Sample Category Title

Overall markets continue to trade in a mixed manner for now. Yen and Dollar are currently the weakest for the weak while commodity currencies are the strongest. But all major pairs and crosses are stuck inside prior week's range. The situation in Afghanistan is unlikely to be a persistent worry for investors. Main focuses will remain on the comments from Fed officials regarding tapering.

Technically, while focuses are on Dollar, Sterling appears to be turning slightly weaker. In particular, EUR/GBP drew some notable support from 4 hour 55 EMA and rebounded. Break of 0.8592 resistance will resume the rise from 0.8448 towards 0.8668 resistance. Meanwhile, GBP/JPY appears to be rejected by 151.38 minor resistance and it could be heading back to 149.16 support.

In Asia, at the time of writing, Nikkei is down -0.47%. Hong Kong HSI is up 0.51%. China Shanghai SSE is up 0.49%. Singapore Strait Times is down -0.81%. Japan 10-year JGB yield is up 0.0036 at 0.025. Overnight, DOW dropped -0.54%. S&P 500 dropped -0.58%. NASDAQ dropped -0.64%. 10-year yield closed flat at 1.342, after rising to 1.375.

NASDAQ closed lower after comments from Fed hawks

US stocks closed lower overnight as traders turned cautious, watching the development in Afghanistan and upcoming speech of Fed chair Jerome Powell at the Jackson Hole Symposium. A few Fed officials expressed their support for tapering asset purchases, somewhat talking down the impact of the spread of Delta. Yet, we'd note that those are known hawks already. Doves might come out today telling another story while Powell would likely sound non-committal. The overall Jackson Hole event would likely leave the market with nothing new on the net.

NASDAQ apparently faced some resistance from 61.8% projection of 10822.57 to 14175.11 from 13002.53 at 15074.39, and 15k psychological level. While it's now in a retreat, there is no sign of reversal, at least before covering the gap made at weekly open. Nevertheless, it might still take some time to build the base to power through 15k at a later stage.

Fed Kaplan: It's a lot healthier to wean economy off asset purchases

Dallas Fed President Robert Kaplan told CNBC that by and large, businesses are "weathering Delta at least as well as previous surges". Businesses and consumers are learning to adapt well. There is no demand problem in the economy too.

He added that it would be "a lot healthier if Fed begins to wean economy off asset purchases". Kaplan said he "would prefer to start taper soon but do it over plus or minus eight months, although I remain open-minded." September meeting would remain his preference to announce tapering.

Fed Bullard: We don't need the asset purchases at this point

St. Louis Federal Reserve president James Bullard repeated his call for tapering to end asset purchase by the early next year, as "we don't need the asset purchases at this point."

"I think a lot depends on whether inflation going to moderate in 2022 or not. I'm a little skeptical that it is. I think we're going to get at least 2.5% inflation in 2022, maybe higher than that and there's some risk to the upside on that," Bullard said.

"We will be able to get to a good consensus on the committee and get to a good wind-down process. It does seem that we are coalescing around a plan," Bullard said.

Australia retail sales dropped -2.7% mom in Jul, NSW down -8.9% on lockdown

Australia retail sales dropped -2.7% mom in July, slightly better than expectation of -2.9% mom. Comparing to a year ago, sales also dropped 3.1% yoy.

Ben James, Director of Quarterly Economy Wide Surveys, said: "Lockdowns and stay-at-home orders in many parts of Australia continued to impact retail trade in July, with many non-essential retail businesses closing their physical stores. In particular, the first full month of lockdown in New South Wales, following the Delta outbreak in June, saw retail turnover in the state fall 8.9 per cent. This was the largest fall of any state and territory since August 2020."

Looking ahead

Canada will release RMPI and IPPI in US session. US will release personal income and spending, with PCE inflation, goods trade balance.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.3671; (P) 1.3720; (R1) 1.3749; More...

GBP/USD drops mildly after failing below 1.3785 resistance, but stays in range above 1.3601. Intraday bias remains neutral first. Another fall is in favor with 1.3785 minor resistance intact. On the downside, firm break of 1.3570 will resume larger fall from 1.4248 to 1.3482 resistance turned support next. Break there will target 100% projection of 1.4248 to 1.3570 from 1.3982 at 1.3304. However, on the upside, break of 1.3785 will turn bias back to the upside for 1.3982 resistance intact.

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.

Economic Indicators Update

Australia retail sales dropped -2.7% mom in July, slightly better than expectation of -2.9% mom. Comparing to a year ago, sales also dropped 3.1% yoy.

Ben James, Director of Quarterly Economy Wide Surveys, said: "Lockdowns and stay-at-home orders in many parts of Australia continued to impact retail trade in July, with many non-essential retail businesses closing their physical stores. In particular, the first full month of lockdown in New South Wales, following the Delta outbreak in June, saw retail turnover in the state fall 8.9 per cent. This was the largest fall of any state and territory since August 2020."

Full release here.

US stocks closed lower overnight as traders turned cautious, watching the development in Afghanistan and upcoming speech of Fed chair Jerome Powell at the Jackson Hole Symposium. A few Fed officials expressed their support for tapering asset purchases, somewhat talking down the impact of the spread of Delta. Yet, we'd note that those are known hawks already. Doves might come out today telling another story while Powell would likely sound non-committal. The overall Jackson Hole event would likely leave the market with nothing new on the net.

NASDAQ apparently faced some resistance from 61.8% projection of 10822.57 to 14175.11 from 13002.53 at 15074.39, and 15k psychological level. While it's now in a retreat, there is no sign of reversal, at least before covering the gap made at weekly open. Nevertheless, it might still take some time to build the base to power through 15k at a later stage.

STOCKS

Equities are mixed today. While Dow, Dax and Nikkei trade lower, Shanghai and Indian equities have risen. We may expect a corrective dip in most indices in the near term before resumption of the uptrend. Watch statement on the Jackson Hole meeting today.

Dow (35213.12, -192.38, -0.54%) has fallen yesterday. The fall could be limited to 35250-35000 in the near term before bouncing back towards our expected 35500-35750 zone. We do not negate bullish view while the index is above 35000.

DAX (15793.62, -67.04, -0.42%) has fallen below 15800 and could now test lower support near 15600 which may hold and produce a bounce back towards 16000 in the medium term.

Nikkei (27651.51, -90.78, -0.33%) has come down further today. The resistance mentioned at 28000 seems to hold well. A strong and sustained break above 28000 will pave way for a rise towards 29000. But while below 28000,Nikkei has danger of falling towards the level of 27000.

Shanghai (3519.74, +18.07, +0.52%) has risen again after making a low of 3499.45.The view is bullish,to see a test of 3550 followed by a fall back towards 3450-3400.A strong break above 3550 is needed for the view to be bullish towards 3600.

Nifty (16636.90, +2.25, +0.014%) is stuck between 16600 and 16700.The index has support at 16600 which can hold for now and produce a bounce towards 16700.In case the support at 16600 is broken. The view would be bearish to see a corrective fall towards 16500-16350.

Sensex (55949.10, +4.89, +0.0087%) has also come down. and is possibly heading towards 54000 as mentioned yesterday.

COMMODITIES

Weak Dollar ahead of the Jackson Hole meeting is supportive of commodity prices that trade higher today. Crude prices are higher but could soon face rejection from immediate resistances. Gold has risen well and could test 1810 before coming off. Silver and Copper are stuck within the 23-24 and 4.20-4.30 region within which a slight rise is seen.

Brent (71.67) trades higher today and could test 72.50 before coming off from there, Any rise above 72.50, if seen can take the price to 75 before the expected fall sets in.

WTI (67.97) trades higher too and could test 67-68 before coming off from there. Any rise above 68 can take it to crucial resistance at 70 before a sharp decline is seen.

Gold (1800.8) has bounced back to head towards 1800-1810 as the Dollar trades weak just now ahead of the Jackson Hole meeting. Sharp volatility might be expected in the early sessions next week. Else we may expect rejection from 1810.

Silver (23.66) has been coming down from 23.89 and could test 23.5-23.0 in the near term before rising back to 24-24.50. Note that 23 is a very strong trend support on the 3-day candles.

Copper (4.25) seems to be stuck within 4.20-4.30 and needs to break on either side to give more directional clarity. A break above 4.30 can take it higher to 4.40/50 while a break below 4.20 can drag it down towards 4.0-3.8.

FOREX

Markets wait for statement from the Jackson Hole meeting as that may infuse some volatility into the markets. Dollar Index trades within 92.80-93.20 while Euro is holding below 1.1780 just now but we wait for a sharp and sustained move on either side for more directional clarity. EURJPY may fall towards 129 while Pound looks bearish towards 1.3650. Aussie may hold between 0.72-0.73. USDCNY is bullish towards 6.49/50. USDINR trades low on the NDF but could rise above 74.20 on the onshore markets. Overall broad range of 74.00-74.50 may hold for now. USDJPY fell exactly as expected and could remain within 109.50-110.20/50 for the near term.

Dollar Index (93.0250) is holding below 93.20 with downside limited to 92.80 just now. Immediate range of 92.80-93.20 is likely to hold. We would wait for statements from the Jackson Hole meeting today that could infuse some volatility into the markets.

Euro (1.1755) has dipped from 1.1779 and while below 1.1780, view is bearish towards 1.1725 or lower. A sustained rise above 1.1780 initially and then above 1.18 is needed for Euro to turn bullish again in the longer run.

EURJPY (129.29) has fallen within the 128-130.50 range and may test 19 initially which if fails to produce a bounce could drag the cross down towards 128.50 eventually before attempting to bounce back. Watch price action near 129 for now.

Dollar-Yen (109.98) tested 110.23 yesterday before coming off sharply from there. Our expected resistance near 110.20 has held well and a fall to 109.80/70 is possible before another bounce is seen. A broader range of 109-110.20/50 may continue to hold for some more time.

Aussie (0.7241) does not look as bearish as Pound. 0.72 is likely to hold on the downside as Aussie can attempt to rise back towards 0.73 soon. A broad range of 0.72-0.73 may hold for the next few sessions.

Pound (1.3694) has fallen below our expected 1.37 and looks bearish for a fall to 1.3650 before any bounce takes place. Immediate view is bearish while below 1.3750. Any fall below 1.3650 may take it lower towards 1.36 too. Watch price action near 1.3650.

USDCNY (6.4861) has risen further today and looks bullish towards 6.49/50 in the near term.

USDINR (74.22) has been maintaining above 74.20 on the onshore OTC market over the last couple of sessions while the pair trades lower in the NDF market which quotes 74.12 just now. The RBI does not seem to want to let the pair fall on the OTC market and seems to be trying to keep the pair higher to let it close above 74.00 this month. High fluctuation in the 74.0-74.50 zone comparing both NDF and OTC markets but we would have to wait and watch for a clear and sharp break on either side of the range soon for more directional clarity.

INTEREST RATES

The US Treasury yields remain stable ahead of the Fed Chairman Jerome Powell’s speech at the Jackson Hole Symposium today. Will he indicate anything on the stimulus taper or not? We will have to wait and watch. On the charts, while the bounce sustains, there is room for further rise for the Treasury yields. The German Yields sustain higher and can move up further from here to test their resistances in line with our expectation. Thereafter the overall downtrend can resume. The 5Yr GoI remains stuck in the narrow range of 5.68%-5.72.

The US 2Yr (0.24%), 5Yr (0.84%), 10Yr (1.34%) and the 30Yr (1.94%) Treasury yields remain stable ahead of Powell’s speech today at the Jackson Hole Symposium. We retain our view of seeing a rise to 1.4%-1.45% while the 10Yr remains above 1.3%. The 30Yr can rise to 2.1% on a break above 2%. Thereafter a reversal is possible.

The German 2Yr (-0.74%), 5Yr (-0.70%), 10Yr (-0.41%) and 30Yr (0.05%) yields continue to move up in line with our expectation. Our view of seeing a corrective rally to -0.30%/-0.25% (10Yr) and 0.10%-0.15% (30Yr) remains intact. Thereafter the broader downtrend is expected to resume.

The 5Yr GOI (5.6997%) continues to trade in the narrow 5.68%-5.72% range. We will have to wait for a breakout of this range to see whether the yield can go up to 5.74%-5.76% or fall to 5.66%-5.62%.

Key Highlights

• USD/JPY formed a support base above 109.00 and it started a fresh increase.
• It broke a major contracting triangle with resistance near 109.90 on the 4-hours chart.
• EUR/USD could attempt an upside break above 1.1800.
• The US GDP grew 6.6% in Q2 2021 (prelim), up from the last 6.5%.

USD/JPY Technical Analysis

The US Dollar formed a base above 109.00 against the Japanese Yen. USD/JPY started a fresh increase and it broke the key 110.00 resistance zone.

Looking at the 4-hours chart, the pair was able to gain strength above the 109.80 and 110.00 resistance levels. There was a break above the 50% Fib retracement level of the downward move from the 110.80 high to 109.08 swing low.

There was a break above a major contracting triangle with resistance near 109.90. The pair also settled above the 110.00, the 100 simple moving average (red, 4-hours) and the 200 simple moving average (green, 4-hours).

An immediate resistance is near the 110.40 level. It is near the 76.4% Fib retracement level of the downward move from the 110.80 high to 109.08 swing low.

The next major resistance is near the 110.80 zone. On the downside, an initial support is near the 109.90 zone. The main support is now forming near 109.60. A close below the 109.60 level might open the doors for more losses. The next major support is near the 109.00 level.

Fundamentally, the US GDP for Q2 2021 (prelim) was released yesterday by the US Bureau of Economic Analysis. The market was looking for a growth of 6.7%.

The actual result was below the market forecast, as the US GDP grew 6.6%, but it was better than the last rate of 6.5%.

Looking at EUR/USD, the pair broke the 1.1750 zone but it is still facing hurdle near 1.1800. Besides, GBP/USD is facing an uphill task near 1.3800.

Economic Releases

• US Personal Income for July 2021 (MoM) - Forecast +0.5%, versus +1.0% previous.
• Fed's Chair Powell speech.

[php_everywhere instance="1"]

Dallas Fed President Robert Kaplan told CNBC that by and large, businesses are "weathering Delta at least as well as previous surges". Businesses and consumers are learning to adapt well. There is no demand problem in the economy too.

He added that it would be "a lot healthier if Fed begins to wean economy off asset purchases". Kaplan said he "would prefer to start taper soon but do it over plus or minus eight months, although I remain open-minded." September meeting would remain his preference to announce tapering.

WTI oil futures are struggling to maintain their positive momentum after meeting resistance in the 68.00 area. The rebound from Monday’s three-month low of 61.77 appears to be stalling with prices testing the 20-day moving average (MA) around 67.55 today.

Looking at the momentum indicators, the stochastics are still rising but the %K line appears to be peaking within the overbought zone, signalling weakening positive bias in the near term. The RSI, however, might be levelling off even before surpassing the 50 neutral level, in another sign that the short-term picture is deteriorating.

If today’s selloff accelerates, the price could seek support from the 23.6% Fibonacci retracement of the November 2020 – July 2021 uptrend at 66.25. A drop below the 23.6% Fibo would open the way for a revisit of this week’s trough of 61.77. Further below lie the 200-day MA at 61.13 and the 38.2% Fibonacci of 60.09. Should this important support zone be violated and the price slips below the key 60 handle, it would not only strengthen the bearish forces in the short term but also switch the current neutral outlook in the medium term to negative.

However, should the price manage to hold above the 20-day MA, further gains might be possible in the coming days, although a number of obstacles stand in the way. First up is the bottom of the Ichimoku Cloud at 68.87, followed by the 50-day MA at 70.49 just above the cloud top. While a climb into the cloud would reinstate the neutral picture in the near term, the price would need to first clear the 50-day MA and then the 33-month high of 76.20 from July to restore the longer-run uptrend.

To sum up, the 20-day MA could determine whether the latest rebound continues or falters. But in the medium term, the price needs to return to the north side of the 50-day MA to avoid a bearish shift.

Markets

European stocks swooned at the start of dealings, but managed to limit losses afterwards. Main indices trade currently up to 0.5% softer. Main FI and FX markets felt no impact. On the contrary, yesterday’s moves were modestly prolonged. German yields add around 1.5 bps across the curve at the time of writing. Minutes of the previous ECB meeting showed an intense debate on rephrasing rate forward guidance. As a reminder: the new sophisticated instruction sounds like this: “the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.” Minutes specified that this doesn’t necessary mean lower for longer compared to the previous guidance of “the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.” A debate on the future APP was pushed forward to one of the coming meetings. We continue to believe that the September 9 policy meeting is a wildcard in this respect given new growth and inflation forecasts and given the approaching March 2022 PEPP end date. Chief economist Lane yesterday hinted that time is on the central bank’s side, allowing room to only tackle the issue in December. Apart from Minutes and fairly stable US jobless claims (353k from 349k), the waiting game to Powell’s Jackson Hole address continues. US yields add 0.2 bps (2-yr) to 2.4 bps (10-yr). The US 10-yr yield tests first intermediate resistance at 1.38% (August high & 38% retracement on April/July correction lower). The key question remains whether or not the Fed governor sets out a blueprint for tapering asset purchases. A mid 2022 end to net purchases in combination with an end 2022 first rate hike is more or less becoming consensus scenario and will be the benchmark to interpret any market reaction. The dollar treaded water near opening levels for most of today’s session (1.1770), but gains some momentum as US traders enter dealings. The pair is currently seen around 1.1750. Sterling is underperformer amongst FX majors today with EUR/GBP rising from 0.8550 to 0.8570 and cable sliding towards 1.37. Both moves have no technical significance.

News Headlines

In the first auction after the central bank announced another 30bps rate hike and a reduction in the (weekly) amount of bond purchases, the Hungarian government cut back bond sales. The Government Debt Management Agency (AKK) sold 5bn HUF in a 5y auction (vs a 20bn HUF offer), 20bn HUF in a 10y auction (matching offer) and 10bn HUF in a 15y auction (vs 15bn HUF offer). Average yields at which were sold were up in every tenor compared to the previous auction and are up 5bp at the long end of the curve.

In its monthly economic report, the Japanese government said the economy continues to pick up but conditions remain severe due to the resurgence of Covid-19 infections and the resulting extended state of emergency curbs. It used stronger language when it warned for increased downside risks caused by the pandemic. It described consumer spending as weak, especially in the services sector. Given sluggish household demand, the government cut its assessment on imports for the first time in 10 months. It turned more optimistic on corporate profits though due to solid Q2 earnings among manufacturers as export strength continued.

The British pound continues to have a relatively quiet week. GBP/USD is currently trading at 1.3728, down 0.28% on the day.

All eyes on Powell speech

Fed Chair Jerome Powell will be the center of attraction at the Jackson Hole Symposium, which has not been spared from the ravages of Covid-19. The meeting will be held virtually and has been scaled back from two days to just one day due to Covid.

Powell’s highly-anticipated speech on Friday could also be heavily influenced by the pandemic, which is on an upswing across the world and threatens the tenuous recovery. Just a few weeks ago, it was almost a given that a Fed taper was imminent, and that policy makers would provide a roadmap of an imminent tapering. However, with the explosion in infection rates from the Delta Covid variant, the markets have since lowered expectations and caution is the operative word ahead of the meeting. The FOMC minutes from the July meeting showed that policy makers remain divided on the timing of tapering – most members are behind a tapering this year, but some want to wait until 2022. What Powell says (and doesn’t say) on Friday could have a significant impact on the movement of the US dollar – a hint of a timeline would be bullish for the US dollar, while a speech that steers clear of any insight into tapering could translate into disappointment and weigh on the US dollar.

The markets now expect Powell to provide details of tapering at the September policy meeting, with the Fed likely to kick off tapering before the end of the year.

GBP/USD Technical Analysis

• There is resistance at 1.3800. Above, there is resistance at 1.3977
• On the downside, 1.3659 is the first line of support. This is followed by support at 1.3524