar/Yen 109.4650 109.4650 +0.03% +6.01% +109.5000 +109.4150

Euro/Yen 133.32 133.28 +0.03% +5.04% +133.3600 +133.2100

Dollar/Swiss 0.8965 0.8969 -0.04% +1.33% +0.8970 +0.8963

Sterling/Dollar 1.4155 1.4153 +0.07% +3.66% +1.4168 +1.4148

Dollar/Canadian 1.2108 1.2116 -0.05% -4.90% +1.2117 +1.2103

Aussie/Dollar 0.7739 0.7737 +0.03% +0.61% +0.7744 +0.7734

NZ 0.7199 0.7194 +0.08% +0.25% +0.7203 +0.7189

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook; Editing by Kenneth Maxwell)