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On Friday, the second quarter gross domestic product data was released which showed that the US economy expanded at a pace of 2.6% in the three months ending June. This was slightly below consensus estimates of 2.7%. The greenback extended the declines falling to a fresh 14-month low as a result. The US dollar index was down 0.7% closing at 93.25 which marked the lowest close since May last year.

Looking ahead, the economic data today will focus on the flash inflation estimates for the eurozone. Economists are expecting inflation to remain steady, rising 1.3% on the headline and 1.1% on the core, same as the month before.

Later in the day, the US Chicago PMI and pending home sales report will be released. With today being the last trading day of the month, expect to see some profit booking and some volatility in the US dollar.

The past few days have seen geo-political tensions rise between North Korea, the US, Russia & China. North Korea's recent ICBM test further fueled the United States condemnation of the regime, with the US asking China to impose sanctions on North Korea. North Korea claims the recent successful missile test now brings the mid-west of the US and possibly New York within range. In a 'show of force' the US flew 2 jets close to North Korea over the weekend and have made it clear that they will take the 'necessary' force to ensure US security is not undermined.

On Friday, the US imposed sanctions against Russia as a result of Russian interference in last year's Presidential election, Russia has now demanded that the US remove 755 diplomatic staff by September. The markets will be keenly awaiting news of more sanctions and further deterioration of diplomatic relations between the US, Russia, North Korea and China. Recent Chinese manufacturing purchasing managers index data showed a positive sentiment towards the Chinese economy which will help many economies globally, specifically those in the Pacific rim. The markets will be awaiting Central Bank statements this week from the RBA and BoE, and the release of, the always impactful, US NFP on Friday.

EURUSD remains buoyed by USD weakness, holding well above 1.1700 to currently trade around 1.1735.

USDJPY has weakened over the weekend by 0.1% to currently trade around 110.60.

GBPUSD has also benefited from USD weakness and currently trades around 1.3130.

AUDUSD was helped by healthy Chinese data pushing AUD higher to currently trade around 0.7980.

Gold is little changed at $1,268.50 and is set for a 6th month of gains in 7 months.

WTI traded above $50pb, the first time it has done so since May, in early Monday trading. WTI currently trades around $49.95pb.

At 10:00 BST Eurostat will release Eurozone CPI & Core CPI (YoY) (Jul). Market consensus is for no change in the reading from the previous reading of 1.3%. With the ECB inflation target of 2% it appears highly unlikely such a level will be reached anytime soon – prolonging any possibility of an interest hike in the Eurozone. At the same time, Eurostat will release Eurozone Unemployment, with the consensus being 9.2% a slight improvement from the previous 9.3%. The ECB will want to see this rate fall substantially to show a strong labour market and therefore a strong economy.

Later in the day, at 14:45 BST, ISM-Chicago will release the Chicago Purchasing Managers Index (Jul). Confidence in the strength of the US economy has come into question of late and the consensus of 61.3 (prev. 65.7) will do little to calm markets perception of this.

EUR/CHF has found strong resistance at the confluence area formed between the second warning line (WL2) with the warning line (wl1) of the minor ascending pitchfork. A retreat was favored after the impressive rally, so he could come back towards the upper median line (uml) of the minor ascending pitchfork.

Is still trapped within an ascending channel, but has failed once again to reach the 150% Fibonacci line (ascending dotted line) and the upside line of this chart pattern. GBP/USD is bullish on the short term and should climb much higher after the breakout above the upper median line (UML), has retested this level.

Maybe the rate needs to recapture more directional energy before will jump much higher on the short term, so we may see a minor consolidation in the upcoming days. We may have a buying opportunity if will come to retest the warning line (wl1) of the minor ascending pitchfork.

Price decreased a little in the morning as the USDX has managed to increase a little in the morning, the index is struggling to stay above the 93.17 previous low. USDX is under massive selling pressure on the Daily chart and could drop further because we don’t have any reversal sign right now.

The greenback will lose more ground versus its rivals if the USDX will slip towards the 92.49 major static support, a drop towards this level is favored because I don’t believe that the US data will impress in the upcoming period.

The Euro may resume the upside movement if the Euro-zone data will come in better than expected, the German Retail Sales have increased by 1.1%, more versus the 0.1% estimate and compared to the 0.5% growth in the former reading period. We’ll see how the EUR/USD will react when the Euro-zone CPI Flash Estimate will be released, the indicator should increase by 1.3% in July, while the Core CPI Flash Estimate may increase by 1.1%, like in the former reading period. The Unemployment Rate will be released as well and could decrease from 9.3% to 9.2%.

Price is testing the broken dynamic resistance (wl7) and should retest also the 1.1711 static support (resistance has turned into support) as well. We may have a buying opportunity if the rate will consolidate above these levels, but I want to remind you that a failure to reach the upper median line (uml) of the ascending pitchfork will send the rate towards the median line (ml).

EUR/USD maintains a bullish perspective on the short term, so only a false breakout above the warning line (wl7) and above the 1.1711 level will signal another leg lower.

EUR/USD - 1.1732

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1743

Kijun-Sen level                  : 1.1726

Ichimoku cloud top             : 1.1695

Ichimoku cloud bottom      : 1.1695

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although the single currency staged a strong rebound after finding support at 1.1650, a break of last week’s high at 1.1777 is needed to signal recent upmove has resumed and extend gain to 1.1784-85 (50% projection of 1.1370-1.1712 measuring from 1.1613). then 1.1800 but loss of near term upward momentum should prevent sharp move beyond 1.1820-25 (61.8% projection), risk from there has increased for a retreat later.

In view of this, would not chase this rise here and would be prudent to stand aside for now. Below 1.1690-95 would bring test of said support at 1.1650 but break there is needed to signal a temporary top is possibly formed, bring further weakness towards support at 1.1613, having said that, price should stay well above previous resistance at 1.1583 (now support), bring another rise later.

USD/JPY - 110.65

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 110.51

Kijun-Sen level                  : 110.80

Ichimoku cloud top             : 111.49

Ichimoku cloud bottom      : 111.21

Original strategy  :

Sold at 111.45, met target at 110.45

Position :  - Short at 111.45

Target :  - 110.45

Stop : -

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

The greenback finally resumed recent decline as the pair broke below indicated previous support at 110.62, adding credence to our bearishness and our short position entered at 111.45 met target at 110.45 (with 100 points profit), however, as dollar has recovered from 110.31, suggesting minor consolidation above this level would be seen and test of the Kijun-Sen (now at 110.80) cannot be ruled out but upside should be limited to 111.00-05 and resistance at 111.29 should hold, bring another selloff.

As we have taken profit on our short position entered at 111.45, would not chase this fall here and would be prudent to stand aside for now. Below said support at 110.31 would extend recent decline to 110.00-05 but near term oversold condition should limit downside to 109.75-80 and 109.50 would hold from here, risk from there is seen for a rebound later.

Six months ago it was hard to believe that the Greenback will be plummeting against all of its major peers. Back then the Fed was the only central bank tightening monetary policy, economic data was very supportive and most importantly Trump’s expected policies of cutting taxes as well as spending on infrastructure were meant to push the dollar higher. The USD index peaked on 3 January and since then it has been moving in a downward trend, with declines exceeding 10%.

President Trump blamed himself for the dollar strength. He stated that it is the confidence in him causing the dollar to surge. Six months into his presidency has already passed without any significant legislative achievement and not even the ‘skinny repeal’ of Obamacare. Investors are apparently growing more concerned that his administration will not be able to agree on the rest of his agenda which is a clear sign that markets have lost the claimed confidence.

Although the U.S. GDP growth more than doubled in Q2 compared to Q1, the 2.6% expansion could not support the dollar as it came slightly short of expectations. The Federal reserve also acknowledged that the balance sheet normalization would begin relatively soon, and one more rate hike still on the table this year. Still the USD continued to slide as investors remained skeptical of another rate hike in 2017 with CME’s Fedwatch indicating only a 46.8% chance of a rate hike in December.

Despite my belief that the U.S. dollar will remain weak for the rest of the year, all metric shows that the USD is massively oversold and will likely receive a little bounce from current levels. Friday’s nonfarm Payrolls will be crucial for the USD and if data does not disappoint we are likely to see a bounce. However, the headline figure will not be as important as wage growth. Wage growth has been a major factor dragging inflation levels recently and accordingly a print of 0.3% or higher is required for the dollar to come back. Traders will likely position their trades before the NFP release. Thus it is important to monitor ISM manufacturing and non-manufacturing along with the ADP release.

It is also an important week for Sterling with the Bank of England meeting on Thursday. After three MPC members voted for an immediate rate hike in June, followed by Hawkish statements from Carney and Haldane, markets started pricing in a rate hike in August. However, data was not supportive enough and inflation pulled further away from the danger zone of 3% which will most likely keep the BoE on hold for now. The base scenario for the meeting is to keep rates and asset purchase unchanged but the message from Carney and the tone of the quarterly inflation report will play a major role in GBP’s next move. If more than two members voted in favor of a rate hike and Carney continued to deliver hawkish messages, we might see the pound rallying towards 1.33.

Market movers today

Focus today remains on euro area inflation following the country releases on Friday. These figures were stronger than expected and we now look for euro area headline and core HICP inflation to have remained unchanged at 1.3% and 1.1% in July, respectively. The inflation figures are not yet affected by the stronger euro as the impact will come after around six months.

The euro area unemployment rate for June is due out and weestimate another small 0.1pp drop to 9.2%, due to the ongoing economic recovery in Europe.

There are no major data releases in the Scandi countries today.

Selected market news

Asian equity markets are mostly in the red this morning after PMI figures released showed that growth in China's manufacturing sector slowed marginally in July (from 51.7 to 51.4), in line with our view that economic activity will cool in the second half of this year as borrowing costs rise and regulators clamp down on riskier types of lending.

North Korea conducted another test of what it said was an intercontinental ballistic missile (ICBM) on Friday, already the second missile test this month. The move was condemned by Japan and the US, which reacted by flying two military aircrafts over the Korean peninsula over the weekend and stepping up pressure on China to impose further sanctions. Tension between North Korea and the US has been rising steadily in recent months as its missile test s have grown in frequency (see Flash Comment: Further escalation of the North Korea crisis, 4 July).

Data on Friday showed that US economic activity picked up in Q2: real GDP grew by a solid 2.6% q/q annualised in Q2 after the disappointing 1.2% in Q1. Core PCE inflation was also slight ly higher than expected but st ill weak at 0.9% q/q annualised. Solid growth in the US with subdued inflation and an ongoing recovery in Europe is supporting the case of less Fed-ECB divergence in the future and EUR/USD reacted accordingly by moving back up towards 1.175 on Friday.

US politics also remains in focus, after President Trump replaced his White House Chief of Staff, Reince Priebus, after only six months in office, with General John Kelly. After the latest Republican effort to repeal Obamacare failed in the Senate on Friday, there are signs that Trump faces growing Republican unease about his ability to govern. The majority of Americans now want Congress to move on from healthcare reform, according to a Reuters/Ipsospoll. Republicans are now likely to move on to tax reform, however, and according to a white house press release, the reform will not include the controversial border tax adjustments.

EURUSD

The EURUSD continued its bullish momentum last week topped at 1.1776. The bias is bullish in nearest term. We have an inside bar formation as you can see on my daily chart below. I am expecting a breakout above the 'mother bar' targeting 1.1875 – 1.2000 area this week. On the downside, a clear break below the 'mother bar' (1.1650) could trigger further bearish correction testing 1.1580 region which is a good place to buy with a tight stop loss as a clear break and daily close below 1.1580 would interrupt the bullish trend and activate my neutral mode.

GBPUSD

The GBPUSD had a bullish momentum last week topped at 1.3159. Price is still moving convincingly above the EMA 200 and the trend line support as you can see on my H1 chart below suggests a valid bullish trend. The bias is bullish in nearest term testing 1.3200 area before targeting 1.3350 region this week. Immediate support is seen around 1.3100. A clear break below that area could lead price to neutral zone in nearest term testing 1.3050 – 1.3000 support area which is a good place to buy with a tight stop loss below 1.3000.

USDJPY

The USDJPY attempted to push higher last week topped at 112.19 but whipsawed to the downside and closed lower at 110.72 and hit 110.30 earlier today in Asian session. The bias is bearish in nearest term testing a trend line support as you can see on my daily chart below, located around 109.50/00 region which is a good place to buy with a tight stop loss. Immediate resistance is seen around 110.80. A clear break above that area could lead price to neutral zone in nearest term testing 111.30 but only a clear break back above 112.19 could interrupt the current bearish phase. Overall I remain neutral.

USDCHF

The USDCHF had a strong bullish momentum last week topped at 0.9726. The bias is bullish in nearest term especially if price able to stay consistently above 0.9700 targeting 0.9765 – 0.9807 key resistance area which is a good place to sell with a tight stop loss. Immediate support is seen around 0.9620. A clear break below that area could lead price to neutral zone in nearest term testing 0.9550 region which need to be clearly broken to the downside to keep the bearish outlook remains strong retesting 0.9450 key support.