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At mid-day on Tuesday, the USD/JPY currency exchange rate passed the resistance of the weekly simple pivot point and the 100 and 200-hour simple moving averages in the 109.92/109.95 zone. However, the rate's attempts at surging higher were immediately stopped by the 110.00 mark.

If the rate manages to passed the resistance of the 110.00 level, the pair could reach for the 110.24 level, where the weekly R1 simple pivot point would provide resistance. In addition, the zone that surrounds the pivot point kept the rate down during August.

On the other hand, a potential decline would look for support first in the 100 and 200-hour SMAs and the weekly simple pivot point. Afterwards, the 55-hour SMA at 109.84 might keep the pair up.

At mid-day on Tuesday, the GBP/USD currency exchange rate broke the lower trend line of the channel up pattern, which had guided the rate since the middle of August. In the near term future, the pair was expected to reach for the support of the 1.3770/1.3785 zone.

If the 1.3770/1.3785 support zone reverses the rate's decline, the GBP/USD could aim at the resistance of the 100-hour simple moving average at 1.3823, the weekly simple pivot point at 1.3833 and the 55-hour simple moving average at 1.3844. Note that the SMAs could move in closer to the pivot point.

On the other hand, a decline below the support zone would have no technical support as low as the weekly simple pivot point at 1.3672. However, take into account that the 1.3700 level could provide support.

The EUR/USD found support on Monday in the weekly simple pivot point at 1.1858. On Tuesday, the rate had slightly recovered. In the meantime, the pair was approached by the 100-hour simple moving average, which could provide additional support and push the rate up.

In the case of a surge, the EUR/USD currency exchange rate would most likely test the resistance of the 1.1900 level. The 1.1900 has kept the rate down since the start of July.

On the other hand, a decline of the pair would have to pass the support of the 100-hour simple moving average near 1.1860 and the weekly simple pivot point at 1.1858 before reaching lower. Below the mentioned support levels, the pair could find support in an ascending support trend line near 1.1840 and the 200-hour simple moving average near 1.1825.

Torn between disappointing economic activities but rising inflation, higher vaccination rate but worsening Delta outbreak, and a federal election just 12 days after this week’s meeting, the BOC will likely stand on the sideline this month. Policymakers will keep its weekly asset purchases unchanged at CAD 2B/ week and retain the forecast of first hike rate in 2H22. There will be no press conference at the upcoming meeting.

GDP contracted an annualized -1.1% q/q in 2Q21, compared with consensus of +2.5% and +5.5% in the prior quarter. This also came in worse than BOC’s +2% estimate. A preliminary estimate also revealed that the economy probably dropped -0.4% in July from June. Other data remained firm. For instance, the unemployment rate slipped -0.3 ppt to 7.5% in July. The number of employment added +0.5% with the majority of increase coming from full-time jobs. On inflation, the headline CPI rose at the strongest pace in a decade, by +3.7% y/y in July. BOC’s three preferred core CPI gauges averaged at +2.5%, up from June’s +2.3%. This stays around the midpoint of BOC’s 1 to 3% inflation target. At this week’s meeting, policymakers would acknowledge the soft GDP data at home, as well as slower global economic growth, in particular in the US and China. They would likely retain the view that strong inflation is driven by transitory factors. In late July, Governor Tiff Macklem affirmed that the central bank remained “firmly committed to keeping inflation low, stable and predictable”. We expect him to reiterate that, despite “the gyrations caused by the pandemic”, inflation has “averaged pretty close to target through the past few years to today”. On a positive note, the central bank would also be pleased with the vaccination rollout.

In July, the BOC reduced asset purchases to CAD 2B/ week from CAD 3B/ week previously. The pace will stay unchanged in September. The disappointing GDP data and the resurgence of the pandemic do not justify further reduction. Moreover, it’s the central bank’s practice to make no big move ahead of elections. We, however, expect further tapering would resume in October with the pace of asset purchase further lowered to CAD 1B/ week.

The AUD/NZD is very bearish. I expect the continuational move towards lower levels of support.

As the price is breaking below Q L4 and M L3, we can expect a bearish continuation move. Watch for M L5 and Q L5 as targets 1.0250-1.0200. The main point of this config is that the price has broken through Q L4 which is the 3-month breakout. It is also below M L4 which signifies for a double breakout point to the full TP.

On Monday, the US Dollar fell by 32 pips or 0.26% against the Canadian Dollar. However, the USD/CAD currency pair rebounded during the Asian session on Tuesday.

Everything being equal, the exchange rate could continue to edge higher during the following trading session. The potential target for bullish traders would be near the 1.2640 area.

Although, the 200– hour simple moving average at 1.2595 might provide resistance for the currency exchange rate within this session.

The British Pound declined by 34 pips or 0.22% against the Japanese Yen on Monday. The currency pair breached a support level, formed by the 50– hour simple moving average during Monday's trading session.

As for the near future, the exchange rate could continue to trend lower. Sellers are likely to target the 200– hour SMA support level at 151.51 during the following trading session.

However, the lower line of an ascending channel pattern could provide support for the GBP/JPY currency exchange rate within this session.

Since Monday's trading session, the Australian Dollar has declined by 33 pips or 0.44% against the US Dollar. The currency pair breached the 50– hour simple moving average at 0.7438 during the Asian session on Tuesday.

By and large, bearish traders are likely to continue to pressure the exchange rate lower within this session. A breakout through the lower boundary of an ascending channel pattern might occur.

However, if the channel pattern holds, the AUD/USD currency exchange rate could make a pullback towards the 0.7500 level during the following trading session.

The EUR/JPY currency pair traded with low volume on Monday. As a result, the Eurozone single currency made about 17 pips or 0.13% against the Japanese Yen during Monday's trading session.

The exchange rate is currently trading near the lower line of an ascending channel pattern and could be set for a breakout.

If the breakout occurs, a decline towards the 200– hour simple moving average at 129.90 could be expected within this session.

However, if the channel pattern holds, bullish traders might target the 130.80 area on Tuesday.

Notes/Observations

• UK PM to announce details of a long-awaited plan to reform social care.
• RBA tapers pace of bond purchases but pushes back timeline of its next review of program into 2022.
• El Salvador makes Bitcoin an official currency (1st country to do so).

Asia

• RBA left the Cash Rate Target unchanged at 0.10% and maintain 3-year Yield Target at 0.10% (as expected). Cut its weekly bond purchases to A$4.0B until mid-Feb 2022 (pushed back further review of taper from Nov).
• China Aug Trade Balance $58.3B v $48.0Be with both exports and imports exceeding expectations.
• Japan July Household Spending M/M: -0.9% v -3.2% prior (3rd straight decline).
• Japan LDP Leadership Candidate Kishida stated that would have BOJ maintain its 2.0% CPI target. Would call for >¥30T coronavirus pandemic stimulus package if he became PM.

Europe

• UK said to secure major concession on Northern Ireland Protocol. EU Government to now pause sweeping new checks and red tape in the province, including chilled meats, parcels and medicines; the flow of goods from Great Britain will remain unchanged for now.
• UK PM Johnson said to secure a major EU concession over Northern Ireland Protocol after it allowed the UK to indefinitely extend a number of grace periods (Insight effectively averting another sausage war).
• EU Commission stated that it took note of the UK ministerial statement regarding the option of the protocol on current basis including continuing the existing grace period. Focus remains of identifying long term, flexible and practical solutions to the issues implementing the protocol, Would not agree to a renegotiation. EU reserve the right on infringement proceedings, currently the EU Commission is not moving to the next stage of the infringement process.

Americas

• Expanded unemployment benefits implemented during pandemic expired on Monday (Sept 6th) (7.5M people will lose their benefits entirely and another 3M will lose the $300 weekly supplement).
• Goldman Sachs cut its 2021 US GDP growth forecast from 6.2% to 5.7%. Raised 2022 US GDP growth forecast from 4.3% to 4.6%.
• El Salvador President stated that purchased 200 bitcoin and plan "a lot more" purchases; Now held 400 bitcoins.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -0.32% at 473.68, FTSE -0.30% at 7,165.95, DAX -0.33% at 15,879.20, CAC-40 -0.20% at 6,730.07, IBEX-35 -0.26% at 8,859.00, FTSE MIB -0.34% at 26,173.50 , SMI -0.38% at 12,382.77, S&P 500 Futures -0.01%].
• Market Focal Points/Key Themes: European indices open generally lower and remained under pressure as the session progressed; risk off environment theme of the day; better performing sectors include telecom and consumer discretionary; while health care and materials sectors among the underperformers; telecom sector supported following Deutche Telekom sale of Netherlands unit and share swap deal with Softbank; Bone Therapeutics confirms in discussions with Hybrigenics over potential combination of certain activities; Eiffage confirms offer for Equans; earnings expected during the upcoming US session include Casey’s.

Equities

• Industrial: James Fisher & Sons [FSJ.UK] -7% (earnings).
• Financials: Partners Group [PGHN.CH] +1% (earnings), Allianz [ALV.DE] -1% (investigation).
• Healthcare: Bone Therapeutics [BOTHE.BE] +15%, Hybrigenics [ALHYG.FR] +10% (potential combination).
• Telecom: Deutsche Telekom [DTE.DE] +1%, Tele2 [TEL2A.SE] +1% (divest stakes in T-Mobile Netherlands).

Speakers

• BOE's Saunders (QE dissenter): Growth moving back to pre-pandemic levels while inflation had risen faster-than-expected. Concerned that continuing asset purchases when CPI was near 4% could cause medium-term drift higher in inflationary expectations. Reiterates stance that no longer needed as much stimulus as previously thought.
• German Chancellor Merkel stated in parliament that the upcoming election to determine country's future prosperity; best way forward was a Laschet-led govt. She warned against a left-leaning govt led by SPD's Scholz.
• EU maintained its 2021 bond issuance at €80B; to begin issuing recovery bills and bonds from Sept. Green bond issuance to start in Oct.
• Thailand Dep PM stated that the govt planned more economic stimulus steps from October.
• China PBOC Vice Gov Sun Guofeng reiterated stance to maintain prudent monetary policy and would not resort to flood-like stimulus.

Currencies/Fixed Income

• USD consolidated its recent post-payroll losses.
• EUR/USD hovered around the 1.1865 area and well-contained in the 1.15-1.20 quarterly range. Dealers looking ahead to Thursday’s ECB meeting. No changes are expected in its key decision on rates and QE but dealer note moderate ECB could slow the pace of its emergency asset purchases in 4Q.
• GBP/USD drifted lower to test the 1.3810. BOE hawk Saunders spoke but added no new insights into his rhetoric. Market looking forward to UK PM announcement of his details of a long-awaited plan to reform social care.
• El Salvador became the first in the world to adopt bitcoin as an official currency. Taxes may be paid in the cryptocurrency and merchants must accept it alongside the US dollar.

Economic data

• (NL) Netherlands Aug CPI M/M: 0.4% v 0.5% prior; Y/Y: 2.4% v 1.4% prior.
• (NL) Netherlands Aug CPI EU Harmonized M/M: 0.5% v 0.6% prior; Y/Y: 2.7% v 1.4% prior.
• (CH) Swiss Aug Unemployment Rate: 2.7% v 2.8%e; Unemployment Rate (seasonally adj): 2.9% v 3.0%e.
• (DE) Germany July Industrial Production M/M: 1.0% v 0.8%e; Y/Y: 5.7% v 5.1%e.
• (UK) Aug Halifax House Price Index M/M: 0.7% v 0.4% prior; Y/Y: 7.1% v 7.6% prior.
• (FI) Finland July Preliminary Trade Balance: -€0.5B v -€0.3B prior.
• (NO) Norway July Industrial Production M/M: 0.0% v 1.0% prior; Y/Y: 1.3% v 4.3% prior.
• (NO) Norway July Manufacturing Production M/M: -0.6% v +0.7% prior; Y/Y: 5.5% v 8.1% prior.
• (DK) Denmark July Industrial Production M/M: +3.2% v -4.6% prior.
• (RO) Romania Q2 Preliminary GDP (2nd reading) Q/Q: 1.8% v 1.8% advance; Y/Y: 13.0% v 13.0%e.
• (ZA) South Africa Aug Gross Reserves: $58.4B v $56.7Be; Net Reserves: $55.7B v $52.9Be.
• (AU) Australia Aug Foreign Reserves: A$78.7B v A$64.0B prior.
• (CZ) Czech July Retail Sales Y/Y: 1.5% v 3.6%e; Retail Sales (ex-auto) Y/Y: 3.1% v 4.9%e.
• (CH) Swiss Aug Foreign Currency Reserves (CHF): 929.3B v 922.4B prior.
• (AT) Austria Aug Wholesale Price Index M/M: 0.0% v 1.5% prior; Y/Y: 12.0% v 12.1% prior.
• (HU) Hungary July Industrial Production M/M: -0.5% v -0.3% prior; Y/Y: 10.2%11.5%e.
• (MY) Malaysia end-Aug Foreign Reserves: $116.3Bv $111.3B mid-month reading.
• (SE) Sweden Aug Budget Balance (SEK): 43.4B v 8.1B prior.
• (TW) Taiwan Aug CPI Y/Y: 2.4% v 1.9%e; CPI Core Y/Y: 1.3% v 1.2%e; WPI Y/Y: 11.9% v 10.6%e.
• (TW) Taiwan Aug Trade Balance: $3.5B v $6.7Be; Exports Y/Y: 26.9% v 23.4%e; Imports Y/Y: 46.3% v 30.2%e.
• (CN) China Aug Foreign Reserves: $3.232T v $3.233Te.
• (EU) Euro Zone Q2 Final GDP (3rd reading) Q/Q: 2.2% v 2.0%e; Y/Y: 14.3% v 13.6%e.
• (EU) Euro Zone Q2 Household Consumption Q/Q: 3.7% v 3.0%e; Govt Expenditures Q/Q: 1.2% v 0.6%e; Gross Fixed Capital Q/Q: 1.1% v 1.3%e.
• (EU) Euro Zone Q2 Final Employment Q/Q: 0.7% v 0.5% prelim; Y/Y: 1.8%v 1.8% prelim.
• (EU) Euro Zone Sept ZEW Expectations Survey: 31.1 v 42.7 prior.
• (DE) Germany Sept ZEW Current Situation Survey: 31.9 v 34.0e; Expectations Survey: 26.5 v 30.5e.
• (GR) Greece Q2 GDP Q/Q: 3.4% v 4.5% prior; Y/Y: +16.2% v -2.3% prior; GDP NSA (unadj) Y/Y: +16.4% v -1.4% prior.

Fixed income Issuance

• (ID) Indonesia sold total IDR10.0T vs. IDR10.0T target in Islamic bills and bonds (sukuk).
• (ES) Spain Debt Agency (Tesoro) opened its book to sell EUR-denominated 20-year green bond via syndicate; guidance seen +9bps to Oct 2040 bond.
• (ES) Spain Debt Agency (Tesoro) sold total €5.194B vs. €4.5-5.5B indicated range in 6-month and 12-month bills.
• (AT) Austria Debt Agency (AFF) sold €1.61B vs. €1.61B indicated range in 2031 and 2037 RAGB bonds.
• (UK) DMO sold £3.25B in 0.25% Jan 2025 Gilts; Avg Yield: 0.250% v 0.281% prior; bid-to-cover: 2.81x v 2.34x prior; Tail: 0.2bps v 0.1bps prior.

Looking Ahead

• (MX) Citibanamex Survey of Economists.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (ZA) South Africa Q2 GDP Annualized Q/Q: 2.0%e v 4.6% prior; Y/Y: +17.8%e v -3.2% prior.
• 05:15 (CH) Switzerland to sell 3-month Bills.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.
• 05:30 (DE) Germany to sell combined €700M in Inflation-linked 2030 and 2046 Bonds (Bundei).
• 05:30 (BE) Belgium Debt Agency (BDA) to sell €2.6-30B in 3-month and 12-month bills.
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).
• 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2031, 2035 and 2044 bonds.
• 06:00 (IL) Israel to sell bonds.
• 06:30 (UK) DMO to sell £1.25B in 1.625% Oct 2071 Gilts.
• 06:30 (EU) ESM to sell €1.5B in 3-month Bills.
• 06:45 (US) Daily Libor Fixing.
• 07:30 (CL) Chile Aug Trade Balance: No est v $0.6B prior; Total Exports: Npo est v $7.9B prior; Total Imports: No est v $7.3B prior; Copper Exports: No est v $4.6B prior.
• 07:30 (CL) Chile Aug International Reserves: No est v $$48.8B prior.
• 08:00 (PL) Poland Aug Official Reserves: No est v $163.0B prior.
• 08:00 (CL) Chile July Nominal Wage M/M: No est v 0.3% prior; Y/Y: No est v 5.9% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 09:00 (RU) Russia Aug Official Reserve Assets: $607.8Be v $601.0B prior.
• 09:00 (EU) Weekly ECB Forex Reserves.
• 09:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).
• 09:45 (UK) BOE to buy £3.77B in APF Gilt purchase operation (20+ years).
• 09:45 (EU) ECB weekly QE bond buying update.
• 10:00 (MX) Mexico Weekly International Reserve data.
• 10:30 (TR) Turkey Aug Cash Budget Balance (TRY): No est v -67.9B prior.
• 11:30 (US) Treasury to sell 26-Week and 52-Week Bills.
• 13:00 (US) Treasury to sell 3-year notes.
• 15:00 (AR) Argentina July Industrial Production Y/Y: No est v 19.1% prior; Construction Activity Y/Y: No est v 28.6% prior.
• 16:00 (US) Weekly Crop Progress Report.
• 19:50 (JP) Japan July Current Account Balance: ¥2.288Te v ¥905.1B prior; Adjusted Current Account: ¥1.851Te v ¥1.779T prior; Trade Balance (BoP Basis): ¥634.5Be v ¥648.6B prior.
• 19:50 (JP) Japan Aug Bank Lending Y/Y: No est v 1.0% prior; Bank Lending (ex-trusts) v 0.5% prior.
• 19:50 (JP) Japan Q2 Final GDP Q/Q: 0.4%e v 0.3% prelim; Annualized Q/Q: 1.6%e v 1.3% prelim; Nominal GDP Q/Q: 0.1%e v 0.1% prelim.
• 21:10 (JP) BOJ to buy 1-3 years and 5-10-year bonds.
• 23:00 (CN) China to sell 2-year and 5-year Upsize Bonds.
• 23:30 (HK) Hong Kong to sell HKD1.0B in .59% 14-year Bonds.