eFXplus DATA

The resilience of EUR/USD support in the face of huge speculative selling after the ECB pushed back the timing of its first hike is a strong indication that the pair has based or is close to basing.
The ECB was broadly interpreted as dovish yet EUR/USD took almost three weeks to trade under the low of May 29 at 1.1510 and in that period specs sold at least 7 billion reducing the net long position to just 4.5 billion euros by June 19.
It was not until June 21 that EUR/USD finally traded 1.1508.
Logically the net long position has been reduced further.
Such massive selling for almost no gain suggests there has been a meaningful change in factors determining direction.
The biggest of these is the CNY which has staged a rapid and huge turn lower undermining risk appetite and supporting big components of the TWI like the euro, and safer assets, again euro.
Risk aversion is likely to see SNB support EUR/CHF which will also prop EUR/USD.

• Thurs hammer (bullish) into Frid confirmation but stalling badly Mon
• Weekly hammer and close marginally above the weekly cloud
• Again early Monday action weakening the potential for a reversal
• Daily momentum remains negative and stochs are nearing over bought
• Lower 30DMA Bolli seen as key for this week's direction, 1.3160
• We have a bid at 1.3215 but will likely set a tight stop.

• IFO steady in May after 5 straight falls. F/c lower to 101.7 June
• If met 101.7 would be weakest for IFO since March 2017 nS8N1RV012
• Techs still bearish EUR/USD tested but closed below 21-DMA @ 1.1672 Friday
• Some factors turn against euro bears, finally big change spec bets IMM/FX
• Risk-off boosts USTs, yield down hard, removes main factor supporting USD
• USD/China @ root risk-off mood, EUR safer asset, weak CNY TWI supports euro

• USD/JPY -0.54%, AUD/USD -0.26%, AUD/JPY -0.79%, EUR/USD -0.04%
• USD/CNY +0.64%, USD/CNH +0.63%, USD/KRW +0.90%, USD/IDR +0.50%
• S+P Eminis -0.52%, N225 -0.71%, SSEC -0.14%, WTI -0.22%, UST 10y 2.8730%
• China cuts some banks' reserve requirements to boost lending nL4N1TR044
• US plans limits on Chinese investment in U.S. technology firms nL1N1TR01D
• IFR Europe Open:

• Fraction softer, GBP/JPY selling caps, as risk sold in Asia nL1N1TR01N
• EUR/GBP +0.1% - modest interest in GBP & EUR - focus on local markets
• Survey showed half of EU business leaders cut UK investment over Brexit
• Friday's 1.3265 close just failed to validate Thursday's bullish outside day
• Momentum studies conflict, neutral 5, 10 & 20 DMAs - little short term bias
• Asian 1.3234/1.3269 range is initial support/resistance

EUR/USD Neutral (since 05 Jun 18, 1.1700): EUR has moved into a consolidation range.

Our recent view that EUR “is not ready to reenter a bearish phase just yet” was proven right as it staged a strong up-move last Friday and hit a high of 1.1675. While this level was just below the ‘key resistance’ at 1.1680, the subsequent strong daily closing is enough to indicate that the recent downward pressure has eased. However, there is no change to the neutral outlook but EUR has likely moved into a consolidation range and is expected to trade sideways within a 1.1550/1.1750. On a shorter-term note, the positive bias suggests that EUR is more likely to test the top end of the range first.

GBP/USD: Shift from bearish to NEUTRAL: GBP has moved into a consolidation range.

We highlighted last Friday (22 Jun, spot at 1.3245) that the “bearish phase appears to be close to ending” and the subsequent break of the ‘stop-loss’ at 1.3290 indicates that the outlook for GBP has shifted to neutral. Last week’s 1.3102 low is deemed as a short-term bottom and the current movement is viewed as the early stages of a consolidation phase. The immediate bias is tilted to the upside but at this stage, any up-move is viewed as part of a 1.3175/1.3360 consolidation range and not the start of a sustained directional move

AUD/USD: Bearish (since 20 Jun 18, 0.7385): Bearish phase appears to be close to ending.

While we highlighted in the recent updates that the bearish phase in AUD is “approaching oversold levels” and indicated that any “weakness is likely limited to 0.7330, 0.7300”, the strong rally last Friday came as a surprise (AUD gained +0.83% and closed at 0.7439). However, the ‘stop-loss’ level at 0.7455 is still intact and only a break of this level would confirm an end to the current bearish phase. This scenario appears to be likely unless AUD can move and stay below 0.7375 within these 1 to 2 days.

NZD/USD: Neutral (since 22 May 18, 0.6945): NZD to consolidate and trade sideways.

Despite the sharp decline in NZD for most of last week, we held the view that only a “NY close below 0.6850” would indicate that NZD has moved into a bearish phase. NZD hit a low 0.6821 on Thursday (21 Jun) before rebounding to close well above 0.6850. After the second straight day of strong gains on Friday, downward pressure has eased and the risk of a shift to a bearish phase has diminished. That said, it is premature to expect a sustained up-move as NZD is more likely to consolidate its recent loss and trade sideways at these lower levels, likely between 0.6840 and 0.6975.

USD/JPY: Neutral (since 21 Feb 18, 107.35): USD has likely moved into a broad consolidation phase. No change in view.

USD edged above the top of our expected 109.10/110.65 consolidation range but slumped after touching a high of 110.75. The price action reinforces our current neutral view and we continue to expect USD to trade sideways, still likely within a 109.10/110.65 range.

• USD/JPY down more, combo trade war concerns/risk-off mood/lower US yields.
• From 109.99 early, down to EBS 109.46, nearing 109.34 55-DMA.
• Also nearing 109.20 low on June 8, break here and 109.00 bearish still.
• Risk off mood prevalent with Nikkei -0.5% at 22, 409, US Tsy 10s @2.870%.
• Below 55-DMA, 109.20 and 109.00, no tech support till 108.73 low June 1.
• IMM CTA overhang of JPY shorts helping USD/JPY push down nL1N1TO1J1.

• AUD/JPY selling in response to fall in S&P futures weighing on AUD/USD
• AUD/JPY 0.50% after WSJ report Trump plans more trade restrictions on China
• AUD/USD traded to 0.7444 earlier and now below 0.7430
• Resistance at 10-day MA at 0.7448 and 38.2 of 0.7677/0.7345 at 0.7472
• Hourly support at 0.7417 and break will shift pressure to the downside

• AUD goes into full Asia open flat with AUD/JPY -0.1% - news, but no impact
• Trade wars, EZ migrant impasse, & US political uncertainty weigh on cross
• Last weeks move towards base of the 80.50/84.50 AUD/JPY range failed
• Bullish outside day would be validated by a close above Fri's 81.92 top
• Horizontal daily cloud & Kijun lines suggest 82.50 level to remain a magnet
• Asian 81.56 low & NY 81.92 high initial support/resistance

• Flat - lots of news, Turkey, oil, EZ migration, China RRR cut, little impact
• Govt hit back at company Brexit uncertainty warnings last week nL8N1TQ09A
• Friday's 1.3265 close just failed to validate Thursday's bullish outside day
• Momentum studies conflict, neutral 5, 10 & 20 DMAs - little short term bias
• 1.3308/15 20 DMA & Ldn high then 1.3331, 61.8% June fall resistance
• Friday's Asian 1.3242 low then 1.3224 5 DMA initial support

• AUD/USD leads push back against dollar advance Friday as risk appetite rises
• Oil led commodity rally helps nL8N1TP09L, China RRR cut Sunday may aid
• Fall was over-extended after 4.3% near one-way move since 6 June 0.7677 high
• Rally ltd on global trade rows, CN eco concerns, Fed-RBA diverging rate path
• Immediate resistance at 0.7472-77, 38.2% of June fall & May 30 interim low
• Minor support 0.7410-15, stronger @ 0.7375-80, major support at 0.7327-29

Barclays Research discusses EUR/CHF outlook and adopts a mostly flat profile, targeting the cross at 1.15 by end of Q3, and at 1.16 by year-end.

"We envision less EURCHF appreciation over the forecast horizon. While we expect the SNB to maintain its commitment to intervene in FX markets to curb unwanted CHF appreciation, we no longer find the franc as materially overvalued even after the recent appreciation in May.

An escalation of protectionist rhetoric and subsequent worsening in risk sentiment adds upside risks to CHF, once again testing the SNB’s commitment to a weaker CHF, in the context of an ever-growing balance sheet (c.120% of GDP in Q1 18)," Barclays argues. 

Corrects typo in line 6

• GBP/USD weak into NY close, ending session 1.3260 +0.11%
• Pair backs away from Europe high 1.3315, trades 1.3302-1.3249 in NY
• Hawkish BoE lean aids GBP/USD rise, Pair needs follow-through on data
• Resistance at 30-DMA 1.3354 & Jun 7 high 1.3472, 200-DMA 1.3602 caps
• EUR/GBP ends NY +0.33% at 0.8791, NY range 0.8791-0.8756
• EZ, German PMI beats lift euro, Salvini EUR comments on BBG temper rise

The stage may be set for a big USD/JPY break lower, based on plummeting volatility, which is now near levels that preceded big moves in the past.
The pair has wandered directionless amid conflicting signals from risk aversion over trade-war fears and Fed-BOJ policy divergence.
Now, though, USD/JPY 21-day historical volatility is down to 5 -- near the the May, January and October nadirs at 4.95, 4.75 and 4.55. Those levels preceded sharp rebounds in volatility combined with a yen jump versus the dollar.
Disappointing Philly Fed and Markit Flash PMI readings may also hint at a data flow to support such a move. Trump's tariffs tweet today nL1N1TO0RJ also weighs.
A USD/JPY sell-off could get help from USD long profit-taking after EUR/USD held key 1.15 support and a big bearish divergence by the USD index.
May's low and high at 108.11 and 111.40 are initial vol spike targets, but a downtrend line from 2015 at 111.77, on EBS, looms large above.
A sub-109.84 close today would warn of at least a retest of May's lows.

ANZ Research adopts a tactically neutral view EUR/USD and mildly bearish on USD/JPY in the near-term.

"We expect EUR/USD to stabilise as: a) we have likely seen the bulk of the adjustment already (markets are now pricing just 10bp of a hike in December 2019, which is fairly dovish); and b) EUR/USD is now trading below fair value for the first time in a year (with 1.5–2% risk premium). For this cross to perform a sustained rebound, though, strength in the data flow is needed," ANZ argues. 

"While the yield differential plays in favour of the USD, heightened uncertainty around trade, which is keeping markets nervous, suggests the importance of rates as a driver of the JPY is set to diminish. Importantly, the JPY remains cheap relative to our expectations and, with heightened volatility likely to remain a feature of markets, we think more JPY strength is in store," ANZ adds. 

Even after Thursday's surprisingly hawkish BoE vote to hold rates steady, sterling may still struggle. Though futures show expectations for an August hike have risen to 50 percent today from 38 percent before the BoE meeting, the UK short-sterling curve is flattening, suggesting the market doesn't see the potential for UK rates to rise very far. Indeed, while short-sterling futures indicate the BoE will still be hiking after the Fed finishes its current hike cycle in December 2019, the rise in UK rates will be shallow and U.S. rates will still be double those in Britain by December 2021, according to the Eurodollar strip.
With that in mind, the recent GBP/USD rise should be seen as a mere short-covering rally.
Cable hovers below Friday's 1.3315 high by 1.3290, after Thursday's surprise rise in the BoE's hike vote.
A close above the weekly cloud top at 1.3256 would give the bulls some momentum, but bears will only become concerned with a close above the 30-DMA at 1.3356, which has capped GBP/USD since the April move lower.
See also Click here

MUFG Research discusses GBP/USD outlook and expects some modest gains in the near-term.

"Even after yesterday’s appreciation, GBP/USD remains 7.5% lower than the peak set in April and we continue to expect a period of consolidation at these levels with scope for some modest appreciation if the data is viewed as consistent with a rate hike in August.

That remains our call at this stage and with leveraged long GBP speculative positioning as a percentage of open interest below average, we see scope for some modest GBP gains ahead. Option flow data also indicates recent more extreme negative GBP sentiment," MUFG argues. 

• Cable met headwind at 1.3315 after vaulting 1.3300 (early Europe high)
• 1.3280 = subsequent pullback low. 1.3315 = 61.8% of 1.3446-1.3102
• 1.3446 was June 14 high after UK retail sales beat, pre-ECB rate guidance
• 1.3102 = Thursday's 7mth low, before 6-3 MPC rate vote shock boosted GBP
• 1.3270 (Thursday's high) is now a support level. 1.3242 was Asia low
• Airbus says no-deal Brexit would threaten its role in UK nL8N1TN6U6

• Short-covering aids AUD/USD rise to four-day high of 0.7437
• 0.7437 is just over 100 pips above Thursday's one-year low
• Risk-sensitive AUD benefiting from modest rise in risk appetite
• Pan-European STOXX 600 +0.6% nL8N1TO17V. Ldn copper +0.55% nL4N1TO2VP
• S&P e-mini +0.5%. AUD/USD resistance levels 0.7455 and 0.7480
• 0.7455 was Monday's high. 0.7480 was last Friday's high (June 15)

New Zealand's central bank is almost certain to be dovish at its interest rate setting meeting on June 28 and trigger a big NZD/USD drop.
Speculation that the U.S. and China may find a more amicable trade deal has led to a modest relief rally, with the NZD/USD recovering from its slide at the start of the week.
Yet with the greenback now backed by higher interest rates than the kiwi, the reaction to good news should be to sell NZD/USD not buy.
Old habits die hard though and independent of the USD, the NZD is still the highest-yield developed market currency so buying today has followed on the perception that better news could be in the offing.
That may well have set NZD/USD up for a fall with new RBNZ governor Adrian Orr likely to repeat the dovish line he offered at his first address just a few weeks ago nS9N1SG004nL3N1SH271.
Should that trigger a break of last year's low at 0.6781, NZD bulls will be very hard to find.