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The dollar index is holding near new five-week high in early Monday and keeping firm tone, following four consecutive weeks of gains (the index was up over 3% since mid-July).

Last week’s US inflation data showed fresh increase in consumer prices (July 3.2% y/y vs June 3.0%) although core inflation ticked down (July 4.7% y/y vs June 4.8%) which keeps positive sentiment over expectations for Fed’s next steps.

Markets shift focus on the minutes of FOMC July policy meeting (due to be released on Wednesday), with prevailing expectations that the US policymakers will keep hawkish stance.

Technical picture on daily chart is bullish (strong positive sentiment / MA’s in bullish configuration), with additional positive signals from last Friday’s close above pivotal Fibo barrier at 102.53 (61.8% of 104.59/99.20) and today’s probe above thin daily Ichimoku cloud, which keeps prospects for further gains and test of next key obstacles at 103.14 (falling 200DMA) and 103.21/25 (June 30/July 7 former double top) as well as 103.32 (Fibo 76.4%).

Firm break of these barriers would add to reversal signals and open way for further retracement of larger Sep/July downtrend (114.72/99.20).

Meanwhile, overbought conditions suggest that bulls may take a breather for a shallow consolidation, which should be ideally contained by broken Fibo 61.8% resistance (102.53), with deeper dips not to exceed rising 10DMA (102.29) to keep bulls intact.

Res: 102.86; 103.14; 103.25; 103.32.
Sup: 102.53; 102.29; 102.05; 101.90.

• USD/JPY’s two weeks rally ex-post BoJ’s flexible YCC implementation has almost reached a key resistance zone of 145.50/146.10.
• Rising of concerns about another bout of verbal FX interventions from Ministry of Finance officials to talk down the USD/JPY at around the 145.00 psychological level.
• Short-term momentum has turned bearish, risk of downside mean reversion towards the 20-day moving average now acting as support at 141.85.

The ex-post effect of Bank of Japan (BoJ)’s flexible 10-year Japanese Government Bond (JGB) Yield Curve Control (YCC) announcement on the 28 July monetary policy meeting has led to a 716 pips rally (+5.2%) seen in the USD/JPY from its 28 July low of 138.55 to today, 14 August Asian session intraday high of 145.22.

Interestingly, the current intraday high of 145.22 coincided with a recent medium-term swing high of 145.07 printed on 30 June 2023 that witnessed drummed-up verbal FX intervention from Japan’s Ministry of Finance (MoF) officials to smooth out JPY weakness at the 145.00 psychology level of USD/JPY in the past.

No signs of verbal intervention so far from MoF officials, but current intraday price actions seen in today’s Asian session have suggested that such fears are rising in the marketplace, USD/JPY has attempted to push higher at the start of today’s Japan session with an intraday high print of 145.22 but bulls were not able to maintain their posture and drifted lower to 144.86, and record a current intraday loss of -0.08% at this time of the writing.

145.50/146.10 resistance is a key area of confluence

Fig 1:  USD/JPY medium-term trend as of 14 Aug 2023 (Source: TradingView, click to enlarge chart)

Today’s Asian session push-up in price actions has led the USD/JPY to retest the upper boundary of the medium-term ascending channel in place since the 16 January 2023 low of 127.22, the former swing low areas of 24 October/2 November 2022, and the 76.4% Fibonacci retracement of the prior medium-term downtrend phase from 21 October 2022 high to 16 January 2023 low which confluences at the 145.50/141.10 resistance zone.

Short-term momentum has turned bearish

Fig 2:  USD/JPY minor short-term trend as of 14 Aug 2023 (Source: TradingView, click to enlarge chart)

The hourly RSI oscillator has started to stage a breakdown below its parallel ascending support at the 54 level after a prior bearish divergence condition was flashed out last Friday, 11 August.

Watch the 145.50 key short-term pivotal resistance and a break below the intermediate support of 143.70 exposes the next support at 141.85 (also the 20-day moving average).

On the other hand, a clearance above 145.50 sees 146.10 next, and a break above it may propel it higher toward the next resistance at 147.20 (Fibonacci extension cluster).

Daily Pivots: (S1) 1.0926; (P) 1.0965; (R1) 1.0988; More...

Intraday bias in EUR/USD stays neutral for the moment. On the downside, break of 1.0911 will resume the fall from 1.1274 to 1.0832 support. Sustained trading below there will target 1.0609/34 cluster support. However, firm break of 1.1064 minor resistance will argue that pull back from 1.1274 has completed, and bring stronger rebound.

In the bigger picture, a medium term top could be formed at 1.1274, after failing to break through 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 decisively, on bearish divergence condition in D MACD. Sustained trading below 55 D EMA (now at 1.0966) will bring deeper correction 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 set the range for consolidation.

Daily Pivots: (S1) 1.2660; (P) 1.2700; (R1) 1.2733; More...

Intraday bias in GBP/USD stays neutral for the moment. On the downside, below 1.2618, and sustained trading below 1.2678 resistance turned support will argue that it's already in a larger correction. Deeper decline would then be seen to 1.2306 support next. Nevertheless, firm break of 1.2817 minor resistance will indicate that the pull back has completed, and turn bias back to the upside for stronger rebound.

In the bigger picture, a medium term top could be in place at 1.3141 already, on bearish divergence condition in D MACD. Sustained trading below 55 D EMA (now at 1.2725) should confirm this case, and bring deeper fall to 38.2% retracement of 1.0351 to 1.3141 at 1.2075, as a correction to up trend from 1.0351 (2022 low). For now, rise will stay mildly on the downside as long as 1.3141 resistance holds, in case of strong rebound.

Daily Pivots: (S1) 0.8740; (P) 0.8760; (R1) 0.8785; More....

Intraday bias in USD/CHF remains neutral for the moment, as range trading continues. On the upside, decisive break of 0.8818 support turned resistance will carry larger bullish implication, and target 0.9146 cluster resistance next. Nevertheless, break of 0.8863 support will retain bearishness and resume larger down trend through 0.8851 low.

In the bigger picture, down trend from 1.0146 is seen as in progress as long as 0.8188 support turned resistance holds. Next target is 61.8% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.8317. However, sustained break of 0.8818 should indicate medium term bottoming, and bring stronger rise back to 0.9146 cluster resistance (38.2% retracement of 1.0146 to 0.8551 at 0.9160), even as a correction.

Daily Pivots: (S1) 144.59; (P) 144.79; (R1) 145.17; More...

Intraday bias in USD/JPY stays on the upside for the moment. Sustained trading above 145.06 will confirm resumption of whole rally from 127.20. Next target is 61.8% projection of 129.62 to 145.06 from 137.22 at 146.76. On the downside, however, below 143.27 minor support will delay the bullish case and turn intraday bias neutral again.

In the bigger picture, overall price actions from 151.93 (2022 high) are views as a corrective pattern. Rise from 127.20 is seen as the second leg of the pattern and could still be in progress. But even in case of extended rise, strong resistance should be seen from 151.93 to limit upside. Meanwhile, break of 137.22 support should confirm the start of the third leg to 127.20 (2023 low) and below.

Daily Pivots: (S1) 1.3417; (P) 1.3441; (R1) 1.3470; More....

Intraday bias in USD/CAD remains neutral and further rally is expected with 1.3318 support intact. Corrective fall from 1.3976 should have completed with three waves down to 1.3091. Above 1.3501 will resume the rebound from 1.3091 to 1.3653 resistance next. Break there will further confirm this case and target 1.3976 high.

In the bigger picture, price actions from 1.3976 are viewed as a corrective fall only. Upon completion, rise from 1.2005 (2021 low) would resume through 1.3976 towards 1.4667/89 long term resistance zone. In case of another fall, downside should be contained by 61.8% retracement of 1.2005 to 1.3976 at 1.2758.

Daily Pivots: (S1) 0.6476; (P) 0.6505; (R1) 0.6524; More...

Intraday bias in AUD/USD stays on the downside at this point. Decisive break of 0.6457 support will confirm resumption of whole fall from 0.7156. Next target is 100% projection of 0.7156 to 0.6457 from 0.6894 at 0.6195. Nevertheless, firm break of 0.6615 minor resistance will dampen this view, and turn bias back to the upside for stronger rebound.

In the bigger picture, the down trend from 0.8006 (2021 high) could still be in progress. Break of 0.6457 will affirm this bearish case. Further 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.

Australian and New Zealand Dollars faced broad-based pressures in today's Asian session, as markets are gripped by risk-off mood. Hong Kong HSI is witnessing the most significant downturn, in the wake of the beleaguered Chinese property developer, Country Garden, halting trading on at least ten of its mainland bonds. This move has ignited broader decline in property-related stocks. Kiwi faces added burdens, stemming from lackluster services data signaling an intensified contraction in activity. Meanwhile, both Yen and Dollar have risen amid heightened risk aversion, though the former appears to be marginally in the lead. European majors present a mixed picture at the moment.

Despite today's potential trading lull, due to a barren economic calendar in Europe and North America, the markets are bracing themselves for a whirlwind of significant events. Come tomorrow's Asian session, all eyes will be on Japan's GDP, minutes from RBA meeting, and a suite of Chinese economic indicators including industrial production, retail sales, and the unemployment rate. Hence, beware that some traders are jumping the gun to prepare for tomorrow.

This week also casts a spotlight on Sterling, with UK's employment statistics, inflation data, and retail sales figures due for release. On the technical front, GBP/CHF is still battling to uphold 1.1024 support level, which has kept it within the medium-term range stemming from 1.1574. Risk is tilted to the downside as 1.1232 resistance remains intact. Firm break of 1.1024, spurred either by adverse UK data or a shift towards Franc as a safe haven, would send the cross lower to 61.8% retracement of 1.0183 to 1.1574 at 1.0714.

In Asia, Nikkei closed down -1.27%. Hong Kong HSI is down -2.06%. China Shanghai SSE is down -0.33%. Singapore Strait Times is down -1.66%. Japan 10-year yield is up 0.0193 at 0.608, back above 0.6%.

NZ BNZ services plunges down to 47.8, deepening contraction as activity dives

New Zealand's service sector, as gauged by the BusinessNZ Performance of Services Index, experienced a marked decline in July, descending from 49.6 to a worrying 47.8. This latest reading is not only the lowest since January 2022 but also trails the long-term average of 53.5 significantly.

A detailed analysis of the index highlights concerning trends. The activity component has sharply dropped from 50.9 to 39.6, marking its worst performance since August 2021 and setting a gloomy record. Specifically, this month's reading stands as the worst non-lockdown related reading on record since 2007. New orders within businesses have taken a substantial hit, plummeting from 50.4 to 43.8.

Meanwhile, employment showed a marginal decrease, moving from 49.1 to 49.0. On a brighter note, stocks or inventories observed an increase, jumping from 47.2 to 54.0, with supplier deliveries also ticking up from 51.0 to 52.1.

BusinessNZ's Chief Executive, Kirk Hope, said. "The further fall into contraction during July also saw another lift in the proportion of negative comments," he remarked, drawing attention to the sharp increase in negative feedback, which escalated to 67% from 55.6% in June and 49.4% in May.

Hope continued, "Overall, negative comments received were strongly dominated by a general downturn in the economic conditions/slowing economy, as well as ongoing increased costs."

BNZ Senior Economist, Doug Steel, weighed in on the data, highlighting a distressing pattern. "The results all point to a sharp drop in demand in July, significantly accelerating the slowing trend that had been evident for many months," he said.

NZD/USD under siege on domestic data and Asian market risks

NZD/USD is having a notable decline today, pressured by dismal services data from New Zealand and an escalating sense of risk aversion throughout Asian markets. This downtrend also sets a tense backdrop leading up to this week's RBNZ rate decision, with the central bank widely anticipated to hold for the second consecutive month.

Last week's break of 0.5984 support should confirm resumption of whole decline from 0.6537. Near term outlook in NZD/USD will stay bearish as long as 0.6117 resistance holds. Next target is 100% projection of 0.6537 to 0.5894 from 0.6410 at 0.5857.

For now, the structure of the decline from 0.6537 is still favoring that it's a correction to rebound from 0.5511. Hence, strong support should emerge below 0.5857 to bring reversal. However, any downside acceleration below 0.5857 would raise the chance that it's indeed resuming the larger down trend through 0.5511.

A busy week with RBNZ decision, RBA and Fed minutes, lots of data

In a week set to be bustling with significant economic updates, market watchers are paying attention to pivotal decisions and minutes from leading central banks, as well as a string of important data.

RBNZ is widely anticipated to maintain its OCR at 5.50% in its upcoming gathering, marking a second consecutive pause. While Q2 inflation rate of 6% came in below the bank's own forecasts, the sudden rise in inflation expectations, as indicated in RBNZ's latest survey, has raised eyebrows. The robust job market, although slightly marred by a marginal increase in unemployment rate, keeps the speculation rife. Market whispers suggest a coin toss probability for another rate hike this year, but this balance hangs precariously, susceptible to shifts based on any unforeseen projection revelations.

Also Down under, RBA's August minutes are expected to echo the familiar tune of contentment with the prevailing monetary policy. The bank exudes confidence in maneuvering the challenging course towards a low inflation environment, ensuring minimal adverse impacts on the economy.

Meanwhile, the Federal Reserve's July meeting minutes are drawing significant attention. The overarching sentiment leans towards Fed maintaining its current stance in the upcoming September meeting. But the waters are murky beyond that, with evident divisions among Fed officials. Investors and analysts alike will dissect the minutes, seeking clues on potential tightening debates. However, clear directives might be elusive, reinforcing the bank's data-dependent strategy.

Furthermore, an array of economic data from around the globe will punctuate the week. Notable releases include US retail sales, Germany's ZEW, UK's employment and CPI figures, Japan's GDP and CPI, Canada's CPI, Australia's employment metrics, and a suite of Chinese economic indicators. Undoubtedly, traders and investors will be kept on their toes, with potential market-moving news popping up daily.

Here are some highlights for the week:

• Monday: NZ BusinessNZ services index; Germany WPI.
• Tuesday: Japan GDP; RBA minutes, wage price index; China industrial production, retail sales, fixed asset investment; UK employment; Swiss PPI; Germany ZEW economic sentiment; Canada CPI, manufacturing sales; US retail sales, Empire State manufacturing index, import prices, business inventories, NAHB housing index.
• Wednesday: RBNZ rate decision; UK CPI, PPI; Eurozone GDP revision, industrial production; Canada housing starts, wholesales sales; US housing starts and building permits, industrial production; FOMC minutes.
• Thursday: New Zealand PPI; Japan trade balance, machine orders, tertiary industry index; Australia employment; Eurozone trade balance; US jobless claims, Philly Fed index.
• Wednesday: Japan CPI; UK Gfk consumer confidence, retail sales; Eurozone CPI final; Canada IPPI and RMPI.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6476; (P) 0.6505; (R1) 0.6524; More...

Intraday bias in AUD/USD stays on the downside at this point. Decisive break of 0.6457 support will confirm resumption of whole fall from 0.7156. Next target is 100% projection of 0.7156 to 0.6457 from 0.6894 at 0.6195. Nevertheless, firm break of 0.6615 minor resistance will dampen this view, and turn bias back to the upside for stronger rebound.

In the bigger picture, the down trend from 0.8006 (2021 high) could still be in progress. Break of 0.6457 will affirm this bearish case. Further 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.

Economic Indicators Update

The week starts on a bad mood as the Chinese property worries escalate with Country Garden suspending almost a dozen of onshore bonds starting from today. Plus, Zhongzhi Enterprise Group, which has around 1 trillion yuan under management failed on its payments linked to products issued by its companies last Friday, further fueling the stress among investors. The CSI index gap opened below the 50-DMA this morning while the Hang Seng index lost nearly 2.50%. Investors are also concerned that the economic data due to be released this week in China would further dampen sentiment.

American crude is under pressure around $85.50 at the time of talking, the MACD indicator just turned bearish hinting that we could see some more downside correction in case of weak news this week, and more bears could join to test the $80pb level to the downside. Likewise, copper futures, which serve as a gauge of global economic health continues its deep dive. Since the start of the month, they have been down by more than 8%.

Some easing in energy and metal prices could be a good thing, as Friday’s producer price index in the US came in stronger than expected, both for the headline and the core metrics. The PPI accelerated 0.8% in July, slightly faster than 0.7% expected by analysts, while the core PPI remained flat at 2.4%, instead of a tick lower to 2.3% as expected by analysts. The stronger-than-expected set of producer price data sent the US 2-year yield above the 4.90% and the dollar index above the March to now down-trending channel top, and back into a long-term ascending trend. The EURUSD slipped below its 50-DMA on the back of a stronger US dollar and is testing the 100-DMA, at 1.0930, to the downside, while the USDJPY is about to test the 145 mark. But a potential break of the 145 resistance isn’t very exciting for the yen bears as these are the levels that the Bank of Japan (BoJ) is inclined to intervene to cool down the selling pressure on the yen. In New Zealand, the kiwi slipped below the 60 cents level in the run up to the latest Reserve Bank of New Zealand (RBNZ) decision due Wednesday. The RBNZ is expected to keep the rates unchanged at 5.5%.

For the UK, the news was, for once, better than expected, as Friday’s GDP data surprised to the upside with a 0.2% growth in Q2. Output in July rose more than double the analyst expectations thanks to a sunny July and Prince Charles coronation, and Cable rose on Friday on expectation that the encouraging figures would fuel inflation and wages, and lead to further rate hikes from the BoE – which expects a more meaningful expansion this quarter. Though, British economy is the worst performer among G7 since last quarter of 2019, and the deepening housing crisis – with now news of a rise in tax proceeds from property disposals and which is expected to lead to a further selloff by landlords, puts the British growth in jeopardy. Sterling is under pressure this morning against the broadly-stronger USD and the short—term trend remains comfortably negative with a possibility of a slump to and the 100-DMA, which stands near the 1.26 mark, especially if this week’s inflation data points to a further easing in British inflation.

In precious metals, gold remains under the pressure of rising yields and a stronger US dollar across the board. Support is seen before the $1900 per ounce, where stands the 200-DMA, but we can’t rule out the possibility of a further strength in the US dollar this week, hence a slide for gold below the 200-DMA and the $1900 psychological mark.

This week

Investors’ focus will shift to US retail sales and earnings from US big retailers, including Walmart, Target and Home Depot. Overall, retail sales in July may show a slight acceleration, but goods prices are not what puts the biggest pressure on inflation, shelter is. Shelter was indeed responsible for 90% of the CPI’s monthly gain last month. So yes, stronger-than-expected retail sales could fuel the idea that the US economy will fall on its four feet and avoid recession amid the Federal Reserve’s (Fed) aggressive tightening cycle, but it won’t necessarily impact inflation expectations. But anyway, strong sales data and encouraging earnings could halt bleeding in US stocks, where both the S&P500 and Nasdaq posted their second straight weekly decline last week.