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Daily Pivots: (S1) 1.1560; (P) 1.1599; (R1) 1.1664; More.....

Intraday bias in EUR/USD remains on the upside with 1.1529 minor support intact. Rebound from 1.1300 is in favor to extend to 38.2% retracement of 1.2555 to 1.1300 at 1.1779. We'd expect upside to be limited there, at least on initial attempt, to bring near term reversal. On the downside, below 1.1529 minor support will turn bias back to the downside for retesting 1.1300 low. But after all, consolidation from 1.1300 will extend for a while before completion.

In the bigger picture, a medium term bottom should be in place at 1.1300, on bullish convergence condition in daily MACD and some consolidations would be seen. But still, note that EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. That carries some long term bearish implications. Thus, we'd expect fall from 1.2555 high to resume after consolidation completes. Below 1.1300 should send EUR/USD through 61.8% retracement of 1.0339 to 1.2555 at 1.1186. And, in that case, EUR/USD would head to retest 1.0339 (2017 low).

Risk appetite was rather strong in Asian session today. Nikkei closed up 0.88% at 22799.64. At the time of writing, Hong Kong HSI is up 2.05%, China Shanghai SSE is up 1.70% and Singapore Strait Times is up 0.63%. The rally in stocks is partly due to record close in NASDAQ and S&P 500 on Friday. Also, the markets responded positively to the PBoC's measures to pause Yuan's decline. In short, China's central bank reintroduced measures that acts counter-cyclical to market forces to keep Yuan from falling too quickly. Yuan hit the highest level in more than two weeks earlier today but there is no follow through buying.

The currency markets are mixed though. Yen is trading as the strongest one despite strong rally in equities. Canadian Dollar follows as the second strongest. Meanwhile, Dollar regains some ground and is trading as the third strongest. Euro, on the other hand, is paring back some of the last week's gains. Australian and New Zealand Dollar follow as the second weakest. Though, it should be noted that except USD/JPY and CAD/CHF, all major pairs are bounded in Friday's range, indicating lack of clear direction.

Technically, dollar index should be in medium term correction now. More upside is in favor in EUR/USD as long as 1.1529 minor support holds. Similarly, more decline is expected in USD/CHF as long as 0.9889 minor resistance holds. But the greenback is staying in established range against Sterling, Australian and Canadian Dollar. It's yet to be seen which side the Dollar is taking. Meanwhile, today's retreat in USD/JPY is putting focus back to 110.74 support and break will invalidate near term bullishness.

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.

US PCE, Canada GDP and China PMIs to watch in a slow week

Looking ahead, this last week of August is relatively light. US PCE is a major focus. Fed Chair Jerome Powell was clear in his speech that "if the strong growth in income and jobs continues" further rate hikes are appropriate. But that was in the context of no acceleration in inflation above 2%. With no sign of slowdown in the job market, the key to Fed's path beyond neutral rate lies in when and whether inflation will pick up.

Canada GDP is another focus. For now, we're still leaning towards an October BoC hike but there are speculations of a September hike. We'll see if GDP supports which one. China's PMIs will probably reveal how businesses are affected by the escalating trade war with the US.

Here are some highlights for the week:

• Monday: German Ifo business climate
• Tuesday: Eurozone M3 money supply; US trade balance, whole sale inventories, S&P Case-Shiller house price, consumer confidence
• Wednesday: Japan consumer confidence; German Gfk consumer sentiment; French GDP; Canada current account; US GDP revision, pending home sales
• Thursday: New Zealand building permit ANZ business confidence; Australia building approvals, private capital expenditure; Japan retail sales; German CPI, import price, unemployment; UK mortgage approvals; Canada GDP, US personal income and spending, jobless claims
• Friday: Japan Tokyo CPI, unemployment rate, industrial production, housing starts; China PMIs; German retail sales; Eurozone CPI, unemployment rate; Canada RMPI and IPPI, US Chicago PMI

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1560; (P) 1.1599; (R1) 1.1664; More.....

Intraday bias in EUR/USD remains on the upside with 1.1529 minor support intact. Rebound from 1.1300 is in favor to extend to 38.2% retracement of 1.2555 to 1.1300 at 1.1779. We'd expect upside to be limited there, at least on initial attempt, to bring near term reversal. On the downside, below 1.1529 minor support will turn bias back to the downside for retesting 1.1300 low. But after all, consolidation from 1.1300 will extend for a while before completion.

In the bigger picture, a medium term bottom should be in place at 1.1300, on bullish convergence condition in daily MACD and some consolidations would be seen. But still, note that EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. That carries some long term bearish implications. Thus, we'd expect fall from 1.2555 high to resume after consolidation completes. Below 1.1300 should send EUR/USD through 61.8% retracement of 1.0339 to 1.2555 at 1.1186. And, in that case, EUR/USD would head to retest 1.0339 (2017 low).

Economic Indicators Update

Asian stocks surge strongly and broadly today. At the time of writing, Nikkei is up 0.88%, and Singapore Strait Times is up 0.66%. But the more powerful rallies are found in Chinese and Hong Kong stocks. The Shanghai SSE is up 1.43% while HSI is up 2.06%. The moves are partly follow-up to record close in NASDAQ and S&P 500 on Friday. Also, the markets responded positively to the PBoC's measures to pause Yuan's decline. In short, China's central bank reintroduced measures that acts counter-cyclical to market forces to keep Yuan from falling too quickly.

USD/CNH (offshore Yuan) is now notably below August high at 6.9586. And 6.9871 key resistance 2016 high, temporarily defended. With a short term top formed, USD/CHN will likely gyrate lower to 55 day EMA (now at 6.7238) and possibly further to 38.2% retracement of 6.2358 to 6.9586 at 6.6825. But we'd like to emphasize that the pull back is also due post-Powell weakness in Dollar. And, for such a heavily intervened currency, technical analysis is not that useful generally.

Meanwhile, the currency markets are not too fuzzed with the developments. Yen ignores the return of risk appetites and trades higher today. Australian Dollar turns softer while Dollar remains weak. After all, the forex markets are quietly mixed. The UK will be on holiday today and the only notable data is German Ifo business climate. Light summary holiday trading might prevail.

As suggested in the CFTC Commitments of Traders report in the week ended August 21, NET LENGTH of USD index rose +2 089 contracts for 34 122 contracts for the week. However, this was driven by the decline in speculative short positions offsetting that of longs. during the reporting week, the DXY index plunged -1.52%. For the week ahead, traders might trim their bets on the greenback after Fed Chair Jerome Powell sent dovish message at the Jackson Hole symposium. 
NET SHORT of EUR futures rose +3 052 contracts to 4 841 contracts. Although EURUSD recovered, up +1.29%, for the week, traders remained pessimistic over the outlook of the Eurozone. Despite ECB's tapering plan, the market still expects the policy rate to stay at historically low level for some time. The yield spread between US and Eurozone Treasury yields continue to weigh on the prospect of the single currency. Meanwhile, NET SHORT for GBP futures deepened to 72 338 contracts, up +11 597 from the prior week. GBPUSD rebounded +1.41% during the reporting period. However, the outlook for sterling remains clouded by Brexit uncertainty.

On safe-haven currencies. Net SHORT for CHF futures rose +1 369 contracts to 47 218 while that for JPY futures plunged -10 962 contracts to 47 406 during the week. Safe haven demand have lifted the yen recently. Traders added speculative long positions by +4 747 contracts, and reduced short by -6 215 contracts, last week. Yet, Japanese economic outlook remains the key. Released last week, core CPI, excluding fresh food only, rose 0.8% y/y in July, maintaining the same pace as in June. This remained far below the central bank's +2% target. inflation excluding both fresh food and energy prices, one that is more compatible with core inflation in international standard, edged slightly higher to +0.3% y/y, up from +0.2% in June.

All commodity currencies stayed in NET SHORT positions. NET SHORT for AUD futures dropped -1 576 contracts to 50 207, while that for NZD futures fell -1 550 contracts to 25 143. NET SHORT for CAD futures added 823 contracts to 27 021.

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.

Key Highlights

• The Euro made a nice upside move from the 1.1300 swing low against the Japanese Yen.
• 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.

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."

STOCKS

Overall indices look bullish except Shanghai and Dax which could see some sideways ranged movement.

Immediate support near 25600 seems to be holding for now. While Dow (25790.35, +0.52%) trades above 25750, the index looks bullish towards 26000+ levels.

Dax (12394.52, +0.23%) continues to trade sideways just now. As mentioned last week, there are equal chances of moving on either sides towards 12600-12700 or 12200 levels in the near term.

Nikkei (22795.64, +0.86%) has risen sharply and could continue to move up in the near term. Next 2-3 sessions could see a test of resistance near 22800-22850.

Shanghai (2749.74, +0.74%) is trading sideways and could remain in the 2750-2650 region for some more time. This week could see sideways range trade in the Shanghai composite index.

Nifty (11557.10, -0.22%) needs to sustain above 11600 to continue to move up targeting 11800 or higher. Else a fall to 11500-11400 could be seen in the near term.

COMMODITIES

Commodities have risen well and while that continues, look bullish for the near term.

Brent (75.72) has earlier resistance turned support at 75 and while that holds, Brent could attempt a rise towards 78.0-78.5 in the near term. Nymex WTI (68.57) also is likely to rise towards 72 or higher while above 68. Near term looks bullish for the next 2-3 sessions.

Gold (1211) has managed to rise above initial resistance near 1210. While the price sustains above 1210, it could slowly move up towards 1225-1230 in the coming sessions.

Copper (2.70) needs to rise above current levels to continue towards 2.85 on the upside. Failure to rise past current levels would again bring back 2.65-2.60 into the picture.

FOREX

Dollar strength might see a return this week as Euro looks like it might dip from 1.17, Yuan might not break below 6.80 and Dollar Yen might move up towards 112-113. Watch out for important levels on the Turkish Lira.

Dollar Index (95.05) has important support coming up in the 95.00-94.75 zone. While above this level, another rise beyond 96 in this week is possible.

Euro (1.1633) The Euro has crucial (and possibly strong) Resistance coming up just near 1.1675-1.1700. Above that, on the weekly candles, previous support trendline might also give some resistance near 1.175. While below these resistances, the Euro could again dip towards 1.155.

Dollar Yen (111.00): Dollar Yen broke above important resistance near 111 last week and is currently trading near the same level. While above 111, it could test resistance near 113 on weekly candles in the next 2-3 weeks. Hence this week might just see a slow upmove towards 112.

Euro Yen (129.14): Euro Yen has important resistance coming up near 130-131 which might cap its current upmove. A breach of 130-131 would be bullish and is currently less preferred.

Pound (1.2855) is trading close to resistance on daily line chart near 1.285. A decisive breach of 1.285 could even lead to an upmove towards higher resistance near 1.3050 in this week. The broader longer term trend is however expected to stay bearish in the weeks ahead.

Dollar Yuan (6.8215) has risen from support near 6.80. While above 6.80, it could again rise towards 6.89 in the next 1-2 sessions.

Turkish Lira (5.99): Imp levels to look out for would be 6.19-20 on the upside and 5.96 on the downside. A break on either side could trigger a signficant move in the respective direction. There is expectation of some volatility in the Lira this week - important to keep a watch on the above mentioned levels.

Dollar Rupee (69.91) : If immediate support @ 69.90-80 breaks, USDINR could fall to lower support @ 69.50-40.

INTEREST RATES

The US Fed Chairman's comments in the Jackson Hole Conference on Friday has led some analysts to interpret that a December rate hike by the US Fed might get delayed to 2019. If this belief grows stronger in the markets, then the May high of 3.125% for the US 10 year yield would be confirmed as the year's top.

Crucial levels to watch out remain the same as mentioned on Friday :

US 10 Year Yield (2.82%) : A break below 2.81%-2.80% would lead to a further decline towards 2.75%-2.74%. Chances for the same are increasing.

US 30 year (2.97%): A break below support near 2.98%-2.97% would be quite bearish.

German 10 year yield (0.34%): Could rise 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 (-2.49%) could rise 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.

The Japanese 30Yr (0.83%) : Crucial Resistance near 0.85% - should hold for now.

Powell, Puppets and Politics

A couple of takeaways from my trip.

1) Canadian Spot Traders are bullish in the Loonie and rightly so given Governor Poloz is the second most hawkish Central Banker next to Fed Chair Powell

2) Sterling traders are sick of talking about Brexit, even more so that we’re sick of hearing about it

Equity Markets

US equity markets closed at a new record high on Friday after Fed Chair Powell’s comments during his Jackson Hole speech were taken to be slightly dovish. Most Asian market futures are indicating a positive open on Monday.

Oil Markets

Falling US Rig counts and last weeks decline in US inventories are supporting oil prices amid a protracted US-China trade war that could dampen global growth and weight on oil demand. Despite growing concerns about potential oversupply, the markets will continue to get a fillip from US sanctions against Iran.

Gold prices

The weaker USD is giving Gold and nice lift after Fed Chair Jerome Powell signalled that the FOMC remains on a gradual rate hike path. While the speech was a tad dovish, golds resurgence may be as much position related as it is a real demand given the extended short Gold positions that have been build up over the past few weeks which resulted in several stop losses runs getting triggered.

Silly Season

But finally, we’re coming to the end of ” silly season” (an affection moniker used to describe August in currency markets) and by all accounts, the month lived up to its nickname after another episode of currency traders gone wild aired thanks to the political meltdown in Turkey.

Turkey

Speaking of Turkey, the market reopens after a week-long holiday on Monday with more question than answers but sometimes ” time outs”, even coincidental holiday periods allow cooler heads to prevail. And with liquidity likely to come back to normal as locals return after the holiday, markets could be relatively contained until September 13 MPC date where a rate hike is expected but by no means is a lock.

Mexican Peso

The other non-ASEAN EM currency to keep an eye on is the Mexican Peso for all the right reasons as headlines reports suggesting US /Mexico are close to resolving key NAFTA issues.

Political Noise

Of course, there will be no escaping political noise with Mueller investigation, Italy and Australian politics filling the docket; I think these short-term themes will continue driving the dollar.

Pragmatic Approach

But even with all the political commotion I still like to hold a very practical longer-term approach to the USD based on Central bank policy. With the Fed, the only man standing, the USD should continue to make inroads.

Jackson Hole

So far Its been a relatively quiet start to the session with most of the discussion centring on Jay Powell’s Jackson Hole speech and Australian Politics.

As far as Jackson Hole, it looks like the dollar bulls were a bit disappointed even more so given that positioning was slightly long USD heading into Powell speech. It’s not like he was dovish, he just wasn’t hawkish enough to move the fed rate hike dial. Therefore, the dollar has remained offered at this morning open as US Treasuries remain bid.

The Fed

This sitting Fed is not about to overreact to cyclical strength in the economy, and I even suspect the same would hold true for short-term fluctuations in inflation. An off-course Fed Chair Powell was just hawkish enough not to give off any hint of being a Trump puppet.

Australian Dollar

AS for the Aussie dollar, it was in very much oversold position so the move above .7425 could be viewed as relief rally of sorts. And while the domestic political landscape could get worse before it gets better, for me, the short Aussie trade is all about economic fundamentals as at the heart of the market the Australian economy remains an asset bubble on top of an iron ore mine which will keep the RBA on hold for some time to come.

The Euro

The other currency that will be a primary focus is the EURUSD, and while I expect the market to start fading this recent EURO move because of Italy’s Risk which matters because it’s enormous and the ECB is more than content sitting on their hands. While there could be another squeeze higher, but seller will likely emerge en masse near 1.1700.

The Chinese Yuan

But ultimately its hard to ignore USDCNY (CNH) influence on G10 decisions as this pair remains at the epicentre of trade war bluster. And despite no compelling headlines, USDCNH continues to come off heavy as an investor is starting to buy into the fact that most of the trade war negative news is priced into the market. Also, talk that the Pboc, not surprisingly, has resumed to counter-cyclical factor in the CNY midpoint fixing mechanism to curb Yuan weakness to thwart possible upticks in capital outflows should calm both local and international investors that this move does signal the Pboc has no intention of moving into a full-scale currency war in the trade war escalations

The Malaysian Ringgit

The Malaysian Ringgit should get support for lower US yields a weaker USD and rising oil price. That positive cocktail of good news usually leads to a good day for the Ringgit. While the Ringgit does look incredibly cheap on the surface, the external trade war factors along with domestic political issues continue to hamper the local unit. While the subtle liberalising of BNM currency policies are viewed positively, there is an overriding concern in the market that the BNM next policy move could be lower especially if the escalation US-Sino trade tensions have a negative impact on Q2 GDP

Traders have turned bearish on the commodity market, amidst concerns over deceleration in Chinese economic growth and US oil production. According to the CFTC Commitments of Traders report for the week ended August 21, traders trimmed speculative long positions of crude oil futures by -13 183 contracts. Meanwhile, they increased shorts by +21 460 contracts, resulting in a decline of NET LENGTH, by -34 643 contracts, to 538 785 contracts. Traders reduced bets on both sides for both heating oil and gasoline futures. for the former, Net LENGTH fell -2 058 contracts to 35 310. The decrease  in long positions (-2 881 contracts) more than tripled the decline in shorts (-2 058 contracts). Speculative long positions for gasoline plunged -10 007 contracts while shorts fell -6 779, resulting in a decline of -3 228 contracts in NET LENGTH for the week. Net SHORT for natural gas fell further, by -14 548 contracts,  to 61 665 contracts for the week. Traders increased bets for price increase while bets for further price fall were reduced remarkable.

On the precious metal complex, gold and silver futures stayed in NET SHORTS for a second consecutive week, as traders expected prices to weaken further. NET SHORT for for the former rose +5 022 contracts to 8 710, while that for the latter increased to 7 158 contract. For PGMs, NET SHORT of platinum added +810 contracts to 10 992 while NET LENGTH for palladium was down -1 029 contracts to 982.