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Daily Pivots: (S1) 0.9932; (P) 0.9980; (R1) 1.0047; More...

Range trading continues in EUR/USD and intraday bias stays neutral. On the downside, break of 0.9899 will resume larger down trend to 61.8% projection of 1.0773 to 0.9951 from 1.0368 at 0.9860. Firm break there should prompt downside acceleration to 100% projection at 0.9546. However, firm break of 1.0094 minor resistance will dampen this bearish view, and turn bias back to the upside for 1.0368 resistance instead.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, outlook will stay bearish as long as 1.0368 resistance holds, in case of strong rebound.

Daily Pivots: (S1) 1.1655; (P) 1.1700; (R1) 1.1750; More...

With 1.1899 resistance intact, further decline is expected in GBP/USD. Current down trend should target 1.1409 long term support. On the upside, above 1.1899 minor resistance will turn intraday bias neutral again. But outlook will stay bearish as long as 1.2292 resistance holds, in case of recovery.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2292 resistance holds. Next target is 1.1409 low. However, firm break of 1.2292 will bring stronger rise back to 55 week EMA (now at 1.2859).

Daily Pivots: (S1) 0.9655; (P) 0.9682; (R1) 0.9709; More...

Intraday bias in USD/CHF stays on the upside at this point. As noted before, outlook is unchanged that triangle correction from 1.0063 could have completed at 0.9369 already. Further rally should be seen to 0.9884 resistance next. Break there will argue that larger up trend is ready for resumption through 1.0063. On the downside, below 0.9576 minor support will dampen this view and turn bias back to the downside for 0.9369 support instead.

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.

Daily Pivots: (S1) 136.67; (P) 137.12; (R1) 137.96; More...

Intraday bias in USD/JPY is turned neutral first as it's losing upside momentum, as seen in 4 hour MACD. Strong resistance could be seen from 139.37 to limit upside, to start the third leg of the corrective pattern from 139.37. Break of 136.17 minor support will turn bias back to the downside for 130.38 support. Nevertheless, decisive break of 139.37 will confirm up trend resumption for 147.68 long term resistance.

In the bigger picture, price actions from 139.37 medium term top are seen as a corrective pattern to up trend from 101.18 (2020 low). While deeper decline cannot be ruled out, outlook will stays bullish as long as 55 week EMA (now at 123.72) holds. Long term up trend is expected to resume through 139.37 at a later stage, after the correction finishes. Next target is 147.68 (1998 high).

Daily Pivots: (S1) 0.9629; (P) 0.9664; (R1) 0.9714; More....

Break of 0.9698 resistance confirms short term bottoming in EUR/CHF at 0.9550, on bullish convergence condition in 4 hour MACD. Intraday bias is now on the upside for 55 day EMA (now at 0.9840) and above. But upside should be limited by 38.2% retracement of 1.0512 to 0.9550 at 0.9917 to bring down trend resumption. On the downside, below 0.9664 minor support will turn bias back to the downside for retesting 0.9950 low.

In the bigger picture, long term down trend from 1.2004 (2018 high) is still in progress. Next target is 138.2% projection of 1.2004 to 1.0505 to 1.1149 at 0.9033. On the upside, break of 0.9970 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of strong rebound.

Euro is trying to extend recent rally, but the gains also so far concentrated against Sterling and Swiss Franc. Persistent flow of hawkish comments from ECB official is support the common currency nevertheless. Australian Dollar and Yen are currently the stronger ones for the day. The Pound, Franc and Dollar are the weaker ones.

Technically, EUR/CHF's break of 0.9698 resistance should confirm short term bottoming at 0.9550, on bullish convergence condition in 4 hour MACD. EUR/GBP's rally is continuing and break of 0.8585 resistance would set the stage for retesting 0.8720 high. However, EUR/USD is still struggling in established range of 0.9899/1.0094. Downside breakout remains in favor in EUR/USD, but let's see.

In Europe, at the time of writing, FTSE is up 0.08%. DAX is up 1.64%. CAC is up 0.88%. Germany 10-year yield is down -0.011 at 1.495. Earlier in Asia, Nikkei rose 1.14%. Hong Kong HSI dropped -0.37%. China Shanghai SSE dropped -0.42%. Singapore Strait Times rose 0.53%. Japan 10-year JGB yield dropped -0.0155 to 0.227.

ECB Knot: Swift normalization of interest rates is essential

ECB Governing Council member Klaas Knot said, "a swift normalization of interest rates is an essential first phase, and some front-loading should not be excluded. The broadening and deepening of our inflation problem generates the need to act forcefully."

Knot saw upside risks to inflation, including from higher food and energy prices, a weaker euro, copious budget spending and rising expectations. He added that even if the slowdown in the economy were to materialize, "this in itself is unlikely to bring inflation back to our objective over the medium term."

Knot said earlier last week that a rate hike of at least 50bps is needed next week.

Eurozone economic sentiment dropped to 97.6 in Aug

Eurozone Economic Sentiment Indicator dropped from 98.9 to 97.6 in August, well below expectation of 102.0. Employment Expectation Indicator rose from 107.2 to 108.0. Industry confidence dropped from 3.4 to 1.2. Services confidence dropped from 10.4 to 8.7. Consumer confidence improved from -27.0 to -24.9. Retail trade confidence rose from -7.1 to -6.3.

EU Economic Sentiment Indicator dropped from 97.5 to 96.5. Amongst the largest EU economies, the ESI plummeted in the Netherlands (-4.8) and posted significant declines in Germany (-2.5), France and Poland (both -1.8), as well as Italy (-1.2). Spain stood out with a mild increase (+0.8).

Swiss KOF dropped to 86.5 in Aug, economic outlook appears less than encouraging

Swiss KOF Economic Barometer dropped from 90.5 to 86.5 in August, below expectation of 88.6. KOF said the reading is "quite considerably below its long-term average". Accordingly, "for the near future the outlook for the Swiss economy appears less than encouraging."

KOF added: " The decline is primarily due to indicators broadly associated with private consumption, but the manufacturing sector and the construction industry are emitting negative signals, too. The other indicators included in the barometer show hardly any changes."

EUR/GBP Mid-Day Outlook

Daily Pivots: (S1) 0.8503; (P) 0.8526; (R1) 0.8566; More...

EUR/GBP's rise from 0.8338 continues today and the break of near term channel resistance is a sign of upside acceleration. Intraday bias stays on the upside for 0.8585 resistance first. Decisive break there should confirm that whole pattern from 0.8720 has completed, and bring further rally to retest this high. On the downside, below 0.8520 minor support will mix up the outlook and turn intraday bias neutral first.

In the bigger picture, medium term bearishness is maintained with prior rejection by 38.2% retracement of 0.9499 to 0.8201 at 0.8697. Break of 0.8201 will resume larger down trend from 0.9499 (2020 high). Nevertheless, sustained break of 0.8697 will affirm the case that rise from 0.8201 is a medium term up trend itself.

Economic Indicators Update

Daily Pivots: (S1) 0.8503; (P) 0.8526; (R1) 0.8566; More...

EUR/GBP's rise from 0.8338 continues today and the break of near term channel resistance is a sign of upside acceleration. Intraday bias stays on the upside for 0.8585 resistance first. Decisive break there should confirm that whole pattern from 0.8720 has completed, and bring further rally to retest this high. On the downside, below 0.8520 minor support will mix up the outlook and turn intraday bias neutral first.

In the bigger picture, medium term bearishness is maintained with prior rejection by 38.2% retracement of 0.9499 to 0.8201 at 0.8697. Break of 0.8201 will resume larger down trend from 0.9499 (2020 high). Nevertheless, sustained break of 0.8697 will affirm the case that rise from 0.8201 is a medium term up trend itself.

ECB Governing Council member Klaas Knot said, "a swift normalization of interest rates is an essential first phase, and some front-loading should not be excluded. The broadening and deepening of our inflation problem generates the need to act forcefully."

Knot saw upside risks to inflation, including from higher food and energy prices, a weaker euro, copious budget spending and rising expectations. He added that even if the slowdown in the economy were to materialize, "this in itself is unlikely to bring inflation back to our objective over the medium term."

Knot said earlier last week that a rate hike of at least 50bps is needed next week.

The fall in the single European currency has paused after briefly touching the 0.99 level earlier this month. As in July, the momentum of the EURUSD decline has sparked a resurgence of verbal interventions. Judging by the tone of recent comments, the ECB is reassuring the markets that it is soon ready to raise rates more aggressively.

This sentiment supports interest in the single currency hovering around parity with the dollar. We recently heard from Lane that September would mark the start of a new phase of ECB policy.

As clearly as possible for central bankers, Rehn and Kazaks say that euro weakness worries the regulator and will influence the next rate decision.

The euro’s 15% fall against the dollar over the past 12 months is an additional pro-inflationary factor on top of skyrocketing energy prices, broken supply chains and a tight labour market.

With such a macroeconomic backdrop, it is not surprising that central bankers talk about the need to “take the pain” of policy tightening to suppress price increases and, more importantly, reverse inflation expectations.

The good news for the euro is that it responds well to the reassurances and threats from central bank officials. That was difficult for the BoJ to achieve earlier this year. At the same time, it is worth realising that verbal interventions in this situation can only buy a little time. Very soon, the ECB will confirm its intentions by effectively tightening monetary policy.

The fact is that not only energy prices are now at stake but also the credibility of the debt securities of smaller Eurozone countries. Last month, the ECB was forced to launch a sophisticated mechanism to hold down bond spreads of core and peripheral euro-region countries. The widening of spreads was another signal of a loss of confidence.

Uncontrolled current-level depreciation could permanently undermine the euro’s status as a reserve currency, quickly translating into higher debt-servicing costs. The debt problem is bad news for the euro. History is also not on the side of the buyers right now. In previous episodes of overcoming parity, it was not a turning point but only a temporary stopgap. Fundamentals are also on the bears’ side for now. Because, despite the attention on the euro exchange rate, the ECB is moving slower than Fed in policy normalisation and much further away from the point where policy becomes neutral.

Stock markets are bouncing back on Tuesday following a rocky couple of weeks as investors grew nervous about the economic impact of tightening.

Fed Chair Jerome Powell could not have been more clear on Friday on the central bank's tightening stance and unlike the warnings from his colleagues, the message appeared to have finally gotten through.

Which makes today's move all the more curious. It's not the fact that we're seeing a rebound as equity markets don't move in straight lines, rather it's the strength of it that is interesting.

Prior to Friday's speech, investors appeared determined to cast aside warnings in favour of the dovish pivot narrative and today's moves may suggest the same could still be true after a brief pullback.

With a 75 basis point rate hike now viewed as the more likely outcome from the Fed in a few weeks and ECB officials putting a similar move on the table ahead of its meeting next week, how strong of a recovery can we really expect in equity markets?

Central banks have made it perfectly clear now that the fight against inflation is their primary concern and a hard landing may just be the price to pay. While that may change if we see any significant improvement on the inflation front over the coming months, the risks still appear more tilted to the downside for the economy.

Saudi Arabia reinforces support

Oil prices are easing a little with Brent potentially settling around $100 and WTI a little below around $95. While there remain many moving parts in the oil market at the moment, the comments last week from Saudi Arabia have reinforced support below the current price.

It seems OPEC+ isn't interested in the oil price slipping much below $100 a barrel and while those warnings would be put to the test in the event of a nuclear deal, which still looks very challenging, or a global recession, the words alone could keep prices high for now.

Gold failing to bounce back

Gold continues to struggle in the aftermath of Powell's comments on Friday, even though the dollar is falling on Tuesday and US yields are a little lower. The yellow metal continues to test $1,730 today; a sign that not all are on board with the recovery trade we're seeing elsewhere.

A significant break of $1,730 would be a real blow for gold, with the next area of notable support falling around $1,680-$1,700. A move back above $1,765 could get gold bulls excited once more but that may be easier said than done if trading over the last few sessions is anything to go by.

A big moment for Bitcoin

Bitcoin is enjoying a slight recovery today after surviving a brief dip below $20,000 over the weekend. The hawkish sentiment by Powell took its toll at the end of the week but crypto bulls are fighting back to defend what could be a key level. We may need to see more of the resilience displayed in recent months as a failure to do so could quickly see bitcoin retesting the June lows.