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The DAX index has posted slight losses in the Tuesday session. Currently, the DAX is at 12,820, down 0.10% on the day. On the release front, German ZEW Economic Sentiment posted a dismal reading of -16.1 points, missing the estimate of -14.6 points. Eurozone ZEW Economic Sentiment followed the same trend, with a reading of -12.6, well below the forecast of 0.1 points. On Tuesday, the Federal Reserve is expected to raise interest rates to a range between 1.75% and 2.00%.

The ECB hold its next policy meeting on Thursday, and the markets will be looking for any clues with regard to the ECB’s asset-purchase program. Currently, the bank is purchasing EUR 30 billion/mth, and the scheme is scheduled to wind up in September. However, some ECB policymakers want to phase out the program slowly, rather than turn off the tap completely in September. ECB Chief Economist recently said that the ECB board members would conduct a detailed discussion about the fate of the stimulus package at the June meeting. The head of the German central bank, Jens Weidmann, weighed into the discussion last week, saying that the markets expected the stimulus program to wind down before the end of the year and that such expectations were “plausible”. ECB head Mario Draghi will likely make mention of the program at his press conference following the Thursday meeting, so traders should be prepared for some volatility from EUR/USD on Thursday.

The G-7 summit in Quebec lived up to the negative hype, as the “G-6 +1” was the scene of sharp disagreements between U.S President Trump and the other six leaders. Trump openly clashed with the other leaders over his recent tariffs against the European Union and Canada and pulled back his endorsement of the traditional post-summit statement put out by the other members. The undiplomatic Trump also tweeted that Canadian Prime Minister Trudeau, who hosted the summit, was “dishonest and weak”. Canada and the EU are furious over recent US tariffs, especially because of Trump pushed them through on the basis of ‘national security’. The glaring cracks in G-7 unity could cast a long shadow on trade relations between the U.S and the “G-6”, which could unnerve investors and send the stock markets downwards.

EUR/USD continues to have a quiet week. On Tuesday, the pair is trading at 1.1792, up 0.05% on the day. On the release front, German ZEW Economic Sentiment posted a dismal reading of -16.1 points, missing the estimate of -14.6 points. Eurozone ZEW Economic Sentiment followed the same trend, with a reading of -12.6, well below the forecast of 0.1 points. In the US, the focus is on consumer inflation data. CPI is expected to remain pegged at 0.2% and Core CPI is forecast to stay unchanged 0.1% percent. On Tuesday, the US will release PPI reports and the Federal Reserve is expected to raise interest rates to a range between 1.75% and 2.00%.

The leaders of the U.S and North Korea met in a historic summit in Singapore on Tuesday. The joint statement put out by leaders was short on details, but President Trump said that President Kim Jong-un had reaffirmed its full commitment to complete denuclearization of North Korea. Although the crucial issue of verification was not addressed, there’s no denying that tensions have significantly eased and that the summit could mark a first step in bringing peace to the Korean peninsula.

The focus will be on central banks this week, with statements from the Federal Reserve on Wednesday and the ECB on Thursday. The Fed is widely expected to raise rates, with odds of a quarter-rate hike at 94%. Although the rate increase has been priced in, the U.S dollar could still make some gains against its major rivals. In Europe, the ECB will be looking for any clues with regard to the ECB’s asset-purchase program. Currently, the bank is purchasing EUR 30 billion/mth, and the scheme is scheduled to wind up in September. However, some ECB policymakers want to phase out the program slowly, rather than turn off the tap completely in September. ECB Chief Economist recently said that the ECB board members would conduct a detailed discussion about the fate of the stimulus package at the June meeting. Mario Draghi will likely make mention of the program at his press conference, so traders should be prepared for some volatility from EUR/USD on Thursday.

The British pound has recovered upside momentum towards the 1.3418 level against the US dollar, following solid monthly Wage and Unemployment figures from the United Kingdom economy. Sterling buyers and sellers are currently battling around the 1.3400 level, with bullish momentum growing after the pair found strong dip-buying interest from the 1.3341 level. Traders now look towards the release of key CPI Inflation data from the US economy and the result of today’s Brexit vote in the House of Commons.

The GBPUSD pair is strongly bullish while trading above the 1.3420 level, key technical resistance is located at the 1.3450 and 1.3471 levels.

If the GBPUSD pair fails around the 1.3400 level, sellers will likely test towards the 1.3341 and 1.3300 support levels.

The euro currency has moved back towards the key 1.1800 level against the US dollar, after the pair found strong dip-buying demand from the 1.1740 level earlier today. The EURUSD pair has pulled back slightly, after finding interim technical resistance from the 1.1808 level. Traders now look towards the release of key CPI Inflation data from the US economy, ahead of tomorrow’s key FOMC Interest Rate Decision.

The EURUSD pair is only intraday bullish while trading above the 1.1800 level. Key resistance is located at the 1.1839 and 1.1875 levels.

If the EURUSD pair moves below the 1.1800 level, sellers will likely push price towards the 1.1770 and 1.1740 support levels.

OECD Secretary-General Angel Gurría said in presenting a report in Berlin that "Germany's recent economic performance is remarkable, and the robust expansion appears set to continue." Also, "unemployment is at record low levels and Germany is providing jobs, and better lives, to hundreds of thousands of immigrants." However, he also urged that "More must be done now to ensure that today's strong economic and social results are sustained and extended to all."

Gurría's speech.

In the latest economic projections, Germany economic growth is expected to slow after a great year in 2017 but remains robust ahead. Unemployment rate is also projected to drop further as the economy improves. The more important part is that core inflation is expected to surge from 1.3% in 2018 to 2.0% in 2019.

OECD projects German economic growth to slow from 2.5% in 2017 to 2.1% in 2018 and maintain the same pace in 2019. Exports growth is expected to slow from 5.3% in 2017 to 4.5% in 2018 and 4.5% in 2019. CPI is projected to be unchanged at 1.7% in 2018 and climb further to 2.0% in 2019. Core CPI is also expected to be unchanged at 1.3% in 2018 and rose to 2.0% in 2019. Unemployment rate is projected to drop from 3.7% in 2017 to 3.4% in 2018 and then 3.3% in 2019.

The presentation.

WTI oil hit seven-day high at $66.58 in extension of recovery leg from $64.21 (05 June low).

Oil price holds in recovery mode and tracked by rising daily cloud base which contained larger pullback from $72.89 to $64.21.

Recovery retraced so far 23.6% of $72.89/$64.21 pullback, but there is still long way towards pivotal barrier at $67.53 (Fibo 38.2%, reinforced by 55SMA / daily cloud top) break of which is needed to confirm reversal.

Slightly stronger momentum supports, but overall bearish techs keep the downside at risk.

Price action needs to hold above rising cloud base (currently at $65.38) to keep bullish near-term bias alive.

Focus turns towards releases of US weekly crude stocks data, which are expected to give more details about the strength of demand of world’s largest oil consumer.

API report is due later today and EIA weekly crude stocks report will be released on Wednesday (forecast for 0.05 million barrels draw vs last week’s unexpected build of 2.16 million barrels.

Res: 66.58, 67.53, 68.14, 68.80
Sup: 65.99, 65.38, 64.84, 64.21

EUR/USD

Current level - 1.1797

There is still a chance for a dip to 1.1650 before breaking beyond 1.1830, towards 1.2050. Crucial hurdle lies at 1.1830.

USD/JPY

Current level - 110.22

The intraday bias is positive above 110.10 and I expect a brief rise to 110.70 to put an end of the upmove since 109.18, triggering another sell-off, towards 107.80.

GBP/USD

Current level - 1.3404

The pattern below 1.3460 is obviously a corrective one, so it precedes an appreciation towards 1.3620 area. One the intraday frames, I favor one more leg downwards, to 1.3290.

The G7 Summit deepened the rift between the US and its closest allies with Canada taking the brunt of the damage. What the fallout for NAFTA will be remains to be seen. The impact on Mexico also remains unclear with the USDMXN pair cycling between 20.64168 and 20.20390. The market moved higher since the April low and rallied above 20.00000 on the lead into the meetings. Resistance at 20.64168 has been tested and 21.00000 remains the next area where sellers could be waiting. Further on the 21.38828 corresponds to the late 2016 high with a double top formed at 22.02739.

Support for the pair is found at 20.20390 as mentioned earlier, with the 20.00000 level close by. The 19.90000 level was the high from December 2017 and a loss of this point could see longs come under pressure and the trend tested. To build on such a move sellers would need to take out 19.43914 and the 50 DMA followed by the 100 DMA at 19.14253 creating lower lows in the process. The support of the 200 DMA and the 18.95150 level could be used by longs to prop up price but a loss of these levels could target 18.43770 and 18.04950 as supports.

The EURCAD pair has rediscovered its DMAs over the last week and is now attempting to break above the 100 DMA at 1.53700. It is using the 200 DMA at 1.52474 as support in its attempt with yesterday’s low at 1.52031 a key level for risk to lean against. A failure of the move and a loss of these levels could push price down to 1.51449 and the 1.50000 level beyond. With the May low coming in at 1.49212 continued selling could result in a retest of 1.47365.

The 1.54348 point stands to offer a retest of the 100 DMA if the moving average is broken gifting traders an entry point on the breakout higher. With price consolidating and building energy it stands to reason that a breakout could push price higher to the 1.55325 level with 1.56859 presenting stronger resistance. A push above this line would lead to a move on 1.58134 which is an area of previous support from March. The 1.59617 level guards the way to 1.60000 and the high for the year at 1.61490.

Risk head-fake

On the surface, risk is building, yet underneath, volatility continues to compress. The VIX volatility index at 12.33 is at levels not seen since January. Financial markets are less concerned about geopolitical hype and more focused on fundamentals. Economic slowdown in Asia and Europe is not alarming, while central banks' normalisations remains gradual. Equity valuations outside the US are at manageable levels. While protectionism remains a risk, Asia's internal trade keep the region supported. Growth in the developing East Asia and Pacific regional is expected to reach 6.4% in 2018; China is outpacing estimates, tracking toward 6.9%.

We are bearish USD (bullish INR, THB and IDR), yet uncertain how the massive debt sale will affect emerging markets' capital outflows. This week a US rate hike of 0.25% is universally expected. There is risk of four rate hikes in 2018, up from currently expected three. Four hikes would give the USD a minor, short-lived boost.

Trump-Kim dollar push didn't last long

The US dollar started the days off to wheel as investors cheered the successful conclusion of the Trump-Kim summit. During the Asian session, the dollar index bounced to 93.89 as the single currency fell as low as 1.1741, USD/JPY rose to 110.49 and USD/CHF hit 0.9884. The two leaders signed an agreement that Donald Trump qualified as “comprehensive” and “important”, which suggests it could be a game changer. Nevertheless, the agreement is so “comprehensive” that it doesn't tell much about what North Korea will actually do regarding denuclearization, neither what would be the reward from the US. In our opinion, the statement is too vague to draw any solid conclusion. Yes, it shows good will; unfortunately, both leaders have a spotty record in keeping promises. Therefore, there is little doubt it won't be an easy ride.

It didn't take long for investors to figure that out. During the European morning, the buck reversed early gains. EUR/USD bounced back above 1.18, USD/CHF eased to 0.9840 and USD/JPY retuned to 110.30. Even though we agree this is an historical step, for both countries, we believe this is just the beginning of a long and bumpy road.

Market participants will quickly but these geopolitical developments on the backburner ahead of the FOMC and ECB meetings. The main even of the day will be the publication of the US inflation report for May. The headline gauge is expected to rise 2.8%y/y, compared to 2.5% in April, while the core measure should print at 2.2%y/y (2.1% in the previous month). Above forecast reads could awake bulls at the Fed and lead them to push for a fourth rate hike this year. Therefore, the risk is mostly on the upside for the dollar today.