G10 trading subject to event-risk

Forex News and Events:

We are heading into a new event-full week. The main focus will be on FOMC Chair Yellen’s semi-annual testimony to the Senate and House on Tuesday and Wednesday. We will be looking for a better understanding of how Fed sees the significant improvement in US labor data and when the firstrate hike could happen. For the moment, we expect Yellen to keep her dovish stance, supportive of interest in carry strategies. Else, RBA will release minutes (Tue), BoJ and BoC give verdict (Tue&Wed) while the Canadian inflation report will be in focus on Friday.

In UK, the inflation (Tue) and jobs data (Wed) will shape the GBP-complex. The softness in inflation is likely to continue in June reading, markets expect 0.1% contraction on month and slight improvement on year to 1.6% (from 1.5% last). ILO’s three-month unemployment rate is expected to have improved from 6.6% to 6.5%. Any positive surprise on UK data should revive fresh attempt to 1.7180 top in GBP/USD. Currently, the Cable consolidates gains above 1.7086/1.7100 support zone.

European markets get over the BES crisis

European traders are EUR-optimistic at the start of the week. Insolvency concerns on Portugal’s Banco Espirito Santo dissipate as quickly as they appeared. As suspected, last week’s BES misadventure had no power to influence the sentiment in the Euro-zone; EUR/USD closed the week above 1.3600 and everything appears to be in order now. While Swiss, French and German sovereign yields continue trading at year lows, we see easing stress vis-à-vis Italian, Spanish and Portugal 10-years. The improved risk sentiment lifts EUR/USD higher to 1.3640 at the time of writing. For day ahead, we still see resistance between 1.3647/78 (50-200 dma); the support should come into play at 1.3576/1.3600 (Jul 7th low & June-July rising floor). The pair is likely to remain range-bound before FOMC Chair Yellen’s semi-annual testimony.

RBA minutes may damage AUD-bulls

Aussie made a good start to the week, AUD/USD tests 0.9400/01 (21-dma) while AUD/NZD holds ground above the year-to-date ascending floor (approximately around the former support of 1.0660). The RBA minutes will be released on Tuesday and dovish signals from the Governor Stevens raise curiosity on whether the minutes contain AUD-negative comments. In his speech over the week-end, Stevens saidinvestors may be “underestimating the probability of a material decline […] but I can’t say when that might be”.

Just a couple of hours before the RBA minutes, we adjust our positioning to neutral and stand ready to hear fresh AUD-negative comments. AUD/USD has rebounded from year lows amid the RBA shifted its stance from dovish to “neutral” on February 4th meeting and eased its sharp bearish tone in AUD (although repeating that AUD remained high by historical means). Given Stevens latest remarks, we see probability for sharper language on the FX rates. AUD/USD trades in 0.9200/0.9505 band since March 26th, this is above Fibonacci 50.0% level on Oct’13 – Jan’14 pullback. A breakout below is needed to confirm a renewed pullback period in AUD/USD. In the shorter-run, the first line of support is seen at 0.9339/54 (Fib 61.8%/50-dma).

Today's Key Issues (time in GMT):

2014-07-14T13:00:00 CAD Jun Teranet/National Bank HPI MoM, last 0.80%
2014-07-14T13:00:00 CAD Jun Teranet/National Bank HPI YoY, last 4.60%
2014-07-14T13:00:00 CAD Jun Teranet/National Bank HP Index, last 162.5

The Risk Today:

EURUSD EUR/USD is consolidating after Thursday's decline. A bearish bias is favoured as long as prices remain below the resistance at 1.3664 (03/07/2014 high). An hourly support stands at 1.3576, while a key support lies at 1.3503. An hourly resistance can be found at 1.3651 (10/07/2014 high, see also the 61.8% retracement). 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 1.3775. Key supports can be found at 1.3477 (03/02/2014 low) and 1.3296 (07/11/2013 low).

GBPUSD GBP/USD is consolidating near the top of its rising channel. The mild price correction thus far favours a bullish bias. Monitor the hourly support at 1.7086 and the hourly resistance at 1.7180 (04/07/2014 high). Another support can be found at 1.7007 (27/06/2014 low). 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 is trying to bounce after having broken its recent low at 101.24 (30/06/2014 low). The hourly resistance at 101.45 (09/07/2014 low) is challenged. Another resistance can be found at 101.86 (09/07/2014 high). An hourly support lies at 101.07, while a key support stands at 100.76. 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 continues to move within its declining channel. An hourly support lies at 0.8886 (intraday low). Hourly resistances are given by the declining channel (around 0.8944) and 0.8975. Another support stands at 0.8857. 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 key resistance stands at 0.9156 (21/01/2014 high).

Resistance and Support: