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The latest inflation report from Germany showed that consumer prices rose 1.3% on the year ending May 2019. This was well below the ECB's 2% inflation target rate. On a monthly basis, Germany's inflation was up just 0.3%. The weakness in inflation is starting to build up expectations that the ECB will follow through with policy easing in July.

EURUSD Trades Flat Within Range

The currency pair was seen trading flat within the 1.1400 and 1.1339 level on Thursday. The consolidation within this range indicates a potential breakout in the near term. The bias remains mixed. A breakout above 1.1400 will confirm further upside bias while a close below 1.1339 could trigger a deeper correction in the EURUSD. We expect the EURUSD to test the next lower support at 1.1250 in such an event.

Daily Pivots: (S1) 1.1350; (P) 1.1366; (R1) 1.1385; More......

Intraday bias in EUR/USD remains neutral at this point. With 1.1317 minor support intact, another rise remains mildly in favor. On the upside, break of 100% projection of 1.1107 to 1.1347 from 1.1181 at 1.1142 will pave the way to 161.8% projection at 1.1569 next. However, firm break of 1.1317 will be an early sign of completion of rise from 1.1107. Intraday bias will be turned back to the downside for 1.1181 support instead.

In the bigger picture, considering bullish convergence condition in daily and weekly MACD, a medium term bottom should be in place at 1.1107 after hitting 61.8% retracement of 1.0339 (2016 low) to 1.2555 (2018 high) at 1.1186. Further rise should be seen to 38.2% retracement of 1.2555 to 1.1107 at 1.1660. Reactions from there could indicate whether rebound from 1.1107 is a corrective rise or reversing medium term trend.

EUR/USD

Current level - 1.1366

The static support at 1.1350 continues to hold, but an attempt to 1.1320-1.1280 can not yet be ruled out and such will gather steam for a new rise beyond 1.1450.

USD/JPY

Current level - 107.65

The slide after 108.15 peak should be considered corrective, preceding another leg, towards 108.70. Initial intraday support lies at 107.45.

GBP/USD

Current level - 1.2661

I favor a slide towards 1.2600 area before return to 1.2810 resistance zone.

Daily Pivots: (S1) 1.2647; (P) 1.2686; (R1) 1.2710; More....

Intraday bias in GBP/USD remains neutral for the moment. With 1.2642 minor support intact, corrective rebound from 1.2506 could still extend higher. But upside should be limited by 38.2% retracement of 1.3381 to 1.2506 at 1.2840. On the downside, break of 1.2642 minor support will turn intraday bias back to retest 1.2506 low. However, sustained break of 1.2840 will bring stronger rise to 61.8% retracement at 1.3047 next.

In the bigger picture, down trend from 1.4376 (2018 high) is still in progress. Break of 1.2391 would target a test on 1.1946 long term bottom (2016 low). For now, we don't expect a firm break there yet. Hence, focus will be on bottoming signal as it approaches 1.1946. In any case, medium term outlook will stay bearish as long as 1.3381 resistance holds, in case of strong rebound.

Daily Pivots: (S1) 107.57; (P) 107.87; (R1) 108.08; More...

USD/JPY is staying in consolidation from 106.78 and intraday bias remains neutral. Upside of recovery should be limited by 108.80 resistance to bring fall resumption. On the downside, break of 106.78 minor support will extend the decline from 112.40 to retest 104.69 low. However, firm break of 108.80 will indicate short term bottoming and turn bias to the upside for 110.67 resistance instead.

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.

General Trend:

• Trump and Xi are expected to meet on Saturday (June 29th), meeting expected to occur at 22:30 ET (2:30 GMT, equates to 11:30 AM local time in Japan)
• Xi’s preconditions for settling trade war said to include easing restrictions on Huawei, removal of punitive tariffs and lower purchase demand related to US goods (US financial press)
• The US is still insisting on structural changes on IP and enforcement mechanisms related to China, said White House Adviser Kudlow.
• Xi did not directly mention the US in initial G20 remarks
• BoJ discussed ‘reversal rates’ amid debate on policy outlook (Summary of Opinions from June meeting)
• RBA policy decision expected on July 2nd (Tuesday)
• Li & Fung rises over 13% in HK on plan to sell stake in unit to Temasek

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.1%
• (AU) Australia May Private Sector Credit M/M 0.2% v 0.2%e; Y/Y: 3.6% v 3.7%e
• (NZ) New Zealand Jun Consumer Confidence Index: 122.6 v 119.3 prior; M/M: 2.8% v -3.2% prior

China/Hong Kong

• Shanghai Composite opened -0.2%, Hang Seng flat
• (CN) China Pres Xi: Seeing increases in global instability and protectionism; BRICs countries should work to protect ourselves from such risks - commenting from G20
• (CN) China's President Xi said to present US President Trump with terms for settling trade fight including precondition of lifting Huawei ban - U.S. financial press
• (RU) Russia and China agree on payments in national currencies; agreement signed between PBoC Gov and Russia Fin Min
• (CN) China PBoC: Reiterates view that external uncertainties are increasing - Quarterly Monetary Policy Meeting
• (CN) China PBoC Open Market Operation (OMO): Skips for the 5th consecutive session
• (CN) China PBOC sets yuan reference rate: 6.8747 v 6.8778 prior

Japan

• Nikkei 225 opened -0.3%
• (JP) Japan Official: Trump did not raise exchange rates with Abe
• (JP) Bank of Japan (BOJ) Summary of Opinions for Jun 19 and 20 meeting:One member noting the need to ease persistently; must maintain current easing policy while playing closer attention to side effects of financial intermediation and market functioning
• (JP) Japan May Preliminary Industrial Production M/M: 2.3% v 0.7%e (fastest m/m pace since Feb 2018); Y/Y: -1.8% v -2.9%e
• (JP) JAPAN MAY JOBLESS RATE: 2.4% V 2.4%E
• (US) US President Trump: To talk trade with Japan PM Abe, appreciates Japanese car companies building plants in the US - G20 comments

Korea

• Kospi opened flat
• (KR) South Korea May Industrial Production M/M: -1.7% v -0.6%e ; Y/Y: -0.2% v -1.0%e

Other

• (IN) US Pres Trump meets with India PM Modi: We'll have 'very big' trade deals to announce; to discuss Huawei

Europe

• (UK) Jun GfK Consumer Confidence: -13 v -11e
• (UK) PM candidate Johnson reportedly preparing a budget for a no-deal Brexit; expected to include tax cuts and an overhaul of the stamp duty - UK Press
• (EU) EU Juncker: G20 Communique drafting work is still under way

Levels as of 1:20 ET

• Nikkei 225, -0.6%, ASX 200 -0.5%, Hang Seng -0.6%; Shanghai Composite -1%; Kospi -0.2%
• Equity Futures: S&P500 flat; Nasdaq100 -0.2%, Dax -0.1%; FTSE100 flat
• EUR 1.1377-1.1365 ; JPY 107.83-107.56 ; AUD 0.7011-0.6997 ;NZD 0.6710-0.6690
• Gold +0.8% at $1,423/oz; Crude Oil -0.5% at $59.12/brl; Copper -0.3% at $2.714/lb

Market movers today

The key focus today is the G20 summit starting in Osaka. Although the long-awaited meeting between US President Trump and Chinese President Xi is only scheduled for tomorrow (3:30 CEST), headlines surrounding the summit, especially on the topic of trade and military tensions with Iran will drive sentiment today. The odds have been rising for a ceasefire in the trade war after Trump reached out to Xi last week, but the risk of Trump increasing tariffs if the summit does not bring any progress still haunts.

On the data front, the most important release today is the June euro area HICP print. In May, core and headline inflation disappointed markets. For the June print, we expect euro inflation to continue its roller-coaster ride, as base effects remain in the driver's seat and we look for core inflation to jump back to 1.2% (see more in EUR inflation roller-coaster continues , 18 June).

Inflation figures will also be in focus across the Atlantic with the PCE core print for May. The Fed lowered its inflation forecast significantly at the latest meeting and low inflation is one reason it has become even more dovish.

In Scandinavia, we get Swedish wage growth and retail sales figures, while in Norway employment data is in focus (see next page).

Selected market news

The talk of the town continues to be the G20 meeting starting today, with the highlight being the 90-minute lunch meeting tomorrow between Trump and Xi. It's a high-stake and much-awaited meeting and the outcome will give an indication of how risk will fare in the near future. Yesterday, the WSJ reported that China will insist on the US lifting the Huawei ban as part of a trade truce. Further, the report suggested that China could be ready to put restrictions on rare earth exports to the US unless the ban is lifted. That would be a way to retaliate against the US for the attack on Chinese tech. China has not yet retaliated but may have chosen to wait for the G20 to see if Xi could get Trump to lift the ban first. See also China Weekly Letter: Rising chance of ceasefire at G20 meeting , 21 June.

The Swedish May trade balance showing a SEK8.3bn surplus was very strong. Export growth remained strong at 10.3 % y/y, but an important reason for the strong figure is also that imports fell, -1.7 % y/y. The trade balance is partially strong for the wrong reasons.

Euro area data yesterday was mixed. The Spanish inflation figure was slightly on the low side at 0.6% vs. 0.9% in May while German HICP was in line with expectations at 1.3%, which led us to revise down our expectations for today's euro area figure. The European sentiment indicator showed a further dip in June across sectors (though consumer and service confidence remained relatively stable).

As Q2 is coming to an end, we published a piece on the Euro area - Catching up with reality , where we conclude that investors should brace for more negative economic surprises in the coming weeks. We expect GDP growth in Q2 to fall back to 0.2% q/q.

For the 24 hours to 23:00 GMT, the EUR slightly declined against the USD and closed at 1.1368

In economic news, the Euro-zone's final consumer confidence index declined to a level of -7.2 in June, meeting market expectations and confirming the preliminary print. The index had recorded a level of -6.5 in the prior month. Moreover, the region's economic sentiment indicator dropped to its lowest level in 3 years to 103.3 in June, compared to a revised level of 105.2 in the previous month. Market participants had envisaged the indicator to record a fall to a level of 104.9. Also, the business climate indicator eased to 0.17 in June, more than market forecast and compared to a reading of 0.30 in the prior month.

Separately, in Germany, the preliminary consumer price index (CPI) advanced 1.6% on an annual basis in June. In the prior month, the CPI had registered a rise of 1.4%.

In the US, data showed that final annualised gross domestic product rose 3.1% on a quarterly basis in the 1Q 2019, confirming the preliminary print and undershooting market anticipations for a gain of 3.2%. The annualised GDP had climbed 2.2% in the prior quarter. Meanwhile, the nation's pending home sales unexpectedly fell 0.8% on an annual basis in May, compared to a rise of 0.4% in the prior month. Market participants had envisaged pending home sales to record a rise of 0.4%. Additionally, seasonally adjusted initial jobless claims advanced to a level of 227.0K in the week ended 22 June 2019, compared to a revised level of 217.0 K in the prior week. Markets had expected initial jobless claims to climb to a level of 220.0K.

In the Asian session, at GMT0300, the pair is trading at 1.1369, with the EUR trading a tad higher against the USD from yesterday's close.

The pair is expected to find support at 1.1351, and a fall through could take it to the next support level of 1.1333. The pair is expected to find its first resistance at 1.1384, and a rise through could take it to the next resistance level of 1.1399.

Looking ahead, traders would await Euro-zone's consumer price index for June, slated to release in a few hours. Later in the day, the US personal income and personal spending data, both for May along with the Chicago Purchasing Managers' Index and the Michigan consumer sentiment index, both for June, 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 0.18% against the USD and closed at 1.2671.

In the Asian session, at GMT0300, the pair is trading at 1.2669, with the GBP trading marginally lower against the USD from yesterday's close.

Overnight data indicated that UK's Lloyd's business barometer climbed to 13.0% in June, compared to 10.0% in the previous month. Meanwhile, the nation's GfK consumer confidence eased to -13.0 in June, compared to market expectations for a fall to a level of -11.0. In the prior month, the consumer confidence index had recorded a level of -10.0.

The pair is expected to find support at 1.2646, and a fall through could take it to the next support level of 1.2622. The pair is expected to find its first resistance at 1.2709, and a rise through could take it to the next resistance level of 1.2748.

Trading trend in the Sterling today, is expected to be determined by UK's gross domestic product for the first quarter 2019, set 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 marginally rose against the JPY and closed at 107.78.

In the Asian session, at GMT0300, the pair is trading at 107.64, with the USD trading 0.13% lower against the JPY from yesterday's close.

Overnight data showed that Japan's preliminary industrial production climbed 2.3% on a monthly basis in May, rising at its fastest pace in seven months and compared to a rise of 0.6% in the previous month. Markets participants had anticipated industrial production to rise 0.7%. Meanwhile, the nation's unemployment rate remained unchanged at 2.4% in May, in line with market expectations.

The pair is expected to find support at 107.41, and a fall through could take it to the next support level of 107.19. The pair is expected to find its first resistance at 108.01, and a rise through could take it to the next resistance level of 108.39.

Looking ahead traders would await Japan's housing starts for May, scheduled to release in a while.

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