Sample Category Title

Daily Pivots: (S1) 155.06; (P) 156.08; (R1) 156.60; More...

Intraday bias in USD/JPY remains on the downside with focus on 38.2% retracement of 140.25 to 161.94 at 153.65. Some support could be seen there to bring rebound, at least on first attempt. But risk will stay on the downside as long as 157.85 resistance holds, even in case of strong recovery. Sustained break of 153.65 would pave the way to 61.8% retracement at 148.53.

In the bigger picture, as long as 151.89 resistance turned support holds, long term up trend could still continue through 161.94 at a later stage. Next target will depend on the depth of the current correction from 161.94. However, sustained break of 151.89 will argue that larger scale correction or trend reversal is underway.

Daily Pivots: (S1) 0.9665; (P) 0.9678; (R1) 0.9688; More....

EUR/CHF's fall from 0.9772 resumed by breaking through 0.9641 support and intraday bias is back on the downside. Next target is 61.8% retracement of 0.9476 to 0.9772 at 0.9589. Sustained break there will target 0.9476 low. For now, risk will stay on the downside as long as 0.9690 resistance holds, in case of recovery.

In the bigger picture, rebound from 0.9252 medium term bottom might not be completed yet. But even in case of resumption, strong resistance could emerge from 1.0095 to limit upside. Medium term outlook will be neutral at best as long as 1.0094 structural resistance holds. Meanwhile, break of 0.9476 will bring retest of 0.9252 low.

Daily Pivots: (S1) 168.13; (P) 169.61; (R1) 170.38; More...

EUR/JPY's fall from 175.41 accelerates lower today and it's now pressing 38.2% retracement of 153.15 to 175.41 at 166.90. Some support could be seen from this fibonacci level, and break of 169.19 minor resistance will turn intraday bias neutral first. However, decisive break of 166.90 will pave the way to medium term channel support (now at 165.46).

In the bigger picture, medium term outlook will stay bullish as long as 164.29 resistance turned support holds. Long term up trend is still in favor to continue through 175.41 at a later stage. However, firm break of 164.29 will be a strong sign of bearish trend reversal.

Yen continues to dominate the forex markets today, with speculation heating up ahead of next week's BoJ meeting. According to a Reuters report, unnamed sources have confirmed that a rate hike will be debated at the meeting. However, the decision is expected to be a "close call," described as a "judgment call" on whether to "act now or later this year." It is also believed that BoJ will unveil a plan to roughly halve its bond purchases in the coming years, continuing its steady withdrawal from massive monetary stimulus.

Meanwhile, Euro is under pressure following disappointing PMI data, which showed significant deterioration in the manufacturing sector while services growth remained moderate only. This data should justify a September ECB rate cut, although inflation data might complicate further cuts beyond that. On the other hand, Sterling is supported by solid PMI figures, bolstering the stance of BoE hawks against a rate cut in August.

Overall in the currency markets, Swiss Franc is the second strongest for the day, trailing the Yen, with support from buying against Euro. Sterling follows as the third strongest. New Zealand Dollar is currently the worst performer, followed closely by Australian Dollar and then Euro. Dollar and Canadian Dollar are positioned in the middle, with the latter awaiting BoC rate cut later in the session.

Technically, the medium term bearish case for Nikkei continues to build up with today's break of 55 D EMA, as well as trend line support. A medium term top is likely in place at 42426.77 on bearish divergence condition in D MACD. Fall from there could be correcting the whole five-wave rally from 25661.89. Deeper decline would be seen to 37950.19 support first, and firm break there will solidify this case. Next medium term target would be 38.2% retracement of 25661.89 to 42426.77 at 36022.58. The depth of Nikkei correction could be used to verify the depth of USD/JPY's based on their close correlation.

In Europe, at the time of writing, FTSE is down -0.08%. DAX is down -0.75%. CAC is down -1.03%. UK 10-year yield is up 0.013 at 4.141. Germany 10-year yield is down -0.004 at 2.439. Earlier in Asia, Nikkei fell -1.11%. Hong Kong HSI fell -0.91%. China Shanghai SSE fell -0.46%. Singapore Strait Times fell -0.01%. Japan 10-year JGB yield rose 0.0144 to 1.078.

US goods exports rises 5.7% yoy, imports rises 6.9% yoy

US goods exports rose 5.7% yoy to 172.32B in June. Goods imports rose 6.9% yoy to USD 269.16B. Trade balance reported USD -96.84B, versus expectation of USD -98.0B.

Wholesale inventories rose 0.2% mom to USD 903.3B. Retail inventories rose 0.7% mom to USD 802.1B.

UK manufacturing PMI hits 24-month high, encouraging start to H2

UK PMI data for July reveals a promising start to the second half of the year. PMI Manufacturing rose to 51.8, exceeding expectations of 51.1 and marking a 24-month high. PMI Services also increased slightly from 52.1 to 52.4, though just below the forecast of 52.5. The overall PMI Composite index improved from 52.3 to 52.7.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted, "The flash PMI survey data for July signal an 'encouraging start' to the second half of the year, with output, order books, and employment all growing at faster rates amid rebounding business confidence, while price pressures moderated."

Post-election business sentiment has surged, with increased demand and hiring in both manufacturing and services sectors. Despite the slowest price rise in three and a half years, suggesting potential for a summer rate cut, caution remains.

"Policymakers will likely take a cautious approach to loosening policy amid signs of inflationary pressures pivoting away from services towards manufacturing, where Red Sea shipping delays and higher freight prices are adding to costs again," Williamson added. The renewed hiring trend could also sustain wage pressures, keeping inflation somewhat persistent.

Eurozone PMI composite hits 5-month low at 50.1, ECB's post-September rate cut path uncertain

Economic activity in Eurozone weakened in July, with PMI Manufacturing dipping from 45.8 to 45.6, a seven-month low, and missing expectations of 46.3. PMI Services also declined from 52.8 to 51.9, below the anticipated 52.9, marking a four-month low. Consequently, PMI Composite fell from 50.9 to 50.1, a five-month low.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that the Eurozone economy "barely moved" in July. He highlighted that the manufacturing sector "deteriorated significantly," offsetting "moderate growth" in the services sector.

While current growth data might justify a September rate cut by ECB, inflation data complicates this decision. De la Rubia noted that input prices in the services sector rose faster, and selling prices remained steady. Manufacturing input prices, which had fallen for over a year, have increased for two consecutive months. Output prices only marginally decreased.

De la Rubia added "Our conclusion is that while a September rate cut will most probably be exercised, it will be much trickier to follow this path in the months thereafter, unless the downturn morphs into a deep recession."

German Gfk consumer sentiment improves to -18.4, driven by income expectations

Germany's Gfk Consumer Sentiment for August rose to -18.4, surpassing expectations of -21.1, and marking an improvement from July's -21.6.

In July, economic expectations jumped from 2.5 to 9.8, and income expectations surged from 8.2 to 19.7, reaching their highest level since October 2021. Willingness to buy also improved, rising from -13.0 to -8.4, while willingness to save slightly decreased from 8.2 to 8.0.

Rolf Buerkl, consumer expert at NIM, attributed this upswing primarily to Germans' increased income expectations. He also noted that the euphoria from the European Football Championship likely contributed to the positive sentiment.

However, Buerkl cautioned that it remains to be seen whether this effect is sustainable or just a "short-term flare-up." He warned that if this good mood fades quickly, the path out of low consumption could be "long and demanding."

Australia's PMI composite dips to 50.8, no major slowdown with continued inflation pressures

Australia's PMI Manufacturing saw a marginal improvement in July, rising slightly from 47.2 to 47.4. Conversely, PMI Services dropped to a six-month low, moving from 51.2 to 50.8. PMI Composite also decreased from 50.7 to 50.2, the lowest in six months.

Warren Hogan, Chief Economic Advisor at Judo Bank, highlighted that despite a further moderation in the composite output index, "there are no signs of a significant slowdown in Australian business activity in 2024." He noted that while manufacturing continues to struggle, services sector is still experiencing better activity compared to the end of 2023.

Hogan also mentioned that the impact of recent tax cuts and cost-of-living support measures has yet to fully manifest in the business conditions and should positively affect consumer spending in future months. Insights from the upcoming final PMIs for July and the reports for August are expected to provide a clearer picture of these effects.

Despite softer activity levels, inflation pressures have not eased significantly. The services sector saw a notable increase in input costs, which rose four points to 63.3—the highest since November 2023. In contrast, manufacturing input costs rose only slightly and are near their lowest in four years. The composite output price index nudged up to 54.1 in July, indicating a small increase but suggesting that inflation is likely stabilizing around an annualized rate of 4% as of mid-2024.

Japan's PMI services surges to 53.9 while manufacturing back in contraction

Japan's PMI Manufacturing declined from 50.0 to 49.2, underperforming against expectations of 50.5, indicating contraction. In contrast, PMI Services experienced a robust increase, rising sharply from 49.4 to 53.9, signaling a strong expansion and the highest activity level in three months. PMI Composite also rose from 49.7 to 52.6.

Usama Bhatti, Economist at S&P Global Market Intelligence, stating the reading was "indicative of solid growth," driven primarily by the services sector. Manufacturing saw a "renewed reduction in output," though the decline was marginal.

Additionally, the PMI report highlighted increasing operational challenges, with a "renewed increase in capacity pressures" across the private sector. For the first time in three months, there was a rise in the level of outstanding business, suggesting that firms are facing more backlog in their operations.

The report also underscored persistent cost pressures, particularly in manufacturing, where input prices rose sharply, marking the steepest increase since April 2023.

EUR/JPY Mid-Day Outlook

Daily Pivots: (S1) 168.13; (P) 169.61; (R1) 170.38; More...

EUR/JPY's fall from 175.41 accelerates lower today and it's now pressing 38.2% retracement of 153.15 to 175.41 at 166.90. Some support could be seen from this fibonacci level, and break of 169.19 minor resistance will turn intraday bias neutral first. However, decisive break of 166.90 will pave the way to medium term channel support (now at 165.46).

In the bigger picture, medium term outlook will stay bullish as long as 164.29 resistance turned support holds. Long term up trend is still in favor to continue through 175.41 at a later stage. However, firm break of 164.29 will be a strong sign of bearish trend reversal.

Economic Indicators Update

US goods exports rose 5.7% yoy to 172.32B in June. Goods imports rose 6.9% yoy to USD 269.16B. Trade balance reported USD -96.84B, versus expectation of USD -98.0B.

Wholesale inventories rose 0.2% mom to USD 903.3B. Retail inventories rose 0.7% mom to USD 802.1B.

Full US goods trade balance release here.

Brent crude oil prices have continued their downward trajectory, reaching 81.14 USD per barrel as of Wednesday. This marks the fifth consecutive session of decline, primarily influenced by significant reductions in US oil inventories. The latest data from the API indicates a decrease of 3.9 million barrels, surpassing the forecasted reduction of 2.5 million barrels and marking the fourth consecutive week without a correction.

Concurrently, developments in the Middle East are also impacting oil prices. There is emerging optimism regarding ceasefire negotiations between Israel and Hamas, which has helped alleviate some geopolitical pressures on oil prices. Additionally, concerns about potential disruptions in oil supplies due to forest fires in Canada influence market dynamics, albeit helping to stabilise prices momentarily.

The strength of the US dollar continues to make commodities less attractive, as a stronger dollar typically reduces the purchasing power of other currencies in the commodities market.

Technical analysis of Brent

Brent oil is forming a consolidation range around the 80.80 USD level with an extension down to 79.76 USD. A further decline to 79.33 USD may occur. If the price exits this range on the upside, we might see the initiation of a growth wave targeting 84.24 USD. The MACD indicator supports this scenario, showing potential for new growth as it prepares at the lows.

The market has established a consolidation range around the 81.84 USD level. The target level of 79.76 USD has been reached with a downward exit. We anticipate a new consolidation range forming at these lows, potentially followed by another decline to 79.33 USD. If the price exits the range upward, a rebound to 81.44 USD could occur. The Stochastic oscillator, currently below the 50 level and heading towards 20, supports this potential downward movement.

Investors and market analysts must closely monitor these developments, as any significant changes in US monetary policy or geopolitical events could further influence oil prices.

• ETHUSD has been rangebound in the past few sessions
• Spot ETF launch did not trigger much volatility
• Momentum indicators remain positively tilted

ETHUSD (Ethereum) has experienced a strong rally in July, breaking above its 50-day simple moving average (SMA). However, the leading altcoin has been trading sideways for more than a week now, even though the short-term oscillators have been hovering deep in their positive zones.

If the price extends its recent upleg, the recent resistance region of 3,560 could curb initial upside attempts. Higher, the April resistance of 3,710 could prove to be the next barricade for the bulls to overcome. A break above that zone could open the door for the May peak of 3,974.

Alternatively, should the recent range break to the downside, the price could challenge the June support of 3,360. Failing to halt there, Ethereum could descend towards the June low of 3,235, a region that also provided support back in March and April. Even lower, the March low of 3,055 could provide downside protection.

In brief, the much-anticipated spot Ether ETF debut in the US did not manage to put an end to ETHUSD’s choppy trading in the near term. Nevertheless, the short-term picture will remain bullish as long as the price holds above its 50-day SMA. 

• USDJPY holds beneath diagonal line
• Stochastics and RSI suggest more bearish moves

USDJPY tumbled to a new two-month low of 154.50 following a significant pullback from the long-term ascending trend line and the 50-day simple moving average (SMA) near 157.90. The stochastic oscillator created a bearish crossover, diving to just above the oversold region, while the RSI is also pointing downwards near the 30 level.

Further losses may drive the pair towards the 38.2% Fibonacci retracement level of the up leg from 140.20 to 161.94 at 153.65, before challenging the 200-day SMA around the 151.80 support. Slightly lower, the 50.0% Fibonacci of 151.10 may act as a turning point for traders.

On the other hand, a potential rebound off 154.50 could take investors higher again, resting near the 23.6% Fibonacci of 156.85 ahead of the 50-day SMA at 157.90. A climb back above the ascending trend line could endorse the scenario for bullish actions again, hitting 160.20.

In brief, USDJPY has been in a bearish correction since the climb to a 38-year high on July 3, and any closing sessions beneath the 200-day SMA could switch the long-term outlook to negative.

• Gold turns up again after brutal downfall
• Short-term risk is positive, but caution required near 2,430-2,438
• US S&P Global PMIs could generate fresh volatility at 13:45 GMT

Gold found fresh buying interest after its aggressive pullback from a record high of 2,483 paused at 2,383. The precious metal is currently looking to gain more ground following its close above the 20-period simple moving average (SMA) and the 38.2% Fibonacci retracement of the latest upleg at 2,410.

From a technical perspective, the risk is skewed to the upside as the RSI is set to cross above its 50 neutral mark and the MACD, although negative, is showing some recovery above its red signal line. Nevertheless, with the stochastic oscillator nearing its previous highs in the overbought region, any potential rises may be gradual.

The 50-period SMA and the broken ascending trendline drawn from June's low at 2,430 will be hard to miss before the 23.6% Fibonacci mark of 2,438 comes into view. If the bulls breach the latter, they might initially head for May’s peak of 2,449 and then for the 2,467 barrier. Further up, the price could push for new higher highs above the all-time high of 2,483.

Should the bears press the price below the 38.2% Fibonacci of 2,410 and the 20-period SMA, support could immediately come from the 50% Fibonacci of 2,388, where the price bottomed out earlier this week. Additional declines from there could face a tougher hurdle near the 200-period SMA and the ascending trendline from the February low, currently seen near the 61.8% Fibonacci of 2,366.

In short, gold’s ongoing upturn could gather more strength, though buyers are expected to show greater interest once the price surpasses the barrier at 2,430-2,438.

• Oil prices have declined over the past four days, but Brent oil remains at a crucial support level.
• The Chinese government has cut rates to stimulate economic growth following disappointing data. Will this help keep oil demand strong in H2?
• US GDP, PMI and PCE data could play a role in Oil price moving ahead while the Geopolitical situation needs to be monitored as well.

Oil prices have been on a four-day losing streak, but Brent is holding at a crucial support level following data showing declining US inventories. Ongoing uncertainty surrounding China continues to fuel demand concerns.

The American Petroleum Institute (API) reported a week-on-week decline in inventories, with crude oil stocks dropping by 3.9 million barrels, more than the anticipated 2.47 million barrels which was expected given the mid-summer period.

API Numbers Weekly

*The numbers show the stark decline as the summer months, highlighting the spike in demand experienced during US summers.

Source: LSEG

Oil bulls are also keeping an eye on wildfires in Canada, which threaten supply as some producers have already reduced production. Analysts note that a significant amount of supply is at risk, which could be a concern for market participants.

This outlook aligns with recent comments from OPEC+ members, who indicated that a change in output is unlikely in the near future. However, OPEC faces challenges from member states, as a July Reuters survey revealed that they have exceeded agreed targets for a second consecutive month. This could pose a challenge for OPEC as it aims to keep oil prices stable at or above $80 per barrel.

In the medium term, I anticipate an increase in oil prices as the summer months in Europe and the US come to an end. A supply deficit is likely toward the end of Q3 and the beginning of Q4.

China Cuts Rates to Support Growth

The Chinese Government and the Peoples Bank of China (PBoC) announced its first major monetary policy move since February. PBOC Governor Pan Gongsheng announced at the Lujiazui forum that the 7-day reverse repo rate will gradually become the main policy rate, while other policy rates will “soften their role” over time. It remains to be seen if other policy rates, such as the MLF, will follow today’s rate cut in the coming weeks. If they do, it could indicate that the PBOC is signaling the 7-day reverse repo rate’s new status as the primary policy rate.

This is seen as a move to achieve the economic targets following lackluster data last week which raised concerns about Chinese growth in H2 2024. It will be interesting to gauge developments moving forward and whether this move will have the desired effect.

The Week Ahead

US data dominates the back-end of the week with PMI, GDP and of course PCE inflation releases. US Dollar strength or weakness is always a factor to consider when evaluating oil prices but unless the data leads to a significant shift in rate cut probability and timing, any moves are likely to be short-lived.

The EIA data will be released later today and of course the Baker Hughes US Oil Rig Count will be out on Friday. Geopolitics as always still remains a concern and any developments there need to be monitored.

Technical Analysis

Support

• 81.58
• 80.00
• 77.50

Resistance

• 83.00
• 84.72
• 85.30

Brent Crude Oil Daily Chart, July 17, 2024

Source: TradingView.com (click to enlarge)