GBP hit by softer inflation, AUD soars

Cable traded below 1.3045 amid the UK's headline inflation declined to 2.6% year-on-year in June, from 2.9% printed a month earlier. The slowdown in inflation suggests that the decline in British real wages may have started to translate into a slower consumer inflation, as anticipated by the Bank of England (BoE) Governor Mark Carney.

The easing in the UK's inflationary pressures resuscitated the BoE-doves, given that the softer inflation will take a decent pressure of the BoE's shoulders and allow the bank to keep the interest rates at all-time low levels to support the British economy throught the uncertain Brexit times.

In the aftermath of the critical June data, the pound could make an attempt below the 1.30 level against the US dollar. The next important support is eyed at 1.2885 (minor 23.6% retracement on February – July rise).

The FTSE is surfing on a softer pound this morning. Resistance is eyed at 7444p, the 50-day moving average.

US dollar and yields dip

The probability of a December Federal Reserve (Fed) rate hike fell to 42.3% amid a series of soft macroeconomic data from the US.

As the reflation trend triggered by President Trump's fiscal promises are waning, the Fed hawks are losing field. The slowdown in the US inflation, which was thought to be temporary by the Fed, now appears to be turning into a sustained medium-term trend.

In her semiannual testimony last week, the Fed Chair Janet Yellen also voiced her doubts about the Trump administration's inability of bringing the fiscal reforms to life and reaching the 3% growth target.

The sell-off in the US dollar has deepened on Monday and Tuesday, as the empire manufacturing data has been a decent miss in July and news that two more senators announced their opposition to the Republican healthcare bill further dented the investor appetite across the US markets. The US 10-year yields slipped below the 2.30% level.

The Dow Jones (-0.04%) and the S&P500 (-0.01%) saw no enthusiasm on Monday and could be brought lower from their all-time high levels throughout today's session.

EURUSD clears 1.15-resistance on heavy USD sell-off

The EURUSD rallied on stops after breaking the 1.15 level on the back of a broad-based USD unwind. Trend and momentum indicators are comfortably positive for a further development of the bullish trend, yet the uncertainties prior to the European Central Bank meeting will certainly keep the upside potential limited. The next important resistance is eyed at 1.1616, the 2016 peak. Support to the current bullish trend stands at 1.1446 (minor 23.6% retracement on June – July rise) and 1.1394 (major 38.2% retrace). Decent call option is eyed at 1.1535 at today's expiry.

Gold to challenge $1'240

Gold is preparing to take out the $1'240 (major 38.2% retrace on June – July fell) on the back of lower US yields. Surpassing this level should suggest a short-term bullish reversal and encourage a further rise toward $1'247 (50, 100-day moving average) and $1'250 (50% retrace).

Is there opportunity in USDJPY sell-off?

Nikkei (-0.59%) and Topix (-0.31%) were offered on stronger yen, as Japanese traders returned from the Marine Day break.

The USDJPY broke the major 38.2% retracement support (112.32) on June – July rise and extended gains to 111.99. The USD weakness is the main cause of the current drawback. Nonetheless, the divergence between the Fed and the Bank of Japan (BoJ) policy outlooks is still supportive of a stronger USDJPY in the medium term.

Traders should be seeking dip buying opportunities as soon as the USD sell-off loses momentum.

AUDUSD's sugar rush

The Aussie traded through the ceiling on the back of heavy carry inflows into the high yielding currencies. The AUDUSD soared to 0.7924, its highest level since May 2015.

The relative strength index advanced to 78%, warning that the Aussie may have been overbought in large quantities in a very short period of time. Price pullbacks are expected to meet dip-buyers. Support is eyed at 0.7784 (minor 23.6% retracement on April – July rally) and 0.7697 (major 38.2% retrace).