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Silver plunges as the US dollar recovers across the board. On the daily chart, the price action reversed its course at the support-turned-resistance (20.80). A drop below previous lows at 19.60 suggested a lack of follow-up interest in the metal and triggered a wave of profit-taking. 18.80 at the base of last month’s bullish breakout is an important level to see whether there are still buyers left. Otherwise, the bears might push below 18.20. As the RSI dips into oversold territory, 19.50 is a fresh resistance in case of a bounce.

The pound retreats as recession fears take a foothold in the UK. The latest rebound has met stiff selling pressure at the daily resistance (163.50) which also sits on the 30-day moving average. This failure to achieve a new high suggests that the path of least resistance would be down. 161.60 is a support after intraday buyers gave up their gains at 162.30. Further down, 160.30 is a key level to keep the rebound intact. Its breach could make Sterling vulnerable to a new round of sell-off below 159.50.

The Canadian dollar softened as June’s retail sales decelerated. The pair previously came under pressure at 1.2980. A close above this supply zone equally a daily resistance would flush the remaining selling interest out and open the door for a sustained rebound. The greenback has secured support over 1.2880, which is a sign of commitment from the buy side. 1.3100 under July’s peak is the next target should the rally gain traction. Its breach could resume the uptrend in the medium-term. 1.2930 is the closest support.

The Euro resumes strong fall of past two days and pressuring parity level in early Monday trading, following 2.1% drop last week.

Growing negative sentiment on continuous weak economic data from the EU that prompts traders into safety of US dollar, strongly weigh on the single currency.

Bears are on track for another probe through parity level and retest of 2022 low at 0.9952 (July 14), where previous attempt was strongly rejected.

Fully bearish weekly studies support the notion, though oversold daily techs suggest that bears may face headwinds on approach to key support and pause the downtrend for consolidation.

Upticks should stay under 1.01 zone and expected to provide better selling opportunities for push through 0.9952 pivot that would unmask Sep 2002 low at 0.9607.

Res: 1.0050; 1.0100; 1.0160; 1.0184.
Sup: 1.0000; 0.9952; 0.9900; 0.9853.

Markets

The core bond sell off last week lasted until the US close. Double digit UK inflation numbers, US retail resilience, hawkish messages from the RBNZ & Norges Bank and finally an avalanche of Fed comments all contributed to refocus on inflation dynamics and front-loaded tightening by central banks. It broke ranks with the core bond/stock market comeback since mid-June when the onus was on recessionary fears which would keep central banks sidelined sooner. UK gilts underperform German Bunds who in their turn underperformed US Treasuries. On a weekly basis, UK yields added 17.7 bps (30-yr) to 45.8 bps (2-yr) in a bear flattening move. German yields added 16.9 bps (30-yr) to 28.8 bps (3-yr) with the curve moving in similar fashion. From a technical point of view, longer term yields broke out of their corrective downward trend channels. The US yield curve turned less inverse with weekly changes varying between +14.8 bps (7-yr) and -1.3 bps (2-yr). European and US stock markets on Friday again fell prey to the ferocity of the core bond sell-off with main indices losing 1% to 2%. The dollar outpaced peers despite the relative yield disadvantage. The more difficult risk context is one explanation. A second one is in the breakdown of the yield surge. Especially in Europe, higher inflation expectations made a larger contribution compared to real yields. Technically, EUR/USD’s failure to regain first resistance around 1.0350 was already a bad omen for the pair which closed the week at 1.0037. Sterling lost out against the euro given the global context with the pair exiting the corrective downward trend channel since mid-June and closing the week at 0.8485. Smaller, less liquid currencies (CEE, down under, SEK) faced a tough week with the commodity-related NOK and CAD being the only ones to more or less keep level with the euro (thus still losing out against USD). USD/JPY broke above 135.58 resistance, returning above 137.
 
This morning’s PBOC easing (see below) doesn’t really influence global markets. Local stock indices slightly outperform (+0.5%) while CNY drops to a new YTD low at 6.83. Today’s eco calendar only contains some second-tier eco releases, but gets more exiting later on. EMU August PMI’s (tomorrow), Minutes of the previous ECB Meeting (Thursday) and US PCE deflators (Friday) are scheduled for release. This week’s main talking point will be the Kansas City Fed’s Jackson Hole symposium with Fed Chair Powell giving the key note speech on the economic outlook on Friday. We expect last week’s trends to last into that speech as markets reposition towards more hawkish central banks. We finally retain comments by German Bundesbank Nagel who warned for double digit German inflation in Autumn with inflation likely averaging more than 6% next year. It’s a strong nod towards continuing policy normalization in steps of 50 bps, as suggested by ECB Schnabel last week.

News Headlines

At the monthly fixing, the PBOC this morning lowered the 1-year loan prime rate by 5 bps to 3.65%. The 5 year LPR was set 15 bps lower at 4.30%. The PBOC action follows other measures from the Chinese central bank last week to support the ailing property sector. The move also aims to revive credit flows to the broader economy as activity still struggles to rebound from Covid-lockdowns and as uncertainty on the local real estate sector is weighing on consumers’ moral. The yuan this morning weakens further against the dollar with USD/CNY trading near 6.827.
 
In an interview with Bloomberg, RBNZ deputy governor Hawkesby indicated that the central bank wants the get the OCR cash policy rate comfortably above neutral in order to slow the economy and cool price pressures. The RBNZ last week raised its policy rate from 2.5% to 3.0%. Hawkesby assessed that the economy has been more resilient than expected. The central bank was deliberately ambiguous as it forecasted a potential 4.1% peak for the policy rate. There is a risk that the policy rate will have to be raised to 4.25%. According to Hawkesby, the RBNZ hasn’t settled on a new estimate for what the neutral policy rate might be, but the MPC talked about a range of 2% to 3% which is higher than a previous estimate of 2.0%.

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

Intraday bias in EUR/USD 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.

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

Intraday bias in USD/JPY stays on the upside, as rebound from 130.38 is in progress. 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) 1.1765; (P) 1.1858; (R1) 1.1924; More...

Intraday bias in GBP/USD 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) 0.9559; (P) 0.9579; (R1) 0.9604; More...

Intraday bias in USD/CHF remains mildly on the upside for 0.9648 resistance first. 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) 0.6849; (P) 0.6886; (R1) 0.6912; More...

Intraday bias in AUD/USD stays mildly on the downside at this point. Corrective rebound from 0.6680 could have completed with three waves up to 0.7135. Deeper decline should be seen for retesting 0.6680 low next. On the upside, above 0.6969 minor resistance will mix up the outlook and turn intraday bias neutral first.

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 0.7282 resistance holds. Next target is 61.8% retracement of 0.5506 to 0.8006 at 0.6461.