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Notes/Observations

Price action subdued in Europe with London closed for banking holiday

US and European central bankers didn't offer fresh policy guidance at the Jackson Hole central bankers meeting

Markets assessing the economic-impacting damage Hurricane Harvey as storm caused catastrophic flooding in Texas

Euro at 2 ½ highs against USD after Draghi failed to issue any concern over its appreciation during his Jackson Hole speech

North Korea launched three short-range missiles on Saturday as US/South Korea continued joint military drills

key week for US economic releases highlighted by Non-farm payrolls on Friday

Overnight/Weekend

Jackson Hole:

ECB Draghi: Global recovery was firming up. Without stronger potential growth, the cyclical recovery we see now globally will ultimately converge downwards to slower growth rates. Reiterated Council view that significant monetary accommodation is still needed, inflation has yet to converge to target; (**Note: did not comment on ECB policy directly or foreign exchange)

BoJ Gov Kuroda: Reiterated policy to stay very accommodative; Does not think Q2 GDP growth rate of 4% can be sustained

Fed's Kaplan (moderate, voter): we are closer to Neutral rate than some people believe. Reiterated Fed may raise rates one more time this year, but can afford to be patient; want to see how inflation goes before making rate decision. A stock market or real estate correction would not necessarily hurt the economy

Fed's Powell (moderate; voter: eagerly watching Washington but no ready to add fiscal stimulus measures into our forecast. We have a balance sheet plan; will normalize policy soon

Asia:

North Korea said to have fired several short range missiles into the waters off of its east coast on Sat, Aug 26th. US analysts say all of three of the short range ballistic missiles launches failed as they were fired over a period of 20 minutes (**Reminder: US and South Korean troops are currently conducting their annual joint military exercises)

China July Industrial Profits Y/Y: 16.5% v 19.1% prior (3-month low)

China approves Guodia, Shenhua group to merge into a new energy company

Europe:

France could be willing to begin Brexit trade talks by Oct. Under France's proposal, the UK would seek a 3-year transitional agreement and continue to pay into the EU's budget of €10B/year

Brexit Min Davis: Will call on EU to be more flexible in its approach ahead of 3rd round of talks. Both sides must be flexible and willing to compromise when it comes to solving areas where we disagree. EU itself has said, the clock is ticking so neither side should drag its feet

EU Brexit Negotiator Verhofstadt: UK must make concrete Brexit proposals, must address key elements of Brexit deal; EU Citizens’ rights most important Brexit issue

Americas:

President Trump reiterated "we are in the NAFTA renegotiation process with Mexico, and Canada. Both being very difficult, may have to terminate?"

Trump administration mulling reduction in certain summer work visas. plan is said to focus on 5 jobs programs under the J-1 visa exchange visitor program, including the summer work travel program.

Energy:

Hurricane Harvey pounds Houston Texas with “catastrophic floods” with National Weather Service saying conditions are unprecedented

Houston Port Spokeswoman: All port facilities to be closed on Monday due to continued weather threat

US Dept of Interior Bureau of Safety and Environmental Enforcement: Approx 22% of current oil production in US Gulf of Mexico is offline due to Tropical Storm Harvey (equates to ~379k bpd)

Economic data

(FI) Finland Aug Business Confidence: 7 v 8 prior; Consumer Confidence: 23.5 v 22.8 prior

(SE) Sweden July Retail Sales M/M: +0.9% v -0.1%e; Y/Y: 3.7% v 3.3%e

(SE) Sweden July Trade Balance (SEK): -0.5B v 5.4B prior

(EU) Euro Zone July M3 Money Supply Y/Y: 4.5% v 4.9%e

(IT) Italy Aug Consumer Confidence: 110.8 v 106.9e; Manufacturing Confidence: 108.1 v 108.0e

Fixed Income Issuance:

(IT) Italy Debt Agency (Tesoro) sold €2.0B vs. €1.5-2.0B indicated in CTZ bonds; Avg Yield: -0.139% v -0.160% prior; Bid-to-cover: 1.68x v 1.64x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -0.5% at 3,425, FTSE -0.1% at 7,401, DAX -0.6% at 12,098, CAC-40 -0.3% at 5,087, IBEX-35 -0.2% at 10,322, FTSE MIB -0.1% at 21,727, SMI -0.3% at 8,876, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes: European stocks open lower and continue momentum; stocks under pressure following ECB President Draghi's speech in Jackson Hole in which he didn't show concern over rising Euro; all sectors moving lower, technology most affected; export companies underperforming, putting pressure on DAX; insurers underperforming as fallout from Hurricane Harvey is assessed; UK closed for bank holiday

Equities

Consumer discretionary: Aryzta ARYN.CH +1.0% (new CEO)

Materials: SGL Carbon SGL.DE +3.4% (analyst action)

Industrials: EMS-Chemie EMSN.CH -2.0% (earnings)

Financials: Zurich Insurance ZURN.CH -0.6% (Hurricane Harvey), Conwert Immobilien CWI.AT +3.3% (earnings)

Telecom: Altice ATC.NL +0.8% (buyback)

Healthcare: Novartis NOVN.CH -0.8% (study results disappoint), Bayer BAYN.DE +0.3% (study results),

Poxel POXEL.FR +1.8% (clinical data presentation)

Speakers

France Fin Min Le Maire: Polls show that French people impatient to see reforms. Govt will hold firm on labor law reform

Greece PM Tsipras: Aim to cut tax rates further after 2019. Improvement in economy expected to be confirmed in growth rates for Q2 and Q3

Russia Dep Fin Min Moiseev: reiterates view that banking sector is stable; no immediate threats seen

Japan Cabinet Office Monthly Economic Report: Maintain overall economic assessement; Economy is experiencing a moderate recovery (**Note: Japanese government has not used the term "expansion" in 25 years; (last used in Jan 1992)

Bank of Korea (BOK) Gov Lee: Govt has not requested any hike in Key interest rate. monetary policy is decided by the the central bank’s board

Thailand Commerce Min Tantaporn: Raises 2017 Export growth target to from 2.5% to 7% as global economic conditions look good

Venezuela Oil Min Del Pino said to plan visit to Russia Energy Min Novak in Moscow ahead of planned Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC) monitoring committee on Friday, Sept 22nd

Fixed Income

Bund futures trades at 164.66 down 6 ticks stuck in a tight range with future volumes falling as a UK bank holiday halts activity. Downside targets 163.50 followed by 162.56. To the upside the 164.50 to 165.20 remains key resistance.

Gilt futures and UK markets were closed for holiday.

Monday's liquidity report showed Friday’s excess liquidity fell to €1.701T from €1.703T and use of the marginal lending facility rose to €310M from €131M prior.

Corporate issuance saw $3.8B last week as we enter the end of earning season.

Looking Ahead

06:00 (IE) Ireland July Retail Sales Volume M/M: No est v -4.8% prior; Y/Y: No est v 4.1% prior

06:00 (DE) German Chancellor Merkel meets France President Macron, Italy PM Gentiloni and Spain PM Rajoy in Paris

06:45 (US) Daily Libor Fixing

07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

07:00 (BR) Brazil Aug FGV Construction Costs M/M: 0.3%e v 0.2% prior

07:25 (BR) Brazil Central Bank Weekly Economists Survey

08:05 (UK) Baltic Dry Bulk Index

08:30 (US) July Advance Goods Trade Balance: -$64.5Be v -$63.9B prior

08:30 (US) July Preliminary Wholesale Inventories M/M: No est v 0.7% prior, Retail Inventories M/M: No est v 0.6% prior

09:00 (MX) Mexico July Trade Balance: -$1.0Be v $0.1B prior

09:00 (FR) France Debt Agency (AFT) to sell combined €4.6-5.8B in 3-month, 6-month and 12-month Bills

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

10:30 (US) Aug Dallas Fed Manufacturing Activity: 16.8e v 16.8 prior

11:30 (US) Treasury to sell 3-Month and 6-Month Bills

13:00 (US) Treasury to sell 2-Year Notes

13:00 (US) Treasury to sell 5-Year Notes

16:00 (US) Weekly Crop Progress Report

Crude Oil is trading lower. Hourly support is given at 46.46 (17/08/2017 high). Strong resistance can be found at 50.41 (31/07/2017). Expected to show continued short-term sideways move.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. Strong support lies at 35.24 (05/04/2016) while resistance can now be found at 55.24 (03/01/2017 high).

Silver's bullish pressures remain despite ongoing consolidation. Hourly resistance is given at 17.32 (18/08/2017 high) while support can be found at 16.58 (15/08/2017 high). The commodity lies in a short-term uptrend channel. Expected to show another leg higher.

In the long-term, the death cross indicates that further downsides are very likely. Resistance is located at 25.11 (28/08/2013 high). Strong support can be found at 11.75 (20/04/2009).

Gold is consolidating within an symmetrical triangle. Hourly support is given at 1251 (08/08/2017 low). Stronger support lies at 1204 (10/07/2017 high). Expected to show continued consolidation below $1300.

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1392 (17/03/2014) is necessary ton confirm it, A major support can be found at 1045 (05/02/2010 low)

Bitcoin bullish rise continues after short pause. Resistance is at all-time high at 4480 (17/08/2017 high) is within sight. Hourly support lies very far at 2403 (26/07/2017 low). The road is wide open for another bullish move.

In the long-term, the digital currency has had an exponential growth. There are decent likelihood that the asset will consolidate above $1500. Long-term support is given at $1464 (04/05/2017 low).

EUR/CHF recovery bounce has stalled below downtrend resistance located at 1.1407. Hourly support is located at 1.1260 (04/08/2017 low). Expected to show further consolidation.

In the longer term, the technical structure has reversed. Strong resistance at 1.1200 (04/02/2015 high) has been broken. Yet,the ECB's QE programme is likely to cause persistent selling pressures on the euro, which should weigh on EUR/CHF. Supports can be found at 1.0184 (28/01/2015 low) and 1.0082 (27/01/2015 low).

EUR/GBP's buying pressures continues. Hourly resistance lies at 0.9415 (10/07/2017 high). Hourly support is given at 0.9189 (24/08/2017 low). Downside risks are nonetheless important.

In the long-term, the pair has largely recovered from recent lows in 2015. The technical structure suggests a growing upside momentum. The pair is trading above from its 200 DMA. Strong resistance can be found at 0.9500 psychological level.

EUR/USD – 1.1915

EUR/USD:   Wave (c) of 2 ended at 1.3993 and wave 3 of III has commenced for weakness to 1.0411 (1.236 of wave 1), then 1.0000.

Friday’s rally above recent high at 1.1910 confirms our bullish view that recent upmove has resumed and upside bias remains for the rise from 1.0340 low (wave 3 trough) to extend gain to 1.2000-10, break there would encourage for further gain in wave 4 to 1.2100, having said that, as this move is viewed as the final leg of recent wave 4, reckon upside would be limited and price should falter well below 1.2220-30, bring retreat later. 

Our preferred count on the daily chart remains that a wave (II) from 1.2329 ended at 1.5145 with A-leg ended at 1.4720, followed by wave B at 1.2457, the wave C from there was also a 3 legged move and is labeled as (a): 1.3739, (b): 1.2885, the wave iii of the 5-waver (c) from 1.2885 has ended at 1.4339 and wave iv is a triangle ended at 1.3878 and wave v formed a top at 1.5145. The decline from there is a 5-waver (C) with minor wave (i) of I of (C) ended at 1.4218 with wave (ii) ended at 1.4580, wave (iii) ended at 1.3267 and wave (iv) ended at 1.3692 and wave (v) ended at 1.1876, this is also the low of wave I of (C) and wave II ended at 1.4940, hence wave III is now in progress with a diagonal wave 1 ended at 1.2042, the breach of previous support at 1.1876 (wave I trough) adds credence to our view that the wave 2 has ended at 1.3993, wave 3 has commenced for further weakness to 1.0411, then towards 1.0000.

On the downside, expect pullback to be limited to 1.1840-50 and bring such a rise to aforesaid upside target. Below previous resistance at 1.1828 would bring test of 1.1773 minor support (Friday’s low) but a daily close below there is needed to defer and bring test of 1.1740, break there would suggest a temporary top is possibly formed instead, risk weakness towards support at 1.1662, only break there would provide confirmation, bring retracement of recent upmove to 1.1613 support first.

Recommendation: Buy at 1.1850 for 1.2050 with stop below 1.1750

Euro's long-term uptrend started from 0.8228 (26 Oct 2000) with an impulsive structure. The rise from 0.8228 to 0.9593 (5 Jan 2001) is labeled as wave I, the retreat to 0.8352 (6 Jul 2001) is wave II and the rally to 1.3670 (31 Dec 2004) is wave III. Wave IV from there ended at 1.1640 (15 Nov 2005), the subsequent upmove to 1.6040 (July 15, 2008) is treated as wave V, the major selloff from the record high of 1.6040 to 1.2329 (October 27, 2008) signals a reversal has taken place with (I) leg ended at 1.2329 and once (II) ended at 1.5145, wave (III) itself is an extended move with I: 1.1876 and complex wave II ended at 1.4902, wave III has commenced with wave 1 and 2 ended at 1.2042 and 1.3993 respectively, wave 3 of III is now unfolding for weakness towards parity.

AUD/USD has broken downtrend channel. Hourly support can be found at 0.7786 (18/07/2017 low). Hourly resistance is given at 0.8066 (27/07/2017 high). Expected to further consolidate.

In the long-term, we are waiting for further signs that the current downtrend is ending. Key supports stand at 0.6009 (31/10/2008 low) . A break of the key resistance at 0.8295 (15/01/2015 high) is needed to invalidate our long-term bearish view.

USD/CAD selling continues. Hourly support is given at a distance at 1.2414 (27/07/2017 low) while resistance is now given at a distance at 1.2778 (15/08/2017 low). Expected to show continued short-term bearish move.

In the longer term, the pair has broken longterm support that can be found at 1.2461 (16/03/2015 low) before bouncing back. Strong resistance is given at 1.4690 (22/01/2016 high). The pair should head further lower.