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The Aussie dollars holding within a narrow range on Monday, below 0.8000 barrier, after spiking to fresh multi-month high at 0.8065 last week.

The pair remains in an uptrend from mid-May low at 0.7328, with stronger acceleration that started in early July, boosted by weaker dollar and higher commodity prices.

Three consecutive strong bullish weeks and ending the second straight month in bullish mode, signal further advance, which requires eventual weekly close above 0.8000 barrier, reinforced by falling weekly 200SMA.

Meanwhile, the pair may extend consolidation and dip lower on negative signal from daily RSI bearish divergence and the indicator's reversal from overbought territory.

Break below initial support, provided by rising 10SMA (currently at 0.7952) which contained last week's downside attempts, would generate bearish signal and risk extension towards next strong supports at 0.7877 (daily higher base / Fibo 38.2% of 0.7572/0.8065 upleg) and 0.7809 (rising 20SMA).

Focus is on RBA's interest rates decision on Tuesday with the central bank widely expected to keep interest rates unchanged at 1.5%.

Markets will be also watching RBA's Monetary Policy statement on Friday, as hawkish tone of the statement would further boost Australian currency.

Res: 0.7989, 0.8000, 8065, 0.8100
Sup: 0.7952, 0.7900, 0.7877, 0.7809

Monday July 31: Five things the markets are talking about

The 'mighty' U.S dollar starts the week trading with a bearish price action against the yen on repatriation flows as White House's tensions with North Korea and Russia have escalated over the weekend.

Note: A North Korean missile launch showed that it might be within striking range of the U.S, while in Russia, President Putin has declared that he will kick out over 750 U.S diplomats by the end of September in retaliation to new sanctions. In Venezuela, at least nine killed, including a candidate, amid Venezuela protests during election for new legislative body that will reform constitution.

On the data front, there is a trifecta of central bank meetings with the Reserve Bank of Australia (RBA), Reserve Bank of India (RBI) and the Bank of England (BoE) all announcing their respective monetary policies (Aug 1, 2 and 3 respectively).

Elsewhere, the final July PMI's will be released for a host of countries, while trade data will be reported for Australia, Canada and the U.S.

Finally, ending another week of heavy earnings reports will be Friday's July employment data for the U.S and Canada.

1. Stocks get the green light for now

Year-to-date, equities have rallied to record levels globally on evidence of a resilient worldwide economy.

In Japan, the Nikkei ended slightly softer overnight (-0.2%), trading atop of its seven week lows as a sell-off in index heavyweight stocks offset gains in companies with upbeat earnings. For the month, the Nikkei has lost -0.5%, snapping a three-month winning streak. The broader Topix index closed -0.2% lower after swinging between gains and losses.

Down-under, Australia's S&P/ASX 200 Index rallied +0.3%, while South Korea's Kospi index added +0.1%.

In Hong Kong, the Hang Seng Index added +1.3% with financials among the biggest contributors to the advance. The index has completed a seventh-straight month of gains – For July, HSI was up +6.1%.
In China, stocks extended their gains, aided by earnings outlooks at resource firms. The blue-chip CSI300 index rallied +0.5%, while the Shanghai Composite Index added +0.6%, it's highest since mid-April. For the month, CSI300 advanced +2.0%, while SSEC gained +2.5%.

In Europe, regional indices trade higher across the board with outperformance in the Swiss SMI and FTSE 100 mostly buoyed by financials. It will be another busy week for earnings.

U.S stocks are set to open flat.

Indices: Stoxx600 +0.2% at 379, FTSE +0.4% at 7398, DAX flat at 12164, CAC-40 -0.1% at 5126, IBEX-35 +0.1% at 10550, FTSE MIB +0.3% at 21496, SMI +0.4% at 9055, S&P 500 Futures flat at 2471

2. Oil hits new high on tighter U.S market, Venezuela sanctions risk

Overnight, oil prices hit a two-month high, lifted by a tightening U.S crude market and the threat of sanctions against OPEC-member Venezuela.

Brent crude futures are at +$52.85 per barrel, up +33c or +0.6%, while U.S. West Texas Intermediate (WTI) futures briefly jumped over +$50 per barrel, up +25c, or +0.5% from Friday's close.

Note: The price rises put both crude benchmarks on track for a sixth consecutive session of gains and up +10% since the last meeting of OPEC and other major producers.

U.S crude inventories have fallen by -10% from their March peaks to +483.4m barrels, while production numbers indicate that U.S output has dipped by -0.2% to +9.41m bpd in the week to July 21, after rising by more than +10% since mid-2016.

Drilling for new U.S production is also slowing, with just 10 rigs added in July, the fewest since May 2016.
Note: Despite the signs of a tighter market stateside, supplies in China remain plentiful – June crude inventories rose to the highest level in 11-months, marking the third month of gains.

Gold prices are trading atop/near its seven-week high overnight (-0.2% to +$1,267.07 an ounce) as tensions on the Korean peninsula boosted safe-haven demand for the precious metal – It gained +1.1% last week in what was its third consecutive weekly gain.

Silver also rallied +1.2% last week, its third straight weekly gain, while copper climbed +1.2% to +$2.91 a pound, its highest price in more than two-years.

3. Global yields little changed

U.S government-bond prices rallied Friday after domestic data showed economic growth picked up in Q2 (+2.6% vs. +2.7%e), but that inflation continues to remain somewhat tepid.

U.S Q2 GDP rose at a +2.6% annual rate vs. the +2.7% expected, while the U.S employment-cost index (a broad gauge of wages and benefits), advanced by a seasonally adjusted +0.5% in Q2, less than the +0.6% rate the market was expecting.

The yield on benchmark 10's settled at +2.29%, down -2 bps from Thursday's close. However, it was still the first weekly gain for bond yields since July 7.

Elsewhere, Germany's 10-year Bund yield has declined -1 bps to +0.54%, U.K 10-year Gilts have also fallen -1 bps to +1.21%.

4. Is the Dollar undervalued?

U.S political uncertainty surrounding the Trump administration has pressured the mighty USD, down -9% against the majors year-to-date.

Based on U.S fundamentals, is the dollar too much undervalued? Data for leveraged funds indicated that they are holding net 'short' dollar positions for the first time since May 2016.

The weakness in the world's reserve currency comes despite the Fed hiking rates last month, the prospect of further increases, and the shrinking of the Fed's balance sheet “relatively soon”. The market is also expecting a tightening soon bias from a plethora of other central banks (ECB, BoE, BoC and RBA). Maybe it's time to consider lightening up on the sell the Trump dollar trade?

This morning, the EUR (€1.1733) has managed to pare some of its losses outright after in-line eurozone headline CPI inflation data, above-forecast core CPI data and better-than-expected jobless data (see below). It's now trading down -0.1% ahead of the U.S open.

GBP/USD is fractionally lower at £1.3110 with market focus on the BoE rate decision this Thursday.

5. Eurozone jobless rate falls, inflation stalls

Data this morning showed that the Eurozone's annual rate of inflation for July was as expected at +1.3%, unchanged m/m and remains at the lowest level for this year. The core rate nudged up to +1.2% despite a slowing of service prices, but all measures remain well below the ECB's target of just under +2%.

Causing further frustration for Euro policy makers is the unemployment rate continues to fall quite quickly – it's down to +9.1% in June, its lowest level in eight-years. The May rate was revised lower from 9.3% to 9.2%.

Overnight, China July Manufacturing PMI (Government Official) misses expectations, but expands for the 12th straight month.

China July official manufacturing PMI came in at 51.4 vs. 51.5e, and non-manufacturing PMI at 54.5 also shy of expectations.

Digging deeper, sub-component for construction rose to a high not seen since Dec 2013.

In the Monday session, EUR/USD has edged lower, as the pair is trading at the 1.1730, down 0.15% on the day. On the release front, German Retail Sales climbed 1.1%, crushing the estimate of 0.1%. Eurozone CPI Flash Estimate remained unchanged at 1.3%, matching the forecast. In the US, today’s major event is Pending Home Sales. The markets are expecting a rebound of 0.9%, after three straight declines. On Tuesday, the US releases ISM Manufacturing PMI, with the markets expecting the index to dip to 56.4 points.

German indicators started the week on a positive note, as retail sales posted a strong gain of 1.1%. This marked the strongest gain since February. Last week, GfK German Consumer Climate strengthened for a fourth straight month, improving to 10.8 in the July report. This edged above the estimate of 10.7 points. Importantly, strong consumer confidence has translated into increased consumer spending, a key driver of economic growth. However, the fly in the ointment remains inflation, which is stuck at low levels. The lack of inflation is a pressing concern for ECB policymakers, and there is little chance that the bank will end its quantitative easing program before December, if inflation levels don’t move upwards.

It’s become an all-too-familiar pattern out of Washington – trouble for the White House has translated into losses for the US dollar, as higher political risk has led to investors moving away from the greenback in favor of other currencies and gold. It was déjà vu on Friday, as President’s struggling healthcare bill gasped its final breath as the bill was defeated in the Senate after three Republican lawmakers joined the Democrats and voted against the bill. This is another setback for President Trump, who has been unable to get Congress to pass any significant legislation, despite the Republicans controlling both the House and the Senate. Trump will now be able to focus on other issues such as tax reform, but investors are skeptical as to whether the President will have the support he needs in Congress to pass major legislation. The US dollar was broadly lower on Friday and the euro climbed to 1.7777, its highest level since January 2015.

Daily Pivots: (S1) 144.95; (P) 145.36; (R1) 145.73; More

Intraday bias in GBP/JPY remains neutral for the moment. On the upside, break of 147.76/148.42 key resistance zone will resume larger rebound from 122.36. On the downside, break of 144.01 will extend the sideway pattern from 148.20 with another fall back to 135.58/65 support zone.

In the bigger picture, rise from medium term bottom at 122.36 is expected to continue to 38.2% retracement of 196.85 to 122.36 at 150.43. Decisive break there will carry long term bullish implications and pave the way to 61.8% retracement at 167.78. In case the sideway pattern from 148.42 extends, we'd be looking for strong support from 135.58 and 50% retracement of 122.36 to 148.42 at 135.39 to contain downside.

EUR/USD

Current level - 1.1742

The bias is bullish above 1.1716, for a rise towards 1.1870 area. An eventual slide below the latter will provoke another attempt at 1.1650.

USD/JPY

Current level - 110.54

The downtrend is intact, heading towards 109.30 support zone. Minor intraday resistance lies at 110.80, followed by the key area at 111.47.

GBP/USD

Current level - 1.3128

A violation of the previous high at 1.3157 will confirm, that the consolidation pattern is over and the pair will target 1.3260 mark.

Daily Pivots: (S1) 129.58; (P) 129.99; (R1) 130.43; More...

Intraday bias in EUR/JPY remains neutral as consolidation from 130.76 is extending. Another fall could be seen. But downside should be contained by 127.43 cluster support (38.2% retracement of 122.39 to 130.76 at 127.56) and bring rebound. Above 130.76 will extend the larger rally to next key fibonacci level at 134.20.

In the bigger picture, the down trend from 149.76 (2014 high) is completed at 109.03 (2016 low). Current rally from 109.03 should be at the same degree as the fall from 149.76 to 109.03. Further rise is expected to 61.8% retracement of 149.76 to 109.03 at 134.20. Sustained break there will pave the way to key long term resistance zone at 141.04/149.76. Medium term outlook will remain bullish as long as 124.08 resistance turned support holds.

July flash inflation numbers, as well as the June unemployment rate for the eurozone were released today. The positive surprise in core inflation, in conjunction with the fall in the unemployment rate, led to the euro recording gains relative to major currencies.

Looking at today's figures, the July flash inflation rate stood at 1.3% on an annual basis, as expected. This also coincided with the prior month's figure. Rising energy prices contributed the most to inflationary pressures during July. The respective number for core inflation, the measure that excludes volatile unprocessed food and energy items, was released at 1.3% year-on-year as well, outstripping expectations for 1.1% growth and coming in above June's 1.2%. This constitutes a four-year high for the measure that is often cited by the European Central Bank in its policy making.

Turning to June's unemployment rate, it edged down to 9.1%, its lowest since 2009, from May's downwardly revised 9.2% (from 9.3% before). Analysts' projections were for a reading of 9.2%. This multi-year low reaffirms that euro area economies remain within a path of stronger growth. Adding to this, Germany saw its unemployment rate falling to 3.8% from 3.9% in May. This raises hopes that the eurozone's largest economy will experience more significant wage rises leading to positive contagious effects for the entire euro area.

Regarding reaction in the forex markets, the euro advanced on the news relative to the dollar as euro/dollar rose to as high as 1.1744 within the first few minutes of data release. The pair previously traded at 1.1731. Euro/pound also gained, rising to the intra-day high of 0.8961 from 0.8953 before the numbers went public. Gains relative to both currencies were not sustained, though it is worthy of mention that the common currency has considerably advanced versus the US and British currencies since the start of the year. Year-to-date, euro/dollar is up 11.6% and euro/pound up 5.0%.

During its last meeting on July 20, the ECB maintained its accommodative monetary policy stance with Mario Draghi, the central bank's President, emphasizing the need to be patient in terms of policy normalization. Today's upbeat figures are sure to add to speculation that the ECB will soon start removing accommodation or at least more actively talk about such a shift in policy. The Bank next meets on September 7.

Daily Pivots: (S1) 0.8923; (P) 0.8946; (R1) 0.8964; More

Intraday bias in EUR/GBP remains neutral for the moment as consolidation from 0.8994 continues. In case of another retreat, downside should be contained by 0.8828 to bring rise resumption. Whole rally from 0.8312 is still in progress and break of 0.8994 will target 0.9304 key high. There is no clear sign of up trend resumption yet. Hence, we'll be cautious on strong resistance from 0.9304 to limit upside and bring another fall. However, break of 0.8828 will turn focus back to 0.8742 support. Break there will indicate near term reversal.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. It's uncertain whether it is finished yet. But in case of another fall, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside and bring rebound. Whole up trend from 0.6935 is expected to resume after consolidation from 0.9304 completes.

Daily Pivots: (S1) 1.4653; (P) 1.4701; (R1) 1.4754; More...

Intraday bias in EUR/AUD remains neutral for the moment. At this point, we're still favoring the case that correction from 1.5226 has completed with three waves down to 1.4421 already. Hence, another rally is expected. Break of 1.4777 will turn bias to the upside for 1.5073 resistance first. Break there will indicate resumption of whole rise from 1.3624. However, break of 1.4221 will invalidate our view and extend the decline from 1.5226 to 61.8% retracement of 1.3624 to 1.5226 at 1.4236.

In the bigger picture, we're holding on to the view that corrective decline from 1.6587 medium term has completed at 1.3624. Rise from 1.3624 is expected to resume to retest 1.6587. The corrective structure of the fall from 1.5226 is affirming this view. Above 1.5226 will target a test on 1.6587 key resistance. However, another decline will dampen our view and would drag EUR/AUD lower to retest key support zone around 1.3624.

Daily Pivots: (S1) 1.1291; (P) 1.1349; (R1) 1.1436; More...

With 1.1304 minor support intact, intraday bias in EUR/CHF remains on the upside for the moment. Current rally is expected to l target 200% projection of 1.0652 to 1.0986 from 1.0830 at 1.1498 next. On the downside, below 1.1304 minor support will turn intraday bias neutral and bring consolidations, before staging another rise.

In the bigger picture, sustained break of 1.1198 key resistance confirms resumption of the long term rise from SNB spike low back in 2015. In this case, EUR/CHF would eventually head back to prior SNB imposed floor at 1.2000. For now, this will be the favored case as long as 1.1087 resistance turned support holds.