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Markets

The dollar caught all market attention yesterday. Surging against everything and everyone, the trade-weighted index closed beyond the 104.7 resistance (May high). EUR/USD (1.0722) lost the upward trading range and the next (intermediate) support at 1.0735 also succumbed. USD/JPY (147.72) finished at the highest level since November last year, bringing the October 2022/multi-decade high of 150+ ever closer again. It triggered the strongest warning from Japan’s top currency official, Masato Kanda, this morning. He said speculative moves are being seen in the market and if they continue, the government will deal with them. Last year, the government intervened several times after USD/JPY hit 145 and 150 thereafter. US yields leg higher on their first trading day of the week supported the dollar’s move. Changes varied between 7 and 9 bps across the curve with the real yield component responsible for about half of the gains. Whether or not the Fed skips a hike at the September meeting, from the recent batch of economic data it is becoming ever more clear that rates will need to stay at elevated levels for quite some time. Markets are coming to terms with that. German yields rose 2.2-5.5 bps. Equities felt some pressure from rising (real) yields. WS closed with minor losses up to 0.56% (DJI). Oil prices surged to (above) $90/b (Brent) after the Saudis and Russia extended their voluntary production cuts through end this year (see below).

Japan’s verbal intervention offers the yen some respite but it’s unconvincing. USD/JPY loses a few ticks to 147.34. The US dollar in general is trading marginally softer after yesterday’s impressive run. EUR/USD consolidates around the 1.0735 support/resistance zone. USD/CNY is less than an inch away from the multi-year highs seen intraday in November 2022. Another record strengthening bias in this morning’s fixing failed to do anything for the yuan. Equities in the Asian-Pacific region trade mixed with Japan marginally outperforming. US yields lose a few bps.

Bank of England governor Bailey appears before parliament today. We’ll be looking closely to what he has to say about monetary policy going forward. Headline CPI has eased sharply in recent months but core inflation remains sticky. EUR/GBP has been trapped between a 0.85/0.87 sideways trading range since June with the pair currently nearing the lower bound again. Other features on the eco calendar are the Fed’s Beige Book and the US services ISM. Consensus expects more or less a stabilization at 52.5. That would underscore the ongoing US eco resilience, offering a floor below US yields as well as the dollar in a daily perspective. For another leap higher, in particular US yields above the current cycle highs, we might need green light from next week’s August CPI.

News and views

According to data published by the Australian Bureau of Statistics this morning, Australian GDP rose 0.4% in the April-June quarter. Activity was 2.1% higher compared to the same quarter last year. The economy grew 3.4% over 2022-23. Q1 activity was upwardly revised from 0.2% Q/Q to 0.4% Q/Q. Growth was mainly driven by investment and exports. Consumption growth rose a modest 0.1% Q/Q with a limited 0.1% contribution to growth. Household saving to income fell for the seventh consecutive quarter to 3.2 per cent. Government expenditure rose 0.4%. Net trade contributed 0.8 ppts, with a rise in exports (+4.3%) partly offset by a smaller increase in imports (+0.7%). Total public investment increased 8.2%. New private investment increased 1.6%. Dwelling investment fell 0.2% as increased activity in the construction of apartments and townhouses was offset by a continued decline in demand for renovations. Changes in inventories was the predominant detractor from GDP growth. Yesterday, the Reserve Bank of Australia left its policy rate unchanged as it assess the decline in inflation. The Aussie dollar stabilizes close to recent low at near AUD/USD 0.638.

Brent oil this morning is trading near the $90 p/b mark as Saudi Arabia and Russian extended established production cuts not only on a monthly basis but towards the end of the year. Saudi Arabia since July additionally removed 1 mln barrels a day from the oil market. Russian recently applied a 300k bpd export cut. The move risks reigniting global inflationary pressures. Brent oil has rebounded from levels near $70 p/b in spring this year and is again nearing price levels recorded about a year ago potentially halting the downward contribution from a lower oil price to (headline) inflation.

Daily Pivots: (S1) 184.54; (P) 185.16; (R1) 186.25; More...

Intraday bias in GBP/JPY stays neutral for the moment as sideway trading continues. On the upside, above 186.04 will argue that larger up trend is ready to resume through 186.75. On the downside, however, break of 183.51 will bring deeper correction to 55 D EMA (now at 182.11).

In the bigger picture, up trend from 123.94 (2020 low) is in progress. Next target is 195.86 (2015 high). This will remain the favored case as long as 176.29 support holds, even in case of deeper pull back.

Daily Pivots: (S1) 157.96; (P) 158.23; (R1) 158.66; More....

Intraday bias in EUR/JPY remains neutral as sideway trading continues. On the downside, break of 156.85 will turn bias back to the downside for 55 D EMA (now at 156.42) and below. On the upside, break of 159.75 will resume larger up trend instead.

In the bigger picture, rise from 114.42 (2020 low) is in progress. Next target is 100% projection of 124.37 to 148.38 from 139.05 at 163.06. Sustained break there will pave the way to retest long term resistance at 169.96. This will remain the favored case as long as 151.39 support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.8512; (P) 0.8545; (R1) 0.8565; More...

Intraday bias in EUR/GBP stays mildly on the downside at this point. Deeper fall would be seen to retest 0.8491 low. Firm break there will resume larger down trend. On the upside, above 0.8609 resistance will bring another rebound. But in any case, outlook will stay bearish as long as 0.8667 resistance holds.

In the bigger picture, the down trend from 0.9267 (2022 high) is seen as part of the long term range pattern from 0.9499 (2020 high). Further decline is in favor as long as 0.8667 resistance holds. Break of 0.8491 will resume the fall towards 0.8201 (2022 low).

Daily Pivots: (S1) 1.6704; (P) 1.6799; (R1) 1.6906; More...

Intraday bias in EUR/AUD stays neutral first, with focus on 1.6887 resistance. Firm break there should confirm that correction from 1.7062 has completed at 1.6647. Further rally should be seen through 1.7062 to 1.7377 projection level. On the downside, break of 1.6647 will extend the correction lower instead.

In the bigger picture, the rise from 1.4281 (2022 low) is in progress. Next target is 100% projection of 1.5254 to 1.6785 from 1.5846 at 1.7377. For now, outlook will stay bullish as long as 1.5846 support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.9521; (P) 0.9537; (R1) 0.9552; More...

Intraday bias in EUR/CHF remains neutral as range trading continues above 0.9513. With 0.9601 resistance intact, larger down trend is still in favor to continue. On the downside, break of 0.9513 support will confirm this bearish case and target 0.9407 low. Nevertheless, break of 0.9601 resistance will turn bias back to the upside for stronger rebound to 0.9646 resistance and above.

In the bigger picture, medium term outlook is staying bearish as the pair is capped well below falling 55 W EMA (now at 0.9839). Down trend from 1.2004 (2018 high) is in favor to continue. Sustained break of 0.9407 will target 61.8% projection of 1.1149 to 0.9407 from 1.0095 at 0.9018. For now, this will remain the favored case as long as 0.9670 support turned resistance holds, in case of strong rebound.

• USD/JPY has risen the most among the majors in the past month.
• The current swift up move of USD/JPY has prompted FX verbal intervention today from Japan’s Ministry of Finance.
• The current tonality of verbal intervention is the strongest since mid-August 2023 that occurred when the current upward trajectory of USD/JPY is fast approaching a key medium-term resistance zone of 148.40/148.85.
• Short-term upside momentum has started to wane.

The USD/JPY has indeed staged the expected up-move in the past two weeks and surpassed the 147.20/147.50 resistance highlighted in our previous report as it printed an intraday high of 147.80 during yesterday’s US session, 5 September.

USD/JPY is the top performer among the majors in the past month

The recent movement seen in the USD/JPY has been fast and furious since last Friday, 1 September ex-post US non-farm payrolls data release. Based on the one-month rolling performances of the major currencies as of today, 6 September (at this time of the writing), the US dollar has strengthened the most against the JPY (+4%), a relatively stark USD/JPY outperformance versus other major pairs such as the USD/EUR (+2.6%), USD/CHF (+1.8%), and USD/GBP (+1.4%).

Fig 1:  Rolling one-month FX majors’ performances against the USD as of 6 September 2023 (Source: TradingView, click to enlarge chart)

This recent bout of short-term shift rally seen in the USD/JPY has prompted Japan’s Ministry of Finance to issue a verbal warning to FX speculators this morning (Asian session) to negate the current bout of JPY weakness.

Vice Finance Minister Masato Kanda, the Japanese official in charge of foreign exchange matters said that authorities “will not rule out any options on currencies if speculative moves persist” and added “it is important for currency moves to reflect fundamentals”, a possible hint that the current level of USD/JPY does not reflect the latest set of Japanese inflation data where inflationary pressures in Japan have remained elevated excluding fresh food and energy components.

Interestingly, this latest tone of FX verbal intervention from Japan’s Ministry of Finance is the strongest warning since mid-August 2023 after the USD/JPY sailed past the psychological levels of 145 and 146.

From a technical analysis perspective, today’s verbal intervention materialized while the current impulsive up-move sequence in the USD/JPY has been fast approaching the key medium-term resistance zone of 148.40/148.85 (see daily chart below). Therefore, it reinforces the significance of the 148.20/148.85 zone on the USD/JPY.

148.40/148.85 key medium-term resistance to watch on USD/JPY

Fig 2:  USD/JPY medium-term trend as of 6 Sep 2023 (Source: TradingView, click to enlarge chart)

Short-term downside momentum has started to ease below 147.90

Fig 3:  USD/JPY minor short-term trend as of 6 Sep 2023 (Source: TradingView, click to enlarge chart)

Meanwhile, the hourly RSI indicator, a gauge of momentum has flashed a bearish divergence condition at its overbought zone yesterday and started to inch lower (below 70) in today’s Asian session.

These observations have suggested the short-term upside momentum of the recent up move from last Friday, 1 September low of 144.44 has waned and the USD/JPY now faces the risk of a minor pull-back on an intraday basis.

A breakdown below 147.20 may trigger the minor pull-back scenario to expose the intermediate support zone of 146.30/145.70 (also the 20-day moving average).

On the flip side, a clearance above 147.90 is likely to resume the impulsive up-move sequence to see the key medium-term resistance zone coming in at 148.40/148.45.

Daily Pivots: (S1) 1.3597; (P) 1.3634; (R1) 1.3679; More....

Break of 1.3638 suggests that USD/CAD's rally is resuming and intraday bias is back on the upside. Sustained break of 1.3653 should confirm that correction from 1.3976 has completed, and target a test on this high. For now, risk will stay on the upside as long as 1.3488 support holds, in case of retreat.

In the bigger picture, price actions from 1.3976 are viewed as a corrective pattern only. Upon completion, rise from 1.2005 (2021 low) would resume through 1.3976. Next target is 61.8% projection of 1.2005 to 1.3976 from 1.3091 at 1.4309. For now, this will remain the favored case as long as 55 D EMA (now at 1.3436) holds.

Daily Pivots: (S1) 0.6335; (P) 0.6401; (R1) 0.6443; More...

Breach of 0.6363 support suggests resumption of fall from 0.6894. Intraday bias is back on the downside. Current decline from 0.7156 should target 100% projection of 0.7156 to 0.6457 from 0.6894 at 0.6195. On the upside, break of 0.6520 resistance is needed to indicate short term bottoming. Otherwise, risk will stay on the downside in case of recovery.

In the bigger picture, current development argues that the down trend from 0.8006 (2021 high) is still in progress. Decisive break of 0.6169 will target 61.8% projection of 0.8006 to 0.6169 to 0.7156 at 0.6021. This will now remain the favored case as long as 0.6894, in case of strong rebound.

Daily Pivots: (S1) 1.0685; (P) 1.0744; (R1) 1.0781; More...

Intraday bias in EUR/USD remains on the downside for the moment. Fall from 1.1274 is in progress for 1.0609/34 cluster support next. On the upside, above 1.0808 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 1.0944 resistance holds, in case of recovery.

In the bigger picture, fall from 1.1274 medium term top is seen as a correction to up trend from 0.9534 (2022 low). Deeper decline would be seen to 1.0634 cluster support (38.2% retracement of 0.9534 to 1.1274 at 1.0609). Strong support could be seen there, at least on first attempt, to bring rebound. Yet, medium term outlook will be neutral for now, as long as 1.1274 resistance holds. However, sustained break of 1.0609/34 will raise the chance of bearish trend reversal, and target 61.8% retracement at 1.0199.