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Daily Pivots: (S1) 0.9592; (P) 0.9625; (R1) 0.9677; More...

USD/CHF's rally continues today and the break of 0.9648 resistance argues that whole triangle correction from 1.0063 has completed at 0.9369. 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 0.9572 minor support will mix up the outlook and 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.

Daily Pivots: (S1) 1.1726; (P) 1.1782; (R1) 1.1822; More...

Intraday bias in GBP/USD remains on the downside at this point. Current down trend should target 1.1409 long term support. On the upside, above 1.1835 minor resistance will turn intraday bias neutral and bring consolidations. But recovery should be limited well below 1.2292 resistance to bring another decline.

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) 0.9897; (P) 0.9972; (R1) 1.0018; More...

Intraday bias in EUR/USD remains on the downside for the moment. Next target is 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. On the upside, above 1.0045 minor resistance will turn intraday bias neutral and bring consolidations. But recovery should be limited well below 1.0368 resistance to bring fall resumption.

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's selloff continues today after poor PMI data and stays as the worst performer for the week. Swiss Franc is also weak for now, together with Sterling. Dollar remains the strongest one, but struggle to extend gains against commodity currencies. In other markets, major European indexes are soft but downside is limited. US futures also point to flat open. Major treasury yields are extending near term rally. Gold is engaging in weak recovery.

Technically, selling focus appears to be turning from Euro to Swiss Franc. A focus in on EUR/CHF. Further decline is expected as long as 0.9698 resistance holds. However, considering bullish convergence condition in 4 hour MACD, break of 0.9698 resistance will indicate short term bottoming and bring stronger rebound. If happens, that could help Euro stabilize slightly elsewhere.

In Europe, at the time of writing, FTSE is down -0.75%. DAX is down -0.08%. CAC is down -0.32%. Germany 10-year yield is up 0.0349 at 1.341. Earlier in Asia, Nikkei dropped -1.19%. Hong Kong HSI dropped -0.78%. China Shanghai SSE dropped -0.05%. Singapore Strait Times dropped -0.50%. Japan 10-year JGB yield dropped -0.0088 to 0.222.

ECB Panetta: Slowdown or recession would mitigate inflationary pressures

ECB Executive Board Member Fabio Panetta warned in a conference today, "the probability of a recession is increasing. If we will have a significant slowdown or even a recession, this would mitigate inflationary pressures."

"I think that (policy) adjustments are possible but the most recent evolution of the economy should induce us to exercise one of the main features of central bankers which is prudence," he said.

He also added that real rates are "not too far from the estimated neutral level.

Eurozone PMI composite dropped to 49.2 in Aug, economic contraction in Q3

Eurozone PMI manufacturing dropped from 49.8 to 49.7 in August, above expectation of 49.0, a 26-month low. PMI Services dropped from 51.2 to 50.2, below expectation of 50.5, a 17-month low. PMI Composite dropped from 49.9 to 49.2, an 18-month low.

Andrew Harker, Economics Director at S&P Global Market Intelligence said: "The latest PMI data for the eurozone point to an economy in contraction during the third quarter of the year. Cost of living pressures mean that the recovery in the service sector following the lifting of pandemic restrictions has ebbed away, while manufacturing remained mired in contraction in August, seeing another record accumulation of stocks of finished goods as firms were unable to shift products in a falling demand environment. This glut of inventories suggests little prospect of an improvement in manufacturing production any time soon."

Germany PMI Manufacturing recovered from 49.3 to 49.8 in August, above expectation of 48.1.PMI Services dropped from 49.7 to 48.2, below expectation of 49.0, an 18-month low. PMI Composite dropped from 48.1 to 47.6, a 26-month low.

France PMI Manufacturing dropped from 49.5 to 49.0 in August, above expectation of 48.8, a 27-month low. PMI Services dropped from 53.2 to 51.0, below expectation of 53.5, a 16-month low. PMI Composite dropped from 51.7 to 49.8, an 18-month low.

UK PMI manufacturing dived to 46 in Aug, services ticked down to 52.5

UK PMI Manufacturing dropped sharply from 52.1 to 46.0 in August, well below expectation of 51.3. That's also the lowest level in 27 months. PMI Services ticked down from 52.6 to 52.5, above expectation of 52.0, an 18-month low. PMI Composite dropped from 52.1 to 50.9, an 18-month low.

Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence said:

"The UK private sector moved closer to stagnation in August, as mild growth of activity across the service sector only just offset a deepening downturn at manufacturers. Waning customer demand amid the weaker economic outlook, and shortages of both staff and inputs, were reported to have hit goods producers hard, with firms registering the quickest drops in output and new work since May 2020.

Excluding the initial phase of the pandemic in early-2020, the reduction in manufacturing output was the quickest seen since the start of 2009. Meanwhile, the service sector registered the weakest increase in activity since the recovery began in early 2021."

Japan PMI manufacturing dropped to 51 in Aug, services down to 49.2

Japan PMI Manufacturing dropped from 52.1 to 51.0 in August, below expectation of 51.8. PMI Manufacturing Output dropped from 49.7 to 48.3. That's also the lowest level in 19 months. PMI Services dropped from 50.3 to 49.2, first contraction since March. PMI Composite dropped from 50.2 to 48.9, first contraction since February.

Usamah Bhatti, Economist at S&P Global Market Intelligence, said: "The latest Flash PMI data showed that Japanese private sector activity declined for the first time since February midway through the third quarter. Both manufacturing and services companies recorded a contraction in output in August, with the former falling at the fastest pace for 11 months.

"August data signalled the second-weakest reading in the composite index so far this year, though the rate of deterioration was only mild. Of concern was the amount of new business received by private sector firms, which reduced for the first time in six months and pointed to further weaknesses to come."

Australia PMI composite output dropped to 49.8, a renewed contraction

Australia PMI Manufacturing dropped from 55.7 to 54.5 in August, a 12-month low. PMI Services dropped from 50.9 to 49.6, a 7-month low. PMI Composite Output dropped from 51.1. to 49.8, a 7-month low.

Laura Denman, Economist at S&P Global Market Intelligence said: "A renewed contraction in Australia's private sector economy indicates that recent interest rate hikes made by the RBA, as well as sustained inflationary pressures, have begun to take a toll on overall demand levels.

"Should new order growth remain subdued, this may help reduce demand-pull inflation factors, but survey data continue to highlight the supply issues that remain prevalent globally, which will continue to keep price levels elevated for the foreseeable.

"As such, the RBA will likely continue along its rate-hiking path, which bodes ill for the wider economy given the latest survey data highlight clear signs of underlying weakness."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 0.9897; (P) 0.9972; (R1) 1.0018; More...

Intraday bias in EUR/USD remains on the downside for the moment. Next target is 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. On the upside, above 1.0045 minor resistance will turn intraday bias neutral and bring consolidations. But recovery should be limited well below 1.0368 resistance to bring fall resumption.

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

ECB Executive Board Member Fabio Panetta warned in a conference today, "the probability of a recession is increasing. If we will have a significant slowdown or even a recession, this would mitigate inflationary pressures."

"I think that (policy) adjustments are possible but the most recent evolution of the economy should induce us to exercise one of the main features of central bankers which is prudence," he said.

He also added that real rates are "not too far from the estimated neutral level.

The New Zealand dollar is paddling in calm waters, as NZD/USD trades close to 1-month lows. In the European session, NZD/USD is trading at 0.6176, up 0.10%. The kiwi is still smarting from a disastrous week, in which NZD/USD plunged 4.40%.

RBNZ coy on its plans

The RBNZ is in the midst of an aggressive rate-hike cycle, having raised rates by 50 basis points for a fourth consecutive time. The central bank is expected to add another 50bp hike at the October meeting, which would bring the cash rate to 3.50%. Inflation has hit 7.3%, but the RBNZ is confident that it will peak soon and expects inflation to fall to 3.8% by the end of 2023. The central bank is cautiously positive about the economic outlook, predicting that the economic downturn will not turn into a recession.

Deputy Governor Christian Hawkesby said in an interview this week that the slowdown should lower inflation and bring employment to a more “sustainable level”. Hawkesby said that the RBNZ was deliberately being ambiguous about the peak for rate levels, saying it could be at 4.00% or 4.25% or thereabouts. He added that more rate hikes are coming, while acknowledging that the pace of tightening could slow in the near future.

We’ll get a look at some key US  events today and Wednesday that could have an impact on the direction of the US dollar. New Home Sales will be released later today, with a forecast of 575 thousand for July, following 590 thousand in June. Durable goods orders will be published on Wednesday, with the headline reading expected to slow to 0.6% in July, down sharply from 2.0% in June. With the Federal Reserve saying that rate policy will depend to a large extent on the strength of economic data, investors are keeping a close eye on key US events and we could see some movement in the currency markets following these releases.

NZD/USD Technical

• NZD/USD faces resistance at 0.6227 and 0.6366
• There is support at 0.6126 and 0.6075

• CHFJPY reversed from resistance level 143.10
• Likely to fall to support level 140.60

CHFJPY currency pair recently reversed down from the key resistance level 143.10 (which has been reversing the pair from the end of June) intersecting with the upper daily Bollinger Band.

The downward reversal from the resistance level 143.10 stopped the previous intermediate impulse wave (3).

CHFJPY currency can be expected to fall further to the next support level 140.60 (low of the earlier correction (2)).

• NZDCHF reversed from support level 0.5900
• Likely to rise to resistance level 0.6050

NZDCHF currency pair recently reversed up from the key support level 0.5900 (which stopped the sharp downtrend at the end of June) standing below the lower daily Bollinger Band.

The upward reversal from the support level 0.5900 created the daily Piercing Line chart pattern.

NZDCHF currency pair can be expected to rise further to the next resistance level 0.6050 (which reversed the pair multiple times from the start of July).

EUR/USD has stabilized after a rough start to the week. In the European session, EUR/USD is trading at 0.9931, down 0.10% on the day and its lowest level since November 2002.

After weeks in retreat, the US dollar has rebounded and is showing broad strength. The euro has taken it on the chin, falling 2.12% last week and down another 1.07% this week. It looks like the euro has more room to fall and we could see EUR/USD gazing up at the parity line for some time to come.

German business activity falls

German PMIs for August were mixed and the euro shrugged in response. Services PMI fell to 48.2, down from 49.7. This missed the estimate of 49.0. Manufacturing was slightly better, rising from 49.3 to 49.8 and beating the forecast of 48.2. The readings are worrying, as they indicate that both manufacturing and services have been in contraction for two straight months, with readings below the neutral level of 50.0. The economic outlook for the eurozone’s number one economy remains bleak, as high inflation and rising interest rates threaten to tip the economy into recession. Unsurprisingly, confidence levels amongst manufacturers and businesses remain low.

Germany’s labour market has been a bright spot in the economy, but there is room for concern here too. Employment in the private sector rose in August, but the pace of job creation fell to its lowest since March 2021. With the economy in a downturn, the downside risk to job creation will likely increase.

The markets are anxiously awaiting Fed Chair Powell’s speech at Jackson Hole on Friday, but there are some key US releases that could have an impact on the direction of the US dollar. New Home Sales will be released later today, with a forecast of 575 thousand for July, following 590 thousand in June. Durable goods orders will be published on Wednesday, with the headline reading expected to fall to 0.6% in July, down sharply from 2.0% in June. With the Federal Reserve in data-dependent mode, investors are keeping a close eye on key US events and we could see some movement in the currency markets following these releases.

EUR/USD Technical

• 0.9959 has switched to resistance. Above, there is resistance at 1.0113
• There is support at 0.9877 and 0.9723

Daily Pivots: (S1) 161.14; (P) 161.84; (R1) 162.50; More...

Intraday bias in GBP/JPY remains neutral range trading continues. On the upside, break of 163.91 will bring stronger rise to 166.31 resistance. On the downside, below 160.07 will turn bias to the downside for 159.42 and below.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress. Sustained break of 61.8% retracement of 195.86 (2015 high) to 122.75 (2016 low) at 167.93 will be a long term bullish signal, and could pave the way back to 195.86 high. This will remain the favored case as long as 155.57 support holds, even in case of deep pull back.