EUR/GBP Fundamental Forecast – July 25, 2016

The EUR/GBP added 74 points as the pound continued to decline on weak services PMI. New Prime Minister Theresa May said that there would be no Brexit negotiations until the new year. Draghi trotted out his usual message that the bank stood ready to act “using all the instruments available within its mandate”. The situation has become further complicated with the recent Brexit vote, as Britain, the second largest economy in Europe, will be soon be waving goodbye to the EU. Recent data in both the UK and Europe point to weaker consumer indicators, but the markets will have to wait until September for some hard numbers to begin to gauge the effect of Brexit on the Eurozone and British economies.
There were no surprises from Eurozone PMI reports, and the euro remains almost unchanged. German and Eurozone Manufacturing PMIs came in at 53.7 and 51.9 respectively, indicating expansion. However, French Manufacturing PMI came in at 48.6 points. This indicator has managed to crack the 50-point threshold.
Sterling dived and gilts rose on Friday after surveys showed business activity shrinking at a fast pace after the shock Brexit vote last month, bolstering expectations the Bank of England will have to do more next month to stimulate growth.
The PMI survey of services sector purchasing managers fell to 47.4 in July from 52.3 in June, marking the steepest drop since records began in 1996 and the lowest reading since March 2009. Economists polled by Reuters had expected a much smaller fall to 49.2.

GBP/USD Fundamental Forecast – July 25, 2016

The GBP/USD took a hard down turn today falling 130 points to trade at 1.3102 after Services PMI fell and the US dollar rallied. The manufacturing PMI fell to 49.1 from 52.1 in June, the lowest since February 2013. The composite index, which combines services and manufacturing, slumped to 47.7 from 52.4, the weakest reading since April 2009.
Markit said that if the PMIs stayed at these levels, they would be consistent with the economy shrinking at a quarterly pace of 0.4 percent, a rate of decline not seen since the 2008-09 recession.
Sterling has been supported this week by hawkish comments from two BOE policymakers. Kristin Forbes said on Thursday the central bank should not rush to cut interest rates, mirroring comments from Martin Weale, who also he was unsure if he would back a rate cut at next month's meeting.
That was at variance with the opinions of most other rate setters. The BoE said last week that most of the nine members of its Monetary Policy Committee expected to give the economy more help at their next meeting in early August.

EUR/JPY Fundamental Forecast – July 25, 2016

The EUR/JPY took its clues from the USDJPY which is steady in the morning session. There has been little action in the currency markets with a lack of economic data on the schedule in the morning. The ECB held rates and policy as expected and Mario Draghi kept his tone rather subdued causing no volatility in the markets. The big focus is now the Bank of Japan meeting next week. The pair is trading at 116.66.
The ECB held rates at record lows as it seeks to revive growth and inflation with cheap credit to the economy. It left the door open to more policy stimulus, highlighting "great" uncertainty and abundant risks to the economic outlook.
Media reports Thursday said the Japanese government is arranging to compile an economic stimulus worth Y20 trillion ($ 187 billion) to vault Japan out of more than a decade of deflation. The stimulus is higher than the originally envisaged Y10 trillion worth package, due to inclusion of infrastructure-related outlays and the use of low-interest government loans, the reports said.
The reports caused a positive surprise, with investors scrambling to sell the Japanese currency from earlier in the session. "Expectations (for Tokyo's strong policy steps) have been maximized," said a market analyst.
Investors' expectations have already remained high since Prime Minister Shinzo Abe recently pledged to compile comprehensive and bold steps. Mr. Abe's meeting earlier month with former Federal Reserve Chairman Ben Bernanke, an advocate of monetization, has fueled speculation that he might be considering the use of 'helicopter money,' where a central bank directly underwrites government borrowing.

USD/JPY Fundamental Forecast – July 25, 2016

The USD/JPY was steady in the morning at 105.83 as traders become focused on the Bank of Japan meeting this coming week. There is a possibility that BoJ might put off stimulus until the end of the summer. The U.S. dollar fell against the Japanese yen on Thursday after Bank of Japan (BOJ) Governor Haruhiko Kuroda dismissed the idea of stimulating the Japanese economy with "helicopter money."
In an interview released Thursday by a British media, Kuroda said there was no need to inject money directly to business and consumers. His words lowered market expectation for more stimulus measures from BOJ' s next policy meeting on July 29.
The Japanese currency rose more than 1 percent in wake of Kuroda' s comments on Thursday. The dollar index, which tracks the greenback against six major peers, was down 0.23 percent at 96.980 in late trading.
On the economic front, the U.S. Labor Department announced Thursday that in the week ending July 16, the advance figure for seasonally adjusted initial jobless claims was 253,000, a decrease of 1,000 from the previous week' s unrevised level.
Asian stocks dipped early on Friday after weak corporate results halted Wall Street's record run overnight, while the yen held to large gains made after the Bank of Japan's governor downplayed the need for "helicopter money" monetary policies.

NZD/USD Fundamental Forecast – July 25, 2016

The NZD/USD tumbled 5 points as the greenback made up its losses on Thursday. US data was once again on the positive side with unemployment claims falling and existing home sales soaring. The lack of data and information from China has left the commodity currencies with uncertainties. The kiwi is trading at 0.6991 ahead of the RBNZ upcoming meeting. The Reserve Bank has driven the exchange rate down after it signaled a likely cut in the official cash rate next month and raised the possibility of another reduction further down the track.
While yesterday's action inspired just a half a US cent decline in the New Zealand dollar, the Reserve Bank's announcement this week of tighter loan-to-value ratio requirements, together with a lower-than-expected 0.4 per cent increase in the CPI for the June year, has helped drive the currency down by just over 5 points.
The Reserve Bank is mandated to keep annual inflation within a 1 to 3 per cent range and very low inflation is seen as a risk to the economy as it gets close to deflation - when prices fall.
The Reserve Bank will issue a statement giving its view on the economy in an off-schedule announcement, which it said fills the gap between the June and August monetary policy statements.
News of the upcoming unexpected announcement prompted investors to speculate governor Graeme Wheeler wasn't happy with the strength of the kiwi and its deflationary effect, and the introduction new property lending restrictions earlier this week will make it easier for the Reserve Bank to cut the official cash rate next month. Traders are now pricing in an 83 percent chance of a reduction, up from 40 percent before the RBNZ said it would update the market.

AUD/USD Fundamental Forecast – July 25, 2016

The AUD/USD saw a big fall to trade at 0.7468 down by 25 points as traders prepare for central bank meetings. With no stimulus from the BoE and the ECB traders moved away from commodity currencies. Earlier in the Asia session, the Reserve Bank of New Zealand signaled an interest-rate cut next month, saying inflation remains stubbornly low and the currency is too strong. "At this stage it seems likely that further policy easing will be required to ensure that future average inflation settles near the middle of the target range," RBNZ Governor Graeme Wheeler said in a statement. The Australian dollar continues to sink, weighed down by growing bets that the Reserve Bank of Australia (RBA) will cut interest rates in less than two weeks’ time along with ongoing US dollar strength.
With nothing else of note on the calendar, headlines relating to the Bank of Japan’s monetary policy meeting next Friday, and as a consequence USD/JPY, will likely be influential. As is the case on quiet data days, the performance of Chinese stocks, the USD/CNH and crude oil futures may also sway the Aussie.
The Australian dollar has edged lower as traders wait on next week’s quarterly consumer prices data, which could trigger a Reserve Bank rate cut.
“With a near 60 per cent probability priced in for an August Reserve Bank rate cut, there has been little appetite to chase Aussie moves lower,” OANDA Australia and Asia Pacific senior trader Stephen Innes said.

USD/CAD Fundamental Forecast – July 25, 2016

The USD/CAD gained 22 points to trade at 1.3108 as the greenback turned stronger. Oil prices recovered a bit but remains near its bottom while gold eased a few dollars. The US Dollar index, as published by the Wall Street Journal, ended yesterday at 97.10. The day before Brexit, this index was at 93.37. On May 2, it was 92.64.
The officials at the Federal Reserve are still searching for a monetary policy. In all probability, we will not really see a coherent monetary policy coming out of the Federal Reserve for quite some time.
As far as the growth of the domestic economy, there is little that the Fed can do to produce much more rapid expansion. The Fed officials believe, given their published projections, that the US economy will only grow at about 2.0 percent over the next several years…barring another recession, of course.
And, this performance will continue to be one of the stronger economies in the developed world. This will mean that other central banks will be looking to protect their economies and err on the side of too much monetary ease.
The loonie largely moves with the price of oil, and after falling more than 30 per cent over the past several years, it bottomed out around 68 cents U.S. at the start of 2016, with oil testing levels below $30 per barrel.
But since then, oil and the loonie have bounced back somewhat, with the dollar rising as high as 79 cents U.S. this spring.

EUR/USD Fundamental Forecast – July 25, 2016

The EUR/USD dipped 9 points as the greenback rallied. The euro is trading at 1.1017 remaining in its recent trading range and showing no reaction to Mr. Draghi’s press conference and the ECB decision yesterday. The euro strengthened against most major rivals in the early European session on Friday, after data showed that the flash Eurozone composite purchasing managers' index fell less than expected in July.
Data from the Markit showed Eurozone private sector expanded at the weakest pace in one-and-a-half-years in July. The flash composite output index fell to 52.9 in July, an 18-month low, from 53.1 in June. Nonetheless, the score was above the expected level of 52.5.
The services Purchasing Managers' Index dropped marginally to 52.7 from 52.8 in June. The score was expected to drop to 52.3.
Also, Germany's private sector expanded at the fastest pace in seven months in July. The flash composite output index rose to 55.3 from 54.4 in June. The index reached its highest level in 2016 so far with both manufacturers and service providers reporting stronger expansions.
The services Purchasing Managers' Index climbed unexpectedly to 54.6 from 53.7 a month ago. It was forecast to drop to 53.2.
The manufacturing PMI dropped less-than-expected to 53.7 from 54.5 in the previous month. The score was expected to fall to 53.4.
On Thursday, the ECB followed the cue of the BoE and did not lower the benchmark rate of 0.00%. There had been some speculation that the bank might extend its QE program of €80 billion/mth beyond March 2017, but ECB head Mario Draghi did not bite. Draghi claimed that the asset-purchase program had been “quite successful”, an assertion that many market players would dismiss as positive spin, given current inflation levels are nowhere near the ECB’s stated target of around 2 percent.

USD/JPY Forecast July 25, 2016, Technical Analysis

The USD/JPY pair initially tried to rally during the course of the session on Friday, but stalled in the middle of the day. At this point in time, looks as if the 105 level will be tested for support, and if we can get a supportive candle or a bounce from there would be a nice buying opportunity. If we broke down below the 104 level, then we will drive down to the 103 level. At this point though, I do believe that this market does continue to go higher but may have to grind sideways in the meantime.

EUR/JPY Forecast July 25, 2016, Technical Analysis

The EUR/JPY pair initially tried to rally on Friday, but then turn right back around form a bit of a shooting star. We look very likely to grind a bit lower, but I think that the 115 level should continue to be supportive, as it was such a resistive barrier previously. Also, you have to keep in mind that the European Union has quite a bit of negativity attached to it, and as a result it makes sense that people would rather own the Japanese yen. With this, the market should continue to sell off but I do recognize that there is a lot of support just below that 115 handle.
If we rally, we could go as high as the 120 level, especially if we can break above the top of the shooting star from the Friday session. That of course shows strength, but I don’t think that this would be an easy move to have. That move would more than likely cause quite a bit of volatility, so therefore you would have to be able to either hang onto that type of trade, or simply buy every time it dips and show signs of support because I do think that it would be very back and forth in its attitude.
I don’t think that we are able to break above the 120 level anytime soon, because it is such a major resistance barrier. That would in fact have the Euro showing real strength that it doesn’t have at the moment, as we have seen it fall against the US dollar and break down below the bottom of the consolidation area that it had been trading in recently. This shows that the Euro is losing strength overall, and truthfully I believe that the only reason we have bounced in this market is that the Bank of Japan looks very unlikely to stay quiet about the strengthening Japanese yen. While they may or may not intervene, the most certainly will do some type of quantitative easing if this keeps up. That of course will drive down the value of the Yen but we have bigger problems in Europe in my estimation.

EUR/USD Forecast July 25, 2016, Technical Analysis

The EUR/USD pair broke down below the bottom of a couple of hammers during the Friday session, so therefore if you we are getting ready to go even lower. I think that the 1.09 level will be targeted first, and then eventually we will try to work our way all the way down to the 1.05 level over the longer term. Short-term rallies offer selling opportunities, as the European Union continues to see money flow across the Atlantic Ocean into the United States. With all the uncertainty in the EU, I don’t see any reason why this trend changes but I do not expect some type of meltdown.

GBP/USD Forecast July 25, 2016, Technical Analysis

The British pound fell again during the day on Friday, as we continue to grind our way down towards the 1.30 and a. There is quite a bit of support just below though, so having said that it’s not necessarily going to be easy to search selling here. I would prefer to see some type of rally that sells off that we can get involved in on shorter-term charts more than anything else. A break down below the 1.29 level would free this market to go down to the 1.25 level after that. I have no interest in buying the Euro at the moment.

NZD/USD Forecast July 25, 2016, Technical Analysis

The NZD/USD pair went back and forth during the course the day on Friday, hovering around the 0.70 level. Quite frankly, this is a market that looks like it’s ready to grind sideways as we are sitting on top of a pretty major supportive area, and with that being the case I feel that it’s only a matter of time before this market continues to go higher, perhaps trying to return to the overall consolidation which has a ceiling at the 0.73 handle. If we break down below the 0.69 level however, I feel that the market within drop down to the 0.67 level.

AUD/USD Forecast July, 25, 2016, Technical Analysis

The AUD/USD pair fell during the course of the day on Friday, as we continue to see this market soften. However, there is quite a bit of support just below as there is quite a bit of bearish pressure on the Aussie at the moment. The US dollar is starting to strengthen, but given enough time it looks as if the gold markets could turn around, and if they do the Australian dollar may get a little bit of a left. I believe that this is a very volatile market, so having said that it’s difficult to trade.

EUR/GBP Forecast July 25, 2016, Technical Analysis

The EUR/GBP pair went back and forth during the course of the day on Friday, essentially forming a slightly positive candle. Ultimately though, this is a market that looks like it’s essentially stuck in consolidation at this point in time. I believe that we eventually go higher, so short-term pullbacks might offer buying opportunities, but quite frankly this is a market that I am very happy to be on the sidelines in at this point in time. After all, there are easier trades out there to place at the moment after the British vote.