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The UK employment statistics package failed to inspire the currency market to buy the Pound. The released data showed a slowdown in the labour market, which is still far from recovering to pre-coronavirus levels.

Analysts were tuning in for acceleration, as in the US, but didn’t get it. The number of jobless claims in July decreased by 10.5 thousand against 26.8 thousand a month earlier and the expected 32 thousand. The number of people receiving benefits amounted to 1.53 million, 0.3 million more than before the first lockdowns. That said, the pace of recovery has slowed sharply in recent months.

The negative backdrop has been somewhat diluted by a slightly less dramatic than expected slowdown in wage growth. The increase, including bonuses, has slowed from 6.4% to 5.1% over the past three months to the same period a year earlier. Even beating analysts’ expectations, wage growth has not kept pace with inflation, which is not good news for the Pound.

The waning economic growth will deter the Bank of England from taking more decisive steps in tightening monetary policy, widening the gap between interest rates in pounds and dollars, and attracting more capital to the latter.

The statistics package did not help the British currency, which is losing ground against the dollar for the fourth consecutive trading session. GBPUSD has now rolled back to 1.2015 after a second failed attempt to develop gains above 1.2250. The Pound has again been under increased pressure after the corrective rebound in the second half of July. We should be prepared for bears rather than rested bulls now returning to the trading desks from their summer holidays. In this case, the second half of August could manifest and intensify negative market trends, returning GBPUSD to another test of the July lows at 1.1750.

The Bank of Canada is the only G7 central bank to deliver a whole percentage-point rate increase in this post-pandemic hike race, and it did so just at its latest gathering, in July. However, the aftermath revealed another month of job losses for Canada, and with that in mind, market participants may keep a close eye on the CPIs today, due out at 12:30 GMT, as they try to figure out how the Bank is likely to move forward with this tightening cycle.

Language and projections accompanying the BoC’s July hike

When it last met, the BoC decided to raise its main interest rate by 100bps to 2.50%, its biggest increase since 1998, signaling that more rate hikes were on the way. The Bank forecast inflation to remain at around 8% YoY during the end of this quarter, and to finish the year at 7.5% YoY, while seeing a strong slowdown to 3.2% in Q4 2023, and eventually touching its target in 2024. It also cut its economic growth forecasts, dragging the YoY rates of this year and the next down to 2.6% and 1.8%, from 3.8% and 2.9% respectively.

Having said that though, officials noted that the slower growth is “largely due to the impact of high inflation and tighter financial conditions on consumption and household spending,” which justifies their view with regards to taking rates higher to tame extremely high inflation.

What does market pricing suggest for the next gathering?

Since then, data showed that inflation continued to accelerate in June, to 8.1% YoY from 7.7%, but also that the economy lost jobs for the second consecutive month in July, despite the unemployment rate staying at a record low of 4.9%.

Although the former may have encouraged some to bet on another bold move at the September gathering, perhaps a 75bps rate increase, the labor-market data gave them second thoughts. Indeed, market participants are now assigning only a 10% chance for a 75bps hike, while the remaining 90% is for 50bps. As for the rest of the year, the implied rate points to 50bps higher, which means a quarter-point increase at each of the October and December meetings.

Inflation to slow, but how much can it impact the loonie?

As for today’s data, the forecast for the headline rate points to a slowdown to 7.6% YoY from 8.1%, something that could add credence to the view for slower hikes moving forward. There is no consensus neither for the core rate nor for the trimmed-mean and median ones. That said, with the market already expecting the BoC to shift back to a half-point hike, and even smaller increases thereafter, the Canadian dollar may not feel much heat.

For the loonie to come under selling interest, the inflation rate may need to miss its own forecast, which could raise speculation over a quicker slowdown in consumer prices, and thereby smaller rate increases by the BoC at the upcoming meetings. It may even prompt some participants to shift their bets for the upcoming gathering to a 25bps increase. A miss in today’s data could result in an extension of yesterday’s rally in dollar/loonie, and perhaps a break above the 1.2985 barrier, marked by the high of August 5. Such a break could carry larger bullish implications, perhaps sending the pair to the peak of July 14, at 1.3225.

Alternatively, for loonie traders to get excited and start adding long positions, inflation may need to come in higher than the consensus. This could solidify the notion for a double hike at the BoC’s upcoming gathering, and if we do get further acceleration, bets over a triple hike may increase. Dollar/loonie may slide to the upside support line drawn from the April 5 low, or near the 1.2730 zone, marked as a support by the low of August 11. That said, the move signaling that the bears have taken full control may be a dip below that key territory. Such a break may unlock and open the door for declines towards the low of June 8, at 1.2515.

The USDJPY regained traction on Tuesday and resumed the upleg from Aug 11 trough (131.73).

Fresh bullish acceleration broke through important Fibo barrier at 133.83 (38.2% of 139.39/130.39) and pressuring the triangle resistance trendline (134.37).

Break of these obstacles would improve near-term structure and open way for further advance, though daily studies are mixed and the action is likely to lack clearer direction while holding within the triangle, with stronger signals expected on break of boundaries of rising thick daily cloud (132.05/135.17).

Res: 134.37; 134.61; 134.89; 135.17.
Sup: 133.83; 132.94; 132.36; 132.05.

Bears extend into fourth consecutive day and probe through important support at 1.2026 (50% of 1.1760/1.2293 upleg / daily Kijun-sen), pressuring psychological 1.20 support.

Technical structure on daily chart is negative (MA’s in bearish setup / 14-d momentum extending lower in negative territory), supporting scenario of break below pivotal 1.20 zone that would complete a double-top pattern on daily chart (1.2293/76) and signal an end corrective phase from 1.1760 (July 14 low, the lowest since March 2020).

Bears are expected to remain in play as long as the action stays below pivotal 1.21 resistance zone (broken Fibo 38.2%/20DMA).

Data released today show that UK labor market shows more signs of cooling, while investors shift focus to UK inflation data, due to be released tomorrow.

According to forecasts, July consumer prices are expected to hit new multi-decade high at 9.8% that raises probability for a second consecutive 0.5% rate hike by BOE, in attempts to battle soaring inflation, which the central bank expects to exceed 13% in October.

Despite expectations that higher interest rates would inflate pound, the currency may fail to benefit as higher borrowing cost is likely to hurt economic growth.

Res: 1.2060; 1.2089; 1.2106; 1.2148.
Sup: 1.2026; 1.2000; 1.1963; 1.1916.

The Euro remains under increased pressure for the third straight day, driven by risk aversion on renewed worries about slower global growth.

Downbeat China’s industrial production and retail sales data, PBOC rate cut and unexpected strong fall in the US Empire State manufacturing index (the index hit the lowest since May 2020) boosted uncertainty and prompted investors into safety that lifted dollar.

Fresh extension lower on Tuesday probes again through pivotal Fibo support at 1.0160 (50% retracement of 0.9952/1.0368 upleg) which limited downside action in past three weeks. Daily studies turned to bearish setup following Monday’s close below converged 10/20DMA’s at 1.01218/10, as 14-d momentum broke into negative territory.

Bears need clear break of 1.0160 Fibo level to generate fresh negative signal, which will look for confirmation on extension and close below 1.01 zone (Fibo 61.8% of 0.9952/1.0368) and signal an end of corrective phase after rejection at parity level.

On the other side, repeated failure to clearly break 1.0160 pivot would sideline immediate downside risk, but near-term tone will remain weak while the action stays below 10/20DMA’s.

Res: 1.0177; 1.0218; 1.0270; 1.0307.
Sup: 1.0111; 1.0096; 1.0050; 1.0000.

Eurozone exports of goods to the rest of the world rose 20.1% yoy to EUR 252.2B in June. Imports rose 43.5% yoy to EUR 276.8B. Trade balance came in at EUR -24.6B deficit. Intra-eurozone trade rose 24.2% yoy to EUR 236.4B.

In seasonally adjusted term, exports dropped -0.1% mom to EUR 241.8B. Imports rose 1.3% mom to EUR 272.7B. Trade deficit widened from EUR -27.2B to EUR -30.8B, versus expectation of EUR -20.0B. Intra-eurozone trade was unchanged at EUR 224.1B.

Full release here.

Germany ZEW Economic Sentiment dropped slightly from -53.8 to -55.3 in August, below expectation of -52.7. Current Situation index dropped from -45.8 to -47.6, above expectation of -48.0.

Eurozone ZEW Economic Sentiment dropped from -51.1 to -54.9, below expectation of -52.0. Current Situation Index rose 2.5 pts to -42.0. Eurozone inflation expectations rose 2.1 pts to -23.5, indicating a reduction of the high inflation rates within the next six months.

"The ZEW Economic Expectations decrease again slightly in August after a sharp drop in the previous month. The financial market experts therefore expect a further decline in the already weak economic growth in Germany. The still high inflation rates and the expected additional costs for heating and energy lead to a decrease in profit expectations for the private consumption sector. In contrast, the expectations for the financial sector are improving due to the supposed further increase in short-term interest rates",  comments Michael Schröder, researcher at ZEW and head of the ZEW financial market survey, on current results.

Full release here.

Asian shares edged cautiously higher on Tuesday, tracking a rebound in Wall Street overnight despite disappointing economic data from China and the US fuelling recessionary fears. Stocks in the region were supported by expectations over China unleashing more stimulus to support economic growth. In Europe, futures pointed to a steady start, borrowing momentum from Asian markets ahead of the German ZEW survey for August. This has proved to be a leading indicator for the Eurozone and may give more insight into the severity of the downturn in the wider region. With recent economic data showing US inflation cooling, this has offered equity bulls some room to breathe and may translate to further short-term gains across stock markets.

In the currency arena, the safe-haven dollar drew ample strength from global recession fears while oil prices tumbled to levels not seen in six months on growing signs of an economic downturn and prospects of rising supply on an Iran deal. Gold has struggled for direction this morning after tumbling more than one per cent in the previous session. Prices are trading back within a range and could be waiting for a fresh directional catalyst this week.

Fed minutes and Fed speakers in focus

This could be a volatile week for the dollar due to the FOMC meeting minutes, key economic reports as well as scheduled speeches from Fed officials.

All eyes will be on the Federal Reserve meeting minutes released on Wednesday. This will be closely scrutinised by investors for any fresh clues into what policymakers were thinking when rates were hiked by 75 basis points for a second straight meeting. If the minutes strike a hawkish tone, this could inject dollar bulls with fresh inspiration as rate hike bets jump towards another jumbo-sized September move. Alternatively, any dovish hints or caution may encourage some dollar weakness. It will also be wise to keep an eye on the US retail sales report for July published mid-week and speeches by Kansas City Fed President Esther George and Minneapolis Fed President Neel Kashkari on Thursday.

Oil prices crumble

Oil prices collapsed like a house of cards on Monday as China's growth fears and prospects of rising supply empowered bears. Given how Libya is pumping more oil and Iran is moving closer to restoring a nuclear deal, this could result in higher flows at a time when demand remains shaky. Both WTI and Brent remain under pressure on the daily charts with a stronger dollar seen enforcing downside pressures. The benchmarks have shed roughly six per cent this month with the current fundamental drivers opening the doors to further losses this week.

Commodity spotlight – Gold

Gold remains stuck in a range with support at $1770 and resistance at $1800. A breakout could be on the horizon triggered by the pending Fed minutes, US economic data, or even speeches by Fed officials. A move above $1800 would open the doors towards $1825. Alternatively, a selloff below $1770 is seen triggering a steeper move back towards $1740.

Market picture

Bitcoin is losing 3.7% in the past 24 hours, falling to $23.9K%. Ethereum is down 5.2% to $1870. Other top altcoins are down 2% (BNB) to 6.4% (Solana).

The total capitalisation of the crypto market, according to CoinMarketCap, fell 3.6% to $1.14 trillion overnight.

Bitcoin on Monday failed to claw its way above $25K, after which short-term buyers rushed to lock in profits and returned the price to the $24K area. The pressure on BTC was exerted by the rising US dollar amid weak data from China, indicating a slowdown in the economy.

However, so far, Bitcoin’s decline is more appropriately seen as a corrective pullback within an uptrend. It would only be appropriate to discuss a break in this trend if it moves below $22.5K-23.0K. Sluggish and uncertain growth at the first stages is typical after a strong sell-off that prevailed since last October.

News background

Notably, the positive dynamics of the crypto market last week coincided with a net $17 million outflow, the first net withdrawal in seven weeks, of which $21 million came from investments in BTC. At the same time, investments in bitcoin short funds increased by $2.6 million.

The Wall Street Journal reports that US pension funds remain optimistic about investing in cryptocurrencies, despite a significant pullback in prices and a wave of defaults by crypto companies.

Raul Pal — Real Vision CEO — believes that Ethereum remains highly attractive for investors, and interest in it will grow even more after the move to PoS. Michael Saylor, former head of MicroStrategy, called the company’s decision to buy bitcoin a good one. He said, BTC is not suitable for everyone, “you should invest for at least four years. Ideally, it’s an intergenerational transfer of wealth.”

EURUSD has reversed back down again after finding resistance at the 1.0360 barrier and the descending trend line. Also, the pair retreated beneath the 20- and 40-day simple moving averages (SMAs) with the technical indicators suggesting a neutral to negative bias in the short-term. The RSI is holding just below the neutral threshold of 50, while the MACD is trying to strengthen its negative momentum below the zero level.

Further losses should see the 1.0095 level, acting as a major support ahead of the parity level and the 20-year low of 0.9950. A drop below these lines would reinforce the bearish structure in the long-term and open the way towards the next key support of 0.9608, registered in August 2002.

In the event of an upside reversal, the 20- and 40-day SMAs at 1.0210 and 1.0255 respectively could be the next resistance levels to have in mind ahead of the downtrend line and the 1.0360 hurdle. A break above this level would shift the short-term view to a more bullish one as it would take the pair towards the 1.0635 resistance.

All in all, EURUSD has been developing within a downward sloping channel since February and only an advance beyond the 1.0360 barrier may change the outlook to neutral. Currently, the pair is still in a strong negative mode in the long-term.