eFXplus DATA

CitiFX revises its expectations to the FOMC policy decision and now sees a 50bp rate cut in July now rather than 25bp. 

"CitiFX Strategy changed its July call from a 25bp rate cut to 50bp.

On the back of this, selling USD versus CAD, AUD and NOK is our preferred strategy," Citi notes. 

Adds reaction to report of Iran seizing a British oil tanker

• Pair slips in NY as US$ recovers losses driven by Fed's Williams on Thursday
• NY Fed walk-back of William, Clarida nL8N24K20T help weigh down EUR/USD
• Italian politics nL8N24K2X5 sink BTP & bund yields, DE-US spreads widen
• EUR/USD break the daily cloud base, nears July 18 low, little bounce seen
• Report Iran seizes a British oil tanker spikes US$ up, EUR/USD nears 1.1200
• Techs lean bearish again, RSIs drop, consolidation of recent fall persists
• S-T risks are bearish but break of l-t range seems unlikely

USD/JPY longs are at risk with the Fed being potentially forced to spearhead the fight against global yield curve collapses.
Indeed, those collapses threaten to exacerbate trade-related economic slowing by undermining the maturity transformation that modern banking is based upon.
It's no coincidence that the Fed has reversed its tightening bias this year, along with the ECB, BOJ and other central banks.
This as they all try to minimize the risks from inverting yield curves and negative interest rates.
Sub-zero Japanese and EZ rates have hurt net interest margins for lenders, hurt aging savers and forced lenders and investors to seek higher returns in ever-riskier assets.
This week's earnings reports from U.S. banks showed pretty consistent NIM weakening.
Since early 2017, Treasury, Bund and JGB 2-10-year yield spreads have collapsed toward zero, and only recently have slowed as the central banks have hinted at rate cuts.
But the Fed is only one of the three with positive rates.
So, if yield curves don't recover soon, say from the U.S.-China trade war de-escalating, the Fed will have to cut rates sharply versus very limited potential ECB and BOJ reductions.
This should weaken USD/JPY, which would also be a headwind for Japan's export-oriented economy.

TD Research discusses the scope of an FX intervention by the US administration to weaken the USD.

"Currency intervention is the new talking point in markets. The president has tried to jawbone the USD lower since day one and yet the combination of late cycle stimulus and a global trade wars blunted his effort," TD notes. 

"Now, with those economic diminishing the mere threat of intervention is enough to knee-cap the USD. In turn, intervention seems unlikely, especially if natural forces already want to pull the USD lower," TD adds. 

• EUR/GBP eyes 0.8956 (last Friday's low) after extending south from 0.8997
• 0.8997 was early Europe intra-day high (0.8996 was Tuesday's low)
• Higher chance of ECB rate cut next week is helping weigh on the euro
• See: nL8N24K28E. Brexit remains the dominant influence over GBP
• 0.9051 was recent six-month high for EUR/GBP on no-deal Brexit fear
• Merkel sees scope for Irish backstop to be overwritten nL8N24K2PL

Bank of America Merrill Lynch Global Research discusses the current market conditions and sees various risk factors coming to a head in the fall, similar to the conditions we saw last year.

"Trade war, Brexit, Middle East tensions, fraying Japan and Korea relations and Washington DC misstep all loom in the outlook.

Two silver linings exist: (1) Trump is very reluctant to impose broad-based tariffs. (2) Fed has signaled preemptive easing," BofAML notes. 

"The bottom line is that, for now, investors can continue to bask in the glow of Fed-fueled financial markets. Once that burns out and the rains arrive, the picture could look a lot different," BofAML argues. 

MUFG Research discusses EUR/USD tactical outlook and adopts a bearish bias going into next week ECB meeting, expecting the pair to trade downward in a 1.1350-1.1050 range.

"Next week could prove pivotal for euro direction.  It has the potential to shake the euro out of its current tight trading against the US dollar. EUR/USD has consistently found support between the 1.1100 and 1.1200-levels for most of this year," MUFG notes. 

"The main event in the week ahead will be the ECB’s latest policy update. We expect the ECB to strike a more dovish policy tone and back it up by delivering a 0.20 point rate cut...In these circumstances, we judge that the balance of risks for the euro is skewed to the downside. The close proximity of the FOMC meeting at the end of the month could act as dampener on downside potential though," MUFG projects. 

• Wed doji top into bearish Thurs confirmation and 21DMA test Frid
• Profit locked for 0.9025 short as a long upper wick forms on Frid candle
• Support points close by, 21DMA at 0.8972 and July 12 0.8956 low
• 14-day momentum still bullish but expect bearish confirmation next week
• Wkly candle set to record long upper wick Frid, further endorsing bear bias
• Potential weekly rounding top and cloud twist attraction, 0.8860

• More AUD/USD stops may be sheltering above 0.7091 (200-day moving average)
• Stops above 0.7050 were tripped Thursday, en route to 0.7082 (16-week high)
• A dovish steer from Fed's Williams was the catalyst for the 0.7050 break
• See: . Retreat from 0.7082 based just shy of 0.7050
• Offers ahead of 0.7050 capped AUD/USD gains last week, and on July 4
• Big 0.7050 option expiries next Wednesday/Thursday, A$2.7bn strikes

• Potential double base at 107.21 as market finds its feet: good bids touted
• Sharp two-day slide from 108.33 meets bids and early Frid rebound to 107.70
• BeaR trend from 108.99 July 10 alive but abv 108.00 and bias questioned
• Weekly Doji gives potential warning that supply is fading
• 109.30 weekly cloud twists Aug and Dec could also attract the market
• Key bigger picture levels are at 106.78 and 108.99

• Pullback from 1.1282 saps Wed-Thurs bull momentum
• 21DMA at 1.1286 key: avg rejected price on 11-15 Jul
• Converged 10 and 55DMas just stalling the drop at 1.1240-42
• There is fresh weight in the market and bulls not in control
• Cloud base now pivotal at 1.1227 along with week's 1.1200 low
• Potential wkly hammer candle but flat averages highlight range trading
• 1.1106 and 1.1412 the key range parameters

• GBP/USD looks set to continue its slide if 1.2625 resistance holds
• Ceiling of weekly Bollinger downtrend channel key to bearish view
• Psych barrier at 1.2000 becomes more attractive target for shorts
• Brexit negativity priced in, but USD tad oversold by twitchy traders
• Mild rebound in UST yields aiding recovery of USD across the board
• NY Fed clarified William's comments not about policy move

EUR/USD: 

24-HOUR VIEW EUR could continue to trade in a choppy manner, likely within a 1.1220/1.1290 range. The sudden pickup in volatility was unexpected as EUR reversed an initial dip to 1.1203 and surged to an overnight high of 1.1280 (before dropping quickly after NY close). The rapid swings amidst mixed momentum indicators suggest EUR could continue to trade in a choppy manner, likely within a 1.1220/1.1290 range.

1-3 WEEKS VIEW EUR is expected to trade with sideways. After the sharp drop on in EUR on Tuesday, we indicated on Wednesday (17 Jul, spot at 1.1210) that EUR is “expected to trade with a downside bias”. We noted the lackluster momentum and held the view that EUR “is unlikely to accelerate lower”. That said, the rapid bounce during NY hours yesterday (after dovish Fed-speak) came as a surprise. The strong 1.1260 resistance was easily breached (high of 1.1280) and the mild downward pressure has dissipated. The outlook for EUR is mixed from here and it is likely to trade sideways in an ‘undecided’ manner, likely between 1.1200 and 1.1320 range.

GBP/USD: 

24-HOUR VIEW Scope for GBP to edge above last week’s 1.2580 peak, the next resistance at 1.2615 is likely out of reach. The strong advance in GBP yesterday came as a surprise as it cracked a couple of major strong resistance levels with ease and soared to a high of 1.2558 during late NY session. While the rapid rise appears to running ahead of itself, there is scope for GBP to edge above last week’s 1.2580 peak but the next resistance at 1.2615 is likely out of reach. Support is at 1.2495 but the stronger level is at 1.2460.

1-3 WEEKS VIEW GBP is likely to trade sideways. The manner of which GBP recouped the sharp decline from earlier this morning came as a surprise. GBP soared by +0.93% (largest 1day gain in 2-1/2 months) and easily took out our 1.2490 ‘key resistance’. The break of 1.2490 nullified our view from Tuesday (17 Jul, spot at 1.2430) wherein we expected GBP to “trade towards 1.2340”. While the sharp bounce yesterday suggests Tuesdays (17 Jul) low of 1.2382 could be a short-term bottom, it is too early to expect a sustained rebound. From here, GBP is likely to trade sideways, even though the immediate bias is for it to probe the top of the expected 1.2430/1.2640 range first.

AUD/USD: 

24-HOUR VIEW AUD is expected to consolidate its gains and trade sideways, likely within a 0.7035/0.7085. AUD not only rocketed past the strong 0.7050 resistance, it also cracked 0.7070 and registered a 3-month high of 0.7075. While further AUD gains would not be surprising in the coming days, the short-term rally is running too fast, too soon. That said, it is too early to expect a sustained pull-back. AUD is more likely to consolidate its gains and trade sideways at these higher levels. Expected range for today, 0.7035/0.7085.

1-3 WEEKS VIEW Strong upward pressure could lead AUD to 0.7110. After ‘hesitating’ below the major 0.7050/70 resistance zone for a couple of days, AUD suddenly blew past these major resistance levels and closed at a 3-month high of 0.7075 (thanks to dovish Fed-speak). As highlighted since Tuesday (16 Jul, spot at 0.7040), if AUD were to move and stay above 0.7070, it could extend its gains to 0.7110. All in, the mid to long-term outlook for AUD has turned brighter and if it can clear the major 0.7110 hurdle, it would suggest last month’s 0.6832 low could be a significant bottom (from the perspective of multiweeks). Meanwhile, the strong upward pressure in AUD could carry it higher to 0.7110 (next resistance is at 0.7150). On the downside, only a break of the 0.7000 ‘key support’ (level was a strong support at 0.6980 yesterday) would indicate that the current ‘positive phase’ in AUD has ended.

NZD/USD: 

24-HOUR VIEW NZD is likely to consolidate its gains and trade sideways, likely within a 0.6755/0.6495 range. NZD cracked the 0.6740 resistance level convincingly and surged to a 3-1/2 month high of 0.6786. The rapid rise is running ahead of itself, further NZD gains appear unlikely for today. NZD is more likely to consolidate its gain and trade sideways, likely within a 0.6755/0.6795 range.

1-3 WEEKS VIEW Chance for NZD to extend its gains to 0.6815, as high as 0.6835. We have held the same view since Tuesday (16 Jul, spot at 0.6720) wherein a “sustained NZD strength only if NZD were to close above 0.6740 in NY”. We added yesterday (18 Jul, spot at 0.6730) that “if NZD were to close above 0.6740, a break of 0.6780 would not be surprising”. NZD subsequently surged during NY hours yesterday and quickly exceeded 0.6780 (high of 0.6786). The faster than expected pace of advance has resulted in a strong pick-up in momentum and from here, we see chance for NZD to extend its gains to 0.6815, even as high as 0.6835. Only a break of the 0.6725 ‘key support’ (level was a strong support at 0.6685 yesterday) would indicate that the current ‘positive phase’ has ended.

USD/JPY: 

24-HOUR VIEW USD could dip below the overnight low of 107.20 but 107.00 would not be an easy While we expected USD to weaken yesterday, the rapid and sharp drop to an overnight low of 107.20 came as a surprise. Despite the bounce from the low, the underlying tone remains soft and from here, USD could dip below the overnight low but 107.00 would not be an easy support to crack. Resistance is at 107.75 followed by 108.00. The latter level is acting as a very strong resistance now.

1-3 WEEKS VIEW USD is expected to trade with a downside bias. The sideway-trading phase that started last Thursday (11 Jul, spot at 108.30) ended abruptly when USD crashed through the bottom of the expected 107.50/108.95 range and registered the largest 1-day decline in about one month (107.29, -0.60%). Despite the sharp decline, we have doubts about the sustainability of any USD weakness. That said, the immediate risk is tilted to the downside. For now, we expect USD to trade with a ‘downside bias’ towards last month’s 106.77 low. At this stage, the prospect for a sustained move below this level is not high. On the upside, only a move above the strong 108.20 resistance would indicate that the current downward pressure has eased.

• EUR/USD recovers from dip caused by clarification on Fed Williams speech
• NY Fed rep says Williams speech academic, not about potential policy actions
• Williams speech had led to jump in Fed rate cut expectations
• Chances of Fed 50 bps "insurance" rate cut in July now at 42%, down from 65%
• Continuing speculation on more ECB stimulus, Italy politics cap euro rally
• 1.1200-1.1300 range rules; only loss of 1.1180-90 removes threat of gains

• AUD/USD surged past 0.7000 and above Ichimoku Cloud top Thurs
• Inside Bollinger uptrend channel - base converges with Cloud at 0.7034
• Closing above 200 DMA at 0.7091 would confirm third bullish signal
• Rally triggered by very dovish-sounding Fed's Williams
• NY Fed clarifies the speech was not about potential policy move
• But damage done to USD, momentum selling may continue in near term

• USD/JPY rallies 0.3%, NY Fed says Williams speech not about potential policy
• His earlier comments had led to jump in aggressive Fed rate cut expectations
• Chances of Fed 50 bps "insurance" rate cut in July now at 42%, down from 65%
• USD rally fades, traders convinced Fed pressing case for aggressive cuts
• Support 107.20-30, 107.00; resistance 107.60, 107.80-85
• Related : [

• AUD/USD jumps 0.95% as Fed officials cement aggressive rate cut expectations
• Chances of Fed 50 bps "insurance" rate cut in July soars to 65%
• Trade war, benign inflation force departure from Fed "patience " on rates
• Take it easy: central bank U-turns loosen financial conditions nL8N24E0K9
• Fed rate stance contrasts with RBA in "wait and see" mode after its 2 cuts
• Pair nears pivotal 200-DMA @ 0.7091; no daily close above since Mar15,2018
• Above 0.7120 opens 0.7200-06, support 0.7045-50, 0.7000-10; buy dips

ING Research discusses EUR/CHF, and flags a scope for move towards 1.05 over the Summer.

"If we believe that conviction levels of ECB easing grow this summer, we should expect EUR/CHF to stay pressured. While the SNB’s nominal trade-weighted CHF index is on its highs, the inflation-adjusted ‘real’ index is not," ING notes. 

"This latter measure of the CHF is some 5% off the highs seen in summer 2015 (largely due to low inflation in Switzerland relative to trading partners) and a retest of that 2015 high would equate to EUR/CHF hitting the 1.05 area. That seems quite a conservative target for EUR/CHF this summer," ING adds. 

Adds Williams content

• GBP/USD rallies into NY close, +0.77% at 1.2525, NY range 1.2528-1.2429
• UK ret sales beat nL9N1WP01O and soft Brexit tones nL8N24J2NQ lift
• Dovish comments by Fed's Williams gives added push higher nN9N23A01H
• GBP sellers take a break; but Brexit, low-growth fears linger
• Irish PM: will listen to alternatives to N.Ireland backstop nS8N21L010
• EUR/GBP dips below 0.90, -0.39% to 0.8995 as softer Brexit tones boost GBP

With bullish factors taking hold, AUD/USD longs may be on the verge of making some big gains.
Indeed, Australian June jobs data showed the unemployment rate sticking at 5.2%, which could make the RBA uncomfortable.
The elevated participation rate, which suggests a robust jobs market, is helping to keep the unemployment rate at current levels though.
Bolstering views of a buoyant employment picture was full time employment coming in at 21.1k versus the prior 2.4k.
As a result, Australian-U.S.
yield spreads tightened while 3-month bank bill futures prices YBAM0 dipped slightly.
This suggests lower chances for RBA rate cuts.
Currently 19bps of RBA cuts are priced in to Q-2 2020 versus nearly 95bps of Fed cuts for the same time period.
The expected rate path disparity, and upbeat Australian job market, helped drive AUD/USD towards 0.7050 option barriers.
Technicals suggest a break of that barrier is likely as RSIs are biased up, the daily cloud top has been pierced and a long legged doji is forming for July.
A break of the barrier, and the April 30 high, will encourage bulls.
The 200-DMA and 0.7140/60 zone can then be targeted.