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The German Ifo business climate report released on Monday saw the index slipping for the third consecutive month. Data showed that the index fell to 97.4 in June compared to 97.9 in May. The data comes on the back of the German Bundesbank signaling that growth could contract in the second quarter of the year. The euro, however, brushed aside the data as it rose to test the $1.1400 handle.

Can the EURUSD Post Further Gains?

The currency pair has been rather bullish over the past week. However, as it approaches the $1.1400 handle, we could expect to see some pullback in price. The near term support is at 1.1339 which could hold any short term declines. Price will need to convincingly close above the 1.1400 handle in order to confirm further upside. The next main target to the upside is at 1.1541.

• Rates: Pressure on US 10-yr yield (2.01%-)support intensifies
  Friday's profit taking move didn't last long with core bonds back in the driver's seat. Geopolitical concerns, downside risks to US consumer confidence and a dovish anticipated Powell speech provide more short term tail wind. The pressure on key support on the US 10-yr yield (2.01%) is becoming bigger and bigger.
• Currencies: Powell to send EUR/USD into next resistance area?
  EUR/USD extended last week's uptrend yesterday, stopping short of capping the 1.14-handle. Today's event calendar might prove a chance for the couple to sneak towards the next resistance area (1.1450). Sterling is expected to remain in the defensive as the Tory election campaign heats up.

The Sunrise Headlines

• US stock markets ended mixed (Dow) to slightly lower (S&P, Nasdaq) yesterday as geopolitical worries linger. Asian stock markets are downwardly oriented as well with China (up to -2%) underperforming.
• US President Trump imposed new sanctions on Ayatollah Khamenei and eight senior military commanders. Iran responded that these measures closed the path to a diplomatic solution.
• Two senior MEP's of Spain's opposition party Ciudadanos have resigned over the party's pull to the right and veto over working with Spanish Socialist PM Sanchez. The split adds to the deadlock in place since April general elections.
• Dallas Fed Kaplan, non-voting FOMC member, believes that at this stage it is too early to judge whether trade and global growth uncertainties are to persist in a manner that leads to a material deteriorate for US eco growth.
• The gold price rose to its strongest level since 2013, around $1424/ounce with geopolitical tensions, ultralow yields levels and dollar weakness boosting bullion.
• The Polish overhaul of the supreme court, which forced a third of its judges in early retirement and gave the ruling Law and Justice party powers of the judiciary, broke EU law according to the European Court of Justice.
• Today's economic calendar contains US S&P housing data, Richmond Fed manufacturing index, new home sales and consumer confidence. Several central bankers, including Fed Chair Powell, speak. Italy and the US tap the market

Currencies: EUR/USD Extends Gain Beyond 1.1350, Improving The Technical Picture

Fed's Powell to push EUR/USD to next resistance?

Follow-through euro buying in the wake of better than expected EMU PMI's kept EUR/USD on an upward trend yesterday. The couple was little affected by a further deteriorating German Ifo business climate (97.4). It found support in narrowing US/German yield spreads instead as prospects of Fed rate cuts continue to weigh on US yields. Together with more sideline dollar positioning ahead of the G20 at the end of this week, EUR/USD's advance stopped short of capping the 1.14-handle (1.1399, up from 1.1369). USD/JPY oscillated near opening levels and eventually closed virtually unchanged at 107.30.

Sentiment in Asia dented this morning. Geopolitical tensions rise after the US initiated a new batch of sanctions on Iran's supreme leader and other top officials. Iran's foreign ministry said that any new sanctions “mean the permanent closure of the diplomatic path with the US”. Trump is also said to consider withdrawing from post-war Japan defense pact that he thinks treats the US unfairly, adding more jitters to an already fragile trade environment. EUR/USD holds up well however, trading close to 1.14. The Japanse yen profits with USD/JPY slipping below 107.

Economic data is rather scant today. The US Conference Board consumer confidence is expected to decline from 134.1 to 131 in June. Risks are tilted to the downside due to a sharp increase over the two previous months. The poor payrolls earlier this month strengthens our case for a negative surprise of this labour market sensitive indicator. We therefore expect the dollar to remain in the defensive in the run-up to an important speech by Powell this evening. Will the Fed chair confirm markets view of a July rate cut? If he does we might witness the dollar (and US yields) to edge lower. EUR/USD recently regaining the 1.1350 area improved the technical picture in this cross rate. Next resistance is seen in the 1.1450 area.

The pound lost additional ground during a mostly technical trading session yesterday with EUR/GBP closing at around 0.895. The Tory leadership campagne is gaining traction; debates between Johnson and Hunt are thorny. Given the high amount of political uncertainty we see little reasons for sterling to strengthen significantly even as Johnson's lead over Hunt decreased. We expect EUR/GBP to hold rather strong.

EUR/USD breaking north of 1.1350, improving the ST technical picture. Next resistance in the 1.1450 area to reach after Fed's Powell?

Daily Pivots: (S1) 107.19; (P) 107.36; (R1) 107.47; More...

USD/JPY's decline resumed after brief consolidations and reaches as low as 106.78 so far. Intraday bias is back on the downside. Current fall from 112.40 should target 104.69 low next. On the upside, above 107.73 minor resistance will turn intraday bias neutral again. But outlook will remain bearish as long as 108.80 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.

Yen and Gold surge today as global sentiments are weighed down by new US sanctions on Iran. In particular, Gold hits as high as 1439 and is currently up more than 1%. Nevertheless, New Zealand Dollar outshines Yen and is currently the strongest one for today. Kiwi is boosted by record exports in May, which solidify the case for RBNZ to stand pat tomorrow. Sterling is the second strongest for now, helped by pull back in EUR/GBP.

Technically, a major focus will be on whether Dollar could stage a recovery from the current point. EUR/USD is now close to close to 1.1142 fibonacci projection level, and a retreat is due. While GBP/USD edges higher today, it's feeling heavy ahead of 1.2840 fibonacci resistance. On the other hand, USD/JPY's downside momentum remains solid and could fall further towards 104.69 before trading to bottom. Trade development and Fed Chair Jerome Powell's comment might help decide the direction.

In other markets, Nikkei closed down -0.52%. China Shanghai SSE closed down -0.87%. Hong Kong HSI is down -1.19%. Singapore Strait Times is down -0.20%. Japan 10-year JGB yield is up 0.0001 at -0.151. Overnight, DOW rose 0.03%. S&P 500 dropped -0.17%. NASDAQ dropped -0.32%. 10-year yield dropped -0.047 to -2.021. staying above 2% handle.

Trump puts sanctions on Iranian supreme leader and officials

Trump signed an executive order imposing sanctions on Iranian Supreme Leader Ayatollah Ali Khamenei and other top Iranian officials. He condemned Khamenei as "the hostile conduct of the regime" in the Middle East.

The sanctions will "deny the Supreme Leader and the Supreme Leader's office, and those closely affiliated with him and the office, access to key financial resources and support." They could lock up billions of dollars more in Iranian assets. They were in part a response to downing of a US drone by Iran last week.

Iranian Foreign Ministry responded: "Imposing useless sanctions on Iran's Supreme Leader Khamenei and the commander of Iran's diplomacy is the permanent closure of the path of diplomacy. Trump's desperate administration is destroying the established international mechanisms for maintaining world peace and security."

Chinese Liu had phone call with Lighthizer & Mnuchin, agreed to maintain communications

The Chinese Ministry of Commerce confirmed that Vice Premier Liu He had a phone call with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Monday. During the call, both sides exchanged opinions on trade and agreed to maintain communications. Works are believed to be carried out ahead of the meeting between Trump and Xi on the second day of the June 28-29 G20 summit in Osaka, Japan. For now, there is no indications on how the two sides could close the wide gap in their bottom lines.

Reuters reported, citing an unnamed US senior officials that "it's really just an opportunity for the president to maintain his engagement as he has very closely with his Chinese counterpart.". And, Trump is "quite comfortable with any outcome." Another unnamed official said "the president has been quite clear that he needs to see structural real reform in China across a number of issues and a number of sectors, and nothing about that has changed." And, "the fact that talks broke down in May hasn't changed that as the ultimate goal".

Separately, Japanese Economy Minister Toshimitsu Motegi said he'll meet Lighthizer this week. He'd announce details including the date and location of the talks once they were set.

BoJ April Minutes: Clarifications on forward guidance added to strengthen public confidence on persistent easing stance

The Minutes of April 24-25 BoJ meeting showed that some members suggested clarifications on the forward guidance, "with the aim of strengthening public confidence in its monetary easing stance". That came as "many members" recognized the "high uncertainties" regarding economic outlook and prices. And, it was likely to "still take time to achieve 2 percent inflation".

In the statement after that meeting, BoJ added: "The Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, at least through around spring 2020, taking into account uncertainties regarding economic activity and prices including developments in overseas economies and the effects of the scheduled consumption tax hike."

One member said "at least through around spring 2020" as providing a specific time frame with open-ended elements. Some members also noted that clarifying the meaning of "for an extended period of time" implied a fairly long period of time was necessary.

Also from Japan, corporate service price index rose 0.8% yoy in May, below expectation of 1.0% yoy.

New Zealand exports jumped to record high, trade surplus at NZD 264M

In May, New Zealand good export rose 8.5% yoy to NZD 5.8B, hitting a record high. Import rose 7.6% yoy to NZD 5.5B. Trade surplus came in at NZD 264m, above expectation of NZD 200m. In particular, exports to China rose 29% yoy to NZD 1.5B led by rises in milk powder, beef, food preparations and logs. Strong terms of trade reaffirms RBNZ's stance to stand pat tomorrow. Yet, the central bank will likely maintain openness to further rate cut later in the year.

Looking ahead

UK will release CBI reported sales. US will release house price index, S&P Case-Shiller house price and new home sales. But major focus will be on Conference Board consumer confidence. Also, Fed Chair Jerome Powell will speak again today.

USD/JPY Daily Outlook

Daily Pivots: (S1) 107.19; (P) 107.36; (R1) 107.47; More...

USD/JPY's decline resumed after brief consolidations and reaches as low as 106.78 so far. Intraday bias is back on the downside. Current fall from 112.40 should target 104.69 low next. On the upside, above 107.73 minor resistance will turn intraday bias neutral again. But outlook will remain bearish as long as 108.80 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.

Economic Indicators Update

The New Zealand dollar rose sharply today after the country released its trade data for May. Data showed that exports increased to N$5.81 billion from the previous N$5.50 billion. This was higher than the consensus estimate of more than N$5.61 billion. In the same month, imports rose to N$5.54 billion, from the previous N$5.12 billion. As a result, the trade surplus increased to N$264 million, which was better than the consensus estimate of N$200 million.

The US dollar continued to weaken as the expectations of rate cuts continued to increase. The dollar index, which tracks the currency against a basket of other international currencies declined by 0.10% in the Asian session. It reached a low of 95.9, which was the lowest level in more than three months. In last week’s meeting, the Federal Reserve left rates unchanged but signaled possible easing on rising uncertainties about the economic growth. As a result, the markets are now pricing in at least two rate cuts this year. Later today, investors will receive the home sales and the house price index data.

The yen strengthened against the USD after the BOJ released minutes of the previous meeting. The minutes showed that members deliberated on the need to be vigilant over the rising cost of the prolonged easing, which has led to negative interest rates. In the meeting, the bank’s officials agreed to leave rates unchanged at the current minus 0.1%. The strength also happened as the country planned to host the G20 meeting. In addition, there will likely be tensions as President Trump ponders on how to change the defense agreement with Japan. The President believes that as a rich country, Japan should pay for its own security.

EUR/USD

The EUR/USD pair continued to rise, reaching a high of 1.1410. This was the highest level since March 25. On the eight-hour chart, the price is above the 25-day and 50-day moving averages. The RSI has also moved higher to above the overbought level of 70. The signal and RVI lines of the Relative Vigor Index have continued to move higher. While the pair could continue the upward trend, it is likely that a pullback could happen.

NZD/USD

The NZD/USD pair continued the upward trend started on June 18 when it formed a double bottom pattern at 0.6486. Today, the pair reached a high of 0.6652, which is the highest level since June 10. This price is above the 25-day and 50-day moving averages. The RSI has moved to above the overbought level of 70. The price is along the upper line of the Bollinger Bands. The pair could continue moving higher to the important resistance level of 0.6680.

USD/JPY

The USD/JPY pair continued to decline, reaching a low of 106.87, which is the lowest level since January 10. On the daily chart, this price is slightly below the 50-day and 25-day moving averages. It is also below the longer-dated 200-day moving averages. The RSI has dropped to below the oversold level of 30 while the accumulation/distribution indicators have continued to soar. The pair will likely continue moving lower as traders wait for the G20 meeting.

The British pound is attempting to gain upside momentum against the greenback after slipping back towards the 1.2700 level in early week trade. GBPUSD bulls need to sustain price above the 1.2730 level and stage a breakout above the 1.2770 resistance level. Losses below the 1.2710 level may provoke a much deeper technical correction towards the 1.2660 support level.

The GBPUSD pair is only bullish while trading above the 1.2730 level, key resistance is found at the 1.2770 and 1.2840 levels.

If the GBPUSD pair trades below the 1.2730 level, key support is found at the 1.2710 and 1.2660 levels.

The euro continues to trade just above the 1.1400 level against the US dollar, with the pair still remaining well bid into early Tuesday trade. The 1.1400 level remains the gateway to the 1.1440 level, with topside resistance for the EURUSD found at the 1.1500 level. Sellers need to hold price below the 1.1360 level to negate the current bullish daily bias towards the EURUSD pair.

If the EURUSD pair trades above the 1.1400 level, key technical resistance is found at the 1.1440 and 1.1500 levels.

The EURUSD pair is only bearish while trading below the 1.1360 level, key support is found at the 1.1347 and 1.1321 levels.

Ethereum is starting to appear uncomfortable above the $300.00 level, with the second largest cryptocurrency unable to make new higher highs on the daily chart. The ETHUSD pair could be vulnerable to heavy technical selling if Bitcoin starts to reverse from the $11,000 level. Overall, unless bulls start to breach the $320.00, the ETHUSD pair shows real signs that the monthly high may have already been made.

The ETHUSD pair is bullish while trading above the $300.00 level, key resistance is found at the $320.00 and $325.00 levels.

If the ETHUSD pair trades below the $300.00 level, key support is found at the $290.00 and $280.00 levels.

GBPUSD has been advancing over the last five days, following the rebound on the six-month low of 1.2500. Currently, the price is finding strong resistance near the 40-day simple moving average (SMA), which overlaps with the 1.2770 barrier.

Looking at the technical indicators the stochastic seems to be overstretched as it is turning lower above the 80 level. However, the RSI is pointing slightly up while in the positive territory, suggesting more gains in the near term.

If the price continues the strong bullish movement and surpasses the 40-SMA, it could find immediate resistance at the 38.2% Fibonacci retracement level of the downleg from 1.3380 to 1.2500 near 1.2840, before touching the 1.2865 barrier. Even higher, the 50.0% Fibonacci of 1.2940 could provide resistance as well.

On the other side, if the pair retreats and slips beneath the 23.6% Fibonacci region of 1.2710, it could meet support at the 1.2660 level. More losses could drive cable at the 1.2500 handle and the 1.2475 area, taken from the low on December 2018.

Overall, GBPUSD looks to be bullish in the near term and a daily close above 1.2770 could endorse traders’ bullish positions.

In the long-term picture, the pair has been remaining negative since the downfall from 1.3380.

General Trend:

• Concerns about possible US restrictions continue to weigh on IT and Telecom Services firms in China
• Shanghai banking index underperforms, press reports note lingering impact of bailout announcement related to Baoshang Bank
• Shanghai Pudong Development Bank declines , US judge rules the firm is in contempt for refusing to comply with North Korea sanctions probe
• China Merchants Bank declines over 5%
• Chinese footwear company Li Ning rises over 13% on its guidance
• Brokerage firms are among the decliners in Japan, along with Softbank and Fast Retailing
• ASX 200 index supported by rise in gold miners
• Kiwi (NZD) rises ahead of Wednesday’s RBNZ policy decision
• Gold Futures extend gain as the US Fed and geopolitical concerns remain in focus
• China June local government bond issuance may hit record high, funds are being used to finance infrastructure projects (Chinese press)

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened flat
• (NZ) New Zealand May Trade Balance (NZ$): 264M v 250Me
• SPO.AU Applies for ASX delisting
• (NZ) New Zealand Fin Min Robertson: OECD survey notes global risks

Japan

• Nikkei 225 opened -0.3%
• 7201.JP CEO : Will implement swift reforms of corporate governance system, see tough times ahead but will put efforts into improving governance; planning business recovery within 3-years; Prioritizing performance recovery, postponing discussions on deepening alliance talks - AGM
• RNO.FR CEO: I did everything I could to smooth over relationship between Renault and Nissan, which was worse than I expected; i never considered FCA pact without alliance - Nissan AGM
• (JP) Japan May PPI Services Y/Y: 0.8% v 1.0%e
• (JP) Japan, US and Australia will jointly finance a $1.0B LNG project in Papua New Guinea as part of pact made in Nov to offer alternative to China's Belt and Road – Nikkei
• (JP) Bank of Japan (BOJ) minutes from April policy meeting (two meetings ago): although it would take time to achieve 2% price stability target, appropriate to persistently continue with the current powerful monetary easing as the momentum toward achieving 2% inflation was being maintained with the output gap remaining positive (little changed from prior months minutes)
• (JP) Japan Economy Min Motegi: Planning to hold talks with Lighthizer, talks will proceed along the line of joint statement
• (CN) China Center for International Economic Exchanges Vice Chairman Wei Jianguo: Trade volume between China and Japan is expected to see double digit growth in 2019 - China Daily
• (JP) Japan MoF sells ¥745.5B v ¥900B indicated in 0.4% (prior 0.40%) 20-year bonds; avg yield 0.2080% v 0.359% prior; bid to cover 4.08x v 5.47x prior

Korea

• Kospi opened flat
• (KR) US Pres Trump: I sent North Korea Leader Kim a very friendly letter; Kim sent me birthday wishes
• (KR) South Korea Jun Consumer Confidence: 97.5 v 97.9 prior (5-month low)
• (KR) South Korea Fin Min Hong has asked 18 major banks to increase its lending to small and medium sized companies as part of efforts to boost the economy – Yonhap
• (KR) South Korea would still like to have an inter-Korea summit before S. Korea President Moon holds talks with President Trump this weekend – Yonhap
• 017670.KR To set up JV with Deutsche Telekom to develop 5G technology

China/Hong Kong

• Hang Seng opened -0.2%; Shanghai Composite opened -0.1%
• (CN) China will "not allow" G20 to talk about protests in Hong Kong, considers it an internal affair – Nikkei
• (CN) China June local govt bond issuance expected to hit a record high of CNY800B with CNY594B issued as of June 21 and additional CNY200B planned for last week of June - China Daily
• (CN) Senior White House Administration Official: China President Xi likely to meet with Trump on second day of G20, will be confirmed by officials later – press
• (CN) China MOFCOM: Confirms Vice Premier Liu He and USTR Lighthizer exchanged comments over the phone; agreed to maintain communications
• (CN) China PBoC sets yuan reference rate: 6.8580 v 6.8503 prior
• (CN) China PBoC Open Market Operation (OMO): Skips for the second consecutive session
• (CN) China Center for International Economic Exchanges Vice Chairman Wei Jianguo: Trade volume between China and Japan is expected to see double digit growth in 2019 - China Daily

Other

• (US) President Trump has told Japan and China they are responsible for defending their own ships in Strait of Hormuz (implying US will no longer help) - Nikkei citing tweets
• (SG) Singapore PM Loong: China and the US need to engage at the top level to build trust; trade war consequences will be "even more serious than the financial crisis" a decade ago - press interview
• (TH) Thailand May Manufacturing Production Index Y/Y: -4.0% v -1.5%e (lowest since 2014)

North America

• (US) Fed's Kaplan (dove, non-voter): concerned a rate cut now could fuel imbalances; wise to take time to consider if we need to change rates
• (US) Jun Dallas Fed Manufacturing Activity: -12.1 v -2.0e (lowest since Jun 2016)
• (US) Pres Trump: Reiterates he can fire Fed Chair Powell if he wanted to; no plans to do anything; Powell is incorrect on 4-year term understanding
• (IR) Iran For Min Spokesman Mousavi: Latest US sanctions means 'closing channel of diplomacy forever'

Europe

• (DE) Germany Finance Ministry: 2020 budget to rise 1% to €359.9B

Levels as of 1:20 ET

• Nikkei 225, -0.7%%, ASX 200 -0.1%, Hang Seng -1.3%; Shanghai Composite -1.5%; Kospi -0.3%
• Equity Futures: S&P500 -0.3%; Nasdaq100 -0.5%, Dax -0.2%; FTSE100 -0.3%
• EUR 1.1411-1.1394; JPY 107.41-106.77 ; AUD 0.6973-0.6954 ;NZD 0.6646-0.6615
• Gold +1.1% at $1,434/oz; Crude Oil -0.7% at $57.47/brl; Copper +0.2% at $2.712/lb