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STOCKS

Globally indices are looking bullish for the near term.

Dow (26049.64, +1.01%) and Dax (12538.31, +1.16%) have both moved up sharply yesterday. The indices look bullish for the near term. Dow could rise towards 26300 while Dax may move up towards resistance near 12650.

Nikkei (22934.68, +0.59%) has risen past the initial resistance near 22800 and this rise if sustains could validate the possible shoulder-Head-Shoulder pattern formation indicating further bullishness for Nikkei in the near term. While above 22800-22850, Nikkei is bullish towards 23500. This could also mean bullishness in Dollar-Yen in the near term.

Shanghai (2783.95, +0.11%) has also risen and while above 2750, the index could be bullish in the near term towards 2800-2850 levels.

Nifty (11691.95, +1.17%) is also bullish towards 11800 while above immediate support near 11600. But note weekly candle resistance just at current levels.

COMMODITIES

Crude prices look bullish in the near term on expectations that weekly US inventory data will show a decline and sanctions on Iran will impact supply. Brent (76.29) and Nymex WTI (68.92) can move up towards 78 and 71-72 respectively. Note that 78 on Brent is a crucial resistance and is likely to hold in the medium term.

Gold (1215.40) is bullish while above 1211 and can rise up towards 1230/40 in the medium term. Overall view is bullish.

Copper (2.6955) looks stable just now. If the Chinese Stock index moves up sharply, then the downside for Copper could be limited and it could move towards 2.85. Else if the price falls below current levels, we could see a test of 2.65/60 in the coming sessions.

FOREX

Watch out for crucial resistances on Euro @ 1.1675-1.1700 and on GBPUSD @ 1.2872 – if breached, maybe Dollar weakness could extend for few more sessions.

Euro (1.1676) Euro is testing resistance near 1.1675 on daily candles. Above this level, on the weekly candles, previous support trendline might also give some resistance near 1.175 – also corresponds to the 21 weeks MA. While below 1.176, the medium term preference remains bearish.

Dollar Index (94.84) is testing support on daily candles near 94.80. If it breaks this support, it could fall more towards 94.3 in the near term before rising from there.

Dollar Yen (111.30): Dollar Yen looks bullish towards 113 in the next 2-3 weeks. The next 1-2 sessions could see a rise beyond 111.50 with levels near 112 being tested by the end of the week.

Euro Yen (129.96): On daily candles, Euro Yen has breached resistance near 129.75. Looking at possible rises in Euro and Dollar Yen towards 1.175 and 112 in this week, we could see Euro Yen breach resistance near 130 on other charts. The July high of 131.99 would then be a crucial resistance level.

Pound (1.2875) is trading just above crucial resistance provided by the 21 days MA at 1.2872. If it breaches this MA decisively, then we could see an upmove towards higher resistance near 1.3000-3050 in this week / max by next week.

Dollar Rupee (70.1625) : Might dip to 69.90 today. May have Support at 69.90 or deeper down in the 69.70-50 region. Offshore NDF quoting @ 69.98.

INTEREST RATES

Progress on a trade deal between US-Mexico led to a slight rise in US yields. Earlier last week, the US Fed Chairman's comments in the Jackson Hole Conference led some analysts to interpret that a December rate hike by the US Fed might get delayed to 2019. We need to watch out for whether this belief grows stronger in the markets – if it does, then the May high of 3.125% for the US 10 year yield would be confirmed as the year's top.

US 10 Year Yield (2.85%) : The support near 2.82% still remains strong. A breach above 2.9% would be required for another test of 3%. Current preference is however bearish for the near term.

German 10 year yield (0.38%): As expected, it is rising towards resistance near 0.4% on medium term chart (current preference is for 0.4% to not be breached – probably a gradual downtrend towards 0.18% could happen).

German-US 10Yr Spread (-2.47%) is rising towards -2.45% - this is a crucial resistance level for the spread, which if breached, could make the spread bullish in the medium term – current preference is for the resistance to not be breached.

Key Highlights

• The Euro made a nice upside move from the 1.1300 swing low against the US Dollar.
• There was a break above a crucial bearish trend line with resistance at 1.1460 on the 4-hour chart of EUR/USD.
• The US Durable Goods Orders declined 1.7% in July 2018, more than the -0.5% forecast.
• Today, the German IFO Business Climate Index for August 2018 will be released, which is forecasted to rise from 101.7 to 102.0.

EURUSD Technical Analysis

After a major decline, the Euro found support near the 1.1300 level against the US Dollar. The EUR/USD pair climbed higher and broke the 1.1450, 1.1500 and 1.1550 resistance levels.

Looking at the 4-hours chart, the pair made a nice upside move and traded above the 1.1500 pivot level. There was also a break above the 50% fib retracement level of the last decline from the 1.1745 high to 1.1300 low.

Moreover, there was a break above a crucial bearish trend line with resistance at 1.1460 on the same chart. Lastly, the pair settled above the 1.1550 level and the 100 simple moving average (red).

Once there is a proper close above the 76.4% fib retracement level of the last decline from the 1.1745 high to 1.1300 low, there could be more gains above the 1.1650 level in the near term.

On the flip side, if there is a downside correction, the pair is likely to find support near the 1.1575 and 1.1540 support levels.

Overall, the Euro may perhaps continue to correct higher as long as it is above 1.1540. Similarly, there could be more upsides in the GBP/USD pair towards 1.2900 and 1.2950 level.

Economic Releases to Watch Today

• German IFO Business Climate Index for August 2018 – Forecast 102.0, versus 101.7 previous.
• German IFO Current Assessment Index August 2018 – Forecast 105.5, versus 105.3 previous.
• German IFO Expectations Index for August 2018 – Forecast 98.5, versus 98.3 previous.
• Dallas Fed Manufacturing Business Index for August 2018 – Forecast 36.9, versus 32.3 previous.
• Chicago Fed National Activity Index for July 2018 – Forecast 0.13, versus 0.43 previous.

EURJPY - The pair looks to recover further higher as it closed strongly higher on Monday. Support comes in at the 129.00 level where a break if seen will aim at the 128.50 level. A cut through here will turn focus to the 128.00 level and possibly lower towards the 127.50 level. On the upside, resistance resides at the 129.50 level. Further out, we envisage a possible move towards the 130.00 level. Further out, resistance resides at the 130.50 level with a turn above here aiming at the 131.00 level. On the whole, EURJPY continues to face further upside threats

Equity Markets

Investors were in a festive mood after the United States and Mexico sealed a new trade deal, removing one major hurdle that has been haunting North American investors for months. Markets are revelling in any trade positivity’s, and with a tentative lull in the US-China tensions, the S&P 500 and Nasdaq powered to record highs. After all, a deal is a deal!

With the dollar declining and Wall Street on a tear, Asian stock markets are poised for more gains aided on a stable Yuan.

Oil Markets

There enough noise in the oil patch these days to confuse even smart people. But last weeks bounce higher is showing some legs supported by risk-on trade flows which are coat tailing rising equity markets and a weaker US dollar after the US reached a new NAFTA agreement with Mexico. And despite increasing production limits, there’s a perception that these new barrels might not be adequate to offsets Iran sanctions. But also supporting the oil market, the grizzled old veteran trader in me tells me there will be a hard-bullish shift in sentiment as we near November 4 when sanctions become a real factor.

Gold Markets

Dip buying in gold is making a believer of some as the USD dollar is flagging on the back of last weeks Fed minutes and Jackson hole which have left traders and investors to surmise that a more aggressive Fed, despite the strong US economy, is little more than a pie in the sky at his stage.

Federal Reserve Board uncertainty?

There more buy into the fact that its now little more than a pipe dream to expect a more vigorous pace of Fed tightening post-Jackson Hole.

USD correction is getting broader

Mexico

Mexico announcing its FTA with the US and now it’s Canada’s turn to head to Washington to finalise their side of the bargain.

The Canadian Dollar

Indeed, the Loonie was back on the highlight reels on the back of move from 1.3020 to 1.2960 levels. Ok, even if its a bit early to jump on the NAFTA bandwagon, but none the less there appears to be some position jockeying ahead Thursday Canada GDP print which should probably be the main near-term driver. While Poloz seemed to join Fed Chair Powell’s ” gradualism” rate hike club at Jackson Hole, I suspect a decent number could see USDCAD move to the 1.2800 as September rate hike repricing builds and even more so with NFTA euphoria kicking in.

But other factors are catalysing the overnight decline in the USD

Turkish Lira

USDTRY after wobbling in another low liquidity ramp in UK holiday thin markets, the pair ran into to stiff opposition on a test of 6.30, and this seemed to hold the USD in check

The Euro

But perhaps one of the more exciting signals so far is the lack of fading the latest bounce on the Euro. Sure, we’re far removed from the significant Euro buy-in which will happen when the ECB gets back on track. And with Italy risk looming one would expect the macro trader to be fading this move. But there are a few reasons which might suggest the dollar correction could have some legs.

From a pure EU zone economic perspective, the easing on EU trade tensions should play out favourable on PMI indexes as Germany’s big exporters are in a much happier place.

Italy can topple the applecart but so far spreads have behaved, and there appears little panic is taking place for now.

The Chinese Yaun

The Pboc look like they’re prepared to draw a line in the sand to defend the Yuan and there are even some discussions in CNH circles that the Pboc will let the Yuan appreciate through this next wave of trade discussion. But they’re indeed opening the money taps to get the economy back in flight, and this could be very supportive for the Yuan, and other regional currencies as mainland equity markets pick up steam.

The Malaysian Ringgit

Despite higher oil prices and a weaker USD, the Ringgit is failing to capitalise. But in addition to being held hostage by external factors around trade war, although I think the MYR is better insulated to absorb that shock. The local unit is still struggling from the downbeat 2nd Q GDP that does suggest BNM next policy move could be a rate cut as economic expansion continues to run tepid.

The US dollar is lower against all major pairs on Monday. A trade agreement aimed at replacing NAFTA was struck between Mexico and the United States. Canadian Foreign Minister Chrystia Freeland is on her way to Washington to join the talks in the hope of extending the US-Mexico trade agreement to include Canada. Investors interpreted the deal as a softening of trade tensions that have dominated the market. Risk appetite was higher at the start of the week as the agreement with Mexico could lead to a softer stance on trade from the Trump administration.

The EUR/USD rose 0.50 percent and is trading at 1.1677 with the Canadian dollar and Mexico peso advancing on the positive trade agreement news.

The Canadian dollar rose 0.36 percent on Monday. The currency pair is trading at 1.2978 after NAFTA optimism appreciated the loonie. The Canadian currency has been under pressure this year as the fate of the trade agreement was uncertain given the tough stance of US negotiators. The talks in Washington between Mexico and the United States have reached a tentative agreement that puts a trilateral meeting happening in the short term. There are some items that need further discussion but the momentum gained with the leadership change in Mexico has resulted in a bilateral agreement.

NAFTA negotiations have yielded an agreement, but the choice of the US to deal with Mexico first still leaves a lot of question marks regarding how it will affect the Canadian economy. On Thursday Foreign Affairs Minister Chrystia Freeland said she was encouraged by optimism and ready to rejoin the talks. Freeland is headed to Washington to take part in the talks with the goal of wrapping up talks by the end of the week.

BoC Governor Poloz sounded optimistic on Friday that NAFTA will be worked out based on the developments of the last couple of weeks.

GOLD

Gold rose on Monday breaking through the 1,210 price level. The precious metal advanced on the greenback as NAFTA deal optimism cancelled out some of the trade war concerns in August. Mexico and the United States have apparently reached a partial agreement with other items still to be discussed. Both parties mentioned that an announcement is imminent which could be coming later today. The next step would be to bring in the Canadian team as they did not participate in the bilateral talks.

Fed rhetoric last week continued to push for two more rate hikes in 2018. The release of the minutes from the FOMC and Chair Powell’s speech at the Jackson Hole central bank symposium kept expectations unchanged. Inflation remains near the Fed’s target, and limits the appeal of the yellow metal to investors.

Trade disputes have been on the rise and given how the Trump administration has been wielding tariffs on foreign goods they have appreciated the US dollar against commodities. A successful negotiation of NAFTA could reverse the trend.

MEXICAN PESO

The Mexican peso appreciated on Monday. The currency pair is trading at 18.6345 after the Trump administration announced that Mexico and the US had reached a bilateral trade agreement. Trade tensions have kept emerging market currencies under pressure so an agreement is a positive for the peso. Canada was excluded from the negotiations and it now seems that the US plans to replace NAFTA with this new deal.

US President Trump announced it today with his intentions to drop the NAFTA name and called it the US-Mexico trade agreement. Trade representative Lighthizer has said that this agreement will be headed to congress for approval. The US administration will negotiate alongside Mexico with Canada. Canada could then join this trade agreement or seek its own bilateral agreement with the United States.

The peso has been gaining ground against the US dollar after the Mexican elections. The change in leadership also served as an opportunity for the US to negotiate the trade terms, after the lack of traction of the trilateral talks.

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The Canadian Dollar surged, hesitated, and then regains some strength as news regarding NAFTA flow through. It remains unclear how Canada would fit in the so called United States-Mexico Trade Agreement, which Trump intends to replace NAFTA with. But there are signs that Canada is not totally out of the picture, whether the eventual agreement is still called NAFTA or not.

Canadian Prime Minister Justin Trudeau's office said that he talked to outgoing Mexican President Enrique Pena Nieto on Sunday. And they both shared the commitment to reach a conclusion of NAFTA "for all three parties". Pena Neito also tweeted that "we want Canada's re-incorporation into talks to achieve a successful trilateral negotiation of NAFTA this week."

https://twitter.com/EPN/status/1034104379572289536

Mexico's Foreign Minister Marcelo Ebrard also said "in the coming days we will continue in trilateral negotiations with Canada, which is vital to be able to renew the (trade) pact."

So, things would be very interesting for Canadian Dollar in the days ahead. Technically, the break of channel support is now taken as a sign of medium term reversal. 38.2% retracement of 1.2061 to 1.3385 at 1.2879 is now the first level to target. We'll see how USD/CAD respond there.

Gold is slightly higher at the start of the trading week. In Monday’s North American session, the spot price for one ounce of gold is $1209.20, up 0.29% on the day. There are no U.S indicators on the schedule. On Tuesday, the key event is CB Consumer Confidence.

Gold ended the week on a high note, posting gains of 1.7% on Friday. The gains were in response to comments from Federal Reserve Chair Jerome Powell, who spoke at the Jackson Hole Economic Symposium on Friday. Powell reiterated that the Fed would continue its policy of gradual interest rate hikes, and this pledge not to change policy sent the dollar lower and boosted gold prices. Powell argued that current monetary policy is prudent, but the Fed continues to face criticism on both ends. Some analysts have argued that the Fed has been too aggressive, given weak inflation, while others say the Fed should tighten more quickly, due to the extremely tight labor market. Powell appeared to take a middle approach of raising rates, but slowly. The Fed has already raised rates twice this year, and a September hike is practically a given, with the CME Group estimating the odds of a hike at 96%. The odds of a December hike currently stand at 66%.

The new trading week has started with reports that the NAFTA negotiations are showing progress. The Mexican peso has responded with strong gains on Monday, but the Canadian dollar has been steady. A senior Mexican official said that the issues surrounding the auto sector were “basically resolved”, and President Trump said on Saturday that a deal was near. A new NAFTA agreement would reduce trade tensions between the U.S and the other two NAFTA members, Canada and Mexico. At a time of escalating trade tensions, a new NAFTA agreement would likely bolster risk appetite, which in turn could weigh on gold prices.

GBP/USD has posted gains in the Monday session. The pair is trading at 1.2891, up 0.34% on the day. With British banks are closed for a summer holiday, traders can expect a quiet day from the pair. There are no British or U.S events on the schedule. On Tuesday, the U.S releases CB Consumer Confidence.

Proceed with caution. This sums up the dovish message from Jerome Powell, who spoke at the Jackson Hole Economic Symposium on Friday. His remarks sent the dollar broadly lower and the British pound jumped on the bandwagon and ended the week with gains. Powell reiterated that the Fed would continue its policy of gradual interest rate hikes, saying that a cautious approach was prudent. The Fed has faced criticism about its current policy from all sides – some analysts have argued that the Fed has been too aggressive, given weak inflation, while others say the Fed should tighten more quickly, due to the extremely tight labor market. Powell appeared to take a middle approach of raising rates, but slowly. The Fed has already raised rates twice this year, and a September hike is practically a given, with the CME Group estimating the odds of a hike at 96%. The odds of a December hike currently stand at 66%.

Brexit continues to hover over the British economy like a dark cloud. With only seven months to go before the U.K takes the plunge and leaves the EU, both sides remain entrenched in their negotiating positions, and the prospect of a ‘no deal’ Brexit is becoming a greater possibility with each passing day. Prime Minister May continues to spar with hard-nosed European leaders and is struggling to paper over divisions over Brexit within her Conservative party and the cabinet. The British economy has performed fairly well, but the business sector is exasperated by the lack of clarity or direction from the government over Brexit. The uncertainty over the post-Brexit era has taken a toll on the British pound, which has shed 8.3% since the start of April. Earlier in August, the pound dropped below the 1.27 line, its lowest level since April 2017. Unless the EU and UK show remarkable flexibility and show progress towards reaching an agreement, traders can expect further headwinds for the struggling pound.

Dollar is sold off broadly as markets anticipated announcement of a certain agreement between the US and Mexico on trade. It was originally thought as part of the trilateral NAFTA agreement. But it turned out to be something that could eventually replace NAFTA.

Trump said that the deal will now be called the United States-Mexico Trade Agreement. He said the NAFTA name will be ditched. He added that the deal is very special for farmers as Mexico will start buying as many farm products from the US as possible.

Meanwhile, Trump said that the negotiation with Canada had not started, adding that if they want to negotiate fairly, the US would do that. Trump also said the US could do a separate deal with Canada, or make it part of the deal with Mexico.

USD/CAD dipped to as low as 1.2952 but quickly recovered as trades realize that Canada is totally out of the picture.