London Forex Report: Italian Bank Bailout

London Forex Report: Italian Bank Bailout

London Forex Report: News over the weekend about the Italian government EUR 17bn rescue package (immediate EUR 5bn injection + EUR12bn guarantees) to shore up failing Veneto Banca and Banca Popolare di Vicenza should have a very limited negative impact on EUR (as was the case during 4Q16 Italian banking woes).

USD ended last week on the defensive but still within the week’s generally tight trading range. The dearth of major economic data kept most of the move in the dollar confined to the earlier part of the week following hawkish comments from the influential New York Federal Reserve President, who largely agreed with the bank’s call from last week that a rebound in inflation this year would likely result in the need for another hike in interest rates. Fed voting member Bullard was his usual dovish self, arguing that current FOMC projections for a 3.0% fed funds rate over the next two and half years are “unnecessarily aggressive” and “inappropriate” but the market completely ignored him.

EUR The euro rose to the week’s high against the dollar on Friday, despite the latest round of data showing the 19-member bloc’s economy shifted to a slightly lower gear in the end of Q2. Germany’s composite PMI fell from 57.4 to 56.1 while the broader euro zone PMI slipped from 56.9 to 55.7 in May. The cooling of the PMI’s and evidence that firms cut prices again in June could further alleviate some pressure off the ECB to begin reducing monetary stimulus sooner rather than later.

GBP British PM Theresa May is trying to improvise to form a majority government. She has not reached an agreement with the DUP to enter the government, so her political future remains insecure. May attended an EU summit in Brussels on Thursday, and briefed the Europeans on how Britain plans to treat EU citizens living in the UK after Brexit. Theresa May made a “fair and serious offer” to European Union leaders over the contentious issue of the future rights of EU citizens, offering those who arrive lawfully before Brexit the chance to build up the same rights to work, healthcare and benefits as UK citizens. Formal negotiations between the UK and the EU began this week, and both sides agreed that the first round of talks was held in a constructive atmosphere

JPY A busy Japanese calendar will be topped by June’s CPI report, retail sales and the nation’s unemployment rate. While important, the data may once again take a backseat to broader moves in global financial markets and to the overall state of investor risk appetite.

Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – The near term downside objective sited at 1.1125 symmetry swing support has been achieved expect profit taking pause as 1.12 contains upside corrections expect a test of equidistant swing and channel support sited at 1.1040. Over 1.12 again delays downside attempts and retains the range environment.

1-3 Week View – While 1.0830 supports 114.30 becomes the primary upside objective. A weekly close over 1.1450 sets upside focus on 1.1876. Weekly close below 1.08 neutralises bullish objectives
Retail Sentiment: Bearish
Trading Take-away: Long

Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – 1.2450 is the downside objective as symmetry swing resistance sited at 1.2770 contains upside reactions, only over 1.2780 arrests bearish pressure opening pivotal 1.2820

1-3 Week View – The weekly failure to close above 1.3045 ahead of the broader symmetry swing objective sited at 1.3238 suggest underlying weakness persists 1.2450 becomes pivotal for the medium term perspective
Retail Sentiment: Bearish
Trading Take-away: Sidelines

Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – A daily closing breach of 111.80 level would reset focus on upside objectives principally 113.78, near term support is now sited at 110.80, only below 110.30 would arrest the advance.

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Neutral
Trading Take-away: Neutral

Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Neutral

Technical: 1-3 Day View – Bullish consolidation targets 129.44 as the medium term upside objective, near term upside objective of 126.84 as 123.90 supports, only below 122 concerns near term bullish bias, opening a move to test 121.36.

1-3 Week View – The weekly close above 118.50 arrested the immediate downside risk, resetting focus on pivotal 124.40 a weekly breach of this level opens 129.44 as the broader upside objective
Retail Sentiment: Bearish
Trading Take-away: Sidelines

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