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US ISM Manufacturing PMI rose from 59.5 to 59.9 in August, above expectation of 58.6. Looking at some more details, new orders rose from 64.9 to 66.7. Production rose form 58.4 to 60.0. However, employment dropped from 52.9 to 49.0. Prices dropped from 85.7 to 79.4.

ISM said: "The past relationship between the Manufacturing PMI and the overall economy indicates that the Manufacturing PMI for August (59.9 percent) corresponds to a 4.8-percent increase in real gross domestic product (GDP) on an annualized basis."

Full release here.

We're seeing a strong start to September in the markets, just as we move into the business end of the week.

Choppy trade on Tuesday appeared to put some on edge but clearly, that was a little overblown, with month-end perhaps having a role to play. There are obviously downside risks to the outlook for the rest of this year, with the spread of delta naturally casting a shadow over the global recovery but there's also plenty of reason to be hopeful.

Not only is the economy in a far better position than previously feared, vaccine rates in many countries mean restrictions during surges will be far less severe than before and central banks will be in no rush to withdraw stimulus. We are hearing a lot more talk of tapering of pandemic stimulus and rate hikes but this will be extremely gradual and heavily communicated.

The focus here is naturally on the Fed and, as Powell said on Friday, while tapering may begin later in the year, it will be done cautiously and is in no way indicative of when rates will rise. Against this backdrop, I don't think investors are as anxious about a policy misstep as they could be because it seems far less likely than it has been in the past.

There looks to me to be a lot of underlying optimism in the markets, despite the fact that the coming months will no doubt throw up some nasty surprises and businesses are already a little nervous about what the end of the year will bring. Of course, with plenty of data to come this week, including Friday's jobs report, the mood could change.
ADP miss a concern to no one, it seems

ADP payrolls fell well short of expectations on Wednesday, coming in almost half of market forecasts and potentially sending a terrible warning sign ahead of Friday's jobs report. As we've seen so often in the past, the data piqued the interest of those in the markets but didn't get much of a reaction, owing to its rare ability to actually provide reliable insight into the jobs report two days later.

The dollar was a little softer, US futures pulled back marginally, gold crept higher but we're talking very small moves. The data was interesting and will certainly get people thinking about the potential for a big miss in Friday's NFP number - which is currently forecast at around 750,000. But that's about it.

Oil steady ahead of OPEC+

Oil prices are steady ahead of the start of the OPEC+ meeting. They've rebounded strongly over the last week or so as China got to grips with its latest Covid outbreak. The final months of the year may pose some challenges on the demand side for the group but, given current price levels, I can't imagine they'll be in any rush to change course from the current plan of increasing production by 400,000 barrels per month.

A large drawdown in inventories reported by API on Tuesday did little to lift oil prices which pulled back a little from Monday's highs. EIA is due to publish its inventory numbers a little ahead of the OPEC+ meeting and is expected to report roughly in line with the API number.

WTI stalled earlier this week just shy of $70, which has previously been a bit of a psychological barrier for it. We could be seeing that once more, with the pullback simply being a case of profit-taking as the market assesses the full impact of Hurricane Ida on the industry.

Gold shrugs off poor ADP

Gold is treading water on Wednesday and the ADP did little to change that. The greenback eased a little following the release, which gave gold prices a small boost but we're talking very small numbers. It goes to show how little weight the ADP report carries these days, that such a large miss can be so easily shrugged off by the markets.

That leaves gold to ease its way into the jobs report at the end of the week, when I'd expect to see a much greater response to the data, especially if we're talking a miss of that magnitude. With gold hovering so close to the July highs around $1,833, the jobs data will be huge for the yellow metal, with a break above here putting it firmly back into bullish territory.

Whether it can sustain a move above there is another thing, with the Fed making clear its intentions still to taper this year. Interest rates and tapering may not be linked but one will naturally follow the other and if the data continues to be good enough to taper this year then hikes won't be that far behind. The US economy is in a very good position still, despite some worrying trends over the last few weeks.

Bitcoin bounces back but correction warnings still there

Bitcoin is making small gains on Wednesday but remains under pressure after it survived its first test of $46,000 support. It rebounded higher just ahead of this level but continues to look vulnerable to a move below that could send it into correction territory. The failure to make a new high earlier this week doesn't bode well for bitcoin.

That's not to say we'll see a mammoth drop in the price, the kind of which we've now seen on multiple occasions. Rather, a correction may be on the cards. Support could then appear around $40,000-41,000, which would coincide with those June and July highs and the 200-day SMA.

Bitcoin always has the potential to surprise and while everything seems to be pointing to a correction right now, nothing would surprise me about a sudden surge in the price. Perhaps a break of $46,000 will change that but one thing is clear, it's certainly lost momentum in recent weeks and that, typically, isn't a great sign.

Daily Pivots: (S1) 109.70; (P) 109.89; (R1) 110.19; More...

Intraday bias in USD/JPY remains neutral for the moment. 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. On the upside, break of 110.79 will resume the rebound from 108.71 to retest 111.65 high.

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) 0.9121; (P) 0.9147; (R1) 0.9180; More....

Intraday bias in USD/CHF remains neutral as range trading continues. 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, the failure to sustain above 55 week EMA (now at 0.9176) retains medium term bearishness in USD/CHF. Break of 0.8925 support should resume the whole decline form 1.0342 (2016 high) through 0.8756 low. However, break of 0.9273 resistance and sustained trading above 55 week EMA will be an early sign of bullish trend reversal. Focus will then turn to 0.9471 resistance for confirmation.

Daily Pivots: (S1) 1.3729; (P) 1.3768; (R1) 1.3794; More...

Further rise is still in favor in GBP/USD with 1.3678 minor support intact. Rebound from 1.3601 would target 1.3982 resistance first. Decisive break there will pave the way back to retest 1.4248 high. On the downside, break of 1.3678 will turn bias back to the downside for 1.3570 low, and possibly further to 1.3482 key resistance turned support.

In the bigger picture, current development argues that rise from 1.1409 (2020 low) has completed at 1.4248, after failing 1.4376 resistance. Fall from there could either be correcting the rise from 1.1409, or starting another falling leg inside long term sideway pattern. In either case, sustained break of 1.3482 resistance turned support will target 38.2% retracement of 1.1409 to 1.4248 at 1.3164 first. Break there will pave the way to 61.8% retracement at 1.2493.

Daily Pivots: (S1) 1.1788; (P) 1.1816; (R1) 1.1838; More...

Intraday bias in EUR/USD remains on the upside despite some loss of upside momentum. Rise from 1.1663 short term bottom is on track to 1.1907 resistance first. Decisive break there 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. On the downside, break of 1.1734 will turn bias back to the downside for 1.1602/63 support zone 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.

Dollar weakens mildly in early US session after big ADP job data miss. But Swiss Franc and Yen remain the weaker ones. Euro and Sterling firm up mildly. But they are outshone by Aussie and Loonie for the moment. Overall movements in the currency markets are limited, except in some Yen crosses. Traders are still generally cautious, awaiting more economic data from the US later in the weak.

Technically, we'll turn our focus to some Yen crosses first, as Dollar's move might be half-hearted before non-farm payroll data. EUR/JPY is now eyeing 130.54 resistance. Decisive break there will suggest completion of corrective fall from 134.11 at 127.91. Outlook will be turned bullish for retesting 134.11. Similarly, firm break of 81.56 resistance in AUD/JPY will also suggest completion of correction from 85.78, and turn near term outlook bullish for retesting 85.78 high.

In Europe, at the time of writing, FTSE is up 0.84%. DAX is up 0.45%. CAC is up 1.49%. Germany 10-year yield is up 0.0129 at -0.368. Earlier in Asia, Nikkei rose 1.29%. Hong Kong HSI rose 0.58%. China Shanghai SSE rose 0.65%. Singapore Strait Times rose 1.07%. Japan 10-year JGB yield rose 0.0044 to 0.031.

US ADP jobs grew 374k only, downshift in recovery

US ADP employment grew only 374k in August, well below expectation of 650k. By company size, small businesses added 86k jobs, medium businesses added 149k, large businesses added 138k. By sector, goods-producing jobs grew 45k while service-providing jobs grew 329k.

"Our data, which represents all workers on a company's payroll, has highlighted a downshift in the labor market recovery. We have seen a decline in new hires, following significant job growth from the first half of the year," said Nela Richardson, chief economist, ADP.

"Despite the slowdown, job gains are approaching 4 million this year, yet still 7 million jobs short of pre-COVID-19 levels. Service providers continue to lead growth, although the Delta variant creates uncertainty for this sector. Job gains across company sizes grew in lockstep, with small businesses trailing a bit more than usual."

ECB Stournaras: Recent jump in inflation is due to temporary factors

ECB Governing Council member, Bank of Greece Governor, Yannis Stournaras told Bloomberg, "according to most estimates, the recent jump in inflation is due to temporary factors related to various supply-side bottlenecks caused by the pandemic."

"Wage developments and unit labor costs which determine the core of inflation do not show the same volatility as headline inflation," he added. "On this evidence, I would advise caution regarding the course of inflation relative to our medium-term target."

Eurozone unemployment rate dropped to 7.6% in July, EU down to 6.9%

Eurozone unemployment rate dropped to 7.6% in July, down from 7.8%, matched expectations. EU unemployment rate dropped to 6.9%, down from 7.1%. Compared with June 2021, the number of persons unemployed decreased by 430 000 in the EU and by 350 000 in the euro area.

Eurozone PMI manufacturing finalized at 61.4 in Aug, another month of buoyant production

Eurozone PMI Manufacturing was finalized at 61.4 in August, down from July's 62.8. Markit said output and new orders sub-indices fell further from survey highs in March. Inflationary pressures eased, but remained substantial.

Looking at the member states, readings remained generally strong: Netherlands (65.8), Ireland (62.8), Germany (62.6), Austria (61.8), Italy (60.9), Spain (59.5), Greece (59.3), France (57.5).

Chris Williamson, Chief Business Economist at IHS Markit said: "Eurozone manufacturers reported another month of buoyant production in August, continuing the growth spurt into its fourteenth successive month. The overriding issue was again a lack of components, however, with suppliers either unable to produce enough parts or are facing a lack of shipping capacity to meet logistics demand.

"These supply issues were the primary cause of a shortfall of manufacturing production relative to orders of a magnitude not previously recorded by the survey, surpassing the 24-year record deficit seen in July."

UK PMI manufacturing finalized at 60.3 in Aug, severe disruptions and material shortages eroded momentum

UK PMI Manufacturing was finalized at 60.3 in August, a tick down from July's 60.4. Market said output growth slowdown exacerbated by input supply issues. Input cost and selling price inflation remained close to survey records.

Rob Dobson, Director at IHS Markit, said: "Severe disruptions to supply chains and raw material shortages eroded the growth momentum of UK manufacturing in August.... With all of these factors likely to persist for the foreseeable future, manufacturing could well see a further growth slowdown in the coming months.... The impact of supply issues is also feeding through to rapid price inflation... Business confidence remained elevated despite the widespread shortages as firms focused on the longer-term outlook and brought back furloughed workers."

Australia GDP grew 0.7% qoq in Q2 better than expectation

Australia GDP grew 0.7% qoq in Q2, above expectation of 0.5% qoq. Over 2020-21, the economy grew 1.4%. Head of National Accounts at the ABS, Michael Smedes said: "Domestic demand drove growth of 0.7 per cent this quarter which saw continued growth across household spending, private investment and public sector expenditure. Lockdowns had minimal impact on domestic demand, with fewer lockdown days and the prolonged stay at home orders in NSW only commencing later in the quarter".

Australia AiG manufacturing dropped sharply to 51.6 on lockdowns

Australia AiG Performance of Manufacturing dropped sharply from 60.8 to 51.6 in August. Looking at some more details, production dropped from -11.6 pts to 50.2. Employment dropped -9.4 to 51.4. New orders dropped -5.4 to 57.1. Supplier deliveries dropped -18.3 to 41.3. Exports dropped -8.5 to 45.1.

Ai Group Chief Executive Innes Willox said: "August saw a steep retreat from the healthy expansion in manufacturing performance that has characterised most of this year. Lockdowns across the country, particularly in NSW and Victoria were the major detractor from performance with ongoing strength outside of these states sufficiently strong to maintain the national performance in positive territory (although by a slim margin).

BoJ Wakatabe: Economic recovery is expected to become clear with vaccination progress

BoJ Deputy Governor Masazumi Wakatabe said in a speech, the Japan economy has remained in a "severe state". But the bank judged that "pick-up trend in the economy as a whole has been maintained, supported by positive developments in the corporate sector on the back of a firm recovery in overseas economies".

"Positive developments are likely to spread from the corporate sector to the household sector as the impact of COVID-19 wanes gradually, mainly due to progress with vaccinations," he added. "The economic recovery is expected to become clear."

The key to realizing the positive outlook is "whether a virtuous cycle operates firmly". That is, "whether an increase in domestic and overseas demand expands household income and corporate profits, and in turn leads to a further rise in spending".

Japan PMI manufacturing finalized at 52.7 in Aug, sustained expansion

Japan PMI Manufacturing was finalized at 52.7 in August, just slightly down from July's 53.0. Markit said output and new orders increased and slower rates. Export orders declined for the first time in seven months. Lead times lengthened to greatest extent in a decade amid ongoing disruption.

Usamah Bhatti, Economist at IHS Markit, said: "Latest PMI data pointed to a sustained expansion in the Japanese manufacturing sector midway through the third quarter.... A sharp rise COVID-19 cases in South East Asia was among the key factors listed by Japanese manufacturers for the easing in demand, both domestically and externally... Concurrently, severe supply chain disruption partly caused by pandemic restrictions and raw material shortages remained a dampener on production and orders."

China Caixin PMI manufacturing dropped to 49.2, Covid-19 resurgence a severe challenge

China Caixin PMI Manufacturing dropped to 49.2 in August, down from 50.3, below expectation of 50.2. That's the first contraction reading since April 2020. Caixin said output and new orders both declined modestly. Supply chain delays worsened amid uptick on COVID-19 cases. Companies trimmed purchasing activity and stagging levels.

Wang Zhe, Senior Economist at Caixin Insight Group said: "The latest Covid-19 resurgence has posed a severe challenge to the economic normalization that began in the second quarter of last year... Official economic indicators for July were worse than the market expected, indicating mounting downward pressure on economic growth. Authorities need to take a holistic view and balance containing Covid-19, stabilizing the job market, and maintaining stability in supply and prices."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1788; (P) 1.1816; (R1) 1.1838; More...

Intraday bias in EUR/USD remains on the upside despite some loss of upside momentum. Rise from 1.1663 short term bottom is on track to 1.1907 resistance first. Decisive break there 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. On the downside, break of 1.1734 will turn bias back to the downside for 1.1602/63 support zone 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

US ADP employment grew only 374k in August, well below expectation of 650k. By company size, small businesses added 86k jobs, medium businesses added 149k, large businesses added 138k. By sector, goods-producing jobs grew 45k while service-providing jobs grew 329k.

"Our data, which represents all workers on a company's payroll, has highlighted a downshift in the labor market recovery. We have seen a decline in new hires, following significant job growth from the first half of the year," said Nela Richardson, chief economist, ADP.

"Despite the slowdown, job gains are approaching 4 million this year, yet still 7 million jobs short of pre-COVID-19 levels. Service providers continue to lead growth, although the Delta variant creates uncertainty for this sector. Job gains across company sizes grew in lockstep, with small businesses trailing a bit more than usual."

Full release here.

The USD is coming up vs EUR despite hawkish ECB and dovish FED on Friday, so this can be a temporary contra-trend reaction. Looking at DXY, we are observing two wave counts where both suggests more weakness but after higher prices that can be seen in the near-term. Resistance is at 93.00-93.20.

EURUSD is also seen in a reversal mode that should be made by minimum three waves so be aware of more weakness in the near-term, possibly even to 1.1730.

EUR/USD 4h Elliott Wave analysis chart

US dollar in calm waters

The euro and sterling spiked overnight after ECB officials made hawkish comments, but the rally quickly ran out of steam. The weak consumer confidence and Chicago PMI data similarly failed to inspire a deeper US dollar retreat. Looking at the price action overnight, it seems that markets are content to play the range in the major currency space while waiting for the Friday Non-Farm release.

The dollar index fell 0.06% by the session’s end overnight but has reversed that today in Asia, climbing 0.10% to 92.74. I expect the index to trade in a 92.50 to 93.00 range until Friday’s data release. Today’s weaker regional PMIs appear to have sparked some US dollar short-covering in Asia.

EUR/USD briefly spiked 50 points to 1.1850 before returning to 1.1800, and GBP/USD spiked to 1.3805, its 200-day moving average (DMA), before returning to 1.3745, where it remains in Asia. Those two levels now form barriers to further rallies, and the price action overnight suggests that stronger US data prints this week could leave them vulnerable to another downward correction.

AUD/USD and NZD/USD have maintained their V-shaped recovery gains, trading at 0.7325 and 0.7050, respectively. Both currencies were lifting by falling New Zealand Covid-19 cases yesterday. Still, today’s data show an increase once again, which has flattened the exuberance but has not been enough, yet, to turn sentiment. Having said that, a rise through 0.7400 and 0.7100 by the down-under dollars suggests another 200 point rally by both is possible.

The USD/CNY is once again unmoved at 6.4615 today after almost unchanged basket components led to an uneventful fix. The PMI data has had little impact on USD/Asia today, which has mostly traded lower led by 0.25% rallies by the Malaysian ringgit and the Korean won. Asian currencies, it seems, are also content to remain on a shallow glide path into Friday’s US Non-Farm Payroll data.