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Daily Pivots: (S1) 0.8413; (P) 0.8484; (R1) 0.8522; More...

EUR/GBP's break of 0.8484 support argues that rebound from 0.8201 has completed at 0.8720, after rejection by 0.8697 medium term fibonacci level. Intraday bias is back on the downside for 0.8248 support first. Break will target 0.8201 low. For now, risk will stay on the downside as long as 0.8720 resistance holds, in case of recovery.

In the bigger picture, rise from 0.8201 medium term bottom could could either be a correction to the down trend from 0.9499 (2020 high), or a medium term up trend itself. Sustained break of 38.2% retracement of 0.9499 to 0.8201 at 0.8697 will affirm the latter case, and pave the way to 61.8% retracement at 0.9003. However, rejection by 0.8697 will maintain medium term bearishness.

Daily Pivots: (S1) 1.4780; (P) 1.4913; (R1) 1.4986; More...

Intraday bias in EUR/AUD stays on the downside for 1.4759 support. Sustained break there should confirm rejection by 1.5354 support turned resistance, and argues that larger down trend is no finished. Further fall should then be seen to retest 1.4138 low next. On the upside, above 1.5059 minor resistance will turn bias back to the upside for retesting 1.5396 instead.

In the bigger picture, sustained break of 1.5354 support turned resistance will argue that a medium term bottom was formed at 1.4318 already. It would still be too early to call for long term trend reversal. But further rise would then be seen back towards 1.6434 resistance (2021 high). However, rejection by 1.5354 will retain bearishness for extending the down trend from 1.9799 (2020 high) through 1.4318 at a later stage.

Daily Pivots: (S1) 0.9872; (P) 0.9901; (R1) 0.9929; More....

Further decline is expected in EUR/CHF despite loss of downside momentum. Current down trend should target 0.9650 long term projection level. On the upside, break of 1.0044 minor resistance will turn intraday bias neutral and bring consolidations, before staging another decline.

In the bigger picture, rejection by 55 week EMA affirmed medium term bearishness. Long term down trend from 1.2004 (2018 high) is expected target 100% projection of 1.2004 to 1.0505 to 1.1149 at 0.9650. On the upside, break of 1.0513 resistance is needed to indicate medium term bottoming. Otherwise, outlook will stay bearish in case of strong rebound.

Daily Pivots: (S1) 1.2935; (P) 1.2995; (R1) 1.3028; More...

Range trading continues in USD/CAD and intraday bias remains neutral. Further rise is mildly in favor with 1.2818 support intact. On the upside, break of 1.3077 and sustained trading above 1.3022 fibonacci level will carry larger bullish implications, and bring up trend resumption. Next target is 100% projection of 1.2005 to 1.2947 from 1.2401 at 1.3343. On the downside, break of 1.2818 minor support will bring deeper fall back to 1.2516 support instead.

In the bigger picture, focus stays on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. However, rejection by 1.3022 will maintain medium term bearishness.

Daily Pivots: (S1) 0.6787; (P) 0.6818; (R1) 0.6871; More...

Range trading continues in AUD/USD and intraday bias remains neutral. Strong support could still be seen from 0.6756/60 cluster support to complete the whole correction from 0.8006, and bring rebound. On the upside, above 0.6918 resistance will indicate short term bottoming, and turn bias back to the upside for 0.7282 resistance. However, sustained break of 0.6756/60 will carry larger bearish implication and target 0.6461 fibonacci level next.

In the bigger picture, price actions from 0.8006 are seen as a corrective pattern to rise from 0.5506 (2020 low). Strong support is expected from 50% retracement of 0.5506 to 0.8006 at 0.6756 to complete the pattern. This coincides with 100% projection of 0.8006 to 0.7105 from 0.7660 at 0.6760. However firm break of 0.6756/60 will raise the chance of bearish reversal and target 61.8% retracement at 0.6461.

Daily Pivots: (S1) 1.0130; (P) 1.0175 (R1) 1.0207; More...

Intraday bias in EUR/USD stays mildly on the downside despite some loss of downside momentum. Current down trend should target 1.0090 long term projection level. Break there will target 100% projection of 1.1184 to 1.0348 from 1.0773 at 0.9937, which is close to parity. On the upside, above 1.0276 minor resistance will turn intraday bias neutral and bring consolidations first. But recovery should be limited below 1.0614 resistance to bring another fall.

In the bigger picture, the break of 1.0339 long term support (2017 low) indicates resumption of whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. Sustained break there will pave the way to 100% projection at 0.8694. In any case, outlook will stay bearish as long as 1.0786 resistance holds, in case of recovery.

Daily Pivots: (S1) 1.1945; (P) 1.1987; (R1) 1.2066; More...

Intraday bias in GBP/USD remains neutral for consolidation above 1.1874. Outlook stays bearish as long as 1.2405 resistance holds. On the downside, break of 1.1874 will resume larger down trend to t 100% projection of 1.2666 to 1.1932 from 1.2405 at 1.1671. Break there will target 1.1409 long term support.

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 1.3103).

Daily Pivots: (S1) 135.62; (P) 135.92; (R1) 136.29; More...

Range trading continues in USD/JPY and intraday bias remains neutral. On the downside, break of 134.25 support will confirm short term topping at 136.99. Considering bearish divergence condition in daily MACD, 136.99 might be a medium term top too. Intraday bias will be back on the downside for 131.34 support resistance turned support. Nevertheless, firm break of 136.99 will resume larger up trend to 100% projection of 114.40 to 131.34 from 126.35 at 143.29.

In the bigger picture, current rally is seen as part of the long term up trend from 75.56 (2011 low). Next target is 100% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 149.26, which is close to 147.68 (1998 high). This will remain the favored case as long as 126.35 support holds.

Markets

‘Reflation’ in the current context probably isn’t the right term. Even so, the risk rebound that started Tuesday in the US, continued. Eco data remain a bit inconclusive (jobless claims, trade data, challenger job cuts), but especially US data were recently good enough for investors to see the glass again half full. US equites gained between 1.12% (Dow) and 2.28% (Nasdaq). The Eurostoxx 50 even rebounded 2%. Fed members Waller and Bullard repeated their call for a 75 bps hike at this month’s meeting and at the same time downplayed the risk of a US recession. Markets yesterday accepting this analysis only illustrates the change in sentiment since early this week. Question is how long it will take for uncertainty on growth to return. Whatever the driver, core yields extended their rebound off key technical levels that started earlier this week. US yields rose between 1.2 bps (2-y) and 6.6 bps (10-y and 30-y). The rise was mainly driven by higher inflation expectations. This move was supported by a bottoming in commodities (oil, copper, wheat). European/German yields followed the broader ‘reflation’ trend (2-y + 17 bps, 10-y + 11.2 bps,.30-y outperformed + 2.9 bps). The risk rebound for now didn’t cause any meaningful correction in the dollar. The DXY stayed near the cycle top (107 area). USD/JPY hovered around 136. USD resilience went hand-in-hand with persistent euro weakness. EUR/USD lost further ground (close 1.016). Sterling outperformed. The ‘end’ of the political crises and BoE members flagging a 50 bps August rate hike apparently trigger a sterling short squeeze. EUR/GBP tumbled from the 0.8540 area to close at 0.8450.

Sentiment in Asia remains constructive even as gains are more modest compared to the US and Europe yesterday (Topix +0.9%). Investors are pondering the potential positives of Chinese plans to support growth via additional infrastructure spending. US yields open little changed. The dollar is holding strong (DXY 107.1). Later today, US payrolls are expected to show a slowdown in hiring from 390k to about 270k. Still solid, but slower employment growth maybe shouldn’t be that negative for risk sentiment and might support the recent rebound in equites and, to a lesser extent, in core yields. In theory, this might slow the USD rebound. However, especially EUR/USD recently didn’t show any signs of improvement. A rebound of the single currency looks difficult as long as the ‘war-on energy’ with Russia persists.

News Headlines

The latest UK jobs report (June) from KPMG and REC (recruitment & employment confederation), compiled by S&P Global, suggests that the labour market is showing signs that we’re past the post-pandemic hiring spree. Overall demand for workers remains high, but increased at the slowest pace since March 2021. A similar trend is visible in permanent staff placements and temp billings. On the supply side, there’s a new steep drop in availability of staff with a generally low unemployment rate, fewer foreign workers, robust demand and hesitancy to switch roles in the increasingly uncertain economic climate as main drivers. The imbalance between supply and demand pushed the rate of starting pay again higher in June (well above average), though the rate of salary inflation slightly moderated.

The National Bank of Poland continued its tightening cycle with a smaller-than-expected 50 bps rate hike (6% to 6.5%). It will remain data-dependent for upcoming meetings and pledges to take all necessary actions in order to ensure macroeconomic and financial stability, including above all to reduce the risk of inflation remaining elevated. FX interventions to prevent the (weaker) zloty from interfering with policy tightening remain a possibility. The NBP updated its growth and inflation forecasts. Inflation is now expected to be 13.2-15.4% this year, 9.8-15.1% next year and 2.2%-6% in 2024, assuming an unchanged policy rate. These data represent significant upward revision for this year and next compared to March. Annual growth is predicted at 3.9%-5.5% this year, 0.2-2.3% next year and 1%-3.5% in 2024. The 2023 numbers faced a big downward shift compared to March. The Polish zloty managed to limit losses in a positive risk climate despite the smaller hike. EUR/PLN touched 4.8 for the first time since March. Polish zloty swap rates dropped 30-35 bps in the 5-10y segment of the curve with the wings underperforming.

Global equities had a strong session yesterday; most European and US indices gained, leaving many investors wondering though, why the market is pushing higher while the recession talks are surging.

The most plausible explanation is the good old ‘bad news is good news’ rhetoric: prospects for global growth slowed to an extent to allow the Federal Reserve (Fed) doves show up their nose again

However, two Fed members said yesterday that they would back a 75bp hike in next FOMC meeting, but dismissed the economic downturn fears (?!)

The S&P500 rebounded 1.5%, as Nasdaq rallied more than 2%. The 2-10-year portion of the US yield curve remained inverted, however, and the volatility remains relatively high, meaning that gains could reverse anytime.

Today, the US will reveal the latest jobs data. For more than a year, the inflation data stole the spotlight to the jobs data and drove the Fed expectations. And as the number of job openings remain above 11 million jobs, there is reason to think that if people want to get a job, they could get one. Therefore, the jobs data will certainly not be decisive in Fed’s decision process for the near future.

But, with the recession talk taking the center stage, investors are increasingly focused on the jobs figures. The US economy is expected to have added more than 250’000 jobs in June, which is a strong number for pre-pandemic times, and the unemployment rate is seen stable at 3.6%.

A strong read could bring forward two ideas. 1: The idea that the US economy could soft-land despite the tighter Fed policy, or 2. the idea that the Fed would allow itself to get more aggressive to fight inflation.

A meaningfully lower than expected NFP read, on the other hand, could confirm that 1. the slowdown began, and the jobs market may not be rate-hike-proof, or 2. the Fed could soften its tone if it concludes that the economy is not strong enough to shoulder back-to-back big rate hikes, after all.

In both cases, there is a large room for market interpretation; it’s difficult to predict what direction the market would take.

We will, however, see whether Jerome Powell, who believes that the US jobs market remains strong enough to withstand the rising rates, is right, or is he again falling behind the curve.

Euro meltdown

The US dollar index consolidates at 20-year high levels and continues pressuring its G10 and EM peers lower. The EURUSD slipped to 1.0150, as the euro bears remain in charge of the market despite the hawkish European Central Bank (ECB) minutes.

The minutes showed that “there was agreement that gradualism should not necessarily be interpreted as slow action in small steps’. It’s objectively non-sense. But, what we retain from the ECB minutes yesterday is that, there could eventually be a 50bp hike at this month’s meeting and that the central bankers’ brains are fuming.

It is likely that the euro bears continue pushing for a further fall to parity against the greenback until we see the colour of the 50bp hike, as a bigger than expected ECB hike should also come hand in hand with a convincing antifragmentation tool. But the antifragmentation tool could see political and legal constraints. And the disbelief that the ECB is able to come up with something to avoid a debt crisis and raise the rates is what will continue keeping the euro under pressure and get the bulls to ignore the hawkish ECB statements.