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The Aussie dollar eases on Tuesday after repeated upside rejections under 0.7967 (Fibo 61.8% of 0.8065/0.7807 downleg), which could generate bearish signal of recovery rally stall on deeper pullback. In addition, falling weekly 200SMA (0.7978) continues to weigh heavily on near-term price action. Full bearish setup of daily studies has been dented on return below 20SMA (0.7924), as fresh weakness pressures 0.7900 handle, with stronger bearish signal to be expected on bearish extension below 10SMA/daily Tenkan-sen (0.7891/85). Dip-buying scenario would be favored while the price stays above daily Tenkan-sen.

Res: 0.7950, 0.7967, 0.7978, 0.8000
Sup: 0.7900, 0.7885, 0.7867, 0.7838

Are EU and US government yields set to recover?

Treasuries across the globe have in been in growing demand recently as investors are becoming increasingly worried about the monetary outlook on both side of the Atlantic. US yields have been moving within a downtrend channel since the beginning of the summer. US 10-year rate slid as much as 20bps, from 2.395% down to 2.20% as investors discounted a hawkish unwinding program for Janet Yellen. The 2-year rate fell 13bps to 1.30%. Similarly, Germany’s benchmark 10-year government bond yield lost 22bps to 0.40%, while the 2-year rate gave up 16bps and returned to -0.71%.

However, it seems that the rush for bonds is coming to an end as even the recent risk-off move failed to send yields lower. We are therefore ahead of a recovery in treasury yields, especially in the euro zone and the US. Given the fact that investors will most likely get rid of EU and US bonds at the same time, the effect on EUR/USD will be hard to predict. Nevertheless, the situation is quite different from that of commodity exporter countries such as Australia, New Zealand and Canada. Indeed, the spread has widened during the entire summer. A contraction of the interest rate differential would add incentive to sell those currencies as yield hungry investors reallocate their portfolios.

Still room to fade risk off trade

The current round of risky asset weakness and rise in volatility been partially blamed on Trumps decision to deploy additional troops into Afghanistan. In reaction to news of his announcement, the VIX spiked to a high of 16, US equities fought to sustain gains (clear weakness in Tech and Financial) while USDJPY slid to 108.60. While the speech provides a meaningful shift in campaign rhetoric the lack of details indicate investors should not assume long term structural consequence. Trump acknowledged that he had been critical of the unending war and advocated total withdrawal but as President his generals persuaded him to avoid creating a power vacuum in Afghanistan.

Some Washington pundits have suggested that this was Trumps attempt to stabilize a turbulent administration (following Bannon’s chaotic exit). However, we suspect that this stark reversal reflects Trumps lack of foreign policy experience and broader agenda. Elsewhere, suggestions that Trump pro-growth agenda is further of track, is a trade that has left the station months ago. In investment terms, our short-term view is the current risk-off trade as unjustified, opting to go long risk. We remain focused on Jackson Hole symposium in expectations that Yellen’s remarks indicating the markets are mispricing Fed-tightening risk.

Swiss trade balance widens

The Swiss trade balance has increased in July to 3.51 billion from 2.81 billion in June mostly due the continued decrease of imports growth that accelerated. The Franc overvaluation is pushing down the exports but the trade balance resists well and is still largely positive for July. Watch exports are one of the major exports driver with a growth of 3.6% y/y.

The CHF was down this morning against the single currency and is back towards 1.14 CHF for one euro. Markets did not react much on the trade balance data and focuses on the next ECB meeting the 7th of September. The summer is definitely quiet for Switzerland.

Upside pressures on the EURCHF should continue to happen before the European central bank meeting. Markets seem to buy the rumours. We stand ready to sell the news at the ECB meeting. One week later the September 14th the SNB will likely remains its rate unchanged

In accordance with expectations, the common European currency continued the surge against the US Dollar in a short-term ascending channel until it met a resistance barrier formed by the upper trend-line of a senior descending channel.

For this reason, the currency exchange rate is expected to move downwards. This course is supported by the overall market sentiment, which is 71% bearish. On the other hand, a summary of various technical indicators for the upcoming trading day sends a strong buy signal. However, both the situation and the forecasts can be altered after release of information on the German Economic Sentiment, which might slightly devaluate the Euro and accelerate the fall.

The latest developments in the GBP/USD currency pair forced to partially review the situation. On the one hand, the Pound expectedly rose and bounced off from the weekly PP at 1.2910. On the other hand, the subsequent fall through the 55- and 100-hour SMAs entails that the pair is rather moving in a rectangle or triple bottom formation that in the descending triangle. If the first assumption is true, the Pound has to eventually break through the 1.2846 level to the bottom and continue to move in a downtrend. This scenario seems rational since the 200-hour SMA is located way above the current market price. But if the second assumption is true, the pair should change the direction and start to move to the north.

The USD/JPY exchange rate acted exactly as it was expected. Namely, it made the second attempt to break through the monthly S2 at 108.82, but failed. In result of a rebound, it broke through the upper boundary of a junior descending channel.

At the moment, it is heading upwards towards a combined resistance level set up a combination of the weekly PP at 109.59 in conjunction with the 100- and 200-hour SMAs. Most probably, their combined effort will force the pair to retreat. An aggregate of technical indicators support this possibility by sending strong sell signal. But in the meantime, the average market sentiment remains 68.24% bullish, which should not be disregarded in the larger perspective.

As it was expected, previous trading session the yellow metal spent in a steady surge against the American Dollar. However, the soar did not last for long, as it was stopped already at the closest resistance level set up by the monthly R1 at 1,292.91. At the moment, the pair is moving horizontally, being squeezed between two notable barriers. The first is made of a combination of the 100- and 200-hour SMAs as well as the weekly PP at 1,284.70. The other one is made of the above monthly R1, but most importantly of an area located around the 1,296.00 mark, which represents a crossroad of the two junior ascending channels' upper boundaries. Hence, it seems that the bullion will prefer to move either horizontally, or downwards.

The pair bounces on Tuesday after repeated rejection at strong support at 108.83 (weekly cloud base) that signals strong hesitation at key support zone.

Overall picture remains firmly bearish and favors further downside after completion of current consolidative phase.

Firm break below 108.83 and last Friday's low at 108.60 is needed to signal bearish continuation towards key med-term support at 108.11 (17 Apr low).

Upside attempts so far hold below initial resistance at 109.64 (falling 10SMA), which guards sideways-moving daily Tenkan-sen (109.77), and psychological 110.00 barrier, where extended upticks should be capped.

Res: 109.49, 109.64, 109.77, 110.00
Sup: 108.83, 108.60, 108.11, 107.88

WTI oil futures have been rising steadily and making a recovery following a big drop yesterday. On the 4-hour chart, MACD is trading in a bullish direction and has broken above zero while RSI is also rising and attempting to break above 50 into bullish territory.

The move to the upside has encountered resistance provided by the 50-period moving average and also by the 38.2% Fibonacci retracement (47.87) of the decline from 50.19 to 46.43. Immediate support is at the 20-period MA at 47.62. A break of this support area would likely see an acceleration of a fall towards 46.90 (August 18 low) ahead of 46.43 (August 17 low). From here, there would be a resumption of the downtrend that started from the 50.00 region.

For now there is no clear trend for the short-term and the bias is expected to stay neutral between the 20 and 50-period MA. Only a move above 48.85 would weaken downside risk and bring the market above the Ichimoku cloud. The next target would be the key 50.00 level. This is a strong resistance area and a break above it would indicate a shift to a bullish bias.

The weaker-than-expected report on Canadian wholesale sales was followed by a modest reaction in the market. The Loonie gained against the US Dollar only 4 base points to reach the 1.2582 mark and continue downmove in the Tuesday's morning session.

Statistics Canada reported that the country's wholesale sales fell 0.5%over the course of June, missing expectations for a 0.6% gain after an upwardly revised 1.0% rise in the prior month. Analysts suggested the weak report was unlikely to cause concerns, as only one monthly decline was registered. However, both retail and wholesale sales revealed generally strong growth momentum in previous months, which allowed the Bank of Canada to remain confident about the near-term outlook.

Daily Pivots: (S1) 140.14; (P) 140.49; (R1) 140.89; More

With 143.18 minor resistance intact, fall from 147.76 is still progress for 138.65 support first. Break there will extend the decline to 135.58 key support level. At this point, price actions from 148.42 are seen as a sideway consolidation pattern. Hence, we'll expect strong support from 135.58 to contain downside and bring rebound. Nonetheless, break of 143.18 resistance is needed to indicate short term bottoming first. Otherwise, near term outlook will remain bearish in case of recovery.

In the bigger picture, the sideway pattern from 148.42 is extending with another leg. We'd expect strong support from 135.58 and 50% retracement of 122.36 to 148.42 at 135.39 to contain downside. Medium term rise from 122.36 is still expected to resume later. And break of 38.2% retracement of 196.85 to 122.36 at 150.43 will carry long term bullish implications. However, firm break of 135.58/39 will dampen the bullish view and turn focus back to 122.36 low.