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The euro is drifting on Tuesday, after posting gains in the Monday session. EUR/USD is trading at 1.1742, up 0.03% on the day.

German GDP rebounds in Q2

Germany released second-quarter GDP on Tuesday, and the 1.6% gain (QoQ) surpassed the consensus of 1.5%. This was a strong rebound from GDP in Q1, which came in at -2.0%. This decline was a direct result of a resurgence of Covid, which caused a substantial decline in economic activity. The Q2 release is good news for the eurozone, as Germany is a bellwether for the bloc. Still, there is plenty of room for improvement, as German GDP is 3.3% lower than pre-Covid levels (Q4 2019).

PMI reports continue to show significant expansion in the German and eurozone manufacturing and services sectors. The July figures showed an easing in the rate of expansion, but investors were pleased with the numbers, as the euro started the week with considerable gains. At the same time, it’s important to keep an eye on upcoming Manufacturing PMIs so as to gauge the strength of the manufacturing sector. Both the German and eurozone releases were the lowest in six months, as prolonged material shortages have weighed on factory production output.

Germany’s business sector has been marked by strong optimism, as German Ifo Business Climate has been above the 100-level for the past two months. The August survey, which will be released later on Wednesday, is expected to come in at 100.2, down slightly from 100.8 beforehand.

Thursday marks the first day of the Jackson Hole symposium, which will be held in a virtual format due to concerns over Covid. As well, the ECB releases the Monetary Policy Meeting Accounts from the July meeting. Inflation has been rising in the eurozone, with CPI hitting 2.2% in July, its highest level in three years. ECB President Christine Lagarde has insisted that inflation is transient, but the markets might become more sceptical if inflation does not ease in the coming months.

EUR/USD Technical

• With the euro flat on Tuesday, the support and resistance levels remain unchanged
• There are resistance lines at 1.1779 and 1.1859
• On the downside, we find support lines at 1.1642 and 1.1585

Daily Pivots: (S1) 0.9106; (P) 0.9142; (R1) 0.9161; More....

Intraday bias in USD/CHF remains neutral for the moment, and more range trading could be seen. . 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.

New Zealand Dollar rises broadly today after a top RBNZ official indicated that the decision to refrain from rate hike was mainly due to communication difficulty. Instead, the central bank is actively considering a 50bps hike. Strong rebound in Asian stocks also supported other commodity currencies, but positive sentiment is not much carried through to European session. For the moment, Dollar and Euro are the softest ones. But Euro could eventually decide to leave the greenback behind if Gold could extend its rebound above 1800 handle.

Technically, NZD/JPY's break of 76.15 minor resistance should indicate short term bottoming at 74.54. The question is whether the rebound could power through 77.91 resistance to indicate completion of the correction pattern from 80.17. Also, to confirm such a bullish turn in Kiwi, we'd also like to see break of 0.7087 resistance in NZD/USD. Before, we'll stay a bit cautious on New Zealand Dollar first.

In Europe, at the time of writing, FTSE is down -0.34%. DAX is up 0.29%. CAC is down -0.52%. Germany 10-year yield is up 0.002 at -0.475. Earlier in Asia, Nikkei rose 0.87%. Hong Kong HSI rose 2.46%. China Shanghai SSE rose 1.07%. Singapore Strait Times rose 0.65%. Japan 10-year JGB yield rose 0.0010 to 0.020.

Germany GDP growth finalized at 1.6% qoq in Q2, individual sectors diverged

Germany GDP growth was finalized at 1.6% qoq in Q2, revised up from 1.5% qoq. In, seasonally and calendar-adjusted gross value added increased by 1.0%. Individual sectors showed diverging trends: Up 3.8% qoq in public services, education, health; up 1.1% qoq in trade, transport, accommodation and food services; up 0.1% qoq in construction; but down -1.3% in manufacturing.

Comparing with the same quarter a year earlier, GDP grew 9.8% yoy on price-adjusted term, and 9.4% yoy on price- and calendar-adjusted term.

RBNZ Hawkesby said 50bps hike actively considered, NZD/USD jumps

RBNZ Assistant Governor Christian Hawkesby told Bloomberg that the decision to stand pat on OCR last week was mostly due to communications problem. It's hard to explain the case when if the rate hike was delivered on the same day as New Zealand returned to pandemic lockdown.

He added that the decision was not due to risks and the policy decisions "won't be tightly linked" to COVID -19. Demand as proven to be more resilient than anticipated.

Most surprisingly, Hawkesby also indicated that the central bank has considered a 50bps rate hike. "A 50 basis point move was definitely on the table in terms of the options that we actively considered," he said.

New Zealand retail sales rose 3.3% qoq in Q2, above expectations

New Zealand retail sales volume rose 3.3% qoq in Q2, above expectation of 2.0% qoq. 11 of 15 industries reported growth, and the largest increases were in electrical and electronic goods retailing (up 6.9%), food and beverage services (up 5.6%), motor vehicle and parts retailing (up 3.1%), pharmaceutical and other store-based retailing (up 7.5%), and accommodation (up 11.4%).

"Most retail industries saw increases in spending, with rises across all regions. Spending on big ticket items such as electrical goods, housewares, and vehicles was a priority for many consumers during this June quarter," retail trade manager Sue Chapman said.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9106; (P) 0.9142; (R1) 0.9161; More....

Intraday bias in USD/CHF remains neutral for the moment, and more range trading could be seen. . 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.

Economic Indicators Update

Germany GDP growth was finalized at 1.6% qoq in Q2, revised up from 1.5% qoq. In, seasonally and calendar-adjusted gross value added increased by 1.0%. Individual sectors showed diverging trends: Up 3.8% qoq in public services, education, health; up 1.1% qoq in trade, transport, accommodation and food services; up 0.1% qoq in construction; but down -1.3% in manufacturing.

Comparing with the same quarter a year earlier, GDP grew 9.8% yoy on price-adjusted term, and 9.4% yoy on price- and calendar-adjusted term.

Full release here.

WTI crude oil futures have been in a strong positive movement over the last 4-hour sessions, following the turning point at the 61.75 support level. The price jumped above the short-term SMAs and is moving towards the Ichimoku cloud. The RSI is approaching the overbought territory, while the MACD is holding above its trigger and zero lines.

The price is heading towards the 67.50 barrier before potentially resting around the 69.45 resistance, which overlaps with the 200-period SMA. If the buying interest persists, the move towards the 71.18 barrier could switch the bearish bias to neutral.

On the flip side, a decline beneath the SMAs could open the way for a retest of the 61.75 support, before heading until the 58.70 level, taken from the trough on April 12.

In brief, oil prices have been in a declining mode over the last month and only a climb above the 200-period SMA may change this bias.

The New Zealand dollar has shot up on Tuesday, extending this week’s rally. NZD/USD is currently trading at 0.6942, up 0.75% on the day.

NZ retail sales outperform

For anyone seeking a currency displaying plenty of volatility, look no further than the New Zealand dollar. The kiwi plummeted 3.1% last week, its worst weekly performance since September. However, NZD has bounced back this week, climbing 1.7% regaining over half of last week’s losses.

The catalyst for Tuesday’s gains was an excellent Retail Sales report for the second quarter. Headline Retail Sales gained 3.3%, up from 2.8%. Core Retail Sales rose 3.4%, close to the 3.5% gain in Q1. Both readings were above the consensus and signal strong domestic demand prior to the most recent lockdown. In a research note, Westpac forecasted that Retail Sales will likely slow due to the lockdown, but still expects GDP growth of 1.5% in Q2. The note added that the domestic economy is in good shape – monetary policy continues to support the economy, the housing market remains hot and the employment market is healthy.

When the RBNZ abruptly decided not to raise rates at last week’s meetings, the markets were stunned and the New Zealand dollar took a dive in response. The markets had assumed that the reason for the Bank’s change of heart was a serious outbreak of Covid – it was widely assumed that the Bank felt it imprudent to raise rates during such an uncertain time. Earlier on Tuesday, RBNZ Assistant Governor Christian Hawkesby told Bloomberg that the reason for the Bank’s decision was not due to Covid, but rather a “communciation challenge” of raising rates on the same day that a national lockdown was imposed. Hawkesby added that policy makers considered raising rates by as much as 50 basis points.

The timing of Hawkseby’s hawkish comments was a clear signal that the last week’s non-move is nothing more than a delay in plans to commence a tightening cycle at the next policy meeting on October 6th. The remarks are also meant as a reassurance to the markets that even if the lockdown is extended, investors can expect the Bank to raise rates next at the next meeting. At the same time, the New Zealand dollar slide when the Bank failed to make good on its word, and if for some reason the RBNZ again delays a hike, the currency would likely fall sharply in response.

NZD/USD Technical

• NZD/USD faces resistance at 0.6985. Above, there is resistance at 0.7134
• On the downside, 0.6870 has strengthened in support as NZD/USD climbs higher. Below, there is support at 0.6747

Notes/Observations

• German Q2 Final GDP reading revised higher.
• Risk aversion and appetite sentiments battling it out for the upper hand ahead of Jackson Hole symposium. Uncertainty over the spread of the Delta variant and how central bank authorities would respond.

Asia

• Japan PM Suga and LDP Official Nikai said to be meeting on Aug 25th to discuss elections.

Coronavirus

• President Biden stated that the FDA had officially approved the Pfizer COVID-19 vaccine.

Americas

• US Labor Sec Walsh expressed concern that America’s latest wave of Covid-19 could dent its economic recovery. Raised the prospect of a slowdown in jobs growth next month.
• Biden administration said to have ask the Supreme Court to keep the evictions moratorium in place because the pandemic had gotten 'far worse' in the last two months.
• SEC has given new disclosure requirements to Chinese companies looking to list in the US. related to the use of variable interest entities (VIEs).

Energy

• US Energy Dept to auction 20M barrels of crude from Strategic Petroleum Reserve, since it is holding its largest reserve in 7-years.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 +0.09% at 472.30, FTSE -0.14% at 7,098.81, DAX +0.30% at 15,899.85, CAC-40 -0.18% at 6,671.40, IBEX-35 -0.15% at 8,955.00, FTSE MIB -0.09% at 26,023.50, SMI +0.01% at 12,477.60, S&P 500 Futures +0.20%].
• Market Focal Points/Key Themes: European indices open modestly higher across the board but then slipped to trade mixed; sectors leading to the upside include technology and energy; utilities and telecom sectors among the laggard sectors; Santander announces formal terms of Santander Consumer takeover; Science Group raises offer for TP Group; Spectris sells NDC Tech to Nordson; Lanxess acquires microbial control unit of IFF; earnings expected during the upcoming US session include Medtronic, Intuit and Best Buy.

Equities

• Energy: President Energy [PPC.UK] -6% (earnings).
• Industrials: Voltabox [VBX.DE] +24% (earnings), John Wood Group [WG.UK] -4% (earnings).
• Technology: Landis+Gyr Group [LAND.CH] +3% (contract), Spectris [SXS.UK] +1% (divestment).
• Materials: Lanxess [LXS.DE] +1% (acquisition).

Speakers

• RBNZ Assistant Gov Hawkesby noted that its delayed rate hike on communication challenge. Considered raising interest rate by 50bps at last meeting in Aug and that the upcoming Oct 6th meeting was a live meeting. Stressed that policy decisions would not be tightly linked to covid as have learned that lockdowns only delayed spending. Demand had been more resilient than expected.

Currencies/Fixed Income

• Risk-on appetite helped to soften the greenback ahead of the highly anticipated Fed Jackson Hole symposium. Dealers eyeing whether Fed Chair Powell might provide clues on prospects of tapering bond purchases but member Kaplan last Friday did offer some prospects of a delay to tapering. Some dealers note that advanced warning on tapering would most likely to come at the September FOMC meeting. Concerns over the Delta variant have also fueled concerns about the global economic recovery.
• New Zealand currency (kiwi) was firmer in the session after RBNZ official made some hawkish comments.

Economic data

• (FI) Finland July PPI M/M: 3.4% v 1.6% prior; Y/Y: 14.8% v 11.0% prior.
• (FI) Finland July Unemployment Rate: 7.1% v 7.6% prior.
• (GE) Germany Q2 Final GDP Q/Q: 1.6% v 1.5%e ; Y/Y: 9.8% v 9.6%e; GDP WDA (unadj) Y/Y: 9.4% v 9.2%e.
• (GE) Germany Q2 Private Consumption Q/Q: 3.2% v 4.0%e; Government Spending Q/Q: 1.8% v 0.9%e; Capital Investment Q/Q: 0.5% v 1.4%e.
• (CZ) Czech Aug Consumer Confidence Index: -1.5 v -5.3 prior; Business Confidence: 9.3 v 11.8 prior; Composite Confidence (Consumer & Business): 7.2 v 8.4 prior.
• (ZA) South Africa Jun Leading Indicator: 125.8 v 128.8 prior.
• (PL) Poland July Unemployment Rate: 5.8% v 5.8%e; Q2 Quarterly Unemployment Rate: 3.5% v 4.0% prior.
• (TW) Taiwan July M2 Money Supply Y/Y: 8.7% v 9.2% prior; M1 Money Supply Y/Y: 16.7% v 17.4% prior.

Fixed income Issuance

• (FI) Finland opened book to sell new EUR-denominated Sept 2026 RFGB bond via syndicate; guidance seen -23bps to mid-swaps.
• (EU) European Investment Bank (EIB) opened its book to sell EUR-denominated Oct 2026 bond via syndicate; guidance seen -1bps to mid-swaps.
• (ID) Indonesia sold total IDR9.0T vs. IDR10.0T target in Islamic bills and bonds (sukuk).
• (AT) Austria Debt Agency (AFFA) sold total €B vs. €2.0B indicated in 3-month and 12-month bills.
• (UK) DMO sold £3.0B in 0.375 Oct 2026 Gilts; Avg Yield: 0.324% v 0.334% prior; bid-to-cover: 2.11x v 2.50x prior; Tail: 0.9bps v 0.4bps prior.

Looking Ahead

• (IL) Israel July Leading 'S' Indicator M/M: No est v 0.1% prior.
• 05:15 (CH) Switzerland to sell 3-month Bills.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (ZA) South Africa Q2 Unemployment Rate: No est v 32.6% prior.
• 05:30 (DE) Germany to sell €3.0B in 0.25% Nov 2028 Bunds.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).
• 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2031, 2032 and 2035 bonds.
• (IL) Israel to sell bonds.
• 06:45 (US) Daily Libor Fixing.
• 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision; Expected to raise Base Rate by 30bps to 1.50%; Expected to raise Overnight Deposit Rate by 30bps to 0.55%.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (DE) ECB’s Schnabel (Germany).
• 08:55 (US) Weekly Redbook LFL Sales data.
• 09:00 (CL) Chile July PPI M/M: No est v -0.8% prior.
• 09:00 (EU) Weekly ECB Forex Reserves.
• 09:00 (HU) Hungary Central Bank Gov Matolcsy post rate statement.
• 09:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).
• 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (20+ years).
• 10:00 (US) Aug Richmond Fed Manufacturing Index: 24e v 27 prior.
• 10:00 (US) July New Home Sales: 697Ke v 676K prior.
• 10:00 (MX) Mexico Weekly International Reserve data.
• 12:00 (US) President Biden on Afghanistan.
• 13:00 (US) Treasury to sell new 2-Year Notes.
• 15:00 (AR) Argentina Jun Supermarket Sales Y/Y: No est v -2.6% prior; Shop Center Sales Y/Y: No est v 421.3% prior.
• 16:30 (US) Weekly API Oil Inventories.
• 17:00 (KR) South Korea Sept Business Manufacturing Survey: No est v 92 prior; Non-Manufacturing Survey: No est v 78 prior.
• 18:45 (NZ) New Zealand July Trade Balance (NZD): No est v 0.3B prior; Exports: No est v 6.0B prior; Imports: No est v 5.7B prior.
• 21:10 (JP) BOJ Outright Bond Purchase Operation for 1~3 Years and 25 Years~ maturities.
• 21:30 (AU) Australia Q2 Construction Work Done Q/Q: 2.8%e v 2.4% prior.

Since the past two weeks, the US Dollar has declined by 138 pips or 1.50% against the Swiss Franc. The currency pair breached the 50– and 200– period simple moving averages last week.

Technical indicators suggest selling signals on the 4H time-frame chart. Most likely, sellers could drive the USD/CHF exchange rate lower during the following trading sessions.

However, the weekly support level at 0.9108 could provide support for the currency exchange rate in the shorter term.

Since last week's trading sessions, the common European currency has surged by 99 pips or 1.16% against the British Pound. The currency pair tested the 0.8590 level on August 23.

All things being equal, the exchange rate is likely to continue to edge higher in an ascending channel pattern during the following trading sessions. The possible target for the EUR/GBP pair will be near the 0.8640 area.

However, buyers could encounter resistance at the 0.8590 level during this week's trading sessions.

The yellow metal passed the resistance zone below the 1,795.00 level in a sharp move upwards. During the surge, the rate passed the 1,800.00 mark and confirmed the 1,795.00 level as support. Since the surge at mid-day on Monday, the commodity price has been trading sideways around the 1,805.00 level.

In the case of a surge, the commodity price could reach for the August and July high level zone at 1,830.00/1,835.00. On the other hand, a potential decline could look for support in the 1,795.00 level and the 55 and 100-hour simple moving averages near 1,790.00.