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EUR/USD

The bulls prevailed and managed to violate the resistance at 1.0210. During the early hours of today’s session, the pair is still trading the aforementioned level and the expectations are for a test of the important level at 1.0269. A successful breach here could lead to a continuation of the recovery and a move towards the levels at around 1.0400. If the bullish momentum fades, then the first target for the bears can be found at the zone of 1.0210, which is now acting as support. A breach of the lower zone at 1.0125 will mark the current move as a corrective one and could deepen the decline towards the support at 1.0049. Today at 12:30 GMT, traders will focus their attention on the data on the non-farm payrolls and the unemployment rate.

USD/JPY

The attack on the support at 132.52 was not successful and the currency pair consolidated above the mentioned level. If the buyers prevail, then they could easily head the price for a test of the resistance zone at 134.59. A confirmed breach will most likely continue the recovery for the dollar against the yen and could pave the way for an attempt for a violation of the target at 135.72. If the bears re-enter the market, then the most likely scenario would be for a new successful test of the zone at 132.52, which could lead to a decline towards the low at 130.68.

GBP/USD

Neither the bears, nor the bulls managed to gain enough momentum and the Cable remains locked in the zone between 1.2101 and 1.2186. A successful attack for the buyers on the resistance at 1.2186, followed by a violation of the upper level at 1.2276, could strengthen the positive expectations for the future path of the GBP/USD and could lead to a rally towards the levels from June 2022 at around 1.2600. If the bears seize control and breach the lower border at 1.2101 istead, then they could test the next target at 1.2021, where a successful breach could easily deepen the sell-off and lead to a move towards the important support at 1.1922.

EUGERMANY40

The positive sentiment remains unchanged, and after yesterday’s test of the resistance at 13722, the German index consolidated under the mentioned zone. The expectations are for a new bullish attack, and if successful, the positive expectations for the future path of the EUGERMANY40 will be strengthened and the index is likely to continue its rally towards the levels at around 14000. If the bears prevail, then their first target would be the support at 13507. A violation of the lower zone at 13339 could deepen the correction and could lead to a test of the major support at 13121.

US30

The U.S. index continues to trade below the week’s highs, and during the early hours of today, the price consolidated above the support at 32578. Better- than-expected U.S. data for the non-farm payrolls and the unemployment rate (today; 12:30 GMT) could help the bulls prevail. A successful breach of 32909 could easily lead to a rally and result in future gains for the US30. If the bears enter the market, then a violation of the support zone at 32578 could deepen the sell-off. A successful attack on the lower target at 32003, followed by a violation of the zone at 31643, could easily lead to a change in the current sentiment of the market participants.

The Nasdaq 100 rallies supported by growing risk appetite. A rally above 12900 has put the index back on track after short-term selling interests cut their losses. Last May’s high at 13550 is a key resistance ahead. Its breach could turn bearish sentiment around in the medium-term and lay the foundation for a sustained recovery. The RSI’s overbought condition may temporarily limit the upside range. The former supply zone (12900) has become a fresh support where the bulls may look to accumulate in case of a pullback.

The US dollar softens as traders take profit ahead of July’s job data. On the daily chart, the pair is seeking support in a pennant consolidation and it would be too soon to call a bearish reversal. The recent rally above 0.9590 prompted some sellers to cover their positions, leaving the door open for a potential rebound. 0.9660 is the closest hurdle and its break could raise offers to 0.9790. 0.9540 is a fresh support and a breakout would bring the buck back to 0.9480 where it could be vulnerable to another sell-off.

The pound treads water as the BoE warns of a recession after raising rates by 50 bps. The rebound came to a halt at 1.2300, a major resistance from the daily chart. A bearish RSI divergence already showed a slowdown in the rally. A follow-up break under 1.2150 has further weighed on short-term optimism. 1.2070 is buyers’ stronghold and its breakout could trigger a liquidation towards 1.1900. 1.2200 is the closest resistance and the bulls will need to clear 1.2300 before they could hope for the rally to resume.

Markets

The Bank of England policy meeting was widely watched yesterday, not only by UK but also by European and US markets. Governor Bailey’s MPC raised rates by 50 bps to 1.75%, following global peers in larger-sized increases. The BoE will start selling UK gilts actively shortly after the September meeting, tightening policy on another front. Inflationary pressure have intensified markedly. Both external (near doubling of gas prices) as domestic (increased wage pressures) lie at the roots of inflation that may peak at more than 13% in Q4 this year. But the economy is expected to have entered a recession at that same point in time. It is projected to last all the way through 2023 as real household income drops sharply this year and the next and consumption growth turns negative. Regarding future policy moves, the BoE has tweaked guidance into being open-minded but above all data-dependent. The grim economic assessment triggered a hefty repositioning especially at the front end of the UK curve. But much of that was reversed shortly after as markets assume it’s not yet time for the BoE to pause let alone flip the tightening cycle. The 2y UK yield undid an 11 bps drop to finish 1.1 bps higher. Yields with longer tenors shed a mere 1.7 to 2.3 bps. German yields were unable to stage such intraday comeback. They finished up to 7.1 bps lower (10y). Swap yields dropped between 2.9 and 7.2 bps, the belly outperforming. US yields due to recent Fed comments were a bit better protected but not immune. Changes on the curve varied from -3.3 bps in the middle segment to +2 bps at the longest tenors. A further decline in oil prices also weighed on core bond yields. Brent slid 2.75% to $94.12/b amid rising inventories and slowing demand. It’s the lowest level since the Russian invasion. Sterling took a hit. Despite policy rate expectations not having changed that much, the currency did anticipate quite a bit on today’s meeting with some profit-taking as a result. EUR/GBP jumped from 0.837 to 0.843. EUR/USD didn’t budge for most of the day before dollar weakness kicked in as US dealings got rolling. The pair settled around 1.025. Trade-weighted DXY slipped sub 106 again. Equity markets traded choppy and without a clear direction.

Asian stocks this morning trade mostly in the green following a mixed/choppy performance on WS the day before. Core bonds trade flat and the dollar tries to recuperate some of yesterday’s losses as it heads into the US labour market report for July. Analysts expect job growth to have slowed from previous months but to remain at solid 250k. Pay growth is expected to be at 0.3% m/m and 4.9% y/y. In terms of the market reaction, there’s an asymmetric risk. We expect a (more than) decent jobs report that will back this week’s Fed comments and underscore the need for more tightening. Yields may bottom out further in such circumstances. However, as markets are still in a recessionary state of mind an undershoot will be seen as validating their recent dovish repositioning and may trigger a heftier response. In our base scenario though, we believe the USD along with US yields to come out stronger today.

News Headlines

The Reserve Bank of India raised rates from 4.90% to 5.40% today. Consensus expected a smaller increment to 5.25%. The decision was unanimous and brings the policy rate at levels last seen before the pandemic. Inflationary pressures are broad based and core inflation remains elevated, governor Das said. He added that price pressures, 7.01% y/y in June are expected to remain above the 2-6% target range for some time. Relieve from softening global commodity prices are unlikely to pass through in the short run because of the dramatic weakening of the rupee to record lows. USD/INR hit 80 mid-July. The rupee has recovered only marginally since then. The couple is trading around 79.10 in the wake of the RBI decision.

Daily Pivots: (S1) 1.0183; (P) 1.0219; (R1) 1.0282; More...

Range trading continues in EUR/USD and intraday bias remains neutral. With 1.0095 minor support intact, further rise is still mildly in favor. Rebound from 0.9951 will target 1.0348 support turned resistance. Break there will target channel resistance at 1.0432. On the downside, break of 1.0095 minor support will turn bias back to the downside, and bring retest of 0.9951 low 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 1.0773 resistance holds, in case of strong rebound.

The currency markets are quiet overall as focus now turns to US job data. The post BoE selloff in Sterling didn't last long. Meanwhile, Dollar is still range bound against Euro and Yen. The greenback's rally attempt against Swiss Franc also faltered rather quickly. Commodity currencies are steady. Most major pairs and crosses are stuck inside last week's range. Hopefully, today's non-farm payroll will bring some life back to the markets.

Technically, the development in US stock markets, in reaction to NFP, could be the leading factor in other markets. S&P 500 has been making some progress in securing a near term bullish reversal. Immediate focus will be on 4177.51 resistance. Strong break there and a weekly close above should confirm that whole correction from 4818.52 has completed with three waves down to 3636.87. That would set the stage for more upside in SPX for the rest of Q3, and set the risk-on tone which would give Dollar and Yen some extended pressure.

In Asia, Nikkei closed up 0.85%. Hong Kong HSI is up 0.25%. China Shanghai SSE is up 0.59%. Singapore Strait Times is up 0.30%. Japan 10-year JGB yield is down -0.0084 at 0.167. Overnight, DOW dropped -0.26%. S&P 500 dropped -0.08%. NASDAQ rose 0.41%. 10-year yield dropped -0.072 to 2.676.

Australia AiG services rose to 51.7, two-speed sector emerges

Australia AiG Performance of Services rose 2.9 pts to 51.7 in July. Sales jumped 7.4 to 49.3. However, employment dropped -2.9 to 52.4. New orders rose 1.7 to 50.6. Supplier deliveries rose 5.9 to 47.6. Input prices rose 5.3 to 74.3. Selling prices dropped -3.8 to 63.4.

Innes Willox, Chief Executive of Ai Group, said: "We are seeing a 'two-speed' services sector emerge as businesses contend with labour shortages and rising interest rates. Business & property and personal services grew dramatically in July, while retail & hospitality and logistics fell dramatically. Chronic labour shortages and a super-charged winter spike in absenteeism are large and growing challenges for labour-intensive service industries. And rising interest rates are dampening consumer sentiment, casting a shadow over consumer-facing sectors."

Fed Mester: Interest rates continue to rise this year and into next through first half

Cleveland Fed President Loretta Mester said that "interest rates continue to rise this year and into next year through the first half and maybe by then we can pause and we can start bringing them back down." She would "pencil in going a bit above four as appropriate".

As for September meeting, she said, "it's not unreasonable to think we might have to do a 75 (basis point move) but I can imagine it could be a 50. We'll just have to look at the data as it comes in."

Gold resumes rally as focus turns to NFP

US non-farm payroll report is a major focus today. Employment is expected to grow 250k in July. Unemployment rate is forecast to be unchanged at 3.6%. Average hourly earnings would maintain a growth pace of 0.3% mom.

Looking at related data, ISM manufacturing employment ticked up from 47.3 to 49.9. ISM services employment rose from 47..4 to 49.1. Four-week moving average of initial claims rose from 233k to 255k. Overall, these data suggest that there won't be a blockbuster NFP today. Wage growth would likely be the more market moving part.

Here are some readings on NFP:

• NFP Preview: Will We See the Lowest Jobs Reading Since 2020?
• US July NFP Expected to Slow
• Dollar Awaits Nonfarm Payrolls as Recession Worries Mount

Gold's rally from 1680.83 resumed after brief retreat and breaks through 1786.65 resistance. The development adds to the case that whole decline from 2070.06 has completed after defending 1682.60 key support. Further rally is now in favor as long as 1754.13 minor support holds, for 38.2% retracement of 2070.06 to 1680.83 at 1829.51. The move could be accompanied by another round of near term selloff in Dollar.

Elsewhere

Japan labor cash earnings rose 2.2% yoy in June versus expectation of 1.9% yoy. Household spending rose 3.5% yoy versus expectation of 1.5% yoy. Germany industrial production rose 0.4% mom in June, versus expectation of -0.2% mom decline.

France trade balance and Italy industrial production will be released in European session. Later in the data, in addition to US NFP, Canada will also publish job data and Ivey PMI.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0183; (P) 1.0219; (R1) 1.0282; More...

Range trading continues in EUR/USD and intraday bias remains neutral. With 1.0095 minor support intact, further rise is still mildly in favor. Rebound from 0.9951 will target 1.0348 support turned resistance. Break there will target channel resistance at 1.0432. On the downside, break of 1.0095 minor support will turn bias back to the downside, and bring retest of 0.9951 low 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 1.0773 resistance holds, in case of strong rebound.

Economic Indicators Update

US non-farm payroll report is a major focus today. Employment is expected to grow 250k in July. Unemployment rate is forecast to be unchanged at 3.6%. Average hourly earnings would maintain a growth pace of 0.3% mom.

Looking at related data, ISM manufacturing employment ticked up from 47.3 to 49.9. ISM services employment rose from 47..4 to 49.1. Four-week moving average of initial claims rose from 233k to 255k. Overall, these data suggest that there won't be a blockbuster NFP today. Wage growth would likely be the more market moving part.

Here are some readings on NFP:

• NFP Preview: Will We See the Lowest Jobs Reading Since 2020?
• US July NFP Expected to Slow
• Dollar Awaits Nonfarm Payrolls as Recession Worries Mount

Gold's rally from 1680.83 resumed after brief retreat and breaks through 1786.65 resistance. The development adds to the case that whole decline from 2070.06 has completed after defending 1682.60 key support. Further rally is now in favor as long as 1754.13 minor support holds, for 38.2% retracement of 2070.06 to 1680.83 at 1829.51. The move could be accompanied by another round of near term selloff in Dollar.

Australia AiG Performance of Services rose 2.9 pts to 51.7 in July. Sales jumped 7.4 to 49.3. However, employment dropped -2.9 to 52.4. New orders rose 1.7 to 50.6. Supplier deliveries rose 5.9 to 47.6. Input prices rose 5.3 to 74.3. Selling prices dropped -3.8 to 63.4.

Innes Willox, Chief Executive of Ai Group, said: "We are seeing a 'two-speed' services sector emerge as businesses contend with labour shortages and rising interest rates. Business & property and personal services grew dramatically in July, while retail & hospitality and logistics fell dramatically. Chronic labour shortages and a super-charged winter spike in absenteeism are large and growing challenges for labour-intensive service industries. And rising interest rates are dampening consumer sentiment, casting a shadow over consumer-facing sectors."

Full release here.

Cleveland Fed President Loretta Mester said that "interest rates continue to rise this year and into next year through the first half and maybe by then we can pause and we can start bringing them back down." She would "pencil in going a bit above four as appropriate".

As for September meeting, she said, "it's not unreasonable to think we might have to do a 75 (basis point move) but I can imagine it could be a 50. We'll just have to look at the data as it comes in."