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Daily Pivots: (S1) 0.9200; (P) 0.9221; (R1) 0.9239; More....

Intraday bias in USD/CHF remains neutral at this point. Corrective fall from 0.9273 should have completed at 0.9017. Above 0.9241 will target 0.9273 resistance. Firm break there will resume rise from 0.8925 to 100% projection of 0.8925 to 0.9273 from 0.9017 at 0.9365. However, break of 0.9128 will dampen this bullish view and turn bias back to the downside for 0.9017 support.

In the bigger picture, the failure to sustain above 55 week EMA (now at 0.9184) retains medium term bearish 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) 1.3816; (P) 1.3852; (R1) 1.3901; More...

Intraday bias in GBP/USD remains neutral as consolidation from 1.3982 is still extending. Outlook is unchanged that corrective pattern from 1.4240 could have completed with three waves down to 1.3570. On the upside, break of 1.3982 will resume the rise from 1.3570 to retest 1.4248 high. However, break of 1.3766 support will dampen this bullish view and bring retest of 1.3570.

In the bigger picture, as long as 1.3482 resistance turned support holds, up trend from 1.1409 should still continue. Decisive break of 1.4376 resistance will carry larger bullish implications. However, firm break of 1.3482 support will argue that the rise from 1.1409 has completed. GBP/USD would then be seen in another leg of long term range pattern between 1.1409 and 1.4376. Deeper fall could then be seen to 61.8% retracement of 1.1409 to 1.4248 at 1.2493, and even below.

STOCKS

The much awaited break above 35250 has happened in Dow and the index can now rise to 36000 in line with our expectation. DAX has also broken its 15200-15800 range on the upside as expected and can rise to 16000-16200 while this break sustains. Nikkei can move up within its 27000-29500 range. Shanghai also has room to test 3560-3580 and 3600 on the upside in the near-term. Sensex and Nifty continue to consolidate at higher levels and can rise today on the back of the rally in the other markets. The view remains bullish for both Sensex and Nifty. Overall the equities look bullish.

Dow (35484.97, +220.30, +0.62%) has risen sharply above the key level of 35250 in line with our expectation. Dow can now head up to 36000 – the rise that we have been expecting for a long time. 35250-35000 will now act as a good support that can limit the downside now and keep the broader bullish view intact.

DAX (15826.09, +55.38, +0.35%) has broken the 15200-15800 range on the upside as expected and has closed just above 15800. While this break sustains the outlook is bullish to see a test of 16000-16200 on the upside. The price action in the next few sessions will need a close watch to see if DAX sustains above 15800 or not.

Nikkei (28,136.20, +65.69, +0.23%) has risen well above 28000 as expected. While above 28000, our bullish view of seeing a test of 29000-29500 remains intact. It will also reduce the danger of the fall to 26000 that we had cautioned earlier.

Shanghai (3527.48, −5.15, -0.15%) has dipped slightly today but can find support at 3520-3500. The near-term view is bullish to see 3560-3580 and 3600. A strong break above 3600 is needed to become more bullish for seeing 3800 on the upside and also to negate the danger of falling back to 3400-3300

Sensex (54525.93, −28.73, -0.053%) is still oscillating around 54500. We retain our bullish view of seeing a rise to 56000 as long as the index stays above the 53500-53000 support zone.

Nifty (16282.25, +2.15, +0.013%) tested its support at 16150 and has risen back sharply from there. Our bullish view remains intact for it to break 16350 and see a rise to 16500-16600 in the coming days. As mentioned yesterday, supports are at 16150-16000 and then at 15900-15800.

COMMODITIES

Commodities have risen slightly as Dollar Index has come off a bit but we continue to look for bearishness in Gold and Silver while below 1800 and 24.50 respectively in the medium term. Copper may test 4.40/60 before falling back from there. Support near 4.20 is likely to hold for now. Crude prices may rise for a couple of sessions before falling from there again. Immediate view is to see a sustained corrective upmove for the next few sessions.

Brent (71.58) and WTI (69.36) are both in a corrective upmove and could test 72.50-73 and 70/71 respectively before again falling off from there.

Gold (1751.20) has risen well and needs to sustain a rise above 1750 to be able to rise back to 1800 again. Watch price action near current levels to see if it bounces back to 1800 or falls from here again to test 1700.

Silver (23.41) may attempt to rise slowly over the next 1-2 sessions while Dollar Index dips and allows silver to test 23-23.15.

Copper (4.3885) has risen well and could head towards 4.40/60 if the rise sustains. On the downside 4.20 is likely to hold for the medium term

FOREX

Dollar Index has come off a bit from 93.20 while Euro has risen and could test 1.178-1.18 before falling from there. Aussie and Pound have dipped a bit but may soon bounce back from interim supports. EURJPY remains within 130.50-129/128. USDINR has risen back after trading lower in the NDF markets. While above 74.40, view is bullish else a dip to 74.20 is possible.

Dollar Index (93.18) has fallen from 93.20 and while that holds, a corrective dip to 92.80/70 is possible before again attempting to bounce back.

Euro (1.1741) has bounced back well and could be headed over to 1.1780/1.18. There we will have to keep a close watch to see if the pair manages to rise past 1.18 and moves up or falls lower again.

EURJPY (129.6950) is stable and we would look for a range of 130.50-129/128 to hold for now.

Dollar-Yen (110.36) exactly came off room our expected resistance at 110.80 and has fallen well from there. While 110.80 holds, view is to see a corrective dip that may extend to 110 on the downside.

Aussie (0.7327) has dipped a bit and can test 0.7355 before bouncing.

Pound (1.38044) has dipped a bit but could test 1.39 on the upside before it falls from there back towards 1.38.

USDCNY (6.4755) has fallen further and could test 4.70 before bouncing back towards 6.49/50 in the medium term.

USDINR (74.4375) came down to test 74.14 on the NDF markets overnight but has bounced back without sustaining the fall. While above 74.40, we continue to look for bullishness towards 74.50/60/70 before a decline sets in.

INTEREST RATES

The US Treasury yields have dipped slightly as the US inflation data release showed a slight slowdown in the pace of increase. The US Core CPI rose 4.23% (YoY) in July as against a 4.45% rise seen in June. It will have to be seen if the yields can fall further from here which would then negate the chances of seeing an extended corrective rally. The German Yields continue to hover above their supports which we expect to hold and produce a bounce in the coming weeks. The 5Yr GoI can consolidate in a sideways range before dipping further from here.

The US 2Yr (0.22%), 5Yr (0.80%), 10Yr (1.32%) and the 30Yr (1.99%) Treasury yields have dipped slightly. The intermediate resistances at 1.35% (10Yr) and 2% (30Yr) seems to be holding as of now. However, the 10Yr has to fall below 1.3% decisively to negate the chances of seeing the extended corrective rise to 1.4%-1.45%. Similarly, the 30Yr has to fall below 1.9% to negate the view of seeing 2.1%-2.2% on the upside and resume the broader downtrend from here itself.

The German 2Yr (-0.76%), 5Yr (-0.73%), 10Yr (-0.47%) and 30Yr (-0.01%) yields are still stable above their key supports. We retain our view of seeing a corrective rally from here to -0.30%/-0.25% (10Yr) and 0.10% (30Yr) in the coming weeks and then a fresh fall is possible. Supports at -0.45%/-0.50% (10Yr) and -0.05% (30Yr) are likely to hold for now.

The 5Yr GOI (5.7515%) is attempting to inch higher. A range of 5.73%-5.78% is possible in the near-term. Within this range, the bias is bearish to break below 5.73% and fall to 5.7%-5.69% and then reverse higher again.

A broad decline in the US dollar following a US inflation print that matched consensus highlights market uncertainty around the path of Fed rates. Comments from Evans and Barkin also underscore the rift at the FOMC. The 83 double barrier in USDX coincided with 1.17 support in EURUSD.

US CPI rose 5.4% y/y compared to 5.3% expected on Wednesday, but clearly Mr Market wasn't expecting the same thing as economists. Rather, it was fearful of a higher print that would tip the FOMC towards tapering in September at a quicker pace. Fed tapering is no longer a question of when, but how much. Thus, the Fed could well start reducing asset purchases in Oct or Nov but at a more modest pace than expected.

Instead, the CPI report showed plenty of reasons to believe that prices are cresting. Core CPI was in line at 4.3% y/y and a four-month low of +0.3% m/m.. Gasoline contributed a 41.8% y/y rise but oil prices have steadied in the past two months. If crude stays near $70, that contribution will be 0% in less than a year. Used auto prices have been a talking point in this report and rose 0.2% m/m after three months of at least 7.3% m/m rises. Those will eventually put negative pressure on the headline.

The inflation numbers came shortly after two Fed centrists – Evans and Barkin – pushed back against an earlier taper. Both said they wanted to see a few more months of jobs data. Markets had recently been considering a quicker taper starting in September, but Nov/Dec taper at a slower pace is more likely.

With that, the dollar fell sharply on the report, sinking as much as 50 pips initially. That price action highlights just how tuned-in the market is to inflation and the FOMC. This is undoubtedly a fundamentally-driven market at the moment as these numbers an non-farm payrolls prove.

Key Highlights

• NZD/USD started a fresh increase above the 0.7000 resistance zone.
• A major bullish trend line is forming with support near 0.6995 on the 4-hours chart.
• The US CPI increased 5.4% in July 2021 (YoY), similar to the last reading.
• The UK GDP is likely to increase 4.8% in Q2 2021 (Preliminary) (QoQ).

NZD/USD Technical Analysis

The New Zealand Dollar remained well supported above the 0.6950 zone against the US Dollar. NZD/USD started a fresh increase from the 0.6968 low and climbed above 0.7000.

Looking at the 4-hours chart, the pair settled nicely above the 0.7000 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

There was a break above the 50% Fib retracement level of the key decline from the 0.7088 swing high to 0.6968 low. An immediate resistance on the upside is near the 0.7060 level.

The 76.4% Fib retracement level of the key decline from the 0.7088 swing high to 0.6968 low is also near the 0.7060 level. Any more gains could set the pace for a break above the 0.7088 high. The next key resistance could be 0.7120.

On the downside, the first key support is near 0.7020. The next major support is near the 0.7000 level. There is also a major bullish trend line forming with support near 0.6995 on the same chart. A downside break below the trend line could push the pair towards 0.6950.

Fundamentally, the US Consumer Price Index for July 2021 was released yesterday by the US Bureau of Labor Statistics. The market was looking for an increase of 5.3% compared with the same month a year ago.

The actual result was slightly better, as the US CPI increased 5.4% in July 2021 (YoY). Looking at the monthly change, there was a 0.5% rise, down from the last 0.9%.

Looking at EUR/USD, the pair found support near 1.1700, but it is likely to face hurdles. Besides, GBP/USD is likely to remain strong above 1.3800.

Economic Releases

• UK GDP Q2 2021 (Preliminary) (QoQ) - Forecast +4.8%, versus -1.6% previous.
• US Initial Jobless Claims - Forecast 375K, versus 385K previous.
• US Producer Price Index March 2021 (MoM) – Forecast 0.6%, versus +1.0% previous.
• US Producer Price Index July 2021 (YoY) – Forecast +7.3%, versus +7.3% previous.

Daily Pivots: (S1) 1.1714; (P) 1.1733; (R1) 1.1761; More...

Intraday bias in EUR/USD remains neutral at this point. We'd continue to look for strong support from 1.1602/1703 support zone to bring rebound. On the upside, above 1.1768 minor resistance will turn bias back to the upside for 1.1907 resistance first. However, sustained break of 1.1602 will argue that it's already reversing the trend from 1.1603, and target 61.8% retracement of 1.1603 to 1.2348 at 1.1289.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. Reaction from 1.2555 should reveal underlying long term momentum in the pair. However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again.

The forex markets are generally trading in very tight range in Asian session. While DOW surged to new record high overnight, Asian indexes are just mixed. Dollar started a pull back but there is no clear follow through selling so far. At the same time, commodity currencies are generally stronger for the week, as supported by risk-on sentiment. But there is no breakout yet. The markets are still awaiting inspirations for the next committed move.

Technically, EUR/USD's decline slowed and recovered ahead of 1.16/17 key support zone. The question is whether it could form a base around current level and stage a reversal. Immediate attention in on 1.1768 minor resistance. Break will probably bring stronger rebound back to 1.1907 near term resistance. Such development, if happens, could be an early sign of Dollar weakness elsewhere.

In Asia, at the time of writing, Nikkei is up 0.20%. Hong Kong HSI is down -0.06%. China Shanghai SSE is down -0.12%. Singapore Strait Times is up 0.38%. Japan 10-year JGB yield is down -0.0072 at 0.035. Overnight, DOW rose 0.62%. S&P 500 rose 0.25%. NASDAQ dropped -0.16%. 10-year yield dropped -0.003 to 1.39.

DOW hit new record as up trend enters into acceleration

DOW rose to close at new record high at 35484.97 overnight, up 0.62%. The slight moderation in core CPI in the US seemed to be welcome by investors. The development so far affirmed the view of the "transitory" camp in Fed. While it's still on track for tapering, probably sooner than expected, there is still much room to wait-and-see before eventually raising interest rates, probably late next year.

Technically, the long term up trend in DOW now looks ready to enter into another near term acceleration phase. Outlook will stay bullish as long as this week's low at 35041 holds. Next target is 61.8% projection of 26143.77 to 35091.56 from 33741.76 at 37159.81. We'll see if DOW could hit this level within Q3.

Fed Kaplan: Could announce tapering in Sep, starts in Oct

Dallas Fed President Robert Kaplan said yesterday that if the economy unfolds between now and the September meeting as he expected, " I would be in favor of announcing a plan at the September meeting and beginning tapering in October."

"The reason I'm saying we ought to begin the tapering soon is I think these purchases are very well equipped to stimulate demand. But we don't have a demand problem in the economy," he told CNBC.

"My thought is I'd rather take the foot off the accelerator soon and reduce the RPMs," he added. "What I don't want to do is keeping running at this speed for too long and then we're going to have to take more aggressive action down the road."

Fed George: Time has come to dial back the settings

Kansas City Fed President Esther George said in a speech, "with the recovery underway, a transition from extraordinary monetary policy accommodation to more neutral settings must follow". She added, "today's tight economy… does signal that the time has come to dial back the settings" of monetary stimulus.

"While recognizing that special factors account for much of the current spike in inflation, the expectation of continued strong demand, a recovering labor market, and firm inflation expectations are consistent, in my view, with the Committee's guidance regarding substantial further progress toward its objectives. I support bringing asset purchases to an end under these conditions," she said.

Fitch affirms Japan rating at A with negative outlook

Fitch affirmed Japan's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A' with a "negative" outlook. The ratings "balance the strengths of an advanced and wealthy economy, with correspondingly robust governance standards and public institutions, against weak medium-term growth prospects and very high public debt". The negative outlook reflected "uncertainty about the medium-term macroeconomic and fiscal outlook from the continuing pandemic".

The rating agency expects economic growth of 22.5% in 2021 and 3.0% in 2022. But risks are to the downside, as the ongoing fifth Covid-19 wave may further delay recovery. Inflation is likely to "remain subdued", averaging 0.3% in 2021 and 0.7% in 2022. Fitch also said BoJ is likely to  maintain its current monetary policy settings over the "next few years".

Looking ahead

UK data will take center stage today, with GDP, production and trade balance. Eurozone will release industrial production. Later in the day, US will release PPI and jobless claims.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1714; (P) 1.1733; (R1) 1.1761; More...

Intraday bias in EUR/USD remains neutral at this point. We'd continue to look for strong support from 1.1602/1703 support zone to bring rebound. On the upside, above 1.1768 minor resistance will turn bias back to the upside for 1.1907 resistance first. However, sustained break of 1.1602 will argue that it's already reversing the trend from 1.1603, and target 61.8% retracement of 1.1603 to 1.2348 at 1.1289.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. Reaction from 1.2555 should reveal underlying long term momentum in the pair. However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again.

Economic Indicators Update

Fitch affirmed Japan's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A' with a "negative" outlook. The ratings "balance the strengths of an advanced and wealthy economy, with correspondingly robust governance standards and public institutions, against weak medium-term growth prospects and very high public debt". The negative outlook reflected "uncertainty about the medium-term macroeconomic and fiscal outlook from the continuing pandemic".

The rating agency expects economic growth of 22.5% in 2021 and 3.0% in 2022. But risks are to the downside, as the ongoing fifth Covid-19 wave may further delay recovery. Inflation is likely to "remain subdued", averaging 0.3% in 2021 and 0.7% in 2022. Fitch also said BoJ is likely to  maintain its current monetary policy settings over the "next few years".

Full release here.

DOW rose to close at new record high at 35484.97 overnight, up 0.62%. The slight moderation in core CPI in the US seemed to be welcome by investors. The development so far affirmed the view of the "transitory" camp in Fed. While it's still on track for tapering, probably sooner than expected, there is still much room to wait-and-see before eventually raising interest rates, probably late next year.

Technically, the long term up trend in DOW now looks ready to enter into another near term acceleration phase. Outlook will stay bullish as long as this week's low at 35041 holds. Next target is 61.8% projection of 26143.77 to 35091.56 from 33741.76 at 37159.81. We'll see if DOW could hit this level within Q3.

Dallas Fed President Robert Kaplan said yesterday that if the economy unfolds between now and the September meeting as he expected, "I would be in favor of announcing a plan at the September meeting and beginning tapering in October."

"The reason I'm saying we ought to begin the tapering soon is I think these purchases are very well equipped to stimulate demand. But we don't have a demand problem in the economy," he told CNBC.

"My thought is I'd rather take the foot off the accelerator soon and reduce the RPMs," he added. "What I don't want to do is keeping running at this speed for too long and then we're going to have to take more aggressive action down the road."