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The Australian dollar continues to exhibit sharp volatility. AUD/USD declined by 0.82% on Friday but has bounced back today and soared 1.15%. Currently, the pair is trading at 0.6990.

Let’s take a look at the reasons that the Aussie was pummelled on Friday. First, a sparkling US nonfarm payrolls report on Friday sent the US dollar broadly higher. The July release showed the economy added a massive 528 thousand new jobs, crushing the estimate of 250 thousand and above the June gain of 398 thousand. Unemployment ticked down to 3.5% from 3.6%, and wage growth remained unchanged at 5.2%, ahead of the forecast of 4.9%. The data points to a robust, but tight US labour market. For the Fed, the strong gain in wages is well above the Fed’s inflation target of 2% and lends support to another supersize rate 0.75% hike come September.

The US labour market remains solid, but the sharp tightening of rates has reduced activity in other parts of the economy, especially manufacturing and goods and service. Still, the US does not appear to be in a recession despite all the noise after two straight negative quarters of GDP, which meets the technical definition of a recession. Another definition is significant activity across the economy, and that is clearly not the case in the US, with a red-hot labour market. After the home-run NFP on Friday, US recession fears have abated.

RBA revises inflation, growth forecasts

The Australian dollar also lost ground due to the RBA’s quarterly Monetary Policy Statement on Friday. The RBA warned that the economy will slow as inflation continues to accelerate. The statement started with a discussion about inflation, indicative of the importance with which the central bank views inflation. In the statement, the RBA revised its forecast for inflation peaking at 7.75%, up from the May forecast of 5.9%. Growth forecasts have been lowered, with the RBA now projecting 3.25% growth, down from 4.25%.

AUD/USD Technical

• AUD/USD is testing resistance at 0.6943, followed by resistance at 0.7016
• There is support at 0.6839 and 0.6766

Daily Pivots: (S1) 1.0130; (P) 1.0191; (R1) 1.0240; More...

Intraday bias in EUR/USD remains neutral as sideway trading continues. On the downside, break of 1.0095 minor support will argue that larger down trend is ready to resume. Intraday bias will be back to the downside for retesting 0.9951 low first. For now, outlook will stay bearish as long as 1.0348 support turned resistance holds, even in case of another rise.

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) 1.1993; (P) 1.2081; (R1) 1.2158; More...

Outlook in GBP/USD is unchanged. Intraday bias remains mildly on the downside. Rebound from 1.1759 should have completed after hitting 55 day EMA. Deeper fall would be seen back to retest 1.1759 low. On the upside, break of 1.2292 will resume the rebound towards 1.2405 resistance instead.

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) 0.9553; (P) 0.9602; (R1) 0.9665; More...

Intraday bias in USD/CHF remains neutral and outlook is unchanged. On the upside, break of 0.9650, and sustained trading above 55 day EMA (now at 0.9647) will raise the chance that corrective pattern from 1.0063 has completed. Further rally should then be seen to 0.9884 resistance next. However, decisive break of 0.9471 support will carry larger bearish implication.

In the bigger picture, medium term up trend from 0.8756 (2021 low) is still in progress. On resumption, next target is 1.0342 (2016 high). Sustained break there will resume long term up trend from 0.7065 (2011 low). This will remain the favored case as long as 0.9471 resistance turned support holds. However, firm break of 0.9471 will raise the chance that such up trend is over.

Daily Pivots: (S1) 133.21; (P) 134.36; (R1) 136.18; More...

USD/JPY retreats mildly but intraday bias stays mildly on the upside. Rise from 130.38 should target a test on 139.37 high. Strong resistance could be seen there to limit upside, to bring another fall, as the third leg of the consolidation pattern from 139.37. On the downside, below 132.50 minor support will resume the fall from 139.37 towards 126.35 structural support.

In the bigger picture, fall from 139.37 medium term top is seen as correcting whole up trend from 101.18 (2020 low). While deeper decline cannot be ruled out, outlook will stays bullish as long as 55 week EMA (now at 121.84) holds. Long term up trend is expected to resume through 139.37 at a later stage, after the correction finishes.

The New Zealand dollar has started the week with strong gains. In the European session, NZD/USD is trading at 0.6281, up 0.63% on the day.

US Nonfarm payrolls send dollar higher

The week ended with a bang as US nonfarm payrolls smashed it out of the ballpark. The July release came in at 528 thousand, well above the estimate of 250 thousand. The immediate effect of the massive NFP release was the US dollar posting broad gains on Friday, as NZD/USD slid almost 1%, but the currency has recovered much of those losses today.

The US employment report points to a labour market that remains tight. Unemployment ticked down to 3.5% from 3.6%, and wage growth remained unchanged at 5.2%, ahead of the forecast of 4.9%. For the Fed, the strong gain in wages is well above the Fed’s inflation target of 2% and lends support to another supersize rate 0.75% hike come September.

The US labour market remains robust, but the sharp tightening of rates has reduced activity in other parts of the economy, especially manufacturing and goods and service. Still, the US does not appear to be in a recession despite all the noise after two straight negative quarters of GDP. There is no set definition for a recession, but one view is that it is a significant decline in activity across the economy, and that is clearly not the case in the US, with a red-hot labour market.

In New Zealand, RBNZ Inflation Expectations ticked lower in Q2, dropping to 3.07%, down from 3.27% in Q1. This is close to the central bank’s upper band of its inflation target of 3%. Inflation, which rose to 7.3% in the second quarter, has yet to peak, but the slight fall in inflation expectations will be welcomed by the RBNZ, as it marks the first drop after eight straight quarters of acceleration. The RBNZ meets next Wednesday and is likely to raise rates by 0.50%.

NZD/USD Technical

• 0.6271 has switched to resistance and is a weak line. Above, there is resistance at 0.6350
• There is support at 0.6213 and 0.6134

Daily Pivots: (S1) 0.6863; (P) 0.6919; (R1) 0.6968; More...

AUD/USD rebounds notably today but stays below 0.7045 resistance. Intraday bias remains neutral first. On the upside, break of 0.7045 will resume the rebound from 0.6680 to 0.7282 key resistance next. On the downside, however, break of 0.6858 minor support will argue that the rebound is over. Intraday bias will then be back on the downside for retesting 0.6680 low.

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.

The financial markets are trading with a risk-on mood today. Major European indexes are trading up while US futures also point to higher open. Commodity currencies are trading generally higher, as led by Aussie. Meanwhile, Dollar is leading Yen and Euro lower. Sterling and Swiss Franc are mixed for now, trading a bit on the soft side.

Technically, Gold's retreat from 1794.68 is so far very shallow. Further rally is expected as long as 1754.14 support holds. Break of 1794.68 will target 38.2% retracement of 2070.06 to 1680.83 at 1829.51. When that happens, it might be accompanied by another selloff in Dollar.

In Europe, at the time of writing, FTSE is up 0.64%. DAX is up 0.95%. CAC is up 1.06%. Germany 10-year yield is down -0.0365 at 0.919. Earlier in Asia, Nikkei rose 0.26%. Hong Kong HSI dropped -0.77%. China Shanghai SSE rose 0.31%. Singapore Strait Times dropped -0.36%. Japan 10-year JGB yield rose 0.0152 to 0.178.

Eurozone Sentix improved to -25.2, but recession still very likely

Eurozone Sentix Investor Confidence improved slightly from -26.4 to -25.2 in August, better than expectation of -26.3. Current Situation index ticked up from -16.5 to -16.3. Expectations index also edged up from -35.8 to -33.8.

However, Germany Investor Confidence dropped from -24.2 to -24.4, lowest since May 2020. Current Situation index dropped from -13.0 to -14.8, lowest since February 2021. Expectations index, on the other hand, ticked up from -34.8 to -33.5.

Sentix said, the improvement in Eurozone "does not mean that the all-clear has been given". And, "a recession in the Eurozone is still very likely."

RBNZ 2-yr inflation expectation dropped to 3.07% in Q3

According to the latest RBNZ Survey of Expectations, the one-year-out inflation was relatively unchanged at 4.86% in Q3, down from Q2's 4.88%. Expectations were still much higher than Q1's 4.4% and Q4's 3.7%.

However, two-year-out inflation expectation has fallen significantly to 3.07% in Q3, down from Q2's 3.29%. That's already below Q1's 3.27% but still above Q4's 2.96%.

Still, the most watched 2 year expectation sit above RBNZ's target range. There is no change in market expectation that RBNZ would deliver another 50bps rate hike on August 17.

Ethereum breaks higher on risk-on sentiment, bitcoin lags

Both ethereum and bitcoin follow generally positive market sentiment and rise as another week starts. Nevertheless, bitcoin is clearly lagging behind.

Ethereum breaks through near term resistance at 1783.2 today, as rally from 878.5 low resumes. The sustained trading above 55 day EMA is a bullish signal, so is the bearish divergence condition in daily MACD. Current rise is seen as, at least, a correction to fall from 3577.70. Further rally is expected as long as 1578.96 support holds. Next target is 38.2% retracement of 3577.7 to 878.5 at 1909.5. Decisive break there will raise the chance of medium term reversal, and target 2157.05 support turned resistance next.

Bitcoin also rallies today but it's stuck below near term resistance at 24949. It has yet gotten rid of 55 day EMA clearly. Nevertheless, there is still upside prospect as helped by the rally in ethereum. Break of 24949 will target 38.2% retracement of 48226 to 17575 at 29283.

AUD/USD Mid-Day Report

Daily Pivots: (S1) 0.6863; (P) 0.6919; (R1) 0.6968; More...

AUD/USD rebounds notably today but stays below 0.7045 resistance. Intraday bias remains neutral first. On the upside, break of 0.7045 will resume the rebound from 0.6680 to 0.7282 key resistance next. On the downside, however, break of 0.6858 minor support will argue that the rebound is over. Intraday bias will then be back on the downside for retesting 0.6680 low.

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.

Economic Indicators Update

Both ethereum and bitcoin follow generally positive market sentiment and rise as another week starts. Nevertheless, bitcoin is clearly lagging behind.

Ethereum breaks through near term resistance at 1783.2 today, as rally from 878.5 low resumes. The sustained trading above 55 day EMA is a bullish signal, so is the bearish divergence condition in daily MACD. Current rise is seen as, at least, a correction to fall from 3577.70. Further rally is expected as long as 1578.96 support holds. Next target is 38.2% retracement of 3577.7 to 878.5 at 1909.5. Decisive break there will raise the chance of medium term reversal, and target 2157.05 support turned resistance next.

Bitcoin also rallies today but it's stuck below near term resistance at 24949. It has yet gotten rid of 55 day EMA clearly. Nevertheless, there is still upside prospect as helped by the rally in ethereum. Break of 24949 will target 38.2% retracement of 48226 to 17575 at 29283.

Markets were confused by Friday’s US labour market data, not knowing how to react to solid job growth. This is a negative for equities, as it makes us expect a third consecutive 75-point Fed rate hike at the next meeting on 21 September. But job growth and the continued pace of wage increases is a positive signal from the economy, where companies continue to hire, and people continue to spend. In our view, there are more positives here, encouraging long-term buying in sagging stocks, despite the risks of local corrections due to short-term overbuying.

In July, the US labour market added over half a million jobs and maintained a 5.2% y/y growth in hourly earnings. The Fed on Friday also reported consumer credit growth of $40.2bn in June, up from $23.8bn in May and $25bn expected. This is a very high reading, as we only saw higher in March, excluding two spikes caused by one-off programmes.

People are rushing to borrow before rates get even higher. This promises to heat consumer inflation even more, so there will be pressure on the Fed to conduct policy tightening more quickly. But Americans are no longer as indebted as they were at the start of the financial crisis, so we can’t say yet that the situation will end in a global financial crisis – 2.0.

Debt markets, the so-called “smart money”, have eased their bets that on July 2023 the rates will be much higher. This trend broke in August but, as we can see, has not stopped stock buyers. Strong employment growth in July, credit data and durable goods orders confirm that the economy is coping with the Fed’s tightening. So far, rate hikes and rising inflation have only been a stimulus to accelerate consumption.

A caveat is worthwhile here too. In the next two quarters, the Fed will likely step on the brake pedal too much. In that case, the sell-off could return to the stock market. But this is just causing future turmoil. The current data, for now, sets the stage for continued careful stock buying.

The nearest technical target for the Nasdaq100 looks to be the 200 SMA, which coincides with the round level of 14,000. If the markets opt for a swing-back before a new ascending impulse to clear the local oversold area, it is worth looking at 13,000. This area concentrates on the local highs of June and the lows of April, March, February, and May 2021.