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The Australian dollar is sharply lower on Tuesday. AUD/USD is trading at 0.6732 in the European session, down 0.88% today at the time of writing.

Australian GDP expected to remain soft

Australia’s economy has been sputtering and the markets aren’t expecting much change from second-quarter GDP on Wednesday. GDP is expected to trickle lower to 1% y/y, down from 1.1% in Q1, which was the weakest pace of growth since Q4 2020. Quarterly, the market estimate for GDP stands at 0.3%, compared to 0.1% in Q1.

GDP-per-capita is expected to be negative, another indication that economic activity remains subdued. Australia has been hit by a drop in iron ore and core prices and exports fell by 4.4% in the second quarter, which doesn’t bode well for the Australian dollar.

The GDP is unlikely to change the Reserve Bank of Australia’s plans when it meets on Sept. 24. The central bank is closely watching inflation, which remains stubbornly high, as well as the labor market. Governor Bullock has said she has no plans to lower the cash rate from its current 4.35% for the next six months. The RBA has stuck to its “higher for longer” stance and has maintained rates since November.

The Federal Reserve is widely expected to lower rates on September 18, with a 70% likelihood of a quarter-point cut and a 31% likelihood of a half-point cut. Ahead of the meeting is a crucial employment report on Friday. The previous jobs report was much weaker than expected and triggered a meltdown in the financial markets. Another weak jobs report would raise the likelihood of a half-point cut, while a solid release will cement a quarter-point cut.

AUD/USD Technical

• AUD/USD has pushed below support at 0.6780 and is testing support at 0.6737. Below, there is support at 0.6708
• 0.6809 and 0.6852 are the next resistance lines

Market Picture

The crypto market rose 2.3% in 24 hours to reach a cap of $2.07 trillion, growing steadily throughout Monday. However, cautious Asian market dynamics on Tuesday morning have interrupted the recovery near levels seen late last week. This recovery has yet to improve sentiment, with the index remaining at 26 for the third consecutive day.

Bitcoin is trading just below $59K at the start of active trading in Europe, having reached $59.7K at the peak of the Asian session. Despite intraday fluctuations, the BTC exchange rate has closed in the $59.0-59.3K range for the past six days, reflecting the balance of power. The local initiative remains with the bears, as the price is below the 50- and 200-day moving averages, and close to the lower boundary of the descending channel.

Tron remains in a corrective phase, having fallen to $0.1525. In August, the price soared from $0.1160 to $0.1680, flying from the lower to the upper boundary of the ascending corridor since the beginning of 2023. The current correction is helping to ease overheating and attract new buyers, but a dip below $0.1430-0.1480 would set a more cautious tone.

News Background

According to CoinShares, crypto fund investments fell by $305 million last week after three weeks of inflows. Bitcoin investments fell by $319 million, Ethereum by $6 million and Solana by $8 million.

QCP Capital notes Ethereum’s significant decline in August compared to BTC, as well as the underperformance of spot ETFs in the US, and warns that the market’s decline could continue in September.

According to Santiment, the number of bitcoin wallets with a minimum of 100 BTC rose to 16,120, a 17-month high. Experts believe that increased wallet activity is a positive signal for the market. Bitgrow Lab notes that historically, significant whale purchases have often preceded new all-time highs in bitcoin.

According to BiTBO, bitcoin miners’ revenue fell to its lowest level in 11 months in August. The dynamics were affected by an increase in complexity and a decrease in the number of transactions.

The Cardano network successfully passed the Chang hardfork, marking the beginning of the Conway registry era and the ecosystem’s transition to decentralised governance. ADA token holders will be able to participate in a vote to determine the future of the network.

BoJ Governor Kazuo Ueda reiterated today that the central bank could continue raising interest rates if the economy and inflation develop as expected.

In a document presented to a government panel led by Prime Minister Fumio Kishida, Ueda highlighted that, despite the July rate hike, the economy are still solidly supported by current monetary policy, as rates are still significantly negative.

Additionally, members of the government panel, including business leader Masakazu Tokura, submitted a proposal urging careful management of macroeconomic policies, especially in light of the recent market turbulence. This highlights the importance of coordination between BOJ and the government to maintain economic stability as BoJ navigates its gradual shift towards higher interest rates.

• GBPUSD starts a new bearish wave but maintains broad uptrend
• Technical signals reflect appetite for more selling; eyes on 1.310b

GBPUSD resumed its negative momentum during Tuesday’s early European trading hours, crossing below the steep support trendline, which had been curtailing the pullback from the two-and-a-half year high of 1.3265 over the past two trading days.

A decline below 1.3100 could motivate more selling towards the 23.6% Fibonacci retracement of the April-July upleg at 1.3040 and the 20-day simple moving average (SMA) at 1.3000. If the bears dominate there, the negative cycle could stretch towards the 38.2% Fibonacci mark of 1.2900 and the 50-day SMA. Another step lower could confirm a continuation towards the ascending trendline from 2022 seen around the 50% Fibonacci level and the 1.2775 level.

With the RSI and the stochastic oscillator changing direction to the downside and the MACD slipping below its red signal line, it is probable that selling interest will remain intact for the time being. Nevertheless, the rising slope in the SMAs implies that the ongoing bearish wave might be a component of the larger bullish trend.

In the event the price returns above the broken support trendline at 1.3155, the bulls will stage another battle around the 1.3265 peak and the tough resistance line from April. The 1.3300 number will be closely watched as well, and if buyers claim that barrier, the rally could pick up steam towards the 1.3400 round level. Above that, there are no significant obstacles until the 1.3600 level.

In summary, GBPUSD might experience ongoing downward pressure in the next few sessions, especially if it closes below 1.3100. For a bullish continuation, the price must exceed the resistance trendline at 1.3265.

Short Term Elliott Wave in GBPJPY shows a bullish sequence from 8.5.2024 low, favoring further upside. Rally from 8.5.2024 low is unfolding as a 5 waves impulse. Wave (1) higher ended at 192.01. Pullback in wave (2) unfolded as a zigzag Elliott Wave structure like the 1 hour chart below shows. Down from wave (1), wave A ended at 190.34 and rally in wave B ended at 191.625. Wave C lower ended at 188.19 which completed wave (2) in higher degree. The pair extended higher in wave (3). Up from wave (2), wave ((i)) ended at 190.76 and dips in wave ((ii)) ended at 188.89. Wave ((iii)) higher ended at 191.47 and wave ((iv)) ended at 189.42. Final leg wave ((v)) ended at 192 which completed wave 1 in higher degree.

Pullback in wave 2 ended at 189.46 with internal subdivision as expanded flat. Up from there, wave 3 is in progress as an impulse. Wave ((i)) of 3 ended at 191.92 and wave ((ii)) of 3 ended at 190.18. Pair is nesting higher in wave ((iii)) with wave (i) ended at 191.49 and wave (ii) ended at 190.44. Expect wave (iii) to end soon, followed by wave (iv) pullback before it resumes higher again. Near term, as far as pivot at 188.19 low stays intact, expect dips to find support in 3, 7, 11 swing for further upside.

GBPJPY 60 Minutes Elliott Wave Chart

GBPJPY Elliott Wave Video

https://www.youtube.com/watch?v=kT3uLWSEINA&embeds_referring_euri=https%3A%2F%2Felliottwave-forecast.com%2F&source_ve_path=MjM4NTE

Brent crude oil prices have experienced significant selling pressure recently, dipping to 77.21 USD per barrel on Tuesday. Although there has been a slight recovery from earlier lows, the overall market sentiment remains bearish.

Investors are reacting to recent data from OPEC, which indicates that 8 OPEC+ members plan to increase their production by 180,000 barrels per day. This anticipated rise in supply casts a shadow over the oil market, particularly as it coincides with weakening demand indicators from major economies.

A report from the Department of Energy in the US highlighted a drop in oil consumption in June to levels not seen since the summer of 2020, considering seasonal adjustments. This downturn in demand is mirrored by troubling economic data from China, where factory activity has reportedly reached a six-month low. Moreover, the decline in selling prices and a reduction in new orders from Chinese manufacturing sectors add to the pessimism surrounding future demand.

However, some support for oil prices stems from production issues in Libya, where the largest local oilfield has halted production due to state-imposed force majeure. This disruption could pose supply challenges for major oil consumers and as highlighted in commodities analysis, temporarily cushion the impact of broader negative trends.

Brent technical analysis

The H4 chart shows a previous growth impulse peaking at 81.85, followed by a correction down to 75.20, forming a broad consolidation range at this lower level. There is an expectation for a growth move towards 79.00 today. If this level is breached upward, it may signal the continuation of the growth wave to 82.87. This bullish scenario is tentatively supported by the MACD indicator, whose signal line is below zero but shows signs of an upward trajectory.

On the H1 chart, Brent has formed a corrective structure down to 76.02 and is currently developing a growth structure towards 77.55. A successful breach of this level could open the way for further growth to 79.00, potentially continuing to 82.87. The Stochastic oscillator supports this outlook, with its signal line positioned around 50 and pointing upwards, indicating potential for further price increases.

Overall, while the short-term technical indicators suggest a possible recovery in Brent prices, the broader market context remains challenging due to increased supply forecasts and weak demand signals from vital global markets.

• EURJPY may find significant resistance at 164.00
• Rebound off 7-month low still holds
• RSI heads down below 50 level
• MACD recovers above its trigger line

EURJPY is currently heading south following the unsuccessful battle with the 162.30 resistance level, which is the 38.2% Fibonacci retracement level of the down leg from 175.37 to 154.40. However, a more important struggle for the bulls could come at the 164.00 psychological level, which coincides with the 200-day simple moving average (SMA).

Technical oscillators show some mixed signs. The RSI is pointing downwards beneath the neutral threshold of 50, whereas the MACD is extending its positive momentum above its trigger line.

If the price has a closing session beyond the 162.30 barrier, then the fight with 164.00 would start. A break above it would open the way for a test of the 50.0% Fibonacci of 164.80 before meeting the 50-day SMA at 166.30.

In the negative scenario, a move lower could take the market towards the 159.30-160.05 support region, which encapsulates the 23.6% Fibonacci. More downside pressure could drive the bears towards the more-than-seven-month low of 154.40.

Summarizing, EURJPY has showed some improvement since the bearish spike on August 5 but there is lot of room to cover for changing the outlook to bullish.

Switzerland’s GDP grew by 0.7% qoq in Q2, exceeding expectations of 0.6% qoq and marking an improvement from Q1’s 0.5% qoq growth. When adjusted for sporting events, GDP still showed solid growth at 0.5% qoq, up from the previous quarter's 0.3% qoq.

This stronger-than-expected performance was largely driven by significant expansion in the chemical and pharmaceutical industries, which played a key role in lifting the overall economic output. However, growth across other sectors was uneven, reflecting underlying weaknesses in domestic demand.

Full Swiss GDP release here.

Markets

European stocks opened in red, ended in green. German yields added some 3-4 bps, launching the 10-yr yield to the highest level since the August meltdown. And the Japanese yen lagged global peers on currency markets. That’s about all there is to say about yesterday’s uneventful, US-missing trading day. Morning news today remains very limited though we do pick up on an article ran by Bloomberg. The financial news agency, citing people familiar with the matter, said that ECB rate cuts beyond 3% will be a lot more contentious. Rates at the current level of 3.75% are still restrictive, making the next two to three moves down a no-brainer given poor economic momentum. Views in the policy committee, however, increasingly differ on the price outlook and the neutral rate – a matter that Reuters also raised just yesterday. Estimates on the latter range between 2-3%, meaning that rates below 3% for some (hawks) risks halting or even reversing the ongoing disinflationary process. Euro area money markets expect the ECB to have cut rates to around 2% by 2026.

US bonds trade for the first time this week after having enjoyed a long weekend for Labor Day. They add around 1 bp across the curve in Asian dealings. Commodity currencies trade in the defensive with the likes of the Aussie dollar pressured by faltering iron ore prices (nearing the 2024 multiyear lows). JPY tops the leaderboard, snapping a four-day decline against the dollar. Bank of Japan governor Ueda reaffirmed – in a document submitted to a government panel – that more hikes are coming if the economy and inflation evolve in line with the central bank’s outlook. Today’s economic calendar serves as an appetizer. The US manufacturing ISM is expected to recover to 47.5 from last month’s unexpected and sharp decline to 46.8. Such would be the first improvement in four months. We think it’ll be relevant for intraday trading purposes only though with several other key data prints to be released later this week. The payrolls report on Friday more specifically will all but settle the debate on the size of the Fed’s inaugural cut on September 18. From a market point of view, we’re especially interested in case of an upward surprise in today’s and the other data outcomes now yields appear to have hit the bottom back in August. It could support core/US bond yields in their recovery away from these recent lows/technical support zones. First meaningful support (USD resistance) in EUR/USD is located around 1.098-1.10. 102.16/102.36 is the mirror image in DXY.

News & Views

Inflation in South Korea in August rose 2.0% from 2.6% in July, touching the target of level of the Bank of Korea and marking the slowest pace of yearly price growth since March 2021. Even so, the rise was partially due to favourable base effects. In a monthly perspective prices still rose 0.4% M/M, up from 0.3% in July. Core inflation excluding food and energy prices slowed to 2.1% from 2.2% in July. The Bank of Korea assessed that the data showed that inflation was stabilizing more quickly than in other major economies and sees prices holding a stable trend going forward. The inflation data are raising the chances for a 25 bps interest rate cut at the October meeting even as the BoK recently showed concerns on the financial stability risks of higher house prices and a high level of household debt. The Korean won, which profited from the broader USD decline in August, this morning eased modestly to USD/KRW 1341.5.

British Retail Consortium data this morning showed that UK retail sales still rose at a modest 1.0% Y/Y in August, even as recent eco data suggested a better performance of the UK economy in the second half of the year. On a same store basis, sales were 0.8% higher compared to the same period last year. However, the upswing probably was at least partially related due to better weather conditions last month. Three-months, year-over over year food sales accelerated to 2.9% from 2.6%, but non-food sales remained in negative territory 3M-Y/Y (-1.7%).

Graphs

GE 10y yield

The ECB cut policy rates by 25 bps in June. Stubborn inflation (core, services) warrants a cautious approach on follow-up moves. Markets nevertheless price in two to three more cuts for 2024 as disappointing US and unconvincing EMU activity data rolled in, dragging the long end of the curve down. Yields bottomed in the wake of the August market meltdown, preluding a technical correction higher.

US 10y yield

The Fed in its July meeting paved the way for a first cut in September. It turned attentive to risks to the both sides of its dual mandate as the economy is moving to a better in to balance. Markets juggle between 25 and a 50 bps lift-off. The pivot weakened the technical picture in US yields with another batch of weak eco data pushing the 10-yr sub 4%. Powell at Jackson Hole didn’t challenge markets’ positioning.

EUR/USD

EUR/USD moved above the 1.09 resistance area as the dollar lost interest rate support at stealth pace. US recession risks and bets on fast and large (50 bps) rate cuts trumped traditional safe haven flows into USD. EUR/USD 1.12 was tested but survived. A (technical) dollar comeback then kicked in.

EUR/GBP

The BoE delivered a hawkish cut in August. Policy restrictiveness will be further unwound gradually on a pace determined by a broad range of data. The strategy similar to the ECB’s balances out EUR/GBP in a monetary perspective. Recent better UK activity data and a cautious assessment of BoE’s Bailey at Jackson Hole are pushing EUR/GBP lower in the 0.84/0.086 range.

Swiss CPI was flat mom in August, below expectation of 0.1% mom rise. Core CPI (excluding fresh and seasonal products, energy and fuel) rose 0.1% mom. Domestic products prices was flat while imported products prices fell -0.1% mom.

For the 12-month people, CPI slowed from 1.3% yoy to 1.1% yoy, below expectation of 1.2% yoy. Core CPI was unchanged at.10% yoy. Domestic product prices was unchanged at 2.0% yoy. Imported price prices fell from -1.0% yoy to -1.9% yoy.

Full Swiss CPI release here.