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

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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

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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

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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

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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

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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

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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

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Chart prepared by James Stanley