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A rather optimistic start to Tuesday trading is seeing the dollar, US equities and oil prices all advance. The European bourses are sharply higher following strong results from AMS, Hermes, Santander, and UBS. European automakers also got a boost from Faurecia’s affirmation of their outlook, Saic to a stake in Daimler, and BMW got upgraded from Morgan Stanley, while Continental finally cut their guidance. It appears the European auto stocks may have hit a bottom for now as stocks like Continental are rising even on bad corporate warnings.

US stocks are looking at a positive open, but the gains will be limited until we get through the bulk of this week’s earnings reports which will see updates from Caterpillar, Facebook, Boeing, Ford, Intel, 3M, Alphabet, Amazon, and McDonalds. The other key catalysts remains the Fed and markets are scaling back their easing bets, but that could all change after Friday’s first reading of second quarter GDP.

South Korea/Russia

Markets were surprised to see reports that South Korean jets fired warning shots when a Russian military plane said to have entered their airspace. 360 warning shots were fired at the Russian plane as it entered the airspace twice. Seoul also noted that China planes violated their airspace, in what seems to be a coordinated move by the Russian and Chinese.

PM Johnson

Boris Johnson doubled Jeremy Hunt’s votes and will become Prime Minister after Theresa May steps down tomorrow. The British pound saw little reaction as the result was heavily baked in. Johnson is not expected to see an immediate no-confidence vote as Labour leaders would be unsure if they could win.

Oil

Oil prices are struggling to hold gains as a stronger dollar brings down commodities and on a relatively calm news day for tensions in the Persian Gulf. Markets will await today’s energy report from the API which is expected to see another draw with crude inventories.

Gold

Demand for gold is waning as earnings results from both Europe and the US are coming in better than expected and as US lawmakers agreed on a debt-limit deal, removing a key risk event. Gold will likely struggle until we get to next week’s FOMC meeting, which should see policymakers cut rates and signal more are coming.

Bitcoin

Bitcoin fell below the $10,000 level as fears linger that global regulators will eventual make life impossible for cryptocurrencies to thrive. A strong dollar is also driving all risky assets lower today and if today’s bearishness accelerates, immediate support could come from the $9,300 level.

The UK 100 stock index (FTSE 100) has been trading slightly higher following the rebound on the 7473 support level. The stochastic oscillator confirms this short-term upside view, as it is heading north above the oversold territory. Also, the RSI is pointing up in the positive area.

If the price manages to extend the bullish action and successfully surpass the eleven-month high, resistance would come from the 7790 barrier, taken from the high on August 2018. Further up, the index could rest around the 7900 resistance area, identified by the peak on May 2018.

However, in case of a bearish correction, the market might revisit the 7473 support before resting near the 50-day simple moving average currently at 7400. More losses could push the price until the 23.6% Fibonacci level of the upleg from 6533 to 7622 around 7365.

Overall, a jump above the recent multi-month high could confirm the near-term bullish tendency in the daily chart, but if there is a penetration of the uptrend line, it could shift the outlook to neutral.

Three months before Draghi's departure, chances for a looser monetary policy are rising higher as heightening global risks are threatening to keep the European Central Bank (ECB) on guard. Nevertheless, more stimulus will likely be a matter of guidance for the future at Thursday's policy meeting rather than an order for execution despite expectations for a weaker flash composite PMI.

Eurozone flash Composite PMI to inch lower

The ECB has a tough time as eurozone economic indicators have yet to show any sign of improvement, while the Brexit drama, an unstable government in Italy and the US-Sino trade war threaten to prolong the growth weakness for the rest of the year.

The headline Harmonized Consumer Price Index (HCPI) came in slightly better than initial estimates at 1.3% year-on-year in June but what policymakers are seeking is much stronger inflation of close to but below 2.0%. Similar to other major economies, the Eurozone saw its unemployment rate trending downwards to multi-year lows in the past six-years and even though growth in wages rose gradually to decade-highs, inflation pressures remained stubbornly muted, forcing policymakers to keep deposit rates in negative territory and at a record low of -0.4%.

With consumer confidence holding negative and trade risks peaking in the horizon, businesses have little incentive to drive prices higher and engage in new investment. The flash manufacturing PMI for the month of July is likely to indicate on Wednesday (0800 GMT) that factories remained in negative territory as the index is forecast to steady at 47.6, below the 50 threshold that separates contraction from expansion. The services PMI could slow by 0.3 points from the seven-month high of 53.6 reached in June, leading the composite PMI slightly down to 52.1 from 52.2 previously. Yet, with German business surveys reporting more weakness recently, doubts have started to rise about how long the services industry can keep supporting growth in the Eurozone.

September looks the right time to act

Minutes from the previous policy meeting in June and recent dovish speeches by ECB policymakers flagged that Draghi is preparing to deliver an easing package before his successor Christine Lagarde steps up in early November. Since the central bank's kit is running out of tools to further support the economy, Draghi is expected to cut interest rates by a smaller 0.10 bps compared to the normal 0.25 bps and restart the quantitative easing program that ended in December, probably with some limits – buying for example no more than a third of a country's debt.

The easing move, however, may come after the summer break at the September meeting rather on Thursday, when the central bank releases new economic projections. A new series of targeted long-term refinancing operations (TILTRO-III) are also scheduled to come in effect in the same month. For the time being policymakers could use a cautious forward guidance to prepare markets over a fresh stimulus injection in coming months.

Still, a rate cut cannot be ruled out on Thursday if the Markit PMI survey disappoints significantly. Given that a weaker exchange rate helps exporters to remain competitive, the ECB could slash rates before the Fed potentially lifts the euro higher by reducing its own borrowing costs next week.

All in all, the next move in the Eurozone's monetary policy is highly anticipated to be more supportive to the bloc and Christine Lagarde is unlikely to go against this trend when she takes over in November. The former IMF chairwoman, who believes that a raise in import tariffs is not a solution to protect intellectual property rights, has been long praising central banks over their stimulus measures and has backed ECB's strategy earlier this month, showing that she is on the same page. However, since the Draghi's stimulus efforts proved fruitless to boost inflation during his term, Lagarde should turn more proactive if she wants to succeed as an ECB governor.

Technical analysis

Turning to FX markets, EURUSD has been stuck within the 1.12 zone and below the 20-day simple moving average (SMA) the past two weeks. A miss in PMI readings on Wednesday and a more dovish policy meeting on Thursday could pressure the pair towards the 1.1100 round-level.

In the positive scenario, where PMI figures come in line or above expectations and ECB policymakers fail to convince markets over a rate cut as soon as in September, EURUSD could retest the 1.1260-1.1283 area encapsulated by the 20-day SMA and the 38.2% Fibonacci of the 1.1569-1.1106 downleg. Slightly higher, the bulls would need to overcome the 200-day SMA to reach resistance around the 50% Fibo of 1.1338.

It is also worth noting that any comments on whether the “below but close to 2.0%” inflation target is appropriate could also shake the euro after a bloomberg report revealed last week that the ECB is considering to use a symmetrical inflation target.

Boris Johnson wins the six-week Conservative leadership race and is set to become the next UK Prime Minister. Johnson defeated his rival Foreign Minister Jeremy Hunt with 92153 to 46656 votes of party members. It's seen by some as a spectacular victory of the public face of the Brexit campaign. Current Prime Minister Theresa May will leave office tomorrow after meeting Queen Elizabeth, who's expected to formally appoint Johnson afterwards.

Brexit, due date on October 31, is the first thing for Johnson to handle. He said the three priorities are to deliver Brexit, unite the country and defeat Jeremy Corbyn. And he pledged to "get Brexit done".

EU chief Brexit negotiator Michel Barnier said EU looks forward to "working constructively with Johnson when he takes office, to facilitate the ratification of the Withdrawal Agreement and achieve an orderly Brexit. Also, EU is ready also to rework the agreed Declaration on a new partnership in line with EUCO guidelines.

https://twitter.com/MichelBarnier/status/1153623849357008902

Landslide victory for Boris Johnson

It's official, Boris Johnson will become the next UK Prime Minister, much to the detriment of the pound which has been repeatedly whacked at even the slightest whiff of a no-deal reality.

Johnson was a key figure in the leave campaign back in 2016 and has been much more convincing in his insistence that no-deal is better than a bad deal, than the incumbent Theresa May. Over the last month, that has led Johnson to claim that the UK, under his leadership, must leave on 31 October with or without a deal, which has naturally weighed further on the pound.

The initial response to the announcement has been rather subdued given the build-up to the event but then, it was so widely expected and heavily backed that it's perhaps no surprise. Johnson comfortably led from the outset and clearly appealed more to the Tory membership when it comes to Brexit which is why few people ever gave Hunt a chance.

GBPUSD 1-Minute Chart

The question now is whether the pound can recover from its slump in the near-term or whether the risk of no-deal is just too great and every passing week is seen to take us one week closer to the cliff-edge.

One thing is for sure, it's going to be a very interesting few months!

GBPUSD Daily Chart

The Kiwi dollar is consolidating above one-week low at 0.6717, posted today on fresh bearish acceleration of pullback from 0.6790 (19 July recovery high), triggered by comments from RBNZ, which announced an update of its unconventional policy strategy, earlier today.

Fresh weakness found footstep at 200DMA (also rising 10DMA, which is on track to form golden cross and reinforce this strong support).

South-heading daily indicators warn of deeper pullback on break below converged 200/10DMA's, however, larger bulls from 0.6487 (14 June low) are expected to remain intact while the price stays above next key support at 0.6674 (Fibo 38.2% of 0.6487/0.6790/100DMA).

Res: 0.6759, 0.6790, 0.6830, 0.6872
Sup: 0.6717, 0.6692, 0.6674, 0.6648

Another political shock on the cards?

Europe is off to a good start on Tuesday and the US is expected to post decent gains at the open as well as we head into a massive few days.

It's difficult to look past the UK today, given the implications the result will have for the months and years ahead. Boris Johnson is and always has been the strong favourite to replace Theresa may as Prime Minister but in an age of political shocks, only traders seem completely convinced that an upset can not possibly be on the cards, or at least willing to back it.

The rest of us are left adding the caveat that stranger things have happened while looking for signs that this will be the latest and arguably biggest shock yet. The reality is that it's very unlikely to be. Johnson is an outspoken Brexiteer than does not fear no deal and therefore strongly appeals to the Conservative membership. For Hunt, who backed remain in the referendum, to overcome that would be incredible.

GBPUSD Daily Chart

But with the pound having already suffered considerably – more than 7% against the dollar from the March peak – at the prospect of Boris as PM, how much further can it go in the near-term? If Boris is confirmed today, we may see initial weakness but that could be short-lived if profit taking kicks in. This could be a classic sell the rumour, buy the fact scenario. Of course, if Hunt is victorious then we could see significant upside for the pound given the prospects of a softer Brexit and determination to avoid no-deal.

Gold slips as dollar benefits from lower Fed expectations

It seems traders are finally starting to come around to the idea that the Fed is not going to cut interest rates by 50 basis points at the meeting next week. After rising to around 40% last week, the probability has dropped back to around 15% today and even that seems a little high given the New York Fed's clarification and Bullard's comments on Friday. The paring of expectations has been supportive for the dollar at the start of the week, knocking gold off its highs.

Momentum in the gold rally had already started slipping in recent weeks but as it stands, the yellow metal remains in bullish territory. Moreover, long-term, this is a positive environment for gold as central banks around the world battle to avoid an economic slowdown. The first test for gold looks to be around $1,400, having been the area it most recently found support. A new lower low could be viewed as a signal that traders are losing confidence in the rally in the near-term.

Gold Daily Chart

Oil traders relaxed about latest escalation in the gulf

Oil prices are trading a little flat on Tuesday. We have seen some marginal gains on the back of another escalation in the Persian gulf but it's hardly rocked the oil markets. The acts of aggression that we're seeing from all sides are worrying but not severe enough to justify a more serious conflict. None of this is to say it couldn't spill over into something more serious – accidentally or not – but right now markets are relatively relaxed.

Brent Daily Chart

Bitcoin slips below $10,000

Bitcoin has broken back below $10,000 this morning, with little appearing to drive the decline beyond it dropping out of the headlines after coming under much increased scrutiny in Washington in recent weeks. People don't seem to know how to take the news of increased scrutiny that could both bring the credibility to the space that many think its needed and positive for its development and challenges that could disrupt it. If bitcoin holds below $10,000 today, it could be a worrying sign putting much attention on the $9,000 level below.

USDCAD faces further bull pressure on correction. Support comes in at the 1.3100 level where a break will aim at the 1.3050 level. Further down, support comes in at the 1.3000 level where a turn lower may occur. But if further weakness is triggered support comes in at the 1.2950 level. Conversely, resistance lies at the 1.3150 level where a violation will target the 1.3200 level. Further up, resistance resides at the 1.3250 level and then the 1.3300 level. All in all, USDCAD looks to recover further higher.

The dollar remains firm and probes again above 108 barrier (reinforced by converged 10/20/30DMA’s) which capped Monday’s upside attempts.

Bull-leg from 107.21 double-bottom extends into third consecutive day and broke above 50% retracement of 108.99/107.21, supported by rising bullish momentum and expectations for less-radical Fed’s rate cut this month.

Bulls focus target at 108.31 (Fibo 61.8%) break of which is needed to generate fresh bullish signal for further recovery, with close above 108 seen as minimum requirement to signal bullish continuation.

Caution of falling thick daily cloud (108.79/110.10) which maintains pressure and may cap extended upticks.

Res: 108.31, 108.57, 108.79, 108.99
Sup: 108.00, 107.79, 107.69, 107.53

The euro has continued to drift lower against the US dollar during the European trading session as the pair fails to attract buying interest. The EURUSD pairs former monthly trading low, at 1.1160, is likely to come into focus if the 1.1181 support level is broken. Bulls need to move price above the 1.1200 and attack towards the 1.1230 level to change the heavy negative bias towards the pair.

The EURUSD pair bearish while trading below the 1.1200 level, key support is found at the 1.1181 and 1.1160 levels.

If the EURUSD pair trades above the 1.1200 level, bulls could test back towards the 1.1230 and 1.1248 levels.