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The Dow Jones 30 recouped previous losses, as weak jobs figures favor the prolonged loose monetary policy.

The V-shaped recovery has rekindled hopes of a new round of rally, not before the price clears the major hurdle ahead though.

Buyers are likely to run into strong selling interest around the peak at 35100. A clear cut could pave the way for a new record high.

In the meantime, a near overbought RSI may temper the enthusiasm. A pullback to the fresh support at 34480 could be a buying opportunity.

The euro weakened after the ECB kept its accommodative stance unchanged. The single currency is hovering above the demand zone around 1.1710 on the daily chart.

While an RSI divergence has shown a loss in the bearish momentum, yesterday’s whipsaws so far failed to confirm a turnaround.

The break above 1.1800 has prompted sellers to cover some bets. But buyers will need to lift 1.1850 before a solid rebound could materialize.

On the flip-side, a drop below 1.1750 would lead to 1.1710.

EUR/USD

Current level - 1.1778

The downward movement was once again limited by the support level at 1.1760 and the currency pair continues to trade within the narrow range between 1.1760 - 1.1800. At the time of writing, the market has no clear direction and the bulls might try to take the pair towards 1.1850. Only a breach of the critical support at 1.1760 may lead to further sell-offs, heading the EUR/USD towards the next support at 1.1717.

USD/JPY

Current level - 110.11

At the time of writing this analysis, the currency pair is found in consolidation phase and the expectations are for a new test of the resistance at 110.30. In case this resistance is breached and the bulls enter the market, then it is possible for the pair to head towards 110.60 - 111.10. In the negative direction, the first support is located at 109.70.

GBP/USD

Current level - 1.3774

The sterling continues to appreciate against the U.S. dollar and is currently headed towards a test of the resistance at 1.3800. If this level is breached, it is possible for the pair to test the next resistance at 1.3860. If the bears prevail and the resistance at 1.3800 is not breached, then the pair is expected to test the support at 1.3665.

Monday’s 'delta-dip' receded further into the rear-view mirror overnight, as US stocks edged higher and US yields fell after the overnight US 10-Year TIPS auction went at a record low yield. Interestingly, the US Treasury cancelled two upcoming auctions due to ample cash balances. The approaching Federal debt ceiling limit has been off the radar this week, but I suspect it will rear its bi-partisan head once again next week, mixed in with a heady tonic of infrastructure voting. For now, markets seem unconcerned about either with delta or inflation, keeping the buy-everything music playing.

US Initial Jobless Claims also disappointed overnight but were quickly dismissed as 'seasonal.' I won’t disagree with the US summer holiday season in full swing; pandemic be damned. The European Central Bank policy decision was also greeted with market apathy, much to my surprise. Lower for longer and QE forever was the non-unanimous decision along with the concrete 2.0% inflation target. The Japanification of monetary policy, over a decade and still going, should have been negative for the euro versus the US dollar. Still, it appears that markets had already priced in this monetary policy mediocrity.

Indonesia’s central bank downgraded growth yesterday and also set out its stall for lower for longer, although it left its policy rate unchanged, with one eye also on the currency. Ironic, really, as my flirtation with Mr Delta here in Jakarta has left me literally temporarily one-eyed as well. Testing increased, and labs reopened fully after the weekend and Eid holiday lull, and sure enough, cases spiked to 50,000 with nearly 1,500 deaths yesterday. Along with Thailand and Malaysia, Indonesia remains on edge, and all three countries’ currencies are unlikely to see any benefit from a weaker US dollar into next week, should that occur.

Australian PMIs a mixed bag

Australia’s Flash PMI data this morning was a mixed bag. Flash Manufacturing remained strong at 56.8, but Flash Services PMI for July cratered to 45.2, with around half the country in some sort of Covid-19 lockdown. Even if heavyweight markets in the northern hemisphere are 'delta-dismissing' at the moment, MCO’s in Malaysia, PPKM’s in Indonesia and state restrictions in Australia, to name but a few, mean that ASEAN markets will need a frank re-evaluation of their recovery trajectories for 2021. I expect ASEAN equity markets to underperform the recovery behemoths of New York and Europe over the next few months until we see a 'Delta Dawn, what’s the flower you have on?'

Japan markets are closed for a national holiday once again, which is likely to reduce liquidity and volatility in Asia, notably in currency markets. Thailand releases its Balance of Trade with a surplus expected to hold around USD 1.0 billion for June. Under the cover, virus restrictions are likely to have hampered manufacturing while pushing up imports. Movement Control Order’s (MCO) in Malaysia will have done the central bank a favour today by pushing June Inflation YoY back under 4.0%. A favourable outcome for all the wrong reasons.

Similarly, Singapore Core Inflation for June YoY should hold steady at 0.80%, with Headline Inflation holding steady at 2.50% as the endless tail-chasing cycle of lockdowns/not lockdowns saps consumer demand. Singapore is streets ahead with its vaccination programme, though, and once it gets past these next two months, that should enable the city-state to be an outperformer in the ASEAN crowd into Q4.

German, French Eurozone and US Markit PMI’s this afternoon will be of passing interest to financial markets in a thin data calendar week. To shake the confidence of the FOMO 'delta-doubters,' though, we would need to see some serious downside surprises in the headline numbers. With some impressive post-close US tech earnings results this morning, no one is going to want to spoil the end of week post-delta-dip party unless they’re forced into it.

Markets

Yesterday's much-hyped ECB meeting turned out to be only a little different from a non-event. The central bank changed forward guidance for its policy rate. For rates to be lifted from current (or lower) levels, there's an additional condition to be met other than inflation being durably at the 2% target at the end of the policy horizon and underlying inflation dynamics consistent with reaching that. The ECB now also wants 2% on the tables “well ahead of the end of its projection horizon”. In practice, it just raises the bar for rate hikes going forward; i.e. lower for longer. The parameters and guidance of the in theory temporary instruments APP and PEPP were left unchanged. That in part explained the all in all neutral and muted reaction by the euro and European yields initially, who were bracing for a dovish surprise. Both declined eventually, along with US yields, amid a disappointing European EC consumer confidence, US jobless claims, and below-consensus housing data that underscored market fears for growth topping out. The German yield curve bull flattened with changes up to -3.5 bps (30y). US yields shed 0.8 bp (2y) to 2.2 bps (30y). The US/German real yield divergence is striking with the latter hitting new lows. EUR/USD finished at 1.1771, erasing post-ECB gains to 1.183. Sterling was better bid again, despite the dovish camp in the BoE broadening with Broadbent saying the bank might be right to look through the current and in his view temporary inflation spike. EUR/GBP slipped below 0.86 again to 0.855.

Asian risk sentiment is fragile with Hong Kong and China underperforming (> -1%). Regulators are considering serious penalties for China's Didi, denting overall tech company sentiment. Japan is still closed. The German Bund gapped lower, underperforming USTs at the core bond futures market. The US dollar has a slight edge on FX markets while the Aussie dollar marginally lags G10 peers, possibly weighed down by a shocking services PMI drop (see below).

Europe stays in the center of attention after the ECB yesterday with PMI business confidence today. The July reading should confirm the economic rebound as restrictions have been eased further going into the summer. We don't expect the delta variant to have had a serious impact already. Consensus for services lies at 59.3, up from 58.3, and should be met. We can see why economists expect a minor easing from the historical highs in the manufacturing gauge from 63.4 to 62.5. Risks for markets in current circumstances are asymmetric where downside surprises are likely to act as a chilly growth reminder. The technicals in both core (German) bond yields and EUR/USD are still fragile. We retain our target of -0.30% for the German 10y yield and 1.1836/47 for EUR/USD as first references for the immediate downside alert to be called off. UK PMIs are also due but unfortunately probably aren't the trigger for breaking the stalemate in EUR/GBP. After a false breakout earlier this week, the currency pair entered the downward path within the sideways 0.85/0.87 trading range again.

News headlines

According the July IHS market Composite PMI, activity in the private sector in Australia contracted as the new virus wave hits activity. The Australia composite output index stumbled from 56.7 to 45.2, a 14-month low and a first contraction in activity since August 2020. Especially activity in the services sector was hit hard, with the index falling to 44.2 from 56.8. Markit mentions an overall contraction in both domestic and foreign demand for services due to the new restrictions. The manufacturing PMI also slowed from 58.6 to 56.8. Overall, employment remained in positive territory, but the rate of job creation slowed sharply. The market reaction to the PMI was modest. Australian bond yields are little changed, holding within reach of the correction lows reached after the recent repositioning. AUD/USD is losing a few ticks, but mainly follows the overall USD performance (AUD/USD 0.7375).

UK Gfk consumer confidence in July improved further to -7 from -9, matching the February 2020 level. UK consumers in particular turned more positive on the climate to make big purchases. Their assessment on the economic situation in the next 12 months eased slightly. Indicators on personal finances were little changed.

General trend

• US equity FUTs have remained modestly higher.
• S&P ASX 200 has traded generally flat [Financial, Resources and Energy indices decline; Consumer indices rise].
• Hang Seng has declined after the higher open [TECH index drops over 1.5%; Financial and Property shares also trade weaker]; Sportswear firms underperform.
• Shanghai Composite has also moved lower [Consumer Staples index declines over 2%].
• Companies due to report during the NY morning include Air Canada, American Express, Gentex, Honeywell, Kimberly-Clark, Regions Financial, Roper Technologies, Schlumberger, Sensient Technologies.

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened flat.
• (AU) AUSTRALIA JUL PRELIMINARY PMI MANUFACTURING: 56.8 V 58.6 PRIOR (14TH MONTH OF EXPANSION); PMI Services: 44.2 v 56.8 prior (1st contraction in 11 months; lowest reading since May 2020).
• (AU) Australia New South Wales (NSW) Premier: Coronavirus situation in parts of Sydney considered national emergency; Will not be able to lift restrictions in Sydney by Jul 30th.
• (AU) Australia sells A$700M v A$700M indicated in 4.25% April 2026 bonds, avg yield: 0.5124%, bid to cover 6.60x.
• (NZ) New Zealand to close the Trans Tasman travel bubble for at least 8-weeks; cites risks from the COVID Delta variant.

China/Hong Kong

• Hang Seng opened +0.1%, Shanghai Composite -0.1%.
• Shengjing Bank [2066.HK]: Local Govts in China support State Owned Enterprises (SOEs) to increase stake in company.
• (US) Deputy Sec of State Sherman to meet with China's Wang Yi; the talks are expected to be held on Sun and Mon (Jul 25-26th) - financial press [from Jul 21st].
• (CN) Certain China banks have tightened mortgage lending in various cities (including Guangzhou and Chengdu); local gov'ts have increased measures aimed at curbing home prices - Chinese press.
• (CN) China Nanjing has raised Lukou region to a high risk area due to coronavirus outbreak.
• (CN) China to appropriately increase local govt bond quotas in central provinces - financial press.
• (CN) China Commerce Ministry (MOFCOM): to launch anti-dumping probe related to oriented steel from Japan, South Korea and EU from Jul 23rd [after prior measures expired].
• (CN) China State Planner (NDRC): China aiming to install >30GW of new energy storage by 2025.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY10B in 7-day reverse repos v CNY10B in 7-day reverse repos prior; Net CNY0B v Net CNY0B prior.
• (CN) China PBOC sets Yuan reference rate: 6.4650 v 6.4651 prior.

Japan

• (JP) Nikkei 225 closed for Holiday, to reopen on July 26th (Mon).

Korea

• Kospi opened +0.1%.
• (KR) South Korea to extend social distancing measures for additional 2 weeks (Was scheduled to end July 26th [Monday]) - Yonhap.

Other Asia

• (SG) Monetary Authority of Singapore (MAS) says wealth tax could help deal with inequality in Singapore - Straits Times.
• (TW) Taiwan Govt: will lower coronavirus alert level to level 2 starting July 27th (Tuesday).

North America

• Intel [INTC]: Reports Q2 $1.28 v $1.06e, Rev $19.6B v $18.0Be; Guides Q3 Rev well ahead of ests; Raises FY21 again.
• Veoneer [VNE]: Magna to acquire Company for $31.25/shr cash (Enterprise value $3.3B, equity value $3.8B).

Europe

• (UK) Jul GfK Consumer Confidence: -7 v -8e (Highest since Feb 2020).
• (IE) Ireland Jul Consumer Confidence: 84.9 v 87.2 prior.

Levels as of 01:20 ET

• Nikkei 225, closed, ASX 200 flat , Hang Seng -1.1%; Shanghai Composite -0.8% ; Kospi +0.1%.
• Equity S&P500 Futures: +0.3%; Nasdaq100 +0.3%, Dax +0.2%; FTSE100 +0.3%.
• EUR 1.1780-1.1765 ; JPY 110.30-110.08 ; AUD 0.7402-0.7362 ;NZD 0.6990-0.6960.
• Gold -0.1% at $1,803/oz; Crude Oil -0.4% at $71.66/brl; Copper +0.5% at $4.3585/lb.

Daily Pivots: (S1) 1.1742; (P) 1.1786; (R1) 1.1814; More...

As long as 1.1880 resistance holds, further decline is expected in EUR/USD. Current fall from from 1.2265, as the third leg of correction from 1.2348, would target 1.1703 support. On the upside, though, break of 1.1880 will indicate short term bottoming and turn bias back to the upside for stronger rebound to 1.1974 resistance first.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. Reaction from 1.2555 should reveal underlying long term momentum in the pair. However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again.

Daily Pivots: (S1) 1.3710; (P) 1.3748; (R1) 1.3806; More....

Intraday bias in GBP/USD remains neutral for some more consolidations first. Still, further decline is in favor as long as 1.3908 resistance holds. On the downside, break of 1.3570 will resume the fall from 1.4248 to 1.3482 resistance turned support first. Decisive break there will indicate that it's already correcting whole up trend from 1.1409. Next target will then be 38.2% retracement of 1.1409 to 1.4248 at 1.3164. However, sustained break of 1.3908 will bring stronger rise back to retest 1.4248 high.

In the bigger picture, as long as 1.3482 resistance turned support holds, up trend from 1.1409 should still continue. Decisive break of 1.4376 resistance will carry larger bullish implications. However, firm break of 1.3482 support will argue that the rise from 1.1409 has completed. GBP/USD would then be seen in another leg of long term range pattern between 1.1409 and 1.4376. Deeper fall could then be seen to 61.8% retracement of 1.1409 to 1.4248 at 1.2493, and even below.

Daily Pivots: (S1) 0.9165; (P) 0.9183; (R1) 0.9212; More....

Intraday bias in USD/CHF remains neutral as range trading continues. On the downside, break of 0.9116 support will affirm the case that rebound from 0.8925 has completed at 0.9273. Deeper fall would then be seen back to retest 0.8925 low. On the upside, however, break of 0.9273 and sustained trading above 61.8% retracement of 0.9471 to 0.8925 at 0.9262 will target 0.9471 resistance next.

In the bigger picture, medium term outlook is currently neutral with focus on 0.9471 resistance. Sustained break there will indicate completion of whole decline from 1.0342 (2016 high). Medium term outlook will be turned bullish for a test on 1.0342 high. But, rejection by 0.9471 again will revive bearishness for another fall through 0.8756 low.

Daily Pivots: (S1) 110.01; (P) 110.18; (R1) 110.36; More...

Intraday bias in USD/JPY remains neutral with focus on 110.133 resistance. Sustained break there will argue that the choppy fall from 111.65 has completed, and turn bias back to the upside for retesting this high. Rejection by 110.33 will maintain near term bearishness. Break of 109.05 will target 38.2% retracement of 102.58 to 111.65 at 108.18.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. Sustained trading below 55 day EMA would argue that the pattern from 101.18 is starting another falling leg, that could head back to 102.58 support and below. For now, outlook won't turn bullish as long as 111.71 resistance holds, even in case of strong rebound.