USDJPY and EURGBP

The equity markets rallied some more yesterday with the vast majority of the selloff from the all-time highs last week retraced in the US markets. The European and the Wall St 30 indexes are lagging but have made gains over the last two sessions. There is a chance that they will be impacted once again in the event of another leg lower. Resistances and moving averages are being tested as resistance, with the US 10-Year Treasury testing the 200 Day moving average. The main highlight on the calendar today is the ECB Monetary Policy Statement and rate decision. The rates are expected to be left unchanged at 0.00%. ECB President Lagarde is expected to be grilled in detail about the central bank’s new inflation target of 2% and how they will support the economy for the remainder of the pandemic. This will set up next week’s FOMC meeting on Wednesday with the focus shifting to whether the FED will taper its accommodative monetary policy and the timeframe for such a move. The fly in the ointment for such a move is the spread of the Covid delta variant in the US. Reports are suggesting that the true spread of the variant is being underreported due to the milder symptoms among the vaccinated population. Cases in the US have reached the 60,000 level and this followed the predicted increase in cases from socialising during the Independence Day holiday weekend. Hospitalisations are also increasing as are the number of patients in intensive care. Reports released yesterday suggest that the Johnson vaccine may need a booster shot to increase its effectiveness. The report is yet to be peer-reviewed. UK cases are also increasing as restrictions are abandoned. The fear in the UK is that the delta variant will mutate into a strain that can evade the protective effects of the vaccines. The government is holding firm that the reopening will stay on track but concerns are mounting that schools may not reopen fully in September. The nightmare scenario is that the virus mutates and begins to sicken children, who have so far been spared the worst effects of the virus. The Japanese 225 closed up 0.58% today. The Hang Seng traded up 1.64% while the Shanghai Composite traded higher by 0.22%. Gold is trading at 1798.00 while USDJPY is trading at 110.180. 

Today UK MPC Member Broadbent will speak this morning. UK CBI Industrial Order expectations are expected to drop to 16 from 19. The ECB will release its Monetary Policy Report and rate decision followed by a press conference. US Unemployment Claims are expected to come in at 350K from 360K last week. US CB Lending Index is expected to drop to 0.8% from 1.3%. Eurozone Consumer Confidence is expected to remain at -3. US Existing Home Sales are expected to rise to 5.89M from 5.80M.

USDJPY

The USDJPY moved lower after the trend line was broken around the 110.100 area earlier this month. Price action reached a high around 111.659 to start the month. Price is now trading at the 110.195 area. Resistance may be seen around the rising trend line at 110.600. The 109.500 area may be supportive followed by the 109.185 area. The 109.000 level is expected to be used to consolidate price action in the short term followed by supports at 108.570, 108.200 and 108.000. The 107.500 area may be supportive and is followed by the 107.060/107.000 area. The 106.225 area may act as support in the event of a deeper pullback, followed by 106.000 and 105.700. Price has now bounced up above the November high and is attempting to turn this level to support at 105.680. The 105.000/104.925 area may also be supportive followed by 104.350. The trend line is today just below the 104.000 round number and the 103.330 area may act as potential supports. A retest on the trend line at 103.600 cannot be ruled out. The 102.900/102.800 area may also provide some support on a break of 103.000 followed by the 102.500. This is in turn followed by potential support at 102.275. The 102.000 level may be used in price break this potential support with a view to testing down into 101.000.

For the present the trend line is acting as resistance and price would have to break above the line to test the 111.000 level in the short term. The 111.665 area held as resistance and the 111.355 area needs to be gained in order to retest this level. A rally above the 111.200 level may seek to take price up to engage the 111.500 area of resistance which is followed by the 111.800 area. This area is followed by 112.000, with a breakout to the high at 112.227 potentially on the cards if this level is breeched. The lower high at 111.700 may also act as resistance. A break above this area may open the path to the pair potentially attempting to gain a foothold above this resistance and establish a base to engage the 113.000 area. A break above this level may seek to test the 114.000 level followed by the potential resistance at 115.000. 

EURGBP

The EURGBP pair moved back up through the broken falling trend line in April and is continuing its consolidating phase with a downward bias. The pair broke down from the March high at the 0.9500 level and is currently trading around 0.8591 after finding support at 0.8472 in April. The pair tested 0.9292 in December and has created lower highs at 0.9230 and 0.9217. Resistance comes into play at 0.8600. Further resistance may be seen at the 0.8628, 0.8670 level and the 0.8700 area. The 0.8600 area is being tested at present as the price action forms a flag across it and 0.8530 is being tested as support, followed by 0.8500, which was tested yesterday as the low, and the 0.8450 area. The 0.8562 level was used as support in May and is now an element of the key area which is currently being tested. The low at 0.8276, from December 2019, and then the 0.8250 level may also be used as potential support for the pair. 

Resistance may form above 0.8600 potentially setting up a short squeeze scenario if the 0.8670 and 0.8700 levels are broken and confirmed. The 0.8670 are held as resistance this week and price has reversed lower under 0.8615. Previous resistance may be encountered at 0.8740 followed by 0.8800. Further resistance is used at 0.8866 or 0.8900/0.8930 followed by the 0.9000 round number level in the event of a retracement higher. Above this 0.9050/0.9065 may provide resistance followed by 0.9084 area. The area above 0.9100 may continue to offer resistance, with a focus on 0.9150 followed by 0.9177. The 0.9200 round number may provide further resistance followed by the 0.9235 area. A move back higher from there targets the 0.9250 area, followed by the higher high at 0.9275. Above this area, the 0.9290/0.9300 area comes into play followed by the August high around 0.9323. The current high at 0.9500 remains the level to beat for buyers. A break higher may seek to test the 0.9550/0.9560. Beyond this, the potential resistance area at 0.9620 might be used ahead of the 0.9700 level. The next area of interest may be found at 0.9720, followed by 0.9750 which may also be used as resistance to any potential move higher, while above the area the 0.9800 area may further resist attempts to push price up to the 0.9900 level. The round number level may also come into play at 1.0000. 

Philip Konchar

Core Spreads

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