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Daily Pivots: (S1) 0.9349; (P) 0.9364; (R1) 0.9388; More....

As long as 0.9444 resistance holds, further decline is still expected in EUR/CHF despite weak momentum as seen in 4H MACD. As noted before, rebound from 0.9209 could have completed at 0.9579 already, ahead of 55 D EMA. Deeper fall should be seen to retest 0.9209 first. Firm break there will resume larger down trend. However, break of 0.9444 will turn bias back to the upside for 0.9579 resistance instead.

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.

China's exports grew by a robust 8.7% yoy to USD 308.7B in August, surpassing market expectations of 6.5% yoy growth. However, this impressive figure is largely attributed to base effect, as exports contracted by -8.8% yoy during the same period last year.

Exports to key regions such as the US, the EU, and the ASEAN all posted solid gains. Notably, exports to the EU saw the largest increase, growing 13% yoy.

In terms of imports, China's intake from the US rose by 12% yoy, while imports from the EU showed a decline. Imports from ASEAN grew by 5% yoy. Overall import growth remained weak, increasing by just 0.5% yoy compared to the expected 2.0% yoy.

China's trade surplus widened significantly, rising from USD 84.65B in July to USD 91.02B, exceeding expectation of USD 83.9B.

Key Highlights

• GBP/USD struggled near 1.3260 and started a downside correction.
• It traded below a key bullish trend line with support at 1.3140 on the 4-hour chart.
• EUR/USD is struggling to start a fresh increase above 1.1100.
• The UK Claimant count could change by 95.5K in August 2024.

GBP/USD Technical Analysis

The British Pound faced heavy resistance near 1.3250 against the US Dollar. GBP/USD formed a short-term top and started a downside correction below 1.3200.

Looking at the 4-hour chart, the pair traded below the 23.6% Fib retracement level of the upward move from the 1.2664 swing low to the 1.3266 high. It also traded below a key bullish trend line with support at 1.3140.

The pair broke the 1.3100 level and the 100 simple moving average (red, 4-hour), but it stayed above the 200 simple moving average (green, 4-hour).

On the downside, immediate support sits near the 1.3035 level. The next key support sits near the 1.2965 level and the 200 simple moving average (green, 4-hour). It is close to the 50% Fib retracement level of the upward move from the 1.2664 swing low to the 1.3266 high.

A downside break below the 1.2965 level could set the pace for a larger decline. The next major support is near the 1.2800 level. On the upside, the pair could face resistance near the 1.3140 level.

The next key resistance sits near the 1.3180 level. A clear move above the 1.3180 level could set the pace for a move toward the 1.3250 zone. Any more gains might call for a test of the 1.3350 zone.

Looking at EUR/USD, the pair struggled to start a fresh increase above 1.1100 and might extend its downside correction.

Upcoming Economic Events:

• UK Claimant Count Change for August 2024 – Forecast 95.5K, versus 135K previous.
• UK ILO Unemployment Rate for July 2024 (3M) – Forecast 4.1%, versus 4.2% previous.

Australia's NAB Business Confidence fell from 1 to -4 in August. Business Conditions also declined, dropping from 6 to 3. Trading conditions dipped by 2 points, while profitability slid by 1 point. Forward orders remained unchanged at -4.

NAB Chief Economist Alan Oster commented on the data, noting that "conditions are now fairly clearly below average compared to the history of the survey," underscoring the broader weakness in the private sector as the economy slows.

The decline in the employment gauge is particularly notable, as it "suggests the period of very strong private sector labor demand seen throughout the post-Covid period may be coming to an end," Oster added.

Australia’s Westpac Consumer Sentiment Index saw a marginal decline of -0.5% mom in September, falling from 85.0 to 84.6, reflecting the ongoing pessimism that has gripped Australian consumers for more than two years. According to Westpac, this persistent negativity shows "no real signs of lifting," with key indicators pointing to growing anxiety about the country's economic outlook.

Sentiment around economic conditions for the next 12 months dropped from 83.3 to 81.2, while unemployment expectations rose sharply from 133.5 to 138.4, signaling growing concerns about job security. However, the interest rate expectations index saw some relief, falling from 135.5 to 123.8, as consumers became less worried about further rate hikes.

Westpac noted that the focus among consumers appears to be shifting. "While cost-of-living pressures are becoming a little less intense and fears of further interest rate rises have eased, consumers are becoming more concerned about where the economy may be headed and what this could mean for jobs," the report highlighted.

Full Australia Westpac consumer sentiment release here.

• ECB widely expected to deliver a second rate cut to 3.50%
• September’s data could be important for October’s meeting
• EURUSD looks bearish; next support could develop near 1.0990

Spotlight turns to economic growth too

Inflation is no longer the sole focus, as economic growth has gained equal importance, although central banks still prioritize maintaining symmetrical price stability around 2.0%.

The story lately was that a couple of disappointing US business and employment data raised speculation that the world’s largest economy might be at the brink of a recession and could drag the rest of the world down with it as US interest rates remain unchanged at restrictive levels.

The Eurozone economy exceeded analysts’ expectations in Q2, showing ongoing growth since Q3 2023, but the pace remained modest at 0.3% q/q and 0.6% y/y, falling short of the ECB’s 2024 forecast of 0.8% y/y.

Of course, a glance at member states shows a widening gap, with tourism-led economies such as France and Italy displaying stronger GDP numbers than the struggling industrial-led Germany. The latest S&P Global business PMI report revealed that the Olympic games in France and the tourism boost in Spain and Italy could support Q3 GDP numbers. However, with Germany’s growth engines in artificial intelligence and other technological areas falling behind those of the US and China, and given the presence of geopolitical risks, it is questionable whether the bloc will attract noteworthy investment in the coming years.

Eurozone's labor market is not a problem 

As regards the labor market, the unemployment rate has been steady near a record low of 6.4%, but spending appetite was cautious as reflected by a near-zero growth in the household consumption and the falling savings ratio. Although the dynamics on the wage front are mixed across member states, with Germany demanding more increases, the latest round of negotiations within the bloc averaged at a lower level of 3.6% y/y in Q2 from 4.7% y/y in Q1, easing the risk of a wage-price spiral.

A second 25bps rate cut is a done deal. What's next?

Hence, a second cut of 25bps in the deposit facility rate to 3.50% may not face strong opposition this week. Analysts believe this is a done deal, especially after ECB board member Kazaks admitted that the sideways move in inflation is consistent with further rate cuts. A few days later, headline CPI inflation broke its range to hit a three-year low of 2.2% y/y, standing marginally above the ECB’s target of 2.0%, while the core measure also eased notably to 2.8% y/y.

Similar to the Fed, we must ask if there is a chance for a significant 50bps rate reduction in the eurozone this year. The ECB is scheduled to update its inflation and GDP forecasts along with its rate decision and therefore it could give fresh hints about its next policy steps. However, October’s gathering could be considered a better timing for guiding investors when September’s economic figures are out.

In the meantime, futures markets are pricing in a third 25bps rate cut later his year, though they are uncertain about whether this will happen in October or December. There is also ambiguity about whether a potential reduction in December could be a double one if nothing happens in October. Overall, investors see interest rates at 2.5% by March, which suggests a back-to-back easing or a 50bps base rate cut with a break in the coming meetings.

Market reaction

For the time being, policymakers might avoid any strongly dovish language and could show preference for a step-by-step policy monitoring, given the elevated prices in the services sector. If that proves to be the case, investors might translate it as a hawkish signal, helping EURUSD climb back towards its 20-day simple moving average (SMA) at 1.1084 and then up to the 1.1100 tough resistance.

From a technical perspective, today’s drop below the 20-day simple moving average shifted the attention to the 1.0990 area, while lower, the 1.0915-1.0940 zone might pause steeper declines. Yet for the bears to reach the latter, the central bank must discuss the potential for a 50bps rate cut and/or even signal a continuous easing policy into 2025.

• The US Dollar Index (DXY) has rebounded since Friday’s jobs data release, driven by altered rate cut expectations.
• EUR/USD is particularly affected by the DXY recovery, with the Euro’s recent strength potentially waning due to poor German data and shifting rate cut expectations.
• The DXY’s technical analysis suggests further upside potential, with immediate resistance at 102.16 and 102.60.

The US Dollar Index (DXY) has seen a stark turnaround since the jobs data release on Friday. The immediate aftermath left the US Dollar reeling as the DXY looked set to print fresh lows. However, as the data was digested and market participants altered their rate cut expectations, the DXY roared to life and has continued that recovery to start the week.

US Federal Reserve Interest Rate Policy Probability

Source: LSEG (click to enlarge)

Looking at FX pairs and the one that grabs my attention the most is EUR/USD which to me appears to be the biggest loser from the DXY recovery, let me explain. The Euro enjoyed a stellar run against the greenback since the last ECB meeting as markets grew more aggressive with regards to the Fed rate cut cycle. However, over the last 10 days or so this narrative has changed somewhat.

A batch of poor data from Germany (Europe’s most industrialized economy) shows the challenges facing the European Central Bank. The ECB are all set to cut rates by another 25 bps on Thursday just the DXY looks set for a recovery. Markets are now pricing in a 25 bps cut from the Fed and as I see it a lot of that may already be priced in. If indeed that is the case, then the rate cut on September 18 may have a muted impact on the US Dollar and thus leave EUR/USD in a tight spot.

Market analysts have been touting a level around 1.12 for EUR/USD by year end, which remains a possibility. Given that September and October are usually strong months fro the USD and the fact that a lot of the 25 bps cut expected by the Fed may be priced in, this could leave the Euro vulnerable to further losses.

Now of course this could change very quickly as we have seen this year, with each data release shifting expectations a considerable amount. However, this week’s US data which comes in the form of CPI and PPI are no longer driving market participants’ decisions making. Labor data is now driving sentiment and decision making and could mean that this week’s US data may do little to shift the needle in regards to rate cut expectations.

Now looking at a comparison of rate cut expectations for the remainder of the year and there is a hope for the Euro as the year end approaches. Markets are pricing in two more 25 bps cuts from the ECB, but the December meeting is currently 50%. In contrast, the Fed is seen delivering three 25 bps cuts at each remaining meeting this year which could work in the Euros favor.

In the short-term however, I see challenges for the Euro especially if the US Dollar recovery continues to gather pace.

ECB Interest Rate Policy Probability

Source: LSEG (click to enlarge)

Technical Analysis

The US Dollar Index (DXY) is on course for a morningstar candlestick pattern off a key support level. This coupled with a higher low suggest that further upside may be in the offing in the days ahead.

Immediate resistance ahead is provided by the 102.16 handle before the 102.60 mark becomes a serious consideration.

Conversely, a break back to the downside has to navigate its way past support at 101.18 before the recent lows of 100.50 become a possibility. Beyond that the key psychological 100.00 lies in wait.

US Dollar Index Daily Chat, September 9, 2024

Source:TradingView.com (click to enlarge)

EUR/USD Technical Analysis

From a technical standpoint, EUR/USD has printed a fresh lower high at the back end of last last week. Having topped out just shy of the 1.1200 handle on August 26, the pair has been on a steady trajectory to the downside.

During the middle of last week, bulls made an attempt to take charge once more but Fridays significant selloff and resurgent US Dollar brought pair back below the 1.1100 handle. As things stand, immediate support rests at the psychological 1.1000 level with 1.0948 the next area of interest.

A bullish continuation from here will require bulls to navigate the 1.1100 and 1.1200 resistance areas before any further upside is possible.

EUR/USD Daily Chat, September 9, 2024

Source: TradingView.com (click to enlarge)

• GBPUSD reversed from strong resistance level 1.3230
• Likely to fall to support level 1.3000

GBPUSD currency pair recently reversed down from the strong resistance level 1.3230 (former strong support from the end of 2021).

The resistance level 1.3230 was strengthened by the upper daily Bollinger Band and by the resistance trendline of the daily up channel from May.

Given the strength of the resistance level 1.3230 and the overbought daily Stochastic, GBPUSD currency pair can fall further to the next round support level 1.3000.

• USDCHF reversed from support level 0.8400
• Likely to rise to resistance level 0.8550

USDCHF currency pair recently reversed up from the key support level 0.8400 (which has been reversing the price since the end of last year).

The upward reversal from the support level 0.8400 created the daily Japanese candlesticks reversal pattern Long-legged Doji.

Given the strength of the support level 0.8400 and the bullish US dollar sentiment seen across the FX markets today, USDCHF currency pair can rise further to the next resistance level 0.8550.