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Daily Pivots: (S1) 1.1085; (P) 1.1125; (R1) 1.1152; More....

Intraday bias in EUR/USD remains neutral as consolidation continues below 1.1173 temporary top. Further rally is expected as long as 1.1046 resistance turned support holds. Above 1.1173 will target 161.8% projection of 1.0665 to 1.0947 from 1.0776 at 1.1232. However, break of 1.1046 will indicate short term topping and bring deeper pullback towards 1.0947.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern that's could still extend. Break of 1.1138 resistance will be the first signal that rise from 0.9534 (2022 low) is ready to resume through 1.1274 (2023 high). Next target is 61.8% projection of 0.9534 to 1.1274 from 1.0665 at 1.1740. However, break of 1.0974 resistance turned support will extend the correction with another falling leg back towards 1.0447 support.

Daily Pivots: (S1) 144.19; (P) 145.55; (R1) 146.63; More...

Intraday bias in USD/JPY remains neutral for the moment. On the downside, break of 144.44 temporary low will reaffirm the case that rebound form 141.67 has completed, and bring retest of this low. On the upside, break of 149.35 will resume the rebound to 61.8% retracement of 161.94 to 141.67 at 154.19, as the second leg of the corrective pattern from 161.94 high.

In the bigger picture, fall from 161.94 medium term 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 149.63) holds. Nevertheless, firm break of 55 W EMA will suggest that the range for medium term corrective pattern is already set.

Daily Pivots: (S1) 1.3069; (P) 1.3100; (R1) 1.3122; More...

Intraday bias in GBP/USD stays on the upside despite some loss of momentum. Decisive break of 61.8% projection of 1.2298 to 1.3043 from 1.2664 at 1.3124 and 1.3141 resistance will confirm larger up trend resumption for 100% projection at 1.3409. On the downside, below 1.3010 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, corrective pattern from 1.3141 might have completed at 1.2298 already. Rise from there could be resuming the larger up trend from 1.0351 (2022 low). Decisive break of 1.3141 will target 38.2% projection of 1.0351 to 1.3141 from 1.2298 at 1.3364 next. However, break of 1.2664 support will delay this bullish case once again and extend the corrective pattern from 1.3141.

Daily Pivots: (S1) 0.8496; (P) 0.8515; (R1) 0.8541; More…..

Intraday bias in USD/CHF stays on the downside despite loss of momentum. Fall from 0.8747 is in progress for retesting 0.8431. Firm break there will resume whole decline from 0.9223 towards 0.8332 low. On the upside, above 0.8560 minor resistance will turn intraday bias neutral first. 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) 1.3585; (P) 1.3602; (R1) 1.3632; More...

Intraday bias in USD/CAD remains neutral with focus on 1.3588 structural support. Strong support could be seen there to bring reversal. On the upside, above 1.3640 minor resistance will turn intraday bias back to the upside for stronger rebound. However, decisive break of 1.3588 will argue that rise from 1.3176 has completed at 1.3946 and target 1.3477 support next.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern, that might have completed at 1.3176 (2023 low) already. Firm break of 1.3976 will confirm resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149. This will be the favored case as long as 1.3588 support holds, in case of pullback. However, firm break of 1.3588 will argue that consolidation from 1.3976 is already extending with another falling leg back towards 1.3091/3176 support zone.

US stock markets sold off yesterday, as investors trimmed their long positions walking into Federal Reserve (Fed) Chair Jerome Powell’s Jackson Hole speech due later today – where he is expected to douse the jumbo rate cut expectations because there is no reason for the Fed to start cutting the interest rates by big chunks in the absence of a severe economic slowdown, market stress, or a crisis. This is at least what the data suggests and what other Fed members nudge toward, as well. Kansas Fed President Schmid said he would like to see more data points before supporting rate cuts. Boston Fed’s Susan Collins said that the rate cuts should be ‘gradual and methodical’. And Philadelphia’s Harker made sure that everyone understood that ‘the Fed is going to ease – but no one is portraying a desire to ease bp at this time’. As such, the US 2-year yield rebounded to 4%, the 10-year yield settled near 3.85%, the US dollar index rebounded from the lowest levels since December and the major US indices fell. The S&P500 erased 0.90% while the technology-led Nasdaq 100 lost near 1.70%. The Russell 200 index fell almost 1%. Now, everybody is holding his or her breath to hear what Powell has to say, or not say.

The swap markets continue to price in around 95bp cut from the Fed from September to the end of the year. A this-size cut means that the Fed should cut its rates every time it meets this year and cut by 50bp in one of the meetings. From where we stand right now, it seems more likely that this will not happen than the opposite. Therefore, the pricing must readjust to match at least a 75bp cut by the year end. The real risk here – for the doves – is if the Fed starts cutting rates in September and decides to pause – like did the European Central Bank (ECB) in July for example. If that’s the case, if there is a pause to Fed rate cuts in November, then the year will end with only a 50bp cut for the Fed – and that could weigh heavier on risk appetite and give a serious positive jolt to the US dollar.

Data-wise

The numbers released yesterday were a mixed bag in the US. The jobless claims came in as expected, near 230K last week, and continuing claims rose less than expected, the US manufacturing activity slowed more than expected – and at the fastest speed this year, while US existing home sales rebounded.

Over in Europe, the Paris Olympics gave a temporary sugar shot to the French services – hence tilted the Eurozone PMI numbers to the upside, but filtering out the Olympics, the numbers looked gloomy. Figures from Germany, particularly the manufacturing index, confirm that the situation is still not improving for the Eurozone’s former growth engine. The soft data, along with a broad based rebound in the US dollar, pulled the EURUSD lower yesterday. The pair found support near the 1.11, but the support could be easily pulled out from under the euro bulls’ feet if Powell confirms that the rate cuts will be gradual in the US.

Across the Channel, Cable retreated yesterday after hitting a more-than-a-year high, yet the sterling selloff was softer as the PMI numbers printed the strongest growth in four months with cooling price pressures. The UK economy has been performing better than the major peers so far this year, and that’s a blessing for the pound that hasn’t seen the daylight since Brexit. But be careful, a part of the shine is due to the USD selloff, which is likely exaggerated and calls for correction.

Elsewhere, Bank of Japan (BoJ) Governor Ueda reaffirmed before the Japanese policymakers his envy to continue raising the rates if inflation remained sustainably above the 2% target – which is the case. Headline inflation remained steady near 2.8% for the third month and core inflation hit a 5-month high. Regarding the August shake, Ueda said that the volatility was due to the rising US recession odds triggered by the US’ own economic data and that the BoJ’s hike helped reversing the one-sided yen trades. The USDJPY didn’t react much, but the JPY bulls strengthen their position in expectation of further BoJ normalization.

Elsewhere, gold retreated below $2500 per ounce and US crude rebounded near the $72pb level, the August support, as dipbuyers preferred returning to the market on hope that rate cuts from major central banks could boost global oil demand.
Last word

What has been a calm week could see a last minute volatility with Powell’s Jackson Hole speech. Powell will probably not show up with a game-changing speech today, but his words should temper overpriced cut expectations. If that’s the case, we shall see the US dollar rebound from oversold levels, yet appetite in stocks could remain intact with prospects of lower rates into the year end.

In focus today

The annual Jackson Hole Economic Policy Symposium organized by the Kansas City Fed continues today and runs until Saturday. Today markets pay the closest attention to the Fed chair Powell's speech which is due at 16.00 CET. Markets pay close attention to Powell's assessment of the current state and monetary policy, and any kind of forward guidance, which will give a hint on how fast interest rates should decrease during the fall.

Economic and market news

What happened overnight

In Japan, CPI inflation was unchanged at 2.8% y/y in July, while inflation excluding fresh foods increased as expected to 2.7% (2.6% prior). However, inflation excluding fresh food and energy dropped to 1.9% y/y (2.2% prior), falling below 2% for the first time since September 2022. The underlying price pressures, illustrated by m/m seasonally adjusted growth, dropped compared to June, when excluding fresh food and energy. With inflation coming in around expectation the figures support Bank of Japan's message of a gradual tightening of monetary policy.

What happened yesterday

The euro area PMIs for August rose to 51.2 from 50.2 in July, above expectations of 50.1. The move was driven by the service sector where the PMIs rose to 53.3 from 51.9, while the manufacturing PMIs declined slightly to 45.6 from 45.8. Hence, the overall picture is the same with a struggling manufacturing sector and growing service sector. We note that the entire increase in the service PMIs can be explained by France where the service PMI rose by five index points, which contributes with 1.4 index points to the euro area data as France has a weight of 28%. Excluding France, where activity was impacted by the Olympic games, the service PMIs were unchanged in the euro area, which suggests that the economy has still lost some momentum compared to the first half of the year.

We got quite a big drop in euro area negotiated wages in Q2, which in Q1 increased by 3.55%, from 4.72%. The decline was especially due to Germany. The traditionally most important wage gauge for the ECB is the compensation per employee, which will be out on 6 on September. The June ECB staff projections estimated that wage growth would remain unchanged in Q2 2024 compared to Q1, measured as compensation per employee (CpE). Hence, with today's decline in negotiated wages it seems like ECB will get a pleasant surprise with lower-than-expected wage growth.

In the US, PMI figures showed mixed signals with manufacturing weakening further below 50, but services sector activity holding up well at 55.2. The weekly initial jobless claims figures were in line with consensus expectations of 232k and did not have the same market impact as in the last couple of weeks.

In the UK, PMIs came in stronger than expected both regarding the manufacturing and service sectors. The PMIs point to a continued expansion of the UK economy with private sector output increasing with uptick in order intakes, improved business activity and demand providing support. On inflationary pressures, prices moderated across both manufacturing and services input/output prices. Overall, positive news for the BoE with continued expansion in the economy and prices moderating across sectors.

In Norway, Mainland GDP rose 0.1% Q/Q in Q2 - both consensus and Norges Bank expected 0.2%. For the monetary policy outlook, the most important thing has been indications on rising capacity utilisation in late Q2 which essentially has been the key reason for Norges Bank turning among the most hawkish central banks in town. Meanwhile, since then the labour market has turned out weaker-than-projected which still leaves the door open for a December rate cut despite Norges Bank's revealed preferences.

Market movements

Equities: Global equities were lower yesterday as US markets lost momentum throughout the day and closed near the day's low. Interestingly, at a first glance, it appeared that there was a full-fledged defensive rotation in the US. However, a closer look at the rotation reveals that banks were the best-performing industry, up almost 1%, while semiconductors and automobiles were the losers, down 3.4% and 4.8%, respectively. Hence, it was a significant value rotation, seemingly triggered by a repricing of the Fed closer to a 25bp cut in September.

Please note the interesting relationship between the relative performance of banks and lower yields that we have currently. Over the last six months, banks have been the best-performing of all 25 industries in Europe, and they ranked fifth in the US, despite lower yields at both the short and long ends of the curve on both sides of the Atlantic. In the US yesterday: Dow -0.4%, S&P 500 -0.9%, Nasdaq -1.7%, and Russell 2000 -0.95%.

Equity markets are mixed in Asia this morning, and the same is true for European futures. US futures are higher this morning, with a group of growth stocks leading the advance, thereby recouping some of the territory lost yesterday.

FI: Global yields staged a 5bp sell-off across the board after a choppy session, thus 10y German Bunds ended at 2.24%. Weak German and French PMI (outside French service PMI likely due to the Paris Olympics) sent yields lower, yet after the euro area PMI aggregate rates started to sell off even through the euro area negotiated wages recorded a significant decline to 3.6% from the 4.7% print in Q1. The front end continues to price 25bp for the September meeting and 66bp for the year end in ECB cuts. While yesterday's data supported the case for a September rate cut, the year-end pricing is still stretched in our view.

FX: The weakening of the USD came to a halt yesterday, where the USD was top performer together with the GBP among the G10 currencies. Meanwhile NOK took another hit and JPY also lost some ground. EUR/USD remained above 1.11 and EUR/NOK neared 11.80.

Key insights from the week that was.

In Australia, the RBA’s August meeting minutes again reinforced the Board’s well telegraphed views on the economy. In short, there is “less spare capacity than previously assumed” given stronger momentum in demand and a weaker assessment of potential supply. The Board also noted that financial conditions appeared to have “eased modestly” over recent months, as house prices and credit growth had picked up. Alongside the uncertainty over the timing of inflation’s sustainable return to target, these judgements were central to the debate over whether to raise or maintain the cash rate at the July meeting.

While the case to leave the cash rate unchanged was deemed stronger, the decision was paired with a need to remain vigilant of inflation risks and guidance that “it was unlikely that the cash rate target would be reduced in the short term”, with the Board of the view that “holding the cash rate target steady at its current level for a longer period than currently implied by market pricing may be sufficient to return inflation to target in a reasonable timeframe”.

Chief Economist Luci Ellis’ essay this week assesses the judgements and points of uncertainty underlying the RBA’s decision making. To us it is evident that, while a “greater-than-usual weight” might be being placed “on the flow of data, relative to the forecasts”, it is only after the RBA judge labour market slack to have emerged that they will shift their stance on policy. We continue to expect 100bps of easing through 2025, beginning at the February meeting.

Offshore, it was also a quiet week, markets largely marking time ahead of tonight’s address to the Jackson Hole Symposium by FOMC Chair Powell.

Ahead of Chair Powell’s address, the minutes of the July FOMC meeting made clear that the Committee is very close to deciding the stance of policy is now unnecessarily tight and should be eased. In their discussions, members expressed growing comfort with the trajectory of inflation, with "some further progress… broad based across the major subcomponents of core inflation". Supply and demand in the labour market was also regarded as coming into better balance.

Not known at the time of the meeting is that nonfarm payrolls over the year to March 2024 was 818k lower than initially estimated. While we won’t know the month-by-month profile until early next year, when this week’s initial revision is finalised, it is equivalent to the average monthly gain over the year to March 2024 being revised from 242k to 174k. Considering payrolls captures the number of jobs, which some people may have two or more of, and as population growth averaged 133k over the year to March 2024, it now looks as though the US labour market has been in balance for more than a year. This fits with CPI ex-shelter inflation holding at or below the 2.0% target since mid-2023.

Note though, activity growth is still characterised by the Committee as robust, so there is no cause for alarm. Instead, the tone of commentary from FOMC officials this week has remained measured, consistent with the “majority” view in the minutes that “if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting".

Of the other data released this week, the inflation readings from the Euro Area and Canada were most significant. Euro Area inflation outcomes for July were unchanged in the final release, prices unchanged in the month and up 2.6%yr. Constructive for the inflation outlook, the ECB’s wage measure also moderated to 3.6%yr from 4.7%yr three months earlier. Canadian annual headline inflation meanwhile edged lower in July from 2.7%yr to 2.5%yr as expected.

The data flow and commentary from officials therefore continues to point to rate cuts in coming months not only in the US but across most of the developed world, including the Euro Area, Canada and the UK.

Daily Pivots: (S1) 0.6683; (P) 0.6719; (R1) 0.6740; More...

Intraday bias in AUD/USD remains neutral as consolidations continue below 0.6760 temporary top. Downside of retreat should be contained by 55 4H EMA (now at 0.6676) to bring rebound. Above 0.6760 will target 0.6798 resistance next. Firm break there will argue that larger rise from 0.6269 is ready to resume through 0.6870 resistance. However, sustained break of 55 4H EMA will confirm short term topping, and turn bias back to the downside for 55 D EMA (now at 0.6633) and possibly below.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern. Rise from 0.6340 is likely developing into another rising leg. Firm break of 0.6798/6870 resistance zone will target 0.7156 resistance. In case of another fall, strong support should be seen from 0.6169/6361 to bring rebound.

In the calm before what could be a stormy session, forex markets remained exceptionally quiet during Asian trading. Dollar managed a slight recovery overnight, bolstered by pullback in US equities, but the upward momentum has been notably weak. Traders are now laser-focused on Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium, which might hopefully offer critical insights into Fed’s next moves.

Remarks from various Fed officials have solidified expectations for a September rate cut. However, the consensus appears to be leaning towards a cautious, incremental approach to loosening monetary policy. While some market participants are holding out hope for a 50 bps cut to kickstart the easing cycle, the odds are not in favor, with only about 25% chance priced in by fed fund futures. A more modest 25bps cut seems the more likely scenario, as Fed seeks to avoid overreacting while stay in guard against inflation resurgence.

Meanwhile, Yen is showing modest strength, though the gains are far from robust. Japan’s core inflation has ticked up for the third consecutive month, driven primarily by a temporary spike in energy prices. However, core-core inflation, which excludes both food and energy, continues to decelerate. In a special session of the Japanese parliament, BoJ Governor Kazuo Ueda reiterated the bank’s readiness to continue reducing monetary stimulus, despite recent market volatility. There is ongoing speculation that BoJ might consider another rate hike before the year ends, but such a decision will heavily depend on forthcoming economic data and the stability of financial markets.

Looking at the broader picture for the week, Dollar remains the weakest performer, followed by Canadian Dollar and Australian Dollar. On the flip side, Swiss Franc leads as the strongest currency, with New Zealand Dollar and Yen also showing solid performance. Euro and Sterling are positioned somewhere in the middle.

Technically, USD/CAD is still refusing to give up on defending 1.3588 structural support. Strong rebound from current level, followed by break of 1.3640 minor resistance, will argue that correction from 1.3946 has completed. That would also retain near term bullishness and set the stage for retesting 1.3946 high. However, sustained break of 1.3588 will be a near term bearish sign that should at least bring deeper correction. The next move could be heavily influenced by Powell’s remarks or upcoming Canadian retail sales data, which are expected later today.

In Asia, at the time of writing, Nikkei is up 0.50%. Hong Kong HSI is down -0.41%. China Shanghai SSE is down -0.05%. Singapore Strait Times is up 0.19%. Japan 10-year JGB yield is up 0.021 at 0.901. Overnight, DOW fell -0.43%. S&P 500 fell -0.89%. NASDAQ fell -1.67%. 10-year yield rose 0.0840 to 3.862.

BoJ's Ueda ready to scale back easing despite market instability

In a special parliamentary session today, BoJ Governor Kazuo Ueda reiterated the central bank's stance to its current monetary policy, even amidst recent market volatility. He emphasized that there is "no change to our basic stance to adjust the degree of monetary easing" should economic and price trends align with its forecasts.

Addressing concerns over the market turbulence observed in early August, Ueda attributed the instability to rising fears of a US recession, driven by weaker-than-expected economic data. He also noted that BoJ’s interest rate hike in July had triggered a sharp reversal in the "one-sided Yen falls".

He stressed that BoJ would continue to monitor market movements closely, recognizing their potential impact on the central bank's growth and price forecasts.

"Markets at home and abroad remain unstable, so we will be highly vigilant to market developments for the time being," Ueda remarked.

Japan's CPI core ticks up to 2.7% in Jul, but core-core falls to 1.9%

Japan's CPI Core, which excludes food, rose slightly from 2.6% yoy to 2.7% yoy in July, aligning with expectations and marking the 28th consecutive month that core inflation has been at or above the BoJ 2% target.

However, CPI core-core, which excludes both food and energy, fell from 2.2% yoy to 1.9% yoy, dipping below the critical 2% threshold for the first time since September 2022.

Headline CPI remained steady at 2.8% yoy. Notably, electricity prices surged by 22% following the suspension of utility subsidies, which contributed to the overall inflation rate. In contrast, services inflation softened, dropping from 1.7% yoy to 1.4% yoy.

The uptick in core CPI largely reflects the phase-out of government subsidies aimed at reducing household utility costs. Excluding this factor, the broader inflation trend appears to be on a slowing path.

New Zealand retail sales volume falls -1.2% qoq in Q2

New Zealand's retail sales volume fell -1.2% qoq in Q2, , well below the expected -0.1% drop. Retail sales value also decreased by -1.3% qoq. Notably, 11 out of 15 retail industries reported lower sales volumes compared to the previous quarter.

Total volume of retail sales per person fell by -1.5%, marking the tenth consecutive quarter of decline after adjustments for seasonal effects and price inflation.

Ricky Ho, Business Financial Statistics Manager, highlighted the severity of this trend, noting, "Retail sale volumes per person have been falling for the last two-and-a-half years. The last time we saw several quarters of consistent falls was between 2007 and 2009, which coincided with the global financial crisis."

Looking ahead

The European economic calendar is empty today. Canada will release retail sales while US will publish new home sales. But all attention will be on Fed Chair Jerome Powell's Jackson Hole speech.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6683; (P) 0.6719; (R1) 0.6740; More...

Intraday bias in AUD/USD remains neutral as consolidations continue below 0.6760 temporary top. Downside of retreat should be contained by 55 4H EMA (now at 0.6676) to bring rebound. Above 0.6760 will target 0.6798 resistance next. Firm break there will argue that larger rise from 0.6269 is ready to resume through 0.6870 resistance. However, sustained break of 55 4H EMA will confirm short term topping, and turn bias back to the downside for 55 D EMA (now at 0.6633) and possibly below.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern. Rise from 0.6340 is likely developing into another rising leg. Firm break of 0.6798/6870 resistance zone will target 0.7156 resistance. In case of another fall, strong support should be seen from 0.6169/6361 to bring rebound.

Economic Indicators Update