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Daily Pivots: (S1) 1.3821; (P) 1.3856; (R1) 1.3895; More...

A temporary top is formed at 1.3890 in GBP/USD and intraday bias is turned neutral 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.

Daily Pivots: (S1) 1.1860; (P) 1.1884; (R1) 1.1903; More...

Intraday bias in EUR/USD is turned neutral as it retreated after failing to sustain above 1.1907 resistance. Further rise will remain mildly in favor as long as 1.1792 support holds. Sustained break of 1.1907 will indicate that fall from 1.2265, as well as the consolidation pattern from 1.2348, have completed. Near term outlook will be turned bullish for 1.2265/2348 resistance zone. However, on the downside, rejection by 1.1907 followed by break of 1.1792 support will dampen the bullish case, and turn bias back to the downside for 1.1663 support instead.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

Trading in the currency market is rather subdued today and markets will stay quiet with US and Canada on holiday. Dollar is paring some of last week's large losses but upside momentum is weak. On the other hand, Australia Dollar is turning slightly weaker as tomorrow's RBA policy decision is awaited. The reaction in Aussie could be wild as it's unknown whether RBA would maintain the tapering plan, or delay it, or reverse and increase in.

Technically, we'd pay attention to AUD/USD in the upcoming Asian session. As long as 0.7394 minor support holds, we'd expect rise form 0.7105 to extend to 0.7530 support turned resistance. Sustained break there would open the bullish case for retesting 0.8006 high. However, break of 0.7394 minor support will mix up the near term outlook and bring pull back first.

Suggested reading on RBA:

• Growth Rate Slashed – RBA Should Respond
• RBA Meeting: No Right Choices for the Aussie

In Europe, at the time of writing, FTSE is up 0.66%. DAX is up 0.75%. CAC is up 0.82%. Germany 10-year yield is up 0.0027 at -0.354. Earlier in Asia, Nikkei rose 1.83%. Hong Kong HSI rose 1.01%. China Shanghai SSE rose 1.12%. Singapore Strait Times rose 0.56%.

Eurozone Sentix investor confidence dropped to 19.6, glowing global recovery

Eurozone Sentix Investor Confidence dropped to 19.6 in September, down from 22.2, slightly below expectation of 19.7. That's the fourth decline in a row and the lowest reading since April, 2021. Current situation index was unchanged at 30.8. Expectations index dropped from1 4.0 to 9.0, lowest since May 2020.

Sentix said: "The momentum of the global economy is slowing. The expectation scores of most regions in the sentix business cycle indices are falling for the fourth or fifth time in a row. The expectation values are still positive, but the zenith of the economic recovery since the lockdowns last autumn has been passed. This is also evident in the assessments of the economic situation, which have only improved slightly in a few regions. In the important region of Asia ex Japan, on the other hand, we measure a noticeable decline".

From Germany, factory orders rose 3.4% mom in July, well above expectation of -1.0% mom.

UK PMI construction dropped to 55.2 in Aug, begins to feel the impact of supply chain disruption

UK PMI Construction dropped to 55.2 in August, down from July's 58.7, below expectation of 56.9. Markit said new order growth eased to a five-month low. All three monitored segments recorded softer rise in activity. But rise in input prices was second-fastest amid severe supply chain disruption.

Usamah Bhatti, Economist at IHS Markit: "Evidence that the UK construction sector began to feel the impact of ongoing supply chain disruption was widespread midway through the third quarter of 2021. Growth rates for overall activity as well as the three monitored subsectors eased further from the recent highs earlier in the summer. Similarly, new business inflows have continued to increase at a marked pace, yet even here the rate of growth has eased to a five-month low.

Nikkei closed up 1.83%, heading to 30714 high

Nikkei closed up strongly by adding 531.78 pts or 1.83% today, and the near term development is looking rather bullish. The corrective pattern from 30714.52 has likely completed at 26954.81. Further rise is now expected as long as this week's gap is not covered. Next target is 30714.52 high.

Medium term development is also bullish with strong support seen from 55 week EMA. A market friendly result of next week's leadership election of the ruling Liberal Democratic Party of Japan would probably pop Nikkei through 30714.53 high. In that case, the long term up trend would extend to 38.2% projection of 16358.19 to 30714.52 from 26954.81 at 32438.92 next.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1860; (P) 1.1884; (R1) 1.1903; More...

Intraday bias in EUR/USD is turned neutral as it retreated after failing to sustain above 1.1907 resistance. Further rise will remain mildly in favor as long as 1.1792 support holds. Sustained break of 1.1907 will indicate that fall from 1.2265, as well as the consolidation pattern from 1.2348, have completed. Near term outlook will be turned bullish for 1.2265/2348 resistance zone. However, on the downside, rejection by 1.1907 followed by break of 1.1792 support will dampen the bullish case, and turn bias back to the downside for 1.1663 support instead.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

Economic Indicators Update

The commodity market is falling early in the week. Brent is trading at $71.55 and may obviously go lower.

The commodity market negatively responded to the US labour market statistics that fell short of expectations, especially the NFP. Investors were worried that the low employment in the country might eventually have a negative influence on the demand for energies and that was the key trigger for sales in oil, which obviously needed a correction.

The statistics from Baker Hughes were quite interesting. The Oil Rig Count in the USA lost 16 units over the week and that might have been an excellent bullish catalyst if it hadn’t been for global market sentiment. At the same time, this week’s data from neither the Department of Energy nor Baker Hughes should be estimated thoroughly due to the Ida storm in the Gulf of Mexico.

In the H4 chart, after forming a new consolidation range around 71.80 and then expanding it up to 74.05, the asset has tested the latter level from above; right now, it is still consolidating and may soon resume moving upwards to reach the first upside target at 78.50. We should once again note that there haven’t been any serious corrections so far during this ascending movement. If the price breaks this range to the downside, the market may start a new correction with the potential target at 69.60, which may later be followed by another growth to break 75.55 and a further uptrend towards 78.50. From the technical point of view, this scenario is confirmed by MACD Oscillator: its signal line is trading towards 0, while there are several divergences on the indicator, which may hint at a deep correction. However, remember that the instrument is consolidating and trading to break a very important level, which is not strong enough to stop the asset from growing yet. As a result, the most probable scenario implies a breakout of this level to the upside and a further uptrend. As for the indicator, its line ma rebound from 0 and resume moving upwards to reach the highs.

As we can see in the H1 chart, after reaching the correctional target at 71.75, Brent is forming another ascending structure towards 74.55 and may later start a new decline to test 72.00 from above. In fact, the asset is expected to continue consolidating around 72.00. If the price rebounds from this level to the upside, the market may resume growing to break 74.55 and then continue trading upwards to form another five-wave structure with the target at 78.50. From the technical point of view, this idea is confirmed by the Stochastic Oscillator: after leaving the “oversold area”, its signal line is steadily growing to break 50.

Nikkei closed up strongly by adding 531.78 pts or 1.83% today, and the near term development is looking rather bullish. The corrective pattern from 30714.52 has likely completed at 26954.81. Further rise is now expected as long as this week's gap is not covered. Next target is 30714.52 high.

Medium term development is also bullish with strong support seen from 55 week EMA. A market friendly result of next week's leadership election of the ruling Liberal Democratic Party of Japan would probably pop Nikkei through 30714.53 high. In that case, the long term up trend would extend to 38.2% projection of 16358.19 to 30714.52 from 26954.81 at 32438.92 next.

The Canadian dollar is slightly lower in the Monday session. Currently, USD/CAD is trading at 1.2552, up 0.23% on the day. Financial markets are closed in both Canada and the US, so the pair is likely to have a quiet day.

After weeks of the Federal Reserve basking in the market spotlight, it’s the turn of other central banks this week, including the Bank of Canada, which holds a policy meeting on Wednesday.

BOC in the spotlight

The BoC is already on the path of policy normalization, having tapered its weekly bond purchases from CAD 5 billion to CAD 2 billion. The Bank had projected that it would raise interest rates in the second half of 2022, when inflation was expected to rise to the 2% level. However, there are two factors that could support an uneventful September meeting. First, the Q2 GDP reading underperformed, with a reading of -1.1% (2.5% exp.), and Covid-19 cases have been rising. The Bank may not want to signal that further tightening is on the way, with economic conditions not all that favorable. Second, a national election is being held on September 20, and the BoC will scrupulously want to avoid taking any steps that could have an impact on the election.

At the same time, there are some key economic indicators that can be relied on to make a case for further tapering. Inflation has climbed to 4%, double the BoC’s target, while employment has almost completely recovered from the dark days of April 2020, when Covid-19 appeared and severely curtailed the labor market. A signal from the Bank that further tapering is on the way could give a significant boost to the Canadian dollar.

Massive miss for US nonfarm payrolls

US nonfarm payrolls surprised with a huge miss on Friday, as the economy added only 235 thousand jobs in August. The consensus was around 750 thousand jobs and some forecasts were above the 1-million level.

The Fed has consistently said that a taper was dependent on stronger employment data, so the soft NFP release makes it very unlikely that the Fed will signal a taper at the next policy meeting on September 22nd. This is a bearish development for the US dollar, which could be in for a rough ride this week. The Canadian dollar has jumped 2.1% in the past two weeks, and the rally could continue when US and Canadian markets reopen on Tuesday.

 USD/CAD Technical

• There are resistance lines at 1.2776 and 1.2936
• The next support levels are at 1.2517 and 1.2418

The euro is slightly lower in the Monday session. Currently, EUR/USD is trading at 1.1861, down 0.15% on the day. The US dollar had a rough week, and the euro took advantage, with gains of 0.72%. On Friday, the euro punched across the 1.19 line for the first time in five weeks, but was unable to hold onto these gains.

The eurozone ended the week on a mixed note. Services PMIs for August in Germany and the eurozone continue to indicate significant expansion in the services sector (60.8 in Germany and 59.0 in the eurozone). However, the news was less positive from eurozone retail sales. The July reading pointed to a sharp decline of 2.3%, marking a 3-month low.

US Nonfarm payroll slides

The highly-anticipated US nonfarm payrolls was a huge miss, as the economy added only 235 thousand jobs in August. The consensus was around 750 thousand jobs and some forecasts were above the 1-million level.

The Fed has consistently said that a taper was dependent on stronger employment data, so it’s a safe bet that the jarring NFP will take the taper discussion off the table, at least until job data shows a huge improvement. This makes it very unlikely that the Fed will signal a taper at the next policy meeting on September 22nd. This is a bearish development for the US dollar, which could be in for a rough ride this week. The euro pushed across the 1.19 line on Friday, but the dollar managed to recover before the end the week.

Given the massive miss by NFP, it would not have been surprising had investors reacted with a selling frenzy of US dollar. It is entirely possible that the reaction was muted, given that many investors had left for the long weekend in the US ahead of the NFP release, and a more genuine response could well be seen on Tuesday.

EUR/USD Technical

• On the upside, EUR/USD faces resistance at 1.1930 and 1.1983
• There is support at 1.1804 and 1.1731

EURUSD is coming down, hitting some resistance now despite worse than expected US NFP report on Friday. EURUSD currency pair has support at daily 50 SMA (Simple Moving Average) around 1.18 level, at the former wave four.

As per Elliott Wave analysis, EURUSD has completed 5 waves move from 1.2266 to 1.1663 level in an impulsive wave structure. Now the EURUSD currency pair is recovering and unfolding wave A/1.

EUR/USD 4h Elliott Wave analysis chart

The Australian dollar is in negative territory on Monday, after flexing some muscle last week. AUD/USD is trading at 0.7430, down 0.35% on the day. The currency shot up 1.94% last week, as investor appetite for risk improved, which was bullish for minor currencies like the Australian dollar.

US Nonfarm payroll misses badly

The Australian dollar ended the week on a high note, with strong gains of 0.75%. This was in response to a shocker from US nonfarm payrolls on Friday, which added just 235 thousand jobs. The consensus was around 750 thousand jobs and some analysts were even calling for a print north of the 1 million mark.

The soft NFP reading effectively put on hold any expectations that the Federal Reserve would signal tapering at its policy meeting later this month, and that has weighed on the US dollar. The Aussie has reversed directions on Monday, but I would not read too much into that, as US markets are closed for Labour Day, and liquidity is thin, which could account for the US dollar bouncing back on Monday after a poor showing last week.

Will RBA delay tapering?

The RBA holds a policy meeting on Tuesday, and the markets will be keeping a close eye on what the central bank decides with regard to a planned taper. At the August meeting, policy makers adhered to plans to taper weekly bond purchases from AUD 5 billion to AUD 4 billion. Since then, the economy has taken a hit from prolonged lockdowns due to the Delta variant of Covid-19, and GDP in the third quarter may have contracted by as much as 3%.

The big question is will the RBA feel that a taper is warranted, given that economic conditions are not all that favorable. If the central bank says that it will begin a taper next month, the Australian dollar could respond with strong gains.

AUD/USD Technical

• There are resistance lines at 0.7534 and 0.7597
• The first line of support is at 0.7331, followed by 0.7211

Notes/Observations

• German July Factory Orders handily beat consensus aided by foreign demand.
• Main event this week is the ECB policy decision on Thursday with focus on any adjustment to its Pandemic Bond Buying program (PEPP).

Asia

• China Vice Premier Liu He stated that policy to support private companies would not change and promised govt to support the private sector.
• China researcher saw room for cut to RRR or rate in H2.
• China PBOC Deputy Gov Chen Yulu stated that it would close loopholes in its financial technology regulation, and included all types of financial institutions.
• China Securities regulator (CSRC) Vice Chairman Fang Xinghai stated it would improve regulations for companies seeking overseas listings.

Europe

• EU Economic Commissioner Gentiloni (Italy): Watching EU inflation but should monitor it very accurately and avoid making conclusions too early.
• Italy Econ Min Franco stated that saw 2021 GDP growth over 5.8%. Italy to end 2021 with debt-to-GDP ratio better-than-expectations. Govt committed to turning the post-pandemic rebound into higher structural economic growth.
• Brexit Sec Frost: The standoff with the EU over Brexit rules related to Irish border, risk creating a "cold mistrust". Reiterated demands for major changes on implementation of the controversial Northern Ireland Brexit protocol.
• Germany SPD's Scholz indicated he could be interested in coalition/governing with Greens.

Americas

• US and Canadian markets closed for holiday.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 +0.57% at 474.62, FTSE +0.56% at 7,178.06, DAX +0.64% at 15,882.55, CAC-40 +0.71% at 6,737.29 , IBEX-35 +0.29% at 8,890.00, FTSE MIB +0.66% at 26,236.50 , SMI +0.58% at 12,423.04, S&P 500 Futures +0.23%].
• Market Focal Points/Key Themes: European indices open generally higher and advanced into the green as the session progressed; light trading in session due to market closures in the Americas; better performing sectors include technology and consumer discretionary; financials and materials sectors among the lagards; Israel, US and Canada closed for holiday; Sulzer confirms to spin off medmix; Veon sells tower assets in Russia; Spie looking to buy Equans from Engie; Castor raised offer for Cerved; no major equities events expected during the US session.

Equities

• Consumer discretionary: MD Medical Group Investments [MDMG.UK] -6% (earnings).
• Energy: EN+ Group [ENPL.UK] +3% (Guinea coup attempt; aluminum concerns).
• Healthcare: Dechra Pharmaceuticals [DPH.UK] -10% (earnings).
• Technology: Cerved Information Solutions [CERV.IT] +2% (raised offer).
• Energy: Spie [SPIE.FR] -4% (offer for Engie's unit).

Speakers

• Poland Central Bank Gov Glapinski stated that monetary tightening would be risky at this time. PLN currency (Zloty) appreciation did not seen favorable for economy. Saw CPI falling from Q2 2022.

Currencies/Fixed Income

• USD was nursing its recent losses after Friday’s Nonfarm payrolls missed expectations. The data pushed back expectations of any imminent Fed tapering plans.
• EUR/USD was steady in a quiet session at 1.1865 area. Main event this week is the ECB policy decision on Thursday with focus on any adjustment to its Pandemic Bond Buying program (PEPP). Overall ECB was not expected to any major change in its policy stance and dealers believe it should remain dovish despite the recent jump in the Euro Zone's inflation rate.

Economic data

• (DE) Germany July Factory Orders M/M: +3.4% v -0.7%e; Y/Y: 24.4% v 18.9%e.
• (CZ) Czech July National Trade Balance (CZK): -7.2B v -4.8Be.
• (CZ) Czech July Industrial Output Y/Y: 1.1% v 0.7%e; Construction Output Y/Y: 0.5% v 6.5% prior.
• (DE) Germany Aug Construction PMI: 44.6v 47.1 prior.
• (CZ) Czech Aug Unemployment Rate: 3.6% v 3.7% prior.
• (CH) Swiss weekly Total Sight Deposits (CHF): 714.9B v 715.2B prior; Domestic Sight Deposits: 636.5B v 640.1B prior.
• (UK) Aug New Car Registrations Y/Y: -22.0% v -29.5% prior.
• (ZA) South Africa Q3 BER Consumer Confidence: -10 v -13 prior.
• (TW) Taiwan Aug Foreign Reserves: $543.6B v $543.1B prior.
• (UK) Aug Construction PMI: 55.1 v 56.0e (7th month of expansion).
• (EU) Euro Zone Sept Sentix Investor Confidence: 19.6 v 19.7e.

Fixed income issuance

• None seen.

Looking ahead

• (RU) Russia Aug Light Vehicle Car Sales Y/Y: -2.1%e v -6.5% prior.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (DE) Germany to sell combined €6.0B in 3-month and 9-month BuBills.
• 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €1.5-2.5B in 6-month bills.
• 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).
• 06:00 (IL) Israel to sell bonds.
• 06:00 (RO) Romania to sell 4.75% 2034 bond.
• 06:00 (TR) Turkey to sell floating Rate Bonds.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (MX) Mexico Jun Gross Fixed Investment: 17.6%e v 46.5% prior.
• 07:00 (MX) Mexico Aug Vehicle Production: No est v 221.8K prior; Vehicle Exports: No est v 202.0K prior.
• 07:25 (BR) Brazil Central Bank Weekly Economists Survey.
• 07:30 (TR) Turkey Aug Real Effective Exchange Rate (REER): No est v 61.31 prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).
• 09:00 (FR) France Debt Agency (AFT) to sell €4.3-5.5B in 3-month, 6-month and 12-month bills.
• 09:45 (EU) ECB weekly QE bond buying update.
• 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (3-7 years).
• 19:00 (KR) South Korea July Current Account Balance: No est v $8.9B prior; Balance of Goods (BOP): No est v $7.6B prior.
• 19:01 (UK) Aug BRC Sales Like-For-Like Y/Y: 3.2%e v 4.7% prior.
• 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 101.8 prior.
• 19:30 (JP) Japan July Labor Cash Earnings Y/Y: 0.3%e v 0.1% prior (revised from -0.1%); Real Cash Earnings Y/Y: +0.6%e v -0.1% prior (revised from -0.4%).
• 19:30 (JP) Japan July Household Spending Y/Y: +2.7%e v -5.1% prior.
• 21:00 (PH) Philippines July Unemployment Rate: No est v 7.7% prior.
• 21:00 (PH) Philippines Aug CPI Y/Y: 4.4%e v 4.0% prior.
• 21:30 (KR) South Korea to sell KRW850B in 2-year bonds.
• 23:00 (ID) Indonesia Aug Foreign Reserves: No est v $137.3B prior.
• 23:00 TH) Thailand Central Bank to sell 3-month bills.
• 23:30 (HK) Hong Kong to sell 3-month and 6-month Bills.
• 22:30 (JP) Japan to sell 30-year JGB bonds.