EUR/JPY loses the grip and recedes to sub-121.00 levels. Rising jitters on Italian politics weigh on EUR. US Consumer Sentiment next of relevance. The renewed selling bias around the European currency is now forcing EUR/JPY to abandon the 121.30 region and retreat to the sub-121.00 area. EUR/JPY offered on Italian politics The cross is extending the negative performance for the sixth session in a row on Friday, leaving behind the initial optimism that pushed it to as high as the 121.30 region, or 2-day lows. EUR has given away its daily gains after the re-emergence of political concerns in Italy, where rumours of a government crisis involving Lega Nord and M5S have picked up pace as of later along with the probability of early elections. In the meantime, the Japanese currency stays on the defensive on the back of the rebound in US yields, particularly after FOMC’s J.Bullard ruled out a large rate cut at this month’s meeting. Data wise today, another poor print in the German doc..

Rabobank analysts believe that the ECB’s Governing Council will use the July meeting to steer towards a rate cut in September. Key Quotes “Policy rates We expect forward guidance to be updated to signal a rate cut, e.g. “The Governing Council now expects the key ECB interest rates to remain at their present or lower levels [...]” We think that this would herald a 10bp rate cut in September. Additionally, we see 3 follow-up cuts in the coming 12 months. Draghi signaled that further rate cuts would be accompanied by some form of mitigating factors. We believe a tiered deposit rate is the most feasible solution.” “Asset Purchase Program We don’t expect changes to the reinvestment program or its forward guidance, nor do we anticipate the ECB to restart net asset purchases at this stage.”

USD/CAD is up on the day as Canadian Retail Sales disapppoint. On a recovery scenario, the levels to beat for buyers are at 1.3100 and 1.3150 USD/CAD daily chart USD/CAD is waveringe near multi-month lows as the market is currently capped below the 1.3100 handle and the main daily simple moving averages (DSMAs). The Canadian Retail Sales in May came below expecation at -0.1% vs. 0.3% forecast, sending the CAD down. USD/CAD 4-hour chart USD/CAD is trading just below 1.3080 resistance as the market is challenging the descending 100 SMA. USD/CAD 30-minute chart USD/CAD is trading above its main SMAs suggesting bullish momentum in the near term. The market is currently rejecting 1.3100 and 1.3080 resistances suggesting a potential correction down. Support are seen at 1.3050 and 1.3015, according to the Technical Confluences Indicator. Additional key levels

DXY moves further north of 97.00, fresh daily highs. FOMC’s Bullard ruled out a 50 bps interest rate cut in July. Flash US Consumer Sentiment coming up next. The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main rivals, is reversing two consecutive declines and extends the rebound beyond the 97.00 mark. US Dollar Index bid on Bullard’s comments The index is prolonging the bounce off weekly lows near 96.70 (Thursday), regaining the 97.00 mark and above following positive comments from St. Louis Fed J.Bullard. In fact, and despite being on the dovish side of the FOMC governors, Bullard said a 25 bps interest rate cut at this month’s meeting seems appropriate amidst ongoing economic conditions, deeming unnecessary a larger rate cut for the time being. In addition, and also lending extra wings to the buck, Italian political effervescence keeps weighing on EUR, motivating EUR/USD to fade further the recent advance. Moving forward, July’s flash gauge of the U..

Nathan Janzen, senior economist at Royal Bank of Canada, notes that the Canadian retail sales declined 0.1% in May and excluding prices, sales were down 0.5%. Key Quotes “The details of the May report don’t look quite as soft as the headline. Most of the month-over-month decline was attributed to an unusually large 2.0% drop in food & beverage store sales that will probably reverse at some point. Sales increased in 7 of 11 subsectors – including another sizeable monthly rise in sales at furniture stores. That latter increase probably has something to do with stabilization in housing markets in recent months.” “To be sure, overall retail purchases have still been on the soft side. Sale volumes were down 1% from a year ago and are tracking little if any increase in Q2 from Q1. But other developments have arguably been more favourable for the near-term household spending outlook.”

GBP/USD is correcting parts of Fed's Willams inspired gains made on Thursday. The level to beat for bears are at 1.2509 and 1.2444, according to the Technical Confluences Indicator. GBP/USD daily chart GBP/USD is currently correcting Fed’s Williams spike. The market is in a bear trend below its main daily simple moving averages (DSMAs). GBP/USD 4-hour chart Cable is trading below 1.2550 resistance and the 100 and 200 SMAs. If bears break below 1.2509 support they could drive the market down towards 1.2444 and 1.2392, according to the Technical Confluences Indicator. GBP/USD 30-minute chart GBP/USD is trading at daily lows challenging 1.2509 support while below the 50 SMA. All in all suggesting a potential correction down. Immediate resistances are seen at 1.2550 and 1.2580. Additional key levels

James Knightley, chief international economist at ING, notes that the UK government borrowing increased more than expected in June thanks to both higher spending and weaker tax revenues. Key Quotes “In fact, this is the largest June budget deficit for four years and is nearly twice as big as what economists expected. Excluding banking groups, public sector net borrowing came in at £7.2bn and although the May deficit was revised down, cumulative borrowing for fiscal year 2019/2020 is £17.9bn - tracking nearly one third, or £4.5bn above the same period for fiscal year 2018/19.” “The details show spending was up 7.2% year on year due to more outlays, but also higher borrowing costs. Rising retail price inflation has meant the interest paid on index-linked gilts has risen. Unfortunately, receipts rose just 1.5% YoY with corporation tax revenues actually falling, which underlines the rather weak state of the UK economy right now.”

EUR/USD comes under pressure and drops to 1.1230. Fed’s Bullard ruled out a 50 bps rate cut. Italy’s Salvini to meet Di Maio amidst early elections rumours. The single currency is now eroding initial gains and comes under renwed selling pressure, dragging EUR/USD to fresh daily lows in the 1.1220 region. EUR/USD weaker on Italian politics, Fedspeak Spot gathered extra downside pressure after FOMC’s J.Bullard surprised markets saying a 25 bps rate cut seems appropriate given the current US economic conditions, practically ruling out a larger cut at the July meeting. In addition, extra weakness for EUR came from Italy after Lega Nord’s leader M.Salvini said he will meet coalition partner L.Di Maio from the 5-S M against rising rumours of a government crisis and the probability of snap elections. In the docket and earlier in the session, German Producer Prices disappointed estimates during June, whereas the advanced Consumer Sentiment for the month of July is only due across the po..

The Canadian Retail Sales dropped by 0.1% on a monthly basis in May when compared to the market expectation of +0.3% and +0.2% last, according to the latest data published by Statistics Canada on Friday. Further, the core retail volumes (excluding autos) fell 0.3% in May, missing the estimate of+ 0.4% and 0.0% booked in April. The Canadian dollar extended losses on a negative surprise delivered by the Canadian May Retail Sales data, bolstering the USD/CAD recovery in a bid to test the 1.31 handle.