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It's quite interesting how Sterling remains resilient despite being constantly bombarded by political risk and economic woes over the past year. Last week's awe-inspiring rebound, which was trigged by BoE Governor Mark Carney's hawkish remarks, is a testament to this, as the GBPUSD concluded Q2 above 1.3000. While the Pound could find itself supported in the short-term as speculation heightens over a potential UK interest rate increase, gains are likely to remain limited as investors slowly come to grips with the reality of Brexit. With the UK economic outlook uncertain and political risk weighing on sentiment, an interest rate increase which may put pressure on growth and business confidence could easily add to the UK's woes.

Focusing on the macro-fundamentals, Sterling found itself vulnerable to losses during Monday's trading session after weaker-than-expected data from Britain's manufacturing sector forced investors to re-evaluate the possibility of an interest rate increase in 2017. The UK's manufacturing sector activity reading fell to 54.3 in June, marking its slowest pace of growth in three months. This disappointing report has dealt another blow to sentiment and is likely to add to the horrible cocktail of soft economic releases which is slowly illustrating the impact of Brexit.

On the political sphere, the Brexit rumble is heating up abroad as British officials have dropped the “have cake and eat it” approach towards negotiations. With British officials accepting that there will have to be a trade-off between access to the Single Market and political control when the UK departs from the EU, the possibility of a ‘softer' Brexit comes in mind. While Sterling could receive some minor support by Theresa May changing her hard Brexit stance, I feel the growing uncertainty over the UK's future relationship with the EU post-Brexit is likely to create serious headwinds for bulls.

From a technical standpoint, although bulls remain in control on the daily charts the GBPUSD has found strong resistance at 1.3030. There is a threat of bears making an appearance if the GBPUSD breaks back below 1.2850.

Greenback stabilizes on Monday

The Greenback clawed back some of its losses during Monday's trading session; this has nothing to do with a change of bias, but instead has more to do with profit taking. With increasingly hawkish comments from central banks outside of the US diminishing the Greenback's attraction and markets questioning Donald Trump's ability to move forward with his pro-growth policies, the Dollar Index could be in store for further punishment. Much attention will be directed towards the FOMC meeting minutes on Wednesday, which will be scrutinized for further clues on rate hike timings later this year. If the minutes strike a different tone from the FOMC meeting in June, then the Dollar could turn volatile. Technically, the Dollar Index remains under pressure on the daily charts with bears eyeing the 96.50 dynamic resistance to attack once again.

Commodity spotlight – Gold

Gold bulls tasted defeat on Monday as prices tumbled to a near seven-week low at $1235 on the back of a stabilizing US dollar. The downside pressure was complimented by prospects of tighter global monetary policy which simply uncaged the dormant sellers. Although the ongoing uncertainty from Brexit and political risk in the US has the ability to support Gold in the longer term, short-term bears remain in control. From a technical standpoint, the breakdown below $1240 should encourage a further decline towards $1220.

Spot Gold broke below strong supports at $1236/35 (26 June low / 200SMA) of strong bearish acceleration on Monday, signaling bearish continuation. Fresh bears cracked next support at $1233 (Fibo 76.4% of $1214/$1298 rally) and may travel to $1230 (16 May low) and $1225 (lower 20-d Bollinger band) in extension. Close below 200SMA is needed to confirm bearish scenario and turn focus towards key short-term support at $1214 (09 May low). Former low at $1240 now acts as initial resistance, followed by session high at $1242 and daily Tenkan-sen/cloud base at $1246.

Res: 1240, 1242, 1246, 1249
Sup: 1230, 1225, 1217, 1214

Notes/Observations

UK Manufacturing drops to 3 month low, on uncertainty following the election with Factory orders slumping to 11 month lows.

European Manufacturing PMI generally stronger with notable readings from Switzerland, Norway and the Netherlands.

Equities trade higher across the board following the end of quarter sell off seen last week.

Overnight

Asia:

Incumbent Yuriko Koike won a landslide victory in the Tokyo Gov election with her Tokyo Residents First Party securing 49 out of the 127 seats, and will hold a majority 79 along with its allies including the Komeito party

BOJ outlook report expected on July 20th: inflation forecasts could be revised down to around 1% for FY17 from 1.4% in the April report, while FY18 could be lowered to ~1.5% from 1.7% -Japan PM Abe may reshuffle cabinet as early as August

China Jun Caixin manufacturing PMI recorded 3 month high

Australia Manufacturing PMI recorded 9th month of expansion

Casino names all lower after June Macau gaming rev was lower than expected, attributed to China President Xi's visit to Hong Kong the last week of the month

Europe:

UK Manufacturing PMI drops to the lowest in 3 months, with new orders dropping sharply to a a 5 month low

European Manufacturing PMIs generally positive, Swiss PMI hits 6 year high

ECB's Weidmann commented over the weekend noting ECB policymakers agree some degree of monetary stimulus is still required, but degree needed is being discussed

Reportedly there is a distinct possibility UK PM May could walk away out of Brexit talks over the 'Divorce Bill'

UK Brexit Minister to hold conference with UK business leaders on Friday as part of a government drive to give them a bigger say in the process

EU's Barnier noted Brexit time is not 'indefinate'

Americas:

New York Fed Nowcast: maintains Q2 GDP forecast at 1.9%, unchanged from 6/23; raises Q3 GDP forecast to 1.6% from 1.5% on 6/23

China President Xi spoke with President Trump: Agree that Korea peninsula needs to be denuclearized

Oil:

Libyaoil production estimated at 1.01M bpd

Opec Crude Output rose 210K b/d in June to 32.55M b/d

Economic Data

(UK) JUN MANUFACTURING PMI: 54.3 V 56.3E (11th month of expansion, 3-month low)

(DE) GERMANY JUN FINAL MANUFACTURING PMI: 59.6 V 59.3E (31th month of expansion)

(ES) SPAIN JUN MANUFACTURING PMI: 54.7 V 55.6E (44TH MONTH OF EXPANSION)

(IT) ITALY JUN MANUFACTURING PMI: 55.2 V 55.3E (10TH MONTH OF EXPANSION)

(CH) Swiss Jun Manufacturing PMI: 60.1 v 56.3%e (Highest since April 2011)

(IT) ITALY MAY PRELIMINARY UNEMPLOYMENT RATE: 11.3% V 11.2%E

(EU) EURO ZONE MAY UNEMPLOYMENT RATE: 9.3% V 9.3%E

(FR) FRANCE JUN FINAL MANUFACTURING PMI: 54.8 V 55.0E (CONFIRMS 9TH MONTH OF EXPANSION)

(EU) EURO ZONE JUN FINAL MANUFACTURING PMI: 57.4 V 57.3E (CONFIRMS 47TH STRAIGHT MONTH OF GROWTH)

(SE) SWEDEN JUN MANUFACTURING PMI: 62.4 V 60.0E

(IE) IRELAND JUN MANUFACTURING PMI: 56.0 V 55.9 PRIOR (49 straight month of expansion)

(NO) Norway Jun Manufacturing PMI: 55.1% v 54.5%e (5 year high)

(TR) TURKEY JUN CPI M/M: -0.3% V 0.1%E; Y/Y: % V 11.2%E; CPI CORE INDEX Y/Y: 10.9% V 9.5%E

Fixed Income Issuance:

Non seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 +1.0% at 3,473, FTSE +0.4% at 7,346, DAX +0.6% at 12,406, CAC-40 +1.1% at 5,176, IBEX-35 +1.0% at 10,552, FTSE MIB +1.6% at 20,916, SMI +0.8% at 8,974, S&P 500 Futures +0.3%]

Market Focal Points/Key Themes: European stocks opened higher following mixed results in Asia; trading muted ahead of upcoming US holiday; equities in general supported by positive PMI data (with the exception of the UK); extension of oil rally supports energy stocks; materials supported on better data from China; financial also outperforming; US session closing early due to holiday

Equities

Consumer discretionary [Havas HAV.FR +0.4% (Offer from Vivendi), Lufthansa LHA.DE +3.1% (analyst action), Air France-KLM AF.FR +2.6% (analyst action)]

Energy [Saipem SPM.IT +2.3% (contract extension), Premier Oil PMO.UK +3.5% (acquisition)]

Financials [Bollore BOL.FR +1.4% (sells stake in Havas)]

Industrials [Thyssenkrupp TKA.DE +2.6% (potential asset sale)]

Technology [Gemalto GTO.NL +4.9% (merger talks progressing)]

Speakers

Non seen

Currencies

EUR/USD drifts lower this morning trading below 1.14 with USD strength across the board, dealers note support at 1.1375. USDYEN trades at new 6 week highs, whilst Cable drops below 1.30 after weaker Manufacturing PMI data. Activity is expected to die down heading into the US July 4th Holiday.

Fixed Income

Bund futures trade higher back above 162 recovering from lows seen on Friday with left over Month end buying said to be helping the bid tone. The bid in Bunds is also helping Treasuries after selling off in the Asia session.

Monday's liquidity reportshowed Friday's excess liquidity fell to €1.600T a fall of €12B from €1.612T prior. Use of the marginal lending facility rose to €302M from €126M prior.

Corporate issuance saw $82.9B issued for the month of June via 126 tranches. For the year issuance stands at $718.7B. In Europe €39.4B was issued last week led mainly by SSAs with Spain's €8B 10 year bond accounting for 20% of the weeks issuance.

Looking Ahead

07:25 (BR) Brazil Central Bank Weekly Economists Survey

07:30 (CL) Chile Central Bank (BCCh) Jun Minutes

08:00 (CZ) Czech Jun Budget Balance (CZK): No est v -18.7B prior

08:00 (BR) Brazil Jun PMI Manufacturing: No est v 52.0 prior

08:15 (UK) Baltic Dry Bulk Index

09:00 (SG) Singapore Jun Purchasing Managers Index: No est v 50.8 prior, Electronics Sector Index: No est v 52.4 prior

09:00 (CL) Chile May Retail Sales Y/Y: No est v -0.4% prior; Commercial Activity Y/Y: No est v -0.5% prior

09:45 (US) Jun Final Markit Manufacturing PMI 52.1e v 52.7 prior

10:00 (US) Jun ISM Manufacturing: 55.1 v 54.9 prior; Prices Paid: 60.1e v 60.5 prior

10:00 (US) May Construction Spending M/M: 0.2%e v -1.4% prior

10:00 (MX) Mexico May Total Remittances: No est v $2.3B prior

10:00 (BR) Brazil May CNI Capacity Utilization: No est v 76.7% prior

10:00 (MX) Mexico Central Bank Economist Survey

10:30 (MX) Mexico Jun PMI Manufacturing: No est v 51.2 prior

12:00 (IT) Italy Jun New Car Registrations Y/Y: No est v 8.2% prior

13:00 (MX) Mexico Jun IMEF Manufacturing Index: No est v 47.6 prior; Non-Manufacturing Index: No est v 52.3 prior

16:00 (US) Weekly Crop Progress Report

The euro has started the week with slight losses. Currently, the pair is trading slightly below the 1.14 level. On the release front, German Manufacturing PMI edged up to 59.6, beating the estimate of 59.3. The Eurozone Manufacturing PMI improved to 57.4, beating the forecast of 57.3. In the US, today's highlight is the ISM Manufacturing PMI, which is expected to edge up to 55.0.

It was a banner week for the euro, as EUR/USD jumped 2.0%. The currency was boosted by comments from ECB Governor Mario Draghi at the ECB forum in Portugal. Draghi restated the obvious when he gave an upbeat assessment of the eurozone economy, but the markets jumped on his comments about inflation. Draghi said that “deflationary forces have been replaced by reflationary ones” and added that the ECB's stimulus program was needed for now, but would be gradually withdrawn once inflation moved higher. One could make the argument that Draghi was not breaking any new ground, but the markets seized on Draghi's remarks as a declaration that the ECB was planning to tighten policy. After the euro jumped, the ECB tried to backtrack, with ECB sources saying that the markets had “misinterpreted” Draghi's remarks. However, the markets shrugged this off, and positive sentiment could mean that the euro rally will continue this week.

There was no getting around the fact that the US economy slowed down in the first quarter, but there was some good news, as the revised GDP reading was raised to 1.4%, better than the initial estimate of 1.2% in May. The improvement was attributed to stronger consumer spending and an increase in exports. Earlier in the year, the markets were braced for a very poor quarter, with the first estimate in April projecting a gain of only 0.7%. Inflation remains stubbornly low, and consumer spending is also soft, despite high consumer confidence levels. In May, Personal Spending softened to 0.1%, down from 0.4% a month earlier. If inflation levels don't show some improvement, the Federal Reserve may have second thoughts about a December rate hike.

WTI oil price eases on Monday after posting marginally higher high at $46.42 vs high at $46.34, posted after strong rally on Friday.

Strong recovery rally from $42.04 came close to key near-term barrier at $46.69 (12 June lower top) but may take a breather before final push higher.

Daily Kijun-sen (46.16) is marking strong obstacle and so far limits the upside, while slow stochastic is reversing in overbought territory and signaling correction.

Extended dips should find support at $44.80 zone (20SMA/Fibo 38.2% of $42.04/$46.42) before bulls resume.

Positive sentiment is building up in the markets on fading concerns about global oversupply that kept oil price under strong pressure and may trigger stronger recovery on sustained break above $46.69 pivot.

Alternatively, break below $44.90 would risk deeper pullback and sideline immediate bulls for extended correction towards $44.23 (daily Tenkan-sen) and $43.71 (Fibo 61.8% of $42.04/$46.42 upleg).

Res: 46.42, 46.69, 47.01, 47.41
Sup: 45.90, 45.39, 44.80, 44.23

• US Manufacturing Data Gives Mixed Picture For the Sector;
• Eurozone Manufacturing Activity at Six Year High Driven By Germany;
• Oil Pares Losses Despite Small Drop in US Oil Rigs.

A shortened trading day in the US on Monday may weigh heavily on trading activity but we will get some data early in the session, while there's been no shortage of drivers elsewhere earlier in the day.

US markets will close early today ahead of tomorrow's Independence Day bank holiday but prior to this we will get manufacturing PMIs for June. The Markit and ISM readings are expected to point to slightly differing pictures of the sector, with the former indicating slowing growth since the start of the year and the latter having come slightly off its highs but still showing strong growth.

Attention over the next couple of days will likely remain on the UK and eurozone, given the bank holiday in the US, especially following the hawkish shift within the central banks. Both currencies made significant gains over the last week but are paring those moves this morning, with the manufacturing PMI data failing to provide the catalyst for another leg higher.

The eurozone PMI may have ticked slightly higher to a six year high, fuelling optimism about the recovery in the region, but this appeared to primarily reflect a very strong performance in Germany, with France, Spain and Italy all falling a little short of expectations. Still, the data is very good all round and suggests the outlook is improving all the time, to the delight of the ECB which is keen to move away from the ultra-accommodative policy it is currently adopting.

The recent rally in oil is helping to drive gains in equity markets today, although we are seeing small losses in Brent and WTI following an impressive seven session winning run. The drop in oil rigs reported by Baker Hughes on Friday – only the second this year – appeared to be supporting oil earlier in the session but this soon petered out as profit taking set in. With losses currently only small in oil, there may be more upside to come in days ahead, despite sentiment having previously been extremely bearish.

On Monday morning, the yellow metal’s price fell below the 1,240 mark. However, the most notable detail to the decline of the bullion is the fact that the commodity price had fallen below the support line of the long term ascending channel. This move was expected, as it is consistent with the situation on the charts from a pattern drawing perspective. The bullion is still in a massive scale descending channel. The upper trend line of that channel was reached and the fall of the metal began. Due to the fact that the long term support has been passed, an extension of the decline of the yellow metal’s price can be expected. However, for the purpose of finding where short term pauses will occur, market participants should look at the weekly and monthly pivot points.

USD/JPY demonstrated slight momentum sideways until mid-Friday when the pair surged up to the 112.60 mark. The given appreciation was not hindered by the 100– and 55-hour SMAs; however, the given lines provided enough support to make a U-turn early today. The US Dollar has approached an intermediate down-trend near the 112.90 mark, suggesting that its direction may turn south. Meanwhile, technical indicators still predict some minor upside potential. Its scope, however, is yet to be seen. From downside, the pair may find support by the 55-, 100– or 200-hour SMAs. In case strong bearish momentum takes over, the main bottom limit for the following 24 hour should be the monthly PP at 111.39, reinforced by all three SMAs on the daily chart.

GBP/USD was not able to maintain its upside momentum, resulting in a fall down to the 55-hour SMA. Subsequently, the pair returned near Friday’s upside limit circa 1.3030 and depreciated once more down to the 55-hour SMA. Technical indicators suggest that the Pound may still respect the boundaries of the ascending channel in this trading session, but the 1.3050/60 area may limit its gains. The upside trend is non-existent at this point; thus a possible move sideways should breach the bottom channel line on Tuesday. The Pound may find support at the 55-hour SMA once again; however, bearish sentiment may prevail and push the British currency below the given level. In case of strong downside risks, the rate is likely to be supported by the 100-hour SMA near 1.2950.

As the 1.1450 mark held its ground against the surge of the Euro against the US Dollar on Friday, the pair traded lower on Monday morning. The currency pair had declined and even passed the support of the 55-hour SMA, which held up the EUR/USD pair throughout Friday’s trading, As a result of the mentioned move, the closest support to the currency exchange rate on Monday morning was the 23.60% Fibonacci retracement level at the 1.1388 mark. Meanwhile, the 100-hour SMA was approaching from the downside, as it was located near the 1.1375 level during the morning hours of today’s trading. It is most likely that the simple moving average will force the pair into a surge, as the combined support of the retracement level and SMA should provide a strong enough support for a rebound to occur.