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Daily Pivots: (S1) 107.99; (P) 108.13; (R1) 108.33; More...

USD/JPY's solid break of 108.37 resistance suggests that pull back from 108.99 has completed. And, rebound from 106.78 is likely resuming. Intraday bias is back on the upside for 108.99 resistance first. Break will confirm and target 100% projection of 106.78 to 108.99 from 107.21 at 109.42 and then 161.8% projection at 110.78. On the downside, below 107.93 minor support will turn bias back to the downside instead.

In the bigger picture, decline from 118.65 (Dec 2016) is still in progress, with the pair staying inside long term falling channel. Break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51. For now, we'd expect strong support above 98.97 (2016 low) to contain downside to bring rebound. In any case, break of 112.40 is needed to the first serious sign of medium term bullishness. Otherwise, further decline will remain in favor in case of rebound.

Daily Pivots: (S1) 0.9832; (P) 0.9853; (R1) 0.9869; More...

USD/CHF's recovery from 0.9803 extends but stays below 0.9908. Intraday bias remains neutral first. On the upside, break of 0.9908 resistance would resume the rebound from 0.9695, through 0.9951, to 1.0014 resistance. On the downside, break of 0.9803 will extend the fall from 0.9951 to retest 0.9695 low.

In the bigger picture, up trend from 0.9186 (2018 low) should have completed at 1.0237 already. Deeper decline would be seen to 61.8% retracement of 0.9186 to 1.0237 at 0.9587 and below. For now, USD/CHF is seen as in long term range pattern between 0.9186 and 1.0342. Hence, we'd pay attention to bottoming signal below 0.9587. However, sustained break of 1.0014 will revive medium term bullishness and turn focus back to 1.0237 high.

Daily Pivots: (S1) 1.2433; (P) 1.2478; (R1) 1.2528; More....

GBP/USD is still bounded in range of 1.2382/2579 and intraday bias remains neutral first. Near term outlook stays mildly bearish with 1.2579 resistance intact, and further decline is in favor. On the downside, sustained break of 1.2391 key support will resume larger down trend for 61.8% projection of 1.4376 to 1.2391 from 1.3381 at 1.2154 next. Though, break of 1.2579 will indicate short term bottoming and bring stronger rebound back to 1.2783 resistance. In this case, consolidation from 1.2391 would extend with another rise, towards 1.3381 resistance, before completion.

In the bigger picture, down trend from 1.4376 (2018 high) is still in progress. Break of 1.2391 would target a test on 1.1946 long term bottom (2016 low). For now, we don't expect a firm break there yet. Hence, focus will be on bottoming signal as it approaches 1.1946. In any case, medium term outlook will stay bearish as long as 1.3381 resistance holds, in case of strong rebound.

Euro experiences a rollercoaster session as the ECB unveiled its monetary policy plan *Tesla stock plunged on weak earning result.

Stocks

• The S&P 500 Index dropped from its record close and lost nearly 0.37% of its value as of 15:25 London time.
• The Stoxx Europe 600 Index failed to gain any strength despite a very dovish monetary policy be the ECB president. The index lost 0.88%.
• The UK FTSE 100 index was pushed lower by  speculators who believe that Boris is likely to go ahead with No-Brexit plan. The index declined by 0.49%

 Currencies

• The Dollar Spot Index failed to react the positive US core durable data. It fell 0.21%.
• The Euro jumped higher today as the ECB left the powder dry but a dovish actions is highly anticipated by the bank in September. The currency soared 0.30%
• The British pound fell 0.10 to 1.2488 and made a high of 1.2518.
• The Japanese yen moved lower by 0.32% to 108.48.

Bonds

• The Yield on 10-year Treasuries climbed four basis point to 2.09%.
• Britain’s 10-year yield rose three basis point to 0.68%.

Commodities

• West Texas Intermediate crude continued to build more gains today and made a high of 59.99. It rose 1.00% to $56.44 a barrel.
• Gold price experienced some choppy session today, the trading range was $18 approx. It lost 0.38% to 1417.

ECB stimulus incoming

The euro saw a surge in volatility around the ECB rate decision, which is to be expected when the market is split, as it was, on whether it will cut by 10 basis points or not.

As is often the case with these announcements, the reaction comes in two phases, firstly to the decision itself and then to the text that accompanies it. It’s therefore no surprise that the euro didn’t hold onto its gains for long because what was initially viewed as euro-positive announcement was more than countered with some very dovish statements that hinted at monetary stimulus soon and a revelation that committees have been tasked with examining various stimulus measures.

The most noteworthy of these was the reference to size and composition of new net asset purchases, given the difficulties the bank was facing on both of these prior to gradually reducing them to zero at the end of last year. Due to the limited room for rate cuts, this is the most obvious way for the central bank to provide stimulus to the euro area economy.

In the mean time, a 10 basis point rate cut may have to do, although it may be largely symbolic at these levels. That’s what the market has been betting on which may explain the knee jerk response to Draghi’s claim that a rate cut was not discussed at the meeting. That was enough to push the euro into positive territory on the day, although traders may later reflect on this differently. Just because they apparently didn’t discuss it today, it doesn’t mean they’re not planning to in September.

EURUSD Daily Chart

What continued to be clear throughout Draghi’s press conference is that the ECB feels like it needs to do more but in order to do so, it needs to continue to explore unconventional measures. Repeated references to low inflation, both realised and projected, further affirmed these points, as well as they insistence that the ECBs target is symmetrical meaning that while their target is below but close to 2%, it’s not capped.

This is important at a time when there have been reports of the ECB discussing the appropriateness of its mandate, which Draghi confirmed was discussed by the governing council. There is clearly a feeling that the central bank should be doing more and perhaps this is why they are suddenly stressing the symmetrical nature of the target as it affords them a little extra room to provide stimulus.

Whatever stimulus the ECB opts for, its clear that something is coming and probably sooner rather than later. They could be forgiven for waiting until October when the new President takes charge but such clear hints today may suggest they won’t.

Oil higher as inventory data sinks in

Oil prices are climbing on Thursday, largely reversing yesterday’s declines and perhaps better reflecting the inventory data we’ve seen this week. The large drawdowns have been largely linked to the storm in the Gulf of Mexico and shutdowns that resulted, but the response has still appeared to be one of confusion. Oil rallied into the API release before pausing and then sold off shortly after the EIA release after a brief spike. Clearly traders were putting a lot of emphasis on the outages but may have since changed their tune.

Brent Daily Chart

Gold steady but vulnerable near-term

Gold is relatively flat today which will be encouraging for bulls that had maybe seen the recent weakness as a risk for near-term price action. A lot of people seem to be gold bulls longer-term but after such a strong rally since early June, the near-term outlook looks a little uncertain and a partial pullback would be understandable. It has currently stalled around $1,420 but doesn’t seem to be gathering much upside momentum yet which may suggest $1,400 support will be tested before the highs are.

Gold Daily Chart

The Euro fell to new 2019 low at 1.1101 in strong bearish acceleration after the ECB stayed on hold in today's meeting, changed its forward guidance and pointed towards more efforts to push inflation towards its 2% target.

The ECB expects the key interest rates to remain at present or lower levels through the first half of 2020 and including the possibility of lower rates, added to dovishness of the message, as markets understood it as leaving the door open for September's rate cut that sent Euro lower, despite the central bank kept rates unchanged. Upbeat US durable goods data lifted dollar and added to Euro's weakness.

The single currency bounced quickly in subsequent rally from new low, as traders booked profit and positioning for fresh attempts lower.

Mario Draghi, the ECB's President, in his post-meeting press conference pointed to weak inflation, weakness in growth, also affected by Brexit and slower Chinese economy, saying that outlook is getting worse and worse, but markets took his remarks as less dovish than expected, as he said that rate cut was not discussed. This signals that the ECB needs more evidence, especially from Fed policy meeting next week, as well as how the situation in US/China trade talks will develop, before taking bigger steps Recovery action, after bears faced strong headwinds from key 1.11 support zone, broke above first pivot at 1.1169 (Fibo 38.2% of 1.1280/1.1101) that exposes key barriers at 1.1200/12 zone (former congestion lows/Fibo 61.8% of 1.1280/1.1101). While these barriers hold, recovery action could be seen as better selling opportunity. Conversely, firm break here would put larger bears on hold for stronger correction.

Res: 1.1187; 1.1200; 1.1212; 1.1238
Sup: 1.1169; 1.1143; 1.1126; 1.1101

Markets

All eyes were on the ECB today. A poor German IFO this morning only illustrated that further ECB stimulus might be needed in the near future. Part of the market anticipated that the ECB could already take preemptive action today. However, that didn’t occur. The ECB left its main policy rates unchanged. But the bank changed its forward guidance and now expects the key ECB interest rates to remain at their present OR lower levels at least through the first half of 2020. In an additional paragraph, the bank stressed the need for ample policy accommodation as inflation has been persistently below its policy target. With respect to this target, the bank also formally stated that it aims inflation to develop in a symmetrical way around the inflation target. The bank finally said that it has tasked Euro system committees to look into mitigating measures (e.g. tiered system) and at potential new asset purchases.

To summarize, the bank opened the door for a rate cut in September which (later?) can be accompanied by a restart of the assert purchase program. In its press conference, Draghi elaborated in debt on the economic context. Global international uncertainty is hurting the manufacturing hard, but the employment and wage growth continue to support domestic demand. In the Q&A the ECB president didn’t bring much concrete info on potential steps of further monetary easing. It is not that easy to specifically quantify market expectations on all these topics. However, it looks fair to assume that today’s ECB action was rather close to average market expectations.

Both the EMU interest rate markets and the euro showed some kind of buy-the-rumour, sell the fact reaction. Markets had largely anticipated on a soft ECB. German yields touched new all-time lows (10-yr, -0.42%) at the start of the ECB press conference. However, the decline of yields was (more than) reversed during the ECB press conference. German yields currently rise between 5.5 bp (30-y) and 3 bp (2-y). Peripheral yield spreads initially narrowed but this move was also reversed as core yields rebounded later. The picture is mixed with 10-y Greek spreads still slightly tighter, but Italy and Spain widening marginally (+2 bp). The US yield curve also bear steepened with yields rising between 4 bp (2-y) and 5 bp (30-y). The move in US yields was mainly driven by the price swings in Bunds, but solid US durable goods orders probably also played a role. The euro briefly jumped higher as the ECB left its policy rate unchanged, but gains evaporated as the bank eased its forward guidance said to be ready to act in line with reaching the inflation target in a symmetrical way. EUR/USD traded near the 1.1110/00 support at the start of the press conference. In line with the price action on the interest rate markets, Draghi apparently didn’t bring enough additional soft news. A EUR/USD short-squeeze started. EUR/USD trades currently again in the 1.1175 area.

UK PM Johnson preceded a first meeting of the new UK Cabinet and bought is political intentions before Parliament. He repeated that his cabinet UK will lead the UK out of the EU by October 31. He also said to have instructed the Chancellor of the Exchequer to make all funding available to prepare to country for the EU exit. However, for now he didn’t reveal any concrete Brexit roadmap. In this respect, the first communication of the new government didn’t bring much guidance for sterling trading. EUR/GBP hovered in a tight range near the recent lows near the 0.8920 pivot. EUR/GBP dropped temporary below the 0.89 big figure due the overall decline of the euro after the ECB policy decision, but rebound during the ECB press conference. EUR/GBP trades currently again in the 0.8950 area. Cable rebounded to the 1.25 area.

News Headlines

The Turkish central bank slashed rates with 425 bps to 19.75% vs. a cut to 21.50% expected. The CBRT adopted a cautious stance to “keep disinflation in track” (June CPI “cooled” to 15.72%) and pointed advanced central banks that are likely to easy policy. Knee-jerk losses of the Turkish lira didn’t last long however: EUR/TRY even trades slightly lower vs. opening.

Investors who were looking for a quick opportunity to attack the Euro were given the thumps up this afternoon after the European Central Bank (ECB) left the doors wide open for an interest rate cut later this year.

Although interest rates were left unchanged this month, markets are already pricing in an over 80% probability of a 10-basis point cut to interest rates in September.

At already a record low of minus 0.4%, investors will wonder whether lower interest rates will be enough to sustain the EU's economic growth momentum. Mario Draghi has stated that "data point to somewhat weaker growth in Q3 and Q4". "Significant monetary stimulus" may be required to ensure the EU's economic conditions do not deteriorate further amid external risks.

The dovish language employed by Mario Draghi does little to hearten global investors over the EU's economic prospects. Germany's dismal manufacturing PMI and business confidence data in July also pointed to a stuttering growth momentum in Europe's growth engine, which makes an economic rebound for the EU in the second half of the year increasingly unlikely.

The EURUSD initially tumbled towards 1.110 against the Dollar, setting a new two year low before later rebounding sharply towards 1.1170. Prices have the scope to test 1.1200 in the near term before bears re-enter the scene.

Turkish Central Bank joins the global easing bandwagon

Less than three weeks after the news that attracted global headlines over the weekend of July 6 that former Turkish Central Bank Governor, Murat Cetinkaya had been dismissed, President Erdogan has finally gotten what he has long called for – lower interest rates in Turkey.

In his first monetary policy meeting as Central Bank Governor, Murat Uysal has not wasted any time whatsoever in cutting interest rates. Interest rates in Turkey were cut by 4.5% today and although the general consensus was that an interest rate cut would be the outcome of the policy meeting, a 425 basis point move lower is still higher than the 2-3% market expectations.

Although cooling inflation and soft economic fundamentals have provided a valid reason for the central bank to hop aboard the global easing bandwagon, the independence of the central bank will come into question following an interest rate cut that had occurred in just the first monetary policy meeting of the new Governor of the Central Bank of Turkey.

The USDTRY initially punched above 5.7700 before sinking back below 5.6600 as investors digested the rate decision.

With the new Central Bank Governor already stating last week that there is "room to manoeuvre" on monetary policy, this not only keeps the doors open to more interest rates cuts, but will also increase the probability of this being a matter of "when" and not "if" the Central Bank strikes again before the year concludes.

Daily Pivots: (S1) 1.1125; (P) 1.1141; (R1) 1.1154; More...

After dipping to 1.1101, EUR/USD drew support from 1.1107 low and recovered. With break of 1.1158 minor resistance, intraday bias is turned neutral first. Stronger recovery could be seen. But for now, break of 1.1282 resistance is needed to confirm completion of fall from 1.1412. Otherwise, another decline will remain mildly in favor. Though, firm break of 1.1282 will bring stronger rise to 1.1412 resistance.

In the bigger picture, on the one hand, 1.1107 is seen as a medium term bottom on bullish convergence condition in weekly MACD. On the other hand, rejection by 55 week EMA retains medium term bearishness. Outlook stays neutral for now. On the downside, break of 1.1107 will resume the down trend from 1.2555 (2018 high) to 78.6% retracement of 1.0339 to 1.2555 at 1.0813. Meanwhile, break of 1.1412 will resume the rebound to 38.2% retracement of 1.2555 to 1.1107 at 1.1660.

After initial selloff, Euro quickly rebounds as ECB Mario Draghi's press conference is not as dovish as the statement suggests. September ECB decision could be live, depending on upcoming economic projections. For now, Euro is the strongest one for today, followed by Sterling. Dollar is the third strongest, supported by strong durable goods data. New Zealand and Australian Dollar are the weakest.

Technically, EUR/USD breached 1.1107 low to 1.1101 but rebounds strongly. A short term bottom is likely formed and stronger rise would be seen back to 1.1193/1282 resistance zone. USD/JPY finally breaks 108.37 resistance, which suggests resumption of rebound from 106.78. But that's more due to weakness in Yen, as reaction to ECB and US data, rather than strength of Dollar.

In other markets, DOW open lower and is trading down -100 pts. 10-year yield is up 0.04 at 2.09. In Europe, FTSE is down -0.49%. DAX is down -1.73%. CAC is down -0.99%. German 10-year yield is up 0.024 at -0.350, after diving to new record low at -0.418. Earlier in Asia, Nikkei rose 0.22%. Hong Kong HSI rose 0.25%. China Shanghai SSE rose 0.48%. Singapore Strait Times rose 0.38%. Japan 10-year yield dropped -0.0041 to -0.15.

ECB opens door to rate cut, but Draghi not dovish enough

ECB keeps monetary policy unchanged as widely expected. Main refinancing rate is kept at 0.00%. Marginal lending facility and deposit facility rates are held at 0.25% and -0.40% respectively. Forward guidance is changed to reflect the possibility of lower interest rates. That is, interest rates are expected to "remain at their present or lower levels at least through the first half of 2020". Also ECB "stands ready to adjust all of it instruments" if "medium-term inflation outlook continues to fall short of its aim". The statement clearly include the "possibility of lower interest rates", opening the door for rate cut ahead.

However, President Mario Draghi is not as dovish in the press conference. Most importantly, there was no discussion on rate cuts today. Additionally, no unanimity was achieved among policy makers regarding the next move, just "convergence" of views. The comments argue that there is a lack of urgency for any action. And, September's decision could be live, depending on upcoming economic projections.

On the economy, Draghi said slower growth outlook "mainly reflects the ongoing weakness in international trade in an environment of prolonged global uncertainties, which are particularly affecting the euro area manufacturing sector."On the other hand, "activity levels in the services and construction sectors are resilient and the labor market is still improving."

Nevertheless, risks "remain tilted to the downside, reflecting the prolonged presence of uncertainties related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets." Incoming data continue to point to "somewhat slower growth" in Q2 and Q3.

"Inflationary pressures remain muted and indicators of inflation expectations have declined." But, over the medium term,"underlying inflation is expected to increase, supported by our monetary policy measures, the ongoing economic expansion, and stronger wage growth."

German Ifo dropped to 95.7, economy is navigating troubled waters

German Ifo Business Climate dropped to 95.7 in July, down from 97.5 and missed expectation of 97.0. Expectations Index dropped to 92.2, down from 94.0, missed expectation of 94.0. Current Assessment Index dropped to 99.4, down from 101.1, missed expectation of 100.4.

Clemens Fuest, President of the ifo Institute, said "the mood in German C suites is growing uneasy… Companies were less satisfied with their current business situation and are also looking ahead with increased skepticism. The German economy is navigating troubled waters."

Manufacturing index was in "freefall" and dropped from 1.3 to -4.3. "Such a major decline was last seen in February 2009" and, "no improvement is expected in the short term, as businesses are looking ahead to the next six months with more pessimism." Services Sector index dropped from 20.3 to 17.7, with expectations slightly pessimistic for the first time since July 2009. Trade index "slid sharply" from 7.9 to 1.4. "Companies are assessing their current situation as considerably less positive, and their outlook for the coming months is markedly more skeptical." Construction Index dropped rose from 23.0 to 23.3.

US durable goods orders, jobless claims beat expectations

US durable goods orders rose 2.0% to USD 246.0B in June, beat expectation of 0.7%. Ex-transport orders rose 1.2% to, also beat expectation of 0.2%. Excluding defense, new orders increased 3.1 percent.

Advance goods trade deficit narrowed -1.2% to USD 74.2B, but was larger than expectation of USD -72.4B. Wholesale inventories rose 0.2% mom, below expectation of 0.4% mom.

Initial jobless claims dropped -10k to 206k in the week ending July 20, below expectation of 220k. Four-week moving average of initial claims dropped -5.75k to 213k. Continuing claims dropped -13k to 1.676m in the week ending July 13. Four-week moving average of continuing claims dropped -4.5k to 1.697m.

China MOFCOM: Some Chinese firms willing to continue to buy US farm products

Chinese Ministry of Commerce spokesman Geo Feng confirmed that next round of US-China trade negotiation will happen in Shanghai for two days on July 30-31.

It's reported that China has already agreed on unspecified purchases of US agricultural production. Gao said in a regular press conference that "Some Chinese firms are willing to continue to buy some U.S. agricultural goods, and they have asked for prices from their U.S. suppliers and will sign commercial contracts soon."

But Gao also clarified that the purchases will be decided by companies themselves according to market functioning. Such purchases bear no direct relationship to restart of trade talks.

RBA Lowe: Prepared to provide additional easing, extended period of low interest rates expected

In a speech delivered today, RBA Governor Philip Lowe reiterated the dovish stance that, "the Board is prepared to provide additional support by easing monetary policy further." At the same time, "whether or not further monetary easing is needed, it is reasonable to expect an extended period of low interest rates."

Lowe also noted, "on current projections, it will be some time before inflation is comfortably back within the target range". And, it's "highly unlikely that we will be contemplating higher interest rates until we are confident that inflation will return to around the midpoint of the target range."

He also defended current inflation target a said it has "stood the test of time". He warned that lowering the target could "hardly seems a good way to build long-term credibility". " Lowe said. "Shifting the goal posts could also entrench a low inflation mindset." Thus, "this brings me back to the question: is inflation targeting still appropriate? The short answer is yes." And, " the evidence does not support the idea that a change to our inflation target would deliver better economic outcomes than achieved by our current flexible inflation target," he noted.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1125; (P) 1.1141; (R1) 1.1154; More...

After dipping to 1.1101, EUR/USD drew support from 1.1107 low and recovered. With break of 1.1158 minor resistance, intraday bias is turned neutral first. Stronger recovery could be seen. But for now, break of 1.1282 resistance is needed to confirm completion of fall from 1.1412. Otherwise, another decline will remain mildly in favor. Though, firm break of 1.1282 will bring stronger rise to 1.1412 resistance.

In the bigger picture, on the one hand, 1.1107 is seen as a medium term bottom on bullish convergence condition in weekly MACD. On the other hand, rejection by 55 week EMA retains medium term bearishness. Outlook stays neutral for now. On the downside, break of 1.1107 will resume the down trend from 1.2555 (2018 high) to 78.6% retracement of 1.0339 to 1.2555 at 1.0813. Meanwhile, break of 1.1412 will resume the rebound to 38.2% retracement of 1.2555 to 1.1107 at 1.1660.

Economic Indicators Update