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The USDCAD pair is holding within narrow range near the high of three-day recovery at 1.3141 on Wednesday and awaiting the outcome of today’s key events, Bank of Canada rate decision, Fed chair Powell’s testimony to the Congress and the minutes of FOMC last meeting.

BoC is expected to leave interest rates unchanged at 1.75%, but is likely to raise economic growth forecast for the second quarter, diverging from other major central banks’ plans to impose additional stimulus, due to rising concerns of global growth slowdown.

Traders also focus on Jerome Powell’s two-day testimony to the Congress, with expectations for fading aggressive approach on 0.5% rate cut on July 31 FOMC policy meeting after strong labor sector results released last Friday.

The central bank is widely expected to opt for 0.25% cut, on weak inflation and concerns about negative impact on the economy from US/China trade conflict.

The loonie may advance on hawkish tone from BoC governor Poloz, however, stronger greenback on Fed’s stance on limited rate cuts, may partially offset the impact.

Daily studies of USDCAD pair show rising momentum but fresh bulls need more evidence for confirmation.

Break of immediate resistances at 1.3140 zone would generate initial bullish signal, but confirmation of recovery continuation would require sustained break above key barriers at 1.3182/88 (falling 20SMA / Fibo 38.2% of 1.3432/1.3037 descend) that would open way towards 1.3248 (30SMA) and 1.3286 (200SMA) in extension..

On the other side, sideways-moving 10SMA marks initial support at 1.3095 and guards another pivot at 1.3052 (cracked Fibo 38.2% of 1.2061/1.3664 ascend), close below which would generate negative signal for attack at psychological 1.30 support and possible continuation of the downtrend from 1.3564 (31 May peak) on firm break lower.

Res: 1.3145, 1.3188, 1.3235, 1.3286
Sup: 1.3119, 1.3095, 1.3052, 1.3000

An air of caution is lingering across financial markets as investors huddle on the sidelines ahead of Fed Chair Jerome Powell’s highly anticipated testimony on Capitol Hill later in the day.

Equities across the globe are likely to hold their breath as markets ponder whether Powell would confirm or downplay expectations for a potential US rate cut this month. Given how financial markets remain extremely sensitive to rate cut speculation, there is a lot at stake today with Powell handed the mammoth task of pleasing investors without overpromising. Although last Friday’s strong US jobs report has certainly thrown a monkey wrench into rate cut hopes, the Fed is likely to move ahead with an insurance 25 bps rate cut this month. To prevent markets getting ahead of themselves beyond July, Powell may articulate that future US policy easing will be dependent on US economic fundamentals and ongoing trade developments.

The Dollar was practically drowning in rate cut speculation a few days back before the latest jobs report offered a lifeline. This week, King Dollar is trampling against every single G10 currency excluding the Swiss Franc while treating most emerging market currencies without mercy. Should Powell sound less dovish than expected during his testimony, the Dollar Index could push higher with 97.80 acting as a level of interest.

Sterling becomes the sick man in G10 space as Brexit stings sentiment

This has been a sad week for the British Pound which has weakened against every single G10 currency excluding the Australian Dollar thanks to persistent fears of a no-deal Brexit.

According to the British Retail Consortium (BRC), UK retail sales experienced their “worst June on record” as total sales fell 2.3% year-on-year in June compared with the increase of 2.3% in June 2018. With Brexit uncertainty negatively impacting consumption which is an engine for growth in the United Kingdom, this is certainly bad news for the British Pound.

On a brighter note, official reports this morning have confirmed that the UK economy rebounded in May as GDP rose 0.3% after a decline in the previous month. Manufacturing production which nosedived 4.2% in April rose 1.4% in May slightly easing concerns over the UK economy.

While the Pound may ride higher on the positive report, it does not change the fact that other risks in the form of heighten political risk in Westminster and Brexit uncertainty have left the Pound vulnerable against its G10 counterparts.

Focusing on the technical picture, the GBPUSD is bearish with prices trading around 1.2470 as of writing. Sustained weakness below 1.2500 should encourage a decline back towards 1.2420.

Commodity spotlight – Gold

A broadly stronger Dollar has repeatedly sabotaged Gold’s effort to reclaim the psychological $1400 level this week.

The precious metal has made an effort to push back above the $1400 level but this was cut short by investors re-evaluating whether the Federal Reserve will cut interest rates this month. While Gold may face some obstacles in the near term, bulls are unlikely to lose any sleep in the medium to longer term given how global growth concerns, ongoing trade developments and geopolitical tensions remain core market themes. Where Gold concludes the trading week, will be influenced by Powell’s testimony and the FOMC meeting minutes later this evening.

For bulls to jump back into the game, Gold needs to secure a daily close back above $1400.

Bank of Canada is to release its interest rate decision today (14:00, GMT) and is widely expected to remain on hold at +1.75%. Currently CAD OIS imply a probability for the bank to remain on hold of 93.90%. Should the bank maintain the current level of interest rates, we could see market attention turning to the accompanying statement and the following press conference of BoC governor Poloz (15:15, GMT). The recent acceleration of the inflation rate could be pushing for a more hawkish stance for the BoC, as the CPI rate (+2.4% yoy) has exceeded the bank’s median target (+2.00% yoy). On the flip side, the recent slump of the employment market and the slowdown of the GDP growth rate could be advising caution. Analysts point out that the bank may be feeling the pressure from the Fed’s dovish turn, as the Loonie appreciated against the USD in 2019. We expect the document to have a balanced tone, also including some comments about the global trade uncertainty and should there be any dovish hints we could see the CAD weakening. USD/CAD remained rather stable yesterday, below the 1.3145 (R1) resistance line. The pair maintained a sideways movement in the past two week’s indicating the current trend, yet we could see it being affected by BoC’s interest rate decision later today, as well as the release of the Fed’s minutes. Should the pair’s long positions be favored by the market, we could see it breaking above the 1.3145 (R1) resistance line and aim for the 1.3230 (R2) resistance barrier. Should it come under the selling interest of the market, we could see it breaking the 1.3060 (S1) support line and aim for lower grounds.

Pound under Brexit pressure

Cable continued its drop yesterday, signalling further weakness of the pound, probably caused by Brexit pressure. In a rare warning for the country’s next PM, the UK parliament yesterday, passed a measure aimed at stopping a no deal Brexit. According to media, a bit later Boris Johnson and Jeremy Hunt clashed over the same issue, with Boris Johnson not ruling out a possible closing of the UK Parliament in order to deliver a no deal Brexit. On the financial side, UK’s PMI’s painted a gloomy picture of the UK economy last week, yet today’s releases, especially the GDP rates for May, could improve it somewhat. It should be noted that in a Bloomberg survey economists participating, indicated that the UK economy, may experience a contraction for Q2. We expect the pound to remain under pressure from the deep political crisis, yet there may be some relieve should today’s rates accelerate. Cable continued to drop yesterday, breaking the 1.2475 (R1) support line, now turned to resistance. We maintain a bearish outlook for the pair, as the downward trendline incepted since the 28th of June remains intact. Should the bears maintain control of the pair’s direction, we could see it aiming if not breaking the 1.2375 (S1) support line. Should the bulls take over, we could see cable breaking the 1.2475 (R1) resistance line, the prementioned downward trendline and aim for the 1.2560 (R2) resistance hurdle.

Other economic highlights, today and early tomorrow

Today during the European session, we get form Norway the CPI rates for June and from the UK GDP growth rates as well as the manufacturing output growth rate, all for May. In the American session, we get from the US the EIA weekly crude oil inventories figure. In tomorrow’s Asian session, Australia’s housing finance growth rate for May is due out. Please note that the markets may be focusing on the testimony of Fed’s Chair Jerome Powell before the US Congress and the release of the Fed’s meeting minutes, for any further clues regarding the Fed’s intentions. Other speakers scheduled for today and early tomorrow, include BoE’s Tenreyro, St. Louis Fed President Bullard and RBA’s assistant Governor DeBelle.

GBP/USD H4

Support: 1.2375 (S1), 1.2280 (S2), 1.2150 (S3)
Resistance: 1.2475 (R1), 1.2560 (R2), 1.2655 (R3)

USD/CAD H4

Support: 1.3060 (S1), 1.2965 (S2), 1.2880 (S3)
Resistance: 1.3145 (R1), 1.3230 (R2), 1.3310 (R3)

The US dollar continues to keep positions against a basket of major currencies. Yesterday, the US dollar index (#DX) closed trading session in the positive zone (+0.11%). Investors expect the publication of the FOMC meeting minutes, as well as the speech by Fed Chairman Jerome Powell with a semi-annual monetary report in the House Committee on Financial Services. The official is expected to give insight into how the next Fed meeting will be held and what to expect from it.

White House Economic Advisor, Larry Kudlow, said that US Trade Representative, Robert Lighthizer, and Treasury Secretary, Steven Mnuchin, had “constructive” phone talks with Chinese Vice Premier, Liu He, and Commerce Minister, Zhong Shan, yesterday. Both parties continue to make efforts to resolve the trade conflict. Kudlow said the talks "went well." It is also reported that the parties plan a personal meeting, but Kudlow believes that there is no easy way to reach a trade deal.

The Bank of Canada meeting will also take place today. It is expected that the regulator will keep the key marks of monetary policy at the same level. We recommend paying attention to the comments by the Central Bank representatives.

The "black gold" prices have been growing. At the moment, futures for the WTI crude oil are testing the mark of $59.00 per barrel. At 17:30 (GMT+3:00) crude oil inventories will be published in the US.

Market Indicators

• Yesterday, there was a variety of trends in the US stock markets: #SPY (+0.12%), #DIA (-0.07%), #QQQ (+0.50%).
• The 10-year US government bonds yield is growing. Currently, the indicator is at the level of 2.09-2.10%.

The News Feed on 2019.07.10:

• Data on UK GDP at 11:30 (GMT+3:00);
• Manufacturing production in the UK at 11:30 (GMT+3:00);
• The Bank of Canada interest rate decision at 17:00 (GMT+3:00);
• FOMC meeting minutes at 21:00 (GMT+3:00).

Comparing to Spring projections, European Commission kept 2019 Eurozone growth forecast unchanged at 1.2%. But for 2020, growth projection was lowered slightly from 1.5% to 1.4%. For EU28, 2019 and 2020 growth forecasts were kept unchanged at 1.4% and 1.6% respectively.

On prices, Eurozone 2019 inflation forecast was lowered from 1.4% to 1.3%. Similarly, 2020 inflation projection was lowered from 1.4% to 1.3% too. For EU28, 2019 and 2020 inflation forecasts were lowered to 1.5% and 1.6%, down from 1.6% and 1.7%.

Looking at some major countries, Germany forecast was kept unchanged at 0.5% in 2019, downgraded from 1.5% to 1.4% in 2020. France growth forecast was kept unchanged at 1.3% in 2019, downgraded from 1.5% to 1.4% in 2020. Italy growth forecasts were held unchanged at 0.1% in 2019 and 0.7% in 2020.

European Commission Vice President Valdis Dombrovskis said: "The resilience of our economies is being tested by persisting manufacturing weakness stemming from trade tensions and policy uncertainty. On the domestic side, a "no deal" Brexit remains a major source of risk."

Commissioner Pierre Moscovici urged: "Given the numerous risks to the outlook, we must intensify efforts to further strengthen the resilience of our economies and of the euro area as a whole."

Full release here.

Notes/Observations

Asia:

• Japanese Chip names trade lower from uncertainty regarding relations with South Korea
• Australian Consumer confidence hits 2 year low as deepening concerns about the economic outlook weigh

Europe/Mideast:

• EU cuts Eurozone, Germany and French 2020 GDP forecasts; Cuts Eurozone 2019 and 2020 inflation forecasts
• German Bund yields rebound as French Industrial production handily beats estimates
• UK data continues to disappoint, with Industrial and manufacturing production data missing forecasts, while monthly GDP for May did swing back to positive reading after contracting in April.
• UK Parliament narrowly votes in favor of MP Grieve's amendment which aims to prevent no-deal Brexit

Americas:

• Markets await Fed’s Powell Testimony later today

Energy

• Crude prices rise as API inventories showed a larger then expected draw down
• Multiple energy companies announce evacuations and production cuts at Gulf of Mexico platforms due to storm threat

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.19% at 387.20, FTSE 0.08% at 7,530.51, DAX -0.32% at 12,396.98, CAC-40 -0.12% at 5,565.49, IBEX-35 -0.06% at 9,268.05, FTSE MIB +0.78% at 22,058.50, SMI -0.25% at 9,927.50, S&P 500 Futures -0.19%]

Market Focal Points/Key Themes:

Equities

• European Indices trade mostly lower across the board after sligly weak session in Asia and dissapointing U.K. industrial production data. Meanwhile S&P 500 futures trade almost unchanged.
• In corporate news, shares of PageGroup and its peers in the U.K. trade sharply lower warning on operating profit and citing worsening macro conditions for its business. Interroll trades almost 15% lower in Switzerland after it reported results & guided business dynamic to slowdown in H2. Redx Pharma and Jazz Pharmaceuticals entered into takeover agreement on pre-clinical inhibitor program; shares of Redx Pharma currently trade ~140% higher.
• In other news, Leoni in Frankfurt erases earlier gains and trades rougly flat after disclosing plans to spin off or prepare IPO of a unit. Cyan trades more than 10% lower on placement announcement.
• Looking ahead notable earners include MSC Industrial Direct and AngioDynamics.
• Consumer discretionary: PageGroup [PAGE.UK] -13%, Hays [HAS.UK] -6% (PageGroup's earnings), Superdry [SDRY.UK] -2.5% (earnings)
• Financials: Gam Holding [GAM.CH] +6% (earnings)
• Healthcare: Redx Pharma [REDX.UK] +142% (divests program)
• Industrials: Leoni [LEO.DE] +1% (spin off plans)
• Technology: Interroll [INRN.CH] -14% (earnings), Xeros Technology Group [XSG.UK] +28% (patent), Cyan [CYR.DE] -11% (placing)

Speakers

• Ireland Fin Min Donohoe: stated that prospects of a disorderly Brexit is now a significant risk
• South Korea Foreign Ministry spokesperson: To raise issue on Japan export curbs at WTO meeting
• South Korea Industry Min urged Japan to immediately stop making groundless claims. Considering every possible measure against Japan’s export curbs and could hold talks on trade with South Korea on Friday, July 12th
• (TR) Turkish Foreign Ministry: Has not yet received response from the US regarding proposal for working group on S-400S
• (IQ) Iraq Oil Min Ghadhban: Recent OPEC+ deal extensions will help to lower OIl inventories from market

Currencies/ Fixed Income

• USD: The USD Index Futures traded higher yesterday for the 4th straight time as the market awaits Powell’s testimony due today, where the markets look to his comments for a rate cut.
• EUR: The Euro trades slightly above 1.12 as the week has no major data expected. Traders will look for unscheduled comments or the USD to move the pair.
• GBP: The cable trades higher today as it eases off its recent continuous slide. This trade higher is seen after GDP met expectations and getting back on the positive side.
• MXN: Yesterday the Peso weakened against the USD as the pair traded up over 2% as the Finance Minister Urzua resigns. The pair now trade just above 19.15.

Economic Data

• (UK) MAY INDUSTRIAL PRODUCTION M/M: 1.4% V 1.5%E; Y/Y: 0.9% V 1.2%E
• (UK) MAY GDP M/M: 0.3% V 0.3%E
• (UK) MAY VISIBLE TRADE BALANCE: -£11.5B V -£12.6BE
• (UK) May Index of Services M/M: 0.0% v 0.1%e; 3M/3M: 0.3% v 0.1%e
• (NL) Netherlands May Manufacturing Production M/M: -0.5% v -0.6% prior; Y/Y: -1.8% v -1.2% prior
• (FI) Finland May Industrial Production M/M: -2.8% v 2.6% prior; Y/Y: -0.3% v 7.0% prior
• (FR) FRANCE MAY INDUSTRIAL PRODUCTION M/M: 2.1% V 0.3%E; Y/Y: 4.0% V 1.6%E
• (NO) Norway Jun CPI M/M: 0.1% v 0.2%e; Y/Y: 1.9% v 2.1%e
• (RO) Romania Jun CPI M/M: -0.2% v -0.2%e; Y/Y: 3.8% v 4.0%e
• (DK) Denmark Jun CPI M/M: -0.2% v -0.1% prior; Y/Y: 0.6% v 0.7%e
• (IT) Italy May Industrial Production M/M: 0.9% v 0.2%e; Y/Y: -0.7% v -1.5%e
• (GR) Greece Jun CPI Y/Y: -0.3% v 0.2% prior; CPI EU Harmonized Y/Y: 0.2% v 0.6% prior

Fixed Income Issuance

• (DK) Denmark sells total DKK6.0B in 3 and 6 month bills
• Sweden sells SEK5B in 3-month bills; Avg Yield: -0.4399% v -0.4578% prior
• (IT) Italy Debt Agency (Tesoro) sells €6.5B vs. €6.5B indicated in 12-month bills; Avg Yield: % v 0.069% prior; Bid-to-cover: 1.47x v 1.54x prior

Looking Ahead

• 06:00 (IL) Israel Jun Consumer Confidence: No est v 127 prior
• 06:00 (IE) Ireland Jun CPI M/M: No est v -0.1% prior; Y/Y: No est v 1.0% prior
• 06:00 (IE) Ireland Jun CPI EU Harmonized M/M: No est v -0.1% prior; Y/Y: No est v 1.0% prior
• 06:00 (IE) Ireland May Property Prices M/M: No est v 0.3% prior; Y/Y: No est v 3.1% prior
• 06:00 (PT) Portugal Jun Final CPI M/M: No est v 0.0% prelim; Y/Y: No est v 0.4% prelim
• 06:00 (PT) Portugal Jun Final CPI EU Harmonized M/M: No est v 0.4% prelim; Y/Y: No est v 0.7% prelim
• 06:00 (PT) Portugal May Trade Balance: No est v -€1.8B prior
• 06:00 (IE) Ireland Jun CPI M/M: No est v -0.1% prior; Y/Y: No est v 1.0% prior
• 06:00 (IE) Ireland Jun CPI EU Harmonized M/M: No est v -0.1% prior; Y/Y: No est v 1.0% prior
• 07:00 (US) MBA Mortgage Applications w/e July 5th: No est v -0.1% prior
• 07:00 (BR) Brazil July IGP-M Inflation (1st Preview): 0.6%e v 0.7% prior
• 08:00 (HU) Hungary Central Bank's July Minutes
• 08:30 (CL) Chile Central Bank Economists Survey
• 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest rate unchanged at 1.75%
• 10:00 (US) May Final Wholesale Inventories M/M: 0.4%e v 0.4% prelim; Wholesale Trade Sales M/M: +0.3%e v -0.4% prior;
• 10:30 (US) Weekly DOE Oil Inventories
• 14:00 (US) FOMC Jun Minutes

Trade figures from the world's second-largest economy will be released early on Friday, with forecasts pointing to a modest contraction in both exports and imports. Markets will scrutinize exports in particular, for any signs of damage from the recent escalation in the trade war. Besides the yuan, the China-sensitive aussie could also react to these data.

The trade ‘ceasefire' between the US and China that was agreed in late June was greeted with relief in the markets, as it at least postponed any new US tariffs while the negotiations resume. Even though another escalation has been averted for now, it is becoming increasingly evident that this conflict is starting to take its toll on both economies.

American growth probably slowed substantially in Q2 according to Atlanta Fed models, with most of the weakness seen in manufacturing – where surveys show US firms citing tariffs and fewer orders from abroad as the root of their troubles. In turn, the Fed is now preparing to cut interest rates to cushion the economy.

On the Chinese side, the pain is even clearer, with producer prices barely rising and industrial production slowing drastically. Admittedly though, the policy response in China has been more proactive and coordinated, with the authorities adding both fiscal and monetary stimulus to counteract the negative impact. Investors will therefore watch these trade data closely, to gauge how much damage this skirmish is doing even despite the stimulus.

In June, China's exports are expected to have contracted by 2.0% in yearly terms, after rising by 1.1% previously. Imports are also forecast to have fallen, albeit at a slower pace of 4.5%, compared to the 8.5% decline in May. The nation's trade surplus is consequently expected to have widened, as imports are seen dropping faster than exports.

As for the market reaction, besides the yuan, these prints could also impact the Australian dollar. China and Australia have close trading ties, so the aussie is widely viewed as a liquid proxy for ‘China plays'. Traders favor it over the yuan not only due to liquidity, but also because shorting the Chinese currency implies taking on the extra risk of being caught on the wrong side of daily FX intervention by the nation's authorities.

A stronger-than-expected data set, particularly on the exports side, could allay some concerns around the Chinese economy and thus help the aussie to recover a little. Taking a technical look at aussie/dollar, resistance to advances may be found near 0.6955, the inside swing low on July 1, with an upside break opening the door for 0.7050.

On the downside, a disappointing batch of data could see the pair slide further, with the June low of 0.6830 likely providing initial support.

Yesterday, the EUR/USD currency pair traded sideways between the Fibonacci 38.20% and the monthly S1, located at 1.1200 and 1.1220 respectively. During Wednesday's morning, the pair was trading within the given cluster.

Note, that the exchange rate is supported by the 55-hour moving average, currently located at 1.1213. Thus, it is likely, that some upside potential could prevail in the market. However, note, that the rate has to surpass the 100-hour SMA at 1.1236.

If the given resistance holds, it is expected, that a reversal south could occur in the nearest future. It is unlikely, that the pair could drop lower than the given Fibonacci retracement.

During Tuesday, the GBP/USD exchange rate tried to breach the support level formed by the Fibonacci 0.00% retracement and the weekly S1 at 1.2442. During today's morning, the rate jumped to the 1.2480 level.

Given, that the currency pair is pressured by the 55-hour moving average, currently located at 1.2491, it is expected, that the pair could trade sideways between the given support and resistance levels.

However, if the given resistance does not hold, it is likely, that the rate could extend gains. In this case, a possible upside target is the 100-hour moving average, currently located at the 1.2521 mark.

During the previous trading session, the USD/JPY currency pair tested the resistance level formed by a combination of the weekly and monthly R1s at 108.90.

Given that the exchange rate is supported by the 55-hour SMA, currently located at 108.75, it is likely, that bulls could prevail in the market. The pair could surpass the given resistance and target the weekly R2 at the 109.32 mark.

On the other hand, the rate could trade sideways around the given resistance level in the nearest future.

It is unlikely, that the pair could tumble lower than 108.44 mark due to the support of the 100-hour SMA and the Fibonacci 38.20% retracement.