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There are a few stories developing at the same time:

The Trump trade consists of going long Bitcoin and equities (especially gunmakers, oil producers) and short the long term treasuries on expectation of exploding US debt with tax cuts, higher spending and growth supportive Trump policies. The yield on 30-year Treasuries yesterday surpassed the rate on two-year notes for the first time since January – the 30-year notes reflecting the exploding spending, while 2-year notes benefit from the rising Federal Reserve (Fed) rate cut bets as Powell reiterated on Monday that recent data boosted confidence that inflation is heading toward the Fed’s 2% goal. Other than that, Trump’s Media company jumped more than 30% yesterday following the murder attempt..

Nothing to do with Trump, but Apple’s 1.67% surge to a fresh high following news that its annual sales in India hit a record of $8bn – on path to potentially offsetting the Chinese weakness – and after being named a top pick at Morgan Stanley, also helped major US indices do well yesterday. While Goldman Sachs jumped more than 2.5% after announcing results. GS announced a much meagre investment banking revenue growth compared to JPM and Citi, but the trading unit and capital markets business did better than expected. And Trump trade is also positive for bank business. As a result, US kicked off the week on a positive note after the murder attempt on Trump, all major US indices – the S&P500, Nasdaq 100 and the Dow Jones eked out gains as the Russell 2000 jumped 1.80%.

Here in Europe, the Trump trade is not necessarily positive for the European stocks as who says Trump says higher tariffs and increased trade tensions. That’s one thing. Then there is the China trade where China’s inability to print sufficiently strong growth weighs on energy and commodities that are heavily represented in FTSE 100 and on the European luxury stocks. As such, Shell and Total Energies for example fell on the announcement of a weak growth number from China yesterday while their US peers gained on expectation that Trump will go slow on the climate-friendly policies and give support to the traditional energy businesses. In the luxury space, Burberry tanked 16% - yes 16% - yesterday after issuing a profit warnings and replacing its CEO. The Swiss Swatch Group lost almost 10% after slower spending in China in the first half led to a 70% decline in operating profit!

Happily for European stocks, the reflation trade is providing a boost, as rate cuts from major central banks are fostering better sentiment for European equities and supporting commodities weakened by China's economic slowdown. But alone, hope of lower rates may not suffice to keep the European Stoxx 600 near record, as Europe’s 12-month forward earnings revisions ratio, which is a gauge of analyst upgrades versus downgrades moved further into negative territory before companies started reporting their Q2 earnings. You could argue that softer earnings are easier to beat, of course, but do they really justify a rally to ATH levels, is another question.

Then there is the AI trade - which has been pushing the major US indices to record after record, but where, the high valuations start giving a foolish smell suggesting that a correction is certainly near. The expectations – here - are robust: the big tech earnings should slow but remain strong whereas the non-tech are expected to print positive earnings after quarters of struggle. That, combined with the rising odds of a September rate cut and heightened odds of a Trump victory keeps buyers in charge. But if the Big Tech starts falling, the other sectors will hardly make up for the drop because they have neither the potential nor a justification to do so.

All in all, uncertainties loom as equity markets on both sides of the Atlantic Ocean continue to flirt with record high levels. Due today, investors will focus on Canadian inflation print and the US retail sales. Retail sales in the US are expected to have fallen 0.2% in June. Such weakness would back the Fed’s easing inflation story and further reinforce the expectation of a September Fed cut. We could then see the US dollar index make a decisive move below a major Fibonacci support – the major 38.2% retracement that stands near 104.20 – and step into the medium-term bearish consolidation zone for the first time since the beginning of the year. If that happens, the price action would perfectly reflect the Fed rhetoric and give a further confidence regarding the weakening dollar outlook. The latter would inevitably boost the currency valuations elsewhere, and ease the dollar-led inflationary pressures elsewhere, as well. The EURUSD tested the 1.09 offers yesterday while Cable is flirting with the 1.30 psychological resistance amid a broad-based USD weakness, and ahead of the latest CPI update due tomorrow. UK’s headline inflation is expected to have eased below the 1.9% in some analyst surveys, but services inflation and jobs data will also play an important role in shaping the Bank of England (BoE) expectations for the August meeting. A sufficiently weak set of data will make the sterling bulls’ job harder near the 1.30 mark, while any strength in this week’s data could get the BoE doves to further scale back their rate cut expectations and pave the way for a further rally in Cable to above the 1.30 mark for the first time in a year.

Daily Pivots: (S1) 1.3616; (P) 1.3630; (R1) 1.3649; More...

Intraday bias in USD/CAD remains on the upside for 1.3790 resistance. Corrective pattern from 1.3845 might have completed with three waves to 1.3588, after hitting 38.2% retracement of 1.3716 to 1.3845 at 1.3589 twice. Break of 1.3790 will argue that larger rise from 1.3716 is ready to ready resume through 1.3845.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern. In case of another fall, strong support should emerge above 1.2947 resistance turned support to bring rebound. Firm break of 1.3976 will confirm up resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149.

Daily Pivots: (S1) 0.6746; (P) 0.6767; (R1) 0.6782; More...

Intraday bias in AUD/USD remains neutral and more consolidations could be seen below 0.6798. Further rally is expected as long as 0.6723 minor support holds. On the upside, above 0.6798 will resume the rally from 0.6361 and target 61.8% projection of 0.6361 to 0.6713 from 0.6619 at 0.6837. Decisive break there could prompt upside acceleration through 0.6870 resistance to 100% projection at 0.6971. On the downside, however, break of 0.6723 support will turn intraday bias to the downside for deeper pullback.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which could have completed at 0.6269 already. Rise from there is seen as the third leg. Break of 0.6870 will target 100% projection of 0.6269 to 0.6870 from 0.6361 at 0.6962.

Daily Pivots: (S1) 1.0877; (P) 1.0900; (R1) 1.0916; More....

EUR/USD breached 1.0915 briefly but retreated since then. With 4H MACD crossed below signal line, intraday is turned neutral first. Some consolidations would be seen but further rally is expected as long as 1.0805 support holds. Firm break of 1.0915 will resume whole rise from 1.0601 to 100% projection of 1.0601 to 1.0915 from 1.0665 at 1.0979. However, break of 1.0805 will turn bias back to the downside for deeper pullback.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern, possibly a triangle, that's still be in progress. Break of 1.1138 resistance will be the first signal that rise from 0.9534 (2022 low) is ready to resume through 1.1274 (2023 high). This will now remain the favored case as long as 1.0601 support holds.

Daily Pivots: (S1) 1.2955; (P) 1.2975; (R1) 1.2988; More...

Intraday bias in GBP/USD is turned neutral first with current retreat. Some consolidations would be seen below 1.2994 temporary top first. But further rally is expected as long as 1.2859 resistance turned support holds. Above 1.2994 will resume the rally from 1.2298 and target 100% projection of 1.2298 to 1.2859 from 1.2612 at 1.3173, which is slightly above 1.3141 key medium term resistance. However, break of 1.2859 will turn bias to the downside for deeper pullback.

In the bigger picture, corrective pattern from 1.3141 medium term top (2023 high) could have completed with three waves to 1.2298 already. This will now remain the favored case as long as 1.2612 support holds. Firm break of 1.3141 will target 61.8% projection of 1.0351 (2022 low) to 1.3141 from 1.2298 at 1.4022.

Daily Pivots: (S1) 0.8937; (P) 0.8955; (R1) 0.8975; More…

Intraday bias in USD/CHF remains neutral and further decline is expected with 0.9000 resistance intact. Below 0.8914 will target 0.8825 low. Break of 0.8825 will target 50% retracement of 0.8332 to 0.9223 at 0.8778 next. However, break of 0.9000 will turn bias back to the upside for 0.9049 resistance instead.

In the bigger picture, with 0.9243 resistance intact, medium term outlook in USD/CHF is neutral at best. For now, more sideway trading is likely between 0.8332/9243. However, firm break of 0.9243 will indicate larger bullish trend reversal.

Daily Pivots: (S1) 157.32; (P) 157.88; (R1) 158.57; More...

USD/JPY quickly recovered after dipping to 157.16. With 4H MACD crossed above signal line, intraday bias is turned neutral first. On the downside, break of 157.16 and sustained trading below 55 D EMA (now at 157.72) will bring deeper correction to 38.2% retracement of 140.25 to 161.94 at 163.65. But strong support should be seen there to bring rebound. Meanwhile, break of 159.44 minor resistance will turn bias back to the upside for stronger rebound towards 161.94 high.

In the bigger picture, as long as 151.89 resistance turned support holds, long term up trend could still continue through 161.94 at a later stage. Next target will depend on the depth of the current correction from 161.94. However, sustained break of 151.89 will argue that larger scale correction or trend reversal is underway.

Yen weakened broadly during Asian session today, giving back some of last week's strong gains that were reportedly driven by Japan's market intervention. Japan's Chief Cabinet Secretary Yoshimasa Hayashi repeated in a press conference that it is crucial for currency rates to move "stably" and reflect economic fundamentals. He reiterated the government's commitment to taking necessary measures against speculative moves in Yen's exchange rate.

Despite these warnings, it appears Japan might be comfortable with Yen at its current levels and is unlikely to take further action to push it higher against Dollar. If this view is correct, the range is probably set for USD/JPY to consolidate in the near term.

Meanwhile, Canadian dollar is in the spotlight today with the release of Canada's CPI data. In May, core inflation measures unexpectedly jumped just after BoC became the first G7 central bank to cut interest rates on June 5. However, subsequent job data revealed minimal growth and a rise in unemployment rate. If today's CPI data show that disinflation is back on track, BoC could be in a position to cut interest rates again next week.

Elsewhere, Swiss franc and Dollar are currently the strongest performers of the day, followed by Loonie. Yen is the weakest, followed by Kiwi and Aussie, both of which are weighed down by disappointing GDP data from China this week. Euro and Sterling are positioned in the middle.

Technically, USD/CAD's strong rebound this week and break of 55 D EMA raises the chance that corrective pattern from 1.3845 has completed with three waves to 1.3588. That came after hitting 38.2% retracement of 1.3716 to 1.3845 at 1.3589 twice. Near term focus is back on 1.3790 resistance. Decisive break there will argue that rise from 1.3716 is ready to resume through 1.3845.

In Asia, at the time of writing, Nikkei is up 0.28%. Hong Kong HSI is down -1.35%. China Shanghai SSE is down -0.31%. Singapore Strait Times is down -0.43%. Japan 10-year JGB yield is down -0.0204 at 1.030. Overnight, DOW rose 0.53%. S&P 500 rose 0.28%. NASDAQ rose 0.40%. 10-year yield rose 0.040 to 4.229.

Fed's Powell: Q2 inflation data do add somewhat to confidence

Fed Chair Jerome Powell, speaking at an event overnight, highlighted that in Q2, the economy made "some more progress" on taming inflation. He noted that there have been "three better readings" on inflation, averaging them places Fed in a "pretty good place."

Powell reiterated that it wouldn't be appropriate to start loosening policy until there is greater confidence that inflation is sustainably returning to 2% target. However, he also acknowledged that Q2's data "do add somewhat to confidence".

Fed's Daly sees growing confidence in inflation control

San Francisco Fed President Mary Daly, speaking at a conference overnight, expressed optimism about the Fed's progress in controlling inflation. "Confidence is growing that we are getting nearer a sustainable pace of getting inflation back down to 2%," Daly noted.

However, she refrained from providing specific timelines or numbers for potential rate cuts. "I'm not going to give time-based guidance. I'm not going to tell you when the rate cut is, how many rate cuts might come," Daly stated.

"Over time, as inflation comes down and the labor market slows, we have to make sure that we're holding rates high enough that we don't lose that inflation fight, but not hold them too long and risk worsening the labor market to a point where it's challenging for people to get jobs," Daly added.

Looking ahead

Eurozone will release trade balance while Germany will publish ZEW economic sentiment in European session. Later in the day, Canada CPI will take center stage. US retail sales, import prices, business inventories and NAHB housing index will also be featured.

USD/JPY Daily Outlook

Daily Pivots: (S1) 157.32; (P) 157.88; (R1) 158.57; More...

USD/JPY quickly recovered after dipping to 157.16. With 4H MACD crossed above signal line, intraday bias is turned neutral first. On the downside, break of 157.16 and sustained trading below 55 D EMA (now at 157.72) will bring deeper correction to 38.2% retracement of 140.25 to 161.94 at 163.65. But strong support should be seen there to bring rebound. Meanwhile, break of 159.44 minor resistance will turn bias back to the upside for stronger rebound towards 161.94 high.

In the bigger picture, as long as 151.89 resistance turned support holds, long term up trend could still continue through 161.94 at a later stage. Next target will depend on the depth of the current correction from 161.94. However, sustained break of 151.89 will argue that larger scale correction or trend reversal is underway.

Economic Indicators Update

San Francisco Fed President Mary Daly, speaking at a conference overnight, expressed optimism about the Fed's progress in controlling inflation. "Confidence is growing that we are getting nearer a sustainable pace of getting inflation back down to 2%," Daly noted.

However, she refrained from providing specific timelines or numbers for potential rate cuts. "I'm not going to give time-based guidance. I'm not going to tell you when the rate cut is, how many rate cuts might come," Daly stated.

"Over time, as inflation comes down and the labor market slows, we have to make sure that we're holding rates high enough that we don't lose that inflation fight, but not hold them too long and risk worsening the labor market to a point where it's challenging for people to get jobs," Daly added.

Fed Chair Jerome Powell, speaking at an event overnight, highlighted that in Q2, the economy made "some more progress" on taming inflation. He noted that there have been "three better readings" on inflation, averaging them places Fed in a "pretty good place."

Powell reiterated that it wouldn't be appropriate to start loosening policy until there is greater confidence that inflation is sustainably returning to 2% target. However, he also acknowledged that Q2's data "do add somewhat to confidence".