This article is originally referred from IronFX Daily Commentary.
• ECB has the “readiness, willingness and ability” to act The ECB held off from announcing any new stimulus measures, and instead, noted that it prefers to wait until September when it will have the new staff economic projections. At that time, the Bank will be in a better position to assess the underlying macroeconomic conditions and may also have a better sense of UK’s exit plans and act upon that, if needed. ECB President Draghi noted that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience. The bloc’s common currency strengthened on these remarks, but the move was short-lived and reversed quickly.
• Apart from these comments, it was a pretty dull meeting for FX markets in our view with no new developments. A large part of the press conference was focused on the Banking (especially Italian) sector and the non-performing loans issue. Draghi stressed the need for this to be tackled soon, as the longer we have this problem the less functioning will be the banking system, and less efficient will be the transmission of monetary policy impulses to the real economy. One interesting part of the press conference, we think, was Draghi’s signal for “message of stability” at the G20 meeting this weekend. In an environment marked with high geopolitical and economic uncertainty, a message of stability at the G20 meeting would be important in order to calm and support the fragile sentiment among investors.
• Today’s highlights: During the European day, Markit has announced that for the first and only time, it will release preliminary versions of the UK manufacturing and services PMIs for July. This is done in order to give BoE policymakers and investors an early assessment of the referendum’s immediate economic impact. The services PMI is expected to decline below the critical 50 line, reflecting increased business uncertainty as well as postponed spending and investment decisions. The manufacturing index is forecast to fall as well, but by less and to touch the 50 mark. This may be because of a weaker sterling increasing the competitiveness of British manufacturers.
• From euro area, we get July’s preliminary manufacturing and service-sector PMI data from several European countries and the Eurozone as a whole. Most of these indices are forecast to have declined. Even though the impact of the “Leave” vote may have been more severely felt in the UK, EU businesses are still likely to be concerned about their future dealings with their British counterparts. Moreover, the fact that European equity markets have not recovered all of their “Brexit” losses may be another reason for deteriorating EU businesses optimism.
• From Canada, we get the CPI for June. Both the headline and the core inflation rates are forecast to have ticked down, which is also supported by the Ivey PMI for the month, whose Price index declined somewhat but remained within the expansionary territory. Additionally, the yearly change in oil prices is more or less the same as in May, which enhances the case for only a marginal change in inflation rates. Canada’s retail sales are also to be release.
• In the US, the preliminary Markit manufacturing PMI for June is coming out and expectations are for a slight increase. However, this is usually not a major market mover as investors pay more attentions to the ISM index, which comes out on the 1st of August.
EUR/USD trades in a choppy manner after the ECB meeting
• EUR/USD traded in a choppy manner yesterday following the ECB policy meeting and the press conference held by President Draghi. After another test slightly above 1.0970 (S2), the pair rebounded and is now trading fractionally above the 1.1020 (S1) hurdle. I believe that another move below 1.1020 (S1) will eventually reach the 1.0970 (S2) barrier this time. Our short-term oscillators support somewhat the case that EUR/USD could turn lower again. The RSI looks ready to turn down from near its 50 line, while the MACD, already negative, shows sings that it could start topping. As for the bigger picture, as long as the pair is trading within the sideways range between 1.0800 and 1.1500, I would maintain my flat stance as far as the longer-term trend is concerned.
• Support: 1.1020 (S1), 1.0970 (S2), 1.0900 (S3)
• Resistance: 1.1090 (R1), 1.1150 (R2), 1.1185 (R3)
GBP/USD hits resistance near 1.3270
• GBP/USD traded somewhat higher on Thursday, to hit once again resistance near the 1.3270 (R1) hurdle. In the lack of any clear trending structure on the 4-hour chart, I would adopt a “wait and see” stance for now with regards to the short-term outlook. I would wait for today’s preliminary PMIs to determine the near-term bias of the pound, as this is the first set of economic data we get concerning the post-referendum era. If the PMI indices come in below estimates, I would expect the pound to come under selling interest again and initially target the 1.3070 (S1) zone. A decisive dip below that zone could see scope for extensions towards our next support zone of 1.2875 (S2). On the other hand, anything above the forecasts may cause Cable to rebound and break above 1.3270 (R1). Switching to the daily chart, I see that the collapse on the 5th of July confirmed a forthcoming lower low on the daily chart and signaled the continuation of the longer-term downtrend. Therefore, I would treat the recent recovery as a corrective move and I would expect the bears to regain momentum at some point, if not today.
• Support: 1.3070 (S1), 1.2875 (S2), 1.2800 (S3)
• Resistance: 1.3270 (R1), 1.3350 (R2), 1.3500 (R3)
EUR/JPY tumbles after hitting 118.45
• EUR/JPY tumbled on Thursday, after it hit resistance at 118.45 (R2). However, the decline was stopped once again near the 116.40 (S1) support. A break below that zone would confirm a forthcoming lower low on the 4-hour chart and perhaps open the way for our next support level of 115.45 (S2). Taking a look at our short-term oscillators, I see that the RSI fell below its 50 line, while the MACD, although positive, stands below its trigger line and appear ready to fall below zero soon. There is also negative divergence between both these indicators and the price action. These momentum studies detect downside momentum and corroborate my view that EUR/JPY is likely to trade lower in the near term. As for the broader trend, given that the rate is trading below the downtrend line taken from the peak of 29th of January, I would consider the longer-term trend to be bearish. I would treat the 11th – 15th recovery as a corrective phase and I would expect sellers to eventually take charge again.
• Support: 116.40 (S1), 115.45 (S2), 114.90 (S3)
• Resistance: 117.40 (R1), 118.45 (R2), 119.15 (R3)
Gold tumbles and falls below 1323
• Gold edged north on Thursday to trade back above the 1323 (S1) barrier. The move makes me take the sidelines again with regards to the short-term picture, as it may be an early sign that the short-term downtrend has come to an end. My view is also supported by the positive divergence between both our short-term oscillators and the price action. What is more, the RSI emerged above 50, while the MACD, although negative stands above its trigger line and points somewhat up. However, a decisive break above 1340 (R1) is needed to confirm a forthcoming higher high on the 4-hour chart and signal a short-term trend reversal. Switching to the daily chart, I see that the metal is trading above the uptrend line taken from back at the low of the 17th of December. In my view, this keeps the longer-term picture cautiously positive. I would treat the shot-term downtrend, or any future extensions that stay limited above that line, as a corrective phase of that longer-term uptrend.
• Support: 1323 (S1), 1313 (S2), 1305 (S3)
• Resistance: 1340 (R1), 1348 (R2), 1358 (R3)
WTI slides and hits once again support at 44.50
• WTI traded lower during on Thursday after it found resistance at 46.00 (R1) and near the downside resistance line taken from the peak of the 29th of June. During the early European morning Friday, the bears are trying to break the support hurdle of 44.50 and a downside support line. If they succeed, I would expect them to pull the trigger for our next support zone of 43.60 (S2). The fact that the price is trading below the uptrend line taken from the low of the 11th of February, and also below the downtrend line drawn from the peak of the 9th of June, keeps the short-term outlook negative in my view. Our short-term oscillators magnify the case for WTI to continue trading lower. The RSI slid after it hit resistance near its 50 line and now looks to be headed towards 70, while the MACD stands below both its zero and trigger lines, pointing down. As for the broader trend, the break below the uptrend line taken from the low of the 11th of February brings into question the uptrend started back in January. The fact that the price closed below 46.00 on the 7th of July may have brought a medium-term trend reversal.
• Support: 44.50 (S1), 43.60 (S2), 43.00 (S3)
• Resistance: 45.20 (R1), 46.00 (R2), 47.00 (R3)
Original Source: IronFX Daily Commentary