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The trading day after Jackson Hole 2021 – which wasn’t very spectacular to begin with – won’t go down in history. After some modest further repositioning during Asian dealings, attention shifted to Europe with the release of business confidence and Spanish and German HICP as a taster for tomorrow’s eurozone reading. Unfortunately, the numbers just came and went. The EC’s Economic Confidence indicator in August retreated slightly more than expected, from a record 119 to a still-impressive 117.5. Sentiment eased in three out of five categories: manufacturing (supply bottlenecks and raw material shortages), services (deltavariant flare-up) and among consumers (delta and rising inflation). Construction and retail were the green shoots. Spanish inflation (0.4% m/m, 3.3% y/y) exceeded expectations while Germany’s matched a 3.4% y/y consensus and the 2008 record pace. Details are unavailable as of yet but regional German data suggest upward pressures from food, energy and package holidays (where a lower basket weight this year compensates for the seasonal price decreases). Base effects are at play too. Let’s not forget, however, upward price pressure are out there in the real economy, as also shown by a subseries of the EC’s indicator. Expected selling prices in manufacturing just hit another all-time high while hovering near 13-year highs in services. We also heard from ECB’s Villeroy. Comments and speeches from ECB governors are interesting in the run-up to the September meeting, though Villeroy sought to downplay its relevance. He said it’s not urgent to decide on PEPP (or APP in general) in September, reminding that the crisis program runs at least until March 2022. He added that it might be useful for the ECB to disconnect QE from rates the way the Fed did last Friday. On inflation, Villeroy said there is no risk of a sustainable surge in inflation in the eurozone.

That’s today in a nutshell. Turning to markets, we can be relatively brief. Equity, currency and bond markets all trade muted. European stocks eke out gains not more than 0.20%. The USD has a small, marginal edge over G10 peers. EUR/USD’s test of the 1.1805 resistance area failed and now struggles to retain the 1.18 big fig altogether. The trade-weighted greenback is going nowhere at 92.74. USD/JPY reversed early weakness and is eying 110. Core bonds tread water. US yields prepared for a minor downleg but the move lacked momentum. The US10y yield holds north of 1.30%. German Bunds are holding a choppy sideways trading pattern and at the current stage slightly underperform USTs. The 10y (-0.41%) tested but failed to cap -0.40% in early trading. Peripheral spreads are – you guessed it – largely unchanged. Oil prices are slightly down for the day while natural gas futures reversed an Asian spike higher despite hurricane Ida shutting down nearly all gas production by the US gulf.

News Headlines

The Swiss KOF Economic Barometer fell from its all-time high in May for the 3rd time in a row, from 130.9 to 113.5 (vs 125.9 consensus), but remains above its long-term average of 100. Accordingly, in the coming months the economic recovery from the consequences of the pandemic is expected to continue. All indicator groups except construction contributed to the decline in August with the fourth wave fueling doubt on future economic activity. In the goods producing sector, the order backlog in particular is assessed as less positive, followed by earnings, employment, and production. The Swiss franc returned all of Friday post-Powell (decline real yields) gains and returned from EUR/CHF 1.0750 to 1.08. Last week’s deposit data suggested hardly any FX interventions by the Swiss National Bank. Early August, the SNB prevented CHF from appreciating beyond EUR/CHF 1.07.

The National Bank of Belgium upwardly revised its Q2 GDP forecast from 1.4% Q/Q to 1.7% Q/Q. It’s the fastest quarterly growth figure with available data dating back to Q2 1995. Details showed positive contributions from household consumption (3.5% Q/Q), government spending (3.5% Q/Q) and investments (1.6% Q/Q). Net exports fell by 0.4% Q/Q with imports (3.1% Q/Q) rising faster than exports (Q/Q).

Bulls started to lose steam on Monday after last week’s nearly 1% advance, facing strong headwinds from the base of thick daily cloud (1.3760).

Although the price action is holding near the top of multi-day congestion, cable is lacking strength for eventual break higher.

Renewed concerns about the UK economic recovery on global threats from Delta variant spread and hopes that the Fed will start tapering in the near future, limit pound’s recovery, while traders focus US Aug payroll data for fresh signals.

Daily studies are bearishly aligned and add to weakening sentiment, but near-term bias is expected to stay in positive mode while the action holds above broken Fibo level at 1.3747 (38.2% of 1.3983/1.3601).

Expect initial bearish signal on close below 10DMA (1.3715) which would look for confirmation on extension below Friday’s low (1.3680).

Violation of daily cloud base would generate positive signal, but bulls need sustained break above 1.3800 (200DMA) to tighten grip.

Res: 1.3760; 1.3780; 1.3800; 1.3837.
Sup: 1.3733; 1.3715; 1.3654; 1.3606.

After some confident growth last Friday, the major currency pair is looking quite stable early in the final week of summer. EUR/USD is mostly trading at 1.1800.

The US Fed Chairman Jerome Powell said on Friday that the regulator might as well consider a possibility of an earlier reduction of its QE program before the end of the year without any particular dates. He also believes that the inflation boost was temporary. In his opinion, it wouldn’t be right to tighten the monetary policy right now.

As a result, the “greenback” got a clear signal: yes, the Fed agrees that the QE program volume should be slowly reduced but the regulator is not going to do anything about it right now.

In the H4 chart, after rebounding from 1.1738, finishing the ascending wave at 1.1770, and then breaking the latter level to the upside, EUR/USD is expected to extend the correction; it has already reached the short-term upside target at 1.1808 and right now is correcting downwards. Possibly, the pair may fall to return to 1.1770 and then start another growth towards 1.1815. Later, the market may resume trading downwards with the target at 1.1711. From the technical point of view, this scenario is confirmed by MACD Oscillator: after re-entering the histogram area, its signal line is moving to the upside.

As we can see in the H1 chart, after breaking 1.1777 and finishing the ascending impulse with the short-term target at 1.1808, EUR/USD is correcting towards 1.1770. Later, the market may start another growth to break 1.1800 and then continue growing with the target at 1.1815. From the technical point of view, this scenario is confirmed by the Stochastic Oscillator: after breaking 50 to the downside, its signal line is steadily moving towards 20.

Daily Pivots: (S1) 1.1753; (P) 1.1778; (R1) 1.1820; More...

No change in EUR/USD's outlook. Intraday bias stays neutral with focus on 1.1804 resistance. Break there will bring stronger rise to 1.1907 resistance first. Firm 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 holds. In case of another fall, we'd continue to look for strong support from 1.1602/1703 key support zone to bring rebound.

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.

Daily Pivots: (S1) 1.3698; (P) 1.3740; (R1) 1.3799; More...

Intraday bias in GBP/USD remains neutral for the moment. Focus stays on 1.3785 resistance. Break there will turn bias to the upside for 1.3982 resistance. Firm break there will indicate that fall from 1.4248 has completed and bring retest of this high. On the downside, below 1.3601 will resume the fall from 1.4248 to 1.3482 resistance turned support next.

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 form 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) 109.67; (P) 109.97; (R1) 110.16; More...

Intraday bias in USD/JPY remains neutral as range trading continues. 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.

The Australian dollar has started the new trading in negative territory. Currently, AUD/USD is trading at 0.72923, down 0.27% on the day.

Powell speech lifts Aussie

The Australian dollar is coming off a superb week, which saw gains of 2.46%, its best weekly performance since November 2020. The week ended on a high note, as AUD/USD jumped 1.06%. Market sentiment rose after Fed Chair Jerome Powell’s Jackson Hole speech on Friday. Powell didn’t throw any bombshells, saying that the Fed would likely begin tapering before the end of the year. At the same time, Powell said that rate hikes were not imminent, as the economy still had “much room to cover” before full employment was achieved.

The Fed holds its next policy meeting on September 22, and Fed officials have been hinting that a timeline for tapering could be announced on that date. However, the timing of a rate hike is less clear. In his speech, Powell took pains to reiterate that there was no link between tapering and a rate hike. Still, a taper is likely to set off a buy- everything move and would likely trigger markets speculation about a rate hike.

On the economic calendar, mixed Australian business indicators on Monday have weighed on the Australian dollar. Inventories rose 0.2% in Q2, well short of the forecast of 1.0%. However, Company Profits surged 7.1% in the second quarter, crushing the consensus of 2.5%.

Australia’s economy showed solid expansion in the first quarter, with a gain of 1.8% (QoQ). However, the markets are bracing for a significant slowdown in Q1, with an estimate of 0.5%. GDP will be released on Tuesday, and the event is likely to be a market-mover.

AUD/USD Technical

• There is resistance at 0.7377, followed by 0.7445
• On the downside, 0.7225, a monthly line, has strengthened in support after last week’s strong gains by AUD. Below, there is support at 0.7103

Daily Pivots: (S1) 0.9078; (P) 0.9139; (R1) 0.9172; More....

USD/CHF recovers again today but stays in range of 0.9098/9241. 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, 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.

Selling of Swiss Franc is somewhat the biggest theme in a very quiet day so far, with UK on holiday. On the other hand, some buying is picking up in Canadian Dollar. But overall, markets are mixed without a clear direction yet. Main focus will firstly be on whether US stocks could extend last week's record runs. Also, eyes are on whether Dollar would extend the post-Powell decline. It may take a bit more time to unveil the trend.

Technically, as noted before, we'd look at 1.1804 resistance in EUR/USD, 1.3785 resistance in GBP/USD, 0.9098 support in USD/CHF, 109.10 support in USD/JPY and 1.2577 support in USD/CAD. Break of these level would affirm Dollar's underlying weakness. Also, Gold's reaction to 1832.47 resistance would also double confirm Dollar's move.

In Europe, at the time of writing, FTSE is up 0.32%. DAX is up 0.18%. CAC is up 0.21%. Germany 10-year yield is up 0.0125 at -0.408. Earlier in Asia, Nikkei rose 0.54%. Hong Kong HSI rose 0.52%. China Shanghai SSE rose 0.17%. Singapore Strait Times rose 0.69%. Japan 10-year JGB yield dropped -0.0048 to 0.020.

Eurozone economic sentiment dropped to 117.5, employment expectation rose to 112.8

Eurozone Economic Sentiment Indictor dropped from record high of 119.0 to 117.5 in August, below expectation of 118.6. Employment Expectations Indictor rose 1.2 pts to 112.8, hitting the highest level since November 2018. Looking at some more details, industry confidence dropped from 14.5 to 13.7. Services confidence dropped from 18.9 to 16.8. Consumer confidence dropped from -4.4 to -5.3. Retail trade confidence rose from 4.4 to 4.6. Construction confidence rose from 4.0 to 5.5.

EU ESI dropped -1.5 pts from record high 118.0 to 116.5. Amongst the largest EU economies, the ESI fell sharply in France (-4.5) and in the Netherlands (-3.0), and to a lesser extent, in Italy (-1.9), Poland (-1.7) and Spain (-1.2). Sentiment in Germany (-0.3) was virtually unchanged. Employment Expectation Indicator rose 1.0 pts to 112.6, highest since November 2018.

ECB Villeroy: No urgency to decide on asset purchases at Sep meeting

ECB Governing Council member, Bank of France Governor Francois Villeroy de Galhau told BFM Business radio that the economies in France and the euro zone should be back to pre-COVID levels in early 2022 or maybe earlier.

He added there is no risk of higher inflation at this stage, and there is no risk of a sustainable surge in inflation in the Eurozone. He expected PEPP purchases to be there until at least March 2022. There is no urgency to decide on asset purchases at the September meeting.

Swiss KOF dropped to 113.5, 4th wave of pandemic fueling doubts on economy

Swiss KOF Economic Barometer dropped for the third month in a row to 113.5 in August, below expectation of 126.3. However, it';s still well above it's average value of 100. KOF said, "the fourth wave of the pandemic, which is now becoming increasingly clear, is apparently fuelling doubts about largely unhindered economic activity in the near future."

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9078; (P) 0.9139; (R1) 0.9172; More....

USD/CHF recovers again today but stays in range of 0.9098/9241. 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, 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.

Economic Indicators Update

Gold price started a fresh increase above the $1,800 resistance zone against the US Dollar. The price even broke the $1,810 level to move into a positive zone.

There was a spike above the $1,820 level and the price settled above the 50 hourly simple moving average. A high was formed near $1,823 on FXOpen and the price is now correcting lower.

On the downside, there is a decent support forming near the $1,810 level. The main support is now near the $1,805 level, below which the price could revisit $1,800. Any more losses could lead the price to $1,780.

On the upside, an immediate resistance is near the $1,820 level. The main resistance is near the $1,825 level. A clear break above the $1,825 resistance could push the price further higher. The next main resistance could be $1,845.