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• USDJPY retains bearish bias
• MACD and RSI try to gain some momentum
• 23.6% Fibonacci acts as strong resistance

USDJPY is continuing its descending movement, especially after the failed attempt to jump above the uptrend line and the 38.2% Fibonacci retracement level of the down leg from 161.94 to 141.60 at 149.50. As the market remains beneath the 23.6% Fibonacci of 146.45 and the 20-day simple moving average (SMA), there is no notable sign for an upside retracement.

However, the technical oscillators indicate a weak bearish structure. The MACD is still in the negative territory but above its trigger line, while the RSI is sloping marginally up near the 30 level.

More downside movements could find immediate support at the 143.40 level, which is ahead of the more than seven-month low of 141.60, before posting a lower low at 140.20, which was registered on December 24.

If the bulls take control, then the 23.6% Fibonacci of 146.45 and the 38.2% Fibonacci of 149.50 are the next obstacles. Even higher, a penetration of the 200-day SMA at 151.30 could be a signal for an upside correction.

In brief, USDJPY retains the bearish structure that started after it topped at 161.94, but in the bigger picture, the pair is bullish, holding well above the 200-week SMA.

Markets

Core interest rate markets yesterday tried to further build on a tentative pause/bottoming out process that started on Monday. With 100 bps Fed cuts discounted for this year and another 125 bps of reduction priced in for next year, markets for now apparently feel themselves as trading in line even with the new Fed guidance of a genuine scaling back of policy restriction. However, US data were inconclusive and didn’t really help to kickstart a real directional countermove. US house price data were close to expectations. Consumer confidence (Conference Board) for the second consecutive month beat market expectations (103.3 from 101.9) with both the current situation assessment and expectations adding to the improvement. At the same time, Richmond Fed business surveys suggest a further cooling in activity both in manufacturing and services. With markets still more sensitive to soft rather than strong data, the latter to some extent capped an intraday rebound in yields. Later in the session, (US) bonds were also supported by a strong investor buying interest at a $69 bln 2-y Treasury auction. US yields at the end of the day finished little changed in a tentative steepening move (2-y 3.7 bps; 30-y +0.8 bp). German Bunds outperformed with yields rising between 0.6 bp (2-y) and 5.4 bps (30-y). First August EMU inflation data to be released tomorrow and on Friday might help to clarify whether the ECB might have room to step up the pace of easing beyond an expected 25 bps step in September. The unconvincing intraday picture in US yields also capped any upside momentum in the dollar. DXY closed at a YTD low (100.55). EUR/USD finished at 1.1184. Sterling continued its outperformance, both against the euro and the dollar despite mixed CBI retail data (cable 1.326, EUR/GBP 0.8434). Equities didn’t go anywhere with investors looking forward to the Nvidia results to be published after the close in the US this evening. Oil reversed Monday’s jump higher to close near $ 79.55 p/b (Brent).

This morning, Asian equities mostly trade lower, with China underperforming. US yields show no clear trend. The dollar tries to regain some ground (EUR/USD 1.1145; USD/JPY 144.45, DXY 100.85). The eco data calendar is extremely thin in both side soft the Atlantic. The US Treasury will sell $70 bln 5-year Notes. Nvidia results (after the close) might help to investors to make up their mind whether there is further upside momentum in equities even as US indices are nearing record levels. For yields and the dollar some further consolidation near/slightly above recent lows might be on the cards today.

News & Views

The Financial Times runs an article on China’s plans to issue billions of dollars of government bonds before the end of the year. People close to the central bank warned that they have the potential to burst the bubble in the country’s bond market. Official data show that as of July the government had yet to issue about Rmb 2.68tn ($376bn) from its full-year quota of special local government bonds (Rmb 3.9tn) and ultra-long central government treasuries (Rmb 1tn). Proceeds of the former are used by lower authorities for projects and investments while the latter serve to help stimulate the overall, slowing, economy. The wall of supply threatens a bullish Chinese bond market which push yields at 10-yr tenors to as low as 2.2%. Other agencies working close with the PBOC warned earlier this month as well that LT government bond yields have deviated from a reasonable range and show a tendency towards some degree of bubble.

Czech National Bank governor Michl yesterday indicated that it’s better to have a more consistent, but overall more restrictive monetary policy. The economy should be based on savings, not on debt. If we remain strict, one day we will prevent a repeat of high inflation. His comments came in the wake of his visit to Jackson Hole. He also warned against making rushed, ad-hoc monetary policy steps and experiments. The CNB cut its policy rate by 250 bps in total since December, to 4.5%. They meet next on September 25 where we expect a 25 bps rate cut.

Graphs

GE 10y yield

The ECB cut policy rates by 25 bps in June. Stubborn inflation (core, services) make follow-up moves less evident. 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. The move accelerated during the early August market meltdown.

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 tend to err in favour of 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 1.1276 (2023 top) serves as next technical reference.

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. Risk-off proved a more important driver of GBP recently, triggering a brief return from 0.84 towards 0.86.

In focus today

In Sweden, today's foreign trade data for July will give some preliminary insight into Q3 activity. Riksbank vice governor Anna Breman gives a speech on climate and monetary policy at 13:00 CET.

NVIDIA quarterly earnings are due tonight. The company, which moves up and down in the top 3 most valuable listed US stocks, has become the face of the AI tech boom and markets have used its earnings calls to assess the status of AI capex spending. Thus, it has the potential to move global markets despite being scheduled after US market close.

Economic and market news

What happened overnight

Australian inflation came in a bit higher than expected at 3.5% in July (cons.: 3.4%), which prompted Asian shares to slip and sent Australian yields slightly up as markets lowered the odds of a November cut from the RBA.

What happened yesterday

In the US, the Conference Board consumer survey improved more than expected with the overall index at 103.3 (cons.: 100.7). The details revealed that consumers see lower odds of a recession, expect substantially lower inflation (4.9% from 5.3%), and a weaker labour market; all in line with the prevailing market narrative post-Jackson Hole, which currently sees a 25bp cut fully priced in for the September meeting. As such the market impact was muted.

Oil nearly reversed Monday's gains with Brent at 79.66 USD/bbl. as of this morning. The move seems to be driven in part by expectations of lower growth following the Fed's dovish comments, and in part by reports that the risk of further escalation between Israel and Hezbollah seems to have diminished.

In geopolitics, Ukrainian President Zelenskiy is ready to present a peace plan to the US government and potentially the presidential candidates in September, with recent Ukrainian incursions into Russian territory being part of this plan.

ECB Governing Council member Knot was slightly hawkish stating a September cut was not a done deal, contrary to what markets are pricing, citing lack of data.

Equities: Global equities were marginally higher yesterday, showcasing a very mixed sector and regional performance. However, large-cap cyclicals continued to outperform, with US tech performing well and implied volatility slightly decreasing. As we approach the end of the week, we anticipate more intriguing micro and macro news that will likely spur greater activity, especially in the equity markets. In the US yesterday, Dow +0.02%, S&P 500 +0.2%, Nasdaq +0.2%, and Russell 2000 -0.7%. Asian markets are lower this morning, and the same trend is observed in most US markets. European futures are higher again today, despite the headwinds from a stronger euro.

FI: Long-end EGB yields edged higher throughout yesterday's session, with the 10Y Bund yield settling just shy of the 2.30% threshold. In contrast, short-end yields remained relatively stable, as markets continue to anticipate approximately 65bp in ECB rate cuts by year-end. The 5y5y EUR inflation swap rate climbed by about 4bp to 2.575%, reflecting recent increases in commodity prices. Concurrently, the Bund ASW spread has tightened, now trading at 28.7bp, amid diminishing risk premiums and sustained high activity in the primary market.

FX: After the big moves last week this week has failed to bring any bigger moves in G10 FX. The CHF and the NOK were an unusual set of outperformers yesterday, but the gains were still limited to less than 1 standard deviation from a historical perspective.

The markets were calm yesterday, the European stocks extended gains, while the S&P500 and Nasdaq consolidated a bit lower than their ATH levels. A $69bn sale of US 2-year debt went well, the US 2-year yield extended losses and the US dollar rebounded from the lowest levels of the year. Crude oil, which rallied to its 200-DMA on mounting tensions in Middle East and Libya, failed to break offers at this level and fell nearly 2% as most traders brought the global growth concerns and the sluggish Chinese recovery back on the table. The barrel of US crude eased to $76pb level and is consolidating near this level this morning. We will probably have another calm trading session today, as investors will not be willing to move mountains before they see the latest results from Nvidia, that are due to be released today, after the closing bell.

Happy Nvidia day

Today is probably the most important day of the week, and of the earnings season, because it’s Nvidia’s earnings announcement day! Nvidia has a weight of around 6% in the S&P500 and it accounted for a third if its gains of the index this year. So the company’s earnings announcement day is naturally a big day for the market.

The expectations for Nvidia’s Q2 results are sky-high, of course. In numbers, Nvidia’s own revenue forecast is a whopping $28bn of sales in the Q2 of this year. That’s more than the double of the money the company made a year ago And the market expectations are even more than that: they range between $27 and $32bn. The LSE Group data for example suggests that sales at Nvidia’s sales may have grown by 75% in the Q2 to $31.69bn on persistently high spending from the Big Tech companies – that make up to 40% of the Nvidia’s revenue. The strong TSM earnings reported earlier in this earnings season also hints that we could see another blowout quarter from Nvidia. And given that the company has consistently printed a $2bn beat on its own forecast for the last four quarters, there is reason to think that the $30bn of sales is definitely within reach.

But there are risks, too. First, higher expectations are harder to beat, and a number below the $30bn mark could disappoint more than one. Second, Nvidia had to delay the launch of its next generation Blackwell chip due to issues in design and manufacturing, and even though the company has enough popular chips to sell, the delay of the Blackwell chips could alter their own predictions for the quarters ahead and discourage investors. Third, Nvidia faces rising competition from the likes of AMD, Qualcomm and Intel. and the rising competition will start eating into the profit margins sooner rather than later. And finally, we can’t ignore the mounting worries regarding the Big Tech companies’ massive AI spending that has not improved these companies’ profitability just yet. Except at Meta, where Zuckerberg managed to convince investors that AI is having a positive impact on the ad revenue, other companies’ investors are frustrated regarding the return on AI investments, both regarding the timing and the size of the benefits on profitability. Even though Big Tech companies have enough cash on hand to increase their capex spending on AI—and they insist they would rather overspend than risk jeopardizing their dominance—if investors start pulling out, they may be forced to scale back their spending plans, which poses a risk for AI enablers like Nvidia.

Anyway, after the year and a half that we spent, and based on the data and numbers available to us today, it’s very hard to give a bad call for Nvidia. But everything from numbers to the guidance should look fantastic to send the stock’s price to new records. And bad news arrives when you least expect it; if there is a correction, it could be a sizeable one. We expect decent post-earnings volatility. Based on options pricing, the stock could move around 10% up and down after the results.

Daily Pivots: (S1) 0.9389; (P) 0.9431; (R1) 0.9456; More....

Intraday bias in EUR/CHF remains on the downside for the moment. Corrective rebound from 0.9209 should have completed at 0.9579 after rejection by 55 D EMA. Deeper fall should be seen to 61.8% retracement of 0.9209 to 0.9579 at 0.9350. Firm break there will bring retest of 0.9209 low. On the upside, however, break of 0.9497 minor resistance will turn bias back to the upside for 0.9579 resistance instead.

In the bigger picture, medium term corrective pattern from 0.9407 (2022 low) might have completed with three waves to 0.9928. Decisive break of 0.9252 (2023 low) will confirm long term down trend resumption. Next target will be 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. For now, outlook will stay bearish as long as 0.9928 resistance holds, even in case of strong rebound.

Daily Pivots: (S1) 0.8421; (P) 0.8444; (R1) 0.8457; More....

EUR/GBP's fall from 0.8624 is still in progress, and intraday bias stays on the downside for retesting 0.8382 low. Strong support could be seen from there to bring rebound on first attempt. Above 0.8474 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 55 D EMA (now at 0.8492) holds. Firm break of 0.8382 will confirm larger down trend resumption.

In the bigger picture, while the rebound from 0.8382 is strong, there is no confirmation of trend reversal yet. As long as 0.8643 resistance holds, down trend from 0.9267 could still resume through 0.8382 at a later stage towards 0.8201 (2022 low). However, firm break of 0.8643 will indicate that such down trend has completed, and turn outlook bullish for 0.8764 resistance next.

Daily Pivots: (S1) 1.6440; (P) 1.6473; (R1) 1.6499; More...

Intraday bias in EUR/AUD is back on the downside as fall from 1.7180 resumes today. Sustained trading below 55 D EMA (now at 1.6435) will argue that rise from 1.5996 has completed at 1.7180. Deeper fall would then be seen back to this support. ON the upside, though, above 1.6580 resistance will turn bias back to the upside for stronger rebound.

In the bigger picture, corrective fall from 1.7062 medium term top should have completed at 1.5996. Larger up trend from 1.4281 (2022 low) is resuming. Next target is 61.8% projection of 1.4281 to 1.7062 from 1.5996 at 1.7715. However, sustained break of 55 D EMA will dampen this bullish view and extend medium term range trading.

Daily Pivots: (S1) 160.53; (P) 161.35; (R1) 161.83; More....

Intraday bias in EUR/JPY remains neutral as consolidations continue below 163.86. On the upside, break of 163.86 will target 61.8% retracement of 175.41 to 154.40 at 167.38, as the second leg of the corrective pattern from 175.41. On the downside, however, firm break of 159.80 support will suggest that the rebound from 154.40 has completed, and turn bias back to the downside for 154.40 instead.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). Current development suggests that the first leg has completed. The range of consolidation should be seen between 38.2% retracement of 114.42 to 175.41 at 152.11 and 175.41 high.

Daily Pivots: (S1) 190.12; (P) 191.02; (R1) 191.79; More...

Intraday bias in GBP/JPY remains neutral as consolidation from 191.99 is still extending. On the upside, above 191.99 will target 61.8% retracement of 208.09 to 180.00 at 197.35, as the second leg of the corrective pattern from 208.09. On the downside, however, firm break of 187.84 support will argue that rebound from 180.00 has completed, and turn bias back to the downside for retesting 180.00 instead.

In the bigger picture, price actions from 208.09 are seen as a correction to whole rally from 123.94 (2020 low). Current development suggests that the first leg has completed and the range of medium term consolidation should be set between 38.2% retracement of 123.94 to 208.09 at 175.94 and 208.09.

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

EUR/USD is staying in consolidation from 1.1200 and intraday bias remains neutral for the moment. Downside of retreat should be contained above 1.0007 resistance turned support to bring another rally. Above 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.