Over the past two weeks concerns about an escalation in trade tensions have taken a little bit of a back seat, despite President Trump announcing the possibility of another $200bn worth of tariffs on Chinese goods, starting next month, and a big jump in China’s trade surplus in June, which rose to a record $29bn with the US.

Stock markets by and large put these concerns to one side last week, instead choosing to concentrate on positive earnings announcements, which have helped push stocks to three-week highs in Europe, while US markets hit levels last seen in February, with the Nasdaq once again making a new record high.

Having seen a positive end to the week for US stocks Asia markets have traded lower with the latest Chinese data showing that the Chinese economy slowed modestly in Q2 coming in at 6.7%, as concerns about the trade war with the US acting as a drag in output, along with a slow down on investment spending as fixed asset investment slowed to 6% from 6.1% in May.

Industrial production also slid sharply coming in at 6%, down from 6.8% in May, though retail sales did manage to rebound from multi year lows of 8.5% in May, to come in at 9%.

This week’s focus is likely to be in a number of areas, firstly with the summit between Russia’s President Putin and US President Trump in Helsinki, which is due to start today. There is some anxiety amongst European leaders about how events may pan out given the US President’s fierce criticism of them in recent days, around their willingness to contribute at least 2% of GDP to their own defence in the wake of a frosty NATO meeting last week.

Last week’s political turmoil in the UK could take a new twist this week as parliament looks to vote on a plan that has already proved to significantly divisive within the Conservative party. Several resignations in from senior Tories and there is already talk of a challenge to Prime Minister May, as a number of Brexiters look to scupper today’s vote on a tax bill on cross border trade with the EU.

A credible challenge still seems some way away given the lack of a viable alternative candidate, but that doesn’t mean that the deal agreed at the weekend will find its way through parliament.

For all the focus on the disagreements within the government, as well as the opposition Labour party there is still the prospect that the deal probably won’t be acceptable to the EU in any case, which rather renders all the political noise around it rather moot, especially if the EU rejects the deal or demands changes.

It’s also a big day for the UK aerospace and defence industry as the Farnborough Air show gets under way in the wake of warnings from Airbus about the dangers of a Brexit rupture to its supply chains, and reports that the UK government is on the brink of awarding a £2bn RAF contract to Boeing for several new early warning surveillance aircraft.

On the data side the UK economy appears to have shrugged off its Q1 dip and this week’s data could well add to the calls for a rate hike from the Bank of England in just over two weeks’ time.  This week’s data drop will be the last pieces of a puzzle which could make it very difficult for the monetary policy committee to resile from raising rates if we see decent wages, unemployment and retail sales data. We also have June CPI data which is highly likely to see an uptick due to the recent rises in fuel prices at the pumps.

EURUSD – last week’s move to the 1.1790 level proved a little short lived as the euro drifted back towards the 1.1620 area. Only a move back below the 1.1600 area opens up a retest of the May lows at 1.1510/20. A break below 1.1500 has the potential to open up a move towards the 1.1360 level.

GBPUSD – found support just above the 1.3100 level last week, keeping the prospect for further gains on the table, even if the lack of a rebound is a little concerning. We need to move beyond the 1.3360 area to suggest a bottom is in, while a move below 1.3100 argues for a retest of the June lows.

EURGBP – the 0.8900 area remains a formidable barrier to further gains with the bias remaining for a retest of the lows last week, with a break of the 0.8800 level arguing for a move back the 0.8700 area.

USDJPY – last week’s break of the 111.20 area opens up the prospect of a move towards the 113.75 area and December peaks. Support now comes in at the 112.20 area as well as the 111.20 level.

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