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Australia Westpac-MI consumer sentiment dropped -4.4% to 104.1 in August, down from July's 108.8. It's now at the lowest point in a year, but was well above the pandemic trough, and even above the levels over the twelve months prior to the pandemic.

Westpac said: "The virus situation locally is clearly troubling, but consumers appear reasonably confident that it will come back under control, and that once it does, the economy will see a return to robust growth."

Westpac expects RBA to leave policy unchanged at next meeting on September 7. It added, "given its decision to sit pat in August despite a sharp deterioration to the near-term outlook, the hurdle for RBA action looks to be very high". It also maintain the forecast that RBA would start raising the case rate in Q1 of 2023.

Full release here.

Chicago Fed President Charles Evans sounded more cautious than some of his FOMC colleagues in the topic of tapering. He acknowledged that the US is "making progress" and "well on our way" to substantial further progress. But, "I'd like to see a few more employment reports," before making the decision.

"Everybody is wondering about September, November, December, January," as possible dates to start scaling back asset purchases, Evans said. "I don't think that one meeting on either side is going to have an important effect."

"We should not preemptively end a strong improvement in the labor market because somebody is getting nervous about inflation," he said. "I am going to be very regretful if we sort of claim victory on averaging 2% and then find ourselves in 2023 with about a 1.8% inflation rate ... That would be a challenge for our long run framework."

STOCKS

Dow has risen just above 35250 and while that sustains the rise to 36000 that we have been expecting can be seen in the coming days. DAX continues to hover at the upper end of its 15200-15800 range. We expect it to break the range on the upside and rise to 16000-16200. Nikkei can move up within its 27000-29500 range. Shanghai has room to move up and test 3580-3600 in the near-term. Sensex and Nifty continue to consolidate at higher levels. Outlook is bullish to break this consolidation on the upside and see a fresh rise from here.

Dow (35264.67, +162.82, +0.46%) has closed just above 35250. While this sustains the rise to 36000 that we have been expecting can happen in the coming days. Only a fall below 35000 will bring the Dow under pressure. But that looks less likely as seen from the charts. As such our broader bullish view is likely to remain intact.

DAX (15770.71, +25.30, +0.16%) continues to hover below 15800tested 15800. A strong rise past 15800 is needed to see the rise to 16000-16200 that we have been expecting. As mentioned yesterday, a fall below 15600 from here can drag the index down to 15400-15200 again and will keep the 15200-15800 range intact for some more time.

Nikkei (28069.28, +181.13, +0.65%) has risen just above 28000 and keeps intact our view of seeing a rise to 29000-29500 in the near-term. The 27000-29500 range remains intact. A sustained rise above 28000 will reduce the danger of seeing the deeper fall to 26000 that we had cautioned earlier.

Shanghai (3533.43, +3.50, +0.1%) has risen well above 3500 and can now head up towards 3560/3580 and 3600 in line with our expectation. As mentioned yesterday, a strong rise past 3600 is needed to become bullish again and negate the danger of falling back to 3400-3300. Price action at 3600 will need a close watch.

Sensex (54554.66, +151.81, +0.28%) continues to oscillate around 54500 and remains stable. Bullish view of seeing 56000 on the upside remains intact. Key support is in the 53500-53000 region which can limit the downside in case of a fall below 54000.

Nifty (16280.10, +21.85, +0.13%) is stuck between 16200 and 16350 over the last few days. Bias is bullish to see a strong break above 16350 and a rise to 16500-16600. Supports are at 16150-16000 and then at 15900-15800.

COMMODITIES

Crude prices have bounced a bit and could move up some more before falling back while Gold is stable near levels seen yesterday. Gold is bearish while below 1750 and could move back to test 1700 or lower soon. Silver has fallen and could test support near 23, which if breaks can make the price vulnerable to a fall towards 21-20. Copper can rise to 4.40 while support near 4.20 holds well.

Brent (70.66) and WTI (68.31) both have risen as immediate supports near 68 and 66 held respectively. The corrective bounce seen now could take Brent and WTI towards 72.50-73 and 70/71 respectively before again falling back in the medium term.

Gold (1732.60) is almost stable and we may expect a near term trade within 1700-1750/80 before a further decline is seen towards 1680/70 in the longer run. Immediate view is stable to bearish.

Silver (23.29) has dipped further and is headed towards support near 23. A break below 23, if seen is bearish for a fall towards 21-20 in the medium term.

Copper (4.3385) has risen slightly today. We continue to expect support at 4.20 to hold while the price can is slowly move back towards 4.40. a range of 4.40-4.20 can hold for now. Any break below 4.20 can make Copper vulnerable to a sharp fall towards 4.0-3.80 in the longer run.

FOREX

Dollar Index is strongly bullish opening up scope for a fall in Euro towards 1.17-.1.16. EURJPY can test 130.50 before falling off from there. Pound and Aussie look stable to bearish. Dollar Yen has broken above 110.50 and if it does not stop at 110.80/85, it may rise above 111 soon. USDCNY can rise to test 6.49/50 before falling while USDINR can rise towards 74.60/80 while above 74.40. On the downside 74.20/10 is immediate support.

Dollar Index (93.06) is trading above 93 and need to fall back from 93.30 to keep up hopes of a possible fall in the medium term. A rise on the flip side above 93.30 would make it bullish towards 94.0-94.50 in the medium term.

Euro (1.1723) has fallen and could test 1.17. Any break below 1.17 can drag it down to 1.16 before any bounce can be expected. View is strongly bearish.

EURJPY (129.70) has risen and if the rise continues, we may again test 130.0-130.50 before falling off again towards 129 or lower. Watch price action near crucial resistance at 130.50.

Dollar-Yen (110.61) has risen above 110.61 and could test 110.80/85 which may produce a short rejection. Failure to fall from 110.80/85 can take the pair higher towards 111-111.20. View is strongly bullish.

Aussie (0.7344) has risen a bit. While above 0.7320, view is bullish towards 0.7370. A trade of 0.74-0.73 for now looks likely.

Pound (1.3831) has continued to fall on dollar strength. A test of 1.38/37 is likely in the medium term before a bounce is seen.

USDCNY (6.4807) has risen and could head towards 6.49/50 before falling towards 6.45 again in the near term. A broad range of 6.45-6.50 is likely to hold for now unless a sharp break on either side is seen and sustained.

USDINR (74.4250) traded within 74.46-74.33 yesterday. On the upside we have crucial resistances near 74.60 and 74.80 which are likely to hold for the near term producing a fall back towards 74.40/20. While above 74.40, watch for a slow rise towards the respective mentioned resistances.

INTEREST RATES

The US Treasury yields continue to move up in line with our expectations. The 10Yr and 30Yr are at their key intermediate resistances. A rise past these resistances can see the corrective rally extending further in the coming days before resuming the broader downtrend. It will have to be seen if the Consumer Price Index (CPI) inflation data release today can provide the trigger to move up further. The German yields hover above their key supports. We expect a corrective rally from here in the coming weeks before a fresh fall is seen. The 5Yr GoI remains lower and has room to dip further from here and then bounce-back again.

The US 2Yr (0.24%), 5Yr (0.82%), 10Yr (1.35%) and the 30Yr (2%) Treasury yields have moved up further in line with our expectation. The 10Yr and 30Yr are at key levels of 1.35% and 2% respectively. As mentioned yesterday, a sustained rise above these levels can take the yields up to 1.4%-1.45% (10Yr) and 2.1%-2.2% in the coming days. Thereafter a fresh fall can be seen to resume the broader downtrend.

The German 2Yr (-0.75%), 5Yr (-0.73%), 10Yr (-0.46%) and 30Yr (-0.01%) yields continue to trade stable above their key supports. Our view remains the same. We expect the support at -0.45%/-0.40% (10Yr) and -0.05% (30Yr) to hold. A corrective rally to -0.30%/-0.25% (10Yr) and 0.10% (30Yr) in the coming weeks. Thereafter a fresh fall is possible.

The Indian 5Yr GoI (5.7421%) continues to trade lower and keeps intact our view of testing 5.7%-5.69% on the downside in the near-term. Thereafter a fresh bounce to 5.74% and even 5.78% is possible.

Key Highlights

• Gold price started a major decline after it failed to surpass $1,830.
• It traded below a major contracting triangle with support near $1,785 on the daily chart.
• EUR/USD extended its decline below the 1.1740 support zone.
• The US Consumer Price Index could increase 5.3% in July 2021 (YoY).

Gold Price Technical Analysis

Gold price struggled to clear the $1,830 resistance against the US Dollar. As a result, there was a sharp bearish reaction and the price tumbled below $1,800.

The daily chart of XAU/USD indicates that the price nosedived below a major contracting triangle with support near $1,785. There was a clear break below the $1,750 support zone.

The price even settled below $1,750, 100-day simple moving average (red), and the 200-day simple moving average (green). Finally, there was a spike below the $1,700 support, but the bulls were active above the main $1,675 support.

A low was formed near $1,678 before there was a recovery wave. The price is now struggling to recover above $1,750 and it might resume its decline.

On the downside, the $1,680 and $1,675 levels are important. A close below $1,675 could spark another major decline. The next major support might be $1,620.

Looking at EUR/USD, the pair remained in a bearish zone and it broke the 1.1740 support. Conversely, USD/JPY climbed further above the 110.20 resistance zone.

Economic Releases to Watch Today

• German Consumer Price Index for July 2021 (YoY) – Forecast +3.8%, versus +3.8% previous.
• German Consumer Price Index for July 2021 (MoM) – Forecast +0.9%, versus +0.9% previous.
• US Consumer Price Index for July 2021 (MoM) – Forecast +0.5%, versus +0.9% previous.
• US Consumer Price Index for July 2021 (YoY) – Forecast +5.3%, versus +5.4% previous.
• US Consumer Price Index Ex Food & Energy for July 2021 (YoY) – Forecast +4.3%, versus +4.5% previous.

Short Term Elliott Wave view in Dollar Index (DXY) suggests that the rally from May 26, 2021 low is unfolding as a zigzag Elliott Wave structure. Up from May 26, wave (A) ended at 93.19 and pullback in wave (B) ended at 91.78. Wave (C) is currently in progress as a 5 waves impulse but the Index still needs to break above wave (A) at 93.19 to confirm.

Up from wave (B), wave ((i)) ended at 92.2 and pullback in wave ((ii)) ended at 91.81. Index then resumes higher again in wave ((iii)). Up from wave ((ii)) low, wave (i) ended at 92.35 and pullback in wave (ii) ended at 92.1. Wave (iii) ended at 92.92, wave (iv) ended at 92.71, and wave (v) of ((iii)) is expected to end soon. Index should then pullback in wave ((iv)) before turning higher 1 more time in wave ((v)). This should complete wave 1 in higher degree. Afterwards, expect the Index to pullback in wave 2 to correct cycle from July 30 low before it resumes higher. Near term, as far as pivot at 91.78 low remains intact, expect dips to find support in 3, 7, or 11 swing for further upside.

DXY 60 Minutes Elliott Wave Chart

Recent price action in gold, bonds and the US dollar on Monday underscores a shift at the Fed towards an earlier taper. USD lost ground today against most commodity currencies, with CAD, AUD and NZD the strongest while CHF, JPY and EUR lag behind as yields soar. US 10 year yield post their 5th straight daily gain, appearing to eyere their next key target at 1.40% ahead of Wednesday's US CPI. Chicago Fed president Charles Evans, a notable Fed dove speaks today. The Premium trade long EURCAD was stopped out at 1.47 and will be re-assessed later this week.

Monday's JOLTS data underscored Friday's strong non-farm payrolls report. It pegged June job openings at a record 10.07 million compared to 9.28M expected. The quits rate also climbed to 2.7% from 2.5%. The abundance of jobs available indicates that payrolls will stay strong in the months ahead.

Also on Monday, the Fed's Bostic said another month or two of strong jobs data would be enough for him to start a taper. He also echoed Bullard in saying the taper should be faster than after the financial crisis.

The hawkish shift continues to reverberate in the market. It contributed to Monday's flash crash in precious metals and it's keeping a bid in the dollar and selling in bonds. At the same time, the declines Monday in oil and other commodities show the market is keeping a close eye on delta risks. China in particularly will eventually need to shift away from its strategy of total suppression towards living with the virus. That could be a messy process.

Looking ahead, the commentary regarding tapering has been centered around known doves: Bullard, Kaplan and Waller predominantly. The dots and Powell's comments suggest that's still a minority but on Tuesday evening, we'll hear from Chicago Fed president Evans. He often aligns himself with the core of the FOMC and a shift from him would be a strong hint that Powell will tee-up a September taper announcement at Jackson Hole on Aug 26.

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Gold trading is slim after Monday’s sharp selloff. Despite concerns over the delta variant, the precious metals lost their safe haven appeal as speculations over Fed’s early tapering escalated after the strong nonfarm payolls data. The front-month Comex gold contract slumped to a 4-month low of 1677.9 before settling at 1726.5 on Monday. The yellow metal has dropped -5% since the beginning of the year and -9.4% year-to-date. Similarly, the silver contract plunged to the lowest level in more than 1 year before rebound. Fed’s monetary policy outlook remains under the spotlight and is expected to move both the FX and commodity markets. The next key events are the FOMC minutes due on August 18 and the Jackson Hold symposium on August 26-28.

The boost of gold price brought about by the disappointing ADP job data proved very short-lived. A reversal was, however, severe after Friday’s strong official employment report. The relationship between US’ job market and gold price is linked by expectations about Fed’s tapering and Treasury yields.

Nonfarm payrolls increased +943K in July, following an upwardly revised +938K gain a month ago. This beat consensus of a +870K addition. The unemployment rate slipped -0.5 ppt to 5.4% although the participation rate edged +0.1 ppt higher to 61.7%. This came in better than consensus of 5.7% and June’s 5.9%. The strong employment report has raised speculations that the Fed could speed up QE tapering. Ahead of the report, Fed Vice Chairman Richard Clarida noted that he’s in favor of the Fed announcing about QE tapering later this year, followed by a rate hike in 2023. Meanwhile, Fed President Kaplan has again urged that the central bank should begin tapering sooner rather than later. At the July FOMC meeting, policymakers acknowledged that “the economy has made progress toward” the “maximum employment and price stability goals”. Chair Jerome Powell again affirmed that the Committee has been discussing about tapering. Attention now turns to the FOMC minutes (due to be released on August 18) which would probably reveal more details about the debate. More information about policy changes will then be revealed at the Jackson Hole symposium in late August, followed by the September meeting.

The strong employment report nonetheless has raised hopes that tapering could be announced soon. Such sentiment is reflected in rising Treasury yields. The charts below show that Treasury yields with maturities from two to thirty years climbed higher after the report.

Higher yields are often linked to lower gold price. Meanwhile, the strong negative correlation between gold price and real yield (as represented by inflation-linked bond yield)is also back on track. In the coming months, we expect the movement of gold price will continue to be directed by Treasury yields, which, in turn, will be driven by tapering speculations.

Markets:

The sell-off in US Treasuries which started in the second half of last week, stopped today. US yields shed up to 1.5 bps (30-yr) in a daily basis. Technically, the US 10-yr yield trades just above first resistance at 1.32%, up from 1.12% last week (test of July low). The upcoming US mid-month refinancing operation, a slew of Fed speakers and a fresh US CPI print all suggest more weakness for Treasuries ahead. The supply operation starts tonight with 3-yr Notes, but culminates into probably tougher 10yr Note and 30-yr Bond deals on Wednesday and on Thursday. Headline CPI is expected to stabilize around 5.3% Y/Y in July. Last month’s figure barely impacted trading in the context on the ongoing bull run. This time could be different though since sentiment towards bonds made a turn for the worse after last week’s very strong non-manufacturing ISM and payrolls. The combination of high inflation and an improving labour markets provided fresh ammo for (hawkish) Fed governors lurking at the September meeting to announce the start of slowing down net asset purchases which are currently still running at a monthly pace of $120bn ($80bn of which are US Treasuries). Cleveland Fed Mester will later today surely join the chorus of Atlanta Fed Bostic and Boston Fed Rosengren yesterday when she discusses inflation risks. The dollar remains in control in FX space. EUR/USD yesterday closed below the July low of 1.1752 and is currently drifting towards the year-to-date low of 1.1704. A test is unavoidable but chances on a break lower increasing if weakness in US Treasuries effectively persists. The tradeweighted greenback (DXY) currently tests the July top of 93.19 with the YTD high standing at 93.44. Sterling today rose to its strongest level against the single currency since March last year (EUR/GBP 0.8460). Next strong support (2019/2020 low) stands at 0.8277/0.8282. The same drivers are currently at work as in EUR/USD. Both the BoE and the Fed embraced or are near embracing the need for some gentle policy normalization in order to sustainably achieve policy goals whereas the ECB remains on the side-lines.

News Headlines:

Czech inflation surged more than expected in July, by 1% M/M and 3.4% Y/Y. The yearly reading matched the highest in over a year, up from 2.8% Y/Y in June and beating 2.9% Y/Y consensus. The Czech National Bank last week raised its repurchase rate for a second straight meeting by 25 bps to 0.75%. The biggest influence on Y/Y price growth came for the third consecutive month from prices in transport, where prices of fuels and lubricants for personal transport equipment increased by 18.5%. Next in the order of influence were prices in 'alcoholic beverages and tobacco. Prices of electricity decreased by 3.4% and natural gas by 4.7%. Prices of goods in total and services went up by 2.9% and 3.9% respectively. The Czech Koruna briefly spiked higher on the release, but couldn’t hold to gains. EUR/CZK currently trades near opening levels of 25.36.

Hungarian inflation slowed more than forecast in July, rising by 0.5% M/M and by 4.6% Y/Y, but down from 5.3% Y/Y in June and below 4.8% Y/Y consensus. Inflation is still above the 1% tolerance band around the MNB’s 3% inflation target. Food prices rose by 3.1% Y/Y while alcoholic beverages and tobacco prices are up 11.1% on average. Consumer durables and services are up 3.8% Y/Y and 2.9% Y/Y respectively. The Hungarian central bank already raised its base rate two consecutive times by 30 bps (currently 1.2%) and meets next on 24. August  The forint trades a tad stronger in a daily perspective at EUR/HUF 352.50.

German ZEW expectations fell for a third month in a row in August (from 63.3 to 40.4 vs 55 expected). ZEW President Wambach says that it points to increasing risks for the German economy, such as from a possible fourth COVID-19 wave starting in autumn or a slowdown in growth in China. The persistent improvement in the current assessment (29.3 in August from 21.9 vs 31 expected) adds to weakening expectations because of higher growth already achieved.

Daily Pivots: (S1) 1.0772; (P) 1.0788; (R1) 1.0821; More....

EUR/CHF's break of 1.0802 resistance suggests short term bottoming at 1.0715, on bullish convergence condition in 4 hour MACD. Intraday bias is back on the upside for 38.2% retracement of 1.1149 to 1.0715 at 1.0881. On the downside, break of 1.0765 minor support will turn bias back to the downside for retesting 1.0715 low instead.

In the bigger picture, rebound from 1.0505 (2020 low) should have completed at 1.1149 already. The three wave corrective structure argues that the downtrend from 1.2004 (2018 high) is not over yet. Medium term outlook will now stay bearish as long as 1.1149 resistance holds. Break of 1.0505 low would be seen at a later stage.