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Euro drops sharply and broadly today on renewed concerns over recession on gas crisis. The common currency is also taking other European majors lower. Dollar and Yen are currently the strongest ones on risk aversion. Commodity currencies are also weak, with Aussie shrugging of RBA rate hike. Nevertheless, Canadian Dollar is relatively resilient

Technically, EUR/USD's break of 1.0339 support confirms down trend resumption. One focus is now on when GBP/USD would follow and break through 1.1932 support. Another focus is whether Dollar's strength is enough to power AUD/USD through 0.6762 low, and USD/CAD Through 1.3077 high.

In Europe, at the time of writing, FTSE is down -1.91%. DAX is down -2.47%. CAC is down -2.47%. Germany 10-year yield is down -1.006 at 1.234. Earlier in Asia, Nikkei rose 1.03%. Hong Kong HSI rose 0.10%. China Shanghai SSE dropped -0.04%. Singapore Strait Times dropped -0.52%. Japan 10-year JGB yield dropped -0.0080 to 0.218.

European gas prices surge on Norway strike

The selloff in Euro intensifies today on the back on heightening gas crisis, which could drag the economy faster and deeper into recession.

Norway's Equinor is temporarily shutting down three oil and gasfields after workers went on strike. The Norwegian Oil and Gas Association has warned that could cut the country's daily gas exports by 13%. The country has supplied 20-25% of gas demand in Europe. The disruption comes at time as the Russia is already weaponizing its gas supply after Europe responded to its invasion of Ukraine.

Dutch front-month gas futures, the European benchmark, continued ti surge to highest level in four months. UK equivalent prices had jumped another 10% while Germany 2023 power is trading at record.

UK PMI services finalized at 54.3, remained in expansion

UK PMI Services was finalized at 54.3 in June, up from May's 53.4. S&P Global said there was solid rise in business activity, but new work lost momentum. Business expectations slumped to the weakest level since May 2020. Input costs inflation held close to May's survey-record high. PMI Composite was finalized at 53.7, up from May's 53.1.

Tim Moore, Economics Director at S&P Global Market Intelligence: "The service sector remained in expansion mode during June, but persistently high inflation has started to dent discretionary spending and negatively influence demand projections across the board... June data highlighted the second-fastest rise in input prices since the survey began 26 years ago, driven by intense wage pressures and rapid increases in fuel costs... Service providers are casting a nervous eye over their sales momentum and forward bookings, which led to a slump in business activity expectations to their lowest since May 2020."

Eurozone PMI composite finalized at 52 in Jun, risk of economic decline in Q3

Eurozone PMI Services was finalized at 53.0 in June, down from May's 56.1, a 5-month low. PMI Composite was finalized at 52.0, down from May's 54.8, a16-month low.

Looking at some member states, Spain PMI composite dropped to 3-month low at 53.6. Ireland dropped to 16-month low at 52.8. France dropped to 14-month low at 52.5. Germany dropped to 6-month low at 51.3. Italy dropped to 5-month low at 51.3.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: "The sharp deterioration in the rate of growth of eurozone business activity raises the risk of the region slipping into economic decline in the third quarter. The June PMI reading is indicative of quarterly GDP growth moderating to just 0.2%...

"The manufacturing sector is already in decline, for the first time in two years, and the service sector has suffered a marked loss of growth momentum amid the cost of living crisis.... risks have increasingly tilted towards the economy slipping into a downturn at the same time that inflationary pressures moderate but remain elevated."

RBA hikes 50bps to 1.35%, more to come

RBA raised cash rate target by 50bps to 1.35% as widely expected.  It also increased the interest rate on Exchange Settlement balances by 50bps to 1.25%.

It also maintains tightening bias. "The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead," it said. The timing and size of future hikes will be guided by the incoming data and assessment of the outlook for inflation and the labor market.

RBA also pointed to "behaviour of household spending" as one source of domestic "ongoing uncertainty". Global outlook "remains clouded" by war in Ukraine and the impacts of energy and agriculture prices. There are also ongoing uncertainties related to COVID, especially in China.

Also from Australia, AiG Performance of Construction dropped sharply form 50.4 to 46.2 in June.

New Zealand business confidence dropped to -65 in Q2

New Zealand NZIER Business Confidence dropped from -40 to -65 in Q2. A net 65% of firms surveyed expected general business conditions to deteriorate. That's the weakest level since Q1 2020.

NZIER said: "For the June quarter, firms saw activity in their own business remaining subdued. Besides the continued uncertainty over the COVID-19 outbreak, businesses are also grappling with the intensification of cost pressures and higher interest rates."

China Caixin PMI services rose to 54.5 in Jun, composite rose to 55.3

China Caixin PMI Services rose from 41.4 to 54.5 in June, above expectation of 49.0. That's the highest level since July 2021, signaling strongest upturn in business activity for 11 months. There were renewed increase in overall sales, despite slight drop in export orders. Inflationary pressures weakened. PMI Composite rose from 42.2 to 55.3.

Wang Zhe, Senior Economist at Caixin Insight Group said: "Overall, regional Covid outbreaks were put under control and restrictions were loosened in June, facilitating a gradual recovery in business operations. The supply side was the first to reflect improvements in production and logistics, while it will take more time to restore demand. The rebound in the services sector, which was hit harder by Covid outbreaks, was stronger than that of the manufacturing sector. Job creation lagged behind these positive developments, with the gauge for employment remaining in contractionary territory. Manufacturers still faced high cost pressure and profit challenges."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0406; (P) 1.0435 (R1) 1.0452; More...

EUR/USD's down trend finally resumes and intraday bias is back on the downside. Next target is 1.0090 long term projection level. On the upside, above 1.0448 minor resistance will delay the bearish case and turn intraday bias neutral again.

In the bigger picture, the break of 1.0339 long term support (2017 low) indicates resumption of whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. Sustained break there will pave the way to 100% projection at 0.8694. IN any case, outlook will stay bearish as long as 1.0786 resistance holds, in case of recovery.

Economic Indicators Update

The selloff in Euro intensifies today on the back on heightening gas crisis, which could drag the economy faster and deeper into recession.

Norway's Equinor is temporarily shutting down three oil and gasfields after workers went on strike. The Norwegian Oil and Gas Association has warned that could cut the country's daily gas exports by 13%. The country has supplied 20-25% of gas demand in Europe. The disruption comes at time as the Russia is already weaponizing its gas supply after Europe responded to its invasion of Ukraine.

Dutch front-month gas futures, the European benchmark, continued ti surge to highest level in four months. UK equivalent prices had jumped another 10% while Germany 2023 power is trading at record.

Even though Bitcoin and most cryptocurrencies finished last week on the wrong foot, they quickly gained back some lost ground on Monday benefiting from a slight rebound in investor sentiment. The largest cryptocurrency by market capitalization reclaimed the crucial $20,000 psychological level but this recovery does not stem from any positive fundamental developments in the crypto space. The crypto Fear and Greed Index remains tilted in the extreme fear territory as markets remain short of convincing evidence that macro and idiosyncratic jitters are waning, thus further downside could be in the cards.

Cryptos continue to track stock market performance

European stock markets are in the green today, building on solid momentum as they also closed higher on Monday, capitalizing on mild risk-on sentiment triggered by Wall Street’s rebound on Friday. Moreover, US stock futures are in the positive region today, with markets eyeing the release of the Fed’s latest meeting minutes on Wednesday for clues as to whether the Bank will proceed with a softer monetary tightening on signs that inflation in the US is peaking. This latest relief rally in equity space has spilled over to crypto markets, dragging most cryptocurrencies higher despite the plethora of bearish crypto headlines.

Another potential reason why Bitcoin recouped some losses could be the tweet from the CEO of Binance regarding news that the Bank for International Statements (BIS) would allow commercial and investment banks to keep 1% of their reserves in Bitcoin. Thus, should banks start accumulating Bitcoin that would account for 1% of their total reserves, this would amount to trillions of dollars being invested in Bitcoin, propelling its price a lot higher than the current levels.

Systemic risks mount adding to an already bearish macro environment

Bitcoin’s year-to-date decline is largely attributed to the ongoing monetary tightening alongside global fears over inflation and growth slowdown. However, the downfall has been exacerbated by regulatory woes, idiosyncratic risks of the digital asset universe and operational crackdowns among crypto financial service providers. On Monday, a Singaporean crypto lender called Vauld paused withdrawals, trading and deposits on its platform, citing extremely volatile market conditions.

Furthermore, the cryptocurrency hedge fund Three Arrows Capital fell into liquidation after defaulting on a more than $660 million loan from Voyager Digital. On a similar note, Meta, the parent company of Facebook, announced that it will shut down its digital wallet Novi in September 2022, terminating the project in its pilot stage due to the recent mayhem in cryptocurrency markets. The ongoing market crash has been continuously exposing flaws and failures in several cryptocurrency projects and business models, delivering significant blows to the trustworthiness of the broader crypto space.

Technical picture remains intact

Although Bitcoin's price managed to recover from its fresh 18-month low of $17,588 and jump above the $20,000 mark, it remains below the 200-week simple moving average (SMA), which is essentially the bottom of all its previous bear market cycles.

If negative momentum strengthens, the 2022 low of $17,588 may act as the first line of defense. Sliding beneath this crucial support, the price would descend to form fresh multi-year lows, where the next significant barrier could be found at the August 2020 resistance of $12,500.

On the flipside, bullish actions might encounter initial resistance at the 200-week SMA, currently at $22,459. An upside violation of the latter may pave the way for the $28,737 level, which is the 61.8% Fibonacci retracement of the 3,850-68,999 upleg.

EURGBP sellers came in with force during early European trading hours on Tuesday, squeezing the price beneath the protective 20-day simple moving average (SMA) and towards an intra-day low of 0.8566.

The quick bearish correction also pierced the 38.2% Fibonacci retracement of the long-term 0.9228 – 0.8201 downleg at 0.8594, which has been limiting both upside and downside pressures over the past two months, and breached the steeper ascending trendline.

If the bears secure a close below the 20-day SMA, the decline could initially test the 50-day SMA at 0.8525 ahead of the 0.8500-0.8483 support zone. Sliding lower, the pair may head directly towards the flattening 200-day SMA and the 23.6% Fibonacci of 0.8444. Another failure at this point could spur further selling towards the 0.8378 handle.

Although the RSI and the MACD are painting a blurry picture for short-term trading, with the former inching below its 50 neutral mark and the latter deviating below its red signal line, an upside reversal above the 38.2% Fibonacci of 0.8594 could see the pair re-challenging the 0.8679 bar once again. If efforts prove successful this time, the price could advance towards the 50% Fibonacci of 0.8715, a break of which could clear the way towards the tough resistance line currently seen around 0.8770.

In conclusion, EURGBP technical signals seem to be leaning on the downside, as the price is aiming for a close below the 0.8583 support region. The 50-day SMA at 0.8525 will be the next target if sellers keep the market below that threshold today.

The Australian dollar is sharply lower on Tuesday. In the European session, AUD/USD is trading at 0.6796, down 1.0% on the day.

RBA hikes by 0.50%, Aussie plunges

The RBA delivered a 0.50% rate hike for a second straight month, bringing the cash rate to 1.35%. The central bank has now hiked by 1.25% since May, marking the fastest series of moves since 1994. This aggressive stance didn’t do anything for the volatile Australian dollar, which has plunged over 1% today.

There had been some uncertainty as to whether the RBA would hike by 0.25% or 0.50%. However, when Governor Lowe warned that inflation could hit 7% by the end of the year, the markets priced in a 0.50% move. The Australian dollar’s sharp fall is surprising, as I would have expected the 0.50% hike to provide the currency with a short-lived jump. The Aussie’s woes appear to be part of a risk-off move in the currency markets, with the US dollar posting broad gains today.

The RBA’s 0.50% hike is a vote of confidence in the Australian economy by the RBA, as Lowe is betting that the economy is resilient enough to withstand a sharp increase in rates. Employment is at a low rate of 3.9%, job vacancies are at record highs and consumer demand remains robust. The housing sector has been hit by higher borrowing costs, which will likely dampen household spending in the coming months. Lowe has admitted that there is a “narrow path” between tightening enough to curb inflation or being too aggressive and causing a recession.

Attention will now shift to the Australian inflation report for Q1, which will be released in the last week of July. Inflation is expected to continue to accelerate, with a peak in inflation remaining elusive. The markets have priced in another 0.50% hike in August and expect the cash rate to hit 3% or even higher by the end of 2022.

AUD/USD Technical

• AUD/USD is testing support at 0.6849, followed by support at 0.6732
• There is resistance at 0.6933 and 0.7050

EUR/USD finally breaks down to the downside today, partly based on Dollar's strength, and partly on Euro's own weakness. Even if a 25bps rate hike is pre-committed by ECB in July, and another hike (probably at 50bps) in September, the central bank will certainly lag behind other major counterparts in policy normalization. Latest PMI data also point to heightened recession risk in Eurozone in the second half of the year.

EUR/USD's break of 1.0339 (2017 low) indicates resumption of long term down trend from 1.6039 (2008 high). Sustained trading below 1.0339 will confirm this bearish case and target 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. Parity is also looking vulnerable. This will now be the favored case as long as 1.0488 minor resistance holds.

EUR/CAD also breaks near term support at 1.3383 to resume the down trend from 1.5991 (2020 high). Next short term target is 61.8% rejection of 1.4633 to 1.3383 from 1.3713 at 1.2941. More importantly, the whole fall from 1.6151 (2018 high) is also on track to retest 1.2127 (2012 low).

UK PMI Services was finalized at 54.3 in June, up from May's 53.4. S&P Global said there was solid rise in business activity, but new work lost momentum. Business expectations slumped to the weakest level since May 2020. Input costs inflation held close to May's survey-record high. PMI Composite was finalized at 53.7, up from May's 53.1.

Tim Moore, Economics Director at S&P Global Market Intelligence: "The service sector remained in expansion mode during June, but persistently high inflation has started to dent discretionary spending and negatively influence demand projections across the board... June data highlighted the second-fastest rise in input prices since the survey began 26 years ago, driven by intense wage pressures and rapid increases in fuel costs... Service providers are casting a nervous eye over their sales momentum and forward bookings, which led to a slump in business activity expectations to their lowest since May 2020."

Full release here.

Eurozone PMI Services was finalized at 53.0 in June, down from May's 56.1, a 5-month low. PMI Composite was finalized at 52.0, down from May's 54.8, a16-month low.

Looking at some member states, Spain PMI composite dropped to 3-month low at 53.6. Ireland dropped to 16-month low at 52.8. France dropped to 14-month low at 52.5. Germany dropped to 6-month low at 51.3. Italy dropped to 5-month low at 51.3.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: "The sharp deterioration in the rate of growth of eurozone business activity raises the risk of the region slipping into economic decline in the third quarter. The June PMI reading is indicative of quarterly GDP growth moderating to just 0.2%...

"The manufacturing sector is already in decline, for the first time in two years, and the service sector has suffered a marked loss of growth momentum amid the cost of living crisis.... risks have increasingly tilted towards the economy slipping into a downturn at the same time that inflationary pressures moderate but remain elevated."

Full release here.

Bitcoin rose on Monday, ending the day at around $19,800. The recovery continues Tuesday morning, taking the exchange rate to 20,300 and adding 6.4% over the past 24 hours. Ethereum added 9.8% to $1160, while other top-ten altcoins gained between 2.7% (XRP) and 9.8% (Solana).

Total cryptocurrency market capitalisation, according to CoinMarketCap, rose 6% overnight to $917bn.

The cryptocurrency Fear & Greed Index rose 5 points to 19 by Tuesday, the highest level since May 7, near the upper edge of ‘extreme fear’ territory.

Traders took advantage of a US weekend when the stock market was not trading to buy. In addition, Asian trading is also moderately positive, adding to the optimism of retail participants.

According to CoinShares, capital inflows into crypto funds last week amounted to $64m, with the bulk coming from funds that allow shorts on bitcoin ($51m).

Cryptocurrency-related companies have had to fend off information attacks pointing to problems. Circle CEO Jeremy Allaire, for example, denied rumours of issues with the USDC stablecoin. KuCoin trading platform CEO Johny Lyu denied rumours of a possible exchange default and assured that the platform had nothing to do with LUNA or Three Arrows Capital.

Market veteran Peter Brandt said that USDT has no place in the financial system and that stablecoin will die soon.

Singapore-based cryptocurrency lending and trading platform Vauld, which targets the Indian market, announced that it is suspending withdrawals due to market volatility.

The developers of Solana blockchain-based decentralised finance (DeFi) project Crema Finance have suspended all operations due to a hack.

With such a background, the crypto market growth looks like the intention of retail to “buy when there is blood on the streets”. However, at this stage, when we see only timid attempts at growth, it would be too early to talk about confirmation of a broken downtrend.

GBPUSD formed a tiny neutral candlestick on Monday above Friday’s closing price of 1.2087 and below the nearby 1.2170 resistance territory.

The refusal to return to the two-year low of 1.1932 could be a rosy sign that buyers are absorbing selling pressures in the market as the price is currently trying to set a foothold around the 1.2100 level. Yet, the RSI is still preserving a negative trajectory well below its 50 neutral mark, and the MACD has recently ticked back below its red signal line, both downplaying any meaningful recovery.

The 1.2170 cap will remain in focus in the coming sessions as the constraining 20-day simple moving average (SMA) is also converging towards that region. A successful move higher from here may then attempt to knock down a tougher wall at 1.2270 with scope to revisit the crucial zone of 1.2360 – 1.2411. Notably, the 50-day SMA, the descending trendline from February, and the 23.6% Fibonacci retracement of the 2022 downtrend are all positioned here. Hence any violation at this point is expected to unleash faster bullish corrections, likely up to the 38.2% Fibonacci of 1.2626.

Alternatively, if downside forces dominate, driving the price below 1.2085, the spotlight will immediately fall on the 1.1988 - 1.1932 floor. Snapping that base, the bears could chart a new lower low around 1.2765 taken from the March 2020 limits, while deeper, the sell-off could stall near 1.1620, which was also somewhat restrictive during the same period.

In brief, downside risks keep lingering in the background despite the latest stabilization in GBPUSD. A step above 1.2170 or below 1.2085 could navigate the pair accordingly.