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STOCKS

Dow (21812.09, -0.40%) dipped yesterday after threat from Trump to let the US government shut down over funding for a border wall. The Dow index slipped 87 points yesterday and if it remains below 21900, chances of testing 21670-21600 comes into the focus again. A medium term top seems to have been made near 22179 earlier this month and while that holds, we would have to remain cautious for seeing some more dips on the downside.

Dax (12174.30, -0.45%) is trading above weekly support levels of 11980 which could take the index to higher levels in the coming sessions. A break below 11980, if seen could extend the fall from levels near 13000 to lower levels of 11700-11600 in the coming weeks. Watch price action near crucial support at 11980 just now.

Asia-Pac likely to remain bearish in the near term. The stock indices are all set on extending the downside correction before attempting on any recovery just now. Nikkei (19408.80, -0.13%) trades below 19650 and while it remains below 19650, the fall that started near 20000 could continue towards 19000 levels in the near term. This could also lead to a fall in the Dollar Yen (109.16) in the coming sessions.

Shanghai (3283.58, -0.13%) could start off its corrective mode while resistance at 3300 holds. A fall towards 3260/50 looks likely just now. Unless a break above 3300 is seen, we expect a short corrective fall in the coming sessions.

Nifty (9852.50, +0.89%) closed above 9850 yesterday but is likely to remain range-bound within 9700-9900 region for a few more sessions. Immediate support and resistance levels are visible at 9700-9680 and 9900 levels respectively. We would suggest to remain cautious as the downside vulnerability is still intact while below 9900.

COMMODITIES

Gold (1289) was unable to move beyond its key physiological resistance of 1300. Thus it could remain in a sideways channel of 1275-1298 regions for rest of this week. Silver (16.93) is also trading within the range of 16.50-17.05 regions. Only a daily close above 17.05 could open up 17.50 levels.

Copper (2.98) moved up but still within the narrow range of 2.85-98. Only above 2.98, higher resistances of 3.05 and 3.12 can come into consideration. We will remain bullish on copper while it is trading above 2.85 regions.

This is the 9th consecutive week of shortage in U.S. oil inventory and as a result Brent (52.55) moved up but still within the range of 47-54,narrowed from 45-55 last month.Only a close above 54 could open higher levels of 56 and 59 respectively . WTI (48.37) has also moved up along with Brent. We will remain bullish on Brent and WTI while they are trading above 47 and 46 regions respectively.

FOREX

Overall weakness in the Dollar and Pound continues. Dollar-Yen suggests Risk is still in the air.

The Euro-Yen (128.85) is largely stable as both the Euro (1.1805) and the Yen (USDJPY 109.17) have gained simultaneously against the Dollar. The Dollar Index (93.28) continues to consolidate sideways between 92.50-94.25, but may resume the overall downtrend while the Resistance at 94.00-25 continues to hold.

The mentioned Support at -1.81% on the German-US 10Yr Spread (-1.79%) has held well enough, lending a bit of a bounce to the Euro (1.1805). We need to see if the Spread will now move up further towards -1.75% or not, for which the market will be looking forward to Jackson Hole tomorrow.

Dollar-Yen (109.17) found Resistance near 109.80 itself early yesterday morning and is therefore likely to remain ranged between 108.60-109.80 for a few more days. In the longer term, the chances of an eventual break below 108.60 are higher. Keep an eye on this, as it suggests lurking danger. Maybe USA - North Korea?

The Pound (1.2800) hasn't broken below 1.2787 as yet but remains bearish while below 1.2845-50. It looks particularly bearish against the Yen (GBPJPY = 139.60) but may have Resistance against the Euro near the current level (EURGBP = 0.9230). This last is a cautionary note against our expressed bullishness on the EURGBP over the last few days.

The Aussie (0.7903) has managed to avoid a fall, bouyed by the rise in the Euro. It appears ranged between 0.7830-7950 for the next few days, within the still intact overall uptrend.

As expected, the Chinese Yuan (USDCNY = 6.6588) has strengthened a bit more since yesterday. We target 6.6150 on the downside. Dollar-Rupee quotes 64.05/10 on the NDF, after having closing near 64.11 yesterday.

INTEREST RATES

The US yields are hovering around their crucial areas of supports as investors are focusing on the Jackson Hole conference this week, specially Fed Chair Yellen's speech on Friday 9.30 PM IST to get insights on the outlook for monetary policy.

Euro moved up in line with our expectation. the German-US 2Yr Spread (-2.02%) and the German-US 10Yr Spread (-1.80%) are looking stable at current levels and rise towards -1.98% and -1.76% respectively, which could be beneficial for Eur as well. Besides market is waiting for ECB President Draghi's speech on this Saturday at 12.30 AM IST.

The Japan 5Yr (-0.10%) and the 10Yr (0.03%) are also stable at this moment. The Japan 30Yr (0.82%) might find support at current levels and could move upward towards 0.90%.

Muted price action had been seen in the UK yields . The 10YR (1.06%) and the 20YR (1.61%) both have scope of testing 1% and1.50% on the downside.

USD/CAD is trading in the red after the false breakout above the warning line (wl4) and could slip much lower on the short term. Has retested the median line (ml) of the minor descending pitchfork, but wasn't enough to start another leg higher. Could come down t o retest the confluence area formed at the intersection between the 1.2460 with the lower median line (LML) of the major black ascending pitchfork.

Brent Oil rallied after the minor retreat and is expected to approach and retest the 53.03 major horizontal resistance. Only another false breakout will send the rate tumbling and much below the downside line of the minor ascending channel. Is trading right above the $52.50 per barrel and seems determined to resume the upward movement after the failure to retest the uptrend line.

Price slips lower on the bearish pressure and looks very heavy on the short term, even if the USDX has slipped lower as well. Is challenging a critical support level, a valid breakdown will signal a broader drop on the Daily chart. Right now is better to stay away till we'll have a clear direction, at this moment we don't have a trading opportunity. GBP/USD stays lower despite the mixed United States data, the greenback would have appreciated much more if the New Home Sales would have come in lines with expectations or better.

Unfortunately, the New Home Sales plunged from 630K to 571K in July, even if the economists have expected to see an increase to 611K. You should keep an eye on the economic calendar tomorrow because we have some high impact data.

It is pressuring the 1.2798 static support right now, actually, is trying to breakdown through the confluence area formed between the 1.2798 level with the 250% Fibonacci line (ascending dotted line). A valid breakdown will accelerate the sell-off, which will approach the next downside target from the second warning line (wl2).

Technically should drop much deeper after the breakdown below the first warning line (wl1) and after the failure to stabilize above the upper median line (UML) of the major descending pitchfork. Personally, I believe that only the fundamental factors could turn the rate to the upside again.

Significant Policy Warnings May Be Too Much to Ask This Year

The Jackson Hole Symposium is this week's highly anticipated event, in part due to a severe lack of other newsworthy market stories but also because two very important central bankers are scheduled to appear.

The Federal Reserve and the European Central Bank are not only two of the most important central banks in the world, they're expected to be among the more active over the next year, with the former having already begun raising interest rates and the latter in the process of winding down its quantitative easing program.

With announcements expected from both in the coming months, investors will be looking to their speeches at Jackson Hole - a platform used to prepare markets for policy changes by previous Fed Chairs Alan Greenspan and Ben Bernanke - for similar policy signals.

Janet Yellen - Federal Reserve Chair

Yellen's remarks will be poured over by investors, primarily for clues on the future path of interest rates, with the prolonged period of low inflation now starting to unsettle some policy makers. The Fed had previously indicated that it plans to raise interest rates one more time this year but investors have been unconvinced for some time and recently, the scepticism has started to spill over into commentary from some policy makers.

Swing voters within the FOMC, such as Jerome Powell and Robert Kaplan, appear to be among those that still need convincing, while others appear to lack the belief they once had. Should nothing change then I expect the Fed will likely hold off until next year to raise interest rates further but with the committee appearing so split, it's very difficult to know. This is perfectly reflected in current market implied rate hike expectations.

Source - CME Group FedWatch Tool

It's also worth noting that the Fed will soon effectively be tightening on two fronts, with the central bank set to announce in September that it plans to start reducing the size of its balance sheet which was built up in the aftermath of the financial crisis through quantitative easing. The balance sheet currently stands close to $4.5 trillion, a level many believe is far too high.

Source - Federal Reserve

If the Fed starts the process of balance sheet reduction next month, it may buy them a little more time on interest rates and allow them to wait for inflation to pick up before hiking again.

Whatever they decide, traders will be keenly following Yellen's comments on Friday for any suggestion that the pace of rate hikes will be slower than previously expected. Should this happen, we could see further weakness in the dollar and yields could fall.

Mario Draghi - ECB President

While getting policy clues out of Janet Yellen may be difficult, in the case of Draghi it's like trying to draw blood from a stone, at least recently anyway.

The ECB has become obsessed, it seems, with the euro rate and bond yields and the unintentional tightening in financial conditions that these could trigger. At the end of June, Draghi suggested that recent progress could allow the central bank to pull back on unconventional measures - a clear reference to tapering of asset purchases - and markets were quick to respond.

Despite the market's reaction being far from extraordinary, officials from the ECB were quick to clarify his remarks and effectively reverse the moves that followed it. Clearly they're far more concerned about what are relatively minor moves than they would have us believe.

After this mishap, it seems likely that Draghi will very much keep to the script during his appearance at Jackson Hole and, unfortunately for us, I expect this script will be rather uneventful. Not only will the next ECB meeting in September come with new macroeconomic projections that will shape their decision on QE after December, but his speech also falls in the relatively illiquid month of August. The ECB will want to avoid any sharp appreciation in the currency and a similar rise in bond yields at all costs.

If anything, Draghi may deliver a rather dovish message that still leaves the door open to tapering at the end of the year while carefully managing the euro lower.

Of course, there is the potential that a warning of a policy shift comes from the event - and we should be prepared for significant volatility in case it happens - I just don't expect it to come from Draghi this time around. And Yellen may remain tight lipped as well given the uncertain outlook on inflation.

The euro is growing on the back of strong macro data from the flash manufacturing PMI in Germany. According to preliminary data, there was an increase by 59.4 in August vs expected 57.7. The same indicator but for the entire Eurozone increased to 57.4, which is a 0.8 uplift compared to July. The support for the common currency came from the US where President Donald Trump stated that he is willing to close down the government to build the Mexico wall. The market already got used to unexpected statements of Mr. Trump and the influence of his words is likely to be short-lived. The greenback was also negatively affected by data from the new home sales in America which revealed a decline to 571,000 vs 611,000 forecasted. Investors remain nervous ahead of the speech of the Fed's Chairwoman Janet Yellen on Friday in Jackson Hole.

The lack of confidence regarding Brexit talks is a serious obstacle for the British economy and the GBP/USD remains under the pressure of fears about negative economic implications. One of the signs pointing to the worsening of the situation is the price fall of VIP housing in London. Traders are waiting for the preliminary report on the British GDP for the second quarter that will be released tomorrow.

The New Zealand dollar today was under the pressure of worsening GDP expansion forecast in the country for 2017/2018 to 3.5% vs 3.7% previously estimated. Another volatility spike is possible ahead of the publication of the trade balance report in New Zealand at 22:45 GMT.

EUR/USD

The EUR/USD price is trying to gain a foothold above the important level of 1.1800. In case of success we are likely to see continued increase up to 1.1900 and 1.2000. In the coming days the volatility will probably remain high due to expectation of important news from the Jackson Hole symposium. In order to resume negative dynamics, the price has to break through the support at 1.1750 that may become a signal to sell with potential targets at 1.1620 and 1.1550.

GBP/USD

The GBP/USD rate is consolidating near 1.2800 and fixing below this support will open the way for the further drop with potential objectives at 1.2635 and 1.2590. The upward correction is limited by the upper limit of the descending channel and the resistance range 1.2880 - 1.2900. Most likely scenario will be the weakening of the pound against the US dollar.

NZD/USD

The New Zealand dollar is approaching to the important support of 0.7200. Breaking through this line may become a trigger for massive selling, with the fall potentially reaching to 0.7000 - 0.7040. On the other hand, we do not exclude a slight upward correction in the near future to SMA100 on 15-minute chart. The amplitude of price fluctuations may increase after the country's trade balance report release tonight.

USD/CHF - 0.9658

Most recent candlesticks pattern : N/A

Trend                                    : Sideways

Tenkan-Sen level                  : 0.9670

Kijun-Sen level                    : 0.9670

Ichimoku cloud top                 : 0.9652

Ichimoku cloud bottom              : 0.9636

Original strategy :

Buy at 0.9620, Target: 0.9720, Stop: 0.9585

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9620, Target: 0.9720, Stop: 0.9585

Position : -

Target :  -

Stop : -

As the greenback has retreated after faltering below resistance at 0.9699, suggesting initial downside risk remains for weakness to 0.9620-30, however, as long as support at 0.9586 holds, prospect of another rebound remains, above said resistance at 0.9699 would signal the retreat from 0.9766 has ended at 0.9586 last week and mild upside bias is seen for gain to 0.9720, then 0.9740, having said that, reckon resistance at 0.9766-73 would cap upside and bring further consolidation. Only a break of 0.9773 would retain bullishness and signal early rise from 0.9438 has resumed and extend gain to 0.9800.

In view of this, we are looking to buy dollar on further pullback as 0.9620-30 should limit downside. Below 0.9600 would risk test of strong support at 0.9583-86 but only break there would signal a downside break of recent broad range has occurred, bring subsequent fall to 0.9550.

GBP/USD - 1.2800

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2810

Kijun-Sen level                    : 1.2816

Ichimoku cloud top              : 1.2864

Ichimoku cloud bottom        : 1.2858

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although cable has remained under pressure after resuming recent decline and near term downside risk remains for weakness to 1.2775-80 (38.2% Fibonacci retracement of 1.1986-1.3269), loss of downward momentum should prevent sharp fall below 1.2750 and reckon 1.2725-30 would limit downside, price should stay above 1.2700-05 (100% projection of 1.3269-1.2940 measuring from 1.3032) and risk from there is seen for a rebound to take place later.

In view of this, would not chase this fall here and would be prudent to stand aside for now. Above 1.2840-45 would suggest a temporary low is possibly formed, bring rebound to 1.2870-75 and then 1.2890 but reckon resistance at 1.2917-18 would hold from here, bring another decline.

EUR/USD - 1.1812

Most recent candlesticks pattern   : N/A

Trend                      : Sideways

Tenkan-Sen level              : 1.1780

Kijun-Sen level                  : 1.1780

Ichimoku cloud top             : 1.1781

Ichimoku cloud bottom      : 1.1779

Original strategy  :

Bought at 1.1765, Target: 1.1865, Stop: 1.1740

Position : - Long at 1.1765

Target :  - 1.1865

Stop : - 1.1740

New strategy  :

Hold long entered at 1.1765, Target: 1.1865, Stop: 1.1770

Position : - Long at 1.1765

Target :  - 1.1865

Stop : - 1.1770

Although the single currency slipped in European morning, as euro found support at 1.1740 and has rebounded, retaining our view that the pullback from 1.1828 has ended there and bring retest of said resistance, break there would extend the rise from 1.1662 low to resistance at 1.1847, above there would provide confirmation that the pullback from 1.1910 has ended and encourage for headway to 1.1870-80 but reckon said resistance at 1.1910 would hold from here. 

In view of this, we are holding on to our long position entered at 1.1765. Only below 1.1725-30 would abort and suggest the rebound from 1.1662 has ended instead, risk weakness to 1.1695-00 first. 

During today's European session, forex market participants pushed the euro higher on the overall positive picture given by the PMI figures released earlier in the day. In the meantime, the dollar index was down with the US currency being on a negative footing in today's trading after some comments made by the US President yesterday in Phoenix. Data releases falling short of forecasts also weighed on the US currency.

Eurozone flash PMI figures for the month of August were released during morning European trading hours. The figure for manufacturing activity edged higher to 57.4 from July's 56.6, outstripping forecasts for a reading of 56.3 and rising to its highest in six-and-a-half years. The services PMI though, was released at its lowest since January of the current year at 54.9, failing to beat expectations for a reading of 55.4 and coming in below July's 55.4. Finally, the composite PMI, which blends the two (manufacturing and services PMIs) and which is considered a good proxy for overall growth, came in slightly above July's 55.7 at 55.8 – analysts anticipated the measure to stand at 55.5. It is encouraging for the euro area that the manufacturing sector has not been negatively affected despite the strong euro rally thus far in 2017.

Eurozone's common currency fell within the first few minutes of data release relative to the greenback after initially jumping higher. Shortly after though, it more than made up for the decline. It should also be noted that euro/dollar posted sizable gains earlier in the day upon the release of August flash manufacturing and services PMI data for Germany, eurozone's (and Europe's) largest economy – both readings positively surprised while coming in above July's respective figures.

Later in the session, preliminary figures for the month of August showed eurozone consumer confidence rising to -1.5 from July's -1.7. Expectations were for a fall to -1.8. The euro gained on the news relative to the US currency. Euro/dollar last traded above the 1.18 handle, 0.4% up on the day.

Moving to euro/pound, the pair acted similarly to euro/dollar upon the release of the data above. In addition, euro/pound today rose to a fresh 10½-month high of 0.9236 (this constitutes an eight-year high if one were to exclude sterling's flash crash during October of last year). It is of notice that some analysts are warning that euro strength in recent months is overstretched.

In other news pertaining to the eurozone, European Central Bank President Mario Draghi appeared in Germany today. His comments were not market moving though, as he avoided to offer anything new in terms of monetary policy. On Friday, he's scheduled to give a speech at the Jackson Hall symposium. Federal Reserve Chair Janet Yellen will also be speaking at the same event on Friday. Market participants do not expect either of them to make market-sensitive remarks.

Out of the US, the August flash manufacturing PMI was released at 52.5, below expectations and July's 53.3. Dollar/yen didn't react much to the news. New home sales for July released later in the day stood at 571k, their lowest in seven months. This negatively compares to projections for a reading of 612k. June's respective figure was upwardly revised to 630k from 610k before, putting the month-on-month drop to stand at 9.4% – the largest since August of last year. The US currency declined versus the yen as the data went public, though not by much.

The dollar index, a broader gauge of the US currency's strength, was last down 0.3% on the day, trading at 93.2. Meanwhile, dollar/yen was 0.4% down and close to 109 level. US President Donald Trump's comments at a rally in Phoenix yesterday where he said he'd be willing to shut down the government in order to follow through his campaign pledge to build a wall alongside the US-Mexican border, acted as a drag for the currency during today's trading.

Gold benefitted from dollar weakness to last trade 0.3% up on the day at $1,288.24 an ounce.

Finally, during afternoon European trading hours, the Energy Information Administration (EIA) released its weekly report on US crude inventories. The report showed stockpiles declining by 3.33 million barrels in the week ending August 18, less than the 3.45m that was expected and the 8.95 reduction reported the previous week. In contrast to yesterday's report by the American Petroleum Institute (API), gasoline stocks fell more than expected. WTI experienced added volatility after the data release. It last traded 0.1% down at $47.77 a barrel. Brent was up by less than 0.1% at $51.90 per barrel. The oil-linked Canadian dollar was slightly down versus it's US counterpart with dollar/loonie at 1.2566.