Forex today: dollar bulls scratching their heads, licking their wounds - European politics at the fore

• The greenback was mixed and fell on the European political news.
• Divergence in the price of the Aussie and CRB index and commodities. 

Forex today was unkind to the dollar bulls and cross-currents in European politics in Italian and Brexit headlines shook the grounds of the bear's case in lower EUR/USD which rallied hard from session lows in European trade to trigger buy stops on the 1.16 handle up to the 200-hr SMA. 

The greenback was mixed and fell on the European political news whereby Brexit headlines were soft but were then contradicted later in the day. Firstly, the British and German governments have abandoned key Brexit demands. However, a German government spokesman said that the government position on Brexit was unchanged and that the government has full trust in Barnier - (Cable fell from 1.2957 to 1.2876 and the cross rallied back to 0.90 the figure). 

EUR/USD has been volatile and non-directional while the wicks on the daily sticks give a bullish tint on the technical picture. The pair was holding the 1.15 handle, printing lows down at 1.1540 and rallying to 1.1639 in European trade and finding a footing o the 1.16 handle, spending most of the day around 1.1620. There was a brief sharp sell-off on the Brexit contradiction in NY but bulls took back control.  The key from here is how Italy pans out - There was some bullish sentiment in that  Italian officials are seeking to reassure markets on the nation's fiscal plans which resulted in bond spreads tightening. Meanwhile, EM-FX was better placed and that too helped a recovery in the euro. Eyes will turn to US trade and protectionist policies which should otherwise be supportive of the greenback all the while the uncertainties roll on. As for cable, the focus started out on the better than expected UK service sector PMI, (54.3 vs 53.9 f/c) and the UK service PMI beat contrasted with UK mfg and construction PMI misses - (IHS Markit says UK GDP on track to grow by 0.4 pct in Q3). Cable was up to 1.2826 in European trade as a result and then rallied to 1.2982 on the Brexit headlines before settling back to 1.2903 for the NY close on the contradictory Brexit headlines, (Germany govt says position on Brexit unchanged drops), - NY range was between 1.2983-1.2814.  The cross was subsequently hit hard on the softer Brexit headlines and fell to 0.8956 before picking up a bid to end NY at 0.9009 -0.04% while Germany readies for all Brexit options, including a no-deal scenario. The yen was on the backfoot, edging to 111.74 and en route for the 112 handle as dollar longs increase amid lingering EM angst. The yen is complex at the moment and we wait to see how the markets will react to new tariffs imposed on Chinese imports by the US and whether Brexit headlines will continue to lean on the soft side, unwinding the risk-off trade in the yen. Also, we need to see how Japan will fare to a slowing Chinese economy. As for the Aussie, Asian stock losses fueled the sell-off in the AUD/USD that dropped to test 0.7145 during European markets, where traders sold into the GDP beat spike to 0.7218. However, risk bounced, the dollar tanked and the yen cross rallied which supported a recovery to 0.7189 and making for a close in NY at 0.7190. However, there is a divergence in the commodity sector and the CRB index dropped and metals bounce but lack conviction. 

Key notes from US:

• Wall Street ends the choppy session mixed

Key events ahead:

We have the Aussie the trade balance for July coming up. It is expected to be a surplus of +$A1.7b (mkt +$A1.45b) after guidance from the recent Chinese trade report suggesting bumper imports (+0.9%/m) slightly outpacing still solid exports (+0.5%/m).