Sample Category Title

Markets:

Inflation & recession fears are driving markets at the start of the new week. As was the case last week, the ‘bad news is good news for assets’-paradigm that facilitated a simultaneous rally in both bonds and equities during the mid-June/early-August era, doesn’t work anymore. On the contrary. Recent Fed (and ECB) comments ‘convinced’ bond investors that central banks’ anti-inflation campaign still has some way to go. Tentative signs on (US) inflation potentially topping are premature. At 8.5% Y/Y, returning inflation to the 2% target remains a distant Fata Morgana, especially as the US labour market remains extremely tight. So, there are few reasons for Fed Chair Powell to backtrack on his anti-inflationary rhetoric when addressing the Jackson Hole symposium on Friday. Last week’s rise in yields continues, but this time in a bear flattening rather than a steeping move. US yields are gaining 8 bps (2-y) over 4/2 bps (5-y/10-y) to 1.75 bps (30-y). Prospects for EMU inflation to cool anytime soon are even more uncertain despite elevated recession risks. Today’s new sharp leap in natural gas prices (Dutch reference contract jumping about 15%) suggests persistent upward pressure on corporates’ and consumers’ energy bills, annex risks of second round price increases. After Friday’s steep rise, German yields today add another 6/4 bps. EMU swap yields even gain 11/9 bps for the 2/10 year sector with the 30-y rising ‘only’ 5 bps. Intra-EMU spreads widen but the damage remains modest (10-y Italy vs Germany +3bps). UK interest rate markets to some extent decouple from the flatting trend in the US and EMU with Gilt yields rising between 8 bps (2-y) and 11 bps (30-y). The combination of recessionary fears with higher yields at the same time, proves a toxic cocktail for equities. The EuroStoxx 50 is ceding 2%. US indices open up to 1.7% lower (Nasdaq).

On FX markets, higher core higher yields in a risk-off context are keeping the dollar in pole position. The DXY index (108.40) is ‘gradually’ closing in on the mid-July cycle top (109.29). EUR/USD (1.00) intraday already filled bids below parity. A retest the 0.9952 YTD low is only a matter of time. Most smaller currencies are fighting an uphill battle but the picture isn’t unequivocal. Some commodity related currencies including the kiwi dollar (0.62) and the Aussie dollar (0.69) don’t lose further ground. The Norwegian krone also shows resilience with EUR/NOK (9.78) nearing the 9.76 support area. The Swiss franc (0.9580) still enjoys its (mainly European) safe haven prerogative, trading at the strongest level against the euro since the early 2015 spike. Cable (1.181) is nearing the 1.176 YTD low. At the same time, sterling rebounds against the euro. EUR/GBP (0.8465) for now fails to confirm a potential break out of the downtrend channel since mid-June.

News Headlines:

Belgian consumer confidence slightly improved in August, rising from -13 to -11, matching the June number which was the best (less worse) since February. The improved confidence stems from better expectations about the economic situation in general (-32 from -37) and increased savings intention (11 from 6). As far as their personal situation is concerned, households' expectations regarding their financial situation are slightly more negative (-8 from -7), while they also appear less optimistic about future labour market developments (unemployment gauge up from 12 to 16). Belgian business confidence is due later this week, on Thursday.

The German Bundesbank published its monthly bulletin today. Inflation is about to reach 10% in the autumn as government measures expire. Higher minimum wage and a weaker currency add to price pressure with the inflation outlook remaining extremely uncertain because of commodity markets. Risks are skewed to the upside. Declining economic output in the winter months (and a recession) has become much more likely with the high degree of uncertainty over gas supplies and the sharp price increases likely to weigh heavily on households and companies.

Daily Pivots: (S1) 0.9603; (P) 0.9637; (R1) 0.9660; More....

EUR/CHF's down trend resumed by breaking through 0.9602 and intraday bias is back on the downside. Current down trend should now target 100% projection of 1.1149 to 0.9970 from 1.0513 at 0.9334. On the upside, break of 0.9698 resistance will indicate short term bottoming, and turn bias back to the upside for stronger rebound.

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.

Daily Pivots: (S1) 136.02; (P) 136.62; (R1) 137.53; More...

USD/JPY's rally is still in progress and intraday bias remains on the upside for 139.37 high. Strong resistance could be seen from 139.37 high to bring another fall from to extend the corrective pattern from there. On the downside below 134.61 minor support will turn intraday bias neutral first.

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 123.21) holds. Long term up trend is expected to resume through 139.37 at a later stage, after the correction finishes.

Daily Pivots: (S1) 0.9559; (P) 0.9579; (R1) 0.9604; More...

USD/CHF's rise from 0.9369 is still in progress and intraday bias stays mildly on the upside for 0.9648 resistance. Firm break there will bring stronger rally back to 0.9884 resistance next. On the downside, below 0.9496 minor support will revive near term bearishness and bring retest of 0.9369 low.

In the bigger picture, while 0.9471 support (2021 high) was breached, there was no follow through selling. Outlook is mixed for now. On the upside, firm break of 0.9648 resistance will revive the case that price actions from 1.0063 are just a corrective pattern, and the larger up trend is no over yet. However, another fall through 0.9369 will affirm the case that medium term up trend from 0.8756 has completed with three waves up to 1.0063.

Daily Pivots: (S1) 1.1765; (P) 1.1858; (R1) 1.1924; More...

GBP/USD's fall from 1.2292 is still in progress and intraday bias stays on the downside for retesting 1.1759 low. Firm break there will resume larger down trend to 1.1409 long term support. On the upside, above 1.1924 minor resistance will delay the bearish case and turn intraday bias neutral first. But outlook will remain bearish as long as 1.2292 resistance holds.

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) 1.0014; (P) 1.0058; (R1) 1.0083; More...

EUR/USD's fall from 1.0368 is still in progress and intraday bias stays on the downside for retesting 0.9951 low. Firm break there will resume larger down trend to 61.8% projection of 1.0773 to 0.9951 from 1.0368 at 0.9860, and then 100% projection at 0.9546. On the upside, above 1.0121 minor resistance will turn intraday bias neutral first. But outlook will stay bearish as long as 1.0368 resistance holds.

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 1.0773 resistance holds, in case of strong rebound.

Risk off sentiment appears to be intensifying today. Selloff in particularly serious in German DAX, while FTSE and CAC are also down. US futures are also pointing to a lower open while 10-year yield is pressing 3% handle. In the currency markets, Euro and Sterling are main losers for the day so far, but Yen is also weak. Dollar is clearly strong against most, with the exception of Aussie and Kiwi, which are showing some resilience.

Technically, EUR/CHF is taking the lead in downside breakout, resuming down trend through 0.9602. Attention will be on when EUR/USD's reaction below parity. As EUR/USD breaks through 0.9951 low, the selloff could spill over to other pairs, and push EUR/AUD through 1.4318 low, and EUR/CAD through 1.2970. Let's see.

In Europe, at the time of writing, FTSE is down -0.46%. DAX is down -2.14%. CAC is down -1.62%. Germany 10-year yield is up 0.054 at 1.285. Earlier in Asia, Nikkei dropped -0.47%. Hong Kong HSI dropped -0.59%. China Shanghai SSE rose 0.61%. Singapore Strait Times rose 0.49%. Japan 10-year JGB yield rose 0.0302 to 0.231.

Bundesbank: Inflation could reach order of 10% in fall

Bundesbank said in its monthly report that the Germany will be adversely affected by the unfavorable developments on the gas market in the summer quarter and beyond. Also, the likelihood of GDP falling in the coming winter half-year has therefore increased "significantly".

Inflation rate is expected to reach "new highs" in the Autumn, and could reach the "order of 10 percent". Outlook for inflation remains extremely uncertain, primarily due to the unclear situation on the commodity markets.

RBNZ Hawkesby: Things will be evenly balanced once rates reach 4-4.25%

RBNZ Deputy Governor Christian Hawkesby said the strategy now is to get the cash rate "comfortably above neutral" to bring down core inflation. And, "that will afford us some breathing space to see how things are playing out."

"Once we get the OCR up into that 4%-4.25% level we're seeing things evenly balanced from there," he added. "So we'd put equal weight on having to put the OCR up as we would putting it down."

"The economy will evolve differently than our projections. There will be shocks that come along. There'll be data that's different than the forecast. And we'll just keep coming back to what does it mean for our mandates," Hawkesby said. "We certainly are projecting an environment where the economy cools."

China PBoC cut loan prime rate to support housing

China's PBoC lowered the one-year loan prime rate (LPR) by 5bps to 3.65% today. The five-year LPR rate, which is used to price mortgages, was slashed by 15bps to 4.30%.

The larger cut is the 5-year rate was seen as for addressing the problems in the housing markets. The asymmetry is also for giving additional boost to long-term financing demand.

Gold's accelerates down, 1700 vulnerable

Gold's decline from 1807.66 extends further today, on the back on broad based strength in Dollar. The downside accelerations argue that rebound from 1680.83 has completed at 1806.66 already. Deeper fall is likely through 1700 handle.

Nevertheless, strong support is still mildly in favor at around 1680.83 low to contain downside. Above 1772.19 minor resistance should resume the rebound through 1807.66.

However, the rejections by 55 day EMA, and below 55 week EMA are both rather bearish signal. Firm break of 1680.83 cluster support will complete a medium term double top pattern (2074.84, 2070.06). That could prompt deeper selloff to 61.8% retracement of 1046.27 to 2074.84 at 1439.18.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0014; (P) 1.0058; (R1) 1.0083; More...

EUR/USD's fall from 1.0368 is still in progress and intraday bias stays on the downside for retesting 0.9951 low. Firm break there will resume larger down trend to 61.8% projection of 1.0773 to 0.9951 from 1.0368 at 0.9860, and then 100% projection at 0.9546. On the upside, above 1.0121 minor resistance will turn intraday bias neutral first. But outlook will stay bearish as long as 1.0368 resistance holds.

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 1.0773 resistance holds, in case of strong rebound.

Economic Indicators Update

WTI oil gained traction on Monday and returned above $90 per barrel, as traders collect profits from last week’s drop to the lowest in seven months, after bears failed to register a weekly close below pivotal Fibo support at $88.42 (Fibo 61.8% of $62.42/$130.48 rally) for the third consecutive week.

Daily studies remain bearish, though oversold conditions suggest a pause in a downtrend, for likely limited correction.

Weak fundamentals continue to weigh on oil prices, as strong signals that US policymakers will remain aggressive in policy tightening that would negatively impact growth and also hurt oil demand.

Upticks should be capped by 200DMA ($95.40) to keep larger bears intact for renewed attack at $88.42 pivot, clear break of which would open way psychological $80 support.

Only bounce above $100 barrier (psychological / Fibo 38.2% of $123.65/$85.35 bear-leg) would sideline bears and allow for stronger correction.

Res: 91.66; 93.60; 94.39; 95.40.
Sup: 90.00; 87.92; 86.89; 85.35.

Gold price started a major decline from well above the $1,780 level against the US Dollar. The price traded below the $1,760 support to move into a bearish zone.

It settled below the $1,755 level and the 50 hourly simple moving average. It traded as low as $1,745 and is currently showing a lot of bearish signs. On the downside, an initial support is near the $1,745 level.

The next major support is near the $1,740 level, below which the price might decline towards the $1,732 support level in the near term. Any more losses might call for a test of $1,720 on FXOpen.

An immediate resistance on the upside is near the $1,750 level. The first major resistance is near the $1,755 level. The next main resistance could be near the $1,760 level, above which the price could start another steady increase.

Bundesbank said in its monthly report that the Germany will be adversely affected by the unfavorable developments on the gas market in the summer quarter and beyond. Also, the likelihood of GDP falling in the coming winter half-year has therefore increased "significantly".

Inflation rate is expected to reach "new highs" in the Autumn, and could reach the "order of 10 percent". Outlook for inflation remains extremely uncertain, primarily due to the unclear situation on the commodity markets.

Full report here.