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USDJPY (111.69): The USDJPY currency pair was seen falling toward the rising trend line before posting a rather strong rebound. We expect the upside to prevail as price action could potentially aim for a retest of the 112.28 resistance level. This is expected only on a close above the previous highs which could potentially build up the bullish momentum. Alternately, failure to retest the resistance level could keep USDJPY subdued with the downside bias likely to increase.

EURUSD (1.1591): The EURUSD currency pair extended losses for a second day as the U.S. Dollar strengthened. Price action is seen pushing lower as the Common Currency is likely to retest the lower support range at 1.1540. While the decline is expected; we expect it to stall somewhere near the support level. The Common Currency is expected to continue maintaining its range within 1.1730 and 1.1540 level in the near term. Any short-term rebound is likely to see a pullback to the 1.1621 level.

The U.S. Dollar was seen trading rather firm on Thursday. Lack of economic news flow has shifted focus on the United Kingdom.

The Bank of England hiked interest rates by 25 basis points as widely expected. This brought the short-term interest rates to 0.75%. The central bank, however, signaled that further interest rate hikes would come gradually. The Pound Sterling fell on the back of this news as investors now expect to see the next rate hike in 2019.

Looking ahead, the UK's services PMI figures will be coming out today. Economists forecast that the services sector activity fell to 54.7 in July compared to 55.1 the month before.

The main focus will, of course, be on the U.S. Nonfarm Payrolls report. Estimates show that the U.S. economy added 190k jobs during the month. The unemployment rate is expected to slip back to 3.9% while wage growth is forecasted to rise 0.3% on the month.

The day concludes with the ISM's non-manufacturing PMI which is expected to ease to 58.6.

Markets

Yesterday, core bonds were supported by a safe haven bid as investors pondered the consequences of China and the US exchanging a new series of mutual threats in the trade conflict. US equities show resilient to the trade headlines, but other markets of risky assets are feeling bigger headwinds. US yields declined 1-2 bp across the curve, reversing part of Wednesday’s rise. German bunds showed a similar picture. Intraday EMU spreads increased, both on the global risk-off trade and on country specific issues (Italy). This morning, the US 10-y Note future is trading little changed. Sentiment in Asian remains fragile. Equities are trading mixed with China still underperforming. Later today, final EMU PMI’s and EMU June retail sales will be published, but the focus will be on the US payrolls. US job growth is expected to ease slightly to a still solid 193.000. The unemployment rate is expected at 3.9%. Wage growth (AHE) will probably be the key feature for markets, expected at 0.3% M/M and 2.7% Y/Y (unchanged). Of late, core (US) yields rebounded slightly. However, a positive surprise in wages is probably needed for yields to hold their upward momentum. The trade war remains a wildcard. The US non-manufacturing ISM remains interesting, too. A modest setback is expected (from 59.1 to 58.6). Whatever the outcome of the data, we keep an eye at the Bund contract. The technical picture showed some cracks of late and yesterday’s rebound wasn’t that convincing.

Yesterday, the dollar profited from the lingering global uncertainty mainly caused by the US China trade dispute. The trade-weighted dollar (DXY) rebounded north of 95. USD/JPY showed no clear trend and close the session little changed at 111.66. Today, global risk sentiment and the US payrolls will also be the key driver for USD trading. This morning, USD/CNY set a new MT peak, keeping the dollar strong in most other cross rates. The US payrolls are expected to remain solid. However, even good US eco news recently was no guarantee for a sustained rise in US yields and/or the dollar. We look out whether the market reaction will be different today. Key USD resistance is seen at 95.65 (DXY) and at EU5/USD 1.1510. A test is possible, but established USD ranges proved to be very tough to break of late. Softer than expected payrolls will probably solidify the established ranges.

Yesterday, sterling profited temporarily as the BOE unanimously voted to raise rates by 25 bp. The BOE indicated that some modest further tightening might be needed to bring inflation back to target over the policy horizon. However, BoE’s Carney said the ‘BoE will walk, not run’. Brexit remains a source of uncertainty. EUR/GBP spiked temporarily below 0.89, but the UK currency couldn’t maintain the initial gain and rebounded north of 0.89. Today, the UK services PMI is expected to ease from 55.1 to 54.7. We have no reason to take a different view from the consensus. However, yesterday’s price action suggests that sterling remains vulnerable in case of bad news.

News Headlines

French President Emmanuel Macron is meeting British Prime Minister Therese May today. May is seeking support for a pro-jobs trade deal that got rejected on key elements by EU negotiator Barnier last week. However, Macron confirmed the talks will be informal and that he’s fully supporting Barnier in the brexit negotiations. With brexit coming closer, a survey showed that less than a third of UK business leaders has carried out contingency planning for its country to leave the European Union. Most leaders indicated that it is very hard to know what to plan for and when. They urge PM May to speed up publication of the technical notes.

The United States has reason to believe that Iran has started carrying out naval exercises in the Gulf, moving up the timing of annual drills amid heightened tensions with the US. Iran has been furious over Trump’s decision to pull out of an international nuclear deal and re-impose sanctions on the country.

Mexico’s central bank held its benchmark rate steady at 7.75% and said risks to growth were shifting downward. They expect the economy to grow 2 to 2.5% this year and vowed to maintain a prudent policy stance due to risks to inflation (4.65% last month, annualized).

Daily Pivots: (S1) 144.67; (P) 145.68; (R1) 146.35; More...

Intraday bias in GBP/JPY remains on the downside as fall from 149.30 is in progress. As noted before, consolidation pattern from 143.18 has completed with three waves up to 149.30 already. Deeper fall would be seen to 143.18 support first. Break will extend larger fall from 156.69 to key support level at 139.29/47. This will be the preferred case as long as 147.13 minor resistance holds.

In the bigger picture, decline from 156.59 is seen as a corrective move. In case of another fall, strong support should be seen above 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47) to contain downside and bring rebound. Meanwhile, break of 153.84 should confirm that the correction is completed and target 156.59 and above to resume the medium term up trend.

Daily Pivots: (S1) 129.83; (P) 129.63; (R1) 130.02; More....

Intraday bias in EUR/JPY remain neutral at hit point. On the downside, below 129.10 will resume the decline from 131.97 and target 127.13 support. Break there will confirm completion of rebound from 124.61, with three waves up to 131.97. On the upside, above 131.13 will likely resume the rebound from 124.61 through 131.97.

In the bigger picture, for now, medium outlook remains cautiously bullish. the three wave structure of the fall from 137.49 to 124.61 argues that it's a correction. Also, 124.08 key resistance turned support was defended. Break of 133.47 resistance will affirm the bullish case that rise from 109.03 (2016 low) is still in progress for another high above 137.49. And this will remain the favored case as long as 127.13 support holds.

Daily Pivots: (S1) 0.8861; (P) 0.8894; (R1) 0.8932; More...

Intraday bias in EUR/GBP remains neutral as consolidation from 0.8957 is in progress. As long as 0.8815 support holds, outlook remains bearish and further rise is expected in the cross. On the upside, decisive break of 0.8967 cluster resistance (50% retracement of 0.9305 to 0.8620 at 0.8963) should confirm completion of whole decline from 0.9305. EUR/GBP should then target 61.8% retracement at 0.9043 next.

In the bigger picture, EUR/GBP is staying in long term range pattern from 0.9304 (2016 high). The corrective structure of the fall from 0.9305 to 0.8620 is raising the chance that rise from 0.8312 to 0.9305 is an impulsive move. But we're not too confident on it yet. In any case, we'd stay cautious on strong resistance from 0.9304/5 to limit upside in case of further rally. Meanwhile, if there is another medium term decline, strong support will likely be seen from 0.8303 to contain downside.

Daily Pivots: (S1) 1.1517; (P) 1.1546; (R1) 1.1561; More...

No change in EUR/CHF's outlook. Fall from 1.1713 is in progress for 1.1478 support first. Break there will confirm completion of corrective rebound from 1.1366 at 1.1713. EUR/CHF should then resume the decline from 1.2004 through 1.1366. On the upside, above 1.1603 minor resistance will turn bias back to the upside and could extend the rise from 1.1366. But even in that case, we'd expect strong resistance from 61.8% retracement of 1.2004 to 1.1366 at 1.1760 to bring near term reversal.

In the bigger picture, 1.2004 is seen as a medium term top with bearish divergence condition in daily and weekly MACD. 1.2000 is also an important resistance level. Hence, the corrective pattern from 1.2004 is expected to extend for a while before completion. We're not anticipating a break of 1.2004 in near term. Another decline cannot be ruled out yet. But in that case, strong support should be seen at 1.1198 (2016 high), 61.8% retracement of 1.0629 to 1.2004 at 1.1154 to contain downside.

Daily Pivots: (S1) 1.5711; (P) 1.5752; (R1) 1.5778; More....

Intraday bias in EUR/AUD remains neutral as consolidation from 1.5886 is extending. With 1.5651 minor support intact, further rise is expected in the cross. On the upside, break of 1.5888 resistance will extend rise from 1.5271 towards 1.6139/89 resistance zone. However, break of 1.5651 cluster support (38.2% retracement of 1.5271 to 1.5886 at 1.5651) will indicate near term reversal and turn bias back to the downside for 1.5271 low.

In the bigger picture, current development suggests that fall from 1.6189 is a corrective move and has completed at 1.5271 already. Key support levels of 1.5153 and 38.2% retracement of 1.3624 to 1.6189 at 1.5209 were defended. And medium term rise from 1.3624 (2017 low) is still in progress. Break of 1.6189 will target 1.6587 key resistance (2015 high).

General Trend:

• Asian equity markets are trading mixed
• Chinese equities extend decline, property index remains weak
• Toyota Motors affirmed outlook
• Heineken announced investment agreement with China Resources Beef
• Japan said to consider a sovereign wealth fund focused on US infrastructure as a move to ease trade tensions (Japanese press)
• China PBoC set the yuan at the weakest level since May 2017
• China PBoC skipped open market operation for the 11th straight session
• China Caixin Services PMI confirms slowdown in the official PMI
• Rising US China trade tensions cited as a major concern among firms (HK PMI data)
• Australia retail sales beat ests, limited market reaction seen
• Australia PMI Services surveys slow in July
• US July labor data due for release on Friday

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened flat
• ASX 200 Financials index -0.7%, Resources -0.5%, Telecom -0.5%, Consumer Discretionary +0.7%, Energy +0.7%, REIT +0.6%
• (AU) AUSTRALIA Q2 RETAIL SALES (EX-INFLATION) Q/Q: 1.2% V 0.8%E
• (AU) AUSTRALIA JUN RETAIL SALES M/M: 0.4% V 0.3%E
• (AU) AUSTRALIA JUL AIG PERFORMANCE OF SERVICES INDEX: 53.6 V 63.0 PRIOR (weakest reading since Dec 2017)
• (AU) Australia Jul CBA PMI Services: 52.3 v 52.7 prior; Composite: 52.3 v 52.9 prior
• (NZ) New Zealand Jul ANZ Job Advertisements M/M: +3.1% v -1.6% prior

China/Hong Kong

• Shanghai Composite opened -0.2%, Hang Seng +0.1%
• Hang Seng Services index -2%, Materials -1.7%, Industrial Goods -1.4%, Consumer Goods -1.3%, Property/Construction -1%, Financials -0.3%; Info Tech +0.9%
• (CN) China State Council: Reiterates to make monetary policy transmission smoother, to make efficient use of fiscal policy; To make 'positive' use of fiscal policy
• (CN) CHINA PBOC SETS YUAN REFERENCE RATE AT 6.8322 V 6.7942 PRIOR (weakest yuan fix since late May 2017)
• (CN) CHINA JUL CAIXIN SERVICES PMI: 52.8 V 53.5E (4-month low); COMPOSITE: 52.3 V 53.0 PRIOR
• (CN) China PBoC Open Market Operation (OMO): Skips OMO for the 11th straight session
• (CN) For the week, the PBoC drained a net of CNY210B in its OMOs v CNY370B drain w/w
• (HK) Hong Kong Jul PMI: 48.2 v 47.7 prior

Japan

• Nikkei 225 opened +0.3%
• TOPIX Iron & Steel index -1.3%, Marine Transportation -1% , Securities -0.5%
• (JP) Japan said to consider a sovereign wealth fund focused on US infrastructure as a move to ease trade tensions; the size of the fund has not yet been determined - Japanese Press
• (JP) Japan Fin Min Aso: No 'specific' plan to set up infrastructure fund for US investment; in various talks with the US on infrastructure development
• (JP) Bank of Japan (BOJ) June 14-15th Policy Meeting Minutes (2 meetings ago): Many members pointed out that it was important to continue to conduct a multifaceted monitoring and assessment of the positive effects and side effects that could arise from the continuation of powerful monetary easing, including those on the functioning of financial intermediation and the financial system.
• (JP) JAPAN JUL SERVICES PMI: 51.3 V 51.4 PRIOR; COMPOSITE: 51.8 V 52.1 PRIOR

Korea

• Kospi opened +0.4%
• (KR) South Korea Jun BoP Current Account Balance: $7.4B v $8.7B prior; BoP Goods Balance: $10.0B v $11.4B prior
• (KR) South Korea July Foreign Reserves: $402.5B v $400.3B prior (record high)
• Other
• (MY) Malaysia Jun Trade Balance (MYR): 6.1B v 9.3Be; Exports to China +16.9% y/y, to the US -1.9% y/y
• (SG) Singapore Jul PMI: 53.0 v 56.0 prior

North America

• US equity markets ended mostly higher: Dow flat, S&P500 +0.5%, Nasdaq +1.2%, Russell 2000 +0.8%
• S&P500 Tech +1.3%, Consumer Staples +1%; Materials -0.7%
• Campbell Soup [CPB]: Follow Up: Said to have held exploratory talks with Kraft Heinz - NY Post
• (US) Weekly Fed Balance Sheet Total Assets for week ending Aug 1: $4.32T, -$16.8B w/w, -$193.3B y/y; Reserve Bank Credit: $4.23T, -$16.8B w/w, -$193.8B y/y

Levels as of 01:30ET

• Nikkei 225 flat, ASX 200 -0.1%, Hang Seng -0.1%; Shanghai Composite -0.2%; Kospi +0.6%
• Equity Futures: S&P500 flat; Nasdaq100 flat, Dax -0.2%; FTSE100 -0.3%
• EUR 1.1581-1.1594 ; JPY 111.60-111.80 ; AUD 0.7356-0.7375 ;NZD 0.6724-0.6747
• Aug Gold -0.3% at $1,215/oz; Sept Crude Oil +0.2% at $69.09/brl; Sept Copper +0.1% at $2.729/lb