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Daily Pivots: (S1) 1.0014; (P) 1.0058; (R1) 1.0083; More...

EUR/USD's fall from 1.0368 is still in progress and intraday bias stays on the downside for retesting 0.9951 low. Firm break there will resume larger down trend to 61.8% projection of 1.0773 to 0.9951 from 1.0368 at 0.9860, and then 100% projection at 0.9546. On the upside, above 1.0121 minor resistance will turn intraday bias neutral first. But outlook will stay bearish as long as 1.0368 resistance holds.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, outlook will stay bearish as long as 1.0773 resistance holds, in case of strong rebound.

Risk off sentiment appears to be intensifying today. Selloff in particularly serious in German DAX, while FTSE and CAC are also down. US futures are also pointing to a lower open while 10-year yield is pressing 3% handle. In the currency markets, Euro and Sterling are main losers for the day so far, but Yen is also weak. Dollar is clearly strong against most, with the exception of Aussie and Kiwi, which are showing some resilience.

Technically, EUR/CHF is taking the lead in downside breakout, resuming down trend through 0.9602. Attention will be on when EUR/USD's reaction below parity. As EUR/USD breaks through 0.9951 low, the selloff could spill over to other pairs, and push EUR/AUD through 1.4318 low, and EUR/CAD through 1.2970. Let's see.

In Europe, at the time of writing, FTSE is down -0.46%. DAX is down -2.14%. CAC is down -1.62%. Germany 10-year yield is up 0.054 at 1.285. Earlier in Asia, Nikkei dropped -0.47%. Hong Kong HSI dropped -0.59%. China Shanghai SSE rose 0.61%. Singapore Strait Times rose 0.49%. Japan 10-year JGB yield rose 0.0302 to 0.231.

Bundesbank: Inflation could reach order of 10% in fall

Bundesbank said in its monthly report that the Germany will be adversely affected by the unfavorable developments on the gas market in the summer quarter and beyond. Also, the likelihood of GDP falling in the coming winter half-year has therefore increased "significantly".

Inflation rate is expected to reach "new highs" in the Autumn, and could reach the "order of 10 percent". Outlook for inflation remains extremely uncertain, primarily due to the unclear situation on the commodity markets.

RBNZ Hawkesby: Things will be evenly balanced once rates reach 4-4.25%

RBNZ Deputy Governor Christian Hawkesby said the strategy now is to get the cash rate "comfortably above neutral" to bring down core inflation. And, "that will afford us some breathing space to see how things are playing out."

"Once we get the OCR up into that 4%-4.25% level we're seeing things evenly balanced from there," he added. "So we'd put equal weight on having to put the OCR up as we would putting it down."

"The economy will evolve differently than our projections. There will be shocks that come along. There'll be data that's different than the forecast. And we'll just keep coming back to what does it mean for our mandates," Hawkesby said. "We certainly are projecting an environment where the economy cools."

China PBoC cut loan prime rate to support housing

China's PBoC lowered the one-year loan prime rate (LPR) by 5bps to 3.65% today. The five-year LPR rate, which is used to price mortgages, was slashed by 15bps to 4.30%.

The larger cut is the 5-year rate was seen as for addressing the problems in the housing markets. The asymmetry is also for giving additional boost to long-term financing demand.

Gold's accelerates down, 1700 vulnerable

Gold's decline from 1807.66 extends further today, on the back on broad based strength in Dollar. The downside accelerations argue that rebound from 1680.83 has completed at 1806.66 already. Deeper fall is likely through 1700 handle.

Nevertheless, strong support is still mildly in favor at around 1680.83 low to contain downside. Above 1772.19 minor resistance should resume the rebound through 1807.66.

However, the rejections by 55 day EMA, and below 55 week EMA are both rather bearish signal. Firm break of 1680.83 cluster support will complete a medium term double top pattern (2074.84, 2070.06). That could prompt deeper selloff to 61.8% retracement of 1046.27 to 2074.84 at 1439.18.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0014; (P) 1.0058; (R1) 1.0083; More...

EUR/USD's fall from 1.0368 is still in progress and intraday bias stays on the downside for retesting 0.9951 low. Firm break there will resume larger down trend to 61.8% projection of 1.0773 to 0.9951 from 1.0368 at 0.9860, and then 100% projection at 0.9546. On the upside, above 1.0121 minor resistance will turn intraday bias neutral first. But outlook will stay bearish as long as 1.0368 resistance holds.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, outlook will stay bearish as long as 1.0773 resistance holds, in case of strong rebound.

Economic Indicators Update

WTI oil gained traction on Monday and returned above $90 per barrel, as traders collect profits from last week’s drop to the lowest in seven months, after bears failed to register a weekly close below pivotal Fibo support at $88.42 (Fibo 61.8% of $62.42/$130.48 rally) for the third consecutive week.

Daily studies remain bearish, though oversold conditions suggest a pause in a downtrend, for likely limited correction.

Weak fundamentals continue to weigh on oil prices, as strong signals that US policymakers will remain aggressive in policy tightening that would negatively impact growth and also hurt oil demand.

Upticks should be capped by 200DMA ($95.40) to keep larger bears intact for renewed attack at $88.42 pivot, clear break of which would open way psychological $80 support.

Only bounce above $100 barrier (psychological / Fibo 38.2% of $123.65/$85.35 bear-leg) would sideline bears and allow for stronger correction.

Res: 91.66; 93.60; 94.39; 95.40.
Sup: 90.00; 87.92; 86.89; 85.35.

Gold price started a major decline from well above the $1,780 level against the US Dollar. The price traded below the $1,760 support to move into a bearish zone.

It settled below the $1,755 level and the 50 hourly simple moving average. It traded as low as $1,745 and is currently showing a lot of bearish signs. On the downside, an initial support is near the $1,745 level.

The next major support is near the $1,740 level, below which the price might decline towards the $1,732 support level in the near term. Any more losses might call for a test of $1,720 on FXOpen.

An immediate resistance on the upside is near the $1,750 level. The first major resistance is near the $1,755 level. The next main resistance could be near the $1,760 level, above which the price could start another steady increase.

Bundesbank said in its monthly report that the Germany will be adversely affected by the unfavorable developments on the gas market in the summer quarter and beyond. Also, the likelihood of GDP falling in the coming winter half-year has therefore increased "significantly".

Inflation rate is expected to reach "new highs" in the Autumn, and could reach the "order of 10 percent". Outlook for inflation remains extremely uncertain, primarily due to the unclear situation on the commodity markets.

Full report here.

Bulls are consolidating at pivotal Fibo barrier at 137.26 (76.4% of 139.39/130.39 corrective leg) following last week’s 2.6% advance (the biggest weekly advance since the last week of May).

Dollar remains firm in risk aversion environment and looks for retest of 2022 high (139.39, posted on July 14), with shallow consolidation likely to precede final push towards 139.39 target.

Bullish daily studies support the notion, with last Friday’s break and close above thick ascending daily cloud and weekly bullish engulfing pattern, adding to positive signals.

Dips should be ideally contained by cloud top (136.30) and broken Fibo 61.8% (135.95) to keep bulls in play.

Res: 137.43; 137.95; 138.87; 139.39.
Sup: 136.30; 135.93; 135.36; 134.89.

Cable remains firmly in red for the fourth straight day and hits five-week low on probe through 1.18 handle in European trading on Monday.

Bears look for retest of 2022 low at 1.1760, break of which would risk fresh extension towards pandemic low at 1.1410 (Mar 2020).

Firmly bearish techs on daily and weekly chart add weak to sentiment on negative fundamentals and darkened economic outlook, though bears may struggle to clear 1.1760 pivot, as daily studies are oversold.

Consolidation should be ideally capped by broken Fibo 76.4% at 1.1886, with stronger bounce to stall under pivotal 1.20 resistance zone (psychological / base of thick daily cloud) and keep bears in play.

Res: 1.1836; 1.1886; 1.1963; 1.2000.
Sup: 1.1782; 1.1760; 1.1700; 1.1634.

Stock markets are off to a bad start on Monday as investors question whether the recovery trade has gone too far.

Last week brought an end to the late summer winning streak that saw stock markets recover a significant - and some would argue overly so - portion of the losses endured this year. And it seems that has set the tone going into this week, with Asia and Europe posting losses of more than 1% and US futures pointing to a similar open.

Naturally, all eyes are on Jackson Hole later in the week and in particular, the appearance of Fed Chair Jerome Powell. This platform has in the past been used to make significant announcements and so every year, traders are left on the edge of their seats in case of another this time around.

This year could be an anticlimax on that front as the Fed's message has been clear since it pivoted to a data-driven approach in July. The markets viewed this as a dovish pivot and policymakers have since pushed back, not helped by the softer inflation data that further fueled the speculation.

With that in mind, the expectation is still that Powell will reaffirm what he and his colleagues have been saying in public recently, without giving too much away ahead of the September meeting, before which we'll get another inflation and jobs report. The risk is that he says something dovish - intentionally or otherwise - after investors position for the opposite and triggers another risk-on rally in the markets.

European gas surges amid new maintenance plans

Further knocking sentiment in the markets this morning are reports of Nord Stream 1 being shut down again for maintenance later this month. The three-day pause will once again raise fears that the Kremlin will weaponise gas supplies and use the maintenance as an excuse not to resume flows. With storage still below where the EU wants going into the winter, that means a greater risk of shortages and much higher prices, as we're already seeing this morning with European gas trading up more than 15%.
China rate cut targeted but likely not enough

Meanwhile, China cut its one and five-year loan prime rates on Monday, a move that was expected given the cuts to the reverse repo and MLF rates last week. The composition of the cuts was not quite as expected though, with the one-year cut by only five basis points to 3.65% and the five-year cut by 15bps to 4.3%. This suggests it was very much a move targeted at the ailing property market amid developer struggles and mortgage boycotts.

The problem is that the damage to the property market on top of Covid lockdowns has hit confidence and this cut is unlikely to stimulate demand. Whether the PBOC is up to doing more given the global inflation backdrop isn't clear.

Oil choppy as traders await JCPOA decision

Oil prices are off more than 1% this morning as choppy trade continues. There remain many factors influencing the oil price right now from a tight market to a diminishing growth outlook and a potential Iran nuclear deal. The prospects for the latter could become clearer over the course of this week although that has been suggested many times this year and yet here we are. We could see WTI remain choppy around $90 and Brent hover above $92 for a little while longer yet.

Gold pushed back further but faces a big test of support

Gold remains on the backfoot amid a resurgent dollar as 10-year Treasuries continue to creep back towards 3% and the two-year hovers around its June highs. Traders are naturally looking for clarity from Powell's Jackson Hole appearance later this week and seem to think it's going to come in the form of hawkish warnings. That has dampened sentiment in the yellow metal which has been further pushed back from its recent peak above $1,800 and now trades around the 61.8% retracement level from its July lows to August highs. A good test for overall sentiment in gold.

Bitcoin vulnerable ahead of Powell's appearance

Bitcoin had a terrible end to last week, falling almost 10% before almost reaching $20,000 over the weekend. Sentiment was looking fragile going into the session, with rallies seeing weakening momentum on approach to $25,000 but a sudden sharp drop of that magnitude still came as quite the surprise. The fact that it's struggled to recoup much of those losses doesn't bode well either. The crypto community may well be hoping for a favour from Jerome Powell later this week, with bitcoin looking vulnerable around $20,000 once more.

Gold's decline from 1807.66 extends further today, on the back on broad based strength in Dollar. The downside accelerations argue that rebound from 1680.83 has completed at 1806.66 already. Deeper fall is likely through 1700 handle.

Nevertheless, strong support is still mildly in favor at around 1680.83 low to contain downside. Above 1772.19 minor resistance should resume the rebound through 1807.66.

However, the rejections by 55 day EMA, and below 55 week EMA are both rather bearish signal. Firm break of 1680.83 cluster support will complete a medium term double top pattern (2074.84, 2070.06). That could prompt deeper selloff to 61.8% retracement of 1046.27 to 2074.84 at 1439.18.

The USDCNH formation shows the primary zigzag pattern Ⓐ-Ⓑ-Ⓒ, which in the long term seems to be forming a cycle correction IV. This pattern today looks completed in two parts out of three.

The last primary wave Ⓒ takes the form of an intermediate 5-wave impulse (1)-(2)-(3)-(4)-(5).

Perhaps the last intermediate wave (5) is currently under development. It is assumed that it will take the form of a minor impulse 1-2-3-4-5. For its full completion, two parts are needed – sub-waves 4 and 5. Growth in these parts is possible to the level of 6.981.

At that level, sub-wave (5) will be at 76.4% of wave (3).

An alternative option shows that the construction of the entire cycle correction IV has already been completed. It took the form not of a simple zigzag, but of a double zigzag consisting of primary sub-waves Ⓦ-Ⓧ-Ⓨ.

Thus, if this assumption is correct, the market may begin to move in a downward direction, forming the final cycle wave V.

Most likely, wave V will have the form of a primary impulse, as shown in the chart. And it will complete its pattern near 6.365. At that level, sub-wave V will be at 61.8% of impulse III (it is not visible on the chart).