• Expectations surrounding easy monetary policy dominated over the US-China trade risk catalysts.
  • Equities, bond yields manage to lure buyers while safe-havens weakened.
  • Japan’s industrial production and the UK political plays will be followed for fresh impulse.

Although improving risk sentiment pulled the GBP/JPY pair off from 1-week low, political uncertainty at the UK exert downside pressure on the quote that trades below 136.00 amid Friday morning in Asia.

Be it the Bank of England (BOE) Governor or the US Federal Reserve policymakers, signals of easy monetary policy were well received by the global investors. Flight to equities remains intact and the US 10-year treasury yield, the global risk barometer, surges to 1-month high as it takes the rounds 2.132%.

Anti-Semitism accusations on some of the top members of the opposition Labour party, coupled with criticism on Boris Johnson’s failure to support the now ex-UK ambassador to the US, grabbed market attention. Adding to the pessimism was the European Commission Chief nominee who closed the door for renegotiating the Brexit deal.

It should also be noted that the US President Donald Trump’s tweets raising additional blocks to expectation of the trade deal with China couldn’t derail the investor sentiment.

While May month Industrial Production details from Japan acts as an immediate catalyst to watch, global risk events and UK political plays can keep playing background music for the traders. Speech from the BOE’s Gertjan Vlieghe will also have its impact on prices.

The Industrial Production reading may is expected to remain unchanged at -1.8% (YoY) and +2.3% (MoM) but the Capacity Utilization may slump to +0.2% from +1.6% earlier.

Technical Analysis

Late-September 2016 high around 132.50 and the year 2019 low at 131.79 can keep flashing on bears’ radar unless prices rally beyond monthly top near 137.80, which in turn can please buyers with 138.33 and 140.00 round-figure.

The precious metal's prices have consolidated in 1381 and 1439. There are a series of bearish pin bars on the daily charts, signifying resistance and lack of commitment from the buyers. The 20-day moving average supports but on a break lower, bears would target a 50% retracement of the April swing lows to late June swing highs around 1352. On the flipside, however, bulls broke the 1410 level and marked 1418 tops. Bulls can look ahead to the 1440 key resistance which makes way for a continuation to the May 2012 lows at 1527.

Oil prices were whipsawed on the geopolitical front once again and while the market managed to shrug-off the concerns of a tropical storm in the Gulf of Mexico which has cut oil output in the region by more than half, from a technical standpoint, WTI has printed a strong daily bullish candle.

Bulls continue to commit and the price drifts higher on the 60 handle. On the downside, the familiar 20, 50 and 200 Experiential Moving Averages fall in line as potential support around 57.80. Then, below the weekly lows at 56.77, the 52 handle and then the 14th Jan 50.41 lows ahead of the 26th November lows at 49.44 are a target.

  • Repeated bounces off 4H 200MA, gradually rising RSI favor the AUD/JPY pair’s further upside towards short-term resistance-line.
  • A break of key MA can quickly flash 61.8% Fibonacci retracement on the chart.

With its sustained trading beyond 200-bar moving average on the 4-hour chart (4H 200MA), backed by momentum indicator, the AUD/JPY pair takes the rounds to 75.66 during the early Asian session on Friday.

A 12-day long descending trend-line at 75.76 acts as an immediate resistance to the pair ahead of highlighting 75.91/93 area comprising multiple tops since early-month.

In a case prices rally past-75.93, 76.00 and June-end high near 76.30 can please the bulls.

Meanwhile, a downside break of 4H 200MA level of 75.26 can quickly drag prices to 61.8% Fibonacci retracement of late-June advances, at 74.82.

Should there be additional declines beneath 74.82, June 20 bottoms surrounding 74.15 can gain sellers’ attention.

Further to note, 14-bar relative strength index (RSI), a momentum indicator, runs positive and away from the overbought region to favor further upside of the pair.

AUD/JPY 4-hour chart

Trend: Bullish

  • The Aussie remains firmly benefitted from the US Dollar (USD) weakness.
  • Exerting the downside pressure were threats to the trade deal between the US and China.
  • China trade balance will be the key to watch.

Chopped between the greenback weakness and disturbing signs for the trade deal concerning largest customer China, AUD/USD seesaws near 0.6975 amid initial Asian trading on Friday.

The USD continues to be on a back foot, despite upbeat inflation numbers, as the US Federal Reserve policymakers, including the Chairman Jerome Powell, hold their bearish bias towards monetary policy easing.

The global markets cheer easy monetary policy with Wall Street mostly holding their latest flight and the US 10-year treasury yield surging to a month’s high.

However, additional challenges to the US-China trade deal were raised by the US President Donald Trump’s tweet saying that China steps back from its promises to import more of the US farm products, coupled with negative comments about the dragon nation from one of his pick for the top military adviser.

Investors may now look forward towards the June month Trade Balance data from China to determine the near-term trading bias of the Aussie pair. Analysts at TD Securities expect soft trade numbers from China as they say:

We look for a deterioration in both exports and imports in June, with the former likely to drop by -3.0% and the latter by -9.2%. Weakness in trade continues to be signaled by forward looking indicators, with both new export orders and imports PMI, falling further into contraction territory in June. Additionally, exports from Korea to China continue to weaken, plunging by 24% y/y in June while imports are not much better, rising by only 1.2% y/y in the same months, adding further evidence to a softening in Chinese trade.

Technical Analysis

While 0.7000 round-figure and 100-day exponential moving average (EMA) level of 0.7016 can keep exerting downside pressure on prices, 0.6955 and 0.6910 numbers surrounding latest lows may limit the quote’s immediate declines.

A latest news report from Reuters depends upon two sources familiar with the matter while mentioning that the US has decided not to impose sanctions on Iranian Foreign Minister Mohammad Javad Zarif for now.

The news report further mentioned that the US Treasury Secretary Steven Mnuchin on June 24 had said Zarif would be blacklisted that week.

While the US move is considered to be diplomatic and can have a negative impact on oil prices, immediate market reaction to the same was null by the press time.

On early Friday in Asia, China’s press, namely South China Morning Post (SCMP), released a report that the US President Donald Trump’s nominee to lead the Joint Chiefs of Staff holds a bias against the dragon nation.

The report quoted General Mark Milley saying that China may remain the “primary threat” to the US military for as long as a century after learning how to fight more effectively by watching American wars in the Middle East. “China went to school on us,” the news report said the US top general further mentions in response to lawmakers’ questions during his confirmation hearing on Thursday before the Senate Armed Services Committee.

FX implication

Even if markets refrained from showing any immediate response to the news, latest tweets from the US President Donald Trump, mentioning China stepping back from the farm imports, could gain additional strength from the upbeat and might become another block during the road to a successful trade deal.

  • EUR/USD is consolidating below the 1.1260 resistance.
  • On the way down, the level to beat for sellers is 1.1245 and 1.1220.

EUR/USD daily chart

EUR/USD is in a bear trend below the 1.1300 mark. The market is trading just below the 100 SMA.

EUR/USD 4-hour chart

EUR/USD is declining from the 1.1273 resistance and the 200 SMA as the bears are trying to retake control of the market. On the way up, the main resistances are seen near 1.1320 and 1.1355 according to the Technical Confluences Indicator.

EUR/USD 30-minute chart

EUR/USD is consolidating below 1.1260 and the 50 SMA. The level to beat for bears is 1.1245 followed by 1.1220 according to the Technical Confluences Indicator.

Additional key levels

  • NZD/USD holds its strength as Fed policymakers keep their easing bias intact despite upbeat inflation numbers from the US.
  • The US-China trade war continues to look grim.
  • New Zealand Business NZ PMI, China Trade Balance are in the spotlight for now.

With the slew of dovish comments from the US Federal Reserve policymakers and the US President Donald Trump’s tweets raising further roadblocks for the US-China trade deal, the NZD/USD pair remains firm around 0.6660 at the start of the Asian session on Friday.

While the Fed Chair Jerome Powell reiterated his bearish wordings on the second day of Testimony, notable Fed policymakers like New York President John Williams and President of the Federal Reserve's Minneapolis branch Neel Kashkari added salvo to the US central bank’s dovish sentiment. However, markets seem to have priced for the show after Wednesday’s reaction.

Adding to the doubts surrounding less reaction to the Fedspeak could be upbeat inflation numbers from the US.

Exerting pressure on the momentum was the US President Donald Trump’s tweets that confirmed the latest speculations that China is stepping back from the US farm imports.

Moving on, June month New Zealand Business NZ Purchasing Managers’ Index (PMI) and China’s trade numbers will be in the spotlight of traders’ attention while keeping an eye over the trade-related news/headlines.

The New Zealand Business NZ PMI is expected to recover from 50.2 to 53.1 whereas China’s headline Trade Balance number could improve to $44.65 billion from $41.65 billion with likely upbeat imports to -4.5% from -8.5% and an expected drop in exports to -2.0% versus 1.1% previous readouts.

With New Zealand data just around the corner, TD Securities says:

With May BusinessNZ Manufacturing PMI falling to its lowest reading since Dec 2012 and the production component contracting sharply, the market will look to the June print for confirmation that manufacturing activity stalled in Q2.

Technical Analysis

Sellers seek a downside break of the 21-day exponential moving average (21-D EMA), at 0.6636 now, in order to aim for 0.6600 and latest low surrounding 0.6567 whereas bulls keep targeting 200-D EMA level of 0.6714 during further upside.