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Daily Pivots: (S1) 1.5893; (P) 1.5920; (R1) 1.5946; More...

Intraday bias in EUR/AUD remains neutral for consolidation above 1.5894 temporary low. Stronger recovery could be seen but upside should be limited below 1.6231 resistance to bring another fall. 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.

In the bigger picture, as long as 1.5346 support holds, 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.

Europe flat despite trade hopes

Europe is looking a little flat ahead of the open on Wednesday, failing to capitalise on the positive momentum that lifted stocks in the US and parts of Asia overnight.

Sentiment was buoyed late on Tuesday by reports that US trade negotiators will head to China on Monday for face-to-face talks. While there’s obviously no guarantee that anything will come from the talks, it’s clearly a positive development that suggests both sides believe progress can be made. And lets face it, anything that brings hope in this increasingly murky environment is always welcome.

As ever, it feels like it’s two steps forward and one step back on the trade front though, after EU Trade Commissioner Cecilia Malmstrom claimed the block has tariffs prepared if the US follows through on threats to slap them on European cars.

The US has so far held off on getting involved in a full blown trade conflict with the EU, probably due a desire to not fight a trade war on two fronts. But it’s not like Trump to shy away from a tussle and these comments may just trigger a Twitter backlash against the EU.

Pound steady as Johnson prepares to enter Number 10

Boris Johnson’s ambitions to be Prime Minister have long been known but today, he will finally enter into number 10 and begin his bid to take the UK out of the European Union. His victory probably comes three years later than he expected but the man repeatedly claimed prior to the referendum that he had no desire to be PM, probably enters Downing Street in a much better position than he otherwise would have.

GBPUSD Daily Chart

Much of the mundane details of the split have been agreed on by Theresa May’s team and there is now a sense of desperation from Brexiteers that very much suits him. Now he just needs to get the EU to back down on issues he previously claimed were straightforward or drag Parliament out of the block kicking and screaming without a deal. Simple.

The pound has been relatively flat since the announcement, highlighting just how much his victory was already priced in. We haven’t yet seen any profit taking kick in though which may be traders waiting to see the make-up of his cabinet or could signal ongoing nervousness around the risk of no-deal under his leadership. The sell-off has lacked momentum in recent weeks which may suggest the former but I’m sure that will become a lot clearer in the coming days.

Deutsche Bank posts huge second quarter loss

Deutsche Bank posted a larger than expected €3.1 billion loss in the last quarter after the banks profits took a massive hit from the huge restructuring efforts that will include 18,000 staff being let go. The bank claims that without the charges, net profits would have been €231 million, still shy of the €401 million a year earlier, but that a substantial portion of the restructuring costs will be absorbed in the quarter. The restructuring is a big and expensive gamble for the bank but one that many have thought necessary for some time

Oil steady despite huge inventory drawdown

Oil prices are steady on Wednesday, posting small gains after quickly absorbing the latest inventory data from API which reported a massive 11 million barrel drawdown. This came on the back of the trade news which was already positive for risk appetite and oil and yet, traders appear reluctant to be too bullish. Perhaps traders are just in a more bearish mindset right now following last week’s tumble and more evidence is needed for that to change.

Brent Daily Chart

Gold losing its shine for now

Gold is posting small gains in early trade after a challenging few days for the yellow metal. While the broad consensus continues to be that this is a bullish environment for gold, near-term factors have taken the shine off it. Whether that’s improving risk appetite or a rebound in the dollar as traders reluctantly accept that we won’t see a 50 basis point cut from the Fed this month, gold is coming under a little pressure and may continue to do so near-term.

Gold Daily Chart

Daily Pivots: (S1) 1.0966; (P) 1.0993; (R1) 1.1015; More...

EUR/CHF's decline is still in progress and intraday bias remains on the downside for 61.8% projection of 1.2004 to 1.1173 from 1.1476 at 1.0962. Sustained break there will pave the way to 100% projection at 1.0645 next. On the upside, above 1.1035 minor resistance will turn intraday bias neutral first. But outlook will stay bearish as long as 1.1154 resistance holds, in case of recovery.

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.

EURJPY is looking strongly bearish in the short-term after plunging towards a new six-month low earlier today, continuing its selling interest from April 15’s peak of 126.80. Prices dropped below the significant 120.75 barrier and the technical indicators are all pointing to further negative momentum. The RSI is heading downwards, approaching the oversold zone, while the MACD extends its bearish momentum below trigger and zero lines.

Should the pair make another run lower, it is likely to meet support at the 20-month low of 118.55, reached on January 3, which stands around the return line of the medium-term descending channel.

If the negative structure fails to hold and prices turn higher for some bullish movement, the 120.75 could act as immediate resistance for the pair. A potentially more important obstacle though, is the 20- and then the 50-simple moving averages (SMAs) at 121.55 and 121.90 respectively. Even higher, the price could challenge the 122.30 hurdle.

In the bigger picture, EURJPY struggles within a three-month downward sloping channel and investors could turn their eyes towards the next strong level of 118.55. For the outlook to become neutral to bullish, the price needs to penetrate the 122.30 resistance.

Daily Pivots: (S1) 1.1128; (P) 1.1169; (R1) 1.1192; More...

Intraday bias in EUR/USD remains on the downside for 1.1107 low first. At this point, we're not expecting a break there yet. Thus, focus will be on bottoming signals around 1.1107. On the upside, break of 1.1193 support turned resistance will turn intraday bias remains neutral first. But break of 1.1282 resistance is needed to signal completion of fall from 1.1412. Otherwise, further decline is in favor even in case of recovery.

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.

Asian stocks are claiming higher ground after the S&P 500 closed back above the 3000 level, as news that US and China negotiators are set to hold a high-level meeting in Shanghai on Monday lifted market sentiment. While the resumption of trade talks appears to mitigate any near-term deterioration in US-China tensions, prudent investors will not get carried away, seeing as a meaningful deal still seems a long way off at this point in time. Global growth has already been stifled by the protracted impasse between the world’s two largest economies, as well as the imposed tariffs, and investors need not look further than the IMF’s repeated downgrades to its global growth forecasts for confirmation of this. While the prospect of central bank stimulus encourages risk appetite for equities, some measure of caution is still warranted, given the downside risks stemming from global trade tensions and Brexit uncertainties.

New Prime Minister, same ol’ Sterling

The Pound offered scarce reaction to Boris Johnson’s official unveiling as the new leader of the UK Conservative Party, with such an outcome having already been priced into the markets. Theresa May is set to hand over her duties as Prime Minister to Johnson later today, and with it, the same political challenges that proved insurmountable for May in getting Brexit over the line.

The question now on investors’ minds is whether the Boris Johnson of the campaign trail will be the same Boris Johnson that will confront EU officials in charting Brexit’s eventual path. Keep in mind that Johnson had repeatedly extolled the need to deliver on Brexit, with or without a deal by the October 31 deadline. Such rhetoric has amplified concerns that PM Johnson could lead the UK towards a no-deal Brexit.

In any case, the Pound is set to remain weighed down by the political uncertainties ahead, as the UK’s economic fundamentals continue to take a back seat to the Brexit saga over the remaining 100 days before the October 31 deadline.

Dollar bulls refuse to cower in lead up to Fed’s July 31 decision

The Dollar index (DXY) has reached its highest point in over a month, trading above the 97.7 level at the time of writing, as most Asian currencies continue softening against the Greenback. Investors are paring back expectations that the Federal Reserve would lower interest rates by 50basis points next week, with Fed funds futures now showing a less than 20 percent chance of the Fed easing its policy settings by a bigger margin, versus the widely expected 25-basis point cut.

Dollar bulls are not taking things lying down, which has tempered gains in safe haven assets. Gold is moderating towards the $1400 level while the Yen currently trades above the 108 handle against the US Dollar. Still, there remains a strong case to be made for Gold and the Japanese Yen as global economic risks remain tilted to the downside, evidenced by the IMF once again lowering its global economic forecast for the year.

Europe is looking a little flat ahead of the open on Wednesday, failing to capitalise on the positive momentum that lifted stocks in the US and parts of Asia overnight.

Sentiment was buoyed late on Tuesday by reports that US trade negotiators will head to China on Monday for face-to-face talks. While there's obviously no guarantee that anything will come from the talks, it's clearly a positive development that suggests both sides believe progress can be made. And lets face it, anything that brings hope in this increasingly murky environment is always welcome.

As ever, it feels like it's two steps forward and one step back on the trade front though, after EU Trade Commissioner Cecilia Malmstrom claimed the block has tariffs prepared if the US follows through on threats to slap them on European cars. The US has so far held off on getting involved in a full blown trade conflict with the EU, probably due a desire to not fight a trade war on two fronts. But it's not like Trump to shy away from a tussle and these comments may just trigger a Twitter backlash against the EU.

Pound steady as Johnson prepares to enter Number 10

Boris Johnson's ambitions to be Prime Minister have long been known but today, he will finally enter into number 10 and begin his bid to take the UK out of the European Union. His victory probably comes three years later than he expected but the man repeatedly claimed prior to the referendum that he had no desire to be PM, probably enters Downing Street in a much better position than he otherwise would have.

Much of the mundane details of the split have been agreed on by Theresa May's team and there is now a sense of desperation from Brexiteers that very much suits him. Now he just needs to get the EU to back down on issues he previously claimed were straightforward or drag Parliament out of the block kicking and screaming without a deal. Simple.

The pound has been relatively flat since the announcement, highlighting just how much his victory was already priced in. We haven't yet seen any profit taking kick in though which may be traders waiting to see the make-up of his cabinet or could signal ongoing nervousness around the risk of no-deal under his leadership. The sell-off has lacked momentum in recent weeks which may suggest the former but I'm sure that will become a lot clearer in the coming days.

Deutsche Bank posts huge second quarter loss

Deutsche Bank posted a larger than expected €3.1 billion loss in the last quarter after the banks profits took a massive hit from the huge restructuring efforts that will include 18,000 staff being let go. The bank claims that without the charges, net profits would have been €231 million, still shy of the €401 million a year earlier, but that a substantial portion of the restructuring costs will be absorbed in the quarter. The restructuring is a big and expensive gamble for the bank but one that many have thought necessary for some time.

Oil steady despite huge inventory drawdown

Oil prices are steady on Wednesday, posting small gains after quickly absorbing the latest inventory data from API which reported a massive 11 million barrel drawdown. This came on the back of the trade news which was already positive for risk appetite and oil and yet, traders appear reluctant to be too bullish. Perhaps traders are just in a more bearish mindset right now following last week's tumble and more evidence is needed for that to change.

Gold losing its shine for now

Gold is posting small gains in early trade after a challenging few days for the yellow metal. While the broad consensus continues to be that this is a bullish environment for gold, near-term factors have taken the shine off it. Whether that's improving risk appetite or a rebound in the dollar as traders reluctantly accept that we won't see a 50 basis point cut from the Fed this month, gold is coming under a little pressure and may continue to do so near-term.

Markets

German Bunds outperformed US Treasuries yesterday as markets chose not to bet against soft expected PMI's (later today) and the ECB (Thursday). Trump's economic advisor Kudlow confirmed that a US trade delegation will travel to China on Monday to discuss outstanding issues. The report had little to no impact on the Bund but triggered a downleg in UST's which was only temporarily interrupted by disappointing US data. A solid 2-yr auction in the US went unnoticed. The US yield curve bear steepened with daily yield changes varying from +2.5 bps (2-yr) to +3.5 bps (10-yr). German yields were unchanged (2-yr, 5-yr) to 1 bp lower (10-yr). Peripheral spreads narrowed in Italy (-4 bps) and Greece (-5 bps). Today's EMU PMI business confidence takes center stage. Markets expect the recent stabilization to continue with an ongoing discrepancy between the manufacturing and services sector. It probably requires a significant positive surprise - which we don't see happening - for markets to change its view of a (very) soft expected ECB tomorrow. Instead, figures in line or below consensus will likely add fuel to rate cut speculations. That would cause further outperformance of the German bund (near its all-time high) vs. UST's, which might also feel some pressure of a $41 bn 5-yr auction later today.

EUR/USD further declined yesterday. The move was both due to broader USD strength and euro weakness. Recent US data are seen as too strong for the Fed to already embark for 50 bp rate cut next week. Investors also avoided euro long exposure ahead of tomorrow's ECB decision. Positive headlines on the US China trade talks improved global risk sentiment. The simultaneous, albeit modest, rise in US yields also supported the dollar. EUR/USD dropped below the 1.1180 support, confirming the negative ST momentum. The pair closed at 1.1252. USD/JPY finished the day at 108.23.
Tomorrow's ECB meeting will continue to cast a shadow on trading today. The EMU composite PMI is expected unchanged at 52.2. We see little evidence of a big positive surprise. So the cautious attitude on the euro might persist. The EUR/USD 1.1100/10 range bottom is coming within reach. One would expect a break only to occur in case the ECB delivers ‘something tangible'. That said, recent low volatility suggests that investors are poorly prepared for a break of long-standing ranges. So, an unexpected break might force additional stop-loss repositioning.

Sterling trading showed a mixed picture yesterday. Initially the UK currency was under pressure after BoE's Saunders indicated that a BoE rate hike isn't evident in the current uncertain environment. Sterling found its composure later. Boris Johnson becoming the new conservative party leader was already discounted by markets. His pledge to energize the economy (probably via fiscal stimulus) in theory is a tentative sterling supportive. Sterling stabilized against the dollar and rebounded against a weak euro. EUR/GBP closed at 0.8965. Today, Boris Johnson will take office as UK prime minister and will compose a new government. Brexit noise will probably return over time. However, in a day-to-day perspective, sterling selling might ease as markets await initiatives (on Brexit and on other topics) from the new UK government. Some sterling consolidation might be on the cards.

News Headlines

The US Department of Justice announced it will launch a broad antitrust probe into Big Tech. The DoJ said it will investigate how the dominant tech firms have achieved market power and whether they are involved in practices that curb competition.

Japanese PMI's edged slightly higher in July. The composite indicator printed at 52.3 vs. 51.9 in June. Services came in at 51.2 vs .50.8.The manufacturing series increased 0.3 points but still suggests economic contraction (49.6). Australia PMI's, on the other hand, indicated a further loss of momentum in the economy. The composite PMI dropped from 52.5 to 51.8.

Daily Pivots: (S1) 1.2411; (P) 1.2447; (R1) 1.2475; More....

GBP/USD is bounded in range of 1.2382/2579 and intraday bias remains neutral first. Further decline remains in favor as long as 1.2579 resistance holds. 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.

The precious metal closed in the red on Tuesday, marking the third day of declines. With prices closing back below the recent breakout levels, the precious metal awaits cues from the ECB’s meeting tomorrow. The dovish forward guidance from the ECB is likely to see gold prices waiting to breakout higher once again.

XAUUSD to Remain Muted in the Short Term

With the US and China trade talks, alongside the ECB meeting tomorrow, gold is likely to remain flat in the short term. However, the rebound to the recently held support level at 1431–1428 remains key. If resistance is formed here, we could expect price action to drift lower. The support at 1404 region will be key as it could post further declines if the support level breaks.