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Flash PMIs in focus as investors remain cautious

The last 24 hours has seen speculation that the Bank of Japan is considering updating its monetary policy stance in the coming days, by adjusting the yield curve pivot to a slightly higher level in order to alleviate some of the strain on bank balance sheets caused by years of zero and or negative rates.

The timing of this speculation seems rather strange given that inflation has been edging lower over the past few months. Japanese CPI this year has been flat for the last three months at 0.7%, down from 1.1% in March.

Nonetheless bond yields edged a little higher yesterday, while European markets started the week by sliding lower in the aftermath of last week’s comments by President Trump that he was prepared to go all in on China, and the weekend G20 meeting showed both the EU and the US shoring up their respective battle lines, ahead of tomorrow’s meeting with EU Commission President Jean Claude Juncker and President Trump at the White House.

US markets on the other hand managed to eke out a small gain ahead of a big week for tech earnings. Last night Google owner Alphabet got the ball rolling by beating on both the top and bottom line in their Q2 numbers, putting to one side the concerns about the recent fine from the EU with respect to their Android operating system.

On the data front recent PMI data appears to show that the manufacturing sector has been slowing down since the beginning of the year. While the numbers still remain broadly positive there is a concern that we might see further weakness in the months ahead, amidst talk of trade wars and tariffs. Since the beginning of the year the manufacturing surveys have softened considerably albeit from elevated levels, nonetheless both France and Germany are still expected to post positive readings of 52.6 and 55.5 respectively.

Services on the other hand has been showing signs of finding a base, with a rebound in both Germany and France in June. With a month-long World Cup and France emerging victorious, the French services sector could well see another boost, as it continues to outperform Germany, whose team went home unexpectedly early. Services is expected to see a reading of 55.7 in France and 54.6 in Germany, though it wouldn’t surprise if the France reading comes in higher.

The US dollar managed to rebound somewhat after Friday’s sharp Trump-induced falls, but concerns still remain as to whether the US would look to actively talk the US dollar lower if the euro or Chinese yuan were to weaken further.

EURUSD – the failure to overcome the 1.1760 trend line resistance has seen the euro slip back after last week’s rebound from the 1.1575 level. A move through 1.1760 could well see 1.1850, with support at 1.1620.

GBPUSD – slid back from 1.3160 yesterday and has support at the 1.3070 level. Friday’ s bullish reversal remains intact and could see a move back to the 1.3280 area. A move above the 1.3180 could well be the signal for such a move.

EURGBP – fell just shy of this year’s peak at 0.8970, slipping back from the 0.8960 area. We have support at the 0.8920 area and below that at the 0.8870 area.

USDJPY – after last week’s failure at the 113.20 area the US dollar slid back. The break below the 112.20 area prompted a deeper sell which found support at the 110.70 area, trend line support from the March lows. Support also comes in at 110.20.

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