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Forex today was enjoying a risk-on day with global equities leading the way following a surge in Asia yesterday while China is holding off immediate retaliation in light of the latest US tariff threats. The US and European equities were rising by around 0.7%.  

However, the greenback was mixed due to the CPI data miss in stark contrast tot he previous day’s PPI beat – dollar bulls got a little too ahead of themselves. The DXY ranged between 94.6420-94.9410, peaking in early NY trade and dropping on the data.  

US consumer prices climbed 0.1% in June, but less than expected, although rose on an annual basis to 2.9% from 2.8% – (the fastest pace since early 2012).  We also had Fed speakers in Chair Powell who said that the Fed is close to its dual mandate and that the economy is not overheating. Both Harker and Mester were advocating for two more rate hikes this year.  

As for US yields, the US 10yr treasury yields were picking up from 2.85% to 2.87%, only to fall back on the US CPI data. The Fed fund futures yields continued to price 1 ½ more hikes in 2018.

Currency action

EUR/USD was lifted on the back of the US data and was homing in on the 21-D SMA to the downside, capped at 1.1695 and the 200-hr SMA at 1.1696 with June CPI and real weekly earnings both coming in below forecasts. However, further into the session, EUR/JPY began to stabilise holding up the downside as the yen sells-off back towards the highs of 112.62. EUR/USD failed at the 10-D SMA on a hawkish tone from Fed Harker, ending flat on the day.  

Cable was offered on the back of the Brexit blueprint (White Paper) and ended the NY session at 1.3216, and below the 10/21-D SMAs at 1.3223/18 respectively.  The consensus is that the EU will not accept even this soft Brexit proposal. Cable was offered from the 1.32 handle in early NY to 1.3170-ish with Trump demanding a hard Brexit warning that there will be no US / UK trade deal otherwise.  As for EUR/GBP, the cross ended the NY session at 0.8835 and was down 0.03% with an NY range of between 0.8821/41. However, the Brexit news in thin trade enabled the cross to rally to a high of 0.8853.

USD/JPY has been knocking on the doors of the early January highs up at the 113 handle, but has fallen shy so far, albeit busting through the descending channel resistance and made higher highs in early Asia 112.65. The markets are in the midst of a broad realignment under the impact of tariffs – Japan needs to be more competitive with its neighbours and a weak Yen is helpful. major resistance comes in at 114.00-25. As for the antipodeans, commodities bounced and that gave both the Aussie and Kiwi a lift. However, CRB struggles to hold 200 DMA support and commodities are not out of the woods yet. AUD/USD bounced towards the 10 & 21-DSMAs and penetrated those, settling through the descending channel’s resistance. However, the central bank divergence keeps the upside limited.  

Key notes from US session:

Wall Street records strong gains as improved sentiment lifts tech and industrials

Key events ahead:

Analysts at Westpac offered their outlook for the end of the week in terms of key events as follows:  

“Australia’s calendar is quiet until July RBA minutes  on Tuesday  and the June employment report on  Thursday 19 July. The very topical China June trade report is due around  1pm  Syd/11am local. Strong commodity prices in recent months should keep supporting the value of imports, with consensus around 21%yr in US$ terms, while exports are seen up around 10%yr. This would see the trade surplus rise to about $28bn. The bilateral surplus with the US will  of course  be keenly noted. The advance reading on Singapore Q2 GDP is due at  10am  Syd/8am local.  Consensus  is for 4.1%yr after 4.4% in Q1, with scope for  decent  sized surprises in either direction. Fed chairman Powell commences his semi-annual testimony to Congress  on Tuesday  but the prepared text will be released in the NY morning  Friday. The US data calendar is  second  tier, ahead of next week’s June retail sales. We will see preliminary July consumer sentiment from the University of Michigan which should remain elevated plus June import and export prices.”