New York Forex Report: Markets Ranging Ahead of NFP’s

New York Forex Report: Markets Ranging Ahead of NFP’s

New York Forex Report: Major currencies are mixed against the USD. Trading remains relatively quiet as markets await key US data and focus on geo-political risks (G20 meeting, North Korea, Qatar). Today’s trends are suggestive of some mixed emotions in markets generally, with European and Asian equities mostly lower while developed market bonds retreat and sharply so in Europe where core 10Y bond yields have risen 5-6bps after a disappointing French auction. Energy prices are firmer but precious and base metals are mostly weaker. The AUD and NZD are under-performing in a somewhat risk-off environment, with the AUD failing to benefit from better than expected trade data as sentiment remains coloured by the RBA recent, neutral-sounding comments.

USD The Fed minutes for the June meeting showed almost all policymakers supporting a rate hike at that meeting. Several policymakers wanted to announce start of balance-sheet trimming within a ‘couple of months’ while others wanted to wait until later in 2017. Several policymakers felt the reduction in the balance sheet and associated policy tightening “was one basis for believing that…the target range for the federal funds rate would follow a less steep path than it otherwise would.” Some others, however, said the shedding of bonds should not figure heavily in deciding monetary policy. Most policymakers viewed recent softness in inflation data has having little bearing on inflation trend. Several policymakers were concerned recent softness in inflation might persist due to limited pass-through from resource utilisation.

EUR ECB policy maker Coeure said discussion for a change in monetary policy may come but ‘hasn’t happened yet’. He added that market volatility over the past week is not significant. Also, some steepening at long end of curve reflects views that growth will be solid. The EUR has dropped for a third straight session edging lower in the Wednesday session. German and Eurozone Services PMIs in June both beat their estimates, but were weaker than the May reports. Today the ECB will release the minutes of its most recent meeting.

GBP The Purchasing Managers’ Index came in at 54.8 in June, down from 56 in May and lower than the 55 City of London analysts had estimated. Last week GBP was boosted by hawkish comments from BOE Governor Mark Carney. He said that the BOE would have to consider removing monetary stimulus and the markets jumped on his comments as a possible sign that he was not adamantly opposed to rate hikes. Although there are renewed fears that Brexit will take a toll on the British economy, inflation is running close to 3%, well above the BoE’s target of 2% target. A rate increase would help lower inflation, but Carney, who has voiced concerns about Brexit’s negative ramifications since the vote last June, had been solidly against a rate increase.

JPY BOJ Core CPI edged up to 0.3%, matching the forecast. An improved global economy has translated into stronger demand for Japanese products, boosting Japan’s manufacturing and export sectors. However consumer spending and inflation remain static. Japanese retail sales slowed to just 2.0% in May, compared to 3.2% in April. The weak figure points to a Japanese consumer who is pessimistic about the economy and hesitant to spend. Wages have been stagnant, which has hampered consumer spending. Inflation is stuck below 1%, well below the BOJ’s target of 2%. Tokyo Core CPI, the primary gauge of consumer inflation, edged down to 0.0%, below the estimate of 0.2%. The index has posted just one gain in the past 18 months, underscoring that despite the BOJ’s ultra-loose monetary policy, inflation levels remain well below the bank’s target.

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

Technical: 1-3 Day View – 1.1430 containing the advance for now as 1.1300/30 supports bulls target 1.1530 as the next upside objective, a daily close below 1.1290 concerns the near term bullish bias and open a test of 1.11

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: Sidelines

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

Technical: 1-3 Day View – As 1.2940/20 supports on an intraday basis 1.3048 is the next upside objective, ahead of the pivotal 1.3238 Only a closing breach of 1.2810 concerns the near term bullish bias.

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

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 112.80/60, only below 111.80 would arrest the near term advance and return to 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: Bearish
Trading Take-away: Long

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

Technical: 1-3 Day View – Bullish expansion from consolidation targets 129.44 as the primary upside objective, support moves to 127.40/20, only below 126.80 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 the weekly breach of this level opens 129.44 as the broader upside objective.
Retail Sentiment: Bearish
Trading Take-away: Long

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