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Technical analysis

The EMA(100) is higher than the EMA (50), which is beneficial for bears

The RSI is below 50

The MACD line is below 0 and shows a possible uptrend.

What the possible outcomes are

Yesterday the Fed's official gave a hint about the interest rate hike in 2023. That led to the U.S. dollar strengthening. Thus, the EURUSD pair declined to 1.18360.

In our most likely scenario, EURUSD may experience a downward correction towards the first support level of 1.18170.

If the price passes the first support level, we can expect a continued downtrend towards the second support level of 1.17872.

Conversely, it's possible to see the pair rise towards the first resistance level of 1.18919.

If the pair surpasses the first resistance level, we should expect a continued surge towards the second resistance level of 1.19231.

Key levels

Support 1.18170 1.17872

Resistance 1.18919 1.19231

Technical analysis

The price action surrounding the USDCAD pair looks heavily bearish and large drop below the 1.2500 level could take place anytime.

The Commodity Channel indicator on the four-hour time frame shows that significant bearish price divergence has formed from the 1.2440 level.

What the possible outcomes are

In our most likely scenario, the USDCAD pair will start to decline under the 1.2500 level at any time and potentially fall towards the 1.2250 level.

Alternatively, the USDCAD pair could reach the 1.2570 level one final time and then start to decline towards the 1.2440 support area.

Key levels

Support 1.2440 1.2250

Resistance 1.2570 1.2650

Technical analysis

The GBPUSD pair remains technically bullish on the daily time frame and continues to trade above its 200-day and 50-day moving averages.

The GBPUSD pair looks to be targeting towards the 1.4300 level over the medium-term due to the presence of a large inverted head and shoulders pattern.

What the possible outcomes are

In our most likely scenario, the GBPUSD pair will start to find buying interest below the 1.3900 level and then start to rally towards the 1.4130 resistance level at a minimum.

Alternatively, the GBPUSD could decline towards the 1.3800 level one final time and then stage a weaker than expected rally towards the 1.4000 level.

Key levels

Support 1.3870 1.3800

Resistance 1.4000 1.4130

Technical analysis

The BTCUSD pair has started to trade back above its calculated monthly pivot point, which is located close to the $39,100 level.

The Relative Strength Index indicator on the daily-hour time frame has corrected from overbought conditions and continues to generate a buy signal.

What the possible outcomes are

In our most likely scenario, the BTCUSD pair starts to rally towards its 200-day moving average now that oversold technical indicators, such as the RSI, have had a full reset.

Alternatively, the BTCUSD pair may drop towards the $37,000 support area and then stage a big counter rally towards the $42,700 level.

Key levels

Support $38,000 $37,000

Resistance $42,700 $44,500

Daily Pivots: (S1) 108.91; (P) 109.29; (R1) 109.87; More...

Intraday bias in USD/JPY is turned neutral with current recovery. Some consolidation would be seen first but further decline remains in favor as long as 110.58 resistance holds. On the downside, break of 108.71 will resume the decline from 111.65 to 38.2% retracement of 102.58 to 111.65 at 108.18. Nevertheless, firm break of 110.58 will argue that that corrective fall has completed and bring retest of 111.65.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. Firm break of 107.47 will argue that pattern from 101.18 has started another falling leg already. Deeper decline could be seen back to 101.18/102.58 support zone. For now, outlook won't turn bullish as long as 111.71 resistance holds, even in case of strong rebound.

Overall markets were rather mixed for the moment. Dollar's selloff was quickly choked off by strong ISM services overnight, even though there is no clear follow through buying. Traders are holding off the bets for now, awaiting tomorrow's non-farm payroll figures. Sterling will come to the center of the stage today first, with BoE super Thursday. But barring the situation of drastic surprise in asset purchase voting, the event is unlikely to trigger some sustainable moves.

Technically, development in gold is a clear reflection of indecisiveness in the markets. Another attempt on breaking through 1833.91 resistance failed. Yet, it's still holding on to 4 hour 55 EMA and 1800 handle. At this point, further rise is still in favor and break of 1833.91 would finally resume the rebound from 1750.49 to 61.8% retracement of 1916.30 to 1750.39 at 1852.96. On the downside, firm beak of 1789.42 support is needed to confirm completion of the rebound from 1750.49, in case of any pre- and post-NFP jitters.

In Asia, at the time of writing, Nikkei is trading up 0.44%. Hong Kong HSI is down -0.38%. China Shanghai SSE is down -0.06%. Singapore Strait Times is down -0.36%. Japan 10-year JGB yield is up 0.0046 at 0.009. Overnight, DOW dropped -0.92%. S&P 500 dropped -0.46%. NASDAQ rose 0.13%. 10-year yield rose 0.008 to 1.184.

Fed Kaplan wants tapering soon, but not aggressive on rate

Dallas Fed President Robert Kaplan told Reuters that, "as long as we continue to make progress in July numbers and in August jobs numbers, I think we'd be better off to start adjusting these purchases soon," referring to the QE program.

He added that tapering over a time frame of "plus or minus" about eight months would help give the Fed " as much flexibility as possible to be patient and be flexible on the Fed funds rate."

He emphasized it's "important to divorce discussion of the Fed funds rate from discussion of our purchases." His comments on purchases are not intended to suggest I want to take more aggressive action on the Fed funds rate."

Fed Daly ready for tapering by the end of the year or early next

San Francisco Fed President Mary Daly said in a PBS interview, she didn't expect the Delta variant to "derail recovery" in the US. nevertheless, "it's already very seriously interrupting the recoveries in the global economy," which is a "headwind on US growth.

She's looking for "continued progress in the labor market, continued putting COVID behind us, rising vaccination rates, the things that are so fundamental to us saying that the economy has achieved that metric of substantial further progress."

Right now, her modal outlook is that "we will achieve that metric later this year or early next". And, "we will do something on the asset front, asset purchase tapering, by the end of this year or early next."

Fed Clarida: Will provide advance notice before making any changes to purchases

Fed Vice Chair Richard Clarida said in a speech that "we are clearly a ways away from considering raising interest rates and this is certainly not something on the radar screen right now".

If outlook of inflation and unemployment turn out to be the actual outcomes, the necessary conditions for raising federal funds rate "will have been met by year-end 2022." If inflation remain well anchored at 2%, commencing policy normalization in 2023 would then be "entirely consistent with our new flexible average inflation targeting framework."

As for asset purchases, he said FOMC members expected the economy to continue to move toward the standard of "substantial further progress."

FOMC will asses the progress in coming meetings. He reiterated the pledge that, "we will provide advance notice before making any changes to our purchases."

Australia trade surplus widened to AUD 10.2B in Jun

Australia exports of goods and services rose AUD 1489m (4% mom) to AUD 43.34B in June. Imports of goods and services rose AUD 261 m (1% mom) to AUD 32.84B. Trade surplus widened to AUD 10.50B, from AUD 9.27B, slightly above expectation of AUD 10.20B.

BoE to remain upbeat on outlook, GBP/CHF trading with undertone

No policy change is expected from BoE today. But recent development suggests that policymakers would remain upbeat about the economic outlook. Upgrades in the near-term GDP growth and inflation forecasts are likely. The development to keep Bank Rate unchanged at 0.10% should be unanimous. Yet, the vote on maintaining asset purchase target at GBP 895B would be divided. Michael Saunders and Dave Ramsden could vote for an early end to the program. At the May and June meetings, the now-departed Chief Economist, Andy Haldane, was the only member dissenting to leave the size of QE purchases unchanged.

Suggested readings on BoE:

• BOE Preview – Awaiting Signals to Exit
• BoE Policy Meeting Preview
• BoE Meeting: Neutral, With a Touch of Optimism
• Bank of England Preview: Central Bank To Bide It's Time?
• Research UK – Economic Recovery is Set to Continue

GBP/CHF continues to trade with an undertone for the near term, as recoveries were limited by 55 day EMA. At this point the choppy correction from 1.3070 is still in favor to continue. Break of 1.2498 support would target 1.2259 key resistance turned support next.

Looking ahead

Germany will release factory orders and France will release industrial output in European session. later in the day, US will release Challenger job cuts, trade balance and jobless claims. Canada will release trade balance.

USD/JPY Daily Outlook

Daily Pivots: (S1) 108.91; (P) 109.29; (R1) 109.87; More...

Intraday bias in USD/JPY is turned neutral with current recovery. Some consolidation would be seen first but further decline remains in favor as long as 110.58 resistance holds. On the downside, break of 108.71 will resume the decline from 111.65 to 38.2% retracement of 102.58 to 111.65 at 108.18. Nevertheless, firm break of 110.58 will argue that that corrective fall has completed and bring retest of 111.65.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. Firm break of 107.47 will argue that pattern from 101.18 has started another falling leg already. Deeper decline could be seen back to 101.18/102.58 support zone. For now, outlook won't turn bullish as long as 111.71 resistance holds, even in case of strong rebound.

Economic Indicators Update

Market movers today

• Focus reverts to the Bank of England meeting today. Despite rising inflation and some hawkish comments from MPC members, BoE is expected to keep its benchmark interest rate and its bond-buying target unchanged. Our base case is that BoE will gradually turn more hawkish and end QE this year (perhaps even prematurely), but not hike until H2 22 (see more in Research UK - Economic recovery is set to continue, 30 July).
• Germany will report June data on factory orders which disappointed in May. Despite record highs in manufacturing surveys, supply chain bottlenecks are increasingly weighing on production levels (see Euro Area Macro Monitor - Back in the fast lane, 4 August).

The 60 second overview

Mixed US data: The US private sector ADP employment report for July missed expectations with 330 thousand new jobs (June 692k, Cons. 690k). Leisure and Hospitality sector remains the key driver of employment growth (+139k new jobs). While the weaker-than-expected figure suggests labor shortages are still limiting jobs growth despite large part of states having already ended the extraordinary unemployment benefits, the ADP report has often been a poor predictor of the non-farm payrolls released on Friday. On a more positive note, the US ISM Services index for July reached all-time high levels at 64.1 (June 60.1) driven by rapidly rising business activity (67.0; June 60.4). Unlike the ADP report, both ISM Services and Manufacturing suggested faster jobs growth in July.

Fed speak: Richard Clarida suggested that Fed will likely announce tapering this year and noted that the conditions for a rate hike could be met already by the end of 2022. This is in line with market pricing which currently expects the first rate hike in early 2023.

ECB: ECB's Kazaks suggested that the central bank is unlikely to make decisions about PEPP's future in the September meeting. While he saw further policy support as unlikely under ECB's revised strategy, he noted that the timing of future rate hikes could be pushed further if inflation fails to meet the new symmetric target.

Equities: Another very interesting session yesterday resulted in Europe outperforming US as the shares dropped after both interesting news from the macro and monetary side. Sector performance very mixed with tech somewhat higher and energy sharply lower as the oil price dropped for a third day in a row. Hence, this resulted in the special setting with cyclical growth outperforming defensive value and large cap outperforming small cap. In US Dow -0.9%, S&P 500 -0.5%, Nasdaq +0.1%, Russell 2000 -1.2%. The interesting market moves continuing this morning with a mixed setting in Asian while European are slightly positive together with the us once.

FI: It was a volatile day in the US Treasury market with 10Y US Treasury yield trading between 1.13% and 1.21%. Bunds also dipped below -0.50%, before bouncing back up above -0.50%. The move in the bond yields was driven by different comments from both Federal Reserve and ECB regarding when to begin tapering (the Fed) and when to change the PEPP (ECB).

FX: EUR/USD first jumped to 1.19 and then fell back again on mixed US data and comments from Fed members. EUR/SEK dropped below 10.20, while EUR/NOK held steady close to 10.45.

Credit: Credit continued to exhibit only modest movements yesterday. iTraxx Xover closed ½bp wider (in 236½bp) and Main finished only marginally wider (in 47bp). Both HY and IG cash bonds were unchanged.

General trend

• Equity markets are generally off of the session lows.
• Nikkei has moved modestly higher after the lower open; Companies due to report earnings include Nintendo, Sharp, Shiseido, NTT Data, Yamaha Motor, Suzuki Motor, SUMCO, Japan Display, Kobe Steel, Square Enix.
• Hang Seng has traded flat.
• Shanghai Composite also ended morning trading little changed; the Consumer Staples index rebounded.
• S&P ASX 200 has gained after opening flat [Financials rise; Energy and Resources indices decline].
• RBA Gov Lowe is due to speak on Fri. at the House of Rep. Standing Committee on Economics [11:30 PM GMT].
• RBA is also due to release a quarterly Statement on Monetary Policy (SOMP) on Fri. [1:30 AM GMT].
• Companies due to report during the NY morning include Atlas Air, Arrow Electronics, Bombardier, BCE Inc, Becton Dickinson, Berry Global, Cardinal Health, Cars.com, CIGNA, datadog, Fiverr International, Gildan Activewear, Hanesbrands, Huntington Ingalls, Himax Technologies, Iron Mountain, Kellogg, Moderna, NRG Energy, Penn National Gaming, Parker Hannifin, Party City, Papa Johns, Regeneron, Revlon, SeaWorld, Stratasys, Tenneco, Thomson Reuters, ViacomCBS, ViaSat, Wayfair, DENTSPLY, Zoetis.

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened 0.0%.
• (AU): Australia APRA: Releases response to submissions and final Prudential Standard APS 111 Capital Adequacy: Measurement of Capital: confirms revised APS 111 to come into effect on Jan 1 2022.
• (AU) Australia total weekly payroll jobs change for Jun 19 to July 3rd: -1.0% v +0.4% prior; Wages still not available* v -1.6% last given in June. *Wages estimates have been withdrawn to allow for more complete business reporting and analysis of higher than usual variation in wages over the end of the financial year period.
• NCK.AU Reports FY21 (A$) Net 84.2M v 42.1M y/y; Rev 373.0M v 262.5M y/y.

Japan

• Nikkei 225 opened -0.2%.
• (JP) Japan Investors Net Buying of Foreign Bonds: +¥225.6B v -¥1.08T prior; Foreign Net Buying of Japan Stocks:+ ¥3.2B v -¥58.5B prior.
• (JP) Japan Minister: Confirms Japan considering expanding coronavirus restrictions to 8 additional prefectures.
• (JP) Japan MoF sells ¥200B v ¥200B indicated in 10-yr 0.005% inflation-indexed bonds; highest yield -0.174% v -0.185% prior; bid to cover 2.88x v 3.8x prior (lowest bid to cover since early 2017).
• 6758.JP Reports Q1 Net ¥211.8B v ¥193.6B y/y, Op ¥280.1B v ¥221.7B y/y, Rev ¥2.26T v ¥1.96T y/y; raises FY guidance (yesterday after the close).
• 7267.JP Reports Q1 Net ¥222.5B v -¥80.9B y/y, Op +¥243.2B v -¥113.7B Rev ¥3.58T v ¥2.12T y/y; To repurchase up to ¥70B in shares; Raises FY guidance (yesterday after the close).

Korea

• Kospi opened +0.1%.
• (KR) Bank of Korea (BOK) Member Koh appointed head of FSC in South Korea – Yonhap.

China/Hong Kong

• Hang Seng opened %; Shanghai Composite opened %.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY10B in 7-day reverse repos v CNY10B in 7-day reverse repos prior; Net drain CNY20B v Net CNY0B prior.
• (CN) China PBOC sets Yuan reference rate: 6.4691 v 6.4655 prior.
• (CN) US financial press explores the idea that China export growth will be limited due to logistics issues.
• (CN) China Sec Times: Unnecessary to maintain tax incentives for the gaming sector.
• (CN) China Hangzhou province is said to have increased control on property markets.

Other

• DBS.SG Reports Q2 (S$) Net 1.70B v 1.25B y/y; NII 2.09B v 2.3B y/y, Rev 3.59B v 3.73B y/y.
• (PH) Philippines July CPI Y/Y: 4.0% v 4.0%e (1st time in target range in 7 months).
• (TW) US State Dept approves sales of military equipment to Taiwan in proposed $750M deal.

North America

• (US) Fed's Daly (non-voter, dove): Rise in home prices is a demand-supply issue, will resolve as more supply comes onto the market; Expects temporary spike in inflation through next year.
• ALL Reports Q2 $3.79 v $2.99e, Rev $12.6B v $10.4B y/y.
• COST Reports July total SSS +13.8% (ex-gas).
• MGM Reports Q2 -$0.13 v -$0.36e, Rev $2.3B v $2.16Be.
• FSLY Reports Q2 -$0.15 v -$0.17e, Rev $85.0M v $86.8Me; Says Q2 outage will have an impact on Q3 and FY21 outlooks.

Europe

• (IE) Ireland July PMI Services: 66.6 v 63.1 prior (highest since Aug 2000, 5th consecutive expansion); PMI Composite: 65.0 v 63.4 prior (record high, 5th consecutive expansion).
• (FR) Paris-based, Melanion Capital, launched the first EU-regulated bitcoin tracker - FT.
• (IE) Ireland Fin Min Donohoe: See the likelihood of a global tax deal happening now, more than ever before – press.
• (FR) France to be removed from UK's Amber-plus travel restriction list for the fully vaccinated - UK press.
• (UK) Chancellor of the Exchequer Sunak and PM Johnson calling on UK asset managers to shift more of their capital from short term equity to long term projects - UK press.

Levels as of 01:15ET

• Hang Seng -0.2%; Shanghai Composite +0.2%; Kospi +0.1%; Nikkei225 +0.4%; ASX 200 +0.2%.
• Equity Futures: S&P500 +0.2%; Nasdaq100 +0.1%, Dax +0.2%; FTSE100 +0.0%.
• EUR 1.1840-1.1832; JPY 109.71-109.46; AUD 0.7397-0.7376; NZD 0.7056-0.7039.
• Commodity Futures: Gold -0.1% at $1,813/oz; Crude Oil +0.4% at $68.41/brl; Copper +0.3% at $4.34/lb.

No policy change is expected from BoE today. But recent development suggests that policymakers would remain upbeat about the economic outlook. Upgrades in the near-term GDP growth and inflation forecasts are likely. The development to keep Bank Rate unchanged at 0.10% should be unanimous. Yet, the vote on maintaining asset purchase target at GBP 895B would be divided. Michael Saunders and Dave Ramsden could vote for an early end to the program. At the May and June meetings, the now-departed Chief Economist, Andy Haldane, was the only member dissenting to leave the size of QE purchases unchanged.

Suggested readings on BoE:

• BOE Preview – Awaiting Signals to Exit
• BoE Policy Meeting Preview
• BoE Meeting: Neutral, With a Touch of Optimism
• Bank of England Preview: Central Bank To Bide It's Time?
• Research UK – Economic Recovery is Set to Continue

GBP/CHF continues to trade with an undertone for the near term, as recoveries were limited by 55 day EMA. At this point the choppy correction from 1.3070 is still in favor to continue. Break of 1.2498 support would target 1.2259 key resistance turned support next.

Australia exports of goods and services rose AUD 1489m (4% mom) to AUD 43.34B in June. Imports of goods and services rose AUD 261 m (1% mom) to AUD 32.84B. Trade surplus widened to AUD 10.50B, from AUD 9.27B, slightly above expectation of AUD 10.20B.

Full release here.