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The EUR/USD currency pair bounced off a support level formed by the 50– and 200– hour SMAs at 128.66 on Tuesday. As a result, the common European currency surged by 31 pips or 0.24% against the Japanese Yen during Tuesday's trading session.

Technical indicators suggest buying signals on the 4H time-frame chart. Most likely, the exchange rate could continue to edge higher within the following trading session.

However, the upper line of a descending channel pattern at 129.00 could still provide resistance for the currency exchange rate within this session.

EUR/USD

Current level - 1.1736

The situation remains unchanged and the currency pair is currently trading just below the resistance zone at 1.1746. The fleeting breach of the mentioned resistance was not confirmed despite the test of the next significant level at 1.1766. The bulls failed to gain enough momentum to continue last week’s recovery. The most likely scenario at the moment is for а consolidation phase at around the current level and it is also possible for a range to form in the narrow channel between 1.1708 - 1.1766.

USD/JPY

Current level - 109.77

The range movement between 109.48 - 110.18 continues and, at the moment, neither the bulls nor the bears are managing to take control. A breach of any of the mentioned boundaries of the range could draw a clearer direction for investors. There is no planned economic news for today that would affect the volatility of the currency pair.

GBP/USD

Current level - 1.3715

Since the beginning of the week, we have seen a recovery for the British pound after the prolonged sell-off against the U.S. dollar, which was limited down to the 1.3600 support level during the end of last week. At the time of writing, the currency pair is consolidating at around the resistance level of 1.3723. A breach of this level could pave the way for a test of the next significant resistance at 1.3800. In the negative direction, the main support remains the 1.3600 zone.

Markets

Europe had a bit of a false start yesterday when a green opening for equities, core bond yields, and the euro faded throughout the trading session. It wasn’t until first US investors started joining in the early afternoon that risk appetite again turned for the better. Lacking guidance from the economic calendar and ahead of key events, technical trading eventually led to minimal gains for European and US equities (with new records for some indices). USTs hugely underperformed the German Bund with the yield curve steepening 4.3 bps (10y) to 4.6 bps (30y). Front-end Treasuries rallied (2y yield -0.2 bps) after a strong 2y auction (awarded at 0.242% vs 0.253% WI with strongest indirect award in more than a decade). German yields whipsawed, resulting in negligible changes at the close. The same goes for peripheral spreads. Major currencies were under pressure; the US dollar, Japanese yen and Swiss Franc lagged peers. A strong rebound in commodities including oil (Brent back above $70) additionally weighed on the greenback. EUR/USD closed just north of the first minor resistance at 1.1752. USD/JPY’s balance of weakness tilted marginally towards the yen (109.65). EUR/GBP showed little direction in the mid 0.85/0.86 area.

Record highs in the US only marginally supports Asian sentiment. Equity gains in most cases are limited to <0.5%. Core bonds erase early weakness even as the US House Democrats approved the $3.5tn budget framework, helping Biden to push through his big agenda (see headline below). The dollar licks his wounds after a three-day setback and gains against all G10 peers. EUR/USD slipped at the open to 1.174.

The economic calendar today contains July US durable goods orders that probably fell after a solid June. Germany’s IFO business sentiment for August is worth mentioning though will probably follow the PMI narrative: slightly lower but still (very) strong from a historical perspective. We don’t expect both figures to influence trading much. We see more scope for automatic pilot trading as markets await the first interesting event tomorrow: the ECB minutes. If sentiment doesn’t pick up further, the dollar might retain the benefit of the doubt. In US yields, 1.30% (10y) served as minor resistance this morning. -0.46% acts as the similar technical reference for the German 10y. Both may find it difficult to steam ahead in the current environment.

News headlines

The Democratic majority in the US House of Representatives approved the framework for a $3.5 trillion budget. This approval allows to advance with President Bidens plans to expand spending on child care, education and other social programs. At the same time, an agreement in the Democratic Party was reached to vote in the House of Representatives on the $1 trillion infrastructure bill that was already approved in the Senate by September 27. This is a priority for the moderate fraction of the Democratic Party.

The Finance Minister of Poland yesterday indicated that the Polish government expects the economic recovery to develop at the faster pace than earlier expected as it proposed a draft 2022 budget. Gross domestic product (GDP) is expected to expand 4.9% in 2021 and 4.6% in 2022, the ministry said, up from 3.8% and 4.3% at previous estimates. The budget draft assumes an annual inflation in 2022 of 3.3% versus 2.8% previously. The better economic prospect translates into an expected 2022 budget deficit of 2.8% versus 3.5% expected in 2021. The zloty yesterday gained modestly against the euro (EUR/PLN 4.475) but remains a regional underperformer as the NBP doesn’t join the Czech and Hungarian central bank that already started a forceful tightening cycle.

Up go equities, down goes volatility. Everything is fine, until it is not.

We are just a day away from Powell’s Jackson Hole speech and the market optimism is everywhere. US stocks, Chinese stocks, tech stocks, energy stocks. There is an undeniable and a blind optimism in the US stock markets.

Three numbers for the day: 3.5, 14 and 68.

3.5: The US House adopted the $3.5 trillion worth budget resolution, which along with the softening Federal Reserve (Fed) expectations and hopes that the FDA’s latest approval of the Pfizer BioNTech vaccine would be of critical help in stopping the Covid contagion boosted the US equities.

The S&P500 and Nasdaq renewed record. And by the way, the Bank of America’s research showed that the ‘number of new S&P all-time highs in 2021 is on track to be the second most in a calendar year since 1928’. And, the calendar year is not over just yet, we have 4 more months to go to beat all the records that the world has ever known with the current investor optimism.

14. JD’s shares jumped 14% on returning optimism after the company beat expectations in the second quarter, but also some dip buying probably as the company trades with more than 40% discount since the February levels. Tencent Music Entertainment jumped 12% and Alibaba gained 6%. But caution: volatility is bad, whether it is positive or negative, it is sign of stress.

According to the latest news, the SEC now wants more than 250 Chinese companies listed in the US exchanges to better inform investors about political and regulatory risks. They want these companies to give details about their shell-company structures and so. Normally, it should help investors make a better risk assessment. But is there anyone making a risk assessment these days?

AMC shares are 20% up, again.

And that’s exactly what prevents gold from gaining above the $1800 per ounce. Stocks are too appetizing, too prosperous for investors to sit on gold. The topside in gold should remain limited, as long as we see the US equities claiming new records.

Else, energy companies are doing well on the back of a recovery in oil prices. So that brings me to my third number, 68. The barrel of US crude traded at $68 yesterday, yet met solid offers at this level, which is also the 100-day moving average. I expect to see less optimist buyers between the actual levels into the $70 per barrel mark, as the perception of the market regarding the recovery may have changed, but the reality didn’t.

The latest API data revealed a slight 1.6-million-barrel decline in US crude inventories last week. The more official EIA data is due today. Lower US stockpiles haven’t been a game changer last week, they may not boost oil prices significantly this week, either.

General trend

• Equity markets have generally pared gains.
• Hang Seng reversed gain amid pullback in TECH index; Tech earnings in focus (including Kuaishou Technology, Meitu, Xiaomi, AAC Technologies).
• Nikkei 225 has pared gain, currently trades near the opening level [Autos, Iron & Steel and Air Transportation firms rise; Financial and Marine Transportation cos. lag].
• Shanghai Composite ended morning trading modestly higher (+0.3%) [Consumer Staples index again outperforms; IT index declines; Financials lag ahead of upcoming bank earnings]; Aluminum Corp of China rises over 8% following earnings.
• S&P ASX 200 has moved modestly higher [Resources index rises; Woolworths drops ahead of earnings report (on Thursday), weighs on Consumer Staples index; Utilities decline on AGL ex-dividend; Telecom index drops on Telstra ex-dividend].

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened 0.0%.
• (AU) AUSTRALIA Q2 CONSTRUCTION WORK DONE Q/Q: 0.8% V 2.8%E.
• WOR.AU Reports FY21 (A$) Statutory Net 281M v 171M y/y; EBITA (A$) 468M v 743M y/y; Rev 9.5B v 13.1B y/y.
• APA.AU Reports FY21 (A$) Adj Net 281.8M v 311.8M y/y; Rev 2.61B v 2.59B y/y.
• (NZ) New Zealand July Trade Balance (NZD): -0.4B v +0.3B prior.
• (AU) Queensland in Australia to halt any interstate travel for 2-weeks.
• (NZ) Reserve Bank of New Zealand (RBNZ) Assistant Gov Hawkesby: Decided not to raise interest rates last week because of communication challenge and not economic risks; Considered raising interest rate by 50bps at last meeting in Aug (yesterday after the close).

Japan

• Nikkei 225 opened +0.1%.
• (JP) Japan to spend additional ¥1.4T on COVID, using reserves – Nikkei.
• (JP) Japan Econ Min Nishimura: Seeking to expand state of emergency to 8 additional prefectures.
• (JP) Said that Japan will expand subsidies for purchases of Electric Vehicles (EV), Ministry to seek ¥33.5B in FY22 budget for the program (~double FY21) – Nikkei.
• (JP) Bank of Japan (BOJ) Member Nakamura: The economy is picking up as a trend, exports likely to increase steadily on robust global demand and recovery in capex.

Korea

• Kospi opened +0.3%
• (KR) Nominee for South Korea's financial regulator, Koh Seung-beom, it may be difficult to recognize cryptocurrency as a financial asset in light of international trends.
• Reminder tomorrow BOK to hold a rate decision, expectations remain split if they will hold or raise rates by 25bps.

China/Hong Kong

• Hang Seng opened +0.8%; Shanghai Composite opened +0.1%.
• (HK) Hong Kong Monetary Authority (HKMA) increases exchange fund bills issuance by HK$5.0B in 8 tenders.
• (CN) China Ningo Port to reopen previously closed terminal on Aug 25th (terminal has throughput of ~25% port capacity) - China Press.
• (CN) Expected that US Climate Envoy John Kerry will visit China in Sept – press.
• HUAWEI.CN US government said to approve co's license applications for auto chips - financial press.
• (CN) China PBOC sets Yuan reference rate: 6.4728 v 6.4805 prior.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY50B in 7-day reverse repos v CNY10B in 7-day reverse repos prior; Net inject CNY40B v Net CNY0B prior; to support month end liquidity.
• (CN) Regulators in China outlined plan to overhaul corporate bond market, issued new guidelines for corporate bonds seeking to clarify various issues (including whether the updated Securities Law covers the interbank bond market) - Chinese press.

Other

• (JP) Japan and Taiwan planning to hold talks on how to counter China aggression - press.
• 2330.TW Said to be increasing prices for advanced and mature process technologies by up to 20%, effective starting in 2022 - Digitimes.

North America

• (CN) New US intelligence report not able to give conclusive conclusion on COVID origins – press.
• (CN) SEC Chair Gensler: SEC to require all Chinese firms to say more about investor risks, requirement to apply to firms already trading in the US – press (US market hours).

Europe

• (UK) COVID hospital death rate in the UK was ~10% in the first half of August - FT.

Levels as of 01:15ET

• Hang Seng -0.4%; Shanghai Composite +0.4%; Kospi +0.2%; Nikkei225 -0.1%; ASX 200 +0.1%.
• Equity Futures: S&P500 -0.1%; Nasdaq100 -0.0%, Dax -0.1%; FTSE100 -0.0%.
• EUR 1.1760-1.1733; JPY 109.87-109.61; AUD 0.7261-0.7239; NZD 0.6959-0.6930.
• Commodity Futures: Gold -0.7% at $1,796/oz; Crude Oil -0.6% at $67.17/brl; Copper -0.0% at $4.25/lb.

Market movers today

• Markets are still awaiting Fed governor Powell's speech on Friday at Jackson Hole. In the meantime, we have US durable goods orders today, which is the best investment indicator of the US economy. Orders have increased strongly for more than a year now but with tentative signs of slowing momentum in recent months.
• There are no key market movers in the Nordics today.

The 60 second overview

US House advances President Biden's economic plan: Yesterday, the US House approved a USD3,500bn budget framework to expand social care and agreed to vote on the Senate's infrastructure package (USD1,000bn) by 27 September, see Reuters. There are still a lot of hurdles for the Democrats but our view is still that both the infrastructure package and the social care package will be approved this year.

German election: The CDU/CSU is now running behind SPD ahead of next month's general election. A change of power would probably not lead to any major movements.

The Meishan terminal reopens: China's second busiest port reopens after being shut down for two weeks due to COVID-19. This is positive for global trade. Global demand is solid, especially for goods, but freight rates are also high due to supply issues like these. As the vaccination pace is slow in many countries (also in other "production countries" in South East Asia such as Vietnam, Malaysia etc.), the pandemic is likely to create supply problems from time to time also in coming months.

Equities: US stocks edged up at new records yesterday, while the session in Europe was more muted. Sector performance very aligned between the two regions though, as investors continued to buy the dip in the past week's sold sectors, including energy, consumer discretionary (the value part), materials, and banks. Defensive sectors, and especially health care, trailed. Despite the cyclical preference, VIX broke the downward trend and stalled at 17. It did not feel like it, but it was enough to take S&P to new highs, up 0.2%, Dow 0.1%, Nasdaq 0.5%, and Russell 2000 1.0%. After days of massive catch-up, Asian markets are in small declines this morning. US futures also point to a muted opening.

FI: The main event for the week is still ahead of us with Powell speaking on Friday at 16:00 CET (we also have ECB minutes on tomorrow). As such fixed income traded in a relatively tight range yesterday and ending broadly unchanged on the day.

FX: EUR/USD and EUR/GBP moved sideways yesterday. SEK has had a rather strong start to the week with EUR/SEK moving towards our 1M target of 10.20 from last week's levels around 10.30.

Credit: Credit indices barely moved yesterday. iTraxx Xover tightened 1bp to close in 231½bp and Main tightened 0.2bp to close in 45.8bp. Both IG and HY bonds widened marginally.

Daily Pivots: (S1) 1.1735; (P) 1.1750; (R1) 1.1773; More...

EUR/USD is staying in range of 1.1663/1804 and intraday bias remains neutral first. With 1.1804 resistance intact, another fall cannot be ruled out yet. But we'd continue to look for strong support from 1.1602/1703 key support zone to bring rebound. On the upside, above 1.1804 resistance will turn bias back to the upside for 1.1907 resistance first. However, sustained break of 1.1602/1703 will carry larger bearish implication and pave the way to 1.1289 fibonacci support.

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) 1.3700; (P) 1.3724; (R1) 1.3754; More...

Intraday bias in GBP/USD remains neutral at this point. Outlook is unchanged that 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.

Daily Pivots: (S1) 0.9114; (P) 0.9126; (R1) 0.9142; More....

Sideway trading continues in USD/CHF and intraday bias remains neutral at this point. On the upside, break of 0.9241 resistance should resume the rise from 0.8925 through 0.9273. 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.

In the bigger picture, the failure to sustain above 55 week EMA (now at 0.9180) 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) 109.45; (P) 109.66; (R1) 109.91; More...

Intraday bias in USD/JPY remains neutral at this point, as sideway trading continues. On the upside, break of 110.79 will resume the rebound from 108.71 to retest 111.65 high. 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.

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.