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• EURJPY lost 12% from multi-year high
• Short-term bias skewed to the upside, but caution needed

EURJPY remains under pressure, and risk is still on the downside as prices continue to drift lower after the failure attempt to climb beyond the 200-day simple moving average (SMA) at 164.00. In the bigger picture, EURJPY has lost around 12% from the multi-year high of 157.37 to the seven-month low of 154.40.

Prices rebounded off the 160.35 support level, but based on technical oscillators, momentum is still too weak to provide a sustained move higher. The RSI is sloping marginally up below the neutral threshold of 50, while the MACD is standing above its trigger line in negative territory.

Upside moves are likely to find immediate resistance at the 38.2% Fibonacci retracement level of the downward wave from 175.37 to 154.40 at 162.30. There is an important resistance zone between 164.00 and 164.80 (50.0% Fibonacci level). Rising above this area would help shift the focus to the upside towards the 50-day SMA, which overlaps with the 61.8% Fibonacci at 167.20.

To the downside, the latest bottom at 160.35 could be a key level for traders before hitting the 23.6% Fibonacci at 159.30. Steeper decreases could take the pair towards the more-than-seven-month low of 154.40.

In the short-term, the bearish phase remains in play, especially if EURJPY continues to trade below the 200-day SMA and the 61.8% Fibonacci of 167.20. In the bigger picture, the market is bullish as long as the 200-week SMA holds.

Germany's GfK Consumer Sentiment for September took a sharper downturn than expected, falling from -18.6 to -22.0, below the anticipated -18.3.

August saw significant drops in key indicators: economic expectations plummeted from 9.8 to 2.0, income expectations nosedived from 19.7 to 3.5, and the willingness to buy dipped further from -8.4 to -10.9. Conversely, the willingness to save increased from 8.0 to 10.7, indicating a cautious approach to spending.

According to Rolf Buerkl, consumer expert at NIM, "Apparently, the euphoria of German consumers triggered by the European Football Championship was only a brief flare-up and faded after the end of the tournament."

He added that "negative news about job security is making consumers more pessimistic and a fast recovery in consumer sentiment seems unlikely."

The decline in sentiment is exacerbated by slightly rising unemployment rates, an increase in corporate insolvencies, and staff reduction plans at various companies in Germany. Buerkl concluded, "Hopes for a stable and sustainable economic recovery must therefore be further postponed."

Full German Gfk consumer sentiment release here.

Markets

Interest rate markets were looking for a new short-term equilibrium for the post-Jackson Hole era yesterday. Early in the session, yields tried to build on Friday’s decline as Fed Chair Powel officially rubberstamped the start of a genuine rate cut cycle in September while leaving all options open on the pace of easing. However, with already more than 100 bps of rate cuts discounted for the three remaining Fed meetings of this year, the lows (ex the August 5 spike) held. Unconvincing data were not able to push yields sustainably lower. German Ifo business confidence declined marginally (86.6 from 87.0), confirming last week’s poor PMI reading, but the damage could have been bigger. Headline US durable goods orders were strong (9.9%) but an upswing in Boeing orders masked a mediocre performance of core orders and shipments. In an interview with Bloomberg, San Francisco President Mary Daly repeated the Jackson Hole message from Fed Chair Powell. ‘The time to adjust policy is upon on us.’ Daly didn’t gave guidance of the pace of easing (25 bps or 50 bps). Still, she clearly indicated that the Fed wants to avoid restrictive policy to unnecessary slow growth/the labour market. In case of real labour market weakness, it would be appropriate to be more aggressive. Still the comments also were no game-changer for interest rate markets. At the end of the day, US yields even rose modestly between 2 bps (2-y) and 1.4 bps (30-y). A mild rise in inflation expectations due to higher oil prices (Brent oil jumping to $81+ p/b) probably was also in play. German yields added between 3.0 bps (5-y) and 1.3 bps (30-y). The dollar decline slowed (close DXY 100.85, EUR/USD 1.1161, USD/JPY 144.53) but intraday ‘gains’ were technically irrelevant. Equities ran into resistance as the S&P 500 came within reach of the all-time record (S&P -0.32%, Nasdaq -0.85%).

Asian markets this morning join yesterday’s momentum in the US with equities mostly showing modest declines (Japan being an exception). US yields are rising marginally. The dollar trades little changed (DXY 110.84, EUR/USD 1.1168). Later today, German GFK consumer confidence, US house price data and US consumer confidence (Conference Board) have intraday market moving potential but probably won’t force a break of key technical levels. Also keep an eye at a $69 bln 2-y sale of US Treasury notes after the recent sharp decline in yields. For now we expect technical support levels in yields to hold with next reality check to be provided by the key US early month data next week (ISM’s, payrolls). Expectations for a further easing of US/global financial conditions will probably keep the dollar in a sell-on-upticks pattern.

News & Views

UK shop prices were flat in M/M-terms but fell by 0.3% Y/Y in August (from +0.2% Y/Y in July) in their first Y/Y-decline since end 2021. Non-food prices dropped for a third month running (-0.1% M/M) with their Y/Y-price fall accelerating from 0.9% to 1.5%. Food prices rose by 0.2% M/M and 2% Y/Y. Fresh food price inflation eased from 1.4% Y/Y to 1% Y/Y. The British Retail Consortium commented that retailers discounted heavily (non-food) to shift their summer stock, particularly for fashion and household goods. This discounting followed a difficult summer of trading caused by poor weather and the continued cost of living crunch impacting many families. Looking ahead, the BRC warned for renewed inflationary pressures because of an uncertain outlook for commodity prices (impact climate change on harvests & rising geopolitical tensions).

French President Macron yesterday rejected the left-wing New Popular Front’s (winner of parliamentary election) candidate for new prime minister, Lucie Castets. “The institutional stability of our country requires us not to choose the NFP option”. Macron remains convinced that he can put together a coalition involving moderate politicians from center-left and center-right. PM Attal and his caretaker government remain in place for now with the clock is ticking with a 2025 budget vote scheduled in October.

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

From the US, Conference Board's consumer confidence index for August is due for release. The preliminary survey from the University of Michigan that was released earlier showed consumers turning increasingly optimistic about the future, but also more worried about the current economic situation.

We expect the Central Bank of Hungary to keep their policy rate unchanged later today, at 6.75%.

Economic and market news

What happened overnight

Yesterday, market sentiment was a slight risk-off in tech ahead of the much-awaited Nvidia earnings on Wednesday, while the USD posted modest gains. This continued overnight in Asian markets where Japanese technology shares slipped, following their western peers.

What happened yesterday

Supply uncertainty sent oil prices up by 2.8% from Monday morning as Brent crude price climbed to around 81.2 USD/bbl. this morning. The move came after the government in Eastern Libya, which is not internationally recognized, said it would halt production from its oil fields from where most of Libya's oil is sourced. While neither the national oil company nor the western Libyan government have confirmed this, several subsidiaries of the former have said they plan to cut production citing internal tensions as the reason. Libya has vast oil resources, but the long-standing conflict has hampered production, and currently the country's output constitutes only 4% of OPEC production.

German IFO indicator declined less than expected printing at 86.6 (cons.: 86.0). The drop was due to a deterioration in respondents' assessment of the current economic situation, which mimics the weakness seen over the past months in growth data and August PMIs. Momentum, particularly in manufacturing, has become even weaker while service sector activity keeps the economy afloat.

Equities: Global equities started the week on a lower note, primarily due to setbacks in US tech and tech-related growth stocks. Despite several sectors, regions, and styles ending higher yesterday, the performance of tech heavyweights dominated. There was no clear top-down candidate to blame for the weak performance. However, the sensitivity of tech to the AI narrative has been evident before, especially in the days leading up to Nvidia's earnings report. With Nvidia delivering blowout results for seven consecutive quarters, it is natural to feel a bit more apprehensive ahead of their results. (Nvidia will report tomorrow). In the US yesterday, Dow +0.2%, S&P 500 -0.3%, Nasdaq -0.9%, and Russell 2000 -0.04%. Most Asian markets are lower this morning, while European futures are marginally higher and US futures are mixed.

FI: There were modest movements in global bond yields despite more comments from Fed officials regarding easing monetary policy. However, much is discounted as 2Y US Treasury yields are below 4% and some 20bp lower than in late December 2023/early January 2024, when the market was pricing in some 6-7cuts. Furthermore, the slope of the 2-10Y US curve is set for a test of 0bp.

FX: In a relatively quiet start to the week the USD rebounded whilst NOK, PLN and HUF were trading on the backfoot. EUR/GBP still hovers just above the 0.8450 mark while EUR/SEK had edged modestly higher towards 11.40 since last week's lows. USD/JPY rebounded slightly after Friday's drop but remains below the 146-mark.

The week started on mixed feelings. The rising geopolitical tensions in the Middle East, and between the West and China, and a pullback across the big technology stocks casted shadow on the optimism that the Federal Reserve (Fed) is about to start cutting the interest rates in September. The S&P500 and Nasdaq retreated. But the S&P500’s equal weight index advanced to a record high and the Dow Jones industrial index hit a fresh ATH, as well. Nvidia fell more than 2% a few hours before its earnings announcement, while Roundhill’s Magnificent 7 index retreated 1.34%.

Data-wise, the durable goods orders jumped nearly 10% in the US in July, while ex-transport data stalled – in line with the actual rhetoric of slowing US economic growth that should justify the beginning of the Fed rate cut in September.

The Fed rate cuts should provide an ideal environment for a further rotation from the Big Tech companies toward the non-tech sectors at a time when the earnings of the Magnificent 7 companies slow (they slowed to post a probably 34% growth last quarter - we will have the exact number after Nvidia earnings - from above a 40% growth recorded over the past year), while the earnings at the rest of the S&P500 rose by 6% last quarter from the negative territory. As such, the fundamentals are supportive of a further convergence between the tech and the non-tech pockets of the market. The problem with that is, the tech is a major boost to the S&P500 index. Nvidia alone can move the S&P500 by around 1% in a session.

FX and commodities

The US yields and the dollar rebounded on Monday. The EURUSD retreated to 1.1150 and settled a bit higher than that in Asia. Cable consolidates a touch below the 1.32 level as the USDJPY trades near the 145 mark, though the Bank of Japan’s (BoJ) core CPI figure came in softer than expected this morning, and showed that inflation as calculated by the index unexpectedly fell from 2.1% to 1.8%. In Canada, the USDCAD sank below the 1.35 for the first time since April, helped by a rally in crude oil prices due to rising tensions in the Middle East. On top, the news that Libya’s eastern government – which is internationally unrecognized – said that it’s shutting down oilfields in response to ‘attacks on the leadership and employees of the Central Bank of Libya’. The eastern government produces around 1mbpd – which a substantial portion of Libya's overall production. Consequently, US crude was up by 3% yesterday, and around 8% in three sessions. The price of a barrel is testing the 200-DMA to the upside – where it sees strong resistance. The $78/80pb range is home to offers that could be cleared with mounting tensions of all sorts, yet the slowing global growth worries will likely keep the upside limited above this range in the medium run.
China troubles

In China, the market selloff continues; the CSI 300 index trades at the lowest levels since February. Canada announced that it will impose tariffs of 100% on Chinese-made EVs and 25% on steel and aluminium to protect its domestic manufacturers. The mining company BHP’s CEO warned of higher volatility in global commodity markets due to the Chinese woes, and said that the iron ore supply will outpace demand into next year as surplus steel floods the market. Iron ore futures are struggling near the pandemic low levels. Other than that – still in the context of geopolitical shenanigans - IBM said that it will shut its R&D department in China – also due to the mounting tensions between Beijing and Washington. If that’s not enough bad news, their e-commerce giant PDD – the owner of Temu – plunged nearly 30% on Nasdaq and recorded its biggest one-day lost ever, after the company warned of slowing sales as the competitors like Alibaba also increase efforts to attract budget-aware customers. Zooming out, KraneSahres CSI China internet ETF posted its worst weekly outflow in 2 years, as investors moved money into EM bonds on Fed rate cut bets. As such, JP Morgan’s USD denominated EM Bond ETF rose to the highest level this year and has room for a further rally – as it trades with about 23% discount compared to the pre-pandemic times.

Trading in the forex markets continued to be relatively subdued, as the initial buzz surrounding a Fed rate cut in September is quickly dissipating. Although there is still some speculation about the possibility of a more aggressive 50bps cut to kick off the easing cycle, the repeated reassurances from Fed officials about a preference for a gradual approach have dampened expectations. It seems increasingly likely that only a significantly disappointing non-farm payroll report on September 6 could prompt a more forceful move from Fed. However, such negative news could also dampen investor confidence, leading to broader market concerns.

So far this week, Canadian Dollar and Swiss Franc are the stronger performers, largely driven by heightened geopolitical tensions that have also contributed to a spike in oil prices. The risk for a broader conflict in the Middle East appeared to ease after Israel and Lebanon's Hezbollah exchanged fire without further escalation. However, fresh concerns have surfaced with reports of Russia launching missile and drone attacks overnight, targeting Kyiv and other regions.

On the weaker side, Kiwi, Yen, and Aussie are trailing, while Dollar, Euro, and Sterling are showing mixed performance.

Technically, Ethereum's rebound from 2084.51 is failing strong resistance from 2797.60 support turned resistance and 2800 psychological level. Break of 2531.80 support should confirm rejection by this 2800 resistance zone, and argue that the rebound has already completed. In this case, deeper decline would be seen back to retest 2084.51 low.

In Asia, at the time of writing, Nikkei is down -0.14%. Hong Kong HSI is down -0.21%. China Shanghai SSE is down -0.24%. Singapore Strait Times is down -0.36%. Japan 10-year JGB yield is up 0.0055 at 0.890. Overnight, DOW rose 0.16%. S&P 500 fell -0.32%. NASDAQ fell -0.85%. 10-year yield rose 0.011 to 3.818.

Fed's Daly sees regular, normal cadence as path for rate cuts

San Francisco Fed President Mary Daly said in a Bloomberg TV interview that "the time is upon us" to cut interest rates, strongly suggesting that a rate reduction in September is highly likely.

Daly expressed concerns about maintaining "highly restrictive into a slowing economy", and stated that it is "hard to imagine" not easing rates soon.

Daly outlined her most probable outlook, which involves inflation gradually slowing and the labor market continuing to add jobs at a "steady, sustainable" pace. If this scenario holds, she noted, adjusting policy at a "regular, normal cadence" would be reasonable.

However, Daly also indicated that if the labor market shows any signs of deterioration or weakness, "being more aggressive" in policy adjustments would be appropriate to avoid further economic strain.

DOW hits new record, but Nvidia's earnings could be the decider

DOW managed to break into new intraday record overnight before pulling back slightly, but it was enough to secure a fresh record close. The excitement around the index's performance is palpable, yet the overall market sentiment might hinge on Nvidia's upcoming earnings report on Wednesday. Investors are keen to see the second-quarter results to assess the ongoing strength of the AI trade, which has been a significant driver of market gains.

Technically, doubts persist regarding the Dow's ability to sustain its record-breaking momentum. Firm break below 40584.47 support would indicate that a short term top was formed, and set up deeper pull back to 55 D EMA (now at 39893.83), or around 40k psychological level, before DOW decides on its next move.

Looking ahead

Germany Gfk consumer sentiment and Q2 GDP final will be released in European session. Later in the day, US will release house price index and consumer confidence.

EUR/CHF Daily Outlook

Daily Pivots: (S1) 0.9442; (P) 0.9467; (R1) 0.9482; More....

Intraday bias in EUR/CHF stays neutral and outlook is unchanged. On the upside, sustained break of 55 D EMA (now at 0.9569) will pave the way back to 0.9972/0.9928 resistance zone. However, decisive break of 0.9448 will suggest rejection by 55 D EMA, and turn bias back to the downside for 0.9209 low.

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.

Economic Indicators Update

Daily Pivots: (S1) 1.1140; (P) 1.1171; (R1) 1.1192; More....

Intraday bias in EUR/USD stays neutral at this point for consolidations below 1.1200. 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.

Daily Pivots: (S1) 143.77; (P) 144.21; (R1) 144.98; More...

Intraday bias in USD/JPY stays mildly on the downside despite loss of momentum. Fall from 149.35 should target 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 neutral first. But, risk will stay on the downside as long as 149.35 resistance holds, in case of recovery.

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) 1.3170; (P) 1.3197; (R1) 1.3215; More...

Intraday bias in GBP/USD remain son the upside despite some loss of momentum. Current up trend should target 100% projection of 1.2298 to 1.3043 from 1.2664 at 1.3409. On the downside, below 1.3075 minor support will turn intraday bias neutral and bring consolidations, before staging another rally..

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) 0.8457; (P) 0.8472; (R1) 0.8487; More…..

Intraday bias in USD/CHF remains on the downside for retesting 0.8431 support. Firm break there will resume whole decline from 0.9223 towards 0.8332 low. On the upside, above 0.8540 minor resistance will turn intraday bias neutral. But risk will stay on the downside 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).