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US Dollar Pulls Back, GBP/USD Bounces on Hawkish BoE Twist

Price action and Macro.

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Talking Points:

- The British Pound is bouncing after a hawkish twist at this morning’s BoE rate decision, and GBP/USD is rallying after running into a key Fibonacci level earlier this morning at 1.3117. The MPC voted 6-3 to hold rates flat, but the fact that there were three dissenting votes cast in favor of a rate hike today was a bit more hawkish than what was expected. In response, odds for a rate hike at the BoE’s August rate decision have increased, and spot prices in the British Pound have moved along with it. The big question at this point is one of continuation potential, and for that traders will likely be closely evaluating data in the coming weeks in the effort of evaluating the likelihood of a potential move. Inflation data will likely be key, and May produced a second consecutive month at a yearly low of 2.4%. We have one more inflation report ahead of that August BoE rate decision.

- The US Dollar is pulling back after setting another fresh 11-month high earlier today. This was helped in part by another wave of selling in the Euro, but just like we saw in late-May, sellers got shy as we approached the 1.1500 handle and prices began to pullback from the swing-low around 1.1510. This opens up a couple of different ways of approaching the short-side of the pair, looking for either a bearish breakout below the 1.1500 psychological level or by trying to be patient to await a pullback to the resistance zone that runs from 1.1685-1.1736.

- DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

BoE Votes 6-3 to Hold Rates Flat – Focus Moves to August ‘Super Thursday’ Rate Decision

This morning brought the Bank of England’s June rate decision to the table, and there was a surprisingly hawkish twist at this meetings. The MPC voted 6-3 to hold rates flat, but the fact that three members voted for a rate hike today was a bit more hawkish than what was expected. Probably one of the more notable traits of that vote was the fact that one of the dissenters was the Bank of England’s Chief Economist, Andy Haldane.

The net price action response thus far has been a bounce in the British Pound as rate hike bets around the BoE for August have increased; and GBP/USD has started to rally after having earlier tested the 50% retracement of the Brexit move at 1.3117. This was the initial target in the short-side breakout setup that we looked at earlier in the week, and now prices are testing above short-term resistance, indicating that we may have seen a near-term low in the pair.

The excitement around the British Pound is not yet finished for this week, as we have the Mansion House Speech with BoE Governor, Mr. Mark Carney, on the calendar for later today, set to begin at 4:15 PM ET.

GBP/USD Daily Chart: Bounce From Fibonacci Support After BoE

GBP/USD gbpusd daily chart

Chart prepared by James Stanley

On a shorter-term basis, potential resistance exists a bit-higher on the chart at the area around 1.3300; and the next major zone of potential resistance after that is the area that runs from 1.3450 up to 1.3500. If prices are able to overtake the 1.3500 area, then we have the potential for an extended move of strength as we approach that August rate decision.

GBP/USD Four-Hour Chart: Deeper Resistance Potential

GBP/USD gbpusd four hour chart

Chart prepared by James Stanley

Key for that meeting will be the next UK inflation print that we receive in July with June data. Given that the August BoE meeting takes place on August 2nd, that means we get one more inflation print ahead of that ‘Super Thursday’ rate decision, set to be delivered in mid-July. This comes after May inflation came-in at 2.4% for a second consecutive month which, despite being the lowest level of inflation in over a year, has been enough to prod the BoE into a more-hawkish stance.

UK Inflation Remains at One-Year Low of 2.4% For Second Consecutive Month in May

UK CPI Inflation Back to February, 2017

Chart prepared by James Stanley

US Dollar Pulls Back From Fresh 11-Month Highs

Going along with this move of GBP/USD strength has been a pullback in the US Dollar. This Dollar weakness is at least somewhat driven by an abysmal print from the Philly Fed Manufacturing Index this morning, which came in at 19.9, well-below the expectation for a print of 29.0 and a prior 34.4.

This comes shortly on the heels of another extension in the bullish run after the currency set a fresh 11-month high earlier on the day. This was a failed test of the 95.50 area, and the big question now is whether we can get a deeper pullback towards prior support around 94.50 or, potentially, a deeper zone that runs from 94.20-94.30. That second area is a confluent zone that had helped to form resistance on a couple of different occasions in May and June.

US Dollar via ‘DXY’ Four-Hour Chart: Pullback from 11-Month High Exposes Deeper Support Potential

US Dollar usd four-hour chart

Chart prepared by James Stanley

EUR/USD Holds Support at 11-Month Low

EUR/USD got another bearish push in the overnight session as political risk from Italy re-emerged. This helped to propel the pair down to that prior 11-month low around 1.1510 but, again, bears failed to push through similar to what was seen in late-May. The pullback in the US Dollar mentioned above is likely assisting with the retracement, and prices are now back-up to yesterday’s high. This helps to illustrate the challenge with triggering short positions currently, similar to what we wrote earlier in the week.

With prices having bounced ahead of the 1.1500 psychological level, now on two different occasions, the big question is whether bears will have the motivation to produce a deeper sell-off while the pair remains oversold. This can open the door to a couple of different approaches: Either look for short-side breakout entries after a break of 1.1500, coupled with a quick break-even stop move to protect the position in the event that it produces a false breakout. Or, try to utilize patience and let prices move back to find resistance at a key zone of prior support. Such an area exists around 100 pips-higher on the chart, running from 1.1685-1.1736.

EUR/USD Daily Chart: Bounce from 2018 Swing-Low, Remains Below 2017 Bullish Trend-Line

EUR/USD eurusd daily chart

Chart prepared by James Stanley

Japanese and Canadian Inflation Reports Await

With the two big Central Bank meetings out of the way for this week, focus moves towards a couple of inflation reports set to be released later tonight and early tomorrow. Japan reports May inflation data at 7:30 PM, and Canada reports tomorrow morning at 8:30 AM.

In USD/JPY, the pair continues to trade in a tepid manner. Yen strength showed earlier in the week as risk aversion remained prominent in equities, but USD/JPY has recovered somewhat from that previous downdraft. At this point, we have prices resisting on the underside of a prior bullish channel, with respect to the prior swing-high at 110.90.

USD/JPY Four-Hour Chart: Back to 110.00 After Resistance at Prior Trend-Line Support

USD/JPY usdjpy four hour chart

Chart prepared by James Stanley

In USD/CAD, the pair has been in the midst of a near parabolic-like move over the past week, with a minimum of pullback seen in the bullish trend. The big question in the pair is whether we get another challenge of the 1.3400 area on the chart as there are a couple of key Fibonacci areas within a rather small range. At 1.3376 we have the 50% retracement of the 2016-2017 bearish move, and at 1.3385 we have the 76.4% retracement of May-September, 2017 bearish trend.

USD/CAD Daily Chart: Aggressive Bullish Move Towards Confluent Zone Around 1.3400

USD/CAD usdcad daily chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX




DXY Index, EUR/USD Inside Day Candlesticks Take Shape

News events, market reactions, and macro trends.

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Talking Points:

- A stronger Chinese Yuan fix has helped ease concerns over an immediate response by China as trade tensions with the US rise once more.

- GBP/USD remains pressured as traders eye another crucial Brexit vote in the House of Commons.

- Retail traders have yet to abandon their bearish US Dollar outlook.

Looking to learn more about how central banks impact FX markets? Check out the DailyFX Trading Guides.

The US Dollar (via DXY Index) has failed to break through the weekly highs established yesterday, setting up the development of an inside day candlestick pattern. To little surprise, EUR/USD, as 57.6% of the DXY Index, is also carving out an inside day candlestick.

A quick recall of recent price action helps put these inside day bars in proper context. Inside days are typically viewed as pauses or potential turning points in trends, meaning that the US Dollar's recent bullish run - and the Euro's bearish slide - is entering a critical juncture.

DXY Index Price: Daily Timeframe (July 2017 to June 2018) (Chart 1)

DXY Index, EUR/USD Inside Day Candlesticks Take Shape

The DXY Index continues to contend with 95.17 - the high from the July 20, 2017 bearish outside engulfing bar, as well as the October and November 2017 swing highs. But until a daily close through 95.17 is achieved, traders may be best suited to be a bit more patient approaching new long USD-pair trades; the inside day bar that is forming suggests that recent buy signals issued by MACD and Slow Stochastics may be 'false starts.'

Elsewhere, in light of a rather absent economic calendar for the third day in a row, traders should continue to keep their attention honed in on the news wire (when they're not watching the World Cup). Later today, the British Pound will take the spotlight as the UK's House of Commons will be voting on a bill to determine whether or not Parliament has a say in the Brexit negotations.

Similar to the vote held last week, concerns are afoot that the passage of the amendment would bind UK Prime Minister Theresa May's hands with respect to the negotiations, raising the possibility of a no-deal, or hard Brexit, outcome. The uncertainty around the Brexit negotiations has in turnundercut August BOE rate hike odds, which have fallen to 45% today from their peak of 62% in the first week of June.

Read more: DXY Index Hits Yearly High as China-US Trade Tensions Rise

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX




British Pound May Rise as the BOE Revives 2018 Rate Hike Bets

Fundamental analysis, economic and market themes

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TALKING POINTS – BANK OF ENGLAND, POUND, SNB, NEW ZEALAND DOLLAR

  • British Pound may rise as the BOE upgrades official rhetoric
  • SNB unlikely to budge from the ultra-loose policy status quo
  • NZ Dollar sinks after disappointing 20-year bond sale results

Monetary policy announcements from the SNB and the Bank of England are in focus in European trading hours. The former is almost an afterthought. The dovish stance adopted by the ECB suggests that the Swiss central bank is likely to retain its ultra-accommodative posture, lest a drop in the EUR/CHF exchange rate undermine hard-fought progress toward rekindling inflation in recent months.

Meanwhile, the BOE Governor Mark Carney and company might offer a lift to the British Pound. No change in rates is expected but the recent pickup in economic activity might inspire a slightly more assertive tone. That might remind investors that the MPC is still aiming for a hike as its next move, marking up the probability that the increase occurs sometime before the calendar turns to 2019.

The New Zealand Dollar underperformed in Asia Pacific trade. The currency shrugged off in-line first quarter GDP data but selling pressure mounted after yields fell at a 20-year bond auction. The average rate fell to 3.26 from 3.39 percent when analogous paper was sold two months ago. That this happened even as demand weakened – the bid-to-cover ratio fell from 2.65 to 1.16 – may imply a dovish shift in RBNZ policy bets.

The anti-risk Japanese Yen and Swiss Franc declined as a lull in the US-China trade war narrative allowed for a broader recovery in sentiment across most regional bourses. The US Dollar pushed higher alongside front-end Treasury bond yields in what looked like an upshift in the expected Fed rate hike path following hawkish comments from Chair Jerome Powell at the ECB Forum in Sintra, Portugal.

See our free guide to learn how to use economic news in your trading strategy!

ASIA PACIFIC TRADING SESSION

British Pound May Rise as the BOE Revives 2018 Rate Hike Bets

EUROPEAN TRADING SESSION

British Pound May Rise as the BOE Revives 2018 Rate Hike Bets

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter




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