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

Intraday bias in USD/JPY stays on the upside for 139.37 high. Strong resistance could be seen there 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) 0.9602; (P) 0.9636; (R1) 0.9694; More...

Intraday bias in USD/CHF remains on the upside for the moment. Outlook is unchanged that triangle correction from 1.0063 could have completed at 0.9369 already. Further rise 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) 1.1682; (P) 1.1791; (R1) 1.1849; More...

Intraday bias in GBP/USD remains on the downside at this point. Current decline 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) 0.9911; (P) 1.0000; (R1) 1.0053; More...

EUR/USD recovers notably today but stays in established range above 0.9899. Intraday bias remains neutral first. 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.

Euro is staging a strong come back today, as supported by hawkish comments from ECB officials over the weekend. In short, a 50bps rate hike looks like that base case for ECB meeting next week, with some possibility of a 75bps hike. Dollar is reversing some gains in spite of risk-off sentiment. The clearer trend for now is the selloff in Yen on rising major Eurozone and US yields. This is followed by weakness in Sterling and Swiss Franc as triggered by selloff against Euro.

Technically, breakouts are seen in some Euro pairs. For example, EUR/JPY breaks through 138.38 resistance to resume the rebound from 133.38. EUR/GBP breaks through 0.8510 resistance to resume the rise from 0.8338. EUR/CHF is also on the verge of breaking through 0.9698 resistance to confirm short term bottoming at 0.9550. The question is whether EUR/USD will follow with a break of 1.0094 minor resistance too to set up stronger rebound.

In Europe, UK is on holiday. DAX is down -0.73%. CAC is down -1.15%. Germany 10-year yield is up 0.092 at 1.482. Earlier in Asia, Nikkei dropped -2.66%. Hong Kong HSI dropped -0.73%. China Shanghai SSE rose 0.14%. Singapore Strait Times dropped -0.84%. Japan 10-year JGB yield rose 0.0220 to 0.243.

USD/CNH heading towards 7 as up trend resumes

The Chinese Yuan extends recent decline and hits a new 2-year low today. This comes on the back on broad based strength in Dollar, on expectation that Fed's interest rate will stay high for long even after the current tighten cycle finishes. On the other hand, Yuan's weakness is also driven by weaker than expected economic data and rate cut by PBoC. China's PMI data to be released later in the week, and US non-farm payroll, could trigger even steeper selloff in Yuan against the greenback.

USD/CNH's up trend resumes today and hit as high as 6.9323 so far. Outlook will stay bullish as long as 6.8459 support holds. Next target is 61.8% projection of 6.3057 to 6.8372 from 6.7159 at 7.0444. A question is whether there would be intervention by the Chinese authority above the 7.0000 mark.

WTI oil to take on 95.91 resistance again soon

Oil prices edged slightly higher today but fails to gather enough upside momentum so far. It's supported by hopes of a production cut from OPEC+, as response to restore balance after Iran's nuclear deal. Also, unrest in Libya's capital at the weekend prompted concerns of disruption of supply from the country.

WTI's first attempt at 95.91 resistance failed last week, but retreat is so far shallow. Some support is seen from 4 hour 55 EMA, which is a positive sign, and could set the base for another taken on the resistance.

Also, in the background, 86.41 low was already close enough to an important cluster support at 85.92, with 100% projection of 131.82 to 93.47 from 124.12 at 85.77. That is, the conditions are there for WTI to complete the whole corrective pattern from 131.81 high.

Break of 96.59 and sustained trading above 95.91 should confirm near term bullish reversal, and set the stage for 103.84 resistance next.

Australia retail sales rose 1.3% mom in Jul

Australia retail sales turnover rose 1.3% mom to AUD 34.67B in July, well above expectation of 0.3% mom.

Ben Dorber, head of retail statistics at the ABS, said: "After slowing growth in recent months, the 1.3 per cent rise in July was the largest since the 1.6 per cent rise in March 2022.

"Turnover rose in five of the six retail industries in July 2022. This shows that, despite cost-of-living pressures, households are continuing to spend."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 0.9911; (P) 1.0000; (R1) 1.0053; More...

EUR/USD recovers notably today but stays in established range above 0.9899. Intraday bias remains neutral first. 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.

Economic Indicators Update

Spot gold price fell to one month low on Monday, in extension of last Friday’s 1.2% drop, under fresh pressure on comments from Federal Reserve Chair Jerome Powell, who signaled that the central bank remains on track for further policy tightening, which will basically remain until the price stability is restored.

Fresh weakness broke through key supports at $1729/27 (Fibo 61.8% of $1680/$1807 ascend / Aug 22 former trough, with clear break here to generate strong signal of continuation of the downtrend from $1807 (Aug 10 high) after a brief correction and completion of failure swing pattern on daily chart.

Near-term action is pressured by thick daily cloud, following Friday’s break and closed below cloud base that generated initial bearish signal.

Daily MA’s in bearish configuration and rising negative momentum, support the notion, with close below $1729/27 pivots to open way towards $1710 (Fibo 76.4%) and unmask key supports at $1700 (psychological) and $1680 (2022 low, posted on July 21).

Broken daily cloud base ($1738) reverted to solid resistance, which should ideally cap upticks and keep bears intact.

Res: 1738; 1744; 1751; 1760.
Sup: 1720; 1710; 1700; 1692.

Oil prices edged slightly higher today but fails to gather enough upside momentum so far. It's supported by hopes of a production cut from OPEC+, as response to restore balance after Iran's nuclear deal. Also, unrest in Libya's capital at the weekend prompted concerns of disruption of supply from the country.

WTI's first attempt at 95.91 resistance failed last week, but retreat is so far shallow. Some support is seen from 4 hour 55 EMA, which is a positive sign, and could set the base for another taken on the resistance.

Also, in the background, 86.41 low was already close enough to an important cluster support at 85.92, with 100% projection of 131.82 to 93.47 from 124.12 at 85.77. That is, the conditions are there for WTI to complete the whole corrective pattern from 131.81 high.

Break of 96.59 and sustained trading above 95.91 should confirm near term bullish reversal, and set the stage for 103.84 resistance next.

The Japanese yen has started the week with sharp losses, with USD/JPY rising as high as 139.00 earlier today. In the European session, USD/JPY is trading at 138.52, up 0.75%.

The month of August can’t end soon enough for the yen, as USD/JPY has climbed 4.0%. The yen fell 0.78% on Friday, as Fed Chair Powell delivered a clear, no-nonsense message to the markets from scenic Jackson Hole.

Dollar soars after hawkish speech from Powell

Powell’s speech essentially reiterated what the Fed has been saying for weeks, but the markets reacted sharply, with equities tumbling and the US dollar recording strong gains. Investors finally acknowledged that the Fed means business and will not U-turn on policy, even if inflation drops in one or two reports. Powell appeared determined to avoid any repeats of the market euphoria after inflation declined unexpectedly in July, which raised speculation that the Fed was set to make a dovish pivot.

Powell reiterated that the Fed would continue to use all its tools to fight inflation, acknowledging that high interest rates would remain for some time, and the Fed would be careful not to ease policy prematurely. The highly-anticipated speech was unusually brief, which may have been an attempt to prevent investors from looking for some dovish remarks in the speech and ignoring the gist of the speech. Powell used strong language to get his message across – saying that Fed tightening would cause “some pain” to the economy, and avoiding soothing terminology, such as “soft landing”. The Fed plans to continue to raise rates until it’s convinced that inflation has peaked and is on the decline and judging by the market’s reaction, investors heard Powell’s message loud and clear.

US Treasury yields have moved higher, with the 2-year yield rising to 3.445% today, up from 3.032% on Friday, prior to Powell’s speech. This upward movement is weighing on the yen, which is sensitive to the US/Japan rate differential. If the upward trend continues, we could see an assault on the symbolic 140 level.

USD/JPY Technical

• USD/JPY has broken above resistance at 1.3759 and 1.3822. Above, there is resistance at 1.3891.
• 1.3701 and 1.3632 are providing support

Tomorrow, Germany reports CPI figures for July. That gives us a first look at what to expect from inflation data out of the EuroZone to be released on Wednesday. The consensus is for another increase, which would help firm up the case for another 50bps hike by the BCE at their meeting in two weeks. This is the last major inflation data the central bank will have before they decide on what to do with monetary policy.

Last week, the ECB released minutes from their July meeting, showing they intended to keep tightening. That also implies that a "double" rate hike is likely. Unless there is a major shift in the data, that would catch everyone by surprise. The expectation is for inflation to get worse in the shared economy, both in the headline number and core reading.

Starting with Germany

The largest economy in the EuroZone is often seen as a bellwether for the rest of the shared economy. This is particularly relevant around the inflation figure if it is rising, since as a rule, Germany tends to have more fiscal discipline. If German inflation is rising, chances are that inflation in the rest of Europe is rising even faster. If prices were to get under control, most likely that would be seen in Germany first.

German CPI change for August is expected to show an annual rate of 7.8%, higher than the 7.5% reported in July. Germany has a more regulated energy sector, and is less likely to see the benefits from lower fuel prices that helped reduce inflation in the US during the same period. At the same time, German regulators also allowed for energy companies to pass on more of the cost to consumers. Where there could be good news is that monthly inflation is expected to slow to 0.4% compared to 0.9% in the prior month.

 What's driving the market

Wednesday could be a pretty lively day for the markets, because we get CPI data and PMI figures through the course of the day. We'll get into more detail on the PMI numbers tomorrow. For now, inflation is likely to have the bigger impact on the EURUSD as it is driving the main divergence between the currencies of the two largest economies.

Last month, EU inflation already surpassed inflation in the US. Meanwhile, the interest rate gap between the two economies continues to grow, as the Fed has been more aggressive in taming inflation. That means real yields in the US have been increasing, while real yields in the Euro have been decreasing. The fluctuations in inflation are bigger than the interest rate policy moves, meaning that inflation is driving the yield spread. Which, in turn, drives the relative price dynamics of the EURUSD. As long as real rates are weakening in the Euro, the pair is likely to be under pressure, and find it hard to get back above parity.

The data to pay attention to

The EuroZone is expected to report a modest increase in CPI change to 9.0% from 8.9% prior. The core rate is expected to rise by a similar measure to 4.1% from 4.0%, double the target rate. To make matters more difficult for the ECB, the monthly inflation rate is expected to accelerate to 0.6% from 0.1% prior.

Inflation rising faster on the monthly basis, and the change being seen in the core numbers, implies a more structural problem. The market already expects the ECB to raise rates, so higher inflation likely won't be all that much of a surprise. But if CPI change were below expectations, then it could have some monetary policy implications.

The Aussie Dollar started a fresh decline from the 0.7000 resistance zone against the US Dollar. The AUD/USD pair declined below the 0.6950 level to enter a bearish zone.

There was a clear move below the 0.6920 support and the 50 hourly simple moving average. The pair spiked below the 0.6860 level and formed a low at 0.6848. It is now consolidating near the 0.6850 level.

An immediate support is near the 0.6850 level. The next key support is near the 0.6825 level. A downside break below the 0.6825 support could lead the pair towards the 0.6800 support.

An immediate resistance on the upside is near 0.6880 on FXOpen. If there is an upside break above the 0.6880 level, the pair could rise steadily towards the 0.6920 level in the near term. The main resistance now sits near the 0.6950 level.