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Entering into US session, Australian Dollar is trading as the strongest one for today, as helped by easing risk aversion/return of risk appetite. China Shanghai SSE rose 2.47% to close at 2815.11 and it looks like 2700 key psychological level is now defended well. Nikkei closed up 1.21%, Hong Kong HSI up 1.32% Singapore Strait Times rose 1.16%. European Indices are also solid. At the time of writing, DAX is up 0.2%, CAC up 0.5%, FTSE up 0.4%.

Sterling is trading as the second strongest and markets seemed to be cheering the resignation of Brexit Minister David Davis. Former Minister of State for Housing Dominic Raab is appointed as the new Brexit Minister. Davis' departure is probably the best for him and PM Theresa May.

Meanwhile, Dollar is trading as the weakest one, followed by the Japanese Yen.

Notes/Observations

• Brexit Ministers Davis and Baker resign in what could be a fatal blow to PM May's leadership
• Slight risk appetite as trade war concerns ebb

Asia:

• Asian equities climb as tariffs take a backseat
• Xiaomi stumbled on its debut in Hong Kong, opening for trade below its IPO price

Europe:

• UK Prime Min May: cabinet has agreed to 'collective position' on Brexit negotiations with EU; plans to step up preparations for a 'no deal' Brexit
• Collective position short lived as Brexit Sec David Davis resigns from govt along with Deputy Steve Baker. Davis claimed “The general direction of policy will leave us in at best a weak negotiating position, and possibly an inescapable one”
• Davis would not encourage a challenge to PM May, will not stand as next leader of Conservative Party, hopes resignation will put pressure on UK Gov to not make further concessions
• GBP and EUR advance against the dollar as GBP shrugs off resignation as isolated decision.

Economic Data:

• (CH) Swiss Jun Unemployment Rate: 2.4% V 2.3%e
• (DE) GERMANY MAY CURRENT ACCOUNT: €12.6B V €19.8BE; TRADE BALANCE: €19.7B V €20.2BE
• (DK) Denmark May Current Account (DKK): 10.5B v 1.4B prior; Trade Balance: 5.3B v 6.0B prior
• (FI) Finland May Preliminary Trade Balance: -€0.3B v +€0.1B prior
• (FR) BANK OF FRANCE (INDUSTRIAL) SENTIMENT: 101 V 100E
• (SE) Sweden July SEB Housing Price Indicator: 13 v 7 prior
• (CZ) Czech May Industrial Output Y/Y: +1.4% v -0.6%e
• (CZ) Czech May National Trade Balance (CZK): 6.9B v 14.5Be
• (CN) China Jun Retail Auto Sales: 1.71M units, -3.7% y/y - PCA
• (TW) Taiwan Jun Trade Balance: $5.2B v $4.9Be
• (CH) SNB Total Sight Deposits for Week Ended July 6th(CHF): 576.0B v 576.4B prior
• (EU) EURO ZONE JUL SENTIX INVESTOR CONFIDENCE: 12.1 V 9.0E

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx50 +0.4% at3,460 , FTSE +0.2% at 7,635, DAX +0.2% at 12,517, CAC-40 +0.5% at 5,403; IBEX-35 +0.3% at 9,933, FTSE MIB +0.4% at 22,007, SMI +0.4% at 8,734, S&P 500 Futures +0.3%]
• Market Focal Points/Key Themes: European stocks open higher across the board; UK stocks unaffected following resignation of Brexit Minister; materials best perfoming; utilities underperforming; light earnings news flow in final week of run up to start of earnings season; Argentina closed for holiday

Equities

• Consumer discretionary: Air France-KLM AF.FR +7.9% (traffic), Mothercare MTC.UK -9.1% (share issue)
• Energy: CGG CGG.FR +4.7% (analyst action), TGS Nopec TGD.NO +7.7% (Prelim results)
• Industrials: Renault RNO.FR -1.9% (sympathy with Nissan), Sequana SEQ.FR +6.3% (asset sale)
• Materials: ArcelorMittal MT.NL +0.9% (analyst action)
• Telecom: Altice ATC.NL +3.1% (analyst action)

Speakers

• (UK) Former UK Brexit Min Davis: Told May on Friday he'd be the Odd man out; took two days to consider whether to resign- radio interview
• (UK) Tory MP Rees-Mogg: Confidence vote in May not immediately in offing; May needs to give up on Chequers proposal on Brexit
• (UK) Labour Party Brexit Spokesperson Keir Starmer: Davis resignation is Vote of no confidence in PM May

Currencies

• The dollar index, fell to a 3-1/2-week low after US jobs data showed slower-than-expected wage growth
• The offshore yuan drove the advance with Asian currencies as investors set aside trade war concerns

Fixed Income

• Bund Futures trade 15 ticks lower at 162.63 following the move in Treasuries. Upside targets 163.25 followed by 163.85, while a return lower targets the 159.75 level.
• Gilt futures trade at 123.31 higher by 2 ticks as markets ponder whether PM May will face a leadership challenge this week. Support continues stands at 121.75 then 120.25, with upside resistance at 123.85 then 124.25.
• Monday's liquidity report showed Friday's excess liquidity rose from €1.873T to €1.879T. Use of the marginal lending facility rose from €0M to €50M.
• Corporate issuance saw Lipper fund flows $170.5B inflow; High Yield $1.7B outlflow

Looking Ahead

• 07:00 (BR) Brazil Jun FGV Inflation IGP-DI M/M: 1.7%e v 1.6% prior; Y/Y: 8.1%e v 5.2% prior
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (CL) Chile Jun Trade Balance: $B v $0.7Be
• 08:30 (CL) Chile Jun International Reserves: $B v $37.3B prior
• 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%
• 09:00 (MX) Mexico Jun CPI M/M: +0.3%e v -0.2% prior; Y/Y: 4.6%e v 4.5% prior, CPI Core M/M: 0.2%e v 0.3% prior
• 15:00 (US) May Consumer Credit: $12.0Be v $9.3B prior
• 16:00 (US) Weekly Crop Progress Report

WTI oil price is slightly higher on Monday but remains within consolidation range after three-week rally stalled at $75.30 zone last week but subsequent pullback was contained by rising 10SMA at $72 zone.

Decision of main world oil producers to increase the output and persisting concerns about escalation of global trade conflict, weigh on oil prices. On the other side, fall in US oil inventories which hit three-year low, strongly underpin oil prices. Three-week rally from $63.58 (18 June trough, part of larger, year-long uptrend from $26.04), is still intact and holding in consolidative phase, before bulls continue towards target at $76.35 (Fibo 61.8% of $107.45/$26.04 fall).

Higher base is forming at $72.50 zone and dips need to hold above it to reduce risk of deeper correction.

Rising 10SMA continues to track bulls and marks initial support (currently at $73.36), as strong bullish momentum and daily MA’s in full bullish configuration, continue to support. On the other side, Doji candle on weekly chart warns of reversal, which requires firm break below $72.50 to generate bearish signal, while stronger reversal signal could be expected on extension and break below $70.85 (Fibo 38.2% of $63.58/$75.35 rally).

Res: 74.23, 74.78, 75.34, 76.35
Sup: 73.36, 72.50, 72.13, 70.85

USD loses ground amid disappointing wage growth

The US dollar continued to lose ground on Monday after mixed economic data and escalating trade tensions. Investors reacted strongly to the last job report as they put the trade war story on the backburner. Despite the fact that the US economy added more private jobs than expected (213k versus 195k expected), the dollar fell sharply following the announcement. The unemployment rate ticked up to 4% (from 3.8% in May) amid an increased number of job seeker. However, it looks like market participants chose to focus on the lack of positive pressure on wage. Indeed, wage growth is the only missing piece of the full employment puzzle. Average weekly earnings increased only 2.7% (versus 2.8% expected), which means that on an inflation adjusted basis wage growth would stall if not contract in June (headline inflation rose 2.8%y/y in May and is expected to have increased 2.9% in June – thanks to rising oil prices).

In anticipation of weaker inflation pressure, investors adjusted their rate hike expectations to the downside. According to the Overnight Index Swap, the probability of a September rate hike has eased to 73%, from 84% a couple of days ago. Although this is a marginal decrease, it summarized the overall sentiment in the market. Equities reacted positively to the perspective of a less abrupt rate path in the US.

The greenback fell the across the board this morning. EUR/USD rose 0.22% to 1.1775, the Aussie reached $0.7465 (up 0.50% on the session), while USD/CHF fell 0.22% to 0.9872. However, we are still trading within a monthly range. The trade war will prevent a massive USD sell-off as investors will maintain a cautious approach.

Uncertainties around Brexit negotiations weigh on British pound

Eight months before the UK leaves the EU, it appears that the British government is facing a difficult task. After convincing Ministers on Friday concerning her Brexit plan, Prime Minister May is facing an additional challenge.

Indeed, British Brexit Secretary and leader of the negotiations David Davis announced his resignation, commenting the agreement as “weak and impracticable”, adding that he remains a “reluctant conscript” of the matter, a rather less-than-encouraging situation for May which needs to reorganize her Brexit Ministry.

Since the announcement, certainties as to UK’s capabilities to further support the development of a hard Brexit is weak, thus supporting the idea of a softer Brexit, in which the UK would remain in the customs union with the EU.

GBP/USD is bouncing off following recent decrease right after the announcement in spite of the positive impact that would a maintenance of customs union have on the UK economy and lower wage growth in the US. Currently trading at 1.3345, the GBP/USD pair is rising further, approaching the 1.3370 range (13/06/2018 high).

Swiss unemployment rate maintained at 10-year low

The Swiss economy remains in shape according to the Federal Statistic Office (SECO). Written at 2.40% in June (seasonally adjusted: 2.60%), a level not seen since September 2008, the Swiss economy remains in full employment, despite a slowdown in inflation and a reduction of domestic consumption in May, amid a strong reduction in unemployment registration by -20.20% compared to the same month the year before.

With exports maintained at a neutral rate and imports at +3.10% in May, coupled with soft KOF sentiment data for the month of June at 101.70 (prior: 100), the Swiss economy remains on track with current growth expectations at 2% for 2018.

Currently given at 0.9868 and unable to break hourly resistance at 0.9909 (08/07/2018 high), the pair is expected to decrease further, approaching the 0.9860 range.

EUR/USD

Current level - 1.1755

The uptrend broke through 1.1730 and the outlook remains bullish, for a rise towards 1.1830 area. Initial intraday support lies at 1.1726 and crucial is 1.1680.

USD/JPY

Current level - 110.47

Despite the neutral intraday bias, my outlook is bearish, for a break through 110.25, towards 109.40 zone.

GBP/USD

Current level - 1.3313

The bias is positive above 1.3310, for a rise towards 1.3460 zone. Crucial on the downside is 1.3200 area.

The Aussie dollar extends strong rally on Monday and cracked initial barrier at 0.7476 (falling 30SMA), eyeing pivotal resistance at 0.7493 (daily Kijun-sen / 50% retracement of 0.7676/0.7310 descend).

Renewed bullish sentiment of soft US jobs data last Friday is helped by strong bullish momentum on daily chart.

Repeated close above 20SMA would generate initial bullish signal, with confirmation of bullish continuation expected on sustained break above daily Kijun-sen.

This would open way for test of key barriers at 0.7536/55 (Fibo 61.8% / daily cloud base).

Daily cloud is thinning and could attract for further advance.

Broken 20SMA (0.7416) is expected to keep the downside protected.

Res: 0.7493, 0.7536, 0.7555, 0.7590
Sup: 0.7540, 0.7428, 0.7416, 0.7387

Pivot (invalidation): 0.7423

Our preference Long positions above 0.7423 with targets at 0.7470 & 0.7485 in extension.

Alternative scenario Below 0.7423 look for further downside with 0.7400 & 0.7375 as targets.

Comment The RSI advocates for further advance.

Pivot (invalidation): 1.3110

Our preference Short positions below 1.3110 with targets at 1.3070 & 1.3055 in extension.

Alternative scenario Above 1.3110 look for further upside with 1.3125 & 1.3150 as targets.

Comment The RSI is mixed to bearish.

Pivot (invalidation): 0.9905

Our preference Short positions below 0.9905 with targets at 0.9865 & 0.9850 in extension.

Alternative scenario Above 0.9905 look for further upside with 0.9920 & 0.9930 as targets.

Comment The RSI is mixed to bearish.

Pivot (invalidation): 110.30

Our preference Long positions above 110.30 with targets at 110.55 & 110.70 in extension.

Alternative scenario Below 110.30 look for further downside with 110.10 & 109.95 as targets.

Comment Technically the RSI is above its neutrality area at 50.