Bond Yields near record lows following uncertainty

On Friday, US non-farm payrolls number showed that the economy added 287,000 jobs in June compared to revised figure of 11,000 job addition in the previous month. On the other hand unemployment rate rose by two-tenths of a percentage point to 4.9% primarily on back of increase in labor force that entered the job market. An immediate reaction on the dollar was seen but the greenback closed almost flat despite robust payrolls number. Last week yields of major economies from the US to UK to Japan came under pressure and closed the week near its record lows. This week, the Bank of England policy statement will be one of the major events to watch apart from China’s GDP number that will be important to gauge the health of China’s economy. Volatility will continue to remain high in this week ahead of important data that are lined up from the US, UK and China.

Rebasing chart: (US, UK, Japan, German 10 year Bond Yield)

Note- *US10YT=RR (US 10 YEAR BOND YIELD)        *GB10YT=RR (UK 10 YEAR BOND YIELD)     *JP10YT=RR (JAPAN 10 YEAR BOND YIELD)       *DE10YT=RR (GERMAN 10 YEAR BOND YIELD)

 

EURUSD

Last week, the EURUSD pair erased all its previous week’s gain and closed at 1.105 down by 0.72% as stronger dollar and Italian banking crisis created bearish sentiment in the EU. In addition to the Brexit worries, the IMF cut its euro zone growth outlook for the next two years over uncertainties sparked by Britain's vote to leave the European Union, and warned that the conditions could worsen if confusion continues to reign in financial markets. In the last week, better than expected Euro area’s services PMI failed to give positive momentum as pound was under pressure after release of BoE’s biannual financial stability report and the BoE Governor, Mark Carney’s dovish speech. In response to the ultralow inflation, in his first major speech since Britain voted to exit the European Union, Mario Draghi urged major central banks to better coordinate their policies. Furthermore, stronger-than-expected US nonfarm payroll data weigh on the Euro. Looking forward, Eurogroup Meetings could provide some clues over uncertainty over EU and Bretain’s relation. On data front, German final CPI and Euro zone industrial production will give direction for the Euro in early of this week. Friday is likely to remain volatile as Europe and US are releasing its M-o-M CPI figure.

Technical view for EURUSD

The EURUSD fell sharply after touching crucial resistance of 1.1180 levels, coincides with uptrend trendline. The recent development can be considered as pullback after the breakdown. However, the pair has stalled its momentum and trading in just 150 pips. In this week, the pair could face resistance near 1.1180 levels and support can be seen at 1.1000 levels. Daily closing below 1.1000 will open the door towards 1.09-1.0850 levels. On a counter side, break above 1.1180 will take the pair towards 1.1250 levels. Hence, it is advisable to go short below 1.1000 levels for the target of 1.09-1.0850 levels.

 

GBPUSD

The GBP/USD closed last week around 1.2950, near 31-year low off by 2.34% as Brexit stress and promises from the Bank of England of massive aid to combat economic problems weighed heavily on the currency. The pound struggled to hold onto a 1.30 handle after the Bank of England eased capital requirements in an effort to offset the impact from the UK's impending divorce from the European Union. In early of the last week, construction PMI and services PMI failed to beat forecasted figure.  Further on Tuesday, BOE’s financial stability report and BoE’s carney speech led fetch some bearish momentum in FX market. The Bank of England said Brexit is "affecting the outlook for the global economy" and "particularly in the euro area," in its biannual Financial Stability Report. The central bank said it would lower the amount of capital banks are required to hold in reserve, freeing up an extra 150 billion pounds for lending in a reversal of a decision it took earlier this year, when it started tightening screws on lenders because Britain’s economy appeared on course for more growth. In a week ahead, BoE is releasing its inflation report on Tuesday and they are meeting for their monetary policy on Thursday first time since Brexit. There are high chances of monetary easing or cut in interest rate as Mr Carney had hinted in his speech.

Technical view for GBPUSD

The GBPUSD pair opened last week on flat note. However, it fell sharply below 1.31 levels on Tuesday after BoE’s financial stability report and Carney speech to close the week at 1.2956 levels. Technically, the pair is still trading under pressure and finding resistance near 1.3050 levels. In this week, the pair is expected to trade on bearish note as US dollar is gaining momentum against its major counter pairs. However, the pair could find support near 1.2800 levels. Any break below this will lead the pair towards 1.2650-1.2600 levels. Contrary to this, if pair manages to cross 1.3050 then short term reversal can be seen upto 1.32-1.3250 levels. Hence, it advisable to remain bearish on pound for the downside target of 1.2650-1.2600 levels.

 

USDJPY

The USD/JPY fell 1.89% last week and close at 100.36. It is down almost 6% for the month as the yen continued to gain on safe haven trades. The yen has been flying after the prospect of intervention in the currency markets to stem its appreciation was played down by a number of officials including Prime Minister Shinzo Abe. The Brexit earthquake has bolstered the yen as jittery investors continue to flock to the safe-haven currency. The previous week’s data contained of a starting stumble, when the Nikkei services PMI for June fell from 50.4 into contraction at 49.4.  The week to come is expected to bring a moderate number of Japanese economic announcements. On Monday, it will bring May’s monthly and annual machinery orders results, which have a rise out of negative ranges to 0.10% expected. Also likely to have an impact will be Wednesday’s May industrial production result, which will show the finalised monthly and yearly results for the field. In the week we could observe bounce back in USDJPY amid Japan’s PM Abe won the election for the upper house of parliament, which suggests that the voters favor his economic policies.

Technical view for USDJPY

In the previous week USDJPY fell sharply and tested the downward sloping trendline of the broadening pattern on 4-hourly chart. The pair closed below the resistance of 103.50/103.60 levels consecutively for a second week. Momentum oscillator RSI and Stochastic exhibits the positive divergence. Thus, in the first half of the week we might see a bounce back, however, any upmove should be capped near the resistance level and ultimately it could move lower towards 99/98.50 levels.

 

AUDUSD

The AUD/USD gained by a percent and closed at 0.7564 after the RBA held rates unchanged. There were no surprises from the RBA on Tuesday, as the central bank maintained the benchmark rate at 1.75%. The election remains inconclusive and it may take several more days of political jockeying before a new government takes shape. Standard & Poor’s downgraded the outlook on Australia’s AAA credit rating from stable to negative. The credit agency cited lingering uncertainty over the inconclusive Australian election, and warned that the country’s credit rating was in jeopardy if Australia didn’t get its fiscal house in order. Market participants will keep an eye on Employment change and Unemployment rate data. In May, the indicator impressed with a strong gain of 17.9 thousand, beating the estimate of 14.9 thousand. The forecast for the June reading stands at 10.1 thousand. The unemployment rate is expected to edge higher to 5.8%, up from the current 5.7%. Employment Change is one of the most important economic indicators and an unexpected reading can have a significant impact on the movement of AUD/USD.

Technical view for AUDUSD

In the previous week the AUDUSD pair made a high of 0.7573 and closed on a positive note. On the weekly chart, the pair has formed a bullish hammer candle. This indicates reversal in AUDUSD in the near term. In the coming week, 0.7324 and 0.7762 could act as a strong support and resistance level respectively. As long as pair holds the support level bias remains positive and it could test the resistance of 0.7762.

 

USDCAD

The USDCAD pair closed at 1.3043 with a gain of 1% as oil prices tumbled for the week and the US dollar rebounded after strong jobs report. The Canadian Labour Force survey showed drop in unemployment to 6.8%. The Canadian PMI beat forecasts with a 51.7 reading; last month the index had fallen into contraction territory with a 49.4 print, so this month’s data point add a bit of good news to the Canadian Economic outlook. The coming week is important for USDCAD as there is an interest rate decision and Manufacturing sales data. The central bank is widely expected to hold interest rates steady. More than three dozen economists polled by Reuters this week unanimously forecast the decision on July 13 will be to maintain its key overnight lending rate at 0.5%. Brexit could lead to slower world growth, including the U.S. which would hurt Canada's exports, which the BoC sees as the key to growth. But BOC could not go for rate cut as it would risk further fueling Canadian households' struggle with high levels of debt. The ratio of household credit market debt to income was 165.3% in the first quarter.

Technical view for USDCAD

In the previous week, loonie bounced back in last two trading sessions and closed on a positive note. On the daily chart, USDCAD pair is moving in a symmetrical triangle pattern from the last two months. 1.3100 is acting as a strong resistance. It has been observed in the past that the pair failed to cross resistance level and pulled back. Thus, to end the consolidation it is imperative for the pair to close above 1.3100 levels. However, a move below 1.2900 would force line to move in the triangle pattern.