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Daily Pivots: (S1) 1.0915; (P) 1.0927; (R1) 1.0944; More.....

No change in EUR/USD's outlook as range trading continues. While deeper retreat cannot be ruled out, downside should be contained well above 1.0776 support. On the upside, above 1.0944 minor resistance will bring retest of 1.1007 first. Further break there will resume rally from 1.0665 to 100% projection of 1.0665 to 1.0947 from 1.0776 at 1.1056 next.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern that's still be in progress. 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.

Markets

Japanese stock markets outperform this morning (Nikkei +3%) after returning from a long weekend (closed for Mountain Day yesterday). The index now recovered from Monday’s meltdown, but is still 7% below the levels of the July 31 Bank of Japan meeting with set things on fire. The BoJ’s 15 bps rate hike triggered a JPY (and volatility) carry trade unwind with disappointing US manufacturing ISM and payrolls fueling the move. Calm only returned after BoJ deputy governor Uchida assured investors that the central bank won’t be raising rates further as long as market instability persists. That way, he did also put the BoJ in the most undesirable position of handing its autonomy to financial markets. The US recession risk narrative lost steam following a good non-manufacturing ISM. During the second half of last week, market recovered somewhat from the sharp moves early August with the next test arriving this week especially in the form of US inflation numbers.

US July producer price inflation today serves as an amuse-bouche ahead of consumer prices tomorrow. Consensus expects 0.2% M/M increases for both headline and core readings. Benign inflation prints will be cheered for by stock markets as they enable the Fed to zoom in on the maximum employment part of their dual mandate without having to worry about (additional) price pressure. US money markets are currently split between a 25 bps and a 50 bps lift-off rate cut at the September 18 policy meeting. Official Fed talk doesn’t mention the latter possibility. Fed Bowman over the weekend for example said she still sees upward inflation risks and may not be ready to support an interest rate decrease in September at all. We only think that a 50 bps could come into play in case of disappointing activity/labour market data early September. The downside of the front end of the curve might therefore be protected in the wake of the violent early August repositioning. US Treasuries still outperformed yesterday but that had more to do with haven-flows related to tensions in the Middle East (see News & Views). Daily curve changes varied between -1.8 bps (30-yr) and -5 bps (5-yr). German yields ended the day close to unchanged. The dollar marginally lost out against the euro, closing the day at EUR/USD 1.0939 from a start at 1.0914. USD/JPY set a minor August recovery high at 148.22 (from 146.73). Apart from US PPI data, German ZEW investor sentiment and US NFIB small business optimism are scheduled for release, but these are second tier. Comments by Atlanta Fed Bostic serve as a wildcard.

UK labour market data this morning started the UK monthly update. Employment rose by 97k in the April-June quarter, beating 3k consensus. The first indication for Q3 (July payrolls) was better-than-hoped as well (+24k vs +10k expected). A significant increase in jobless claims (+135k in July) is the odd one out. Weekly earnings ex bonuses rose as expected by 5.4% annualized in Q2. Sterling in a first move profits with EUR/GBP testing the recent lows around 0.8550. UK inflation numbers (tomorrow), Q2 GDP data (Thursday) and retail sales (Friday) follow later this week.

News & Views

The Organization of Petroleum Exporting Countries (OPEC) yesterday trimmed its forecasts for world oil demand growth this year by 135k barrels/day. The slight revision reflects actual data for Q1 and Q2 as well as lower expectations for China’s oil demand growth. OPEC sees oil consumption increasing by 2.1mn b/d this year to average 104.3mn b/d. That’s still way more optimistic than other forecasters and above pre-pandemic growth levels. The downward revision in its monthly report comes at a sensitive time as the cartel plans to unwind oil production cuts (2.2mn b/d) from Q4 onwards, starting with roughly 543 b/d of additional supply. Oil prices didn’t respond to the OPEC bulletin. They even rallied back from $80/b to $82/b as tensions in the Middle East increase. US officials indicated that they believe an Iranian attack against Israel (in a retaliation after the assassination of Hamas leader Haniyeh in Tehran) is ever more likely and could come as soon a this week. The US also shored up naval and air forces in the region to help Israel fend off any such possible major attack.

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. The pivot weakened the technical picture in US yields with another batch of weak eco data pushing the 10-yr sub 4%. This week’s inflation numbers are the next benchmark.

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 1.10 (psychologic) and 1.1139 (Dec 2023 high) serve as next technical references.

EUR/GBP

The BoE 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, triggering a return from 0.84 towards 0.86.

Daily Pivots: (S1) 1.2743; (P) 1.2769; (R1) 1.2790; More...

GBP/USD's rebound from 1.2664 extends higher today but stays below 1.2839 resistance. Intraday bias stays neutral for the moment. On the downside, break of 1.2664 will resume the fall from 1.3043 to 1.2612 support. Decisive break there should confirm that rise from 1.2298 has completed, and target this support next. However, break of 1.2839 resistance will argue that the pull back from 1.3043 has completed and turn bias back to the upside.

In the bigger picture, current development suggests that corrective pattern from 1.3141 is extending with fall from 1.3043 as another leg. Break of 1.2612 support would strengthen this case. But still, downside should be contained by 1.2036/2298 support zone even in case of deep decline. Rise from 1.0351 (2022 low) remains in favor to resume at a later stage.

Sterling is making notable gains after UK employment data revealed an unexpected drop in the unemployment rate for June. Additionally, July's figures showed continued growth in payrolled employment and a rebound in wage growth. This robust set of data strengthens the position of the hawks within BoE's MPC, who incline to maintain a cautious stance on further interest rate cuts. However, the Pound's ride may not be smooth this week, with key economic data still to come, including tomorrow's UK CPI, Thursday's GDP, and Friday's retail sales. These upcoming reports could lead to considerable volatility for the currency.

Elsewhere in the forex markets, trading activity remains subdued. Although Yen and Swiss Franc weakened yesterday, there has been no significant follow-through in selling. Euro is also struggling to extend its rebound against Dollar, while commodity currencies are confined to tight ranges. Market participants are now turning their attention to today's US PPI data, which could spark some brief volatility, but the primary focus remains on tomorrow's US CPI report.

Technically, following up on GBP/CHF, while rebound from 1.0741 extends higher, it's still struggling to get rid of 38.2% retracement of 1.1631 to 1.0741 at 1.1108 cleanly. Nonetheless, further rise is mildly in favor as long as 1.0992 minor support holds. Sustained trading above 1.1108 will pave the way to 1.1216 support turned resistance. However, break of 1.0092 will retain near term bearishness and bring retest of 1.0741 low next.

In Asia Nikkei closed up 3.45%. Hong Kong HSI is down -0.02%. China Shanghai SSE is down -0.38%. Singapore Strait Times is up 0.72%. Japan 10-year JGB yield fell -0.0041 to 0.854. Overnight, DOW fell -0.36%. S&P 500 rose 0.00%. NASDAQ rose 0.21%. 10-year yield fell -0.033 to 3.909.

UK payrolled employment grows 24k in Jul, unemployment rate falls to 4.2% in Jun

UK payrolled employment rose 24k or 0.1% mom in July. Median monthly pay increased by 5.6% up sharply from June's 3.8% yoy, but below May's 6.0% yoy. Claimant count jumped 135k versus expectation of 14.5k.

In the three months to June, unemployment fell from 4.4% to 4.2%, versus expectation of a rise to 4.5%. Average earnings including bonus rose 5.4% yoy, slowed from 5.7% but beat expectation of 4.6%. Average earnings excluding bonus slowed to 4.5% yoy, down from 5.7%, below expectation of 4.6%.

Japan's PPI rises to 3% yoy as Yen weakness fuels import costs surge

Japan's Producer Price Index rose by 3.0% yoy in July, aligning with market expectations and slightly up from June's 2.9% yoy increase. This marks the sixth consecutive month of acceleration and the fastest rate of increase in 11 months.

A significant driver of this rise was the 10.8% yoy increase in yen-denominated costs for imported materials, which accelerated from a revised 10.6% yoy rise in June. This highlights the ongoing impact of the weak Yen on import prices, contributing to higher overall production costs.

On a month-over-month basis, PPI rose by 0.3%, again matching consensus estimates.

Australia's wage growth slows in 0.8% qoq in Q2, with private sector lagging

Australia's wage price index rose by 0.8% qoq in Q2, slightly down from the previous quarter's 0.9% qoq increase and falling short of expectations for another 0.9% qoq rise. On an annual basis, wage growth remained steady at 4.1%, unchanged from Q1.

In the private sector, wage growth slowed to 0.7% qoq, down from 0.9% in the previous quarter. This marks the lowest increase for a second quarter since 2021 and ties for the lowest growth for any quarter since Q4 2021.

On the other hand, public sector wages grew by 0.9% qoq, up from 0.6% previously, making it the strongest June quarter increase since 2012. This stronger rise in the public sector was attributed to the newly synchronized timing of Commonwealth public sector agreement increases.

Australia's Westpac consumer sentiment edges up amid small relief over steady rates

Australia's Westpac Consumer Sentiment Index saw a modest increase of 2.8% mom in August, rising from 82.7 to 85.0. Westpac attributed this uptick to a "small sigh of relief" from consumers after RBA decided to keep interest rates unchanged, coupled with the positive effects of tax cuts and other fiscal measures.

However, despite the rise, the index remains historically weak, hovering within the 78–86 range that has persisted for over two years. Westpac's analysis highlighted ongoing concerns among consumers about the cost of living and potential future rate hikes, which continue to "weigh heavily" on sentiment.

Looking ahead to RBA's next meeting on September 23-24, Westpac noted that data flow leading up to the meeting is unlikely to provide significant new insights into inflation trends. With RBA having already ruled out near-term rate cuts, it is expected that the central bank will maintain its current interest rate at the upcoming meeting.

Looking ahead

Germany will release ZEW economic sentiment in European session. Later in the day, US PPI will take center stage.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2743; (P) 1.2769; (R1) 1.2790; More...

GBP/USD's rebound from 1.2664 extends higher today but stays below 1.2839 resistance. Intraday bias stays neutral for the moment. On the downside, break of 1.2664 will resume the fall from 1.3043 to 1.2612 support. Decisive break there should confirm that rise from 1.2298 has completed, and target this support next. However, break of 1.2839 resistance will argue that the pull back from 1.3043 has completed and turn bias back to the upside.

In the bigger picture, current development suggests that corrective pattern from 1.3141 is extending with fall from 1.3043 as another leg. Break of 1.2612 support would strengthen this case. But still, downside should be contained by 1.2036/2298 support zone even in case of deep decline. Rise from 1.0351 (2022 low) remains in favor to resume at a later stage.

Economic Indicators Update

UK payrolled employment rose 24k or 0.1% mom in July. Median monthly pay increased by 5.6% up sharply from June's 3.8% yoy, but below May's 6.0% yoy. Claimant count jumped 135k versus expectation of 14.5k.

In the three months to June, unemployment fell from 4.4% to 4.2%, versus expectation of a rise to 4.5%. Average earnings including bonus rose 5.4% yoy, slowed from 5.7% but beat expectation of 4.6%. Average earnings excluding bonus slowed to 4.5% yoy, down from 5.7%, below expectation of 4.6%.

Full UK employment release here.

In focus today

Today is light in terms of tier-1 data releases. Hence, focus will be on the German ZEW figures coming at 11.00 CET, where analysts expect -74.0 for the current situation figure, and 35.0 for the expectations figure. Both mark lower prints and as such less optimistic conditions than what was seen in July. This is also what the downbeat Euro Sentix data suggests.

This morning, we also get both the 3M average unemployment figure as well as the 3M average y/y seasonally adjusted wage growth (ex-bonus) figures out of the United Kingdom. Both are scheduled for release at 08.00 CET. Analysts expect unemployment to come in at 4.5% (slightly up from last month's 4.4%), whereas wage growth (ex-bonus) is expected to come in at 5.4% (slightly down from last month's 5.7%).

In the US we get PPI numbers for July at 14.30 CET. Analysts expect both the headline and core figures to stand at 0.2% m/m. The measure could provide the market with early clues on how inflationary pressures have developed into the late summer. NFIB's small business survey is also due for release today, and its price plans measure has been a decent leading indicator for the CPI as well.

Fed's Bostic (voting member) speaks tonight at 19.15 CET.

Overnight the Reserve Bank of New Zealand announce their cash rate. We expect them to keep it unchanged at 5.50%, but it will be a close call between a hold and a 25bp cut.

Economic and market news

What happened overnight

US equity futures look mostly flat this morning, reiterating that investors are gearing up for inflation numbers to come. In the commodity space, Brent oil is down around 1% this morning trading at around USD81.5/bbl.

What happened yesterday

In Denmark, CPI inflation came in at 1.1% y/y (prior 1.8% y/y). The low print and rather big drop from last month was expected given how the 2023H1 electricity tax break is no longer present, and as such skewing, the y/y figures.

In the US both 2- and 10-year yields dropped a few basis points. In the (very) short end of the curve yields were also slightly lower on the session albeit more modestly. The moves in yields to kick off the week wane in comparison to last week's market moves, as investors have their eyes set on today's PPI as well as tomorrow's CPI. They will be looking out for signals as to what to expect next from the economy, after recession fears got hold of markets last week.

Short Term Elliott Wave in FTSE suggests that the index has completed a bearish sequence from 5.15.2024 high. The decline made a zig zag Elliott Wave structure. Down from 5.15.2024 high, wave A ended at 8106.79 low. Rally in wave B ended at 8405.24 high with internal subdivision as an expanded flat structure. Up from wave A, wave ((a)) ended at 8279.75 and wave ((b)) ended at 8056.01. Wave ((c)) higher ended at 8405.24 which completed wave B in higher degree.

Then, FTSE turned lower in wave C with internal subdivision as an impulse structure. Down from wave B, wave ((i)) ended at 8158.03 low and wave ((ii)) ended slightly up at 8174.71 high. Wave ((iii)) lower ended at 7972.35 and wave ((iv)) ended at 8024.83 high. Final leg wave ((v)) ended at 7915.94 low which completed wave C and (4) in higher degree. The current rally is in progress expecting to continue higher as wave (5). Near term, we are calling an impulse structure as wave ((i)) from wave (4) low. This wave ((i)) should be completed very soon and we are expecting a retracement in 3, 7 or 11 swings as wave ((ii)) before resuming the rally. The view is valid as price action remains above 7915.94 low.

FTSE 60 Minutes Elliott Wave Chart

FTSE Elliott Wave Video

https://www.youtube.com/watch?v=Prh4Sf7YhTs

Australia's wage price index rose by 0.8% qoq in Q2, slightly down from the previous quarter's 0.9% qoq increase and falling short of expectations for another 0.9% qoq rise. On an annual basis, wage growth remained steady at 4.1%, unchanged from Q1.

In the private sector, wage growth slowed to 0.7% qoq, down from 0.9% in the previous quarter. This marks the lowest increase for a second quarter since 2021 and ties for the lowest growth for any quarter since Q4 2021.

On the other hand, public sector wages grew by 0.9% qoq, up from 0.6% previously, making it the strongest June quarter increase since 2012. This stronger rise in the public sector was attributed to the newly synchronized timing of Commonwealth public sector agreement increases.

Full Australia wage price index release here.

Australia's Westpac Consumer Sentiment Index saw a modest increase of 2.8% mom in August, rising from 82.7 to 85.0. Westpac attributed this uptick to a "small sigh of relief" from consumers after RBA decided to keep interest rates unchanged, coupled with the positive effects of tax cuts and other fiscal measures.

However, despite the rise, the index remains historically weak, hovering within the 78–86 range that has persisted for over two years. Westpac's analysis highlighted ongoing concerns among consumers about the cost of living and potential future rate hikes, which continue to "weigh heavily" on sentiment.

Looking ahead to RBA's next meeting on September 23-24, Westpac noted that data flow leading up to the meeting is unlikely to provide significant new insights into inflation trends. With RBA having already ruled out near-term rate cuts, it is expected that the central bank will maintain its current interest rate at the upcoming meeting.

Full Australia Westpac consumer sentiment release here.

Japan's Producer Price Index rose by 3.0% yoy in July, aligning with market expectations and slightly up from June's 2.9% yoy increase. This marks the sixth consecutive month of acceleration and the fastest rate of increase in 11 months.

A significant driver of this rise was the 10.8% yoy increase in yen-denominated costs for imported materials, which accelerated from a revised 10.6% yoy rise in June. This highlights the ongoing impact of the weak Yen on import prices, contributing to higher overall production costs.

On a month-over-month basis, PPI rose by 0.3%, again matching consensus estimates.