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BoJ Governor Haruhiko Kuroda reiterated his view that the economy is "growing moderately" even though policymakers were "seeing some weakness in exports and output". He said today in France that capital expenditure remained "very firm" and the global economy was still sustaining moderate growth despite various risks.

He added, "the board will debate policy this month based on this view". But he also emphasized we will swiftly consider additional monetary easing steps if the economy loses momentum for hitting our inflation target."

On Tuesday, the EUR/USD currency pair declined to the lower boundary of the short-term ascending channel at 1.1200. During today's morning, the pair reversed north from the given line.

From a theoretical point of view, it is expected, that the exchange rate could continue to go upwards. However, note, that the rate has to surpass the resistance level formed by the weekly and the monthly S1s located circa 1.1220.

If the given resistance holds, it is likely, that the pair could re-test the lower channel line. It is unlikely, that the rate could breach the given channel north due to the support of the Fibonacci 38.20% retracement at 1.1200.

UK Brexit Minister Stephen Barclay warned today that no-deal Brexit is underpriced. He also told EU chief Brexit negotiator Michel Barnier that the current withdrawal agreement would not be approved by the UK parliament without any change.

Barclay said "I think a no deal is underpriced. It is still this government's intention and both leadership candidates' intention to seek a deal and I think it is the will of many members of parliament for there to be a deal". However, "the question then will be is there a deal that is palatable to parliament and if not will parliament vote to revoke or will we leave with no deal?"

Regarding his conversation with Barnier, Barclay clarified "What I said was the House had rejected it three times ... that the European election results in my view had further hardened attitudes across the House and that the text unchanged, I did not envisage going through the House."

The Reserve Bank of Australia (RBA) showed willingness to engage in further monetary easing at the July meeting but the weakness in the US dollar helped the Australian currency to recoup its losses and reach its latest peaks. On Thursday at 0130 GMT, the closely watched jobs report out of the country may indicate that the RBA’s strategy is in the right direction, putting the rally under test again. Nevertheless, policymakers are expected to stand pat on interest rates next month.

The increase in jobs growth in May was partially election-related, with the economy creating surprisingly a larger number of 42.3k new positions. In contrast, the June release will likely reveal the real picture of the labour market, with employment rising at a much slower pace of 10k, which could keep the unemployment rate steady at 5.2% for the second consecutive month.

Given the worrying rebound in the unemployment rate, the falling GDP growth and the persistently low business and consumer confidence, the RBA decided to take a quick action to pursue its inflation and employment targets this summer amid fears global risks such as the US-Sino trade war could bring more damage to the domestic economy. After a three-year period of stability, policymakers slashed interest rates twice by 25 bps in June and July to a new record low of 1.0% with scope to push the unemployment rate down to 4.5% (full employment conditions) at which point the wage growth is anticipated to start heating up, consequently leading inflation towards the 2.0% midpoint target.

As the RBA meeting minutes confirmed on Tuesday, the central bank could step up with more stimulus if the jobless rate arrives higher than expected on Thursday, but it will likely refrain from doing so at the August gathering. Reasonably, policymakers could wait for the data to react before making further decisions on monetary policy. Note that the government managed to pass a A$158 billion tax cuts bill over the next decade through the Senate earlier this month; a measure that could quicken the central bank’s mission to boost buying confidence and hence employment growth.

Theoretically, with fiscal and monetary policy filling pockets with cash, rising demand for products and services could open extra job positions, lifting inflation and GDP growth higher as well. In case the stimulus proves insufficient in coming months, providing a negligible improvement in the data, the RBA could proceed with another rate cut before the year end, potentially asking the government to kick in the same direction to enhance the economy. Overnight indexed swaps are currently pricing in a 25-bps rate reduction between October and December with a probability of around 60%

Turning back to Thursday’s employment report and its impact on FX markets, the numbers could affect the aussie but only temporarily as upcoming data releases could play a bigger role in monetary decision making. A better-than-expected outcome could secure more time for thought about whether an extra rate cut is necessary, sending AUDUSD probably back to the 0.7048 top. A rally above the 0.7068 strong resistance could be more meaningful for the market.

In the negative scenario, a smaller employment growth and/or a tick up in the unemployment rate would probably pressure the pair towards the 0.7000 level. Traders could also look for support within the 0.6980-0.6965 zone in case of a steeper decline.

Summer trading and Libra

The summer doldrums are here. Volatility in FX markets has all but dried up, only GBP providing fireworks as UK and EU leaders quarreled. Declining interest rate expectations and rising stock of negative-yielding bond have marginally exciting the FX carry trade. Traders are taking asymmetrical risk by going long TRY in our view. While equities are bobbing up-and-down with every rumor, news flash, and Trump tweet. S&P 500 weakened marginally as falling oil prices (due to easing tensions between US / Iran) weighed on energy stocks and Dallas Fed Kaplan suggested US rate cuts were “tactical adjustment” verse full easing cycle. The compressed US front-end rates jumped on the statements. Transportation stocks reported higher than expected 2Q earnings continuing a solid trend of earning reports.

Only the public thrashing of Facebook’s crypto play Libra before the Senate Banking Committee kept us from running to the beach. Granted, this committee was significantly more prepared to handle the concept of potential global cryptocurrency, then when Facebook CEO Market Zuckerberg ran over congressional lawmakers last year. The overall impression was that US lawmakers were no happy. One factor that did not sit well (among a long, long list) with members that Libra Association would be regulated by the Swiss government specifically Swiss Financial Markets Supervisory Authority (FINMA). Head of Facebooks blockchain subsidiary Calibra David Marcus clearly stated that Libra Association intends to comply will all U.S. tax, anti-money laundering, and anti-fraud laws. However, with primary jurisdiction in Switzerland it hard to imagine anything more than a light touch approach by Libra. We have doubts that Libra will be anything more than another digital payment system rather than a disrupting payment token (lack of decentralization is a HUGE issue for us). The reality is Facebook with root still very much in the “real world” and enjoying the blanket protection of the US government is unlikely to push the project much further if the US puts the kibosh on it. The negativity was felt in the crypto space as Bitcoin hand another down day falling to $9238 overnight (50d MA). We would argue that Libra's exposure should be positive for bitcoin as it highlights the complexity in developing widely accepted alternatives. Marcus will be defending Libra in front

GBP traders holding their breath as inflation data near

The free fall in GBP is difficult to ignore as GBP/USD and GBP/CHF pairs are trading at early 2017 ranges while the situation in GBP/JPY is less rosy as the pair trades at late 2016 levels, confirming that GBP weakness is heavily skewed towards Brexit headlines, while upside moves are particularly short-sighted. The release of inflation data for the month of June, as is the case for the job report, is likely to be ignored ahead of next week Conservative Prime Minister elections. Yet although market participants are anticipating a major victory for Boris Johnson and so of a hard Brexit, chances are that they discount the risk of a stuck majority in the House of Commons and a less stringent stance from European Commission in Brexit negotiations.

Inflation is expected to have remained stable in June, with y/y and m/m CPI forecasts at 2% and 0% (prior: 2% and 0.30%). Despite the release, we don’t expect the Bank of England to take any major decisions accordingly, as early general elections and the resumption of Brexit talks are underway. Following the nomination of EU Commission President Ursula von der Leyen along with other EU top position leaders, it seems that the risk of a no-deal scenario is likely to decrease as a change of EU negotiators will occur. Although current Brexit deadline is set for 31 October 2019, a major UK political disruption (e.g. early general elections planned by Boris Johnson following his nomination) should trigger a short-term extension, thus allowing fresh negotiation with new EU representatives. The recent violent downtrend in GBP is mostly explained by yesterday Prime Minster debate where both candidates confirmed they would be willing to remove the Irish backstop from current Withdrawal Agreement deal. GBP should be maintained under pressure considering upcoming 1 August BoE monetary policy meeting. However, positive headlines concerning Brexit should provide strong upward moves looking forward.

GBP/USD is trading at 1.2402, approaching 1.2380 short-term.

The Australian dollar stands at the back foot in European session on Wednesday, following repeated failure at key barriers at 0.7035/36 (daily cloud top/base of thick weekly cloud), as Tuesday's action stalled at 0.7044, ticks below previous rejection of 4 July at 0.7047.

Bids from psychological 0.70 support keep for now the price above this level, but risk of deeper pullback exists, as Tuesday's close completed bearish outside day pattern which generated negative signal.

Momentum on daily chart is heading south and is about to break into negative territory and stochastic is emerging from overbought territory that supports bearish scenario.

Clear break below 0.70 zone (also Fibo 38.2% of 0.6910/0.7044 upleg) would risk deeper pullback and generate initial signal of double-top formation (0.7047/44).

Australian jobs data are due early Thursday and could provide fresh signals.

Forecast shows 9.1K new jobs created in June, compared 42.3K in May that could have negative impact on Aussie and spark fresh weakness if release comes in line or below expectations.

Conversely, upbeat results could inflate the pair for renewed attempt at recent peaks at 0.7044/47, violation of which would generate bullish signal for extension towards 200DMA (0.7090).

Res: 0.7020, 0.7035, 0.7047, 0.7090
Sup: 0.7000, 0.6983, 0.6961, 0.6942

Notes/Observations

• Current environment remained supportive for bonds with low inflation and dovish central bank speak
• No surprises in EU inflation data (both UK and EU Jun readings in-line with consensus)

Asia:

• US and Japan said to consider possible 'small' trade agreement by Sept; the agreement could involve agriculture and auto
• Fitch affirmed Japan sovereign rating at A; Outlook stable

Europe/Mideast:

• Germany's Ursula Von Der Leyen confirmed as EU Commission President with 383 votes (needed 374 votes to be confirmed)
• UK PM candidate Johnson looking to hold early general elections while Corbyn is Labour party leader as he was viewed as vulnerable

Americas:

• President Trump: could impose tariffs on another $325B of China goods if we wanted to. A lot of progress had been made with Iran; we want to help and work with Iran and we're not looking for regime change
• Fed Chair Powell: factors holding down neutral rates were likely to persist; business investment had slowed notably. Inflation pressures remained muted; economic growth appeared to have moderated in Q2
• Fed Evans (dove, voter): given the nervousness I think that a little more accommodation would be appropriate; we should only do what was necessary, but at the moment it seems like a little more was necessary. Believed 50 bps of accommodation before the end of the year should help lift inflation; the low inflation situation by itself justified two 25 bps cuts this year
• May Net Long-term Tic Flow data saw China Total holding of US Treasuries: fall for the 3rd straight month to a 2-year low ($1.110T v $1.113T prior)

Energy:

• Weekly API Oil Inventories: Crude: -1.4M v -8.1M prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.06% at 389.32, FTSE -0.08% at 7,571.05, DAX -0.07% at 12,422.46, CAC-40 -0.08% at 5,609.64, IBEX-35 -0.34% at 9,345.25, FTSE MIB -0.02% at 22,199.50, SMI +0.97% at 9,946.50, S&P 500 Futures +0.16%]

Market Focal Points/Key Themes:

• European Indices trade mixed this morning following a mostly lower open after a mostly lower session in Asia and higher US Equity futures.
• On a busier morning for corporate earnings ASML in the Netherlands trades over 4% higher after earnings and strong Q4 guidance, as Q3 guidance missed forecasts. Swatch is another notable gainer with Operating profits which beat forecasts and Revenue which missed, but a generally positive outlook is helping lift the stock. Meanwhile Ericsson declines sharply following earnings and higher costs leading to operating margins which missed forecasts. Handelsbanken also declines following a decline in profits and Revenues.
• Other notable earnings related gainers include Swedish Orphan Biovtrum, Mycronic, Dialog Semi and Assa Abloy, while Finnair, TomTom, Oriola are some of the notable decliners.
• In other news Leonteq gains after shareholder Raiffeisen is to maintain its stake; urrican Energy declines as holder places 110M shares in secondary, while Burberry shares continue to advance despite and analyst downgrade.
• Looking ahead notable earners include Banking names Bank of America, USB and PNC Bank as well as Abbot Labs and Progressive among others.

Equities

• Consumer discretionary: Swatch [UHR.CH] +4.5% (earnings; outlook), Tomtom [TOM2.NL] -2.5% (earnings), Finnair [FIA1S.FI] -12% (earnings), GVC Holdings [GVC.UK] +1% (trading update)
• Materials: Fresnillo [FRES.UK] -1% (production outlook cut), Johnson Matthey [JMAT.UK] -3.5% (trading update)
• Financials: Swedbank [SWEDA.SE] -5% (earnings), Saga [SAGA.UK] +4% (stake)
• Industrials: Brenntag [BNR.DE] -1.5% (outlook cut)
• Technology: ASML [ASML.NL] +3% (earnings), Dialog Semiconductor [DLG.DE] +3.5% (positive profit alert), Mycronic [MYCR.SE] +5% (earnings)
• Telecom: Ericsson [ERICB.SE] -4% (earnings)

Speakers

• ECB's Coeure (France):Reiterates Council view that will act in event of adverse contingencies with all available tools to ensure inflation moves toward target
• BOE's Hauser: Balance sheet might be halved in size once QE was unwound. Reiterated stance that rates likely to be slightly higher and more variable to bank rate as BOE reduced reserves
• Various G7 Ministers and Central Bankers commented from ist meeting in France
• France Fin Min Le Maire: Hoped G7 made a decision on minimum corporate tax but conceded its would be hard to create consensus on issue
• BOJ Gov Kuroda: Global economy was basically expanding moderately but had various downside risks. Reiterated BOJ stance that would consider additional easing if price momentum was lost. Japan's economy was expanding moderately (in-line with its assessment)

Currencies/ Fixed Income

• USD: The USD was significantly stronger yesterday as Fed Chair Powell noted that highlighted the growing importance of global developments in monetary policy in a recent speech in Paris. Levels to the upside are in the region of 97.2.
• EUR: The Euro was weaker against the USD as the pair bounced off the 1.12 handle. If we significantly break and close below this level the next level to the downside is in the region of 1.112
• GBP: The cable continued to probe 2-year lows around the 1.24 level. Dealers noted that the pair had further room to fall as economic data worsen and the chances of a no-deal Brexit rose. Current environment remained supportive for bonds with low inflation and dovish central bank speak. Key European core and periphery bonds were softer by 2-3bps in session. The next level to the downside is in the region of the 1.21 handle.

Economic Data

• (EU) EU27 Jun New Car Registrations: -7.8% v +0.1% prior (biggest decline since Dec)
• (CZ) Czech Jun PPI Industrial M/M: -0.7% v -0.1%e; Y/Y: 2.5% v 3.3%e
• (AT) Austria Jun CPI M/M: 0.1% v 0.2% prior; Y/Y: 1.6% v 1.7% prior
• (PL) Poland Jun Employment M/M: 0.2% v 0.1%e; Y/Y: 2.8% v 2.6%e
• (PL) Poland Jun Average Gross Wages M/M: 0.9% v 2.5%e; Y/Y: 5.3% v 7.1%e
• (IT) Italy May Industrial Sales M/M: +1.6% v -1.1% prior; Y/Y: +0.3% v -0.8% prior
• (IT) Italy May Industrial Orders M/M: +2.5% v -0.2% prior; Y/Y: -2.5% v -2.2% prior
• (UK) Jun CPI M/M: 0.0% v 0.0%e; Y/Y: 2.0% v 2.0%e; CPI Core Y/Y: 1.8% v 1.8%e; CPIH Y/Y: 1.9% v 1.9%e
• (UK) Jun RPI M/M: 0.1% v 0.1%e; Y/Y: 2.9% v 2.9%e; RPI-X (ex-mortgage/Interest Payment) Y/Y: 2.9% v 2.9%e; Retail Price Index: 289.6 v 289.6e
• (UK) Jun PPI Input M/M: -1.4% v -0.5%e; Y/Y: -0.3% v +0.3%e
• (UK) Jun PPI Output M/M: -0.1% v +0.1%e; Y/Y: 1.6% v 1.7%e
• (UK) Jun PPI Output Core M/M: 0.1% v 0.1%e; Y/Y: 1.7% v 1.7%e
• (UK) May ONS House Price Index Y/Y: 1.2% v 1.3%e
• (EU) Euro Zone Jun Final CPI Y/Y: % v 1.2%e; CPI Core Y/Y: % v 1.1%e;
  CPI M/M: % v 0.1%e
• (EU) Euro Zone May Construction Output M/M: -0.3% v -1.7% prior; Y/Y: 2.0% v 3.1% prior

Fixed Income Issuance

• (DK) Denmark sold total DKK1.98B in 2022 and 2029 bonds
• (IN) India sold total INR170B vs. INR170B indicated in 3-month, 6-month and 12-month bills

Looking Ahead

• (IL) Israel July 12-month CPI Forecast: No est v 1.3% prior
• (PT) Portugal May Current Account Balance: no est v €0.0B prior
• 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays)
• 05:30 (DE) Germany to sell €1.0B in 1.25% Aug 2048 Bonds
• 05:30 (PT) Portugal Debt Office (IGCP) to sell €1.0-1.5B in 6-month and 12-month bills
• 06:00 (PT) Portugal Jun PPI M/M: No est v 0.3% prior; Y/Y: No est v 0.9% prior
• 07:00 (US) MBA Mortgage Applications w/e July 12th: No est v -2.4%% prior
• 07:00 (ZA) South Africa May Retail Sales M/M: 0.5%e v 0.8% prior; Y/Y: 1.7%e v 2.4% prior
• 07:00 (UK) Weekly PM Question time in House
• 07:00 (RU) Russia OFZ bonds auction
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Jun Housing Starts: 1.260Me v 1.269M prior; Building Permits: 1.300Me v 1.299M prior (revised from 1.294M prior
• 08:30 (CA) Canada Jun CPI M/M: -0.3%e v +0.4% prior; Y/Y: 2.0%e v 2.4% prior; CPI Core- Median Y/Y: 2.1%e v 2.1%; CPI Core- Common Y/Y: 1.8%e v 1.8% prior; CPI Core- Trim Y/Y: 2.2%e v 2.3% prior; Consumer Price Index: 136.4e v 136.6 prior
• 08:30 (CA) Canada May Manufacturing Sales M/M: +2.0%e v -0.6% prior
• 09:00 (RU) Russia Jun Unemployment Rate: 4.5%e v 4.5% prior; Real Wages Y/Y: 2.9%e v 2.8% prior
• 09:00 (RU) Russia Jun Real Retail Sales Y/Y: 1.0%e v 1.4% prior
• 10:30 (US) Weekly DOE Oil Inventories
• 14:00 (US) Fed Beige Book
• (CO) Colombia Jun Consumer Confidence Index: -1.5e v -5.0 prior

The US Dollar appreciated about 69 base points against the Canadian Dollar on Tuesday. The currency pair tested the upper line of a descending trendline at 1.3092 at the end of yesterday's trading session.

After testing the upper line of the downtrend line, the exchange rate made a U-turn south. Currently, the pair is testing a support cluster formed by the 50– and 100-hour SMAs at 1.3054.

Technical indicators demonstrate that the USD/CAD currency exchange rate could continue its downward swing during the following trading session.

The New Zealand Dollar depreciated about 40 base points against the US Dollar on Tuesday. The decline was stopped by the 100-hour simple moving average at 0.6698.

Everything being equal, if the support level formed by the 100-hour SMA holds, a surge towards the 0.6759 mark could be expected during the following trading session.

If the NZD/USD currency exchange rate passes the support level as mentioned above, a decline towards the 200-hour SMA could be the next target for bearish traders.

The common European currency has continued to edge lower against the Japanese Yen. The currency pair lost about 0.48% in value during yesterday's trading session.

The 50-hour simple moving average could still provide resistance for the exchange rate within this session.

Given that the 50-, 100– and 200-hour SMAs are above the price level and technical indicators suggest bearish signals, most likely, the EUR/JPY currency exchange rate might continue its southern movement during the following trading session.