Sample Category Title

• USDCHF reversed from resistance area
• Likely to fall to support level 0.8500

USDCHF currency pair recently reversed down from the resistance area set between the resistance level 0.8735 (former monthly low from March), 20-day moving average and the 50% Fibonacci correction of the downward impulse from the start of July.

The downward reversal from this resistance area started the active minor corrective wave B, which belongs to the ABC correction (4).

Given the widespread US dollar sales and multi-month downtrend, USDCHF currency pair can be expected to fall further toward the next support level 0.8500 (target for the completion of the active wave B).

• EURUSD broke resistance area
• Likely to rise to resistance level 1.1135

EURUSD currency pair just broke the resistance area located between the resistance level 1.105 (which reversed the price last week) and the resistance trendline of the daily up channel from the middle of April.

The breakout of this resistance area accelerated the active impulse waves iii and 3 – both of which belong to the impulse wave C from April.

Given the strongly bearish US dollar sentiment seen across the FX markets today, EURUSD currency pair can be expected to rise further toward the next resistance level 1.1135 (multi-month high from December) – from where the downward correction is likely.

The USDJPY pair dipped near 146.50 as the US Dollar weakened, with markets anticipating Fed rate cuts starting in September. Japan's robust Q2 GDP growth has fueled expectations of more rate hikes by the BoJ. The pair remains within Monday’s range as investors await Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium. The Yen's performance is driven by factors like BoJ policy, yield differentials, and broader market sentiment. BoJ decisions play a crucial role due to its mandate for currency control.

USDCAD – H4 Timeframe

USDCAD seems to be nearing the end of the bearish run, as we can see price currently stalling around the trendline support. Another notable factor at this area of interest is the drop-base-rally demand; as well as the SBR (Sweep-Break-Retest) price action pattern we have so discussed many times already. The 88% of the Fibonacci retracement lends the final piece that bring the bullish sentiment to life. As for my entry, though, the lower timeframe price action will be the judge.

Analyst’s Expectations:

• Direction: Bullish
• Target: 1.38850
• Invalidation: 1.35810

USDJPY – D1 Timeframe

The month-long bearish momentum on USDJPY might just be nearing its end. This sentiment is based off of the SBR price action pattern, the drop-base-rally demand zone, and the bullish array of the moving averages. Due to the lack of any more convincing confluence, I will be patiently waiting for a proper change-of-character of the lower timeframe price action before pulling the trigger for a bullish entry.

Analyst’s Expectations:

• Direction: Bullish
• Target: 153.239
• Invalidation: 141.600

The US dollar has fallen to its lowest levels of the year, losing more than 2.3% from its August peak and around 4% since early July as expectations of a Fed rate cut in September began to be priced in.

The dollar index has retreated to 101.7, reflecting growing expectations of Fed easing. Although the ECB and the banks of Canada, England and New Zealand have already begun their easing cycle, the currency market historically reacts first to changes in US monetary policy and then to others.

Expectations of looser Fed policy in the coming quarters are also undermining the dollar’s position. In the first half of the year, the prevailing narrative was that lower inflation was allowing monetary policy normalisation to begin. In recent weeks, however, the narrative has shifted towards easing to stave off a recession.

The change in sentiment about the economic outlook sets the stage for further rate cuts in the coming quarters. The main scenario has a 60% probability of a cut of 100 basis points or more by the end of the year, including at least one cut of 50 basis points. This is a dramatic change from the 1.5% chance of such an outcome at the beginning of July.

From a technical perspective, the DXY Dollar Index is now near the lower end of its range from early 2023. This range doesn’t have a clear bottom, but dollar reversals to the upside from this point over the past 20 months have triggered corrections in equities, although they haven’t broken the bull market.

Technically, Powell could save the dollar at his Jackson Hole symposium later this week. However, there is an equal chance that his dovish tone, which observers are waiting for, will give the dollar carte blanche to weaken further and break long-term support.

In a bearish scenario, the next important milestone on the way down will be the 99.2-100.4 area (July and December 2023 lows), and the final target could be a pullback to the 90-92.6 area.

If Powell strips the markets of their illusions of a 100-point rate cut by the end of the year, with relatively neutral employment data and inflation at 3% (still above target), it will bring buyers back into the dollar. In such a scenario, we could see the DXY move back towards the upper end of the last two years’ range (106.2-107.0) before the end of the year.

Markets

Markets took a breather today during the European session. The dollar (DXY) yesterday closed below 102 for the first time since early January and remains stuck there. The greenback even extends losses as US investors enter the market. European stock markets tread water after completely recovering from the early August meltdown. The same reasoning goes for US stock markets. Core bond yield, if any, slip further away with US Treasuries outperforming German Bunds. The waiting game ends tomorrow with the preliminary annual payrolls benchmark revision by the Bureau of Labour Statistics. Once a year, the BLS benchmarks the March payrolls level to the Quarterly Census of Employment and Wages which is based on state unemployment insurance tax records and covers nearly all US jobs. The QCEW was released back in June and suggested that US job growth in the year through March was likely less robust than indicated. Ballpark figures suggest a downward revision of about 60k/month on average. Some forecasts even go as wild as near 100k/month. In the 12 months through March, net job growth averaged 242k. One of the reasons why the BLS over the past year systematically overstated job growth has to do with the “birth-death model” of businesses they use to adjust data for the net number of businesses opening and closing. This doesn’t correlate that well with reality in the post-pandemic world. Anyway, tomorrow’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. The revision could suggest that the US labour market already tipped somewhere in H2 2023. With inflation printing more benign and making the real policy rate more restrictive, the Fed has more room to act to the second pillar of its dual mandate: aiming for maximum employment. 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 at the September 18 FOMC meeting. Minutes of the July meeting (to be released tomorrow as well) could offer some counterweight to this aggressive market thinking. So far, Fed governors hinted at a 25 bps – if any at all – move with gradualism being the magic word.

News & Views

The Swedish Riksbank cut its policy rate again by 25 bps, to 3.5%, continuing the easing cycle it started in May. The RB sees inflation in the process of stabilizing at the target (CPIF inflation 1.7% Y/Y in July, core CPIF 2.2% Y/Y) while activity remains weak. Looking forward, indicators such as producer prices and company pricing plans, have continued to imply that inflationary pressures are compatible with the target. The risk of inflation becoming too high again has declined significantly. Information since the June Monetary Policy Report indicates that the growth outlook in Sweden and abroad is somewhat weaker than expected. In light of this, the RB assesses that the policy rate can be cut somewhat faster than indicated in June. If the inflation outlook remains the same, the policy rate can still be cut two or three more times this year. The RB mentions a weak koruna as a risk factor for inflation, but for now it isn’t a prohibitive factor to step up the pace of easing. The reaction on Swedish interest rate markets was limited (2-y swap 2.33%, +1.5 bps) as markets already discounted the RB policy rate near 2.75% at the end of the year. EUR/SEK even declined slightly to test the 11.40/38 support area as easing global market conditions currently support smaller currencies like the krone despite reduced interest rate support.

The Central Bank of Turkey (CBRT) kept its policy rate unchanged at 50% for the fifth consecutive month. The underlying trend of monthly inflation rose slightly in July but remained below its Q2 average (July headline inflation 3.23% M/M and 61.78M Y/Y). Q3 indicators suggest that domestic demand continues to slow down with a diminishing inflationary impact. While goods inflation is declining, improvement in services inflation is expected to lag. The Committee emphasized that the alignment of inflation expectations and pricing behavior with projections has gained relative importance for the disinflation process. Earlier this month, the CBRT kept its inflation forecasts for end-2024 and -2025 at 38% and 14% respectively. Analyst forecast see chances of the CBRT gradually reducing the policy rate in Q4. The lira weakens further today to trade at a new all-time low against the euro (EUR/TRY 37.60).

Graphs

EUR/SEK: krone loses interest rate support, but easing global conditions have bigger impact

EUR/USD: dollar weakness still prevails in run-up to this week’s big events, starting with BLS payrolls revision tomorrow

EUR/TRY: not even a 50% policy rate can stop the rot in the Turkish lira

Gold: new all-time high as markets bet on aggressive Fed rate cuts to save the day

Headline CPI inflation edged lower in July to 2.5% year-on-year (y/y), right on consensus expectations. This was the lowest reading since March 2021.

The deceleration was driven by base year effects (lower price growth relative to last July) for items like travel tours (-2.8% y/y), passenger vehicles (-1.4% y/y) and electricity (-0.8% y/y).

Offsetting this was an increase in gasoline prices (+1.9% y/y and +2.4% on the month).

Shelter prices continue to keep overall inflation elevated (+5.7% y/y), with rent costs rising further (+8.5% y/y) and mortgage interest costs remaining in the stratosphere (+21.0% y/y). However, the pace of shelter inflation did ease in July from 6.2% y/y in June.

The Bank of Canada's preferred "core" inflation measures came in at 2.6% y/y in July, down from 2.7% y/y in June. On a three-month annualized basis, the average moved to 2.7% in July from 2.9% in June.

Key Implications

Canadian inflation continues to ease, with headline and core rates stabilizing around the mid-2% level. When stripping out the impact of shelter inflation, price growth is a meager 1.2% y/y. Looking forward, the downward impact of base effects will continue to support lower inflation next month, pushing the headline figure even further towards the BoC's target.

The BoC makes its next rate announcement in two weeks and there is nothing stopping the bank from cutting rates by another 25 basis points. With inflation risks fading, the central bank's focus has pivoted to weakness in the rest of the economy. Indeed, consumer spending looks to have taken a breather alongside a steady deterioration in the jobs market. Given that the policy rate remains at restrictive levels, even after two rate cuts in June/July, there is plenty of room for the BoC to keep cutting over the rest of this year.

Daily Pivots: (S1) 1.3614; (P) 1.3650; (R1) 1.3670; More...

USD/CAD's fall from 1.3946 is still in progress and intraday bias stays on the downside for 1.3588 structural support. Strong support could be seen from there to bring reversal. On the upside, above 1.3684 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 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.

Canadian Dollar has come under broad pressure in the early US session following the release of the latest inflation data, which showed a further slowdown in inflation, with headline CPI fell to a 40-month low and core measures also easing. This set of data has strengthened market’s expectation that BoC would deliver its third rate cut of the current cycle at its upcoming September meeting, lowering the key borrowing rate to 4.50%.

The data has shifted the focus to BoC’s future policy path. While the September rate cut seems like a done deal, the trajectory beyond that remains uncertain. Market participants anticipate further policy easing, but the extent and pace of additional rate cuts will be closely tied to incoming economic data.

In the broader currency markets, Dollar is currently the weakest performer for the day. Canadian Dollar follows as second worst, pressured by the dovish implications of its inflation report, while Euro is also underperforming. On the flip side, New Zealand Dollar is leading the gains, followed by Swiss Franc and British Pound. Yen and Australian Dollar are positioned in the middle of the pack.

Technically, Gold's up trend resumed today after brief consolidations. Further rally is now expected as long as 2483.52 resistance turned support holds. Next target is 61.8% projection of 1984.05 to 2449.83 from 2293.45 at 2581.30. The focus is on whether Gold could lose momentum above 2581.30, or just accelerate to 100% projection at 2759.23. That would very much depend on Dollar's next move.

In Europe, at the time of writing, FTSE is down -0.87%. DAX is down -0.16%. CAC is down -0.08%. UK 10-year yield is flat at 3.926. Germany 10-year yield is down -0.0223 at 2.229. Earlier in Asia, Nikkei rose 1.80%. Hong Kong HSI fell -0.33%. China Shanghai SSE fell -0.93%. Singapore Strait Times rose 0.44%. Japan 10-year JGB yield rose 0.002 to 0.892.

Bundesbank expects temporary inflation rise, sees modest economic expansion ahead

In its latest monthly report, Bundesbank cautioned that inflation is expected to "temporarily increase" towards the end of the year. This uptick is anticipated as the currently negative inflation rates for energy turn positive, and the depressed profit margins for mineral oil products begin to recover.

Looking ahead, Bundesbank forecasts slight expansion in Germany's economic output. The report notes that the ongoing weakness in the construction sector and industry—driven largely by weak foreign demand—will likely persist. Despite these challenges, Bundesbank expects growth in private consumption and service sectors during Q3.

The report highlights that with real incomes for private households on the rise, "consumer spending should increase," though it may do so hesitantly. For instance, GfK Consumer Climate Index for July was above the average of the previous quarter, continuing its upward trend from recent months.

Eurozone CPI finalized at 2.6% in Jul, core CPI at 2.9%

Eurozone CPI was finalized at 2.6% yoy in July, up from June's 2.5% yoy. CPI Core (ex-energy, food, alcohol & tobacco) was finalized at 2.9% yoy, unchanged from June's reading. The highest contribution to the annual inflation rate came from services (+1.82 percentage points, pp), followed by food, alcohol & tobacco (+0.45 pp), non-energy industrial goods (+0.19 pp) and energy (+0.12 pp).

EU CPI was finalized at 2.8% yoy, up from June's 2.6% yoy. The lowest annual rates were registered in Finland (0.5%), Latvia (0.8%) and Denmark (1.0%). The highest annual rates were recorded in Romania (5.8%), Belgium (5.4%) and Hungary (4.1%). Compared with June 2024, annual inflation fell in nine Member States, remained stable in four and rose in fourteen.

RBA Minutes: No near-term rate cut expected, nothing ruled in or out

RBA's August meeting minutes revealed a thorough discussion on the merits of both a rate hike and a rate hold, ultimately leading to the decision to keep interest rates unchanged at 4.35%. The minutes reiterated that it is "unlikely that the cash rate target would be reduced in the short term." The minutes also noted that it is "not possible to either rule in or rule out" future changes in the cash rate

The decision to hold rates steady was seen as the best way to "balance the risks" to both inflation and the labor market, especially given the "prevailing uncertainties, market volatility, and market expectations."

RBA members emphasized the importance of placing "greater-than-usual weight on the flow of data" rather than relying solely on forecasts, due to the uncertainties surrounding the persistence of supply shocks. They noted that the data since the previous meeting had "not been sufficient to warrant a change in the stance of monetary policy."

Additionally, the minutes suggested that holding the cash rate target steady for a "longer period" than currently implied by market expectations could be enough to bring inflation back to target within a reasonable timeframe. However, the Board acknowledged that this approach would need to be reassessed at future meetings based on incoming data and evolving economic conditions.

New Zealand's goods export rises 14% yoy in Jul, imports up 8.5% yoy

New Zealand's goods exports saw a robust increase of 14% yoy in July, reaching NZD 6.1B. Goods imports also rose by 8.5% yoy to NZD 7.1B, leading to a trade deficit of NZD -963m, a stark contrast to the expected surplus of NZD 331m.

Breaking down the export data, the strongest growth came from Australia, with total exports up by 19% (NZD 135m), followed by the EU, where exports surged by 30% (NZD 114m). Exports to China increased by 8.5% (NZD 107m), while exports to the US and Japan rose by 4.7% (NZD 35m) and 5.3% (NZD 17m), respectively.

On the import side, the largest increase was from South Korea, where imports more than doubled, rising by 103% (NZD 480m). Imports from China also saw significant growth, up 18% (NZD 233m). In contrast, imports from the US and the EU declined sharply, with drops of -30% (NZD -255m) and -14% (NZD -147m), respectively. Imports from Australia showed a modest increase of 0.82% (NZD 6.3m).

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.3614; (P) 1.3650; (R1) 1.3670; More...

USD/CAD's fall from 1.3946 is still in progress and intraday bias stays on the downside for 1.3588 structural support. Strong support could be seen from there to bring reversal. On the upside, above 1.3684 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 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.

Economic Indicators Update

Daily Pivots: (S1) 1.1043; (P) 1.1064; (R1) 1.1107; More.....

Intraday bias in EURUSD remains on the upside for the moment. Current rise should target 1.1138 resistance, and then 161.8% projection of 1.0665 to 1.0947 from 1.0776 at 1.1232. On the downside, below 1.1029 minor support will turn intraday bias neutral and bring consolidations first. But outlook will now remain bullish as long as 1.0948 support holds.

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). However, break of 1.0776 support will extend the correction with another falling leg back towards 1.0447 support.