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Daily Pivots: (S1) 1.4498; (P) 1.4534; (R1) 1.4562; More...

EUR/AUD's fall from 1.5396 resumes by breaking through 1.4508 support. Intraday bias is back on the downside for retesting 1.4318 low. Decisive break there will resume larger down trend. On the upside, break of 1.4804 resistance is needed to indicate short term bottoming. Otherwise, risk will stay on the downside in case of recovery.

In the bigger picture, down trend from 1.9799 is still in progress. Break of 1.4318 low will target 61.8% projection of 1.9799 to 1.5250 from 1.6434 at 1.3623, which is close to 1.3624 long term support (2017 low). This will remain the favored case now as long as 1.5396 resistance holds.

Daily Pivots: (S1) 0.9697; (P) 0.9715; (R1) 0.9734; More....

EUR/CHF's down trend resumes by breaking through 0.9697 support. Intraday bias is back on the downside for 0.9650 long term projection level. Some support could be seen there to bring rebound. But break of 0.9799 resistance is needed to signal short term bottoming. Otherwise, further decline will remain in favor. Firm break of 0.9650 will target 100% projection of 1.1149 to 0.9970 from 1.0513 at 0.9334.

In the bigger picture, long term down trend from 1.2004 (2018 high) is expected to target 100% projection of 1.2004 to 1.0505 to 1.1149 at 0.9650. Firm break there will target 138.2% projection at 0.9033. On the upside, break of 0.9799 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of strong rebound.

It's been another very good week for equity markets, extending the run to four weeks in many cases as investors become more optimistic about the economic outlook.

This week has been all about the inflation data and, frankly, it could be the dominant force in the markets now right up until the Jackson Hole symposium. The fact that inflation not only decelerated in the US but at a faster pace than the consensus forecasts was a double win and risk assets are feeling the benefit.

Of course, it doesn't take much of a dive into the data to see that fuel prices are having a considerable impact, favourably for once. This isn't something that's going to sway the Fed at all even if it will ease the burden on the economy a little. The Fed will need to see broader signs of inflationary pressures softening to ease off the brake into year-end.

It is worth highlighting also the apparent disconnect between the equity and bond markets. Equity markets give the impression that all is not as bad as it seemed - the Dow is less than 10% from its all-time highs - while the bond market has recession signals flashing red. The 2-10 inversion is not only apparent but this week it's the most inverted it's been in more than 20 years. How long can investors ignore that?

China underperforms amid higher Covid cases

We've seen broad, albeit relatively small, gains across Asia overnight with the Shanghai Composite underperforming. It may be that the country's zero-Covid policy is continuing to hold it back, with China reporting a slight uptick in cases including a small number in Shanghai which could be making investors a little nervous.

The policy remains a constant downside risk for the economy which is facing other headwinds at the same time and the leadership appears unusually at ease with missing its annual growth target. All of which makes any prospect of further monetary easing unlikely in the near-term, with the PBOC highlighting this week its caution despite the inflation data surprising to the downside.

Not so bad data as good as it gets for the UK

It's not going to be fun to watch the UK economic data over the coming months and the misery looks to have started early, with GDP numbers this morning reporting a slight contraction in the second quarter - albeit a slightly smaller one than forecast - following a 0.6% decline in June which was also better than the consensus. So basically, it's bad but not as bad as feared and that may be as good as it gets for a while. Naturally, as you can see by the reaction in the pound, no one is in the mood to celebrate that.

The 0.2% reduction in real household consumption will only get worse as we move into the winter, with energy prices set to soar again by a staggering amount. I'd provide the latest estimate of what the increase will be but by the time I send this out, it will probably have risen again. As households tighten the purse strings this winter, consumption will likely fall a lot more bringing about the recession the BoE has long feared and now doubled down on.

Brent eyes $100 after mixed headline week

The oil market has bounced back this week, with Brent once more flirting with triple-figures. There's been a lot to digest this week, with Iran nuclear talks ongoing, US inventories rising, US output also rising, the Druzhba pipeline saga and the various forecasts.

Even the forecasts themselves offered contrasting views, with OPEC downgrading demand growth and expecting the oil market to tip into surplus this quarter. The IEA, meanwhile, anticipates stronger demand growth due in part to the gas to oil switch as some countries react to sky-high prices.

All things considered, the price moves highlight just how tight the market remains and how sensitive it therefore still is to spikes. A deal between the US and Iran could go some way to changing that but I think it's clear traders are not banking on that given how the talks have gone until this point.

A compelling bullish case for gold

Gold is holding onto gains despite struggling to capture $1,800. The yellow metal briefly traded above here after the inflation data but it seems traders quickly changed their minds, with risk assets instead being favoured. The fact that it continues to hold onto the bulk of the gains without any significant correction may suggest there's still an appetite for it, with slower tightening seen as a favourable outcome.

This will be an interesting test for gold as $1,800 could represent an interesting rotation point from a technical perspective if there is no desire to see it above here but ultimately the case for bullish gold remains quite compelling.

Bitcoin struggling for momentum

It's shaping up to be a relatively calm end to the week and that may not be good news for bitcoin in the short term as it may encourage some profit-taking into the weekend. It's off around 1% today and back below $24,000 at the time of writing. What's interesting about bitcoin at these levels is how little momentum there is in the rallies, which is going to make $25,000 very difficult to overcome. Is that a sign that we're seeing some profit-taking or that the correction has run its course and further downside pressure is on the horizon?

GBPJPY came under renewed selling pressure on Thursday but encouragingly it quickly managed to recover its flash drop to 161.26, closing neutral above the ascending trendline once again.

In addition to the above, Thursday’s candlestick reminds of a bullish dragonfly doji candlestick, which is a signal of a possible upside reversal, though whether the price will proceed higher on the following candlestick will confirm the appetite for more buying.

For now, the technical oscillators are displaying some improvement in market sentiment as the RSI keeps trending up, and the MACD is trying to climb above its red signal line in the negative area. Yet, as long as the former remains below 50, some caution is warranted.

If the price was to pick up steam, the 20-day simple moving average (SMA) could resume its resistance role at 163.43. If not, the next obstacle could pop up somewhere between the 50-day SMA and the 61.8% Fibonacci retracement of the 150.96 – 168.70 upleg at 164.53, while a decisive break above the descending trendline at 165.33 could be a bigger achievement. In the event the bulls climb that wall, traders will look for a close above the previous high of 166.31 to shift attention towards the April-June ceiling of 167.80 – 168.70.

On the downside, a durable move below the trendline and the 38.2% Fibonacci of 161.95 could initially push for a close below the support line seen at 160.72. Should the bears snap that bar, the spotlight will turn to the 50% Fibonacci of 159.86, while lower, the 200-day SMA at 158.67 could be the next target.

Summarizing, GBPJPY maintains some buying interest despite its recent consolidation. An extension above 163.43 could be the trigger for more upside.

Yesterday, OPEC and the IEA provided their monthly reports on the oil industry. What got quite a bit of headlines was OPEC's forecast that crude demand would decrease during the remainder of the year. With both Brent and WTI below the $100/bbl mark, does this mean triple digit crude prices are a thing of the past?

Not necessarily, because the IEA and OPEC are somewhat contradicting themselves in their reports. While OPEC cut its outlook for demand, the IEA raised its outlook. So, who's right? Well, it could have more to do with the initial assessment and converging on a realistic number. And that's rather important, because it appears to coincide with expected supply, even with OPEC raising production.

Where this is going

The IEA had a more pessimistic outlook for crude demand this year, setting it at 99M bpd, while OPEC had a more optimistic assessment of over 101M bpd. Since then, however, both have been converging on the 100M bpd mark, with the IEA raising demand forecasts and OPEC lowering. But both agree in their forecast that production will be around 100.1M bpd.

Why the disagreement on one and agreement on the other? Because tracking production capacity is a lot easier. It's just a matter of counting all the wells and how much they produce. But how much people will decide to spend in a changing environment is a much harder thing to do. Furthermore, as the IEA noted in their report, there can be surprises. For example, Russian production has remained much higher than anticipated despite sanctions. Re-balancing shipments to take into account the sanctions appears to have been easier than anticipated, and happened quicker.

Figuring out the price direction

This has two implications for prices. One, the expectation for the price to fall once the infrastructure is set up for Russia to export around the sanctions might not pan out. Simply because is already managing to do that. And secondly, as Europe slowly weans itself off Russian supply, the potential for increasing price pressures might not materialize. This is because there appears to be more elasticity in global supply that allows for shifting demand.

Speaking of which, high prices are pushing down consumer demand. A study by the AAA in the US, for example, showed that most Americans are cutting back on their driving. So much, in fact, that demand for gasoline has slipped below to the levels it was in 2020 during the pandemic. American drivers are the largest group of crude products consumers in the world. And it's not just fuel prices that are keeping them from driving, a majority said they were shopping less, as well. Suggesting that higher inflation overall, and not just strictly higher fuel prices, is contributing to slowing demand.

So recession?

With the BOE warning of a recession, and the US having two quarters of negative growth by the White House insisting it isn't a recession, that could be the key to potentially crude continuing its downward trajectory. Daimler Trucks, for example, is already setting up for lowering energy consumption ahead of potential supply shortages in Europe during the winter. Meaning that supply interruptions might not necessarily lead to higher demand, but simply less consumption.

While demand might be waning, it still doesn't eliminate the possibility of a surprise on the supply side. Such as a rise in geopolitical tensions, or a natural event. So far, hurricanes in the Gulf of Mexico have been relatively scarce this year, but the season lasts for another four months.

Daily Pivots: (S1) 1.2728; (P) 1.2762; (R1) 1.2797; More...

Intraday bias in USD/CAD stays on the downside. Fall from 1.3222 is in progress to 61.8% projection of 1.3222 to 1.2766 from 1.2984 at 1.2702. Firm break there will target 100% projection at 1.2528, which is close to 1.2516 key support. On the upside, above 1.2837 minor resistance will turn intraday bias neutral first. But further decline will remain in favor as long as 1.2984 resistance holds, in case of recovery.

In the bigger picture, down trend from 1.4667 (2020 high) should have completed at 1.2005, after defending 1.2061 long term cluster support. Rise from there should target 61.8% retracement of 1.4667 to 1.2005 (2021 low) at 1.3650. This will remain the favored case now as long as 1.2516 support holds.

Daily Pivots: (S1) 0.7067; (P) 0.7102; (R1) 0.7141; More...

Intraday bias in AUD/USD stays on the upside as rise from 0.6680 is in progress. Next target is 100% projection of 0.6680 to 0.7045 from 0.6868 at 0.7233. On the downside, below 0.7062 minor support will turn intraday bias neutral first. But further rally will remain in favor as long as 0.6868 support holds, in case of retreat.

In the bigger picture, price actions from 0.8006 (2021 high) is seen more as a corrective pattern to rise from 0.5506 (2020 low). Or it could be a bearish impulsive move. In either case, outlook will remain bearish as long as 0.7282 resistance holds. Next target is 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Daily Pivots: (S1) 1.0275; (P) 1.0320; (R1) 1.0363; More...

Intraday bias in EUR/USD is turned neutral, but focus stays on 1.0348 support turned resistance, which is close to 55 day EMA (now at 1.0346). Decisive break there argue that rally from 0.9951 is at least correcting the fall from 1.1494. Further rise should then be seen to 38.2% retracement of 1.1494 to 0.9951 at 1.0540. On the downside, break of 1.0201 minor support will suggest that such rebound has completed and bring retest of 0.9951 low instead.

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.

Daily Pivots: (S1) 1.2173; (P) 1.2212; (R1) 1.2240; More...

Range trading continues in GBP/USD and intraday bias remains neutral. On the upside, decisive break of 1.2292 resistance will complete a head and shoulder bottom pattern (ls: 1.1932; h: 1.1769; rs: 1.2002). Further rally should then be seen to 1.2666 key resistance next. On the downside, however, break of 1.2002 will bring deeper fall back to retest 1.1759 low.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2666 resistance holds. Next target is 1.1409 low. However, firm break of 1.2666 will bring stronger rise back to 55 week EMA (now at 1.2925).

Daily Pivots: (S1) 0.9366; (P) 0.9455; (R1) 0.9517; More...

A temporary low is formed at 0.9369 in USD/CHF and intraday bias is turned neutral for some consolidations. Upside of recovery should be limited below 0.9648 resistance to bring another decline. Break of 0.9369 will resume larger fall to 100% projection of 0.9884 to 0.9468 from 0.9648 at 0.9232.

In the bigger picture, break of 0.9471 support turned resistance argues that medium term up trend from 0.8756 has completed with three waves up to 1.0063. Long term sideway pattern might have started another falling leg. Deeper decline would now be in favor as long as 0.9648 resistance holds, to 0.9149 structural support. Sustained break there could pave the way back to 0.8756.