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The British pound staged a solid rebound above the 1.2500 level against the US dollar on Wednesday, after bears failed to hold price below the 1.2440 level. The GBPUSD pair could start to test towards at least the 1.2600 level if bulls break through the 1.2525 resistance later today . Sellers need to hold price below the 1.2480 level to change the intraday sentiment towards the GBPUSD pair.

The GBPUSD pair is only bullish while trading above the 1.2480 level, key resistance is located at the 1.2525 and 1.2600 levels.

If the GBPUSD pair holds below the 1.2480 level, key support is found at the 1.2460 and 1.2430 levels.

The euro remains under constant downside pressure against the US dollar on Thursday as expectations remain high that the ECB will announce the timing of the next QE package. The key EURUSD downside levels to watch are the 1.1107 and 1.1050 levels. To the upside, a sustained move above the 1.1160 level could prompt a rally towards the 1.1200 level, although the 1.1240 level is the key upside resistance level.

The EURUSD pair is heavily bearish while trading below the 1.1160 level, key support is found at the 1.1107 and 1.1050 levels.

If the EURUSD pair trades above the 1.1160 level, bulls could test back towards the 1.1200 and 1.1240 levels.

Bitcoin is lacking a clear direction over the short-term, as the BTCUSD pair continues to struggle around the $10,000 resistance level. BTCUSD bears now need to break the $9,100 level to trigger the next move lower towards the $8,400 support level. Buyers currently have the upper hand after a sharp reversal from the $9,450 level, placing the $10,350 level in focus.

The BTCUSD pair is only bullish while trading above the $10,350 level, key resistance is located at the $10,750 and $11,100 levels.

If the BTCUSD pair trades under the $9,100 level, sellers may test towards the $8,400 and $8,000 support levels.

Markets Yesterday's disappointing EMU PMI's were the dominating trading theme for markets. The manufacturing sector in particular continues to underperform with the indicator in Germany slipping to a very weak 43.1, the lowest in 7 years. The weak data adds pressure on the ECB to ease, which caused the Bund to spike and Euro rates to slip, mainly on the longer end of the curve. Germany's yield curve bull flattened with yields changes varying from flat (2-yr) to 3 bps (30-yr) lower. Peripheral spreads joined the yield decline, narrowing 3 bps in Greece and up to 9 bps in Italy, which profited additionally from political uncertainty easing. US yields suffered the same fate, changing -2 bps (2-yr) to -3.8 bps (10-yr). The soft PMI's were the last input for the ECB which holds its policy meeting today. Market expectations are high: money markets discount a 54% (!) chance of a rate cut already today. We think that's overdone and expect the ECB rather to flag a move in September. Draghi's tone during the press conference will be as soft as possible however. Markets are frontrunning stimulus already quite a lot so risks are that Draghi fails to deliver something ‘tangible' today. We don't think that would start a durable uptrend in (German) yields though.

A new set of poor EMU PMI's pushed EUR/USD further south in the 1.11 big figure yesterday. Even so, the damage for the euro could have been bigger, given the PMI miss. EUR/USD soon found an intra-day equilibrium in the 1.1130/55 area. The 1.11 range bottom at was left intact. US Treasury secretary Mnuchin said he doesn't want a weaker dollar short term and he believes in a strong dollar that mirrors a strong US economy in the long term. The comments didn't help the dollar much. EUR/USD closed at 1.1140. USD/JPY (close at 108.19) profited only modestly from the S&P and the Nasdaq setting new all-time record levels.

The dollar is little changed this morning. Asian equities mostly show modest gains. RBA governor Lowe confirmed that the bank is prepared to ease policy further of needed and that it is reasonable to expected an extended period of low rates. The Aussie dollar is losing a few ticks (AUD/USD 0.6970 area). The ECB policy decision will be the dominant factor for global (FX) trading today. A (weak?) Ifo will be seen as confirming the need for further ECB stimulus. ECB's Draghi is expected to prepare markets for a September rate cut and lay the groundwork for a restart of QE. Question is whether he will be soft enough to push EUR/USD below the 1.11 bottom as investors also still ponder the potential ‘reaction' of the Fed next week. Draghi probably has to bring something ‘unexpected' to force a break lower in EUR/USD.

EUR/GBP drifted further away from the 0.90 mark yesterday. The move was both the result of a weak euro (poor PMI's/ECB anticipation) and of a further reduction of sterling shorts as the ‘event risk' of the nomination of a new PM was out of the way. Boris Johnson as expected installed a pro-Brexit Cabinet. This Cabinet will meet today and markets will look out for the priorities of the new government. Plenty of Brexit noise might resurface when the UK and the EU will meet again to solve the stalemate. It is maybe too early for investors to reinstall sterling ‘shorts' to prepare for the rising risk of a no-deal Brexit at this time. We are neutral on sterling/EUR/USD short-term.

News Headlines

RBA governor Lowe said it is reasonable to expect low rates for an "extended period". He added that the central bank is "strongly committed" to get CPI to its target range, reiterating that policy can be eased further if needed. The Aussie dollar dipped below AUD/USD 0.70 yesterday and extends the decline after Lowe's comments (0.697).

Italy is mulling a €10 bn tax cut package in its budget for next year, Deputy PM Salvini said. He explained it would consist out of 2 or 3 tax reduction schemes for families to run alongside other measures for businesses.

The USD/JPY could start a large uptrend if indeed the wave 3 (pink) of wave 3 (purple) pattern takes place. For the moment price did bounce at the 78.6% Fibonacci retracement level of wave 2 vs 1. Price could still be a wave 1 (purple) at the moment unless price makes a deeper correction. A key support level to keep an eye on for a bullish reversal is the inverted head and shoulders pattern and level (green boxes).

The USD/JPY could have a wave 5 (orange) of wave 5 (green) remaining before completing a potential wave 1 (blue/purple). A bullish breakout above the bull flag continuation chart pattern could confirm a move up towards the Fibonacci targets of wave 5. A bearish bounce however could indicate a deeper bearish retracement and the end of the wave 1 (blue/purple) at the most recent high.

In Nikkei, the decline to 20966 low ended the wave (2) pullback & also completed the correction against 6/03/2019 low. The internals of that pullback unfolded as Elliott wave zigzag structure where the first leg ended in wave A ended at 21495 low. Up from there, the 3 wave bounce to 21690 high ended wave B. Down from there, the index made a 5 waves decline as Elliott wave impulse structure where wave ((i)) ended at 21360. Wave ((ii)) ended at 21460 high, wave ((iii)) ended at 21085 low. Wave ((iv)) ended at 21125 and wave ((v)) ended at 20966 low, which also completed the wave C of (2).

Up from that low, the index can be nesting higher in an impulse structure where initial rally to 21445 ended wave 1 in lesser degree 5 waves structure. Down from there, the index made a wave 2 pullback as a zigzag structure where wave ((a)) ended at 21305 low. Wave ((b)) bounce ended at 21390 high and wave ((c)) ended at 21255 low. Above from that low, the index made a strong rally higher and ended wave ((i)) with another lesser degree 5 waves at 21715 high. Wave ((ii)) pullback ended at 21605 low and wave ((iii)) high remain in progress looking for more highs. We don’t like selling the index. And as far as dips remain above 21605 low and more importantly above 20966 low expect more upside to take place.

Nikkei 1 Hour Elliott Wave Chart

The ECB meeting on Thursday has just got a lot more interesting, with markets pricing in a high probability of a rate cut despite a previously widely held belief that it won’t come until September.

Odds for a 10 basis point rate cut rose around 50%, a day before the decision is due to be announced and following the release of some pretty woeful manufacturing data.

While this is still below the threshold that is usually associated with a move being highly probably, it is still very significant and puts additional focus on the decision and press conference that follows.

The manufacturing data on Wednesday was particularly poor, with the eurozone PMI slipping to a more than six year low, at 46.4, which unfortunately is not a blip and instead the continuation of a very worrying trend. Germany saw its reading fall to an even more pitiful 43.1, the lowest since the global financial crisis.

Obviously, this one release alone isn’t going to be hugely influential but it is one of many indicators that the ECB will be worried about, including persistent below target inflation and growth that has been on a downward trajectory since the start of last year.

Unemployment is one bright spot, standing at its lowest level since the middle of 2008, but with certain indicators offering red flags and the global economic outlook being a cause for concern, it wouldn’t be a shock for the central bank to consider acting early.

Only last week, the New York Fed President John Williams gave a speech about the benefits of preventative action in avoiding a downturn and having to rely on much less firepower than central banks have had in the past. If this is true of the US then it’s frighteningly so in the eurozone.

One thing that may encourage the ECB to hold off on a rate cut beyond September is that Mario Draghi’s term as President ends in September so it would allow his successor to be the one that steers the central bank in a new direction.

That said, Draghi’s predecessor raised interest rates a couple of times leading up to his departure, which were quickly reversed after his appointment.

Perhaps Draghi and his colleagues will decide to wait before embarking on a new course this time around, but traders are not betting on it.

General Trend:

• Markets remain cautious ahead of ECB meeting later today, earnings season has kicked into full swing around the world, Australia production continues to be mixed, early Japan earnings seem mostly positive, tomorrow we will get results from Nissan who affirmed speculation that Q1 would be in line with expectations of a ~90% y/y decline
• Samsung announces the delayed launch of Galaxy Fold, will happen in September
• South Korea Q2 GDP beat estimates
• Oil prices rise as tensions in the Middle East linger and DoE reported a larger decline in crude stocks
• RBA Gov Lowe gave a speech in Sydney, reiterating RBA is prepared to lower rates again if needed, noting a hike won’t come until CPI reaches target, A$ fell 0.2% on the comments; in Q&A clarified that today’s comments are not a shift in forward guidance
• Hynix Q2 results came in weaker than expected, continues to be pessimistic on outlook, notes CAPEX will be significantly lower next year, will reduce DRAM capacity starting in Q4, notes some customers adjusting buying due to China, US trade conflict
• North Korea fired 2 missiles, but regional leaders don’t seem too concerned

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.1%
• (AU) Reserve Bank of Australia (RBA) Gov Lowe: Is prepared to ease policy further if needed; unlikely to seek rate hike until CPI is within intended target range - 'Inflation Targeting and Economic Welfare"
• (AU) Reserve Bank of Australia (RBA) Gov Lowe: Today's comments are not a shift to forward guidance, not certain if current policy will be enough to lift economy; Gap in strong employment and output growth remains a puzzle - Q&A
• FMG.AU Reports Q4 Ore Mined: 57.6Mt v 49.8Mt y/y; Iron Ore Shipments 46.6Mt v 46.3Me
• NCM.AU Reports Q4 Copper Production: 28.79Kt v 20.11Kt y/y; Gold Production: 661.41K oz v 634.95K oz y/y at AISC of $720/oz v $738 q/q
• MQG.AU Gives Q1 Update: Op net profit broadly in line y/y, slightly lower q/q; Group capital surplus A$5.0B

Japan

• Nikkei 225 opened flat
• (JP) Japan confirms North Korea launched short range ballistic missiles, they did not reach Japan's EEZ - Japan press
• (JP) Bank of Japan (BOJ) said not to have consensus on additional easing measures at upcoming July meeting
• (JP) Japan Jun PPI Services Y/Y: 0.7% v 0.8%e
• (JP) Japan MoF sells ¥1.99T v ¥2.0T indicated in 0.10% 2-year JGBs, avg yield: -0.211% v -0.216% prior, bid to cover 4.71x v 4.39x prior
• 6857.JP Reports Q1 Net ¥12.1B v ¥13.9B y/y; Op ¥15.2B v ¥15.8B y/y; Rev ¥66.2B v ¥70.9B y/y (after the close yesterday)
• 7751.JP Reports H1 Net ¥65.83 v ¥134.78 y/y; Op ¥83.55 v ¥175.05 y/y; Rev ¥1.78T v ¥1.97T y/y; cuts guidance (yesterday after the close)
• 3938.JP Reports H1 Net -¥26.6B v +¥2.9B y/y, Op -¥21.8B v +¥10.3B y/y, Rev ¥110.8B v ¥99.4B y/y (yesterday after the close)

Korea

• Kospi opened +0.2%
• (KR) SOUTH KOREA Q2 PRELIMINARY GDP Q/Q: 1.1% V 0.9%E; Y/Y: 2.1% V 1.9%E
• Hynix,000660.KR Reports Q2 (KRW) Net 535.5B v 584Be; Op 637.6B v 743.9Be; Rev 6.45T v 6.4Te; Clients delayed DRAM purchases due to trade tensions in Q2; To reduce DRAM production capacity starting in Q4
• (NK) North Korea reportedly fires unidentified projectile from near Wonsan - South Korean press
• 005930.KR Completed upgrades to Galaxy Fold and will launch in Sept (prior launch was April)

China/Hong Kong

• Hang Seng opened +0.2%; Shanghai Composite opened flat
• (CN ) China Jun Swift Global Payments (CNY): 1.99% v 1.95% prior
• (CN) China PBoC Open Market Operation (OMO): Skips for 3rd consecutive session; Net CNY100B drained v CNY100B drained prior
• (CN) China PBOC sets yuan reference rate: 6.8737 v 6.8860 prior
• (HK) Hong Kong expected to name Eddie Yue New HKMA chief, will replace Norman Chan - SCMP

Other

• UMC Reports Q2 (NT$) 1.74B v 1.01Be, Rev 36.0B v 38.9B y/y
• 2354.TW Reportedly increasing hiring in Shenzhen with salaries +10% from last year, increasing speculation that Apple may increase H2 production numbers of iPhones - press
• (PH) Philippine Central Bank member Tolentino: In no rush to cut rate, will assess data going forward

North America

• TSLA Reports Q2 -$1.12 v -$0.54e, Rev $6.35B v $6.38Be; CEO: Sees Q3 Net around breakeven; Q4 to have a profit
• FB Reports Q2 $1.99 adj v $1.90e, Rev $16.9B v $16.4Be
• (US) President Trump considering an executive order that would cut prices on branded prescription drugs sold to Medicare and other Govt programs
• (US) DOE CRUDE: -10.8M V -4ME; GASOLINE: -0.2M V -1.5ME; DISTILLATE: +0.6M V +0.5ME

Europe

• ECB policy meeting happening today

Levels as of 01:20ET

• Hang Seng +0.3%; Shanghai Composite +0.2%; Kospi -0.3%; Nikkei225 +0.3%; ASX 200 +0.5%
• Equity Futures: S&P500 +0.1%; Nasdaq100 -0.2%, Dax +0.2%; FTSE100 +0.2%
• EUR 1.1133-1.1145; JPY 108.08-108.23; AUD 0.6965-0.6985;NZD 0.6693-0.6708
• Commodity Futures: Gold -0.1% at $1,422/oz; Crude Oil +0.3% at $56.07/brl; Copper -0.3% at $2.70/lb

Market movers today

Today's key event will be the ECB meeting. With economic data remaining lacklustre, the case for additional stimulus has strengthened. In a first step, we expect the Governing Council today to adjust the forward guidance to signal the possibility of lower policy rates in the future. This should set the scene for a comprehensive easing package to be unveiled at the September meeting (see ECB Preview: Warming up for Draghi's Grande Finale ). Markets continue to price in a c.40% probability of a 10bp cut at the July meeting and might hence be disappointed by the lack of action. However, we expect any sell-off to be short-lived as focus quickly reverts to the September meeting.

Earlier in the day, the German Ifo figures for July are due out and markets will monitor whether they bear the same dire message as yesterday's PMIs (see more below). Both the PMI and ZEW surveys point to more weakness to come for Ifo expectations.

As the US reporting season continues, markets will keep an eye on June durable goods orders for signs of weakness in the capex cycle ahead of tomorrow's Q2 GDP print. See our FOMC preview: Starting by cutting 25bp, published this morning.

Pedro Sanchez faces a second vote in parliament over his reappointment as PM. If he falls short of a simple majority, Spain is heading for its fourth election in as many years.

In Scandinavia, we have some data out for release, notably Norwegian unemployment data and Swedish manufacturing confidence for July.

In the emerging markets space, focus reverts to Turkey. The muted reaction of the TRY to Erdogan's dismissal of central bank governor Cetinkaya and the U-turn by global central banks should allow the Turkish central bank to ease policy today without triggering a major sell-off in the TRY in our view.

Selected market news

10Y Bund yields fell back to -0.38% as July euro area PMIs confirmed a weak start into Q3 for the economy (see Euro Area Research: Catching up with reality ). The manufacturing downturn intensified as new orders slipped and firms scaled back on staffing. The ongoing strength of the service sector should keep the economy afloat in Q3, but PMIs bear out a message of continued subdued growth running only at 0.1-0.2% q/q. Although PMIs give ECB the perfect argument to come with a comprehensive easing package, we do not think the survey signals were dire enough to rush the Governing Council into a decision already today, not least because loan growth to the private sector remains dynamic as yesterday's data also showed.

After US PMIs bore a similar message of a weakening global manufacturing cycle, sentiment got a welcome boost from reports that the Chinese government has approved purchases of up to 3m tonnes of US soybeans free of retaliatory import tariffs. Trade negotiations between the two countries are set to restart next week with senior US officials travelling to Shanghai, but a rocky road in the negotiations still lies ahead in our view.

For the 24 hours to 23:00 GMT, the EUR declined 0.09% against the USD and closed at 1.1142, amid disappointing economic data and ahead of European Central Bank's rate decision.

On the macro front, Euro-zone's flash manufacturing PMI unexpectedly fell to a level of 46.4 in July, marking its lowest level in more than 6.5 years and defying market expectations for a gain to a level of 47.7. The PMI had recorded a level of 47.6 in the previous month. Moreover, the region's flash services PMI slid to a level of 53.3 in July, in line with market anticipations. In the prior month, the PMI had recorded a level of 53.6.

Separately, in Germany, the flash Markit manufacturing PMI unexpectedly contracted to a 7-year low level of 43.1 in July, confounding market consensus for a rise to a level of 45.2. The PMI had recorded a reading of 45.0 in the previous month. Also, the nation's flash services PMI dropped to a level of 55.4 in July, less than market expectations. In the preceding month, the PMI had registered a level of 55.8.

In the US, data showed that the flash Markit manufacturing PMI unexpectedly declined to a decade low level of 50.0 in July, defying market anticipations for a rise to a level of 51.0. In the prior month, the PMI had registered a reading of 50.6. Also, the MBA mortgage applications fell 1.9% on a weekly basis in the week ended 19 July 2019, following a drop of 1.1% in the prior week.

On the flipside, the nation's preliminary Markit services PMI rose to a level of 52.2 in July, more than market expectations for an advance to a level of 51.8. In the prior month, the PMI had recorded a level of 51.5. Further, the nation's new home sales climbed 7.0% on monthly basis, to a level of 646.0K in June, compared to a revised level of 604.0K in the previous month.

In the Asian session, at GMT0300, the pair is trading at 1.1136, with the EUR trading 0.05% lower against the USD from yesterday's close.

The pair is expected to find support at 1.1123, and a fall through could take it to the next support level of 1.1111. The pair is expected to find its first resistance at 1.1152, and a rise through could take it to the next resistance level of 1.1169.

Going forward, traders would await the ECB's interest rate decision along with Germany's IFO survey indices for July, slated to release in a few hours. Later in the day, the US durable goods orders and advance goods trade balance, both for June followed by the initial jobless claims will keep traders on their toes.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.