Sample Category Title

Pivot (invalidation): 1.1130

Our preference Long positions above 1.1130 with targets at 1.1150 & 1.1160 in extension.

Alternative scenario Below 1.1130 look for further downside with 1.1115 & 1.1100 as targets.

Comment A support base at 1.1130 has formed and has allowed for a temporary stabilisation.

The precious metal closed in the green for the second consecutive day. However, price action remains subdued within the range from last Thursday. The Fed meeting is due to start later today and will conclude with the release of the monetary policy statement tomorrow. Investors have fully discounted a quarter-point rate cut at this week’s meeting.

XAUUSD to Hold Steady into Tomorrow’s Fed Meeting

The recent gain in XAUUSD is likely to see prices turning flat in the near term. Besides the Fed meeting, the US and China trade talks also weigh on the markets. Gold has been consolidating within the resistance area of 1431–1428 and the minor rising trend line. A breakout in the near term is likely. Watch for gold to test the 1440 handle in the near term.

The pound sterling was down over 1.5% on the day on Monday. The declines came after the UK took a hard stance on the Brexit deal with the EU. The Boris Johnson led government said that it is prepared to leave the EU without a deal. The Irish backstop arrangement continues to remain the main sticking point in the negotiation.

GBPUSD Could Slip to 1.20

The sharp declines in the currency pair come after price broke the support level near 1.2400. Following the breakdown from the support, the pair gathered momentum. GBPUSD is trading at 1.2155 at the time of writing. The bearish momentum could eventually push the GBPUSD even lower to the next major support at 1.20.

The common currency was seen trading within the range established from last week. The currency remains rather muted amid a strong rebound in the U.S. dollar. Economic data on Monday was quiet from the Eurozone. Germany will be releasing the preliminary inflation estimates for July later today.

EURUSD Likely to Remain Near Two-Year Lows

EURUSD currency pair has been trading rather flat near the two-year low. This is supported by the trend line which was tested briefly. Unless there is a strong downside momentum, EURUSD could be seen hovering near the support area of 1.1140 region. Any upside gains will be limited to 1.1188.

Daily Pivots: (S1) 1.6110; (P) 1.6133; (R1) 1.6173; More...

EUR/AUD's recovery from 1.5894 might extend higher. But it's seen as a corrective move. Therefore, upside should be limited below 1.6231 resistance to bring fall resumption. Decline from 1.6448 is seen as the third leg of the consolidation pattern from 1.6765 high. Break of 1.5894 will target 1.5683 support and below. Nevertheless, firm break of 1.6231 will dampen this view and target 1.6448 resistance instead.

In the bigger picture, as long as 1.5346 support holds, medium term outlook will still remain bullish. Up trend from 1.1602 (2012 low) is expected to resume sooner or later. Break of 1.6765 will target 61.8% retracement of 2.1127 (2008 high) to 1.1602 at 1.7488 next. However, firm break of 1.5346 key support will indicate trend reversal and turn outlook bearish.

Markets

Global core bonds gained some ground yesterday. With no high profile news to guide markets, yesterday's price action suggested cautiousness among investors ahead of the many events and data to be released. The upleg took place during early European dealings after which bonds developed a sideways trading pattern. Germany's yield curve shifted south with yields changing -1.1 bps (2-yr) to -1.5 bps (10-yr). Peripheral spreads hardly changed (Italy +2 bps, rest unchanged). The US curve flattened marginally: yields changed +0.7 bps (2-yr) to -0.5 bps (10-yr). The economic calendar heats up today. US June PCE data shouldn't come as a surprise as markets are able to distill it from last week's GDP report. The bar for July's Conference Board consumer confidence (125, up from 121.5) should be met given the strong labor market performance last month. We see risks for German HICP inflation (0.3% MoM, 1.2% YoY) tilted to the downside, a.o. due to the recent oil price evolution, which could cause some outperformance of the Bund. But even if US data turns out strong indeed, we think the UST downside is rather well protected as an important Fed meeting draws near. Any headlines emerging from the meeting between US and Chinese trade officials is a wildcard for trading.

The dollar held a tentative upward bias yesterday as markets awaited key events (restart of the US-China trade talks, Fed policy decision) and important eco data scheduled for release later this week. EUR/USD drifted lower close to the key 1.1100/10 support but the test was again rejected. Rising Brexit tensions in theory are a euro negative, but a steep EUR/GBP rally apparently caused positive spill-over effects on EUR/USD, too. EUR/USD even closed with a small gain at 1.1145. USD/JPY closed marginally higher at 111.78, despite a cautious US equity sentiment. The BoJ as expected left policy rates and forward guidance unchanged this morning, but added that it won't hesitate to ease policy further if there is a greater chance the momentum for hitting the price target is lost. USD/JPY filled offers just below 109 before the BoJ decision, but the yen reversed initial losses, as some investors expected the BoJ to formally adapt an easing bias. USD/JPY trades again in the 108.60 area. Today, FX traders will also look out for comments from the Sino-US trade talks. Regarding the data, US consumer confidence is expected to rebound. In Europe, EC confidence indicators are expected to confirm a further loss in economic momentum. German July HCIP inflation is expected to ease to 1.2% . We see downside risks. FX investors probably will take a cautious approach, but the news flow might be more supportive for the dollar than for the euro. The EUR/USD 1.11 support will stay within reach with tomorrow's Fed meeting to decide on a break (or not).

Sterling tumbled sharply yesterday as the new UK government is on collision course with the EU. Boris Johnson repeated that the Withdrawal Agreement is dead and that the Irish backstop arrangement has to go and said he won't start Brexit talks unless the EU agrees to reopen the Brexit deal. EUR/GBP closed north of the 0.91 resistance and sterling selling continues this morning. Investors are adapting positions for a no-deal Brexit to be a likely scenario while chances on a compromise are receding. Sterling is at risk of being captured in some kind of free-fall unless signs some that one of the two parties is prepared to look for a compromise. It is not easy to see this coming anytime soon. EUR/GBP 0.9285 is the last defense ahead of the post-referendum peak in the 0.9415 area.

News Headlines

Swedish Q2 growth contracted -0.1 QoQ (1.4% YoY) vs. a 0.3% (1.9% YoY) expansion expected. That's a pace equal to 2018Q3 and the slowest since 2013. French growth also came short of consensus, printing at 0.2% QoQ (1.3% YoY) vs. 0.3% (1.4%) expected as a rise in capex and public spending couldn't offset a drop in consumption.

The Bank of Japan left policy and forward guidance unchanged, wrongfooting some who speculated the BoJ would tweak the latter. The central bank did add that it won't hesitate to ease further if "momentum towards achieving the price stability target" is lost to the statement and trimmed its eco outlook.

The strength of the GBP/USD bearish decline is indicating that it could fall much more. The angle of price action is typical for an internal wave 3 of wave 3, which means that traders can expect bearish continuations within waves 5 of 3. This is why the wave outlook has been changed compared to yesterday: currently price is still in a larger wave 3 (purple) rather than a completed wave 3 at the recent low (now blue wave 3). The speed of the fall and the break below round level 1.2250 indicates that the next support level is only found at the psychological level and previous all time low at 1.20.

The GBP/USD dropped 300 pips in a matter of hours. If a correction does take place, then a continuation is likely to occur. A small bear flag pattern for instance could be enough for price to continue with a new low and continue towards the Fibonacci targets. The GBP is in a free fall and likely to push lower unless Brexit news appears that would support the GBP.

Daily Pivots: (S1) 1.1029; (P) 1.1048; (R1) 1.1070; More.....

No change in EUR/CHF's outlook. Recovery from 1.0962 short term bottom could extend higher. But upside should be limited limited by 1.1172 resistance to bring down trend resumption. On the downside, sustained break of 1.0962 will extend the fall from 1.2004 to 100% projection of 1.2004 to 1.1173 from 1.1476 at 1.0645 next.

In the bigger picture, current development firstly suggests that down trend from 1.2004 is still in progress. More importantly, it’s likely a long term down trend itself, rather than a correction. Outlook will remain bearish as long as 1.1476 resistance holds. EUR/CHF could target 1.0629 support and below.

General Trend:

• Japanese equities rise, electronics firms rise ahead of earnings from Nintendo and Sony
• Industrial Fanuc rises over 3%, raised outlook
• Tokyo Electron rises over 3%, South Korean companies said to rush orders for chip materials on concerns about additional export curbs by Japan (South Korean press)
• Australian equities hit record high ahead of upcoming CPI data; Interest rate sensitive sectors outperform (Utilities, Telecom)
• Hang Seng rises following declines on Monday; China Life and New China Life rise on financial guidance, tech shares rise ahead of US/China talks
• HK Property sector lags in the face of lingering protest concerns
• Texhong Textile declines over 3% in HK, said results to be hurt by US/China trade war
• Chinese equities rise in early trading as financials gain
• British pound adds to Monday’s losses, GBP/USD trades at lowest since March 2017; FT notes concerns about ‘no-deal’ Brexit
• Few surprises seen out of BoJ
• BoJ Gov Kuroda expected to hold post rate decision press conference at ~2:30 AM EST (6:30 GMT)
• US and China are due to hold trade talks in China on July 30-31 (Tuesday-Wed)
• Fed to hold policy meeting July 30-31 (Tues-Wed)
• Apple is due to report Q3 earnings after Tuesday’s NY close (July 30th)
• US companies expected to report earnings in the NY morning include Cummins, ConocoPhillips, Eaton, Corning, Huntsman, Ingersoll-Rand, Eli Lilly, MasterCard, Altria Group, Merck, Procter & Gamble, Ralph Lauren, Steve Madden, Sirius Xm, Under Armour, Xerox

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.1%
• (AU) AUSTRALIA JUNE BUILDING APPROVALS M/M: -1.2% V 0.2%E; Y/Y: -25.6% V -24.3%E
• (NZ) New Zealand June Building Permits m/m: -3.9% v +13.5% prior

Japan

• Nikkei 225 opened +0.3%
• (JP) BOJ LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED; Won’t hesitate to ease if greater risk to price target rises
• (JP) JAPAN JUNE JOBLESS RATE: 2.3% V 2.4%E; Job-To-Applicant Ratio: 1.61 v 1.62e
• (JP) Japan June Preliminary Industrial Production M/M: -3.6% v -1.7%e; Y/Y: -4.1% v -2.0%e
• (JP) BOJ Quarterly Outlook for Economic Activity and Prices: Cuts some GDP and CPI outlooks
• (JP) More than 66% of listed Japan manufacturers have reported declines in quarterly profits so far this earnings season, the biggest decline since the global financial crisis - Nikkei
• (JP) Nikkei looks at impact of sales tax hike: Notes that Japan govt sees 2020 Real GDP at 1.2% while analysts see 0.5%; notes large discrepancy between Govt and outsider expectations of the economy and metrics after the hike
• 8604.JP Guides Q2 to record ¥73B one-time gain related to the sale of shares in Nomura Research Institute
• (JP) Japan Cabinet Office publishes its mid-year economic projections revises 2019 forecasts, Cuts FY19/20 Real GDP from 1.3% to 0.9%

Korea

• Kospi opened +0.3%
• (KR) South Korea Aug Business Manufacturing Survey: 71 v 75 prior; Non-Manufacturing Survey: 71 v 74 prior
• (KR) Sec of State Pompeo: there is 'nothing in the works' regarding third US-North Korea summit
• 005380.KR State Bank of India has stopped new lending to Hyundai dealers without collateral; wants security deposits from existing borrowers, according to a memo – press
• (KR) South Korea sells KRW1.45T v KRW1.45T indicated in 30-year bonds; avg yield 1.375% v 1.605% prior

China/Hong Kong

• Hang Seng opened -0.2%; Shanghai Composite opened +0.2%
• (HK) Hong Kong and Macau Affairs Office (HKMAO) under the China State Council comments on HK protesters: Watching situation closely; China central govt support suspension of extradition bill; China reiterates support for HK Chief Executive Lam; Reiterates stance to support one country, two systems in Hong Kong
• (CN) China's Beijing Kunlun Tech restarting IPO of Grindr app after the US national security panel (CFIUS) has dropped opposition to the plan – Nikkei
• (CN) China PBOC sets yuan reference rate: 6.8862 v 6.8821 prior
• (CN) China PBoC Open Market Operation (OMO): Skips for 6th consecutive session; Net CNY0B drained v CNY50B drained prior
• (CN) China National Development and Reform Commission (NDRC): China will support financial institutions to conduct market oriented debt for equity swaps on qualified private enterprises - Xinhua

Other

• (TW) Taiwan companies may repatriate NT$1.0T in investments - local press

North America

• (MX) Mexico Fin Min Herrera: Announces MXN485B fund for infrastructure and growth, all programs will have an immediate impact on 2019
• (MX) Mexico President Obrador: Want the central bank to not only focus on controlling inflation but also think about growth; Mexico has not accepted the 'safe third country' agreement - US financial press
• COF Announces Data Security Incident impacting 100M US customers and 6.0M in Canada on July 19th

Europe

• (UK) PM Johnson: Reiterates stance that is responsible to prepare for a no-deal Brexit outcome; Will come out on Oct 31st either with or without a deal
• (UK) PM Johnson said to refuse to meet EU leaders unless they scrap the backstop - financial press

Levels as of 1:20 ET

• Nikkei 225, +0.4%, ASX 200 +0.3%, Hang Seng +0.3%; Shanghai Composite +0.6%; Kospi +0.7%
• Equity Futures: S&P500 +0.1%; Nasdaq100 +0.2%, Dax +0.1%; FTSE100 +0.3%
• EUR 1.1149-1.1133 ; JPY 108.94-108.66 ; AUD 0.6909-0.6894 ;NZD 0.6635-0.6624
• Gold +0.2% at $1,423/oz; Crude Oil +0.5% at $57.17/brl; Copper +0.1% at $2.722/lb

Market movers today

After a data-thin start of the week, there will be several important data releases today, which could affect markets' expectations about global monetary policy steps. This morning France and Sweden are set to release Q2 19 preliminary GDP growth. The French economy probably held up well in Q2 19, leaning on improved consumers' purchasing power and supported by the stimulus package.

In Sweden, we expect GDP to shrink 0.2% q/q versus the previous expansion of 0.6% q/q and versus Bloomberg consensus median of 0.3% q/q growth. On an annual basis, we expect Sweden to grow 1.4% y/y versus 2.1% y/y expansion in Q1 19.

In Norway, we expect retail sales to rebound 0.6% m/m. Retail sales has been a weak spot for some time in Norway and a rebound would confirm the improved purchasing power stemming from higher employment, rising nominal wage growth and lower electricity prices.

Germany's preliminary inflation figures for July are likely to show a marginal deceleration on an annual basis from the previous month as fuel prices headed down. The figures will give a first clue where euro area core inflation is heading in July (out tomorrow). With energy prices and core inflation decelerating slightly, we expect German HICP inflation to fall back in July from June's 1.5%.

The European Sentiment Indicator (ESI) will provide the last piece of the puzzle in terms of European business surveys in July. With PMI, Ifo and ZEW all telling a story of a deepening manufacturing downturn at the start of Q3, we would be surprised to see a different message emerging from today's ESI reading.

Today's bunch of data from the US ahead of tomorrow's FOMC meeting includes consumer confidence for July, personal consumption growth, (core) PCE deflator and income figures for June and home-price dynamics for May. Consumer confidence has likely improved on positive labour market dynamics in June, but the personal consumption expenditure deflator, which is closely followed by the Fed, has probably slid slightly on a monthly basis, while expanding on an annual basis.

Selected market news

Asian stocks are heading up this morning, as the Bank of Japan kept its QE with yield curve control unchanged as expected at a meeting ending this morning with a 7-2 vote. There was speculation as to whether forward guidance would be extended further into 2020, but this was left unchanged too. Bank of Japan kept its assessment of the economy stating that 'Japan's economy is likely to continue on a moderate expanding trend' but it notes overseas risk. The forecast for inflation in FY2019 and FY2020 is now 1.0% and 1.3% respectively (including VAT-hike effects). Since the last projections in April, inflation has headed south again, especially due to the lower oil price. Thus, Bank of Japan remains in wait-and-see mode. As long as weak foreign demand is not spilling over to the domestic economy and USD/JPY keeps a safe distance to 100, Bank of Japan is likely to stay there.