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On Monday, the common European currency edged higher by 34 pips or 0.26% against the Japanese Yen. A breakout occurred through the upper boundary of a descending channel pattern on Tuesday morning.

Given that a breakout has occurred, bullish traders could continue to pressure the exchange rate higher during the following trading sessions. The potential target for buyers will be near the 130.40 area.

However, the 200– hour simple moving average at 130.22 could provide resistance for the EUR/JPY currency exchange rate within this session.

EUR/USD

Current level - 1.1809

During yesterday's trading session, the currency pair managed to breach the support level of 1.1800, but couldn't stay below it as the price bounced back into the range between 1.1800 and 1.1843 in the afternoon. The sentiment remains positive and the most probable scenario is for the upward movement to be restored after the consolidation phase ends, with the main target being the level at around 1.1897. In the negative direction, the first support lies at the aforementioned level of 1.1800. The most important event in today's economic calendar is the U.S. CPI data from 12:30 GMT, when we will most likely see volatility pick up.

USD/JPY

Current level - 109.95

The pair continues to trade in the range between the support at 109.58 and the resistance at 110.40. After another unsuccessful attempt at breaching the bottom border of the range, the expectations are for the pair to test the resistance at 110.40, which could pave the way towards 110.78. In case the bears manage to prevail and violate 109.58, then the next target for the pair would be the support level of 109.23.

GBP/USD

Current level - 1.3840

The Cable is found in a consolidation phase and the expectations are for the pair to rise and test the resistance levels of 1.3851 and 1.3889 once the consolidation is over. A possible breach of both levels could pave the way towards a test of the resistance at 1.4000. In the negative direction, the first support level is found at 1.3788.

Markets

Stocks caught a better bid in Europe and the US yesterday compared to Friday and despite a weak Asian start of the week. But with some key data scheduled for release, including US CPI today, markets refrained from taking large positions. European equities inched about half a percent higher while the Dow on WS scored 0.8%. Commodities fared well: the CRB basket of commodities (finished at 221.20) could practically taste the previous cycle high of end-July at 221.21. Despite rising commodity/energy prices -" which by the way are really becoming an issue in Europe -" core bond yields barely budged in Germany. The yield curve finished flat though that conceals the ongoing divergence between real yields (down, new record low) and inflation expectations (up). US yields even fell, with the curve bull flattening up to 3 bps at the long end. EUR/USD struggled for a while, probably following the underlying European yield dynamics, even as risk appetite was strong. Both absolute yield differences and sentiment in the end prevented the pair from closing below 1.18. The likes of the AUD and CAD benefited from the commodity/oil prices as did the NOK, which was unhindered by election day (see below). EUR/GBP couldn’t be more of a EUR/USD copycat. The combo erased initial weakness to close unchanged around 0.853.

Asian sentiment is mixed this morning. South Korean stocks outperform (+1.2%). In China/HK, the Evergrande sage is weighing on the mood (-0.5%). The world’s most indebted developer hired advisers to find a solution for its cash crunch. The Aussie is the laggard on FX markets following comments from RBA governor Lowe. He pushed back against rate hikes being priced in before 2024. AUD/USD eases to 0.734. EUR/USD ekes out a small gain to 1.1815. Core bonds trade marginally lower.

US August CPI is expected at 5.3% y/y today. That would be the fourth month of 5%+ inflation. Analysts see core inflation coming in at 4.2% y/y. Risks stay tilted to the upside as reports of shortages are still omnipresent. Energy inflation may have eased a bit following two strong months. However, with the red-hot housing market we’re closely watching new drivers for CPI (eg. shelter). With the Fed meeting looming (Sept 22), markets will notice a strong reading. In US yields, 1.37% is still the topside reference. The dollar is looking at first resistance at EUR/USD 1.1752/56 or 93.19 for the DXY. Sterling just received part one of its economic update with a near-consensus labour report. EUR/GBP is holding steady around 0.854. Tomorrow’s UK CPI numbers have more market moving potential.

News headlines

Results after yesterday’s Norway parliamentary elections show that central left opposition is on course to gain a majority in parliament. Outgoing Conservative Prime Minister Solberg conceded the election. The Labour Party leader Jonas Gahr Store might take the lead to form a new government. However, within the spectre of left-wing parties, substantial differences persist on key policy topics ranging from the role the oil industry in the Norwegian economy as the country prepares for a transition to more renewable energy. Also the relationship with the EU is a subject of debate as some smaller parties question the place of Norway in the European Economic Area, where the country has little impact on the rules it has to accept. The Norwegian krone yesterday was well bid with EUR/NOK temporarily declining below EUR/NOK 10.20, but this was probably mainly driven by higher commodity/oil prices.

In a Monthly survey of the NY Fed published yesterday, inflation expectations among consumers for the next year as well coming three years rose to the highest level in 2013, which was the start of the survey. Expectations for the year ahead rose for the 10th month straight to 5.2% in August. The median expectation for the rise in inflation over the next three years rose to 4.0%. Food prices are expected to rise 7.9% over the next year (from 7.1%). Rent is expected to increase by 10% over the next 12 months. Medical care prices are expected to increase 9.7% over a 10-month horizon. Expectations for the rise in house prices for next year eased to 5.9%.

Daily Pivots: (S1) 0.7347; (P) 0.7361; (R1) 0.7386; More...

Intraday bias in AUD/USD stays neutral first. Another rise is still in favor as long as 0.7279 minor support holds. Whole corrective pattern from 0.8006 might have completed at 0.7105 already. On the upside, above 0.7477 will target 0.7530 support turned resistance first. However, break of 0.7279 will dampen our bullish view and turn bias back to the downside for 0.7105 low instead.

In the bigger picture, with 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051) intact, we're seeing price action form 0.8006 as a correction only. That is, up trend from 0.5506 low would resume after the correction completes. In that case, main focus will be 0.8135 key resistance (2018 high). Sustained break there will carry larger bullish implications. However, sustained break of 0.6991 will argue that the whole medium term trend has indeed reversed.

Daily Pivots: (S1) 1.2623; (P) 1.2659; (R1) 1.2680; More...

Intraday bias in USD/CAD stays neutral first and outlook is unchanged. Rise from 1.2005 is in progress with 1.2421 support intact. On the upside, break of 1.2760 will target a test on 1.2947 high. However, break of 1.2492 will resume the fall from 1.2947 to 1.2421 key structural support.

In the bigger picture, fall from 1.4667 is seen as the third leg of the corrective pattern from 1.4689 (2016 high). It should have completed after hitting 1.2061 (2017 low) and 50% retracement of 0.9406 to 1.4689 at 1.2048. Sustained break of 38.2% retracement of 1.4667 to 1.2005 at 1.3022 will pave the way to 61.8% retracement at 1.3650 and above. Overall, medium term outlook remains neutral at worst with 1.2048/61 support zone intact.

Daily Pivots: (S1) 1.5986; (P) 1.6031; (R1) 1.6067; More...

EUR/AUD's rebound from 1.5907 extends higher today and focus is now on 1.6116 resistance. Firm break there will argue that pull back from 1.6434 has completed after defending 1.5898 structural support. Larger rise from 15250 is still in progress. Intraday bias will be turned back to the upside for retesting 1.6434 first. On the downside, however, firm break of 1.5898 will argue that corrective rise from 1.5250 has already completed. Near term outlook will be turned bearish for 1.5614 support next.

In the bigger picture, rise from 1.5250 medium term bottom is currently seen as a correction to the down trend from 1.9799 first. Stronger rise could be seen to 38.2% retracement of 1.9799 to 1.5250 at 1.6988 next. We'd tentatively expect strong resistance from there to limit upside, at least on first attempt. Meanwhile, break of 1.5898 support will indicate that the rebound has completed. Larger down trend from 1.9799 might be ready to resume through 1.5250 low.

Daily Pivots: (S1) 0.8516; (P) 0.8528; (R1) 0.8547; More...

No change in EUR/GBP's outlook and intraday bias stays mildly on the downside. Rebound from 0.8448 could have completed at 0.8612 already. With 0.8668 resistance intact, larger fall from 0.9499 is probably still in progress. Deeper fall would be seen to retest 0.8448 low first. On the upside, though, break of 0.8612 will resume the rise from 0.8448 to 0.8668 resistance.

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8668 resistance holds, towards long term support at 0.8276. However, firm break of 0.8668 resistance would argue that a medium term bottom was already formed. Stronger rise would be seen to 0.8861 support turned resistance to confirm completion of the corrective pattern.

The FTSE 100 recoups losses supported by strong performance in cyclical stocks. The index has bounced off the critical support (6970) from the daily chart.

An oversold RSI near the psychological level of 7000 has attracted bargain hunters. A bullish MA cross confirms the upward bias. 7100 from the latest sell-off is key resistance and its breach could raise bids to the triple top at 7210.

In the meantime, the RSI’s overbought situation may temporarily limit the buying power and the bulls would have to wait to buy the dip.

Daily Pivots: (S1) 1.0856; (P) 1.0877; (R1) 1.0914; More....

EUR/CHF is staying in range below 1.0899 and intraday bias remains neutral first. Further rise is still in favor and break of break of 1.0899 will resume the rebound from 1.0694 to 1.0985 resistance next. However, on the downside, break of 1.0833 support will turn bias back to the downside for retesting 1.0694 low instead.

In the bigger picture, rebound from 1.0505 (2020 low) should have completed at 1.1149 already. The three-wave corrective structure argues that the downtrend from 1.2004 (2018 high) is not over yet. Medium term outlook will now stay bearish as long as 55 week EMA (now at 1.0858) holds. Break of 1.0505 low would be seen at a later stage. However, sustained trading above 55 week EMA will bring retest of 1.1149 high instead.

The Norwegian krone held onto its gains thanks to a recovery in oil prices.

The drop below the daily support at 8.7200 suggests that sentiment has turned sour in the short term. The US dollar’s failure to rally back above the supply zone at 8.7300 adds more pressure to the long side.

An oversold RSI has led to a limited rebound. If buyers can clear said resistance, they may gain confidence to claim back 8.8400.

Otherwise, a new round of sell-off would push the price to another support (8.5200) on the daily chart.