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Daily Pivots: (S1) 0.8549; (P) 0.8559; (R1) 0.8574; More....

EUR/GBP's correction from 0.8624 extends lower today and deeper fall could be seen. But downside should be contained by 38.2% retracement of 0.8382 to 0.8624 at 0.8532 to bring another rally. On the upside, above 0.8567 minor resistance will turn bias back to the upside for retesting 0.8624. However, decisive break of 0.8532 will bring deeper fall to 61.8% retracement at 0.8474.

In the bigger picture, while the rebound from 0.8382 is strong, there is no confirmation of trend reversal yet. As long as 0.8643 resistance holds, down trend from 0.9267 could still resume through 0.8382 at a later stage. However, firm break of 0.8643 will indicate that such down trend has completed, and turn outlook bullish for 0.8764 resistance next.

Daily Pivots: (S1) 1.6555; (P) 1.6589; (R1) 1.6635; More...

EUR/AUD is staying in sideway trading in tight range and intraday bias stays neutral. Outlook will remain bullish with 1.6474 support intact. On the upside, above 1.6798 minor resistance will bring retest of 1.7180 resistance first. Firm break there will resume larger up trend to 1.7715 fibonacci projection level next. However, firm break of 1.6474 will dampen the bullish view and bring deeper pullback towards 1.5996 support.

In the bigger picture, corrective fall from 1.7062 medium term top should have completed at 1.5996. Larger up trend from 1.4281 (2022 low) is resuming. Next target is 61.8% projection of 1.4281 to 1.7062 from 1.5996 at 1.7715. This will now remain the favored case as long as 1.6474 support holds.

Daily Pivots: (S1) 0.9418; (P) 0.9468; (R1) 0.9508; More....

EUR/CHF's break of 0.9476 support turned resistance argues that stronger rebound is underway. Intraday bias is on the upside for 55 D EMA (now at 0.9600). On the downside, break of 0.9354 minor support will turn bias back to the downside for retesting 0.9209 low.

In the bigger picture, medium term corrective pattern from 0.9407 (2022 low) might have completed with three waves to 0.9928. Decisive break of 0.9252 (2023 low) will confirm long term down trend resumption. Next target will be 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. For now, outlook will stay bearish as long as 0.9928 resistance holds, even in case of strong rebound.

Daily Pivots: (S1) 1.3725; (P) 1.3737; (R1) 1.3754; More...

Intraday bias in USD/CAD remains neutral for the moment. Strong rebound from current level, followed by break of 1.3790 minor resistance, will retain near term bullishness. Further rise should be seen to retest 1.3946 high. However, sustained trading below 55 D EMA (now at 1.3726) will dampen the original bullish view and bring deeper decline back towards 1.3588 support.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern, that might have completed at 1.3176 (2023 low) already. Firm break of 1.3976 will confirm resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149. This will be the favored case as long as 1.3588 support holds, in case of pullback.

Daily Pivots: (S1) 0.6566; (P) 0.6585; (R1) 0.6606; More...

Intraday bias in AUD/USD stays mildly on the upside despite loss in momentum as seen in 4H MACD. Sustained break of 55 D EMA (now at 0.6612) will target 0.6798 resistance. On the downside, break of 0.6506 minor support will indicate rejection by the 55 D EMA, and turn bias back to the downside for retesting 0.6348 instead.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with fall from 0.6798 as another falling leg. Deeper fall could be seen to the lower side of the range between 0.6169/6361. But strong support should be seen there to contain downside. Meanwhile, break of 0.6798 will target upper side of the range at 0.7156.

Daily Pivots: (S1) 146.43; (P) 147.32; (R1) 148.11; More...

Outlook in USD/JPY remains bearish with 38.2% retracement of 161.94 to 141.67 at 149.41 intact and intraday bias stays neutral. Below 145.42 minor support will turn bias to the downside for 141.67. Break there will resume the fall from 161.94 to 140.25 support next. Nevertheless, decisive break of 149.41 will bring stronger rally to 61.8% retracement at 154.19, even as a corrective move.

In the bigger picture, fall from 161.94 medium term is seen as correcting whole up trend from 102.58 (2021 low). Deeper decline could be seen to 38.2% retracement of 102.58 to 161.94 at 139.26, which is close to 140.25 support. In any case, risk will stay on the downside as long as 55 W EMA (now at 149.77) holds. Nevertheless, firm break of 55 W EMA will suggest that the range for medium term corrective pattern is already set.

Daily Pivots: (S1) 0.8623; (P) 0.8667; (R1) 0.8697; More…

Outlook is USD/CHF remains bearish with 38.2% retracement of 0.9223 to 0.8431 at 0.8734 intact. On the downside, below 0.8631 minor support will bring retest of 0.8431 first. Break there will resume the fall from 0.9223 to 0.8332 low. Nevertheless, firm break of 0.8734 will bring stronger rally to 61.8% retracement at 0.8920, even as a corrective move.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with fall from 0.9223 as the second leg. Strong support could be seen from 0.8332 to bring rebound. Yet, overall outlook will continue to stay bearish as long as 0.9243 resistance holds. Firm break of 0.8332, however, will resume larger down trend from 1.0146 (2022 high).

Daily Pivots: (S1) 1.0915; (P) 1.0927; (R1) 1.0944; More.....

No change in EUR/USD's outlook as range trading continues. While deeper retreat cannot be ruled out, downside should be contained well above 1.0776 support. On the upside, above 1.0944 minor resistance will bring retest of 1.1007 first. Further break there will resume rally from 1.0665 to 100% projection of 1.0665 to 1.0947 from 1.0776 at 1.1056 next.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern that's still be in progress. Break of 1.1138 resistance will be the first signal that rise from 0.9534 (2022 low) is ready to resume through 1.1274 (2023 high). However, break of 1.0776 support will extend the correction with another falling leg back towards 1.0447 support.

Markets

Japanese stock markets outperform this morning (Nikkei +3%) after returning from a long weekend (closed for Mountain Day yesterday). The index now recovered from Monday’s meltdown, but is still 7% below the levels of the July 31 Bank of Japan meeting with set things on fire. The BoJ’s 15 bps rate hike triggered a JPY (and volatility) carry trade unwind with disappointing US manufacturing ISM and payrolls fueling the move. Calm only returned after BoJ deputy governor Uchida assured investors that the central bank won’t be raising rates further as long as market instability persists. That way, he did also put the BoJ in the most undesirable position of handing its autonomy to financial markets. The US recession risk narrative lost steam following a good non-manufacturing ISM. During the second half of last week, market recovered somewhat from the sharp moves early August with the next test arriving this week especially in the form of US inflation numbers.

US July producer price inflation today serves as an amuse-bouche ahead of consumer prices tomorrow. Consensus expects 0.2% M/M increases for both headline and core readings. Benign inflation prints will be cheered for by stock markets as they enable the Fed to zoom in on the maximum employment part of their dual mandate without having to worry about (additional) price pressure. US money markets are currently split between a 25 bps and a 50 bps lift-off rate cut at the September 18 policy meeting. Official Fed talk doesn’t mention the latter possibility. Fed Bowman over the weekend for example said she still sees upward inflation risks and may not be ready to support an interest rate decrease in September at all. We only think that a 50 bps could come into play in case of disappointing activity/labour market data early September. The downside of the front end of the curve might therefore be protected in the wake of the violent early August repositioning. US Treasuries still outperformed yesterday but that had more to do with haven-flows related to tensions in the Middle East (see News & Views). Daily curve changes varied between -1.8 bps (30-yr) and -5 bps (5-yr). German yields ended the day close to unchanged. The dollar marginally lost out against the euro, closing the day at EUR/USD 1.0939 from a start at 1.0914. USD/JPY set a minor August recovery high at 148.22 (from 146.73). Apart from US PPI data, German ZEW investor sentiment and US NFIB small business optimism are scheduled for release, but these are second tier. Comments by Atlanta Fed Bostic serve as a wildcard.

UK labour market data this morning started the UK monthly update. Employment rose by 97k in the April-June quarter, beating 3k consensus. The first indication for Q3 (July payrolls) was better-than-hoped as well (+24k vs +10k expected). A significant increase in jobless claims (+135k in July) is the odd one out. Weekly earnings ex bonuses rose as expected by 5.4% annualized in Q2. Sterling in a first move profits with EUR/GBP testing the recent lows around 0.8550. UK inflation numbers (tomorrow), Q2 GDP data (Thursday) and retail sales (Friday) follow later this week.

News & Views

The Organization of Petroleum Exporting Countries (OPEC) yesterday trimmed its forecasts for world oil demand growth this year by 135k barrels/day. The slight revision reflects actual data for Q1 and Q2 as well as lower expectations for China’s oil demand growth. OPEC sees oil consumption increasing by 2.1mn b/d this year to average 104.3mn b/d. That’s still way more optimistic than other forecasters and above pre-pandemic growth levels. The downward revision in its monthly report comes at a sensitive time as the cartel plans to unwind oil production cuts (2.2mn b/d) from Q4 onwards, starting with roughly 543 b/d of additional supply. Oil prices didn’t respond to the OPEC bulletin. They even rallied back from $80/b to $82/b as tensions in the Middle East increase. US officials indicated that they believe an Iranian attack against Israel (in a retaliation after the assassination of Hamas leader Haniyeh in Tehran) is ever more likely and could come as soon a this week. The US also shored up naval and air forces in the region to help Israel fend off any such possible major attack.

Graphs

GE 10y yield

The ECB cut policy rates by 25 bps in June. Stubborn inflation (core, services) make follow-up moves less evident. Markets nevertheless price in two to three more cuts for 2024 as disappointing US and unconvincing EMU activity data rolled in, dragging the long end of the curve down. The move accelerated during the early August market meltdown.

US 10y yield

The Fed in its July meeting paved the way for a first cut in September. It turned attentive to risks to the both sides of its dual mandate as the economy is continuing to move better in to balance. The pivot weakened the technical picture in US yields with another batch of weak eco data pushing the 10-yr sub 4%. This week’s inflation numbers are the next benchmark.

EUR/USD

EUR/USD moved above the 1.09 resistance area as the dollar lost interest rate support at stealth pace. US recession risks and bets on fast and large (50 bps) rate cuts trumped traditional safe haven flows into USD. EUR/USD 1.10 (psychologic) and 1.1139 (Dec 2023 high) serve as next technical references.

EUR/GBP

The BoE delivered a hawkish cut in August. Policy restrictiveness will be further unwound gradually and on a pace determined by a broad range of data. The strategy similar to the ECB’s balances out EUR/GBP in a monetary perspective. Risk-off proved a more important driver of GBP recently, triggering a return from 0.84 towards 0.86.

Daily Pivots: (S1) 1.2743; (P) 1.2769; (R1) 1.2790; More...

GBP/USD's rebound from 1.2664 extends higher today but stays below 1.2839 resistance. Intraday bias stays neutral for the moment. On the downside, break of 1.2664 will resume the fall from 1.3043 to 1.2612 support. Decisive break there should confirm that rise from 1.2298 has completed, and target this support next. However, break of 1.2839 resistance will argue that the pull back from 1.3043 has completed and turn bias back to the upside.

In the bigger picture, current development suggests that corrective pattern from 1.3141 is extending with fall from 1.3043 as another leg. Break of 1.2612 support would strengthen this case. But still, downside should be contained by 1.2036/2298 support zone even in case of deep decline. Rise from 1.0351 (2022 low) remains in favor to resume at a later stage.