Tech Targets: EUR/USD, GBP/USD, USD/JPY, AUD/USD, NZD/USD – UOB

EUR/USD: Neutral (since 29 May 17, 1.1180): In a 1.1120/1.1220 range.

EUR eased off quickly after touching a high of 1.1219 yesterday. The immediate outlook remains mixed and the current neutral phase has been intact for close to one month now. At this stage, there is no early indication that this pair is about to embark on a sustained directional move. However, a break out of the expected 1.1120/1.1220 consolidation range should provide additional clue. 

GBP/USD: Neutral (since 26 Jun 17, 1.2720): In a 1.2640/1.2820 range.

GBP moved into neutral phase late last week when 1.2720 was taken out. The current movement is viewed as part of a neutral consolidation phase and we expect this pair to trade sideways within a broad 1.2640/1.2820 range for now. 

AUD/USD: Neutral (since 21 Jun 17, 0.7580): In a 0.7525/0.7630 range.

There is not much to add as AUD is still clearly in a consolidation phase. The recent short-term downward bias has eased and from here, this pair is expected to trade sideways between 0.7525 and 0.7630.

NZD/USD: Neutral (since 16 Jun 17, 0.7205): In a higher range of 0.7230/0.7350.

NZD has been rather resilient, moving above the strong 0.7275 resistance to hit a high of 0.7311 yesterday. That said, we are not convinced that this pair is ready to re-enter a bullish phase. However, an intraday move above the recent high of 0.7320 is not ruled out but a sustained up-move is unlikely. Overall, this pair is expected to trade at these higher levels, likely between 0.7230/0.7350.

USD/JPY: The strong rally in USD is accompanied by strong upward momentum and appears incomplete.

Further up-move is expected but 112.10 is a strong resistance and may not be easy to break. That said, a break of this level could lead to a rapid rise to 112.50. Support is at 111.55 but only a move back below 111.35 would indicate that a temporary top is in place.

Source: United Overseas Bank Global Economics & Markets Research

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Preview: US: Consumer Price Index

Preview: US: Consumer Price Index

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BIS Report Shows The Way Forward For Central Banks: Sell EUR/USD – Credit Agricole

Credit Agricole CIB FX Strategy Research comments on the BIS annual report released over the weekend.

In particular, CACIB notes that in the report the BIS has encouraged the major central banks to use every opportunity from here to cautiously normalize policy, and this will give the likes of the Fed a room to manoeuvre in the event of renewed economic downturn.

In other words, CACIB notes that the BIS report has corroborated a different direction for the Fed and the ECB going forwards.

“The Fed in particular will continue to normalise policy in part because it wants to amass rate hikes which can be used to fight the next recession…Things are bound to look somewhat different for the ECB. Indeed, different from the Fed, the ECB is still facing an economy with a significant output gap and uneven and potentially rather shallow recovery,” CACIB argues

The above would suggest that the ECB will continue to sound relatively dovish for now if only because it tries to avoid a premature and unwarranted tightening in the financial conditions (eg EUR appreciation) ahead of the still to be announced QE-taper, which we expect next year,“ CACIB adds. 

All up, CACIB argues that a key take from the BIS report points at growing downside risks for EUR/USD in the near term

Source: Credit Agricole CIB Research

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EUR/CHF: Long Standing Undervaluation To Be Corrected Over Time; Where To Target? – Danske

Danske Bank FX Strategy Research argues that with an ECB exit from negative rates still not in the cards, the SNB could be forced to sell CHF still.

“As we do not think the ECB is rushing for the exit, it will take some time for this long-standing undervaluation in EUR/CHF to be corrected but the imminent down pressure should be gone for now,” Danske argues. 

In line with this view, Danske sees the cross at 1.09 in 1-month, before rising towards 1.10, 1.12, and 1.15, in 3, 6, and 12 month respectively

Source: Danske Bank Research

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AUD, NZD: Buy-On-Dip Opportunity May Emerge Amid Yield Advantage – Citi

Citi Research notes that historically, worse than expected US data may be reduced in the 2H, which may limit USD downtrend.

USD may range trade in the short term. Thus, AUD and NZD adjustment may bring buy-on-dip opportunities,” Citi argues. 

“We expect Australia-US 10 year government bond spread may widen from 22bps to 70bps while NZ-US may widen from 58bps to 85bps. The yield advantage may support AUD and NZD at lows,” Citi adds.

AUD/USD is trading circa 0.7583 and NZD/USD 0.7283 is trading circa as of writing. 

Source: Citi Research

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Can EUR/USD break above 1.13 after Draghi? Levels

Draghi began talking about QE tapering, sending EUR/USD 70 pips to the upside and above resistance at 1.1230. After repeated attempts to break above 1.13 failed, can euro/dollar make the move? A lot depends on his counterpart on the other side of the Atlantic.

1.13 was the swing high around the US elections in November. Earlier in June, the pair pushed higher, stopping at 1.1260 and then at 1.1284. After

After US inflation dropped sharply, the pair hit a high of 1.1295. But on the same day, June 14th, the Fed raised rates, and Janet Yellen sounded optimistic about the economy.

And Yellen could hold the keys to the move: she speaks later today at 17:00 GMT. The Fed Chair could acknowledge the weakness in US inflation, thus providing a double-whammy for the pair.

Most recent US data has been weak: durable goods orders fell more than expected. Her colleagues are quite split: some are worried about low inflation while others such as Dudley are more optimistic.

EUR/USD levels

After topping the cap of 1.1230, which was resistance in the narrow range, there are no more limits until 1.13. Above 1.13, we are already at levels last seen last year: 1.1360 and 1.1420.

Should Yellen go hawkish, 1.1230 is immediate support, followed by 1.1160 and 1.11.

All in all, the 1.11 to 1.13 wide range characterizes the pair’s trading after the uptrend stalled. Is it time for a break to the upside?

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Draghi begins the taper talk – EUR/USD jumps

The President of the ECB gives a keynote speech in Sintra, Portugal and sounds more optimistic about the recovery.

EUR/USD rises in range, reaching 1.1215. Update, EUR/USD has reached 1.1240.

Among the key points:

  • Growth is firming in the euro-zone
  • Inflation is more muted than one would expect given growth
  • Adjusting policy parameters will need to be gradual – at least he is talking about tapering
  • Our steps have helped loans
  • Spending has been rising while indebtedness has been falling
  • This is a sign of a good recovery
  • ECB needs persistence in monetary policy.
  • We can look through supply-driven lower oil prices.
  • Lower oil and food prices are behind the downgrade of our inflation forecasts.
  • Falling import prices explain the lower core inflation.
  • Changes in commodity prices feed into products used with high energy intensity and also services.
  • This shows us that core inflation does not always give us a full picture.
  • Global factors impact the path of inflation
  • As the recovery broadens, the supply of labor is rising too.
  • We also see evidence that labor supply is more elastic due to immigration, in places like Germany.
  • The participation rate rose by 1.5% while it is falling in the US.
  • Past reforms have also fed through
  • The level of underemployment fell as well.

more coming

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Crude is cornered, but where is CAD? – MM #149

Oil prices are falling and OPEC is worried. What’s the story? We reveal some interesting details. And with the fall of oil, why is the Canadian dollar so strong? We discuss crude and CAD before previewing the last week of June.

You are welcome to listen, subscribe, provide feedback and pledge support on Patreon[1].

  1. Crude crumble: The price of oil tumbled down and over-supply is the main culprit. We show that it is not the only factor responsible for the spill, analysing all the factors behind the crash.
  2. Canadian courage: The Canadian dollar did lose some ground on the price of oil, but it is only a small correction in comparison to the uptrend. What factors move oil prices? We examine.
  3. Preview: Things are warming up after a quiet week: a speech by Janet Yellen, final US GDP data and durable goods orders are all spread out as the first half of 2017 draws to an end.

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Trade safely!

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Will Yellen hit the dollar?

The US dollar is slightly weaker, struggling after another weak figure: durable goods orders[1]. Yet the big event is still ahead: a speech by Fed Chair Janet Yellen.

So far, Yellen has been quite hawkish[2]. Not only did the Fed raise rates, but they also expressed optimism on growth and jobs. More importantly, the FOMC and especially Yellen dismissed lower inflation. It is due to one-off factors according to the central bank.

Her stance was echoed by Bill Dudley, No. 3 at the Fed. He was known as a dove and expressed, even more, optimism than the Fed Chair[3].

However, other Fed officials have cast doubts about the direction of inflation. Kashakri dissented, but he is a known dove. Evans is also in the dovish camp, but his comments about Amazon pushing prices lower were quite telling. And Harker, a known hawk, even considered waiting with the move to reduce the balance sheet.

Yellen makes a key speech

It is now time for No. 1 at the Fed to speak up. We haven’t heard from her since the post-rate decision speech. She now goes to the British Academy in London and will speak her mind, at 17:00 GMT.

Will she acknowledge that inflation is not going anywhere fast? On Friday, the US releases the Fed’s favorite inflation figure, the Core PCE Price Index for May. We already know it will be weaker than the previous month, given the release of the Core CPI[4]. Yellen may already have the data.

And what about other factors? The data published since the Fed decision has not been looking that great.

Will she express worries? If so, the greenback could fall.

Yet if she repeats the “transitory nature” of lower inflation, there is room for recovery.

What do you think?

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EUR/USD could reach 1.15 in Q3 – ING

EUR/USD is stuck in a range for many long days. What’s next? Here is the view from ING:

Here is their view, courtesy of eFXnews:

ING FX Strategy Research notes that the news over the weekend about the Italian government EUR 17bn rescue package to shore up failing Veneto Banca and Banca Popolare di Vicenza should have a very limited negative impact on EUR.

“With investors well aware of this risk, the ECB floating a credible threat to do “whatever it takes” to save the euro and EUR looking meaningfully undervalued, the bar for a risk premium driven EUR decline is set very high at this stage.

ING holds a baseline view that Bund yields break higher in 3Q17, carrying EUR/USD to 1.15.

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