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In the absence of any significant economic data releases during today’s Asian trading, the political drama surrounding President Trump continued to take central stage. The President fired his chief strategist Steve Bannon on Friday and in that way continued the string of staff shake up in the White House. The key event of this week will be the meeting of central bankers in Jackson Hole towards the end of the week.

Late on Friday, markets got another news out of Washington DC that President Trump fired his far-right chief strategist Steve Bannon and in that way ousted most of his closest allies since taking the office. While some investors saw this as a hope that Trump would become more moderate in his views without the advice of Mr. Bannon that was considered a far-right ideologist, many saw it as a potential hurdle for the President. Market participants are fearful that Mr. Bannon could potentially bring more harm as he would divide the White House by publicly going against those Trump advisors that he considers “globalists”. Mr. Bannon is considering starting a television network that would give him a strong propaganda tool.

Investors will be busy digesting a number of economic data releases from tomorrow, but the spotlight will be the central bankers’ meeting in Jackson Hole that is due to start on Thursday night. Market participants will be mostly interested in speeches by Janet Yellen and Mario Draghi that are due on Friday.

Looking at the reaction in the forex market, the dollar weakened against the yen to last trade at 109.11 yen. The dollar index held onto its early session gains as other major currencies weakened against the greenback. The index was trading at 93.54, up 0.10%, ahead of the European open.

The euro/dollar pair was trading at 1.1738 ahead of the European open, down 0.20%. The pound was also weaker against the greenback with the pair last trading at 1.2854. The aussie fell 0.10% against its US counterpart (last traded at $0.7918) and the kiwi was lower at $0.7308.

The oil-linked loonie weakened in the wake of falling oil prices. Dollar/loonie exchanged hands at 1.2600 ahead of the Asian close.

Oil prices fell during Asian trading, following Friday’s spike amid a tightening rig count. Prices rose around 3.5% after US Baker Hughes data showed a bigger than expected decline in new rig counts. However, prices were pressured today on rising US output despite the slowdown in the drilling activity. Brent was last trading at $52.67 a barrel while WTI was at $48.46.

Gold prices rose to trade at $1,287.48 an ounce ahead of European trading.

Daily Pivots: (S1) 139.87; (P) 140.47; (R1) 141.17; More

Intraday bias in GBP/JPY remains on the downside as fall from 147.76 is still in progress for 138.65 support first. Break there will extend the decline to 135.58 key support level. At this point, price actions from 148.42 are seen as a sideway consolidation pattern. Hence, we'll expect strong support from 135.58 to contain downside and bring rebound. Nonetheless, break of 143.18 resistance is needed to indicate short term bottoming first. Otherwise, near term outlook will remain bearish in case of recovery.

In the bigger picture, the sideway pattern from 148.42 is extending with another leg. We'd expect strong support from 135.58 and 50% retracement of 122.36 to 148.42 at 135.39 to contain downside. Medium term rise from 122.36 is still expected to resume later. And break of 38.2% retracement of 196.85 to 122.36 at 150.43 will carry long term bullish implications. However, firm break of 135.58/39 will dampen the bullish view and turn focus back to 122.36 low.

Daily Pivots: (S1) 127.71; (P) 128.25; (R1) 128.93; More...

Intraday bias in EUR/JPY remains on the downside for the moment. Current correction from 131.39 correcting whole rise from 141.84 with break of channel support. Deeper decline would be seen to 38.2% retracement of 114.84 to 131.39 at 125.05 before completion. On the upside, break of 130.38 resistance is needed to confirm completion of the pull back. Otherwise, deeper decline is expected even in case of recovery.

In the bigger picture, the down trend from 149.76 (2014 high) is completed at 109.03 (2016 low). Current rally from 109.03 should be at the same degree as the fall from 149.76 to 109.03. Further rise is expected to 61.8% retracement of 149.76 to 109.03 at 134.20. Sustained break there will pave the way to key long term resistance zone at 141.04/149.76. Medium term outlook will remain bullish as long as 124.08 resistance turned support holds. However, firm break of 124.08 will argue that rise from 109.03 is completed and turn outlook bearish.

Daily Pivots: (S1) 1.1283; (P) 1.1321; (R1) 1.1385; More...

Intraday bias in EUR/CHF remains neutral as consolidation from 1.1537 continues. On the upside, break of 1.1477 resistance will argue that the consolidation from 1.1537 has completed and larger rise is resuming. However, firm break of 38.2% retracement of 1.0830 to 1.1537 at 1.1267 will extend the correction to 61.8% retracement at 1.1100 before completion.

In the bigger picture, firm break of 1.1198 key resistance confirms resumption of the long term rise from SNB spike low back in 2015. In this case, EUR/CHF would eventually head back to prior SNB imposed floor at 1.2000. For now, this will be the favored case as long as 1.1087 resistance turned support holds.

Weekly

    •    Last Candlesticks pattern: Dark cloud cover
    •    Time of formation: 10 Jul 2017
    •    Trend bias: Down

Daily

    •    Last Candlesticks pattern: Evening doji
    •    Time of formation: 7 Aug 2017
    •    Trend bias: Down

USD/JPY – 109.00

The greenback only bounced to 110.95 before dropping again (we recommended in our previous update to sell again at 111.00 and just missed the short entry), bearishness remains for weakness towards this year’s low at 108.13, however, break there is needed to confirm early decline from 118.66 top has indeed resumed and extend fall to 107.50, then towards 106.50-55 (61.8% Fibonacci retracement of 99.01-118.66), having said that, near term oversold condition should prevent sharp fall below there and reckon previous resistance at 105.53 would hold from here.

On the upside, whilst initial recovery to the Tenkan-Sen (now at 109.78) cannot be ruled out, reckon upside would be limited to the Kijun-Sen (now at 110.74) and 111.00 should attract renewed selling interest and bring another decline later. Above the lower Kumo (now at 111.66) would suggest the fall from 114.50 has ended instead, risk a stronger rebound to resistance at 112.20 but reckon upside would be limited to 112.40-45 and price should falter well below 113.00, bring another selloff later..
 
Recommendation : Sell again at 111.00 for 109.00 with stop above 112.00.

On the weekly chart, despite staging a strong rebound to 110.95, renewed selling interest emerged there and the pair has slipped again since (a doji with a long upper shadow was formed), bearishness remains for the fall from 114.50 to extend weakness towards previous support at 108.13 (2017 low), however, the pair needs to penetrate this level to confirm early fall from 118.66 top has resumed and extend decline to 117.40-50, then 117.00 but downside should be limited to 106.50-55 (61.8% Fibonacci retracement of 99.01-118.66) and previous resistance at 105.53 would turn into support, price should stay above 105.00, bring rebound later.

On the upside, although initial recovery to 109.75-80, then 110.50-60 cannot be ruled out, reckon resistance at 111.05 would limit upside and bring another decline later. Above the Tenkan-Sen (now at 111.55) would risk test of the Kijun-Sen (now at 111.82) but still reckon resistance at 112.20 would limit upside and bring another decline. A weekly close above resistance at 112.20 would suggest first leg of decline from 114.50 has ended instead, risk a stronger rebound to 112.90-00 but still reckon upside would be limited to 113.55-60 and price should falter well below resistance at 114.50, bring another decline later. 

Less than a month ago the CBOE volatility index – known as the best indicator of fear in the markets – dropped to a record low of below 9. The declines were a result of steady equity markets, low trading volumes and optimism that the markets were heading higher. This has all changed in the past two weeks, with the fear index rallying from a low of 9.52 to 17.28 – an 81% spike in 4 days from Aug 8 to Aug 11. This was precipitated by rising tensions between the U.S. and North Korea. These tensions lasted for a couple of days, then eased after both sides backed down. However, the calm didn't last long, as President Trump's response to the Charlottesville clash, saw business leaders exiting his advisory councils, and a number of high profile Republicans criticizing and distancing themselves from the President.

The departure of Trump's Chief Strategist Steve Bannon, who was mainly seen as pushing protectionist policies, was not unexpected and was slightly positive for markets, causing U.S. stocks to rally on Friday, but the market ended near lows.

Politics have clearly taken the front seat and another shock will likely lead to a further selloff in equities. Some investors might see the recent fall in prices as an opportunity to buy the dips, but given that valuations are still very high compared to historical averages, many will hold off until seeing meaningful fiscal policy change. Trump's administration will be tested as we get closer to hitting the U.S. debt ceiling. According to the Congressional Budget Office, the debt limit should be raised by mid-October, to avoid defaulting on loan payments, but this time it doesn't seem a done deal.

Given that the economic calendar doesn't hold tier-one data this week, investors and traders will be focusing on the Jackson Hole central bank gathering on 24-26 August. The two stars of the gathering will undoubtedly be Mario Draghi and Janet Yellen. The most recent minutes from the Fed and ECB, shows that inflationary pressures remained absent, despite declining unemployment rates. When looking at bond yields across the globe, investors seem to be convinced that inflation isn't returning anytime soon. However, financial asset prices are worrying central bankers, especially the Fed, which sees valuations as elevated.

With ECB's meeting scheduled on September 7, Euro traders are waiting for signs from President Draghi as to when the central bank will start trimming QE. The single currency managed to overlook ECB's minutes, which revealed that Euro strength is becoming a concern for monetary policy makers. If Draghi does not disclose his plan for tapering QE, the Euro might fall towards 1.16, but I would prefer to buy the dips then selling the rallies, as the ECB have no other choice but to tighten policy.

Cable trades in red on Monday and holding within daily cloud, after attempts in past four days failed to close below cloud top.

Fresh weakness tested strong support at 1.2850, provided by daily cloud base and Fibo 61.8% of 1.2588/1.3268 rally.

Eventual break and close below here is needed to signal resumption of broader downtrend from 1.3268 (03 Aug high), after bears paused for last week's consolidation above rising daily cloud.

Negative outlook is supported by bearish setup of daily studies, with bear-cross of 10/55SMA's forming today and offering additional pressure.

Sustained break below 1.2850 would open another key support at 1.2811 (12 July trough) and risk fresh bearish extension.

Broken 100SMA (1.2872) marks initial resistance, ahead of daily cloud top (1.2908) and last week's congestion, reinforced by 55SMA at 1.2928, which is expected to limit extended upticks.

Res: 1.2872, 1.2908, 1.2928, 1.2970
Sup: 1.2850, 1.2811, 1.2749, 1.2700

Central banks around the globe have been increasingly vocal this year, with their trend of repeated verbal interventions sending foreign exchange markets on a wild roller-coaster ride.

The era of cheap money is coming to a timely end, with central banks now on a quest to raise rates at a pace that supports both growth and inflation. Markets will be closely watching the Jackson Hole Symposium on the 24th-26th August, which could provide a joint opportunity for financial heavyweights to signal policy shifts. Although there have been reports that European Central Bank President Draghi, will not deliver a new policy message at the conference, there is still a possibility that he will talk down the resurgent Euro. With July’s ECB meeting minutes revealing concerns over the strengthening Euro, complicating the European Central Bank’s efforts to hit the 2% inflation target, Draghi may verbally intervene at Jackson Hole to weaken the currency.

Other heavyweights such as Janet Yellen and Mark Carney, will also be on the scene with market players, closely scrutinizing any comments made regarding monetary policy. With concerns over stubbornly low inflation and political drama in Washington, weighing on the prospects of higher US interest rates, Yellen may avoid discussions on policy shifts altogether. The unsavory combination of Brexit uncertainty and soft economic fundamentals in the UK continues to weigh on the prospects of higher UK rates and this may be reflected in Mark Carney’s rhetoric at the pending Jackson Hole.

Will EURGBP hit parity?

There is growing speculation that the EURGBP is on a positive trajectory towards parity in the longer term and this is understandable when considering how the pair has appreciated over 800 pips from the 0.8300 support. The improving macro-fundamentals from Europe, continue to support the Euro, while Brexit uncertainty has pressured the Sterling. With the expectations of the ECB QE tapering - fueling the bullish sentiment towards the EURGBP, further upside is on the cards.

From a technical standpoint, the EURGBP is heavily bullish on the daily charts, as there have been consistently higher highs and higher lows. Bulls remain in control above the 0.9000 higher low, with a breakout above 0.9150 encouraging a further increase towards 0.9300. A monthly close above 0.9300 should open a path higher towards 0.9600.

USDJPY (109.26): The Japanese yen strengthened strongly against the U.S. dollar last week as price fell back to the support level at 109.15. This was the same support level that price managed to post a reversal earlier in the week. On the 4-hour chart, we can see that price action has managed to recover off the lows and closed above the support level of 109.08. A rebound off this support level could keep USDJPY biased to the upside. Resistance level at 110.72 will be in focus immediately, but above this level, USDJPY could pose a risk of an upside rally towards the next main resistance level at 113.00.

GBPUSD (1.2876): The British pound was seen trading flat near the support level at 1.2847 for the past three days. This price level was previously tested in early July. The rebound off this level is therefore quite likely as GBPUSD could be seen reversing the losses from the past few weeks. Price action in GBPUSD suggests that there is a strong possibility for a rebound back to 1.3000 - 1.3033 level of resistance in the near term. This could also form the potential head and shoulders pattern as a result. A reversal needs to be confirmed at 1.3000 - 1.3033 level however. This would then set the tone for a bearish decline in GBPUSD that could be seen testing the lower support at 1.2628 support, marking the measured move from the head and shoulders pattern. A break out above the previous highs at 1.3200 could however invalidate this downside bias.