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As we enter the business end of the week, the US will be in focus with a large number of data scheduled to be released including some important labour market numbers and surveys on the services sector.

ADP, PMIs and Fed Speakers Scheduled for Thursday

The Independence Day bank holiday earlier in the week caused a delay in a number of figures being released. It means that ahead of tomorrow's jobs report, we'll get the ADP release for June which is expected to show 185,000 jobs being created, roughly in line with the NFP 12-month average. This would suggest the labour market is continuing to tighten, giving further ammunition to the hawks on the Fed that argue that inflation will ramp up.

We'll also get the final services PMI number for June, alongside the composite PMI and the ISM non-manufacturing PMI. The services sector is hugely important to the US economy and both of these numbers continue to point to decent, albeit uninspiring, levels of growth. Jobless claims and trade balance numbers will also be released alongside these figures. We'll also hear from three Federal Reserve policy makers, with vice Chair Stanley Fischer, Jerome Powell and John Williams all scheduled to appear.

USD Edges Lower After FOMC Minutes

The dollar is trading a little lower on the day as the US open approaches. The minutes from the last FOMC meeting did little to support the greenback, with the lack of inflationary pressures appearing to be taking its toll on the appetite for more rate hikes, among some policy makers. That suggests to me that, while one more rate hike may come this year - perhaps in December - the pace beyond then may slow, with the focus then turning to the balance sheet. Of course, should inflation move towards 2%, as remains the assumption of the committee, the pace of tightening may increase with it.

Oil Higher as API Reports Large Drawdown

Oil is up more than 1% on the day so far, paring Wednesday's losses which came on reports that Russia is not willing to deepen the production cuts that could be necessary to bring the market back into balance and support prices. The rebound off the lows was aided by the inventory data from API which reported a substantial drawdown last week of 5.76 million barrels. Prices may be further supported today if this number is confirmed by EIA, with only around half that currently expected.

Late on Wednesday, the Federal Reserve (Fed) published the minutes of its meeting held in June 13-14, providing the reasoning behind its decision to raise the fed funds rate for the second time this year to a target range of 1.00-1.25% and its intention to reduce the size of the balance sheet. However, the release of the minutes did not provide a strong support to the dollar, with major currency pairs remaining flat in the forex markets.

The Fed minutes revealed that bank officials are in a hawkish mood as several policymakers in June’s meeting were positive and, therefore, agreed to unwind the stimulus monetary programme within months. The decision came after the Committee judged that current economic conditions give an incentive to tighten monetary policy further, while they also projected that future economic developments will warrant gradual rate hikes.

Regarding the present economic progress, the members said that the labour market is stronger as unemployment rate fell to 4.3% in May and was below the longer-run target, despite disappointing wage growth and slower employment growth. The latter, they explained, was attributed, as expected, to a narrowing labour capacity. Moreover, inflation over the last 12 months rose slightly but remained below the 2% target according to the core PCE price index, which was 1.5% in April. Household spending together with fixed investment continued growing in recent months as well.

In the medium-term, the members anticipate that economic activity will increase moderately and the labour market will strengthen further, whereas inflation is expected to stabilize around 2%. Nevertheless, Fed officials claimed that uncertainty around fiscal policies remain significant as they are likely to adjust, but short-term risks are considered balanced as risks arising from foreign economic developments are less severe now.

Taking the above into account, most of the Fed policymakers decided to raise rates gradually and shrink the balance sheet despite weak inflation. However, a disagreement was found regarding the timing the Fed will start reducing its asset holdings. Some members wanted to initiate the process within months – favouring the upcoming July meeting or August – whereas others preferred to wait longer and assess economic conditions first before taking any action.

There was also a split regarding the pace of future rate increases, with some Committee members voicing concern about the downside risks to inflation, while other participants saw a bigger risk from the low unemployment level that could potentially lead to the economy overheating.

In terms of reaction in the forex markets, dollar pairs showed little response to the Fed’s minutes. The dollar index, which gauges the dollar strength against its major counterparts, moved sideways, last trading at 95.93. Dollar/yen reversed its overnight losses before steadying at 113.41 in early European trading today. Euro/dollar was also steady at $1.1362, while the pound/dollar stood at $1.2940.

EURUSD

The EURUSD had another indecisive movement yesterday. Price attempted to push lower, bottomed at 1.1312 but closed a little bit higher at 1.1350. The bias is neutral in nearest term probably with a little bullish bias testing 1.1425 resistance area. A clear break and daily close above that area would continue the bullish scenario targeting 1.1500 – 1.1530 region. Immediate support is seen around 1.1285. A clear break and daily close below that area could trigger further bearish pressure testing 1.1180 region but overall I remains bullish and any downside pullback should be seen as a good opportunity to buy. Fundamental focus will be on the US NFP number tomorrow.

GBPUSD

The GBPUSD had another indecisive movement yesterday. The bias is neutral in nearest term probably with a little bullish bias testing 1.3000 region but key resistance remains at 1.3050 which remains a good place to sell with a tight stop loss. Immediate support is seen around 1.2890/75. A clear break below that area could trigger further bearish pressure testing 1.2815/00 region. On the upside, a clear break and daily close above 1.3050 would activate my bullish mode. Fundamental focus will be on the US NFP number tomorrow.

USDJPY

The USDJPY was indecisive yesterday formed a Doji on daily chart. There are no changes in my technical outlook. The bias remains bullish in nearest term testing 114.30 resistance area. Immediate support remains around 112.75/60 area. A clear break below that area could lead price to neutral zone in nearest term testing 112.00 region or lower but overall I remain bullish and any downside pullback should be seen as a good opportunity to buy. On the upside, a clear break and daily close above 114.30 would expose 115.50 region. Fundamental focus will be on the US NFP number tomorrow.

USDCHF

The USDCHF attempted to push higher yesterday, slipped above 0.9675 resistance but closed lower at 0.9640, formed a bearish pin bar as you can see on my daily chart below. This fact could end the bullish correction phase but note that 0.9550 – 0.9450 area remains a key support and good place to buy with a tight stop loss below 0.9450. Immediate resistance is seen around 0.9688 (yesterday’s high). A clear break above that area would expose 0.9765 region. Fundamental focus will be on the US NFP number tomorrow.

The DAX index has dropped in the Thursday session, as the index is down 0.74%. Currently, the DAX is at 12,361.50. On the release front, German Factory Orders gained 1.0%, well short of the forecast of 1.9%. Eurozone Retail PMI improved to 53.2, up from 52.0. Today's highlight is the minutes from the ECB's policy meeting in June.

The German manufacturing sector continues to expand, as stronger global demand for German products has boosted the manufacturing and exports sector. Earlier in the week, German Manufacturing PMI came in at 59.6, pointing to expansion. Factory Orders were up 1.0% in May, rebounding after a sharp decline of 2.1% in April. We'll get a look at Industrial Production on Friday, which is expected to show a weak gain of o.2%.

All eyes will be on the ECB later on Thursday, with the release of the minutes from the July policy meeting. Investors will be monitoring closely, looking for hints that the ECB is moving close to exiting the QE scheme. There was plenty of excitement last week, as the “Draghi rally” saw the euro soar by 2.0%. Draghi spoke at the ECB forum, a gathering of central bankers. His upbeat comments about growth and inflation in the eurozone economy triggered a rush to buy euros, much to the surprise of the ECB. In June, the bank removed an easing bias regarding interest rates, effectively closing the door to further rate cuts. However, policymakers may now be wary about any more signals of tightening policy, to avoid another run on the euro. The ECB meets for a policy meeting on July 20, and we could see a bland rate statement, to the effect that the economy is headed in the right direction, but QE will remain in place until inflation levels move higher. However, Draghi has surprised the markets before, so the meeting could prove to be a market-mover.

The dollar shrugged off the release of the Fed's June policy meeting, which failed to shed much light on the Fed's plans. The minutes revealed a divided Fed over the key issues of inflation and the Fed's bloated balance sheet. Some members expressed unease at the Fed's current forecast of rate hikes, given the persistently low levels of inflation. According to the current “dot plot”, the Fed expects to raise rates in December, and three times in 2018. There was also division over the timing of reducing the $4.2 trillion balance sheet – some policymakers were in favor of starting in September, while others preferred later in the year. At the June meeting, the Fed stated that it would begin reducing the balance sheet this year, but provided no details. Analysts expect the Fed to start winding down the balance sheet in September, prior to a rate hike in December. The markets are lukewarm about a rate hike in December, with the odds at just 50%, according to the CME Group.

Yesterday's Fed minutes has done little to aid dealers in mapping out their U.S yield cure. It's tomorrow's U.S jobs report (08:30 am EST), including a wage inflation reading, which is the key data point for capital markets this week to effect market expectations on the Fed's policy outlook.

At their meeting last month, Fed officials debated when to start shrinking the central bank's balance sheet, according to meeting minutes released yesterday, with some favoring starting “within a couple of months” and others suggesting it would be better to wait. The main sticking point was uncertainty over whether the recent drop in inflation is temporary, or a real problem.

The Fed's lack of consensus has global equities trading mixed, yen giving up some of its recent gains and ‘big' dollar little changed.

Similarly, the European Central Bank's (ECB) account of their June 8 monetary policy meeting (07:30 am EST) will be watched for any discussion on the decision to drop the reference to future interest rate cuts – by removing the words “or lower” from their introductory statement. Dealers will also be looking for clues on “tapering.”

To date, many expect the ECB to make some kind of announcement regarding tapering of bond buying at the September or October monetary policy meeting, with a reduction in monthly purchases starting in January.

Note: Friday's non-farm payroll (NFP) report is expected to add around +175k workers last month and wage growth probably strengthened.

1. Stocks show a mixed reaction to FOMC minutes

In Japan, the Nikkei (-0.4%) dropped to three-week lows overnight as ongoing tensions around North Korea continued to sap risk appetite. The broader Topix dropped -0.2%.

In Singapore, the Straits Times Index declined -0.5% while Indonesia's benchmark gauge climbed +0.3% and India's Sensex advanced +0.5%.

In Hong Kong, the Hang Seng Index fell -0.2%, while the Hang Seng China Enterprises Index retreated -0.4%.

In China, the Shanghai Composite Index increased +0.2%.

In Europe, regional bourses had opened mixed, but are now drifting lower. With crude oil moving higher it's providing some support to energy stocks on the FTSE 100, while materials stocks are under pressure following drop in precious metals. Markets attention has switched to the ECB minutes and tomorrow's non-farm payroll (NFP) report.

Indices: Stoxx50 -0.5% at 3,462, FTSE -0.5% at 7,358, DAX -0.3% at 12,418, CAC-40 -0.5% at 5,154, IBEX-35 -0.7% at 10,453, FTSE MIB -0.5% at 21,042, SMI -0.5% at 8,913, S&P futures -0.1%.

2. Oil rallies after U.S inventory drop, gold prices steady

Ahead of the U.S open, crude oil is trading better bid, recovering some ground after a surprisingly upbeat picture of U.S demand.

However, the prospect of oversupply in 2018 continues to provide a headwind, which is causing many analysts to cut next year's price forecasts.

Brent crude futures are up +71c at +$48.50 a barrel. The price fell as much as -4.6% intraday yesterday, before closing down -3.7%, its biggest one-day drop in a month. U.S West Texas Intermediate (WTI) crude futures are also up +71c, at +$45.84 a barrel.

Yesterday after the close, API data showed U.S. crude inventories fell more sharply than expected, down -5.8m barrels in the week to June 30, against expectations for a draw of -2.3m barrels.

Note: OECD total oil inventories are still above +3B barrels and the recovery in Libyan and Nigerian supplies, coupled with a return of U.S shale, is expected to prevent steep stock draws ahead.

For now, rising geopolitical risks is providing some support for gold. The precious metal is little changed (-0.1% to +$1,223.97 an ounce) overnight as tensions on the Korean peninsula stoked safe-haven demand for the metal. Nevertheless, the dollars strength is expected to provide weight for some metal prices.

3. European Bond auctions back up yield

Heavy government bond supply from the U.K, Spain and France is putting some downward price pressure on the bond prices ahead of the U.S open.

Note: Today's supply is tilted to the long- end of both the Spanish and French yield curves. Spain is offering €5B in 2022-, 2040- and 2046-dated, while France auctions €8.5B May 2027-, October 2027- and May 2048-dated OATs. While in the U.K, £2.5B 10-Gilts is on offer (+1.25% 2027).

The collective Euro supply has U.S 10's backing up +3 bps to +2.35%, after falling -3 bps points yesterday and Gilts, OAT's and Bunds climbing +2 bps.

Elsewhere, down-under, Australia's benchmark yield has gained +1 bps to +2.64%. The Reserve Bank of Australia's (RBA) Harper said that Aussie policy makers are “comfortable holding interest rates for now and see no reason to scare the horses at the moment” by signaling coming interest rate increases.

4. Dollar's mixed fortunes

Sterling is marginally higher outright (£1.2935), but continues to trade in “no man's land.”

Some of the pounds gains in the past weeks have been on the back of expectations that the BoE may raise interest rates given higher-than-expected inflation. Sterling bears are hoping that the “lower highs and lower lows” is putting the currency pair at risk of a steeper decline towards £1.28 again.

Note: GBP/USD rallied well above £1.30 after Carney spoke last week, but has since failed to hold above this key level.

The EUR (€1.1362) is steady outright after booking gains in the week on upward revisions to German manufacturing and service sector activity, similar changes to the broader eurozone purchasing managers' indices, and a rebound in retail sales (see below). Market is waiting for the ECB minutes for conviction on the single units next move.

Note: The reduction in the ECB's bond-buying program is not fully priced in yet by the markets.

5. Eurozone sales rise to greatest extent in almost two years

Data this morning showed that Eurozone retailers recorded an uptick in sales during June (53.2 vs. 52 m/m).

Growth was driven by sharp expansions in France (74-month high) and Germany, although another decline in Italy continued weigh on overall growth.

Digging deeper, there was a broad-based drop in ‘gross margins' for retails, which suggests a continued challenging business climate, while a strong increase in employment provides stronger evidence of a recovery in the eurozone retail sector.

WTI oil is holding near $46 barrier on Thursday after sharp fall on Wednesday hit low at $44.51, but bounced quickly after report from American Petroleum Institute showed larger than expected drawdown in crude inventories (5.7 mln bls draw vs forecasted 1.6 mln barrels draw).

Wednesday's close above $45.29 (cracked Fibo 38.2% level of $42.04/$47.30 upleg) eased growing downside pressure on formation of reversal pattern on daily chart.

However, risk of fresh weakness remains in play as near-term studies weakened on Wednesday's fall. Recovery from $44.51 low needs break and close above $46.23 (Fibo 61.8% of $47.30/$44.51 pullback) to confirm reversal.

Today's release of US EIA weekly crude stocks is in focus for fresh signal. Forecast is for 2.3 mln bls draw (compared to 0.11 mln bls build last week) which would further support oil prices on release at / above forecasted level.

Rising 10SMA underpins today's action (currently at $45.18) followed by 20SMA ($44.80), close below which will be bearish.

Res: 45.91, 46.23, 46.64, 47.00
Sup: 45.18, 44.80, 44.51, 44.05

Yesterday, the minutes from the latest FOMC meeting showed that policymakers, despite agreeing on raising the Federal funds rate, were split on the outlook for inflation, how it might affect the future pace of interest rates, and when they should start normalizing the Bank's enormous balance sheet. Specifically, most participants viewed the recent softness in prices as reflecting idiosyncratic factors, while others expressed concerns that this weakness may persist. Officials generally reiterated their support for continuing a gradual approach to raising the federal funds rate. However, a few members expressed concerns that the current rate path projections might prove inconsistent with a sustained return of inflation to 2%. On the B/S front, several officials supported beginning its normalization in a couple of months, while others suggested deferring until later this year.

As for the greenback, the initial reaction was a slight decline on the divided Committee and the lack of any clear signals with regards to B/S norm and the next hike. Nevertheless, the currency bounced quickly to recover the losses and even traded higher in the following minutes.

EUR/USD continues to trade between the support of 1.1300 (S1) and the resistance of 1.1380 (R1). Given that the rate is still trading above 1.1300 (S1), which acted as the upper bound of the sideways range that contained the price action from the 19th of May until the 27th of June, we maintain the view that the near-term outlook remains positive and that the latest slide from near 1.1450 (R2) is just a corrective phase. If the bulls take advantage of the 1.1300 (S1) territory, we would expect them to drive the battle above 1.1380 (R1), something that may open the way for another test near the 1.1450 (R2) zone. A clear break above that obstacle would confirm a forthcoming higher high on the daily chart and perhaps signal the resumption of the prevailing medium-term uptrend.

Now the focus for USD traders shifts to incoming US data and specifically, to the US employment report tomorrow, and the CPI data due out next week. A robust jobs report and a decent rebound in the nation's core inflation rate is needed to bring forth market expectations with regards to the next hike, which remained unaffected by the minutes and still price in the next increase to come in March 2018.

WTI tumbles as Russia opposes deeper output cuts; OPEC exports rose in June

WTI tumbled yesterday on sources that Russia will oppose attempts for deeper production cuts and that it is also against any extension of the cut deal. The climb in OPEC exports for June added fuel to that decline. WTI fell below the support (now turned into resistance) of 46.50 (R1) and the short-term uptrend line taken from the 26th of June, to hit support at 44.65 (S2). Then, the price rebounded back above 45.35 (S1) after the American Petroleum Institute showed that US crude inventories fell by 5.8 million barrels in the week ended on the 30th of June.

In our view, yesterday's tumble changes the short-term outlook to flat for now and turns investors' attention to the Energy Information Administration (EIA) report later today. The EIA is forecast to report a fall in crude inventories of about 2.8million barrels, which may encourage the bulls to treat yesterday's slide as a corrective phase and perhaps drive the price back above 46.50 (R1). Such a break may open the way for another test near the 47.50 (R2) zone.

Overall though, we remain sceptical with regards to the establishment of a healthy longer-term uptrend in oil prices. As we noted several times, we expect any potential recovery to remain capped by the 51.00-55.00 range, where we believe US shale producers may be attracted to increase production.

As for today's events:

During the European morning, the calendar is relatively light. The only release that could attract some attention are the minutes from the ECB's June policy meeting. Even though these are usually not a major market mover, considering the signals that we got at that meeting and afterwards, we could see some reaction in the euro.

In the US, the ADP employment report for June will be in focus. The forecast is for the private sector to have added 185k jobs, less than the 253k print in May. Nevertheless, this would still be a decent print and if met, it may increase speculation that Friday's NFP will also meet its forecast of 179k. Having said that, we have to sound a note of caution. Even though this is the only major gauge of the NFP, the correlation of the two numbers has fallen notably during the last few months.

The ISM non-manufacturing PMI for June is also coming out. Expectations are for the index to have slid somewhat, but given the upside surprise in the ISM manufacturing print, we would stay mindful that the service sector may also have performed better than anticipated. Initial jobless claims for the week ended on the 30th of June and the nation's trade balance for May are due out as well.

As for the speakers, we have three on the agenda: ECB Executive Board member Peter Praet, San Francisco Fed President John Williams, and Fed Board Governor Jerome Powell.

EUR/USD

Support: 1.1300 (S1), 1.1220 (S2), 1.1170 (S3)

Resistance: 1.1380 (R1), 1.1450 (R2), 1.1500 (R3)

WTI

Support: 45.35 (S1), 44.65 (S2), 43.70 (S3)

Resistance: 46.50 (R1), 47.50 (R2), 48.50 (R3)

The euro has ticked higher in the Thursday session. Currently, the pair is trading at 1.1350. On the release front, German Factory Orders gained 1.0%, well short of the forecast of 1.9%. Today's highlight is the minutes from the ECB's policy meeting in June. In the US, the focus is on employment data, with the release of ADP Nonfarm Payrolls, which are expected to plunge to 184 thousand. We'll also get a look at unemployment claims and ISM Non-Manufacturing PMI. On Friday, there are three key employment events – Average Hourly Earnings, Non-Farm Employment Change and the unemployment rate. As well, the Federal Reserve will release its semi-annual Monetary Policy Report.

The euro surged last week, after the markets interpreted Mario Draghi's comments at the ECB forum as a signal that the ECB was planning to wind down its asset-purchase program (QE). The ECB then beat a hasty retreat, saying that the markets had “misjudged” Draghi's comments. The ECB is back on center stage later on Thursday, with the release of the ECB minutes from the July policy meeting. Will the minutes have the same galvanizing effect on the currency? Investors will be monitoring closely. If there are any hints that the ECB is moving closer to exiting the QE scheme, the euro rally could resume.

The ECB will hold a policy meeting on July 20, but last week's “Draghi rally”, where the euro soared 2.0%, has meant that policymakers will need to reassess what message it chooses to send to the markets. In June, the bank removed an easing bias regarding interest rates, effectively closing the door to further rate cuts. However, policymakers may now be wary about removing a second easing bias regarding the asset-purchase program, to avoid another run on the euro. The rate announcement will be followed by a Draghi press conference, but it could well be a case of “once bitten twice shy” for the ECB head after last week's rally. This could result in the ECB reiterating that the economy is headed in the right direction, but QE will remain in place until inflation levels move higher.

The dollar shrugged off the release of the Fed's June policy meeting, which didn't provide any clarity about the Fed's plans. The minutes pointed to a divided Fed over the key issues of inflation and the Fed's bloated balance sheet. Some members expressed unease at the Fed's current forecast of rate hikes, given the persistently low levels of inflation. According to the current “dot plot”, the Fed expects to raise rates in December, and three times in 2018. There was also division over the timing of reducing the $4.2 trillion balance sheet – some policymakers were in favor of starting in September, while others preferred later in the year. At the June meeting, the Fed stated that it would begin reducing the balance sheet this year, but provided no details. Analysts expect the Fed to start winding down the balance sheet in September, prior to a rate hike in December. The markets are lukewarm about a rate hike in December, with the odds at just 50%, according to the CME Group.

Gold has been in a downtrend since early June. The precious metal currently trades below the Ichimoku cloud while it hit a near two-month low of 1217.33 in yesterday's trading.

Turning to the Ichimoku analysis, the negative alignment when the Tenkan-sen line (red) crossed below the Kijun-sen line (blue) in late June is still in place. This negative short-term signal is also supported by the MACD. Specifically, the indicator is below zero, as well as below its red signal line.

If the price advances, a barrier to the upside might be formed by the 200-day moving average (MA) and Tenkan-sen line, currently spanning from 1233.13 to 1237.66. Further up, additional resistance could be provided by the 50-day MA and cloud top, ranging from 1250.34 to 1252.05.

On the downside, yesterday's low of 1217.33, combined with the near four-month low of 1214.17 from May 9, might offer support. If this area is violated, the focus would shift to the area around the 1200 psychological level for additional support.

Regarding the medium-term picture, it currently looks neutral with the price ranging sideways since the start of the year.

Overall, the short-term outlook is bearish and the medium-term is neutral.

If you had signed up for my Live Trading Webinar that is exclusive with Admiral Markets, you could've seen how the USD/CAD rejected perfectly from 2 POC zones where both market orders were triggered. The pair is still going down and in the case of any spike to the upside pay attention again to POC 1.2990-1.3005 (D H4, ATR pivot, EMA89) and eventually POC2 1.3035-50 (D H5, W H3, descending trend line, ATR high) where price could reject again. At this point the price is below W H3 and D H3, which signifies a strong downtrend. Continuation below yesterday's low (1.2912) aims for 1.2895 and 1.2869. Below it is a void zone, where we could see hardly any support all the way down to 1.2780.