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The New Zealand dollar is almost unchanged in the Friday session. NZD/USD is currently trading at 0.7070, down 0.04% on the day.

New Zealand manufacturing PMI slides

The final New Zealand event this week was a disappointment. Manufacturing PMI for August took a dive, falling to 40.1 in August. This marked the first time that the PMI contracted in 2021 (a reading below 50.0 indicates a decline). The PMI pointed to a sharp slowdown, down from 62.2 in July. The soft reading is reflective of the toll that the most recent national lockdown has taken on manufacturing, especially with restrictions in Auckland higher than elsewhere.

The soft PMI reading put a damper on the GDP report for Q2, which posted a 2.8% gain, well above the consensus of 1.1%. On an annual basis, GDP soared by 17.4% – of course, this is in comparison with the Q2 of 2020, when the New Zealand economy was hard hit by Covid health restrictions. BNZ Senior Economist Doug Steel warned that GDP and manufacturing output are expected to decline significantly in the third quarter, and called the soft PMI “a reality check in the afterglow of yesterday’s very strong Q2 GDP outcome.”

The financial markets will be looking for guidance as to what the Reserve Bank of New Zealand makes of the latest data. The central bank has delayed plans to raise interest rates, but policymakers appear committed to a hike once economic conditions are more favourable. If the RBNZ raises rates, it will become the first major central bank to do so in the Covid-19 era, and a signal that a rate hike is soon on the way would likely provide a strong lift for the New Zealand dollar.

The unexpectedly strong US retail sales release is also weighing on the New Zealand dollar. The August gain of 0.70% beat the consensus of -0.70%. Although not a huge gain by any means, the reading has ignited expectations of a Fed taper, perhaps at the November policy meeting. With the FOMC holding a meeting next week, the markets will be looking for clues as to whether the Fed is ready to hit the taper buzzer at the November meeting.

NZD/USD Technical

• On the upside, 0.7074 is a weak line. Close by, there is resistance at 0.7117.
• There are support lines at 0.7032 and 0.6989

GOLD has made a breakout of 1765 lows. We should see a move lower on a1765 zone retest.

The 1765-70 zone could be good for new short trades. The bearish momentum in the market persists as the price is getting weaker each day. Watch for the retest of the POC zone and break below 1750. The targets are 1720 and 1712. At this point it is sell on rallies.

GBPJPY is mostly edging sideways and has recently found some footing off the 150.96 level, this being the 23.6% Fibonacci retracement of the up leg from 134.39 to 156.06. The flattening out of the 50- and 100-day simple moving averages (SMAs) is transmitting a lack of clear price direction, while the soaring 200-day SMA is defending the positive structure.

Furthermore, the Ichimoku lines are not indicating a convincing price preference, while the short-term oscillators are also reflecting mixed signals in directional momentum. The red trigger line has merged with the zero threshold, and the MACD is only just beneath it, while the upward pointing RSI has managed to return slightly above its 50 neutral mark. The stochastic %K line has bounced off the 20 oversold level and crossed over the %D line, signalling a minor increase in positive forces.

Currently, buyers are facing upside limitations emanating from the 50-day SMA at 151.63 up to the Ichimoku cloud’s upper surface just shy of the 152.00 hurdle. Overstepping the cloud, the next barrier to impede the climb in the pair is the 100-day SMA at 152.83. Then, looming overhead is the 153.30-154.06 border, which buyers would need to conquer to fuel additional bullish momentum, in order to challenge the zone of resistance between the 155.14 and 155.47 highs, achieved in the second half of June.

If gains become curbed and sellers resurface, initial support could commence at the 23.6% Fibo of 150.96. Shifting below the 151.00 handle, the bears may target the 200-day SMA at 149.69 and the adjacent support foundation of 148.51-149.41, which has safeguarded the positive structure since March 24. From here, should this critical base give way, a neighbouring barricade from 148.10 until 147.39, which encapsulates the 38.2% Fibo and the 147.95 region, a peak from December 2019, may challenge the potency of negative pressures.

Summarizing, GBPJPY is displaying a minor inclination to the upside. Its neutral-to-bullish tone remains intact above the 23.6% Fibo of 150.96 and the 200-day SMA. A clearer direction could form with a break either below 148.45 or above 154.06.

The British pound is flat in the Friday session. GBP/USD is currently trading at 1.3792, down 0.03% on the day.

UK Retail Sales contracts for second consecutive month

After posting stronger than expected data this week, today’s UK Retail Sales release was a major disappointment. The headline reading came in August came in at -0.9%, following a -2.5% decline in July. The consensus called for a 0.5% gain. Investors did not hit the panic button after the soft release, as the pound is unchanged on the day.

Earlier this week, inflation and employment data was positive, signalling that the UK economy continues to strengthen, despite the economic toll from the Covid pandemic. Still, the fact that retail sales, the primary gauge of consumer spending, has contracted for two successive months is certainly a concern for investors.

The Bank of England is in no hurry to raise interest rates, and the weak retail sales report will serve as ammunition for those members who are leaning towards a dovish, wait-and-see stance. The reopening of the UK economy in July predictably triggered a spike in inflation in August, and the BoE, copying the Federal Reserve’s stance, has stated that it expects the jump to be transient. It appears that BoE monetary policy will be largely data-driven, as policymakers wait for additional data in order to get a better feel of the strength of the economy.

The markets are digesting a stronger-than-anticipated US retail sales report. The gain of 0.70% beat the consensus of -0.70%. Although not a huge gain by any means, the reading has ignited expectations of a Fed taper, perhaps at the November policy meeting. The FOMC meeting next week will be closely monitored, with the markets looking for clues as to whether the Fed is ready to press the taper trigger at the November meeting.

GBP/USD Technical Analysis

• There is resistance at 1.3904. Above, there is resistance at 1.3978
• On the downside, we have support at 1.3742 and 1.3654

Hello fellow traders. In this technical blog we’re going to take a quick look at the Elliott Wave charts of GBPAUD, published in members area of the website. As our members know, we’ve been calling rally in the Forex Pair. The pair made pull back that has had a form of Elliott Wave Zig Zag pattern. We expected GBPAUD to find buyers at the extreme zone from the 08/20 peak. In the further text we are going to explain the Elliott Wave Pattern and trading strategy.

Before we take a look at the real market example, let’s explain Elliott Wave Zigzag.

Elliott Wave Zigzag is the most popular corrective pattern in Elliott Wave theory . It’s made of 3 swings which have 5-3-5 inner structure. Inner swings are labeled as A,B,C where A =5 waves, B=3 waves and C=5 waves. That means A and C can be either impulsive waves or diagonals. (Leading Diagonal in case of wave A or Ending in case of wave C) . Waves A and C must meet all conditions of being 5 wave structure, such as: having RSI divergency between wave subdivisions, ideal Fibonacci extensions and ideal retracements.

GBP/AUD Elliott Wave 1 hour chart 09.02.2021

At the chart below we can see what Elliott Wave Zig Zag pattern looks like in real market. Pull back reached equal legs at 1.86718-1.84997 (buyers zone). First leg of the– A red, has subdivided into 5 waves. Then we got B red that has form of Triangle Structure. Finally doing C red that should have 5 waves. Currently we can be doing ((iv)) of C red. Once bounce completes another leg down within blue box should ideally follow . We don’t recommend selling the pair and favor the long side from the blue box area. Once bounce reaches 50 Fibs against the B red high, we will make long position risk free ( put SL at BE). As our members know, Blue Boxes are no enemy areas , giving us 85% chance to get a bounce.

GBP/AUD Elliott Wave 1 hour chart 09.02.2021

The pair made another wave down within blue box area and found buyers as we expected. We got nice reaction from the blue box, which reached and exceeded 50 fibs against the connector, so any long trades from the blue box should be risk free at this stage. Cycle from the peak is counted completed at 1.85187 low. Now we would like to stay long from the blue box and not forcing new trades , until 08/20 peak gets broken. In that case GBPAUD will have again bullish sequences and will offer new long opportunities in 3,7,11 swings.

The Swiss Market Index (SMI) is one of the other Capital Markets worldwide that is building motive wave from the lows of March 2020. We can clearly see that it has already completed 3 waves to the upside and we are correcting on wave 4 now.

SMI daily chart

Wave ((1)) ends at 10534 as leading diagonal. Wave ((2)) did a double correction to complete at 9498. Then the SMI bounce from there developed another impulse as wave ((3)). The wave (1) of ((3)) did another leading diagonal. If you want to learn more about Elliott Wave Theory, please follow this link: Elliott Wave Theory). Then wave (2) of ((3)) was short ending at 10922. Wave (3) of ((3)) impulse ends at 12088 and wave (4) of ((3)) pullback at 11800. Last push to complete wave (v) of ((3)) and wave ((3)) peak at 12582.

Currently, we are developing wave ((4)) that should find support in 11844 – 11395 area and continue higher to complete the impulse from March 2020 low. This last swing should end in 13757 – 12760 area where wave I of upper degree will end and we should correct the whole cycle in wave II. As SMI ALT view in blue, wave ((3)) could not be completed and needs one more swing high to finish it and then we will see a pullback an a last push to complete the impulse.

Notes/Observations

• UK retail sales data continues its summer slump.
• Euro Zone Final CPI reading confirmed the highest annual pace since 2011.
• Political shifts have increased the odds of Germany loosening its tight national fiscal rules after the September elections.
• Large liquidity add by PBoC to help risk appetite as it sought to soothe market nerves frayed by concern over quarter-end funding needs and China Evergrande Group’s debt crisis.

Asia

• New Zealand Aug Manufacturing PMI registered its 1st contraction in 8 months (40.1 v 62.2 prior).
• China PBOC Open Market Operation (OMO) injected CNY50B in 7-day reverse repos and CNY50B in 14-day Reverse Repos. PBoC stated that large cash injection aimed at keeping liquidity stable towards quarter-end (largest since Feb. Analysts saw PBoC injection as sign the authorities were seeking to soothe market nerves frayed by concern over quarter-end funding needs and China Evergrande Group’s debt crisis.
• China submits application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
• Japan LDP Candidates begin leadership race. Noda (frontrunner) stated that would offer blanket cash payouts to all Japan workers and pledged to have half of his Cabinet comprised of women. Candidate Takaichi (seeking to become 1st female PM in Japan) stated that now was the time to take bold steps and make use of ultra-low interest rates. Would seek to reach the 2% inflation target and freeze primary balance target to deploy flexible fiscal stimulus.

Europe

• ECB noted that a FT story of potential rate increase was not accurate; Conclusion on rates was not consistent with forward guidance.
• FT report circulated citing an unpublished ECB inflation estimate which raised the chance of a rate rise in just over 2-years (towards end-2023); Expected to hit 2% inflation target by 2025.
• UK Chancellor Rishi Sunak said to be planning to use next month’s Budget to set out new rules to reign in government borrowing with the specter of higher inflation and rising interest rates a concern. Would require underlying debt to start falling by 2024-25 (Note: currently stands at about 100 per cent of gross domestic product).

Americas

• Treasure Sec Yellen said to have called Senate minority leader McConnell (R-KY) on debt limit on Wednesday, Sept 15th. McConnell repeated to Secretary Yellen what he has said publicly since July: This was a unified Democrat government, engaging in a partisan reckless tax and spending spree. Democrats have to raise the debt ceiling on their own, and they had the tools to do.
• President Biden failed to convince Sen Manchin (D-VW) to agree to spend $3.5T on the reconciliation package during their meeting at the Oval office.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 +0.57% at 468.62, FTSE +0.40% at 7,055.55, DAX +0.49% at 15,728.05, CAC-40 +0.89% at 6,681.82, IBEX-35 +1.21% at 8,838.50, FTSE MIB +0.54% at 26,104.00, SMI +0.45% at 12,082.91, S&P 500 Futures +0.02%].
• Market Focal Points/Key Themes: European inices open higher across the board and stayed positive as the session progressed; sectors among those leading to the upside include consumer discretionary and financials; while underperformers include materials and industrials; Grifols makes bid for Biotest; reportedly Cerberus considering taking stake in Commerzbank; Safestay evaluating sale of company; BNP Paribas sells stake in Euronext; no major earnings expected in the upcoming US session.

Equities

• Consumer discretionary: Dometic Group [DOM.SE] +5% (acquisitions).
• Financials: Commerzbank [CBK.DE] +5% (govt stake sale speculation), Euronext [ENX.FR] -2% (placement).
• Healthcare: Biotest [BIO.DE] +10% (offer).
• Industrials: Yara International [YAR.NO] -3% (partially stops production on higher natural gas prices).

Speakers

• ECB’s de Cos (Spain) noted that recent bond yield price action reflected uncertainty. Market expectations did not foresee an interest rate hike in the Euro Zone in 2023 (again refutes recent FT story).
• Austria Central Bank (ONB) maintained its 2021 GDP growth forecast at 4.0%. Could have a small downward revision if bottlenecks in economy persisted.
• Russia Central Bank (CBR) Gov Nabiullina reiterated stance to consider possible further interest rate hikes at upcoming meetings.
• South Africa's top court ruled that former president Zuma had failed in his bid to have his 15-month jail sentence for failing to attend a corruption inquiry overturned.
• Japan Chief Cabinet Sec Kato confirmed Oct 4th as date for reopening Parliament to decide the new PM.
• Japan Leadership Candidate Kono said to be supported by PM Suga.
• IEA Exec Birol stated that would be surprised to see oil at $100/barrel in 2021. Noted that high gas prices to persist for weeks.
• US House Speaker Pelosi reiterated that destruction of the Good Friday Accords would make a US-UK trade deal unlikely.

Currencies/Fixed income

• FX price action was subdued in the session with focus continuing to be on bond yields. USD holding near 3-week highs aided by safe-haven demand due to concerns over slowing growth, rising inflation and concerns over possible international financial shock from China’s domestic debt situation.
• GBP/USD was slightly softer after UK retail sales data continued its summer slump. Pair holding above the 1.38 area.
• EUR/USD staying below the 1.18 handle despite higher inflation concerns in Europe. Dealers noted that Political shifts have increased the odds of Germany loosening its tight national fiscal rules after the September elections.
• Bond yields seemed to have stopped falling at this time. Dealers cite a stronger rise in inflation expectations. An ECB spokesperson did refute an earlier FT report that cited an unpublished ECB inflation estimate which raised the chance of a rate rise in just over 2-years.

Economic data

• (UK) Aug Retail Sales (ex-auto/fuel) M/M: -1.2% v +0.8%e; Y/Y: -0.9% v +2.5%e.
• (UK) Aug Retail Sales (including auto/fuel) M/M: -0.9% v +0.5%e; Y/Y: 0.0% v 2.7%e.
• (FR) France Q2 Final Wages Q/Q: 0.3% v 0.3%e.
• (TR) Turkey Sept TCMB Survey of Expectations: Next 12-month Outlook: 12.9% v 12.5% prior.
• (AT) Austria Aug Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 3.2% v 3.1% prelim.
• (CN) Weekly Shanghai copper inventories (SHFE): 54.3K tons v 61.8K tons prior.
• (RU) Russia Narrow Money Supply w/e Sept 10th (RUB): 14.49T v14.35 T prior.
• (EU) Euro Zone July Current Account Balance: €21.6B v €21.8B prior.
• (PL) Poland Aug Employment M/M: -0.2% v 0.0%e; Y/Y: 0.9% v 1.1%e.
• (PL) Poland Aug Average Gross Wages M/M: -0.1% v -0.6%e; Y/Y: 9.5% v 8.8%e.
• (UK) BoE/GfK Sept Inflation (quarterly release) Inflation: Next 12 Months: 2.7% v 2.4% prior.
• (PT) Portugal July Current Account Balance: -€0.2B v €0B prior.
• (IT) Italy July Current Account Balance: €8.0B v €3.5B prior.
• (GR) Greece July Current Account Balance: +€0.5B v -€1.3B prior.
• (EU) Euro Zone Aug Final CPI Y/Y: 3.0% v 3.0%e; CPI Core Y/Y: 1.6% v 1.6%e.
• (EU) Euro Zone July Construction Output M/M: +0.1% v -0.6% prior; Y/Y: 3.3% v 4.1% prior.
• (CY) Cyprus Aug CPI Harmonized M/M: 1.4% v 0.2% prior; Y/Y: 3.3% v 2.7% prior.

Fixed income issuance

• (IN) India sold total INR260B vs. INR260B indicated in 2023, 2031 and 2061 bonds.

Looking ahead

• (NG) Nigeria Central Bank Interest Rate Decision: Expected to leave Interest Rates unchanged at 11.50%.
• (CO) Colombia Aug Industrial Confidence: No est v 16.3 prior; Retail Confidence: No est v 35.8 prior.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (ZA) South Africa to sell combined ZAR1.2B in I/L 2029, 2038 and 2046 Bonds.
• 06:00 (UK) DMO to sell £3.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.0B and £2.0B respectively).
• 06:45 (US) Daily Libor Fixing.
• 07:00 (IN) India announces upcoming bill issuance (held on Wed).
• 07:30 (IN) India Weekly Forex Reserve w/e Sept 10th: No est v $642.5B prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 10:00 (US) Sept Preliminary University of Michigan Confidence: 72.0e v 70.3 prior.
• 11:00 (CO) Colombia July Trade Balance: -$1.3Be v -$1.6B prior; Total Imports: $4.8Be v $4.9B prior.
• 11:00 (EU) Potential sovereign ratings after European close.
• 12:00 (CO) Colombia July Economic Activity Index (Monthly GDP) Y/Y: 13.0%e v 14.5% prior.
• 13:00 (US) Weekly Baker Hughes Rig Count.

The Australian dollar is in positive territory in the Friday session. Currently, AUD/USD is trading at 0.7317, up 0.33% on the day.

Soft Australian employment data on Thursday sent the Australian dollar lower, but the currency has recouped most of these losses on Friday. The economy lost a massive 146.3 thousand jobs in August, surprising the markets, as the consensus stood around -80 thousand. The slide is attributable to the wave of lockdowns which were imposed in New South Wales and Victoria. The government’s strict health restrictions are stifling economic growth and are expected to result in a contraction in Q3 growth.

RBA Governor Philip Lowe said as much earlier this week when he stated that the Q3 decline could be 2% or larger, and unemployment could rise to the high 5% range. I am a fan of Governor Lowe’s clear messages to the markets, as I remember all too well Alan Greenspan’s indecipherable Fedspeak statements which invariably left me scratching my head. Still, Lowe’s blunt assessment of negative growth is not good news for the Australian dollar.

Lowe also reiterated that the Bank would not raise interest rates before 2024 from their record low of 0.10 per cent. Interestingly. Lowe admitted he couldn’t understand why the financial markets were much more hawkish and had priced in a cash rate of 0.25% by the end of 2022 and 1.0% by the end of 2024.

US Retail Sales higher than expected

A strong US retail sales report is also weighing on the Australian dollar. The gain of 0.70% beat the consensus of -0.70%. Although not a huge gain by any means, the reading has ignited expectations of a Fed taper, perhaps at the November policy meeting. The markets will be anxiously looking for signals from the Fed that the November meeting will be a live one.

AUD/USD Technical

• There is resistance at 0.7433, followed by 0.7512
• On the downside, 0.7310 is fluid. Below, there is support at 0.7266

The Euro started a fresh decline from well above 1.1820 against the US Dollar. The EUR/USD pair traded below the 1.1800 and 1.1780 support levels.

The pair even declined below the 1.1765 zone and settled below the 50 hourly simple moving average. A low is formed near 1.1750 and the pair is now attempting a recovery. It seems like there is a contracting triangle forming with resistance near 1.1767 on the hourly chart.

A clear break above the 1.1770 and 1.1775 resistance levels could lead the pair towards the 1.1800 zone. The next major resistance sits near 1.1835 on FXOpen.

On the downside, an initial support is near the 1.1755 level. The key support is near 1.1750, below which there is a risk of a larger decline. The next major support is near the 1.1700 level.

• Surprisingly strong US retail sales lift dollar
• Gold the biggest casualty as yields spike
• Quad witching and China risks to drive stocks

US consumer delivers again

Worries that the US consumer is rolling over were dealt a major blow yesterday after the nation’s retail sales for August overpowered some gloomy forecasts. The retail sales control group that is used in GDP calculations rose by 2.5%, more than erasing last month’s decline.

The news catapulted the dollar higher along with Treasury yields as traders positioned for a more constructive tone by the Fed, which might use next week’s meeting to prepare the ground for dialing back its asset purchases in November.

Beyond tapering signals, markets will pay close attention to the famous ‘dot plot’ of interest rate projections. If three more FOMC officials pencil in a rate increase for 2022, that would push the ‘median dot’ for that year higher, signaling a hike faster than markets currently expect.

The wild card is whether policymakers will incorporate into their new economic forecasts some probability of greater fiscal spending to reflect what Congress might deliver over the next few months. If so, that would allow for rosier economic projections and make it easier for another three officials to upgrade their rate path estimates for next year.

Gold hammered

As always, what is good for the dollar and Treasury yields is negative for gold, which is priced in dollars and pays no interest to hold. The yellow metal sank yesterday as some investors abandoned ship, fearful of deeper losses in case the Fed strikes a hawkish chord next week.

Bullion amassed losses of almost 2.7% before triggering some fresh buy orders around the $1745 region and it subsequently rebounded a little. The fundamental outlook remains quite grim in an environment where the Fed begins to inject less liquidity into the financial system and ultimately raises rates.

Indeed, it’s difficult to find any strong bullish arguments for gold. Even the Fed delaying its hiking cycle by a few months wouldn’t change much. The best gold bugs can hope for is some cataclysmic event that reignites bullion’s status as a defensive hedge.

Wall Street nervous

There is a lot of indecision in stock markets lately. The major indices on Wall Street closed a volatile session little changed on Thursday as traders weighed a stronger US consumer against worries around less central bank liquidity and risks in the Chinese property market.

So far, there has been almost no spillover from the Evergrande fiasco. The fallout has been contained in local real estate stocks and junk bonds. There haven’t been any real signs of stress in the nation’s massive banking system, with interbank lending rates being quite stable - a sign that financial institutions aren’t panicking about a liquidity crisis.

Still, this is a huge risk hanging over global markets. Not because it could set off a domino effect of cross defaults - Beijing would stop that in its tracks. Rather, because a massive hangover in a real estate sector that accounts for roughly 28% of GDP could compound an already-slowing economic data pulse, suppressing growth.

As for today, a ‘quad witching’ event might spice things up. This is when options and futures on stocks and indices expire, often generating some wild moves as funds and money managers refresh their exposure.

Finally, there is an avalanche of events next week to keep traders entertained, including central bank meetings in America, Japan, Switzerland, and the United Kingdom, along with elections in Canada.