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Spot gold dipped to as low as 1238.00 today but drew support from 1236.66 key support and recovered. Indeed, considering bullish convergence condition in 4 hour MACD, gold could be trying to form a short term bottom ahead of 1236.66. Focus is immediately back to 1255.60 minor resistance, break will confirm this and bring stronger rebound.

Nonetheless, we're not expecting the medium term fall from 1365.24 to end that quickly. With or without an interim near term consolidation, fall from 1365.25 is expected to continue. Firm break of 1236.66 will pave the way to 1122.81.

Entering into US session, Dollar trades broadly lower for today, Swiss Franc and Japanese Yen followed. Meanwhile, Canadian, Australian and New Zealand Dollar are broadly higher.

There is notably easing of risk aversion in early European session. One clear development is the strong rebound in German DAX which is trading up 1.3% at the time of writing. DAX is relieved by news that Chancellor Angela Merkel made a last minute deal with the Rebellious Interior Minister Horst Seehofer in immigration. That came after five hours of talks between the leader of Christian Democrats and Christian Social Union. CAC is trading up 0.97% while FTSE is up 0.54%.

Another factor is the reversal in Chinese Stocks. The Shanghai SSE composite dropped to as low as 2722.45 earlier today but closed up 0.41% at 2786.88. The development propelled Australian Dollar back above 0.7328 key cluster support, with 0.74 back in sight.

The decline in SSE was so steep, after clearing 3000 psychological, that it's now close to an important support zone. That is, 100% projection of 3587.03 to 3062.73 from 3129.73 at 2695.44. It's also now in proximity to 2638.30 (2016 low). Theoretically, downside momentum should slow on oversold condition and this 2638/95 zone should be defended on first attempt. A break above 2848.37 resistance would indicator short term bottoming.

There is also prospect of more verbal, or even actual intervention by the Chinese government. But even in that case, the medium term outlook remains bearish as trade war with the US is inevitable. It's just a matter of time when 2638.30 low is taken out firmly.

EUR/USD

Current level - 1.1667

The reversal at 1.1600 signals, that the slide below 1.1690 is corrective, so my outlook here is bullish, for a rise towards 1.1730 major resistance. This time we should witness a break through the mentioned hurdle, for a rise towards 1.1830.

USD/JPY

Current level - 110.87

As the pair is approaching 111.40 hurdle, my outlook is already counter-trend, for a reversal and slide through 110.40 crucial low, towards 109.40.

GBP/USD

Current level - 1.3185

I consider the pullback after 1.3215 to be corrective in nature, so my outlook is bullish, for a break through the mentioned hurdle, towards 1.3310.

The British pound has moved back towards the highest trading-levels of the week against the US dollar after the UK Construction PMI beat market expectations. The strong recovery from the 1.3100 level continues, with the US dollar index under heavy selling pressure again. Buyers will now try to hold price above the 1.3205 level, while sellers need to close price below the 1.3145 support level.

The GBPUSD pair is strongly bullish while trading above the 1.3205 level, key resistance is found at the 1.3240 and 1.3300 levels.

If the GBPUSD pair trades below the 1.3145 level, a correction back towards the 1.3101 support levels remains possible.

The US dollar is starting to weaken against the Japanese yen currency, after repeated technical failure around the 111.00 resistance level. The USDJPY pair currently trades around the 110.80 region and faces a reversal lower if bulls fail to find traction above the 111.00 level soon. Sellers may now try to push price towards the 110.45 level, while buyers will try to maintain the USDJPY pair above the 111.00 level.

The USDJPY pair is turning intraday bearish while trading below the 111.00 level, further downside towards the 110.45 and 110.00 levels seems possible.

If the USDJPY pair moves above the 111.00 level, buyers will likely test towards the 111.41 and 112.00 resistance levels.

AUD better bid amid PBoC comments

The Australian dollar added more than 0.50% on Tuesday after the PBoC announced it would keep the yuan stable at an equilibrium level. The announcement was made a few hours after the RBA's monetary policy decision; however, the latter was a non-event as the central bank left interest rate unchanged and made some minor changes to the statement.

Just like Chinese equities, the Australian dollar bore the brunt of the sell-off over the last few weeks as trade tensions escalated. Earlier this morning, the Chinese yuan fell to an 11-month low against the US dollar with USD/CNY hitting 6.7214. Nevertheless, the currency strengthened quickly after the central bank's comment as USD/CNY eased to 6.6850.

The People's Bank of China has sent a strong signal. However, it is hard to say whether investors will fight the central bank and push the yuan lower or take note stop short selling the yuan. One has to keep in mind that the PBoC is used to deal with short-sellers and it usually win. For example in January 2017, offshore overnight deposit rates rose to prohibited levels, which squeezed short sellers as funding costs exploded. We are not there yet but now traders know that the PBoC is watching them.

This currency is a Turkey

Want volatility? Look no further than the Turkish lira. As European markets opened, TRY took off on a roller-coaster worthy of Brighton Beach Cyclone, because investors are struggling with the meaning of President Erdogan's re-election. Although his AKP party lost its parliamentary majority, with his ally MHP he can control parliament. USD/TRY rose to 4.6836 in seconds: TRY remains highly volatile. Don't try to catch this falling sword.

Turkey large external debt makes it vulnerable to the USA's rising interest rates. In theory Turkey should tighten its monetary policy, but this is uncertain. Erdogan has indicated that he should control monetary policy, and his bias is towards growth. Manufacturing purchasing remains weak, yet there is strong inflation. Data released today say consumer prices surged 2.61% monthly and 15.39% annually. Producer prices rose 23.71% annually. So the Central Bank is caught between this inflation and the pressure to ease rates. So, we are not hopeful that solid structural reforms will materialize.

The DAX30 has been contained within the consolidation rectangle precisely between W H3 and W L3. This is suggesting a potential breakout. Bulls have more confluence as the market has been supported and the MACD is above 0 line. However, traders need to pay attention to reaction too. Above 12412, the market should provide a bullish break towards 12482 and 12538. Only a 4h candle close above 12538 might target 12752 by the end of the week. However, a drop below 12158 is bearish, and targets are 12120 and 12032. Below 12032, the weekly target is 11818.

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)

Notes/Observations

• Chancellor Merkel salvages her coalition government with a deal on migration
• Glencore drops the most in 2 years after a DoJ Subpoena regarding Money Laundering
• Swedish Krona rises after the Riksbank forecasts higher inflation in the year ahead

Asia:

• US seeking to block entry for China Mobile Ltd into US telecommunications market on national security concerns
• China released unscheduled US exports data; growth sharply dropped as tariffs approach
• BOJ said to be planing to cut 2018 and 2019 inflation forecasts
• (AU) RBA Leaves Cash Rate Target unchanged at 1.50% (20th straight pause in the current easing cycle)

Europe:

• Chancellor Merkel survives migrant crisis after making clear agreement with Interior Min Seehofer
• Swedish Riksbank keeps rates on hold; signals hike towards the end of the year

Americas:

• President Trump reportedly favoring two people for Supreme Court seat

Energy:

• Oil prices jumped after Libya declared a force majeure on some exports and Canadian production at Syncrude was hit with a power outage

Economic Data:

• (FR) France May YTD Budget Balance: -€55.1B v -€54.3B prior
• (ES) Spain Jun Net Unemployment M/M: -90.0K V -98.1KE
• (TR) Turkey Jun CPI M/M: 2.6% V 1.3%E; Y/Y: 15.4% V 13.9%E (15-year high)
• (SE) Sweden Central Bank (Riksbank) leaves Repo Rate unchanged and sees rate rise towards end of year
• (BR) Brazil Jun FIPE CPI (Sao Paulo): 1.0% v 1.1%e
• (UK) Jun Construction PMI: 53.1 V 52.5E (3rd month of expansion and a seven month high)
• (EU) Euro Zone May Retail Sales M/M: 0.0% v 0.1%e; Y/Y: 1.4% v 1.6%e
• (EU) Euro Zone May PPI M/M: 0.8% v 0.5%e; Y/Y: 3.0% v 2.7%e

Fixed Income Issuance:

• (AT) AUSTRIA DEBT AGENCY (AFFA) SELLS TOTAL €1.15B VS. €1.15B INDICATED IN 2028 AND 2037 RAGB BONDS

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx50 +0.1% at3,406 , FTSE +0.3% at 7,569, DAX +1.0% at 12,359, CAC-40 -0.8% at 5,318; IBEX-35 +1.0% at 9,650, FTSE MIB +1.0% at 21,641, SMI +0.8% at 8,595, S&P 500 Futures +0.3%]
• Market Focal Points/Key Themes: European stocks open broadly higher and maintained trend as session wore on; German Chancellor Merkel forges immigration deal with coalition partners; risk sentiment supported over diminished geopolitical concerns; technology sector leading performers; materials sector underperforming, dragged down by Glencore following subpoena by US DOJ over alleged money laundering; US markets close early for holiday; corporate events expected in the upcoming US session include earnings from Acuity Brands and monthly car sales data

Equities

• Consumer discretionary: Hermes RMS.FR +0.9%(analyst action), Louis Vuitton MC.FR +1.2% (analyst action), Trigano TRI.FR -11.5% (results, analyst action)
• Energy: SBM Offshore SBMO.NL +6.1% (contract win)
• Financials: Hastings Group HSTG.UK (analyst action), Societe Generale GLE.FR +0.8% (acquisition)
• Healthcare: Abivax ABVX.FR +9.3% (study results), Merck KGaA MRK.DE -0.4% (outlook)
• Materials: Glencore GLEN.UK -10.2% (US subpoena)
• Technology: BE Semiconductor BESI.NL -6.6% (outlook), Osram Licht OSR.DE -2.6% (analyst action)

Speakers

• (CN) China Foreign Ministry: Urges US to provide fair environment for Chinese companies
• (TH) Thailand Central Bank Gov Veerathai: Reiterates FX volatility to continue, Thai baht exchange rate is moving in line with the region
• (FR) French Gov't Spokesman Griveaux: budget deficit target below 1% in 2022 and GDP growth will be ~2% in 2018
• (UK) BOE’s Saunders (hawk, dissenter): Rates may need to rise faster then markets expect; will be limited and gradual
• UAE Oil Min: Starting July 1st, OPEC will strive to adhere to overall conformity levels for rest of 2018 (in-line with OPEC+pact)

Currencies

• EUR/USD trades on firmer ground on reports of a compromise between the CDU and CSU on immigration policy as the pair sits above 1.1650 with upside resistance seen at 1.1690-1.1720.
• EUR/SEK falls after the Riksbank rate decision, noting that Economic activity is strong and inflation is close to the target of 2%. The Krona dropped to a low of 10.3506 following the rate decision with momentum continuing to the downside, with the pair currently trading at 10.3370.

Fixed Income

• Bund Futures trade 15 ticks lower at 162.31 as Merkel secures a deal preventing the immediate threat of a government breakup. Upside targets 163.25 followed by 163.85, while a return lower targets the 159.75 level.
• Gilt futures trade at 123.03 lower 16 ticks as Friday sees crucial Brexit meeting at May's country estate. Support continues stands at 121.75 then 120.25, with upside resistance at 123.85 then 124.25.
• Tuesday's liquidity report showed Monday's excess liquidity rose from €1.781T to €1.844T. Use of the marginal lending facility fell from €59M to €0M.
• Corporate issuance saw no deals priced in the primary market

Looking Ahead

• 07:45 (US) Weekly Goldman Economist Chain Store Sales
• 08:00 (BR) Brazil May PPI Manufacturing M/M: No est v 1.4% prior; Y/Y: No est v 7.4% prior
• 08:05 (UK) Baltic Dry Bulk Index - 08:30 (CA) Canada May MLI Leading Indicator M/M: No est v 0.1% prior
• 08:30 (CL) Chile Jun Trade Balance: No est v $0.7B prior; Total Exports: No est v $6.7B prior; Total Imports: No est v 6.0B prior; Copper Exports: No est v $3.4B prior
• 08:30 (CL) Chile Jun International Reserves: No est v $37.3B prior
• 08:30 (CL) Chile Central Bank Traders Survey
• 08:55 (US) Weekly Redbook Sales - 09:00 (EU) Weekly ECB Forex Reserves
• 09:00 (CL) Chile May Retail Sales Y/Y: No est v 7.4% prior, Commercial Activity Y/Y: No est v 11.0% prior
• 09:00 (MX) Mexico May Leading Indicators M/M: No est v -0.02 prior - 09:30 (CA) Canada Jun Manufacturing PMI: No est v 56.2 prior
• 09:30 (NZ) Fonterra Global Dairy Trade Auction: Dairy Trade price index
• 10:00 (US) May Factory Orders: 0.0%e v -0.8% prior
• 10:00 (US) May Final Durable Goods Orders: No est v -0.6% prelim; Durables Ex Transportation: No est v -0.3% prelim, Capital Goods Orders (Non-defense/ex-aircraft): No est v -0.2% prelim
• Capital Goods Shipments (Non-defense/ex-aircraft): No est v -0.1% prelim
• 10:00 (DK) Denmark Jun Foreign Reserves (DKK): No est v 468.1B prior
• 11:00 (CO) Colombia May Exports: No est v $3.7B prior
• 13:00 (NZ) New Zealand Jun QV House Prices Y/Y: No est v 6.9% prior
• 16:30 (US) Weekly API Oil Inventories

The cryptocurrency market has stated the second half of the year with a rally and market capitalisation standing at $273bn. Last week Bitcoin dropped below $6000 as market sentiment remained negative but after the expiration of CME futures contracts the cryptocurrency rallied 12%. Sentiment was improved recently as the US Securities and Exchange Commission (SEC) clarified that Bitcoin and Ethereum are not considered securities and so would not be regulated in the same way as stocks.

Coinbase has also gone live with its institutional product (Coinbase Custody) aimed at hedge funds and other clients who can deposit a minimum of $10m and have accepted their first deposits last week. Also, Facebook has reversed its ban on cryptocurrency adverts, fuelling speculation that the tech giant may be planning to enter the space.

BTCUSD

On the daily chart, BTCUSD broken out of a descending wedge and there is now a possibility of a bear market rally. If Bitcoin can break the 23.6% retracement and the horizontal resistance at 6760, there may be a more meaningful recovery towards 8400 with resistance near 7720. A reversal below 6450 will negate the immediate outlook and open the way for another test of the lows at 5780.

ETHUSD

In the daily time frame, ETHUSD has also broken out of a descending wedge but faces immediate resistance at the 20MA near 480. If Ethereum can clear the 23.6% retracement at 508, a continuation to 570 and then 620 is possible. On the flip-side, a reversal below 445 would result in another visit to the lows at 405.

The UK services PMI – a gauge of service sector activity – will be watched closely by investors on Wednesday at 8:30 GMT to assess the health of the UK economy. The report from IHS Markit/CIPS is expected to show growth in the dominant services sector holding steady in June. However, a solid reading is unlikely to provide much support for the pound, which has slumped to 8-month lows in recent days amid growing doubts about the UK government’s Brexit plans.

After a patchy first quarter and a sharp dip in March, the services PMI rebounded in April and May, recovering to a three-month high of 54.0 in May. The index is forecast to remain at 54.0 in June, which although is slightly below the average seen in 2017, would still point to descent GDP growth of about 0.3-0.4% in the second quarter.

Following last week’s upward revision to first quarter GDP growth from 0.1% to 0.2% quarter-on-quarter, and this week’s better-than-expected manufacturing and construction PMIs for June, another beat in Wednesday’s data could boost the chances of a rate hike by the Bank of England at its August policy meeting.

An upside surprise could help the pound claw above the $1.3230 resistance barrier but would first need a convincing break above the 50% Fibonacci of the upleg from $1.1979 to $1.4376, which stands around the $1.3180 mark. Stronger gains would bring the $1.33 handle back into scope, while higher up, the $1.34 level, where the 50-day moving average is intersecting, could act as the next major hurdle.

A disappointing reading however, could push sterling towards immediate support around $1.31. Breaching this support would clear the way to last Thursday’s near 8-month low of $1.3048 and accelerate the declines. Deeper losses would put the spotlight on the 61.8% Fibonacci around the $1.29 level.

But with Brexit worries once again moving to the forefront, the PMI data may fail to attract the usual amount of attention. While Brexit talks got a small boost last week after Michel Barnier, the EU’s chief negotiator, told reporters that progress had been made, lifting the pound to above $1.32, the big focus now is on a UK cabinet meeting at the end of the week when government ministers will try to agree on a post-Brexit customs solution.

The Prime Minister, Theresa May, is hoping to win the support of her cabinet on a new and third plan on a post-Brexit customs partnership with the EU at a special meeting on Friday. May’s previous two proposals on how trade should flow between the UK and the EU after Brexit were rejected by both the EU and her ministers. But with time fast running out before the UK formally leaves the EU on March 29, 2019, failure for the Brexiteers and the Bremainers within May’s cabinet to reach a consensus would fuel doubts about whether a Brexit deal can be reached on time, raising the prospect of a no-deal Brexit.