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US and European data again parted ways yesterday. EMU data confirmed recent evidence of a loss of momentum in activity. Germany Ifo Business climate worsened for the third consecutive month. The headline index slipped from 88.6 to 87.3, mainly due to a worsening current assessment (91.3 from 93.7). Expectations eased only from 83.8 to 83.5 on a slightly better/less worse assessment in the services sector. The ECB quarterly lending survey showed that standards for credit to enterprises and households tightened further. This will probably continue in Q3, albeit at a more moderate pace. Credit demand also fell sharply. The report indicates that ECB tightening is filtering through to the economy and is relevant input for tomorrow’s ECB decision. US data (S&P Corelogic house prices, Philly Fed nonmanufacturing activity and especially Conference Board consumer confidence) all printed better/stronger than expected. Consumer confidence even reached the best level since July 2021. Still, with the Fed and the ECB meetings looming, the impact of the data on interest rate markets was limited and short-lived. In the end, US and German yields both gained marginally, but no more than 2.5 bps. Equities stay in consolidation modus (S&P +0.28%, Eurostoxx +0.19%). Eco divergence helped the dollar to gain marginally against the euro (EUR/USD close 1.1055), but the greenback lost against the yen (USD/JPY close 140.9). Sterling had a good run. Better than expected CBI confidence maybe helped. EUR/GBP finally forced a technical break back below 0.86 (close 0.857).

This morning Asian equities are trading mixed with the likes of Japan, China and Korea ceding ground. Australia outperforms on softer than expected CPI data (cf infra). US Treasuries and the dollar are little changed as markets are counting down to this evening’s Fed decision and Powell’s press conference. Considering the June median dots for a peak in the target range of 5.50/5.75% and Fed comments over previous month, anything different from a 25 bps hike would be a big surprise. Even with the latest payrolls and CPI marginally softer than expected, other data suggest the US economy is holding resilient and that no recession in imminent. In this context, we expect Powell to keep the door open for a further step in September (or later) depending on the data. For markets, such a scenario shouldn’t be a big surprise. Even if Powell holds a hawkish tone, it won’t be easy for the 2-y and 10-y yield to surpass big figure yields at 5.0% and 4.0% respectively. Such a test/move probably needs strong payrolls (next week) and/or higher than expected inflation data (August 10). Given recent relative data evidence (especially compared to EMU), the dollar might stay well bid, with EUR/USD 1.1012 (22 June top)/1.10 a first next reference.

News and views

The Hungarian central bank (MNB) yesterday again cut the overnight tender rate by 100 bps to 15%. The convergence with the base rate, currently 13% and deemed enough to manage fundamental inflation risks, continues gradually as long as the improvement in risk perceptions vs Hungarian assets (ie. the forint) persists. The MNB expects the economy to grow a mere 0-1.5% this year as real wages decline, corporate costs rise and consumers remain cautious. Momentum should pick up though in the second half of 2023 amid rising real wages due to falling inflation. Growth in 2024 and 2025 is seen at 3.5-4.5% and 3-4% respectively. Inflation would decrease further at a rapid pace because of tight monetary policy, falling global commodity prices and declining domestic consumption. Yearly CPI is projected at 16.5-18.5% for 2023, 3.5-5.5% for 2024 and 2.5-3.5% for 2025. The forint yesterday declined on a net daily basis though losses stayed orderly. EUR/HUF rose from 377.87 to 379.84.

Australian Q2 CPI missed estimates by a slight margin. The headline figure rose 0.8% q/q to be up 6% y/y compared to a 1% and 6.2 % forecast and down from Q1’s 1.4% and 7%. The trimmed mean, a gauge smoothing volatile items and closely watched by the Reserve Bank of Australia, also fell short of consensus, coming in at 0.9% q/q and 5.9% y/y (down from 6.6% in Q1). The RBA meets next week. It kept rates steady in July at 4.10% and today’s data flipped market betting from a 50% chance for a 25 bps rate hike to just 20%. Arguing for additional tightening, though, is Australia’s strong and tight labour market which pushed the unemployment rate to a historically low 3.5% in last week’s June report. In this respect, it is worth nothing that services inflation, closely related to the labour market and wage gains, rose to the highest since 2001, 6.3%. Australian swap yields tumble up to 14 bps at the front end of the curve. The Aussie dollar hit an intraday low of AUD/USD 0.673 before paring losses to 0.676 currently.

Daily Pivots: (S1) 0.9521; (P) 0.9576; (R1) 0.9605; More...

Intraday bias in EUR/CHF stays on the downside at this point. Current fall is part of larger decline from 1.0095. Next target is 100% projection of 0.9995 to 0.9670 from 0.9840 at 0.9515. On the upside, above 0.9586 minor resistance will turn intraday bias neutral and bring consolidations first.

In the bigger picture, medium term outlook is staying bearish as the pair is capped well below falling 55 W EMA (now at 0.9889). Down trend from 1.2004 (2018 high) is in favor to extend through 0.9407 at a later stage. Nevertheless, decisive break of 38.2% retracement of 1.1149 to 0.9407 will raise the chance of bullish trend reversal.

Daily Pivots: (S1) 0.8544; (P) 0.8590; (R1) 0.8616; More...

Intraday bias in EUR/GBP stays on the downside at this point. Recovery from 0.8502 could have completed ahead o f0.8717 support turned resistance, keeping outlook bearish. Retest of 0.8502 low should be seen next, and firm break there will resume larger decline form 0.8977. On the upside, above 0.8618 minor resistance will turn intraday bias neutral first.

In the bigger picture, the down trend from 0.9267 (2022 high) is seen as part of the long term range pattern from 0.9499 (2020 high). Firm break of 0.8717 support turned resistance will argue that it has completed with three waves down to 0.8502. Further break of 0.8977 will bring retest of 0.9267 high. Nevertheless, rejection by 0.8717, followed by break of 0.8502 will resume the decline towards 0.8201 (2022 low).

Daily Pivots: (S1) 1.6210; (P) 1.6331; (R1) 1.6398; More...

Intraday bias in EUR/AUD stays neutral and further rally is still in favor with 1.6231 support intact. On the upside, break of 1.6601 will resume the rebound from 1.5846 and target 1.6785 high next. However, firm break of 1.6231 will bring deeper fall to extend the corrective pattern from 1.6785.

In the bigger picture, with 38.2% retracement of 1.4281 to 1.6785 at 1.5828 intact, rally from 1.4281 is still in progress. Firm break of 1.6785 will confirm rise resumption. Next target is 100% projection of 1.5254 to 1.6785 from 1.5846 at 1.7377. On the other hand, rejection by 1.6785 will extend the corrective pattern with another fall leg. But outlook will stay bullish as long as 1.5828 holds.

Daily Pivots: (S1) 181.31; (P) 181.66; (R1) 182.16; More...

Intraday bias in GBP/JPY remains neutral and outlook is unchanged. On the downside, break of 179.45 will resume the correction from 183.90 to 55 D EMA (now at 177.85) and possibly below. On the upside, firm break of 183.99 high will resume larger up trend to 187.36 projection level.

In the bigger picture, as long as 172.11 resistance turned support holds, up trend from 123.94 (2020 low) is expected to continue. On resumption, next target is 138.2% projection of 148.93 to 172.11 from 155.33 at 187.36, and then 195.86 (2015 high). Nevertheless, firm break of 172.11 will argue that larger correction is already underway.

Daily Pivots: (S1) 155.30; (P) 156.10; (R1) 156.57; More....

Intraday bias in EUR/JPY remains neutral at this point. On the upside, sustained break of 157.99 will confirm resumption of larger up trend, and target 162.82 projection level next. Nevertheless, break of 155.57 minor support will bring deeper decline to extend the corrective pattern from 157.99.

In the bigger picture, as long as 151.60 resistance turned support holds, rise from 114.42 (2020 low) is in progress. On resumption, next target is 100% projection of 124.37 to 148.38 from 138.81 at 162.82. Nevertheless, sustained break of 151.60 will argue that larger correction is already underway.

Daily Pivots: (S1) 1.3143; (P) 1.3176; (R1) 1.3206; More....

Intraday bias in USD/CAD remains neutral for the moment, and outlook is unchanged. Further decline is expected as long as 1.3386 resistance holds. Break of 1.3091 will resume larger fall and target 61.8% projection of 1.3653 to 1.3115 from 1.3386 at 1.3054. However, firm break of 1.3386 will indicate near term reversal and turn outlook bullish.

In the bigger picture, price actions from 1.3976 are viewed as a correction to up trend from 1.2005 (2021 low) only. But even so, deeper decline is expected as long as 1.3386 resistance holds. Further fall could be seen to 61.8% retracement of 1.2005 to 1.3976 at 1.2758. Meanwhile, break of 1.3386 will be a sign that the correction has completed and bring stronger rally back to retest 1.3976.

Daily Pivots: (S1) 0.6746; (P) 0.6770; (R1) 0.6816; More...

Intraday bias in AUD/USD remains neutral at this point. On the downside below 0.6714 will resume the fall from 0.6894, as the third leg of the corrective pattern from 0.6898. But downside should be contained above 0.6594 support to bring rebound. On the upside, above 0.6845 will bring retest of 0.6898 resistance. Decisive break there will resume rise from 0.6457.

In the bigger picture, price actions from 0.7156 are seen as a correction to the rebound from 0.6169 (2022 low). Break of 0.6898 resistance will argue that rise from 0.6169 is ready to resume through 0.7156. Next target will be 100% projection of 0.6169 to 0.7156 from 0.6457 at 0.7444. For now, this will be the favored case as long as 55 D EMA (now at 0.6715) holds.

Daily Pivots: (S1) 140.60; (P) 141.17; (R1) 141.47; More...

Intraday bias in USD/JPY remains neutral at this point, and further rise is mildly in favor with 139.74 minor support intact. On the upside, above 141.93 will resume the rebound from 137.22 to 145.06 first. Firm break there will target 61.8% projection of 129.62 to 127.22 from 145.06 at 146.76 next. On the downside, below 139.74 minor support will bring retest of 137.22 instead.

In the bigger picture, overall price actions from 151.93 (2022 high) are views as a corrective pattern. Current development suggests that the second leg (the rise from 127.20) might not be over yet. But even in case of extended rise, strong resistance should be seen from 151.93 to limit upside. Meanwhile, break of 137.22 support should confirm the start of the third leg to 127.20 (2023 low) and below.

Daily Pivots: (S1) 0.8616; (P) 0.8659; (R1) 0.8681; More...

Intraday bias in USD/CHF is turned neutral, as it failed to sustain above 55 4H EMA and retreated. Outlook also stays bearish with 0.8818 support turned resistance intact. Break of 0.8553 will resume larger down trend from 1.0146. On the upside, above 0.8599 will resume the rebound towards 0.8818 instead.

In the bigger picture, the break of 0.8756 (2021 low) indicates break out from the long term range pattern. For now, medium term outlook will stay bearish as long as 0.9146 resistance holds. Further fall would be seen to 61.8% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.8317 next.