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Daily Pivots: (S1) 1.1509; (P) 1.1578; (R1) 1.1659; More...

GBP/USD's rebound from 1.1404 short term bottom is in progress today. Intraday bias stays mildly on the upside for 55 day EMA (now at 1.1942). On the downside, below 1.1550 minor support will turn bias back to the downside. Decisive break of 1.1409 will resume larger down trend.

In the bigger picture, based on current momentum, fall from 1.4248 (2018 high) is probably resuming long term down trend from 2.1161 (2007 high). Sustained break of 1.1409 will target 61.8% projection of 1.7190 (2014 high) to 1.1409 (2020 low) from 1.4248 (2021 high) at 1.0675. This will remain the favored case for now as long as 1.2292 resistance holds.

Daily Pivots: (S1) 0.6766; (P) 0.6821; (R1) 0.6901; More...

AUD/USD's rebound from 0.6698 is still in progress. Intraday bias stays on the upside for 55 day EMA (now at 0.6915). Sustained break there will target 0.7135 resistance next. On the downside, below 0.6823 minor support will turn intraday bias neutral first. Further break of 0.6680 low will will resume larger down trend.

In the bigger picture, price actions from 0.8006 (2021 high) is seen more as a corrective pattern to rise from 0.5506 (2020 low). Or it could also be a bearish impulsive move. In either case, outlook will remain bearish as long as 0.7135 resistance holds. Next target is 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Daily Pivots: (S1) 1.2964; (P) 1.3038; (R1) 1.3094; More...

Intraday bias in USD/CAD remains neutral for the moment. On the upside, decisive break of 1.3222 will resume larger up trend from 1.2005. Next target is 100% projection of 1.2005 to 1.2947 from 1.2401 at 1.3343. On the downside, however, break of 1.2971 will extend the corrective pattern from 1.3222 with another falling leg, back towards 1.2726 support instead.

In the bigger picture, down trend from 1.4667 (2020 high) should have completed at 1.2005, after defending 1.2061 long term cluster support. Rise from there should target 61.8% retracement of 1.4667 to 1.2005 (2021 low) at 1.3650. This will remain the favored case now as long as 1.2516 support holds.

Daily Pivots: (S1) 0.9528; (P) 0.9621; (R1) 0.9694; More...

Intraday bias in USD/CHF remains mildly on the downside at this point. fall from 0.9868 is seen as a leg inside the corrective pattern from 1.0063. Deeper decline would be seen towards 0.9369 support. On the upside above 0.9653 minor resistance will turn intraday bias neutral first.

In the bigger picture, current development suggests that up trend from 0.8756 (2021 low) is still in progress. Sustained break of 1.0063 will target 100% projection of 0.9149 to 1.0063 from 0.9369 at 1.0283, and then 1.0342 (2016 high). For now, this will remain the favored case as long as 0.9369 support holds, even in case of deep pull back.

Gold remains under pressure and risk is still to the downside as prices continue to drift lower from the long-term descending trend line. The technical indicators are bearish and point to more weakness in the market.

Looking at the daily chart, gold prices are looking capped by the 20 and 50-day simple moving averages which are negatively aligned after a bearish crossover that took place in the preceding week. The RSI indicator is ticking lower in the bearish territory; however, the MACD is trying to overcome its trigger line in the negative region.

The next target to the downside is the one-year low of 1,681. At this stage, the market would likely see a resumption of the downtrend from the 20-month peak of 2,070.40 and put in place a lower low at 1,640 registered in April 2020.

Upside moves are likely to find resistance at the 1,730 barrier, which overlaps with the 20-day SMA. There is an important resistance zone between the 40-day SMA at 1,744 and the downtrend line around 1,755. Rising above this area would help shift the focus to the upside towards 1,808. Breaking this level could see a re-test of the 200-day SMA at 1,833 and turn the bias to bullish.

In the short- and long-term timeframes, the bearish phase remains in play, especially if gold prices continue to trade below the downtrend line and the 200-day SMA. 

The Dax 40 recoups losses as traders reposition ahead of CPI this week. The bulls are looking to safeguard the summer rebound by keeping it off the critical demand zone around 12450. A surge above 13050 has prompted short-term sellers to cover their bets, easing the bearish pressure. 13340 near the 30-day moving average and the start of a stalled rebound is an area of interest. A breakout may attract momentum buying and lift the index to 13700. On the downside, 12900 is a fresh support if the rally loses steam.

Silver inches higher as the US dollar falls from profit-taking across the board. On the daily chart, the precious metal found support at the origin (17.60) of the parabolic rise in July 2020. A close above 18.50 has given the bulls more confidence to extend the recovery. 19.40 is a major roadblock ahead and strong pressure could be expected from this former liquidation point. But its breach could extend gains past the psychological level of 20.00. 18.40 has turned into a fresh support in case of a consolidation.

The Canadian dollar stalled after a surprise rise in unemployment in August. The pair has met stiff selling pressure at the July peak (1.3200). A fall below the consolidation range at 1.3070 caused leveraged short-term positions to liquidate. The daily support at 1.2900 is a key level to gauge the strength of the current rally. The RSI’s oversold condition has triggered a ‘buy-the-dips’ behaviour but buyers need to lift 1.3100 before the uptrend could resume. A bearish breakout could dent the optimism in the medium-term.

Markets

Daily changes on the US yield curve ranged between -2.8 bps (30-yr) and +5.3 bps (2-yr) last Friday. The US 2-yr yield closed above 3.55% for the first time since November 2007 as Fed governors lined up on the eve of the blackout period to cement a third consecutive 75 bps policy rate hike at the September 21 policy meeting. Washington-based Fed governor Waller said he favoured another significant increase in interest rates to get the policy rate to a setting that is clearly restricting demand. Kansas City Fed governor George stressed the clear-cut case for continuing removing policy accommodation, but suggests more caution ahead. She believes it’s hard to call a terminal rate and when it will be achieved. “We will have to determine the course of our policy through observation rather than reference to theoretical models or pre-pandemic trends. Given the likely lags in the pass-through of tighter monetary policy to real economic conditions, this argues for steadiness and purposefulness over speed”. St.-Louis Fed Bullard said that he was already leaning toward 75 ahead of the reasonably good payrolls report. He also hinted at a potential slowdown in the tightening cycle. “The general strategy of trying to front-load rate increases is working well and putting us in a position where we can have a level of the policy rate that is putting downward pressure on inflation very soon.” He targets 3.75%-4% by year-end without strong view for 2023. If any, he thinks that markets pricing in rate cuts already is a misjudgment.

The dollar didn’t profit from the yield advantage with EUR/USD trying to regain 1.01 as European energy ministers met to come up with short term fixes and structural changes to the power market. A relief rally on stock markets resulted in gains of up to 1.5% for Europe and 2% for the US. From a technical point of view, EUR/USD is closing in on the upper bound of the downward trend channel in place since February (+- 1.0150). Last week’s hawkish ECB message remains in play as well. German Bundesbank president Nagel said in a radio interview yesterday that the 75 bps rate hike was a clear sign and that further clear steps must follow if the inflation picture remains the same. ECB board member Elderson said that more hikes will come as “it’s very important that the expectations that the people have on how inflation will develop in the medium to long term will not become deanchored.”

Today’s eco calendar only contains second tier eco data. Speeches by ECB vice-president de Guindos and Schnabel are interesting and could generate some additional euro-momentum, especially if risk sentiment remains positive. Asian bourses are this morning in any case in well shape. Later this week, focus turns to US inflation (tomorrow) and retail sales (Thursday). Monthly UK eco data grab more attention as the Bank of England delayed its policy meeting.

News Headlines

Sweden Democrats are poised to be the largest party on the right and the second-largest overall following the parliamentary elections yesterday. With about 94% of the votes counted, the rightwing opposition now has an extremely narrow lead of under one percentage point over the ruling center-left group led by PM Andersson. The PM’s Social Democrats would still be the biggest party, extending a tradition that goes back all the way to 1917. A preliminary result of the election isn’t expected until Wednesday. But if the rightwing lead is confirmed, Kristersson of the centre-right Moderates is the favourite to become the next prime minister. The Swedish krone’s first reaction during Asian dealings is stoic. EUR/SEK trades around 10.68.

EU’s Brexit negotiator Sefcovic said physical custom checks across the Irish Sea could be reduced to just a few lorries a day. The offer was a response to UK PM’s Truss saying she was ready to make a deal over the Northern Irish protocol last Wednesday. The UK demands no checks at all but Sefcovic said there is almost no difference with his proposal of minimum checks, only to be made when there is “reasonable suspicion” of, amongst others, illegal smuggling. Talks between Brussels and London over the issue died back in February.

Japanese and Australian equities made a positive start to the week, after a bullish session on Friday. The US equities ended last week on quite a high note, after investors pulled more than $10 billion dollars from the US stock funds at the start of the month on hawkish Fed expectations.

The S&P500 jumped more than 1.50% to above its 50 and 100-day moving averages, and closed the week above the major 38.2% retracement on August to September pullback, which stands above the 4050 level, hinting that the index stepped into the bullish consolidation zone and that we could see further gains. Nasdaq, on the other hand, rallied more than 2% to its own 50-DMA, and came very close to the 38.2% retracement.

I believe that the latest market optimism could be explained by hope to see a second month of softening inflation in the US at this week’s CPI release. Due Tuesday, the US will reveal its latest CPI figure which is expected to have eased to 8.1% in August, from 8.5% printed a month earlier, and from the 9.1% peak printed the month before that. If the data is soft enough, or ideally softer than expected, the equities will likely continue pushing higher this week as well. If, however, the data is not as soft as expected, or worse, if we see a higher figure than last month’s read, then last week’s gains in equities will likely be quickly given back.

There are signs that inflation in the US may have further eased last month. We saw softer Chinese producer prices which generally explains a part of US inflation, softer rents, softer used car prices and softer gasoline! Therefore, those who are optimistic about the number to come, have reason to be optimistic about. Fingers crossed.

Fed expectations

What you have to remember this week, is that, a lot of Fed officials spoke last week. They all repeated that the Fed will continue hiking the rates until inflation is under control, and that pushed the probability of seeing a 75bp rate hike from the Fed at the September meeting to 90%. So there is not much left to be priced there. And whatever happens this week, we know that the Fed is willing to deliver another 75bp this month. So no one is playing on this month anymore. What matters is, what will happen after the FOMC’s September meeting. If the Fed hiked the interest rate by 75bp this month, the probability that it hikes by 50bp at next meeting is around 77% today. But that almost fully depends on inflation. So all eyes on tomorrow’s inflation.

The softer dollar

We saw a decent pullback in the US dollar index last Friday, following the 75bp hike from the ECB, and hint that they will be tightening fast in the coming months to tame inflation and stop the bleeding in euro, which is also partly responsible for soaring inflation in Europe. And remember, Japan is also feeling pressured by an abnormally strong US dollar. The dollar yen tested the scary 145 level last week, and Japanese are willing to intervene to stop the dollar from rallying more.

The EURUSD kicks off the week above parity but sees some important resistance near the 50-DMA, which stands a touch above the 1.0100 level. The 50-DMA is an important tech resistance, as it has been working well since last June. So clearing that level to the upside would be a big step for a medium-term euro recovery against the dollar.

In commodities, gold benefits from a broad-based pullback in US dollar, but gains remained capped near the $1730 last week. The 50-DMA, which stands a touch above the $1740 is also an important resistance to be cleared for the gold bulls. Otherwise, the recoveries are still seen as interesting opportunities to sell the top for those who continue swimming with the flow, which is a very clear downtrend building since March. Of course, the strong dollar is the major downside pressure on gold prices. And the end of the dollar rally could reverse losses in the yellow metal. But the dollar rally has been real sticky since more than a year, and even if we see a peak in each positive attempt, dollar finds more energy to make it higher.

Finally, crude oil is softish this morning. The barrel of American crude trades near the $85 per barrel as high energy prices hit the prospects of economic growth, and global demand. The fact that China maintains its zero covid fight, doesn’t help improve the bullish mood in oil. An overall bullish sentiment in equity markets could help oil consolidate gains, but strong resistance is seen near the $90 mark.