Sample Category Title

Australia retail sales dropped -1.7% mom in August, better than expectation of -2.5% mom. It's the third consecutive monthly fall after -2.7% in July, and -1.8% in June.

Ben James, Director of Quarterly Economy Wide Surveys, said: "Retail turnover continues to be negatively impacted by lockdown restrictions, with each of the eastern mainland states experiencing falls in line with their respective level of restrictions. In direct contrast, states with no lockdowns performed well with Western Australia and South Australia enjoying strong rises as physical stores were open for trade."

Full release here.

Fed Governor Lael Brainard said "employment is still a bit short of the mark on what I consider to be substantial further progress.. But if progress continues as I hope, it may soon meet the mark," for tapering asset purchases.

"The forward guidance on maximum employment and average inflation sets a much higher bar for the liftoff of the policy rate than for slowing the pace of asset purchases," she added. "I would emphasize that no signal about the timing of liftoff should be taken from any decision to announce a slowing of asset purchases."

Both Minneapolis Fed President Neel Kashkari and Atlanta Fed President Raphael Bostic appeared to be more concerned with getting the job market back to normal, than the higher transitory inflation.

Kashkari said yesterday, "putting Americans back to work...to me that's our highest priority." He also emphasized "we don't want to overreact to short-term price movements."

Separately, Bostic said, "without clear data demonstrating that an inflationary problem has arrived and is likely to last, we will allow labor markets to run their course, which can further our pursuit of long-run maximum employment."

STOCKS

Equities are trading higher with crucial resistances coming up. Dow looks strong to rise towards 35250 while Dax may face resistance near 15700/800 in the coming sessions. Nikkei and shanghai may rise too towards 30500/700 and 3600/3700 respectively. Nifty and Sensex may see a pause or corrective dip followed by resumption of uptrend.

Dow (34869.37, +71.37, +0.21%) has risen well. A break above 35000-35250, if seen can take the index towards 35631 eventually. Watch price action as Dow is expected to rise further from current levels in the near term.

DAX (15573.88, +42.13, +0.27%) has risen and can test resistance near 15700/800 in the near term. Thereafter a fall from there or break on the upside would indicate further direction.

Nikkei (30139.65, -100.41, -0.33%) has dipped from 30171 today. While above 30000 we do not negate a test of 30500-30700 before we see a corrective fall from there.

Shanghai (3597.10. +14.27, +0.40%) is trading higher today and while above important supports near 3550-3575, a rise back towards 3650-3700 can be expected soon.

Nifty (17855.10, +1.90, +0.011%) rose to test 17943.50 and has come down from there. A corrective fall towards 17700-17600 is possible in the coming sessions while below 18000.

Sensex (60077.88, +29.41, +0.049%) has managed to sustain above 60000 but we may expect a pause or corrective decline from here towards 59500-58500 before resuming the upmove again in the medium term. Watch price action near current levels.

COMMODITIES

Crude prices trade higher and can target 85 (Brent) if it fails to decline from current levels. WTI too can move up to 78 if it does not decline from 76/77 itself. Gold and Silver are stuck near levels seen over the last couple of days and need to show some bigger movement to indicate further direction. Till then we may expect precious metals to remain ranged. An expected rise in Dollar Index (refer Forex section below) can lead to a fall in precious metals over the next few sessions. Copper is bullish towards 4.30/40 while above 4.00/10

Brent (79.98) tested 80.19 and has come off a bit from there. It would be crucial to see if Brent comes off from here or manages to break above 80 and sustain higher as that would be surprising and contrary to expectation. We would wait and watch for a couple of sessions to see how the price moves. Any sustained break above 80 would trigger a rise towards 85 in the near term.

WTI (75.99) is also near resistance at 76/77 mentioned yesterday and failure to decline from here could take WTI eventually towards 78. But we would wait and watch to see if the price comes down from current levels.

Gold (1753) is stuck and needs to break on either side of 1800-1740 region to give more clarity.

Silver (22.67) is stuck too and can rise towards 23-23.50 on the upside. Immediate view is bullish while above 22.00-22.50.

Copper (4.2885) has dipped a bit but is bullish towards 4.30/40 while above crucial support at 4.0.

FOREX

Volatility seems to be picking up in currencies. Dollar Index might head towards resistance at 94 while Euro may fall towards 1.1625-1.16 on a break below 1.1665. EURJPY and USDJPY rise sharply and could be headed towards 130.50 and 112 respectively. Aussie and Pound may rise too but could face resistance above current levels. USDCNY has resistance near 6.47/48 and support at 6.44 hence could be ranged within these levels. USDINR can rise towards 74.

Dollar Index (93.46) can rise towards crucial resistance at 94 which could be in line with a fall in Euro towards 1.1625-1.1600. We may expect a corrective dip from 94 on the Dollar Index.

Euro (1.1689) fell below 1.17 as German election results pave way for coalition talks and might lead to some volatility in the near term. While below 1.17, it may test 1.1665 which if fails to hold can drag the exchange rate towards 1.1625-1.1600. Watch price action near 1.1665.

EURJPY (129.85) continues to rise and can rise towards 130-130.50 in the near term. A further break above 130.50 is needed for the cross to turn bullish.

Dollar-Yen (111.12) has finally risen above the 109-110.80 range breaking sharply on the upside. While above 111, a rise towards 112 cannot be negated. Immediate view is strongly bullish.

Aussie (0.7283) has scope to rise towards resistance near 0.7377 which can be tested and face a decline from there back towards 0.7250-0.72 on the downside.

Pound (1.3696) seems to be in a range of 1.3750-1.36 and unless a break on either side is seen, it is difficult to predict further movement from here. We wait for a break on either side of the range.

USDCNY (6.4554) trades below immediate resistance near 6.47/48 but also has support near 6.44 which is likely to keep the pair ranged within 6.47/48-6.44 in the near term.

USDINR (73.8450) broke above 73.80 by the end of the session yesterday as earned in yesterday’s morning edition. The pair is likely to sustain above 73.80 to rise towards 73.90-74.00 in the near term.

INTEREST RATES

The US Treasury yields have risen further and are poised at crucial level. There is limited room left on the upside as strong resistance is coming up. While we expect the resistances to hold and produce a reversal, we remain cautious as well at the moment to see a breakout of these resistances and a further rally from here. The German yields remain stable and higher. They have room to move up further from here. The 5Yr and 10Yr GOI continue to rise and have room to move up further from here before the expected reversal happens.

The US 2Yr (0.28%), 5Yr (0.98%), 10Yr (1.48%) and the 30Yr (1.99%) Treasury yields have moved up further and are poised at crucial levels. 1.5% (10Yr) and 2% (30Yr) are key immediate resistances which we expect to hold and produce a reversal. In case of a break above these resistances an extended rise to 1.6% (10Yr) and 2.1% (30Yr) is possible and the expected reversal can happen thereafter. The price action in the coming days will need a close watch.

The German 2Yr (-0.70), 5Yr (-0.56%), 10Yr (-0.22%) and 30Yr (0.25%) yields remain higher and stable. Our view remains the same. The 30Yr can rise further to 0.3%-0.35% while it sustains above 0.2%. The 10Yr has an immediate resistance at -0.2% which if broken can pave way for a test of -0.1% on the upside. Our earlier view of seeing a reversal stands negated for now.

The Indian 10Yr GoI (6.2087%)and the 5Yr GoI (5.6869%) have risen further. The 10Yr has tested 6.2% as expected and can rise to 6.25%-6.26% while it sustains above 6.2%. The 5Yr on the other hand has an immediate resistance at 5.7%. A break above it can take the 5Yr up to 5.76% and higher thereby negating our earlier view of seeing a reversal to 5.64% and lower.

Key Highlights

• GBP/USD started an upside correction from the 1.3600 zone.
• It is facing a crucial resistance near 1.3770 and 1.3780 on the 4-hours chart.
• EUR/USD is struggling to recover above 1.1750.
• Crude oil price rallied above the $75.00 resistance zone.

GBP/USD Technical Analysis

The British Pound started a fresh decline from well above 1.3850 against the US Dollar. GBP/USD traded below the key 1.3800 support zone to enter a bearish zone.

Looking at the 4-hours chart, there was a break below a key bullish trend line at 1.3780. The pair settled below the 1.3750 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

The pair traded as low as 1.3609 and recently started an upside correction. There was a break above the 1.3700 resistance. The pair cleared the 23.6% Fib retracement level of the key decline from the 1.3913 high to 1.3609 low.

The pair is now facing a strong resistance near the 1.3770 and 1.3780 levels. The 50% Fib retracement level of the key decline from the 1.3913 high to 1.3609 low is sitting near the 1.3760 level.

Besides the 100 simple moving average (red, 4-hours) and the 200 simple moving average (green, 4-hours) are positioned near 1.3780. Therefore, a close above 1.3780 could open the doors for a steady increase.

If not, the pair could resume its decline below 1.3650. The next key support is near 1.3620, below which the pair may possibly dive towards 1.3550.

Looking at EUR/USD, the pair is trading well below the 1.1750 resistance zone and it remains at a risk of more downsides.

Economic Releases

• Germany’s GfK Consumer Confidence for Oct 2021 – Forecast -1.8, versus -1.2 previous.
• S&P/Case-Shiller Home Price Indices for July 2021 (YoY) - Forecast +20%, versus +19.1% previous.

Oil rally continues

Oil prices are continuing to surge, with Brent crude now closing in on $80 and WTI perhaps not too far behind it.

The global energy crisis could see demand for crude rise if the northern hemisphere experiences a cold winter, with many countries not equipped to cope.

If momentum is sustained, pressure will grow on OPEC+ to speed up the pace that it increases output, after a historic production cut early in the pandemic.

Plans to increase production by 400,000 barrels per day, each month, will see output return to normal by the end of next year but recent events may require the group to pick up the pace.

The last thing the global economy needs going into an uncertain winter period is a fuel crisis to top everything off. Producers may not rush into a decision though, with some potentially comfortable with prices at these levels and others wanting to see if further restrictions accompany Covid surges that weigh on demand.

Gold finding support after Fed blow

Gold is making small gains at the start of the week after once again finding support around $1,740 late last week.

The Fed’s insistence that tapering is still the aim this year and a couple more dots suggesting a rate hike late next year could be on the cards dealt a heavy blow to gold prices last week and the outlook remains challenging if policymakers don’t change course.

With downside momentum seemingly slowing, gold could see some reprieve in the near-term but the broader outlook isn’t great. Inflation is typically part of the bullish case for gold but it’s very much working against it at the moment as it pushes central banks towards the stimulus exit doors.

A significant uptick could see attitudes change. but for now, lower inflation and more central bank stimulus is seemingly more favourable for the yellow metal.

[php_everywhere instance="1"]

New York Fed President John Williams said, "assuming the economy continues to improve as I anticipate, a moderation in the pace of asset purchases may soon be warranted."

Williams expected the economy to grow between 5.5% to 6% this year. Inflation will drop back to 2% next year.

"There is still a long way to go before reaching maximum employment," Williams said. "And over time it should become clearer whether we have reached 2 percent inflation on a sustained basis."

In a speech, BoE Governor Andrew Bailey said some MPC members put "more emphasis on the continuing shortfall in the level of GDP relative to pre-Covid". Others "emphasized the continuing direction of travel towards closing that gap and the evidence of cost pressures accompanying the closing".

However, "all of this group were of the view that the stimulus to monetary policy enacted in response to Covid would need to start to unwind at some point, that unwind should be enacted by an increase in Bank Rate, and if appropriate would not need to wait for the end of the current asset purchase programme."

Full speech here.

On Wednesday at 12:00 GMT, the Eurozone’s economic sentiment for September will be released. Over the last few months, the outlook for the euro area’s economy has steadily increased; however, as the European Central Bank (ECB) is unlikely to raise interest rates soon, the near-term direction is likely to be determined by the Fed instead of the ECB. The single currency is fluctuating around the $1.1700 handle, remaining under pressure.

Economic sentiment expected to fall as PMIs releases disappoint

In August, the economic sentiment eased to 117.5 from an all-time high of 119.0 in the preceding month and below the market expectation of 117.9. Concerns about the Delta coronavirus type caused sentiment to weaken for the first time since January's drop. Service sector morale has dropped from a 14-year high, while manufacturing sentiment has dropped from its all-time high. Consumer sentiment was also down 0.9 points to -5.3. In the meantime, confidence among retailers and builders has improved.

Last week’s PMI releases indicate weaker sentiment as the IHS Markit Eurozone Services PMI fell to 56.3 in September from 59 before, falling short of market expectations of 58.5. The IHS Markit Eurozone Manufacturing PMI fell to 58.7 from 61.4, while the Eurozone consumer confidence indicator rose by 1.3 points to -4 in the flash estimate - the highest level since June. The ongoing pandemic was widely blamed for subdued demand growth, particularly in stifling service sector exports.

Euro area faces slow recovery as PEPP to end soon up

The euro area’s recovery is expected to allow the ECB to end up the pandemic bong-buying program in March and policymakers will start discussing how to prevent derailing the recovery if support is withdrawn. ECB’s Muller stated in an interview that one possibility would be to increase the pre-crisis plan beyond the current 20 billion euros every month.

According to Muller, a possible rise in the older quantitative easing program will be “part of the conversation we will have on how to phase out PEPP and what it would mean for asset purchases going forward.”

The ECB is expected to make more of the aforesaid remarks till the end of the year. The closure of the PEPP is seen as being mostly irrelevant because the ECB will probably just raise APP purchases next year.

When the pandemic hit the economy and the outlook was at its worst, the PEPP averted the financial system from collapsing. The most notable aspects of the market stabilization channel, which promote confidence and the economy, are a strong market presence and flexibility in the way purchases are performed.

Technical view: $1.17 level is at risk again

If the numbers come in higher than expected, the euro could climb somewhat. Over the last three months, the single currency has been consolidating in the $1.1665-$1.1910 range. A break above the short-term simple moving averages (SMAs) would open the way for the $1.1910 strong barrier to be breached ahead of the 200-day SMA, which is hovering around the 1.1975 level. Without a substantial policy signal from the ECB soon or clear direction from the data, breaking through this barrier may be difficult.

The next immediate support, on the other hand, might come from $1.1665 and then $1.1610 if the $1.17 level doesn’t hold. More declines could lead to more losses until $1.1420 is reached.