New York Forex Report: Draghi Dents Dollar

New York Forex Report: Draghi Dents Dollar

New York Forex Report: The USD is trading a little softer overall, mostly reflecting the strength in the EUR following comments from ECB President Draghi. Draghi sounded confident at the central bank’s forum in Portugal, noting that that factors dampening inflation were temporary and that deflationary forces had been replaced by inflationary ones. He noted that inflation was not yet durable and self-sustaining and that a considerable degree of monetary policy stimulus was still required to support the ECB’s objectives, however, there is nothing new in these remarks but traders chose to focus on the more positive aspects of the speech, lifting EUR. Crude oil and gold prices are firmer while copper is modestly softer. In essence, the USD remains range bound as the flow of news has been rather limited and traders probably have the month/quarter/half year end in mind as well as the long weekend in North America. There is some event risk on the calendar today in the form of US data (house prices data, consumer confidence data and the Richmond Fed Manufacturing index) as well as Fed speakers, including Chair Yellen (see calendar for details); a positive message from the chair, reiterating the Fed’s base case (i.e. one more rate hike this year) may provide the USD with some support given the market’s reluctance to buy into the idea that the Fed will tighten again before year end.

USD Topline durable goods orders for May fell 1.1% MoM, below expectations (Consensus: -0.6%), driven by a sharp 3.4% decline in transportation equipment orders. The prior month was revised down to a 0.9% decline from a 0.8% decline. Excluding volatile transportation components, durable goods orders were mixed, increasing only moderately by 0.1% (Consensus: 0.4%), after a 0.5% decline in the previous month. Core capital goods shipments, a concurrent indicator of manufacturing activity and a component for GDP accounting, fell 0.2% after a modest increase of 0.1%. While month to month fluctuations can be somewhat volatile, recent weak readings in this measure increase the risk of seeing a less of a boost from business investment in Q2.

EUR Germany’s IFO rose to a new all-time high during June, reaching 115.1 from 114.6 (consensus 114.5). The recent fall in oil prices and hopes for an income tax cut saw sentiment among the wholesale and retail trade sectors improve, while lower political risk saw manufacturing sentiment gain ground also. The ECB’s Weidmann repeated his generally hawkish perspective on monetary policy. He said that the ECB should exit from the very loose monetary policy if economic growth and inflation developed as expected. He added that the decision should hinge on price stability considerations alone and that “finance ministers have to cope with rising financing costs of public budgets” when the ECB exits.

GBP U.K Prime Minister Theresa May struck a deal with the Democratic Unionist Party (DUP) on Monday to continue governing after 17 days of discussions. In a confidence-andsupply agreement, the DUP “will support the Conservative government on votes on the Queen’s Speech, the budget, and legislation relating to Brexit and national security”, in return for extra funding for Northern Ireland.

JPY The BoJ published its “Summary of Opinions” from the June 15-16 meeting. They collate the individual opinions of the various members of the board without revealing who said what. The market had wondered ahead of the meeting whether the economic assessment would be revised higher but one member offered an explanation for the lack of change. It was noted that “it is necessary to confirm that a positive output gap has been taking hold while examining various economic indicators”. Separately, another member noted that JGB purchases will become more difficult next year and that the pace should be reduced to 45tn from 80tn.

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

Technical: 1-3 Day View – As 1.1225 contains upside corrections expect a test of equidistant swing and channel support sited at 1.1040. Over 1.1235 delays downside attempts and retains the range environment 1.11/1.13

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 – 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: Neutral
Trading Take-away: Neutral

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

Technical: 1-3 Day View – The daily closing breach of 111.80 level resets focus on upside objectives principally 114.35, near term support is now sited at 110.90, only below 110.30 would arrest the advance and maintain broader 110/112 range..

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 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: Neutral
Trading Take-away: Neutral

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