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Daily Pivots: (S1) 1.2805; (P) 1.2843; (R1) 1.2887; More...

GBP/USD drew some support from 4 hour 55 EMA and recovers. But it's staying in tight range between 1.2798/2935 and intraday bias remains neutral. Also, as 1.2956 support turned resistance stays intact, near term outlook remains bearish for further decline. On the downside, below 1.1798 minor support will target 1.2661 low first. Break will resume larger fall from 1.4376. However, considering bullish convergence condition in daily MACD, break of 1.2956 will indicate medium term bottoming. And stronger rebound would be seen back to 55 day EMA (now at 1.3066) and above.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA (now at 1.4091). Current downside acceleration argues that it's possibly resuming long term down trend. In any case, outlook will stay bearish as long as 38.2% retracement of 1.4376 to 1.2661 at 1.3316 holds. Retest of 1.1946 should be seen next.

The forex markets has been rather quiet for most of the day. But activity seems to pick up in early US session. Yen remains generally firm despite strong global risk appetite. But it's losing ground to Sterling as the the latter attempts for a rally. Euro is currently trading as the third strongest. Meanwhile, commodity currencies are generally lower with New Zealand Dollar leading, Canadian and Australian Dollar lower. But after all, major pairs and crosses are bounded in very tight range and the picture of who's stronger, who's weaker can easily change.

Turkish Lira suffers some selling as the local markets are back from a week-long holiday. USD/TRY hits as high as 6.2975 but there was no follow through rally to 6.346 near term resistance. The pair is actually back below 6.18 at the time of writing. As long as 6.3460 minor resistance holds, there's nothing to worry about yet. The pair is merely staying in a sideway pattern. And the selloff in Lira isn't reflected in corresponding moment in the forex markets so far.

In other markets, DAX is trading up 0.74% as some attribute to the rally to NAFTA optimism. CAC is also up 0.62% while UK is on holiday. Asian stocks flexed muscles with Hong Kong HSI gained 2.17%, China Shanghai SSE added 1.89%, Singapore Strait Times rose 0.39%. Nikkei also closed up 0.88%. WTI crude oil is nearly flat at 68.74, still some distance from 70 handle. Gold is fluctuating between gains and losses but recent rebound from 1160 is still expected to extend higher after consolidation finishes.

German Ifo business climate rose to 103.8, points to 0.5% GDP growth in Q3

German Ifo business climate improved to 103.8 in August, up from 101.7, beat expectation of 102.0. Current assessment index rose to 106.4, up from 105.3 and beat expectation of 105.5. Expectations index also rose to 101.2, up from 98.2 and beat consensus of 98.5. .

Ifo President Clemens Fuest noted in the release that "The companies were once again more satisfied with their current business situation. Business expectations were revised noticeably upwards. In addition to a robust domestic economic situation, the truce in the trade conflict with the US contributed to improved business confidence. The German economy is performing robustly. Current figures point to economic growth of 0.5 percent in the third quarter."

French Macron: Multilateralism going through a major crisis because of US policy

French President Emmanuel Macron delivers a speech during the annual ambassadors' conference at the Élysée Palace in Paris  today.

There he called on Europe to be a "trade and economic power" with independent tools that can fend of US extraterritorial sanctions. Macron warned that "multilateralism is going through a major crisis which collides with all our diplomatic activity, above all because of U.S. policy." And, "the partner with whom Europe built the new post-World War order appears to be turning its back on this shared history."

He also added that while the current system is imperfect, "unilateralism and trade war is the worst response".  And, "we can build a fairer and more efficient system. I think we should not give in to one's hegemony and everyone's division"

On Brexit, Macron said "France wants to maintain a strong, special relationship with London but not if the cost is the European Union's unravelling." While Brexit is a "sovereign choice, which we must respect", he emphasized that "it can't come at the expense of the European Union's integrity."

Japan PM Abe seeks fresh three year term

Japanese Prime Minister Shinzo Abe declared his candidacy for leadership of the Liberal Democratic Party on Sunday. The party leadership contest will be held on September 20, as a two horse race between Abe and former defence chief Shigeru Ishiba.

The re-election should be an easy win for Abe as he's got support from give of the LDP's seven intraparty factions, which encompass around 70% of its members. A win will give Abe another three year term and he's then on track to become the country's longest-serving Prime Minister.

Abe told a press conference that "I have decided to lead Japan as the LDP leader and the prime minister for three more years, and with this determination, I will run for the leadership election next month." He added that "as we prepare to welcome a historic turning point, what kind of country we want to create will be a contentious issue," and, "I am determined to steer Japan in a new era."

Mexico and US in final hours of bilateral NAFTA talks

The bilateral US-Mexico NAFTA talk is still dragging on. But Mexican Economy Minister Ildefonso Guajardo said on Sunday that "we're practically in the final hours of this negotiation." Nonetheless, at a lunch break of the meeting, Guajardo said he cannot declare victory yet.

Trump also expressed optimism as he tweeted that "A big Trade Agreement with Mexico could be happening soon!" And, "Our relationship with Mexico is getting closer by the hour. Some really good people within both the new and old government, and all working closely together".

Canada is expected to return to the supposed trilateral talks after the US and Mexico complete their negotiations. The three way talks will run well into September and possibly beyond. The US Congress needs 90 days notice to vote on a new NAFTA. The final approval of the deal on Mexico side will be on Lopez Obrador's hands, as he's due to take office on December 1.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2805; (P) 1.2843; (R1) 1.2887; More...

GBP/USD drew some support from 4 hour 55 EMA and recovers. But it's staying in tight range between 1.2798/2935 and intraday bias remains neutral. Also, as 1.2956 support turned resistance stays intact, near term outlook remains bearish for further decline. On the downside, below 1.1798 minor support will target 1.2661 low first. Break will resume larger fall from 1.4376. However, considering bullish convergence condition in daily MACD, break of 1.2956 will indicate medium term bottoming. And stronger rebound would be seen back to 55 day EMA (now at 1.3066) and above.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA (now at 1.4091). Current downside acceleration argues that it's possibly resuming long term down trend. In any case, outlook will stay bearish as long as 38.2% retracement of 1.4376 to 1.2661 at 1.3316 holds. Retest of 1.1946 should be seen next.

Economic Indicators Update

French President Emmanuel Macron delivers a speech during the annual ambassadors' conference at the Élysée Palace in Paris today.

There he called on Europe to be a "trade and economic power" with independent tools that can fend of US extraterritorial sanctions. Macron warned that "multilateralism is going through a major crisis which collides with all our diplomatic activity, above all because of U.S. policy." And, "the partner with whom Europe built the new post-World War order appears to be turning its back on this shared history."

He also added that while the current system is imperfect, "unilateralism and trade war is the worst response". And, "we can build a fairer and more efficient system. I think we should not give in to one's hegemony and everyone's division"

On Brexit, Macron said "France wants to maintain a strong, special relationship with London but not if the cost is the European Union's unravelling." While Brexit is a "sovereign choice, which we must respect", he emphasized that "it can't come at the expense of the European Union's integrity."

The Canadian dollar has recorded slight gains in the Monday session, paring some of the losses seen on Friday. Currently, USD/CAD is trading at 1.3047, up 0.17% on the day. There are on Canadian or U.S events on the schedule. On Tuesday, the U.S releases CB Consumer Confidence.

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. The auto sector is a key pillar of the Canadian economy, and a new NAFTA pact should boost confidence in the Canadian economy and provide a boost to the Canadian dollar.

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 Canadian dollar 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 both sides. some analysts argue 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 DAX has started the week with considerable gains. In the Monday session, the index is at 12,456, up 0.50% on the day. In economic news, German Ifo Business Climate improved to 103.8, above the estimate of 101.9 points.

The equity markets reacted positively to news that the NAFTA negotiations have picked up steam. 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. The upbeat comments have propelled auto stocks on the DAX higher on Monday – BMW is up 1.85%, Daimler 1.08% and Volkswagen 1.78%. A new NAFTA agreement would reduce trade tensions between the U.S and the other two NAFTA members, Canada and Mexico. One of the most important aspects of NAFTA is the auto sector, and Mexico wants to ensure that European cars manufactured in Mexico can enter the U.S with minimal tariffs.

The ECB released the minutes of its July meeting on Thursday. Policymakers were in agreement that economic growth in the eurozone was as expected, and saw no need to tweak monetary p0licy. The minutes noted that the eurozone economy remained in expansion mode and unemployment was falling. However, the threat of protectionism and a global trade war marked serious concerns, which if not addressed, could dampen eurozone growth. Inflation has risen to 1.7%, which some, though it remains unclear if this meets the ECB target of “close to but below 2.0%”. With the ECB expected to wind up its asset-purchase program in December, investors will be looking for policymakers to confirm this move.

Entering into US session, the forex markets decouple from the risk markets today. Global stock markets, from Asia to Europe, trade broadly higher today. But we're seeing Yen as the strongest while commodity currencies are the weakest ones. Nevertheless, for now, with the exception of USD/JPY, all major pairs are trading in Friday's range. It's a consolidative market without a clear direction.

News flow is slow with Germany Ifo as the only futures. Improvement in German business climate paint a positive picture for Q3. Ifo said the readings are consistent with 0.5% qoq in in Germany. But that doesn't translate into strength in Euro.

USD/TRY is given a up today and hits at high as 6.2975 so far. It's currently up 3.8%. As long as 6.3460 minor resistance holds, there's nothing to worried about yet. The pair is merely staying in a sideway pattern. And the selloff in Lira isn't reflected in corresponding moment in the forex markets so far.

In other markets, UK is on bank holiday today. DAX is up 0.46% while CAC is up 0.38% at the time of writing. Asian stocks flexed muscles with Hong Kong HSI gained 2.17%, China Shanghai SSE added 1.89%, Singapore Strait Times rose 0.39%. Nikkei also closed up 0.88%. WTI crude oil is nearly flat at 68.69, still some distance from 70 handle. Gold trades sligthly lower by -0.07%. But recent rebound from 1160 is still expected to extend higher.

Here are the latest developments in global markets:

FOREX: The dollar’s index against a basket of currencies remained higher on the day, though only slightly so, consolidating for the most part last week’s notable declines which largely came on the back of Trump’s Fed-hiking criticism and Fed chief Powell’s perceived-dovish message at Jackson Hole on Friday. Dollar/yen was 0.1% lower, trading roughly 40 pips below Friday’s three-week high of 111.48. Euro/dollar was marginally down. The pair pared some of its earlier losses following better-than-anticipated Ifo survey data on German business sentiment earlier in the day. It is also of note that it touched a near four-week high of 1.1654 during today’s Asian session. Sterling was little changed versus the greenback and the euro, having earlier recorded a near one-year low of 0.9059 pounds against the latter; the prospect of a no-deal Brexit continues to weigh on the currency. Elsewhere, dollar/peso is 0.4% down on the back of seemingly growing prospects for a NAFTA deal between the US and Mexico soon. Such an outcome is likely to bring the loonie in focus as well.

STOCKS: Barring Italian equities – the FTSE MIB was down by 0.7% on Italian budget-angst –, European stocks were broadly in the green at 1123 GMT, buoyed by bullish sentiment on Wall Street on Friday and today’s positive closes in Asia. These in turn were helped by what was seen as a stocks-supportive speech by Powell on Friday and speculation for a US-Mexico NAFTA deal. The pan-European Stoxx 600 was up by 0.2% and the blue-chip Euro Stoxx 50 traded higher by 0.3%. The German Dax and the French CAC 40 were up by 0.5% and 0.4% correspondingly. German automakers BMW, Volkswagen and Daimler, which suffered in the past on the back of tariff-fears, were boosted by the seemingly positive momentum on the NAFTA front and all made the list of top Dax performers; their gains ranged from 1.85% to 1.1%. Meanwhile, UK equity markets are closed for a holiday today. Constracts on the Dow, S&P 500 and Nasdaq 100 were all pointing to a higher open. The S&P and Nasdaq Composite closed at record highs on Friday, with the Nasdaq 100 also coming within breathing distance of its all-time peak.

COMMODITIES: WTI was down by 0.35% at $68.47 per barrel. The benchmark managed to advance for the first time on a weekly basis in roughly two months last week. In the meantime, Brent crude was 0.3% lower, at $75.49/barrel. In precious metals, dollar-denominated gold was 0.1% lower at around $1.204 per ounce; in the previous week it was supported on the back of broad dollar weakness, moving above its lowest since January 2017 of $1,159.96 hit the week before.

Day ahead: US-Mexico NAFTA deal to be announced today?

The remainder of Monday’s calendar is empty of important releases, with the focus in terms of non-calendar events perhaps falling on NAFTA developments and the potential for a deal between the US and the Mexico being sealed soon.

People familiar with the NAFTA discussions are suggesting that a deal may come as soon as later today. The Mexican peso is up on the day on the back of growing speculation for an agreement, while the loonie is likely to post a relief rally in case Canada is invited back to the discussions should a bilateral agreement between the US and Mexico indeed materialize.

Weaker USD, lower Treasury yields, higher equities… Market reactions showed that Fed’s chair Jerome Powell’s speech at Jackson Hole symposium was interpreted as “dovish".

Discussing about “Monetary Policy in a Changing Economy”, Powell revealed the challenges of navigating the stars – u*, the natural rate of unemployment, r*, the neutral real rate of interest, and Π*, the inflation objective, in setting monetary policies.

Emphasizing uncertainty is nothing new. Yet, Powell’s elaborations on Greenspan’s “wait and see approach” and the Brainard’s conservative principle when facing uncertainty have likely sent a dovish message to the market.

All in all, the speech does not alter our view that a rate hike in September in anchored, which is followed by another in December. What the market is closely watching now is whether the Fed would trim one rate hike next year, depending on the upcoming data.

Powell suggested that assessing "stars" (the natural rate of unemployment, the neutral real rate of interest and the inflation target) is challenging in recent years as the “best assessments of the location of the stars have been changing significantly” after the global financial crisis.

The Fed has implemented unprecedented measures (QE) to stimulate growth and inflation in the aftermath of the 2007/08 crisis. Powell revealed that as normalization proceeds, both the Fed members and external analysts have regularly adjusted their assessments of the stars. Given the uncertain economic outlook, the Fed has been navigating the stars in “hazy view” in order to balance between two risks: moving too fast and needlessly shortening the expansion, versus moving too slowly and risking a destabilizing overheating.

In light of the uncertainties, Powell discussed approaches of former Fed Chairman Alan Greenspan and economist Willian Brainard. For the former, Powell recalled in mid- 1996 that Greenspan had a “hunch” that the US was experiencing the wonders of a "new economy" in which improved productivity growth would allow faster output growth and lower unemployment, without serious inflation risks. As such, Greenspan opted to pause rate hikes. Powell suggested that Greenspan’s pause had lifted economic growth.

Concerning the latter, Brainard’s principle suggests that policy should exhibit conservatism in the face of uncertainty. Powell’s elaboration on Greenspan and Brainard’s approaches suggest that he favors a cautious and gradual approach to the Fed’s monetary policy.

GBPUSD - The pair now faces further corrective recovery as we begin a new week. Support lies at the 1.2800 level where a break will turn attention to the 1.2750 level. Further down, support lies at the 1.2700 level. Below here will set the stage for more weakness towards the 1.2650 l0evel. Conversely, resistance stands at the 1.2850 levels with a turn above here allowing more strength to build up towards the 1.2900 level. Further out, resistance resides at the 1.2950 level followed by the 1.3000 level. On the whole, GBPUSD remains biased to the upside on further correction.

EUR/USD

Current level - 1.1609

The recent break through 1.1590 signals a renewal of the uptrend, for a rise towards 1.1750. Initial support lies at 1.1590.

USD/JPY

Current level - 111.17

The intraday bias is still bearish after the reversal at 111.50, but 110.70 support is expected to provide a reliable base for the next upswing, towards 112.20.

GBP/USD

Current level - 1.2840

The rebound above 1.2800 is obviously weak, but the intraday bias is positive, so I favor a rise towards 1.2930 peak.