Limited EUR-appetite, Stronger Loonie

Forex News and Events:

The geopolitical tensions between Ukraine/Russia and Israel/Gaza are the key talking points of this Monday. The absence of economic data/event should keep the focus on geopolitical risk-off trading. EUR started the week well in demand, yet cautious profit takings and absence of fresh appetite limited the upside in the European trading. In Canada, the Loonie consolidates post-CPI gains. The Canadian retail sales are due on Wednesday, we expect ranged US/CAD until fresh news.

Waning EUR demand

EUR/USD traded below 1.3503 in New York (on Friday) for the first time since June 5th, the ECB reaction low after the President Draghi announced the additional monetary stimulus package. Decent support pre-1.3477 (year-to-date low) lifted the pair back above 1.3500 before the closing bell, the European traders sent EUR/USD to 1.3549 as session opened today, mostly on profit taking. Solid offers are seen at 1.3550/1.3600 as traders are now looking to sell the rallies. The sentiment vis-à-vis EUR is comfortably bearish, the investor demand and speculative EUR-longs both signal meaningful shift downwards.

The broad international demand in EUR slides, the 12-month average broad balance – sum of the current account, foreign direct investments and portfolio investments – fell for the third consecutive month in May, while EUR-short speculative futures advanced to highest levels since June 2013. The big picture suggest sustainable decline in EUR-appetite. Combined to hawkish Fed expectations, the break below the year-to-date lows (1.3477) appears to be a matter of time and should push EUR/USD towards its November 2013 lows (1.3296).

EUR/GBP slightly recovers from last week’s 0.78888 low. The bias remains on the downside with selling interest likely to keep the upside limited at 0.79564/0.79785 (21-dma / June-July downtrend channel top). The critical support stands at 0.77552, the lowest over the past 5 years hit on September 2012.

Given the lack of fresh JPY-sales, EUR/JPY grinds steadily lower to test 136.75 (Fib 38.2% on Nov-Dec’14 rally). The key support zone is placed at 136.00/23 (March-July downtrend channel bottom / 2014 low).

This week, the light economic calendar in the Euro-area suggests range-trading through the first half of the week. The June preliminary PMI numbers are due on Thursday, IFO survey results for July on Friday; the expectations on both ends remain soft. The M3 money supply (due on Friday) should have accelerated in June due to the recent monetary stimulus package announced on June 5th by the ECB. All together, the bias remains on the bearish side for the week ahead.

Canadian inflation goes against BoC’s Poloz

The Canadian consumer prices advanced at the pace of 2.4% year-to-June (vs. 2.3% expected & last). The strong inflation reading immediately halted the USD/CAD ascension; the resistance should build stronger at 1.0800/21 (optionality / 21-dma), while bids at 1.0700/1.0710 (21-dma / July 14/15th double bottom) should keep the downside limited. Canada will release May retail sales data on July 23rd. We expect the pair to remain ranged until fresh news. Any negative surprise should continue challenging resistance pre-1.0800.

In mid-long run, the sentiment towards CAD gets significantly better. According to July 15th CFTC data, the leveraged funds and asset managers extended their net CAD holdings to largest levels since February 2013 and September 2011 respectively. We expect the extension of USD/CAD weakness towards 1.0550 (Dec 2013 support area) in the continuation of March-to-date descending triangle.

Today's Key Issues (time in GMT):

2014-07-21T12:30:00 USD Jun Chicago Fed Nat Activity Index, last 0.21

The Risk Today:

EURUSD EUR/USD made an intraday bullish reversal near the key support at 1.3503 (see also the long-term rising trendline from the July 2012 low) on Friday, favouring a short-term bounce. The initial resistance at 1.3540 (17/07/2014 high) has been breached. Hourly resistances can be found at 1.3562 (15/07/2014 low) and 1.3581. In the longer term, the break of the long-term rising wedge (see also the support at 1.3673) indicates a clear deterioration of the technical structure. A long-term downside risk at 1.3379 (implied by the double-top formation) is favoured as long as prices remain below the resistance at 1.3700. Key supports can be found at 1.3477 (03/02/2014 low) and 1.3296 (07/11/2013 low).

GBPUSD GBP/USD is weakening, as can be seen by the breach of the support at 1.7060. Further consolidation is likely before a resumption of the underlying uptrend. Another support stands at 1.7007 (see also the 38.2% retracement). Hourly resistances can be found at 1.7118 (18/07/2014 high) and 1.7192. In the longer term, the break of the major resistance at 1.7043 (05/08/2009 high) calls for further strength. Resistances can be found at 1.7332 (see the 50% retracement of the 2008 decline) and 1.7447 (11/09/2008 low). A support lies at 1.6923 (18/06/2014 low).

USDJPY USD/JPY has thus far successfully tested the hourly support at 101.07. An hourly resistance lies at 101.58 (intraday high), while a resistance area can be found between 101.79 (16/07/2014 high) and 101.86. A long-term bullish bias is favoured as long as the key support 99.57 (19/11/2013 low) holds. However, a break to the upside out of the current consolidation phase between 100.76 (04/02/2014 low) and 103.02 is needed to resume the underlying bullish trend. A major resistance stands at 110.66 (15/08/2008 high).

USDCHF USD/CHF has broken a key resistance area between 0.8959 and 0.8975. Another key resistance area stands between 0.9013 (16/06/2014 high) and 0.9037. Monitor the current consolidation near the hourly support at 0.8969. Another support lies at 0.8938 (09/07/2014 high). From a longer term perspective, the bullish breakout of the key resistance at 0.8953 suggests the end of the large corrective phase that started in July 2012. The long-term upside potential implied by the double-bottom formation is 0.9207. A strong resistance stands at 0.9156 (21/01/2014 high).

Resistance and Support: