London Forex Report: Disappointment in US PMI services, coupled with softer PMI manufacturing reading released earlier in the week were sufficient to stir uneasiness in the markets over prospects of improving growth in 2Q and even beyond. Trailing the fate of PMI manufacturing, preliminary reading of PMI services in the US staged a surprised pull back to 51.2 in May with understandably soft details as expectations index fell to its lowest since Oct-09. Despite the uneven US data – weak manufacturing, soft services, firm retail sales and job market, Fed officials remained optimistic over prospects of further policy normalization this year. Fed Kaplan also echoed its colleagues’ view for two rate hikes this year although he begged to differ from some that uncertainty over Brexit could delay the Fed decision. USD Index softened slightly and took a directional turn south from its two month high as traders took profit after the rally driven by increased expectation of a June rate hike. USD Index closed lower at 95.35.
FX Majors: EUR ECB policymakers are echoing for governments to coordinate their economic strategies to shore up the region’s recovery prospects. French central bank chief Francois Villeroy commented that “monetary policy cannot be a substitute for economic policy coordination or the lack of reforms. One point of discussion that was previously raised whether a lack of economic reform by government is seen as disinflationary. Villeroy also added that there is a need for stronger governance of the euro area, as he opines that the Eurozone cannot afford another missed opportunity and will need to act swiftly without losing the long term view.. GBP S&P warns that the GBP may potentially lose its reserve currency status should Brexit becomes an eventuality. A vote to leave the European Union on June 23 may dethrone the GBP and may even threaten the nation’s AAA credit rating, warns S&P. JPY Japanese Finance Minister Taro Aso said on Wednesday he told his G7 counterparts at a finance leaders’ meeting last week that his country will proceed with a scheduled sales tax hike next year as raising the sales tax is a very important factor in maintaining trust in Japan’s finances.
EUR/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish
Technical: Prior support at 1.1180 now becomes resistance while this area contains upside reactions, bears target symmetry support at 1.1065, a breack of 1.1180 opens 1.1240 as the next resistance level only over 1.13 eases immediate downside bias.
Retail Sentiment: Bullish
Trading Take-away: Short
GBP/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Technical: As 1.4660 prior resistance now acts as support expect a test of 1.4770. Only a failure at 1.4530/50 support threatens near term bullish bias
Retail Sentiment: Bearish
Trading Take-away: Long
USD/JPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Technical: Retest of offers at 110.60/90 see sellers emerge, the subsequent failure at 109.50 opens a move to retest bids back towards 107.50, a close over 111.90 eases immediate bearish bias. Current price action suggest the move from 105.50 is the first leg of a larger correction.
Retail Sentiment: Bearish
Trading Take-away: Long
EUR/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Technical: Bears now target weekly symmetry objective at 120.60. Intraday resistance at 124.20 only a close above 126.80 eases immediate downside pressure.
Retail Sentiment: Neutral
Trading Take-away: Neutral
Commodities FX: Gold fell to a seven-week low on Wednesday after upbeat US home sales data in the previous session boosted expectations that the Fed will press ahead with interest rate hikes in the summer. Oil moved higher after the US government reported a larger-than-expected drop in crude stocks. The US Energy Information Administration said crude inventories fell 4.2mn barrels in the week to 20 May. While the decline was steeper than the 2.5mn barrels expected, it was not as much as the 5.1mn expected by trade group American Petroleum Institute. AUD hovered near three-month lows yesterday on falling iron ore prices and speculation that the Reserve Bank of Australia (RBA) will ease policy further. RBA Governor Glenn Stevens commented on Tuesday on uncertainties over the economic transition in China, Australia biggest export market, weighed on the Aussie. CAD strengthened against the USD after the Bank of Canada’s statement was less dovish than some investors had expected. The Bank of Canada kept interest rates on hold at 0.50 percent, saying the economy would shrink in the second quarter because of the recent wildfires in Alberta.
AUD/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Technical: .7240/60 support erased now becomes resistance as bears target .7050 as the next downside objective. Only a close over .7400 eases immediate downside pressure.
Retail Sentiment: Bullish
Trading Take-away: Short
USD/CAD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish
Technical: While 1.2940 symmetry swing supports bulls target offers at 1.3210 as the next upside extension target. Only a close below 1.2760 eases immediate bullish pressure.
Retail Sentiment: Neutral
Trading Take-away: Neutral
XAU/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish
Technical: The medium term bullish bias is under assault with the close below symmetry support at 1230. While 1240 acts as intraday resistance 1207 is the next downside objective ahead of 1190.
Retail Sentiment: Bullish
Trading Take-away: Sidelines
US OIL
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Technical: As 46.70 supports 50.00 becomes the material upside objective, with a symmetry swing target sited at 50.51 ahead of the larger AB=CD swing objective at 51.07, only a close below 43.00 threatens bullish bias.
Retail Sentiment: Bearish
Trading Take-away: Sidelines
