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The US dollar weakened into the closing session on Friday as investors quickly raised their bets on the euro. The US dollar index closed at 92.45 marking a 15-month low. The declines in the USD came surprisingly as both Yellen and Draghi failed to address the specifics of the future course of their respective monetary policies.

Friday also saw the US durable goods orders which rose 0.5% on the core while the headline durable goods orders fell 6.8%, reversing the previous month's 6.0% increase. It was also below the forecasts of a 6.0% decline.

In the Eurozone, the German final GDP figures showed a quarterly GDP growth rate of 0.6% which was in line with estimates.

Looking ahead, the economic calendar is light today leaving traders to digest the comments from Jackson Hole Symposium. The US goods trade balance will be released alongside the wholesale inventories. The pace of economic data is, however, expected to pick up thepace as the week progresses.

Market movers today

Financial markets in general, and the oil market in particular, will be monitoring the ramifications of Tropical Storm Harvey on South Texas where much of US energy production takes place. So far, it has led to the temporary shutdown of some oil and gas production as well as refinery production.

The most interesting data release today is the euro area loan growth in July. In 2017, loans to households have been rising at the fastest pace since 2009, confirming that the ECB's accommodative monetary policy measures are filtering through to the real economy. We expect the July figure to report 2.7% y/y growth, up from 2.6% y/y in June. We also get data on M3 money supply growth and we expect the figure in July to have remained around 5.0%, as observed over the past three months.

In the UK, the third round of Brexit negotiations between the UK and the EU kicks off this week . The parties are set to continue negotiations in phase 1 (divorce bill, citizen's rights and Irish border).

In Scandi markets, Swedish retail sales and trade balance data will be in focus today, see next page.

Later this week, the key data includes euro area inflation and unemployment. In the US, there are also some important releases including PCE inflation, the labour market report as well as ISM and PMI for the manufacturing sector. Chinese private and official manufacturing PMI will also be published.

Selected market news

The Jackson Hole monetary policy symposium turned out to provide basically no news regarding the next steps for monetary policy. Instead, Fed Chair Yellen and ECB President Draghi both used the opportunity to speak against the rollback of financial regulation and against protectionism. In the Q&A session, Draghi repeated the message from the July ECB meeting that a ‘significant degree of accommodation is still warranted', suggesting that the reduction in stimuli will be done in baby steps. ‘Gradualism' appear to be the new buzzword while ‘tapertantrum' is what ECB wants to avoid. Despite the lack of new signals on monetary policy, the FX market reacted swiftly, sending EUR/USD above 1.19. BoJ's Kuroda pledged to keep the accommodative monetary policy in place for some time.

Over the weekend, South Texas including Houston was hit by Tropical Storm Harvey, shutting down 300-500kb/d of production from the Eagle Ford oil field and further closing down some refinery production. In addition, there were reports out of Libya that production had been halted at two oil fields due to disruption by armed rebel groups. On Friday, the weekly US oil rig count data showed a fall to 759. This marks the second consecutive week of decline and thus signals to the oil market that downside risks for US product ion on a 6-12M horizon looks real. The news above has so far failed to spur a significant reaction in the oil market .

Asia Summary

Asian equity markets are currently trading mixed, apparently largely ignoring the most recent North Korean missile launch, which was reported on early Saturday. In M&A news, US listed CBS announced that it would acquire Australia’s Ten Networks, which has already been placed into administration, for an undisclosed amount.

In the currency markets, the Euro had gained by over 0.25% versus the US dollar, but has since pared gains. On Friday at Jackson Hole, ECB''s Draghi did not directly address currencies. Economic data points expected this week include Germany Aug Prelim CPI, EU Prelim Aug CPI, China Manufacturing PMI, Australia Q2 Private new Capex, Japan Q2 Capex and US ISM Aug Manufacturing and non-farm payrolls

US NYMEX gasoline futures opened the session higher by over 6%, as companies including Exxon and Shell noted they would shut facilities located near Houston amid the impact of Harvey, which was downgraded to a tropical storm on Saturday. Shell said its Deer Park Texas refinery (up to 340K bpd) may be shut for up to 1 week.

According to the National Hurricane Center (NHC),‘unprecedented' flooding is occurring over Southeastern Texas due to Harvey and it expects the center of the storm to move off the middle of Texas’ coast on Monday and wander just offshore through Monday night. The NHC also said the storm is expected to produce additional rainfall through Friday over parts of Texas.

Speakers and Press

(EU) France could be willing to begin Brexit trade talks by Oct - UK Press

(JP) BoJ Gov Kuroda: Reiterated policy to stay very accommodative; Does not think Q2 GDP growth rate of 4% can be sustained (update from Aug 25th)

(JP) Japan PM Abe cabinet approval rating rises by 4 pct points to 46% - Nikkei

(KR) Bank of Korea: Domestic markets stabilizing after turbulence in early Aug over North Korea tensions

(NZ) New Zealand Wine Exports in June year +5.9% to NZ$1.66B (record high)

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

Asian Equity Indices/Futures (00:30ET)

Nikkei flat, Hang Seng +0.5%, Shanghai Composite +0.9%, ASX200 -0.7%, Kospi -0.4%

Equity Futures: S&P500 -0.1% ; Nasdaq -0.2% , Dax -0.2% , FTSE100 -0.2%

FX ranges/Commodities/Fixed Income (00:30ET)

EUR 1.1921-1.1960; JPY 109.09-109.40; AUD 0.7927-0.7950; NZD 0.7236-0.7256

Aug Gold +0.1% at 1,299/oz; Aug Crude Oil -0.4% at $47.68/brl; Sept Copper +0.5% at $3.07/lb

GLD SPDR Gold Trust ETF daily holdings rise 5.91 tons to 805.2 tons

(CN) PBOC SETS YUAN REFERENCE RATE AT 6.6353 V 6.6579 PRIOR (strongest yuan fix since Aug 19, 2016)

(CN) China PBOC OMO injects CNY100B v skipped 7 and 14-day reverse repo prior; Net drain CNY100B v CNY130B drain prior

(AU) Australia sells A$400M in 2.75% 2035 bonds, avg yield 3.1008%, bid to cover 4.16x

(KR) Bank of Korea sells KRW900B in 1-year monetary stabilization bonds at 1.53 v 1.52% prior

US markets on close (from Friday)

Best Sector in S&P500: Real Estate +0.5%

Worst Sector in S&P500: Technology flat

At the close: VIX 11.28 (-0.95 pts); Treasuries: 2-yr 1.338% (flat), 10-yr 2.169% (-3bps), 30-yr 2.749% (-2bps)

US Market Summaryv (From Friday, Aug 25th)

US stock markets commenced the week testing more than one month lows in most cases. The S&P found support just above the 100-day moving average on Tuesday. As Washington looked to put the controversy surrounding the President and his reaction to Charlottesville in the rear view mirror, rekindled hopes for genuine tax reform along with thin summer trading conditions were widely cited as fostering the turnaround. A host of late season retail earnings reports surpassed expectations which provided a boost to investor sentiment. The Russel 2000 led the way higher as investors placed bets small cap US centric businesses would get the most benefit from tax relief. For the week, the DJIA gained 0.7%, the S&P500 added 0.7%, and the Nasdaq rose 0.8%.

The greenback retreated further led by strength in the Euro. The economic data, Europe’s in particular, continued to signal building economic momentum. By Friday when neither Fed Chair Yellen nor ECB President Draghi directly addressed monetary policy at the Jackson Hole symposium, the Euro hit fresh one and half year highs above 1.1920. Gasoline prices moved up late in the week as it became clear Hurricane Harvey would make landfall in southern Texas and bring with it up to 30 inches of rain.

USD/CHF - 0.9557

Most recent candlesticks pattern : N/A

Trend                                    : Down

Tenkan-Sen level                  : 0.9562

Kijun-Sen level                    : 0.9600

Ichimoku cloud top                 : 0.9659

Ichimoku cloud bottom              : 0.9648

Original strategy :

Bought at 0.9620, stopped at 0.9595

Position : - Long at 0.9620

Target :  -

Stop : - 0.9595

New strategy  :

Sell at 0.9590, Target: 0.9490, Stop: 0.9625

Position : -

Target :  -

Stop : -

Friday’s selloff together with the breach of previous support at 0.9583-86 confirm top has been formed at 0.9773 earlier and bearishness is seen for the erratic decline from there to extend weakness to 0.9525-30, then towards support at 0.9490, however, near term oversold condition should prevent sharp fall below latter level. Looking ahead, A drop below 0.9490 would signal early downtrend has resumed and extend far to 0.9455-60 but recent low at 0.9438 should hold from here.

In view of this, we are looking to sell dollar on recovery as previous support at 0.9583-86 should turn into resistance and limit dollar’s upside, bring another decline. Above another previous support at 0.9620 would defer and suggest a temporary low is possibly formed, bring rebound to 0.9650 but still reckon resistance at 0.9663 would hold from here.

GBP/USD - 1.2888

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2894

Kijun-Sen level                    : 1.2867

Ichimoku cloud top              : 1.2806

Ichimoku cloud bottom        : 1.2805

Original strategy :

Buy at 1.2755, Target: 1.2855, Stop: 1.2720

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.2850, Target: 1.2950, Stop: 1.2815

Position : -

Target :  -

Stop : -

Although cable has retreated after intra-day initial brief rise to 1.2939, as last week’s rebound from 1.2774 suggests a temporary low has possibly been formed there, reckon downside would be limited to 1.2850 and bring another rebound later, above said resistance at 1.2939 would add credence to this view and extend the rise from 1.2774 low for retracement of recent decline to 1.2970-80, then towards 1.3000 but price should falter below previous resistance at 1.3032.

In view of this, we are looking to buy sterling on pullback as 1.2850 should limit downside. Below previous resistance at 1.2837 would defer and risk test of 1.2810-15 but only break there would abort and signal the rebound from 1.2774 (last week’s low) has ended instead, risk weakness to 1.2775-80 first.

EUR/USD - 1.1930

Most recent candlesticks pattern   : N/A

Trend                      : Sideways

Tenkan-Sen level              : 1.1939

Kijun-Sen level                  : 1.1867

Ichimoku cloud top             : 1.1798

Ichimoku cloud bottom      : 1.1782

Original strategy  :

Bought at 1.1765, met target at 1.1865

Position : - Long at 1.1765

Target :  - 1.1865

Stop : -

New strategy  :

Buy at 1.1870, Target: 1.1970, Stop: 1.1835

Position : -

Target :  -

Stop : -

The single currency finally rallied on Friday and upmove gathered momentum after breaking indicated resistance at 1.1828 (now support), our long position entered at 1.1765 met upside target at 1.1865 and euro eventually surged above recent high at 1.1910, adding credence to our bullish view for a resumption of recent upmove, hence upside bias remains for further gain to 1.1970-80, however, near term overbought condition should limit upside to 1.1200-10 and reckon 1.1250-60 would hold from here. 

As we have taken profit on our long position entered at 1.1765, would not chase this rise here and would be prudent to reinstate long on pullback as the Kijun-Sen (now at 1.1867) should limit downside and bring another upmove. Only below previous resistance at 1.1828 (now support) would abort and suggest a temporary top is possibly formed, risk test of 1.1800 but break of support at 1.1773 (Friday’s low) is needed to confirm.

USD/JPY - 109.15

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 109.21

Kijun-Sen level                  : 109.44

Ichimoku cloud top             : 109.53

Ichimoku cloud bottom      : 109.31

Original strategy  :

Bought at 109.25, Target: 110.25, Stop: 108.90

Position :  - Long at 109.25

Target :  - 110.25

Stop : - 108.90

New strategy  :

Hold long entered at 109.25, Target: 110.25, Stop: 108.90

Position :  - Long at 109.25

Target :  - 110.25

Stop : - 108.90

Although the greenback retreated quite sharply after Friday’s marginal rise to 109.85, outlook remains consolidative, reckon downside would be limited to 109.00 and bring rebound later, above 109.50-55 would bring test of said resistance at 109.85, break there would extend the erratic rise from 108.60 low to 110.00, then towards resistance at 110.37 which is likely to hold from here. 

In view of this, we are holding on to our long position entered at 109.25. Only below said support at 108.84 would abort and bring retest of said support at 108.60, break there would revive bearishness and confirm recent decline has resumed for further weakness to 108.30 (1.618 times projection of 110.95-109.67 measuring from 110.37), then towards 108.00.

Weekly

    •    Last Candlesticks pattern: Shooting star 
    •    Time of formation: 31 Jul 2017
    •    Trend bias: Near term up

Daily

    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 2 Aug 2017
    •    Trend bias: Up

EUR/USD – 1.1932

The single currency finally resumed recent upmove last Friday as the pair surged above recent high at 1.1910, adding credence to our bullish view that recent upmove from 1.0340 low has resumed and upside bias remains for this move to bring headway to psychological level at 1.2000, then 1.2050-60, however, loss of upward momentum should prevent sharp move beyond 1.2100 and reckon dynamic resistance at 1.2165-70 (50% Fibonacci retracement of 1.3993-1.0340) would hold from here, price should falter below 1.2200-10, bring retreat later.

On the downside, whilst initial pullback to 1.1870-80 cannot be ruled out, previous resistance at 1.1828 (now support) should contain downside and bring another rise later. Below the Tenkan-Sen (Now at 1.1811) would risk test of support at 1.1773 (Friday’s low) but only a daily close below there would abort and suggest a temporary top is formed instead, risk weakness to 1.0740 support first. Once this level is penetrated, this would provide confirmation, bring further fall to 1.0710 and later towards strong support at 1.1662 which is likely to remain intact.

Recommendation: Buy at 1.1870 for 1.2050 with stop below 1.1770.

On the weekly chart, last week’s rally formed a white candlestick and the breach of previous resistance at 1.1910 confirms recent upmove from 1.0340 low has resumed, adding credence to our bullishness for this move to extend gain to 1.2000, then 1.2050-60, however, weakening of near term upward momentum would prevent sharp move beyond 1.2160-70 (50% Fibonacci retracement of 1.3993-1.0340) and reckon 1.2220-30 would hold, price should falter below 1.2300-10, bring another retreat later.

On the downside, expect pullback to be limited to 1.1870-70 and previous minor resistance at 1.0828 should hold, bring such a rise. Below last week’s low at 1.1731 would defer and suggest top is possibly formed instead, risk test of support at 1.1662, only a drop below this level would add credence to this view, bring test of the Tenkan-Sen (now at 1.1636), break there would bring retracement of recent upmove to 1.1550-60 and later towards 1.1435, having said that ,downside should be limited to 1.1370 and support at 1.1312 should remain intact, bring rebound later.

Weekly

    •    Last Candlesticks pattern: Dark cloud cover
    •    Time of formation: 10 Jul 2017
    •    Trend bias: Down

Daily

    •    Last Candlesticks pattern: Evening doji
    •    Time of formation: 7 Aug 2017
    •    Trend bias: Down

USD/JPY – 109.12

Although the greenback has retreated after meeting resistance at 109.85, reckon downside would be limited to 108.80-85 and risk of another corrective bounce remains, above said resistance at 109.85 would bring recovery to 110.10-15 and then test of the Kijun-Sen (now at 110.40) but resistance at 110.95 should remain intact and bring another decline later. Below 108.60-63 would signal the rebound from 108.13 has ended, bring retest of this level. Once this recent low is penetrated, this would extend early decline from 118.66 top to 107.50, then towards 106.50-55 (61.8% Fibonacci retracement of 99.01-118.66), having said that, near term oversold condition should prevent sharp fall below there and reckon previous resistance at 105.53 would hold from here.

On the upside, whilst initial recovery to the Tenkan-Sen (now at 109.78) cannot be ruled out, reckon upside would be limited to the Kijun-Sen (now at 110.40) and resistance at 110.95 should attract renewed selling interest and bring another decline later. Above the lower Kumo (now at 111.66) would suggest the fall from 114.50 has ended instead, risk a stronger rebound to resistance at 112.20 but reckon upside would be limited to 112.40-45 and price should falter well below 113.00, bring another selloff later..
 

Recommendation : Sell at 110.55 for 109.00 with stop above 111.55.

On the weekly chart, the greenback traded within a relatively tight range last week as traders were in a wait-and-see mode, however, as long as minor support at 108.60-63 holds, risk of another corrective bounce cannot be ruled out, above 109.85 would bring recovery to 110.40-50, however, resistance at 110.95 should cap upside and bring another decline later. Below said support at 108.60-63 would extend the fall from 114.50 to previous support at 108.13 (2017 low), however, the pair needs to penetrate this level to confirm early fall from 118.66 top has resumed and extend decline to 117.40-50, then 117.00 but downside should be limited to 106.50-55 (61.8% Fibonacci retracement of 99.01-118.66) and previous resistance at 105.53 would turn into support, price should stay above 105.00, bring rebound later.

On the upside, although initial recovery to 109.85, then 110.40-50 cannot be ruled out, reckon resistance at 111.05 would limit upside and bring another decline later. Above the Tenkan-Sen (now at 111.55) would risk test of the Kijun-Sen (now at 111.82) but still reckon resistance at 112.20 would limit upside and bring another decline. A weekly close above resistance at 112.20 would suggest first leg of decline from 114.50 has ended instead, risk a stronger rebound to 112.90-00 but still reckon upside would be limited to 113.55-60 and price should falter well below resistance at 114.50, bring another decline later. 

Currency pair EUR/USD

The EUR/USD did break above the resistance trend line (dotted red) of the triangle chart pattern as expected. This breakout is a continuation of wave 5 (green) of wave 3 (blue). The first target is the round level of 1.20, which could cause a retracement.

The EUR/USD bullish breakout is building an internal 5 wave (purple) and is currently in a wave 3 (purple).

Currency pair USD/JPY

The USD/JPY remains caught in between support (green lines) and resistance (orange). A bounce could see price move higher towards the Fib levels of wave B vs A whereas a bearish break could indicate a downtrend continuation.

The USD/JPY is building a channel (red/blue lines) at the support zone (green).

Currency pair GBP/USD

The GBP/USD bullish breakout indeed took place as expected and started wave A (purple) of a larger wave 2 (red) correction.

The GBP/USD could have completed an ABC wave (purple) at the recent high or it could be building a wave 4-5 within wave A (purple). This depends on whether price will bounce at the 61.8% Fibonacci level of wave 4 vs 3.