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Daily Pivots: (S1) 1.3028; (P) 1.3070; (R1) 1.3094; More...

GBP/USD's sharp fall suggests that a temporary top is formed at 1.3125 and intraday bias is turned neutral first. Another rise would be seen as long as 1.2811 support holds. 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) 1.1446; (P) 1.1466 (R1) 1.1498; More.....

EUR/USD's rally continues today and reaches as high as 1.1567 so far. Intraday bias remains on the upside for 1.1615 key resistance. Decisive break there will pave the way to 1.2 handle next. On the downside, below 1.1471 minor support will turn intraday bias neutral and bring consolidations. But downside of retreat should be contained above 1.1312 support and bring rise resumption.

In the bigger picture, the firm break of 1.1298 resistance further affirm medium term reversal. That is, an important bottom was formed at 1.0339 on bullish convergence condition in weekly MACD. Further rise would be seen to 55 month EMA (now at 1.1756). Sustained break there will pave the way to 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 next. This will now remain the favored case as long as 1.1118 support holds.

Sterling is sold off sharply after slowdown in inflation reading dents hope of a near term BoE hike. The violent move in the Pound makes it the weakest currency today, overtaking Dollar and Kiwi. The greenback tumbles broadly after another failure of Trump care and stays generally weak as traders pare back expectations of another Fed hike this year. Kiwi was sold off sharply earlier as CPI miss suggests that RBNZ was right not to turn hawkish. Meanwhile, Australian Dollar remains the strongest one today as RBA minutes raised hope of a hawkish turn in the central bank. Trading in other currencies are mixed. In other markets, Gold again rides on Dollar weakness and is back pressing 1240. WTI crude oil also firms up mildly and is back above 46.

Dollar sold off on another Trumpcare failure

Dollar is under much selling pressure on the news of the collapse of health care bill of US President Donald Trump and Republicans to replace ObamaCare. Senate Majority Leader Mitch Connell accepted defeat after a total of four Senate Republicans openly announced opposition to the bill, that leaves it two vote short of advancing. McConnell said in a statement that "regretfully, it is now apparent that the effort to repeal and immediately replace the failure of Obamacare will not be successful". Senate Democratic leader Chuck Schumer urged the Republicans to "start from scratch and work with Democrats" on a bill to fix problems with Obamacare. And, he criticized that "this second failure of Trumpcare is proof positive that the core of this bill is unworkable."

According to a Reuters poll of over 100 economists, the consensus is that Fed will hike federal funds rates by 25 to 1.25-1.50% by the end of the year. Meanwhile, two-thirds of the respondents expected Fed to announce the plan to unwind the USD 4T balance sheet in September. Fed fund futures are pricing in only 8.4% chance of a Fed hike in September.

Released from US, import price index dropped -0.2% mom in June.

UK CPI miss lifted pressure on BoE to hike

Sterling drops broadly as inflation data comes in much lower than expected. Headline CPI in UK slowed to 2.6% yoy in June, down from 2.9% yoy and missed expectation of 2.9% yoy. Core CPI slowed to 3.4% yoy, down from 2.6% yoy and missed expectation of 2.6% yoy. RPI also slowed to 3.5% yoy, down from 3.7% yoy and missed expectation of 3.6% yoy. The data should have eased much pressure for BoE to hike interest rate in near term. Back in June, the MPC decided to keep bank rate unchanged at 0.25% with 5-3 vote. Kristin Forbes has left the committee already and has returned to MIT's Sloan School of Management. And it's unlikely that other MPC members will rush to vote for a hike in August.

Also from UK, PPI input slowed to 9.9% yoy, PPI output slowed to 3.3% yoy, PPI output core rose to 2.9% yoy. House price index rose 4.7% yoy in May.

While the markets are pricing in full chance of 25bps hike by May 2018, a Reuters poll suggests that rates will not be raised until 2019. Meanwhile, there is on average a 1/3 chance of a rate hike this year. Only two of the 80 economists surveyed expected a hike in August. And four others expected a hike by the end of December.

German ZEW dropped by outlook remains positive

German ZEW economic sentiment dropped to 17.5 in July, down from 18.6 and missed expectation of 18.0. Current situation gauge dropped to 86.4, down from 88.0 and missed expectation of 88.0. Eurozone ZEW economic sentiment dropped to 35.6, down fro 37.7 and missed expectation of 37.2. ZEW president Achim Wambach noted in the statement the "overall assessment of the economic development it Germany Remains unchanged compared to the previous month. And, "the outlook for the German economic growth in the coming six months continues to be positive. This is now also reflected in the survey results for the eurozone."

RBA minutes: 3.5% could be the appropriate neutral rate

RBA minutes for the July meeting suggested that policymakers acknowledged the economic growth and the improvement in the labor market recently. The members also discussed the appropriate neutral rate which they believed should be at 3.5%, well above the current cash rate of 1.5%. This heightened market expectations of a potential rate hike in the near-term. As such, Aussie jumped to a 2-year high after the release of the minutes. More in Speculations Of RBA Rate Hike Heightened, As Members Discussed Neutral Rate.

Kiwi plummets as CPI affirmed RBNZ's neutral stance

New Zealand Dollar tumbles sharply after weaker than expected inflation data. Over the quarter, CPI rose 0.0% qoq, down from prior quarter's 1.0% qoq and missed expectation of 0.2% qoq. Annually, CPI slowed to 1.7% yoy, down from 2.2% yoy and missed expectation of 1.9% yoy. The reading now clearly support RBNZ's neutral stance. There were some questions and disappointment as RBNZ didn't turn hawkish after CPI shoot to 2.2% yoy back in Q1. But now it's obvious that the central bank has made the correct decision.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1446; (P) 1.1466 (R1) 1.1498; More.....

EUR/USD's rally continues today and reaches as high as 1.1567 so far. Intraday bias remains on the upside for 1.1615 key resistance. Decisive break there will pave the way to 1.2 handle next. On the downside, below 1.1471 minor support will turn intraday bias neutral and bring consolidations. But downside of retreat should be contained above 1.1312 support and bring rise resumption.

In the bigger picture, the firm break of 1.1298 resistance further affirm medium term reversal. That is, an important bottom was formed at 1.0339 on bullish convergence condition in weekly MACD. Further rise would be seen to 55 month EMA (now at 1.1756). Sustained break there will pave the way to 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 next. This will now remain the favored case as long as 1.1118 support holds.

Economic Indicators Update

The fact that Sterling sharply depreciated across the board on Tuesday, after British inflation rates unexpectedly dropped to 2.6% in June, continues to highlight how the currency has become increasingly sensitive to monetary policy speculation. Price action suggests that those who were heavily reliant on the possibility that higher rates would support Sterling further were left empty-handed, as deceleration in inflation eroded expectations of a UK rate increase in 2017. Although the Bank of England has adopted a hawkish tone in recent weeks, today's fall in inflation is likely to ease pressure on the Bank of England taking action, consequently keeping hawks at bay.

There was a suspicion that bulls were relying on a weak foundation to propel the GBPUSD above 1.3000 last week, with the current selloff almost validating this observation. Investors should keep in mind that the fundamentals behind Sterling's woes remain intact, with sellers potentially exploiting rate hike speculations and Dollar weakness to install fresh rounds of selling. From a technical standpoint, a decisive breakdown and daily close below 1.3000 should encourage a further decline towards 1.2850.

Will the upcoming OPEC meeting support oil?

It has certainly been an eventful second trading quarter for the oil markets, with the commodity still under intense pressure as the oversupply woes remained a dominant theme. As the third quarter of the year gets under way, investors will be paying very close attention to see whether OPEC moves forward with deeper cuts in an effort to stabilize the markets. The recent string of events involving OPEC and oil price action in general raise questions over whether the cartel has lost its grip on the global oil markets. For instance, the supply cut exemptions for some OPEC members have come back to bite the cartel, with reports circulating over the possibility that OPEC will request Nigeria and Libya to cut production. I believe the threat of increased production from Nigeria and Libya which would obstruct efforts made by the rest of the group to rebalance the markets may prompt OPEC to request for production caps from both nations at the upcoming OPEC meeting on 24 July.

Commodity Spotlight - Gold

Gold bulls received support in the form of Dollar weakness during Tuesday's trading session, while concerns over Donald Trump failing to deliver on his controversial healthcare reforms complimented the upside as investors sought safe-haven safety. Although further upside could be on the cards in the short term amidst the cautious atmosphere, the rising prospects of tighter global monetary policy may dampen the metal's allure this quarter. From a technical standpoint, bulls need a breakout and daily close above $1240 for a further incline higher towards $1260. In an alternative scenario, repeated weakness below the $1240 resistance level may encourage sellers to drag Gold back towards $1225.

UK CPI data for the month of June showed inflation slowing during the month. The decline in annual inflation marks the first slowdown since October of last year and led sterling to record losses relative to other major currencies. Market participants interpreted the figures as easing pressure on the Bank of England to raise rates as it convenes to set monetary policy in the beginning of August.

Turning to the actual numbers, the annual inflation rate stood at 2.6% in June, below the expected 2.9% which also coincided with the near four-year high from the previous month. Month-on-month, the inflation rate recorded zero growth, falling short of forecasts for a rate of 0.2% and below May's reading of 0.3%. Core inflation, which excludes volatile energy and food products, fell to 2.4% year-on-year from 2.6% in May.

Delving into the details underpinning the numbers, the fall was in large part attributed to the decline in global oil prices. Despite forex market participants pushing sterling lower on reduced prospects for a rate rise by the BoE, the numbers could provide some relief to British consumers who have been witnessing their purchasing power decline as a result of elevated inflation after last year's Brexit referendum. Many economists though, expressed their conviction that inflation will reenter a rising path soon. Adding to this, the BoE, which correctly predicted inflation would stand at 2.6% in June, anticipates inflation to peak at 2.8% later in the year. Therefore, the relief on British households, if any, is expected to be short-lived.

Looking at the market's reaction, the pound experienced losses relative to majors including the dollar and the euro upon immediate release of the data. Pound/dollar last traded at 1.3025, down two-tenths of a percent. Before the release of the numbers the pair was trading at 1.3071, while earlier in the day it hit a fresh ten-month high of 1.3125. Euro/pound was last up more than nine-tenths of a percent and close to the day's high of 0.8877. It traded at 0.8815 before the news hit the markets, while it opened below the 0.87 handle.

The BoE's upcoming monetary policy meeting will take place on August 3. During the last meeting in June, three out of eight Monetary Policy Committee members voted for a rate rise. One of them, Kristin Forbes, has since retired from her position as an MPC voting member, but there have been growing voices for a rate hike as of late – including BoE Chief Economist Andrew Haldane, an otherwise known dove, while even Mark Carney, the Bank's Governor made some hawkish comments. Today's data are weakening the case for a rate hike next month, especially if one takes into account the fact that the BoE has so far taken a cautious stance ahead of Brexit negotiations. Economists expect that the British central bank will maintain its official cash rate at the record low of 0.25% throughout the rest of the year.

• Dollar Weakness Made Aussie Shine
• Carney and CPI Could Make or Break Sterling
• Gold To Break The $1250

The investor sentiment is pessimistic this morning. It is all about the US health care bill and investors have their full focus on this. The Republican health bill has failed to see the daylight and this signifies nothing but a catastrophe for Trump's administration. The profound influence of this disappointment is in the dollar index which plunged to its August lows and the yield on treasuries nudged lower as more senators announced their opposition. Investors are already very dubious in relation to what Trump can deliver or even if he could survive his full term. The fiasco of the health care bill means that the tax reforms or the so-called infrastructure spending plan are in jeopardy.

Dollar Weakness Made Aussie Shine

In the currency market, a number of currencies have rallied against the dollar on the back of this development. The Aussie, yen and the euro rallied overnight and there is still enough momentum there. The Aussie shined the most among other as the central bank confirmed their confidence in the economy. However, they did mention their concern about the outlook for the housing and job industry is still not sturdy.

Carney and CPI Could Make or Break Sterling

As for the British pound, it is the CPI data which would make or break the deal. The forecast is that the prices are probably steady and stayed at 2.9%. But here is an essential bit, even if it stayed as it is, the wage growth is not sufficient to keep up with this. At the same time, you cannot neglect the very fact that the pace of CPI, RPI and PPI has slowed somewhat. Mark Carney, the governor of the Bank of England will be speaking later today and traders are going to watch his comments very closely to see any clues in relation to an upcoming change in the bank's policy. We do not expect him to comment anything meaningful on the monetary policy yet, but it would be arduous to steer clear of this given the hawkish stance of the some MPC members. Therefore, there could be one or two comments buried on this topic.

Gold To Break The $1250

The precious metal, gold is under demand as the risk off mode is in full swing. After suffering some heavy losses mid last week, the rally in the gold price is not losing steam at all. It is highly likely that we could break the resistance of $1250 and target the level of $1300.

The DAX index has posted losses in the Tuesday session. Currently, the DAX is trading at 12,515.00, down 0.57% on the day. On the release front, German ZEW Economic Sentiment dropped to 17.5, short of the estimate of 17.8 points. This marked the key indicator's lowest level in 4 months. The Eurozone ZEW Economic Sentiment also softened, coming in at 35.6 points. This reading missed the forecast of 37.2 points.

The political turmoil continues in the US, as President Trump's troubles are increasing. On Tuesday, the Republicans announced that they will not attempt to advance their health care proposal before Congress takes a recess in August. This decision is a major setback to President Trump, who has tried to pass a health care bill which would replace Obamacare, but opposition from some Republican lawmakers has meant that the White House does not have the votes to pass such a bill. Despite Republican control of both houses of Congress, no major legislation has been passed since Trump took over as president 6 months ago. There is growing skepticism as to whether Trump will be able to convince Congress to pass other key parts of his agenda – tax reform and fiscal spending.

One of the key stocks on the DAX, Deutsche Bank, is under pressure. Shares dropped 0.91% on Friday and are down 1.8% this week. Germany's largest bank started off the Monday session with losses as well, after the ECB said it was considering implementing ownership-control procedures against the bank's two largest shareholders, Qatar's royal family and HNA, a Chinese conglomerate. The aim of the review is to ensure that an investor is financially stable and untainted by money-laundering or other crimes. If either shareholder fails the test, Deutsche Bank shares would likely fall.

Inflation levels in the US have been stubbornly low, despite a generally strong economy and a tight labor market. Still, the Federal Reserve remains convinced that it's only a matter of time before inflation levels move higher. This stance was reiterated by Fed Chair Janet Yellen last week, as she testified before congressional and senate committees. With the labor market close to capacity and the unemployment rate at just 4.4%, economists are puzzled why this hasn't translated into higher inflation. In her testimony, Yellen admitted that the Fed was at a loss to explain the lack of inflation, but insisted that it was “premature to conclude that the underlying inflation trend is falling well short of 2 percent”, and that with a strong labor market “the conditions are in place for inflation to move up”. Is Yellen's argument just wishful thinking?

US consumer inflation and spending numbers for June were a disappointment. CPI edged up to 0.0%, short of the forecast of 0.1%. There was no relief from Retail Sales, which declined 0.2%, missing the estimate of 0.1%. This marked the third decline in the past four months. Consumer spending accounts for 2/3 of US economic activity, so it's no surprise that weak spending has also meant weak inflation, despite Yellen's claim that low inflation is a temporary phenomenon. The economy had a weak first quarter, with growth of just 1.4%. If the second quarter follows suit, investors could sour on the US dollar.

The USD/CAD has rejected perfectly, following my previous USD/CAD analysis. However, at this point the pair is hitting the support zone made from the confluence of D L4, ATR Low and Wedge lower trend line. The price might reject from 1.2600 zone towards 1.2700-1.2715 POC (W L5, D H4, EMA89, ATR high). If we see a rejection and another entry within the POC zone the price should reject and break 1.2600 to the downside. However if we see a break below D L4 that will mean the failure of the bullish wedge and price should proceed towards 1.2550 without retracement to POC.

Tuesday July 18: Five things the markets are talking about

The U.S dollar, equities and Treasury yields are all under pressure on signs the American health-care reform bill is effectively dead in its current form as two more Republican Senators (Moran and Lee) are set to vote against it.

Where does this leave President Donald Trump's broader economic revitalization agenda? With Congress expected to continue to work on the bill could delay their next action on the debt ceiling and hinder President Trump's broader economic revitalization agenda.

Latest FX positioning data suggest investors are also turning even more 'bearish' on the dollar with the first U.S. dollar future shorts evident in 13-months. However, the 'carry' trade is flourishing with JPY shorts at its highest level in two-years, after last week's U.S inflation data has dampened expectations of another Fed rate hike in coming months.

1. Global equities under pressure

Ahead of the U.S open, European markets have opened lower, while Asian stocks overnight have basically halted a six-day rally that pushed them to the highest in nine-years.

In Japan, the Nikkei share average fell -0.6%, a one-week low, as a stronger yen (having dropped to trade at a two-week low of ¥111.97 vs. ¥114.495 a week ago) hit cyclical stocks and sliding support for PM Abe added to the negative mood. The broader Topix Index dropped -0.3%.

In Hong Kong, stocks rose for a seventh straight session as gains in the technology and energy sectors offset losses in financial stocks. The Hang Seng Index rallied +0.2%, while down-under, Australia's S&P/ASX 200 Index slid -1.2%.

In China, stocks steadied overnight, the blue-chip CSI300 index rose +0.1%, while the Shanghai Composite Index added +0.3% as investors hunted for bargains after an intense sell-off in small-caps in the previous session.

In Europe, indices have rebounded off earlier lows after a flurry of mixed earnings being reported. A fall in U.K CPI (see below) is supporting the FTSE 100, while earnings again will be the dominant theme in the U.S today – (Goldman Sachs and BoA are due to report).

U.S stocks are set to open little changed.

Indices: Stoxx600 -0.3% at 386, FTSE +0.1% at 7414, DAX -0.4% at 12533, CAC-40 -0.1% at 5222, IBEX-35 +0.2% at 10670, FTSE MIB +0.1% at 21503, SMI +0.4% at 9075, S&P 500 Futures +0.1%

2. Oil steadies as ample supply meets firm demand

Currently, oil markets are trading steady, supported by firm demand, but weighed down by high supplies from OPEC and from shale producers in the U.S.

Benchmark Brent crude is down -10c at +$48.32 a barrel, while U.S. light crude oil (WTI) is -10c lower at +$45.92.

Crude bulls took solace when short-term demand was noted from yesterday's data from China which showed domestic refineries increased crude throughput in June to the second highest on record.

However, with many markets being well supplied, oil for immediate delivery is trading at heavy discounts to forward futures. Net result, crude oil prices are trading at -50% the levels seen three years ago.

Note: Short-term direction will depend on today's U.S API (04:30 pm EDT), and tomorrow's figures from the U.S EIA (10:30 am EDT) and Ecuador's announcement that it will start increasing oil production this month, saying it needs the money.

Gold prices have hit a two-week high overnight as the USD falls on fading prospects of an imminent increase to U.S interest rates and expectations of stronger demand from the physical market. Spot gold is up +0.2% at +$1,236.10 an ounce, having touched $1,238.76 in Europe, its highest since July 3.

The price of copper hit a four-month high yesterday after upbeat Chinese economic data dampened fears of a slowdown in the metal's largest market.

Copper for September delivery was up +1.7% at +$2.7355 a pound on the Comex division, the highest level since early March.

3. Yields – 'carry' trades trending

The Reserve Bank of Australia's (RBA) meeting minutes overnight showed that the board spent some time discussing the 'neutral' interest rate, noting that it equated to a neutral nominal cash rate of around +3.5%.

The board also argued that estimates of the neutral real rate suggested that Aussie monetary policy had been clearly 'expansionary' for the preceding five-years. Members also see some probability of an increase in the cash rate by mid-2018. The AUD (A$0.7935) remains better bid on the 'hawkish' view and 'carry' trade.

The market does not expect German Bunds to suffer from bouts of volatility over the rest of the summer, as the ECB is expected to leave policy decisions for September.

Note: The ECB is to meet Thursday (07:45 am EDT) and no change is expected, and no rate hikes before 2019.

Eurozone bond yields have surged since a speech by ECB's Draghi in late June, it was seen as a hint toward QE tapering – 10-year German benchmark is trading at +0.57%.

In the U.K, ten-year Gilt yields have slide to +1.24% vs. +1.284%, the lowest in nearly three-weeks after this morning's disappointing CPI data – annual CPI inflation unexpectedly fell to +2.6% in June vs. +2.9% m/m.

Note: It's well above the BoE's +2.0% target, the drop may make policymakers less inclined to hike interest rates, given the squeeze on household incomes as wage growth remains well below inflation.

Ahead of the U.S open, U.S 10-year Treasury yields are down -1 bps to +2.31% after dropping -5 bps last week.

4. U.S dollar in trouble

The U.S. dollar is holding at/near 10-month lows outright against some of the majors, while high-yielding currencies such as the AUD (A$0.7934) rallies to two-year peaks as investors pile into leveraged bets.

The pound is under pressure after this morning's lower U.K CPI reading. Sterling is currently trading atop £1.3029 against an otherwise weak dollar, down -0.2% on the day, from around £1.3079 before the data.

Euro/sterling has rallied +0.6% on the day to €0.8848, up from €0.8811 beforehand. The EUR/USD approached the ¥1.1553 area before consolidating.

Dealers note that ECB chief Draghi faces a difficult challenge of preparing investors/market for a 'gradual' change in the monetary policy while, at the same time, preventing yields from continuing to surge excessively (German yields have moved from +0.25% to +0.58% since Draghi's June speech).

5. German economic sentiment

The ZEW indicator of economic sentiment for Germany fell slightly last month (-1.1 points) and now stands at 17.5 points.

Note: The headline indicator remains below the long-term average of 23.8 points.

The assessment of the current economic situation fell by -1.6 points in July, but remains at a high level of 86.4 points.

This morning's headlines suggest that the medium term outlook for German economic growth continues to be positive.

Spot Gold holds firm tone on Tuesday and extends rally into third straight day. Fresh extension of the third wave of five-wave cycle from $1204 (10 July low), broke above its FE100% at $1236 and touched strong resistances at $1239 (double Fibonacci resistance, 38.2% of $1296/$1204 descend and 61.8% of $1258/$1204 bear-leg).

The price may show hesitation here and enter narrow consolidation, ahead of fresh attempts higher. Sustained break above $1239 pivot would open way towards $1246/47 (55 / 100SMA) which formed bear-cross and provide downside pressure.

On the downside, broken 20SMA offers initial support at $1233 (also session low), followed by broken 200SMA / hourly cloud top ($1230), which is expected to contain dips and keep near-term bulls in play.

Res: 1239, 1242, 1244, 1246
Sup: 1233, 1230, 1225, 1221