Sample Category Title

STOCKS

Dow (21948.10, +0.25%) closed near 21950, the immediate resistance we were looking at since the past few days. As mentioned yesterday, a break above 22000 could take it higher towards 22100-22200 in the medium term; else a fall could mean test of lower levels near 21700 again.

Dax (12055.84, +0.44%) has been trying to move up and has been opening the last 3-sessions with a gap-up, unable to sustain the highs in a single session. No bull strength is visible just now. 12200 on the upside is possible in the near term followed by a corrective dip back towards 12000.

19800-19850 is the immediate upside limit for Nikkei (19678.67, +0.17%) just now. Looking at the US-Japan 10Yr yield differential (2.12%), while the yield differential is headed lower towards 2% Dollar Yen (110.04) and Nikkei could be vulnerable to a sharp fall in the coming sessions.

Shanghai (3372.98, +0.36%) recovered sharply giving a false break below 3360 yesterday. If the index manages to sustain above 3360-3375 region, it could indicate the current rally that started from 3200 in August to continue this month as well. In that case, we may negate a fall towards 3275 mentioned yesterday.

Nifty (9917.90, +0.34%) is trapped in the 9950-9750 region just now. We have to remain cautious while below 9950; in case the index fails to break above 9950 in the current rise, it could come off towards 9750 and fall lower in the near term. Else a sustained break above 9950 could give some relief taking the index back towards 10000 or higher. For now preference is for a sharp rejection from 9950.

COMMODITIES

Gold (1324) moved higher as Dollar index failed to hold its ground above 93 regions. Immediate trading range for Gold is 1280-1350 with an interim resistance at 1335. Gold is not overbought yet thus a quick rally could be seen upon a beach of 1335. Similarly Silver (17.54) has also broken its resistance of 17.50 and heading towards 17.80 and 18.00 regions respectively. Both Gold and Silver are out of their short term bearish channel but the supports of 1280 and 16.90 should hold to keep the present bullish momentum intact.

Copper (3.10) is trading within the narrow range of 3.00-3.12. Only above 3.12 (which is still working as strong resistance), higher levels of 3.26 can come into consideration. The only concern in the short term overbought condition which may drag the prices towards 3.00 levels. But we will remain bullish on copper while it is trading above 2.88 levels in the medium term time frame.

Delayed reaction of a weekly shortage in US oil inventory had been seen in both Brent (52.76) and WTI (46.98). Overnight rally pulled the prices up towards their crucial resistance of 52.80 and 49 levels. But we will remain neutral on Brent and WTI, while they are trading below 52.80 and 49 levels on a weekly closing basis.

FOREX

The mentioned Support at 1.1800 held well on the Euro (1.1907), producing a decent bounce. It may now consolidate between 1.1850-2000 for a few days trying to figure out where to go for the nest couple of weeks. Perhaps the upcoming ECB meeting on 7th September will set the direction.

Dollar-Yen (110.04) too turned down well from the mentioned Resistance at 110.65 yesterday. Support at 109.80-50 today. If it breaks, we may see 109.00 next week. On the other hand, should there be a break above 110.65, much higher levels will come into play. Two way possibility in Yen, keep options open. Some greater preference may be given to the upside.

The Euro-Yen (131.04) saw the anticipated dip to 130.80-60 yesterday and is bouncing from there. A rise to 132.45 is possible, which could support the upside preference in Dollar-Yen as well.

Although we were expecting an indecisive range of 1.2825-2925 on the Pound (1.2944) it got bought strongly on an intra-day dip to 1.2850 yesterday. This might suggest increasing strength for the Pound, contrary to our expectation. Continue to watch.

Decent bounce in the Aussie (0.7950) from an intra-day dip to the lower Support at 0.7865 mentioned yesterday. This increases the chances of an eventual rise towards 0.81, but the barrier at 0.80 needs to be broken first.

The Yuan (USDCNY = 6.5785) is trading stronger again. We will be keen to see if the pair bounces from here or not, as we perceive the current levels to be a crucial Support. Let us see.

Dollar-Rupee had closed at 63.90/91 yesterday. It trades at 63.93/94 on NDF just now. It is expected to continue to trade in a range, with the range possibly expanding to 63.80 on the downside.

INTEREST RATES

Euro has managed to rebound from its intraday low asThe German-US 2 Yr Spread (-2.09%) and the German-US 10Yr Spread (-1.76%) both are trying to find support at current levels. If the German-US 2Yr Spread could manage to move up towards -2.00% then it could possible pull up the Euro too.

Sideways move had been seen in the benchmark US 10Yr yield, between 2.09-2.15 regions. But there are rooms for further downside towards 1.97 if the US 10Yr will close below 2.09% on a daily closing basis.

The Japanese 5Yr JGB (-0.14%), 10Yr JGB (0.01%) and the 30Yr JGB (+0.82%) are continuing their consolidation at current levels, suggesting a possible bounce in near term time frame.

The UK 5Yr and 30Yr Gilt Yields moved up (5Yr 0.44% and 30Yr 1.60%) in line with our expectation.The UK 10Yr (1.04%) has also rebound from its low of 1.00.

The Canadian dollar rose on Thursday after the economy surprised to the upside with a 4.5 percent GDP growth in the second quarter being expectations of a 3.7 percent increase. This makes Canada the best performing country in the G7 and has put a rate hike before the end of the year firmly on the table. The Bank of Canada (BoC) is set to deliver its rate statement on September 6, which could be too early with market analyst favouring the October monetary policy meeting which could give the central bank enough time to see what its American and European counterparts will be launching in September. Bond markets are pricing in a 37.8 percent probability of a rate hike in September, up from yesterday’s 20.9 percent. The October rate hike has a 86.8 percent chance according to fixed income prices.

Oil prices came back from the lows caused by Hurricane Harvey. The US administration has approved use of the country’s energy reserves to offsets the shutdown in refinery capacity caused by the tropical storm.

The Trump administration has used hardball tactics ahead of the NAFTA renegotiations that are set to begin formally this weekend. Although the treaty itself leaves the door open for any member to exit the deal by giving six months notice, there are winners and losers of the deal in all three countries. American businesses would be hurt by a sudden end to the agreement, although their gain came from the job losses suffered in America that propelled Mr. Trump into the White House. American companies are hard at work lobbying for the deal to be reshaped for the modern world, but instead are getting anxious at Trump’s tweets threatening to end NAFTA. The three nations have signed non-disclosure agreements on the negotiations leaving the market to speculate on the talks as they happen.

Canadian Prime Minister Justin Trudeau was on a call today with US President Donald Trump the topic was the hope of reaching a deal before the end of the year. Later that day Trudeo addressed union workers and promised them a NAFTA deal they can be proud of while in Montreal.

The USD/CAD lost 0.889 percent in the last 24 hours. The currency is trading at 1.2515 near daily lows after a surprise increase in the expected rate of growth of the Canadian economy. The monthly gross domestic product (GDP) release shoed a 4.5 percent rate of growth beating estimates of 3.3 percent. Strong consumer spending was one of the main drivers of the accelerated rate in the second quarter.

The highest rate of growth in six years has put back on the table a follow up rate hike by the Bank of Canada (BoC) before the end of the year. The central bank cut rates twice in 2015 down to 0.50 percent and with a quick pivot in June, announced a rate hike in July against previous expectations of a 2018 first quarter move. The BoC has made it clear that those cuts are no longer needed as the economy has recovered from the impact of low oil prices. A rate hike in the October meeting could still happen given the strong data released today and is propelling the loonie higher versus the greenback.

Energy prices jumped 2.594 percent in the last 24 hours. The price of West Texas Intermediate is trading at 47.15 after the Trump administration has tapped the Strategic Petroleum Reserve to ease the disruption caused by Hurricane Harvey. The US government will loan its reserves to a refinery set in Louisiana, unaffected by the tropical storm in an effort to offset the shutdowns in Texan refineries.

The US also holds gasoline in emergency reserves and could consider tapping into them if gasoline prices remain elevated during the next couple of weeks until refineries can come back online. Harvey affected about a quarter of Texan refineries and is expected to be two to three weeks until they can reassume operations.

Market events to watch this week:

Friday, September 1
4:30 am GBP Manufacturing PMI
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
10:00 am USD ISM Manufacturing PMI

Tax reform talk and improving data give USD a boost

The US dollar recovered form the soft start of the trading week and is looking ahead of the release of the U.S. non farm payrolls (NFP) on Friday, September 1 at 8:30 am EDT. A strong ADP figure published on Wednesday saw private employers add 237,000 positions in August. The official report due on Friday is expected to have added 180,000 jobs after the 209,000 added the month before. Wages will be the real focus as traders will look for evidence that the U.S. Federal Reserve is ready for a third rate hike this year.

Inflation has remained close to flat in the US and its been a subject of discussion on Fed members. The leading camp has decided to risk raising rates with soft inflation but the lack of growth in wages could lead the central bank to close out 2017 with only a reduction of the balance sheet it accumulated during its quantitative easing program.

The second estimate for the US GDP in the second quarter was above the expectations and hit 3 percent. Price and wage inflation remains muted given the economy is growing at a faster pace and could end up taking a third rate hike off the table.

The EUR/USD dropped 0.076 percent on Thursday. The single currency is trading at 1.1891 ahead of the release of US employment data on Friday. The EUR broke through the 1.20 price level earlier in the week but ran out of momentum as the US indicators slowly turned the tide. ADP employment data and a better than expected second GDP estimate have boosted the US dollar ahead of the publication of the influential NFP report due tomorrow.

The USD recovered across the board, with the main exception being the CAD after a strong Q2 GDP release. The moves against the USD seemed overdone but with political turmoil and Hurricane Harvey and little data to go on in the beginning of the week there was hardly anywhere for the USD to go. With some distance from the Jackson Hole summit which brought little support the dollar, economic indicators and a push for tax reform are lifting the USD. The move will be confirmed if on Friday the NFP report not only manages to show a strong headline number of jobs, but also a rise in wages.

Energy prices jumped 2.594 percent in the last 24 hours. The price of West Texas Intermediate is trading at 47.15 after the Trump administration has tapped the Strategic Petroleum Reserve to ease the disruption caused by Hurricane Harvey. The US government will loan its reserves to a refinery set in Louisiana, unaffected by the tropical storm in an effort to offset the shutdowns in Texan refineries.

The US also holds gasoline in emergency reserves and could consider tapping into them if gasoline prices remain elevated during the next couple of weeks until refineries can come back online. Harvey affected about a quarter of Texan refineries and is expected to be two to three weeks until they can reassume operations.

The USD/CAD lost 0.889 percent in the last 24 hours. The currency is trading at 1.2515 near daily lows after a surprise increase in the expected rate of growth of the Canadian economy. The monthly gross domestic product (GDP) release shoed a 4.5 percent rate of growth beating estimates of 3.3 percent. Strong consumer spending was one of the main drivers of the accelerated rate in the second quarter.

The highest rate of growth in six years has put back on the table a follow up rate hike by the Bank of Canada (BoC) before the end of the year. The central bank cut rates twice in 2015 down to 0.50 percent and with a quick pivot in June, announced a rate hike in July against previous expectations of a 2018 first quarter move. The BoC has made it clear that those cuts are no longer needed as the economy has recovered from the impact of low oil prices. A rate hike in the October meeting could still happen given the strong data released today and is propelling the loonie higher versus the greenback.

Market events to watch this week:

Friday, September 1
4:30 am GBP Manufacturing PMI
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
10:00 am USD ISM Manufacturing PMI

USD/CAD dropped like a stone from the resistance zone that we have been following on the blog recently, as the Canadian Dollar decided to rip higher.

The Canadian economy surprised the market to the upside with a 4.5% GDP growth in the second quarter. This was MUCH better than market expectations of a 3.7% increase and makes Canada the best performing economy in the G7. Though that tag does bring with it future issues for the Bank of Canada, like the fact that an interest rate hike is now an almost definite next step.

Interest rate futures markets are pricing in a 37% probability of a rate hike in September and an 86% probability in October. The question remains when, but the market is going to look to price the move in which is negative USD/CAD regardless:

USD/CAD Daily:

As you can see on the daily chart, the higher time frame support/resistance levels are being respected nicely and after bouncing at the 2016 swing low support level, price then retested resistance and was slapped straight back down on the data release.

Technicals predicting the fundamentals? Who would have thought!

Stepping down into the hourly and you can see the resistance zone that price was sitting at just as the news was released much more clear. The way price sets itself up at important technical levels before fundamental data is released still amazes me every time.

Canada posted its best half in 16-years as Q2 soared above expectations. The Canadian dollar was easily the top performer on the day and USD/CAD suffered further on late USD selling ahead of nonfarm payrolls, which is the main highlight in the day ahead as the calendar turns to September. We will also take a look at seasonals. 2 new Premium trades have been issued in USD and GBP pairs.

Canadian GDP rose 4.5% q/q annualized in the second quarter, far above the +3.7% consensus in the best quarter since 2011. It builds on +3.7% growth in Q1. The details of the data were just as positive as consumers, business investment and trade all expanded along with incomes. Compared to a year ago, GDP is up 4.3% and all the forward-looking metrics point to another decent quarter for Q3.

That will certainly draw the Bank of Canada's attention ahead of the Sept 6 meeting. The odds of a hike rose to 41% from 26% in the aftermath of the report. USD/CAD fell nearly 2 cents and could fall much more if a hike comes and is coupled with a hawkish statement.

The US also got some good news as personal income rose 0.4% in July compared to 0.3% expected and the Chicago PMI was slightly higher. But other indications were negative. Pending home sales fell 0.8% as signs mount of a rut in housing. In a sign that inflation pressures aren't building, the core PCE price index fell to 1.4% annualized from 1.5% in July.

Mnuchin & Data Rein in USD

The dollar fell about 75 pips across the board in the latter half of the day. Part of the blame was heaped on Mnuchin for saying a weaker dollar was better for trade but focusing on that line alone took his words out of context.

What's more likely is that month-end flows depressed the dollar. There is also abundant talk about how August non-farm payrolls consistently underperform. They've missed the consensus on the first reading in 16 of the past 20 years including an average of 48K in the past six years.

We get the sense, however, that it's a well-known seasonal hiccup and that most traders may be selling USD on the rumour of a soft report. In turn, they could cover when the data hits, even if it's weak.

Quick hits:

The Chinese yuan remains the least talked about story in FX. It was easily the best performing currency in August, followed by the Swiss franc and euro. The New Zealand dollar lagged badly.

Most major stock markets were up in August but less than 1%. Factoring in FX changes, the Nasdaq and Italian MIB were top performers.

At the start of August we warned it was tough month for the pound. Cable fell 2% and only the New Zealand dollar fared worse than GBP.

We also warned that gold was a winner in August. It gained more than 4% en route to the highest levels since November 2016.

On Aug 1, we highlighted that August was a poor month for AUD and fell in 10 of the past 12 Augusts. That continued and it had been down as much as 2.3% mid-month but recovered to finish down 0.7%.

Finally, we warned about consistently high volatility in August and that was definitely the cast as the VIX jumped as much as 68% before fading to just a 3.3% gain at month end.

We will have September seasonals in the days ahead.

Gold has posted considerable gains in the Thursday session. In North American trade, spot gold is trading at $1317.83, up 0.69% on the day. In economic news, unemployment claims edged up to 236 thousand, just below the forecast of 237 thousand. Personal Spending came in at 0.3%, shy of the estimate of 0.4%. The news from the housing sector was also disappointing, as Pending Home Sales posted a sharp decline of 0.8%, well off the forecast of +0.4%. On Friday, we'll get a look at key employment data. Average Hourly Earnings is expected to edge lower to 0.2%, and the markets are braced for Nonfarm Employment Change to drop to 180 thousand.

Gold prices have shot up 1.9% this week, despite a stellar showing from GDP in the second quarter. Preliminary GDP (second estimate) was revised to 3.0%, a marked improvement from the first estimate of 2.6%. Consumer confidence and spending remain strong and helped contribute to second quarter growth, which posted its strongest gain since the first quarter of 2015. However, solid consumer spending has failed to boost inflation, and wage growth remains weak. The markets will be looking closely at the July wage growth report, which is expected to show a weak gain of 0.2%. The lack of inflation could hamper the Federal Reserve's plans to raise interest rates, with the likelihood of a rate hike in December standing at just 35%. On the employment front, ADP Nonfarm Payrolls jumped to 237 thousand, marking a 3-month high. The official Nonfarm Payrolls report will be released on Friday, and if this indicator also beats the forecast, it would be a strong indication that the economic momentum has continued into the third quarter.

Gold is considered a safe-haven asset, and often benefits when investors get jittery and lose their risk appetite. Such was the case this week, as renewed tensions between the US and North Korea early in the week propelled the metal above the symbolic $1300 level. On Tuesday, North Korea fired a missile over Japanese territory, drawing sharp condemnations from Japan and the US, with President Trump declaring that "all options remain on the table". Although, tensions have since eased somewhat, if North Korea decides to fire another missile towards Japan or the US military base on Guam, gold prices will likely move higher.

The British pound has posted losses in the Thursday session. In North American trade, the pair is trading at 1.2884, down 0.31% on the day. On the release front, there are no British events on the schedule. In the US, unemployment claims edged up to 236 thousand, just below the forecast of 237 thousand. In the US, Personal Spending improved to 0.3%, just shy of the estimate of 0.4%. The news was not as good from the housings sector, as Pending Home Sales posted a sharp decline of 0.8%, well off the forecast of +0.4%. On Friday, the UK releases Manufacturing PMI, with an estimate of 55.1 points. In the US, we'll get a look at key employment data. Average Hourly Earnings is expected to edge lower to 0.2%, and the markets are braced for Nonfarm Employment Change to drop to 180 thousand.

The US economy look sharp in the second quarter of 2017, as Preliminary GDP (second estimate) for the second quarter was revised to 3.0%. This figure was a marked improvement from the first estimate of 2.6%. Consumer confidence and spending remain strong and helped contribute to second quarter growth, which posted its strongest gain since the first quarter of 2015. However, solid consumer spending has failed to boost inflation, and wage growth remains weak. The markets will be looking closely at the July wage growth report, which is expected to show a weak gain of 0.2%. The lack of inflation could hamper the Federal Reserve's plans to raise interest rates, with the likelihood of a rate hike in December standing at just 35%. On the employment front, ADP Nonfarm Payrolls jumped to 237 thousand, marking a 3-month high. The official Nonfarm Payrolls report will be released on Friday, and if this indicator also beats the forecast, it would be a strong indication that the economic momentum has continued into the third quarter.

The Brexit negotiations continue to grind slowly, causing concern in both Brussels and London. A third round of talks ended on Thursday in Brussels. Britain and the EU remain far apart on a range of issues and even the scope of the talks remain in dispute. Britain wants to discuss a future trading relationship with the EU at the same time that points in contention are dealt with, but the Europeans insist on solving the contentious issues first, such as the size of Britain's bill and the jurisdiction of the European High Court on European citizens living in the UK. With plenty of distrust between the sides, the negotiations could grind to a halt if both sides don't show greater flexibility, and such a scenario would likely take a toll on the British pound.

USD/CHF - 0.9618

Most recent candlesticks pattern : N/A

Trend                                    : Down

Tenkan-Sen level                  : 0.9643

Kijun-Sen level                    : 0.9631

Ichimoku cloud top                 : 0.9549

Ichimoku cloud bottom              : 0.9518

Original strategy :

Buy at 0.9540, Target: 0.9640, Stop: 0.9505

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9540, Target: 0.9640, Stop: 0.9505

Position : -

Target :  -

Stop : -

As the greenback has retreated after intra-day rise to 0.9680, suggesting minor consolidation below this level would be seen and pullback to 0.9580-85 is likely, however, reckon downside would be limited to support t 0.9539 and bring another rise later, above 0.9650 would bring test of said intra-day resistance at 0.9680, break there would extend the rise from 0.9428 low to previous resistance at 0.9698-99 but overbought condition should limit upside and reckon 0.9725-30 would hold on first testing.

In view of this, we are looking to buy dollar on further subsequent pullback as 0.9539 support should limit downside and bring another rebound later. Below 0.9500-10 would defer and suggest first leg of rise from 0.9428 has ended, risk weakness to 0.9470 but price should stay well above said support at 0.9428, bring another rebound. 

GBP/USD - 1.2877

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2886

Kijun-Sen level                    : 1.2895

Ichimoku cloud top              : 1.2929

Ichimoku cloud bottom        : 1.2916

Original strategy :

Bought at 1.2855, Target: 1.2955, Stop: 1.2820

Position : - Long at 1.2855

Target :  - 1.2955

Stop : - 1.2820

New strategy  :

Hold long entered at 1.2855, Target: 1.2955, Stop: 1.2820

Position : - Long at 1.2855

Target :  - 1.2955

Stop : - 1.2820

Although cable has dropped again after brief recovery and near term downside risk remains for the fall from 1.2979 (this week’s high) to extend marginal weakness, reckon downside would be limited to 1.2850-52 (61.8% Fibonacci retracement of 1.2774-1.2979) and bring rebound later, above 1.2935-40 would signal the retreat from 1.2979 has ended, bring retest of this level first.

In view of this, we are holding on to our long position entered at 1.2855. Below previous resistance at 1.2837 would defer and signal first leg of upmove from 1.2774 has ended, risk weakness to support at 1.2813 but price should stay well above support at 1.2774, bring another rebound later. 

EUR/USD - 1.1877

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 1.1865

Kijun-Sen level                  : 1.1876

Ichimoku cloud top             : 1.1982

Ichimoku cloud bottom      : 1.1956

Original strategy  :

Sell at 1.1950, Target: 1.1850, Stop: 1.1985

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1950, Target: 1.1850, Stop: 1.1985

Position : -

Target :  -

Stop : -

As the single currency has recovered after intra-day fall to 1.1823, suggesting consolidation above this level would be seen and corrective bounce to 1.1900-05 is likely, however, reckon upside would be limited to 1.1950-55 and bring another decline to 1.1815-18 (61.8% Fibonacci retracement of 1.1662-1.2070) but downside should be limited to 1.1790-00 and support at 1.1773 should remain intact. 

In view of this, we are looking to sell euro on recovery as 1.1950-55 should limit upside. Above 1.1980-85 would risk a stronger rebound to 1.2005-10 but still reckon upside would be limited to 1.2035-40 and price should falter below said this week’s high at 1.2070, bring another retreat later.