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Weaker-than-expected preliminary report of the German GDP growth in the Q2 managed to strengthen bearish sentiment in the EUR/USD pair. The Euro rose initially against the Greenback, but continued to trade below the 1.1763 mark. Though, during the Tuesday's session, the further direction would be determined by the US economic reports.

Destatis revealed that its preliminary estimate for the Germany's economic expansion rose 0.6% in the June quarter, following an upwardly revised 0.7% gain in the Q1. The country's economic growth was driven by higher industrial production and retail sales. However, risks of deterioration in the Euro zone's largest economy could result in more cautious ECB stance towards the next policy changes.

The dollar extends strong recovery rally on Tuesday to 110.46 (50% retracement of 112.19/108.72 downleg) after surge through important barrier at 110.00.

Fresh bullish momentum could drive the price higher for test of key barriers at 111.00 zone (Fibo 38.2% of 114.49/108.72 descend at 110.93/04 Aug post-NFP high at 111.04), break of which would generate another strong bullish signal.

Broken 110.00 hurdle (Fibo 38.2% of 112.19/108.72 bear-leg/10SMA) now acts as solid support.

US retail sales data are due later today and expected to further support the dollar on release at/above forecast for July at 0.4%.

Res: 110.61, 110.93, 111.04, 111.30
Sup: 110.00, 109.80, 109.60, 109.40

Cable remains in red on Tuesday, following previous day's bearish close and pressuring Friday's low at 1.2939 (reinforced by 55SMA).

The pair is awaiting UK inflation data for fresh signal (forecast for July is 2.7% vs 2.6% in June) and release at/above forecasted level would be supportive for renewed attempts towards key points: psychological 1.3000 barrier and 1.3031 (near-term congestion top / falling 10SMA).

Conversely, release below 2.7% would add pressure on sterling for final break below near-term congestion and risk extension towards 1.2857/48 (100SMA / Fibo 61.8% of 1.2588/1.3268 rally).

Res: 1.2970, 1.3000, 1.3031, 1.3054
Sup: 1.2930, 1.2900, 1.2857, 1.2848

The Euro extends lower in early Tuesday's trading after Monday's bearish Inside Day signaled fresh weakness, following repeated recovery rejection.

Additional pressure came on weaker than expected German Q2 GDP (0.6% vs 0.7% f/c) released at the beginning of European session that pushed the price below initial support at 1.1775 (hourly cloud base).

Next strong support at 1.1741 (rising 20SMA which tracks the uptrend since 27 June) is under pressure, with break here to open key near-term support at 1.1689 (09 Aug correction low) and risk an extension towards 1.1607 (Fibo 38.2% of 1.1188/1.1910 rally).

Broken hourly cloud base now acts as immediate resistance at 1.1775, followed by 10SMA at 1.1793, which caps today's action for now and hourly cloud top at 1.1811, break of which is needed to shift near-term focus higher.

Res: 1.1775, 1.1793, 1.1811, 1.1846
Sup: 1.1741, 1.1689, 1.1640, 1.160

Weekly
    •    Last Candlesticks pattern: Long white candlestick
    •    Time of formation: 16 Jan 2017
    •    Trend bias: Down

Daily
    •    Last Candlesticks pattern: Long white candlestick
    •    Time of formation: 18 Apr 2017
    •    Trend bias: Near term up

GBP/USD – 1.2961

Cable continued meeting renewed selling interest just above 1.3000 level and has remained under pressure, adding credence to our view that a temporary top has been formed earlier at 1.3269 and further consolidation below this level would take place with mild downside bias for a test of indicated previous support at 1.2933, once this level is penetrated, this would signal recent upmove is over, bring further fall to 1.2890, then towards previous support at 1.2812 which is expected to contain downside.

On the upside, whilst recovery to 1.3020-30 cannot be ruled out, reckon upside would be limited to 1.3055-60 and bring another decline later. A daily close above the Tenkan-Sen (now at 1.3105) would defer and risk a stronger rebound to 1.3150 and possibly towards 1.3200 but price should falter well below said resistance at 1.3269, bring another leg of corrective decline later. A daily close above 1.3200 would risk another test of said resistance at 1.3269 but break there is needed to confirm recent upmove has resumed and extend gain to 1.3300-10, having said that, loss of upward momentum should prevent sharp move beyond resistance at 1.3425 and price should falter well below 1.3500-05 (50% Fibonacci retracement of 1.5018-1.1986).



Recommendation: Sell at 1.3050 for 1.2850 with stop above 1.3150.  




On the weekly chart, the British pound ran into resistance at 1.3269 earlier this month and has retreated since, the black candlestick with a long upper shadow (shooting star alike) suggests a temporary top is possibly formed there and consolidation with mild downside bias is seen for test of the Tenkan-Sen (now at 1.2929),  a weekly close below this level would bring correction of recent rise to 1.2880-85, however, reckon downside would be limited to support at 1.2812 and downside would be limited to 1.2700-10, price should stay well above support at 1.2589, bring a rebound later.

On the upside, expect recovery to be limited to 1.3055-60 and bring such a retreat later to aforesaid downside targets. Above 1.3165 resistance would defer and suggest the retreat from 1.3269 has possibly ended, bring retest of this level, break there would extend the erratic rise from 1.1986 low for retracement of early downtrend to 1.3300-10 and 1.3350-60, however, near term overbought condition should limit upside to previous resistance at 1.3425 and reckon 1.3500-05 (50% Fibonacci retracement of 1.5018-1.1986) would hold, price should falter below 1.3670-75, bring another decline in Q4.

Weekly
    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 7 Mar 2017
    •    Trend bias: Sideways

Daily
    •    Last Candlesticks pattern: Morning star
    •    Time of formation: 9 May 2017
    •    Trend bias: Near term up

USD/CHF – 0.9733

Although the greenback retreated to as low as 0.9583 on Friday, dollar did find renewed buying interest there and has staged a strong rebound, suggesting the retreat from 0.9773 has possibly ended there and consolidation with upside bias is seen for gain to said resistance but break there is needed to signal another leg of rise from 0.9438 low is underway for further gain to resistance at 0.9808. Looking ahead, a break above this level is needed to retain bullishness and encourage for subsequent rise to 0.9845-50 (61.8% Fibonacci retracement of 1.0100-0.9438), having said that, near term overbought condition should limit upside to 0.9900-10 and price should falter well below psychological resistance at 1.0000, bring retreat later.

On the downside, whilst initial pullback to the Tenkan-Sen (now at 0.9678) cannot be ruled out, reckon the lower Kumo (now at 0.9652) would contain downside and bring another rebound later. Below 0.9630 would risk another test of said support at 0.9583 but break there is needed to shift risk to downside for weakness to 0.9550, then towards support at 0.9490. Only a drop below this level would abort and signal the rebound from 0.9438 has ended instead, risk retest of this level, once this support is penetrated, this would indicate recent decline from 1.0344 (2016 high) has resumed and extend weakness to 0.9390-00, then towards 0.9330-40.

Recommendation: Hold long entered at 0.9600 for 0.9800 with stop below 0.9640

On the weekly chart, although dollar’s retreat from 0.9773 formed a black candlestick last week and consolidation below this level would be seen, reckon downside would be limited to 0.9580-85 and bring another rebound, above said resistance at 0.9773 would add credence to our view that a temporary low is possibly formed at 0.9438 last month, bring retracement of recent selloff to 0.9805-08 (current level of the Kijun-Sen and previous resistance), above there would provide confirmation, bring subsequent gain to 0.9845-50 (61.8% Fibonacci retracement of 1.0100-0.9438) and possibly test of the lower Kumo (now at 0.9894) but price should falter below psychological resistance at 1.0000, bring another decline later.

On the downside, expect pullback to be limited to the Tenkan-Sen (now at 0.9606) and 0.9583 should hold, bring another rise later. Only a drop below support at 0.9490 would abort and suggest the rebound from 0.9438 has ended, bring retest of this level later. Once this recent low is penetrated, this would signal the decline from 1.0344 (2016 high) is still in progress and may extend weakness to 0.9350, then towards 0.9290-00, however, loss of near term downward momentum should prevent sharp fall below 0.9250 and reckon 0.9200-10 would hold from here, risk from there has increased for a rebound later.

North Korea's official news agency reported on Monday that leader Kim Jong Un will watch the actions of the United States for a while longer before making a decision to fire missiles at Guam. President Trump did not respond to this latest comment but Defense Secretary Mattis warned that the US Military is ready to intercept any missiles fired by North Korea. This latest 'war of words' relieved market concerns with a move away from safe havens and a degree of risk-on sentiment. To add to USD demand was the recent comments made by New York Federal Reserve President Dudley who, on Monday, suggested that if economic data holds up then it was not unreasonable to think that the FOMC would begin trimming its $4.2 trillion balance sheet next month and hiking interest rates by the years' end. In the early hours of Tuesday morning the minutes from the last Reserve bank of Australia policy meeting put the focus back on household debt. The RBA, in keeping to its monetary policy, commented for the 'need to balance the risks associated with high household debt in a low-inflation environment'.

EURUSD gave up recent gains as USD demand increased. Overnight EURUSD has traded as low as 1.1768 and currently trades around 1.1780.

USDJPY has gained over 0.7% overnight, reaching a current high of 110.42, as demand for safe haven JPY has diminished. Currently USDJPY is trading at the daily high.

GBPUSD is generally flat from last nights close. Currently GBPUSD is trading around 1.2965.

Gold declined 0.5% overnight, following comments from Kim Jong Un, to trade as low as $1,272.97. Currently Gold is trading around $1,275.

WTI fell on Monday as fears of falling oil demand in China overshadowed news that Libya's crude supply was disrupted. WTI added 0.2% overnight to currently trade around $47.75pb.

A plethora of US economic data will help give some indication as to whether H2 GDP will outperform H1. July retail sales are expected to rise from June, while housing starts and industrial production may be muted.

At 09:30 BST UK National Statistics will release Consumer Price Index (YoY) for July. Market consensus is calling for 2.7% from the previous reading of 2.6%. Inflationary pressure will add more credibility to a Bank of England rate hike later this year.

At 13:30 BST US Census Bureau will release Retail Sales (MoM) for July. Consensus is calling for a robust increase to 0.4% from the previous poor reading of -0.2%. An increase will help the FOMC adhere to their plans to have one more rate hike this year.

Market movers today

The UK CPI inflation figure for July released today is likely to at tract significant attention. The development of inflation will be scrutinised because it will be a key factor in t he BoE's decision of whether or not to hike rates before 2018.

In the US, retail sales figures for July are out today. We do not expect retail sales to deviate significantly from their only moderately growing trend. Overall, we expect consumption growth to continue at a decent pace, which should be mirrored by positive retail sales growth. Further, the Empire manufacturing PMI for August is also released today.

In the euro area, the first estimate of German GDP growth for Q2 is out . Throughout Q2, German activity indicators have reached historical highs signalling strong growth in Q2. The euro area reported quarterly growth of 0.6% last week and we expect a similar quarterly growth rate in Germany.

In the Scandi countries, Swedish CPI and CPI Figures for July are the main event today, where we expect CPI Ftobreach 2% (for further information, please see page 2). Additionally, we also get the Danish GDP indicator for Q2 and Norwegian trade balance figures.

Selected market news

Overnight , Asian equities followed US and European equities higher amid signs that a military conflict between the US and North Korea is not imminent . According to the North Korean news agency, North Korean leader Kim Jong Un is reviewing missile strike plans and said that he will watch what t he US is doing a “ little more”. Meanwhile, according to a Bloomberg story, the US defence secretary James Mat t is said t he US could “ take out ” any missile from North Korea and added that doing so “ could escalate int o war very quickly”.

President Trump yesterday signed a presidenial memorandum which will set in mot ion a US trade investigation of China's intellectual property policies, which could lead to new tariffs on Chinese import s. China react ed yesterday through st at e media warning the US to avoid “ making [a] rash decision”, signalling t hat t he investigation could poison the overall China -US relationship especially at a time when the two countries are trying to deal with the North Korea issue. The risk of an immediate trade war is unlikely however as a senior US official signalled that the investigation could take up to a year and would involve consultations with China.

Yesterday, New York Fed governor William Dudley signalled that another rate hike this year is very much on the cards and suggested that the Fed would announce its tapering plans next month. He also predicted inflation would move somewhat higher as the labour market tightens further. The markets are currently pricing in about a 40% chance of a rate hike at the December meeting. We continue to have as a base case that the Fed will hike rates in December, followed by one or two rate hikes next year.

USD/CHF - 0.9744

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9740

Kijun-Sen level                    : 0.9696

Ichimoku cloud top                 : 0.9629

Ichimoku cloud bottom              : 0.9628

New strategy  :

Buy at 0.9695, Target: 0.9795, Stop: 0.9660

Position : -

Target :  -

Stop : -

As the greenback has continued heading north after this week’s anticipated rally, suggesting the retreat from 0.9773 has ended at 0.9583, hence consolidation with upside bias remains for another test of said resistance, however, break there is needed to confirm early rise from 0.9438 low has resumed and extend gain to 0.9808 and possibly 0.9825 resistance, however, near term overbought condition should limit upside and price should falter below previous support at 0.9859.

In view of this, we are looking to reinstate long on pullback as 0.9695-00 should limit downside and bring another rise later. Below previous resistance at 0.9675 would defer and risk weakness towards 0.9640 but downside should be limited to 0.9615-20 and bring another rise later.

Gold is very heavy on the Daily chart and looks unstoppable. It should hit the warning line (WL1) in the upcoming days. The yellow metal could start another leg lower if the United States data will impress in the afternoon. The current drop is natural after the failure to reach and retest the 23.6% retracement level and the $1295 per barrel.