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This pair has now found some support at 0.73100 and buyers have stepped into the breach to prop price up. The pair has been traded on trade war tensions, with the US implementing sanctions against Australia main export market for natural resources, China. Thus headlines concerning these developments are of great importance to this pair. The support of the May low at 0.74115 and the 0.74000 level will play an important role in the days ahead if a retracement is to take place. Falling trend line support comes in at 0.71594 which is the low reached in December 2016.

Resistance can be found at the 50 DMA at 0.74990 followed by the 0.75624 level. The 100 DMA at 0.75787 matches trend line resistance and will be a strong area to overcome. A break higher will initially target the 200 DMA at 0.76424 followed by the rising red trend line at 0.77170. This move can be used as a platform for further advances towards 0.78000 and 0.78900.

EUR/USD

Current level - 1.1739

The reversal at 1.1790 signals a bearish outlook, for a dip to 1.1680. On the senior frames it still unclear if this is a finale of the prolonged consolidation above 1.1510.

USD/JPY

Current level - 111.15

The violation of 110.80 resistance signals a positive bias, for a test of 111.40. Key intraday support lies at 110.80.

GBP/USD

Current level - 1.3229

A reversal has been confirmed at 1.3360 and my outlook is bearish below 1.3320, for a slide towards 1.3100 area.

German ZEW Economic Sentiment dropped -8.6pts to -24.7 in July, missed expectation of -18.2. It's also the lowest reading since August 2012 and well below the long term average of 23.2. Also, since the beginning of 2018, the index has dropped by a considerable -45.1 pts. Current Situation index dropped -8.2pts to 72.4, also missed expectation of 78.0.

ZEW President Professor Achim Wambach said in the release that "the current survey period has been marked by great political uncertainty. In particular, fears over an escalation of the international trade war with the United States have dampened the economic outlook. The positive news regarding industrial production, incoming orders and the labour market have been greatly overshadowed by the anticipated negative effects on foreign trade".

Eurozone Economic Sentiment dropped -6.1pts to -18.7, well below expectation of -5.1. Current Situation index dropped -3.7pts to 36.2. ZEW also noted that as a result, the economic outlook for the Eurozone over the coming six months has worsened considerably. In accordance with the weaker economic outlook for both Germany and the Eurozone, inflation expectations also saw a noticeable drop compared to the previous month.

USD erases losses as FX market moves sideways

Bulls made their great return on Monday on the back of disappointing wage growth on Friday that should ensure the Fed would act less aggressively than anticipated. The Dow Jones Industrial Average rose 1.31% to 24,776 points, while S&P500 added 0.88%. On Tuesday, Asian equities followed in the footstep of Wall Street with the Nikkei rising 0.66%, the CSI 300 adding 0.24%.

After reaching a 4-week low in late European session yesterday, the dollar index stabilised around 94.10 and has been trading sideways since then, as investors remain nervous about the China-US trade war. For the last two months, the market has been trading range-bound as investors already completed their reallocation towards less risky assets. Uncertainty is just too high right now; therefore, the “wait-and-see” approach will prevail as investors focus on short-term opportunities. Given the fact the fact that the dollar is currently sitting at the bottom of its 2-month range against most of its peers, the greenback should make a comeback.

EUR/USD fell 0.18% to 1.1730 amid renewed USD strength. The single currency ended last week off the wheel after a mixed job report. We expect further euro weakness in the short-term - mostly due to an overall dollar strength – with the 1.1681 as our first target, then the following support stands at 1.1640.

Two big figures leave May's ship

May's cabinet is changing its course. After the departure of David Davis, former Brexit Minister, it is the turn of Boris Johnson, Foreign Secretary to step down later in the afternoon. As both Brexiteers were the largest advocate of a hard Brexit implementation, it appears that May's government will be gaining further flexibility in the implementation of a softer Brexit.

Despite the view of UK government instability translated on the FX market since yesterday's event, it appears that the reasoning might be excessive. Indeed, since his withdrawal from Brexit Secretary, David Davis made no mention of any intention to overthrow of the Conservative party. Furthermore, since supporters of a hard Brexit remain a minority in the parliament, moderates remain in majority, both in Conservative and Labour parties.

The fate of Brexit negotiations is now in the hands of EU leaders and specifically European Council President Donald Tusk. May's Brexit white paper due on Thursday will be decisive, as a “cherry picking” behavior would certainly turn the dialogue into a much tougher tone from EU side.

Yesterday GBP/USD bearish trading session remains excessive. Closing at 1.3260 (-0.17%), we would suggest that a strong rebound is expected in the short-term. Currently trading along 1.3270, the pair is expected to reach 1.3350 highs.

• May had some major blows this week
• Boris's resignation does not trigger an immediate push for a confidence vote

Theresa May has survived many setbacks and several times she has been called “dead woman walking”. She had some major blows this week and Borexit has brought more turmoil for her Brexit plans- for now. Her leadership is utterly under question and odds of another election taking place are high as well. The indication of this can easily be seen by looking at the implied volatility of an interest rate hike for Sterling by the Bank of England. It dropped over ten percent yesterday as traders now do not see a strong case for the Bank to increase the interest rate when they meet next month.

The same theme is pretty much evident when you look at the bearish bets on sterling by institutional clients. They are touching the sky once again and giving a clear sign that investors aren’t supporting the currency. The Sterling softness against the euro pushed the price above 0.89, a level not seen since March this year. Although, it is important to mention that traders have been quick in shaving the profits (the current price is now 0.8871).

The reason behind this is that Boris's resignation does not trigger an immediate push for a confidence vote against May. She has already survived one and another vote confidence cannot be repeated for another 12 months. Having said this, she lacks the parliament majority and she needs her party's support in this task. Her team has already submitted letters for a vote of confidence in May. This is going to keep the sterling trading very choppy.

The FTSE 100 would be the major focus among investors. Lower sterling would push the FTSE 100 higher. If we head towards another election, it would most probably mean another referendum on Brexit. Theresa May has ruled out the possibility of such event under her government, perhaps she is not confident enough that same outcome can be achieved again. Theresa May never wanted to adopt the softer Brexit approach and the resignations of Brexit Secretary and Foreign Minister is mainly due to this reason- prominent members want to have a full breakout.

In terms of technical analysis, the balance of power shows that the bulls are lossing control. However, if the price stays above the 100 & 200-day moving averages, the bias remains to the upside.

Upward momentum may continue

The Sterling softness against the euro pushed the price above 0.89, a level not seen since March this year. Although, it is important to mention that traders have been quick in shaving the profits (the current price is now 0.8871). During the month of May and late June, the price has pretty much consolidated and now we have a breakout which doesnt seem to have momentum behind it. But on the positive side, moving averages, 100 & 200-day SMAs are supporting the bull case.

The iShares physical gold ETC holding has touched the highest level

Gold would be an interesting play, because we have seen a lot of activity on the back of the political uncertainty over in the UK. The iShares physical gold ETC holding has touched the highest level since year. This shows traders over in London have renewed their interest in gold. We are still far off from two weeks high of $1266 and this is despite the fact that the dollar index has been steady.

Turbulence created in the geopolitics by Trump, US trade war, has had a very limited impact on the price of gold. Investors do not seem to be worried that trade war is a threat. We do think that the trade war and a messy Brexit would hurt the glocal economic growth and investors should be wary of this.

UK GDP rose grew 0.3% mom in May and 0.2% in the three months to May.

Growth were drive by Services with 0.34% growth in the rolling quarter. Production dropped -0.08% while construction dropped -0.10%.

Head of National Accounts Rob Kent-Smith said in the release:

"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.

"Retailing, computer programming and legal services all performed strongly in the three months to May while housebuilding and manufacturing both contracted.

Services, in particular, grew robustly in May with retailers enjoying a double boost from the warm weather and the royal wedding. Construction also saw a return to growth after a weak couple of months.".

Full UK GDP release.

Also from UK:

• Visible trade deficit was unchanged at GBP -12.4B in May.
• Industrial production dropped -0.4% mom, rose 0.8% yoy. Manufacturing production rose 0.4% mom, 1.1% yoy.
• Construction output rose 2.9% mom.

The AUD/USD has formed an M bearish pattern along with Reverse Bearish Divergence (RBD). The RBD is a type of divergence where price is making a double top-ish price while the oscillator is making a lower high. The AUD/USD could drop from the 0.7460-70 zone if 0.7495 isn't broken to the upside. Targets are 0.7440 (strong level), 0.7408 and 0.7390.

W L3 - Weekly Camarilla Pivot (Weekly Interim Support)

W H3 - Weekly Camarilla Pivot (Weekly Interim Resistance)

W H4 - Weekly Camarilla Pivot (Strong Weekly Resistance)

D H4 - Daily Camarilla Pivot (Very Strong Daily Resistance)

D L3 – Daily Camarilla Pivot (Daily Support)

D L4 – Daily H4 Camarilla (Very Strong Daily Support)

POC - Point Of Confluence (The zone where we expect price to react aka entry zone)

The pair extends rally from 110.30 higher base into the second straight day and hit new high at 111.20 (the highest since 22 May) on Tuesday, on probe above key near-term barrier at 111.13 (03 July high / 20-d upper Bollinger band). Fresh strength now eyes key short-term resistance at 111.39 (21 May peak, the highest level of broader recovery rally from 104.63 (2018 low, posted on 26 Mar). Break above 111.39 pivot is needed to confirm an end of 111.39/108.11 corrective phase and signal extension of an uptrend from 104.63 towards next targets at 112.00 (round-figure) and 112.35 (Fibo 76.4% of 114.73/104.63 descend). Firm bullish setup of daily techs supports scenario, which requires confirmation on eventual weekly close above 110.87 (Fibo 61.8% of 114.73/104.63) after several unsuccessful attempts. Meanwhile, bulls may show hesitation as 4-hr studies are strongly overbought, with extended dips to be contained by the top of thick 4-hr cloud (110.65) to keep bullish bias intact.

Res: 111.20; 111.39; 112.00; 112.35
Sup: 110.87; 110.65; 110.43; 110.30