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The Aussie benefited from weaker dollar and hawkish RBA minutes and rallied strongly on Tuesday, resuming strong rally of last week which took a breather on Monday.

Fresh bullish acceleration took out pivotal barrier at 0.7848 (Fibo 38.2% of 0.9503/0.6825 descend) and extended above round-figure barrier at 0.7900, riding on extended third wave of five-wave cycle from 0.7535 (23 June low).

The wave eyes its 200% Fibonacci expansion at 0.7933 and could extend to psychological 0.8000 barrier (also FE 238.2%).

However, corrective easing could be anticipated in the near-term as daily studies are overbought, but without firmer bearish signal so far.

Higher base at 0.7790 zone (Tue / Mon lows) offer solid support.

Res: 0.7933, 0.8000, 0.8044, 0.8114
Sup: 0.7848, 0.7790, 0.7749, 0.7712

The pair hit fresh low of the month at 111.98 after dollar came under renewed pressure on Tuesday.

Strong supports at 111.95/111.80 zone (converged 55,30,200 and 100 SMA's) are pressured, but without break lower for now.

Bear may pause here as slow stochastic is oversold on daily, with narrow consolidation expected to precede fresh weakness.

Bearish signal on close below 112.32 (Fibo 38.2% of 108.80/114.49 upleg) is required to trigger further easing, as downside attempts on Fri/Mon failed to close below 112.32 pivot.

Thickening hourly cloud (spanned between 112.69/91) is weighing on near-term structure and should cap corrective upticks.

Res: 112.69, 112.91, 113.21, 113.57
Sup: 112.32, 111.95, 111.80, 111.64

Cable has fully retraced Monday's pullback to 1.3046 on fresh rally that probes above Friday's high at 1.3113. The pair is back to strength after Monday's consolidation and looking for extension of last week's strong rally.

Sustained break above 1.3109 (Fibo 38.2% of 1.5016/1.1930 descend) is needed to confirm bullish continuation towards strong barriers at 1.3445 (06 Sep 2016 high) and 1.3473 (weekly cloud top / 50% retracement of 1.516/1.1930).

UK CPI data are in focus with release above 3% expected to give fresh boost to the pound.

Conversely, higher base at 1.3046 (Mon low / Tue Asian session low, also former high of 18 May) could come under increased pressure on CPI reading below forecasted 2.9%).

Res: 1.3149, 1.3200, 1.3253, 1.3300
Sup: 1.3046, 1.3030, 1.3000, 1.2968

The Euro resumed rally on Tuesday and eventually broke above near-term congestion just under 1.1500, inflated by fresh weakness on US dollar. Monday's trading that ended in long-tailed Doji was seen as brief consolidation ahead of fresh advance. Firmly bullish technicals continue to underpin, with close above 1.1500 handle to confirm bullish continuation. The pair eyes target at 1.1614 (03 May 2016 high) and could extend towards strong barriers at 1.1716/35 (Fibo 61.8% of 1.2567/1.0340 downleg/Fibo 38.2% of 1.3992/1.0340 descend), as those barriers also mark the top of longer term consolidation phase between 1.0340 and 1.1716. The pair is focusing on ECB's policy meeting on Thursday, with more hawkish tone from the central bank expected to further boost the single currency. Former congestion tops at 1.1490 zone now act as immediate supports, followed by rising Tenkan-sen/10 SMA at 1.1433 which should contain extended corrective dips and guard strong support at 1.1370 (13 July trough).

Res: 1.1565, 1.1614, 1.1643, 1.1716
Sup: 1.1490, 1.1433, 1.1400, 1.1370

The greenback tumbled once again overnight, following news that the Republican healthcare bill – or Trumpcare 2.0 as it has been dubbed - is highly unlikely to pass the Senate and is most likely dead. The move came after two Republican Senators announced they are also against the legislation, leaving the bill without enough votes to pass. This implies that Trump's tax reform agenda may be now more difficult to implement and may take longer to arrive, as the cuts in healthcare were expected to finance some of the promised fiscal measures.

Moving forward, we think that the dollar could remain on the back foot over the next few days, at least until next week's FOMC decision. Combined with Friday's disappointing economic data, these downbeat political news as well as the absence of any Fed speakers or US indicators this week, suggest that neither politics nor economics are likely to support the greenback in the days to come.

EUR/USD traded north during the Asian morning Tuesday, breaking above the resistance (now turned into support) of 1.1485 (S1) to stop near the 1.1530 (R1) barrier. The price structure continues to suggest a positive medium-term outlook and as such, we would expect a clear break above 1.1530 (R1) to open the way for our next resistance level of 1.1615 (R1), defined by the peak of the 3rd of May 2016. Nevertheless, the weekly chart still points to a sideways range, with its upper bound near the 1.1710 (R3) territory. As such, as we get closer to that zone we would be careful that a retreat may come into play. We prefer to wait for a clear close above 1.1710 (R3) before we conclude that the medium-term uptrend has evolved into a long-term one.

Aussie dollar rallies after upbeat RBA minutes

AUD extended its recent gains overnight, following the release of the RBA's July meeting minutes. The tone of the minutes was quite upbeat, which probably came as a surprise considering that the statement of that meeting was neutral, disappointing market participants who expected an optimistic shift. In the minutes, the Bank indicated that the neutral nominal rate of interest in the Australian economy is around 3.5%. This suggests that a potential move back to neutrality could see the Bank's rate rising by as much as 200bps. Even though policymakers did not hint this is on the cards anytime soon, the fact that the discussion took place may have been interpreted as laying the foundations for a move earlier than previously anticipated.

AUD/USD surged overnight following the minutes. The pair emerged above the resistance (now turned into support) of 0.7840 (S1) and at the time of writing, it looks to be headed towards the 0.7935 (R1) zone. In our view, the clearing of the 0.7800 (S2) obstacle, which acted as the upper bound of the sideways range that had been containing the price action since the beginning of March 2016, opens the door for larger upside extensions. We expect a clear break above 0.7935 (R1) to pave the way towards the psychological zone of 0.8000 (R2).

New Zealand's CPI slows; NZD slips

The Kiwi slipped overnight, after data showed that New Zealand's CPI for Q2 slowed by more than anticipated. Importantly, the nation's CPI rate is now notably below the RBNZ's latest forecasts. Even though we don't expect the RBNZ to shift to dovish as a result of this, we think that these soft data will probably be enough to keep the Bank's tone neutral for a while.

Today's highlights:

During the European day, the UK CPI prints for June will be in focus. The forecast is for both the headline and the core rates to have held steady. Having said that, we view the risks surrounding these forecasts as skewed to the downside, considering that the nation's services PMI for June indicated that the rise in average prices was the slowest since July 2016. A potential pullback in these rates would probably ease some of the pressure on the BoE to raise rates in order to curb overshooting inflation. Something like that could hurt GBP.

From Sweden, we get the minutes from the Riksbank's July policy meeting, where the Bank remained on hold. Even though policymakers noted that the likelihood for any further rate cuts has declined, they maintained their easing bias, disappointing those who were expecting a removal. As such, we will go through the minutes to see whether the removal of the easing bias was indeed discussed, and if so, whether the decision to keep it in place was unanimous or a close call. If it was a close call, SEK could gain.

In Germany, the ZEW survey for July is due out, while from the US, we get the NAHB housing market index for July.

EUR/USD

Support: 1.1485 (S1), 1.1435 (S2), 1.1380 (S3)

Resistance: 1.1530 (R1), 1.1615 (R2), 1.1710 (R3)

AUD/USD

Support: 0.7840 (S1), 0.7800 (S2), 0.7740 (S3)

Resistance: 0.7935 (R1), 0.8000 (R2), 0.8070 (R3)

Surging demand for higher yielding currencies send AUD

Lacklustre economic data are piling up in US, the Fed has abandoned its hawkish rhetoric for a cautious one amid faltering inflation pressures. Since mid-May, the greenback has lost more than 5.2% on a trade-weighted basis, while the dollar index fell below 95, its lowest level since September last year, as US rates reversed gains.

Prospects of low interest rates in US have prompted investors to seek higher returns elsewhere and more specifically across the Pacific, namely Australia. Interest rate differential between Aussie and US bonds is appealing for investors. Moreover, the Reserve Bank of Australia has revised its economic outlook to the upside recently and acknowledge the recent improvement, both on the growth and inflation sides.

Investors did not wait on the RBA hawkish tone to start building long AUD position. Speculative positioning, as reported by the CFTC, showed that total net long future position rose from zero to 37.5% of total open interest over the past six weeks. Despite this extreme level, we think they is still room for further increase of speculative positioning as investors will continue to discount a tightening move from the Fed in the short-term.

AUD/USD has broken the key 0.7849 resistance (high from June 2015) and is on its way to test the following one at 0.8164 (high from May 2015). However, a temporary correction cannot be ruled out in the short-term but it will only be a step back to jump higher.

US: downside risks on import prices

The greenback is getting weaker against major G10 currencies and the euro dollar is now back above 1.15 for the first time since May 2016. The bullish trend seems very deep to us and there are two main points to address.

First of all, The Fed is back on hold regarding the normalization of the monetary policy. Anyway, higher interest rates would likely trigger a recession due to the level of indebtness of the North-American country.

Second of all, we have always considered that the true state of the US economy was overestimated and this appear to be the case. Fundamentals are mixed. Today will be released import prices for June and markets expect a decline of -0.2%. In May imports price already declined by 0.3% m/m. Excluding Oil, import prices have stood still.

There is then no fundamental for the greenback to strengthen in the medium rum. The US CPI recoded four successive declining monthly print. The Fed target seems less and less attainable in a reasonable timeframe. As a result, we firmly believe that reloading bullish positions on the dollar is a good bet within the next few months.

'There is simply not enough (or any) evidence that inflation is picking up and so a change to the inflation risk assessment by the ECB cannot be justified.' - Richard McGuire, Rabobank.

Consumer inflation in the Euro zone rose in line with analysts' forecasts last month, official figures revealed on Monday. Eurostat reported that its Final Consumer Price Index came in at 1.3% in June, matching the flash estimate and falling down from 1.4% registered in preceding month. Meanwhile, the so-called core inflation rate rose 1.1% on an annual basis, following May's 0.9% increase. Moreover, the services sector inflation increased 1.6%, compared to 1.1% seen in the same month a year ago. Back in June, the ECB President Mario Draghi announced that consumer prices' growth was affected by temporary factors, such as after-effects of energy and commodity price shocks. However, after strong Euro zone's economic recovery at the beginning of the year, any further weakness in inflation is likely to diminish expectations for the ECB to remove accommodation. Despite recent figures being almost sufficient to encourage policy tightening, the European Central Bank is expected to be cautious over monetary stimulus withdrawal. Economists anticipate no changes in key interest rates until inflation reaches the 2% target.

'Household basics like rent, food, and electricity all hit consumers' pockets harder this quarter.' - Jason Attewell, Statistics NZ

Inflation in New Zealand hampered unexpectedly in the second quarter, suggesting that declining oil prices were restraining cost pressures throughout the country's economy. Statistics New Zealand reported on Monday that its Consumer Price Index was flat on a seasonally adjusted basis in the June quarter, following a 1% rise in the Q1 and falling behind expectations for a 0.2% increase. The largest upward contribution was provided by higher food prices with 0.7% jump pushed by vegetable prices. Meanwhile, the largest fall was registered in transport prices, which were down 1.3% amid lower prices of petrol and seasonally cheaper domestic airfares and car rentals. On an annual basis, the most of downward pressure came from lower telecommunication services prices and cheaper equipment. In regional terms, Auckland registered the highest increase of 3.0% in the reported quarter. The Reserve Bank of New Zealand previously signalled that it was set to keep its interest rates at a record low of 1.75% until late 2019, but recent data fuelled expectations for a rate hike by mid-2018.

The upper trend line of the adjusted small scale ascending channel pattern is providing resistance to the commodity price. However, it has to be noted that the trend lines drawn on the yellow metal's charts have to be taken into account as indicators of where the zones of significance are located at. Meanwhile, it is highly likely that the yellow metal will soon begin a retreat down to the lower trend line of the channel up pattern. The bullion's price is most likely going to attempt to find support in the 55-hour SMA, which on Tuesday morning was located just below the 1,230 mark. In the meantime, the lower trend line of the ascending channel was supported by the 100-hour SMA near the 1,225 mark.

On Monday, the US Dollar remained in a relatively constant range, even despite the massive leap mid-session. This situation changed this morning when the American currency fell down to the 112.10 mark. This momentum downwards could continue in the upcoming hours and therefore move the rate closer to the weekly S1 at 111.70. The given support, however, is very strong, reinforced by the 55-, 100– and 200-day SMAs apparent on the daily chart. Only substantial bearish sentiment may dash through this area. Thus, it is more likely that a reversal to the upside could occur there. In the meantime, another scenario may set the pair for a reversal near 112.00, thus establishing the upper channel boundary in the 112.20/50 territory as a possible trading range until Wednesday morning.