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Markets

Markets spent most of their time awaiting corporate (Nvidia results after-market) and economic (European inflation numbers from tomorrow on and US PCE deflators on Friday) events today. Core bond yields drifted a few basis points lower in technically irrelevant trading during European trading hours, both in the US and Europe. They then fully recovered in the former. The 2-yr yield is nonetheless shedding 3.4 bps following a benchmark change after yesterday’s auction. The smooth sale bodes well for tonight’s $70bn 5-yr one. German yields were still down between 1.8 (2-yr) and 4.5 bps (30-yr) at the time of writing, slightly underperforming vs swaps. The ECB’s July lending survey showed that the drag of high interest rates on lending has eased somewhat further, implying no short-term need for swift monetary easing. The annual M3 growth rate stood at 2.3%, the same as in June. Among the borrowing sectors, loans to households picked up slightly from 0.3% to 0.5%. This uptick was partially offset by loan growth to companies easing from 0.7% to 0.6%.

The dollar captures most of the attention on currency markets by showing some strength after a period of Fed-induced weakness. Nothing changed to the dire technical picture though. The trade-weighted index (DXY) narrowly escaped from a break below the end-2023 correction low by moving from 100.57 to 101.07. EUR/USD dipped from 1.1184 towards the 1.11 big figure. The EUR/GBP cross rate continues down the same path with the pair setting an intraday low of 0.841 before paring some losses to 0.842 currently. Governor Bailey’s “the job is not completed” speech at Jackson Hole put the BoE in stark contrast with the Fed and ECB and that’s clearly still leaving some marks on the British currency. European shares outperform (EuroStoxx50 +0.6%) those in the US with market tension building ahead of the Nvidia earnings. The single stock has the potential to lift the likes of the S&P500 towards new record highs.

News & Views

In an interview with Polish business newswire PAP, national bank of Poland MPC member Gabriela Maslowska was quoted that she didn’t exclude the possibility of an NBP rate cut in 2025. Currently there is still a long way to go for that to happen as the NBP continues to monitor changes in the inflation and macro-economic growth forecast. Keeping this caution into account, Maslowska indicated that the NBP still will reacted appropriately when GDP growth and inflation would be lowered at the same time. Aside from the domestic economic developments, a too large disparity with the eurozone and the US could cause large and unfavourable fluctuations in the zloty exchange rate. The comments of Maslowska come as other MPC members, including from governor Glapinski, recently had a less hawkish tone suggesting that the debate on rate cuts might be looming on the horizon. The NBP shifted to a prolonged pause after cutting the policy rate in September (75 bps) and October (25 bps) last year. The zloty recently met resistance in the EUR/PLN 4.25 area and today weakens further to test the EUR/PLN 4.30 area.

The monthly German IFO employment barometer in August declined for the third consecutive month, indicating that German companies are turning more cautious on hiring. The index declined from 95.3 to 94.8. According to IFO’s head of survey’s “The lack of orders is causing companies to put the brakes on hiring.” Especially in manufacturing the barometer fell noticeably as more companies are considering cutting jobs. The same applies to trade. In the construction industry employees are to be retained despite the severe crisis. A positive hiring trend only remains in place among service providers, in particular in the IT sector and in tourism.

Graphs

Trade-weighted dollar index (for now) narrowly escaped from a technical break lower.

EUR/PLN: zloty takes note of increasing amount of MPC members raising possibility of a 2025 cut

EUR/PLN: zloty takes note of increasing amount of MPC members raising possibility of a 2025 cut

Nasdaq (and other US indices) anxiously awaiting the results of a single, market-moving stock: Nvidia

The euro is sharply lower on Wednesday. In the European session, EUR/USD is trading at 1.1116 at the time of writing, down 0.60% on the day. There are no tier-1 events on today’s data calendar but Thursday will be busy, with German CPI and US GDP.

German CPI expected to ease

Germany, the largest economy in the eurozone has lost its status as the locomotive of Europe and is yet to find its footing. GDP was flat in the second quarter after a 0.1% contraction in Q1, as the weak economy narrowly averted a technical recession. The German consumer remains deeply pessimistic about economic conditions and that likely will dampen consumer spending, a key driver of the economy.

The eurozone follows on Friday with the August inflation report. CPI is expected to ease to 2.2% y/y, down from 2.6% in August. The core CPI rate is projected to tick lower to 2.8% versus 2.9% in July. The data could offer clues about the ECB’s rate decision on Sept. 12. The ECB delivered its first rate cut of the new cycle in June and could trim again as early as next month if ECB policy makers are confident that inflation is moving in the right direction.

The US will release second estimate GDP for the second quarter on Thursday. The initial estimate showed the economy powering ahead with a 2.8% gain, double the 1.4% pace in Q1. The second estimate is expected to confirm the initial reading and confirm that the economy remains in solid shape, despite concerns about a weak employment labor which led to a global market meltdown earlier this month.

EUR/USD Technical

• EUR/USD has pushed below support at 1.1139. Next, there is support at 1.1076
• There is resistance at 1.1255 and 1.1318

• NZDUSD is up almost 5% so far in August
• Further gains are likely, but risk of near-term correction is high

NZDUSD is trading near seven-month highs on Wednesday, as the pair continues its August bull charge. However, there appears to be some resistance in the 0.6250 area where the intersecting long-term descending trendline is providing additional friction.

The technical indicators remain bullish but point to fading positive momentum in the near term. The stochastic oscillator has flatlined in the overbought region, while the RSI is hovering just beneath the 70-overbought mark.

Should the pause in the rally turn into a selloff, NZDUSD could initially slip towards the 78.6% Fibonacci retracement of the June-August downleg at 0.6141. A drop lower would bring the 61.8% Fibonacci of 0.6079 into view. Both the 200- and 20-day simple moving averages (SMA) are also in the vicinity, potentially, making it difficult for the bears to make much progress from hereon.

However, a successful break lower towards the 50% Fibonacci of 0.6035 could mark a shift to a more neutral outlook in the short-to-medium term.

On the other hand, if the price is able to overcome the 0.6250 resistance, the next stop could be the 123.6% Fibonacci extension slightly above 0.6300. Even higher, attention is likely to turn to the December 28, 2023 high of 0.6368.

In brief, NZDUSD’s uptrend has gone from strength-to-strength, but conquering the 0.6250 level will be key to extending the winning streak.

Daily Pivots: (S1) 143.52; (P) 144.35; (R1) 144.78; More...

For now, further decline is still in favor in USD/JPY with 146.47 resistance intact, to retest 141.67 low. Firm break there will resume the whole fall from 161.94 to 140.25 support next. On the upside, above 146.47 minor resistance will turn intraday bias back to the upside for 149.35 resistance instead.

In the bigger picture, fall from 161.94 medium term top is seen as correcting whole up trend from 102.58 (2021 low). Deeper decline could be seen to 38.2% retracement of 102.58 to 161.94 at 139.26, which is close to 140.25 support. In any case, risk will stay on the downside as long as 55 W EMA (now at 149.38) holds. Nevertheless, firm break of 55 W EMA will suggest that the range for medium term corrective pattern is already set.

Daily Pivots: (S1) 0.8388; (P) 0.8437; (R1) 0.8464; More…..

Intraday bias in USD/CHF remains on the downside for the moment. Fall from 0.9223 is resuming and should target 61.8% projection of 0.9049 to 0.8431 from 0.8747 at 0.8365, and then 0.8332 low. On the upside, above 0.8484 minor resistance will turn intraday bias neutral. But outlook will remain bearish as long as 0.8747 resistance holds, in case of recovery.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with fall from 0.9223 as the second leg. Strong support could be seen from 0.8332 to bring rebound. Yet, overall outlook will continue to stay bearish as long as 0.9243 resistance holds. Firm break of 0.8332, however, will resume larger down trend from 1.0146 (2022 high).

Daily Pivots: (S1) 1.3205; (P) 1.3236; (R1) 1.3291; More...

A temporary top is formed at 1.3265 in GBP/USD with current retreat. Intraday bias is turned neutral for consolidations first. Downside of retreat should be contained well above 1.3043 resistance turned support to bring rebound. On the upside, above 1.3265 will resume larger up trend to 100% projection of 1.2298 to 1.3043 from 1.2664 at 1.3409.

In the bigger picture, up trend from 1.0351 (2022 low) is resuming. Next target is 38.2% projection of 1.0351 to 1.3141 from 1.2298 at 1.3364. For now, outlook will stay bullish as long as 1.2664 support holds, even in case of deep pullback.

Daily Pivots: (S1) 1.1160; (P) 1.1175; (R1) 1.1200; More....

EUR/USD's retreat from 1.1200 extends lower today, but stays well above 1.1007 resistance turned support. Intraday bias remains neutral first and further rally is still in favor. On the upside, break of 1.1200 will resume recent rally to 161.8% projection of 1.0665 to 1.0947 from 1.0776 at 1.1232, and then 1.1274 high.

In the bigger picture, break of 1.1138 resistance indicates that corrective pattern from 1.1274 has completed at 1.0665 already. Decisive break of 1.1274 (2023 high) will confirm whole up trend from 0.9534 (2022 low). Next target will be 61.8% projection of 0.9534 to 1.1274 from 1.0665 at 1.1740. This will now be the favored case as long as 1.0947 resistance turned support holds.

Euro is facing significant selling pressure today, with its recent decline gaining momentum. Fresh data from ECB paints a grim picture: bank lending growth in July was notably sluggish, failing to meet even historical averages. Meanwhile, money growth, which had shown signs of improvement in prior months, remained stagnant with M3 increasing by just 2.3% year-over-year.

The prevailing market expectation is that ECB will implement two additional rate cuts this year, in September and December. However, as Germany’s economic woes deepen, with the real threat of a recession on the horizon, speculation is growing that ECB might be forced to consider yet another rate reduction beyond what is currently anticipated.

Meanwhile, Dollar is staging a broad recovery, though its trajectory is likely to be influenced by Nvidia's earnings and the subsequent impact on overall market sentiment. Despite some market participants betting on a total of 100bps in rate cuts by Fed this year, such expectations is overly ambitious. Unless next week’s non-farm payroll report is unexpectedly weak, Fed is still likely to proceed with a modest 25bps cut at its September meeting.

As the week progresses, Euro is emerging as the weakest performer, followed by Australian Dollar and Japanese Yen. In contrast, Swiss Franc is leading the charge, with Canadian Dollar and New Zealand Dollar also showing relative strength. Dollar and British Pound are positioned somewhere in the middle of the performance spectrum.

Technically, NZD/USD is now at a juncture after breaking through 0.6221 resistance last week. Decisive break of falling trend line resistance will strength the case that consolidation from 0.6537 has already completed. That is, rise form 0.5511 (2022 low) could be ready to resume through 0.6537 in the medium term. Tomorrow’s ANZ business confidence data could be the catalyst needed for the Kiwi to break through the trendline with conviction.

In Europe, at the time of writing, FTSE is down -0.24%. DAX is up 0.73%. CAC is up 0.37%. UK 10-year yield is down -0.0041 at 3.974. Germany 10-year yield is down -0.037 at 2.257. Earlier in Asia, Nikkei rose 0.22%. Hong Kong HSI fell -1.02%. China Shanghai SSE fell -0.40%. Singapore Strait Times fell -0.22%. Japan 10-year JGB yield rose 0.0147 to 0.895.

Australia's monthly CPI slows to 3.5% in Jul, slightly above expectations

Australia's monthly CPI inflation slowed from 3.8% yoy in June to 3.5% yoy in July, above the expected 3.4% yoy. CPI excluding volatile items and holiday travel also eased, dropping from 4.0% yoy to 3.7% yoy. Additionally, the annual trimmed mean CPI, a measure that smooths out irregular price fluctuations, decreased from 4.1% yoy to 3.8% yoy.

The most significant contributors to the price increases were housing (+4.0%), food and non-alcoholic beverages (+3.8%), alcohol and tobacco (+7.2%), and transport (+3.4%). These sectors continue to exert upward pressure on inflation, despite the overall slowing trend.

BoJ's Himino signals readiness for further rate hikes if economic confidence grows

BoJ Deputy Governor Ryozo Himino reaffirmed the central bank's commitment to adjusting its monetary policy if confidence in the economic outlook strengthens. In a speech, Himino stated that if BoJ gains "growing confidence" in its economic and price forecasts, it "will adjust the degree of monetary accommodation," signaling readiness for rate hikes ahead.

Himino outlined the baseline scenario for fiscal 2025 and 2026, describing it as a "reasonably balanced state" where inflation aligns with the price stability target, and economic growth "slightly above cruising speed". However, he cautioned against two risk scenarios: one where inflation remains above 2% and another where it falls well below 2% and fails to recover.

Addressing recent financial market volatility, Himino noted that Yen's appreciation might ease the import cost pressures faced by small and medium-sized enterprises, though it could reduce yen-denominated profits for export industries. He reassured that Japanese firms have developed competitive strengths. Stock price volatilities, while influential, should not significantly undermine business sentiment.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1160; (P) 1.1175; (R1) 1.1200; More....

EUR/USD's retreat from 1.1200 extends lower today, but stays well above 1.1007 resistance turned support. Intraday bias remains neutral first and further rally is still in favor. On the upside, break of 1.1200 will resume recent rally to 161.8% projection of 1.0665 to 1.0947 from 1.0776 at 1.1232, and then 1.1274 high.

In the bigger picture, break of 1.1138 resistance indicates that corrective pattern from 1.1274 has completed at 1.0665 already. Decisive break of 1.1274 (2023 high) will confirm whole up trend from 0.9534 (2022 low). Next target will be 61.8% projection of 0.9534 to 1.1274 from 1.0665 at 1.1740. This will now be the favored case as long as 1.0947 resistance turned support holds.

Economic Indicators Update

• Gold prices hover around $2500/oz as the DXY strengthens, with markets awaiting key data amidst geopolitical tensions.
• Gold ETFs see continued inflows, marking a fourth consecutive month of gains, signaling sustained investor interest.
• Technical analysis reveals a bearish triangle pattern on the Gold chart, suggesting a potential price decline.

Gold prices have returned to $2500/oz as the DXY started the day strong. Geopolitical tensions have taken a backseat while markets anticipate this week’s data. Gold ETFs experienced modest inflows last week, continuing a trend that began in May, with inflows totaling around 8 metric tonnes ($403 million), setting the stage for a fourth consecutive month of growth.

Market participants are closely watching Nvidia’s earnings release later today, which could spark volatility and influence broader markets. Additionally, the upcoming PCE data on Friday could be pivotal in determining gold’s trajectory by the week’s end.

The rally in the US Dollar this morning could be attributed to various factors, including end-of-month re balancing by investors. With expectations of 100 bps in rate cuts, the question arises: Have these cuts already been priced into the market?

US Dollar Index Daily Chart, August 28, 2024

Source:TradingView

On the data front, it’s another quiet day for US economic data with the highlight being comments from Federal Reserve policymaker Rafael Bostic. It will be interesting to gauge where the Atlanta Fed President stands regarding a potential 50 bps rate cut in September.

Any hint that Bostic is in favor of a 50 bps cut could add to the dollar’s woes and likely lead to a renewed selloff. Whether this will last however remains to be seen given the US data on Thursday and Friday.

Technical Analysis Gold (XAU/USD)

From a technical perspective, the four-hour Gold chart is currently noteworthy. During the US session yesterday, Gold surged close to its all-time high and appeared set to climb further overnight as the Dollar Index weakened.

However, this morning witnessed a rebound in the US Dollar, which has contributed to a $30 decline in Gold prices, bringing them back to the $2500/oz level.

The H4 chart reveals an intriguing triangle pattern that has decisively broken to the downside. This breakout suggests a potential $60-$70 decline in gold prices, targeting support near the $2440/oz mark according to the pattern’s guideline.

Nonetheless, geopolitical risks remain a concern, as previous technical patterns have failed to manifest as expected for this precious metal. Will this instance prove to be different?

GOLD (XAU/USD) Four-Hour (H4) Chart, August 28, 2024

Source: TradingView (click to enlarge)

Support

• 2484
• 2472
• 2450

Resistance

• 2514
• 2531.66
• 2550