• USD spec short added to as $IDX fell 0.44% in Jun 1-7 period nL1N2EH22Z

• EUR specs buy into strength add 4,642 contracts now long 103,597; EUR +0.36%

• Yen specs -7,049 contracts, into JPY strength, long 16,812; USD/JPY -0.44%

• GBP +1.21% in period, specs buy 4,582 contracts now short 16,408

• AUD specs +2,214 contracts now short 694; CAD specs +3,701 now short 16,818

• MXN specs cautious after Banxico rate cut, -5,976 contracts now long 14,980

The dollar slipped, allowing EUR/USD to reverse overnight losses, as COVID-19 treatments nFWN2EG1B3 and vaccines nL4N2EH2R8 optimism tempered risk aversion over surging U.S. infections, while sterling gains targeted its 200-day moving average nL1N2EH1KV.

An unexpectedly large rebound in French May industrial output, nearly erasing April’s pandemic plunge nL8N2EH1GM, and lingering optimism the EU will narrow differences over its pandemic recovery plan at the July 17-18 meeting nL8N2EH1E6 helped the euro.

The rebound in stocks, despite China's rally finally stumbling after the country's state funds announced stake cuts in companies nAZN00JMJT, diminished safe-haven dollar demand.

EUR/USD uncovered demand by the 21- and 30-day moving averages near the 1.1255 EBS session low.
The uptrend off March’s pandemic panic lows needs a weekly close above the 200-week moving average and the 38.2% Fibo of the 2018-20 drop at 1.1335/69 to gain fresh momentum, something to watch for after next week’s EU meeting.

GBP/USD’s rebound was capped just below Thursday’s 1.3669 July high by the upper 21-day Bolli, in a consolidative session marked by dollar weakness lending support to sterling.
Given the UK is seen suffering the sharpest major-economy peak-to-trough 2020 GDP slide from the pandemic, according to Moody’s nL8N2EH2NR, along with Brexit uncertainty, sterling's recent risk-on recovery against the dollar and euro may be vulnerable nL1N2EH10T.

The yen surrendered some intraday haven gains as stocks rebounded, along with Treasury-JGB yield spreads, but USD/JPY’s fall to a 106.635 EBS low breached the June 26 swing low at 106.80, as well as the weekly kijun and monthly tenkan props at 106.70, before recovering.

A bearish close below the 106.70 Ichimoku pivot points may be forestalled, along with a retest of the May-June lows by 106, but the 21-day moving average has gone from support earlier in the month to resistance, last at 107.23.

Global risk gauge AUD/JPY flirted with a bearish close below its 30-day moving average that has underpinned prices since April, now at 74.34 nL1N2EH15G.

High-beta and emerging market currencies were mostly soggy following the hiccup in China's bull market and USD/CNY ending the week right by the pivotal 7.0 level.

Copper's first new 2020 highs since January inspired little fanfare, nor did oil’s rebound from Thursday’s drop.

Thursday’s June retail sales update will take the economic spotlight, forecast at +4.5% following May’s surprisingly strong 17.7% recovery that was goosed by re-openings and pent-up demand that is fading and faces potential headwinds from renewed pandemic mitigation efforts.

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• GBP/USD ending NY +0.2% at 1.2628; NorAm range 1.2665-1.2587

• Pair soft into NY cls, rallied off NorAm low after weak US PPI nL1N2EH0SN

• Sterling bounce after weak US PPI puts target sign on 200-DMA nL1N2EH10T

• Brexit overhang may stunt gains as EU-UK trade talks meander nL1N2EF14S

• Res by 1.2668 protects key 200-DMA by 1.2699; supt at 30-DMA by 1.2530

• EUR/GBP end NY flat at 0.8949, Fri range 0.8970-0.8938; USD sold symmetrically after PPI misses

Danske Research discusses its expectations for next week's ECB July policy meeting.

"At next week’s ECB policy meeting we expect a repetition of recent comments from various governing council members, thereby striking a cautiously optimistic tone compared to the June projections," Danske notes. 

"For spot FX, the direction and stance of the ECB and euro area fiscal politics are, in our view, quite well priced and communicated (though to a lesser extent when it comes to the outcome for Brexit). In turn, it will be the extent and speed of the global recovery that sets the tone in EUR/USD. We remain constructive and expect broad USD to decline over the coming months and our 3M forecast is 1.15," Danske adds. 

EUR/USD's slide from Thursday's 1.1371 peak may have already run its course nL1N2EG11M after weak U.S. PPI data returned focus to Fed policy expectations and the bearish outlook for U.S. rates weighing on the dollar.

Fed funds futures prices added to gains after the below-forecast June PPI nAQN02SOW1, pulling expectations for negative Fed rates to May 2021 FFK1 and driving the dollar =USD broadly lower.

Optimism about Gilead Sciences' remdesivir study nL4N2EH2TC led investors to shun the dollar in favor of riskier assets like equities ESv1 and commodities, intensifying the greenback's dimming allure.

Options bolstered the view that EUR/USD could remain buoyant.
Massive option expiries in the 1.1300-1.1400 range over the next two week nL1N2EH0KV should act magnetically and help limit any EUR/USD downside.

Technicals also implied downside risks were limited.
Daily and monthly RSIs indicated upside momentum remained intact and the 21-day moving average lent support, as did old trend line resistance from the June monthly high.

If risk remains upbeat, dollar selling should prevail and EUR/USD will likely test the 1.1500 area.

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Nomura Research discusses its expectations for next week's BoJ and ECB policy meetings.

"We see limited room for JPY to strengthen from here, expecting a gradual rise of USD/JPY toward 110 and above. There will be BOJ and ECB meetings next week, while both central banks will stay on the sidelines for now to gauge the impact of previous easing measures," Nomura notes. 

EU recovery fund discussions into the EU summit on 17-18 July will be more crucial for EUR/JPY. If an agreement is reached next week, it will be a positive surprise, although the agreement is more likely to be postponed toward the end of July. However, as long as discussions on the fund continue, peripheral government bonds and EUR/JPY will still likely be supported," Nomura adds. 

Sterling bounced off early U.S. lows at 1.2587, pushing it up 0.33% to 1.2645, after weak U.S. PPI data softened the dollar, raising the prospects of another go at GBP/USD's 200-day moving average.

The PPI misses pushed front-end U.S. rates lower, with fed fund futures 0#FF:implying negative rates of -5bps by February 2022 and falling long-end yields adding to recent dollar weakness.

GBP/USD's bounce off minor Fibo support by 1.2570, to 1.2650, emboldened bulls to make another run at Thursday's trend high by 1.2668, and potentially 200-DMA resistance by 1.2699.

However, the dollar's rate-related weakness may be short-lived with three-month UK short-sterling rates 0#FSS: turning slightly negative by March 2022, while the effect of rising U.S. COVID-19 cases could prove transitory as global infections increase as well.

Cancelling out rates and COVID from the GBP/USD outlook would leave Brexit as its main determinant, with final-status UK-EU trade talks still showing little progress nL1N2EF14SnL8N2EG4LB, creating substantial headwinds for further sterling gains.

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Credit Agricole CIB Research discusses its expectations for next week's BoC policy meeting.

"Ahead next week it will be quiet in terms of market moving data releases with investors’ main focus being on the BoC’s monetary policy announcement. There appears to be limited dovish surprise potential when considering that central bank Governor Tiff Macklem sounded somewhat more constructive on growth when giving his first speech in June and as the labour market and business activity has been rebounding in the meantime. However, with downside risks as related to the coronavirus pandemic remaining intact, it appears too early for the central bank to suggest anything different from keeping interest rates stable for an extended period of time," CACIB notes. 

"While our long-term view on the CAD remains one of strength, we believe better levels could be reached for considering new longs. This is well reflected in our September forecast, which is in line with levels closer to 1.37 in USD/CAD," CACIB adds. 

Credit Suisse discusses EUR/GBP technical outlook and adopts a bearish bias in the near-term.

"EURGBP's break of key support at .9000 not only ends the bull “triangle” but also the uptrend from February break as well as the 13-day average and price support removed for the completion of a small “head & shoulders” top. We continue to see the risk lower and look for further weakness to emerge with support seen next at the 55-day average and 50% retracement of the rally from late April at .8925/21. Whilst we would expect this to hold at first, below in due course can see support next and more importantly at .8866/64 – the “neckline” to the April/May base, June lows and 61.8% retracement of the rally from late April," CS notes. 

"Resistance is seen initially at the “neckline” to the top at .9001/11, with .9069 needing to cap to see the top maintained and the immediate risk stay lower," CS adds. 

Hedging FX options contributes a large proportion of intraday EUR/USD spot trading, and given the size of options that are close to expiry, continued hedging maybe having a significant effect on price action.

Dealers will typically neutralise exposure to option strikes by trading an opposing view in the spot market, which can increase as the options expiry date draws closer.
These hedging requirements will grow with the size of the option, and DTCC data shows some massive strikes through July.

There were 60 billion euros of EUR/USD options between 1.1200-1.1400 during the first three weeks of July - a significant amount compared with the mean nL1N2ED07N, which would certainly be playing a part in containing the spot market -- 1.1185-1.1371 so far in July.

DTCC data shows approximately 30 billion euros in this 1.1200-1.1400 range over the next two weeks, with the biggest strikes at 1.1300, 1.1350 and 1.1400 (5-billion each).
However, the size drops significantly into August, and could help to free EUR/USD' shackles thereafter.
Related comments nL1N2EH0G4nL1N2EH0I4

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• 1.2608 marks the cable high since its early Ldn drop to 1.2569

• Ascent to 1.2608 influenced by European equities recouping early losses

• See: nL4N2EH1UG. Risk-sensitive GBP often benefits from equity gains

• 1.2569 approximated to 23.6% Fibo of 1.2252-1.2668 nL1N2EH0DE

• Fibo levels often corral GBP/USD, re: buy/sell orders placed nearby

• 1.2668 = 12 pips shy of 76.4% Fibo of 1.2812-1.2252 nL1N2EG0F5

• EUR/GBP lifted by month-end buying in June then sinks towards a cloud twist

• Daily Ichimoku cloud twists today at 0.8917-54. Low 0.8947

• After today cloud thickens and rises. Potential for growing support

• 55-DMA and 100-DMA 0.8927 and 0.8880 provide additional layers of support

• Those hedging expected GBP direction might pick bases ahead these MAs

• Cloud peak rises to 0.8995 by month-end when buying is certain

• 21-DMA @ 0.9020. 38.2% retrace drop from end-June peak is 0.9035

• Rangebound EUR/USD adds to cause to eye a EUR/GBP rebound nL8N2EH0Y8

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FX traders continue to flee the dollar for the yen as coronavirus worries take their toll and the technical picture darkens.
In times of uncertainty, with risk aversion on the rise, funds usually flow into the safe-haven yen.

The yen rose on Friday after a surge in new coronavirus infections in the United States further undermined the case for a quick turnaround in the economy nL4N2EH1G1.
EBS flow data shows there has been an acceleration of USD/JPY sales since Tuesday.

The USD/JPY technical outlook is becoming more bearish.
The recent bull trap above the 107.97 Fibonacci level, a 50% retracement of the 109.85 to 106.08 June (EBS) drop, keeps the overall bias on the downside.
A bull trap is set when a market breaks above a technical level but subsequently reverses.

Despite Thursday's recovery, the "death cross" on the daily USD index chart this week is a bad sign for the dollar in general nL1N2EF2P0.
Related nL1N2EG0EJ

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• Cable elicited support just shy of 1.2570 after extending south from 1.2668

• 1.2570 = 23.6% Fibo of 1.2252 (June 29 low) to 1.2668 (3-week high Thursday)

• Global equity equity losses are helping weigh on the risk-sensitive pound

• Nikkei closed down 1.06%. S&P e-mini is currently down 0.8%

• On Thursday, Barnier said significant differences persist in EU-UK talks

• See: nL8N2EG4LB. 1.2530 and 1.2500 are GBP/USD support points under 1.2570

• EUR/USD is not expected to move much ahead EU summit July 17-18

• In the interim traders have been eyeing ranges roughly centred 1.1150-1.1450

• Yesterday pair opened bullishly after setting a 20 day best at 1.1371

• Traders reaction was swift reducing existing longs; cementing range view

• Break from expected range unlikely. Specs very likely to buy the dip

• 21-DMA 1.1257. 1.1246 is 61.8% rise from Jun's low. 76.4% is 1.1216

• Base expected range near 1.1122; min correction target rise from 2020 low

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• Bull run stopped in its tracks just ahead of the 200DMA, 1.2699

• Long upper shadow to Thurs candle and weak Frid open bearish

• 14-day positive momentum fades and RSI turns over

• Weekly action still with bulls but failure to cls above 55DMA a concern

• 55DMA is at 1.2609: last week's high 1.2530

• Tempting to short the market but stronger signals needed

  
  

• AUD/USD opened 0.25% lower at 0.6963 and came under pressure early

• AUD/JPY selling out of Tokyo send AUD/USD down to 0.6935

• Support at the 10-day MA (0.6935) held and it bounced back to 0.6951

• Equities remained pressured with AXJ index down 0.65% and E-minis off 0.25%

• AUD/USD eased back to 0.6940 into the afternoon session

• AUD/USD vulnerable as investor risk appetite wavers as COVID-19 surges nL4N2EH0CH

• Support at 10-day MA at 0.6935 and the 21-day MA at 0.6905

• Resistance and sellers around 0.7000 should cap while risk assets pressured

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The correlation between the S&P 500 and the AUD/USD remains strong and with investor confidence fading, they both are starting to look vulnerable.

Risk assets have shown resilience due to hopes the global economy will continue to rebound despite the worrying surge in COVID-19 cases in the U.S. and other parts of the world.
The strong U.S. job numbers in May and June helped fuel economic optimism, but enthusiasm is fading as the coronavirus count increases nL1N2EG13NnL1N2EG2PN.

Increasing demand for safe-haven U.S. Treasuries and gold along with dire warnings from the Federal Reserve portends faltering investor confidence.
This will likely result in a correction lower in the S&P 500 and a perceived top in place in the AUD/USD around the 0.7000 level.
A daily close below the 21-day moving average in the AUD/USD at 0.6907 would confirm a top is in place and target a move towards support at 0.6800.

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• Flat after closing off 0.4%, leaving a fresh range top at 1.1371

• We need a recovery fund, but with reforms, Dutch PM says nS8N2CH06H

• EU continue to work slowly towards a coronavirus hit, EU budget deal

• Charts; momentum studies, 5, 10 & 21 DMAs conflict - neutral setup

• 1.1333 upper 21 day Bollinger band broken, but held on close as risk soured

• 21 day Bollinger bands are a good indicator of an over stretched market

• 1.1181 lower 21 day Bolli and 1.1157, 38.2% April-June rise, range base

• 1.1257 21 DMA and 1.1300-10 667M strikes are initial support-resistance

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• Flat and closed little changed, after a topside failure and potential top

• Scant progress in Brexit talks - continue in Brussels next week nL8N2EG4LB

• UK retail warns shoppers face higher prices if no EU trade deal nL8N2EG4BT

• Techs; momentum studies climb, 5, 10 & 21 DMAs conflict - neutral setup

• Soft close leaves a shooting star reversal signal on the daily candles

• Close below Thur's 1.2600 low would leave 1.2668 top in place for next week

• 1.2667-99 key resistance, upper 21 day Bolli, 76.4% June fall & 200 DMA

• 1.2667 upper 21 day Bollinger band capped Thursday in London and NY

• 1.2570 5 DMA first support, then 1.2486-98 10 & 21 DMAs the pivotal level

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• EUR/USD opens 0.40% lower after break of triple-top at 1.1345/55 fizzled

• Pair still correlating with equities, which fell on coronavirus concerns nL1N2EG28WnL1N2EG13N

• EUR/USD support at 10-day MA at 1.1269 and 21-day MA at 1.1258

• A break below 1.1255 would suggest 1.1168/1.1422 range trading to continue

• Sellers are eyed ahead of 1.1350 while bids are tipped 1.1250/65

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• AUD/USD opens 0.24% lower after failing to clearly break 0.7000

• Rising COVID-19 cases and US politics weighed on risk assets nL1N2EG28WnL1N2EG13NnL1N2EG0UO

• AUD/USD touched 0.7001 but sellers prevented decent follow-through higher

• Support is at the 10-day MA at 0.6937 and 21-day MA at 0.6908

• Resistance at 0.7000 and rising COVID-19 concerns make AUD/USD vulnerable

• Break of 0.6900 would suggest top in place and 0.6800/0.7000 range to ensue

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NAB Research discusses USD/JPY outlook and adopts a neutral bias over the coming weeks.

"For now, we expect USD/JPY to continue to trade comfortably inside its key resistance (111), and support (105) levels, pivoting around the 107 mark as it has done since early April. That said, there is a risk geopolitical awakens JPY's safe-haven appeal and not just from US-China tensions. In yet another sign of a growing coalition of nations with shared values, lawmakers in Japan have drafted a resolution calling for the cancellation of a state visit by President Xi Jinping following China's clampdown on Hong Kong," NAB notes. 

"The start of US equity reporting season midway through July is also theme to watch, it has the potential to either propel USD/JPY towards 109 or below 106 depending on whether equity markets retain their current poise to skid on downward reassessment of global recovery prospects,"  NAB adds. 

Fixes typo in paragraph 12

The dollar and yen gained as relentlessly rising U.S. COVID cases nL1N2EG13N and election-year political uncertainty after a Supreme Court ruling on President Donald Trump’s financial records nL1N2EG0UO triggered safe-haven buying, knocking EUR/USD back and curtailing sterling's rally nL1N2EG1Q5.

Renewed worries about U.S.-China trade tensions nL1N2EG12A also encouraged the risk-off flows that led EUR/USD to reverse overnight gains to 1.1371 -- the closest it has come to reaching June’s 1.14225 EBS peak since then.

Disappointing German trade data nL8N2EG16Q hurt the euro by undermining the market narrative that Europe is a more attractive investment destination than the U.S. due to divergent pandemic paths.

Europe depends more heavily on exports, which the pandemic has damaged, than the U.S.

Still, the EUR/USD uptrend will remain intact unless it breaks 30-day moving average support at 1.1257 and the dollar index overcomes resistance at 97.09.

Though U.S. weekly jobless claims beat forecasts, they remained extremely elevated and may have been diminished by last week’s holiday.
The continuing claims fall to 18.062 million obscured the fact that a record 32.9 mln people were collecting unemployment checks nL1N2EF1U0.

Risk aversion stopped GBP/USD’s July rise at 1.2668 nL1N2EG0YU, which brushed up against the upper 21-day Bolli, 200-DMA and the underside of the uptrend line from March and May lows that it broke below in June.

USD/JPY slipped -- but less than yen crosses -- with losses limited to 107.10 on EBS due to the dollar’s recent uncharacteristic inclination to gain more from safe-haven demand than the Japanese currency.

This left USD/JPY in a slow retreat from July’s 108.16 fleeting peak.
Key on-close support is at 106.70, the weekly kijun and monthly tankan, that after falling out of the daily cloud and well below the daily tenkan and kijun lines this week nL1N2EG12A.

Falling Treasury yields, despite a 30-year auction, highlighted demand for the world’s top haven, taking the 10-year yields to their lowest since mid-May.

The Dow index fell away from its 200-day moving average, toward the rising 50-DMA that caught the late June and mid-May lows, perhaps providing a baseline for the recovery, risk-flows and the dollar as corporate earnings season approaches next week.

WTI and Brent retreated after failing to gain traction above where they gapped lower on March 9, put off by the U.S. COVID-19 acceleration and dim prospects for travel.

The next major U.S. economic release is retail sales on Thursday.

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