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In focus today

We will have a quiet start to the week on the data front. The most important release today is the German Ifo index. Consensus expectations is for a small decline, which in that case would be the fifth consecutive month that would have happened. This would be in line with the PMI index, which declined in August, as we saw last week.

The Riksbank minutes from the August meeting will be released at 9.30 CET. The meeting itself proved rather uneventful for markets, with a fully expected rate cut from 3.50% to 3.25% and signals of more to come. We will look to see whether any participants discussed the possibility of larger 50bp cuts and what the prerequisites would be for such a move.

Overnight on Tuesday, China will release industrial profits for July. They increased 3.6% y/y in June, but PMI data suggests the economy lost momentum in July and we could see profit growth slip into negative again.

The highlight of the week will be the batch of inflation data due on Friday, when we will get flash inflation from the euro area, PCE inflation from the US and Tokyo inflation from Japan.

Economic and market news

What happened overnight

In China, the People's Bank of China (PBoC) kept its one-year medium-term lending facility rate unchanged at 2.30% as widely expected, as it was lowered last month. We expect the PBoC to lower the rate further over the next couple of months as the economy needs more stimulus and the recent yuan appreciation provides more policy space to lower rates.

What happened over the weekend

In Middle East, tensions rose once again after a missile exchange between Israel and Hezbollah on Sunday. Hezbollah said its bombardment was a retaliation for Israel's killing of one of its most senior commanders last month in Beirut. The timing of Hezbollah's attack was surprising considering that Gaza ceasefire negotiations are ongoing. Iran, whose leaders have vowed a revenge for the assassination of Hamas leader, Ismail Haniyeh on its territory in early August, has earlier said they would delay their response and allow time for peace talks. The next question is if the recent developments jeopardize the talks and change the calculus of Iran.

What happened on Friday

In the US, Fed chair Powell gave a clear signal that he is ready to start cutting interest rates already in September. He said that upside risk to inflation has diminished, while downward risk to the labour market has increased. Yields on 2Y and 10Y US-treasuries dropped around 8 and 5 bp, respectively during Friday's session. USD weakened with EUR/USD up around 0.6% on Friday, briefly rising above the 1.12 mark. USD/JPY is now around the lowest point in 2024 and testing the level from 5 August, which was the lowest in 2024.

We changed our ECB call, meaning that now we expect ECB to cut policy rates at the upcoming ECB meeting on 12 September, in line with consensus and market pricing. The reason for the change is not due to baseline projection of the euro area inflation path, but the weak growth development and the labour market through the summer have changed the probability distribution in our view around the inflation path towards the policy-relevant horizon, see Reading the Markets EUR - The new issuance season has begun. We pencil in a September 24 rate cut from the ECB, 23 August.

Market movements

Equities: Global equities were higher on Friday and showed gains last week. Like this week, the past week was loaded with significant events in the latter half, including PMI data and Powell's speech at Jackson Hole on Friday. Although Powell did not introduce any new economic policies, he confidently declared that the economy has achieved a soft landing, signalling a time for policy adjustment. Investors embraced this message of a soft landing, driving shares higher, particularly in cyclical sectors and notably in small caps. Should this soft-landing scenario persist for an extended period, we believe there is substantial potential for continued outperformance in small-cap stocks. In the US, the indices showed the following movements: Dow +1.1%, S&P 500 +1.2%, Nasdaq +1.5%, Russell 2000 +3.2%. Asian markets are presenting a mixed picture this morning, with Japanese stocks notably underperforming. Both US and European futures are trending lower today.

FI: Global yields ended a smidgen lower on Friday, after a choppy session, especially in the afternoon around Powell's speech in Jackson hole. While Powell did not give guidance on the size of the upcoming rate cut(s), his key message was that 'The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks' 2y treasuries dropped 8bp on the speech to trade at 3.92%, while the 10y ended about 5bp lower at 3.80%.

FX: The end to last week saw the USD sell-off on Powel'’s rate-cut preparedness which brought EUR/USD back close to the 1.12 mark. Also risk-sensitive currencies in the likes of ZAR, AUD, NZD and NOK all rallied as we headed into the weekend. Noteworthy, SEK was relatively immune to the big moves in broader cross asset markets. Overnight it has been relatively quiet although the opening has seen some of the safe havens like CHF gain modestly.

Daily Pivots: (S1) 190.01; (P) 191.02; (R1) 191.77; More...

Intraday bias in GBP/JPY remains neutral for the moment, as range trading continues below 191.99. 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) 160.94; (P) 161.83; (R1) 162.44; More....

Intraday bias in EUR/JPY remains neutral as range trading continues 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) 0.8450; (P) 0.8472; (R1) 0.8491; More....

EUR/GBP's fall from 0.8624 is in progress and intraday bias stays on the downside. for retesting 0.8382 low. Decisive break there will resume larger down trend. On the upside, above 0.8507 support turned resistance will turn intraday bias neutral first.8507 support turned resistance will turn intraday bias neutral first.

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) 1.6424; (P) 1.6503; (R1) 1.6549; More...

Intraday bias in EUR/AUD stays neutral first. On the downside, sustained trading below 55 D EMA (now at 1.6432) will argue that rise from 1.5996 has completed at 1.7180 Deeper fall would then be seen back to this support. Nevertheless, strong rebound from current levels, followed by break of 1.6580 resistance, will argue that pullback from 1.7180 has completed already. Intraday bias will then be back on 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) 0.9466; (P) 0.9482; (R1) 0.9505; More....

Intraday bias in EUR/CHF Remains neutral for the moment. On the upside, sustained break of 55 D EMA (now at 0.9573) 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.

Daily Pivots: (S1) 1.1130; (P) 1.1165; (R1) 1.1229; More....

Intraday bias sin EUR/USD remains on the upside at this point. Current rally should target 161.8% projection of 1.0665 to 1.0947 from 1.0776 at 1.1232, and then 1.1274 high. On the downside, below 1.1097 minor support will turn intraday bias neutral and bring consolidations first.

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) 1.3116; (P) 1.3174; (R1) 1.3276; More...

Intraday bias in GBP/USD remains on the upside for the moment. Current up trend is in progress for 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) 0.8451; (P) 0.8497; (R1) 0.8522; 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).

Daily Pivots: (S1) 143.37; (P) 144.93; (R1) 145.81; More...

Intraday bias in USD/JPY remains on the downside for retesting 141.67 low. Firm break there will resume the whole fall from 161.94 to 140.25 support next. For now, 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.