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The U.S. and China Inflation data may become a significant force causing movements in the stock and currency markets. Indicators from China, published in the morning, showed an acceleration in consumer inflation in May to 2.7% y/y. But a deeper study of the report noted low core inflation (ex. food) at just 1.6% y/y. Producer prices slowed from 0.9% to 0.6% y/y, also indicating a weakening of inflationary pressure. Weak inflation opens up opportunities for lowering rates and other impulses. After data from China attention shifted to US figures. Markets, on average, expected CPI to slow down from 2.0% to 1.9% y/y. However, a slowdown in producer prices from 2.2% to 1.8% y/y increases the chances to weaker consumer inflation data in May. Lower inflation can increase the pressure on the dollar, spurring on expectations of an early rate cut from the Fed.

Stocks

Stock indices showed minor changes against levels of the previous day. It is worth paying attention to the increased caution of players under the closure of the American session. SPX touched monthly highs at 2910 and then quickly turned to sell-off at the close of the day and eventually decreased by 0.1%. Such market dynamics often precede a turn to decline. Inflation data from the United States can strengthen or neutralize maturing correction. A decline below 2872 (MA50) can be an additional technical factor in favour of bears.

EURUSD

The single currency for Tuesday was mostly in the range of around 15 pips. At the end of the day, the euro climbed from 1.1310 to 1.1325. Despite the relatively sluggish start of the week for the pair, it is worth noting the persistence of thrust to growth. The single currency avoids significant corrections after a reversal to growth on May 31. A new test of bullish sentiment in the markets could be the 200-day moving average of 1.1360 at the moment. The market is consolidating on the approach to this level. A sharp tide over this level often forms a strong trend in the direction of the breakdown. That is, in our case, is able to enhance growth.

Gold

Gold returned to growth after touching $1320 and is currently trading at $1335, adding 1.1% to Tuesday's lows. Such a turn to growth may be a signal of increased anxiety of markets, despite the relatively cautious movement of the stock indices. $1340 level is again becoming a reference point. The ability to gain a foothold above can further inspire buyers.

USDCHF

The Swiss franc added about 3% against the dollar within the last month. This week, the USDCHF pair halted its decline around 5-month lows. The franc gains momentum both as a result of increased thrust into defensive assets, as well as following the euro, which over the past weeks has been reversing to growth against the dollar. A quarterly meeting of the Swiss National Bank (SNB) will take place on Thursday, where the accompanying statement may be in the focus of attention. Market participants will search for signs of possible softening of rhetoric in the wake of other global central banks.

Cable maintains positive tone from Tuesday's upbeat UK earnings figures and weaker dollar and extends advance in early European trading on Wednesday.

Improved daily techs on lift above 5,10,20SMA's and fresh bullish momentum support the action, as bulls look for test of last Friday's high at 1.2762 and possible extension towards key barrier at 1.2796 (Fibo 38.2% of 1.3179/1.2559 / falling 30SMA), break of which would spark stronger recovery.

Broken 5SMA offers immediate support at 1.2716, guarding lower pivots at 1.2686/89 (converging 10/20SMA's).

Brexit story remains pound's key driver, with focus on attempts of opposition Labor party to take control of the parliamentary agenda on 25 June and try to prevent no-deal Brexit scenario, as Boris Johnson, the favorite to succeed Theresa May, favors exit on 31 Oct deadline, regardless to the conditions.

Res: 1.2747, 1.2762, 1.2796, 1.2819
Sup: 1.2716, 1.2686, 1.2653, 1.2642

Today, I am tracking closely the Canadian dollar vs. Japanese yen as this pair can be building a very nice bullish pattern. We see a nice turn up from June lows; it has impulsive personality so looks like higher degree bulls are here. Also, we see stocks in uptrend; currently only in wave 4 pullback so more upside on stocks will also suggest more upside for xxx/JPY pairs.

CADJPY, 4h

SP500, 30Min

Asian equities were mostly lower on Wednesday morning as risk sentiment swung back to caution on persistent US-China trade tensions.

The fact that markets were relatively unfazed by President Donald Trump’s recent comment on how he’s personally “holding up the trade deal” with China suggests that a sense of fatigue over US-China trade narrative is starting to impact financial markets. With global trade developments dragging on with no solution in sight, there is a risk that investors are slowly becoming desensitized to Trump’s trade rhetoric. While the build up in risk appetite this month indicates that some remain cautiously optimistic over a breakthrough deal between the United States and China at the G20 summit later this month, investors should remain vigilant and be prepared for the unexpected.

It is worth noting that this is not the firsttime optimism has grown over a potential US-China deal, only for market players to be left empty-handedafter talks fall apart with no breakthrough achieved. Even if a Trump-Xi meeting becomes reality at the end of this month, there is still the risk of both sides agreeing to disagree – ultimately leading to the heightened trade tensions between the world’s two largest economies remaining a recurrent theme.

Dollar shivers ahead of US CPI

The Dollar is struggling to nurse the deep wounds inflicted from last Friday’s dismal US jobs report and this continues to be reflected in price action. Dollar bulls are clearly in trouble and may be kicked out of the scene today if the pending US inflation report points to a widening gap between the Fed’s golden two percent target and the actual readings. Anothersluggish CPI reading is likely to fuel speculation over the Federal Reserve cutting interest rates this year which may end up weakening the Dollar further. While the Dollar Index (DXY) may find some support from a depressed Euro and Pound in the near term, the medium to longer term outlook for the DXY favors further downside. In regards to the technical picture, the Dollar Index has scope to sink towards 95.90 if a daily close below 96.50 is achieved.

Commodity spotlight – Gold

Gold was back in fashion this morning after hitting a one-week low in the previous session, as renewed concerns over US-China trade tensions supported the flight to safety. A softer Dollar also played a role in the metal’s appreciation with prices trading marginally above $1335 as of writing.

It is becoming increasingly clear that Gold remains shielded by speculation over the Fed cutting interest rates this year, global growth fears and persistent US-China trade tensions. Technical traders are likely to closely monitor how prices behave above the $1324 support level this week. Should this prove to be reliable support, the next key level of interest for Gold could be found around $1347. A situation where bulls are unable to keep control above $1324 is likely to open a path back towards the psychological $1300 level.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.13113
Open: 1.13258
% chg. over the last day: +0.13
Day's range: 1.13258 – 1.13390
52 wk range: 1.1111 – 1.2009

The EUR/USD currency pair continues to consolidate. At the moment, the trading instrument is testing the local resistance of 1.13450. The 1.12900 mark is the key support. EUR/USD quotes are tending to grow. "Greenback" remains under pressure due to rising expectations that the Fed can reduce interest rates in the near future. According to the CME FedWatch Tool, more than 65% of financial market participants believe that the regulator can reduce the range of key interest rates by 25 basis points to 2.00%-2.25% at a meeting on July 31. We expect important statistics from the United States. We recommend opening positions from key levels.

At 15:30 (GMT+3:00), the US inflation report will be published.

Indicators point to the power of buyers: the price has fixed above 50 MA and 200 MA.

The MACD histogram is in the positive zone and continues to rise, indicating bullish sentiment.

The stochastic oscillator is in the neutral zone, the% K line is above the% D line, which also gives a signal to buy EUR/USD.

Trading recommendations

Support levels: 1.12900, 1.12500, 1.12200
Resistance levels: 1.13450, 1.14000

If the price fixes above the level of 1.13450, further growth of the EUR/USD quotes is expected. The movement is tending to the round level of 1.14000.

An alternative could be a decrease of the EUR/USD currency pair to 1.12600-1.12400.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.26838
Open: 1.27141
% chg. over the last day: +0.30
Day's range: 1.27095 – 1.27274
52 wk range: 1.2438 - 1.3631

The GBP/USD currency pair continues to be traded in the flat. A unidirectional trend is not observed. Yesterday, the pound sterling was supported by a rather optimistic report on the UK labour market. At the moment, GBP/USD quotes are consolidating near the local resistance of 1.27300. The key support is the mark of 1.26900. Financial market participants are awaiting new information regarding the Brexit process. The pound is tending to recover. Positions must be opened from key levels.

Today, the publication of important economic releases from the UK is not planned.

Indicators point to the power of buyers: the price has fixed above 50 MA and 200 MA.

The MACD histogram is located in the positive zone, but below the signal line, which gives a weak signal to buy GBP/USD.

Stochastic Oscillator is in the neutral zone, the %K line is above the %D line, which indicates the bullish sentiment.

Trading recommendations

Support levels: 1.26900, 1.26550, 1.26100
Resistance levels: 1.27300, 1.27600

If the price fixes above the level of 1.27300, the GBP/USD quotes are expected to grow further. The movement is tending to 1.27600-1.27800.

An alternative could be the fall of the GBP/USD currency pair to 1.26600-1.26400.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.32684
Open: 1.32849
% chg. over the last day: +0.10
Day's range: 1.32783 – 1.32986
52 wk range: 1.2727 – 1.3664

USD/CAD quotes have begun to recover after a prolonged decline. At the moment, Loonie is consolidating near the round level of 1.33000. The mark of 1.32700 acts as the local support. The USD/CAD currency pair has the potential to further correction. A negative dynamics of oil prices put additional pressure on the Canadian dollar. We recommend paying attention to the news feed from the United States. Positions must be opened from key levels.

Today, the publication of important economic reports from Canada is not planned.

Indicators do not give accurate signals: the price has fixed between 50 MA and 200 MA.

The MACD histogram has moved to the positive zone, which indicates a further correction of the USD/CAD currency pair.

The Stochastic oscillator has reached the overbought zone, the %K line has crossed %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.32700, 1.32400, 1.32000
Resistance levels: 1.33000, 1.33450, 1.33650

If the price fixes above the round level of 1.33000, further correction of the USD/CAD quotes is expected. The movement is tending to 1.33400-1.33600.

An alternative could be the fall of the USD/CAD currency pair to 1.32500-1.32300.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 108.427
Open: 108.516
% chg. over the last day: +0.04
Day's range: 108.305 – 108.564
52 wk range: 104.97 – 114.56

The USD/JPY currency pair continues to be traded in a prolonged flat. A unidirectional trend is not observed. Currently, local levels of support and resistance are 108.250 and 108.550, respectively. Financial market participants expect additional drivers. We recommend paying attention to statistics from the United States. Positions must be opened from key levels.

The news feed on the Japanese economy is calm today.

Indicators do not give accurate signals: the price has crossed 50 MA.

The MACD histogram has started to decline, indicating the bearish sentiment.

The Stochastic Oscillator is in the neutral zone, the %K line is below the %D line, which gives a signal to sell USD/JPY.

Trading recommendations

Support levels: 108.250, 108.000, 107.850
Resistance levels: 108.550, 108.800, 109.200

If the price fixes below 108.250, the USD/JPY quotes are expected to fall. The movement is tending to 107.900-107.700.

An alternative could be the growth of the USD/JPY currency pair to 108.700-109.000.

ECB Governing Council Member Francois Villeroy de Galhau said as inflation falls short of the central bank's target, monetary policy must be kept "active and accommodative".

Also, "if the current slowdown becomes a real slamming of the brakes, we can do more than we are doing currently". However, he also warned that "they can temporarily attenuate the consequences of a weaker global economy, but they cannot take care of the cause." De Galhau referred to uncertainty created by trade tensions.

• US dollar drifts lower as markets await US inflation data for Fed rate clues
• Stocks turn negative as Trump says he's 'holding up the deal' with China
• Euro eyes fresh highs, gets a lift from Trump's currency comments

Risk appetite fades as US-China deal looking unlikely at G20

US stocks ended their five-day winning streak as hopes that the US and China would still be able to get the trade negotiations back on track at the G20 summit fast dwindled. President Trump told reporters on Tuesday that it was him that was 'holding up the deal', not China, saying China wants to make a deal 'very badly'. Trump accused China of going back on four or five 'major points' and said he would only agree to 'a great deal' or not do a deal at all.

His remarks have left investors with low expectations going into the G20 summit at the end of the month. Neither side has confirmed whether President Trump and President Xi will meet on the sidelines of the summit, raising the prospect of a prolonged trade war that is on the verge of becoming an economic war.

Despite the disappointing headlines, however, overnight losses on Wall Street were fairly limited. Shares in Asia, though, fell more steeply today with China's blue chip CSI300 index closing 0.7% down on the day.

US inflation in focus

With no end in sight to the Sino-US trade row, expectations that the Fed will cut rates at one of its upcoming meetings remain elevated. Softer-than-expected producer prices out of the US yesterday for May further fuelled bets that a rate cut could come as early as the July meeting. There will be more inflation data today with the release of the consumer price index (CPI). Headline inflation is forecast to moderate to 1.9% in May, in what would be another sign of easing price pressures.

The dollar halted its rebound from the NFP-led losses and slid to around 108.30 yen. US Treasury yields also reversed course, boosting the safe-haven gold. The precious metal was 0.65% higher on Wednesday amid the changing landscape of looser monetary policy around the world.

Euro up ahead of Draghi speech; pound supported by hawkish BoE

After coming under pressure earlier in the week on rate cut signals by the ECB, the euro was on track on beating last Friday's high 2½-month high of $1.1347 as the dollar pulled back. The euro also got a small boost from fresh comments by Trump on currency manipulation. Trump tweeted 'The Euro and other currencies are devalued against the dollar, putting the U.S. at a big disadvantage'. The Federal Reserve also came under the firing line, with the President tweeting 'They don't have a clue!'.

The market's response was fairly muted, however, to Trump's latest Twitter outburst and investors will be paying more attention to a speech by ECB President Mario Draghi at 7:15 GMT for possible hints of a rate cut.

The weaker greenback also helped sterling, which climbed back above the $1.27 level even as it becomes increasingly likely that a hardline Brexiteer will replace Theresa May as the next prime minister of the UK. There was additional support for the pound from a healthy jobs report out of the UK yesterday, as well as a series of hawkish remarks by BoE policymakers.

Aussie and kiwi remain on the backfoot

In other currencies, the Australian and New Zealand dollars continued to struggle against their US counterpart, slipping to more than one-week lows. The risk-sensitive antipodean currencies have been under pressure from worsening trade tensions, which increase the probability that both the RBA and RBNZ will cut rates further this year.

The Canadian dollar was softer too, easing from 3-month highs as oil prices have fallen sharply this week. The deteriorating demand outlook for oil appears to be offsetting the effects of the production cuts by OPEC and its allies, which are close to agreeing an extension of the output pact.

EURGBP gained further positive traction this week, with the rally peaking at a fresh five-month high on Tuesday, marginally below the key resistance level of 0.8935. Technically the market could stretch the uptrend higher as long as the price keeps increasing its distance above its simple moving averages (SMA). The rising Tenkan-sen and a strong MACD above its red signal line is an indication that momentum may continue to the upside as well. Yet with the RSI moving sideways in an overbought area for almost a month now, downside corrections cannot be ruled out either.

The pair is currently facing immediate resistance from the 0.8935 number, while slightly higher another barrier maybe standing around 0.8975. Clearing those levels, buyers could increase their long positions, probably driving the price until the December-January peaks of 0.9060.

On the downside, the red Tenkan-sen at 0.8875 and the 20-day SMA at 0.8832 would be closely watched ahead of the 0.8800 psychological level. A decisive close under the 200-day SMA could confirm further selling, but a steeper decline may likely come below the 0.8720 support mark.

In the medium-term picture, which looks at the three-month performance, the sentiment turned even more bullish as the price continues to crawl above the 0.8676 barrier. The positive slope in the 50-day SMA is also adding optimism for a brighter outlook.

Pivot (invalidation): 108.60

Our preference Short positions below 108.60 with targets at 108.35 & 108.15 in extension

Alternative scenario Above 108.60 look for further upside with 108.80 & 109.00 as targets.

Comment The RSI is bearish and calls for further downside.

Pivot (invalidation): 1.2705

Our preference Long positions above 1.2705 with targets at 1.2735 & 1.2760 in extension.

Alternative scenario Below 1.2705 look for further downside with 1.2690 & 1.2670 as targets.

Comment Even though a continuation of the consolidation cannot be ruled out, its extent should be limited.