Sample Category Title

Pivot (invalidation): 107.90

Our preference Short positions below 107.90 with targets at 107.35 & 107.10 in extension.

Alternative scenario Above 107.90 look for further upside with 108.10 & 108.30 as targets.

Comment The RSI has broken down its 30 level.

Pivot (invalidation): 1.2615

Our preference Short positions below 1.2615 with targets at 1.2585 & 1.2560 in extension.

Alternative scenario Above 1.2615 look for further upside with 1.2640 & 1.2670 as targets.

Comment As Long as the resistance at 1.2615 is not surpassed, the risk of the break below 1.2585 remains high.

Pivot (invalidation): 1.1310

Our preference Short positions below 1.1310 with targets at 1.1275 & 1.1255 in extension.

Alternative scenario Above 1.1310 look for further upside with 1.1330 & 1.1355 as targets.

Comment The RSI is mixed to bearish.

• Rates: US 10-yr yield drops to lowest since Nov 2016
  German and US (10-yr) yields again declined yesterday with the latter closing below key support at 2% and at the lowest level since November 2016. A sustained break however requires confirmation from the data of which markets get a first glimpse today (ADP, non-manufacturing ISM). Friday’s payrolls might prove crucial.
• Currencies: USD softness and euro weakness keep each other in balance, for now
  EUR/UISD hovered near 1.13 yesterday. The euro lost slightly ground after the appointment of Christine Lagarde as ECB president. At the same time, the dollar suffered from a further decline in US yields. Today, the focus will be on the US ADP job report and on the non-manufacturing ISM. The report might by neutral for the dollar ahead of Friday’s payrolls

The Sunrise Headlines

• US equities managed a close in green after another choppy session. The S&P (+0.29%) outperformed with another record high. Asian markets are under selling pressure. Japan (-1%) is dealing with a surge in the yen.
• EU leaders nominated current IFM head Lagarde as next ECB chief. German Defense Minister von der Leyen is set to be the next EC president. Belgian prime minister Michel is named as the next European Council president.
• China’s Caixin services PMI declined again in June from 52.7 to 52.0 (52.6 expected) after an already steep drop in May. The composite indicator (50.6) barely manages to stay in expansion territory
• BoE’s Carney said that trade tensions had increased downside risks to the global and UK economy, with the latter also facing a no-deal Brexit threat. He added a “widespread slowdown” may require a policy response. The pound fell.
• The Bank of Japan is pursuing a curve steepening as it cut its bond purchases at the middle (3-5yr, first cut since June 2018) and long (10-25-yr) end of the curve while raising 1-3yr bond buying.
• Trump picked two Fed nominees likely in favour of easier policy. Christopher Waller is research director for St. Louis Fed’s Bullard, who voted for a rate cut in June. Judy Shelton, Trump’s informal advisor, publicly supported lower rates.
• Today’s economic calendar contains US ADP jobs report and the non-manufacturing ISM. The UK releases the services PMI. The Riksbank meets in Sweden. Germany taps the bond market.

Currencies: EUR/USD Returns To The Middle Of The 1.11/1.14 Trading Range

EUR/USD slightly lower on Lagarde appointment

EUR/USD bottomed after Monday’s post G-20 correction yesterday. EUR/USD hovered near 1.13. The pair jumped temporary on rumours that the ECB is in no hurry to already ease policy this month. Later, Christine Lagarde was announced to be next ECB president. She is seen as more tilting to the dovish side compared to other candidates. Still, the euro decline was modest. EUR/USD closed little changed at 1.1285. USD/JPY declined in line with US bond yields and closed at 107.88.

Overnight, Asian equities are facing modest profit taking. The BOJ facilitated some curve steepening as it reduced bond buying in the 3-5 y sector and stepped up buying shorter maturities. It didn’t stop the rise of the yen. USD/JPY dropped to trade in the 107.65 area. EUR/USD is little changed near 1.1285. The China Caixin services PMI dropped to 52.0 (from 52.7) supporting the case of further selective stimulus.

Today, the final EMU services PMI will be published, but the focus is on the US ADP report and the services ISM. ADP job growth is expected to rebound to 140k (from a dismal 27k). The ISM is expected slightly lower at 56.0. Indictors of the manufacturing sector were soft of late, but we’re not sure this should give a big miss for today’s data. Given recent decline in US yields, in line data shouldn’t be that much of an additional USD negative. Still, Investors might take a cautious approach ahead of tomorrow’s 4th of July holiday. Yesterday’s USD/JPY move and, to a lesser extend in the trade-weighted dollar, suggests USD sentiment isn’t that euphoric, but this also applies to the euro. We expect sideways EUR/USD trading going into Friday’s US payrolls.

On Monday, EUR/USD returned to the middle of the 1.11/1.14 range, making the picture neutral. Today’s data, but even more Friday’s payrolls should shape expectations on the Fed rate cut path. First EUR/USD support comes in at 1.1260 ahead of 1.1181 (correction low). A return above 1.1350 would suggest that a new upside test is possible.

EUR/GBP made some intraday swings yesterday, but in the end poor UK data, warnings from Carney on the negative impact of protectionism and a harder stance on Brexit from both contenders in the PM race held sterling near recent lows. Today, the UK Market services PMI is expected little changed at 51. A negative surprise might pull the trigger for a test of the 0.90 barrier

EUR/USD: USD softness and euro weakness for now are keeping each other in balance.

Daily Pivots: (S1) 135.47; (P) 136.31; (R1) 136.75; More...

GBP/JPY drops sharply today and break of 135.38 support indicate resumptions of recent fall from 148.87. Intraday bias is back on the downside for 131.51 low next. On the upside, break of 137.78 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, current development suggests that GBP/JPY's medium term fall from 156.59 (2018 high) is still in progress. Break of 131.51 will target 122.36 (2016 low). Structure of such decline is corrective looking so far, arguing that it's just the second leg of consolidation from 122.36. Thus, we'd expect strong support from 122.36 to contain downside to bring reversal.

Yen surges broadly again today as major global treasury yield resumed recent free fall. US 10-year yield down -0.058 to 1.976 overnight and it's now trading further lower to 1.947. German 10-year bund yield opens lower and is down -0.025 at -0.390, continuing to make new record low. Japan 10-year yield JGB yield is relatively steady, just down -0.005 at -0.147. For now, Swiss Franc is the second strongest, followed by New Zealand Dollar.

On the downside, Sterling is suffering most as the weakest. Selling took off overnight on dovish comments from BoE Governor Mark Carney. Canadian Dollar is the second weakest following steep pull back in oil price. WTI crude oil was rejected by 60 handle again earlier in the week and it's back at 56.5. Euro is the third weakest as markets are not too encouraged by nomination of IMF Managing director Christine Lagarde as next ECB President. Dollar is mixed, awaiting ADP employment and ISM services.

Technically, GBP/JPY's break of 135.38 confirms resumption of fall from 148.87. Next target is 131.51 low. EUR/JPY breaks 121.65 minor support and focus is now on 120.78. Break will resume fall from 127.50 towards 118.62 low. USD/JPY's is back pressing 107.56 and break will also put focus to 106.78 support first.

In Asia, Nikkei closed down -0.53%. Hong Kong HSI is down -0.33%. China Shanghai SSE is down -0.97%. Singapore Strait Times is down -0.35%. Japan 10-year JGB yield is down -0.005 at -0.147. Overnight, DOW rose 0.26%. S&P 500 rose 0.29%. NASDAQ rose 0.22%. 10-year yield dropped -0.058 to 1.976.

IMF Lagarde nominated to be next ECB president

After three days of marathon summit negotiations, EU leaders have finally agreed to nominate two women for the two top posts. France's IMF Managing Director Christine Lagarde is chosen as the successor of Mario Draghi as ECB President. German Defence Minister Ursula von der Leyen, a close ally of Chancellor Angela Merkel, would succeed Jean-Claude Juncker as European Commission President.

In other decision, Belgium's Liberal caretaker Prime Minister Charles Michel would overtake Donald Tusk as European Council President. Spain's acting Foreign Minister, Josep Borrell, is nominated as EU's foreign policy chief.

Fed Mester: Too soon to decide to cut interest rate

Yesterday, Cleveland Fed President Loretta Mester said in a speech that she will be monitoring incoming data to determine if her baseline outlook of sustainable-growth remains intact. And for now, it's "too soon" to make that determination. Hence, she said, "I prefer to gather more information before considering a change in our monetary policy stance."

To be more specific, Mester added, "if I see a few weak job reports, further declines in manufacturing activity, indicators pointing to weaker business investment and consumption, and declines in readings of longer-term inflation expectations, I would view this as evidence that the base case is shifting to the weak-growth scenario. In this scenario, the economy's short- to medium-term equilibrium interest rate would be moving down, and our policy rate could need to move down "

BoE Carney: Global negative spillovers to UK increasing, drag from Brexit uncertainties intensifying

Yesterday, BoE Governor Mark Carney said in a speech that the robust, broad-based expansion in the global economy has turned into a widespread slowdown. He warned "the latest actions raise the possibility that trade tensions could be far more pervasive, persistent and damaging than previously expected." Risks have shifted to the downside.

Regarding UK, Carney said Q2 is likely to be "considerably weaker" than Q1. Also, "recent data also raise the possibility that the negative spillovers to the UK from a weaker world economy are increasing and the drag from Brexit uncertainties on underlying growth here could be intensifying." Also, "underlying growth in the UK is currently running below its potential, and is heavily reliant on the resilience of household spending."

Further, Carney warned "a no deal outcome would result in an immediate, material reduction in the supply capacity of the UK economy as well as a negative shock to demand. And, "as in other advanced economies, if there is a material trade shock, other policies, including fiscal policy, would likely need to play important roles in supporting the economy."

BoJ Funo: Necessary to maintain low rates for prolonged period, but no need to ease further

BoJ board member Yukitoshi Funo said it's necessary to maintain current ultra-loose monetary policy. However, he saw no need to ramp up stimulus for now.

Funo said, "given price growth and inflation expectations aren't heightening much, it's necessary to maintain sufficiently low rates for a prolonged period to achieve the BoJ's price target." However, he's also optimistic that "we can expect Japan's economy to recover in the latter half of this year". And, "as such, I see no need to ease policy further now,"

He also noted the forward guidance is already leaving open the possibility of the BoJ maintaining current policy for long. "We say 'at least' until spring 2020 because there's a good chance current low rates will be maintained beyond spring next year."

Australia trade surplus jumped to record high, building approvals recovered

Australia trade surplus widened to a fresh record high of AUD 5.7B in May, up fro AUD 4.8B in April, and beat expectation of USD 5.3B.

Exports rose AUD 1,442M (4%) to AUD41,585m. Non-rural goods rose AUD 1,316M (5%), rural goods rose AUD 46M (1%) and non-monetary gold rose AUD 22M (1%). Net exports of goods under merchanting fell AUD 1M (5%). Services credits rose AUD 58M (1%).

Import rose AUD515m (1%) to AUD 35,839M. Capital goods rose AUD 348M (5%), non-monetary gold rose AUD 68M (17%) and intermediate and other merchandise goods rose AUD 66M (1%). Consumption goods fell AUD 73M (1%). Services debits rose AUD 107M (1%).

Also from Australia, building approvals rose 0.7% (seasonally adjusted) in May, versus expectation of 0.0%. Rise in Victoria (14.4%) drove the national increase. Meanwhile falls were recorded in Queensland (6.3%), Western Australia (4.7%), South Australia (2.9%) and Tasmania (1.2%), while New South Wales was flat. Private dwellings excluding houses rose 1.2%, while private house approvals decreased 0.3%.

Australia AiG Performance of Service Index dropped -0.3 to 52.2.

From China, Caixin PMI Services dropped to 52.0 in June, down from 52.7 and missed expectation of 52.6.

Looking ahead

UK PMI services will be the main focus in European session. Eurozone PMI services will also be released. Later in the day, US will release ISM services, factor orders, jobless claims, ADP employment and trade balance. Canada will also release trade balance.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 135.47; (P) 136.31; (R1) 136.75; More...

GBP/JPY drops sharply today and break of 135.38 support indicate resumptions of recent fall from 148.87. Intraday bias is back on the downside for 131.51 low next. On the upside, break of 137.78 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, current development suggests that GBP/JPY's medium term fall from 156.59 (2018 high) is still in progress. Break of 131.51 will target 122.36 (2016 low). Structure of such decline is corrective looking so far, arguing that it's just the second leg of consolidation from 122.36. Thus, we'd expect strong support from 122.36 to contain downside to bring reversal.

Economic Indicators Update

AUDUSD is flirting with the 38.2% Fibonacci retracement level of the downleg from 0.7390 to 0.6746 slightly below 0.7000 and is holding inside the Ichimoku cloud. The pair remained above the 20- and 40-day simple moving averages (SMAs) which are flattening as the price is developing within a sideways channel of 0.6830 – 0.7035 in the short-term.

From the technical point of view, the RSI is flattening in the bullish territory, while the MACD is rising above trigger and zero lines, suggesting a possible upside rally.

In case of more gains, the pair needs to overcome the 38.2% Fibonacci of 0.6990 to meet a key barrier around the 0.7035 resistance, taken from the latest high, near the upper surface of the Ichimoku cloud. The 50.0% Fibonacci mark of 0.7070 could act as resistance too as it overlaps with the falling trend line before a more important battle starts near the 61.8% Fibo of 0.7145.

On the other side, if the price declines below the SMAs, support to downside movements could be initially detected around the 23.6% Fibo of 0.6900. Clearing this area, the next stop could be at the five-month low of 0.6830.

In the short-term picture, the sentiment turned slightly neutral to bullish after the price rebounded on the 0.6830 support. Traders should wait for a jump above the six-month descending trend line before initiating positive positions.

General Trend:

• South Korean chipmakers decline on Japan concerns
• IT index weighs on equities in Shanghai
• Softbank declines in Japan amid continued regulatory concerns about Sprint/T-Mobile merger
• Australian Energy index drops over 1%, tracks Tuesday’s decline in oil prices
• Symantec [SYMC] rises over 20% in afterhours trading on takeover speculation related to Broadcom
• Gold Futures rise in Asia as Trump announces Fed nominees
• AUD/JPY and Australian 3-year yields decline after recent RBA rate cut, China PMI data
• China June Caixin PMI services data declines to 4-month low and misses ests
• BOJ Funo: BOJ forward guidance leaves room for current low rates to be maintained beyond Spring 2020; sees no need to ease policy now; don’t expect ‘big’ surprise from July Fed policy meeting
• BOJ revised bond purchases in daily operation (in line with June 28th announcement)
• Japan PM Abe: Not considering raising sales tax beyond 10% under administration
• South Korea cut 2019 GDP and export growth forecasts after Q1 contraction
• Australia May trade surplus hits record high, supported by higher iron ore prices
• US equity markets are due to close early on Wed ahead of Thursday’s July 4th holiday

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened flat
• (NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -0.4% v -3.8% prior (4th consecutive decline)
• (AU) AUSTRALIA MAY BUILDING APPROVALS M/M: 0.7% V 0.0%E; Y/Y: -19.6% V -24.2%E
• WOW.AU To separate Endeavour Group following merger of Endeavour Drinks and ALH; CFO Marr to become COO; Stephen Harrison to be CFO
• SIV.AU To be acquired by consortium led by Next Capital Pty Ltd for A$0.70/shr cash and One contingent value note, representing an opportunity to share in the potential upside in the run-down of the GoGetta business
• (AU) Australia May Trade Balance (A$): 5.75B v 5.3Be; Exports M/M: +4.0% v -2.0% prior; Imports M/M: +2.0% v -1.0% prior
• (AU) Australia Jun Final PMI Services: 52.6 v 53.3 prelim
• (NZ) New Zealand Jun Commodity Price Index -3.9% v +0.1% prior
• (AU) Australia sells A$800M v A$800M indicated in 1.50% June 2031 bonds, avg yield 1.3761%, bid to cover 4.32x

Japan

• Nikkei 225 opened -0.3%
• (JP) Bank of Japan (BoJ) official Funo: Must maintain sufficiently low rates for prolonged period given prices, inflation expectations not heightening much; BOJ forward guidance leaves room for current low rates to be maintained beyond Spring 2020
• (JP) Bank of Japan (BOJ) announcement related to daily bond buying operation: Raises buying of 1-3-year; cuts 3-5-year, cuts 10-25-year (in line with BOJ guidance)
• (JP) Japan said to consider additional export restrictions on South Korea - Japanese Press
• (JP) Japan Jun PMI Services: 51.9 v 51.7 prior (highest since March)

Korea

• Kospi opened -0.1%
• (KR) South Korea Finance Ministry H2 Policy Statement: Cuts 2019 GDP outlook to 2.4-2.5% (prior 2.6-2.7%); Cuts 2019 CPI outlook 0.9% (prior 1.6%)
• (KR) South Korea Fin Min Hong: Reiterates will spend 70% of extra budget within 2 months of being passed; South Korea to invest KRW1.0T annually in chip materials, parts
• (KR) South Korea Jun Foreign Reserves: $403.1B v $402.0B prior
• 005930.KR Has no timeline for re-design of Galaxy foldable screens to fix flaws; targeting to be ready for holidays

China/Hong Kong

• Hang Seng opened -0.3%; Shanghai Composite opened -0.4%
• (CN) CHINA JUN CAIXIN PMI SERVICES: 52.0 V 52.6E (4-month low); PMI Composite: 50.6 v 51.5 prior (lowest level since Oct 2016)
• (CN) China said to consider policies to cut 'illegal' fund-raising - Chinese Press
• (CN) China PBoC Open Market Operation (OMO): Skips for the 8th consecutive; Net drains CNY40B v drain CNY90B prior
• (CN) China PBOC sets yuan reference rate: 6.8640 v 6.8513 prior

Other Asia

• 2382.TW HP said to have asked the company to move some of its production to Thailand - Taiwanese press
• (SG) Singapore Jun PMI: 50.6 v 52.1 prior

North America

• TSLA Reports Q2 total deliveries 95.2K v 84Ke (guided 90-100K)
• (US) Weekly API Oil Inventories: Crude: -5.0M v -7.6M prior
• (US) President Trump: To nominate current Executive Vice President of Saint Loius Fed Christopher Waller to be member of Fed
• SYMC Broadcom said to be in advanced talks to acquire Symantec in a possible $15B deal - financial press
• (US) 2020 US Census forms to be printed without citizenship question, after Supreme Court decision - press

Europe

• (UK) BOE Gov Carney: sees Q2 economic growth 'considerably weaker'; it's unsurprising that the market sees a lower bank rate; In some jurisdictions, the impact of uncertainty may warrant a near term policy response as insurance to maintain the expansion
• (EU) EU reaches deal on new leaders: Christine Lagarde nominated for ECB presidency; Belgium's Charles Michel proposed as EU Council president; Germany's Ursula Von Der Leyen proposed as EU Commission head
• (US) American and current IMF First Deputy David Lipton named IMF interim leader - French press
• (UK) Jun BRC Shop Price Index: Y/Y -0.1% v +0.8% prior

Levels as of 1:20 ET

• Nikkei 225, -0.6%, ASX 200 +0.5%, Hang Seng -0.2%; Shanghai Composite -0.8%; Kospi -1.3%
• Equity Futures: S&P500 -0.1%; Nasdaq100 -0.1%, Dax -0.1%; FTSE100 +0.1%
• EUR 1.1296-1.1284 ; JPY 107.92-107.53 ; AUD 0.7000-0.6985 ;NZD 0.6685-0.6669
• Gold +1.5% at $1,429/oz; Crude Oil +0.6% at $56.56/brl; Copper -0.1% at $2.663/lb

Market movers today

The main event in the Nordic region is the Riksbank meeting with the policy announcement at 09:30 CEST. The market is not expecting much and we tend to agree. The most significant piece of new information compared with the April policy meeting is that both the ECB and the Fed have hinted at adding more monetary stimulus. This must have come as a complete surprise to the Riksbank. At the same time, policy makers can point to relatively healthy growth (Q1 GDP came in above expectations), inflation at target and inflation expectations stable at 2%. Hence, the Riksbank is in no particular hurry to hike rates.

In the US, the ISM non-manufacturing survey is released today, which will be giving an interesting indication of whether the service sector is feeling the pinch from the troubles in the manufacturing sector and global economy. Market consensus expects a reading of 56.5. The service PMI has dropped in recent months to nearly 50, which has been a worry for the Fed. Hence a poor reading today would ignite expectations of a considerable upfront Fed easing.

We do not believe the UK PMI services index due out today should move much in either direction.

Selected market news

US Treasuries followed the positive sentiment yesterday from the European bond markets on the back of weaker numbers out of the UK, a 'soft' speech by BoE's Carney, the nomination of IMF's Lagarde to become the next head of the ECB and Italy announcing a cut in the budget deficit to 2.04% rather than 2.4% for 2019 (as seen in April). The cut in the budget deficit is the result of a combination of higher revenues and lower spending.

The big surprise yesterday was the nomination of Christine Lagarde as the new head of the ECB. She has been very vocal in terms of keeping up economic stimulus. The reaction in the bond market was positive and another round of QE is likely to be in the cards. See more in our note published this morning, ECB research: IMF's Lagarde to take over from Draghi .

US President Trump announced nominees for the Federal Reserve. Trump said that he is planning to nominee two candidates, Christopher Waller and Judy Shelton, who are both seen to be positive for easing US monetary policy.

German Defence Minister Ursula von der Leyen was nominated as Head of the EU commission. The candidates have to be approved by the EU parliament and there is some opposition from German members of the EU parliament to the German Defence Minister becoming head of the EU commission. However, we expect the nominations to go through.

Australia trade surplus widened to a fresh record high of AUD 5.7B in May, up fro AUD 4.8B in April, and beat expectation of USD 5.3B.

Exports rose AUD 1,442M (4%) to AUD41,585m. Non-rural goods rose AUD 1,316M (5%), rural goods rose AUD 46M (1%) and non-monetary gold rose AUD 22M (1%). Net exports of goods under merchanting fell AUD 1M (5%). Services credits rose AUD 58M (1%).

Import rose AUD515m (1%) to AUD 35,839M. Capital goods rose AUD 348M (5%), non-monetary gold rose AUD 68M (17%) and intermediate and other merchandise goods rose AUD 66M (1%). Consumption goods fell AUD 73M (1%). Services debits rose AUD 107M (1%).

Also from Australia, building approvals rose 0.7% (seasonally adjusted) in May, versus expectation of 0.0%. Rise in Victoria (14.4%) drove the national increase. Meanwhile falls were recorded in Queensland (6.3%), Western Australia (4.7%), South Australia (2.9%) and Tasmania (1.2%), while New South Wales was flat. Private dwellings excluding houses rose 1.2 per cent, while private house approvals decreased 0.3 per cent.