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Bears are taking a breather after the latest bearish acceleration in past three days (oil price was down 5%) deflated by easing tensions in the Middle East and rise in US crude stocks (API report).

Oversold daily studies and Tenkan-Kijun-sen turned sideways, suggesting that bears are running out of steam, which may prompt traders for a partial profit-taking.

The notion is supported by the fact that oil price has repeatedly failed to register a daily close below June 4 low ($72.46).

This marks solid support, and another bounce may occur, following a triple failure in early August.

Upticks face initial resistances at $74.00/33, followed by $75.00/44, with $76.00 zone (converged 10/20DMA’s / 4-hr Ichimoku cloud base) expected to cap and mark a healthy correction.

Eventual close below $72.46 pivot and $71.66 (Aug 5 spike low) to unmask psychological $70 support.

Res: 74.00; 74.33; 75.00; 75.44.
Sup: 72.46; 72.19; 71.66; 71.00.

The single currency has risen above $1.11, almost repeating its late December peak. At current levels, the pair is within the upper boundary of its trading range, and the technical analysis suggests that a breakout is more likely than a pullback.

Thanks to two bullish impulses since the beginning of July, EURUSD has moved from the lower boundary of the trading range established in early 2023 at 1.07 to the upper boundary above 1.11.

Since the beginning of this week, active buying has pushed the pair above its 200-week moving average. This could potentially be an important signal of a regime change in the market, although cautious players may note that the same signal proved false last July and lagged severely in 2012 and 2017.

The daily timeframes show overheating as the RSI has climbed close to 75, the level from which an 11-week sell-off began in July 2023.

However, the major moving averages are bullish. A ‘golden cross’ was formed earlier this week, with the 50-day moving average above the 200-day moving average. Both are below the price, which also adds to the bullishness. The subsequent rally in the EURUSD has confirmed this important technical signal for many managers.

However, even this bullish technique needs fundamentals. The markets will need to dig deeper into the minutes of the latest Fed meeting, which will be published at the end of Wednesday. Powell’s live speech at Jackson Hole on Friday is still highly influential and could answer the question of whether the Fed is considering a 50-point rate cut next month.

Of note on Wednesday is the annual revision of US employment data, which could dramatically change the picture of the economy in recent months. Some observers are talking about a possible downward revision of 0.6-1.0 million jobs for the year. The latest weak jobs data was extremely painful for traders earlier this month, triggering a sell-off in equities despite a surge in rate cut expectations. Will this scenario be repeated?

The USD/CAD chart shows the Canadian dollar strengthening against the USD to levels last seen at the end of July.

On one hand, the US dollar is weakened by expectations of an inevitable rate cut. On the other, the Canadian dollar gained strength after yesterday’s inflation data:

→ Although the initial reaction pushed USD/CAD up to 1.364,

→ Today, the market seems to have reassessed the impact, with the pair falling to yesterday's low, indicating continued bearish dominance.

Meanwhile, technical analysis of the USD/CAD chart reveals that the pair has dropped to the 1.3600 support level, which has been a key level for bulls since May.

This decline has been quite sharp, with a drop of over 2.2% from the 6th August high. Bears managed to break the trendline (shown in yellow) and push the RSI from the overbought zone close to the oversold zone within two weeks.

Notably, before the drop, the pair broke the 1.385 support level, but it turned out to be a false breakout. The 6th August candle had a long upper shadow, suggesting many traders were caught off guard.

If the bullish breakout was a false move, could a genuine breakout of the 1.3600-1.3850 range happen to the downside?

The future direction of USD/CAD will largely depend on the market’s reaction to today’s FOMC news, scheduled for release at 21:00 GMT+3.

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EUR/USD started a fresh increase above the 1.1000 resistance. USD/CHF declined and now struggling below the 0.8600 resistance.

Important Takeaways for EUR/USD and USD/CHF Analysis Today

• The Euro surged after it broke the 1.0950 resistance against the US Dollar.
• There is a connecting bullish trend line forming with support near 1.1090 on the hourly chart of EUR/USD at FXOpen.
•  USD/CHF declined below the 0.8635 and 0.8600 support levels.
• There is a major bearish trend line forming with resistance near 0.8575 on the hourly chart at FXOpen.

EUR/USD Technical Analysis

On the hourly chart of EUR/USD at FXOpen, the pair started a fresh increase from the 1.0950 zone. The Euro cleared the 1.1000 resistance to move into a bullish zone against the US Dollar.

The bulls pushed the pair above the 50-hour simple moving average and 1.1050. Finally, the pair tested the 1.1130 resistance. A high was formed near 1.1132 and the pair is now consolidating gains above the 23.6% Fib retracement level of the upward wave from the 1.0798 swing low to the 1.1132 high.

Immediate support on the downside is near a connecting bullish trend line at 1.1090. The next major support is the 50% Fib retracement level of the upward wave from the 1.0798 swing low to the 1.1132 high at 1.1050.

A downside break below the 1.1050 support could send the pair toward the 1.1000 level. Any more losses might send the pair into a bearish zone toward 1.0950.

Immediate resistance on the EUR/USD chart is near the 1.1130 zone. The first major resistance is near the 1.1150 level. An upside break above the 1.1150 level might send the pair toward the 1.1200 resistance.

The next major resistance is near the 1.1220 level. Any more gains might open the doors for a move toward the 1.1250 level.

Read analytical EUR/USD price forecasts for 2024 and beyond.

USD/CHF Technical Analysis

On the hourly chart of USD/CHF at FXOpen, the pair started a fresh decline from well above the 0.8700 zone. The US Dollar dropped below the 0.8635 support to move into a negative zone against the Swiss Franc.

The bears pushed the pair below the 50-hour simple moving average and 0.8600. Finally, the bulls appeared near the 0.8520 level. A low was formed near 0.8520 and the pair is now consolidating losses.

On the upside, the pair could face resistance near the 23.6% Fib retracement level of the downward move from the 0.8748 swing high to the 0.8520 low at 0.8575. There is also a major bearish trend line forming with resistance near 0.8575.

The next major resistance is near the 50% Fib retracement level of the downward move from the 0.8748 swing high to the 0.8520 low at 0.8635.

If there is a clear break above the 0.8635 resistance zone, the pair could start another increase. In the stated case, it could even surpass 0.8695.

On the downside, immediate support on the USD/CHF chart is 0.8520. The first major support is near the 0.8500 level. The next major support is near 0.8480. Any more losses may possibly open the doors for a move toward the 0.8450 level in the coming days.

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Gold keeps firm tone and consolidating under new record high ($2531) posted on Tuesday, with third consecutive daily close above $2500 level, pointing to clear break.

The yellow metal holds in a steep multi-month uptrend and has registered gains of nearly 22% since the start of the year.

Strong migration into safety on Fed rate cut expectations, geopolitical tensions, uncertainty over economic situation in the US and upcoming US Presidential Election, continued to lift gold price, which rose by almost $500 in seven months of 2024.

Technical picture is firmly bullish on daily chart and contributes to positive outlook, though some price adjustment cannot be ruled out on overbought conditions and fading bullish momentum on daily chart.

Markets widely expect dovish tones from FOMC minutes (due today) and Friday’s speech from Fed Chair Powell, which will also provide more details about the depth of rate cuts.

Limited dips are likely to mark positioning for fresh push higher, with solid supports at $2500/$2483 (psychological / former top) to ideally contain and offer better buying opportunities.

Caution on drop below rising 10DMA ($2473) which may generate an initial signal of stronger correction and expose lower pivots at $2439/32 (20DMA / Aug 15 higher low).

Res: 2531; 2564; 2600; 2614.
Sup: 2500; 2483; 2473; 2450.

• NZDUSD stages a V-shaped recovery from 2024 low
• The pair jumps above 200-day SMA to its highest since June 14
• Oscillators improve notably, suggesting increasing bullish bias

NZDUSD has been steadily regaining ground since the beginning of the month after finding its footing at a fresh 2024 low of 0.5848. In the near term, the pair sliced through its 200-day simple moving average (SMA) to post a fresh two-month high on Wednesday.

Should the recovery extend further, immediate resistance could be found at 0.6170, which is the 61.8% Fibonacci retracement of the 0.6368-0.5851 downleg. Conquering this barricade, the bulls may attack the June peak of 0.6220. Even higher, the 78.6% Fibo of 0.6257 may curb further upside attempts.

Alternatively, bearish actions could send the pair lower towards the 50.0% Fibo of 0.6109. A violation of that zone could set the stage for the 38.2% Fibo of 0.6048, which held strong both in January and June. Sliding beneath that floor, the price may then test the 23.6% Fibo of 0.5972.

Overall, NZDUSD’s rebound seems to be gaining steam, while the break above the 200-day SMA has further improved the technical picture. Moving forward, a test of the June peak of 0.6220 might be the next turning point for the pair.

• USDJPY remains below 200-day SMA and uptrend line
• RSI ticks higher reflecting the latest move

USDJPY is gaining some ground after three consecutive red days and losing around 3% from the 149.50 resistance level. The market has been trading beneath the long-term ascending trend line since the downfall at the beginning of August and more importantly is holding below the 200-day simple moving average (SMA).

Switching to technical oscillators, the MACD is holding in the negative region but rose above its trigger line, while the RSI is pointing upwards, mirroring the latest upside move.

If the market overcomes the 23.6% Fibonacci retracement level of the down leg from 161.94 to 141.60 at 146.45 then may find first resistance at the 20-day SMA currently at 148.20 before challenging the previous peak at the 38.2% Fibonacci of 149.50.

Alternatively, a drop below the 145.15 immediate support could drive traders until the more-than-seven-month low of 141.60 and the 140.20 trough, achieved on December 28.

Summarizing, USDJPY has been demonstrating a descending movement, especially after the break of the 200-day SMA, and only a climb above the 61.8% Fibonacci mark of 154.20 could change the outlook back to a positive one.

Markets

The recent comeback momentum on US stock markets stalled yesterday with main US benchmarks suffering minor losses (-0.25%) following an astonishing rally over the past two weeks. Other directional trades continued. US Treasuries outperformed German Bunds with daily changes on the US curve ranging between -8.2 bps (2-yr) and -6.2 bps (30-yr) compared with -3.3 bps (5-yr) to -2.7 bps (30-yr) for Germany. US yields started slipping again as US traders joined yesterday’s actions. Fed Bowman said that should the incoming data continue to show that inflation is moving sustainably toward our 2% goal, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive. The onus of several Fed comments is on gradual contrary to stealth easing discounted by US money markets for this year and next. In the run-up to this afternoon’s BLS payrolls revision, tomorrow’s PMI’s and Friday’s Powell speech in Jackson Hole, interest rate markets are clearly not (yet) backing down from their aggressive Fed easing bets. The US 2-yr yield closed back below 4% and seems drifting back to test the 3.85% support area. Failure to move south on softer data/dovish signals this week or early September (ISM’s & Payrolls) would be a strong signal that sufficient dovishness is discounted by now. The US 10-yr yield is already testing important support at 3.8%. The dollar continues suffering from the interest rate loss. The trade-weighted greenback closed at 101.44 yesterday from a start at 101.88. Key support arrives at 100.62 (Dec23 low), 99.58 (2023 low) and 98.98 (62% retracement on 2021/2022 DXY rally). Similar resistance in EUR/USD (close 1.1130) stands at 1.1139/1.1274/1.1276.

The US Bureau of Labour Statistics today publishes its preliminary annual benchmark revision (using Quarterly Census of Employment and Wages data). The June QCEW suggested that US job growth in the year through March was likely less robust than indicated. Ballpark figures point at a downward revision of about 60k/month on average. Today’s payrolls revision had over the past months been flagged as a potential gamechanger pushing markets and the Fed away from “higher for longer” into more outspoken rate cuts. Since the early August repositioning in US money markets, the BLS update likely lost market impact. From being a potential game changer to more of a confirmation. Nevertheless, any substantial (>50k/month) downward revision won’t go unnoticed and could tip markets more in the direction of a 50 bps rate cut lift-off.

News & Views

PAP newswire reports that National Bank of Poland governor Glapinski indicated that he no longer can rule out a discussion on a monetary policy adjustment before 2026. Last month, he still advocated that view due to reigning uncertainty about the inflation outlook. According to Glapinski’s current assessment, decisions will depend on wage growth, consumption, energy prices and the economic situation of Poland’s trading partners. In this respect, the NBP governor indicated that the risk of higher inflation in Europe and the US was slightly disappearing and that rate cut expectations have increased. The Polish economy has grown more than expected in Q2 (1.5% Q/Q and 3.2% Y/Y) according to preliminary data released last week, Glapinski’s says that it’s not sure this trend will continue. Consumption will probably slow next year due to fading wage growth. This will make the international context a more important factor for Polish growth. Polish inflation reaccelerated in July to 1.5% M/M and 4.2% Y/Y (from 2.6% in June) as the government raised the cap on energy prices. The PLN 2-y swap rate declined from 5.10% to 4.94%.The EUR/PLN cross rate jumped from the 4.265 area to close near 4.276.

Canadian inflation (published yesterday) rose by 0.4% M/M in July causing the Y/Y figure to decelerate further from 2.7% to 2.5%, the slowest pace since March 2021. The monthly details were a bit mixed with goods prices rising a modest 0.2% M/M (0.3% Y/Y), but services reaccelerating 0.7% M/M (slowing to 4.4% Y/Y from 4.8%). Energy prices rose 1.6% M/M. Closely watched core inflation measures (core median 2.4% from 2.6% Y/Y and core trimmed mean 2.7% from 2.8% Y/Y) remain on a downward trajectory. The data are seen as a nihil obstat for the Bank of Canada to further reduce its policy rate (currently 4.5%) when it will meet next on September 4 (25 bps reduction fully discounted). At its July policy meeting, the BoC indicated a growing sensitivity for the risks to growth/excess supply in the economy.

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 continuing to move better in to balance. Money 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%.

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 1.1139 (Dec 2023 high) and 1.1276 (2023 top) serve as next technical references.

EUR/GBP

The BoE delivered a hawkish cut in August. Policy restrictiveness will be further unwound gradually 0on 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 return from 0.84 towards 0.86.

There was no major news on the wire to trigger the minor selloff in global equities, so it was nothing else than a correction after a long rally following an ugly meltdown. As such, the S&P500 and Nasdaq were slightly down, by around 0.20% each, the European Stoxx 600 retreated 0.47%, while the Nikkei gave back some of yesterday’s gains in Tokyo, as the USDJPY fell and consolidated near the 145 level.

The US dollar index took another dive, however, and hit the lowest levels since the beginning of January. Citi analysts said that the carry trade is back but not with the Japanese yen but with the US dollar. They say that the positioning comes as a macro risk gauge dipped below neutral, but warned that there is only a small window of opportunity for the strategy to perform well as the election risks are looming. Additionally, the Fed risks are looming as well, and the greenback - now in the oversold territory according to the RSI index - doesn’t look appetizing for further shorting the dollars.

Data-wise, the final inflation numbers from the Eurozone brought no surprise. The headline inflation remained steady at 2.9% and core inflation ticked slightly higher from 2.5% to 2.6%. The numbers were soothing but the slowing disinflation and the strong wages growth in many European countries including France, Spain and Germany, were pointed as ‘worrying signals’ for the European Central Bank’s (ECB) struggle to bring inflation down to its 2% target. The latter cast a shadow over what the ECB could do after the anticipated September cut. The waning dovish expectations gave a boost to the single currency yesterday. As such, the EURUSD spiked past the 1.11 level. The US dollar’s broad-based weakness helped as well.

Now, the EURUSD is in the overbought territory and a downside correction would be healthy. Across the Channel, the weak dollar pushed Cable above an important psychological mark: the 1.30 level. The pair never traded meaningfully above this level since 2022 and a meaningful appreciation above this level means more to sterling bulls than just a policy divergence between the Federal Reserve (Fed) and the Bank of England (BoE).

Elsewhere, though, the tone was mixed. In Sweden, the Riksbank cut its rate by 25bp yesterday and said that it could lower its rate three more times this year. But despite that dovishness, the Swedish krona advanced against the greenback yesterday, and the USDSEK fell to the lowest levels since March. Across the Atlantic, inflation in Canada fell from 2.7% to 2.5% in July as expected and marked the softest increase in consumer prices since March 2021. Core inflation fell to 1.7%. The numbers were aligned with the Bank of Canada’s (BoC) forecasts that inflation would drop toward the 2.5% mark in H2. Although inflation is expected to rebound due to incoming base effects for gasoline prices, the numbers backed the dovish BoC expectations, yet here as well, the Loonie was bid against a widely offered US dollar. Even the selloff in crude oil didn’t give cold feet to the CAD bulls. The USDCAD fell to 1.36 and is about to test the 200-DMA to the downside. Needless to say that the pair is also approaching an overbought territory and should see traders take a break and think what to do next.

In summary, no matter the news flow or the idiosyncratic expectations, the major story is the US dollar’s weakness – that I think has stretched to unfunded levels. Today, the dollar traders will have a close look to the FOMC minutes and the BLS preliminary revision to annual payrolls. I don’t think that we will have anything major from the Fed minutes – plus, so much has changed since the last FOMC meeting with market expectations going to wild places – but the BLS’ revision could be interesting in that, economists at Golman Sachs and Wells Fargo expect that the revisions will show that the payrolls growth in the year through March was at least 600’000 lower than currently forecasted. Goldman says that the revision could be as high as a million lower, while JP thinks that the numbers will be revised by around 360’000 jobs to the downside. The bigger the downside revision, the higher the worries that the Fed has waited too much before normalizing and the crazier the Fed doves will go and the higher the pressure will be on the US dollar.

And of course, the dollar’s misery is making gold shine like a new penny. The precious metal advanced to a fresh record yesterday backed by the rising expectation of Fed cuts and the lower US yields. TD Securities say that the current positioning in gold is more consistent with levels that would suggest recession. If you believe a recession isn't imminent, gold prices may be – perhaps – inflated. It’s true that the EM central bank have been buying gold to diversify against inflation and diversify away from the dollar and the uncertain geopolitical, financial landscape drives capital to the safety of the yellow metal. Yet, Chinese consumers are reportedly cutting back their purchases due to high prices, the dovish Fed expectations look overpriced and the RSI index suggests that gold is about to step into the overbought territory and correction could be healthy at the current levels.

In focus today

In the US, minutes of the Fed's July meeting will be published in the evening. While the focus will naturally be on any clues regarding future rate cuts, the views are likely at least somewhat outdated given that the July jobs report was published only after the meeting. Furthermore, the US Bureau of Labor Statistics will publish revisions to the nonfarm payrolls and there is a very wide estimate for the revisions.

Economic and market news

What happened yesterday

In Sweden, the Riksbank cut policy rate by 25 bp as anticipated by the market. The Riksbank message of "two to three" more rate cuts for 2024 was however a tad on the dovish side to our expectations. In the statement, the bar to change this outlook is also seemingly high as they seem confident that upside risks to inflation have "declined significantly". We adjust our call by adding a 25bp rate cut in September, meaning that we expect 25bp cuts at the three remaining meetings for 2024. For 2025, we expect three cuts during the first half of the year, reaching an endpoint of 2.00% by summer (previously 2.00% by Q4-25).

In the US, Fed's Bowman (voting member) spoke about monetary policy. She sounded rather hawkish, as she warned against overreacting to any single data points, while she remains cautious about making any shifts in rates, as she sees continued upside risks for inflation. By this statement Bowman clearly positions herself as one of the most hawkish voices in the FOMC now. Our expectation is still that we will see a 25bp rate cut at the September meeting.

In the euro area, the final HICP data from July reveals that domestic inflation, measured by the ECB's 'LIMI' indicator, dropped slightly to 4.3% y/y in July from 4.4% in June. The persistently high inflation is crucial to the ECB's policy decisions and has been consistently highlighted in recent monetary statements. With decent demand in services, low unemployment, and high wage growth, domestic inflation is expected to remain strong. Consequently, it is unlikely to dip to 2% over the next year, even as overall HICP may hit that mark later this quarter. Given its importance in ECB policy, we expect continued restrictive measures, with the next policy rate cut in December, bypassing the September meeting, followed by three cuts next year.

In Turkey, The Central Bank of Turkey left the policy rate unchanged at 50% as largely expected. Slowing domestic demand should eventually ease inflationary pressures and the CBRT is expected to kick off the rate cutting cycle later this year. We still think risks are tilted towards higher inflation (and rates) for longer.

In Denmark, GDP grew 0.6% in Q2, mainly because of increased goods export. The Q2 growth was more modest than we expected, however, the Q1 decrease was revised down as well. Danish GDP fluctuates quite a bit now due to production in the pharmaceutical industry causing big movements. We expect growth to continue to spread also outside the pharmaceutical industry, which will help the economy grow for the rest of 2024.

The rebound in Oil prices proved short-lived and prices have slipped towards the low from two weeks ago. Other than reports on the tense geopolitical situation in the Middle East, there has been little news to drive the oil market. We further note that oil prices have failed to find support from the weaker USD. We think the weak sentiment reflects concerns over whether the US economy is slipping into recession and that is unlikely to go away in the near term.

Market movements

Equities: Global equities were lower yesterday, breaking a long streak of gains. There was basically no top-down data to significantly impact the market, so it seems reasonable to attribute the downturn to some investors taking profits after a sustained period of gains.

Notably, the energy sector was the biggest loser yesterday and has been on a downward trend lately, with oil prices declining in five of the last six sessions. Additionally, banks, particularly regional banks in the US, were sold off yesterday. US regional banks lost 2% and continue to be indicative of how investors view the soft-landing and small-cap outlooks. As many people enjoyed vacations in July, it is maybe worth mentioning that July was the peak month for the soft-landing narrative, with US regional banks rising more than 20% during the month. In the US yesterday, Dow was down 0.2%, S&P 500 decreased by 0.2%, Nasdaq dropped by 0.3%, and Russell 2000 fell by 1.2%. The negative sentiment is continuing in Asia this morning with most indices lower. US and European futures are mixed.

FI: Global bond yields declined yesterday, and the US curve steepened ahead of the speech from Fed Chairman Powell at the Jackson Hole conference. Today, we have the minutes from the latest Fed Meeting, which should also confirm that the Federal Reserve is on track to deliver rate cuts. Furthermore, the US Bureau of Labor Statistics will publish revisions to the nonfarm payrolls and there is a very wide estimate for the revisions. A significant downward revision would be supportive for a steeper curve and lower yields.

FX: SEK rallied after the Riksbank delivered the expected 25bp cut and signalled more cuts to come this year. The USD stayed on a weak footing with EUR/USD eclipsing the 1.11 mark.