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The pair bounces from new low at 107.21 (Thu/Fri lows), boosted by profit-taking after two-day 108.32/107.21 fall.

The dollar was hit by dovish comments from Fed on Thursday, but dips found footstep ahead of key support at 106.78 (25 June low), but bounce so far seen as positioning for fresh push lower.

Rising negative momentum on daily chart and MA’s in bearish setup support scenario, with upticks expected to be ideally capped under lower platform at 107.80 zone to keep intact the cluster of converged MA’s at 108.00/14 zone, which mark upper pivot.

Res: 107.80, 108.00, 108.14, 108.37
Sup: 107.21, 107.10, 106.78, 106.43

According to a Reuters July 15-18 poll, the median forecasts of no-deal Brexit happening was 30%, up from 25% in June and 15% in May. That's also the highest number since October 2017. Analysts perceive that Boris Johnson is likely to win the Conservative leadership race and get the job of UK Prime Minister. And his rhetoric during the campaign suggests that no-deal Brexit is more than than before.

According to the same poll, the chance of recession was 30% in the coming year and 35% over the new two years, up from June's 25% and 30%. Also, expectation of BoE rate hike also receded and bank rate is forecast to stay at 0.75% until 2021 at the earliest. Only 27 to 76 economists expected a hike before the end of 2020, down from 36 of 69. 9 of 76 are expecting a cut be end-2020, up from 5 of 69 in June.

Jeremy Hunt and Boris Johnson are the two remaining candidates in the leadership race. Winners will be selected by a postal ballot of around 160k Conservative members. Voting will close on July 22 and new leader would be announced on July 23.

Markets buoyed by US rate cut hints

Stock markets are ending the week on a high and once again we have the Fed to thank for it.

Equities in the US enjoyed a nice rebound on Thursday when New York Fed President John Williams claimed that given the more limited resources at their disposal than in the past, preventative rate cuts would be more suitable than waiting for disaster, a clear nod to what we can expect at the upcoming meeting later this month.

Of course, a rate cut was already fully priced in but those comments – some of which were later shared by vice Chair Clarida – prompted a surge in the odds of a 50 basis point cut, to the point that it’s now viewed as a coin toss.

This further highlights that while the fundamentals are showing pockets of weakness, highlighted by a rocky start to earnings season, investors are becoming increasingly reliant on the Fed to keep the party going. While that shouldn’t be the Fed’s concern, the argument for preventative cuts is fair, although 50 basis points to get things going seems quite drastic when the economy is still very healthy.

Gold pares gains after surge on weaker dollar

As you’d expect, the comments reverberated around the rest of the market as well, with the dollar taking another tumble on the prospect of more aggressive easing than the Fed had previously signaled. This has brought some relief to some other currencies like the pound which has suffered in recent months. That said, sterling is back in the red today so the joy was short-lived.

Gold Daily Chart

Gold was given a strong boost by the news, surging beyond its recent peaks to break $1,450 although that little shot of adrenaline hasn’t been enough to sustain the rally, with the yellow metal trading back around $1,440. A more accommodative Fed is of course good for gold though so more joy may lie ahead.

Oil higher after US shoots down Iranian drone

It was a strange day for oil prices on Thursday and while they are trading higher today, they look like they don’t know what to do with themselves. The news of the US shooting down an Iranian drone may another time have caused prices to spike aggressively but instead traders took it in their stride. Perhaps this just isn’t enough of an escalation any more to spark traders interest, which would be a sign of how bad things have got.

Brent Daily Chart

Bitcoin pares gains after Thursday’s spike

Cryptos are unusually one of the more relaxed instruments on Friday, perhaps taking a well deserved break after weeks of chaos. Needless to say, they’ve spent plenty of time in the headlines recently and have been a hot topic in Washington. Bitcoin spiked yesterday on an apparent good news story for the space, with one lawmaker claiming it can’t be killed. This is hardly worthy of a 10% turnaround but after a period of such negative attention, perhaps it was just the kind of headline enthusiasts were craving.

Yesterday, the EUR/USD currency pair skyrocketed to the 1.1280 level and reversed south. During Friday's morning, the pair was testing the support cluster formed by the 55-, 100– and 200-hour SMAs, as well the weekly PP in the 1.1236/1.1250 range.

If the given support holds, it is expected, that the exchange rate could reverse north in the nearest future. In this case, the rate could re-test the upper boundary of the short-term ascending channel located circa 1.12850

Otherwise, it is likely, that the pair could continue to decline. Note, that the rate could reach the lower channel line, as well the Fibonacci 38.20% retracement at the 1.1200 mark.

During Thursday, the GBP/USD exchange rate raised to the resistance level formed by the weekly PP and the monthly S1 located circa 1.2540. During today's morning, the rate was testing the given resistance.

If the given resistance level holds, it is expected, that the currency pair could go downwards. However, note, that the pair has to surpass the support cluster formed by the 55-, 100– and 200-hour SMAs, as well the weekly S1 in the 1.2471/1.2495 range.

On the other hand, it is expected, that the rate could trade sideways between the given support and resistance in the short term.

During the previous trading session, the USD/JPY currency pair tried to surpass the psychological level at 107.20. During Friday's morning, the pair was trading at the 107.60 mark.

On the one hand, the exchange rate could maintain its growth. However, note, that the rate has to surpass the resistance formed by a combination of the 55– and 100-hour SMAs, as well the monthly PP at 107.84.

On the other hand, the pair could reverse south within the following trading hours and target the given psychological level. Note, that in this case the rate would have to surpass the weekly S1 at 107.49.

Yesterday, the XAU/USD exchange rate jumped to the 1,445.00 level. During today's morning, the rate declined to the 1,440.00 mark.

From the one hand, it is likely, that the price for gold could continue to go downwards. It is unlikely, that the rate could tumble lower than the 1,421.21/1,424.44 range due to the support of the 55-, 100– and 200-hour SMAs.

On the other hand, gold could trade sideways against the US Dollar in the 1,440.00/1,445.00 area in the short term. It is unlikely, that the rate could exceed the 1,452.00 mark due to the resistance of the Fibo 0.00%

Notes/Observations

• New York Fed clarified that Fed’s Williams speech that view was not about possible Fed policy action but based on research
• US/China officials talk on trade but details not disclosed

Asia:

• Japan Jun National CPI Y/Y: 0.7% v 0.7%e; CPI Ex-fresh food (core) Y/Y: 0.6% v 0.6%e

Europe/Mideast:

• EU Commission President-elect Ursula von der Leyen: Could extend Brexit deadline if it's reasonable; we did not want a hard Brexit. Must do whatever it takes for an orderly Brexit. Saw flexibility in European budgetary rules that could be used more fully to stimulate growth through investment (in regards to Italy)
• UK MP’s voted 315 vs 274 in favor of the amendment to make it more difficult for new PM to force through no-deal Brexit

Americas:

• President Trump: a US navy ship took defensive action against an Iran drone; USS Boxer destroyed an Iranian drone
• Fed’s Williams (moderate, voter): Fed should be aggressive when confronting an adverse outlook. Lower for longer rates fostered good financial conditions and allowed stimulus to pick up steam and inflation to rise. Wanted monetary policy to focus upon the macro-economy and prudential regulation to focus on the financial system. Want to attack the factors weighing on the neutral rate
• New York Fed spokesperson: Fed Williams's speech was not about potential policy action but a reflection of 20 years of research
• US House passed bill raising Federal minimum wage to $15 per hour
• Chile Central Bank (BCCh) left Overnight Rate Target unchanged at 2.50%

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.56% at 388.96, FTSE +0.61% at 7,538.90, DAX +0.75% at 12,319.93, CAC-40 +0.69% at 5,588.97, IBEX-35 +0.48% at 9,270.05, FTSE MIB +0.08% at 22,108.50, SMI -0.07% at 10,003.50, S&P 500 Futures +0.32%]

Market Focal Points/Key Themes:

• European Indices trade higher across the board, tracking stronger Asian Indices and higher US futures, following strong results from Tech giant Microsoft after the close and strength in Semiconductors names in Asia, which hit a two month high following results from Taiwan Semi.
• In France advertising giant Publicis declines sharply weighing on the sector after earnings and cutting its Organic growth outlook; Munich Re trades higher following strong Q2 Profit guidance, with Sartorius Stedim, Plastic Omnium and Gecina among other names trading higher on earnings.
• Meanwhile SSABA, Software AG and Betsson among names declining on earnings and guidance.
• Anheuser-Busch Inbev trades over 4% higher after divesting Carlton & United to Asahi for A$16.0B; Aston Martin Legonda trades higher following Strategic European Investment Group offer for 3% stake, while Acacia Mining gains over 15% having received an all stock offer from Barrick valued at £343M.
• In other news Wirecard gains over 2% following an MoU with Aldi, Bayer gains as a judge recommends cutting roundup payouts, while Ultra Electronic rises following a DoD contract of up to $1.04B.
• Looking ahead notable earners include Blackrock, Schlumberger, American Express, Manpower and Synchrony among others.

Equities

• Consumer discretionary: AB InBev [ABI.BE] +5% (to divest unit), Publicis [PUB.FR] -7%, WPP [WPP.UK] -3% (Publicis earnings), Stora Enso [STERV.FI] +1.5% (earnings; withdraws outlook)
• Financials: Munich Re [MUV2.DE] +2.5% (outlook)
• Healthcare: Bayer [BAYN.DE] +2% (Judge cuts verdict)
• Industrials: Saab [SAABB.SE] +1.5% (earnings)
• Technology: Software [SOW.DE] -10% (earnings), Sartorius [SRT.DE] +2.5 (earnings), Wirecard [WDI.DE] +4% (partnership)

Speakers

• Italy Dep PM De Maio (5-Star) reiterated view that not undergoing any crisis with the ruling coalition; sought talks with Dep PM Salvini (League) on Friday (July 19th) (**Note: Italy President Mattarella wants Salvini to make his intentions clear in the next 48 hours whether snap elections are warranted)
• German Chancellor Merkel: Domestic economy is in a difficult phase
• Most advisers to Italy's Dep PM Salvini (League) believed it was hard to continue governing with 5-Star in coalition; wanted him to force an election
• South Africa Graft Ombudsman: President Ramaphosa donation violated ethics code; to refer violations to parliament

Currencies/ Fixed Income

• USD: The USD futures index sold off yesterday after the Fed’s Williams made some quite dovish comments. The level to the upside seen in the region of 97.20 and to the downside 95.5. Next week volatility could come from figures we have from Wednesday on, or the progress, if any is made, from the US China trade talks.
• EUR: The Euro traded lower as it failed to significantly break the 1.128 level. Dealers noted that the dovish commentary attributed to Fed’s Williams were also seen as applying to ECB as much as Fed in terms of easing. Main focus on next Thursday’s ECB policy decision and whether the central bank will layout the ground work for more easing. Dealers see the current price consolidation between 1.12 to 1.1280 area.
• GBP: The cable traded higher yesterday as the UK parliament voted to prevent the suspension of parliament and impede a no-deal Brexit. Levels to the upside are still at the 1.258 region.

Economic Dat

• (DE) Germany Jun PPI M/M: -0.4% v -0.1%e; Y/Y: 1.2% v 1.5%e
• (CN) Weekly Shanghai copper inventories (SHFE): 154.5K v 145.3K tons prior
• (RU) Russia Narrow Money Supply w/e July 12th: 10.53T v 10.41T prior
• (EU) Euro Zone May ECB Current Account Balance: €29.7B v €22.4B prior
• (PL) Poland Jun Retail Sales M/M: 1.5% v 1.5%e; Y/Y: 5.3% v 6.0%e; Real Retail Sales Y/Y: 3.7% v 3.8%e
• (GR) Greece May Current Account Balance: +€0.3B v -€1.4B prior
• (IT) Italy May Current Account Balance: €2.6B v €4.1B prior
• (UK) Jun Public Finances (PSNCR): £15.2B v £10.7B prior; Net Borrowing: £6.5B v £3.3Be;
• Central Government NCR: £13.5B v £16.6B prior; PSNB ex Banking Groups: £7.2B v £3.9Be

Fixed Income Issuance

• None seen

Looking Ahead

• (IL) Israel Jun Leading "S" Indicator: No est v 0.1% prior
• (BE) Belgium Debt Agency (BDA) size announcement for upcoming OLO auction for Monday, July 22nd
• 05:00 (EU) Daily Euribor Fixing
• 05:00 (FR) France Debt Agency (AFT) announces upcoming issuance
• 05:00 (ZA) South Africa to sell ZAR760M in I/ L 2025, 2033 and 2050 bonds
• 05:30 (IN) India to sell INR170B in 2024, 2029, 2043 and 2049 bonds
• 06:00 (UK) DMO to sell €6.0B in 1-month, 3-month and 6-month bills £0.5B, £2.5B and £3.0B respectively)
• 06:45 (US) Daily Libor Fixing
• 07:30 (TR) Turkey Central Bank TCMB Survey of Expectations: 12-month inflation expectation currently at 14.9%
• 07:30 (IN) India Weekly Forex Reserves w/e July 12th: No est v $B prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (IN) India announces upcoming bill issuance (held on Wed)
• 08:30 (CA) Canada May Retail Sales M/M: 0.3%e v 0.1% prior; Retail Sales (Ex-auto) M/M: 0.4%e v 0.1% prior
• 09:00 (BE) Belgium July Consumer Confidence Index: No est v -7 prior
• 10:00 (US) July Preliminary University of Michigan Confidence: 98.8e v 98.2 prior
• 11:00 (CO) Colombia May Trade Balance: -$0.7Be v -$0.5B prior; Total Imports: $4.7Bet v $4.5B prior
• 13:00 (US) Weekly Baker Hughes Rig Count

The Australian Dollar appreciated against the US Dollar, following the Australian Employment data set release on Thursday at 01:30 GMT. The AUD/USD exchange currency rate gained 14 pips or 0.21% right after the release. The Aussie continued trading at the 0.7020 level against the Greenback.

The Australian Bureau of Statistics released the Australian Employment Change, which came out worse-than-expected of 0.5K compared with the forecast of 9.1K. Also, the Australian Unemployment Rate data was released at the same time.

ABS Chief Economist Bruce Hockman said, "Australia's participation rate was at 66 per cent in June 2019, which means nearly two of every three people are currently participating in the labour market. The participation rate for 15 to 64 year olds was even higher and closer to four out of every five people."

The British Pound appreciated against the US Dollar, following the UK Retail Sales data release on Thursday at 08:30 GMT. The GBP/USD exchange currency rate gained 12 pips or 0.10% right after the release. The British Pound continued trading at the 1.2480 level against the Greenback.

The Office for National Statistics released the UK Retail Sales data, which came out better-than-expected of 1.0% compared with the forecast of negative 0.3%.

According to the official release: "In the three months to June 2019, the quantity bought increased by 0.7%, with growth across all sectors except food stores and department stores; however, this was a slowdown from the stronger growth of 1.6% in the three months to May 2019. Online sales as a proportion of all retailing fell to 18.9% in June 2019, from the 19.3% reported in May 2019."