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The dollar continued to recover on Wednesday following stronger-than-expected US economic data. The greenback has been in a recovery mode since Tuesday and accelerated after both the ADP employment report for August and the 2nd estimate of Q2 GDP came out much better than expected.

These data are more than welcome for FOMC policymakers, who are in the very difficult position to decide the proper timing for the next increase in borrowing costs. Actually, yesterday's releases helped the probability for another rate hike by year-end to rise to near 41% from roughly 33% on Tuesday. If the official jobs data tomorrow confirm that the US economy enjoyed another month of stellar employment gains, that probability could rise further.

Having said that though, we have to repeat that the biggest determinant on whether the Fed will proceed with another hike this year is inflation. The minutes of the July gathering showed that the number of policymakers who are concerned with regards to inflation has increased. As such a decent rebound in prices is needed to make some of them change their mind. The next CPI data are scheduled for the 14th of September, less than a week before the Fed meets to decide on policy. Although a single improvement may not be enough to guarantee a September hike, it could revive hopes that more encouraging prints may allow that to happen in December.

Eurozone inflation data take center stage

Today, Eurozone's preliminary CPIs for August will take center stage. The forecasts are mixed, with the headline rate expected to tick up and the core rate anticipated to tick down. We share the view for an uptick in the headline rate, but we see the risks surrounding the core forecast as tilted to the upside, perhaps for an unchanged rate, or even a fractional increase.

We base our view for the headline rate on the bloc's composite PMI for the month, which showed that output prices rose at the fastest pace in three months. In addition, Germany's CPI rate came in higher than anticipated, which enhances the likelihood for a similar reaction in the bloc's print. As for the core rate, the yearly change in oil prices remains close zero, which makes us believe that if the headline inflation rate indeed increases, the core rate may move in a similar fashion. Any positive surprise in these rates could heighten speculation that the ECB is set to announce some changes to its QE program soon and thereby, bring EUR under renewed buying interest.

EUR/USD continued sliding yesterday, falling below the support (now turned into resistance) of 1.1900 (R1). Although the rate may continue a bit lower and perhaps challenge the key support of 1.1830 (S1), we still believe that the broader path remains positive. On the daily chart, the pair continues to trade above the medium-term uptrend line taken from the low of the 17th of April. Encouraging inflation prints from Eurozone today may be proven the catalyst for a rebound from near the 1.1830 (S1) support. A break back above 1.1900 (R1) may confirm the rebound and could set the stage for extensions towards the round number of 1.2000 (R2).

As for today's events:

Besides Eurozone's CPIs, we get Canada's GDP data for Q2. Our own view is that the nation's economy may have grown at the same pace as previously, with downside risks. Even though April's and May's average monthly GDP is roughly equal to the average of the Q1 monthly prints, the soft retail sales for June suggest that the economy may have lost some momentum towards the end of Q2. A potential slowdown could hurt the Loonie somewhat on the news, but we doubt that it will have much effect on the elevated market expectations regarding another BoC rate hike this year, as a slight slowdown would still be in line with the Bank's latest forecasts.

USD/CAD edged north yesterday following the strong US data. The rate emerged above the resistance (now turned into support) of 1.2600 (S1) and now looks to be headed towards the 1.2700 (R1) barrier, defined by the peak of the 18th of August. A slowdown in Canada's economic growth may help the pair to reach that level and if the bulls are strong enough to break it, then we may see extensions towards our next resistance of 1.2775 (R2).

As for the bigger picture, although USD/CAD may trade higher for a while, it remains below the longer-term downtrend line taken from the peak of the 11th of May. This combined with the fact that on the 29th of August the rate failed to break the key support of 1.2415 (S3) and instead formed a low fractionally higher than that level, make us take the sidelines with regards to the overall outlook of this pair. The picture may become clearer next week when the BoC meets to decide on interest rates.

From the US, we get personal income & spending, as well as the core PCE price index, all for July. Both the income and spending rates are expected to have risen from the previous month, while no forecast is available for the PCE index. Given that the core CPI rate for the month remained unchanged, our own view is that the core PCE rate may have held steady as well. We also get the nation's Chicago PMI for August, pending home sales for July, and initial jobless claims for the week ended August 25th.

We have two speakers on the agenda: BoE MPC member Michael Saunders and Dallas Fed President Robert Kaplan.

EUR/USD

Support: 1.1830 (S1), 1.1730 (S2), 1.1660 (S3)

Resistance: 1.1900 (R1), 1.2000 (R2), 1.2100 (R3)

USD/CAD

Support: 1.2600 (S1), 1.2540 (S2), 1.2415 (S3)

Resistance: 1.2700 (R1), 1.2775 (R2), 1.2860 (R3)

Cable is holding soft tone on Thursday and trades within daily cloud, with fresh weakness probing below 1.2900 handle, following strong downside rejection at 1.2875 (daily Tenkan-sen) on Wednesday.

Subsequent bounce was capped by daily cloud top, below which the pair closed for the day, signalling that the downside remains vulnerable.

Studies on daily chart are turning to full bearish setup, seeing risk of retesting Tenkan-sen and cloud base (1.2857). Firm break here is needed to signal further weakness and confirm lower top at 1.2978 (29 Aug upside rejection).
Falling 20SMA maintains downside pressure, however, the pair may extend action without clear direction while the price holds within the cloud.

Alternative scenario requires lift above 55 SMA (1.2938) to ease immediate downside pressure, but close above cracked Fibo 38.2% of 1.3268/1.2773 descend at 1.2962 is needed to turn near-term bias higher.

Res: 1.2918, 1.2942, 1.2962, 1.2983
Sup: 1.2875, 1.2857, 1.2821, 1.2793

The Euro is trading within tight range on Thursday, holding so far above solid support at 1.1859, provided by rising 10SMA.

Strong fall on Wednesday completed reversal pattern on daily chart, but near-term bears are showing no signs of resuming lower after strong bearish signal.

The pair showed mild reaction on better than expected EU inflation data (Aug annualized CPI ticked to 1.5% vs 1.4% forecast and 1.3% in July).

The numbers are supportive, however, stronger acceleration higher and break above 1.1910/45 pivots is needed to generate firmer bullish signal.

Otherwise, the downside is expected to stay at risk and violation of 10SMA would trigger deeper pullback and expose next supports at 1.1812 (20SMA) and 1.1791 (30SMA).

Res: 1.1910, 1.1945, 1.1984, 1.2000
Sup: 1.1859, 1.1812, 1.1791, 1.1773

EUR/GBP         –  0.9217

As the single currency has finally retreated after rising to 0.9307 earlier this week, suggesting 1-2 weeks of consolidation below this level would be seen and pullback to 0.9150-60 and possibly 0.9100-10 cannot be ruled out, however, reckon 0.9060-65 support would limit downside and bring another upmove later. We are keeping our view that early retreat from 0.9576 (wave iii top) has ended earlier at 0.8304 and bullishness remains for the rise from there to extend further gain to 0.9350, however, near term overbought condition should prevent sharp move beyond 0.9380-85 (100% projection of 0.8312-0.8950 measuring from 0.8743) and reckon 0.9400-10 would hold from here, risk from there is seen for a retreat.

Our latest preferred count is that the wave V of a 5-wave series from 0.5682 ended at 0.9805 earlier and major from there has possibly ended at 0.8067 as A-B-C-X-A-B-C. We are keeping our view that the entire correction from 0.9805 has possibly ended at 0.7756 and as labeled as the attached daily chart and impulsive move from 0.9084 has ended at 0.6938 as a 5-waver which marked as the (C) wave, recent impulsive rise is labeled as (I) (II), (i) (ii) series, indicated upside target at 0.9084 had been met, the retreat from 0.9576 suggest wave iii ended there and next upside target for wave v of (III) should head towards 0.9700 but price should falter well below parity .

On the downside, whilst initial pullback to 0.9150-60, then 0.9105-10 cannot be rule out, reckon downside would be limited to 0.9060-65 and bring another rise later. A daily close below support at 0.9008 would defer and suggest a temporary top is possibly formed, risk correction to 0.8945-50, then 0.8920-25 but reckon downside would be limited to 0.8890-95 and bring another upmove later.
 
Recommendation: Buy at 0.9065 for 0.9265 with stop below 0.8965

Euro's long term uptrend started in Feb 1981 at 0.5039 and is unfolding as a (A)-(B)-(C) move with (A): 0.8433 (Feb 1993), (B): 0.5682 (May 2000) and impulsive wave (C) should have ended at 0.9805 with wave III ended at 0.7254 (May 2003), triangle wave IV at 0.6536 (23 Jan 2007) and wave V as well as wave (C) has ended at 0.9805.

We are keeping an alternate count that only wave III ended at 0.9805 and the correction from there is the wave IV and has possibly ended at 0.6936, however, it is necessary to see a daily close above resistance at 0.9576 in order to change this to be the preferred count.

EUR/USD

Current level - 1.1896

The slide form 1.2070 is still intact and next major support lies at 1.1830. Key resistance on the upside is projected at 1.1950 and a violation of the latter will signal a reversal of the negative bias.

USD/JPY

Current level - 110.46

The uptrend is still intact and next major resistance lies at 111.00 area. Key support lies at 109.80 and a violation of the latter will challenge 109.00 and 108.10 lows again.

GBP/USD

Current level - 1.2903

Allow another intraday dip to 1.2850 area, before bouncing higher, towards 1.3050 zone.

USD/CAD – 1.2640

As the greenback has rebounded after holding above previous support at 1.2414, suggesting recent decline is not ready to resume yet and further consolidation is in store, however, still reckon upside would be limited to 1.2690-00 and bring another decline later, below 1.2500 would bring test of this week’s low 1.2441. Looking ahead, only break of 1.2414 support would confirm recent wave c decline is under way for weakness to 1.2350, then 1.2300 but loss of momentum should prevent sharp fall below 1.2200-10 and price should stay well above 1.2000 level, bring rebound later. We are keeping our bearish count that wave b ended at 1.3794 and wave c has commenced for further fall to aforesaid downside targets. 

We are keeping our view that the wave b from 1.0657 (a leg top) has possibly ended at 0.9633 with (a): 0.9800, wave (b): 1.0447 and wave c at 0.9633, the subsequent rise from there is now treated as wave c exceeded indicated upside target at 1.3770-80 and 1.4000 and wave (3) has possibly ended at 1.4690 and wave (4) correction has commenced for retracement back to 1.2410-20, then towards 1.2200.

On the daily chart, our latest preferred count remains that the A of (B) rally from 0.9059 low (7 Nov 2007) unfolded into an impulsive wave with i: 0.9059-1.0380, ii ended at 0.9819, iii at 1.3019 followed by triangle wave iv at 1.2026 , then wave v formed a top at 1.3066 and also ended the wave A. The wave B is unfolding as an double three a-b-c-x-a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c at 1.0784, followed by wave x at 1.1725, another set of a-b-c unfolded with 2nd a at 0.9931, 2nd b at 1.0674. the 2nd c has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3900 had been met and gain to 1.4700 would follow.

On the upside, whilst initial marginal recovery cannot be ruled out, reckon upside would be limited to 1.2691 and bring another decline to aforesaid downside targets. Above resistance at 1.2691 would signal the retreat from 1.2778 has ended instead, bring another corrective bounce to this level and later towards previous support at 1.2859 but upside should be limited to resistance at 1.2944 and upside should falter well below psychological resistance at 1.3000, bring another decline later.

Recommendation: Hold short entered at 1.2650 for 1.2450 with stop above 1.2750.

Longer term - The selloff from 1.6194 (21 Jan 2002) to 0.9059 (07 Nov 2007) is viewed as (A) wave which is a 5-waver as labeled on the monthly chart as below, the subsequently rally is labeled as (B) with impulsive A leg of (B) ended at 1.3066, wave B of (B) is unfolding which has either ended at 0.9407 or would extend one more fall but downside should be limited to 0.9200 and 0.9000 should hold.

Daily Pivots: (S1) 141.71; (P) 142.24; (R1) 142.97; More

GBP/JPY rebounded further today but stays below 143.18 resistance. With 143.18 intact, near term outlook stays bearish and deeper decline is in favor. Below 141.40 minor support will turn bias back to the downside first. Break of 139.29 will target 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. Meanwhile, break of 143.18 will indicate short term reversal and turn bias back to the upside.

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) 130.73; (P) 131.22; (R1) 131.47; More...

Intraday bias in EUR/JPY remains on the upside and current rally is targeting 61.8% projection of 122.39 to 131.39 from 127.55 at 133.11 next. On the downside, below 130.44 minor support will turn intraday bias neutral and bring consolidations, before staging another rally.

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) 0.9168; (P) 0.9218; (R1) 0.9245; More

Intraday bias in EUR/GBP is neutral for the moment. We'd stay cautious on rejection from 0.9304 to extend the medium term consolidation pattern. Break of 0.9184 minor support will turn bias back to the downside for pull back to 55 day EMA (now at 0.8986). However, sustained break of 0.9304 will confirm up trend resumption and pave the way to 0.9799.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. It's uncertain whether it is finished yet. But in case of another fall, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside and bring rebound. Whole up trend from 0.6935 is expected to resume after consolidation from 0.9304 completes. Firm break of 0.9799 high will target 61.8% projection of 0.5680 to 0.9799 from 0.6935 at 1.1054.

Daily Pivots: (S1) 1.4981; (P) 1.5036; (R1) 1.5095; More....

Intraday bias in EUR/AUD remains neutral for the moment. We're holding on to the bullish view that correction from 1.5226 has completed with three waves down to 1.4421. Further rise is expected and above 1.5173 will target retesting 1.5226 first. Break there will resume whole rebound from 1.3624 and target 61.8% projection of 1.3624 to 1.5226 from 1.4421 at 1.5411 next. Outlook will remain unchanged as long as 1.4732 support holds.

In the bigger picture, we're holding on to the view that corrective decline from 1.6587 medium term has completed at 1.3624. Rise from 1.3624 is expected to extend to retest 1.6587. The corrective structure of the fall from 1.5226 is affirming this view. Above 1.5226 will target a test on 1.6587 key resistance. However, break of 1.4421 will dampen our view and would drag EUR/AUD lower to retest key support zone around 1.3624.