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Daily Pivots: (S1) 1.3750; (P) 1.3803; (R1) 1.3839; More...

Intraday bias in GBP/USD remains neutral for consolidation below 1.3890 first. On the upside, above 1.3890 will resume the rise from 1.3601 to 1.3982 resistance first. Decisive break there will l indicate that fall from 1.4248 has completed. Near term outlook will be turned bullish for retesting 1.4248. However, on the downside, break of 1.3730 support will bring retest of 1.3570/3601 support zone instead.

In the bigger picture, as long as 1.3482 resistance turned support holds, we'd still treat price actions from 1.4248 as a corrective move. That is, up trend from 1.1409 (2020 low) is in favor to resume. Decisive break of 1.4376 key resistance (2018 high) would indeed carry long term bullish implications. However, sustained break of 1.3482 will at least bring deeper fall to 38.2% retracement of 1.1409 to 1.4248 at 1.3164, or even further to 61.8% retracement at 1.2493.

Markets

Long term bond yields are pushing ahead. The German 10-yr yield yesterday broke through -0.35% resistance which served as 38% retracement on the May/August decline. The 62% retracement level stands at -0.25%. The EU 10y swap rate again trades firmly above 0%. The US 10-yr yield jumped after Labour Day Holiday for a test of 1.37% resistance. That’s also 38% retracement, but of the March/July decline and a level already tested twice in August. The 62% retracement level stands at 1.53%. On first sight, the increase in nominal yields looks very familiar between Germany and the US, with curves steepening as well on both occasions. However, underlying dynamics reveal that the US yield increase is much more guided via higher real rates whereas the German yield increase can be much more contributed to higher inflation expectations. The US 10y real yield closed above -1% for the first time since mid-July while its German counterpart is still stuck below -2%. German inflation expectations on the other hand moved above the 2018 top (1.68%) to reach the highest level since 2013! In absence of significant data prints these dynamics, which by the way helped the dollar against the euro (EUR/USD < 1.1850), might tell us something on final positioning going into tomorrow’s ECB meeting and the September 20 FOMC meeting. On the one hand, they fear that the dovish wing within the ECB will continue to guide soft policy despite more recent neutral comments suggesting a slower pace of PEPP purchases in Q4 (our preferred scenario). On the other hand they indicate that the neutral/hawkish wing within the FOMC is strong enough to force a tapering announcement despite Friday’s less-than-hoped US payrolls (also our main case). Our conclusions towards core bonds is that they will suffer more in September. Regarding the single currency, it will be the ECB that tomorrow decides on the possibility of a fresh leap north, potentially above EUR/USD 1.1909 resistance.

Today’s eco calendar remains rather thin. US JOLTS deserve some more attention given the growing mismatch in US labour demand/supply. The US Treasury continues its mid-month refinancing operation with a 10-yr Note auction after yesterday’s good 3-yr Note sale. We’re eager to see whether investors will already be lining up to pick up Treasuries after the recent setback. The outcome will be telling for sentiment. A speech by NY Fed Williams – one of the final doves standing – could reveal more on the September meeting. Did the doves surrender, embracing a taper announcement in September and start in Q4?

News headlines

Thousands of Bolsonaro’s supporters rallied in the streets yesterday. The Brazilian president called for them to do so to shore up his political base and improve his standing in the polls. Bolsonaro is increasingly being criticized for what is considered growing authoritarianism that according to the Supreme Court justice Moraes is disrespecting the democracy. Bolsonaro’s approval ratings sunk to about 25% ahead of the 2022 general elections, which Bolsonaro threatened to cancel saying the current system is prone to fraud and has to be amended. The Brazilian real is holding pretty steady in recent days despite the political disturbances. USD/BRL trades around 5.17 currently.

The UK’s Financial Conduct Authority’s chair Randell warned consumers need to be protected from dubious crypto investments promoted online. He said urgent action was needed to stop the “pump and dump” tactics for new coins, used to lure investors often via social media influencers. His comments came as the UK Treasury considers giving the FCA a larger role in controlling crypto assets promotion under tighter standards that also apply to traditional financial products. In other crypto news, El Salvador as world’s first country adopted bitcoin as a legal tender yesterday. Its wallet system crashed hours after the announced however, causing a massive BTC selloff that amounted at some point to 17%. El Salvador’s president Bukele said he bought the dip in response, scooping up another 150 coins to bring the country’s total to 550.

Daily Pivots: (S1) 0.9153; (P) 0.9176; (R1) 0.9219; More....

Range trading continues in USD/CHF and intraday bias remains neutral for the moment. On the downside, break of 0.9098 will target 0.9017 support first. Further break there will likely resume the decline from 0.9471 through 0.8925 low. On the upside, break of 0.9241 resistance should resume the rise from 0.8925 through 0.927.

In the bigger picture, USD/CHF is still struggling around 55 week EMA (now at 0.9176) and outlook is mixed for now. Confirmed rejection by the 55 week EMA will retain medium term bearishness. That is, larger fall from 1.0342 would resume through 0.8756 low at a later stage. However, sustained trading above 55 week EMA will tilt favor to the case of bullish reversal. Focus would then be turned to 0.9471 resistance for confirmation.

General trend

• Nikkei has rebounded from the opening decline [Topix Banks index supported by rise in UST yields; Information & Communication index also outperforms; Transports lag].
• Shanghai Composite ended morning trading approx. flat [Consumer indices lagged].
• Hang Seng has pared gain.
• S&P ASX 200 has lagged [Resources index drops].

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened -0.1%.
• PEB.NZ Denies press speculation, board did not approve capital raise (erroneously released); process for approval to dual list as a Foreign Exempt Entity on the Australian Stock Exchange (ASX) is progressing well.
• (AU) Australia sells A$1.0B v A$1.0B indicated in 0.50% Sept 2026 bonds, avg yield 0.681%, bid to cover 6.08x.
• (AU) Reserve Bank of Australia (RBA) offers to buy A$800M in Semi Govt Bonds v A$1.0B prior.
• (NZ) Reserve Bank of New Zealand (RBNZ) has undertaken a thematic review of banks’ compliance with our liquidity policy, identifying a range of system, controls and risk management weaknesses as well as areas of good practice that the industry can learn from.

Japan

• Nikkei 225 opened -0.3%.
• (JP) JAPAN Q2 FINAL GDP Q/Q: 0.5% V 0.4%E; GDP ANNUALIZED Q/Q: 1.9% V 1.6%E.
• (JP) Japan LDP Leadership Candidate Kishida: Would retain bold monetary easing as leader, would revise the neo-liberal economic policy.
• (JP) Japan govt to extend virus emergency measures to end of Sept and gradually ease Covid restrictions starting in Oct - Japan press.
• (JP) Japan Chief Cabinet Sec Kato: Govt is considering specific plans on how to ease coronavirus restrictions on citizen activities.
• 6502.JP Updates on strategic review: To focus on enhancing corporate value, continuing to explore viability of strategic alternatives, including resolving issues related to privatization.
• (JP) Japan July Current Account: ¥1.91T v ¥2.29Te prior; Adj Current Account: ¥1.43T v ¥1.85Te.
• 9984.JP Speculation that yesterday's announcement of a swap deal with Deutsche Telekom will lead to a buyback - press.
• 7203.JP Exec: Sees investment related to development of battery supply system and R&D to be ~¥1.5T by 2030; plans to use solid-state batteries in hybrid EVs (yesterday after the close).

Korea

• Kospi opened -0.3%.
• 005380.KR Denies press report that it was seeking to sell one of its plants in China.
• (KR) According to Woori Finance Research Institute, Bank of Korea (BOK) will raise interest rates by 25bps to 1.0% in November, to deal with concerns over financial imbalances and the recovery - Yonhap.

China/Hong Kong

• Hang Seng opened +0.2%; Shanghai Composite opened -0.1%.
• (CN) Quantitative trading in China comprises ~20% of total stock market turnover - China Securities.
• (CN) China People's Daily: China to increase transparency of policies; To crackdown to better support companies in competition.
• (CN) China PBOC sets Yuan reference rate: 6.4674 v 6.4533 prior.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY10B in 7-day reverse repos v CNY10B in 7-day reverse repos prior; Net CNY0B v Net drain CNY40B prior.
• 3333.HK Fitch cuts China Evergrande Group rating 3 notches to CC from CCC+.
• (CN) China NDRC launches green power trading pilot work plan, 17 provinces to participate in power trading.

North America

• (US) Said that Senator Joe Manchin (D-WV) would support maximum $1.5T in spending plan.
• (US) EPA: continue to follow up with ongoing air releases at Exxonmobil Baton Rouge and Shell Norco facilities, also following up on several oil spills or reports of possible ones.
• (US) Fed's Bullard said to be pushing for a quick taper after weaker than expect jobs data.
• BLK Said to have raised CNY6.7B for its first China mutual fund.
• PYPL To acquire Paidy a leading two-sided payments platform and provider of buy now, pay later solutions in Japan for ¥300B/$2.7B cash.
• (MX) Report of 7.4 magnitude earthquake reported near Guerrero, Mexico buildings shake in Mexico City, also a 6.9 magnitude reported; Tsunami threat issued.
• (US) NHC: Hurricane Larry continues toward the northwest over central Atlantic, likely to produce dangerous swells over western Atlantic coast this week.

Europe

• (FR) Insee sees French 2021 GDP at 6.25% (prior 6.0%), on the verge over moving past impact of COVID - French press.
• (UK) PM Johnson: Need to help the NHS recover; Confirms 1.25% health and social care tax; dividend income to be taxed 8.75% starting in April 2022 (prior 7.5%) - parliament comments (late EU yesterday).

Levels as of 01:20 ET

• Nikkei 225, +0.6%, ASX 200 -0.4% , Hang Seng -0.4%; Shanghai Composite -0.2% ; Kospi -0.9%.
• Equity S&P500 Futures: flat; Nasdaq100 flat, Dax flat; FTSE100 -0.4%.
• EUR 1.1851-1.1839 ; JPY 110.33-110.25 ; AUD 0.7405-0.7382 ;NZD 0.7115-0.7092.
• Gold flat at $1,799/oz; Crude Oil +0.2% at $68.45/brl; Copper -0.1% at $4.2698/lb.

Daily Pivots: (S1) 109.88; (P) 110.10; (R1) 110.51; More...

Range trading continues in USD/JPY and intraday bias remains neutral first. On the upside, break of 110.79 will resume the rebound from 108.71 to retest 111.65 high. On the downside, break of 109.10 will target 108.71 support first. Firm break there will resume the decline from 111.65 and target 38.2% retracement of 102.58 to 111.65 at 108.18 next.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. The pattern from 101.18 could still extend with another falling leg. Sustained trading below 55 day EMA will bring deeper fall to 107.47 support and below. Nevertheless, strong break of 111.71 resistance will confirm completion of the corrective decline from 118.65 (2016 high). Further rise should then be seen to 114.54 and then 118.65 resistance.

Daily Pivots: (S1) 0.7353; (P) 0.7410; (R1) 0.7446; More...

Intraday bias in AUD/USD stays neutral as retreat from 0.7477 extends. Further rally is still in favor as long as 0.7279 support holds. As noted before, correction from 0.8006 should have completed at 0.7105 already. Above 0.7477 will target 0.7530 support turned resistance first. However, firm break of 0.7279 will dampen our bullish view and bring retest of 0.7105 low.

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) 1.2559; (P) 1.2608; (R1) 1.2695; More...

Intraday bias in USD/CAD stays neutral first. On the upside, break of 1.2706 resistance will indicate that pull back from 1.2947 has completed at 1.2492. That would also retain near term bullish after well defending 1.2421 support. Intraday bias will be back on the upside for retest 1.2947 high. Break there will resume larger rise from 1.2005. However, below 1.2492 will resume the fall from 1.2947 to 1.2421 key near term structural support next.

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.

Dollar's recovered continued in Asian session today, partly supported by hawkish comments from a Fed official. Mixed sentiments in the stock markets also stabilized the greenback. Instead, commodity currencies continued to reverse some gains. Main focus today will turn to BoC policy decision but that would likely be a non-event. Based on current price actions, Canadian Dollar has the prospect to weaken slightly for the near term after clearing this risk.

Technically, one focus is 1.2706 resistance in USD/CAD. Break there will suggests that pull back from 1.2947 has completed and bring stronger rebound to retest this high. At the same time, we'd look at 1.1792 support in EUR/USD and 1.3730 support in GBP/USD. Break of these levels will indicate more broad based rebound in Dollar, which could also be seen elsewhere.

In Asia, Nikkei closed up 0.89% at 30181.21, back above 30k handle. Hong Kong HSI, however, is down -0.23%. China Shanghai SSE is down -0.42%. Singapore Strait Times is down -1.11%. Japan 10-year JGB yield is up 0.0009 at 0.041. Overnight, DOW dropped -0.76%. S&P 500 dropped -0.34%. But NASDAQ rose 0.07%. 10-year yield jumped by 0.048 to 1.370.

Fed Bullard: Taper will get going this year

In an FT interview, St Louis Fed President James Bullard maintained the view that "the big picture is that the taper will get going this year and will end sometime by the first half of next year."

The weak August NFP report didn't alter his view on job market recovery. "There is plenty of demand for workers and there are more job openings than there are unemployed workers", he said. "If we can get the workers matched up and bring the pandemic under better control, it certainly looks like we'll have a very strong labour market going into next year."

He also said there is "also a case" that inflation wont moderate into 2022, and may go higher, due to " additional supply constraints coming from international sources now because of the Delta variant."

Japan Q2 GDP growth upgrade to 0.5% qoq, 1.9% annualized

Japan GDP growth was finalized at 0.5% qoq, 1.9% annualized in Q2. It's upgraded from initial estimate of 0.3% qoq, 1.3% annualized. Capital expenditure grew 2.3% qoq, upgraded from preliminary reading of 1.7% qoq. Private consumption grew 0.3% qoq, upgraded from 0.8% qoq.

Also released, bank lending rose 0.6% yoy in August, below expectation of 1.0% yoy. Eco watcher sentiment dropped from 48.4 to 34.7 in August. Current account surplus narrowed to JPY 1.41T in July.

BoC likely a non-event, EUR/CAD to continue sideway consolidation

BoC is generally expected to keep monetary policy unchanged today. In particular, the weekly asset purchases pace will be held at CAD 2B. Interest rate will be maintained at 0.25%. It's clearly in a wait-and-see mode due to conflicting developments of disappointing economic activities and rising inflation, as well ass higher vaccination but worsening Delta infections. Additionally, a major risk event of federal election is less than two weeks away. The central bank should wait for new economic projections next month before making a move. Also, there is no press conference after the meeting today. Overall, it could be a non-event.

Some previews on BoC:

• BOC Preview – QE Tapering to Pause as Economy Contracted in 2Q21
• BoC to Keep Quiet as Canada's Election Approaches
• Forward Guidance: BoC to Parse Weak GDP Reports, Persisting Virus Risks

EUR/CAD is a pair to watch for the rest of the week with BoC and ECB meeting featured. Price actions from 1.4580 low are seen as a corrective pattern and hence, medium term outlook is staying bearish for now. While a downside breakout is slightly favored, we'd not seeing any indication of it yet. Hence, range trading will likely continue for a while. Medium term, any rally attempt could face strong resistance from 38.2% retracement of 1.5991 (2020 high) to 1.4580 (2021 low) at 1.5119.

Elsewhere

France will release trade balance in European session while Italy will release retail sales. Canada will also release Ivey PMI. Fed will publish Beige Book economic report.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2559; (P) 1.2608; (R1) 1.2695; More...

Intraday bias in USD/CAD stays neutral first. On the upside, break of 1.2706 resistance will indicate that pull back from 1.2947 has completed at 1.2492. That would also retain near term bullish after well defending 1.2421 support. Intraday bias will be back on the upside for retest 1.2947 high. Break there will resume larger rise from 1.2005. However, below 1.2492 will resume the fall from 1.2947 to 1.2421 key near term structural support next.

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.

Economic Indicators Update

Bitcoin and other cryptocurrency prices tumbled in the overnight session, ending a remarkable bull run that pushed BTC above $52,000. The decline happened after El Salvador bought Bitcoin worth more than $20 million making it the first country to do so. It has also installed about 200 Bitcoin ATMs in the country. Therefore, the sell-off likely happened as investors sold the news. The currencies also declined after the sudden jump of the US dollar. The dollar index rose by 0.40%, the biggest daily increase in more than a month.

American equities retreated as investors priced in a slowdown of the economy as the Delta variant spreads. According to the Wall Street Journal (WSJ), many businesses and consumers are starting to rework their plans to adjust to new masks and vaccine mandates. There have been more travel restrictions and delayed office reopenings. Some of the companies to delay reopening are Chevron, Apple, and Amazon. As a result, business and consumer confidence have declined while hiring has slowed dramatically.

The USDCAD price maintained a bullish momentum as investors waited for the upcoming Bank of Canada (BOC) interest rate decision. The central bank is expected to leave interest rates unchanged at 0.25%. Also, the bank is expected to maintain its quantitative easing policy at a pace of c$2 billion per week. The status quo is likely because the country’s economy is not growing as fast as expected. It even declined in the second quarter. Also, the bank will need to sound apolitical ahead of the upcoming election.

USDCAD

The USDCAD price rose to 1.2635, which is significantly higher than this week’s low of 1.2492. On the four-hour chart, the pair has moved slightly above the ascending trendline. It has also moved slightly above the 25-day moving average while the Relative Strength Index (RSI) has moved close to the overbought level. Therefore, the pair will likely keep rising as bulls target the key resistance at 1.2720.

EURUSD

The broader US dollar strength pushed the EURUSD pair to the lowest level this month. On the hourly chart, the pair declined to 1.1836, which was the lowest level since Tuesday. It also moved below the lower side of the ascending channel. As a result, it also declined below the 25-day moving average while the DeMarker indicator has moved below the oversold level. It has also formed a small head and shoulders pattern. Therefore, the pair will likely keep falling as bears target the key support at 1.1800.

AUDUSD

The AUDUSD pair declined to a low of 0.7377, which was slightly below this week’s high of 0.7480. On the four-hour chart, the pair moved below the 25-day moving average. It also moved below the neckline of the double-top pattern at 0.7425. The MACD has formed a bearish reversal pattern while the Relative Strength Index (RSI) have moved from the overbought level. Therefore, the pair will likely keep falling today.

Market movers today

• After the weak US labour market report on Friday, markets will keep a close eye on any tapering hints from NY Fed President John Williams when he speaks later this evening. JOLTS Job Openings data for July will give insights into whether US labour demand is still high.
• Bank of Canada and Poland's central bank will hold their monetary policy meetings, with no changes expected.
• Several July indicators are released in Sweden today, including the production value index and the consumption indicator.

The 60 second overview

Fed - to taper or not: With the ensuring uncertainty as to how to interpret last Friday's weak jobs amid high and rising but volatile wage growth data, the case for tapering asset purchases this year has become more muddled. Well-known hawk James Bullard is among the first Fed officials to state an opinion publicly after these data. In FT, Bullard re-iterates his previous calls for the Fed to begin tapering, ending purchases by Q1 and signalling confidence in the US recovery. A host of Fed speakers are scheduled for public appearances this week and these are likely to guide the market ahead of the blackout period, starting Saturday and the FOMC meeting later this month.

Germany: The expectation components of the ZEW survey continued their downtrend for a fourth consecutive month in September. Judging from the ZEW, we should expect a further moderate fall in September PMIs in Germany and the euro area.

German election: The German election is getting closer and the support for Merkel's conservative coalition is declining and fell below 20% with less than three weeks to the election. This is the lowest poll since 1949 for the CDU/CSU. The social democrats (SPD) continue to gain and are at 25%. The reaction in the market to the polls has so far been limited as SPD is not seen to begin a big spending programme as the head of SPD Scholz was finance minister in the Grand coalition under Merkel.

Sweden loosens restrictions: Yesterday the Swedish government announced that it lifts Covid19 restrictions on public and private gatherings/events and restaurants from September 29. In addition, advice on home work is lifted. This means Sweden is returning closer to a normal state of things soon.

Poland: Yesterday, EU announced that it would seek to impose daily fines against Poland over Justice Concerns (EU fearing that the Law and Order party is curtailing judiciary independence following creation of a disciplinary chamber of justice). PLN barely moved on the news (actually it is stronger against the euro), as the market is expecting that Poland and EU will find some kind of solution eventually. We tend to agree with that view. However, the reaction on the Polish side (junior ministers) were pretty tough against the EU, so we can't completely rule out further negative headlines, generating some market attention.

Equities: Developed markets were mostly lower yesterday, as growth took the lead in an uneventful session. Performance between cyclicals and defensives was thin, with both industrials and health care among the big decliners, and communication services and consumer discretionary among the better sectors. VIX ticked up slightly. US all lower with S&P 500 -0.3%, Dow -0.8%, Nasdaq 0.1% and Russell 2000 -0.7%. Asian markets mostly muted. Japan the exception as it continues its rebound. US futures in small moves.

FI: Global bond yields rose despite the decline in US and EUR equity market as the market are looking for a more hawkish ECB at the upcoming meeting on Thursday. There were no surprises in the ECB QE data released yesterday. In the PSPP, ECB continue to focus on Supras. Germany and France were marginally 'overbought' while Spain and Italy are 'underbought'. In the PEPP, they bought in net terms EUR 16bn. This was very close to our expected level.

FX: USD and NOK rose vis-à-vis CAD, AUD and NZD yesterday. EUR/NOK continues to hover around the 10.28 level, EUR/SEK traded in the 10.15-10.17 range and EUR/USD fell to 1.1850.

Credit: The positive sentiment in credit came to a halt yesterday where iTraxx Xover widened 3bp (to 229bp) and Main 0.4bp (to 45bp). Cash bonds were also under pressure with HY bonds widening 2bp and IG ½bp.

Nordic macro

July indicators for production, consumption and GDP is out this morning. We expect a mixed picture. That said, PMI's, retail sales and car registrations have shown some weakness implying a possible downside.

Riksbank buys in total SEK 2.5 bn T-bills (3 and 6 m).