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Global equity and foreign exchange markets were relatively quiet on Wednesday as the U.S. financial markets were closed in observance of Independence Day. However, the looming U.S. tariffs on $34 billion worth of Chinese imports and the expected retaliation from China are keeping investors on edge.

The decision by the U.S. administration is expected to be taken on Friday and China is expected to retaliate immediately. These tariffs will not take investors by surprise as they have had sufficient time to price them in; given that these measures are considered only a small portion of the U.S.- China trade’s value, the impact on growth and corporate earnings will be minimal. The critical question markets need an answer on is - where is this trade war heading towards? President Donald Trump had threatened to impose a further $200 billion in tariffs on Chinese imports, which China will respond to in equal measure. If such measures are implemented, it will certainly lead to a meltdown in global equities, emerging markets currencies and debt.

With the current environment of uncertainty, expect risk-averse behavior to continue in the coming weeks.

Away from the political trade tensions, traders will be looking closely at the Fed minutes scheduled for release later today. In his last press conference, Fed Chairman Jerome Powell was optimistic about the U.S.’s economic performance. He expected gradual increases in the federal funds to resume, given the low unemployment levels and accelerating inflation. However, investors are keen to know whether the imposition of trade tariffs and similar reactions from trading partners will threaten his outlook. On a different note, the dollar has appreciated 6.8% since its February lows. Such strength is expected to have a negative impact on price levels and exports. Meanwhile, the yield curve has continued to flatten over the past several months, increasing the risk of a recession. These factors have been ignored by the Fed so far, so today we will get to know whether any of these risks will hinder the Fed’s policy path, and whether the dollar will move accordingly.

On the data front, the U.S. ADP employment report is expected to show that 190 thousand jobs have been added to the economy, while the ISM non-manufacturing PMI for June is anticipated to retreat slightly to 58.3, down from 58.6 in the previous month.

General Trend:

• Asian equity markets trade cautiously amid lack of US leads due to July 4th holiday
• Market participants are wondering if US and China tariff measures will take effect as scheduled (on Friday, July 6th)
• Shares related to China Conglomerate HNA Group decline following death of co-founder
• Hong Kong June PMI hits approx. 2-year low, trade concerns noted
• China Commerce Ministry reiterated it will have to respond to US tariffs, warned about global supply chain impact
• China yuan fixed at the strongest since Oct 2017
• PBoC's 50bps RRR cut which was announced on June 24th takes effect today
• BOJ's Masai reiterated the need to continue with monetary easing, played down impact on financial sector
• Japan 30-yr bond auction has highest bid to cover in over 1-year
• Philippines CPI hits a new multi-year high in June; data may lead to rate hike speculation (press article)
• Samsung Electronics expected to report prelim Q2 results on Friday
• US Fed Minutes and ADP Employment Change data due on Thursday

Headlines/Economic Data

Japan

• Nikkei 225 opened -0.1%
• TOPIX Retail Trade index -2.1%, Iron & Steel -1.4%, Electric Appliances -1.4%, Marine Transportation -1.2%, Securities -1%
• (JP) According to Nikkei, there is a split among Bank of Japan (BoJ) board members regarding the side-effects of easy policy
• (JP) Japan Investors Net Buying of Foreign Bonds: -¥293.4B v +¥27.4B prior: Foreign Net Buying of Japan Stocks: -¥299.8B v -¥483.5B prior (6th consecutive week of selling Japan equities); Japan investors bought ¥985B in foreign stocks (record high)
• (JP) Japan Ministry of Finance: FY17/18 Rev ¥58.79T, +6% y/y (26-yr high) – Yomiuri
• (JP) Bank of Japan (BOJ) Masai: 2% inflation target is considered a global standard, pursuing inflation similar to other countries will lead to FX stability
• (JP) Japan MoF sells ¥699.3B v ¥700B indicated in 0.8% (0.8% prior) 30-yr bonds; Avg yield: 0.704% v 0.707% prior; Bid to cover: 5.01x (over 1-year high) v 4.22x prior

Korea

• Kospi opened flat
• (KR) South Korea May Current Account Balance: $8.7B v $1.77B prior (75th straight monthly surplus); Goods Balance: $11.4B v $10.4B prior
• (KR) US officials said to have scrapped their all or nothing approach to North Korea denuclearization ahead of Pompeo's visit - US press

China/Hong Kong

• Hang Seng opened -0.5%, Shanghai Composite -0.1%
• Hang Seng Energy index -2.2%, Materials -2.1%, Services -1.6%, Consumer Goods -1.4%, Financials -1%
• (CN) China to implement tariffs on $34B worth of US goods from midnight July 6th, according to press report; Separately, a China MOF official said China will not implement tariff measures ahead of the US
• (CN) China PBoC: Previously announced targeted RRR cut takes effect today, releasing CNY700B in liquidity
• (CN) PBOC recent monetary policy operations avoid SOEs; reiterates monetary policy is neither loosening nor tightening - China Financial News
• (CN) China Press Commentary: Depreciation of the Chinese yuan currency (CNY) is not a long-term trend
• (CN) Any currency intervention by China is seen as being smaller in scale versus 2015 - financial press
• (CN) Think tank China National Academy of Economic Strategy (NAES) sees H1 2018 GDP growth of 6.7% - Xinhua
• (HK) Hong Kong Jun PMI: 47.7 v 47.8 prior (~2-yr low)
• (CN) China PBoC Open Market Operation (OMO): skips OMO v injects CNY10B in 7-day reverse repos prior; Net: CNY140B drain v CNY80B drain prior
• (CN) China PBoC set yuan reference rate at 6.6180 v 6.6595 prior (strongest setting since Oct 2017)
• (CN) China Commerce Ministry (MOFCOM) Spokesman Gao Feng: US tariffs will hit global supply chains including foreign companies in China; 59% of the $34B in goods under US tariffs by foreign companies; H2 and 2018 foreign trade development will continue to be stable
• 521.HK The death of HNA Group's Co-founder Wang Jian has led to uncertainty regarding planned asset sales - Japanese Press
• (CN) China NDRC issued draft rules related to investment in the auto industry
• (CN) China Hebei is planning to cut steel capacity by 40M tons in 3 years - Xinhua
• (CN) China Tangshan has issued order for local steel mills to meet emission standards - US financial press

Australia/New Zealand

• ASX 200 opened slightly lower
• ASX 200 Telecom index +1.7%, Financials +0.9%, Utilities +0.8%, Energy +0.4%
• (NZ) New Zealand Treasury: 11-month budget surplus NZ$5.23B, NZ$447M above forecast
• WOW.AU Expands partnership with Caltex; confirms to pursue IPO or sale of petrol business
• (NZ) New Zealand sells NZ$100M v NZ$100M indicated in Sept 2040 inflation-indexed bonds, avg yield 1.9517%, bid to cover 2.26x

Other Asia

• (MY) Malaysia sells 2048 bonds, avg yield 4.921%, bid to cover 1.87x
• (TW) Taiwan companies thought to be reconsidering where they will manufacture goods amid the US/China trade dispute – SCMP
• (PH) Philippines Jun CPI m/m: 0.6% v 0.4%e; y/y: 5.2% v 4.8%e
• (PH) Philippines Central Bank (BSP) Chief Espenilla: Higher June inflation is a set back, to review and update forecast of inflation path, will shape strength and timing of policy response
• Vietnam Central Bank said to have intervened in the FX market to support the Dong currency (VND) - Local Press

North America

• WTO releases report on trade restrictions among G20 nations: trade barriers being erected by major economies could jeopardize the global economic recovery and their effects are already starting to show

Europe

• (UK) PM May said to have asked Chancellor of the Exchequer Hammond and Business Sec Clarke to warn their colleagues of the dangers of pushing for a hard Brexit in a meeting Friday- UK press
• (UK) ECB Member Hakkarainen: 20 banks out of they 50 indicated they wanted to, have applied for a license to operate in the European Union in time to receive approval before Britain leaves the EU, deadline was end of June
• (RU) EU sanctions on Russia to be officially rolled over on Monday to the end of Jan 2019 - EU press
• (IR) Ireland Jun Consumer Confidence Index: 102.1 v 106.7 prior (13-month low)
• (EU) Some ECB members are said to be worried that investors don't see a rate hike until late 2019, a hike as soon as Sept or Oct 2018 is possible depending on economic outlook at the time - financial press
• (DE) IMF Cuts German 2018 GDP to 2.2% (prior 2.5%); Raises 2019 forecast to 2.1% (prior 2.0%) - Article IV Consultation
• Executives from VW, BMW and Daimler to meet with US ambassador this evening in an effort to avoid US tariffs; US said to offer 'zero tariffs' - German press
• (EU) On Thursday, EU countries are expected to vote on measures to curb steel imports - financial press

Levels as of 01:30ET

• Hang Seng -1.2%; Shanghai Composite -0.8%; Kospi -0.8%; Nikkei225 -0.9%; ASX 200 +0.4%
• Equity Futures: S&P500 +0.1%; Nasdaq100 +0.0%, Dax -0.2%; FTSE100 -0.2%
• EUR 1.1650-1.1667; JPY 110.30-110.62; AUD 0.7361-0.7388;NZD 0.6751-0.6774
• Aug Gold +0.2% at $1,255/oz; Aug Crude Oil -0.5% at $73.77/brl; Sept Copper 0.0% at $2.86/lb

Daily Pivots: (S1) 1.3184; (P) 1.3217; (R1) 1.3264; More...

GBP/USD's recovery from 1.3048 is still in progress and further rise could be seen. But upside should be limited by 1.3314 minor resistance to bring fall resumption. On the downside, break of 1.3048 will resume the fall from 1.4376 and target 61.8% retracement of 1.1946 to 1.4376 at 1.2875 first. However, break of 1.3314 will bring stronger rebound back to 1.3471 key resistance.

In the bigger picture, whole medium term rebound from 1.1936 (2016 low) should have completed at 1.4376 already, with trend line broken firmly, on bearish divergence condition in daily MACD, after rejection from 55 month EMA (now at 1.4121). 61.8% retracement of 1.1936 (2016 low) to 1.4376 at 1.2874 is the next target. We'll pay attention to the reaction from there to asses the chance of long term down trend resumption. For now, outlook will stay bearish as long as 1.3471 resistance holds, even in case of strong rebound.

The British pound has moved to a fresh monthly trading-high against the US dollar, hitting 1.3248, as the trading sentiment surrounding the GBPUSD pair continues to improve. The GBPUSD pair performed a bullish daily price-close above the 1.3205 level, with price remaining well above the weekly opening-price. GBPUSD traders now look to a scheduled speech from Bank of England Governor Mark Carney this morning, and the release of the US ADP jobs report later today.

The GBPUSD pair remains bullish while trading above the 1.3205 level, key resistance is found at the 1.3248 and 1.3300 levels.

If the GBPUSD pair trades below the 1.3205 level, key technical support is found at the 1.3194 and 1.3170 levels.

Daily Pivots: (S1) 0.9907; (P) 0.9930; (R1) 0.9946; More...

Intraday bias in USD/CHF remains neutral and outlook is unchanged. On the downside, break of 0.9855 will extend the corrective pattern from 1.0056 with another fall. Intraday bias would be turned to the downside for 0.9787 and below. But downside should be contained by 0.9722/4 cluster support (38.2% retracement of 0.9186 to 1.0056 at 0.9724, 100% projection of 1.0056 to 0.9787 from 0.9991 at 0.9722) 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.

The euro continues to struggle with the 1.1674 resistance level against the US dollar, with the pair currently trapped in an increasingly narrow trading range. EURUSD sellers also failed to break the 1.1618 level on Wednesday, after the pair was strongly rejected from the 1.1681 level. Traders will now look for a sustained breakout from the 1.1618 to 1.1681 price-range today, ahead of the release of top-tier economic data from the United States economy.

The EURUSD pair is only intraday bullish while trading above the 1.1681 level, key resistance remains at 1.1700 and 1.1724.

If the EURUSD pair moves below the 1.1618 level, key technical support is found at the 1.1600 and 1.1553 levels.

The price of bitcoin and other cryptocurrencies rose over the weekend. This ended a few weeks of major declines that saw Bitcoin and Ethereum reach lows of $5700 and $395 respectively. After the weekend surge, bitcoin has traded within a narrow range of $6580 and $6500 as traders wait for the next catalyst.

With regards to cryptocurrencies, regulation has been a significant topic of conversation. The Japanese Financial Services Authority (FSA) is reportedly considering the way it regulates crypto exchanges with the hope of improving consumer protection.

Meanwhile, The Pirate Bay (TBH) will start mining cryptocurrencies as people use their website. TBH is the largest online piracy website with millions of active users. The website’s revenue model has always been through advertising, but many advertisers have shunned the website. Its attempts to ask for customer donations have failed too.

Bitcoin is currently trading at $6550. With the BTC/USD pair trading in a narrow sideways direction, there is a likelihood that its price will break out in either direction. If it moves lower, traders should expect it to test the support of $6180. If it moves higher, traders should expect it to aim for the $7,000 level.

Asian markets are today reflecting current trade worries. The Shanghai Composite Index, Hong Kong's Hang Seng, and Japan's Nikkei are down by 0.51%, 0.65%, and 0.40% respectively. This comes a day after German Chancellor, Angela Merkel, sounded an early alarm over trade warning that the world could be approaching another financial crisis similar in magnitude to the 2008/9 crisis.

The focus today among traders will be on Fed minutes and jobs numbers from the United States. The minutes will give traders a deeper insight into rate hikes for the year.

Following a meeting which took place two weeks ago, Chairman of the Federal Reserve, Jerome Powell, said that Fed officials were committed to two more hikes this year. Regarding job numbers, ADP will release the number of people employed in the private sector in June. The markets expect the number to be 190,000, which will be higher than last month's 178,000. In addition to this, traders will be looking ahead for the number of initial and continuing jobless claims and consumer confidence. Other important data from the US will be the non-manufacturing PMI from ISM.

Shifting gears to Europe, traders will focus on Germany factory orders. This data is very important today because of the ongoing trade conflict. Traders will want to know whether the rhetoric is affecting real businesses. Traders expect the orders to grow by 1.1% after last month's slump. A speech by Bank of England's governor Mark Carney will also be watched closely by traders, who will standby for his opinions about the economy. The Swiss Franc will also be in play today as the country will release inflation numbers. Traders expect the CPI for the month of June to rise to an annual rate of 1.1%.

EUR/USD

The EUR/USD pair is trading at 1.1660. The pair has continued trading in the symmetrical triangular pattern initiated a few days ago. This pattern is nearing the apex, which means that the pair could break out in either direction. The current price is at the middle level of the Bollinger bands. As traders wait for the unofficial job numbers from ADP, the pair is likely to continue moving sideways. Improving job numbers coupled with a hawkish Fed statement could make the pair move lower and test the 1.16300 support.

USD/CHF

The USD/CHF pair reached the important 1.0005 level in May. After that, the pair tested a low of 0.9787 in early June and then started moving in a sideways manner. The Swiss National Bank (SNB) has committed to keeping the franc lower because they believe it is overvalued against major currencies. Today, the pair is trading at 0.9935. As shown below, the pair has been trading in a triangular pattern. Today, the CPI from Switzerland and the US jobs numbers could move the pair. Traders should look for the resistance level of 0.9980.

US30

Early last month, the Dow Jones Industrial Average (DJIA) started falling after reaching a high of $25,400. The index is now trading near the important support of $24,000. If the pair breaches this support, traders can expect it to continue moving lower as it searches for another support. The next support will be the $23,500 level. This is likely if the global trade climate continues to worsen because all companies in the index derive their revenues from international markets. Its RSI is currently at 42 and the 50 and 100-day moving averages are higher. There is also a likelihood that traders will shrug-off the trade rhetoric and push the index higher.

The USD/JPY is building a triangle chart pattern which is indicated by the support (blue) and resistance (red) trend lines. Price will need to break above or below the chart pattern before a larger breakout could be expected. The wave patterns are probably showing an expanded wave X (pink) correction which indicates more bearish pressure but price must break below the support trend line (blue) to confirm this.

The USD/JPY retraced back and bounced at the 38.2% Fibonacci retracement level, which could complete a wave B (blue) correction, after breaking through the resistance trend line (dotted orange). If price breaks below the bottom then a bearish breakout towards the Fibonacci levels of wave C is possible. Although there is still a chance that price might retrace to a deeper Fib level.

The GBP/USDis showing a higher high and higher low after a bullish break above the resistance trend line (dotted orange).

The GBP/USD is probably building a larger bullish correction within wave 2 (pink) or alternatively within a wave 4.

The GBP/USD is probably building a bullish ABC zigzag (blue) within a larger WXY correction (purple).Price could now be building a bearish correction within wave 4 (green) as long as price stays above the 61.8% Fib of wave 4 vs 3. A continuation could see an extension of the bullish wave C (blue).