The GBP remained pressured against a number of its counterparts, as Brexit developments seem not to be agreeing with the market. The outcome of the EU elections added pressure on the Tory party which landed fifth and the Labour party which landed third, while Nigel Farage’s Brexit Party came out as the clear winner, with the Liberals as second best. The results provided a boost for Brexit hardliners in the race to succeed Theresa May within the Tory party and as PM of the UK. It was evident that despite UK Foreign minister Hunt stating that a hard Brexit would equal a “political suicide”, hard Brexiteers, including frontrunner Boris Johnson, signaled that they are ready for it as a possible option, should Brussels not reopen the negotiations. We expect the pound to remain under pressure, in the near term yet the downside for the sterling may be slowly draining out. GBP/JPY dropped a bit further yesterday, testing the 138.18 (S1) support line, yet was not able to break it. The pair’s direction has been under guidance of a downward trendline incepted since the 7th of May, hence we maintain a bearish bias for the pair’s further direction. It should be noted that the 138.18 (S1) seems to be providing some support to the pair, yet for us to switch our bearish outlook for a sideways movement we would require the pair to clearly break the prementioned downward trendline. Should the bears maintain control over the pair’s direction, we could see it breaking the 138.18 (S1) support line and aim for the 137.23 (S2) support level. Should the bulls take over, we could see the pair, breaking the downward trendline and aiming for the 139.45 (R1) resistance line.
BoC interest rate decision
Today at 14:00 (GMT) Bank of Canada is expected to release its interest rate decision and is widely expected to remain on hold at +1.75%. Currently CAD OIS imply a probability of 100% for the bank to do so and we are inclined to concur with that scenario for fundamental reasons as well. Market focus could be on the accompanying statement and given that the bank relented its hawkish bias in its last meeting we could see the bank maintaining a neutral tone, maybe with some dovish elements. Uncertainty in the global macroeconomic and trade conditions as well as some soft financial data back home seem to strengthen arguments for such a stance. Should the bank have a clear dovish stance in its accompanying statement, we would not be surprised to see the Loonie weakening. USD/CAD rose yesterday, yet remained within its recent sideways movement between the 1.3510 (R1) resistance line and the 1.3425 (S1) support level. Should the BoC interest rate decision contain substantial dovish elements in its content, we could see the pair rising. Should the pair’s long positions be favored by the market, we could see it breaking the 1.3510 (R1) resistance line and aim for higher grounds. Should the pair come under the selling interest of the market, we could see it aiming the 1.3425 (S1) support level.
Other economic highlights, today and early tomorrow
Today during the European session, we get Frances preliminary CPI (EU Normalised) rate for May as well as its GDP growth rate for Q1 and Germany’s unemployment data for May. In the American session we get the BoC interest rate decision, while tomorrow during the Asian session we get Australia’s Building permits for April. As for speakers BuBa president Weidman and ECB Mersch are speaking. Also note that ECB’s Financial stability review and New Zealand’s annual budget are to be released.
GBP/JPY
Support: 138.18 (S1), 137.23 (S2), 135.95 (S3)
Resistance: 139.45 (R1), 140.85 (R2), 142.15 (R3)
USD/CAD H4
Support: 1.3425 (S1), 1.3360 (S2), 1.3290 (S3)
Resistance: 1.3510 (R1), 1.3590 (R2), 1.3660 (R3)
