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The euro is steady on Thursday. In the European session, EUR/USD is trading at 1.1136 at the time of writing, down 0.11% on the day.

Eurozone services accelerates, manufacturing dips down

There was mixed news from the eurozone PMIs, which provide a monthly report card for the services and manufacturing sectors. The services PMI climbed to 53.3 in August, up from 51.9 and above the market estimate of 51.9. This was the highest level of expansion since April and was largely boosted by the Olympic Games in Paris which took place in August. Notably, inflation fell to its lowest level since April 2021.

Manufacturing remained mired in contraction and dipped to 45.6, down from 45.8 in July and shy of the market estimate of 45.8. This was an eight-month low. Manufacturing hasn’t posted a month of growth in over two years and a weak global market means demand isn’t likely to improve anytime soon.

Germany, the largest economy in the eurozone, continues to struggle. The services PMI dropped to 51.4 in August, down from 52.5 in July and below the market estimate of 52.3. This was the weakest pace of expansion since March and services have weakened for the third straight month.

The Fed has signaled that a milestone interest rate cut is coming next month, likely as a quarter-point reduction. The Fed minutes on Wednesday noted concern over the deterioration in the labor market and most FOMC members at the meeting viewed a September rate cut as appropriate. Federal Chair Jerome Powell will address the Jackson Hole Symposium on Friday and the markets will be all ears.
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EUR/USD Technical

• EUR/USD is testing support at 1.1141. Below, there is support at 1.1108
• 1.1183 and 1.1216 are the next resistance lines

• JP 225 index reclaims August’s loss
• Short-term risk is on the positive side
• Will the bulls breach the 38,600-39,950 area too?

Japan’s 225 stock index (cash) is trading with soft positive momentum on Thursday for the second consecutive day, hitting a three-week high of 38,421.

The index has  reversed more than half of its July-August freefall and there could be more bullish potential as the technical risk remains skewed to the upside.

Despite the downturn in the stochastic oscillator, the RSI is making a gradual upward progress above its neutral mark of 50 and is still far from its overbought level of 70. Likewise, the MACD remains positively charged above its red signal line, aiming to climb above its zero line. Adding to the positive signals is the price itself which has crossed above the middle Bollinger band and is some distance below the upper band.

The journey higher, however, could be challenging. The 50-day simple moving average (SMA) at 38,600 and then the 39,500-39,950 area could tease the bulls, delaying an advance towards the 41,147-41,500 resistance zone. If the latter gives way, it would be intriguing to see if fresh buying will push the price beyond the 42,950 bar.

In the bearish scenario that the price drops below the 200-day SMA at 37,435, the spotlight will fall on the 20-day SMA (Middle Bollinger band) at 36,600. The 35,300 region might draw greater attention as a violation there could press the price back into the 33,585-33,130 floor.

In summary, there is a possibility that Japan’s 225 index will maintain its recovery trend in the near future, though whether it will manage to surpass the 38,600-39,950 territory remains to be seen. Alternatively, a close below 37,435 might raise fresh selling interest. 

Market picture

The crypto market gained 1.7% in the last 24 hours to reach $2.14 trillion, continuing to test August’s resistance. Bitcoin rose 2.6%, while Ethereum gained 1.2%. The battle for a 10th position in the CoinMarketCap has intensified: Tron’s 5.5% drop to a cap of $13.09 billion contrasted with Cardano’s 2.5% rise to $13.17 billion. Its closest rival, Dogecoin, added 1.3% to reach a total coin value of $15.36 billion, with 17% distance from Cardano.

Crypto market sentiment indices are approaching neutral territory thanks to a weaker dollar and growing confidence in an imminent interest rate cut. Bitcoin is trading around $60.8K, hesitant to grow but not far from its 50-day average. The dynamics of the last few days show a transfer of capital from cautious sellers (who may have received funds from Mt. Gox) to long-term buyers accumulating ETFs.

News background

According to CryptoQuant data, major bitcoin investors have slowed their monthly coin accumulation rate to 1%, compared to the 3% average typical of bull markets. Most demand metrics are showing weakness, which is not enough for a new all-time high. The alternative in the form of spot bitcoin ETFs is also unreliable, with daily net inflows into the instruments at a fraction of March’s levels.

According to Arkham, bankrupt cryptocurrency exchange Mt. Gox sent another 13,265 BTC ($784 million) to an unknown address. The last movements of Mt. Gox assets to external addresses were recorded at the end of July in the amounts of 33,964 BTC ($2.25 billion) and 858 BTC ($56.8 million).

A new class action lawsuit has been filed against the Binance exchange and former CEO Changpeng Zhao. According to the lawsuit, filed in federal court in Seattle, the three crypto investors have been unable to recover their stolen assets because the exchange failed to prevent money laundering.

The chances of the Solana ETF being registered in the US in 2024 are zero, as they will be in 2025. Bloomberg believes that only new SEC leadership can change the situation. Previously, the SEC rejected proposals from CBOE to register the SOL ETF, suggesting that Solana could be classified as a “security.”

Messari notes that only about 1.4% of the meme coins launched on Solana’s Pump.fun platform reach profitability levels. Amid frustration, investors have begun to pull out of the market, with trading volumes in the segment falling by 80% in the last two weeks.

• WTI futures drop to their lowest level since January 17
• Momentum indicators are heavily tilted to bearish side

 WTI oil futures (October delivery) have been in a steady retreat following their rejection at the 200-day simple moving average (SMA) in mid-August. On Wednesday, the price fell to a fresh seven-month low before finding its feet a tad above the 70.00 psychological mark.

Should the bears attempt to push the price lower, they need to initially claim 72.03, which is the 78.6% Fibonacci retracement of the 67.97 – 86.92 upleg. A violation of that zone could pave the way for the 2024 low of 69.55. Further declines could then cease at the December 2023 bottom of 67.97.

On the flipside, bullish actions could propel the price towards the 61.8% fibo of 75.21. Surpassing that zone, the price may advance towards the 50.0% Fibo of 77.44, which coincides with the 200-day SMA. Even higher, the 38.2% Fibo of 79.68 could prevent further upside attempts.

Overall, WTI oil futures have been on a slippery slope in the past few sessions, dropping to a fresh seven-month low. However, their failure to extend the recent decline might lead to the formation of a double bottom, which is indicative of a reversal pattern.

UK’s PMI data for August showed positive momentum across both the manufacturing and services sectors. PMI Manufacturing edged up from 52.1 to 52.5, surpassing expectations of 52.2 and marking a 26-month high. PMI Services also rose from 52.5 to 53.3, above the expected 52.8. This led to PMI Composite increase from 52.8 to 53.4.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, highlighted the significance of these figures, noting that "August is witnessing a welcome combination of stronger economic growth, improved job creation, and lower inflation." He emphasized that both manufacturing and service sectors are showing solid output growth and increased job gains, with business confidence remaining historically high.

However, Williamson tempered expectations by pointing out that while GDP growth is likely to slow in Q3 compared to the impressive gains seen earlier in the year, the PMI data still indicates the economy is expanding at a "reasonably solid quarterly rate of around 0.3%."

On the inflation front, pressures have continued to moderate, particularly in the service sector, which has been a key area of concern for BoE. Williamson suggested that the latest survey data could "lower the bar for further interest rate cuts," though he cautioned that the still-elevated nature of service sector inflation means that policymakers are likely to proceed with caution.

Full UK PMI flash release here.

Eurozone PMI Manufacturing fell slightly from 45.8 to 45.6 in August, an 8-month low and below expectations of 46.1. In contrast, PMI Services showed a strong performance, rising from 51.9 to 53.3, surpassing the expected 52.2. This divergence led to a modest increase in PMI Composite, which climbed from 50.2 to 51.2, signaling faster expansion.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, offered a cautious interpretation of the data, noting that the underlying fundamentals might be "shakier than they appear." He highlighted that the boost in PMI Composite is largely driven by a surge in services activity in France, likely linked to the Olympic Games in Paris. However, de la Rubia expressed doubt that this momentum will persist in the coming months. Meanwhile, Germany’s services sector showed a slowdown in growth, and Eurozone’s manufacturing sector "remains in rapid decline."

On the inflation front, de la Rubia pointed out that input costs in the services sector, a key focus for ECB, rose at the slowest pace in 40 months. This easing of cost pressures, despite the faster climb in output prices compared to July, strengthens the case for an interest rate cut at ECB's upcoming September meeting.

Full Eurozone PMI flash release here.

Germany’s PMI data for August paints a bleak picture, with both the manufacturing and services sectors underperforming. PMI Manufacturing dropped from 43.2 to 42.1, falling short of the expected 43.5. PMI Services also declined, falling from 52.5 to 51.4, below the expected 52.4. This led to a decrease in PMI Composite, which fell from 49.1 to 48.5.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented on the data, noting that the recession in Germany’s manufacturing sector has intensified, with "no recovery in sight." He highlighted that new orders have plunged more sharply than in the previous month, driven primarily by a significant drop in foreign demand, which signals further challenges ahead.

The manufacturing sector’s struggles are beginning to "spill over" into the services sector, which had been relatively steady until now. For the third consecutive month, growth in services activity has slowed, reflecting the broader economic difficulties.

De la Rubia also pointed out that the anticipated recovery in the second half of the year is "failing to take shape," and the likelihood of Germany experiencing a second consecutive quarter of negative growth has increased. This raises the possibility of a renewed recession in Germany.

Full Germany PMI flash release here.

France's PMI data for August revealed a stark contrast between the manufacturing and services sectors. PMI Manufacturing fell from 44.0 to 42.1, marking an 8-month low and falling short of the expected 44.6. On the other hand, PMI Services surged from 50.1 to 55.0, significantly exceeding expectations of 50.5 and reaching a 27-month high. This strong performance in the services sector led to a rise in PMI Composite, which climbed from 49.1 to 52.7—a 17-month high and the first sign of expansion since April.

Norman Liebke, economist at Hamburg Commercial Bank, noted that the French economy is likely to grow by 0.5% in Q3, attributing the improvement in economic conditions to the services sector. He pointed out that this positive development can be traced back exclusively to the service sector, where the business activity index rose by nearly five points.

However, Liebke also cautioned that the strong performance in August could be an "outlier", influenced by the Olympic Games. Meanwhile, the manufacturing sector continues to face challenges, with production declining even more sharply than in July.

Full France PMI flash release here.

• AUDUSD gains more than 6% after bottoming at 0.6350
• Immediate resistance near long-term downtrend line
• Technical oscillators suggest bearish correction

AUDUSD has posted an impressive bullish rally after the bearish doji candle on August 5, adding more than 6%. The price has overcome the simple moving average lines and is currently slightly below the weekly downtrend line, which represents the highs from January 2023.

However, the technical oscillators indicate a downside retracement in the market. The stochastic created a bearish crossover within its %K and %D lines in the overbought territory, while the RSI is moving horizontally, marginally beneath the 70 level.

If the upside moves extend beyond the 0.6770 level, which is near the descending trend line, the price may rest around the 0.6800 psychological mark. More advances could take the pair until the December 2023 top at 0.6870.

On the other hand, a slip lower could shift traders’ attention to the SMA lines between 0.6645-0.6600. The next support at 0.6560 may act as a strong turning point in the market before falling to 0.6465.

In a nutshell, AUDUSD has been positive in the short-term picture, but in the bigger outlook, the market will remain negative until a break above the long-term falling trend line occurs.

• US Dollar Index Plummets on Revised Jobs Data and Dovish Fed Minutes
• BLS Revises US Job Growth Downward. Biggest Downward Revision Since the Global Financial Crisis.
• Fed Rate Cuts Priced In? Powell’s Jackson Hole Speech in Focus.

The US Dollar has been treading water and is on course for a four day losing streak. A brief bounce earlier in the day was overshadowed by a steep downward revision in payroll data from the US Bureau of Labour Statistics.

The Bureau of Labor Statistics (BLS) recently revised its data, showing that the U.S. added 818,000 fewer jobs than initially thought for the year ending in March 2024. This suggests the job market was cooling faster than expected, with about 68,000 fewer jobs added each month.

Historical Payroll Revisions

Source: BLS, Refinitiv

In early August, the BLS reported 114,000 new jobs in July 2024, which is lower than the revised 179,000 in June and the forecast of 175,000. This is the steepest downgrade since the Global financial crisis suggesting the job market is a lot softer than originally anticipated. This is not a surprise as there have been some analysts who have been touting this for months but being the minority their views were largely overlooked by market participants.

The only upside is that investors had already expected aggressive rate cuts. With the recent drop in the US Dollar, it seems investors might have already factored in many of the expected cuts.

This was further encapsulated by the minimal reaction to the Fed minutes release. The minutes showed that Fed policymakers agreed that July may be appropriate for a rate cut but opted to wait till September. This no doubt further cements the rate cut narrative heading into the September meeting.

Federal Reserve President Jerome Powell is expected to speak at the Jackson Hole Symposium on Friday. Market participants were expecting volatility and perhaps some clarity regarding September rate cuts. However, today’s data means the Fed has little choice but to start cutting rates in September and begs the question… How much impact will the Powell Speech have on markets given yesterday’s developments?

Later in the day though we also have preliminary S&P PMI data which could give further insight into the US economy. Expect some volatility but barring a significant miss of consensus, i do not expect the data to have a major impact on rate cut expectations.

US Dollar Index (DXY) Technical Analysis

The US Dollar Index (DXY) is facing heavy selling pressure, but today’s daily candle shows indecision with nearly equal wicks on both sides, hinting at a possible midweek reversal.

The DXY is close to the crucial 100.00 level, which was last breached in July 2023, and breaking this could trigger a faster selloff.

I’m concerned about how much of the FED’s upcoming rate cuts have already been priced in.

On the upside, immediate resistance is at 102.160, the August 5 swing low, before 102.64 becomes significant.

US Dollar Index Daily Chat, August 22, 2024

Source:TradingView.com

Support

• 100.50
• 100.00
• 99.00

Resistance

• 102.16
• 102.64
• 103.00