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Daily Pivots: (S1) 0.7380; (P) 0.7398; (R1) 0.7420; More...

Intraday bias in AUD/USD remains neutral as consolidation from 0.7288 is in progress. Near term outlook stays bearish with 0.7443 support turned resistance intact, and further decline is in favor. On the downside, break of 0.7288 will resume the whole fall from 0.8006 and target 161.8% projection of 0.8006 to 0.7530 from 0.7890 at 0.7120 next. On the upside, break of 0.7443 will bring stronger rebound to 0.7530 support turned resistance instead.

In the bigger picture, rise from 0.5506 medium term bottom could have completed at 0.8006, after failing 0.8135 key resistance. Correction from there could target 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051). We'd look for strong support from there to bring rebound. However, sustained break of this level would argue that the whole medium term trend has indeed reversed.

Dollar is trying to extend this week's recovery in Asian session, as focus turns to non-farm payrolls reports. Whether Fed would start tapering asset purchases by the end of the year, or earlier, would very much depend on the job data in Q3. Elsewhere, Aussie is trading a touch softer after dovish comments from RBA governor. Swiss Franc and Yen also turned softer as US stocks made new record high overnight.

Technically, to judge Dollar's underlying strength, we'd prefer to see firm break of 110.58 resistance in USD/JPY, 0.9116 resistance in USD/CHF, and to a lesser extent 1.2605 resistance in USD/CAD (which could be affected by Canadian job data too). Additionally, we'd also prefer to see break of 1789.42 support in gold to indicate completion of rebound from 1750.49, to double confirm Dollar buying.

In Asia, at the time of writing, Nikkei is up 0.33%. Hong Kong HSI is down -0.01%. China Shanghai SSE is down -0.48%. Singapore Strait Times is up 0.14%. Japan 10-year JGB yield is up 0.006 at 0.019. Overnight, DOW rose 0.78%. S&P 500 rose 0.60%. NASDAQ rose 0.78%. 10-year yield rose 0.033 to 1.217.

RBA Lowe: Fiscal support more appropriate response to temporary and localized hit to income

RBA Governor Philip Lowe said in a testimony that he didn't rule out a recession due to restrictions, but still expecting a return to strong growth next year. "Any additional bond purchases would have their maximum effect at that time and only a very small effect right now when the extra support is needed most," he added. For now, fiscal policy is "the more appropriate instrument for providing support in response to a temporary and localized hit to income."

Regarding inflation, Lowe said much of this discussion has come out of the US, which was in a "substantially different position to the one we're in." In Australia, "the fact that wages growth is likely to remain below 3 per cent for the next couple of years means it's very difficult for me to see us having an inflation problem."

In the Statement on Monetary Policy, RBA downgraded 2021 year-average GDP growth forecast from 5.25% to 4.75%, but upgraded 2022 from 4% to 5%. GDP growth would then slow to 2.75% in 2023. Inflation is projected to be at 2.25% in December 2021 (upgraded from 1.75%), 1.75% in December 2022 (up from 1.50%), and then 2.25% in 2023 year-end. Unemployment rate is projected to be at 5% by 2021 year end, then gradually fall to 4% by 2023 year-end.

Australia AiG services dropped to 51.7, but employment holding up

Australia AiG Performance of Services dropped sharply by -6.1 pts to 51.7 in July. That's the largest monthly decline since April 2020. Looking at some details, sales dropped -12.9 to 53.2. Employment dropped -3.2 to 51.0. New orders rose 0.1 to 56.7. Supplier deliveries dropped -9.6 to 45.3. Input prices rose 8.7 to 74.1. Selling prices rose 13.2 to 66.7. Average wages rose 2.0 to 68.0.

Ai Group Chief Executive, Innes Willox, said: "The substantial easing in the performance of the Australian services sector in July was mainly driven by the COVID-19 outbreaks and associated restrictions.... There were some encouraging signs with employment and sales holding up and new orders coming in at a faster pace than in June. This provides some grounds to expect the services sector could bounce back quickly if restrictions were able to be lifted. However, with COVID-19 infections and restricted areas on the rise in the early days of August, the chances of an early rebound appear to be fading."

Fed Waller: Could pull back on accommodation sooner than others think

Fed Governor Christopher Waller said yesterday that his outlook is very much that the economy is "going to recovery". And, "we will be able to pull back on accommodative monetary policy potentially sooner than others think."

He repeated his "high hopes" for July and August job numbers, and expected the labor market to recover 85% of pandemic job loss by September. Fed could start to taper asset purchases in October if these two reports show 800k to 1m job growth each.

"My base case is that the inflation we're seeing is somewhat transitory, that there will be some relief in the fourth quarter of this year on price pressures," Waller added.

Fed Kashkari: The wrinkle now is Delta

Minneapolis Fed President Neel Kashkari said yesterday, "if we see a very strong labor market this fall, the way I've been expecting, then I think we could say we probably have made 'substantial further progress.'"

However, the "wrinkle, now, is Delta". He added, "if Delta causes the labor market to heal much more slowly, then that's going cause me to step back"

"It's so frustrating for all of us that the Delta variant is surging the way that it is," Kashkari said. "I was cautiously optimistic a month ago that it seemed like we had the light at the end of the tunnel ... and could return to normal."

S&P 500 hit new record as focus turns to NFP

S&P 500 and NASDAQ jumped to close at record highs overnight as focuses now turn to non-farm payroll report. Markets are expecting 900k jobs growth in July while unemployment rate would fall from 5.9% to 5.7%.

Looking at related data, ISM manufacturing employment rose 3 pts to 52.9. ISM services employment also rose 4.5 pts to 53.8. Four-week moving average of initial claims was relatively unchanged at 394k. However, ADP private job growth was a big miss at 330k growth only. There is risk of a big surprise in the NFP print.

S&P 500 is losing some upside momentum as seen in daily MACD. But there is little to worry about the medium term up trend. It's staying well above rising 55 day EMA, inside the rising channel. Some jitters might be seen in response to today's NFP. But SPX should still be on track to 100% projection of 2191.86 to 3588.11 from 3233.94 at 4625.94, as long as 55 day EMA holds.

Elsewhere

Japan labor cash earnings dropped -1.0% yoy in June versus expectation of 1.2% yoy. Households spending dropped -5.1% yoy versus expectation of 0.1% yoy.

Germany industrial production, France trade balance, Italy industrial output and Swiss foreign currency reserves will be featured in European session.

Later in the day, Canada will also release job data and Ivey PMI, alongside US non-farm payrolls.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7380; (P) 0.7398; (R1) 0.7420; More...

Intraday bias in AUD/USD remains neutral as consolidation from 0.7288 is in progress. Near term outlook stays bearish with 0.7443 support turned resistance intact, and further decline is in favor. On the downside, break of 0.7288 will resume the whole fall from 0.8006 and target 161.8% projection of 0.8006 to 0.7530 from 0.7890 at 0.7120 next. On the upside, break of 0.7443 will bring stronger rebound to 0.7530 support turned resistance instead.

In the bigger picture, rise from 0.5506 medium term bottom could have completed at 0.8006, after failing 0.8135 key resistance. Correction from there could target 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051). We'd look for strong support from there to bring rebound. However, sustained break of this level would argue that the whole medium term trend has indeed reversed.

Economic Indicators Update

STOCKS

Dow hovers around 35000. The US NFP data release today could be key in deciding whether the Dow can rise past 35250 or will fall back to 34250-34000 and keep the sideways range intact for some more time. DAX is moving up towards the upper end of its 15200-15800 range. We expect the range to break on the upside. Nikkei is managing to hold above 27500 but needs to break above 28000 to move up towards the upper end of its 27000-29500 range. Shanghai seems to be lacking strength to move up and looks likely to fall back. Need to watch closely. Sensex and Nifty sustained higher and stable yesterday. The outlook remains bullish to see further rise from here.

Dow (35064.25, +271.58, +0.78%) has bounced-back again towards 35000. We need to wait and watch to see how it closes today after the NFP data release. Our broader view remains bullish to see a break above 35250 and a rise to 36000. In case if 35250 continues to hold, a dip to 34250-34000 is possible and the broader 33000-35250 range will continue to remain intact.

DAX (15744.67, +52.54, +0.33%) has moved up and is coming to the upper end of its 15200-15800 range. We retain our bullish bias to see an upside break above 15800 and a rise to 16000-16200. Inability to breach 15800 can continue to keep the index in the 15200-15800 range for some more time.

Nikkei (27751.59, +23.47, +0.09%) continues to trade stable above 27500. We reiterate that a strong rise past 28000 is needed to move up towards 29000-29500. It will also negate the danger of seeing a break below 27000 and the fall to 26000. As mentioned yesterday, the 27000-29500 range remains intact for now.

Shanghai (3452.17, −14.37, -0.41%) has come-off today and seems to lack strength to rise towards 3500-3550. A fall below 3440 from here can drag it back to 3400-3350 again. It will also keep the danger alive of seeing a deeper fall to 3200 that we have been cautioning for some time. We will have to wait and watch.

Sensex (54492.84, +123.07, +0.23%) oscillated around 54500 yesterday and sustains higher. The broader view is bullish to see 56000 on the upside while the index remains above the 53500-53000 support zone.

Nifty (16294.60, +35.80, +0.22%) is bullish to see 16500-16600 on the upside. A sustained break above 16300 can accelerate the rally. Strong support will be in the 16000-15900 region.

COMMODITIES

Crude prices have bounced back from lows seen yesterday and could see a short corrective upmove in the near term before again falling back to lower levels. Gold and Silver have dipped and while the Dollar continues to strengthen, Gold could fall towards 1780 and Silver could dip to 25 before rising again. Copper may test 4.20 before bouncing back towards 4.40/50 again. Overall commodities except Crude could remain bearish while Dollar Index rises towards 92.50-93.00 (refer to FOREX section below)

Brent (71.36) tested 69.75 yesterday and has bounced back well. We may expect a rise to 73-74 in the near term. WTI (69.16) on the other hand has support near 67 which when holds can see a bounce to 70-71 before again falling in the medium term.

Gold (1802.80) has fallen on dollar strength and while the Dollar Index is headed towards 92.50-93.0, Gold can fall below 1800 to test 1780 soon. Immediate view would be bearish on a break below 1800.

Silver (25.13) tested 25.53 but fell back from there. We may expect narrow ranged movement between 25-26 for the near term.

Copper (4.3485) can fall towards 4.20 on a break below 4.30. Support is seen at 4.20 from where a bounce looks possible in the medium term back towards 4.50.

FOREX

Dollar Index is headed towards 92.50-93.0 in the near term while Euro can test 1.18 before bouncing back to higher levels. EURJPY can remain ranged within 129-130.50. Aussie can rise towards 0.7450-0.75 while Pound can be ranged within 1.3950-1.3870. USDJPY can rise towards 110.0-110.50 before again falling back towards 109.50-109.00 in the medium term. USDCNY is likely to be ranged within 6.45-6.47 while USDINR may remain above 74 today with upside likely to be seen near 74.30/40.

Dollar Index (92.3470) is rising and could be headed towards 92.50 initially which if holds could produce a rejection towards 92 again. On a break above 92.50, we would watch 93.0-93.30 on the upside which is an important resistance.

Euro (1.1824) has dipped below 1.1850 and could now be headed towards support at 1.18 before a bounce is seen again.

EURJPY (129.93) has bounced from 129.13 this week and can rise towards the upper end of the 129-130.50 zone. The mentioned range is expected to hold for now and it would be important to watch if the cross manages to break above 130.50 in the near term. Immediate view is to see a rise to 130.50.

Dollar-Yen (109.86) has been rising sharply since the last 3-sessions boosted by a strong Dollar and could be headed towards 110-110.50 in the near term before again falling back towards 109.50-109 in the medium term.

Aussie (0.7386) seems to be slowly inching up and could head towards 0.7450 in the coming 1-2 weeks. 0.7450-0.75 is a resistance zone that could hold in the near term.

Pound (1.3916) is likely to hold below 1.3950 and range within 1.3950-1.3870 for the next couple of sessions.

USDCNY (6.4654) is likely to be ranged within 6.45-6.47 for the near term. A break above 6.47 is needed for the pair to rise back towards 6.49/50 again.

USDINR (74.17) can re-test 74.10-74.00 today but is likely to hold above 74 and bounce back towards 74.30/40. Watch RBI policy rate statement today.

INTEREST RATES

The US Treasury yields have risen across tenors. Our view of seeing a corrective rise remains intact. Will the US Non-Farm Payroll (NFP) data release today provide a trigger for the yields to rise further from here? We will have to wait and watch. The German yields are at their key supports. We expect them to see a corrective rally from here before resuming the overall downtrend. The 10Yr GOI has come-off sharply as expected amid muted trading. The 5Yr GoI also has room to move down further from here to test its key support. The Reserve Bank of India’s monetary policy decision is due today.

The US 2Yr (0.20%), 5Yr (0.74%), 10Yr (1.23%) and the 30Yr (1.87%) Treasury yields have risen across tenors. Our view of seeing a corrective rise remains intact. The 10Yr can test 1.3% while it sustains above 1.2% and can extend the upside to 1.45% on a break above 1.3%. The 30Yr can rise to 2% initially on a break above 1.9% and then can even extend up to 2.1%-2.2% thereafter on a break above 2%. Supports are at 1.15%-1.1% (10Yr) and 1.8% (30Yr).

The German 2Yr (-0.78%), 5Yr (-0.77%), 10Yr (-0.50%) and 30Yr (-0.05%) yields are at their key supports. As mentioned yesterday, we expect the yields to see a corrective bounce to -0.30%/-0.25% (10Yr) and 0.10% (30Yr) either from current levels itself or after another 5-10 bps dip. Thereafter a fresh fall can be seen again to keep the broader downtrend intact.

The 10Yr GoI (6.2258%)has come down sharply and keeps our bearish view intact of testing 6.2%-6.1% on the downside. Trading continues to remain muted. The 5Yr GoI (5.7115%) has also come down and can test 5.7%-5.68% as mentioned yesterday. While 5.68%, a fresh rise above 5.7% cannot be ruled out. The price action at 5.68% will need a close watch.

Key Highlights

• USD/JPY started a decent recovery from the 108.72 low.
• It broke a key bearish trend line at 109.35 on the 4-hours chart.
• EUR/USD trimmed gains after it failed to surpass the 1.1900 resistance.
• The US nonfarm payrolls could increase from 850K to 870K in July 2021.

USD/JPY Technical Analysis

The US Dollar extended its decline below 109.00 before it found support against the Japanese Yen. USD/JPY traded as low as 108.72 before it started a decent recovery.

Looking at the 4-hours chart, the pair recovered above the 109.00 and 109.20 resistance levels. There was also a break above a key bearish trend line at 109.35. The pair surpassed the 109.40 resistance level.

There was a break above the 50% Fib retracement level of the key decline from the 110.85 swing high to 108.72 low. An immediate resistance on the upside is near the 109.90 level and the 100 simple moving average (red, 4-hours).

The 61.8% Fib retracement level of the key decline from the 110.85 swing high to 108.72 low is also near 109.87. Any more gains could set the pace for a move towards the 110.50 and 110.65 levels.

If not, there is a risk of a fresh decline below 109.30. The next key support is near 109.00, below which the pair could decline towards the 108.50 level.

Looking at EUR/USD, the pair made another attempt to clear the 1.1900 resistance, but it failed. Similarly, GBP/USD is facing a strong resistance near the 1.4000 zone.

Economic Releases

• US nonfarm payrolls for July 2021 – Forecast 870K, versus 850K previous.
• US Unemployment Rate for July 2021 - Forecast 5.7%, versus 5.9% previous.
• Canada’s employment Change payrolls for July 2021 – Forecast 177.5K, versus 230.7K previous.
• Canada’s Unemployment Rate for July 2021 - Forecast 7.4%, versus 7.8% previous.

S&P 500 and NASDAQ jumped to close at record highs overnight as focuses now turn to non-farm payroll report. Markets are expecting 900k jobs growth in July while unemployment rate would fall from 5.9% to 5.7%.

Looking at related data, ISM manufacturing employment rose 3 pts to 52.9. ISM services employment also rose 4.5 pts to 53.8. Four-week moving average of initial claims was relatively unchanged at 394k. However, ADP private job growth was a big miss at 330k growth only. There is risk of a big surprise in the NFP print.

S&P 500 is losing some upside momentum as seen in daily MACD. But there is little to worry about the medium term up trend. It's staying well above rising 55 day EMA, inside the rising channel. Some jitters might be seen in response to today's NFP. But SPX should still be on track to 100% projection of 2191.86 to 3588.11 from 3233.94 at 4625.94, as long as 55 day EMA holds.

RBA Governor Philip Lowe said in a testimony that he didn't rule out a recession due to restrictions, but still expecting a return to strong growth next year. "Any additional bond purchases would have their maximum effect at that time and only a very small effect right now when the extra support is needed most," he added. For now, fiscal policy is "the more appropriate instrument for providing support in response to a temporary and localised hit to income."

Regarding inflation, Lowe said much of this discussion has come out of the US, which was in a "substantially different position to the one we're in." In Australia, "the fact that wages growth is likely to remain below 3 per cent for the next couple of years means it's very difficult for me to see us having an inflation problem."

In the Statement on Monetary Policy, RBA downgraded 2021 year-average GDP growth forecast from 5.25% to 4.75%, but upgraded 2022 from 4% to 5%. GDP growth would then slow to 2.75% in 2023. Inflation is projected to be at 2.25% in December 2021 (upgraded from 1.75%), 1.75% in December 2022 (up from 1.50%), and then 2.25% in 2023 year-end. Unemployment rate is projected to be at 5% by 2021 year end, then gradually fall to 4% by 2023 year-end.

Full RBA SoMP.

Australia AiG Performance of Services dropped sharply by -6.1 pts to 51.7 in July. That's the largest monthly decline since April 2020. Looking at some details, sales dropped -12.9 to 53.2. Employment dropped -3.2 to 51.0. New orders rose 0.1 to 56.7. Supplier deliveries dropped -9.6 to 45.3. Input prices rose 8.7 to 74.1. Selling prices rose 13.2 to 66.7. Average wages rose 2.0 to 68.0.

Ai Group Chief Executive, Innes Willox, said: "The substantial easing in the performance of the Australian services sector in July was mainly driven by the COVID-19 outbreaks and associated restrictions.... There were some encouraging signs with employment and sales holding up and new orders coming in at a faster pace than in June. This provides some grounds to expect the services sector could bounce back quickly if restrictions were able to be lifted. However, with COVID-19 infections and restricted areas on the rise in the early days of August, the chances of an early rebound appear to be fading."

Full release here.

Minneapolis Fed President Neel Kashkari said yesterday, "if we see a very strong labor market this fall, the way I've been expecting, then I think we could say we probably have made 'substantial further progress.'"

However, the "wrinkle, now, is Delta". He added, "if Delta causes the labor market to heal much more slowly, then that's going cause me to step back"

"It's so frustrating for all of us that the Delta variant is surging the way that it is," Kashkari said. "I was cautiously optimistic a month ago that it seemed like we had the light at the end of the tunnel ... and could return to normal."

Fed Governor Christopher Waller said yesterday that his outlook is very much that the economy is "going to recovery". And, "we will be able to pull back on accommodative monetary policy potentially sooner than others think."

He repeated his "high hopes" for July and August job numbers, and expected the labor market to recover 85% of pandemic job loss by September. Fed could start to taper asset purchases in October if these two reports show 800k to 1m job growth each.

"My base case is that the inflation we're seeing is somewhat transitory, that there will be some relief in the fourth quarter of this year on price pressures," Waller added.

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