New York Forex Report: Sterling Stabilises

New York Forex Report: Sterling Stabilises

New York Forex Report: Today’s CPI inflation is the first of a number of UK economic data releases this week that will highlight the Bank of England’s policy dilemma. May inflation remains well above target. In contrast, later this week labour market and retail sales statistics are forecast to show only modest wage growth despite an apparently tight labour market and a marked slide in spending. It is perhaps hardly surprising given these conflicting signals that the majority of the Bank’s Monetary Policy Committee continue to vote for no change in policy. Maybe the minutes of this Thursday’s meeting will shed some more light on this dilemma. In the Eurozone, the German ZEW survey readings came in on the soft side missing expectations. In the US, the June FOMC meeting begins today, delivering it’s outcome tomorrow night. Ahead of that the May PPI will provide an update on inflationary pressures.

USD The U.S. Federal Reserve will host the Federal Open Market Committee (FOMC) meeting on June 13 and 14 with release of the monetary policy statement on Wednesday, June 14. The Fed is highly anticipated to hike rates by 25 basis points for the second time this year, to a 100– 125 basis points for the Fed funds rate. Fed Chair Janet Yellen will take part in a press conference later in the afternoon to give more details on the central bank’s decision on the rates.

EUR With expectations of a more hawkish ECB emerging dashed last week, Eurozone-US short-term rate differentials have widened again, the 2Y spread reaching -207bps, with the 10Y gap wider by 1-2bps this morning at -195bps. Yield gaps this wide remain a significant restraint on the EUR, or at least they should be. EUR resilience in the face of wide spreads suggests a significant deterioration in the market’s broader perception of USD risks in recent weeks, likely reflecting US political developments. Note IMM data Friday showed speculative investors building the biggest net long EUR position since 2011.

GBP , in the aftermath of the UK elections the Bank of England (BOE) is unlikely to make a drastic change. The BOE will publish its monetary policy summary and minutes of its policy meeting on Thursday. The conservative party called a snap election to further solidify its majority and instead it is now forced into a partnership with Northern Ireland’s Democratic Unionist party (DUP) to form a majority. The Bank of England will have to wait until there is more clarity on Brexit negotiation before it can raise rates

JPY Japan’s machine tool orders increased 24.40% YoY in May after advancing 34.70% YoY in April. Tool orders remained robust last month despite slower growth compared to April’s reading as both domestic and foreign demand got a boost from brighter global economic outlook. Machine orders, on the contrary, declined 3.10% MoM in April followed a 1.40% MoM increase in March amid the cutbacks by non- manufacturers. Adding to signs to broad base economic recovery, producers’ prices hovered at a two and a half year high of 2.10% YoY in May.

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): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – Retest of 1.2639 post election low survives for now as 1.27 caps corrections bears target symmetry swing support sited at 1.2450, over 1.2770 arrest near term selling pressure

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): 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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