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The US dollar has a bullish intraday trading bias against the Japanese yen currency as the pair remain well-supported above the 108.00 resistance level. Buyers have so far been unable to break above the USDJPY pairs former weekly trading high, at 108.37. Until the 108.37 resistance level is breached short-term USDJPY still have an outside chance of regaining control of the pair.

The USDJPY pair is only bearish while trading below the 108.00 level, key support is found at the 107.60 and 107.20 levels.

The USDJPY pair is bullish while trading above the 108.00 level, key technical resistance is found at the 108.37 and 108.60 levels.

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.

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.

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.

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.

On Monday, the EUR/USD currency pair traded sideways along the lower boundary of the short-term ascending channel. During today's morning, the pair breached the given channel south.

Note, that the exchange rate is pressured by the 55-, 100– and 200-hour SMAs, currently located in the 1.1220/1.1240 range. Thus, it is likely, that some downside potential could prevail in the market. The rate could face the support of the weekly S2 at 1.1152.

On the other hand, the pair could trade sideways around the weekly S1 at the 1.1187 mark. Also, it is unlikely, that bulls could prevail in the market, and the rate could exceed the monthly S1 at 1.1220

Yesterday, the GBP/USD exchange rate tried to surpass the resistance cluster formed by the 55-, 100– and 200-hour SMAs, as well the weekly PP in the 1.2479/1.2496 range. During Tuesday's morning, the rate declined to the 1.2440 level.

It is expected, that the British Pound could continue to depreciate against the US Dollar in the short term. In this case the currency pair is likely reach the support cluster formed by the weekly S1, the monthly S2 and the Fibo 0.00% in the 1.2387/1.2403.

On the other hand, it is likely, that the pair could trade sideways between the 1.2420 and 1.2440 levels in the nearest future.

During the previous trading session, the USD/JPY currency pair traded sideways around the psychological level at 107.90. During today's morning, the pair breached the short-term descending trend south.

It is unlikely, that the exchange rate could decline due to the support cluster formed by the 55-, 100– and 200-hour SMAs, as well the weekly and monthly PPs in the 107.78/107.99 range.

It is expected, that the rate could continue to extend gains. A possible upside target is the resistance formed by the weekly R1 and the Fibonacci 38.20% retracement located circa 108.40.

During Monday, the XAU/USD exchange rate traded sideways at the 1,426.00 mark. During Tuesday's morning, the rate was testing the lower boundary of the short-term ascending channel at 1,418.00.

From a theoretical point of view, it is expected, that a reversal south could occur within the following trading hours. However, note, that the rate has to surpass the resistance of the 55– and 100-hour SMAs, located at 1,425.04 and 1,427,91 respectively.

If the given channel does not hold, it is likely, that a breakout north could occur in the nearest future. A possible downside target is the psychological level at 1,400.00.

Notes/Observations

• UK Tory Party leadership race expected to be announced in session; Boris Johnson widely tipped to beat Jeremy Hunt with just over 3 months to the Brexit deadline; wave of Tory resignations expected which would raise the risk of a no-deal exit
• Singapore CPI data opened the door for MAS to begin easing measures

Asia:

• China conducted MLF Operations (both targeted and outright MLF). Conducted CNY297.7B IN 1-year Targeted Medium-Term Lending Facility at 3.15% (3rd use of facility) and offered CNY200B in 1-year Medium-Term Lending Facility at 3.3% for net drain of CNY164.3B
• RBA Assistant Gov Kent: AUD currency (Aussy) would be even higher if it were not for RBA rate cut; Australia was a long way away from using any unconventional policy
• Reserve Bank of New Zealand (RBNZ): Looking at unconventional policy strategies, unconventional policy work was at a "very early stage"

Europe/Mideast:

• EU Senior Trade Official Weyand: not much movement yet on talks with US over lowering industrial tariffs

Americas:

• President Trump: Debt ceiling deal has been reached. Agreement would restore the government’s ability to borrow to pay its bills past next year’s elections and build upon recent large budget gains for both the Pentagon and domestic agencies.
• President Trump agreed to a "timely" licensing decision for sales to Huawei after meeting with US tech giant CEOs
• Fed board nominee Judy Shelton calls for a 50 bps rate cut at the July Fed meeting

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.64% at 390.24, FTSE +0.72% at 7,568.70, DAX +1.21% at 12,438.40, CAC-40 +0.45% at 5,591.81, IBEX-35 +0.84% at 9,240.60, FTSE MIB +0.85% at 21,920.50, SMI +0.42% at 9,964.50, S&P 500 Futures +0.23%]

Market Focal Points/Key Themes:

• European Indices trade higher across the board tracking higher Equity markets in Asia and higher US index futures, as optimism continues after upbeat earnings out of Europe as well as a Debt ceiling agreement being reached in the US.
• On a busy morning for corporate earnings, shares of Swiss banking giant UBS trades over 2% higher following an earnings beat, with Spanish Banking name Santander also higher as earnings came ahead of forecasts. Randstad, Faurecia, AMS, Lindt & Spurengli, Continental and Logitech are other notable gainers on earnings.
• Meanwhile Jungheinrich declines sharply after the company lowered its guidance, while Duerr is another notable decliner as the company reported prelim earnings and Revenue miss as well as cutting its margin outlook. Elsewhere, Motorpoint Group, Swedol, McColl’s Retail are among other notable decliners on earnings.
• In other news Daimler trades sharply higher as BAIC Motor acquires a 5% stake; AMS has decided to re-evaluate a potential transaction with OSRAM Licht AG, with both shares trading up on the news, while UK Supermarkets trade under pressure after Kantar Supermarket data.
• Looking ahead notable earners include United Technologies, Jetblue, Lockheed Martin and Autonation among others.

Equities

• Consumer discretionary: Hermes [RMS.FR] -1% (sales), Edenred [EDEN.FR] +1% (earnings), Tesco [TSCO.UK] -3% (Kantar data)
• Energy: Norsk Hydro [NHY.NO] +4% (earnings)
• Financials: UBS [UBSG.CH] +1.5% (earnings), Santander [SAN.ES] +2.5% (earnings)

Healthcare:

• Industrials: Continental [CON.DE] +4% (profit warning), Daimler [DAI.DE] +3% (BAIC takes stake), BMW [BMW.DE] +4% (analyst action), Faurecia [EO.FR] +8% (earnings)
• Technology: AMS [AMS.CH] +9% (earnings; Osram offer), Logitech [LOGN.CH] +6.5% (earnings)
• Materials: Jungheinrich [JUN3.DE] -9%, Kion Group [KGX.DE] -4% (Jungheinrich outlook cut), Asetek [ASETEK.NO] -16% (profit warning)

Speakers

• BOE's Saunders stated that a no deal Brexit would push the GBP currency (Sterling) lower. Reiterated MPC stance that not bound by forecasts implying rate hikes
• Euro Area Lending Survey: Q2 credit standards for both corporate and consumer loans tightened in quarter which reflected concerns over economic outlook; demand rose all loan categories
• South Africa Fin Min Mboweni: State utility Eskom was currently not financially sustainable; govt working to address the situation
• Japan Cabinet Office (Govt) July Monthly Economic Report: Maintained its overall assessment that domestic economy was recovering at a moderate pace while exports and production remained weak
• Japan Econ Min Motegi reiterated govt stance that domestic economy was gradually recovering despite some weaknesses
• China PBOC Gov Yi Gang: current interest rates appropriate and to be based upon domestic situation

Currencies/ Fixed Income

• USD: The US Dollar Index trades higher today after yesterday Fed board nominee Judy Shelton calls for a 50bp cut. The market is currently calling 5% for a cut this large with the majority calling for a 25bp cut later this month.
• EUR: The Euro continued to face headwinds ahead of Thursday’s ECB meeting. Some analysts have called for another change in forward guidance with rates holding steady at current level until the end of 2020 (another 6-month delay). Dealers also expected Draghi would likely to hint at future rate cuts and a re-launching of the QE before his term ends in Oct. EUR/USD holding below the 1.12 level.
• GBP: The Cable was softer as the UK Conservative Party would likely select Boris Johnson as its leader and hence next PM of UK. The incoming government would be politically committed to seeing the UK leave the EU by the Oct 31st deadline. Analysts note that without there being sufficient common ground between the incoming UK government and EU27 on changes to the Withdrawal Agreement or backstop during negotiations in the autumn to reach an agreement it would leave Parliament as the check to a no deal outcome at the end of October. GBP/USD lower by 0.3% at 1.2440 area.
• ZAR: Currency (Rand) weakened after the South African Fin warned that the govt borrowings might be dramatically increased due to lower tax revenues and bailout of the State utility Eskom. USD/ZAR higher by 0.6% as the pair approached the 13.94 level.

Economic Data

• (FI) Finland Jun Unemployment Rate: 6.2% v 8.8% prior
• (DK) Denmark July Consumer Confidence: 2.9 v 5.8 prior
• (NO) Norway Q2 Industrial Confidence: 5.6 v 6.8 prior
• (ZA) South Africa May Leading Indicator: 103.9 v 105.5 prior
• (TR) Turkey July Consumer Confidence: 56.5 v 57.6 prior
• (TW) Taiwan Jun Industrial Production Y/Y: -0.4% v -0.2%e
• (ES) Spain May Trade Balance: -€2.1B v -€1.6B prior
• (PL) Poland Jun Unemployment Rate: 5.3% v 5.3%e
• (PL) Poland Jun Construction Output Y/Y: -0.7% v +3.5%e

Fixed Income Issuance

• (ID) Indonesia sold total IDR8.0T vs. IDR6.0T target in 6-month Islamic Bills; 2-year, 4-year, 7-year and 15-year Sukuk Bonds

Looking Ahead

• (NG) Nigeria Central Bank Interest Rate Decision: Expected to leave Interest Rate unchanged at 13.50%
• 05:30 (UK) Weekly John Lewis LFL Sales data
• 05:30 (UK) Results of Conservative party Leadership vote
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
• 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
• 05:30 (UK) DMO to sell £2.75B of 0.875% 2029 Gilts
• 06:00 (UK) July CBI Industrial Trends Total Orders: -15e v -15 prior; Selling Prices: No est v 4 prior; Business Optimism: -20e v -13prior
• 07:45 (US) (US) Goldman Economist Chain Store Sales w/ July 20th
• 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: Expected to leave the Base Rate unchanged at 0.90%; Leave Overnight Deposit Rate unchanged at -0.05%
• 08:00 (BR) Brazil Mid-July IBGE Inflation IPCA-15 M/M: 0.1%e v 0.1% prior; Y/Y: 3.3%e v 3.8% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (RU) Russia announces upcoming OFZ Bond issuance
• 08:55 (US) Weekly Redbook LFL Sales data
• 09:00 (US) May FHFA House Price Index M/M: 0.3%e v 0.4% prior
• 09:00 (EU) Weekly ECB Forex Reserves
• 09:00 (HU) Hungary Central Bank (MNB) Gov post rate decision statement
• 10:00 (US) July Richmond Fed Manufacturing Index: 5e v 3 prior
• 10:00 (US) Jun Existing Home Sales: 5.33Me v 5.34M prior
• 10:00 (EU) Euro Zone July Advance Consumer Confidence: -7.2e v -7.2 prior
• 10:00 (MX) Mexico weekly International Reserve data
• 11:30 (IT) Italy Debt Agency (Tesoro) announcement on upcoming Inflation-linked (BTPei) and CTZ auctiosn for July 26th
• 13:00 (US) Treasury to sell 2-Year Notes
• 16:30 (US) Weekly API Oil Inventories

The US dollar continues to strengthen against most currencies. The US dollar index (#DX) closed in the positive zone (+0.18%). Participants in financial markets are awaiting meetings of Central Banks to be held in the next two weeks. On Thursday, a meeting of the European Central Bank is expected. After that, the Bank of Japan will decide on monetary policy, and next week the Fed's meeting will take place.

Yesterday, members of the Conservative Party of Great Britain voted for the new party leader, who will take the post of Prime Minister. The name of the new 77th Prime Minister of Great Britain will be known today at 15:00 (GMT+3:00). Two candidates fought for the post: former Foreign Secretary, Boris Johnson, and the current head of the same department, Jeremy Hunt. The most likely winner is Johnson.

The single currency fell against the US currency due to investors' confidence that at the next meeting of the ECB, the head of Mario Draghi will point to a decrease in the interest rate in September. The likely rate reduction is connected with the tension in international trade relations.

In addition, participants of financial markets continue to monitor the development of trade relations between the United States and China. It became known that the US delegation, led by US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin, will go to Beijing next week to resume talks with China.

The "black gold" prices show a positive trend amid tensions in the Middle East. At the moment, futures for the WTI crude oil are testing the mark of $56.35 per barrel. At 23:30 (GMT+3:00) the API Weekly Crude Oil Stock report will be published.

Market Indicators

• Yesterday, the bullish sentiment was observed in the US stock markets: #SPY (+0.25%), #DIA (+0.07%), #QQQ (+0.80%).
• The yield on 10-year US government bonds is at 2.04-2.05%.

The news feed for 2019.07.23:

• Existing home sales in the USA at 17:00 (GMT+3:00).

Risk-On in Heat Wave

News that policymakers in the US have struck a deal to increase the $22tn debt ceiling was viewed as a risk positive by equity markets. The deal reduced the risk of a default and increased the likelihood of fiscal stimulus. Combines expectations of upbeat earnings results this week Asia equities were green across the board, however broader macro safe-haven trades did not soften.Reaction to current earning season has been muted as Tech shares led the S&P 500 higher. EURCHF has reached critical psychological support of 1.1000. At this point, there has been no signal from the SNB as to their strategy. The market is moving cautiously but continues to push CHF higher. With a lack of 1st tier data markets will be watching events in the UK. Boris Johnson is expected to become the UK next prime minister today. However, this provides zero additional clarity into his strategy to execute Brexit and his "do or die" pledge to deliver Brexit. We remain negative on the GBP outlook as we suspect that new Prime Minister Boris Johnson will drive towards no-deal exit from the EU rather than negotiate sticky points. Finally, Bitcoin fell below $10k as expectations for Fed interest rates cutes (debasing of US dollar) has been reduced. Increasingly we see the “king” of crypto as a gauge for Central bank's monetary policy. US existing home sales and the Richmond Fed index are expected, but none of them will shift market direction.

ECB to Signal but Not Cut

This Thursday ECBs governing council will signal a willingness to ease further. However, there are numerous agreements for a proactive 10bp to 20bp deposit rate cut. We have still expected the first cut of 10bp in September. ECB Chief Economist Philip Lane comment that ECB needs to move "proactively" to an inflation rate that was too low. Yet, there is a growing resistance to negative interest rates despite weak economic data. Banks, companies and private households are hurting with long-term damage unknown. Generally, the ECB has acted in reaction to a crisis. But with an unemployment rate of 7.7% Europe is far from crisis levels signaling to financial markets that extreme policy is necessary would be counterproductive. For Thursday we are likely to also hear of the ECB plan to introduce tiered inters rates, so entities that are affected can be micromanaged. Official central bank rates will likely only apply to a portion of a deposit and select entities. Limits to the usefulness of rate cuts, the assumption has grown that the ECB might restart bond purchases. Although this strategy is questionable without an additional deterioration in the economic situation. Also, ECB will be hesitant due to volume limit rules which can’t breach 33% of the outstanding volume of an individual bond. Regardless, the market is expecting ECB dovish skew by selling Euro across the board. EURUSD clear 1.1200 support, with bearish extension likely to reach 1.1107(2019 low).

The Euro cracked 12 support zone in extension of steep fall that extends into third day and pressures next pivotal supports at 1.1181/79 (18 June trough/Fibo 76.4% of 1.1107/1.1412 ascend). The single currency stands at the back foot on stronger dollar and on expectations of ECB rate cut and also being dragged lower by weak pound. Rising bearish momentum on daily chart maintains pressure, as fresh weakness generated bearish signal on break below the neckline of asymmetric H&S pattern, confirmation of which requires close below the neckline (1.1203). Firm break below 1.1181/79 pivots would expose key supports at 1.11 zone (lows of 26 Apr / 23/30May, also the lowest since May 2017). Oversold daily stochastic warns that bears may take a breather before final push through 1.1181/79 triggers. Broken supports at 1.1203 (neckline) and 1.1223 (Fibo 61.8% / 5DMA) should limit upticks and keep bears in play.

Res: 1.1203, 1.1223, 1.1235, 1.1245
Sup: 1.1181, 1.1160, 1.1125, 1.1116