- BoE Gov. Carney backed by BoE Deputy Gov. Charlie Bean. In an interview on Sunday Times, BoE Dep. Gov. said that the first rate increase “will be an indication that we are on the road back to normality”. “I would welcome us getting on to the path of normalization, as a demonstration that the economy is healing,” he added. He also supported the Governor in tackling a potential housing bubble. In a Bloomberg survey, 85% of economists said that the BoE’s FPC should take steps to cool demand for real estate. Comments by the two leading officials of the Bank are clear words. The Central Bank seems to have abandoned trying to restrain expectations for the first rate hike. The focus now turns to the minutes of June’s MPC meeting, due to be released on Wednesday. The minutes may echo the hawkish tone of Governor Carney’s speech and suggest that a vote for an interest rate hike by some members may be imminent.
- In my view, the BoE may raise rates earlier than the Fed, something that could prove supportive for the pound in the medium term, but I still expect the pace of monetary tightening to be much faster in the US. As a result, I would be more cautious on the long-term path of GBP/USD. Investors may prefer EUR/GBP as the divergence in policy between the ECB and the BoE is much more distinct.
- Elsewhere, the Swedish Krona was the main gainer among the G10 currencies, after Sweden’s unemployment rate for May fell to 8.0% from 8.7%, beating market expectations for a decline to 8.4%. USD/SEK fell sharply, after hitting our resistance of 6.7030, and broke below the 6.7000 zone. The next support is at 6.6240. A dip below that might signal the completion of a double top formation on the 4-hour chart and give a trend reversal signal.
- Gold and WTI gained during the Asian morning Monday as the escalation of violence in Iraq boosted the appeal of safe havens and increased concerns that crude oil supplies will be disrupted.
- Today, Eurozone’s final CPI for May is coming out. The figure will most likely confirm the initial estimate of +0.5% yoy.
- In the US, the Empire State manufacturing survey for June is forecast to decline to 15.00 from 19.01, while industrial production for May is forecast to have risen 0.5% mom, a turnaround from -0.6% mom in April. The National Association of Home Builders (NAHB) housing market index for June is expected to rise to 47 from 45.
- The rest of the week seems busier. The main event is on Wednesday, when the FOMC ends its two-day policy meeting. The statement will be released along with economic projections and forecasts for the benchmark rate. Fed Chair Janet Yellen will hold a press conference following the policy decision. On Tuesday, during the Asian morning, the RBA releases the minutes of its latest monetary policy meeting. The main event during the European day will be the German ZEW survey for June. The current situation index is forecast to remain unchanged, while the expectations index is expected to rise. In the UK, we get CPI and PPI data for May. We also get CPI data from the US. On Wednesday, besides the FOMC decision, we get the minutes of BoE’s latest meeting. As for Japan, we get the nation’s trade balance for May. On Thursday, during the Asian morning we get New Zealand’s GDP for Q1. During the European day, the Swiss National Bank and the Norges Bank decide on their interest rates. In the UK we get retail sales data for May and from the US, we have the Philadelphia Fed business activity index for June. Finally on Friday, we get Canada’s retail sales for April and CPI data for May. Watch for our next market update.
EUR/USD finds resistance at the 50-period MA
EUR/USD moved slightly lower after finding resistance at the 50-period moving average, slightly below the resistance barrier of 1.3587 (R1). The rate remains between the support of 1.3500 (S1) and the aforementioned resistance. 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 short-term downtrend and may trigger extensions towards the 1.3400 (S3) 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).
USD/JPY remains within the downtrend channel
USD/JPY moved higher on Friday, but met resistance at 102.10 (R1), near the 200-period moving average and the upper boundary of the purple downward sloping channel. If the bears are strong enough to maintain the rate below that resistance zone, I would expect them to challenge the support of 101.45. As long as the rate is printing lower highs and lower lows within the downtrend channel, I see a negative short-term picture. In the bigger picture, the longer-term path remains a trading range since we cannot identify a clear trending structure.
- Support: 101.45 (S1), 101.10 (S2), 100.80 (S3).
- Resistance: 102.10 (R1), 102.70 (R2), 103.00 (R3).
EUR/GBP breaks below 0.8000
EUR/GBP continued declining, breaking below the key zone of 0.8000. I would expect such a break to have larger bearish implications and pave the way towards the next support barrier at 0.7880 (S1). The MACD remains below both its trigger and zero lines, confirming the recent bearish momentum. I would ignore the oversold reading of RSI for now, since the oscillator is pointing down and I would expect an upside corrective wave upon its exit from the extreme zone. As long as the rate is trading below the blue downtrend line and below both the moving averages, I see a negative picture.
- Support: 0.7880 (S1), 0.7755 (S2), 0.7700 (S3).
- Resistance: 0.8000 (R1), 0.8035 (R2), 0.8080 (R3).
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