New York Forex Report: Dollar Divergence

New York Forex Report: Dollar Divergence

New York Forex Report: GBP was the major under performer yesterday, rejecting the 1.3125 resistance area, before collapsing in the aftermath of the CPI miss (actual: 2.6%, consensus: 2.9%). Divergence in daily momentum had warned of the downside risk in GBPUSD and, to a degree, this materialised yesterday. The divergence between price and momentum is actually developing into a broader theme. In a number of developed market currencies, recent rallies to new highs against the USD do not appear to be supported by momentum studies. Historically, this has been a warning sign of a potentially imminent pullback. As highlighted, it has been evident in GBPUSD already, and we are now also watching EURUSD, USDCHF, and NZDUSD, all of which are displaying similar technical setups. Today, there were no top tier releases from the European session, US housing starts and building permits are due, with the latter expected to rebound in June (after surprisingly weak figures in May). Ahead of the ECB and busy calendar tomorrow, these are unlikely to create too much excitement. It is also worth noting that the Bank of Japan meets in the early hours of Thursday morning,policy is expected to be left unchanged.

USD US Treasuries were higher on Tuesday as markets grew cautious about the latest political drama in Washington around healthcare legislation, with weak economic data adding to the uncertainty about the pace of future interest rate hikes by the Federal Reserve. Weak inflation was again evident in Tuesday’s economic data, which showed U.S. import prices falling for a second straight month in June as the cost of petroleum products declined further.

EUR ZEW survey expectations saw readings moderated to 35.6 versus a prior level of 37.7. ZEW survey expectations which is somewhat a gauge for direction of economic activities, may be pointing towards more moderate growth prospects for the Eurozone going into the 3Q. All eyes on ECB policy decision meeting this week, as market players will be focusing closely on the ECB rhetoric for further clarity on potential tapering measures.

GBP Inflationary pressure moderated for the UK economy, with latest level easing to 2.6%, which was the first drop since October. (Market consensus: 2.9%). Easing inflation outlook may take pressure off for BOE in terms of near term monetary policy direction, Signs are suggesting that economic growth for the UK economy may potentially cool as consumers start to rein in on spending. The next BOE rate decision is scheduled on Aug 3. Recall officials voted 5-3 to keep rates on hold last month, with recent interest emerging on the battle lines on whether to stifle rising inflation.

JPY mid-performer in an environment of broad-based USD weakness, finding support from narrowed interest rate differentials on the back of a decline in U.S. Treasury yields. Domestic risk appears limited into Thursday’s BoJ and market participants remain focused on the potential for a downward adjustment to the central bank’s inflation forecast.

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

Technical: 1-3 Day View – As 1.1490/70 supports near term the next upside objective is the pivotal 1.1591 equidistant swing objective ahead of 1.1616, only a daily close below 1.1330 concerns the near term bullish bias setting a top for a test of 1.1280/60

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

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

Technical: 1-3 Day View – 1.3048 achieved as 1.3030 supports on a near term basis bulls target pivotal 1.3238, only a daily closing breach of 1.2810 concerns the near term bullish bias.

1-3 Week View – The weekly close above 1.3045 targets the broader symmetry swing objective sited at 1.3238 only a close back below 1.28 would jeopardise the bullish advance
Retail Sentiment: Bearish
Trading Take-away: Long

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

Technical: 1-3 Day View – Upside objective 114.35 achieved, profit taking pull back extends and threatens broader correction on a breach of 112.10 delaying the bullish target at 115.50 and opening a move back towards 109.

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

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

Technical: 1-3 Day View – Failure below 129.30 concerns bullish bias and delays the target 133.36, only below 126.80 negates the medium term bullish bias. Bulls will look to 128 to terminate the correction.

1-3 Week View – The weekly close above 118.50 arrested the immediate downside risk, 129.44 upside objective achieves as 128 supports bulls look for a move to test 133.36 as the broader upside objective.
Retail Sentiment: Bearish
Trading Take-away: Long

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