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Gold has started to breakout to the upside as inflation fears in the United States economy cause traders and investors to move back into the yellow-metal. A clear short-term bullish bias is in play while the price of gold trades above the $1,818 level this week. A bullish inverted head and shoulders pattern is suggesting gold could overshoot to the upside, with the $1,870 level a possible target.

XAUUSD is only bullish while trading above the $1,818 level, key resistance is found at the $1,850 and the $1,870 levels.

If XAUUSD trades below the $1,818 level, sellers may test the $1,810 and $1,795 support levels.

The Swiss franc currency is starting to turn lower against the US dollar after the pair met with strong selling pressure from the 0.9200 resistance level. A bearish head and shoulders pattern is in play while the price trades under the 0.9160 level. USDCHF bulls have to be careful as the pattern is indicating a large drop could be coming.

The USDCHF pair is only bearish while trading below the 0.9165 level, key support is found at the 0.9100 and 0.9060 levels.

The USDCHF pair is only bullish while trading above the 0.9165 level, key resistance is found at the 0.9200 and 0.9220 levels.

The British pound has jumped higher against the US dollar currency after yesterday’s UK CPI report showed that inflation was at its highest since August 2018. GBPUSD bulls may be feeling increasingly confident that a big rally is coming, meaning that buying any dips towards the 1.3800 level appears to be a good strategy. Traders should note that a bullish triple-bottom pattern is also in play across the four-hour time frame.

The GBPUSD pair is only bullish while trading above the 1.3860 level, key resistance is found at the 1.3960 and the 1.4000 levels.

If the GBPUSD pair trades below the 1.3860, sellers may test the 1.3800 and 1.3740 support levels.

The US dollar declined after Federal Reserve’s Jerome Powell shrugged the latest jump in US inflation. He said that the bank will act to keep inflation under control by raising interest rates and tapering asset purchases. Still, he repeatedly said that the bank still expected inflation to ease later this year. He testified to a congressional committee a day after data showed that the headline inflation rose at the fastest pace in 13 years. This inflation was mostly because of the ongoing supply logjam that has led to challenges in shipping. It was also because of the ongoing chip shortages that has pushed the prices of new and used cars sharply higher. The US dollar will react to the latest initial jobless claims numbers and the New York and Philadelphia Fed manufacturing index.

The Australian dollar rose during the overnight session mostly because of the dovish statement by the Federal Reserve. The currency also rose as the market reacted to strong economic data from Australia and China. The Australian employment data showed that the country added more than 29.1k jobs in June after adding 115k in May. Most importantly, the unemployment rate dropped from 5.1% to 4.9%, which was better than the median estimate of 5.0%. The participation rate remained intact at 66.2%.

Meanwhile, Chinese data showed that the economy grew by 7.9% in the second quarter. This growth was driven by a 12% increase in fixed-asset investment and a jump in export and local consumption. The country’s unemployment rate remained steady at 5.0% whole retail sales rose by 12.1% in June. These numbers show that the country’s economy is holding steady as the rest of the world recovers.

US stocks were relatively mixed on Wednesday as the earnings season continued. The Dow Jones and S&P 500 index rose slightly while the Nasdaq 100 index declined by 32 points. On Wednesday, some of the companies that reported their earnings were Blackrock, Bank of America, Citi, and Wells Fargo. Wells Fargo posted revenue of more than $20.27 billion, its highest growth since the pandemic started. On the other hand, Citigroup posted a profit of more than $6 billion while Bank of America recorded more than $9 billion. Morgan Stanley, Alcoa, and Progressive will publish their results today.

EURUSD

The EURUSD pair rose to 1.1825, which was modestly higher than this week’s low of 1.1711. The pair is trading at 1.1825, which is a few pips below the 50-day and 25-day moving averages. It is also slightly below the upper side of the descending channel shown in red. The price is also along the middle line of the Bollinger Bands. Therefore, the pair will likely remain at this range ahead of the US manufacturing data.

EUR/GBP

The EUR/GBP pair rose to 0.8552, which was higher than this week’s low of 0.8500. On the four-hour chart, the pair rose above the lower line of the descending channel. It also rose slightly above the 25-day moving average while the awesome oscillator is below the neutral line. The Relative Strength Index (RSI) has also risen to 53. Therefore, the pair will likely keep rising ahead of UK employment data.

SPX500

The S&P 500 index was little changed as the earnings season continued. The index is trading at $4,370, which is along the middle line of the Bollinger Bands. The stock is also slightly below the all-time high of $4,392. The histogram and line of the MACD have also moved above the neutral line. Therefore, the index will likely remain in this range as more earnings come in

General Trend

• Commodity currencies decline; NZD drops ahead of CPI data, China data mixed, Oil prices extend decline.
• AUD drops amid lower yields; Little initial impact is seen from AU jobs data; Sydney Airport rejects ~A$22.3B takeover offer.
• South Korea bond yields rise as one BOK member voted for a rate hike.
• Nikkei has extended decline amid the recent strength in the Yen [Automakers trade generally lower; Topix Electric Appliances and Information & Communication indices also drop].
• Fast Retailing [largest Nikkei component] is due to report after the Tokyo close.
• Hang Seng has continued to rise after the higher open [Property and Financial firms rise; Alibaba and Tencent rise amid press report related to ecosystems].
• During the morning session, Shanghai Composite rebounded from the opening decline [Financial and Property indices outperform amid easing speculation, PBOC also conducted MLF. operation; Consumer Staples index rises after retail sales; IT index lags].
• S&P ASX 200 has traded modestly lower [Financial and Energy indices decline; Resources index rises ahead of Rio Tinto production update; CSR upgrade supports Materials index].
• Taiwan Semi is due to report Q2 results today.
• China’s Commerce Ministry (MOFCOM) sometimes holds weekly news conferences on Thurs.
• Rio Tinto is due to issue Q2 production update on Fri.
• Fed Chair Powell due to testify on Wed-Thurs (14-15th).
• Companies due to report during the NY morning include Bank of NY, Cintas, Morgan Stanley, Progressive Corp, UnitedHealth, US Bancorp, Wipro.

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened 0.0%.
• (AU) AUSTRALIA JUN EMPLOYMENT CHANGE: 29.1K V +20.0KE; UNEMPLOYMENT RATE: 4.9% V 5.1%E.
• SYD.AU Rejects A$8.25/shr cash offer from consortium, offer not in interests of shareholders; undervalues company (in line with speculation).
• WPL.AU Reports Q2 Production 22.7 MMBOE v 17.3 y/y; Rev A$1.29B v A$738M y/y; starts formal process to sell up to 49% stake in Pluto Train 2.
• SKI.AU Receives raised conditional and non-binding indicative proposal A$2.80/share in cash (prior A$2.70) from Ontario Teachers’ Pension Plan Board and KKR; still thinks new offer undervalues the company.
• (AU) Australia Jul Consumer Inflation Expectations: 3.7% v 4.4% prior.
• (AU) Analysts note that the extended Sydney lockdown could take GDP negative, which is estimated to cost the economy A$1.0B/week - AFR.

Japan

• Nikkei 225 opened -0.2%.
• (JP) Japan Investors Net Buying of Foreign Bonds: -¥1.22T v -¥191.4B prior; Foreign Net Buying of Japan Stocks: -¥10.5B v -¥310.0B prior.
• (JP) Japan May Tertiary Industry Index M/M: -2.7% v -0.9%e.

Korea

• Kospi opened +0.1%.
• (KR) BANK OF KOREA (BOK) LEAVES THE 7-DAY REPO RATE UNCHANGED AT 0.50%; AS EXPECTED.

China/Hong Kong

• Hang Seng opened +0.1%; Shanghai Composite opened -0.3%.
• (CN) CHINA Q2 GDP Q/Q: 1.3% V 1.0%E; Y/Y: 7.9% V 8.0%E; GDP YTD Y/Y: 12.7% v 18.3%e.
• (CN) CHINA PBOC CONDUCTS CNY100B V CNY400B MATURING IN A 1-YEAR MEDIUM-TERM LENDING FACILITY (MLF) AT 2.95% V 2.95% PRIOR.
• (CN) CHINA JUN INDUSTRIAL PRODUCTION Y/Y: 8.3% V 7.9%E; Crude Oil throughput 60.8Mt, +5.1% y/y (record high).
• (CN) China PBOC: Financial institutions still have mid to long-term cash demand.
• (CN) CHINA JUN NEW HOMES PRICES M/M: 0.4% V 0.5% PRIOR; Y/Y: 4.7% V 4.9% PRIOR.
• (CN) CHINA JUN RETAIL SALES Y/Y: 12.1% V 10.8%E.
• (CN) CHINA JUN YTD FIXED URBAN ASSETS Y/Y: 12.6% V 12.0%E.
• (CN) CHINA JUN YTD PROPERTY INVESTMENT: 15.0% V 16.0%E.
• (CN) China Jun Surveyed Jobless Rate: 5.0% v 5.0%e.
• (CN) China National Bureau of Stats (NBS) Spokesperson Liu Aihua: Income, GDP growth are basically in line in H1; See income to keep rising and support consumption; Expect China CPI to be modest this year.
• (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 Sec Journal: China may lower the Loan Prime Rate (LPR) but not cut policy rate.
• (CN) China PBOC sets Yuan reference rate: 6.4640 v 6.4806 prior.
• 2196.HK CEO: China vaccine panel approves Fosun-BioNTech mRNA vaccine shot - Chinese press.
• 1958.HK Advisory report is not an A Share listing plan; only provides an option on potential A-share listing.

Other

• (IR) Iran said to be not prepared to resume nuclear talks until new President Raisi takes over, the nuclear talks probably will not resume before mid-Aug - financial press.

North America

• AMZN Consumer Product Safety Commission files administrative complaint against Amazon to force the recall of hazardous products that are sold on the Amazon website.

Europe

• (IE) Ireland reportedly could abandon its 12.5% corporate tax rate; Irish govt sources say it is not worthwhile to become a pariah state by refusal to move to 15% - Irish Examiner.
• DAI.DE Reports prelim Q2 adj EBIT €5.42B v €4.28Be; despite semiconductor shortage.
• (UK) BOE Gov Bailey: Won't be rushed into raising rates, despite news of rising inflation.

Levels as of 01:15ET

• Hang Seng +1.5%; Shanghai Composite +0.4%; Kospi +0.5%; Nikkei225 -1.2%; ASX 200 -0.3%.
• Equity Futures: S&P500 -0.1%; Nasdaq100 +0.2%, Dax -0.0%; FTSE100 -0.2%.
• EUR 1.1839-1.1821; JPY 110.03-109.82; AUD 0.7488-0.7453; NZD 0.7045-0.6998.
• Commodity Futures: Gold +0.1% at $1,827/oz; Crude Oil -0.7% at $72.60/brl; Copper +0.7% at $4.29/lb.

Market movers today

• German Chancellor Angela Merkel visits the White House to meet with President Biden. Discussions over the Nord Stream 2 will likely be on their agenda.
• Fed Chair Powell and Chicago Fed President Evans speak in the afternoon. The US Empire and Philly fed manufacturing indices for July are also due out and a key question will be whether supply disruptions and input cost pressures are starting to ease.
• Early Friday morning, we expect Bank of Japan will keep policies unchanged. Renewed restrictions in Tokyo will keep the domestic economy weak well into Q3 and postpone any potential withdrawal of the pandemic stimulus. It will be interesting to see the details on the BoJ's new scheme to boost funding for activities related to climate change.

The 60 second overview

Climate: The European Commission unveiled its decarbonisation strategy to cut CO2 emissions by 55% by 2030 ("Fit for 55 package") yesterday. It included an expanded EU Emissions Trading Scheme now adding shipping industries on top of energy and industry sectors as well as a separate new emissions trading scheme for road transport and buildings. So far it is only proposals that will require backing from both the EU parliament and a qualified majority in the EU Council to come into force. See Reuters for more.

Sweden: CPI inflation declined from 1.8% to 1.3% in June in line with the Riksbank's forecast. Thus also muted market reaction.

Equities: Yesterday, Wall Street shares were mixed, with S&P500 ending 0.1% higher and Nasdaq down 0.2%. This morning, Asia is trading slightly lower despite support from Fed chair Powell's reassurance there will be no tapering yet. MSCI's broadest index of Asia-Pacific shares outside Japan is down 0.3% and Nikkei plunged 0.9% weighed down by another surge in COVID-19 cases.

FI: US government bond yields continue to decline despite the stronger than expected US inflation data. However, the Federal Reserve is not about to scale back on the monetary stimulus given yesterday's comments from Federal Reserve chairman Powell. He stated that the US economy has not progressed enough to begin scaling back on QE and that inflation was expected to rise further before falling back later this year. Hence US yields declined and the curve flattened as the Federal Reserve is willing to let the economy gather more steam and inflation to rise before scaling back on the monetary stimulus.

FX: Apart from the Reserve Bank of New Zealand (RBNZ) induced NZD strength yesterday was a fairly quiet day for FX majors with very limited moves. NZD gained on RBNZ finishing its QE programme already this July and implicitly signalling an earlier rate hike (May rate path suggested H2 2022). Lower commodity prices following a peak in the global manufacturing cycle as well as New Zealand's low vaccine coverage (16% of population) are some of the downside risks for NZD/USD, even if RBNZ goes forward with the early rate hikes. We emphasize that relative rates are important yet often prove an inferior driver of FX markets compared to global investment themes.

Credit: Credit indices were mixed Wednesday on softer market sentiment following US inflation numbers. iTraxx Xover widened 1.2bp (closed at 233.4bp) and iTraxx Main widened 0.25bp (closed at 46.8bp). HY cash bonds were slightly tighter (-0.8bp) IG cash bonds were marginally wider (+0.4bp).

Daily Pivots: (S1) 1.1794; (P) 1.1816; (R1) 1.1861; More...

No change in EUR/USD's outlook, and further fall is still in favor with 1.1880 resistance intact. Current decline from 1.2265, as the third leg of correction from 1.2348, could target 1.1703 support. On the upside, though, break of 1.1880 resistance should indicate short term bottoming, and bring 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) 1.3813; (P) 1.3852; (R1) 1.3903; More....

Range trading continues in GBP/USD and intraday bias remains neutral for the moment. On the downside, break of 1.3730 will resume the fall from 1.4248, as the third leg of the consolidation pattern from 1.4240, to 1.3668 support and possibly below. On the upside, break of 1.4000 will turn bias back to the upside for retesting 1.4240/8 resistance zone instead.

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 and target 38.2% retracement of 2.1161 (2007 high) to 1.1409 (2020 low) at 1.5134. However, firm break of 1.3482 support will argue that the rise from 1.1409 has completed and bring deeper fall to 1.2675 support and below.

Daily Pivots: (S1) 0.9124; (P) 0.9161; (R1) 0.9181; More....

Intraday bias in USD/CHF remains neutral for the moment. Risk remains mildly on the downside with 0.9273 resistance intact. On the downside, sustained trading below 55 day EMA (now at 0.9126) 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 though, 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) 109.69; (P) 110.19; (R1) 110.45; More...

USD/JPY is still staying in range above 109.52 and intraday bias remains neutral first. Also, risk stays mildly on the downside with 111.65 resistance intact. On the downside, break of 109.52, and sustained trading below 55 day EMA (now at 109.85) will suggest that it's at least correcting the rise from 102.58. Deeper fall would be seen to 38.2% retracement of 102.58 to 111.65 at 108.18 next.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. Though, as notable support was seen from 55 day EMA, rise from 102.58 is mildly in favor to extend higher. Decisive break of 111.71/112.22 resistance will suggest long term bullish reversal. Rise from 101.18 could then target 118.65 resistance (Dec 2016) and above. However, sustained break of 55 day EMA would revive some medium term bearishness, and open up deep fall back towards 102.58 support.