Pound Sell‐Off Halted as May Takes Over UK Leadership; Yen Plunges; BoC Meeting In Focus

The U.S. dollar has been broadly unchanged against most of the G10 currencies with exceptions against the British pound and the Japanese yen. The sterling picked up after the announcement that next Prime Minister of UK is Theresa May. Meanwhile, the yen continues to slide as the traders expect more future stimulus, as the Prime Minster Shinzo Abe promised. In addition, due to the political chaos in the world, the risk appetite rises and affects low beta currencies like the yen. The BoC policy meeting later in the day is the main event for the CAD pairs while euro cross pairs remained out of play on Tuesday.

Fed Member: Just A Single Rate Hike is Needed
Going to U.S., St Louis Fed President James Bullard, a voting member of Fed's rate‐setting committee, defended his view that a single rate hike is needed in the foreseeable future despite the strong rebound in the U.S. jobs in June. He concluded that U.S. had entered a period of low growth, low inflation, and low employment. It's worth to mention that the U.S. job openings came short of expectations in May, 5.500M vs 5.700M expected. The wholesale inventories rose 0.1% less than analysts' forecast of 0.2% indicating an increase in sales. The dollar was immune to these comments being broadly range bounded versus its G10 counterparts.

Euro Has Been Indifferent Once Again; The Range Continues
The euro didn't participate in yesterday's rally, remaining virtually unchanged against its major peers with only exception the strong sell‐off of the EUR/GBP. Eurozone's industrial production for May is expected to be released today, and to show a small weakness in the sector. Out of Friday's inflation report, no other significant data is scheduled for the Euro area this week.

The common currency was unable to gain ground on yesterday's session despite the rebound of the 1.1125 resistance level which coincides with the 100‐SMA on the 4‐hour chart. Also, there aren't as many positions as needed in the EUR/USD pair for getting out of the trendless market, after the Britain's vote of leaving the European Union. The currency is moving in a trading range over last month between the 1.1190 resistance level and the 1.0970 support level. Currently, it is trading below the 50‐SMA on the same chart. An overcome above the 1.1125 key level will expose the price until the upper band of the trading range at 1.1190 which overlaps with the 200‐SMA. On the other hand, a break below the 1.1000 psychological level will open the doors to the 1.0970 support level.
Furthermore, technical indicators are moving with a weak momentum in a neutral area since the market is in a consolidation.

Pound Sell‐Off Halted as Theresa May Takes Over UK Leadership
The pound enjoyed a day with gains following the partial calmness of the political chaos after Brexit following the announcement that the next UK Prime Minster is Theresa May. The BoE Governor Mark Carney defended his warnings about economic risks of Brexit once again and also stated that he warned Theresa May that there was a chance of recession before the UK referendum. The traders will turn their attention on tomorrow's BoE interest rate decision. Even though, the odds for a rate cut increased and further stimulus is widely expected, is doubtful if the day of monetary easing is tomorrow. The press conference will be very interesting, leading traders to hang on every word of the BoE Governor.

The GBP/USD pair rose for the third day in a row and surged more than 2.3% from the 31‐year lows. At the moment, the pair is testing again the fresh weekly highs previously posted at 1.3340. The recent upward move in the currency is largely on the back of gaining ground of the short positions on Brexit, as we head towards the much‐awaited BoE interest rate decision due tomorrow. The cable has an immediate resistance level at 1.3340 and if the price has a successful attempt to surpass it, our expectation is the price to meet the 1.3530 resistance level. An alternative scenario is a continuation of the major trend, downtrend, if there is a failed attempt to the upside. The next support level is at 1.3050 and furthermore the previous lows at 1.2800. On the 4‐hour chart, the MACD oscillator is in a positive area and the RSI indicator is moving in an overbought territory.

CAD Traders Await BoC Policy Meeting Today
The Canadian dollar fell slightly against the dollar, ahead of the Bank of Canada policy meeting later in the day. At 14:00 GMT time, the BoC will announce its interest rate decision followed by a monetary policy statement and a press conference. No changes are expected at the current 0.5% cash rate, however, the speech will be cautiously watched by investors to gauge policymakers view on the economy. It's notable that both employment and GDP growth improved compared to the previous policy meeting.

The main focus, for the CAD traders, will be on the BoC policy meeting today. The next hours will be important for the price action of USD/CAD pair. On yesterday's session, the currency bounced on the 1.2980 support level which overlaps with the 50‐SMA on the 4‐hour chart. Today, the currency pair started the day with a positive candle and the 1.3140 barrier is ready to provide immediate resistance before going to the key zone at 1.3190‐1.3200 which is a turning point for the pair.
Additionally, on the 4‐hour chart, the MACD oscillator lies above its zero line and the RSI indicator is following a positive path, increasing the probabilities for the continuation of the bullish move up to the 1.3140 and then to 1.3190 price levels.

USD/JPY Picked Up More than 4% in Two Days
The yen continues to slide while the traders expect more future stimulus, as the Prime Minster Shinzo Abe promised. The USD/JPY and the EUR/JPY picked more than 4% each the last two days.
Due to the political chaos in the world, the risk appetite rises and affects low beta currencies like the yen.

The USD/JPY pair surged more than 4% the last three days recording a fresh three‐week high at 105.00 psychological level. On our yesterday's analysis, we suggested an entry level at 103.55 price level and a target at 105.00 which was reached in yesterday's period. A pullback is in progress and the price is now moving near the 104.00 price level. The currency will probably move back to the 103.40 support level and furthermore down to the 101.25 level. An alternative scenario is a successful penetration of the strong resistance level 105.00 to the upside which will open the way for the 106.80 resistance level. Moreover, on the daily chart, MACD is still moving in a negative territory with a weaker move than the previous days and RSI is in a positive area but is sloping downwards.

What to watch today
We start the day with the BoE credit conditions survey for the second quarter. Later on, Eurozone's industrial production for May is expected to contract 0.7% in May versus an increase of 1.1% mom the previous month. Traders will keep a tab on FOMC Member Harker speech. The import and export price indexes are not expected to attract significant attention. The Bank of Canada will have its interest rate decision at 14:00 GMT time followed by a monetary policy statement and a press conference. No changes are expected at the current 0.5% cash rate, however, the speech will be cautiously watched by investors to gauge policymakers view on the economy.

Later in the afternoon, all the attention will be turned to Fed's beige book and the U.S. monthly budget statement for June. During the night, Australia will publish its employment report for June and its consumer inflation expectation report for July. The unemployment rate is expected to rise slightly at 5.8% in June from 5.7% before while the employment change is predicted to show that Australian economy employed 10k people in June from 17.9k in May.