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US Yields Keep Rising Given Speculation of More Hawkish Federal Reserve
Market movers today
The week kicks off in a quiet fashion as many Europeans are still on summer holiday.
Later this week, tomorrow brings German ZEW index and US retail sales.
On Wednesday, we expect the RBNZ to keep rates unchanged. FOMC minutes are released on the same evening. On Thursday, we have Norges Bank where we expect a 25bp hike in line with consensus. Overall, due to holiday period, very few central bank speeches are scheduled.
Friday brings July final HICP print for euro area with detailed data on components.
The 60 second overview
10Y US Treasury yields moved higher on Friday on the back of higher than expected producer prices. Given the hawkish comments from some of the Federal Reserve members the markets will read the minutes from the FOMC meeting extra carefully when it is released on Wednesday.
There are plenty of speculation in the market when the Federal Reserve will begin to ease monetary policy and whether they will keep policy rates higher for longer. Currently, the market is pricing an unchanged Federal Reserve for the rest of 2023 and rate cuts already in late Q1 and Q2 for a total of 125bp in 2024.
The hot weather is adding pressure on the oil price and thus on inflation. This is seen in e.g. both 5y5y US and EUR inflation swaps, which are drifting higher.
The big events in the Nordic market this week is the Swedish inflation data on Tuesday and the Norges Bank meeting on Thursday. Swedish inflation is expected to decline as CPIF is expected to decline from 0.9% m/m in June to 0% m/m in July according to the consensus forecast. Norges Bank is expected to raise rates by 25bp. This is fully priced by the market and the risk is if they do 50bp, but we expect they will only do 25bp.
There are some speculation regarding intervention in the JPY as the JPY is testing the 145-level versus the dollar. Some market participants are looking for an intervention in the 145-150-level.
Equities: Global equities lower Friday with several indices seeing another weekly decline. The most interesting part was the US session where we saw a preference for defensives but also a stagflationary rotation where banks were in favour together with defensives as yields ticked higher. US PPI data blamed weak risk sentiment, but may be more a reflection of investors having too high hopes on the soft-landing scenario. In US on Friday, Dow +0.3%, S&P 500 -0.1%, Nasdaq -0.7% and Russell 2000 +0.1%. Negative sentiment in Asia this morning dragged down by China and new worries in the property sector. US and European futures down 0.2%-0.3% this morning.
FI: 10Y US Treasury yields moved higher Friday on the back of higher than expected producer prices. Given the hawkish comments from some of the Federal Reserve members the markets will read the minutes from the FOMC meeting extra carefully when it is released on Wednesday.
FX: Scandies dropped along with NZD and AUD on Friday, where the USD came out on top together with GBP. In particular, EUR/SEK is under the rise again and now close to the historic high form early July. EUR/USD trades in the 1.09-1.10 range.
Credit: iTraxx Main traded slightly wider during Friday and closed 1bp wider at 71.6bp, while Xover moved out 7.2bp during the session to close at 402.7bp. The week was characterized by basically unchanged CDS levels and relatively muted activity in the primary market, sentiment remains constructive in credit space and investor appetite for new deals continue to look solid
Technical Outlook and Review
DXY:
The DXY chart is currently exhibiting a bullish momentum driven by the price breaking above a descending resistance line, indicating a potential upward trend.
With this bullish sentiment, there is a possibility that the price could continue its upward movement towards the 1st resistance level at 103.58.
The significance of the 1st support level at 102.09 lies in its identification as an overlap support, while the 2nd support at 100.82 is reinforced by being a swing low support.
On the other hand, the 1st resistance level at 103.58 is noteworthy as an overlap resistance, and a 2nd resistance at 105.90 is identified as a swing high resistance, adding to its potential as a resistance level.
EUR/USD:
The EUR/USD chart currently exhibits a bearish momentum, indicating a predominant downward trend.
This bearish sentiment is driven by the price breaking below an ascending support line, suggesting the possibility of a further downward movement.
The potential scenario involves the price continuing its bearish trend towards the 1st support level at 1.0785.
The significance of the 1st support level at 1.0785 is due to its function as a pullback support, while the 2nd support at 1.0635 is further supported as a swing low support.
On the other hand, the 1st resistance level at 1.0995 holds importance as an overlap resistance, and a 2nd resistance at 1.1228 is identified as a multi-swing high resistance.
EUR/JPY:
The current trend on the EUR/JPY chart indicates a bullish momentum, suggesting a prevailing upward movement. Within this context, there’s a potential for the price to continue its bullish trend towards the resistance level.
The significance of the support at 157.95 is in its capacity as a pullback support, while the 2nd support at 156.02 is identified as a support level during multiple swing lows.
On the other hand, the resistance at 159.34 gains importance due to its association with a 61.80% Fibonacci Projection.
Further indication of potential resistance is provided by the presence of a 2nd resistance at 159.89, which aligns with a 127.20% Fibonacci Extension.
EUR/GBP:
The EUR/GBP chart currently indicates a bullish momentum, suggesting an ongoing upward trend. In light of this bullish sentiment, there is potential for the price to continue its bullish movement towards the resistance level.
The support level at 0.8645 is noted as a pullback support, and there is an additional 2nd support at 0.8588, identified as a pullback support aligned with a 61.80% Fibonacci Retracement.
Conversely, the resistance level at 0.8701 is significant as it acts as a swing high resistance with the reinforcement of a 100% Fibonacci Projection.
Further reinforcement for potential resistance is provided by a 2nd resistance level at 0.8730, characterized as a pullback resistance.
GBP/USD:
The GBP/USD chart currently exhibits a bearish momentum, indicating a prevailing downward trend.
This bearish momentum is supported by the price breaking below an ascending support line, suggesting the potential for a continued downward movement.
In the near term, there is a possibility for the price to experience a temporary rise towards the 1st resistance level at 1.3141 before reversing its direction and moving downward again.
The significance of the 1st support level at 1.2649 is due to its role as an overlap support, while the 2nd support at 1.2437 is reinforced as a pullback support. Conversely, the 1st resistance level at 1.3141 is noted as a swing high resistance.
GBP/JPY:
The current momentum of the GBP/JPY chart is bullish, indicating a predominant upward trend. This sentiment is supported by the fact that the price is currently trading above the bullish Ichimoku cloud.
In light of this bullish outlook, there is a potential opportunity for the price to continue its upward movement towards the resistance level at 183.89.
The support level at 183.21 holds importance as it serves as a pullback support, with additional reinforcement coming from a 2nd support level at 182.48.
Conversely, the resistance level at 183.89 is noteworthy as it is a multi-swing high resistance, which could potentially hinder further upward advancement.
The presence of a 2nd resistance level at 185.01, identified as a pullback resistance, adds further weight to the potential resistance areas on the chart.
USD/CHF:
The USD/CHF chart currently reflects a bearish momentum, indicating a predominant downward trend.
Considering this bearish sentiment, there’s a possibility for the price to exhibit a bearish reaction upon reaching the 1st resistance level, leading to a potential decline towards the 1st support level.
The significance of the 1st support at 0.8558 lies in its role as a multi-swing low support. Additionally, a 2ndary support at 0.8312 reinforces the support structure.
Conversely, the 1st resistance level at 0.8769 is highlighted as an overlap resistance.
Moreover, a 2nd resistance at 0.8902 is identified as a pullback resistance, further contributing to the potential for resistance against upward movement.
USD/JPY:
The current momentum of the USD/JPY chart suggests a bearish trend, indicating a potential downward movement. In this context, there is a potential scenario where the price reacts bearishly upon reaching the 1st resistance level and drops towards the 1st support.
The 1st support level at 142.00 holds significance as an overlap support.
On the other hand, the 1st resistance level at 148.06 is important due to its alignment with both a 100% Fibonacci Projection and a 61.80% Fibonacci Projection, which indicates a possible Fibonacci confluence.
Waiting for upside confirmation at 144.99 highlights this level as an overlap resistance, suggesting a potential reversal point.
USD/CAD:
The current momentum of the USD/CAD chart indicates a bullish trend, suggesting a potential for further upward movement should price break through the intermediate resistance.
The intermediate resistance level at 1.3442 is recognized as a pullback resistance while the 1st resistance level at 1.3668 is recognized as an overlap resistance.
To the downside, the 1st support at 1.3373 is recognized as an overlap support level. The 2nd support level at 1.3243 is recognized as a pullback support that aligns with the 61.80% Fibonacci retracement and 78.60% Fibonacci projection levels, indicating a confluence of Fibonacci levels.
AUD/USD:
The current state of the AUD/USD chart indicates a bearish momentum, implying a downward movement towards the intermediate support level.
The intermediate support level at 0.6399 is supported by an overlap support that aligns closely with the 61.80% Fibonacci projection level. Further below, the 2nd support at 0.6288 is also recognized as a pullback support that is further reinforced by its alignment with the 78.60% Fibonacci projection level.
To the upside, the 1st resistance level at 0.6496 is marked by an overlap resistance. An additional barrier of resistance is observed at the 2nd resistance level of 0.6585 which is also identified as an overlap resistance.
NZD/USD
The current trend of the NZD/USD chart indicates a bearish momentum, implying a downward movement. In this context, there is potential for the price to continue its bearish movement, targeting the 1st support level.
The 1st support level at 0.5955 is a support level that aligns with the 127.20% Fibonacci extension level. Additionally, the 2nd support is found at 0.5769 which is identified as a pullback support level.
To the upside, the 1st resistance level at 0.6059 is noteworthy as an overlap resistance. Furthermore, a 2nd resistance at 0.6156 is identified as a pullback resistance, acting as an additional barrier to upward price movement.
DJ30:
The current momentum of the DJ30 chart indicates a bearish direction, implying a prevailing downward trend.
In light of this bearish sentiment, the potential exists for the price to continue its bearish movement towards the support level at 35122.66, supported by multiple instances of swing low points. An additional support at 34953.11 is reinforced by pullback dynamics and a 38.20% Fibonacci retracement level.
On the flip side, the resistance at 35403.06 is notable for its overlap resistance and a 61.80% Fibonacci retracement level. Additionally, the presence of a 2nd resistance at 35693.87 gains importance due to its alignment with multiple instances of swing high resistance points.
GER30:
The GER30 chart currently displays a bullish momentum, suggesting an ongoing upward trend.
In line with this bullish sentiment, there is potential for the price to continue its bullish movement towards the resistance level.
The support level at 15833.90 holds significance as it is marked by both an overlap support and a 50% Fibonacci retracement level. Further reinforcing the support structure, a 2ndary support is identified at 15714.10, characterized by its alignment with a 78.60% Fibonacci retracement level.
On the other hand, the resistance level at 16003.03 gains importance as it is associated with a pullback resistance and a 38.20% Fibonacci retracement level. Additionally, a 2nd resistance level at 16240.68 is notable for its overlap resistance, further contributing to its potential impact on price movements.
US500
The US500 chart currently exhibits a bullish momentum, indicating an ongoing upward trend. Given this bullish sentiment, there is potential for the price to continue its bullish movement towards the resistance level.
The support level at 4456.6 is highlighted as a pullback support. Additionally, there is a 2ndary support at 4432.2, identified as an overlap support.
On the other hand, the resistance level at 4522.1 holds significance as a multi-swing high resistance, reinforced by a 100% Fibonacci Projection.
Furthermore, a 2nd resistance level at 4540.6 is identified as a pullback resistance, which adds to its potential impact on potential price movement.
BTC/USD:
The BTC/USD chart shows a bearish overall momentum. There is a potential for a bearish continuation towards the 1st support level.
The 1st support is positioned at 29277 and is considered advantageous due to its pullback support and a 61.80% Fibonacci retracement. Furthermore, the 2nd support at 28827 is also seen as a valuable level because of its multi-swing low support characteristics.
On the resistance side, the 1st resistance level at 29707 is considered noteworthy as it represents an overlap resistance. Additionally, the 2nd resistance at 30200 is significant due to its swing high resistance and a 50% Fibonacci retracement.
ETH/USD:
The ETH/USD chart indicates a bearish overall momentum. There is a potential for a bearish continuation towards the 1st support level.
The 1st support is located at 1816.05 and is considered favorable due to its overlap support and a 38.20% Fibonacci retracement. Additionally, the 2nd support at 1814.90 is also seen as a valuable level because of its multi-swing low support and a 78.60% Fibonacci retracement.
On the resistance side, the 1st resistance level at 1872.34 is noteworthy as it represents a multi-swing high resistance. Furthermore, the 2nd resistance at 1886.44 is considered significant due to its overlap resistance characteristics.
WTI/USD:
The current trend in the WTI/USD chart illustrates a weak bearish momentum, indicating a potential downward movement in the market. With this weak bearish sentiment, there is potential for the price to react off the 1st resistance and continue its downward momentum towards the 1st support level should the ascending trendline be broken.
The 1st support level at 79.37 is significant due to its alignment with a pullback support. Additionally, the 2nd support level at 73.30 is identified as an overlap support that aligns with the 61.80% Fibonacci retracement level.
To the upside, the 1st resistance level at 82.73 represents an overlap resistance. Furthermore, the presence of a 2nd resistance level at 84.52 represents a multi-swing high resistance.
XAU/USD (GOLD):
The XAU/USD chart currently displays a bullish momentum, indicating a prevailing upward trend. This momentum suggests the possibility of a bullish bounce off the 1st support level, leading to a potential movement towards the 1st resistance.
The significance of the 1st support at 1893.07 is reinforced by its alignment with a 61.80% Fibonacci Retracement, reflecting a strong support level. Additionally, a 2nd support at 1855.43 further strengthens the potential for a bounce, as it coincides with both a 78.60% Fibonacci Retracement and a 78.60% Fibonacci Projection, demonstrating a notable Fibonacci confluence.
In contrast, the 1st resistance level at 1935.46 gains importance as a pullback resistance.
Moreover, another resistance level at 1981.19 is identified as an overlap resistance, enhancing its potential to influence future price movement.
EUR/USD Drops Again and Could Revisit 1.0850
Key Highlights
- EUR/USD is moving lower below the 1.1000 support.
- It broke a rising channel with support near 1.0950 on the 4-hour chart.
- GBP/USD could extend losses toward 1.2550.
- Gold prices are moving lower below the $1,920 level.
EUR/USD Technical Analysis
The Euro started a fresh decline from well above 1.1120 against the US Dollar. EUR/USD traded below the 1.1050 support to move into a bearish zone.
Looking at the 4-hour chart, the pair settled below the 1.1000 level, the 100 simple moving average (red, 4 hours), and the 200 simple moving average (green, 4 hours).
The pair also traded below a rising channel with support near 1.0950 on the same chart. The pair is now trading near 1.0930 with a bearish angle. Initial support is near the 1.0920 level. The next major support is near 1.0900, below which EUR/USD could gain bearish momentum.
In the stated case, the pair could test the 1.0850 support. On the upside, the pair could face resistance near the 1.0960 level. The next major resistance is near the 1.1000 level.
A close above the 1.0000 resistance could push the pair toward 1.1050. Any more gains could start a fresh increase toward the 1.1120 level.
Looking at GBP/USD, the pair is also moving lower and there is a risk of a drop toward the 1.2550 level in the near term.
Economic Releases
- German Wholesale Price Index for July 2023 (MoM) – Forecast -1.4%, versus -0.2% previous.
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.
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.
DJIA Technical: At the Risk of Shaping a Minor Downtrend
- Key technical elements are showing signs of bullish exhaustion below the 35,650 resistance.
- Potential downside mean reversion to test the 50-day moving average now acting as a support at 34,510.
In the past two weeks, the Dow Jones Industrial Average (DJIA) has been the outperformer among the major US benchmark stock indices, thanks to its lesser concentration of technology stocks that bore the brunt of the sell-off inflicted on the US stock market.
For the week of 31 July and 7 August, the DJIA recorded a weekly return of -1.11% and +0.62% respectively, in contrast, two consecutive weekly losses were seen in the S&P 500 (-2.27%, -0.31%), Nasdaq 100 (-3.02%, -1.62%), Russell 2000 (-1.21%, -1.65%) over the same period.
In the lens of technical analysis, the DJIA may start to evolve into a potential minor downtrend at this juncture as several key elements have started to exhibit bullish exhaustion.
Medium-term upside momentum has started to wane
Fig 1: US Wall St 30 medium-term trend as of 14 Aug 2023 (Source: TradingView, click to enlarge chart)
In the past three weeks, the price actions of the US Wall St 30 Index (proxy of the Dow Jones Industrial Average futures) have failed to have a clear bullish breakout above the key swing high areas of 29 March/18 April 2023. These key swing-high areas have key psychological importance as they preceded the prior medium-term impulsive down move that recorded a loss of -19.20% on the Index to print an intraday low of 28,574 on 3 October 2022.
In conjunction, the daily RSI oscillator flashed a bearish divergence condition at its overbought region (above 70) on 1 August 2023, and a similar prior bearish divergence condition was seen on 25 November 2022 that led to a price decline of -10% on the Index from its 13 December 2022 high of 34,944 to 15 March 2023 low of 31,385.
Potential downside mean reversion to test 50-day moving average
Fig 2: US Wall St 30 minor short-term trend as of 14 Aug 2023 (Source: TradingView, click to enlarge chart)
Watch the 35,650 key short-term pivotal resistance (also the recent swing highs of 27 July/1 August 2023) and a break below the near-term minor range support of 35,010 exposes the next supports at 34,680, and 34,510 (50-day moving average, trendline support from 25 May 2023 low & former range resistance from 29 March 2022 high).
However, a break above 35,650 invalidates the bearish tone to see the next 35,830 immediate resistance in the first step. A clearance above 35,830 sees the next resistance at 36,270.
CHFJPY Made The Rally After 3 Waves Pull Back
Hello fellow traders. In this technical article we’re going to take a look at the Elliott Wave charts charts of CHFJPY forex pair published in members area of the website. As our members know CHFJPY is showing impulsive bullish sequences in the cycle from the January 2023 low. The pair has recently made pull back against the 158.8 pivot. The pair made clear 3 waves correction and gave us rally toward new highs as expected. In further text we’re going to explain the Elliott Wave pattern and trading setup.
CHFJPY Elliott Wave 1 Hour Chart 08.06.2023
The pair has made 5 waves up in the rally from the 158.8 low which is labeled as wave ((i)) black. Current view suggests the pair can be still doing wave ((ii)). Pull back looks incomplete at the moment. So, we assume (c) blue leg is still in progress. The pair should ideally make another leg down toward 161.8-160.6 area – buyers zone. As our members know Blue boxes are based on 100% – 161.8% Fibonacci extension area , that we trade in 3, 7, or 11 swing corrective sequence. Once bounce reaches 50 Fibs against the(b)blue high , we will make long position risk free ( put SL at BE) and take partial profits. Invalidation for the long trades is break of 1.618 fib ext : 160.59
CHFJPY Elliott Wave 1 Hour Chart 08.06.2023
CHFJPY made another leg down as we expected. However pull back missed to reach equal legs area by a few points. Correction completed slightly above equal legs area ( 161.81) at 161.9 low. The pair left us without the trade this time. Eventually we got break toward new highs as expected. We don’t recommend selling it and favor the long side still. We expect the intraday pull backs to keep finding buyers in 3,7,11 swings.
Forex and Cryptocurrencies Forecast
EUR/USD: Inflation, GDP, and Prospects for Monetary Policy
Looking at the two-week flat trend on the EUR/USD chart, one is reminded that it's August, a vacation season. Even the US inflation data released on Thursday, August 10th, couldn't disrupt the relaxed demeanour of traders. And yet, they warrant close attention. The year-on-year Consumer Price Index (CPI) growth of 3.2% and core inflation at 4.7% came in below forecasts (3.3% and 4.8% respectively). The monthly CPI remained unchanged at 0.2%, marking the lowest figure in over two years. As for the GDP, previously released data confirmed a diminished risk of the national economy slipping into a recession. After a 2.0% year-on-year rise in the first quarter of 2023, the second quarter recorded a 2.4% growth, significantly surpassing market expectations of 1.8%.
Therefore, the US boasts a robust economy with a gradually cooling labour market and inflation steadily approaching the 2.0% target level. All of this suggests that the Federal Reserve's monetary policy has been bearing positive fruits. The regulator can now, at the very least, pause the tightening process. They might even conclude the current monetary restriction cycle. The likelihood of the dollar interest rate remaining at the current 5.50% level in September is estimated at 89%, whereas the odds of it increasing by 25 basis points (b.p.) by year's end stand at just 27%.
In such a situation, the dollar should have begun to relinquish its positions, but this did not occur. Of course, immediately after the inflation data release, EUR/USD spiked by approximately 50 points but soon reverted. Why did this happen? While the vacation season theory could be considered, there are two considerably more crucial reasons. The first is the disappointing results of the latest auction for the 30-year US Treasury bonds, which concluded with a yield of 4.199%, lower than rates in the secondary market. The second reason lies in the weakness of the dollar's European counterpart.
The best insight into how the Eurozone's economy is faring is provided by the "Economic Bulletin" published by the European Central Bank (ECB) on that same Thursday, August 10. Here are its key points:
"Inflation continues to decline, but it is expected to remain too high for an extended period." "The immediate economic outlook for the Eurozone has worsened, mainly due to weakening domestic demand. High inflation and tighter financing conditions are suppressing spending growth." "A modest production growth in the Eurozone is anticipated in the third quarter, largely driven by the services sector." "Upside risks for inflation include potential resurgence in energy and food prices, as well as risks associated with Russia's unilateral withdrawal from the Black Sea Grain Initiative." "The prospects for economic growth and inflation remain highly uncertain." According to a recent Reuters poll, such a bulletin from the ECB has left market participants guessing about their next moves.
Next week, Eurostat will present a report with revised GDP data for the Eurozone for Q2 2023, as well as figures for industrial production and inflation for July. The preliminary GDP estimate showed a growth of +0.3% (+0.6% year-on-year) after stagnant growth in Q4 2022 and a decline of -0.1% in Q1 2023. While inflation is on the decline (currently at 5.5%, compared to 10.6% in October 2022), it still exceeds the target level of 2.0%. If the ECB continues to maintain a strict monetary policy and energy prices rise, many economists believe this could lead to a 5.0% drop in the Eurozone's GDP in 2024.
The comparison of the provided data suggests that the US currency currently has a greater chance of prevailing. The dollar's role as a safe-haven asset also plays in its favour. Naturally, a lot hinges on the actions of the Fed and the ECB this fall. As for the past week, after the release of the US production inflation data (PPI), the dollar further strengthened its position, and the EUR/USD pair concluded the week at 1.0947.
At the time of writing this review, on the evening of August 11, 35% of analysts have voiced in favour of the pair's rise in the near term, 50% sided with the dollar and took the opposite stance, and the remaining 15% voted for the continuation of the sideways trend. Among the oscillators on D1, the majority, 80%, favor the US currency (with 15% in the oversold zone), 10% point northward, and 10% are in the neutral zone. Among the trend indicators, 65% recommend selling, and the remaining 35% suggest buying. The nearest support for the pair is located around 1.0895-1.0925, followed by 1.0845-1.0865, 1.0780-1.0805, 1.0740, 1.0665-1.0680, and 1.0620-1.0635. Bulls will encounter resistance around 1.0985, then at 1.1045, 1.1090-1.1110, 1.1150-1.1170, 1.1230, 1.1275-1.1290, 1.1355, 1.1475, and 1.1715.
For the upcoming week, notable events include the release of U.S. retail sales data on Tuesday, August 15. On Wednesday, August 16, the Eurozone's GDP figures will be revealed, and the minutes from the latest FOMC (Federal Open Market Committee) meeting will also be published. Data on U.S. unemployment and manufacturing activity will be presented on Thursday. To cap off the week, on Friday, August 18, we'll get insights into the inflation (CPI) situation in the Eurozone.
GBP/USD: Day X – August 16
According to data released on Friday, August 11, by the UK's Office for National Statistics (ONS), the country's economic growth for the second quarter was 0.2%, compared to a 0.1% increase in the first quarter (with a forecast of 0.0%). Year-on-year, while forecasts were at 0.2%, the actual GDP growth was 0.4% (with the previous figure being 0.2%). The total volume of industrial production in June also rose, registering a +1.8% compared to a forecast of +0.1% and a -0.6% decline in May. Overall, the upward momentum is evident. This reduces the risks of recession and heightens the likelihood that the Bank of England (BoE) will maintain its hawkish stance at least until the end of 2023. Especially given that the country's inflation remains relatively high, with the year-on-year CPI at 7.9%. To combat this, according to predictions, the BoE might increase the key interest rate in 2-3 steps from the current 5.25% to 6.00% this year, giving the British currency a distinct edge.
Strategists at the Netherlands' largest banking group, ING, believe that the positive GDP figures won't be the defining factor for the Bank of England. "The June GDP growth numbers for the UK surpassed expectations," they agree. "However, we believe that the implications for the Bank of England are likely to be quite limited, as the numbers aren't significantly different from its forecasts. The primary focus will be on next week's service sector inflation and wage growth figures, [...] which are crucial for the pound."
GBP/USD closed at the 1.2695 mark on Friday, August 11. The near-term forecast from experts is as follows: 60% are bearish on the pair, 20% are bullish, and the same percentage chose to remain neutral. On the D1 oscillators, bears have a unanimous 100% backing, with 15% of these indicating an oversold condition. Trend indicators display a 65% to 35% split in favour of the bears (red). Should the pair trend downwards, it will encounter support levels and zones at 1.2675, 1.2620-1.2635, 1.2575-1.2600, 1.2435-1.2450, 1.2300-1.2330, 1.2190-1.2210, 1.2085, 1.1960, and 1.1800. In the event of an upward movement, resistance can be expected at 1.2760, followed by 1.2800-1.2815, 1.2880, 1.2940, 1.2980-1.3000, 1.3050-1.3060, 1.3125-1.3140, 1.3185-1.3210, 1.3300-1.3335, 1.3425, and 1.3605.
As for the UK macroeconomic statistics, a flurry of data from the national labour market awaits us on Tuesday, August 15, including indicators such as wage growth and unemployment rates. The next day, on Wednesday, August 16, key inflation (CPI) figures for the United Kingdom will be released. Lastly, on Friday, August 18, we'll receive statistics on retail sales in the country.
USD/JPY: The Pair Returns to its Moonshot
While EUR/USD and GBP/USD spent the week trading sideways, USD/JPY once again soared into the stratosphere. On Friday, it reached a height of 144.995, almost touching the peak of June 30. It last traded at such levels over a year ago, in June 2022. The week concluded slightly lower, settling at 144.93. Neither the Bank of Japan's (BoJ) recent decision to shift from a rigid yield curve targeting for government bonds to a more flexible approach, nor the interventions conducted by the Japanese regulator, were able to support the yen.
Inflation data is crucial for most central banks. To combat rising prices, regulators in the US, EU, and the UK are tightening monetary policy and raising interest rates. However, the BoJ disregards such methods, even as inflation in the country continues to climb. Moreover, the country's government has recommended a 4% increase in the minimum wage, and spring wage negotiations have resulted in the highest wage growth in three decades. Against this backdrop, there's mounting evidence that businesses are ready to pass on these increases to consumers, which could lead to a rise in CPI.
At Japan's MUFG Bank, they forecast that the Bank of Japan might only decide on its first rate hike in the first half of the following year. Only then will there be a shift towards strengthening the yen. As for the recent change in the yield curve control policy, MUFG believes it's insufficient on its own to prompt a recovery of the Japanese currency.
Analysts at Germany's Commerzbank feel that the lack of clarity in the Bank of Japan's policy further depresses the yen and hinders its growth. Over the recent months, when all Central Banks, except the Japanese one, have raised their key rates, one thing has become clear: the monetary policy of the Bank of Japan will not be favourable for the yen in the foreseeable future, Commerzbank shares. They add that the yen is a complex currency to understand, possibly linked to the BoJ's monetary policy.
Strategists at Societe Generale opine that if the USD/JPY pair consolidates above 144.50-145.00, growth may continue to 146.10 (76.4% correction of the movement from last October) and then even higher to 147.90.
Analysts at Credit Suisse also maintain a bullish outlook on the pair and aim higher in their forecasts. "We continue to anticipate a retest of our interim target of 145.00-145.12," they write. "Although this mark is expected to hold again, our core forecast remains bullish, and we anticipate that it will ultimately be breached. This will lead the market to resistance at 146.54-146.66, and eventually, to a target of 148.57.".
Concerning the near-term perspective, the median forecast of experts greatly diverges from the aforementioned opinions. An overwhelming majority of them (80%) expect a correction of USD/JPY downwards. (One possible reason for the decline could be another currency intervention.) The remaining 20% chose to remain neutral. The number of those expecting further growth of the pair this time was zero. Both trend indicators and oscillators on D1 are 100% green, although a quarter of the latter signals overbought conditions. The nearest support level is located at 144.50, followed by 143.75-144.04, 142.90-143.05, 142.20, 141.40-141.75, 140.60-140.75, 139.85, 138.95-139.05, 138.05-138.30, 137.25-137.50. The closest resistance stands at 145.30, followed by 146.85-147.15, 148.85, and finally, the October 2022 high of 151.95.
Among the events of the upcoming week in the calendar, one can note Tuesday, August 15, when data on consumer spending, industrial production volumes, and Japan's GDP will be published. The next day, the value of the Reuters Tankan Business Confidence Index will be known, and on Friday, August 18, we will learn the values of the National Consumer Price Index (CPI).
CRYPTOCURRENCIES: The Search for a Trigger Continues
Two weeks ago, we titled our review "In Search of the Lost Trigger". Over the days that have passed since then, the trigger has still not been found. After the drop on July 23-24, BTC/USD moved to another phase of sideways movement, moving along the Pivot Point around $29,500. According to some analysts, market participants avoided sharp movements in anticipation of inflation data in the US, which was published on Thursday, August 10. Which, as a result, the crypto market completely ignored.
Bitcoin network indicators suggest accumulation in anticipation of a price breakthrough. According to the Blockware Intelligence newsletter, the volume of liquid and highly liquid supply has dropped to its lowest level since 2018. As noted in Blockware, speculative traders are exchanging a decreasing amount of coins back and forth, while long-term holders have tucked their reserves into cold wallets.
Opinions on which direction this breakthrough may take, as usual, are divided. For instance, trader, analyst, and founder of the venture firm Eight, Michael Van De Poppe, refuted suggestions about the first cryptocurrency's price dropping to the $12,000 mark and reassured those talking about a complete capitulation of altcoins.
"The bear market has been ongoing for more than two years," he wrote, making it the longest market in cryptocurrency history. However, this is not surprising given the hacks, bankruptcies, and litigations in the crypto industry. From the analyst's observations, the most bearish sentiments are often found among those who first invested in digital assets specifically in 2021. "For them, the slow loss of money feels extremely painful, and they only expect further portfolio value decreases," the expert noted.
In his opinion, the second stage of capitulation is now taking place: the most boring period of the cycle, during which it seems that nothing at all is happening in the markets. "Be patient, enjoy the realization that you are still in the market, accumulate positions. [...] Big companies are getting into the game, and the wisest thing you can do is to follow them," Van De Poppe advised.
A considerably less optimistic forecast was given by another renowned trader, Tone Vays. He noted that selling pressure is increasing and the price of the first cryptocurrency might significantly decline. "Bitcoin continues to struggle, but I'd say there's a high chance the BTC price could drop to the next moving average. And, if daily candles keep closing below the previous ones, I would advise reducing the position by 50% because I can't predict how low bitcoin might fall. It could easily drop to $25,000. There are enough people in the market who, for some reason, keep selling their coins," the analyst writes.
Tone Vays is convinced: if bitcoin does indeed drop to $25,000, there's a high likelihood of further long-term decline. From the expert's perspective, the first cryptocurrency is "on the edge of a cliff, and things look bad." "The price needs to turn around immediately, I mean - this month. We don't have the luxury to drop another month, otherwise, panic will spread in the market, and I won't be surprised if BTC trades below $20,000. Miners will also start liquidating their holdings, which is very dangerous," warns the specialist. (It's worth noting that at the end of May, Vays spoke about the imminent rise of the first cryptocurrency above $30,000. The forecast turned out to be correct, but BTC couldn't maintain that level.).
A potential trigger for the start of a bullish rally could have been the news of payment giant PayPal issuing its own stablecoin, PayPal USD (PYUSD). This was announced on Monday, August 7. The founder of the charity The Bitcoin Foundation, Charlie Shrem (Charles Shrem), quickly stated that this event would lead to a rise in bitcoin's price to at least $250,000. Moreover, this will happen much faster than expected. In his opinion, ETH will also appreciate at an accelerated pace to $18,000, as PYUSD is issued on the Ethereum blockchain. Consequently, the price of this altcoin may increase due to a rise in the number of network users from PayPal's clientele.
However, unlike Charlie Shrem, most experts reacted sceptically to the news, as the tool doesn't offer anything new or useful for users. It also remains a mystery why Shrem suddenly decided that PYUSD would positively affect the price of bitcoin. Logically, the issuance of stablecoins should, on the contrary, cause a decrease in BTC's value, as it would enhance the investment appeal of a competitor - ETH. Nonetheless, PYUSD did not act as a trigger for either bitcoin or Ethereum, which is evident from the BTC/USD and ETH/USD charts.
As a result, investors have three events in "reserve" that can potentially push the crypto market upward. These are: 1) a radical easing of the monetary policy of the US Federal Reserve, 2) the approval by the Securities and Exchange Commission (SEC) to launch spot bitcoin ETFs, and 3) the bitcoin halving.
It should be noted that the next halving is tentatively scheduled for April 12, 2024. Every 210,000 blocks or once every 4 years, it halves the reward that miners receive for mining a block. This is done to create a deflationary environment and support the value of BTC by reducing the rate of new coin issuance. (The total emission limit is set at 21 million coins). Initially, from 2009, miners received 50 BTC for each generated block. In 2012, the reward was reduced to 25 BTC, in 2016 to 12.5 BTC, and after 2020, to 6.25 BTC. When the 2024 halving occurs, the mining reward will decrease to 3.125 coins.
As a result of this event, miners will have to adapt to the new reality. They will need to acquire more powerful and energy-efficient equipment or upgrade existing ones. According to forecasts, many small companies will likely leave the market or be acquired by larger players. Consequently, a centralization of the mining market can be expected, which will be taken over by a few large pools. This will make the network more susceptible to manipulations and hacker attacks. However, a sharp increase in the price of BTC can at least partially offset these negative factors.
Many market participants expect that after this event, the bitcoin price might skyrocket once again, as evidenced by historical data. After the 2012 halving, the BTC price rose from $11 in November 2012 to $1,100 in November 2013. The 2016 halving: the price increased from $640 in July to $20,000 in December 2017. The 2020 halving allowed the coin's price to rise from $9,000 in May 2020 to a peak of $69,000 in November 2021. However, despite these statistics, experts warn that past results do not guarantee their repetition in the future.
One of the leading figures in the crypto industry and CEO of Blockstream, Adam Back, placed a bet of one million satoshi (0.01 BTC) that the price of bitcoin would reach $100,000 a month before the halving. The bet was made as a result of a wager with a user of platform X (formerly Twitter) under the nickname Vikingo, who believes that the digital gold quotes will not reach this height until 2025.
Back's former colleague at Blockstream, and now CEO of Jan3, Samson Mow, agreed with him. Experts from Seeking Alpha mention almost the same figure. They believe that the cryptocurrency should be worth about $98,000 for miners to stay afloat after the halving. However, a popular analyst known as PlanB, based on his S2F model, stated that by the time of the halving, BTC will be worth much less - only about $55,000.
As of the time of writing this review, on the evening of Friday, August 11, BTC/USD is trading around $29,400, ETH/USD is around $1,840. The total market capitalization of the crypto market has grown and is now $1.171 trillion ($1.157 trillion a week ago). The Crypto Fear & Greed Index remains in the Neutral zone at 51 points (54 points a week ago).
Dollar Holds Up, Storm Brewing in Commodity Currencies
Dollar emerged notably resilient in a week of highly anticipated inflation data, clinching the top spot among currency performers. With the next FOMC meeting still more than a month away, the greenback's trajectory now rests heavily on the prevailing market risk sentiment. Critical to this equation is the capability of major stock indexes to bounce back after a fortnight of retractions, coupled with the potential continuation of the recent surge in treasury yields.
Diverging paths were evident as Yen grappled with its persistent near-term decline, wrapping up the week at the bottom of the performance ladder. Yet, it's the brewing storm in commodity currencies that's capturing significant attention. Directly tying to this is the turbulence in Chinese markets. Escalating investor concerns around real estate crises, looming deflation, and the dive in trade have cast shadows over the financial landscape. This anxiety is palpably evident in the sharp declines witnessed in Chinese stocks and Yuan, with ripples also touching Aussie and Copper markets.
In Europe, major currencies presented a mixed bag. While Euro closed slightly weaker when juxtaposed against Sterling and Swiss Franc, they largely danced within their familiar terrains, with traders keeping an eagle eye out for potential breakouts.
Dollar survived inflation data, with help from NASDAQ and 10-year yield
For the first time this year, NASDAQ has recorded back-to-back weekly declines, drawing significant attention from investors. While S&P 500 also ticked down, DOW managed to close with marginal gains within its recent range. Contrary to some assumptions, the inflation metrics, with CPI and PPI largely in line with expectations, may not be the chief culprits behind the market movements. It seems the major indices just digesting recent gains, potentially with investors recalibrating their positions ahead of the crucial FOMC meeting come September.
Technically, however, NASDAQ is now pressing 55 D EMA (now at 13606.77). Strong rebound from around current level will keep the price actions from 14446.55 as a near term correction only. Break of last week's high at 13997.15 should push NASDAQ for a new high above 14446.55 before forming a medium term top.
However, sustained break of 55 D EMA will argue that it's at least in correction to the whole up trend from 10088.82. In this case, deeper fall would seen to 38.2% retracement of 10088.82 to 14446.55 at 12781.89 before forming a bottom.
Meanwhile, it should also be noted that rise from 10088.82 could be just the second leg of the whole pattern from 16212.22 (2021 high). It's premature to conclude but this rise could have completed with three waves up, after just missing target of 161.8% projection 10088.82 to 12269.55 from 10982.80 at 14511.22 by an inch. It's plausible that a bearish reversal is already underway. But of course, NASDAQ will have to sustain below 55 D EMA first, before we dig deeper into this scenario.
As for 10-year yield, despite some intra-week jitters, the development is largely as expected. Rise from 3.253 remains in good shape even though there is notable pick up in upside momentum. Further rally would be expected as long as 55 D EMA (now at 3.869) holds, to retest 4.333 high.
The question remains on whether current rally in TNX is resuming larger up trend from 0.398 (2020 low). If that's the case, firm break of 4.333 would set the stage for TNX to head through 5% handle towards 61.8% projection of 1.343 to 4.333 from 3.253 at 5.100.
While Dollar dipped initially following US CPI release, it showed commendable resilience and quickly recovered. Dollar Index has indeed closed the week slightly higher, defended 55 D EMA (now at 102.17) and made a little progress in extending the rebound from 99.57 low.
For now, further rally in DXY is expected as long as 101.64 support holds. Rise from 99.57 (which is seen as a medium term bottom) should target 38.2% retracement of 114.77 to 99.57 at 105.37. For this move to happen, ideally, there should be extended fall in stocks and rally in 10-year yield as mentioned above.
As for the rally to be reversing the trend from 114.77, rather than correcting it, there needs to be substantial decline in stocks, like NASDAQ breaking through 12781.89 fibonacci support, or has 10-year yield breaking through 4.333 high decisively at least.
Real estate crisis, deflation, trade downturn in China
In a tumultuous week, Chinese markets witnessed severe declines, spurred by growing anxieties over another looming real estate crisis and heightened fears of deflation and trade downturns.
US President Joe Biden's characterization of China as a "ticking time bomb" intensified speculations. Though the validity of his comments on China's internal economic and societal issues can be debated, the apprehensive investor sentiment is undeniable.
Amplifying these concerns was the disclosure that Country Garden, a leading Chinese private-sector developer, defaulted on interest payments for two of its Dollar-denominated bonds. Subsequently, the firm projected a loss of between CNY 45B to CNY 55B for the first half of the year.
The scale of Country Garden's debt has drawn inevitable comparisons to Evergrande, previously known as the world's most indebted property company. Analysts suggest that the repercussions of a Country Garden crisis might overshadow the impact of Evergrande's previous downfall.
Adding to the economic unease, China's new loans in July plummeted by a staggering 89% mom, hitting their lowest since 2009, and falling well below anticipated levels. With China's July CPI dropping by 0.3% year-on-year, steepest drop since February 2020, and significant contractions in both exports and imports, the economic outlook appears increasingly bleak.
Reflecting the overarching investor sentiment, Shanghai SSE tumbled sharply on Friday to close at 3189.24 on Friday. Current development suggests that recovery from 3144.24 has completed at 3322.12 already. Deeper fall is now in favor as long as 55 D EMA (now at 3237.84) holds.
Firm break of 3144.24 will affirm the case that whole rise from 2885.08 has completed, just ahead of 3424.83 medium term resistance. In this case, next target would be 100% projection of 3418.95 to 3144.24 from 3322.12 at 3047.41.
The more important question is whether SSE is already trying to resume the down trend from 3731.68 (2021 high). The structure of the fall from 3418.95 doesn't warrant this bearish scenario yet. But the chance could be raised if there is significant downside acceleration after breaking through 3144.24 support.
USD/CNH resumed the rally from 7.1154 as offshore Yuan was under pressure. Further rise is now expected in the pair as long as 7.2071 support holds, for retesting 7.2853 high. The strong support from 55 D EMA argues that whole up trend from 6.6971 is possibly ready to resume too. Break of 7.2853 will confirm this bullish case, and target 7.3745 (2022 high). But as it's always, the move would depend on when the Chinese authority would come in and intervene.
Aussie and Copper looking vulnerable
Australian Dollar ended as one of the worst performers last week, just next to Yen and New Zealand Dollar. Considering the overall development surrounding China, Aussie was indeed rather resilient already. Yet, current development argues that fall from 0.7156 is ready to resume through 0.6457 low.
In any case, outlook will now stay bearish as long as 0.6615 resistance holds. Firm break of 0.6457 will confirm this bearish case and target 100% projection of 0.7156 to 0.6457 from 0.6894 at 0.6195.
Any downside acceleration on breaking through 0.6457 would raise the chance of resumption of whole down trend from 0.8006 (2021 high). In this bearish scenario, AUD/USD might only be able to find a bottom after hitting 61.8% projection of 0.8006 to 0.6169 from 0.7156 at 0.6021.
Aussie's fate remains tightly intertwined with Copper prices, further influenced by Chinese market dynamics. Last week's fall further affirm the case that recovery from 3.5387 has completed at 4.0145. Deeper decline is expected as long as 3.8189 resistance holds, for 3.5387, and possibly further to 61.8% projection of 4.3556 to 3.5387 from 4.0145 at 3.5097. Sustained break there could prompt downside acceleration to 100% projection at 3.1976, pulling Aussie down in its wake.
USD/CAD Weekly Outlook
USD/CAD's rebound from 1.3091 extended higher last week and it's now pressing 1.3386 resistance. Sustained break of 1.3386 will argue that whole correction from 1.3976 has completed with three waves down to 1.3091. Further rally would then be seen to 1.3653 resistance next. Nevertheless, rejection by 1.3386, followed by break of 1.3260 minor support, should resume larger decline through 1.3091 low.
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.
In the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern only, which might have completed at 1.2005. That is, up trend from 0.9506 (2007 low) is expected to resume at a later stage. This will remain the favored case as 55 M EMA (now at 1.3057) holds.
