Will ECB Refrain From Additional Easing?

ECB is likely to refrain from any additional easing in the coming months. On Monday, Bloomberg News reported that the ECB will probably refrain from any new stimulus measures in coming months whilst the Central Bank reviews lenders’ balance sheets, according to two unidentified ECB officials. Policy makers could act again before the bank review if a shock to the economy causes the inflation outlook to worsen, one of the two officials added. Officials also said that the effect of any ECB measures could be reduced by the reluctance of the banks to increase lending during the assessment. EUR/USD moved higher to find our resistance bar at 1.3587. However, I believe is a matter of time before we see the pair below 1.3500 mainly due to the divergence in policy between the ECB and the Fed, and due to the new role of euro as a funding currency.

Overnight the Reserve Bank of Australia published the minutes of its latest policy meeting. Australian policy makers expressed concern that low interest rates may not offset a drop in mining investment. They also repeated that the current accommodative stance of policy is likely to be appropriate for some time and that GDP growth is expected to be below trend over the next year or so. Policy makers also maintained their view that AUD remains high by historical standards, given the further decline in commodity prices over the past month. The minutes revealed a more dovish tone from the RBA, and if another interest rate move is possible in the next six months, it is more likely to be a cut rather than a raise, in my view.

Positive data out from the US were offset on Monday, after the International Monetary Fund (IMF) cut its growth forecast for the US economy this year. The move from IMF came less than a week after the World Bank reduced its US growth forecasts for 2014. Lagarde said that the cut was linked to the economy’s contraction in Q1, attributed mainly to the harsh winter. However the announcement did not had a major impact on USD.

The Russian Ruble depreciated and the MICEX index fell as OAO Gazprom slumped on concerns that the gas producer won’t be paid for supplies to Ukraine after talks on energy prices failed. Russia cut gas supplies to Ukraine’s pipeline network after the talks broke down and said that the country will only receive gas when it is paid in advance due to “chronic non-payment” of its bills.

During the European day, the main event will be the German ZEW survey for June. The current situation index is forecast to have remain unchanged at 62.1, while the expectations index is expected to have risen to 35.0 from 33.1 the previous month. Last month, the EUR/USD weakened approximately 20 pips after the expectations index declined. It would be interesting to see if a rise in the index could cause a similar move in the opposite direction.

In the UK, the CPI is forecast to have slowed to +1.7% yoy in May from +1.8% yoy in April, while the nation’s PPI for the same period is forecast to have accelerated to +0.7% yoy from +0.6% yoy. I don’t believe that a slowdown in UK’s CPI could boost expectations that the BoE will hold rates low for longer, especially after Governor’s Carney comments on Thursday.

From the US, we get the headline CPI as well as the core inflation rate (excluding food and energy). Both rates are expected to have remained unchanged in May at 2.0% yoy and 1.8% yoy respectively. Both the housing starts and building permits are forecast to have declined in May. Tuesday also marks the beginning of the two day FOMC meeting which ends on Wednesday.

We have two speakers on Tuesday’s schedule. ECB Governing Council Member Ewald Nowotny takes part in a panel discussion in Vienna and Norway’s central bank Governor Oeystein Olsen speaks in Oslo.

The Market

EUR/USD finds resistance at 1.3587

The EUR/USD moved higher on Monday, but the advance was halted by the 1.3587 (R1) barrier. The rate oscillates between the support of 1.3500 (S1) and the aforementioned resistance since the 10th of June, thus I would keep a neutral stance for now. Relying on our short-term momentum studies, does not seem a solid strategy since the RSI is now pointing down, while the MACD, already above its signal line, seems ready to obtain a positive sign. The next support level is marked by the lows of February at 1.3475 (S2). Only a clear dip below that hurdle could signal the continuation of the prevailing short-term downtrend and may trigger extensions towards the 1.3400 (R3) zone. In the bigger picture, the rate remains below the 200-day moving average, keeping the outlook negative.

• Support: 1.3500 (S1), 1.3475 (S2), 1.3400 (S3).

• Resistance: 1.3587 (R1), 1.3685 (R2), 1.3745 (R3).

EUR/JPY rebounds from 137.70

The EUR/JPY moved higher after finding support at 137.70 (S1), which lies near the 200-day moving average. At the time of writing, the pair is heading towards the 138.65 (R1) barrier, which coincides with the 38.2% retracement level of the prior bearish wave. Considering the positive divergence between our momentum studies and the price action, I cannot rule out a move above that barrier. On the daily chart, I still consider the long-term path to be to the sideways, since we cannot identify a clear trending structure.

• Support: 137.70 (S1), 136.20 (S2), 134.10 (S3).

• Resistance: 138.65 (R1), 139.35 (R2), 140.00 (R3).

GBP/USD hits 1.7000

The GBP/USD hit the 1.7000 (R1) psychological zone and moved lower. Considering that the RSI exited overbought conditions, while the MACD, although in its bullish territory, fell below its signal line, I would expect the pullback to continue, maybe towards the 1.6900 (S1) zone, which coincides with the 38.2% retracement level of the prevailing rally. In the bigger picture, the 80-day moving average provides strong support to the lows of the price action, but we need a clear move above the 1.7000 (R1) zone to have the reinforcement of the long-term uptrend.

• Support: 1.6900 (S1), 1.6845 (S2), 1.6735 (S3).

• Resistance: 1.7000 (R1), 1.7100 (R2), 1.7200 (R3).

Gold meets the uptrend line

Gold fell sharply yesterday to meet the short-term blue uptrend line. If the bulls are strong enough to take advantage of the pullback, I would expect them to target once again the 1285 (R1) obstacle, where a clear violation would signal the continuation of the short-term uptrend and could pave the way towards 1305 (R1). Despite the fact that the uptrend remains intact for now, I would adopt a neutral stance, since the RSI exited its overbought territory and fell below its blue support line, while the MACD fell below its trigger line, favoring the continuation of the decline. However, only a dip below the trend line and the support of 1268 (S1) could turn the picture negative again.

• Support: 1268 (S1), 1257 (S2), 1240 (S3) .

• Resistance: 1285 (R1), 1305 (R2), 1315 (R3).

WTI pulls back again

WTI moved lower to find support at the 106.50 (S1) barrier once again. A dip below that hurdle may signal the completion of a possible double top formation on the 1-hour chart and trigger further retracement. On the 4-hour chart, the RSI fell below its 70 level, while the MACD crossed below its signal line, favoring the aforementioned scenario. However, as long as WTI remains above both the moving averages, I consider the upside path to remain intact and I would see any further possible declines as corrective waves for now.

• Support: 106.50(S1), 105.00 (S2), 104.10 (S3).

• Resistance: 108.00 (R1), 110.00 (R2), 112.00 (R3).

MARKETS SUMMARY