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Following a massive leap upwards on Thursday morning, GBP/USD returned to test the weekly PP at 1.2926. Despite various attempts, the Sterling failed to overcome this level and edge lower. The nearest resistance is formed by the weekly R1 at 1.2986. This level may be tested today, given the continuous support from the 20-hour SMA. The market in the morning session demonstrates lack of volatility. Thus, traders may be cautious prior to fundamentals from the US at 1230GMT. In case these data do not shake the market tremendously, it is likely that the pair remains between the weekly PP and R1 in the 1.2910/1.3000 range. Solid downside risks could likewise push the rate to a support cluster formed by the 55-, 100– and 200-hour SMAs circa 1.2900.

After the fall of the common European currency against the US Dollar on Thursday morning the pair had recovered some of the suffered losses on Friday morning. The currency pair found support in the described cluster below it. However, it did reach down below the 1.1380 level at one moment, which might have triggered placed orders. Meanwhile, on Friday morning it was expected that the surge will continue, as the EUR/USD pair faced only the minor resistance of the 55-hour SMA at the 1.1425 mark. Although, there is a previously broken trend line located just below the 1.1440 mark. The trend line might show some minor resistance, as it did during the early hours of Thursday’s trading.

Daily Pivots: (S1) 145.79; (P) 146.33; (R1) 147.12; More

Intraday bias in GBP/JPY is turned neutral with the current recovery. But still, as short term top is formed at 147.76, deeper decline is in favor. Below 145.25 will turn bias to the downside for 55 day EMA (now at 143.70). Break there will target 135.58 key support level again. On the upside, though, decisive break of 148.09/42 will pave the way to long term fibonacci level at 150.43.

In the bigger picture, rise from medium term bottom at 122.36 is expected to continue to 38.2% retracement of 196.85 to 122.36 at 150.43. Decisive break there will carry long term bullish implications and pave the way to 61.8% retracement at 167.78. In case the sideway pattern from 148.42 extends, we'd be looking for strong support from 135.58 and 50% retracement of 122.36 to 148.42 at 135.39 to contain downside.

Daily Pivots: (S1) 128.51; (P) 129.08; (R1) 129.68; More...

Intraday bias in EUR/JPY remains neutral for consolidation below 130.76 temporary top. Near term outlook remains bullish as long as 127.99 support holds. Above 130.76 will target 100% projection of 114.84 to 125.80 from 122.39 at 133.35 next. However, considering bearish divergence condition in 4 hour MACD, break of 127.99 will bring deeper pull back 55 day EMA (now at 125.24).

In the bigger picture, the break of 126.09 support turned resistance should have confirmed completion of down trend form 149.76 (2014 high), at 109.03 (2016 low). Current rise from 109.03 would now target 61.8% retracement of 149.76 to 109.03 at 134.20 and above. Medium term outlook will remain bullish as long as 122.39 support holds.

Daily Pivots: (S1) 0.8782; (P) 0.8827; (R1) 0.8853; More

EUR/GBP is holding above 0.8756 support for the moment and intraday bias stays neutral. Further rise is still expected as long as 0.8756 support holds. Above 0.8948 will extend the rise from 0.9312 to retest 0.9304 high. However, firm break of 0.8756 will indicate near term reversal and turn bias to the downside.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. It's uncertain whether it is finished yet. But in case of another fall, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside and bring rebound. Whole up trend from 0.6935 is expected to resume after consolidation from 0.9304 completes.

In her second testimony before Congress yesterday, Fed Chair Yellen provided little new information on policy to guide dollar traders. The most noteworthy point she made in our view, was that even though low inflation is owed to temporary factors like cheaper prices for phone plans and prescription drugs, there 'may be more going on'. However, she quickly added that it is premature to conclude the underlying inflation trend is falling well short of 2%.

Given the lack of concrete signals from the Fed, we think investors are likely to turn their eyes to today's CPI and retail sales releases for June in order to gauge the likelihood of another rate increase this year. Getting the ball rolling with the CPIs, the headline rate is expected to have slid for the 4th consecutive month, while the core rate is anticipated to have held steady after falling for 4 months in a row as well. We believe traders will have their gaze locked primarily on the core rate, where we see the risks surrounding the forecast as tilted to the upside, given that the nation's Markit services PMI for the month showed that prices charged rose at the fastest pace for 16 months.

As for retail sales, the forecast is for both the headline and core rates to have rebounded from the previous month. The consensus for a rebound is supported by both the Conference Board and U of M consumer sentiment indices for the month, both of which rose. A rebound in sales combined with a potential upside surprise in the core CPI rate could raise the likelihood for another Fed rate hike this year and thereby, reverse some of the dollar's recent losses.

USD/JPY traded higher yesterday after it hit support near the prior downside resistance line taken from the peak of the 11th of January. Then, the rate hit resistance at 113.60 (R1). In our view, the fact that the pair continues to trade above the aforementioned medium-term downside line keeps the door open for further advances. A clear break above 113.60 (R1) could initially aim for the 114.00 (R2) hurdle, where another break may target again the key resistance territory of 114.40 (R3). The catalyst for such a move may be a possible rebound in the US core CPI rate today. Having said that though, if inflation continues to slow, we may see the pair sliding back below the key downside resistance drawn from the peak of the 11th of January, something that may turn the picture negative, at least for a while.

XAU/USD traded lower yesterday after it hit resistance slightly below the downtrend line drawn from the peak of the 7th of June. As long as the precious metal is trading below that line, we consider the near-term outlook to be negative and as such, we would expect a dip below 1215 (S1) to aim for another test near the 1205 (S2) line. However, as we get closer to the 1200 (S3) psychological barrier, we would be careful of a possible rebound, as the 1200 (S3) zone appears to be the lower bound of a medium-term sideways range that contains the price action since the end of January. We prefer to wait for a clear close below 1200 (S3) before we get confident on larger declines.

As for the rest of today's highlights:

During the European day, the economic calendar is relatively light. The only notable indicator we get is Eurozone's trade balance for May, though no forecast is available. From the US, besides the CPIs and retail sales, we will also get the nation's industrial production for June and the preliminary U of M consumer sentiment index for July.

We have only one speaker on the agenda: ECB Governing Council member Ewald Nowotny.

USD/JPY

Support: 113.15 (S1), 112.85 (S2), 112.50 (S3)

Resistance: 113.60 (R1), 114.00 (R2), 114.40 (R3)

XAU/USD

Support: 1215 (S1), 1205 (S2), 1200 (S3)

Resistance: 1230 (R1), 1240 (R2), 1248 (R3)

Daily Pivots: (S1) 1.4669; (P) 1.4781; (R1) 1.4857; More...

Intraday bias in EUR/AUD remains on the downside for 1.4625 support. Break there will whole corrective decline from 1.5526 and target 100% projection of 1.5226 to 1.4625 from 1.4472. On the upside, above 1.4852 minor resistance will turn intraday bias neutral again.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a corrective pattern. Such correction should be completed at 1.3624 after defending 1.3671 key support. Rise from 1.3642 would extend to 61.8% retracement of 1.6587 to 1.3624 at 1.5455. Sustained break there will pave the way to retest 1.6587. However, sustained break of 1.4625 support will dampen this bullish view. In that case, we'll assess the outlook later after looking at the structure and depth of the pull back.

Daily Pivots: (S1) 1.0991; (P) 1.1015; (R1) 1.1045; More...

EUR/CHF's rally resumed after brief consolidation and intraday bias is back on the upside. Current rise is expected to target 1.1127 resistance next. On the downside, break of 1.0983 support is needed to indicate short term topping. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, the price actions from 1.1198 are seen as a corrective move. Such correction could have completed after defending 38.2% retracement of 0.9771 to 1.1198 at 1.0653. Decisive break of 1.0999 resistance should target a test on 1.1198 high. For now, this will be the preferred case as long as 1.0830 support holds.

'We expect inflation pressures to firm in the second half of the year, but any realized gains are likely to be limited.' - Sam Bullard, Wells Fargo Securities

The US Producer Price Index for final demand nudged up 0.1% in June on the back of sustained increases in services cost that managed to offset plunging energy prices, data released by the Labour Department revealed on Thursday. The gain came in as a surprise, as the vast majority of analysts had predicted the index to stay unchanged, and suggested that a recent moderation in inflation was likely temporary. In 12 months through June, the PPI advanced 2.0%, down 0.4% from May's reading, as the energy-led spike was dropped out of the calculation. Meanwhile, the Core Finished Goods PPI advanced a modest 0.1% over the reported period, missing economists' expectations for a 0.2% uptick and following the 0.3% surge registered in May. Year-on-year, the core PPI climbed 2.0% in June after rising 2.1% in the preceding month. In another report, the Labour Department said the number of Americans filing for unemployment benefits dropped 3K to a seasonally adjusted 247K in the week ended July 8.

USDCAD made a sharp drop two days ago, which we now see it as the final piece of an extended impulse of blue wave three. If that is the case, then current drop can now face some limited downside near the Fibonacci ratio of 423.6 region and make a new three wave recovery higher in days ahead. Ideally we will see blue wave iv unfold a new minimum three wave rally to the upside, specifically to around 1.2943/1.3000 region, where former wave four consolidations can act as resistance and push price again lower into wave five of 3.

USDCAD, 4H