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For the moment, the wave patterns are assuming that the current bullish pullback is a wave 4 (green) retracement. If that is true, then price is expected to bounce at the 38.2% and 50% Fibonacci retracement levels of wave 4 vs 3 and move lower for at least one more lower low. However, a bullish breakout above that 50% Fib or strong bullish momentum could indicate that the bullish price action is not a pullback but a reversal.

The GBP/USD is showing bullish momentum, which seems to be a wave A (orange) of a larger wave 4 (green) for the moment. This remains valid as long as price stays below the 50% Fibonacci level. A break below the support trend line (blue) could be a wave B (orange), which means that the expected bearish price action could be limited with the GBP/USD.

General Trend:

• Asian chip-related companies rise after Q2 sales from Taiwan Semi
• Taiwanese DRAM maker Nanya said its guidance has factored in possible effects from Japan's exports curbs on South Korea
• Shanghai Property index rises in early trading (first gain in 6 sessions)
• Chinese heavy equipment firm Sany Heavy rises on guidance
• Nikkei weighted Fast Retailing expected to report earnings after market close
• Bandai Namco expected to rise after being added to Nikkei 225 index, DMG Mori declines after not being added to the index
• Shares of Japan Post Insurance weighed down by insurance policy issue
• Japan’s rift with South Korea said to move to financial sector (press)
• South Korea and Japan speculated to hold talks on July 12th (Friday)
• US dollar trades generally weaker after Fed comments, Gold Futures rise in Asian trading
• China Premier Li announced plans for trade stabilization measures ahead of Friday’s trade data
• China NDRC met with domestic light industry companies amid trade dispute with US
• Energy companies continue storm preparations related to the Gulf of Mexico, US gasoline futures rise in Asian trading
• Australia regulator places higher capital requirements on ANZ, NAB and Westpac; cited higher operational risk

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.1%
• (AU) AUSTRALIA JUL CONSUMER INFLATION EXPECTATION: 3.2% V 3.3% PRIOR
• (AU) AUSTRALIA MAY HOME LOANS M/M: -0.1% V -1.0%E; Investment Lending m/m: -1.7% v 0.5%e; Owner Occupied Loan Value m/m: -2.7% v 0.0%e
• (NZ) New Zealand May Total Card Spending M/M: 0.1% v 0.2% prior; Retail Card Spending M/M: 0.0% v 0.7%e
• WHC.AU Reports Q4 managed ROM coal production 7.3Mt v 5.9Mt y/y; Managed saleable coal production 5.2Mt v 4.7Mt y/y

Japan

• Nikkei 225 opened +0.1%
• (JP) Japan considering joining US led naval coalition to escort commercial ships in waters off Iran's coast; will depend on if the US plan fits Japan's legal framework on the use for force – Nikkei
• (JP) Japan and South Korea to hold trade talks on July 12th
• TM Reportedly shifts plans for Alabama assembly plant to make SUVs instead of Corollas – press
• 5929.JP Has halted new lending in South Korea - Korean press
• 7974.JP Announces Switch Lite console will launch on Sept 20th, priced at $199.99
• 7181.JP Admits to mismanaging more than 90k insurance policies; will launch independent probe and refund overpaid premiums

Korea

• Kospi opened +0.6%
• (KR) S&P: External risks are not at level to affect South Korea sovereign rating, Japan trade tensions will impact South Korea economic growth
• (KR) South Korea considering a KRW120B extra budget to support impact of Japan export curbs – Yonhap
• (KR) South Korea to include up to KRW300B in extra budget to support impact of Japan export curbs - Yonhap
• (KR) South Korea July 1-10th Exports -2.6% y/y; Chip exports -25% y/y
• (KR) South Korea Industry Ministry: No signs that Japan companies are cutting investment into Korea yet
• (JP) Japan Deputy Chief Cabinet Sec Nogami: No comment on specific issues regarding South Korea exports; exports controls do not violate principals of free trade

China/Hong Kong

• Hang Seng opened +0.5%; Shanghai Composite opened +0.4%
• (CN) China Jun passenger vehicle wholesales 1.73M, -9.6% y/y (12th consecutive decline) – CAAM
• HUAWEI.CN US Treasury Sec Mnuchin has urged Huawei's suppliers to seek exemption from blacklist - US financial press
• (CN) Chinese Academy of Fiscal Sciences Liu Shangxi: China will not turn to global financial crisis stimulus playbook to offset US trade war; a Lehman style simulus package will not help China economy; more likely to use tax reductions and budget management reform – SCMP
• (CN) China PBOC sets yuan reference rate: 6.8677 v 6.8856 prior
• (CN) China PBoC Open Market Operation (OMO): Skips for the 14th consecutive; Net drain CNY100B v drain CNY20B prior

Other Asia

• (PH) Philippines Central Bank (BSP) Chief Diokno: Will further refine bank’s rate-corridor program and monetary operations; Remain vigilant to ensure monetary policy settings consistent with promoting price stability and growth

North America

• (US) Fed Chair Powell testifies before House Financial Services Panel: There is a risk weak inflation will be even more persistent than Fed currently anticipates
• (US) Fed Chair Powell: would not resign if Pres Trump asked him to do so, would serve out his full 4-year term - House testimony; recent jobs data has not changed my outlook - Q&A
• (US) FOMC MINUTES FROM JUNE 19 MEETING: MANY PARTICIPANTS SAW RATE CUT AS WARRANTED IN THE NEAR TERM IF RECENT GLOBAL TRADE AND OTHER RISKS CONTINUED TO WEIGH ON OUTLOOK
• (US) Fed's Bullard (dove, voter, dissenter): FOMC should have foregone rate hike this past Dec; FOMC was overly preemptive in Dec with inflation so low
• (US) US Treasury Sec Mnuchin: In talks about debt ceiling action before recess
• (BR) Brazil Pension Bill passes 1st round voting 379 to 131

Europe

• (FR) US govt confirms has opened section 301 probe on France digital tax
• (DE) Germany official Peter Beyer said Europe should brace for US tariffs on 'several' fronts in the months ahead; Germany Economy Minister Altmaier is expected to meet with US Trade Representative (USTR) Lighthizer and US Commerce Sec Ross on Thursday - financial press

Levels as of 1:20 ET

• Nikkei 225, +0.5%, ASX 200 +0.5%, Hang Seng +1%; Shanghai Composite +0.3%; Kospi 1.3%
• Equity Futures: S&P500 +0.3%; Nasdaq100 +0.4%, Dax +0.4%; FTSE100 +0.3%
• EUR 1.1281-1.1250 ; JPY 108.46-107.85 ; AUD 0.6979-0.6953 ;NZD 0.6670-0.6635
• Gold +1% at $1,426/oz; Crude Oil +0.6% at $60.77/brl; Copper -0.2% at $2.687/lb

Market movers today

In the euro area, the ECB minutes from the June meeting are set to be released today. At the press conference, Draghi stressed that the governing council (GC) discussed several options at the meeting including a rate cut and a restart of QE. Draghi in his Sintra speech sent a strong signal to markets that more stimulus is coming. Hence, markets will look out for clues in the minutes on how ready the GC stands in announcing immediate steps already at the 25 July meeting. We still lean towards an announcement of an easing package coming in September (see New ECB call - rate cut and restart of QE, 18 June). Earlier in the day, ECB's Coeuré will be speaking about 'Inflation expectations and the conduct of monetary policy'.

In the US, CPI inflation figures are in focus. We expect CPI core rose 0.2% m/m in June, which translates into an unchanged annual inflation rate at 2.0%. A range of Fed speakers will be on the wires later in the evening and Fed Chairman Powell's testimony continues today before the Senate Banking Committee.

After Norwegian and Danish inflation data surprised on the downside yesterday, markets will ponder whether Swedish figures show a similar move today. We expect CPIF inflation to slow down to 1.6% in June (from 2.1% in May) driven largely by energy prices (see Inflation Preview Sweden: June CPIF to be in line with Riksbank, 5 July).

Selected market news

Minutes from the June meeting revealed that the Fed was already leaning towards easing, as many FOMC members saw a stronger case for a cut. The testimony from Fed Chairman Powell all but confirmed that the next move from the Fed is an easing of monetary policy. During his hearing, Powell stressed that uncertainty since the June meeting continued to dim the outlook for the US economy and that trade war risks overshadow the healthy labour market. On the back of the dovish language, markets started to reprice the probability of a 50bp cut at the end of the month (now back up at 15%). After topping at 2.11% 10Y Treasuries edged lower to 2.04%. We stick to our view of a 25bp cut at the July meeting.

In Europe, markets took courage from better than feared industrial production data out of Italy and France. 10Y Bund yields climbed to -0.31%, while 5Y5Y inflation expectations bounced back to 1.23% after reaching a post-Sintra slump of 1.15% last week. The mood still got a small damper, after the European Commission cut its euro area growth outlook and stressed increasing downside risks in its summer forecast update. This chimes in with our view that investors should brace for more negative economic surprises in the euro area in the coming weeks (see Euro Area Research: Catching up with reality , 28 June).

Wall Street closed near record highs, but despite the easing pledge from the Fed, European equities fell for a fourth straight session. The mood is more upbeat this morning in Asia. Brent oil rose to a seven-week high at USD67/bbl on US-Iran headlines, a weaker USD and shrinking US crude inventories.

For the 24 hours to 23:00 GMT, the EUR rose 0.46% against the USD and closed at 1.1258.

The US dollar declined against its major peers, following Federal Reserve Chairman, Jerome Powell’s dovish comments on the monetary policy.

Federal Reserve Chairman, Jerome Powell, stated that uncertainties surrounding trade tensions and worries about the strength of the global economy continue to weigh on the US economic growth outlook. On the outlook front, he stated that economic growth and labour markets will remain robust and inflation will move back to its 2% target. Additionally, he reiterated optimism about a near-term interest rate cut.

In the US, data showed that MBA mortgage applications fell 2.4% on a weekly basis for the week ended 5 July 2019, compared to a drop of 0.1% in the previous week.

Separately, minutes of the FOMC June meeting, signalled that the case for reducing interest rates has strengthened, amid rising risks. The minutes showed that nearly all officials downwardly revised their assessment of the appropriate path for rates due to heightened uncertainties about the economic outlook. Also, several members believed that a near-term rate cut could help ease the effects of possible future adverse shocks to the economy.

In the Asian session, at GMT0300, the pair is trading at 1.1273, with the EUR trading 0.13% higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1226, and a fall through could take it to the next support level of 1.1180. The pair is expected to find its first resistance at 1.1296, and a rise through could take it to the next resistance level of 1.1320.

Looking forward, investors would keep an eye on Germany’s consumer price index (CPI) for June, slated to release in a while. Later in the day, the US CPI and monthly budget statement, both for June, along with the US initial jobless claims, will keep investors on their toes.

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

For the 24 hours to 23:00 GMT, the GBP rose 0.39% against the USD and closed at 1.2509, following an improvement in UK’s economic growth.

In the UK, gross domestic product (GDP) rose 0.3% on a monthly basis in May, at par with market expectations and compared to a drop of 0.4% in the previous month. The nation’s trade deficit unexpectedly narrowed to £2.3 billion in May, defying market expectations for an expansion to £3.2 billion. In the previous month, trade deficit had recorded a revised reading of £3.7 billion. Meanwhile, industrial production rose 1.4% on a monthly basis in May, less than market forecast for a rise of 1.5% and compared to a revised drop of 2.9% in the prior month. Additionally, manufacturing production rose 1.4% on a monthly basis in May, undershooting market consensus for a gain of 2.2% and compared to a revised fall of 4.2% in the previous month.

In the Asian session, at GMT0300, the pair is trading at 1.2523, with the GBP trading 0.11% higher against the USD from yesterday’s close.

Overnight data showed that the RICS house price balance unexpectedly rose to -1.0% in June, compared to a revised reading of -9.0% in the previous month.

The pair is expected to find support at 1.2470, and a fall through could take it to the next support level of 1.2416. The pair is expected to find its first resistance at 1.2551, and a rise through could take it to the next resistance level of 1.2578.

Amid no major economic news in the UK today, investors would focus on global macroeconomic events for further direction.

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

For the 24 hours to 23:00 GMT, the USD declined 0.50% against the JPY and closed at 108.35.

In the Asian session, at GMT0300, the pair is trading at 107.94, with the USD trading 0.38% lower against the JPY from yesterday’s close.

The pair is expected to find support at 107.59, and a fall through could take it to the next support level of 107.25. The pair is expected to find its first resistance at 108.63, and a rise through could take it to the next resistance level of 109.33.

Amid lack of economic releases in Japan today, investor sentiment would be determined by global macroeconomic events.

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 0.54% against the CHF and closed at 0.9883.

In the Asian session, at GMT0300, the pair is trading at 0.9859, with the USD trading 0.24% lower against the CHF from yesterday’s close.

The pair is expected to find support at 0.9832, and a fall through could take it to the next support level of 0.9805. The pair is expected to find its first resistance at 0.9913, and a rise through could take it to the next resistance level of 0.9967.

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

Daily Pivots: (S1) 108.22; (P) 108.60; (R1) 108.86; More...

USD/JPY's sharp fall suggests that rebound from 106.78 has completed at 108.99 after failing to sustain above 108.80 resistance. The corrective three wave structure and rejection by 55 day EMA indicates that near term bearishness remains. Intraday bias is turned back to the downside for 107.53 support first. Break will likely send USD/JPY through 106.78 to resume the decline from 112.40. For now, near term outlook will remain bearish as long as 108.99 resistance holds.

In the bigger picture, decline from 118.65 (Dec 2016) is still in progress, with the pair staying inside long term falling channel. Br eak of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51. For now, we'd expect strong support above 98.97 (2016 low) to contain downside to bring rebound. In any case, break of 112.40 is needed to the first serious sign of medium term bullishness. Otherwise, further decline will remain in favor in case of rebound.

Now, after Fed Chair Jerome Powell's testimony, a July Fed cut is more like a done deal than not. Dollar tumbled broadly overnight and selloff continues today. Euro is the second weakest as ECB will likely be a step ahead of Fed to announce additional stimulus this month. June's monetary policy accounts to be released today would confirm such expectations. Sterling is currently the third weakest.

Asian stock markets are generally boosted by the expectations of Fed cut. Yet, Yen responds to fall treasury yields instead and surge across the board. Following Yen, New Zealand Dollar is currently the second strongest for today, followed by Swiss Franc. Canadian and Australian Dollars are mixed for the moment.

Technically, Dollar should have topped in near term against Euro, Sterling and Australian Dollar. More importantly, USD/JPY recent rebound from 106.78 should have completed at 108.99 and retest of 106.78 low might be seen rather soon. A major focus now will be on 1.3037 support in USD/CAD. Sustained break there will carry larger bearish implications.

In Asia, Nikkei closed up 0.49%. Hong Kong HSI is up 0.96%. China Shanghai SSE is up 0.21% but stays below 3000 handle. Singapore Strait Times is up 0.55%. Japan 10-year JGB yield is down -0.014 at -0.140. Overnight, DOW rose 0.29%. S&P 500 rose 0.45%. NASDAQ rose 0.75%. 10-year yield rose 0.007 to 2.061 (but it's back at 2.04 in Asia).

Dollar selloff extends as markets see July Fed cut a done deal

Dollar's selloff extends in Asian session today, riding on the view of Fed's rate cut in July is a done deal. Fed Chair Jerome Powell's testimony to Congress was not decidedly dovish. But he did nothing that toned down market's full pricing of July cut. Instead, he pointed to the continuous uncertainties from trade tension and global slowdown. It seems now that continuation of uncertainties is already enough for an insurance rate, rather than manifested deterioration in outlook.

The tone was somewhat echoed by June FOMC minutes too. The minutes indicated that Fed's monetary stance has moved to "risk management" with "several" of them believing a rate cut should be implemented to "cushion the effects of possible future adverse shocks". Additionally, the minutes acknowledged that current financial conditions are "premised importantly on expectations that the Federal Reserve would ease policy in the near term to help offset the drag on economic growth stemming from uncertainties about the global outlook and other downside risks".

Suggested readings:

• Dovish FOMC Minutes Heighten the Case for July Rate Cut
• July a Done Deal for FOMC, with Risks Front of Mind
• Fed Minutes Focus on Downside Risks to Outlook
• Powell Hits a Dovish Note, Dollar Index Drops Back Toward 97.00
• Fed Chair Confirms Crosscurrents to Outlook, All But Guaranteeing a July Cut
• (FED) Minutes of the Federal Open Market Committee June 18-19, 2019
• Fed chair Powell's testimony, live stream
• (FED) Chairman Jerome H. Powell – Semiannual Monetary Policy Report to the Congress

BoC stood pat, delivered a neutral statement

BOC left the policy rate unchanged at 1.75% yesterday and maintained a neutral tone. Policymakers turned more cautious about the impact of trade tensions on economic activities and noted that global interest rates have been lower over the past months. Yet, they acknowledged that domestic growth remained upbeat.

While raising the GDP growth forecast for this year, the members downgraded the forecast for 2020. Despite higher growth expectations, inflation outlook for this year was taken slightly lower. Yet, it remains within the central bank's target. While BOC would be closely monitoring developments of trade tensions, current economic developments suggest that it can maintain the monetary policy unchanged for the rest of the year.

More in BOC Left Rate Unchanged at 1.75%. Cautious about Trade But Overall Tone Stays Neutral

Suggested readings:

• Bank of Canada Still Signaling Caution
• BoC Not Ready to Follow the Fed Lower (Yet)
• (BOC) Bank of Canada maintains overnight rate target at 1 ¾ per cent
• (BOC) Monetary Policy Report Press Conference Opening Statement

German Altmaier open to drop subsides on Airbus, if US does so with Boeing

German Economy Minister Peter Altmaier is set to meet US Trade Representative Robert Lighthizer to discussion resolution to the Boeing-Airbus dispute. He would be open to eliminating all government subsidies to Airbus, on condition that US would do the same to Boeing.

He said, "I could perfectly go along with ... we will no longer provide any subsidies on both sides. Then it is just competition and nothing else." He added, "it is in the interest of both sides to avoid these tit-for-tit tariffs", referring to the tariffs between US and EU on the issue.

Altmaier also had a "productive and constructive" meeting with US Treasury Secretary Steven Mnuchin. He noted that "We are in the middle of intensive discussions. For me, the Americans remain partners and friends despite our disagreements."

On the data front

Japan tertiary industry index dropped -0.2% mom in May, below expectation of -0.1% mom. Australia home loans was flat in May, better than expectation of -1.0% mom. Consumer inflation expectations rose slowed to 3.2% in July. UK RICS house price balance improved to -1 in Jun.

Looking ahead, ECB monetary policy meeting accounts will be a major focus in European session. BoE will also release financial stability report. Later in the day, US CPI will take center stage, with jobless claims and Powell's second part of testimony. Canada will release new housing price index.

USD/JPY Daily Outlook

Daily Pivots: (S1) 108.22; (P) 108.60; (R1) 108.86; More...

USD/JPY's sharp fall suggests that rebound from 106.78 has completed at 108.99 after failing to sustain above 108.80 resistance. The corrective three wave structure and rejection by 55 day EMA indicates that near term bearishness remains. Intraday bias is turned back to the downside for 107.53 support first. Break will likely send USD/JPY through 106.78 to resume the decline from 112.40. For now, near term outlook will remain bearish as long as 108.99 resistance holds.

In the bigger picture, decline from 118.65 (Dec 2016) is still in progress, with the pair staying inside long term falling channel. Break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51. For now, we'd expect strong support above 98.97 (2016 low) to contain downside to bring rebound. In any case, break of 112.40 is needed to the first serious sign of medium term bullishness. Otherwise, further decline will remain in favor in case of rebound.

Economic Indicators Update

For the 24 hours to 23:00 GMT, the USD declined 0.39% against the CAD and closed at 1.3076.

The Canadian dollar climbed yesterday, after the Bank of Canada (BoC) in its policy meeting indicated that it had no intention of easing monetary policy.

The Bank of Canada (BoC), in its policy meeting, kept its interest rate unchanged at 1.75%, as widely expected. The central bank stated that Canada's economy appears to have performed better than expected in the May to June period. Further, inflation remains around the bank's 2.0% target, while a strong labour market is sustaining consumer spending.

In the Asian session, at GMT0300, the pair is trading at 1.3055, with the USD trading 0.16% lower against the CAD from yesterday's close.

The pair is expected to find support at 1.3025, and a fall through could take it to the next support level of 1.2994. The pair is expected to find its first resistance at 1.3115, and a rise through could take it to the next resistance level of 1.3174.

Going forward, investors would keep an eye on Canada's new housing price index for May, slated to release later in the day.

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