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A combination of economic data and monetary policy will dominate the headlines on Wednesday, kicking off a highly active second half of the week.

Action begins at 07:15 GMT with a slew of final Eurozone PMI reports for the month of June. Markit will release final manufacturing data for Italy, France, Spain, Germany, Eurozone and United Kingdom.

From there, investors turn their attention to North America where payrolls processor ADP will report on US private sector job creation. Private sector employers are forecast to have added 185,000 jobs last month following a net gain of 177,000 for June.

ADP numbers are considered an accurate gauge of the official nonfarm payrolls figures, which are due 48 hours later.

Markit and the Institute for Supply Management are also scheduled to report on US manufacturing PMI at 13:45 GMT and 14:00 GMT, respectively. Currency traders put more emphasis on the PMI report. The July edition is forecast to show a slight weakening in the manufacturing gauge, though overall trends remain solid.

In a separate report, the Commerce Department will report on construction spending at 14:00 GMT. Thirty minutes later, the US Energy Information Administration (EIA) will release weekly crude oil inventory data for the period ended 27 July.

On the policy front, the Federal Reserve will wrap up its two-day meeting in Washington on Wednesday with an official statement at 18:00 GMT. Members of the Federal Open Market Committee (FOMC) are widely expected to keep the federal funds rate locked at 2% until September. That being said, traders will be keeping close tabs on the official policy statement to gauge officials' views of the economy and interest rates.

EUR/USD

Europe's common currency swung back below 1.1700 on Tuesday as the US dollar regained momentum against its peers. The EUR/USD exchange rate fell from a high near 1.1740 down to the 1.1680 handle, where it currently sits. Immediate support is located at 1.1621, the low from 27 July. Resistance is found up ahead at 1.1749, the high from 23 July.

GBP/USD

Cable extended its rangebound trade on Tuesday, as markets searched for fresh trading catalysts. The GBP/USD pair continues to hold above the 1.3100 line, with immediate support located at 1.3070, which corresponds to the previous week's low. On the opposite side of the spectrum, the first resistance test lies at 1.3151.

USD/CAD

The North American cross showed some upside on Tuesday, but the rally was short-lived as prices fell back toward the 1.3000 handle. At the time of writing, the USD/CAD exchange rate is holding around 1.3018, little changed from the previous close. The Canadian dollar may have more upside in the intermediate future as NAFTA negotiations show signs of progress.

GER30

The German index DAX30 is testing the resistance trend line (red), which could be a critical decision zone for a bullish breakout or bearish bounce.

Week

DAX could be in a triangle chart pattern, which would be confirmed by a bearish reaction at the resistance line (red) whereas a bullish breakout above the top of wave B (pink) invalidates the potential ABCDE triangle.

Day

The DAX index has been building multiple 3 wave corrections, which is creating the contracting triangle chart pattern indicated by the support and resistance trend lines.

4 hours

The DAX index is in a bullish trend channel after building two ABC zigzag patterns. The wave C (blue) however could being completed, which is confirmed if price manages to break below the channel. A break above the 78.6% (purple box) makes a wave D (pink) less likely but the invalidation level is the 100% Fib (purple box).

The USD/JPY broke the resistance trend line (dotted red) and is now challenging the Fibonacci retracement levels of wave B (red). A break above the 100% Fibonacci level invalidates the potential bearish ABC (red) zigzag pattern whereas bearish price action at the Fib levels could confirm a wave B. A break below the support (blue) could also confirm the continuation of a wave C within wave E (light purple).

The USD/JPY is probably in a bullish wave C (orange). Price is now building a small triangle chart pattern at the 50% Fibonacci retracement level of wave B vs A. The breakout could indicate whether price is still in a bullish wave C or whether price will be building the start of a bearish wave C (red).

The EUR/USD made again a bearish bounce at the resistance zone around 1.1750, which is indicating that a larger ABC (blue) pattern could have been completed. What’s next?

The EUR/USD is building a large and complex correction, which is simple to see when analysing the 4 hour chart as price has been in this tight range for a full 2 months. The ABC (blue) could have completed a wave W (purple) and price could be building a retracement back to the Fibonacci retracement levels of wave X (purple).

The alternative is that price is still in a wave 4 (green) and the recent high completed a wave 3 rather than a wave 5 (green). But in that case price should not retrace into the price territory of wave 1, which is indicated by a purple line. For the moment though, it seems more likely that the bullish price action completed 5 waves (green) within wave C (blue) of wave W (purple) and it could now be retracing as part of wave X (as shown on 4 hour chart).

General Trend:

• Asian equity markets trade generally higher, in line with Tuesday’s US session
• Equity markets in China lag
• Nintendo, Sony and Honda rise following earnings reports
• Apple and Baidu gain in the afterhours post earnings
• China Tower’s IPO said to price at lower end of range
• US said to now consider 25% tariff on $200B in goods from China as a negotiation tactic (initial plan was a 10% tariff), according to a US financial press report.
• Meanwhile, the US and China are said to plan to meet regarding trade, said an earlier released press report
• China Caixin Manufacturing PMI confirms the slowdown seen in the official PMIs
• PBoC fixed the USD/CNY rate above 6.82, weakest Yuan fix since May 2017
• Japan JGB yields rise on today’s session following decline on Tuesday; 10-yr yields move above 0.10%
• Japan Securities Clearing Corp (JSCC) said an ‘emergency’ margin call was triggered for JGB Futures
• Australia Manufacturing PMIs slow in July
• Australian housing prices decline for the 10th straight month (CoreLogic)
• New Zealand unemployment and participation rates unexpectedly rose in Q2
• Rio Tinto expected to report earnings on today's session
• Japanese companies which may report earnings today include Japan Tobacco, KDDI, Oji Holdings, Kobe Steel, Konica Minolta, Mazda, Shinsei Bank, Eisai and Casio.
• US Fed decision expected later on Wed

Headlines/Economic Data

Japan

• Nikkei 225 opened +0.4%
• TOPIX Iron & Steel index +4%, Marine Transportation +1.1%, Electric Appliances +1.1%; Real Estate -0.8%, Securities -0.3%
• Steelmakers track gains in JFE Holdings
• Japanese automakers gain following earnings from Honda
• Megabanks trade broadly higher
• (JP) BOJ Gov Kuroda: Introduced forward guidance to increase commitment on price target; stronger framework aimed at hitting the 2% price target asap - post rate decision press conference (yesterday after the close)
• Sharp, [+5%], 6753.JP Reports Q1 Net ¥19.2B v ¥14.5B y/y; Op ¥24.8B v ¥17.1B y/y; Rev ¥533.9B v ¥506.4B y/y
• (JP) JAPAN JUL FINAL PMI MANUFACTURING: 52.3 V 51.6 PRELIM (11-month low)

Korea

• Kospi opened +0.3%
• (KR) North and South Korea held military talks in Panmunjom - North Korea KCNA
• (KR) SOUTH KOREA JUL CPI M/M: 0.2% V 0.4%E; Y/Y: 1.5% V 1.7%E; CORE Y/Y: 1.1% V 1.2%E
• (KR) SOUTH KOREA JUL TRADE BALANCE: $7.0B V $6.8BE; Exports y/y: 6.2% v 7.4%e; Imports y/y: 16.2% v 17.0%e
• (KR) South Korea Jul PMI Manufacturing: 48.3 v 49.8 prior (20-month low)
• (KR) Bank of Korea (BOK) sells KRW2.3T in 2-yr Monetary Stabilization Bonds (MSBs) at 2.060% v 2.025% prior

China/Hong Kong

• Hang Seng opened +0.6%, Shanghai Composite +0.2%
• Hang Seng Property/Construction index -1.2%, Telecom -1%, Consumer Goods +1.6%, Info Tech +1.1%, Industrial Goods +1%, Services +0.9%, Financials +0.2%
• (CN) China approved more IPOs in July - China Securities Journal
• (CN) China Press Commentary piece: China faces large economic slowdown pressures
• (CN) US considering 25% tariff on $200B worth of goods from China (initial plan was 10% on the $200B in goods); trying to encourage China to return to talks - US financial press
• (CN) China investors have been seen buying domestic commercial property at a record pace; 2017 totaled $564.9B v $395.8B y/y
• (CN) CHINA JUL CAIXIN PMI MANUFACTURING: 50.8 V 50.9E (matches Nov 2017 low)
• (CN) China PBoC Open Market Operation (OMO): Skips OMO for the 9th consecutive session; Net drains CNY20B v drains CNY30B prior
• (CN) China PBoC sets yuan reference rate at 6.8293 v 6.8165 prior (weakest fix since late May 2017)
• (CN) China Politburo: Domestic economy stable in H1 but faces new challenges; to maintain proactive fiscal policy and prudent monetary policy (after the close yesterday)
• (HK) Macau July Gaming Rev MOP25.3B v MOP22.5B prior, Y/Y: 10.3% v 11.5%e (3rd consecutive miss on estimates)

Australia/New Zealand

• ASX 200 opened +0.1%
• ASX 200 Resources index +0.7%, REIT +0.5%, Financials -0.7%, Utilities -0.2%, Energy -0.1%
• SMM.AU Announces recommended off-market takeover by Paladin Energy worth ~A$0.202/share
• (AU) Australia Jul AiG Performance of Manufacturing Index: 52.0 v 57.4 prior
• (NZ) NEW ZEALAND Q2 UNEMPLOYMENT RATE: 4.5% V 4.4%E (1st rise since Q4 2016);EMPLOYMENT CHANGE Q/Q: 0.5% V 0.4%E; Y/Y: 3.7% V 3.6%E
• (AU) Australia Jul CoreLogic House Prices m/m: -0.6% v -0.3% prior (10th consecutive decline)
• (AU) Australia sells A$1.0B v A$1.0B indicated in Nov 2029 bonds, avg yield 2.7136% v 2.6094% prior, bid to cover 2.88x v 3.50x prior

Levels as of 01:30ET

• Hang Seng +0.1%; Shanghai Composite -0.3%; Kospi +0.4%; Nikkei225 +0.9%; ASX 200 +0.1%
• Equity Futures: S&P500 -0.0%; Nasdaq100 +0.3%, Dax -0.3%; FTSE100 -0.3%
• EUR 1.1676-1.1746; JPY 111.70.-111.98; AUD 0.7409-0.7429;NZD 0.6793-0.6820
• Aug Gold -0.3% at $1,220/oz; Sept Crude Oil -0.5% at $68.42/brl; Sept Copper -0.8% at $2.80/lb

Market movers today

Today's main event is the FOMC meeting tonight, but it is likely to be uneventful. We expect the Fed to maintain the target range at 1.75-2.00% and given it is one of the small meetings, there will not be any updated projections or press conference. The only piece of information we will get is the statement, but it does not change much from meeting to meeting.

US ISM manufacturing is due out at 16:00 CEST, where consensus expects a larger decline than we do. Regional PMIs have in general been strong.

Final PMI manufacturing data in the eurozone also due. This is not expected to show significant differences from the flash. The UK PMI manufacturing index is not expected to change much from last month. We expect a marginal decline while consensus expects a marginal increase.

We expect the German lawmakers' vote on the last Greek bailout instalment to be a formality.

Selected market news

Yesterday, the flash Q2 GDP growth estimate A lot of news on the trade conflict between US and China. First, there was a story in Bloomberg saying the US and China are trying to restart trade talks, as Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are having private conversations on the subject. If this is true, it is the first time the two countries are trying to get back to the negotiation table, after Trump left it in May. Later, there was another story in Bloomberg saying the Trump administration is considering increasing the tariffs from 10% to 25% in the next round (USD200bn) in an attempt to put more pressure on China. If so, this should be announced ahead of the public hearing taking place late August.

It is difficult to say what this all means, but overall it seems like an escalation, although the stories are not confirmed yet. Mnuchin is a ‘dove' on trade policy and is seems like the trade hawks are more powerful, probably due to the fact that Trump is still under pressure domestically to stick to a tough course with China ahead of the mid-term elections in November. The attempt to try to force China back to the negotiation table is probably also going to backfire, as China has little more to offer than it has done already. In our view, a deal is still far away, and we would consider an increase to the proposed tariff rates from 10% to 25% an escalation.

Yesterday, the flash Q2 GDP growth estimate for the euro area disappointed, as it showed growth slowed to 0.3% q/q from 0.4% in Q1, against expectations of an unchanged print. Economic data has weakened in the euro area and growth is significantly slower this year than last year, where growth was 0.7% q/q on average. HICP core inflation rose, at least on paper, from 0.9% to 1.1%, but looking at the second decimal place, the increase was from a high 0.9% (0.94%) to a low 1.1% (1.07%). The data does not change anything for the ECB, which is on hold ‘at least through the summer of 2019'.

For the 24 hours to 23:00 GMT, the EUR declined 0.18% against the USD and closed at 1.1688.

Macroeconomic data showed that, Eurozone's seasonally adjusted gross domestic product (GDP) grew at a slower than expected pace of 0.3% on a quarterly annual basis in Q2 2018, marking its weakest expansion in two years and undershooting market consensus for a gain of 0.4%. In the preceding month, the GDP had recorded a rise of 0.4%. Meanwhile, the region's preliminary consumer price index advanced 2.1% on an annual basis in July, hitting its highest level since December 2012 and compared to an advance of 2.0% in the prior month. Markets had anticipated the index to record an unchanged reading. Other data showed that unemployment rate remained steady at 8.3% in June, at par with market expectations and marking its lowest level since December 2008.

Separately, in Germany, retail sales rebounded 3.0% on an annual basis in June, higher than market expectations for an advance of 1.5%. Retail sales had registered a drop of 1.6% in the previous month. Furthermore, the nation's seasonally adjusted unemployment rate remained steady at 5.2% in July, in line with market expectations.

In the US, data showed that the US consumer confidence index unexpectedly climbed to a level of 127.4 in July, defying market expectations for a drop to a level of 126.00. The index had registered a revised reading of 127.1 in the prior month. Also, the nation's Chicago Fed purchasing managers index surprisingly surged to a level of 65.5 in July, compared to market anticipation for a decline to a level of 62.0. The index had recorded a reading of 64.1 in the previous month.

Moreover, US personal income edged 0.4% on a monthly basis in June, meeting market expectations and following a similar rise in the previous month. Personal spending advanced 0.4%, at par with market expectations and after recording a revised rise of 0.5% in the prior month.

In the Asian session, at GMT0300, the pair is trading at 1.1687, with the EUR trading marginally lower against the USD from yesterday's close.

The pair is expected to find support at 1.1664, and a fall through could take it to the next support level of 1.1641. The pair is expected to find its first resistance at 1.1728, and a rise through could take it to the next resistance level of 1.1769.

Moving forward, traders would closely monitor the Markit manufacturing PMI for July, scheduled to be release across the euro bloc in a few hours. Later in the day, investors would focus on the US Federal Reserve rate decision. Additionally, the US Markit manufacturing PMI and ADP employment change, both for July, along with construction spending data for June, will garner significant amount of investor attention.

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

For the 24 hours to 23:00 GMT, the GBP declined 0.14% against the USD and closed at 1.3118.

In the Asian session, at GMT0300, the pair is trading at 1.3112, with the GBP trading 0.05% lower against the USD from yesterday’s close.

The pair is expected to find support at 1.3077, and a fall through could take it to the next support level of 1.3042. The pair is expected to find its first resistance at 1.3160, and a rise through could take it to the next resistance level of 1.3208.

Looking ahead, traders will keep an eye on UK’s Nationwide house price index and the Markit manufacturing PMI, both for July, 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 rose 0.66% against the JPY and closed at 111.75.

Yesterday, the Bank of Japan, in its July monetary policy meeting, kept its key interest rate unchanged at -0.10%, in line with market expectations and pledged to keep rates low for an extended period of time. Additionally, the bank adopted forward guidance for policy rates and announced that it will conduct government bond buying in a flexible manner. Meanwhile, the central bank maintained its growth forecast for both 2019 and 2020 at 0.8%.

On the data front, Japan’s consumer confidence index unexpectedly slid to a level of 43.5 in July, defying market expectations for an advance to 43.8. In the prior month, the index recorded a level of 43.7 in the prior month. Additionally, the nation’s housing starts retreated 7.1% on an annual basis, more than market expectations for a fall of 2.5%. In the prior month, housing starts had registered a rise of 1.3%. Moreover, Japan’s construction orders eased 6.5% in June, after registering a drop of 18.7% in the preceding month.

In the Asian session, at GMT0300, the pair is trading at 111.88, with the USD trading 0.12% higher against the JPY from yesterday’s close.

Overnight data revealed that Japan’s final manufacturing PMI slid to a level of 52.3 in July, compared to a level of 53.0 in the previous month. The preliminary figures had indicated a drop to a level of 51.60.

The pair is expected to find support at 111.13, and a fall through could take it to the next support level of 110.39. The pair is expected to find its first resistance at 112.29, and a rise through could take it to the next resistance level of 112.71.

Amid lack of macroeconomic releases in Japan today, investor sentiment will be determined by global macroeconomic cues.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD rose 0.21% against the CHF and closed at 0.9903.

In the Asian session, at GMT0300, the pair is trading at 0.9918, with the USD trading 0.15% higher against the CHF from yesterday’s close.

The pair is expected to find support at 0.9884, and a fall through could take it to the next support level of 0.9850. The pair is expected to find its first resistance at 0.9936, and a rise through could take it to the next resistance level of 0.9954.

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