Sentiments were generally positive last week with US stock indices making new record highs. FTSE also extended the post Brexit rally even though it's halted by BoE's inaction. Overall, confidence in the markets came back as political situation in UK stabilized with Theresa May becoming the new prime minister. Also, there are expectations of more easing from central banks including BoJ and ECB. While BoE surprised the markets by keeping policies unchanged, it has clearly indicated that more easing is underway in August after getting the new economic projections with the next quarterly inflation report. RBNZ also hinted at further policy easing in August. Meanwhile, economic data in US indicated healthy state of the economy while Chinese data eased worries of sharpening slowdown. In the currency markets, Sterling ended as the strongest one, followed by Canadian and Aussie. Yen was the weakest major currency.
Fading risk aversion could be best seen in the sharp rise in treasury yields last week. 10 year yield in US posted the largest weekly advance since June 2015 while yields in Europe and Japan also rose. TNX closed at 1.594 comparing to recent low at 1.336. Technical development, with bullish convergence condition in daily MACD, argues that trend reversal could be underway. Though, TNX will first face resistance from 55 days EMA (now at 1.636) first. Sustained break there will bring it to another key structure resistance at 1.890. It should also be noted that rise in US yields also come along with revived expectations of Fed hike. Fed fund futures are now pricing in 43% chance of hike by December. And some analysts noted that, barring occurrence of anything drastic, the rate hike could come earlier than the current pricing.
DJIA made new record close at 18516.55 last week. The development confirmed resumption of long term up trend from 2009 low of 6469.95. Next near term target will be 61.8% projection of 15450.45 to 18167.63 from 17063.08 at 18742.22. Next medium term target will be 61.8% projection of 10404.49 to 18351.36 from 15450.56 at 20261.72. We'll hold on to the bullish view as long as 18002.32 support holds. Also, we'd maintain the view that strength in stocks would give Fed policymakers more confidence to deliver one, or even two rate hikes this year.
Dollar index struggled in tight range below 96.79 last week and there is no clear momentum for a breakout yet. But still, outlook stays bullish for the moment. Rise form 91.91 should still be in progress and break of 96.79 will target 100% projection of 91.91 to 95.96 from 93.01 at 97.06 next, with prospect of targeting 161.8% projection at 99.56. Also, the whole consolidation pattern from 100.39 could have finished with three waves down to 91.91 already too and the larger up trend might be resuming. Upside acceleration after breaking 97.06 will add more credence to this case. And in any case, this will be our preferred view as long as 95.33 support holds.
Regarding trading strategies, we're long USD/CHF at 0.9816 last week. The pair jumped to 0.9893 but retreated since then. Overall upside momentum is unconvincing with bearish divergence condition in 4 hours MACD. Our stop at 0.9750 wasn't hit yet. But we'd prefer to close the position first this week. On the other hand, we'll turn our focus back to Sterling. In particular, we'd like to point out that GBP/USD's rebound seems to have exhausted itself after hitting 1.3480, following BoE's in action. The message from BoE was clear, there will be easing in August and the question is just on the size and composition. Hence, we'll try to sell GBP/USD on break of 1.3103 minor support this week.