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Market movers today

Focus today will continue to be on the ongoing turmoil involving UK Prime Minister May and her cabinet. Also, for the first time, we will receive a monthly GDP figure in the UK: this will provide an important pointer on the prospects of a Bank of England rate hike in August (market pricing points to 70% probability of this at present).

Also on the data front, the German Zew data will be released this morning, and we will pay attention in order to see if this will prove to be another improving German data point.

In the Scandi sphere, Norwegian CPI will be released and we expect 1.2% on the core component, which should be on the strong side of consensus. In order for a rate hike by Norges Bank to be postponed, we would have to see a very negative surprise. That said, one should not over interpret the figure due to the notoriously volatile flight ticket prices.

Selected market news

Theresa May's UK government was challenged further yesterday after foreign secretary Boris Johnson resigned as a result of the recent Brexit-related disputes. Johnson's exit comes after Brexit Minister David Davis and his Deputy left the cabinet over the weekend in disagreement with the relatively soft Brexit plan laid out by May. May's leadership thus looks increasingly challenged with only nine months to go to UK's formal EU exit date, and the latest developments in our view heighten both the chance of a soft Brexit as well as the chance of no deal on Brexit at all. GBP weakened, UK yields fell and the FTSE-100 was lifted slightly as a result.

A range of ECB speakers were out yesterday. Draghi expressed belief in the eurozone recovery but also reiterated that the ECB has to be 'patient, persistent, and prudent' and thus that no hikes will be seen this side of the summer of 2019. Separately, Benoit Coeure stressed that the current stance on monetary policy is working well. Ewald Nowotny noted that negative rates should not become permanent and hinted that the low-for-longer stance on rates and hence weaker-for-longer EUR are partly due to the US-led trade war via the negative growth consequences. The trade dispute will most likely continue to linger as a market theme over the summer and we thus continue to see USD strength return near term.

US president Trump appointed Judge Brett Kavanaugh for the US High Court, hinting at a conservative shift in legal matters such as abortion, gay rights, gun restrictions etc.

Risk sentiment remains positive overall despite the UK political disarray: equities generally ended higher in both the US and Asian session and JPY remained under pressure. US Treasury yields were higher across the curve with the 10Y rising close to 3bp to 2.86%. USD fought back a bit after the recent loosening stream. Separately, TRY plunged after Turkey's President Erdogan issued a decree allowing head of state to appoint central-bank governors. Scandies were little changed on the day but oil continued to edged higher.

EURJPY short-term Elliott wave analysis suggests that the decline to $126.63 on 6/19 low ended intermediate wave (2) pullback. Up from there, intermediate wave (3) remains in progress as Elliott wave impulse. The internals of Minor wave 1 is unfolding as a leading diagonal with sub-division of 5-3-5-3-5. Up from $126.63 low, Minute wave ((i)) ended in 5 waves at $128.84. Minute wave ((ii)) pullback ended in 3 swings as a double three Elliott Wave structure at $127.12 low. Then rally from there ended Minute wave ((iii)) in another 5 waves at $129.5 high. Down from there, the pullback to $128.44 low ended Minute wave ((iv)) pullback as a Running Flat. Above from there, Minute wave ((v)) of 1 remains in progress in another 5 waves structure. The cycle looks mature but pair can extend higher 1 more time before it completes Minor wave 1. Afterwards, the pair is expected to do a pullback in Minor wave 2 in 3, 7 or 11 swings to correct cycle from $126.63 low before further upside towards $132.30-$133.63 area is seen. We don’t like selling the proposed pullback.

EURJPY 1 Hour Elliott Wave Chart

As suggested in the CFTC Commitments of Traders report in the week ended July 3, bets for US dollar increased modestly on both sides. Speculative long positions for USD Index (DXY) futures added +2 399 contracts while shorts added +1 953 contracts, resulting in a Net LENGTH of 18 672 contracts, up mildly by +446 contracts from the prior week. The index barely changed during the week.

For European currencies, NET LENGTH for EUR futures gained +2 843 contracts to 36 747 for the week. Bulls reduced their bets, by -1 142 contracts, to 189 005, while bears decreased bets, by -3 985 contracts, to 152 58, for the week. GBP futures deepened into NET SHORT position, adding +7 300 contracts to 28 781. While the market has widely anticipated a BOE rate hike in August, renewed political turmoil (Foreign Secretary Boris Johnson resigned just 15 hours after resignation of Brexit secretary David Davis, over disagreement on Chequers plan) has greatly increased the uncertainty of Brexit negotiations. This has greatly increased the downside risk of British pound in coming months. On safe-haven currencies. Net SHORT for CHF futures rose +2 463  contracts to 40 494, while that for JPY futures rose +4 509 contracts to 38 730 during the week. Swiss franc and Japanese yen fell about -0.25% and -0.5% against the greenback during the reporting week.

All commodity currencies stayed in NET SHORT positions. NET SHORT for AUD futures dropped further, by -1 748 contracts to 39 230, while that for NZD contracts jumped +8 842 to 26 404 contracts. NET SHORT for CAD futures soared +16 649 contracts to 49 448. While AUD and NZD weakened against USD, CAD climbed over +1% against the greenback during the week.

Daily Pivots: (S1) 0.7434; (P) 0.7459; (R1) 0.7490; More...

AUD/USD's rebound form 0.7309 short term bottom is still in progress and intraday bias stays on the upside for 55 day EMA (now at 0.7508) and possibly above. But upside should be limited below 0.7676 resistance to bring fall resumption. On the downside, below 0.7414 minor support will turn bias to the downside for retesting 0.7309 low first. Sustained break of 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) 1.3069; (P) 1.3099; (R1) 1.3141; More...

USD/CAD breached 1.3067 but quickly recovered. Intraday bias remains neutral first. At this point, we'd still expect strong support around 1.3067 resistance turned support to complete the correction from 1.3385 to bring rebound. On the upside, above 1.3159 minor resistance will flip bias back to the upside for retesting 1.3385. However, firm break of 1.3067 will bring deeper fall to channel support (now at 1.2825).

In the bigger picture, as long as channel support (now at 1.2825) 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.

Daily Pivots: (S1) 110.49; (P) 110.70; (R1) 111.05; More...

USD/JPY drew strong support from 4 hour 55 EMA and rebounds sharply. Focus is turned back to 111.13 minor resistance. Break there will target 111.39 first. Based on current momentum, firm break of 111.39 will resume the larger rally from 104.62 to 114.73 key resistance next. On the downside, below 110.27 will turn bias to the downside for 109.36 first.

In the bigger picture, at this point, we're slightly favoring the case that corrective decline from 118.65 (2016 high) has completed with three waves down to 104.62. Above 111.39 will affirm this view and target 114.73 for confirmation. However, it should be noted that USD/JPY is bounded in medium term falling channel from 118.65 (2016 high). Sustained break of 61.8% retracement of 104.62 to 111.39 at 107.20 will likely resume the fall from 118.65 through 104.62 low.

Daily Pivots: (S1) 0.9872; (P) 0.9902; (R1) 0.9945; More...

USD/CHF recovered just ahead of 0.9855 support and is staying in range of 0.9855/9991. Intraday bias remains neutral first. On the downside, break of 0.9855 will extend the corrective pattern from 1.0056 with another fall to 0.9787 and below. Nonetheless, we'd expect strong support from 38.2% retracement of 0.9186 to 1.0056 at 0.9724 to bring rebound. On the upside, firm break of 0.9991 will target a test on 1.0056 high.

In the bigger picture, rise from 0.9186 is seen as a leg inside the long term range pattern. For now, further rise is expected as long as 38.2% retracement of 0.9186 to 1.0056 at 0.9724 holds. Above 1.0056 will target 1.0342 (2016 high). In that case, we'd be cautious on strong resistance from 1.0342 to limit upside. However, sustained break of 0.9724 will dampen this bullish view and would at least bring deeper fall to 61.8% retracement at 0.9518.

Daily Pivots: (S1) 1.1724; (P) 1.1758 (R1) 1.1783; More.....

EUR/USD lost momentum after hitting 1.1790, with 4 hour MACD dropped below signal line. Intraday bias is turned neutral first. As noted before, rise from 1.1507 is seen as a corrective pattern. Hence, in case of another rise, upside should be limited by 1.1851 resistance to bring reversal. On the downside, below 1.1679 minor support will turn bias back to the downside for retesting 1.1507 low first.

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.

STOCKS

Almost all the below mentioned stock indices are bullish for the near to medium term. A short bull run in global equities is expected in the coming sessions.

Dow (24776.59, +1.31%) has moved up sharply and could continue to move up towards 25250 in the next few sessions where it would face its immediate resistance as seen on the daily candles. Break above 25250, if seen could take it higher towards 25600; else a fall back towards 24500 is possible.

Dax (12543.89, +0.38%) has also moved up sharply and looks bullish in the near to medium term towards 13000. The support near 12200, seen on the weekly candles is holding well for now.

Nikkei (22278.51, +1.03%) has also moved up and was unable to stay below 22200 for long. Clearly, the bulls could take the index higher towards 22800-23000 levels in the coming sessions. 22800-23000 could act as crucial resistance, a make or break on either side would be the trigger for long term direction of the index.

Shanghai (2817.44, +0.083%) has also bounced back in the last 2-sessions but a sustained break above 2850 is needed to prevent another fall below 2800 in the near to medium term. While below 2850, chances of re-testing 2750-2700 remains. Near term could be bullish.

Nifty (10852.90, +0.74%) having broken above 10800, if sustains for a couple of more sessions could indicate upcoming bullishness towards 10950.

COMMODITIES

Brent (78.37) is almost stable and unable to decide which direction to take just now. Upside is limited to 80-81 which is an important medium term resistance and is expected to hold for now. A test of 79-80 levels in the near term looks possible followed by a fall towards 77-76 in the medium term.

Nymex WTI (74.01) is trading just below immediate resistance near 75.0-75.50 and while that holds, the price could come off towards 72 and lower again in the medium term.

Gold (1260.40, +0.06%) is trying to slowly move up. Upside could be limited to 1270/80 in the near term. Price looks bullish towards 1280 while above 1240.

Copper (2.8695) has risen from 2.8610 seen yesterday. Immediate resistance is seen near 2.90. While that holds, chance of seeing another dip is possible. Watch price action near current levels. In case the price manages to rise above 2.90/95, a medium term upmove could begin.

FOREX

Euro (1.1752): Euro rose to 1.179 yesterday but dipped from there back to levels near 1.175. There is support on daily candles near 1.173-1.174 which might be tested today, after which the Euro might again rise from there towards 1.18. There is crucial resistance near 1.181-1.182 whose breach would be very bullish for the Euro.

Dollar Index (94.09): Dollar Index tested support on daily candles near 93.7 yesterday and has risen again from there. The 34 days MA near 94.3 could provide some resistance on the upside. Current preference is for a downmove towards the 13 weeks MA near 93.44 in the sessions ahead.

Dollar Yen (111.02): In line with yesterday's forecast, Dollar Yen has moved up from levels near 110.5 and might have this upmove restricted till 111.0-111.5 by long term resistance. A break below 110 would be necessary for bearishness and might take place by next week.

Euro Yen (130.49): As per our expectation, Euro Yen has gone up to levels near 130-131 on the back of bullishness in Dollar Yen. Although this has led to a break of resistance on daily line chart, it might turn out to be a false break and Euro Yen might again dip from next week. If Dollar Yen breaches above 111.5, we would have to revisit the medium term bearish view on Euro Yen.

Pound (1.3250): Pound saw a high of 1.3363 yesterday (breaching resistance on daily candles) and has now dipped back into the downward channel from there. While above 1.3250, it could again breach 1.33. A break of 1.3250 could take it lower towards 1.31-1.30. Political instability in Britain could further add to Pound's weakness.

Dollar Rupee (68.72): Dollar-Rupee likely to come down - either on immediate break below 68.60-40 or after a rally to 69.10-20.

INTEREST RATES

US yields have risen slightly as the Treasury Department gears up to hold bond auctions for $ 69 bn worth of bonds.

US 10 year yield (2.86%), 30 Year (2.97%), 5 Year (2.76%), 2 Year (2.56%):

The US 30 Year yield has tested support on medium term chart near 2.95% (yesterday mentioned as 2.9%) and might have its downside restricted till that level. There might be some pause in the US-China trade war developments after last week’s tariffs. That, coupled with a surge in equity markets and also greater supply of bonds, could help decrease bond prices and raise yields.

However, we would have to be aware that there is still some room for the US 10 Year to dip to 2.75%.

Daily Pivots: (S1) 1.3178; (P) 1.3271; (R1) 1.3350; More...

GBP/USD dropped sharply to as low as 1.3189 and breached 1.3200 minor support. But the pair quickly recovered and intraday bias is now neutral first. On the downside, break of 1.3189 should confirm that corrective rise from 1.3048 has completed at 1.3362. And intraday bias will be turned to the downside for 1.3048 first. Break will resume larger fall from 1.4376 for 1.2874 fibonacci level next. In case of another rise through 1.3362, we'd expect strong resistance from 1.3471 to limit upside to finish the corrective rebound.

In the bigger picture, whole medium term rebound from 1.1936 (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 1.1936 (2016 low) to 1.4376 at 1.2874 next. We'll pay attention to the reaction from there to asses the chance of long term down trend resumption. On the upside, sustained break of 38.2% retracement of 1.4376 to 1.3048 at 1.3555 is needed to indicate medium term bottoming. Otherwise, outlook will remain bearish in case of strong rebound.