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Daily Pivots: (S1) 0.6989; (P) 0.7012; (R1) 0.7029; More...

AUD/USD's sharp fall and break of 0.6996 minor support suggests that rebound from 0.6831 has completed with three waves up to 0.7082. Intraday bias is turned back to the downside for 0.6910 support first. Break will confirm and pave the way back to retest 0.6831 support next. Such development will also argue that fall from 0.7295 is in progress for 0.6722 low. On the upside, break of 0.7082 will extend the rebound from 0.6831 instead.

In the bigger picture, with 0.7393 key resistance intact, medium term outlook remains bearish. The decline from 0.8135 (2018 high) is seen as resuming long term down trend from 1.1079 (2011 high). Decisive break of 0.6826 (2016 low) will confirm this bearish view and resume the down trend to 0.6008 (2008 low). However, firm break of 0.7393 will argue that fall from 0.8135 has completed. And corrective pattern from 0.6826 has started the third leg, targeting 0.8135 again.

The financial markets somewhat decouple in Asian session today. Australian Dollar is sold off broadly while Yen strengthens, Yet it's has nothing to do with risk appetite with Asian equity indices generally higher. Aussie's weakness is mainly due to RBA rate expectations following poor PMIs. In particular, sharp deterioration is seen in employment, which could eventually force RBA to cut interest rate earlier in October, and deliver another one in February. This is what Westpac believes in now.

Staying in the currency markets. Sterling rises mildly today but lacks clear momentum yet. The Pound stays mixed as Boris Johnson's win as Conservative leader provides no resolution to the Brexit dead lock at this point. (More in Brexit Update – New PM, Old Challenge). Euro also turns mixed after yesterday's selloff. But the common currency will likely remain soft as ECB meeting looms. Expectation is high for ECB to indicate how it's going to ease monetary policy further later in September. (More in ECB Preview – Expecting Change in Forward Guidance and Hints on QE Resumption and Tiering). Before ECB tomorrow, there will be Eurozone PMIs featured today too.

Technically, EUR/USD is on track to retest 1.1107 low and we'll pay attention to bottoming there. AUD/USD's break of 0.6996 suggests near term topping and deeper fall should be seen to 0.6910 support next. That's another sign of Dollar strength. Yet, we'll still prefer to see break of 108.37 in USD/JPY to confirm underlying momentum in Dollar. Also 0.8954 minor support in EUR/GBP is also a focus today and break will indicate near term reversal in the cross.

In Asia, Nikkei closed up 0.41%. Hong Kong HSI is up 0.56%. China Shanghai SSE is up 0.58%. Singapore Strait Times is up 0.08%. Japan 10-year JGB yield is down -0.0016 to -0.0147. Overnight, DOW rose 0.65%. S&P 500 rose 0.68%. NASDAQ rose 0.58%. 10-year yield rose 0.031 to 2.074.

US Kudlow hopeful on China trade talks, Perdue reveals new farmer aids

White House economic adviser Larry Kudlow indicated yesterday that US trade team could travel to China to restart trade negotiations. Meanwhile, China could re-start agricultural purchases soon. He said, "as I read it, it looks like there will be a trip to China and we expect, we hope strongly that China will very soon start buying agriculture products, No. 1 as part of an overall deal and No. 2 as a goodwill gesture."

Kudlow also sounded positive and added, "I wouldn't be surprised if we saw a lot of positive news on that coming up... I'm going to strike a note of hopefulness." However, Commerce Secretary Wilbur Ross sounded more cautious and said "I'm not aware that the gate has opened to any significant degree."

Separately, Agriculture Secretary Sonny Perdue announced new aid package to help farms hurt by Trump's trade war with China. The government will pay a minimum of USD 15 per acre to farmers. He said, "we're anticipating right now three tranches; probably 50 percent ... or minimum there of $15 an acre initially." The second and third tranches would be dependant on market conditions.

Australia PMI composite dropped to 51.8, sharp fall in employment

Australia CBA PMI manufacturing dropped to 51.4 in July, down from 52.0. PMI services dropped to 51.9, down from 52.6. PMI composite dropped to 51.8, down from 52.5. CBA noted that "Slower growth fed through to staffing levels, which decreased for the first time in three months." More importantly, employment decreased for the greatest extent since the survey began in May 2016. Reduction in jobs were centered of service sector.

CBA Senior Economist, Belinda Allen said: "Overall the "flash" PMI does suggest business activity should continue to expand in Q3... The sharp fall in employment intentions underlines the importance of the tax cuts now filtering into the economy and calls for more policy stimulus via infrastructure spending and microeconomic reform. Input costs continued to lift and is worth watching if businesses can pass it on, we could see some impact on consumer inflation over 2H 2019 and into 2020".

Japan PMIs: Fastest expansion in 7 months on services, but manufacturing sector's plight continued

Japan PMI manufacturing improved to 49.6 in July, up from 49.3, but missed expectation of 49.7. PMI services rose to 52.3, up from 51.9. PMI composite rose to 51.2, up from 50.8.

Joe Hayes, Economist at IHS Markit, noted, "overall private sector output expanded at the fastest pace in seven months on the back of faster growth in services activity". "The manufacturing sector's plight continued, however, where production was cut in July for the seventh successive month. "

Also, "weak demand from China remained a key factor behind sluggish demand for Japanese goods. Heightened frictions between Japan and South Korea also add downside risk to the manufacturing supply chain in Japan, creating additional slack that services may once again have to compensate for."

IMF: Global growth sluggish and precarious on some self-inflicted reasons

IMF downgrades global growth forecasts to 3.2% in 2019 and 3.5% in 202, down from April projections of 3.3% and 3.6% respectively. The revision for 2019 reflects "negative surprises for growth in emerging market and developing economies that offset positive surprises in some advanced economies".

The report added, "global growth is sluggish and precarious but it does not have to be this way because some of this is self-inflicted". "Dynamism in the global economy is being weighed down by prolonged policy uncertainty as trade tensions remain heightened despite the recent US-China trade truce, technology tensions have erupted threatening global technology supply chains, and the prospects of a no-deal Brexit have increased."

IMF also urged monetary policy to remain "accommodative", especially "where inflation is softening below target". Though, it should accompanied by "sound trade policies". Fiscal policy should "balance growth, equity and sustainability concerns". Also, " the need for greater global cooperation is ever urgent", including resolving trade and technology tensions, climate change, international taxation, corruption, cybersecurity, and digital payment technology.

Looking at some details:

• US growth in 2019 revised up by 0.3% to 2.6%.
• US growth in 2020 unchanged at 1.9%.
• Eurozone growth in 2019 unchanged at 1.3%.
• Eurozone growth in 2020 revised up by 0.1% to 1.6%.
• Germany growth in 2019 revised down by -0.1% to 0.7%.
• Germany growth in 2020 revised up by 0.3% to 1.7%.
• UK growth in 2019 revised up by 0.1% to 1.3%.
• UK growth in 2020 unchanged at 1.4%.
• Japan growth in 2019 revised down by -0.1% to 0.9%.
• Japan growth in 2020 revised down -0.1% to 0.4%.
• China growth in 2019 revised down by -0.1% to 6.2%.
• China growth in 2020 revised down by -0.1% to 6.0%.

Looking ahead

Eurozone PMIs will be the major focus in European session. Eurozone M3 and UK BBA mortgage approvals will also be featured. Later in the day, US will release PMIs and new home sales.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.6989; (P) 0.7012; (R1) 0.7029; More...

AUD/USD's sharp fall and break of 0.6996 minor support suggests that rebound from 0.6831 has completed with three waves up to 0.7082. Intraday bias is turned back to the downside for 0.6910 support first. Break will confirm and pave the way back to retest 0.6831 support next. Such development will also argue that fall from 0.7295 is in progress for 0.6722 low. On the upside, break of 0.7082 will extend the rebound from 0.6831 instead.

In the bigger picture, with 0.7393 key resistance intact, medium term outlook remains bearish. The decline from 0.8135 (2018 high) is seen as resuming long term down trend from 1.1079 (2011 high). Decisive break of 0.6826 (2016 low) will confirm this bearish view and resume the down trend to 0.6008 (2008 low). However, firm break of 0.7393 will argue that fall from 0.8135 has completed. And corrective pattern from 0.6826 has started the third leg, targeting 0.8135 again.

Economic Indicators Update

General Trend:

• New Zealand June trade balance saw a larger than expect deficit, imports came in at a 16 month low; fuel imports fell 39% and vehicle imports fell 16%
• AUD fell 0.4% after Westpac moved up time line for projected RBA rate cuts to 0.75% in October and 0.5% in Feb 2020
• In a Chinese press interview, China PBOC Gov Yi Gang reiterated China is not likely to follow US Fed rate cut; China's interest rates are at an appropriate level, CPI is modestly positive
• China Commerce Min Zhong Shan to meet with US trade officials next week when they comes to Shanghai; talks will cover a broad range of issues
• Iron ore in the region lower as Vale given govt approval to restart some of its processing capacity
• KRW weakens against the USD as trade tensions with Japan continue to escalate, Japan threatens to remove South Korea from its White List
• China released its first defense white paper since 2015 accusing the US of undermining global strategic stability by changing its national security and defense strategy. Uutlines the Chinese military's plans to increase cyber capacity and threatens use of military force against Taiwan 'separatists'
• Russia voiced "deep regret" over the airspace intrusion into Korean airspace. Japan claims that the airspace is actually Japanese. China claims that the joint Russia/China air patrol did not enter any nation's sovereign airspace

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened %
• (AU) Australia July Preliminary PMI Manufacturing 51.4 v 52.0 prior
• (AU) Australia Westpac forecasts RBA cut to 0.75% in Oct (prior Nov); 0.5% in Feb 2020
• ILU.AU Reports Q2 total mineral sands production 251.3Kt v 281.4Kt y/y; Mineral Sands Rev: A$295.2M v A$344.9M y/y
• BPT.AU Reports Q4 production 6.97MMBOE v 7.23 MMBOE q/q; Rev $501M v $471M y/y
• PEA.AU Receives offer of A$0.975/shr from QIC Private Capital subsidiary QGIF Swan Bidco Pty Ltd
• (NZ) New Zealand Jun Trade Balance (NZ$): 365M v 100Me
• (NZ) New Zealand June beef exports to China nearly doubled to NZ$1.2B, as NZ replaces US as a source for beef amid US China trade dispute

Japan

• Nikkei 225 opened +0.5%
• (JP) Japan Cabinet Sec Suga: Want to push further ahead with prioritizing the economy; want to invite China President Xi for official visit early next year
• (JP) Japan PM Abe Adviser Hamada: If Fed acts BOJ may need to do something for yen; concerned about yen nearing 100 - Nikkei
• (JP) BOJ said to cut current fiscal year CPI forecast at its upcoming policy meeting - financial press
• 8227.JP Reports Jul SSS -17.5%
• (JP) Japan July Preliminary PMI Manufacturing: 49.6 v 49.3 prior
• 7201.JP Reportedly plans to cut over 10K jobs globally, in additional to prior announced cuts - Japanese press

Korea

• Kospi opened -0.2%
• (KR) US Pentagon expressed its strong support for South Korea and Japan in their response to "airspace incursions" by Russia and China warplanes – Yonhap
• (KR) South Korea Trade Ministry: Urges Japan to stop attempts to remove it from white list, prepared for talks at any time , anywhere with Japan - submits statement of arguments to Japan
• 034220.KR Reports Q2 (KRW) Net -548.4B v -237.4Be, Op -368.7B v -263.4Be, Rev 5.35T v 5.90Te (after the close yesterday)
• Looking ahead: Expecting earnings results from Hynix tomorrow

China/Hong Kong

• Hang Seng opened +0.4%; Shanghai Composite opened +0.3%
• (CN) China PBOC Gov Yi Gang: Reiterates China is not likely to follow US Fed rate cut; China's interest rates are at an appropriate level, CPI is modestly positive - Caixin
• (CN) China PBOC sets yuan reference rate: 6.8860 v 6.8818 prior
• (CN) China PBoC Open Market Operation (OMO): Skips for 2nd consecutive session; Net CNY100B drained v CNY164.3B drained yesterday via TMLF and MLF operations
• (CN) China punishes and bans 29 funds for tech board IPO violations, banned for up to 1 year - Chinese press
• (CN) China releases white paper accusing US of undermining global strategic stability by adjusting its national security and defense strategy; US has provoked competition among major countries; US had adjusted national security and defense strategy
• 522.HK Reports H1 (HK$) Net 179.5M v 1.4B y/y; Rev 7.3B v 9.6B y/y
• (CN) China CICC: China lost ~5.0M factory jobs recently, due to trade tensions with US, including 1.5M lost due to increased US tariffs at the end of May

Other

• IMF UPDATES ITS WORLD ECONOMIC OUTLOOK (WEO): cuts 2019 GLOBAL GDP GROWTH FORECAST FROM 3.3% TO 3.2%

North America

• S DISH reportedly agreed to acquire $5B in assets from Sprint/T-Mobile, which would clear the way to regulatory approval for Sprint/T-Mobile deal, which could comes as soon as Thursday - US financial press
• (CN) US NEGOTIATING TEAM REPORTEDLY TO HEAD TO CHINA ON MONDAY FOR FACE-TO-FACE TRADE TALKS; Group to be headed by US Trade Rep Lighthizer, who will bring a small team with him, The talks are expected to extend through Wed - PRESS
• (US) Weekly API Oil Inventories: Crude: -11M v -1.4M prior

Europe

• (UK) RESULTS OF CONSERVATIVE PARTY LEADERSHIP VOTE: Boris Johnson elected as party leader (as expected); to become Prime Minister after May steps down on Wed, July 24th
• DAI.DE Reports Q2 Net -€1.2B v +€1.8B y/y, EBIT -€1.6B v +€2.6B y/y, Rev €42.7B v €40.8B y/y
• DBK.DE Reports Q2 adj Net €1.7B v €1.8B y/y, Pretax -€946M v €711M y/y, Rev €6.2B v €6.6B y/y

Levels as of 01:20ET

• Hang Seng +0.6%; Shanghai Composite +0.9%; Kospi -0.7%; Nikkei225 +0.3%; ASX 200 +0.7%
• Equity Futures: S&P500 -0.1%; Nasdaq100 -0.3%, Dax -0.0%; FTSE100 -0.2%
• EUR 1.1143-1.1156; JPY 108.12-108.28 ; AUD 0.6977-0.7009; NZD 0.6692-0.6704
• Commodity Futures: Gold -0.2% at $1,419/oz; Crude Oil +0.3% at $56.95/brl; Copper -0.2% at $2.70/lb

Australian Dollar is sold off deeply in Asian session after poor PMI data. In particular, unemployment component of the PMI dropped sharply to the lowest level since survey began in 2016. Additionally, in a report published today, Westpac brought forward the timing of forecast on next RBA rate cut, from November to October. It noted that the path of unemployment will be "sufficiently contrary" to RBA's plan. Further more, Westpac's "terminal rate forecast" was lowered from 0.75% to 0.50%. That is, it expect another cut in February 2020.

Staying in the currency markets, Swiss Franc is the second weakest for today so far, retreating some of yesterday's gains. New Zealand Dollar is the third weakest, after trade surplus widened to NZD 365M in June. On the other hand, Yen is the strongest one, followed by Sterling and then Dollar. The Pound is mixed after Boris Johnson finally confirmed winning Conservative leadership. Leaving the EU with a deal remains our base scenario. Nonetheless, Johnson's hardliner rhetoric has inevitably increased the chance of a no deal Brexit. More in Brexit Update – New PM, Old Challenge

In Asia, currently:

• Nikkei closed up 0.34%.
• Hong Kong HSI is up 0.71%.
• China Shanghai SSE is up 0.87%.
• Singapore Strait Times is up 0.08%.
• Japan 10-year JGB yield is down -0.0016 to -0.0147.

Overnight:

• DOW rose 0.65%.
• S&P 500 rose 0.68%.
• NASDAQ rose 0.58%.
• 10-year yield rose 0.031 to 2.074.

Market movers today

Today's main event will be the release of manufacturing and services PMIs out of the euro area. Before the meeting on Thursday, today's euro area PMIs will give ECB some vital insights into how the economy started into Q3 after the weak finish in Q2. A recent setback in global trade volumes and order-inventory leaves us to expect further downside in manufacturing PMIs, which we see falling to 47.2 in July. The lot of the service sector, on the other hand, continues to hold up well, and we see scope for a further small improvement in Services PMI to 53.9 in July as new incoming business remains on an upward trend. That should keep the euro area economy out of recession in the near-term, but for the manufacturing sector the air is getting thinner.

We also get manufacturing and services PMIs out of the US and Japan. US Manufacturing PMI has been falling to the lowest levels in three years (last reading 50.6, consensus 51.0) and a disappointing reading may see markets yet again price in a higher probability of a cut larger than 25bp at the FOMC meeting later this month. Service PMI is also close to three-year lows. We call for a 25bp cut at the July meeting and a total of 75bp worth of Fed cuts this year (July, September and December).

Selected market news

In Spain, the first parliamentary vote that would see Pedro Sánchez's PSOE party take government, turned out negatively as only 124 members voted in favour of the proposed government (PSOE has 123 members in parliament) and 170 voted against. There were 52 abstentions, 42 of them from Podemos with the party abstaining altogether. PSOE and Podemos have been negotiating a potential coalition since the election in April but are yet to reach an agreement. Lately, Podemos has accused Sánchez of offering only decorative roles in a potential government. A new vote is set for Thursday where only a simple majority of those MPs who vote is needed. In case of another rejection, Sánchez (or another party leader) has a two-month window to form a government or face new elections.

Japanese PMIs this morning generally surprised positively (although modestly) across both services and manufacturing. Manufacturing PMI came out at 49.6 (49.3 expected) and services at 52.3 (51.9 expected). Markets initially reacted positively, however the flash estimate largely paints a picture of a lacklustre start to the third quarter as goods exports lead the fall in new orders. New export orders have been falling each month since December and the trade war thus continues to weigh heavily on Japanese exports.

Japanese exports could come under renewed pressure as Japan-South Korean relations are now in a very severe state (quote from Japanese chief cabinet secretary Yoshihide Suga). The current dispute between the two countries started last autumn as the South Korean Supreme Court awarded damages to individuals against Japanese companies following Second World War forced labour. Japan has retaliated by imposing restrictions on Japanese exporters' supply of raw materials especially used in South Korea's large semiconductor industry. The South Korean government has previously stated that sanctions would be met by retaliation.

For the 24 hours to 23:00 GMT, the EUR declined 0.51% against the USD and closed at 1.1152.

On the data front, Euro-zone's preliminary consumer confidence index climbed to a level of -6.6 in July, compared to a level of -7.2 in the previous month.

The US Dollar rose against a basket of currencies yesterday, after President Donald Trump and US lawmakers reached a two-year deal lifting government borrowing limits to cover spending.

In the US, data showed that the Richmond Fed manufacturing index surprisingly declined to a six-year low level of -12.0 in July, defying market expectations for a rise to a level of 5.0. In the previous month, the index had registered a revised reading of 2.0. Moreover, the US existing home sales dropped 1.7% on monthly basis to a level of 5.27 million in June, more than market anticipations for a fall to level of 5.32 million. In the previous month, existing home sales had registered a revised level of 5.36 million. Further, the nation's housing price index fell 0.1% on a monthly basis in May, compared to an advance of 0.4% in the previous month. Market participants had expected the index to register a rise of 0.4%.

Separately, the International Monetary Fund (IMF) slashed its global growth forecast to 3.2% in 2019 from 3.3% and forecasted a growth of 3.5% for 2020. Meanwhile, the IMF lifted its projection for US growth to 2.6% in 2019 and kept its 2020 growth outlook unchanged at 1.9%, citing concerns over the ongoing trade war. Additionally, the euro-area forecast was unrevised at 1.3%.

In the Asian session, at GMT0300, the pair is trading at 1.1146, with the EUR trading 0.05% lower against the USD from yesterday's close.

The pair is expected to find support at 1.1126, and a fall through could take it to the next support level of 1.1105. The pair is expected to find its first resistance at 1.1184, and a rise through could take it to the next resistance level of 1.1221.

Looking ahead, traders would keep an eye on the Markit manufacturing and services PMIs for July, set to release across the euro bloc in a few hours. Later in the day, the US Markit manufacturing and services PMIs for July, new home sales for June along with the MBA mortgage applications, will be on investors' radar.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP declined 0.32% against the USD and closed at 1.2438.

Data showed that UK's CBI total trends order unexpectedly dropped to a level of -34.0 in July, compared to market expectations for a steady reading. The balance of firms reporting total order book above normal had recorded a reading of -15.0 in the previous month.

Separately, the International Monetary Fund upgraded its growth forecast for UK to 1.3% in 2019 and 1.4% for 2020, on the back of expectations for an orderly Brexit.

In the Asian session, at GMT0300, the pair is trading at 1.2434, with the GBP trading slightly lower against the USD from yesterday's close.

The pair is expected to find support at 1.2407, and a fall through could take it to the next support level of 1.2381. The pair is expected to find its first resistance at 1.2471, and a rise through could take it to the next resistance level of 1.2509.

Trading trend in the Sterling today, is expected to be determined by UK's BBA mortgage approvals for June, set to release in a few hours.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.30% against the JPY and closed at 108.22.

Data indicated that Japan's final machine tool orders plunged 37.9% on an annual basis in June, following a drop of 27.3% in the prior month. The preliminary figures had recorded a fall of 38.0%.

The International Monetary Fund lowered Japan's economic growth forecast to 0.9% in 2019 and 0.4% in 2020, citing the country's recent move to raise consumption tax in October.

In the Asian session, at GMT0300, the pair is trading at 108.16, with the USD trading 0.06% lower against the JPY from yesterday's close.

Overnight data revealed that the nation's Nikkei manufacturing PMI advanced to a level of 49.6 in June, following a reading of 49.3 in the preceding month.

The pair is expected to find support at 108.00, and a fall through could take it to the next support level of 107.85. The pair is expected to find its first resistance at 108.30, and a rise through could take it to the next resistance level of 108.45.

Trading trend in the Japanese Yen today, is expected to be determined by Japan's coincident index and leading index for May, set to release in a while.

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

For the 24 hours to 23:00 GMT, the USD rose 0.27% against the CHF and closed at 0.9851.

In the Asian session, at GMT0300, the pair is trading at 0.9865, with the USD trading 0.14% higher against the CHF from yesterday’s close.

The pair is expected to find support at 0.9840, and a fall through could take it to the next support level of 0.9815. The pair is expected to find its first resistance at 0.9878, and a rise through could take it to the next resistance level of 0.9891.

With no macroeconomic releases in Switzerland today, investors would look forward to global macroeconomic releases for further direction.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.10% against the CAD and closed at 1.3139.

In the Asian session, at GMT0300, the pair is trading at 1.3132, with the USD trading 0.05% lower against the CAD from yesterday’s close.

The pair is expected to find support at 1.3115, and a fall through could take it to the next support level of 1.3097. The pair is expected to find its first resistance at 1.3157, and a rise through could take it to the next resistance level of 1.3181.

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