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The Japanese yen has ticked lower in the Thursday session. In the North American session, USD/JPY is trading at 112.89, up 0.05% on the day. On the release front, Japan posted a June trade surplus of JPY 0.07 trillion, short of the estimate of JPY 0.15 trillion. Still, this was a marked improvement from the May reading of JPY -0.30 trillion. In the U.S, manufacturing and employment data were better than expected. The Philly Fed Manufacturing Index climbed to 25.7, easily beating the estimate of 21.6 points. Unemployment claims dropped to 207 thousand, better than the estimate of 220 thousand. Later in the day, Japan releases National Core CPI, which is expected to edge up to 0.08%.

The trade war between the U.S and its major trading partners has raised serious concerns not just with investors, but with Federal Reserve policymakers as well. The Federal Reserve Beige Book for July, released on Wednesday, was rife with references to ‘tariffs’. This trend started in the April Beige Books after President Trump threatened in March to impose tariffs on China. Most of the twelve Fed regional districts referred to tariffs in their individual reports, which make up the Beige Book. Some Fed policymakers have also voiced their concern over the impact that tariffs could have on the U.S economy and is an issue the Fed will have to take into consideration, as it mulls over rate policy for the next six months.

With the U.S economy in great shape, Jerome Powell didn’t have to look far to reaffirm his positive outlook on the U.S economy in testimony before the Senate Banking Committee earlier this week. Powell said that he expected the labor market to remain tight and inflation to stay close to the Fed’s target of 2 percent for the next several years. Powell added that the Fed would continue to gradually raise interest rates. Lawmakers appeared satisfied with current monetary policy, but Powell did face some pointed questions regarding the escalating trade war, which has raised concerns that economy could take a downturn if the tariff battles continue. The Fed continues to project two more rate hikes in the second half of 2018, most likely in September and December. According to the CME Group, the likelihood of a quarter-point rate hike in September is 84 percent.

Daily Pivots: (S1) 0.7357; (P) 0.7383; (R1) 0.7423; More...

AUD/USD's rebound ended very quickly and drops through 0.7342 minor support. Intraday bias is back on the downside for 0.7309 low. 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. On the upside, in case of another rise, upside should be limited below 0.7676 resistance to bring larger fall resumption eventually.

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) 1.3133; (P) 1.3196; (R1) 1.3232; More...

USD/CAD's breach of 1.3258 suggests that rebound from 1.3063 has resumed again. Intraday bias is back on the upside even though upside momentum isn't too convincing. We'd holding on to the bullish view that pull back from 1.3385 has completed at 1.3063 already. Rise from there should target a test on 1.3385 first. Break there will resume whole rally from 1.2061 for 1.3685 fibonacci level. In case of another fall, we'd still expect strong support from 1.3067 resistance turned support to contain downside.

In the bigger picture, as long as channel support (now at 1.2870) holds, we'll 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.

The pair accelerated higher on Thursday and cracked important barrier at 1.3261 (Fibo 61.8% of 1.3386/1.3064 pullback) where upside attempts on Wednesday were rejected, leaving bearish daily candle with long upper shadow.

Strong US dollar was additionally boosted by better than expected US data (Philly Fed Manufacturing index jumped to 25.7 in July vs 21.6 f/c and 19.9 prev, while weekly jobless claims dropped to 207K vs 220K f/c and 215K prev).

On the other side, Lonnie was hit by downbeat Canada’s jobs data (ADP report showed number of employed people fell 10.5K in June, following previous month’s 2.9K rise). Bulls need sustained break above 3.3263 pivot to signal recovery extension and expose key barrier at 1.3386 (27 June high).

Strong bullish momentum and other daily studies in firm bullish configuration support the notion.

Broken 20SMA (1.3187) marks pivotal support, loss of which would weaken near-term structure.

Res: 1.3268; 1.3310; 1.3351; 1.3386
Sup: 1.3218; 1.3187; 1.3156; 1.3110

Markets

Core bond trading was dull until around European noon, when core bonds started to catch a bid. The eco/event calendar didn’t provide the impetus, as heavy (EMU) bond supply and stronger-than-expected US eco data (weekly jobless claims and Philly Fed business outlook) suggested a move in the other direction. Instead we think that global dollar strength was the catalyst, influencing other markets. The stronger dollar put EM currencies under new selling pressure, weighing on risk sentiment (stock markets, EM bond markets) and providing a safe haven bid into the US Note future and German Bund. Moves remain small though and technically irrelevant. The German yield curve shifts 0.3 bps to 0.7 bps lower. The US yield curve flattens marginally with daily yield changes ranging between +0.4 bps (2-yr) and -0.7 bps (30-yr). 10-yr yield spread changes vs Germany are nearly unchanged.

The USD rebound that started on Tuesday resumed today. Recent positive comments from Fed’s Powell on the economy still gave the dollar the benefit of the doubt. Some other factors were also in play. A cautious risk-off sentiment and further outflows from emerging market currencies probably also supported the US currency. Early in US dealings, jobless claims declined multi-decade low and the Philly Fed business outlook improved again more than expected. In line with recent price action, the strong US data hardly lifted US yields. Still, it support further USD gains. EUR/USD dropped (temporarily?) below the 1.16 big figure. The gain in USD/JPY is more modest, but the pair also tries another attempt to regain the 113 big figure. The trade-weighted dollar (95.50 area) reached the highest level since July 2017. A sustained break beyond the 95.50 area can be seen an indication of an improvement in the broader USD sentiment.

Today, the UK political debate on Brexit eased after a tumultuous battle in Parliament earlier this week. However, this temporary ceasefire didn’t help sterling much as there is no real progress on any key topics Brexit topics yet. In this respect, the EU commission called EU member states to prepare for a no-deal Brexit. Aside from Brexit, the UK June retail sales also missed the market consensus. Sales declined 0.5% M/M to be up 2.9% Y/Y (0.2% M/M and 3.5% Y/Y was expected). However, May sales were revised slightly higher and sales for the whole April/June period suggest a decent contribution of the retail sector to Q2 GDP growth. Sterling slightly lost further ground after the release. However, the report didn’t question market expectations on an August BoE rate hike (still above 80%). EUR/GBP trades currently in the 0.8930 area. The 0.8968 resistance remains within reach, but for now no test occurred. Cable dropped below the 1.30 mark, but part of this declined occurred after strong US early morning data (claims, Philly Fed).

News Headlines

The Irish economy slowed -0.6% QoQ in the first quarter of 2018. The positive contribution from IT and communications (13.7%) was more than offset by a decline in growth of the industrial (-9.7%) and entertainments (-3.7%) sector.

The EU is considering import tariffs on American goods should trade talks between EC President Juncker and US President Trump on July 25 fail to head off potential US duties on European cars. EU retaliatory levies would apply to 20% of the total volume the US targets.

While UK’s PM spokeswoman said current Brexit progress suggests a “no deal” scenario is unlikely, the EU urges its Member States to step up preparations for such an outcome as it warned for the “considerable disruption” it would cause for businesses and citizens.

White House trade adviser Peter Navarro warned that China is in a "zero-sum game" with the rest of the world on trade. And he emphasized that "we have to defend ourselves," as China is "attacking our crown jewels" with technology intellectual property theft.

But at the same time, he downplayed the impact of trade war with China. He said that "we got two economies that add up to around $30 trillion in annual GDP. The amount of trade we're affecting with the tariffs is a rounding error compared to that."

And, he added that "it's much less disruptive than these headlines would suggest, and it's much more constructive as we see the adjustments made in terms of where investment is going to go and where we're going to build."

So that means, Navarro admitted that Trump's trade policy is disruptive.

EURUSD - The pair looks to extend its weakness as it continues to press lower. On the upside, resistance comes in at 1.1700 level with a cut through here opening the door for more upside towards the 1.1750 level. Further up, resistance lies at the 1.1800 level where a break will expose the 1.1850 level. Conversely, support lies at the 1.1600 level where a violation will aim at the 1.1550 level. A break of here will aim at the 1.1500 level. Below here will open the door for more weakness towards the 1.1450. All in all, EURUSD faces further downside pressure.

Daily Pivots: (S1) 1.1606; (P) 1.1636 (R1) 1.1670; More.....

Intraday bias in EUR/USD stays on the downside for 1.1507 low. Firm break there will resume whole decline from 1.2555, through 50% retracement of 1.0339 to 1.2555 at 1.1447 to 61.8% retracement at 1.1186. On the upside, in case of another rise as consolidation extends, upside should be limited by 1.1851 resistance to bring fall resumption eventually.

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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) 0.9967; (P) 1.0001; (R1) 1.0025; More...

Intraday bias in USD/CHF remains neutral first, with focus on 1.0067. Break of 1.0067 resistance will resume the larger rise from 0.9186. USD/CHF should then target 61.8% projection of 0.9186 to 1.0056 from 0.9787 at 1.0325, which is close to 1.0342 key resistance. However, break of 0.9926 will dampen the bullish view again.

In the bigger picture, rise from 0.9186 is seen as a leg inside the long term range pattern. After drawing support from 55 day EMA, it's now resuming for 1.0342 key resistance. For now, we'd still cautious on strong resistance from there to limit upside. Meanwhile, break of 0.9787 support is needed to signal completion of the rise. Otherwise, outlook will remain bullish even in case of deep pull back.

Daily Pivots: (S1) 112.64; (P) 112.89; (R1) 113.09; More...

USD?JPY's breach of 113.13 suggests rally resumption. Intraday bias is back on the upside. Current rally from 104.62 should target 61.8% projection of 104.62 to 111.39 from 109.36 at 113.54 first. Break will put focus on 114.73 key resistance for confirming our bullish medium term view. On the downside, break of 112.21 support is needed to indicate short term topping. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, current development, with the solid break of medium term channel resistance from 118.65 (2016 high), affirm our view that corrective fall from there has 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 now be the preferred case as long as 119.36 support holds.