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USD/JPY dips to three week low on Monday and hit Fibo 76.4% retracement of 141.68/149.40 corrective upleg, adding to signals that correction of larger downtrend is close to its end.

Strong drop last week (2.1%) completed a bearish engulfing pattern and registered weekly close below 100WMA (144.59), generating fresh bearish signal and setting scope for retest of 141.68 (August 4 low, the lowest since late December).

Bearish technical and fundamental studies contribute to growing signals that USDJPY may extend losses after completing correction.

Break of triggers at 141.68 and 140.48/25 (Fibo 61.8% of 127.22/161.95 / Dec 28 low) likely to spark fresh acceleration lower and dips below psychological 140 support.

Res: 144.58; 145.04; 146.27; 146.87.
Sup: 143.44; 142.58; 141.68; 140.48.

Cable eases from new highest levels since March 2022 on Monday, suggesting that bulls may take breather after 3.6% advance in past two weeks and strong bullish acceleration last Friday (almost 1% daily gain).

Strongly overbought daily studies prompt traders to collect profit, though correction is likely to be limited as the uptrend is strong.

Higher base at 1.3080 marks initial support, while extended dips should be contained by solid supports at 1.3000 zone (38.2% of 1.2664/1.3229 / 10DMA / psychological) and mark a healthy correction, before fresh push higher and potential attack at 1.3328 (Fibo 76.4% of 1.4249/1.0348).

Res: 1.3229; 1.3279; 1.3300; 1.3328.
Sup: 1.3129; 1.3044; 1.3000; 1.2947.

The Japanese yen has shown a notable strengthening, with the USD/JPY pair dropping to 143.99 on Monday, marking a three-week low. This movement is primarily driven by the weakness of the US dollar and significant remarks from the Bank of Japan (BOJ) and the US Federal Reserve.

Market dynamics and Central Bank signals

The recent hawkish comments from Kazuo Ueda, the Governor of the Bank of Japan, have garnered significant attention. Last Friday, Ueda hinted that the BOJ might adjust its monetary policy if economic forecasts align with current trends. The market interpreted this statement as a potential precursor to an interest rate hike, especially in light of Japan's core consumer price index rising for the third consecutive month to 2.7% in July, with overall inflation holding steady at 2.8%.

Conversely, Jerome Powell, Chair of the US Federal Reserve, adopted a more dovish stance, indicating that it might be time to revise US monetary policy due to increasing risks to the labour market. This suggests that the Fed could begin easing monetary policy as soon as September, a move that contrasts sharply with the potential tightening in Japan. These shifts in monetary policy outlooks have significantly shaped forex forecasts for the USD/JPY pair.

Technical analysis of USD/JPY

The USD/JPY formed a consolidation range around the 146.70 level before moving downward to 143.50. There may be a temporary rise to 144.55, but a further decline to 142.88 could follow. The MACD indicator supports this bearish outlook, with its signal line below zero and trending downward.

The pair has completed a downward structure to 143.44. A corrective move towards 144.55 is possible, potentially extending to 145.70 as a test from below. Following this, a decline to 142.88 might occur. The Stochastic oscillator, currently above 50, suggests a rise to 80 before the next downward phase.

Summary

The USD/JPY pair is experiencing downward pressure due to a combination of USD weakness and potential monetary policy adjustments from the BOJ. As market dynamics evolve with central bank policies and economic indicators, the yen could see further gains if the BOJ shifts towards a tighter monetary stance in response to rising inflation.

Market picture

Since Friday, the crypto market has been in a mood of easy greed, as evidenced by the corresponding index, which reached 55 on Monday, close to levels at the beginning of the month. Market capitalisation has also returned to $2.25 trillion, the highest since August 2.

A decisive breakthrough came on Friday when Fed Chairman Powell supported optimism in global financial markets, tipping the scales in favour of the bulls. The cryptocurrency market has managed to overcome the local resistance of the past few weeks and is likely to head towards the upper end of the range, now nearing $2.35 trillion.

Bitcoin broke above both its 50- and 200-day moving averages on Friday and briefly touched the $65,000 level on Saturday and Monday morning. The bulls will need to confirm this breakout by holding above $63.0K on Monday.

Toncoin is stabilising at nearly $5.66 after losing more than 15% on the news of Pavel Durov’s arrest. Technically, the coin is consolidating near its 200-day moving average, which is acting as local support. In our view, there is a high probability of a deeper dive to the $4.3 (200-week) or even $2.5 (April 2022-February 2024 resistance area).

News background

Data from CryptoQuant and major options exchange Deribit signalled moderate optimism in the crypto market. Bitcoin reserves on centralised exchanges fell to multi-year lows in August.

According to SoSoValue data, total weekly inflows into Bitcoin-ETFs totalled $506.4 million, the highest in 4 weeks. Cumulative inflows since the BTC-ETF was approved in January rose to $17.88bn.

In contrast, the Ethereum-ETF has seen a negative trend, with outflows of $44.5 million for the week after outflows of $14.2 million previously. Net outflows since product approval have risen to $464.7 million.

According to Spot On Chain, the non-profit Ethereum Foundation moved 35,000 ETH ($94 million) to cryptocurrency exchange Kraken, the largest Ethereum Foundation transaction this year.

Ethereum’s Dencun update, activated in March, has led to an increase in bots’ activity and failed transactions on Layer 2 networks, according to Galaxy Digital.

During his speech at Jackson Hole, as reported by Reuters, the Fed Chair unexpectedly focused heavily on the US labour market. Powell stated that weaker employment prospects are unacceptable. As a result of this emphasis, market expectations for a rate cut in September decreased, and the value of the US dollar increased:

→ On Monday morning, the dollar index is recovering from the year's lows, which were reached on Friday;

→ Accordingly, other currencies are depreciating against the USD.

As shown by the technical analysis of the EUR/USD chart:

→ Since April, the exchange rate fluctuations have been forming an upward channel (marked in blue, with support points indicated by circles);

→ Within this channel, the price is near the upper boundary, from which resistance can be expected;

→ Additionally, the 1.12 level shows signs of resistance—the price slightly exceeded it before quickly falling back below. Signs of false bullish breakouts indicate weak demand.

The possible exhaustion of buyers seems plausible, considering that:

→ The EUR/USD exchange rate increased by approximately 3.7% in August, surpassing the December 2023 high of around 1.114;

→ The RSI indicator is in the overbought zone, forming a bearish divergence.

Therefore, traders should be prepared for the price to follow a scenario involving a pullback after the rally to the 1.12 level. Volatile movements may occur following this week’s news releases:

→ The US GDP data is scheduled for release at 15:30 GMT+3 on Thursday;

→ The Eurozone inflation data is scheduled for release at 12:00 GMT+3 on Friday.

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• EURUSD returns to positive trend after Powell confirms dovish policy adjustment
• Technical signals reflect weakening positive bias; next resistance could be at 1.1240-1.1274

EURUSD has had a great August so far, rising sharply from 1.0776 to nearly 1.1200 to mark its best monthly performance since November 2022.

The pair violated a bearish engulfing candlestick pattern after refusing to close below 1.1100 on Friday, increasing optimism that the rally might have more room to run. Nevertheless, it is crucial to be cautious as the RSI and stochastic oscillator display weakness in the overbought zone, indicating that selling interest persists.

The 1.1240-1.1274 area, which includes the 61.8% Fibonacci retracement of the 2021-2022 downtrend and the trendline from the 2022 trough, could keep the bulls busy in the short term. A move higher could hit a wall somewhere between 1.1340 and 1.1370, with the latter being a tough obstacle during November 2021-February 2022. If the battle there is won, it could trigger substantial buying up to the 2022 double top region of 1.1480.

Looking to the downside, a close below 1.1100 might lead the price towards the 20-day simple moving average (SMA) seen near 1.1000. A move lower could shift all the attention to the 50% Fibonacci of 1.0940 and the broken resistance trendline from July 2023. Then, the 50- and 200-day SMAs at 1.0880 and 1.0845 respectively could block an extension to 1.0780. If this does not occur, selling pressure could stretch towards the 1.0725 region.

All in all, EURUSD exited its 2024 sideways trajectory and might aim for new higher highs, though for a meaningful rally, it might need to cross above the 2023 barrier of 1.1240-1.1274.

In August, Germany’s Ifo Business Climate Index dropped from 87.0 to 86.6, slightly surpassing expectations of 86.5 but still signaling growing economic concerns. Current Assessment Index also dipped from 87.1 to 86.5, aligning with forecasts, while Expectations Index marginally beat predictions at 86.8, although still reflecting a decline from 87.0

Sector-wise, manufacturing sector saw a significant decline from -14.2 to -17.8. Services sector turned negative, falling from 0.8 to -1.3. Trade sector showed a minor improvement from -27.9 to -27.4, while construction remained stagnant at -26.4.

Ifo President Clemens Fuest issued a stark warning, stating, "The German economy is increasingly falling into crisis."

Full German Ifo release here.

EURUSD cracked 1.1200 barrier after Friday’s 0.75% rally (the biggest daily gain since Aug 2) and hit new 2024 high early Monday.

Bulls remain firmly in play after strong advance in past two weeks and on track for the biggest monthly gain since November 2022, as weakening dollar on strong Fed rate cut signals, continues to underpin the single currency

Next target at 1.1275 (2023 high / Fibo 61.8% of larger 1.2349/0.9535 downtrend) is coming in focus, with firm break here to generate strong signal of bullish continuation of an uptrend from 0.9535 (Sep 2022 low) which was paused for a multi-month consolidation.

Meanwhile, bulls are likely to take a breather as the action was repeatedly capped by falling and thickening monthly cloud, with overbought daily studies adding to signals of limited correction which should offer better buying opportunities.

Higher base at 1.1100 zone (Aug 21/22/23 low) reinforced by bull trendline and rising 10DMA marks solid support, where dips should find firm ground.

Res: 1.1201; 1.1221; 1.1239; 1.1275.
Sup: 1.1152; 1.1100; 1.1084; 1.1039.

Markets

At its keynote Jackson Hole speech on Friday, Fed Chair Powell explicitly reconfirmed the change in the Fed’s assessment on the balance between fighting inflation and preserving maximum employment it already signaled at the July policy meeting. ‘The upside risks to inflation have diminished. And the downside risks to employment have increased.’ The Fed’s confidence that inflation is on a sustainable path to 2.0% is growing. The labor market has cooled considerably from its formerly overheated state. Even as the rise in unemployment mainly comes from a rise in labour supply rather from layoffs, the Fed doesn’t seek or welcome a further cooling of the labour market. With respect to the potential pace of easing Powell stated that while keeping a data-dependent approach. ‘The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions.’ With this kind of remarks, Powell left all options open but didn’t formally challenge the market view that the Fed might move to 50 bps steps in a not that distant future. US yields on Friday closed between 8.8 bps (2-y) and 3.5 bps (30-y) lower. Markets now see more than 100 bps of cumulative rate cuts before the end of this year, with the low of the cycle seen near 3.0% (end 2025/early 2026). Despite Friday’s decline, US bond yields didn’t break recent (intraday) lows and are holding above the lows from the early August risk-off move. Still, the picture for the 2-y yield remains fragile. German yields declined between 2.5 bps (5-y) and 0.5 bps (30-y). The direction of travel for the dollar remains clear: south. DXY closed at a 100.72 (from 101.46). EUR/USD tested the 1.12 big figure (close 1.1192). Equity investors embraced the prospect of further, Fed-led easing of (global) financial conditions. US indices gained op to 1.47% (Nasdaq). The S&P 500 (+1.15%) closed less than 1.0% below its all-time peak. The Eurostoxx 50 added 0.5%.

Today’s calendar is modestly interesting with US durable goods orders and German Ifo confidence. US activity data are gaining importance as the Fed is putting less weight on inflation, but the durables’ series is very volatile. Even so, we look out whether the decline in US yields might slow as quite some easing is already discounted. German Ifo confidence is expected to confirm weakness in other recent data evidence. For German/EMU bond markets, inflation to be published on Thursday (Germany) and Friday (EMU), probably are more important. For now, we don’t fight the broader USD downtrend as long markets maintain the view that the Fed can move to 50 bps steps in a not that distant future. Key USD support kicks in at DXY 99.58 and EUR/USD 1.1276 (2023 top).

News & Views

Bank of England governor Bailey said that policy settings will need to remain restrictive for sufficiently long until the risks to inflation remaining sustainably around the 2% target in the medium term have dissipated further. “The course will therefore be a steady one.” The UK central bank chief is nevertheless becoming more confident that things are heading in the right direction. Second round inflation effects appear to be smaller than the BoE expected. They are revising down their assessment on how persistent these pressures would be, though don’t take it for granted yet. Bailey gave no guidance for the outcome of the next, September, policy meeting. UK money markets attach a 25% chance to back-to-back rate cuts with the more likely scenario being that the BoE only implements a next 25 bps rate cut in November, when the new quarterly Monetary Policy Report will be released. Sterling continues outperforming both EUR and USD with cable (GBP/USD), breaching 1.32 for the first time since Q1 2022.

Brazil central bank governor Campos Neto warned at the Kansas City Fed’s Jackson Hole conference that the country’s tight labour market is challenging the central bank’s bid to rein in inflation. Consumer prices have been picking up across Latin America with Brazilian inflation hitting the 4.5% Y/Y ceiling of the tolerance range (3% +- 1.5 ppt) in July. With economic activity picking up, Campos Neto warned that the central bank’s data dependency could result in an higher policy rate if needed. The Brazilian central bank raised its policy rate from 2% in 2021 to a 13.75% peak by mid-2022. They started a gradual easing cycle in mid-2023, but paused it in June at a 10.50% policy rate. arlier this month, influential board member Galipolo who is rumoured to succeed Campos Neto when his term ends in December, indicated that a rate hike is on the table at the next (September) policy meeting.

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.

‘The time has come for policy to adjust, and the direction of the travel is clear’ said Federal Reserve (Fed) Chair Jerome Powell at his Jackson Hole speech on Friday. He didn’t give any guidance regarding the size of the coming rate cut despite speculation of at least one jumbo rate cut before the end of the year. Instead, he kept the door open for large cut bets. ‘The pace of rate cuts will depend on the incoming data, the evolving outlook and the balance of risks’ he said. And Chicago Fed’s Governor Goolsbee said that it’s time to pay more attention to the employment side, making it clear for everyone that – as the inflation side seems to be under control – the developments in the employment leg will determine the size of the cuts. And the employment data of late has been weak – no alarmingly weak just yet but weak enough - to keep the doves in charge of the market after Powell’s dovish speech last Friday. The US yields and the US dollar index further dived. The yields and the dollar are now waiting impatiently next week’s jobs data update – as the jobs data gains importance after a long focus on inflation. But before that, we will be watching the US GDP update this Thursday and the core PCE index – the Fed’s favourite gauge of inflation on Friday. The US GDP is expected to have rebounded to 2.8% in Q3, from 1.4% printed a quarter earlier. But Atlanta Fed’s GDP Now index suggests that the Q3 growth may be slower than that – around 2%. Sufficient weak growth and inflation figures should keep the Fed doves in the playground before next week’s jobs data.

The expectation of a 50bp cut has been rising slowly but surely. And the risk assets are surfing on that vibe in the absence of a major stress. The S&P500 and Nasdaq extended gains by more than 1% and the Russell 2000 index jumped more than 3% on Friday. I remain convinced that a 25bp cut is the right dose of dovishness to help keep appetite intact in the stock markets.

In the FX, the US dollar’s further dive pushed the EURUSD to 1.12 on Friday, but the pair sees resistance at this level in Asia this morning, and I still believe that the euro’s recent surge is overdone against the US dollar and a correction would be healthy at the current levels. This week, the Eurozone countries will be releasing their preliminary CPI numbers for August and the expectations are weak. EZ headline inflation may have eased from 2.6% to 2.2%, while core inflation is still seen a bit sticky slightly below the 3% mark. But inflation in Europe seems to be in check as well – a situation that should allow the European Central Bank (ECB) to continue cutting the rates. European economies need the rate cuts more than the US does, but the ECB is expected to cut by 50bp before the year ends vs 100bp cut expected for the Fed. Hence there is a growing room for a dovish adjustment for the ECB expectations.

Finally, crude oil gained on Friday along with risk assets, and bulls are joining in this morning on news that Israel has declared a 48-hour state of emergency after launching a pre-emptive strike on Hezbollah sites in Southern Lebanon, in anticipation of a response to last month’s assassination of its military chief.

Nvidia reports on Wednesday

Nvidia earnings are due after the Wednesday’s closing bell, and the expectations remain sky-high. The company has pointed at $28bn sales in Q2 when it released earnings last quarter - double the amount it made a year earlier, and the market consensus is around $28.7bn. Although the worries regarding the Big Tech’s big AI spending have been mounting as the AI investments haven’t yet improved the company profits just yet (except at Meta), the big AI spenders like Meta and Google who account for 40% of Nvidia’s revenue said that they’d rather overspend in AI than underspend to make sure not to miss the decisive AI turn. Hence, Nvidia could announce another blowout quarter. But Nvidia cannot afford any missteps at current valuations. Everything from the numbers to guidance should be perfect the keep the rally going. And this is where, the rising competition and impatient investors – who could force the big spenders to spend less on AI – become growing challenges.