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US Markit PMI manufacturing rose 0.1 to 55.5 in July, matched expectation. PMI services dropped 0.3 to 56.2, slightly below expectation of 56.3. PMI composite dropped 0.3 to 55.9, hit a 3-month low.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

"The July survey data indicate that the US economy sustained strong growth momentum after what looks to have been a solid second quarter, representing a good start to the second half of 2018. Although down from June, the July flash PMI is in line with the average for the second quarter and indicative of the economy growing at an annualised rate of approximately 3%.

"Buoyant domestic demand helped the service sector maintain particularly impressive growth and has helped cushion the goods producing sector from wilting demand in export markets, with goods export orders down for a second successive month in July.

"Trade frictions have clearly become a major cause of concern, especially among manufacturers. Firms have become increasingly worried about the impact of tariff and trade wars on demand, prices and supply chains. July saw the steepest rise in prices charged for goods and services yet recorded by the surveys as firms passed rising costs on to customers, in turn frequently linked to tariffs. What's more, supply chain delays also hit a record high amid rising shortages of key inputs, which is usually a harbinger of further price rises."

EURUSD: The pair looks to extend its recovery triggered the past week in the new week despite its Monday price hesitation. On the upside, resistance comes in at 1.1750 level with a cut through here opening the door for more upside towards the 1.1800 level. Further up, resistance lies at the 1.1850 level where a break will expose the 1.1900 level. Conversely, support lies at the 1.1650 level where a violation will aim at the 1.1600 level. A break of here will aim at the 1.1550 level. Below here will open the door for more weakness towards the 1.1500. All in all, EURUSD faces further upside pressure.

Markets

Core bonds traded mixed today with German Bunds hovering near opening levels while the US Note future extends technically-induced losses. Bunds initially lost ground as well on stronger-than-expected German PMI’s. However, the EMU composite measure eventually disappointed somewhat. Details showed that the tariffs (threat) starts disrupting supply chains and the Bund recovered losses to trade flat afterwards. Positive risk sentiment on stock markets, amongst other thanks to Alphabet earnings, had no impact. The US Note future lost some ground going into tonight’s start of the refinancing operation. German yields decline by 0.1 bp (5-yr) to 1.3 bps (30-yr). The US yield curve shifts around 1 bp higher. 10-yr yield spread changes vs Germany are barely unchanged with Portugal (+3 bps) and Italy (+5 bps) underperforming.

Contrary to what was the case yesterday, movements in core yields this time failed to provide a clear guidance for FX trading. If anything, US/German spreads moved marginally in favor of the dollar but changes were too small to be significant. EUR/USD dropped temporary to the 1.1655 area early in the session, but the euro changed course after the publication of the EMU PMI’s. The reports (both EMU and countries) were mixed, but a good reading for manufacturing and for Germany as a whole were enough to give some modest support for the euro. Markets apparently feared a bigger setback due to the trade tensions. A good rally on European equity markets was a slightly euro supportive, too. The yen didn’t decline despite this positive risk sentiment. Investors are apparently a bit more cautious on yen shorts ahead of next week’s BOJ policy meeting. EUR/USD hovers in the 1.17 area. USD/JPY is holding in the low 111 area. For now, yesterday’s rise in core/US yields didn’t trigger a sustained USD comeback yet. The picture on the US currency remains indecisive short-term.

Initially, there was no big story to tell on sterling trading today. The CBI orders and confidence data were not too bad and cost pressures are rising. So, the CBI report supports the case for a BoE rate hike next week. At the same time, CBI sees investor reluctance on investments. The CBI data had no noticeable impact on sterling trading. Late in the session sterling gained a few more ticks on headlines that UK PM May will take the lead in the Brexit negotiations. However, the political reaction of Brexiteers to this move is still highly uncertain at this stage. EUR/GBP trades in 0.89 area. The EUR/GBP 0.8968 resistance is clearly left intact. At the same time, there are no sustained sterling gains yet. Cable also gains slightly ground and rises to the mid 1.31 area.

News Headlines

European business confidence declined again in July, according to the drop in Markit Eurozone Composite PMI to 54.3, coming from 54.9 in June. Although the manufacturing component recovers slightly to 55.1 (from 54.9 in June), the drop in the Services component to 54.4 (from 55.2) outweighs the total number.

Turkey’s central bank left its policy rate unchanged at 17.75%. A new hike to 18.75% was expected, due to the acceleration of the country’s inflation (15.39% in June, which is a 14-year high). The unchanged policy rate is seen as proof of President Erdogan’s influence on monetary policy. EUR/TRY immediately gained more than 3%.

The Hungarian central bank left, as expected, its policy rates unchanged. Last month it changed its forward guidance to take a slightly more aggressive approach and hinted that rates will not be kept low for ‘an extended period’. Market reaction is soft and keeps EUR/HUF near 326.

As follow up to the agreement at June EU summit regarding control of immigration, the European Commission released the proposal of a plan on expanding the disembarkation and controlled center concepts. The primary aim of the controlled centers is to "improve the process of distinguishing between individuals in need of international protection, and irregular migrants with no right to remain in the EU, while speeding up returns."

And under the proposal, host member states will receive full support from EU and EU agencies, including full operational support; rapid, secure and effective processing that prevents secondary movements. In additiona, volunteering member states will recent full financial support on instrature and operation. Also, there will be EUR 6000 per person for the member states accepting transfers of those disembarked.

The European Commission will push for a pilot phase with flexible approach to start as soon as possible. The proposal will be discussed tomorrow on July 25.

Commissioner Avramopoulos said: "Now more than ever we need common, European solutions on migration. We are ready to support Member States and third countries in better cooperating on disembarkation of those rescued at sea. But for this to work immediately on the ground, we need to be united – not just now, but also in the long run. We need to work towards sustainable solutions."

Full release here.

The Canadian dollar has posted small gains in the Tuesday session. Currently, USD/CAD is trading at 1.3167, down 0.04% on the day. On the release front, there are no Canadian indicators on the schedule. The U.S will release services and manufacturing PMIs and the Richmond Manufacturing Index.

USD/CAD posted sharp losses on Friday, as the Canadian dollar posted strong gains of 1.0 percent. The currency received a welcome boost from May retail sales reports. Core Retail Sales jumped 1.4%, after failing to post gains for three straight months. This easily beat the forecast of 0.6%. Retail Sales rebounded 2.0%, above the forecast of 1.0%. This follows a decline of 1.2% in April. Consumer inflation in June remained pegged at 0.1%, matching the forecast. However, on an annualized basis, CPI rose 2.5%, its best showing since 2012.

After months of tit-for-tat tariffs and harsh rhetoric, will the EU and U.S patch up relations this week? The U.S slapped tariffs on EU steel and aluminum back in June, and the EU has since retaliated with tariffs on a range of U.S products. U.S President Trump has not shied away from harsh criticism about the EU, and a recent NATO summit exposed the frosty relations between Trump and EU leaders. Still, there could be better news ahead, as EU President Jean-Claude Juckner meets with President Trump on Wednesday. On Friday, Trump attacked the EU and China for manipulating their currencies and keeping interest rates lower. This has raised concerns that the current global trade tensions could be followed by a currency war. Growing concerns over the dangers of the ongoing trade war were summed up in the final communiqué from the G-20 meeting in Argentina over the weekend, which noted that “heightened trade and geopolitical tensions pose an increased risk to global growth”.

WTI futures have been in a flying mode today in the short-term timeframe as it surpassed the 20- and 40-simple moving averages (SMAs). The price rebounded on the 67.56 key level, so, having all these in mind, the outlook seems to be cautiously positive.

Looking at the 4-hour chart, the technical oscillators are giving signs that the latest run may continue for a while more. The RSI turned up after it jumped above its 50 line, however, the MACD has flattened near its zero and trigger lines. Moreover, the moving averages completed a bullish crossover, indicating a bullish bias.

If the bulls manage to take charge for further upside potential move, then the next resistance could likely come from the 69.24 barrier. A break above this level would confirm a forthcoming higher high in the near term and may pave the way towards the next obstacle of 71.61.

On the flip side, a clear dip below 67.56 would bring the oil price lower until the 66.33 support level, which stands near the long-term ascending trend line. Further downside extensions may shift the bigger bullish picture to bearish and hit the 64.30 hurdle.

Overall, having a look at the long-term timeframe, crude oil has been developing within a rising movement during the last year.

Daily Pivots: (S1) 110.89; (P) 111.22; (R1) 111.68; More...

Intraday bias in USD/JPY remains neutral for the moment. On the downside, below 110.74 will extend the correction from 113.17 to 38.2% retracement of 104.62 to 113.17 at 109.90. But downside should be contained there to bring rebound. On the upside, break of 113.17 is needed to confirm rally resumption. Otherwise, we'd expect more consolidation in near term first.

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.

Daily Pivots: (S1) 0.9905; (P) 0.9924; (R1) 0.9947; More...

Intraday bias in USD/CHF remains neutral at this point. With 0.9957 minor resistance intact, further decline is mildly in favor. Below 0.9900 will target 0.9856 support. Break there will pave the way to key support level at 0.9787. On the upside, above 0.9957 minor resistance will turn bias back to the upside for retesting 1.0067.

In the bigger picture, as long as 0.9787 support holds, we're still favoring the bullish case. That is, rise fro 0.9787 is resuming the whole up trend from 0.9186 and should target 1.0342 key resistance on resumption. However, break of 0.9787 will indicate medium term reversal and turn outlook bearish.

Daily Pivots: (S1) 1.3069; (P) 1.3114; (R1) 1.3145; More...

Outlook in GBP/USD remains unchanged as it's staying in corrective pattern from 1.2956. Intraday bias remains neutral. Further recovery cannot be ruled out. But upside should be limited below 1.3362 resistance to bring fall resumption eventually. On the downside, break of 1.2956 will resume the decline from 1.4376 to 1.2874 fibonacci level.

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) 1.1664; (P) 1.1708 (R1) 1.1734; More.....

No change in EUR/USD's outlook as it's still bounded in the consolidation from 1.1509. Intraday bias stays neutral for more corrective trading and stronger rise cannot be ruled out. But upside should be limited by 1.1851 resistance to bring fall resumption eventually. On the downside , firm break of 1.1507 will resume larger down trend 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.