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Daily Pivots: (S1) 160.79; (P) 161.29; (R1) 161.94; More...

Intraday bias in EUR/JPY stays neutral at this point. Outlook stays bearish with 38.2% retracement of 175.41 to 154.40 at 162.42 intact. On the downside, below 157.71 minor support will bring retest of 154.40 first. Break there will resume the fall from 175.41 to 153.15 support next. However, sustained break of 162.42 will bring strong rise to 61.8% retracement at 167.38, even as a corrective move.

In the bigger picture, fall from 175.41 medium term top should be correcting the whole rise from 114.42 (2020 low). Deeper decline could be seen as long as 55 W EMA (now at 161.88) holds. But strong support should emerge between 153.15 and 38.2% retracement of 114.42 to 175.41 at 152.11 to bring rebound, at least on first attempt. Meanwhile, sustained trading above 55 W EMA will argue that the range of the medium term corrective pattern has already been set.

Daily Pivots: (S1) 0.8529; (P) 0.8548; (R1) 0.8564; More....

EUR/GBP's break of 0.8567 suggests that corrective pullback from 0.8624 has completed at 0.8530, after hitting 38.2% retracement of 0.8382 to 0.8624 at 0.8532. Intraday bias is back on the upside for retesting 0.8624 first. Break there will resume the rally from 0.8382. However, decisive break of 0.8532 will bring deeper fall to 61.8% retracement at 0.8474.

In the bigger picture, while the rebound from 0.8382 is strong, there is no confirmation of trend reversal yet. As long as 0.8643 resistance holds, down trend from 0.9267 could still resume through 0.8382 at a later stage. However, firm break of 0.8643 will indicate that such down trend has completed, and turn outlook bullish for 0.8764 resistance next.

Daily Pivots: (S1) 1.6531; (P) 1.6572; (R1) 1.6613; More...

Intraday bias in EUR/AUD remains neutral and outlook stays bullish with 1.6474 support intact. On the upside, above 1.6798 minor resistance will bring retest of 1.7180 resistance first. Firm break there will resume larger up trend to 1.7715 fibonacci projection level next. However, firm break of 1.6474 will dampen the bullish view and bring deeper pullback towards 1.5996 support.

In the bigger picture, corrective fall from 1.7062 medium term top should have completed at 1.5996. Larger up trend from 1.4281 (2022 low) is resuming. Next target is 61.8% projection of 1.4281 to 1.7062 from 1.5996 at 1.7715. This will now remain the favored case as long as 1.6474 support holds.

Daily Pivots: (S1) 0.9470; (P) 0.9492; (R1) 0.9529; More....

Intraday bias in EUR/CHF remains on the upside as rebound from 0.9209 short term bottom is in progress. Further rise should be seen to 55 D EMA (now at 0.9594). ON the downside, below 0.9423 minor support will turn intraday bias neutral first.

In the bigger picture, medium term corrective pattern from 0.9407 (2022 low) might have completed with three waves to 0.9928. Decisive break of 0.9252 (2023 low) will confirm long term down trend resumption. Next target will be 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. For now, outlook will stay bearish as long as 0.9928 resistance holds, even in case of strong rebound.

Markets

Markets rallied in the wake of yesterday’s benign July producer price inflation (0.1% M/M for headline and 0% for core). Stock markets extended their comeback after last Monday’s melt down with key US gauges adding 1% (Dow) to 2.4% (Nasdaq). US Treasuries rallied as well, with investors piling up on bets that the Fed will start its cutting cycle with a 50 bps rate cut rather than a 25 bps move. A cumulative 100 bps of rate cuts is discounted at the US central banks’ remaining three policy meetings this year. Though we don’t fight current sentiment, it’s fair to say that no Fed governor talked about a potential 50 bps move so far. On the contrary. Atlanta Fed Bostic (voter) yesterday indicated that he's looking for a little more data before supporting a rate cut. For now, he sticks with his timing of a first move only by year-end. “We want to be absolutely sure. It would be really bad if we started cutting rates and then had to turn around and raise them again.” He adds that he is definitely concerned by the rise joblessness but points out that it is more due to a larger supply of workers rather than a slump in demand. Markets ignored the Bostic comments. The PPI rally eventually pushed US yields 4.2 bps (30-yr) to 8.7 bps (2-yr) lower. German Bund yields lost 3.2 bps (30-yr) to 5.2 bps (2-yr). EUR/USD in first instance dipped from 1.0940 to 1.0920 on a very weak German ZEW investor survey before the pair rebounded to just below 1.10 driven by USD weakness. Today risks becoming a repeat of yesterday as US July consumer prices line up. Consensus expects 0.2% M/M increases for both headline and core CPI gauges with the Y/Y print stabilizing at 3% and dipping from 3.3% to 3.2% respectively. Yesterday’s solid UK labour market update is followed by lower than expected July inflation figures. Headline CPI fell by 0.2% M/M (vs -0.1% M/M) with the annual figure rising to 2.2% from 2% (vs 2.3% forecast). Core CPI slowed to 0.1% M/M and 3.3% Y/Y (from 3.5% Y/Y). The more benign inflation print suggests the BoE’s close call to cut its policy rate by 25 bps early August was the right one with follow-up action becoming very likely. EUR/GBP spikes from 0.8540 to 0.8570.

News & Views

The Reserve Bank of New Zealand lowered its policy rate by 25 bps to 5.25%. It was the first cut since hitting the 5.5% peak rate in May of last year. Markets were split in the run-up to the meeting, attaching a 1/3 probability to an unchanged policy rate scenario. Updated projections show a clear intentions to trim the policy rate further this year, unlike previous May projections which hinted at a potential final rate hike. The OCR rate is set to average 4.92% in Q4 2024 (from 5.65%), 3.85% in Q4 2025 (from 5.14%) and 3.13% in Q4 2026 (from 3.7%). The RBNZ continues to see a 3% policy rate at the end of the forecasting horizon. In its policy statement, the MPC for the first time indicates that annual CPI is returning to within the 1%-3% target band. Surveyed inflation expectations, firms’ pricing behavior, headline inflation, and a variety of core inflation measures are moving consistent with low and stable inflation. Services inflation remains elevated but is also expected to continue to decline, both at home and abroad, in line with increased spare economic capacity. Updated annual CPI forecasts show a 2.3%-2.3%-2% path for the 2024-2026 period from 2.9%-2.2%-2% in May. In the meantime, economic growth remains below trend with a broad range of indicators suggesting that the economy is contracting faster than anticipated. On top, further downside risks to output and employment have become more apparent. At the press conference, RBNZ governor Orr indicated that the MPC contemplated to option of a 50 bps rate cut but eventually settled on a low-risk start to the easing cycle as they feel in a strong position to move calmly. NZD swap rates dropped by 5 bps (30-yr) to 11 bps (2-yr) after the decision with NZD money markets discounting a cumulative 75 bps of additional policy rate cuts at this year’s remaining two meetings. The kiwi dollar reversed yesterday’s gains, dropping back from 0.6080 to 0.60.

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 data rolled in, dragging the long end of the curve down. After breaking below 2.34%-2.4% eyes now turn to 2.12-2.16%.

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. There was no pushback against market pricing back then (75 bps cuts in 2024, 100 bps in 2025). 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 tested the topside of the 1.06-1.09 range as the dollar lost interest rate support at stealth pace. A September rate cut is highly likely and markets increase bets on future easing on incoming weak US data. The risk-off these data trigger (sharper than expected slowdown?) offset the interest rate losses for USD. EUR/USD is moving south within the 1.07-1.09 range.

EUR/GBP

The Bank of England delivered a hawkish cut in August. Policy restrictiveness will be further unwound gradually and on 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. We may see a return to the 0.85-0.86 sideways trading range that dominated 2024H1.

In focus today

Today we get CPI numbers out of the US, UK, and Sweden.

In the US, we expect both headline and core CPI to come in at 0.2% m/m seasonally adjusted. The release is the second to last before the next FOMC meeting in September, and the Fed will undoubtedly keep close watch of the figures. The inflation data are released at 14.30 CET.

In Sweden, we get July inflation data at 8.00 CET. We expect July inflation to continue to print below the Riksbank's current inflation forecast as per the June Monetary Policy Report (MPR), with our forecasts of CPIF at 1.4% y/y and CPIF excl. Energy at 2.0% y/y being 0.4 p.p. and 0.2p.p. below the MPR, respectively.

We expect CPIF excl. Energy to print below 2.0% for the remainder of the year, which adds pressure on the Riksbank to continue cutting its policy rate. Today's figure will be important input ahead of next week's meeting, where markets are pricing 28bp of cuts, whereas we forecast a 25bp cut down to 3.50%. After that, we expect two more cuts for 2024 but note that markets are discounting 25bp cuts at each remaining meeting this year (September, November and December).

In the UK CPI inflation is due at 8.00 CET, where analysts expect headline to come in at 2.3% y/y (prior 2.0% y/y), whereas core inflation is expected to stand at 3.4% y/y (prior 3.5% y/y).

Overnight the Q2 Japanese national accounts will be released. It shall be interesting to see if growth has come back on track following three weak quarters. Preliminary data suggests it has, although private spending has likely remained weak.

Economic and market news

What happened yesterday

In the US, yields across the curve dropped and equities gained with the technology heavy Nasdaq leading the way, as markets viewed a softer-than-expected PPI print as dovish ahead of today's CPI print.

Market pricing for the coming September FOMC meeting also changed slightly, with markets now seeing a marginally larger probability of a 50bp cut in September than a 25bp cut. However, it is worth noting, that pricing has been very volatile lately given last week's surge in recession-fears.

What happened overnight

The Reserve Bank of New Zealand cut its cash rate by 25bp to 5.25%. Market pricing was pointing towards a cut, whereas consensus amongst analysts had been more divided and leaning towards an unchanged cash rate decision. As such the New Zealand dollar is trading lower this morning against the US dollar (NZD/USD), down around 1% at 0.602.

In Japan, Prime Minister Fumio Kishida announced he would step down, as he will not seek re-election this September as president of the Liberal Democratic Party (LDP). As the LDP is by far the dominant party in the current two-party coalition government, the next leader of the party looks set to become the country's next Prime Minister.

UK CPI rose from 2.0% yoy to 2.2% yoy in July, below expectation of 2.3% yoy. Core CPI (excluding energy, food, alcohol and tobacco) slowed from 3.5% yoy to 3.3% yoy, below expectation of 3.4% yoy. Core CPI reading was the lowest since September 2021.

CPI goods annual rate rose from -1.4% yoy to negative 0.6% yoy. CPI services annual rate fell from 5.7% yoy to 5.2% yoy.

On a monthly basis, CPI fell by -0.2% mom.

Full UK CPI release here.

Daily Pivots: (S1) 1.3725; (P) 1.3737; (R1) 1.3754; More...

USD/CAD's fall from 1.3946 resumed after brief consolidations and intraday bias is back on the downside sustained trading below 55 D EMA (now at 1.3726) will dampen the original bullish view and bring deeper decline back towards 1.3588 support. On the upside, above 1.3764 minor resistance will turn intraday bias neutral first.

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.

Daily Pivots: (S1) 0.6596; (P) 0.6617; (R1) 0.6655; More...

AUD/USD's rally from 0.6438 is still in progress and intraday bias stays on the upside. With break of 55 D EMA (now at 0.6612), next target is 0.6798 resistance. On the downside, below 0.6564 minor support will turn intraday bias neutral first.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with fall from 0.6798 as another falling leg. Deeper fall could be seen to the lower side of the range between 0.6169/6361. But strong support should be seen there to contain downside. Meanwhile, break of 0.6798 will target upper side of the range at 0.7156.

Daily Pivots: (S1) 146.31; (P) 147.13; (R1) 147.66; More...

Intraday bias in USD/JPY remains neutral for the moment. Outlook stays bearish with 38.2% retracement of 161.94 to 141.67 at 149.41 intact and intraday bias stays neutral. Below 145.42 minor support will turn bias to the downside for 141.67. Break there will resume the fall from 161.94 to 140.25 support next. Nevertheless, decisive break of 149.41 will bring stronger rally to 61.8% retracement at 154.19, even as a corrective move.

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 149.77) holds. Nevertheless, firm break of 55 W EMA will suggest that the range for medium term corrective pattern is already set.