EURUSD, Daily           

How long can Mr Draghi stay stumm? Eurozone stock markets continue to sell off sharply and Eurozone spreads remain volatile, while Italy’s banking problems are looking ever more threatening. That the Eurozone can escape serious negative implications from the UK is clearly wishful thinking and while central bankers have been eager to hand part of the responsibility for the Eurozone’s economic health back to politicians, it is clear that those in charge on both sides of the channel were simply not prepared for the outcome of the referendum. Nor are they willing to work together in order to limit the fallout of Brexit. So its back to central banks, but while the BoE already moved to free up pressure on UK banks and hinted at further easing over the summer, Draghi has been remarkably absent from the public stage so far. Wait and see remains the order of the day and that may also be because many of the ECB’s options are facing serious challenges. A tweaking of the capital key rule in the QE purchases as suggested by some, would only increase EMU fatigue in Germany and likely face fresh legal challenges. Further deposit rate cuts will add to pressure on banks. A relaxation of state aid rules for banks may be needed in Italy, but could push a finalisation of the banking union out even further. So Draghi may be busy behind the scenes trying to evaluate political and legal risks to more radical steps, but likely will be forced to resort to tweaks and minor changes that will leave markets disappointment.

The risk off rush continues, USDJPY struggling with 100.00, GBPUSD struggling with 130.00 and Gold comfortably north of 1360.

The post Brexit EURUSD rally petered out yesterday and we trade below the 200 DMA, however, with attention now turning to the FOMC minutes later today at 18:00 GMT, the ADP numbers tomorrow and the main event NFP on Friday this could simply be movements ahead of the news. Technically, on the Daily timeframe the support area is down at 1.0930 – 1.0825 and resistance at 1.1160 and 1.1220.  My preference would be for SHORT positions from here, dependent on the news flow.

Janne Muta

Chief Market Analyst

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EURUSD, H4            

Eurozone June services PMI revised up to 52.8 from 52.4. But this still left the reading down from 53.3 in the previous month. Spanish and Italian readings in particular surprised on the upside but the French services number remains stuck in contraction territory, as did the composite reading. The Eurozone composite PMI was unchanged from May, after the upward revision to manufacturing and services readings and still points to ongoing expansion, but while the data confirms that activity picked up again toward the end of the second quarter, the readings don’t capture the impact of the Brexit referendum yet and as such are already outdated to some extent.

EURUSD traded as high as 1.1184 before reversing to 1.1145.  In the 4 hour chart support is being provided by the 20 period MA, and resistance by the upper Bollinger band as the pair trade in a tight upward sloping range.

The numbers from the UK were down to 52.3, missing expectations (53.1) and down from last time significantly (53.5). This weaker number for June again does not reflect the Brexit impact (as 89% of data was collected before June 23^rd) but will only add to the gloomy outlook. At 52.3 the figures matches the April figure which was a 38 month low. Growth over the whole of the second quarter was the weakest since the first quarter of 2013. Given the post-Brexit political mess and uncertainty, which will be continue for a considerable time, there is a high risk that the UK economy will slip into recession in the second half of the year.

Sterling continues to weaken and trades at 1.3130 against the USD (a post Brexit Low) and EURGBP at a post Brexit high of 0.8486.

Janne Muta

Chief Market Analyst

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EURUSD, Daily         

Eurozone PMI very numbers mixed, with the manufacturing reading coming in much stronger than expected at 52.6, up from 51.5 in the previous month, and the services reading falling back more than anticipated to 52.4 from 53.3, which left the composite at 52.8 in June, down from 53.1 in May. German manufacturing in particular bounced back, but French readings are once again in contraction territory and the data highlights that the Eurozone recovery is not evenly spread and remains subject to downside risks. As Draghi highlighted, structural reforms are needed and ever more monetary accommodation won’t fix the Eurozone’s underlying problems. Bund futures already moved higher going into the overall release, after the weaker than expected French numbers earlier on and the key question also for the Eurozone outlook will be how the U.K. votes in today’s referendum on EU membership.

EURUSD continues to track Cable in a thin-market, Brexit-related correlation. Today’s vote in the UK, needless to say, presents the euro with significant polarized risk. Overnight sterling vols best reflect the magnitude of the event risk having surged to a record high of 106.2%. EURUSD support is at 1.1296-1.1353 while the Jun-8 high at 1.1415, a six-week peak, provides an upside waypoint.

EURUSD, H4        

Fed Chair Yellen repeated the Fed will continue raising rates cautiously, in her prepared testimony before the Senate Banking Committee. She’s optimistic on further growth but noted there are still considerable uncertainties over the outlook. The Fed is monitoring the job market carefully to see whether the weakness in the May report was transitory, she said, and added it is important not to react to one or two reports. On the positive front, she said spending has picked up smartly while housing is recovering. But she cautioned that the Fed can’t dismiss the slow productivity growth. Brexit could have significant economic repercussions. The cautiously optimistic outlook is as expected.

Yellen said the Fed is relying less on forward guidance than during the financial crisis credibility. The Fed still issues quarterly projections, which Yellen believes are helpful for the public to understand the path of the economy. The Fed Chair stressed again, however, that the Fed is not on a preset course. Economic developments have been mixed for some time, with some sectors remaining slow due to the recession in the energy sector and as a result of the stronger dollar, while others, such as the labor market, have performed well, at least until recently.

Key pivot and resistance sits at 1.1300 and 1.1350 in the 4h time frame with support at 1.1240, 1.1220 and 1.1180.

Janne Muta

Chief Market Analyst

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EURUSD, 240 min

While the ECB President Draqhi is answering the questions here’s a quick update on his speech. According to Draqhi recovery is gaining momentum in the euro area and is supported by the solid domestic demand. While low oil prices benefit the consumers investment is edging up as favourable financing supports it together with corporate profits. GDP in 2016 is expected to come in at 1.6%, and in 2017 at 1.7% and inflation is expected to remain at low levels.

He commented that bank lending rates have fallen to historical lows while credit growth turned positive already in 2015. Bank shares have benefited from readily available financing and growing corporate profits but also SME’s are reporting easy access to credit.

More action is needed to boost Eurozone investment. Draqhi promised that further monetary easing is in the pipeline. At first markets didn’t react to this promise at all but at the time of writing EURUSD has started to edge lower. Draghi also sees the downside risks significant and spend considerable amount of time to justify the recent ECB actions.

The fact that the markets are waiting for the Fed Chair Yellen to speak at 2 pm GMT is likely to keep the participants from reacting strongly on what the ECB president is saying.

Major support and resistance levels in EURUSD are 1.1220, 1.1239 and 1.1300, 1.1350 and 1.1380.

Janne Muta

Chief Market Analyst

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EURUSD, 60 min

Draghi’s promise to do “whatever it takes” to safeguard the Eurozone came with the promise of the OMT (Outright Monetary Purchases) and helped to end the debt crisis. Germany’s top court today finally gave its final clearance after initially referring it back to the EU’s top court, although with a caveat with the German Constitutional Court voicing concerns, but saying they were bound by the EU ruling, which argued that the plan contained sufficient safeguards to prevent the bond purchases from being disproportionate.

Germany’s Ifo institute said the ruling was a “pity”, because it is “obvious that the OMT primarily pursues the fiscal aim of maintaining credit access for highly indebted states”. The Ifo would have liked the court to set tighter rules for the Bundesbank’s participation in the program. The ZEW meanwhile said the ruling is “very Europe friendly”, saying the focus on the implementation of the program in the ruling, means government and parliament will need to watch how the OMT is implemented, but also that “financial markets can now relax”. Germany has been trying to safeguard the ECB’s prohibition of direct government financing, but it seems the pressure for a mutualisation of costs and risks is getting ever stronger and the critics see the OMT as one step in the direction of direct financing.

EURUSD is attracting some buying after the ruling was published but resistance levels are near. The nearest intraday resistance is at 1.1330 with the next intraday resistance at 1.1340. Intraday support at 1.1320. ECB’s Draghi will speak in about one hour’s time and might cause some extra volatility in the pair. I advise to reduce risk and when necessary to exit geared positions before an event that might move the markets in unpredictable ways.

Janne Muta

Chief Market Analyst

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EURUSD, 60 min

With the FOMC decision ahead of the markets are likely to stay on a wait and see mode. This means that EURUSD fluctuating between nearby minor support and resistance levels. Market participants are wary of taking strong views and large positions before they know what the US Fed is likely to decide. We don’t expect a rate hike today due to recent lousy NFP data and the UK’s EU referendum being so close and look for two rate hikes later on this year, with the first one possibly coming in July after UK voters have said no to Brexit.

The last time I was writing about EURUSD I suggested the market should be a sell either at or inside my Sell area of 1.1304 – 1.1320. Market rallied to 1.13027, turned and then moved through both my Target 1 and Target 2 areas.

Currently EURUSD is trending lower in 4h resolution and trading near resistance levels created by Monday’s lows ( 1.1230- 1.1240). If EURUSD manages to close above the resistance area, then it brings the channel high (currently at 1.1270) into play. However, with the FOMC statement ahead of us today markets are likely to be subdued and I’d be surprised if EURUSD started to break resistance levels. Therefore in the intraday picture I expect that the resistances will prevail while volatility will remain low until the FOMC statement. As the resistance has now been rejected I expect the pair to move to 1.1190 – 1.1200 range. In the longer term picture it seems that the USD is getting stronger and provided that the Fed Chair Yellen doesn’t come with any surprises we should see this trend continuing over the coming weeks.

Janne Muta

Chief Market Analyst

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Low inflation and expectations of further easing have been pressuring EURUSD. ECB’s Weidmann commented on inflation earlier today saying that expansionary policy currently justified, as low inflation is not just a consequence of low oil prices, but core inflation is also low. In what looked like comments to defend Draghi’s policy stance to the critical German audience, Weidmann said in Frankurt that “given these muted price prospects and expansionary monetary policy is current appropriate”, although he added that “you can have different opinions on the specific design of the unconventional measures”.

EURUSD has been violating support levels since it turned from the 1405 – 1415 resistance level I Identified in June 7^th report. Now the pair is oversold as per Stochastics (7.3.3) in the 4h chart and is trying to retrace some of the recent losses. I expect that this rally will be short lived and the market will turn lower after the buying interest fails. I’m seeing a resistance area between 0.382 and 0.5 Fibonacci retracement levels (1.1300 – 1.1322) while there is a support level at 1.2200 together with further support at 1.1134. This support is significant and has potential to stop the down move and turn EURUSD higher.

I am therefore looking for sell signals at or inside my Sell Area 1.1304 – 1.1323 with Target 1 at 1.1268 – 1.1280 and Target 2 at 1.1230 – 1.1244. Target 3 is at 1.1135 – 1.1285. For those interested in the potential up move to the Sell Area, I’m seeing support between 1.1250 and 1.1260. Please remember that this is not investment advice and that you should not be trading without proper understanding of risk management.

Janne Muta

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

EURUSD, H1        

US wholesale sales rose 1.0% in April, with inventories up 0.6%. The former is a little below forecast, while the latter was stronger than expected. March sales were revised to a 0.6% gain compared to the 0.7% previously. March inventories were bumped up to 0.2% from 0.1%. April posted broadbased gains with only the auto inventory component posting the only decline for the major categories. The inventory-sales ratio slipped to 1.35 from 1.36, though that’s considerably above the 1.19 level from mid-2014, with such a steep spike typically only seen in recessions. The data will help refine GDP forecasts.

The dollar has traded mixed in the wake of the wholesale trade data out of the US EURUSD logged a six-day low of 1.1306, though the USDJPY only briefly rose before subsequently whipsawing and settling to near net unchanged levels. The interpolation of this is fresh lows in EUR-JPY, which is foraying into further into 39-month low territory. The Euro’s bad day continues.

Janne Muta

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Eurozone Q1 GDP was revised up to 0.6% q/q from 0.5% q/q reported initially, and Q4 last year was also revised higher to 0.4% q/q from 0.3% q/q. This means the trajectory is better than initially thought, which backs the ECB view that the recovery remains on track, even if Q1 data have to be taken with a pinch of salt and are likely to be followed by a relatively weak number for Q2.

The breakdown showed that private consumption growth accelerated strongly to 0.6% q/q from 0.3% in Q4 and was the biggest single contributor to the strong quarterly growth rate, which may partly be due to the Easter Effect. Fixed gross investment growth slowed, but still contributed 0.2% points, and government consumption a further 0.1% points, while net exports detracted 0.1% points. Again strong numbers, that will back the ECB’s wait and see stance, even if confidence indicators point to a slowdown ahead.

EURUSD has been reacting favorably to the numbers while the fact that Fed Chair Yellen didn’t put any specific date on the rate hike pressures the USD. Price has been moving higher from a support at 1.1360 and is now at minor resistance at 1.1380. The next significant resistance lies at 1.1445 while some minor resistance exits at 1.1404 – 1.1415.

Janne Muta

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.