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Daily Pivots: (S1) 1.5701; (P) 1.5761; (R1) 1.5800; More....

No change in EUR/AUD's outlook as consolidation from 1.5886 is extending. Intraday bias stays neutral for the moment. 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).

Daily Pivots: (S1) 1.1561; (P) 1.1580; (R1) 1.1599; More...

No change in EUR/CHF's outlook despite diminishing downside momentum. As long as 1.1637 minor resistance holds, deeper decline is expected to 1.1478 support. 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 1.1637 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.

BOE’s rate hike in August is almost fully priced in. The focus is, thus, on the monetary policy outlook. The upcoming increase of +25 bps is the second one in more than a decade. Although the pickup in growth in the second quarter has reinforced most policymakers’ view that the slowdown in the first quarter was driven by temporary factors, the overall macroeconomic environment remains vulnerable to downside risks and Brexit uncertainty lingers. We expect BOE to deliver a “dovish hike” this month, a tone similar to the one it adopted in November last year.

UK’s GDP growth picked up to +0.3% in May, from +0.2% a month, thanks to stronger retail sales amidst the royal wedding and warmer weather. Despite the apparent improvement in the monthly figure, GDP grew +0.2% in the three months to May, the same pace as the first three months of the year. According to the Office for National Statistics (ONS), “the first of our new rolling estimates of GDP shows a mixed picture of the UK economy with modest growth driven by the services sector, partly offset by falling construction and industrial output". While the second quarter growth data is not really exciting, it probably offers enough evidence for the view that the first quarter slowdown was temporary. This helps justify the case of a rate hike in August.

The members voted 6-3 to keep the policy rate unchanged in June, compared with 7-2 in May. Although the market has priced in over 90% of rate hike in August, the members have largely refrained from revealing their stance. Deputy Governor Dave Ramsden in June noted that he was “more comfortable with the balance of risks". Yet, he voted to keep the powder dry that month. Another Deputy Governor Ben Broadbent refused to disclose how he would vote in a forum last week.

An exception is Governor Mark Carney, who has turned more confident over the economic developments and more comfortable with a rate hike. In early July, he suggested that “excess supply in the economy [is] virtually used up”. He added that “the incoming data have given me greater confidence that the softness of UK activity in the first quarter was largely due to the weather, not the economic climate”. We do not expect the rate decision to be unanimous. If the intermeeting dataflow succeeds in persuading the majority of the Committee to vote for a rate hike in August, it would likely be a 5-4, or 6-3, split.

Another point of interest in the upcoming meeting is BOE’s introduction of the equilibrium, or neutral, interest rate. Theoretically, the rate represents the level of interest rates estimated by a central bank that would keep inflation and growth rates stable when the economy is running at full capacity. Publication of the neutral rate should help clarify BOE’s thinking on the appropriate level of longer term interest rate, although it has affirmed another rate hike would “be limited and gradual”.

Daily Pivots: (S1) 1.2993; (P) 1.3037; (R1) 1.3079; More...

Intraday bias in USD/CAD is back on the downside as the correction from 1.3385 extends. Deeper fall could be seen to 1.3385 to 100% projection of 1.3385 to 1.3063 from 1.3289 at 1.2967 and possibly below. But we're still seeing the fall from 1.3385 as a correction. Hence, we'd expect strong support from channel line (now at 1.2907) to contain downside and bring rebound. On the upside, firm break of 1.3095 resistance will turn bias to the upside for 1.3289 resistance.

In the bigger picture, as long as channel support (now at 1.2907) holds, we're holding to the bullish view. That is, fall from 1.4689 (2015 high) has completed at 1.2061, ahead of 50% retracement of 0.9406 (2011 low) to 1.4689 (2015 high) at 1.2048. Further rally should be seen for 61.8% retracement of 1.4689 to 1.2061 at 1.3685 and above. However, sustained break of the channel support will argue that rise from 1.2061 has completed and will bring deeper fall to 1.2526 support to confirm.

Daily Pivots: (S1) 0.7407; (P) 0.7425; (R1) 0.7445; More...

Outlook in AUD/USD remains unchanged at this point. Intraday bias stays neutral as consolidation from 0.7309 is in progress. On the upside, above 0.7483 resistance will bring stronger rebound. But upside should be limited below 0.7676 resistance to bring larger fall resumption eventually. On the downside, break of 0.7309 and sustained trading below 0.7328 cluster support (61.8% retracement of 0.6826 to 0.8135 at 0.7326) will extend the fall from 0.8135 to 0.7158 support next.

In the bigger picture, medium term rebound from 0.6826 is seen as a corrective move that should be completed at 0.8135. Deeper decline would be seen back to retest 0.6826 low. This will now remain the favored case as long as 0.7676 resistance holds.

Daily Pivots: (S1) 1.1669; (P) 1.1707 (R1) 1.1730; More.....

Outlook in EUR/USD remains unchanged as it's staying in consolidation pattern from 1.1509. Intraday bias remains neutral first. In case of stronger recovery, upside should be limited by 1.1851 resistance to bring fall resumption eventually. On the downside, decisive break of 1.1507 low will resume larger down trend from 1.2555 through 50% retracement of 1.0339 to 1.2555 at 1.1447.

In the bigger picture, EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. And, a medium term top was formed at 1.2555 already. Decline from there should extend further to 61.8% retracement of 1.0339 to 1.2555 at 1.1186 and below. For now, even in case of rebound, we won't consider the fall from 1.2555 as finished as long as 1.1995 resistance holds.

Daily Pivots: (S1) 1.3086; (P) 1.3129; (R1) 1.3168; More...

Intraday bias in GBP/USD remains neutral at this point. On the downside, break of 1.3070 minor support will indicate completion of rebound form 1.2956 and turns bias back to the downside for retesting this low. Firm break there will resume larger decline from 1.4376 for 1.2874 fibonacci level next. On the upside, above 1.3212 will bring further recovery. But still, price action from 1.2956 are a corrective pattern. Upside should be limited by 1.3362 resistance to bring larger decline resumption eventually.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA (now at 1.4179). Fall from 1.4376 should extend to 61.8% retracement of 1.1946 (2016 low) to 1.4376 at 1.2874 next. Decisive break of 1.2874 will raise the chance of long term down trend resumption through 1.1946 low. On the upside, break of 1.3362 resistance is needed to be the first indication of medium term bottoming. Otherwise, outlook will remain bearish even in case of strong rebound.

Daily Pivots: (S1) 0.9854; (P) 0.9906; (R1) 0.9934; More...

USD/CHF recovers strongly after hitting 0.9866, ahead of 0.9856 support. Intraday bias is turned neutral again. On the upside, above 0.9977 will bring retest of 1.0067 first. Decisive break there will resume larger rally from 0.9186. On the downside, below 0.9866 will extend the fall from 1.0067 through 0.9856 to 0.9787 support. As price actions from 1.0056 are seen as a corrective pattern, downside should be contained by 38.2% retracement of 0.9186 to 1.0056 at 0.9724 to bring rebound.

In the bigger picture, current development suggests that the consolidation pattern from 1.0056 is extending with another leg. As long as 38.2% retracement of 0.9186 to 1.0056 at 0.9724 holds, we'd expect rise from 0.9186 to resume at a later stage to retest 1.0342 key resistance (2016 high). However, sustained break of 0.9724 will bring deeper fall, as another declining leg in the long term range pattern.

Daily Pivots: (S1) 111.11; (P) 111.53; (R1) 112.30; More...

USD/JPY's rebound from 110.58 is still in progress and intraday bias remains on the upside for retesting 113.17 resistance first. Break there will resume larger rally from 104.62 for 114.73 key resistance next. On the downside, below 111.24 minor support might extend the corrective fall from 113.17 with another decline. But downside should be contained by 38.2% retracement of 104.62 to 113.17 at 109.90 to bring rebound.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.36 support holds.

Dollar trades broadly higher today as talks of trade war heat up again. It's reported that Trump is considering to impose 25% tariffs on USD 200B in Chinese goods, instead of 10%. The greenback is followed by Canadian Dollar and then Yen. Meanwhile, New Zealand Dollar, Australian Dollar and Swiss Franc are among the weakest for today.

For the week, though, Yen is trading as the weakest one after BoJ sent a loud and clear message that there will be no early stimulus exit. 10 year JGB yield is back at 0.11% at the time of writing, after dropping to as low as 0.045% yesterday. But Yen is apparently indifferent to the rebound in JGB yield. Canadian Dollar is the strongest one as boosted by yesterday's stronger than expected GDP release. But as yesterday's volatility showed, the Loonie will be sensitive to any NAFTA news, in both direction.

Technically, Dollar seems to be coming back to live ahead of FOMC rate decision. But more is needed to indicate that it's finally breaking out of recent correction. The key levels are 1.3070 in GBP/USD, 0.9977 in USD/CHF, 1.1574 in EUR/USD and 0.7309 in AUD/USD.

Trump said to consider slapping 25% tariffs on USD 200B of Chinese imports

Just hours after report that US and China are seeking to re-engage in trade negotiations, there were reports that Trump is planning to slap 25% tariffs on USD 200B in Chinese imports, instead of 10%. The product list could include food, chemicals, steel and aluminum, consumer goods etc. The announcement could be made as soon as on Wednesday, that is today.

Trump defended his try policies in a rally speech in Tampa. And he put the blame on other countries again and said "China and others have targeted our farmers. Not good. Not nice. And you know what our farmers are saying? 'It's OK. We can take it." He also tried to equate the support to his policy to patriotism, in typical authoritarian government way, by hailing the farmers as "true patriots".

Market reactions to the news were relatively muted though. USD/CNH (offshore Yuan) dipped to as low as 6.770 on news of possible restart in trade talks. But that it's back above 6.8 on the news of the possible 25% tariffs. It's clear what is driving the Yuan exchange rate.

UK NIESR urges BoE to stand ready to move in either direction should circumstances change

The UK National Institute of Economic and Social Research release an article "Prospects for the UK Economy" yesterday. It warned that the economy is "facing an unusual level of uncertainty because of Brexit". Such "uncertainty primarily stems from the yet to be defined relationship between the UK and the EU", as well as "the economy's response to the new framework once it emerges." And it criticized Prime Minister Theresa May's Brexit white paper for failing to "unite the government or Parliament", thus " leaving open an entire spectrum of possible outcomes."

The NIESR conditioned its economic forecast with a 25bps BoE rate hike this month, that is, tomorrow. That's also under the assumption of a "soft Brexit". The economic is expected to grow at potential with GDP up 1.4% this year, and 1.7% next year. But "risks to our GDP growth forecast are wider than before and tilted to the downside."

NIESR also urged BoE to take account of the uncertainty of Brexit when setting policy and "also weigh the consequences of 'getting it wrong'." That is, It urged BoE to "stand ready to move in either direction should circumstances change." BoE should "emphasise the uncertainty (rather than the certainty) of its future policy stance in its communications and its willingness to reverse its decisions."

Japan PMI manufacturing finalized at 52.3, export sales stalled for second month

Japan PMI manufacturing was finalized at 52.3, revised up from 51.6. But the reading was still the lowest in 11 months. Joe Hayes, Economist at IHS Markit noted in the release that "latest survey data signalled a slowdown to manufacturing sector growth at the beginning of Q3. Output growth eased and there was a noticeable softening of demand, while export sales failed to record any upswing for a second month running." "Input price inflation accelerated to an 88-month high, resulting in the strongest rate of increase in selling charges for almost a decade". But the rise was "primarily cost-pus". Hence, "further weakness in total new business growth could skew the inflationary outlook to the downside."

China Caixin PMI manufacturing dropped to 50.8, export market continued to deteriorate

China Caixin PMI manufacturing dropped -0.2 to 50.8 in July, down from 51.0, slightly below expectation of 50.9. It's also the lowest since November 2017. The key points in the release are slower increase in output and new orders, fastest decline in new export sales for over two years and solid rise in input costs. Looking at the details, new export orders shrunk at the fastest pace since June 2016, indicating the export market continued to deteriorate. Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, said in the release that "in general, the survey signaled a weakening manufacturing trend as a grim export market dragged on the sector's performance. The positive drivers were the increase in stocks of purchases and easing pressure on capital turnover."

New Zealand employment grew 0.5%, unemployment rate edged higher to 4.5%

New Zealand employment grew 0.5% qoq in Q2, down from prior quarter's 0.6% qoq, but beat expectation of 0.4% qoq. Unemployment rate rose 0.1% to 4.5%, above expectation of 4.4%. Participation rate rose 0.1% to 70.9%. All sector wage inflation rose 0.5%. From Australia, AiG performance of manufacturing index dropped notable 52 in July, down from 57.4.

FOMC to stand pat today, manufacturing data watched

FOMC rate decision is a major focus today and Fed is widely expected to keep federal funds rate unchanged at 1.75-2.00%. No press conference nor economic projections would follow the announcement. The accompanying statement and minutes to be released later would be the primary too for Fed's communications and expectations setting. After all, we expect the rate hike path would remain unchanged from the one lain down in June (100 bps increases in both 2018 and 2019). The debate on the change in the "forward guidance" which had been indicating that "the stance of monetary policy remains accommodative" would continue this month with actual change could come later in the year. More in Fed Prepares for Rate Hike in September.

Also on Fed:

• Fed to Hold Rates But Will Trump Criticism Restrain a More hawkish Message?
• Is the FOMC Overly-Optimistic?
• FOMC Preview: Fed on Holiday

Manufacturing data will be the focus other than Fed today. Eurozone will release PMI manufacturing final. UK will release PMI manufacturing. Canada will release PMI manufacturing. US will release ISM manufacturing, construction spending and ADP employment.

USD/JPY Daily Outlook

Daily Pivots: (S1) 111.11; (P) 111.53; (R1) 112.30; More...

USD/JPY's rebound from 110.58 is still in progress and intraday bias remains on the upside for retesting 113.17 resistance first. Break there will resume larger rally from 104.62 for 114.73 key resistance next. On the downside, below 111.24 minor support might extend the corrective fall from 113.17 with another decline. But downside should be contained by 38.2% retracement of 104.62 to 113.17 at 109.90 to bring rebound.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.36 support holds.

Economic Indicators Update