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WTI oil price holds with narrow and choppy range on Monday but remains above thin daily cloud after l rally from $64.43 (16 Aug low) showed signs of fatigue. Bullish sentiment on fears of further output reduction from Iran, due to US sanctions, is supported by strengthening bullish momentum and daily MA's in firm bullish setup. On the other side, slow stochastic reversed from overbought territory after completion of bearish divergence, weighing on near-term action, along with increased number of US oil rigs. Initial signals of pullback require break below cloud base ($69.46) and 55SMA ($69.15), with extension below converged 100/10SMA's ($68.74), needed to confirm scenario. Consolidation above daily cloud would keep bullish stance intact for renewed attempt above former high at $70.42 (30 July) and acceleration towards next pivot at $71.17 (Fibo 61.8% $75.34/$64.43).

Res: 70.48, 71.17, 71.64, 72.00
Sup: 69.45, 69.15, 68.74, 68.06

Dollar holds ground ahead of busy week

After extending gains against most of its peers amid renewed concerns over trade tensions, the greenback started the week slowly and consolidated gains. The dollar index stabilised around 95.10 as EUR/USD rose 0.15% to 1.1618, while the pound sterling eased -0.33% to 1.2917 as a no-Brexit deal continued to weigh. Market participants remained cautious as NAFTA negotiations between the US and Canada are still going on.

Despite a busy week in term of economic data, political and geo-political developments will remain the main driver in the FX market this week. In the US, August’s ISM manufacturing will be release on Tuesday; ADP employment change will be published on Wednesday; August’s ISM non-manufacturing PMIs and durable goods orders will be release on Thursday; finally, the labour report is due on Friday (NFPs, unemployment and wage growth).

Recently, the Federal Reserve has turned more dovish and traders are not so confident the central bank will continue to hike rates aggressively next year. The market has priced two more rate hikes for this year but doesn’t know where to stand regarding next year. Therefore, a positive surprise in Friday’s labour report will have a limited impact on markets, while a negative surprise could weigh significantly on the greenback.

Further acceleration in Turkish inflation

Fears of contagion related to the Turkish banking system continues to spread, pushing the Turkish lira downward as inflation continues to grow at a higher pace than expected. Further bearish move on the TRY is expected as long as no obvious intervention from the Turkish Central Bank is communicated and implemented.

For now, August CPI data are given at a higher rate than what market participants would have expected. Annual and monthly figures are given at +17.90% and +2.30% (consensus: +17.60% and +1.84%), its highest rate in 15 years and this is certainly not going to stop for now, as inflation could reach as much as 25% by the end of 2018, thus remaining far from actual 5% target set by the Turkish Central Bank. Accordingly, with weaker domestic demand and economic confidence (at 9-years low) along with a drastic slowdown in industrial production, Turkey’s GDP growth is expected to slowdown in Q3 while given along 7% in Q2.

Further weakness in Turkish lira until next TCMB MPC is anticipated. Recent announcements from the central bank hints towards a policy adjustment during its meeting in 13. September next week. However, if the response is not perceived as appropriate, the Turkish lira will continue losing ground.

USD/TRY overshot the 6.50 range last week and currently trades along 6.62, approaching the 6.75 range in the short-term.

EUR/USD

Current level - 1.1604

The bias is still bearish, for a slide towards 1.1530 area. Initial hurdle lies at 1.1640.

USD/JPY

Current level - 110.91

Allow a brief intraday rise to 111.40, followed by a dip to 110.30 zone.

GBP/USD

Current level - 1.2917

The intraday bias is negative below 1.2935 resistance for a dip to 1.2840 zone.

XAUUSD (1199.16): Gold prices fell to the support level at 1197.50 and price action has been trading rather flat near this level. With the minor trend line being breached, gold prices could be at risk of slipping to 1180.25 support. Forming support at this level could still keep the bias to the upside. Alternately, if gold prices manage to establish support at 1197.50 then we can expect to see the upside target of 1219.75 being tested easily.

GBPUSD (1.2925): The British pound gradually reversed the strong gains made last week. The British pound had jumped on the news about EU and the UK making efforts to reach the Brexit deadline in October. Price action gapped lower to retest the previously established resistance level at 1.2928. Establishing support at this level could potentially pave way for a bullish turnaround. The long-term upside target is 1.3205. However, in the event that the GBPUSD slips below the support level, we could expect to see some consolidation taking place.

EURUSD (1.1599): The euro currency posted strong losses on Friday as the flash inflation estimates showed a slower pace of gain in inflation. The euro extended the declines following a brief reversal off 1.1730 resistance level. With price action closing below the first level of support at 1.1626, the common currency is expected to test the lower support at 1.1540. Establishing support here could give some upside to the currency pair. However, in the event that the euro currency slips below 1.1540, then we expect to see further declines in store.

The U.S. dollar was seen gaining ground on Friday as the markets closed the month of August. Economic data on the day showed that the flash inflation estimates for the Eurozone rose at a slower pace of 2.0% on the headline and 1.0% on the core inflation rate. This was slower than the median forecasts and compared to the month before.

German retail sales also came out weaker, falling 0.4% on the month which was more than the median forecasts. Previous month's data was also revised lower.

Meanwhile, in the U.S. the Chicago PMI showed an increase to 63.6 on the index which beat estimates but was still lower than 65.5 from the month before.

The UoM's consumer sentiment index was seen rising to 96.2 from 95.3 previously.

The day ahead will see the U.S. and the Canadian markets closed due to Labor Day holiday.

The UK will be releasing the manufacturing PMI which is expected to ease to 53.9 from 54.0 previously. The data from the Eurozone will be dominated by the manufacturing PMI's.

The Australian dollar bounces from new low at 0.7165 which lays just above strong supports at 0.7160 zone (May/Dec 2016 / Jan 2017 higher base), following strong fall last week (the pair was down 1.7% for the week). Profit-taking after four-day fall and oversold studies may keep the price in consolidative mode before fresh attack at 0.7160 pivot, loss of which could spark fresh bearish acceleration towards psychological 0.70 support at key longer-term support at 0.6825 (Jan 2016 low) in extension. Falling daily Tenkan-sen (0.7267) is expected to cap upside attempts.

Res: 0.7237, 0.7267, 0.7293, 0.7305
Sup: 0.7160, 0.7100, 0.7000, 0.6825

The pair trades within narrowing range on Monday, holding in the middle of thick daily cloud, following strong downside rejection at cloud base (110.64) last Friday. Mixed signals from daily techs suggest no clear near-term direction, but risk is skewed lower as momentum is weakening and crossing into negative territory. Cloud base (110.64) and Fibo 61.8% of 109.77/111.82 (110.56 mark key supports, break of which would generate bearish signal for extension of pullback from last week's peak at 111.82. Falling thick hourly cloud (111.00/25) weighs on near-term action and is expected to cap. Extended sideways mode could be expected on thinner markets due to US holiday.

Res: 111.18, 111.57, 111.83, 112.15
Sup: 110.84, 110.64, 110.56, 110.36

The UK has been a key focus for traders at the start of the week, with Brexit talks back on the agenda, manufacturing data underwhelming and the US on holiday.

The pound is coming under pressure again on Monday after Michel Barnier dashed hopes that his comments last week in any way meant the EU is going to bend its rules on the single market in order to come to an agreement with the UK. While his statement that they are prepared to offer a partnership that has never existed with another third country is positive for negotiations - as it moves away from discussions over the UK adopting an existing model, which was never particularly helpful – Brussels was clearly concerned that it sent the wrong message and sought to clarify its position.

The result is that the pound has gone from trying to break back above 1.30 against the dollar to back below 1.29 and once again looking a little soft. That isn’t being helped by the widespread disapproval of UK Prime Minister Theresa May’s Chequers plan which initially triggered the resignation of two prominent Brexiteers in her team – David Davis and Boris Johnson. It seems that the numbers of those that support the agreement is dwindling and with the EU also not on board, it looks dead in the water which means that with only a couple of months until the revised deadline, we’re back to square one.

Putting sterling under further pressure this morning has been the August manufacturing PMI which slipped to 52.8, easily missing expectations and suggesting that even a weaker currency is failing to support the sector. The PMI slipped to its lowest since July 2016, just after the Brexit referendum, citing near stagnant employment growth and a slowdown in the rate of output and new order growth. Of course, this could be a temporary blip but the general trend hasn’t been great and it’s just another worrying sign ahead of exit day, with no deal still being a very real possibility.

The number is the first of three PMIs this week, with the services number on Wednesday being of particular interest given the outsized contribution of the sector to the economy. Should those numbers also provide a more pessimistic view of the economy heading into the end of the year, we could see further pressure on the pound, especially if this is accompanied by more criticism of May’s plans, with MPs due to return to parliament.

The rest of the day is likely to be relatively quiet given the bank holiday’s in the US and Canada but the rest of the week will be much more interesting, politics likely stealing the spotlight once again but attention also falling on the August jobs report on Friday.