Sample Category Title

USD/CHF - 0.9660

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9586

Kijun-Sen level                    : 0.9576

Ichimoku cloud top                 : 0.9543

Ichimoku cloud bottom              : 0.9521

New strategy  :

Buy at 0.9600, Target: 0.9700, Stop: 0.9565

Position : -

Target :  -

Stop : -

Although the greenback slipped to 0.9490 earlier today, renewed buying interest emerged and dollar has rallied above indicated resistance at 0.9622-35, confirming recent decline has ended at 0.9438, hence upside bias is seen for the move from there to extend gain to previous resistance at 0.9701, however, break there is needed to retain bullishness and encourage for headway to 0.9735-40 first.
 
In view of this, would not chase this rise here and would be prudent to buy dollar on pullback as previous resistance at 0.9596 should turn into support and contain dollar’s downside. Below 0.9570 would defer and risk test of the upper Kumo (now at 0.9543) but price should stay well above support at 0.9490, bring another rise later. 

GBP/USD - 1.3085

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.3118

Kijun-Sen level                    : 1.3096

Ichimoku cloud top              : 1.3042

Ichimoku cloud bottom        : 1.3036

Original strategy :

Bought at 1.3085, Target: 1.3185, Stop: 1.3050

Position : -  Long at 1.3085

Target :  - 1.3185

Stop : - 1.3050

New strategy  :

Exit long entered at 1.3085

Position : - Long at 1.3085

Target :  -

Stop : -

Despite intra-day marginal rise to 1.3159, the subsequent sharp retreat suggests top has possibly been formed there and downside risk has increased for retracement of recent upmove to 1.3035-40, however, only break of support at 1.2999 would confirm recent upmove has ended, bring further fall to 1.2980 and later towards 1.2955-60.

In view of this, would be prudent to exit long entered at 1.3085 and stand aside in the meantime. Above 1.3120 would bring recovery to 1.3140 but only break of said resistance at 1.3159 would revive bullishness and signal recent upmove has resumed for headway to 1.3185-90 and then 1.3210-20. 

EUR/USD - 1.1672

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1698

Kijun-Sen level                  : 1.1700

Ichimoku cloud top             : 1.1663

Ichimoku cloud bottom      : 1.1649

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although the single currency extended recent upmove and surged to as high as 1.1777 earlier today, the subsequent retreat suggests consolidation below this level would be seen and pullback to 1.1645-50 cannot be ruled out, however, reckon support at 1.1613 would limit downside and price should stay well above previous resistance at 1.1583 (now support), bring another rise later.

On the upside, whilst recovery to 1.1700-10 cannot be ruled out, reckon upside would be limited to 1.1735-40 and said resistance at 1.1777 should remain intact, bring further consolidation. Above 1.1777 would extend recent upmove to 1.1784-85 (50% projection of 1.1370-1.1712 measuring from 1.1613). then 1.1800, however, loss of near term upward momentum should prevent sharp move beyond 1.1820-25 (61.8% projection), risk from there has increased for a retreat later.

USD/JPY - 111.51

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 111.38

Kijun-Sen level                  : 111.49

Ichimoku cloud top             : 111.78

Ichimoku cloud bottom      : 111.37

Original strategy  :

Sold at 111.45, Target: 110.45, Stop: 111.80

Position :  - Short at 111.45

Target :  - 110.45

Stop : - 111.80

New strategy  :

Hold short entered at 111.45, Target: 110.45, Stop: 111.80

Position :  - Short at 111.45

Target :  - 110.45

Stop : - 111.80

The greenback found support at 110.78 and has rebounded, suggesting further consolidation above this week’s low at 110.62 would be seen and marginal gain from here cannot be ruled out, however, reckon the upper Kumo (now at 111.78) would hold and bring retreat later, below said support at 110.78 would signal decline has resumed for retest of 110.62, break there would extend recent fall to 110.30-35.

In view of this, we are holding on to our short position entered at 111.45. Above 111.75-80 would defer and prolong choppy trading, however, price should still falter below said resistance at 112.20, bring retreat later.

Key points

• Euro appreciation is a headwind to inflation and a downward revision to the ECB's forecast should keep inflation far below the target.
• The weaker inflation outlook is likely to keep the ECB on a dovish path, especially as the latest rise in core inflation is not sustainable.
• The risk is that ECB will stay hawkish as it needs an 'excuse' to taper QE given that technical restrictions are again challenging a QE continuation.
• Lack of wage pressure should imply the ECB's exit path will be very gradual, hence the pricing of rate hike is aggressive.

A combination of ECB and Fed communication and the balance of political risks has shifted in favour of the euro, which in effective terms is 4% stronger compared to the assumption in the ECB's projection from June 2017 (see Chart 1). The euro appreciation will be a headwind to headline and core inflation in coming years where the ECB's inflation projection – particularly considering the longer forecast horizon – already seems optimistic. Based on the OECD's new global model, the 4% stronger effective euro will drag down headline inflation by around 0.1pp after one year and an accumulated 0.3pp after two years. Given the ECB's inflation forecast update from June, this should result in an inflation forecast of 1.2% for 2018 and 1.3% for 2019, all else being equal (see Chart 2). Note that we forecast even higher EUR/USD in the longer term, targeting 1.22 in 12 months.

Inflation at 1.3% in 2019 is clearly below the ECB's 2% target for the medium term, implying that pressure on the ECB for expressing a dovish stance is rising. The market is still pricing in a 10bp deposit rate hike at the end of 2018, which in our view is too early as the ECB is likely to continue QE at least until mid-2018 even in a fairly aggressive tapering scenario, after which we expect it to stick to its communication and not hike until 'well past' the QE purchases. It could be the ECB will hike by 20bp (priced in May 2019) but based on the ECB's communication that it will be very gradual, a 10bp deposit rate hike seems most likely and the pricing still seems too hawkish.

We still believe the ECB will continue its QE purchases, but at a reduced pace of EUR40bn per month in H1 18, and that it will announce this at the October meeting with some signalling of it in September. Although an inflation forecast of 1.3% for 2019 is very low, the ECB's recent hawkish shift in focus to the improving economic recovery and its belief that this will result in higher inflation eventually suggest to us that the trigger for a more aggressive QE path currently also hinges on a weaker growth outlook.

Related to the ECB's recent hawkish shift, the risk is that the ECB will look through the downward pressure on inflation and express a hawkish stance due to the ongoing economic recovery. In particular, when Mario Draghi speaks together with other global central bank governors at the Jackson Hole symposium on 24-26 August, he could be perceived as hawkish. However, when the ECB's updated inflation projections are released at the ECB meeting on 7 September, the focus should be on the stronger euro, as it received some attention at the latest meeting already and as Draghi said a financial tightening was 'the last thing' the ECB needs.

In our view, the ECB's hawkish twist towards the economic recovery could reflect that the ECB is trying to find an 'excuse' to taper QE (see chart 3). While the ECB has not indicated it can end QE due to a sustained adjustment in the path of inflation, the capital key deviations suggest the self-imposed restrictions are again becoming binding thereby challenging a continuation of QE. The ECB has previously resolved this by tweaking the rules, but the pressure for doing so again is much smaller as the deflation risk is gone. Hence, the ECB might continue to focus on the growth momentum and its belief that this will result in higher wage pressure.

What is supportive of the hawkish twist is the higher core inflation, which was 1.1% in Q2, up from 0.8% in Q1. However, looking into the drivers of the higher core inflation, the rise has been driven by components that are volatile and do not reflect a pickup in underlying price pressure. Excluding package holidays and accommodation as well as services related to transport reveals that core inflation was actually on a downward trend during 2016 and only stabilised recently (see Charts 4 and 7). As the higher inflation in services related to transport reflects an indirect impact of the oil price base effects, this is likely to be a temporary rise – as long as wage pressure remains subdued.

There are still no signs of rising wage pressure and the ECB's projection for wage growth still seems very optimistic. Given the subdued wage growth in Q1, wages need to grow by 0.55% q/q for the rest of the year to reach the ECB's projection. Since 2010, wages have on average risen by 0.37% q/q and given the remaining slack in the labour markets, it is in our view hard to believe in the ECB's forecast (see Chart 6). Note, the ECB argues that slack in the labour market amounts to 18% of the extended labour force.

Note, the first euro area inflation figures for July are due for release tomorrow with the German, French and Spanish figures. The euro appreciation during July should not yet result in lower inflation (we expect to see the impact on core inflation after six months), but we look for the German figure to go lower as package tours are likely to have been less supportive. This should lead to a decline in euro area HICP inflation to 1.2% in July from 1.3% in June and in core inflation to 1.0% in July from 1.1% in June, due for release on Monday. In line with our expectations, the market is pricing in a subdued outlook for inflation, which is clearly below the ECB's forecast of a rise in inflation but more consistent with the path following from the 4% stronger euro (see Chart 5).

The dollar somewhat rebounded during the European session with the dollar index up 0.1%. The latest data on durable goods orders, jobless claims and trade balance on goods supported the US currency to retrace some of earlier losses post the Federal Open Market Committee meeting. The euro declined against the greenback by 0.35% as the US session was about to start.

Monthly orders for durable goods in the US rose 6.5% last month, expanding at more than double the expected rate and coming in above the upwardly revised figure for May of a 0.1% decline from the original report of 0.8% fall. An increase in wholesale inventories (0.6% jump versus expectations of a 0.2% gain) and a narrowing in the goods trade deficit in June added to the hopes of strong GDP expansion in the second quarter. Traders could be putting their bets on rising inventories implying suppliers' optimism about future sales, rather than a slowdown in moving goods off the shelves. The dollar strengthened against the yen and the euro following the release of the string of data. US preliminary GDP figures are due tomorrow. Dollar/yen was last trading at 111.30, while euro/dollar was at 1.1699.

More out of the US, the Labor Department issued last week's unemployment benefits report, signaling still a healthy labor market. Initial claims for state unemployment benefits rose 10,000 to a seasonally adjusted 244K for the week ended July 22, above the forecasted level of 241K. The four-week average, which irons out weekly volatility, was unchanged at 244K last week. Linked to capacity changes in car-makers assembly plants, the data has been volatile in recent weeks. The volatility may extend beyond summer months as some of the car producers, such as GM prolong the summer shutdowns due to a sales slowdown.

The euro was under pressure against the US dollar during the European session linked to a combination of profit taking following yesterday's rally and good data helping the greenback.

Sterling was broadly flat against the greenback following yesterday's rally on the back of the weakness in the US dollar. The pound/dollar pair was trading at 1.3119 as US traders were starting the day.

The loonie retraced some of this week's gains, falling short of a two-year high ahead of tomorrow's key monthly GDP figure. Dollar/loonie was last trading at 1.2480.

Moving away from forex markets to commodities, oil prices continued gaining during the European session supported by a steeper-than-expected slide in US crude inventories last week. WTI was last trading at $48.82 a barrel while Brent was at $51.09. Gold was up during the day to last trade at $1,261.55 an ounce, unfolding yesterday's rally. The demand for the precious metal has been rising on the recent softness in the US currency.

The 6.5 percent pop in durable goods orders in June handily surpassed consensus expectations. While the eyepopping gain was largely due to a surge in aircraft orders, the details were encouraging as well.

Even After Backing Out Aircraft, a Solid Report

The headline surge in durable goods orders was due largely to a more-thandoubling of civilian aircraft orders compared to the prior month. That is not to suggest that this was the only area of strength, but gains in other categories were smaller in comparison to the +131.2 percent pop in aircraft. Orders for machinery as well as both primary and fabricated metals were all positive in June. Among major categories only electrical equipment and computers saw bookings decline in the month.

In terms of immediate implications for tomorrow's preliminary estimate of second quarter GDP growth, the primary consideration in this report is not orders, but rather shipments. In particular, the key line to hone-in on is non-defense capital goods shipments excluding that big surge in aircraft. Here we see a 0.2 percent increase in June. That is a shade weaker than expectations, but it bears noting that the initially reported increase of 0.1 percent for the prior month (May) was revised to a 0.4 percent gain. In light of the better shipments figures, we acknowledge some upside risk to our forecast for a 3.5 percent rate of growth in equipment spending in tomorrow's GDP report.

Orders lead shipments, so the fact that core capital goods orders were down 0.1 percent in June is mildly concerning. However, the silver lining is that revisions to the prior month's figures were to the upside here as well. An initial estimate of a 0.2 percent rise in May core capital goods orders was lifted to a 0.7 percent increase. Another observation that alleviates the concern about the modest slip in core capital goods orders in June is the fact that the new orders component of the ISM report jumped four points to 63.5 in June, and the new orders components in the latest prints for the regional Fed surveys (Empire, Philly, Richmond and Dallas) were firmly in expansion territory as well.

Is the Inventory Build Good News or Bad News?

Durable goods inventories were a bit higher in June, climbing 0.4 percent on the month. While an inventory build is positive for GDP growth, stockpiling is not always good news for the economy. If the accumulation of inventories is in anticipation of a quickening demand environment (higher sales, increased orders) that is generally positive. If it is a result of product simply not moving because demand is drying up, that clearly is not a good signal. Given the late stage of the business cycle, it is not altogether clear which is the driving force in the 0.4 percent increase in June.

While it is not a perfect litmus test, one time-tested way of determining the difference is to look at inventories as a share of shipments. As the bottom chart shows, this series will tend to rise in the lead-up to recessions, and that is clearly not what is going on at present.

• European equities started the session with a rally that run fast into resistance and was followed by a slide towards yesterday's closing levels. The price action was driven by multiple earnings results that were mixed. US equities start positively on generally better than expected earnings.
• The number of Americans filing for unemployment benefits rebounded from a three-month low last week (from 234k to 244k), but remained below a level consistent with a tightening labour market. The US trade deficit narrowed more than estimated in June (to $63.9 billion from $66.3 billion) in a positive sign for economic growth.
• The US economy is experiencing steady but slower growth in business investment as orders for capital equipment eased last month (-0.1% M/M) following a May increase that was bigger than previously reported (0.7% M/M from 0.2 M/M).
• Growth in bank lending was unexpectedly weak in June, a potentially worrying sign for policymakers even if a one-off factor may have contributed to the slowdown. Lending to EMU non-financial corporations slowed to 2.1% Y/Y in June from 2.5% Y/Y in May. Lending to households meanwhile grew by 2.6% Y/Y in June, unchanged from May.
• The head of the Financial Conduct Authority has called for Libor, the interbank lending rate at the heart of a multibillion banking scandal, to be phased out in 2021 and replaced by more reliable alternatives.
• US President Trump's newly appointed communications director Scaramucci shook up relations both in the White House and on the international stage, dialling in to a live broadcast on CNN to warn that Mr Trump "may veto" the Russian sanctions bill, and that his relationship with chief of staff Priebus was potentially irreparable.
• The BoE has appointed a veteran civil servant to become its new deputy governor. Dave Ramsden – currently the chief economic adviser to the Treasury and head of the Government Economic Service – will become the new deputy governor of markets and banking, starting his five-year term on September 4.

Rates

2nd reading of Fed statement opens investors' eyes

Global core bonds failed to hang on to gains on "the day after". Yesterday's rise of US Treasuries proved to be exaggerated and suggests more downside, especially if tomorrow's eco data don't disappoint (Q2 GDP & Core PCE). The Fed kept policy unchanged, keeping the door open for a September announcement on the start of the balance sheet run-off and a December rate hike. Today's price action suggests that markets overreacted to a subtle change on the assessment of current inflation (EUR/USD back below 1.17). German Bunds outperform US Treasuries on the daily scorecard, but that's because of the catching-up effect. European markets were already closed by the time of the release of the Fed statement yesterday. European stock markets and oil prices trade currently near opening levels while EMU/US eco data printed rather close to consensus (see headlines). None of these factors had any intraday importance for core bond trading. The US Treasury concludes its end-of-month refinancing operation tonight with a $28B 7-yr Note auction. The WI currently trades around 2.13%.

At the time of writing, German yields decline by 0.8 bps (2-yr) to 2.5 bps (10-yr) with the belly underperforming the wings. The US yield curve bear steepens with yields 0.8 bps (2-yr) to 3.7 bps (30-yr) higher. On intra-EMU bond markets, 10-yr yield spread changes versus Germany are nearly unchanged with Greece (+5 bps) underperforming.

Currencies

Dollar sell-off slows, but nothing more than that…

Today, the decline of the dollar slowed. US data (durable orders, trade balance, claim) painted a very diffuse picture and gave no guidance for USD trading. EUR/USD and USD/JPY are trading slightly off the recent lows, but the moves are insignificant from a technical point of view. The battle for the key 1.11714/35 LT EUR/USD resistance continues.

Overnight, the post-Fed USD decline continued, but the pace of the down-move slowed. EUR/USD traded temporary north of the key 1.1714/35 resistance in Asian, but returned to the 1.1735 pivot at the start of European trading. USD/JPY reversed an earlier dip below 111. AUD/USD jumped above the psych. barrier of 0.80.

In Europe, trading in interest rate markets and in the dollar entered calmer waters after yesterday's brisk moves in the wake of the Fed policy statement. In technical trading, the dollar regained slightly ground after yesterday's sell-off. EUR/USD drifted to the low 1.17 area. Interest rate differentials were again no relevant factor for the EUR/USD swings. USD/JPY traded in the 111.40 area around noon.

Over the previous days, the sentiment on the dollar tended to worsen in the run-up to the US trading session. This wasn't the case today. If anything, the dollar gained a few more ticks going into the US eco data. The US data were very diffuse. Durables were marginally better than expected, given upward revision of the previous month figures, claims were slightly higher than expected and the trade deficit was a bit smaller than expected. Too many conflicting signals to trigger a directional USD move. The focus turns to tomorrow's US Q2 GDP report. EUR/USD hovers near the 1.17 level. USD/JPY trades in the 111.50 area. The USD sell-off took pause, but the gains are insignificant from a technical point of view. The test of the key 1.1714/35 LT resistance is ongoing and there no clear indication to what side the balance will tilt.

Among the smaller currencies, the decline of the Swiss franc accelerates. Low global volatility and expectations that the SNB will lag the policy normalisation in the EMU (and globally) triggers some kind of 'CHF long squeeze'.

Sterling extends cautious rebound

Yesterday and this morning sterling performed rather well given the overall USD weakness. There was only a modest and temporary spill-over effect of the overnight the EUR/USD rally into EUR/GBP. In technical trading, cable slightly outperformed EUR/USD this morning, pushing EUR/GBP lower in the 0.89 big figure. The CBI July retail data were stronger than expected. The indictor is often ignored in sterling trading. This time, the report triggered a small further strengthening of sterling. EUR/GBP dropped temporary below 0.89., but the move petered out soon. Cable is changing hands at about 1.3130/40. The BOE named Dave Ramsden as deputy governor of the BoE, replacing Charlotte Hogg. Ramsden was chief economic adviser at the Treasury.

EUR/GBP - 0.8921

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term up

Original strategy  :

Buy at 0.8875, Target: 0.8995, Stop: 0.8835

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8865, Target: 0.8995, Stop: 0.8825

Position : -

Target :  -

Stop : -

 
Euro’s retreat after last week’s rally to 0.8995 has retained our view that consolidation below this level would be seen and pullback to 0.8880 cannot be ruled out, however, reckon downside would be limited to 0.8860-65 and bring another rise later, above psychological resistance at 0.9000 would extend recent rise to 0.9020 and possibly towards 0.9050 but overbought condition should prevent sharp move beyond latter level, risk from there has increased for a retreat later.

In view of this, would not chase this rise here and would be prudent to buy euro on pullback as 0.8860-65 should limit downside. Only break of support at 0.8829 would abort and confirm top is formed instead, bring correction to 0.8800 first. 

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.2480

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway with wave iii ended at 1.4690, wave v of C may bring one more marginal rise probably in 2018

Trend:  Down

 
Original strategy       :

Sell at 1.2690, Target: 1.2490, Stop: 1.2750

Position: -

Target:  -

Stop: -

 
New strategy             :

Sell at 1.2690, Target: 1.2490, Stop: 1.2750

Position: -

Target:  -

Stop:-

As the greenback has recovered after brief fall to 1.2414, suggesting consolidation above this level would be seen and corrective bounce to 1.2555-60 and then 1.2600 is likely, however, reckon upside would be limited to 1.2690-00 and bring another decline, below said support at 1.2414 would add credence to our view that recent downtrend is still in progress, we are keeping our count that wave v as well as wave (C) ended at 1.3794 and impulsive wave (i ii, i ii) is now unfolding with minor wave iii still in progress, hence bearishness remains for this fall to extend weakness to 1.2400, however, oversold condition should prevent sharp fall below 1.2350-60 and reckon 1.2300 would hold, risk from there is seen for a rebound later.

In view of this, would not chase this fall here and would be prudent to sell the pair again on recovery as 1.2690-95 should limit upside. Above 1.2745-50 would defer and risk a stronger rebound to 1.2800-10 but only break of latter level would signal a temporary low is formed instead, bring retracement of recent decline to 1.2850, then 1.2900, however, price should falter below 1.3000 and the greenback shall head south again from there.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.