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Markets

With US markets closed for Independence Day and little in the way of important data, European markets couldn’t but take a cautious approach going into the weekend. With the US budget (One Big Beautifull Bill act) approved in Congress, the focus evidently turned the US July 9 tariff deadline. Markets recently balanced between hope and doubt. Without any guidance from US markets, doubt dominated European trading. The EuroStoxx50 ceded 1.02%. European bond markets showed a mild safe haven bid, with German yields trading between little changed (30-y) and -1.8 bps (2-y). ECB’s Villeroy again elaborated on the risk of inflation undershooting the target. However, for now markets understand that in current context of low visibility on trade/global growth, there is little reason to aggressively front run on additional ECB easing beyond the 1.75% cycle low that is currently discounted for the turn of the year. On FX markets the dollar (DXY) gained marginally (97.2) extending a tentative bottoming out process post Thursday’s ‘better-than-expected’ payrolls. Still EUR/USD closed slightly higher at 1.1778.

This morning, markets are trying to cope with multiple layers of uncertainty as the US will move to the next phase in imposing trade tariffs. President Trump is sending letters to (about) 12(+?) countries informing them on the higher tariffs they will face. However, US Treasury secretary Bessent indicated that these tariffs will start on August 1, providing some space for trading partners to do concessions. At the same time, the US still also intends to announce some ‘finalized’ (frame)work trade agreements. This set-up in a first instance leaves markets with plenty of uncertainty. Will August 1 become a next informal deadline? Which countries will get higher tariffs? Will they in some cases even go higher than the top tariffs announced on April 2? This morning, US president Trump even added a new layer of uncertainty as he threatened countries aligning with ‘anti-American policies of BRICS’ with an additional 10% tariff. However, the US president didn’t specify what this ‘alignment’ exactly contains. One can assume a series of unexpected ‘plot twists’ over the coming hours/days, which are impossible to anticipate. Markets this morning are starting the week with something between paralysis and a guarded risk off. Most Asian equities are trading with modest losses (<1.0%) and so do US equity futures. US Treasuries rise with yields declining about 2.5 bps at the short end of the curve. Even after last week’s payrolls apparently are still pondering the chances of a restart of the Fed easing cycle if the US data were to weaken later this year. The dollar gains marginally. The currencies of countries that face higher tariffs might be vulnerable in a fist stage. Even so, the post April 2 experience in mind, we assume that a broad-based USD rebound will be difficult in a context of US induced trade-protectionism. Aside from the trade storyline, the eco calendar this week contains few important (US) eco data. The Reserve Bank of Australia (Tuesday) and the Reserve Bank of New Zealand (Wednesday) will decide on policy. Post the OBBB, we also keep a close eye on the first series of US Treasury auctions (3-y Tuesday; 10-y Wednesday, 30-y Thursday).

News & Views

Saudi Arabia will raise the price of its Arab light crude for Asian customers by more than expected in August. The price will trade $2.2 a barrel above the regional (Oman/Dubai) benchmark. The move is seen as the country being confident that the oil market is strong enough to take up the additional supplies the Saudi-led OPEC+ group is bringing. The oil cartel over the weekend agreed to add 548k barrels a day next month, an even bigger output hike than in each of the three previous months (411k). Brent oil gapped lower at the open this morning and is currently trading for $67.9 a barrel.

Rating agency Moody’s said Japan’s upcoming upper house election July 20th would be an important one for the country’s fiscal health and credit ratings if they end up in new tax cuts. The elections are crucial for prime minister Ishiba after his ruling Liberal Democratic Party and the coalition partner Komeito lost their majority in the lower house after a snap poll in October last year. Among the campaign pledges are cash handouts to help households cope with inflation. But the government so far resisted calls from opposition parties for tax cuts. Moody’s said these could be a negative for its current A1 rating (with stable outlook, since December 2014), depending on how large and long-lasting they are.

Daily Pivots: (S1) 1.1759; (P) 1.1775; (R1) 1.1796; More...

Intraday bias in EUR/USD remains neutral and more consolidations could be seen below 1.1829. Downside should be contained by 1.1630 resistance turned support to bring rebound. Firm break of 1.1829 will resume the rise from 1.0176 and target 61.8% projection of 1.0176 to 1.1572 from 1.1064 at 1.1927.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 1.1604 support holds.

Daily Pivots: (S1) 144.11; (P) 144.56; (R1) 144.92; More...

Intraday bias in USD/JPY remains neutral as range trading continues. On the upside, firm break of 148.01 resistance will resume the rise from 139.87 to 61.8% retracement of 158.86 to 139.87 at 151.22. However, break of 142.10 will bring deeper fall back to retest 139.87 low.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). There is no clear sign that the pattern has completed yet. But still, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.

Daily Pivots: (S1) 1.3626; (P) 1.3654; (R1) 1.3672; More...

Intraday bias in GBP/USD remains neutral and more consolidations could be seen below 1.3787. Deeper pullback cannot be ruled out, but downside should be contained by 1.3369 support to bring rebound. Firm break of 1.3787 will resume larger up trend to 100% projection of 1.2099 to 1.3206 from 1.3138 at 1.3813.

In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.2985) holds, even in case of deep pullback.

Daily Pivots: (S1) 0.7920; (P) 0.7940; (R1) 0.7958; More….

Intraday bias in USD/CHF stays neutral and more consolidations could be seen above 0.7871. Stronger recovery cannot be ruled out, but upside should be limited by 0.8054 support turned resistance to bring another fall. Below 0.7871 will extend the larger down trend to 61.8% projection of 0.9200 to 0.8038 from 0.8475 at 0.7757. Firm break there will pave the way to 100% projection at 0.7313 next.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8475 resistance holds.

Daily Pivots: (S1) 0.6539; (P) 0.6559; (R1) 0.6574; More...

AUD/USD is holding well above 0.6372 support despite today's retreat. Intraday bias remains neutral for the moment, and further rally is expected. On the upside, firm break of 0.6589 will resume the rise from 0.5913 and target 0.6713 fibonacci level.

In the bigger picture, there is no clear sign that down trend from 0.8006 (2021 high) has completed. Rebound from 0.5913 is seen as a corrective move. While stronger rally cannot be ruled out, outlook will remain bearish as long as 38.2% retracement of 0.8006 to 0.5913 at 0.6713 holds. Nevertheless, considering bullish convergence condition in W MACD, even in case of another fall through 0.5913, downside should be contained above 0.5506 (2020 low).

Daily Pivots: (S1) 1.3575; (P) 1.3596; (R1) 1.3625; More...

Intraday bias in USD/CAD remains neutral at this point. On the downside, decisive break of 1.3538 will resume whole fall from 1.4791. Nevertheless, break of 1.3666 will turn bias to the upside, and extend the corrective pattern from 1.3538 with another rising leg to 1.3797 first.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 resistance holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 at 1.3069.

Daily Pivots: (S1) 0.9336; (P) 0.9350; (R1) 0.9364; More....

Intraday bias in EUR/CHF remains neutral as sideway trading continues. On the upside, break of 0.9428/45 resistance zone will resume the rebound from 0.9218. On the downside, break of 0.9305 will bring retest of 0.9218 low instead.

In the bigger picture, while downside momentum has been diminishing as seen in W MACD, there is no sign of bottoming yet. EUR/CHF is still staying below 55 W EMA (now at 0.9433) and well inside long term falling channel. Outlook will stay bearish as long as 0.9660 resistance holds. Break of 0.9204 (2024 low) will confirm resumption of down trend from 1.2004 (2018 high).

Daily Pivots: (S1) 196.79; (P) 197.39; (R1) 197.87; More...

Intraday bias in GBP/JPY remains neutral and more consolidations would be seen below 198.87. Further rally is expected as long as 193.99 support holds. Break of 198.78 will target 199.79 resistance. Break there will target 100% projection of 180.00 to 199.79 from 184.35 at 204.14.

In the bigger picture, price actions from 208.09 (2024 high) are seen as a correction to rally from 123.94 (2020 low). The pattern might still extend with another falling leg. But in that case, strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. Meanwhile, decisive break of 208.09 will confirm long term up trend resumption.

Daily Pivots: (S1) 169.88; (P) 170.16; (R1) 170.48; More...

Intraday bias in EUR/JPY remains on the upside at this point. Sustained trading above 100% projection of 154.77 to 164.16 from 161.06 at 170.45 will target 138.2% projection at 174.03. On the downside, however, break of 168.44 support will indicate short term topping, and turn bias to the downside for deeper pullback.

In the bigger picture, price actions from 175.41 (2024 high) are seen as correction to up trend from 114.42 (2020 low). The pattern might still extend with another falling leg. But in that case, strong support should be seen from 38.2% retracement of 114.42 to 175.41 at 152.11 to contain downside. Meanwhile, decisive break of 175.41 will confirm long term up trend resumption.