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Daily Pivots: (S1) 0.8810; (P) 0.8843; (R1) 0.8860; More…

USD/CHF is holding above 0.8776 support despite today's dip and intraday bias remains neutral. More consolidations could still be seen but further decline is expected as long as 0.8923 resistance holds. On the downside, break of 0.8776 will resume the fall from 0.9223 to 61.8% retracement of 0.8332 to 0.9223 at 0.8672 next. However, break of 0.8923 will turn bias back to the upside for stronger rebound instead.

In the bigger picture, with 0.9243 resistance intact, medium term outlook in USD/CHF is neutral at best. For now, more sideway trading is likely between 0.8332/9243. However, firm break of 0.9243 will indicate larger bullish trend reversal.

The Canadian economy grew for a second consecutive month, up by 0.2% month-on-month (m/m). This print landed ahead of Statistics Canada's advanced guidance and market expectations of a 0.1% m/m gain. The flash estimate for June points to a 0.1% m/m gain.

May's reading was broad-based, with output expanding in 15 of 20 industries. Goods-producing industries (0.4% m/m) did most of the heavy lifting, meanwhile growth in services was up a more modest 0.1% m/m.

On a weighted basis, the manufacturing sector contributed most to the overall gain in May's GDP, and was up for a consecutive month (+1.0% m/m). The oil & gas sector (-0.6% m/m) was the only goods industry to contract on the month, pulled lower by declines in the oil and gas extraction subsector.

On the services side, education, health care, and public admin all grew between 0.3%–0.5% m/m. The startup of the Transmountain pipeline helped pull the transportation sector forward by 0.1% m/m in May. On the downside, retail trade fell by 0.9% on the month with most subsectors seeing declines.

The advanced reading of 0.1% m/m growth in June is being driven by gains in the construction, real estate and finance sectors, with manufacturing and wholesale trade acting as a headwind.

Key Implications

GDP data for May came in a bit stronger than expectations, which has put second quarter growth tracking around 2.2%, which if realized, would be the fastest quarter of growth since Q2-2022. The Canadian economy appears to be showing some resilience in the second quarter led by a strong showing in the goods sectors. Advanced guidance for June suggests that current strength may not be sustained.

GDP readings of late have been relatively stable, allowing the Bank of Canada to keep its focus more squarely on the evolution of inflation, especially with the start of its interest rate easing cycle well underway. With two interest rate cuts under its belt–and likely a couple more this year–we'd expect the growth backdrop to continue to be supported. The BoC is particularly upbeat about third quarter growth (2.8% q/q annualized), but we expect the weight of still-high interest rates to result in more trend-like growth next quarter.

Daily Pivots: (S1) 151.86; (P) 153.54; (R1) 154.43; More...

USD/JPY's fall from 161.94 accelerates lower again to as low as 149.77 so far. Intraday bias stays on the downside for 148.66 fibonacci level, which is close to medium term channel support (now at 148.22). Strong support could be seen there to bring rebound. But break of 155.21 resistance is needed to confirm short term bottoming. Otherwise, risk will stay on the downside in case of recovery.

In the bigger picture, considering the depth and momentum of the current decline, 161.94 should be a medium term top already. Fall from there is seen as correcting the whole rise from 127.20 (2023 low) at least. Next target is 38.2% retracement of 127.20 to 161.94 at 148.66. Decisive break there will pave the way to 140.25 support next. Risk will now stay on the downside as long as 55 D EMA (now at 156.90) holds, in case of rebound.

Dollar dipped as weaker-than-expected ADP job data hit the market entering US session. However, the movement has been limited with traders bracing for FOMC rate decision. Fed is widely expected to keep its policy rate unchanged at 5.25-5.50% today. The main focus is whether Fed will signal enough "confidence" to start cutting interest rates in September, a move that markets have fully priced in. Nonetheless, there is a risk that Chair Jerome Powell might sound non-committal, emphasizing that future decisions will remain data-dependent. Recent economic data, including Q2 GDP, suggest that economic activities are just normalizing without a sharp slowdown, suggesting that Fed is not in a hurry for policy loosening.

Euro saw a slight bounce following stronger-than-expected headline and core inflation readings. The headline CPI has reaccelerated slightly, and core CPI did not slow for the third straight month. There remains one more inflation report before ECB meets on September 11-12, making it premature to conclude that ECB won't consider another rate cut. However, today's data complicate the decision.

Meanwhile, Yen remains the strongest performer of the day. Yen surged after BoJ raised interest rates for the second time this year, extending gains after Governor Kazuo Ueda's press conference. Ueda emphasized that 0.50% interest rate won't be the ceiling, as the central bank will continue to hike if the economy and prices align with its projections. He did not rule out further tightening this year, stating it would depend on incoming data, such as services inflation, inflation expectations, and overall demand and output gap. Ueda also noted that while Yen's depreciation hasn't altered economic forecasts, there is a "significant risk" of a weak yen leading to an overshoot of inflation.

Australian Dollar is the worst performer today following Q2 inflation data, which showed slowdown in the core measure. This data should be welcomed by RBA, reducing the pressure to hike interest rates again. Indeed, markets are now pricing in a 65% chance of a rate cut by year-end, compared to 30% chance of a hike next week before the data.

Technically, a key level to watch today for the rest of the US session is 1.0869 minor resistance in EUR/USD. Firm break there will argue that fall from 1.0947 has completed as a corrective move, after drawing support from 55 D EMA. In this case, rise from 1.0601 would be ready to resume through 1.0947 towards 1.1138 resistance. Nevertheless, rejection by 1.0869 will set the stage for deeper fall back to 1.0665 support next.

In Europe, at the time of writing, FTSE is up 1.20%. DAX is up 0.56%. CAC is up 1.09%. UK 10-year yield is down -0.052 at 3.998, below 4% handle. Germany 10-year yield is down -0.033 at 2.311. Earlier in Asia, Nikkei rose 1.49%. Hong Kong HSI rose 2.01%. China Shanghai SSE rose 2.06%. Singapore Strait Times rose 0.41%. Japan 10-year JGB yield rose 0.0644 to 1.061.

Canadian GDP grows by 0.2% mom in May, exceeds expectations

Canada's GDP grew by 0.2% mom in May, surpassing the expected 0.1% mom growth. The primary driver of this growth was the goods-producing industries, which saw a 0.4% increase with four out of five sectors expanding. The services-producing industries also contributed, albeit modestly, with a 0.1% rise. Overall, 15 out of 20 sectors experienced growth.

Advance information suggests that real GDP increased by 0.1% mom in June. Gains in construction, real estate and rental and leasing, and finance and insurance were partially offset by declines in manufacturing and wholesale trade.

US ADP employment grows only 122k, wages growth slows further

In July, US ADP private employment grew by 122k, significantly below the expected 166k. Breaking it down by sector, goods-producing jobs increased by 37k, while service-providing jobs rose by 85k. By establishment size, small companies lost -7,000k, medium-sized companies added 70k jobs, and large companies added 62k jobs.

Annual pay gains for job-stayers slowed to 4.8% yoy, the lowest rate in three years. Annual pay growth for job-changers also dropped significantly from 7.7% yoy to 5.2% yoy.

Nela Richardson, chief economist at ADP, commented, "With wage growth abating, the labor market is playing along with the Federal Reserve's effort to slow inflation. If inflation goes back up, it won't be because of labor."

Eurozone CPI rises to 2.6% yoy in Jul, core CPI unchanged at 2.9% yoy

Eurozone CPI rose from 2.5% yoy to 2.6% yoy in July, above expectation of 2.4% yoy. Core CPI (ex-energy, food, alcohol & tobacco) was unchanged at 2.9% yoy, above expectation of 2.8% yoy.

Looking at the main components, services is expected to have the highest annual rate in July (4.0%, compared with 4.1% in June), followed by food, alcohol & tobacco (2.3%, compared with 2.4% in June), energy (1.3%, compared with 0.2% in June) and non-energy industrial goods (0.8%, compared with 0.7% in June).

BoJ hikes to 0.25%, signals more increases if outlook realizes

BoJ raised the uncollateralized overnight call rate from 0-0.10% to around 0.25% today. The decision was made by a 7-2 vote, with dissenting votes from Toyoaki Nakamura and Asahi Noguchi, who preferred to gather more information and conduct a careful assessment before adjusting the interest rate.

Regarding JGB purchases, there was a unanimous decision to reduce the amount of monthly outright purchases to about JPY 3T by Q1 2026. The amount will be cut by JPY 400B each calendar quarter.

BoJ stated that economic activity and prices have been "developing generally in line with the Bank's outlook." Moves to raise wages have been spreading, and the annual rate of import price growth has "turned positive again," with upside risks to prices requiring attention.

It also noted if the outlook presented in the July Outlook Report is realized, BoJ will continue to raise the policy interest rate and adjust the degree of monetary accommodation accordingly.

In the new economic projections, the BoJ made several adjustments:

• Fiscal 2024 growth forecast was lowered from 0.8% to 0.6%.
• Fiscal 2025 growth forecast remains unchanged at 1.0%.
• Fiscal 2026 growth forecast remains unchanged at 1.0%.

For inflation projections:

• Fiscal 2024 CPI core forecast was lowered from 2.8% to 2.5%.
• Fiscal 2025 CPI core forecast was raised from 1.9% to 2.1%.
• Fiscal 2026 CPI core forecast remains unchanged at 1.9%.
• Fiscal 2024 CPI core-core forecast remains unchanged at 1.9%.
• Fiscal 2025 CPI core-core forecast remains unchanged at 1.9%.
• Fiscal 2026 CPI core-core forecast remains unchanged at 2.1%.

Australia's trimmed mean CPI drops to 3.9%, continuing six-quarter downtrend

In Q2, Australia's CPI rose by 1.0% qoq, matching both expectations and the pace set in Q1. Annual rate increased from 3.6% to 3.8% , also in line with forecasts.

More notably, the core inflation measure marked its sixth consecutive quarter of cooling. Trimmed mean CPI, which is a key indicator of underlying inflation, rose by 0.8% qoq. This represents a slowdown from the prior quarter's 1.0% qoq increase and falls below the expected 0.9% qoq. Annually, trimmed mean CPI slowed from 4.0% yoy to 3.9% yoy, below the expected 4.0% and continuing its downward trend from the peak of 6.8% in the December 2022 quarter.

Additionally, the monthly CPI for June slowed from 4.0% yoy to 3.8% yoy, again matching expectations.

NZ ANZ business confidence jumps to 27.1, inflation expectations fall further

In July, New Zealand's ANZ Business Confidence saw a notable increase, jumping from 6.1 to 27.1. Own Activity Outlook also improved, rising from 12.2 to 16.3. Meanwhile, cost expectations fell slightly from 69.2 to 68.2, and wage expectations edged up from 73.5 to 74.6. Pricing intentions saw an increase from 35.3 to 37.6. Importantly, inflation expectations continued their steady decline, falling from 3.46% to 3.20%.

ANZ commented that the economic climate remains one where "bad news is good news" for RBNZ. With mounting evidence that monetary policy has been effective, perhaps overly so, there is now a broad expectation that RBNZ will start easing the Official Cash Rate this year.

ANZ noted that "evidence is mounting that the inflation dragon is on its last legs," which positions the New Zealand economy for a more robust recovery compared to a scenario where inflation control efforts were only partially successful.

China's NBS PMI manufacturing falls to 49.4 in amid weak demand and extreme weather

China's official NBS PMI Manufacturing index fell slightly from 49.5 to 49.4 in July, just above the expected 49.3. This index has remained below the 50-mark, which separates growth from contraction, for all but three months since April 2023.

NBS analyst Zhao Qinghe attributed the decline in manufacturing activity to the typical off-season for production in July, insufficient market demand, and extreme weather conditions such as high temperatures and floods in some areas.

PMI Non-Manufacturing index also fell, dropping from 50.5 to 50.2, in line with expectations, but still indicating expansion for the 19th consecutive month. Within this category, construction subindex decreased from 52.3 to 51.2, while services subindex slipped from 50.2 to 50e.

Overall, the official PMI Composite, which combines both manufacturing and non-manufacturing sectors, declined from 50.5 to 50.2.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 151.86; (P) 153.54; (R1) 154.43; More...

USD/JPY's fall from 161.94 accelerates lower again to as low as 149.77 so far. Intraday bias stays on the downside for 148.66 fibonacci level, which is close to medium term channel support (now at 148.22). Strong support could be seen there to bring rebound. But break of 155.21 resistance is needed to confirm short term bottoming. Otherwise, risk will stay on the downside in case of recovery.

In the bigger picture, considering the depth and momentum of the current decline, 161.94 should be a medium term top already. Fall from there is seen as correcting the whole rise from 127.20 (2023 low) at least. Next target is 38.2% retracement of 127.20 to 161.94 at 148.66. Decisive break there will pave the way to 140.25 support next. Risk will now stay on the downside as long as 55 D EMA (now at 156.90) holds, in case of rebound.

Economic Indicators Update

Canada's GDP grew by 0.2% mom in May, surpassing the expected 0.1% mom growth. The primary driver of this growth was the goods-producing industries, which saw a 0.4% increase with four out of five sectors expanding. The services-producing industries also contributed, albeit modestly, with a 0.1% rise. Overall, 15 out of 20 sectors experienced growth.

Advance information suggests that real GDP increased by 0.1% mom in June. Gains in construction, real estate and rental and leasing, and finance and insurance were partially offset by declines in manufacturing and wholesale trade.

Full Canada GDP release here.

In July, US ADP private employment grew by 122k, significantly below the expected 166k. Breaking it down by sector, goods-producing jobs increased by 37k, while service-providing jobs rose by 85k. By establishment size, small companies lost -7,000k, medium-sized companies added 70k jobs, and large companies added 62k jobs.

Annual pay gains for job-stayers slowed to 4.8% yoy, the lowest rate in three years. Annual pay growth for job-changers also dropped significantly from 7.7% yoy to 5.2% yoy.

Nela Richardson, chief economist at ADP, commented, "With wage growth abating, the labor market is playing along with the Federal Reserve's effort to slow inflation. If inflation goes back up, it won't be because of labor."

Full US ADP release here.

• Gold and oil prices have surged due to rising tensions in the Middle East.
• Gold with a trendline break as bulls eye $2480/oz, FOMC meeting next.
• Brent crude oil found support around the 78.00 handle and is currently trading at 80.82 a barrel, with potential for further upside due to geopolitical risks.

Gold and oil have both surged due to rising tensions in the Middle East, which began during the US session yesterday. An airstrike on Lebanon followed by an airstrike on Tehran targeting senior Hamas leader Ismail Haniyeh has significantly increased safe haven demand.

These events set the stage for an interesting few days from a geopolitical standpoint, with tensions expected to escalate as Iran’s incoming President, Masoud Pezeshkian, is anticipated to respond.

World leaders have already called for calm amid growing fears of regional spillover, which could have widespread consequences. Any hope for a ceasefire will likely be sidelined, leading to increased safe haven demand flows, with gold and potentially the US dollar benefitting.

As the US session approaches and with the FOMC meeting scheduled later in the day, markets may calm down. This could lead to some consolidation and potentially a pause in the recent rally in gold and oil prices.

Surprisingly, despite benefiting from safe haven demand on Monday, the US dollar has struggled this morning. This could be due to market participants’ apprehension ahead of the FOMC meeting.

Brent Crude Technical Outlook

Market participants may fear supply disruptions if a wider conflict breaks out in the Middle East. This has led to a rebound with Brent finding support around the 78.00 handle, up around 1.6% at the time of writing to trade at 80.82 a barrel.

From a technical standpoint, the daily candle close below the 80.00 mark yesterday hinted at the potential for further downside. The external threat posed by geopolitical risks have scuppered that move for now at least.

The concerns around Oil prices are mixed at the moment, with concerns around depleted stockpiles countered by the growth concerns out of China.

Later in the North American session, the US Energy Information Administration (EIA) will release the Crude Oil Stocks Change report. The market expects a decline of 1.60 million barrels for the week ending July 26, following the previous week’s decrease of 3.741 million barrels.

Tomorrow’s OPEC+ meeting is not expected to result in significant changes to oil output levels. While further reductions are unlikely, there seems to be little chance of an increase in production.

Market participants hope that this meeting will provide clarity from OPEC, allowing attention to shift toward supply risks stemming from Middle East conflicts.

Brent Crude Oil Daily Chart, July 31, 2024

Source:TradingView.com

Support

• 80.00
• 79.00
• 77.50

Resistance

• 81.58
• 83.00
• 84.72

Gold (XAU/USD) Technical Analysis

From a technical standpoint, gold has surpassed the descending trendline that has been in place since the July 17 high around the 2481.00 level.

The breakout has gained momentum without any retest of the trendline, thus not offering a better risk-to-reward entry point. The 100-day moving average provides support around the 2405.00 level.

Immediate resistance is at 2432, followed by the 2450 mark.  Based on the rules of a trendline break, in theory the break should lead prices toward the previous highs at 2481.00.

With the FOMC meeting scheduled for later today, it will be interesting to see if bulls continue to drive gold prices higher.There is a strong possibility that markets might enter a period of consolidation ahead of the meeting later in the day.

GOLD (XAU/USD) Four-Hour Chart, July 31, 2024

Source: TradingView (click to enlarge)

Support

• 2405
• 2394
• 2378

Resistance

• 2432
• 2450
• 2467

The USD/JPY pair has experienced a sharp decline, currently at 152.79, following decisive monetary policy adjustments by the Bank of Japan (BoJ). In a significant shift, the BoJ raised its interest rate to 0.25% per annum and unveiled plans to scale back monthly bond purchases to approximately 3 trillion yen by Q1 2026. Further interest rate hikes and monetary policy adjustments are on the table if economic activities and inflation pressures align with projections.

This move comes as the BoJ faces increasing pressure from government and financial authorities to mitigate the yen's weakness and curb rising inflation. The yen's devaluation has been a pressing concern, intensifying inflationary pressures within the country.

Recent data from Japan provided mixed signals: retail sales reached a four-month high in June, indicating robust consumer activity, whereas industrial production showed a smaller-than-expected decline.

As the market continues to digest the BoJ's new stance, the USD/JPY pair shows potential for further declines, especially if the market fully assimilates these recent adjustments from the Japanese central bank.

Technical Analysis: USD/JPY

The pair formed a consolidation range around 153.03, extending between 155.20 and 152.10. Following a breakout below this range, there is a visible downward trajectory towards 151.26, potentially extending to 150.77. The MACD indicator, positioned below zero with a downward trajectory, supports this bearish outlook.

After completing a decline to 151.57 and a subsequent correction to 153.88, the market is poised for another downward movement towards 151.35, potentially continuing to 150.77. This bearish forecast is bolstered by the Stochastic oscillator, below the 50 mark and trending downwards, indicating continued selling pressure.

• NZDUSD rotates higher after touching familiar support zone
• Technical signals increase the odds for upside reversal
• FOMC policy announcement might affect USD at 18:00 GMT

NZDUSD has had a terrible month, but a bullish rotation this week has brought hope that the bearish phase could be over.

The pair changed direction and moved north after reaching April’s pivotal zone of 0.5850, creating a bullish engulfing candlestick pattern. This is usually a sign of a positive reversal, with the RSI and stochastic oscillator endorsing the idea as they are both emerging from oversold territory.

Confirming further gains may require a close above the 61.8% Fibonacci retracement of the October-February 2023 upleg at 0.5900. However, a significant challenge for the bulls could be the 0.5965 area, where the broken support trendline from October 2022 is located. Breaching that bar, the price could rise straight to the 20-day simple moving average (SMA) and the 50% Fibonacci of 0.6024, while higher, a new barrier could emerge somewhere between the 50- and 200-day SMAs at 0.6082.

Still, only a sustainable increase above the resistance zone of 0.6120-0.6173 would brighten the long-term outlook given that the tough 2021 descending trendline, which has been capping bullish actions since the 2021 top, is within the region.

Should the 0.5850 floor crack, the spotlight will fall on the 2023 low of 0.5772. An extension lower would violate the 2023-2024 wide range, likely prompting a sharp decline towards the 0.5590 constraining zone taken from October 2022.

In a nutshell, NZDUSD could potentially embark on a new positive cycle following a significant decline. Yet, traders may need a signal above the level of 0.5965 to drive the pair higher. 

USDJPY accelerated lower in early European trading on Wednesday, following a mixed immediate reaction on BoJ’s decision to raise interest rate from 0.10% to 0.25% and unveil plan to halve bond buying.

The decision was positive for yen and added to currency’s broader strength, sparked by recent interventions by Japan’s authorities.

Fresh weakness pushed the price to the lowest in almost 4 ½ months, after break of significant supports at 152.39 (Fibo 61.8% of 146.48/161.95) and 151.66 (200DMA), generating fresh bearish signal, which looks for confirmation on close below these levels.

Bears crack targets at 150.13/00 (Fibo 76.4%/psychological) violation of which to open way for deeper correction of larger uptrend from 127.22 (2023).

Meanwhile, oversold daily studies may provide headwinds to bears and pause the fall for consolidation above pivotal 150 support zone, with limited upticks to provide better selling levels.

Adding to bearish picture is formation of reversal pattern on monthly chart, as the pair is on track for the biggest monthly fall since Oct 1998.

Res: 151.66; 152.39; 153.00; 153.89.
Sup: 150.00; 148.90; 147.42; 146.48.