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August's ZEW Economic Sentiment Index for Germany showed an unexpected improvement, moving from -14.7 to -12.3, beating forecasted -15. However, the Current Situation index took a hit, declining sharply from -59.5 to -71.3—its lowest since October 2022 and below the predicted -63.

Conversely, Eurozone's ZEW Economic Sentiment took an optimistic turn, rising from -12.2 to -5.5, surpassing expected -12. Current Situation Index in the Eurozone also advanced, marking a rise of 2.3 points to -42.0.

ZEW President Professor Achim Wambach commented on the mixed results, noting, "The ZEW Indicator of Economic Sentiment remains in negative territory" but added that there's an anticipated "slight uptick in the economic situation by year-end."

However, he cautioned against over-optimism due to Germany's worsening current economic assessment. Highlighting external influences, Wambach mentioned that the prevailing sentiment suggests no further "interest rate hikes in the eurozone and the United States." He also pointed out a "significant increase" in US economic outlook, which positively impacts Germany's prospects.

Full German ZEW release here.

On Tuesday morning data from the UK market were published:

→ base wage rose at a record pace in the second quarter. It was 7.8% higher than a year earlier, representing the highest annual growth rate since 2001.

→ at the same time, the number of unemployed also increased. In July, 29k applications for unemployment benefits were submitted (expected - 19.2).

The first reaction of the pound is growth. It is possible that market participants have increased fears that wage growth will give the Bank of England more grounds for a sharper increase in interest rates. At the same time, the bullish momentum faded quickly, in line with the bearish momentum that has dominated the GBP/USD market since mid-July (as shown by the black line) amid the formation of the SHS pattern.

However, the situation may change.

As the daily chart shows, the GBP/USD rate dropped to the border of the ascending channel, which is valid in 2023, and seems to have found support there — as a candle with a long lower shadow was formed yesterday. Buyers quickly snapped up the fall, showing strength of demand around the 1.266 support line, which is also being strengthened by the 100-day moving average.

The probability of a rate hike in September by the Bank of England by 0.25 points is 99%, according to Reuters. And the closer the decision is, the stronger the demand can become, which can lead to a bullish reversal from the block of supports and a breakdown of the black line.

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Despite notable fluctuations, the USD is close to its position at the beginning of 2023. HSBC economists are examining the US Dollar's future prospects based on its performance so far. Recent data indicates that a soft landing is the most probable outcome for the US and the global economy. This scenario suggests a shift towards a "risk-on" sentiment, potentially leading to a weaker USD by the end of 2023 and the early part of 2024, which aligns with their primary prediction. However, if the US experiences a challenging economic decline or outperforms other G10 economies, the USD could strengthen, although this would be quite improbable according to the data.

US Dollar - D1 Timeframe

The US Dollar has had quite an interesting few weeks, pushing higher despite an overall downtrend. As seen on the chart, the bullish move has reached a supply zone around the 88% of the Fibonacci retracement zone. Another notable factor here is the confluence of trendlines. See the complete list of confluences below:

• The trendline resistance;
• Bearish moving average array;
• Resistance from the 200-period moving average;
• The 88% of the Fibonacci retracement level.

Analyst’s Expectations:

• Direction: Bearish
• Target: 100.175
• Invalidation: 103.580

EURUSD - D1 Timeframe

EURUSD has reached a demand zone that overlaps with trendline support and could be well considered within the area of the 50 and 100-period moving averages. The demand zone can also be considered to have occurred within the range of the 88% of the Fibonacci retracement zone. These confluences point towards the likelihood of a bullish impulse.

Analyst’s Expectations:

• Direction: Bullish
• Target: 1.11655
• Invalidation: 1.08350

GBPUSD - D1 Timeframe

GBPUSD is in a demand zone and reacted initially to the zone, as evident from the wick of the previous daily candle. There is also trendline support cutting across the demand zone, and the 100-day moving average provides additional confluence to the bullish sentiment. The bullish array of the moving averages provides even more reason for the price to commence a bullish run from the highlighted demand area.

Analyst’s Expectations:

• Direction: Bullish
• Target: 1.28760
• Invalidation: 1.25872

CONCLUSION

The trading of CFDs comes at a risk. Thus, to succeed, you have to manage risks properly. To avoid costly mistakes while you look to trade these opportunities, be sure to do your due diligence and manage your risk appropriately.

Daily Pivots: (S1) 183.84; (P) 184.29; (R1) 185.12; More...

GBP/JPY's rally continues today and intraday bias stays on the upside. Current up trend should extend to 61.8% projection of 158.24 to 183.99 from 176.29 at 192.20. On the downside, below 183.44 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

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

Daily Pivots: (S1) 158.32; (P) 158.61; (R1) 159.03; More....

Intraday bias in EUR/JPY is back on the upside with breach of 159.20 temporary top. Current up trend should target 61.8% projection of 139.05 to 157.99 from 151.39 at 163.09 next. On the downside, below 158.17 minor support will turn bias neutral again and bring more consolidations.

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 now remain the favored case as long as 151.39 support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.8582; (P) 0.8607; (R1) 0.8622; More...

Range trading continues in EUR/GBP and intraday bias stays neutral. On the downside, below 0.8543 will target a test on 0.8502 low. Decisive break there will resume larger decline from 0.8977. On the upside firm break of 0.8717 resistance will suggest larger reversal and target 0.8874 resistance next.

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). Firm break of 0.8717 support turned resistance will argue that it has completed with three waves down to 0.8502. Further break of 0.8977 will bring retest of 0.9267 high. Nevertheless, rejection by 0.8717, followed by break of 0.8502 will resume the decline towards 0.8201 (2022 low).

Daily Pivots: (S1) 1.6762; (P) 1.6846; (R1) 1.6895; More...

Despite retreating, further rise is expected in EUR/AUD with 1.6708 support intact. Current rally is part of the up trend from 1.4281. Next target is 1.7377 projection level next. On the downside, break 1.6708 minor support will turn bias to the downside for deeper pull back.

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 another pull back.

Daily Pivots: (S1) 0.9565; (P) 0.9589; (R1) 0.9602; More...

EUR/CHF is still bounded in range trading and intraday bias stays neutral. On the upside, break of 0.9647 will resume the rebound from 0.9520. Further sustained break of 0.9670 will be the first sign of bullish reversal and target 0.9840 resistance for confirmation. On the downside, break of 0.9520 will resume the whole fall from 1.0095 towards 0.9407 low.

In the bigger picture, medium term outlook is staying bearish as the pair is capped well below falling 55 W EMA (now at 0.9849). 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 0.9840 resistance holds, in case of strong rebound.

China’s central bank hijacked the headlines on Tuesday morning after unexpectedly reducing a key rate by the most since 2020 to shore up its weak economy. However, Asian markets displayed a mixed reaction with sentiment whacked by a barrage of disappointing China data published after the rate decision.

European futures are pointing to a positive open ahead of the German August ZEW survey. In the currency space, the yuan slipped to its weakened level since November while the British Pound received a boost after reports showed wages grew at a record pace in the second quarter of 2023. Looking at commodities, gold is wobbling above the $1900 support level while oil prices remain vulnerable as China growth fears hit the demand outlook.

USD and retail sales in focus

As we move deeper into the second half of 2023, dollar weakness could become a major theme if the Fed signals that it has truly concluded its rate hiking cycle.

Despite US inflation edging up in July after 12 straight months of decline, the core figures were encouraging and signal that the Fed’s aggressive hikes are starting to tame the inflation beast. Should price pressures continue to ease and US economic data show signs of weakness, this may eliminate the odds of another hike, especially when factoring in the Fed's current data dependence stance.

All eyes will be on the US retail sales figures later today which could add another piece to the puzzle that determines whether the Fed hikes one more time in 2023 or not. On Wednesday, the Fed minutes might also offer key clues on the central bank’s next policy move. Traders are currently pricing in only an 11% probability of a 25-basis point hike at September’s FOMC meeting, with this rising to 40% by November, according to Fed funds futures. The dollar is likely to weaken if the data is softer or the minutes strike a dovish tone. Any hint from the hawks or signals of more hikes down the road could boost the dollar.

GBPUSD has been on the retreat for one month now, trading below a short-term downtrend line and its 50-day moving average (MA). But in the bigger picture, the pair is still in an uptrend that started back in September.

This misalignment puts extra emphasis on the 1.2610 region. If sellers pierce below this area, it would mark a lower low on the daily chart, sending a strong signal that the longer-term uptrend has started to break down.

Momentum oscillators like the RSI and the MACD are flashing bearish signals, but not excessively so. They are simply reflecting the latest slide in the market, providing little insight about what comes next.

If sellers remain in control and manage to slice below 1.2610, the pair could then seek support near the 1.2400 territory, which has acted both as support and resistance this year. If that’s violated too, a bigger battle might ensue near the May low at 1.2310.

Now if buyers come back into action, their first test will be getting through the busy 1.2820 area, which roughly encompasses the 50-day MA and the short-term downtrend line too. A break higher would suggest that the recent pullback was merely a correction within a broader uptrend, unlocking the door towards the 1.3000 hurdle.

In short, GBPUSD seems bearish in the short-term but bullish in longer-term timeframes. A break either below 1.2610 or above 1.2820 would reveal which side has the upper hand.