New York Forex Report: Dots To Decide Dollar Direction

New York Forex Report: Dots To Decide Dollar Direction

New York Forex Report: Markets are in positive mood ahead of the FOMC meeting; global stocks are (mostly) firmer and commodity FX is out-performing (AUD, NZD and CAD) while safe haven (CHF and JPY) returns have lagged on the session, leaving the USD mixed overall. Global bonds are mixed to firmer, however, and commodity prices reflect weakness in energy and base metals so the good vibes are not being felt universally ahead of the FOMC meeting and a expected increase in the Fed Funds target rate by 25bps. It’s more about what the Fed says than what it does, however, with a 1/4 point tightening virtually fully priced in at this point. Fed Funds futures suggest that market conviction regarding the course of monetary policy beyond today is much murkier, with market pricing clearly equivocal on the Fed delivering on what many FOMC members have characterised as a “base case” third rate increase this year. A “dovish hike”, a rate increase with an accompanying statement or shift in the dots that dampens prospects for a tightening in H2, is liable to put the USD under a little more pressure. US CPI and retail sales provide an interesting “curtain raiser” for the Fed decision today but may not prompt that much movement in the USD.

USD Survey from NFIB showed that small business optimism in the US hovered around its cyclical high and near levels last seen since 2004. The survey index remained unchanged at 104.5 in May and underlying details suggest that small business owners were willing to offer higher wages amid rising demand, underscoring tighter labor market as economic activities gathered steam. Ahead of the release of CPI print today, factory gate inflation rose at a softer pace of 2.40% YoY in May (April: 2.50% YoY)

EUR Brexit’s negotiation did little to dampen sentiment in the euro area as ZEW survey expectation index climbed to a two-year high of 37.7 in June (May: 35.1). In France, President Macron’s La Republique en Marche made big gains in the first round of parliamentary elections on Sunday while in Italy, the anti-establishment 5-Start Movement suffered setbacks in municipal elections. The focus today is on a likely U.S Fed rate rise. However, this is widely expected and with traders looking towards the prospect of the ECB scaling back monetary easing, immediate dollar gains are being considered somewhat limited.

GBP Consumer inflation in the UK surged 2.90% YoY in May (April: +2.70% YoY), increasing at its quickest pace since June 2013 amid a weak Sterling. Posting further evidence of upside risks to inflation, producers’ prices hovered around a five year high, rising 3.60% YoY last month for a third straight month.

JPY Japanese data painted the picture of subdued growth going into the second quarter of the year as spending remained modest. All industry index, a gauge of broad economic sentiment, slipped to -2.0 in the second quarter (1Q: 1.3) which was the worst reading in four quarters. Manufacturing index tumbled to -2.9 in the second quarter followed a reading of 1.1 in the previous quarter.

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

Technical: 1-3 Day View – Breach of 1.12 from above reaffirms range trade delaying attempts at equidistant swing objective of 1.1291 en-route to a test of broader symmetry swing objective at 114.30. As 1.1220 caps upside near term downside objective is sited at 1.1125 symmetry swing support.

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): Bearish

Technical: 1-3 Day View – Retest of 1.2639 post election low survives and the subsequent short squeeze is testing pivotal resistance at 1.2785 ahead of symmetry swing resistance sited at 1.2842

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: Long

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

Technical: 1-3 Day View – Near term as 110.30 contains upside reactions 108 will be a key downside objective. Over 110.50 opens 111 symmetry swing resistance a closing breach of this level would reset focus on upside objectives.

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): Bullish – 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 equidistant swing objective, only below 122 concerns near term bullish bias.

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: Neutral
Trading Take-away: Neutral

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