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European markets remain focused on the OPEC's oil supply verdict today
French Flash services PMI number are supporting the European markets
A trade war between the US and China is an interesting affair

Another mix set of economic data out of France today. The French Flash Manufacturing PMI fell short of expectations with the reading of 53.1 while the forecast was 54.

However, the strong French Flash services PMI number are supporting the European markets. The number came in much solid and it was also ahead of the expectations. The forecast was for 54.3 while the actual number came in at 56.4. This keeps the hope that Q2's growth in Europe could be better than the Q1. The strong French flash services data is also supporting the euro-dollar pair, there is clearly more momentum for the bulls today.

European markets remain focused on the OPEC's oil supply verdict today. For us, it is not about how much production surge we would see by the cartel, but how investors would see the cartel from here onwards. This is because Iran clearly has clearly walked away and it does not support the production increase. A divided OPEC is the last thing you want to see especially when you see the US shale oil becoming an important factor when it comes to the supply and demand equation.

A trade war between the US and China is an interesting affair for traders who love volatility. It is providing a lot of opportunities for day traders as one can continue to buy the dip and sell it at its top. Once again, yesterday was one of those days, equity markets faced selling pressure as traders took their profit off the table. The moment this issue takes the centre stage, the risk off trade takes over. But interestingly, the risk-off trade doesn't necessarily mean that investors are buying gold. The precious metal itself is suffering from lack of demand.

In today's market action, the focus remains on tit-for-tat reaction as European sanctions kicks in against a large number of US-based companies. Thanks to Trump administration which has chosen this weapon and hopeful that they will get things their way. Perhaps, they are undervaluing the negative effects of this strategy.

In terms of currencies, Sterling seems to have bottomed out for now after the Bank of England's chief economist decided to join the hawk's camp. Change of heart without any warning is a very common thing when we talk about the Bank of England's policy members. After all, the governor himself is known as an unreliable boyfriend. Given that the chief economist has joined the hawk's camp, trades are thinking that the possibility of another rate hike by the Bank of England is skewed to the upside.

The USDJPY pair is trending back higher after dipping back to test the 108.000 zone as support. The price is consolidating around the 110.000 level with bulls and bears battling for control. It is possible that this is a Bull flag pattern on a daily time frame with a target of above 114.000 but the pattern is as yet incomplete. The immediate target for bulls is a breakout to 112.000 which was major support from December. The recent high at 111.390 bars progress with 113.674 resistance above.

Support comes from the 200 DMA at 109.667 and the major trend line at 109.573. A failure to push back under this trend line leaves the bulls in control but the dollar weakened yesterday as it attempted to breakout on weak Philly Fed numbers and a Supreme Court ruling to tax internet sales. A drop under the 50 and 100 DMAs down to 109.000 gives the bears a chance to attack the higher low at 108.108. Then the last trend line support can be tested at 107.500. These trend lines are acting parallel off of the main descending line and as mentioned may form a bull flag pattern. A close under 107.000 can see the down trend resume and 106.000 and 105.000 tested in quick succession.

Expect OPEC Production headline to stay overstated

Today in Vienna, OPEC and non-OPEC oil producers will discuss ramping up oil production. The stars seem to be aligned: discord with Iran has eased, while Russian and Saudi Arabia are supporting the move. Accordingly, the market reacted, as Brent and West Texas Intermediate (WTI) fell by -2.26% and -1.03% to USD 73.98 and USD 66.32 respectively. Year-to-date, Brent and WTI are up +11.09% and +9.84.

But we think the market has overreacted. Expectations of 1-1.5 million barrel/day increases are too optimistic. We expect effective increases to be more like 600’000 b/d. Spare capacity is thin, while Venezuela and Angola are crippled by economic instability and investment neglect of the last years. Therefore, Brent Crude and WTI downward moves are overstated, as demand from China and India remains strong.

Summer Friday

The World Cup is on, it’s sunny and it’s Friday. Don’t expect a lot of action in equities or in Forex. Still, markets have a lot going on in the background. Yesterday saw a profit warning from Daimler – highlighting the risk of a US-China-EU trade war. Volatility in oil prices caught up to the energy sector. Emerging market currencies staged a marginal recovery, but trading felt like profit taking. Mexico increased rates by 0.25% to 7.75%, a proactive response to extreme MXN weakness ahead of Presidential elections and increasing NAFTA tensions. The Swiss National Bank stayed defensively dovish, repeating that the CHF is highly valued, and the Forex market remains delicate. With the USD on the defensive, GBP gained as the Bank of England sounded hawkish as to an August rate hike.

GBPJPY surged to a new weekly high of 146.61 in today’s European session, jumping above the 146.20 key level. Also, the price surpassed the 40-simple moving average (SMA) in the 4-hour chart while the short-term technical indicators confirm the bullish structure.

From the technical point of view, the Relative Strength Index (RSI) is heading higher increasing positive advances in price action and lies above the threshold of 50. Furthermore, the MACD oscillator is rising in the negative territory and is approaching the zero line for a possible climb in the positive area in the next few sessions.

Should the market continue the bullish bias, resistance could be met at the 200-SMA near the 147.00 psychological level before being able to challenge the 38.2% Fibonacci retracement level of 147.25 of the downleg from 153.80 to 143.20. If there is a jump above this region and the medium-term descending trend line, the next major resistance would come from the 148.10 barrier.

To the downside, immediate support is being provided by the 146.20 hurdle. Further losses could push the pair towards the 23.6% Fibonacci mark of 145.70. A leg below this barrier could see a hit of the 144.40 support, taken from the low on June 19.

To sum up, in the medium-term, the pair is continuing the negative outlook after the pullback from the 153.80 resistance level on April 13.

• Trade concerns continue to weigh as EU imposes counter-tariffs;
• EUR and GBP higher after PMIs and on prospects of rate hikes;
• Oil edges higher ahead of OPEC meeting.

Equity markets are experiencing a bit of a bounce on Friday at the end of what has been another worrying week, in which trade concerns have weighed on risk appetite.

While people are becoming accustomed to a world in which Donald Trump picks fights with countries – friend or foe – in an attempt to bully them into submission on trade, markets have not yet become desensitized to it. The week started with the world's two largest economies announcing tariffs against each other and threatening to escalate the spat dramatically and has ended with the European Union imposing its own counter-tariffs against the US in retaliation for those previously announced by the Trump administration.

While the NASDAQ may have shown cockroach-like resilience this week and hit a record high in the process, other stock indices have not been so lucky. Investors are quite clearly concerned about where we go from here and just how far these huge trading blocks are willing to go before common sense prevails. We're already seeing signs that China and the EU are choosing strategic tariffs over monetary value in an attempt to reduce the economic impact at home but if things continue to escalate, it will be very difficult for everyone involved not to suffer.

Meanwhile, central banks are clearly hoping that everyone will see sense and that their respective economies won't be harmed too much in the process. The Bank of England this week joined the Federal Reserve and European Central Bank in sending signals out to markets that interest rate increases are on the horizon, with Andy Haldane becoming the third policy maker of nine to vote for an increase. With the voting now very close and the central bank becoming increasingly convinced that the first quarter slowdown was a blip, an August rate hike looks very much on the table.

Perhaps it's this hawkish shift from the BoE and ECB that's lifting their respective currencies off their lows and seeing them rally into the end of the week. The flash PMIs from the eurozone, Germany and France this morning won't be doing the euro any harm either, with the services sector in particular seeing a decent improvement. Confidence in the manufacturing sector appears to be suffering as a result of trade concerns, which is hardly surprising, although with the services sector more than offsetting this, there is reason for optimism.

The ECB will also likely be comforted by price pressures picking up, at least partly driven by higher wages suggesting a tighter labour market in some areas. Of course, there remains significant gaps between the different regions in the eurozone so the central bank will have to proceed with caution, which explains its extremely dovish wrapping of what was a hawkish move last week.

All eyes today will be on the OPEC meeting as producers discuss whether and how much to increase production by now that the targets of its previous 1.5 million barrel a day cut have been achieved. There remains some disagreement between some members on how much to increase, with Iran in particular not wanting to bow to pressure from the US, especially at a time when sanctions are being re-imposed on the country.

Brent and WTI crude prices have come off their highs over the last month on the expectation that producers will announce an increase, with Saudi Arabia reportedly pushing for countries to pump an additional one million barrels a day. While they may have to settle for a little less than that to get all members on board, it will be a step in the right direction and could in turn stop oil prices rising much above the levels we've already seen with the end consumer already starting to feel the pinch.

XAUUSD (1268.25): Gold prices were seen posting a modest rebound after price fell sharply to fresh lows of 1262.50. Any reversal is likely to be seen with the resistance at 1274 holding the gains. We expect gold prices to continue consolidating below the 1274 handle with the potential to post further declines on a close below the 1262.50 lows formed recently. To the upside, a close above 1274.50 could signal a move toward the 1282.50 handle.

USDJPY (109.97): The USDJPY currency pair posted strong declines following the retest of the resistance level at 110.62. The declines are likely to continue with a retest of the major trend line which could offer some short term support. A breakout below this major trend line could keep the USDJPY currency pair biased to the downside. Support at 109.57 - 109.43 is the next downside target. However, with the Stochastics oscillator signaling a possible reversal, we could expect to see a lower high being formed ahead of further declines.

EURUSD (1.1614): The EURUSD currency pair was seen holding up above the support level of 1.1539 following a brief intraday decline to the support zone. The daily chart is signaling a possible bullish rebound with the Stochastics posting a higher low. The resistance level at 1.1730 is likely to be the upside target for a near term retracement to the losses. On the 4-hour chart, price action is also signaling a possible rebound unless the EURUSD dips lower once again. A close above 1.1610 level could trigger the move to 1.1730 following a move toward the 1.1846 - 1.1824 level of resistance.

The Bank of England's monetary policy meeting held yesterday saw officials keeping interest rates steady at 0.50% as widely expected. However, this came amid three dissenting votes including that of the BoE's chief economist, Andrew Haldane.

The central bank also signaled that it would begin to unwind its bond purchases once interest rates hit 1.5% and laid the groundwork for a potential rate hike at the August BoE meeting. The British pound initially fell ahead of the BoE meeting but managed to post a strong rebound thereafter.

Economic data for the day will see the European trading session coming up with the flash manufacturing and services PMI figures for the month of June. Business activity is expected to remain more or less at the same levels from May.

The OPEC meetings conclude today with possibly a statement. Investors will be looking to see whether the oil producing nations have managed to reach an agreement on oil production levels.

Data from Canada will see the release of inflation and retail sales figures. Economists forecast that inflation increased 0.4% on the month, accelerating from 0.3% the month before. Core retail sales are forecast to rebound, rising 0.5% on the month, following a decline of 0.2% previously.

EUR/USD

Current level - 1.1632

The bias has switched to positive with yesterday's break through 1.1600, confirming a failure at 1.1510. The intraday outlook is positive above 1.1600, for a rise  towards 1.1720.

USD/JPY

Current level - 109.98

The return below 110.30 has neutralized the bullish bias and the intraday outlook is neutral. Initial resistance lies at 110.30 and key support is projected at 109.50.

GBP/USD

Current level - 1.3271

The violation of 1.3215 signals, that a bottom is in place at 1.3100 and the bias is positive above 1.3215, for a break through 1.3300, towards 1.3460.