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New Zealand Dollar strengthens broadly today after CPI picked up in Q2. On the other hand, Australian Dollar trades slightly softer after RBA minutes affirmed easing bias. Euro and Dollar strengthen mildly in Asian session. But both will face tests from economic data, including US retail sales and German ZEW. Sterling is also mixed as markets await UK job data.

Technically, despite rally attempt this week, AUD/USD and AUD/JPY are both limited below near term resistance at 0.7047 and 76.28 respectively. Buying momentum in Aussie is not too apparent for now. EUR/GBP will be a focus today with Germany and UK data featured. A range breakout is likely. Break of 0.9010 temporary top will resume EUR/GBP's recent rise but we'd expect strong resistance from 0.9101 to limit upside. Meanwhile, break of 0.8954 minor support will indicate near term reversal.

In Asia, currently, Nikkei is down -0.64%. Hong Kong HSI is up 0.22%. China Shanghai SSE is down -0.29%. Singapore Strait Times is up 0.15%. Japan 10-year JGB yield is down -0.0048 at -0.119. Overnight, DOW rose 0.10%. S&P 500 rose 0.02%. NASDAQ rose 0.17%. 10-year yield dropped -0.014 to 2.092.

RBA minutes indicate easing bias, but wait-and-see first

In the minutes of July 2 RBA rate meetings, it's noted that "the Board would continue to monitor developments in the labour market closely and adjust monetary policy if needed to support sustainable growth in the economy and the achievement of the inflation target over time." The conclusion indicates that RBA is still adopting an easing bias after cutting interest rate in both June and July meeting. However, the next move will come "if needed", as the central will first "monitor developments" to see how the economy reacts to the prior rate cuts.

New Zealand CPI rose 0.6% qoq, more RBNZ easing still needed

New Zealand CPI rose 0.6% qoq 1.7% yoy in Q2, matched expectations. The annual rate accelerated from 1.5% yoy in Q1. However, the rise in headline inflation was largely due to the 5.8% quarter increase in petrol price, which contributed 0.25% to the 0.6% qoq figure. That suggests the pick-up could be temporary only, not to mention that annual CPI remains firmly below 2% mid-point of RBNZ's 1-3% target range.

Stronger monetary stimulus and economic growth is required to lift inflation sustainably back to the 2% target. Yet, domestic and global headwinds remain. Thus, more OCR cuts are still expected for RBNZ. August could be the month to deliver even though it's not totally certain yet.

US Mnuchin: Debt ceiling deal soon, another call with China this week

US Treasury Secretary Steven Mnuchin said yesterday that a deal is close on raising debt ceiling. and he didn't see another government shutdown looming over the issue. Trump's administration and Congress have been discussing a possible two-year budget that sets that overall federal spending for fiscal 2020 and 2021. He added "we're getting closer".

He emphasized that all parties wanted to reach an agreement on the budget issues. And, if a deal on all issues couldn't be reached before summer recess, lawmakers would either stay put or approve an increase in the debt ceiling. He noted, "I think we're very close to a deal, but as you know, these deals are complicated."

Separately, he also noted that there will another telephone call with Chinese officials this week regarding resuming trade negotiations. And, "to the extent that we make significant progress, I think there's a good chance we'll go there later."

Looking ahead

UK employment data will be a major focus in the European session. Eurozone will also release trade balance and German ZEW economic sentiment. Later in the day, US retail sales will take center stage. Import price, industrial production, NAHB housing index and business inventories will also be featured.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8969; (P) 0.8985; (R1) 0.9011; More...

EUR/GBP is staying in range below 0.9010 temporary top and intraday bias remains neutral. With 0.8954 minor support intact, another rise cannot be ruled out yet. But considering loss of upside momentum, we'd look for topping signal as it approaches 0.9101 key resistance. On the downside, break of 0.8954 support will indicate short term topping. In this case, deeper pull back could be seen to 55 day EMA (now at 0.8868) first.

In the bigger picture, medium term decline from 0.9305 (2017 high) is seen as a corrective move. No change in this view. Current development argues that it might have completed with three waves down to 0.8472, just ahead of 38.2% retracement of 0.6935 (2015 low) to 0.9306 at 0.8400, after hitting 55 month EMA (now at 0.8545). Decisive break of 0.9101 resistance will confirm this bullish case. Nevertheless, as EUR/GBP is still staying inside long term falling channel, correction from 0.9305 could still extend to 0.8400 fibonacci level before completion, if upside is rejected by 0.9101.

Economic Indicators Update

The EUR/USD break above the resistance trend line (red) would confirm the potential uptrend continuation towards the Fibonacci targets around 1.1450-1.15. A break below the local support trend line (blue), however, could indicate a deeper retracement within wave 2 (purple). The Fibonacci levels of wave 2 could therefore act as a potential support and bouncing spot for more upside.

The EUR/USD is now testing the support trend line (blue). Price is expected to move up higher either after a breakout above resistance (red) or bounce at the Fibonacci levels. If price does move up, then impulsive price action would confirm a potential quick wave 3 pattern.

NZDUSD has an incomplete 5 swing sequence from May 23, 2019 low favoring further upside. Short term Elliott Wave view suggests the pullback to 0.6565 on July 10, 2019 low ended wave ((X)). Pair then rallies from there as a zigzag Elliott Wave structure where wave (A) of this zigzag is in progress as an impulse. Up from 0.6565, wave 1 ended at 0.6608 and wave 2 pullback ended at 0.659. The pair then rallied higher in wave 3 towards 0.6689, and wave 4 pullback ended at 0.6652. Expect pair to end wave 5 soon and this should also complete wave (A) in higher degree.

Pair should then pullback in wave (B) to correct cycle from July 10, 2019 low before the rally resumes. Pullback is expected to develop in the sequence of 3, 7, or 11 swing and as far as pivot at 0.6565 low stays intact, expect pair to resume higher. We don’t like selling the pair and favor further upside against 0.6565 low in the first degree. Potential target to the upside is 100% extension from May 23, 2019 low which comes at 0.681 – 0.687 area.

NZDUSD 1 Hour Elliott Wave Chart

General Trend:

• Japanese equities decline upon return from holiday, banks decline; TOPIX Electric Appliances index drops amid uncertainty regarding Japan/Korea relations
• Rio Tinto reversed opening loss, issued Q2 production update
• Shanghai Property index rises as official said H1 property market conditions were stable
• New Zealand inflation accelerated in Q2 amid rate cut, data remained below mid-point of RBNZ’s targeted range
• RBA July minutes in line with recent comments from Gov Lowe; Little initial impact seen on Aussie, Australia monthly jobs data due on July 18th (Thursday)
• Companies expected to report earnings during the NY morning include Goldman Sachs, JNJ, JPMorgan and Wells Fargo.

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened flat
• (AU) RESERVE BANK OF AUSTRALIA (RBA) JUL MINUTES: WILL CUT RATES FURTHER IF NEEDED: WATCHING JOB MARKET CLOSELY
• RIO.AU Reports Q2 Pilbara iron ore shipments 85.4Mt v 83.4Mte v 88.5Mt y/y; Pilbara iron ore production: 79.7Mt v 81.5Mte v 85.5Mt y/y
• RIO.AU Gives update on Oyu Tolgoi underground project; Raises CAPEX for project to $6.5-7.2B (prior $5.3B)
• (NZ) NEW ZEALAND Q2 CPI Q/Q: 0.6% V 0.6%E; Y/Y: 1.7% V 1.7%E
• OSH.AU Reports H1 Total production 14.1 MMBOE v 10.2 y/y; Rev $777.0M v $557.8M y/y
• (AU) Australia sells A$150M v A$150M indicated in 1.25% indexed Feb 2022 bonds, avg yield -0.2118%, bid to cover 4.93x
• (NZ) New Zealand Q2 RBNZ Sectoral Factor Model Inflation Index y/y: 1.7% v 1.7% prior; Sectoral Factor Model Non-Tradeable (core) Y/Y: 2.8% v 2.8% prior

Japan

• Nikkei 225 opened -0.2%
• 6740.JP South Korea reviewing taking Japan to WTO for its support of Japan Display - Korean press
• (JP) Japan Trade Min Seko: Sufficient explanations given to South Korea on trade; regrettable that South Korea has given mistaken explanation; Will be difficult to restart policy talks with S. Korea quickly
• 7011.JP Lawyers representing South Korean plaintiffs who won damages over wartime forced labor, will apply in the near future to have court issue orders to sell seized company assets in South Korea

Korea

• Kospi opened +0.1%
• (KR) South Korea President Moon: Japan's reported accusations that South Korea had exported banned goods to North Korea poses a "grave challenge"
• (KR) North Korea releases full text of new constitution; affirms that North Korea is a 'nuclear state' - Korea Press
• (KR) South Korea foreign Ministry official: US has indicated they are willing to play a "suitable" role in trying to diffuse tensions between Japan and South Korea - Yonhap

China/Hong Kong

• Hang Seng opened +0.1%; Shanghai Composite opened -0.1%
• (CN) China PBOC sets yuan reference rate: 6.8710 v 6.8677 prior
• (CN) China PBoC Open Market Operation (OMO): Injects CNY160B in 7-day reverse repos v skip prior; Net CNY160B injected v skip prior (1st injection after 16 sessions)
• (CN) China NDRC: H2 CPI expect to be stable; reiterates China avoids flood style stimulus; China real economy still facing many difficulties with renewed downward pressures due to rising external uncertainties and domestic structural problems
• (CN) China PBOC Dep Gov Pan Gongsheng: China will expand yuan use in cross border investment

Other Asia

• (ID) Indonesia lobbying China to use palm oil instead of soybean oil
• (SG) IMF lowers Singapore 2019 GDP to 2.0% (prior 2.3%)
• (TW) China has mobilized some of its elite military forces for an exercise near the Taiwan Strait but has softened its rhetoric to avoid antagonizing the United States

North America

• (CN) Pres Trump: China Pres Xi is a friend, probably 'not quite' as close now
• (CN) NYT opinion piece: US tariffs on China don't cover the costs of Trump's 'trade war', tariffs on Chinese goods generated ~$20.8B in revenue as of Wed vs the $28.0B that Trump has committed to help US farmers deal with trade impact
• (US) President Trump on China: China’s 2nd Quarter growth is the slowest it has been in more than 27 years. The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving. This is why China wants to make a deal.... with the U.S., and wishes it had not broken the original deal in the first place. In the meantime, we are receiving Billions of Dollars in Tariffs from China, with possibly much more to come. These Tariffs are paid for by China devaluing & pumping, not by the U.S. taxpayer! - tweet

Europe

• AMS.CH Confirms talks with Osram, do not see sufficient basis for continuing talks with Osram
• (UK) PM candidate Johnson: the US is ruthless in trade negotiations; we would be tough with the US in talks on US-UK trade deal

Levels as of 1:20 ET

• Nikkei 225, -0.7%, ASX 200 -0.1%, Hang Seng +0.1%; Shanghai Composite -0.3%; Kospi +0.3%
• Equity Futures: S&P500 +0.1%; Nasdaq100 +0.1%, Dax -0.1%%; FTSE100 -0.2%
• EUR 1.1265-1.1255 ; JPY 108.09-107.82 ; AUD 0.7045-0.7032 ;NZD 0.6739-0.6711
• Gold +0.2% at $1,415/oz; Crude Oil flat at $59.56/brl; Copper -0.2% at $2.710/lb

Market movers today

In Europe, at 18:00 CEST the European Parliament will vote on Ursula von der Leyen's appointment as Commission President. She is potentially facing a knife-edge vote after policymakers from the Greens and Left already ruled out their support and the centre-left Socialists remain divided. Should she fail to secure the 374 votes for a majority, it risks triggering an institutional crisis in the EU.

Also on the agenda today in Europe is the ZEW business survey, which is one of the first sentiment indicators in July. While last week saw improved risk sentiment stemming from surprise candidates (e.g. French industrial production), we expect further downside in the expectations component or some stabilisation at best.

Fed Chairman Jerome Powell will speak about 'Aspects of Monetary Policy in the Post-Crisis Era' at an event in Paris today.

In the US, retail sales and industrial production numbers for June are due for release.

Selected market news

Asian stocks are mixed this morning amid light volumes and few market drivers. Generally, risk sentiment has been quite supported in July. Yesterday, we published an FX Edge highlighting that efforts by the global central banks have led to easing of financial conditions, which should bode well for the global economy in the second half of 2019, especially supporting Scandi currencies, AUD, and JPY. For more details see FX Edge: H2 reflation set to drive high-beta currencies, support risk as well as our newly issued FX forecast update for July.

On Brexit, a Bloomberg story this morning is reporting that a meeting between chief UK and EU Brexit negotiators last week was one of the most difficult encounters of the last three years, according to European officials. According to the story the EU is looking into 'a package of measures that would aim to make it more palatable in the UK', as the EU is bracing itself for talks to become more hostile under the next British government, which will be formed after a new UK Conservative leader is elected next week.

Yesterday Turkey's new central bank governor signalled an impending interest rate cut at next week's meeting, arguing that the bank has 'room to manoeuvre' on monetary policy as inflation falls. The new governor also emphasised the importance of tackling inflation and promised to safeguard a 'reasonable rate of real return' for investors. Admittedly inflation has come down quite significantly to just over 15% in June, compared with 25.5% at the peak in October last year, while the central bank rate has remained at 24% since September. However, the problem is that the current inflation rate is quite far away from the central bank's target of 5%.

For the 24 hours to 23:00 GMT, the EUR declined 0.05% against the USD and closed at 1.1262.

In the US, data showed that the NY Empire State Manufacturing Index advanced to a 2-year high level of 4.3 in July, compared to market expectations for a rise to a level of 2.0. In the prior month, the index had recorded a reading of -8.6.

In the Asian session, at GMT0300, the pair is trading at 1.1263, with the EUR trading slightly higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1249, and a fall through could take it to the next support level of 1.1236. The pair is expected to find its first resistance at 1.1280, and a rise through could take it to the next resistance level of 1.1298.

Looking ahead, traders would await the Euro-zone’s trade balance data for May and the ZEW economic sentiment for July along with Germany’s ZEW survey indices for July, all slated to release in a few hours. Later in the day, the US advance retail sales, industrial production and manufacturing (sic) production, all for June, followed by the NAHB housing market index for July, will keep traders on their toes.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP declined 0.36% against the USD and closed at 1.2519.

In the Asian session, at GMT0300, the pair is trading at 1.2516, with the GBP trading marginally lower against the USD from yesterday’s close.

The pair is expected to find support at 1.2490, and a fall through could take it to the next support level of 1.2464. The pair is expected to find its first resistance at 1.2559, and a rise through could take it to the next resistance level of 1.2602.

Trading trend in the Sterling today, is expected to be determined by UK’s ILO unemployment rate and average weekly earnings, both for May, slated 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 declined 0.10% against the JPY and closed at 107.85.

In the Asian session, at GMT0300, the pair is trading at 107.96, with the USD trading 0.10% higher against the JPY from yesterday’s close.

The pair is expected to find support at 107.82, and a fall through could take it to the next support level of 107.67. The pair is expected to find its first resistance at 108.11, and a rise through could take it to the next resistance level of 108.25.

In absence of key economic releases in Japan today, investor sentiment would be determined by global macroeconomic events.

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

For the 24 hours to 23:00 GMT, the USD declined 0.06% against the CHF and closed at 0.9842.

In economic news, Switzerland's producer and import price index fell 1.4% on a yearly basis in June, following a drop of 0.8% in the prior month.

In the Asian session, at GMT0300, the pair is trading at 0.9850, with the USD trading 0.08% higher against the CHF from yesterday's close.

The pair is expected to find support at 0.9827, and a fall through could take it to the next support level of 0.9804. The pair is expected to find its first resistance at 0.9864, and a rise through could take it to the next resistance level of 0.9878.

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 moving average and showing convergence with its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD rose 0.07% against the CAD and closed at 1.3047.

Data showed that Canada's existing home sales rose 0.2% on a monthly basis in June, more than market consensus for a rise of 0.1%. Existing home sales had registered a rise of 1.9% in the prior month.

In the Asian session, at GMT0300, the pair is trading at 1.3049, with the USD trading a tad higher against the CAD from yesterday's close.

The pair is expected to find support at 1.3027, and a fall through could take it to the next support level of 1.3005. The pair is expected to find its first resistance at 1.3065, and a rise through could take it to the next resistance level of 1.3081.

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