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• European equities traded initially lower on euro strength. Later in the session, a fall in euro strength reversed the decline. The German Dax underperformed (around -0.35%) on the back of weak carmakers. US equities open with modest losses.
• The Eurozone PMI fell to 55.8 in July from 56.3 in June. The consensus expected a minor decline to 56.2. Increases in manufacturing costs are starting to slow, with the rise in input costs the lowest since November. Meanwhile, growth in new orders and employment is still strong.
• The Saudi Energy and Industry minister pushed to improve implementation of the production cuts from the nations participating in the deal as compliance dropped from 110% in May to 92% in June. He also said Nigeria and Libya -- both exempt from cutting -- will be allowed to increase output to their targeted levels.
• Poland's president Duda vetoed part of a controversial overhaul of the judiciary that's brought national protest and pitted the nation's government against its partners in the EU and the US. Duda ordered a rewrite of the two bills he rejected and said he'd approve a final piece of legislation giving politicians more control of lower courts.
• According to the Athens Stock exchange filing, Greece is looking to sell five-year bonds on Tuesday. This marks the first return to the debt market since 2014. With the sale, the government of Prime Minister Tsipras is seeking to test the market appetite as the exit from the current bailout program in August 2018 draws nearer.
• In an update to its World Economic Outlook, the IMF changed its annual GDP forecast for the UK to 1.7% this year, compared to a forecast of 2% growth made in April. The 2018 forecast was unchanged at 1.5%. Reasons for the decline are rising inflation, resulting from the weaker pound, which pressures household spending.
• The Republican effort to repeal and replace Obamacare faces a major test this week as the US Senate will decide whether to move forward and vote on a bill whose details and prospects are still uncertain. President Trump, after initially suggesting that he was fine with letting Obamacare collapse, has urged the senators to hash out a deal.

Rates

German 10-yr yield tests key support in dull session

Global core bonds traded mixed today. German Bunds outperformed US Treasuries. This week's US supply operation might be at play. Volumes remained very low though and daily changes small. The Bund gained some ground in European dealings, around the time of comments by ECB governor Nowotny. The Austrian normally has a more hawkish profile, but he said that advances in IT and growing flexibility in the labour market could naturally cap inflation and potentially affect monetary policy. EMU eco data included the important PMI's. National data (France, Germany) pointed at some disappointment for the EMU readings, which eventually manifested in a larger than forecast decline for the EMU manufacturing PMI, while the services PMI stabilized. Both are still at lofty levels. Oil prices recovered somewhat from Friday's weakness as Saudi Arabia and Russia called on smaller oil producers to comply with supply curbs. Most European equity markets stabilized after the sell-off at the end of last week with Germany (car makers) underperforming. The Bund didn't react on the evolution of commodity and stock markets.

At the time of writing, German yield changes range between -0.8 bps (10-yr) and -1.8 bps (2-yr). The German 10-yr yield is still testing key support (0.5%). US yields gain around 1.5 bps across the curve. On intra-EMU bond markets, 10-yr yield spread changes versus Germany are virtually unchanged with Greece underperforming following a supply announcement. Greece has mandated six banks today for its return to the debt market with a new 5-yr bond. It would be the first international transaction since 2014.

The Belgian debt agency tapped three on the run OLO's: 7-yr OLO 79 (€1B 0.2% Oct2023), 10-yr OLO 81 (€1.12B 0.8% Jun2027) and 30-yr OLO 78 (€0.68B 1.6% Jun2047) for a combined €2.8B, the maximum targeted amount. Demand was in line with average with an auction bid cover of 1.6. Belgium already completed 81.4% of this year's stated OLO funding need (€35B).

Currencies

Dollar rally/euro decline slows

Today, the dominant FX trends that ruled trading halted. The decline of the dollar slowed and so did the rise of the euro. The pause in the euro rally was 'justified' by softer than expected EMU PMI's. There was no high profile news to inspire a directional USD move. EUR/USD stabilizes in the mid 1.16 area. USD/JPY failed to sustain north of 111 (currently 110.80).

This morning, the dollar remained in the defensive. EUR/USD held near the recent top in the high 1.16 area, but there were no further follow-through losses. USD/JPY drifted south early in the session but tried to regain the 111 barrier going into the start of the European session.

The euro fell prey to modest profit taking at the start of European dealings. The move gained some traction as the EMU PMI's came out softer than expected. EUR/USD dropped to the 1.1630/40 area. The decline also spilled over into the EUR/JPY and USD/JPY cross rates. It was primarily a technical setback after the recent rally. The "poor" PMI's were nothing more than a good excuse. Interest rate differentials also re-widened marginally in favour of the dollar. Whatever the reason, it all didn't go far. Dollar weakness already resurfaced toward the end of the European morning session.

There was also no high profile news in the US to inspire trading. The dollar continued to trade off the intraday lows, but there is no sign of any significant USD rebound. EUR/USD trades currently in the 1.1640 area. USD/JPY hovers near 111. Conclusion, the dollar decline slowed and the euro rally shifted into a lower gear, but the trends remain in place.

GBP succeeds insignificant comeback

Sterling staged a technical rebound against the dollar and the euro. At the end of last week, the poor results of the first round of negotiations between the UK and the EU weighed on the UK currency. Today's rebound of sterling was primarily technical in nature. The eco news was intrinsically negative for sterling. The IMF downwardly revised the UK 2017 growth forecast to 1.7% Y/Y (from 2.0% in April). IHS markit also reported that its household financial index dropped to the lowest since July 2014 due to rising costs of living. However, all this didn't prevent a modest technical rebound of the sterling. EUR/GBP trades currently in the 0.8945 area. Cable returned north of 1.30. The first estimate of the UK Q2 GDP, to be published on Wednesday, will be the next key factor for sterling trading.

The CAC index has inched lower in the Monday session. Currently, the index is trading at 5124.00, down 0.12% on the day. In economic news, French Manufacturing PMI improved to 55.4, above the estimate of 54.6 points. However, Eurozone Manufacturing PMI dipped to 56.8, short of the estimate of 57.3 points.

The French economy continues to show signs of improvement, and there was positive news as French Manufacturing PMI improved to 55.4, its highest level in three months. Although Eurozone Manufacturing PMI was softer in July, it still pointed to expansion, so the markets are unlikely to fret over this reading. The eurozone and French manufacturing sectors have received a boost from stronger exports as well as increased consumer demand.

As expected, the ECB played it safe last week, as policymakers maintained interest rates at 0.00% and the bank's asset-purchase scheme (QE) at EUR 60 billion/month. The ECB has said that it will maintain QE until December "or beyond, if necessary". There had been speculation that the ECB might remove that "wiggle room" phrase, but the bank did not make any changes – perhaps Draghi was being careful not to provide the markets with an excuse to rush on euros, which occurred in June after Draghi left open the door to reducing QE prior to December. The markets seized on Drahgi's comments, and the cautious ECB had to shift to damage control mode, saying that the markets had misinterpreted his comments.

With no news in the rate statement, the markets focused on the ECB President Mario Draghi's press conference. Draghi sounded upbeat about the eurozone economy, noting there were signs of "unquestionable improvement" in the eurozone economy. Draghi acknowledged that inflation remains stubbornly low, and said that it was a question of time until the stronger economic conditions pushed inflation to higher levels. As for monetary policy, Draghi said the bank had not set an exact time for revisiting any changes to the current accommodative policy, but added that the ECB would review policy in September. These comments did not seem to break any new ground, but were perceived as hawkish by the markets and boosted the euro on Thursday.

Daily Pivots: (S1) 1.1626; (P) 1.1654 (R1) 1.1691; More...

EUR/USD continues to lose upside momentum. But with 1.1582 minor support intact, intraday bias remains on the upside. Current rally would now target 1.2 handle next. On the downside, below 1.1582 minor support will turn intraday bias neutral and bring consolidations. But downside should be contained by 1.1444 resistance turned support and bring rise resumption.

In the bigger picture, an important bottom was formed at 1.0339 on bullish convergence condition in weekly MACD. Sustained break of 55 month EMA (now at 1.1760) will pave the way to key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. While rise fro 1.0339 is strong, there is no confirmation that it's developing into a long term up trend yet. Hence, we'll be cautious on strong resistance from 1.2516 to limit upside. But for now, medium term outlook will remain bullish as long as 1.1295 support holds, in case of pull back.

Daily Pivots: (S1) 1.2958; (P) 1.2989; (R1) 1.3024; More...

GBP/USD continues to stay in range of 1.2811/3125 and intraday bias remains neutral at this point. With 1.2811 support intact, another rise is mildly in favor. Break of 1.3125 will target 61.8% projection of 1.2108 to 1.3047 from 1.2588 at 1.3168. Overall, choppy rebound from 1.1946 is seen as a corrective pattern, hence, we'd be cautious on strong resistance from 1.3168 to limit upside. But firm break of 1.3168 will bring further rise towards 1.3444 key resistance. Meanwhile, break of 1.2811 support will be the first sign of reversal and will turn bias to the downside to target 1.2588 key support next.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern that is still in progress. While further upside is expected, overall outlook remains bearish as long as 1.3444 key resistance holds. Larger down trend from 1.7190 is expected to resume later after the correction completes. And break of 1.2588 will indicate that such down trend is resuming.

Daily Pivots: (S1) 0.9422; (P) 0.9472; (R1) 0.9506; More...

Intraday bias in USD/CHF is staying on the downside for deeper fall. Sustained trading below 0.9443 key support will extend the down trend from 1.0342 to 161.8% projection of 1.0342 to 0.9860 from 1.0099 at 0.9319. On the upside, above 0.9492 minor resistance will turn bias neutral and bring recovery. But outlook will remain bearish as long as 0.9699 resistance holds.

In the bigger picture, focus is now back 0.9443 key support level. Sustained break there indicate underlying bearish momentum and would target 0.9 handle and possibly below. Meanwhile, strong rebound from current level and break 0.9699 resistance will extend long term range trading between 0.9443/1.0342.

EUR/GBP - 0.8934

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term up

Original strategy  :

Buy at 0.8915, Target: 0.9015, Stop: 0.8875

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8875, Target: 0.8995, Stop: 0.8835

Position : -

Target :  -

Stop : -

 
As the single currency has retreated after rising to 0.8995 on Friday, suggesting consolidation below this level would be seen and pullback to 0.8900 cannot be ruled out, however, reckon downside would be limited to 0.8875-80 and bring another rise later, above psychological resistance at 0.9000 would extend recent rise to 0.9020 and possibly towards 0.9050 but overbought condition should prevent sharp move beyond latter level, risk from there has increased for a retreat later.

In view of this, would not chase this rise here and would be prudent to buy euro on pullback as 0.8870-75 should limit downside. Only break of support at 0.8829 would abort and confirm top is formed instead, bring correction to 0.8800 first. 

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.2512

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway with wave iii ended at 1.4690, wave v of C may bring one more marginal rise probably in 2018

Trend:  Down

 
Original strategy       :

Sell at 1.2765, Target: 1.2565, Stop: 1.2825

Position: -

Target:  -

Stop: -

 
New strategy             :

Sell at 1.2690, Target: 1.2490, Stop: 1.2750

Position: -

Target:  -

Stop:-

The greenback has fallen again after brief recovery, reinforcing our view that recent downtrend is still in progress, we took the count that wave v as well as wave (C) ended at 1.3794 and impulsive wave (i ii, i ii) is now unfolding with minor wave iii still in progress, hence bearishness remains for this fall to extend weakness to 1.2490-00, however, oversold condition should prevent sharp fall below 1.2440-50 and reckon 1.2400 would hold, risk from there is seen for a rebound later.

In view of this, would not chase this fall here and would be prudent to sell the pair again on recovery as 1.2690-95 should limit upside. Above 1.2745-50 would defer and risk a stronger rebound to 1.2800-10 but only break of latter level would signal a temporary low is formed instead, bring retracement of recent decline to 1.2850, then 1.2900, however, price should falter below 1.3000 and the greenback shall head south again from there.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

Daily Pivots: (S1) 110.73; (P) 111.40; (R1) 111.79; More...

Intraday bias in USD/JPY remains on the downside as fall from 114.49 is in progress for 108.81 support. Whole correction from 118.65 is possibly resuming. Break of 108.81 will confirm and target 61.8% retracement of 98.97 to 118.65 at 106.48. On the upside, break of 111.47 minor resistance will turn bias neutral and bring recovery before staging another decline.

In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it's uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it's a leg in the consolidation from 125.85. Hence, we'll be cautious on topping as it approaches 125.85. If fall from 118.65 extends lower, down side should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

Global financial markets trade in mild risk averse mode today. European indices are dragged down by auto makers and oil producer stocks. Weaker than expected Eurozone PMIs also weigh. US futures also point to lower open. The forex markets are rather mixed with Aussie trading generally higher but Kiwi is the weakest one. Dollar and Euro are soft against most major currencies. Trader, nonetheless, are subdued as markets are eyeing the key events later in the week, including FOMC rate decision and GDP from US and UK.

Eurozone PMIs point to slightly slower growth.

Eurozone PMI manufacturing dropped to 56.8 in July, down from 57.4, missed expectation of 57.2. Eurozone PMI services was unchanged at 55.4, in line with expectation. The Eurozone PMI composite dropped to 55.8, hitting the lowest level since January. Germany PMI manufacturing dropped to 58.3, down from 59.6, missed expectation of 59.2. Germany PMI services dropped to 53.5, down from 54.0, missed expectation of 54.3. France PMI manufacturing rose to 55.4, up from 54.8, beat expectation of 54.6. France PMI services dropped to 55.9, down from 56.9, missed expectation of 56.7.

Markit noted that "the July fall in the PMI indicates that the Eurozone's recent growth spurt lost momentum for a second successive month, but still remained impressive." And, "it's too early to know for sure whether the economy has merely hit a speed bump or whether the upturn is already starting to fade. The evidence so far points to the former, with the economy hitting bottlenecks due to the speed of the recent upturn." Markit also noted that the data correspond to Q3 growth at 0.6%, slightly slowed than 0.7% expected for Q2.

Japan PMI manufacturing dropped slightly

Japan PMI manufacturing dropped slightly by 0.2 points to 52.2 in July, below expectation of 52.3. Markit noted that "the slowdown was driven by stagnation in export orders, amid reports of weaker demand from Southeast Asia markets." Nonetheless, "the sector continues to add jobs, with employment growth remaining among the best since the financial crisis, while optimism hit its highest level in five years of data collection."

Elsewhere, Canada whole sales rose 0.9% mom in May. China conference board leading index rose 1.6% in June.

IMF kept global forecast unchanged, downgraded US and UK

In the latest World Economic Outlook released over the weekend, IMF kept global growth forecast unchanged at 3.5% for 2017 and 3.6% for 2018. It saw risks "broadly balanced" for the short term but "skewed to the downside" for the medium term. It pointed out that "protracted policy uncertainty or other shocks could trigger a correction in rich market valuations, especially for equities, and an increase in volatility from current very low levels". And, "in turn, this could dent spending and confidence more generally, especially in countries with high financial vulnerabilities."

Growth forecasts for the US was lowered to 2.1% in 2017 and 2.1% in 2018, down from April projection of 2.3% and 2.5% respectively. IMF noted the "uncertainty" over US President Donald Trump's policies as the main factor for the downward revision. IMF said that "the major factor behind the growth revision, especially for 2018, is the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of U.S. fiscal policy changes."

IMF also downgraded UK growth forecast for 2017 to 1.7% , down from prior projection of 2.0%. For 2018, growth forecast was kept unchanged at 1.5%. It noted that the revision was based on "weaker-than-expected activity in the first quarter." Also, IMF warned that "the ultimate impact of Brexit on the United Kingdom remains unclear." The UK treasury responded by noting that "this forecast underscores exactly why our plans to increase productivity and ensure we get the very best deal with the EU, are vitally important."

China's growth is projected to be at 6.7% in 2017 and 6.4% in 2018, revised up from prior projection of 6.6% and 6.2% respectively. Eurozone growth is forecast to be at 1.9% in 2017, 1.7% in 2018, upgraded from prior projection of 1.7% and 1.6% respectively. Japan growth is forecast to be at 1.3% in 2017, upgraded from prior 1.2%. For 2018, growth projection for Japan is kept unchanged at 0.6%.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 110.73; (P) 111.40; (R1) 111.79; More...

Intraday bias in USD/JPY remains on the downside as fall from 114.49 is in progress for 108.81 support. Whole correction from 118.65 is possibly resuming. Break of 108.81 will confirm and target 61.8% retracement of 98.97 to 118.65 at 106.48. On the upside, break of 111.47 minor resistance will turn bias neutral and bring recovery before staging another decline.

In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it's uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it's a leg in the consolidation from 125.85. Hence, we'll be cautious on topping as it approaches 125.85. If fall from 118.65 extends lower, down side should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

Economic Indicators Update

USD/CHF - 0.9458

Original strategy :

Sell at 0.9555, target: 0.9455, Stop: 0.9590

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9555, target: 0.9455, Stop: 0.9590

Position : -

Target :  -

Stop : -

The greenback has recovered after falling to 0.9438 on Friday suggesting consolidation above this level would be seen and corrective bounce to 0.9500 and then 0.9520-25 cannot be ruled out, however, reckon the upper Kumo (now at 0.9558) would limit upside and bring another decline later, below said support at 0.9438 would extend recent decline to 0.9405-10 but loss of momentum should limit downside to 0.9375-80, price should stay above 0.9350, risk from there is seen for a rebound later.

In view of this, we are looking to sell dollar on recovery as 0.9550-55 should limit upside and bring another decline. Above 0.9580-85 would suggest a temporary low is formed instead, bring a stronger rebound towards resistance at 0.9622 which is likely to hold from here.