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• There wasn't much hawkish tone in the Fed minute
• Fed only see the current escalation as a tactic to negotiate deals
• Tariffs on Chinese goods would kick off today

US futures are trading higher as the world awaits a retaliation action from China on the trade war. For now, traders are firmly focused on the US NFP and it would make or break the day for them. But let's focus on the Fed minutes first before we talk about US NFP- the main event of the day.

The Fed minutes failed to produce the kind of colour that most dollar bulls wanted to see, simply put, there wasn't too much of surprise. The most volatile move only takes place when the markets get something when it wasn't expecting. Market participants were expecting that the Fed would show some sort of hawkishness in their minutes but there wasn't much hawkish tone in the minutes. Having said this, the minutes did make one element clear that the Fed's appetite in terms of inflation running too hot is limited and they are keeping a close eye on the economic picture of the country.

The trade war is certainly an issue for the monetary policy and the Fed would have to be prepared if the situation gets out of control. By looking at the Fed minutes, it becomes clear that the Fed only see the current escalation as a tactic to negotiate deals. For us, there was nothing in the minutes which jumped out which showed that the Fed is wary of the trade war.

This is why we think that the Fed may catch a surprise. $34 billion worth of tariffs on Chinese goods would kick off today and the Chinese government isn't going to turn the other cheek for the US to slap again. They wnt be reticent about this. This would begin the trade war. Time for the tit-for-tat reaction is now. There is no victory when it comes to the trade war, it is only a fool's paradise. Two biggest economies of the world have started a trade war, it is going to have consequences on the global growth.

But enough about the trade war and Fed minutes, the only event which matters the most today is the US NFP. Dollar bulls only hope is to see a strong reading today and this would employ fresh capital.

The ADP number has set a tone for a weaker number yesterday. The headline number- unemployment rate dropped to multi-year low during the last month. It printed the reading of 3.8% but we have not seen the wage number blasting any new boundaries. Thus, the focus would remain on wages. Are employers ready to increase them to employ more people? This is the major question for today.

Inflation has come a long way from its low and the rising oil price is only adding pressure for consumers. It is about time that we see the wage number showing some serious strength. Last month we have seen the reading of 2.7% and if today's number prints anything bigger than 2.8%, that would seriously move the needle for the dollar index.

The S&P500 index is testing its 100 and 200-day moving averages. The price is also about to break out of its sideway channel which is a bullish signal. The relative strength index is confirming a bullish divergence and this supports the above argument.

Japan Cabinet Office presented new economic projections at the Council on Economic Fiscal Policy today.

For current fiscal 2018, the economy is projected to grow 1.5% in real term. That's a downgrade from prior projection of 1.8%, down at the start of the year. In nominal terms, the economy is projected to grow 1.7%, sharply lower from prior forecast of 2.5%, due partly to slowdown in property investment.

The office forecasts the economy to grow 1.5% in the fiscal-2019, in price adjusted real terms. That's after adjustment to the planned sales tax hike in October 2019. In nominal term, GDP is projected to grow 2.8%.

For the current fiscal 2018, overall CPI is projected to be at 1.1%, unchanged from prior estimate. Overall price CPI is forecast to rise 1.5% in fiscal 2019. With adjustment on the sales tax hike, overall CPI is projected to slow to 1.0%.

The Canadian dollar continues to show little movement. In the Friday session, USD/CAD is trading at 1.3134, up 0.01% on the day. On the release front, employment data is in the spotlight on both sides of the border. Nonfarm Payrolls are expected to drop to 195 thousand and wage growth is forecast to remain pegged at 0.3%. The unemployment rate is also expected to stay unchanged at a sizzling 3.8%. Canada is expected to add 20.4 thousand jobs, after two straight declines. The unemployment rate is expected to remain pegged at 5.8%. However, the markets are braced for the trade deficit to widen to C$2.2 billion.

The highly-anticipated FOMC minutes were somewhat dovish in tone, as policymakers gave a thumbs-up to the strong U.S economy, but expressed concern about developments abroad. These include growing trade tensions with U.S trading partners, as well as political and economic developments in Europe. The minutes also reiterated the Fed’s support for a “gradual” raise in interest rates. The markets are circling the September policy meeting for the next rate hike, with the CME Group setting the odds of a quarter-point hike at 79%. North of the border, the Bank of Canada meets on July 11 for a policy meeting, with the odds of a quarter-point hike now at 80%, up from 55% just last week. Canada will release key employment numbers later in the day, and a strong showing could cement a rate hike and boost the Canadian dollar.

The escalating tariff battle will be in focus on Friday, as U.S tariffs on $34 billion in Chinese products took effect earlier on Friday. This move on its own will have a marginal effect on trade, but investors are nervous that the Chinese will retaliate, and President Trump could fire back. Both the U.S and China have shown no signs of backing down, and Trump recently threatened to slap tariffs on some $500 billion in Chinese imports, underscoring that this tariff battle could easily deteriorate into an all-out trade war and trigger a global recession. There are also serious trade tensions between the U.S and Canada, so Canadian officials will be anxiously watching these developments. A full-blown trade war would be disastrous for the Canadian economy, which is heavily reliant on exports. If trade tensions continue to worsen, we can expect the Canadian dollar to face strong headwinds.

The DAX index is unchanged in the Friday session, after posting strong gains on Thursday. Currently, the DAX is at 12,455, down 0.07% on the day. On the release front, German Industrial Production jumped 2.6%, well above the estimate of 0.3%. In the U.S, the markets are braced for a soft Nonfarm Payrolls report, which is expected to drop to 195 thousand.

German industrial numbers continue to impress this week. On Thursday, Factory Orders jumped 2.6%, marking a five-month high. This was followed by Industrial Production, which climbed 2.6%, its sharpest gain in 2018. There is growing concern that protectionist moves by both the U.S and the EU could take a toll on exports and the manufacturing sectors, so these strong readings are welcome news.

Trade tensions between China and the U.S will be in focus on Friday, as U.S tariffs on $34 billion in Chinese products took effect earlier in the day. On its own, the U.S move will have a marginal effect on trade, but investors are nervous that the Chinese will retaliate, and President Trump could fire back. Both the U.S and China have shown no signs of backing down, and Trump recently threatened to slap tariffs on some $500 billion in Chinese imports, underscoring that this tariff battle could easily deteriorate into an all-out trade war and trigger a global recession. European officials will be anxiously watching these developments, as Trump has threatened to impose tariffs of 20 percent on European auto imports if the EU does not remove their tariffs on U.S automobiles. The EU would clearly prefer not to engage in a full-blown tariff war with the United States and on Thursday, there was a report that European officials are examining the possibility of a tariff-cutting agreement between the world’s largest car exporters. Investors gave this news a thumbs-up, and sharp gains in auto manufacturing shares boosted the DAX on Thursday.

EUR/USD has posted gains in the Friday session. Currently, the pair is trading at 1.1711, up 0.18% on the day. On the release front, German Industrial Production jumped 2.6%, crushing the estimate of 0.3%. In the U.S, the focus will be on employment data. Nonfarm Payrolls are expected to drop to 195 thousand and wage growth is forecast to remain pegged at 0.3%. The unemployment rate is also expected to stay unchanged at a sizzling 3.8%.

All eyes were on the FOMC minutes on Thursday, but EUR/USD yawned, showing little reaction to the release. The minutes were somewhat dovish in tone, as policymakers gave a thumbs-up to the strong U.S economy, but expressed concern about developments abroad. These include growing trade tensions with U.S trading partners, as well as political and economic developments in Europe. The minutes also reiterated the Fed’s support for a “gradual” raise in interest rates. The markets are circling the September policy meeting for the next rate hike, with the CME Group setting the odds of a quarter-point hike at 79%.

The worsening tariff battle will be in focus on Friday, as U.S tariffs on $34 billion in Chinese products took effect earlier on Friday. This move on its own will have a marginal effect on trade, but investors are nervous that the Chinese will retaliate, and President Trump could fire back. Both the U.S and China have shown no signs of backing down, and Trump recently threatened to slap tariffs on some $500 billion in Chinese imports, underscoring that this tariff battle could easily deteriorate into an all-out trade war and trigger a global recession. European officials will be anxiously watching these developments, as Trump has threatened to impose tariffs of 20 percent on European auto imports if the EU does not remove their tariffs on U.S automobiles. The EU would clearly prefer not to engage in a full-blown tariff war with the United States and European officials are examining the possibility of a tariff-cutting agreement between the world’s largest car exporters. In essence, this would allow the EU and the U.S to quickly reach a deal on automobile tariffs without having to go through the World Trade Organization.

The EUR/USD is showing higher highs and higher lows that indicates a bullish zigzag. The MACD is also positive, meaning we have a confluence of price and technical indicator. However, today is NFP with the Unemployment rate and Average Hourly Earnings data. This single event might be volatile as always, so we need to focus on breakouts. Above 1.1735 targets are 1762 and 1788 with a potential for 1.1820. However, a drop below 1.1670 should target 1.1653 and 1.1620 with a potential for 1.1575. The price action and direction is a very data dependent.

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)

USDMXN made a nice and clear bearish reversal down from 20.960 level in June, which is an indication into which direction the trend is going. We see it going bearish, ideally unfolding a bigger five-wave decline with red waves 1) and 2 already completed. We also know that nothing moves in straight lines so be aware of temporary pullbacks that may join the party; first minor pullback is wave 2 following a five-wave drop from 20.1974 level which can look for resistance and a turn lower around the 19.557 area.

Also keep in mind that we are looking bearish as long as price keeps trading below the upper channel resistance line.

USDMXN, 4h

Pivot (invalidation): 0.7400

Our preference Short positions below 0.7400 with targets at 0.7360 & 0.7345 in extension.

Alternative scenario Above 0.7400 look for further upside with 0.7415 & 0.7425 as targets.

Comment As Long as 0.7400 is resistance, look for choppy price action with a bearish bias.

Pivot (invalidation): 1.3125

Our preference Long positions above 1.3125 with targets at 1.3160 & 1.3180 in extension.

Alternative scenario Below 1.3125 look for further downside with 1.3110 & 1.3090 as targets.

Comment The RSI is supported by a rising trend line.

Pivot (invalidation): 0.9925

Our preference Long positions above 0.9925 with targets at 0.9950 & 0.9965 in extension.

Alternative scenario Below 0.9925 look for further downside with 0.9915 & 0.9900 as targets.

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