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U.S Retail sales decreased a seasonally adjusted -0.2% in June from May (revised -0.1%). The market was expecting a +0.1% rise. It's the first back-to-back sales drop since July and August 2016.

The consumer-price index (CPI) was unchanged in June from May. Excluding the often-volatile categories of food and energy, core-CPI rose +0.1%.

If officials conclude the weakness is broader than a few one-off events, continued subdued readings on core-inflation could put pressure on the Fed's rate-raise plan.

The Fed has signalled it will raise short-term interest rates once more this year and also begin to reduce the size of its balance sheet.

Fed funds are pricing a +40% chance of a Dec Fed hike.

USD remains under pressure against G10 (€1.1444, £1.2993, ¥112.52, C$1.2692). U.S 10-years -4 bps at +2.31%

Details:

• US Commerce Jun Retail Sales -0.2%; Consensus +0.1%
• US Jun Consumer Prices 0.0%; Consensus +0.1%
• US Jun Retail Sales Ex-Autos -0.2%
• US Jun CPI Ex-Food & Energy +0.1%; Consensus +0.2%
• US Jun Retail Sales, Ex-Autos & Ex-Gas -0.1 %
• US Jun Consumer Prices Increase 1.6% From Year Earlier; Core CPI Up 1.7% Over Year
• US May Retail Sales Revised to -0.1%
• US Jun CPI Energy Prices -1.6%; Food Prices 0.0%
• US May Retail Sales and Ex-Autos Unrevised at -0.3%
• US Real Average Weekly Earnings +0.5% In Jun

GBP/USD has posted gains in Friday's North American session. Currently, GBP/USD is trading at the 1.30 level. In economic news, there are no British events on the schedule. In the US, it was a disappointing day as CPI and retail sales missed their estimates. Later in the day, the US releases UoM Consumer Sentiment, which is expected to improve to 95.1 points.

In the US, consumer spending and inflation numbers disappointed in June, sending the US dollar broadly lower. With the US economy showing signs of a slowdown and inflation levels at low levels, the markets were hoping for some strong numbers. However, the data was softer than expected. CPI posted a flat reading of 0.0%, shy of the forecast of 0.1%. There was no relief from retail sales, which declined 0.2%, compared to an estimate of +0.2%. Retail sales have now declined for a second straight month, renewing concerns that second quarter growth could be soft, which would be bad news for the US dollar.

The spotlight was on Janet Yellen this week, as she testified before congressional and senate committees about the Federal Reserve's monetary policy report, which was released last week. Yellen's comments didn't contain anything unexpected, and the markets treated her appearances before lawmakers as a non-event. Yellen reiterated that the Fed planned to raise rates "gradually", and added that the Fed would begin trimming its balance sheet before the end of the year. The Fed chair didn't provide any timelines, but the most likely timelines are September for a balance sheet reduction, with a rate hike to follow in December. However, despite Yellen's assurances, the markets remain lukewarm about a rate hike before the end of the year. Investors are concerned that the US economy has slowed down in 2017 and may not need another rate hike. In her testimony before a congressional committee, Yellen repeated that she believes the factors weighing on inflation are temporary. However, she acknowledged that with inflation well below the Fed's target of 2%, "there could be more going on there". Early in the year, the Fed all but signed on the dotted line that it would raise rates three times in 2017, but a third rate hike has become a serious question mark, with the odds of a December hike continuing to dip. According to the CME Group, the current odds for a December increase are just 43%.

The British economy has been churning out some weak data, raising fears that the "Brexit bite" may be taking a toll on the economy. Last week's PMIs, which are important gauges of activity in the construction, manufacturing and services sectors, all softened in June, pointing to weaker expansion than a month earlier. Wage growth continues to slow, and dipped to 1.8% in May, marking the first time it has fallen below the 2.0% level since February 2016. The reading is also worrisome as it shows that inflation has overtaken wage growth, meaning that real wages for the British worker are falling. The BoE is divided on whether to raise rates before the end of the year, and policymakers are in an unenviable position regarding a rate hike – the economy may not need another rate hike, but inflation is running at 3%, well above the BoE's target. A weak British currency has contributed to high inflation, while at the same reducing the purchasing power of the British consumer.

Gold has posted strong gains Friday's North American session. Currently spot gold is trading at $1229.80 per ounce and is up 1.03% on the day. On the release front, consumer data was soft, as CPI and retail sales missed their estimates. Later in the day, the US releases UoM Consumer Sentiment, which is expected to improve to 95.1 points.

With the US economy slowing gears in 2017, Friday's inflation and consumer spending numbers marked an important report card. The results were not positive, as CPI and retail sales reports were softer than expected. CPI posted a flat reading of 0.0%, shy of the forecast of 0.1%. There was no relief from retail sales, which declined 0.2%, compared to an estimate of +0.2%. Retail sales have now declined for a second straight month, renewing concerns that second quarter growth could be soft, which would be bad news for the US dollar.

All eyes were on Janet Yellen this week, as she testified before congressional and senate committees about the Federal Reserve's monetary policy report, which was released last week. Yellen's comments didn't contain any gold nuggets, and the markets shrugged off her testimony. Yellen reiterated that the Fed planned to raise rates "gradually", and added that the Fed would begin trimming its balance sheet before the end of the year. The Fed chair didn't provide any timelines, but the most likely timelines are September for a balance sheet reduction, with a rate hike to follow in December. However, despite Yellen's assurances, the markets remain lukewarm about a rate hike before the end of the year. Investors are concerned that the US economy has slowed down in 2017 and may not need another rate hike. In her testimony before a congressional committee, Yellen repeated that she believes the factors weighing on inflation are temporary. However, she acknowledged that with inflation well below the Fed's target of 2%, "there could be more going on there". Early in the year, the Fed all but signed on the dotted line that it would raise rates three times in 2017, but a third rate hike has become a serious question mark, with the odds of a December hike continuing to dip. According to the CME Group, the current odds for a December increase are just 43%.

GBPUSD: The pair continues to trade in a range but followed through higher on the back of its Thursday gains during Friday trading session. Support lies at the 1.2950 level where a break will turn attention to the 1.2900 level. Further down, support lies at the 1.2850 level. Below here will set the stage for more weakness towards the 1.2800 level. Conversely, resistance stands at the 1.3050 levels with a turn above here allowing more strength to build up towards the 1.3100 level. Further out, resistance resides at the 1.3150 level followed by the 1.3200 level. On the whole, GBPUSD continues to face upside pressure.

Daily Pivots: (S1) 1.1360; (P) 1.1407 (R1) 1.1445; More.....

Intraday bias in EUR/USD stays neutral for the moment. And consolidation from 1.1489 could extend. Below 1.1312 will bring deeper retreat. But downside should be contained by 1.1118 support to bring rise resumption. On the upside, break of 1.1489 will extend recent rally from 1.0339 to 1.1615 key resistance next.

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 1.1763). 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.

Daily Pivots: (S1) 1.2890; (P) 1.2922; (R1) 1.2970; More...

Intraday bias in GBP/USD remains on the upside for 1.3029/47 resistance zone. Decisive break there will extend the larger rally to 61.8% projection of 1.2108 to 1.3047 from 1.2588 at 1.3168 next. On the downside, below 1.2934 minor support will turn bias to the downside for 1.2811. Break of 1.2811 and 55 day EMA will dampen our bullish view and target 1.2588 support instead.

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 now in favor, 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) 0.9629; (P) 0.9657; (R1) 0.9700; More......

USD/CHF is still bounded in the consolidation pattern from 0.9551 and intraday bias remains neutral. Another decline is expected as long as 0.9770 resistance holds. Below 0.9595 minor support will turn intraday bias back to the downside. In such case, USD/CHF should fall through 0.9551 support resume the whole fall from 1.0342 and target 0.9443 key support level next. We'd expect strong support from there to bring rebound. Meanwhile, firm break of 0.9770 will indicate near term reversal, on bullish convergence condition in 4 hour MACD.

In the bigger picture, USD/CHF is still bounded in medium term range of 0.9443/1.0342 for the moment. Consolidative trading would likely continue and medium term outlook remains neutral. Break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the pair. Meanwhile, downside attempts should be contained by 0.9443 key support level. However, sustained break of 0.9443 will carry larger bearish implication and target 0.9 handle.

Daily Pivots: (S1) 112.92; (P) 113.22; (R1) 113.58; More...

USD/JPY's decline resumes in early US session and reaches as low as 112.44 so far. The break of 112.88 support indicates rejection from 114.36 resistance. And, rise from 108.81 should be completed at 114.49. More importantly, the corrective pattern from 118.65 is likely still in progress. Intraday bias is now back on the downside for 55 day EMA (now at 111.98). Firm break there will target 108.12 low and below. Above 113.57 minor resistance will turn focus back to 114.49 resistance instead.

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.

Dollar's decline accelerates in early US session after weak economic data. Headline CPI slowed to 1.6% yoy in June, down from 1.9% yoy and below expectation of of 1.7% yoy. Core CPI was unchanged at 1.7% yoy, in line with consensus. Meanwhile, headline retail sales dropped -0.2% in June, below expectation of 0.2%. Ex-auto sales dropped -0.2%, also missed expectation of 0.2%.

Technically, USD/JPY finally takes out 112.88 support firmly, which indicates near term reversal. The pair could now be heading back to 108.81. GBP/USD breaches 1.3 handle and this week's rebound extends. Focus will now be on 1.3029 resistance. USD/CAD took a break after BoC inspired decline but is now gathering momentum again.

Euro is the relatively weaker currency this week as markets are reassessing ECB policy path. Reuters quoted unnamed sources saying that ECB could indicate in the future that there is no fixed end to its asset purchase program. One source said regarding stimulus exit is that "the important thing is not to pre-commit and keep it very gradual." Another source said that "it's got to be data-dependent and we need to preserve the flexibility."

Meanwhile, according to a Reuters of economists, 47% of respondents expect ECB to announce tapering in September meeting. 25% expect ECB to extend QE at a reduced pace. 18% expects the decision to be made in October instead.

Released earlier today, Eurozone trade surplus widened to EUR 19.7b in May. New Zealand business manufacturing index dropped to 56.2 in June.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 112.92; (P) 113.22; (R1) 113.58; More...

USD/JPY's decline resumes in early US session and reaches as low as 112.44 so far. The break of 112.88 support indicates rejection from 114.36 resistance. And, rise from 108.81 should be completed at 114.49. More importantly, the corrective pattern from 118.65 is likely still in progress. Intraday bias is now back on the downside for 55 day EMA (now at 111.98). Firm break there will target 108.12 low and below. Above 113.57 minor resistance will turn focus back to 114.49 resistance instead.

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.

Economic Indicators Update

USD/CAD Posted Humble Gains

The Loonie has lost little ground versus the greenback in the morning, the minor increase was somehow expected after the amazing drop. Has found temporary and now is struggling to recover, but is still under immense selling pressure.

Right now we don't have a reversal sign, but we may have one in the upcoming days if the United States economic data will come in line with expectations or better. USD/CAD is trading right above two important support level and above the 1.2700 psychological level.

Is trading near 1.2730 level, but is losing altitude again after the morning increase, we'll see what will happen in the upcoming hours because the US is to release high impact data. The fundamental factors will take the lead, so you should be careful because we may have a high volatility.

The US CPI could increase by 0.1% in June and could jump in the positive territory after the 0.1% drop in May, while the Core CPI may increase by 0.2% in the previous month and could beat the 0.1% in the former reading period. Moreover, the greenback could receive support also from the Retail Sales, which could increase by 0.1%, the indicator dropped by 0.3% in the previous reading period, the Core Retail Sales are expected to increase by 0.2% and could boost the greenback, which could dominate the currency market on the short term.

The Capacity Utilization Rate and the Industrial Production will be released as well later, you should keep and eye on the economic calendar because the high impact data could shake the markets. A disappointment will send the USD tumbling, so maybe will be better to stay away during the data release.

USD/CHF Breakout Needs Confirmation

The USD/CHF managed to jump above a dynamic resistance, even if the USDX is trading in the red right now. USDX moves in range, but remains to see if this will be an accumulation or a distribution movement.

Has resumed the minor rebound, but the breakout needs confirmation, the next upside targets are at the median line (ml) of the minor ascending pitchfork and higher at the median line (ML) of the descending pitchfork. Right now we don't have a any trading opportunity, we'll have a buying opportunity only if the rate will come back down to retest the lower median line (lml) of the minor ascending pitchfork.

AUD/USD Seems Unstoppable

AUD/USD extends the latest gains and climbed above a major static resistance, remains to see if this will be a valid one because the US numbers could force the rate to decrease in the upcoming hours. Price is strongly bullish and looks determined to hit fresh new highs. Technically should increase further, but a USDX's rally will help the sellers to take the lead again.

Is trading above the 0.7755 major static resistance, but is premature to say that will have a valid breakout. I've drawn an up sloping red line where he could find resistance again. A failure to climb above the red line will signal an exhaustion and a reversal on the short term.